Today's Headlines

Bloomberg:

• Europe Is Said to Face IMF Doubts on Greek Financial Aid Without Debt Cut. European finance ministers are concerned that the International Monetary Fund will curb its share of a Greek rescue of as much as 115 billion euros ($163 billion) unless the plan includes deep cuts in Greece’s debt burden, two people with knowledge of the talks said. A program that fails to generate a sustainable reduction in Europe’s biggest debt load may require governments to finance a bigger share of the three-year lifeline, said the people, who declined to be named because the talks are in progress. The IMF has provided one third of the three previous euro bailouts, including Greece’s in 2010. Doubts over the IMF’s role represent an added obstacle in the effort by policy makers to stem a crisis that spread to Italy this week, increasing the urgency for a solution as yields soared to euro-era records in the most debt-laden nations. “European policy makers still misunderstand market dynamics,” Royal Bank of Scotland Group Plc (RBS) economists led by London-based Jacques Cailloux said in a research note. “We expect the crisis to continue deteriorating and threaten the entire euro area.”
• Italian Banks Face Higher Borrowing Costs as Debt Crisis Enters New Phase. Italian banks, saddled with the nation’s record borrowing costs, may struggle to reverse a drop in profitability that’s already turned UniCredit SpA (UCG) and Intesa Sanpaolo SpA (ISP) into European laggards. Italy’s two biggest lenders have about 55.4 billion euros ($78.4 billion) of debt maturing in 2012, according to the banks. Investor concern that the sovereign debt crisis is spilling over to Italy, which has the region’s largest debt, pushed the country’s 10-year bond yields to their highest relative to German bunds since the introduction of the euro, adding about 1 percentage point to funding costs this month. The crisis has entered a new phase and higher financing costs for some European nations are here to stay, Bank of Italy Governor Mario Draghi said yesterday. For the banks, that translates into pressure on earnings and may force cost cutting, greater competition for deposits and a contraction in lending, mirroring the challenges Spanish lenders are also facing. “The widening of sovereign spreads is so critical for southern European banks,” Morgan Stanley analyst Huw van Steenis wrote in a note to clients July 12. “Deleveraging remains the base case for those banks with high funding costs and impacts bank earnings and is a drag on economies.”
• Sovereign, Corporate Bond Risk Rises, Credit-Default Swaps Show. The cost of insuring against default on European sovereign bonds rose, according to traders of credit-default swaps. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments climbed 1 basis point to 284 at 1:30 p.m. in London. An increase signals deterioration in perceptions of credit quality. Swaps on Italy jumped 8 basis points to 291, according to CMA. Belgium increased 3 basis points to 188, Ireland climbed 9 to 1,073 and Portugal rose 10 to 1,096, while Spain was 12 higher at 326. Greece dropped from a record, falling 70 basis points to 2,280. The cost of insuring corporate debt rose. The Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings increased 2 basis points to 443, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 0.5 basis point to 118.5 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 2.5 basis points to 178.5 and the subordinated index rose 2 to 312.5.
• ECB, Banks, EU Meet in Rome on Greek Plan, Official Says. Officials from the European Central Bank, the European Commission and private lenders are meeting in Rome to discuss a second rescue plan for Greece, an Italian Treasury official said. Today’s talks are part of European efforts to get creditors to share the burden of a second Greek bailout a year after a 110 billion-euro ($158 billion) package failed to stop the debt crisis from spreading.
• Bernanke: No Plans Now for Bond Purchases. Federal Reserve Chairman Ben S. Bernanke told Congress that the central bank isn’t currently ready to embark on a third round of government bond-buying to stimulate the economy. “We’re not prepared at this point to take further action,” Bernanke said today, in response to a question from Senate Banking Committee Chairman Tim Johnson, a Democrat from South Dakota. Johnson asked Bernanke why the Fed wasn’t immediately starting a new stimulus program given the weak economic recovery and rising unemployment. “Today the situation is more complex,” Bernanke told lawmakers. “Inflation is higher. Inflation expectations are close to our target,” he said. “We are uncertain about the near-term developments in the economy. We’d like to see if, in fact, the economy does pick up, as we are projecting.”
• U.S. Jobless Claims Declined More Than Forecast Last Week. The number of Americans filing first-time claims for unemployment benefits dropped last week to the lowest level since April, a sign weakness in the labor market may be starting to abate. Applications for jobless benefits decreased 22,000 in the week ended July 9 to 405,000, Labor Department figures showed today. Economists forecast 415,000 claims, according to the median estimate in a Bloomberg News survey.
• UBS May Cut 5,000 Jobs to Save $1.2 Billion Annually, Tages-Anzeiger Says. UBS AG (UBSN) may cut 5,000 jobs to help save 1 billion Swiss francs ($1.2 billion) a year, Tages- Anzeiger reported today, citing unidentified “insiders.”
• Qaddafi May 'Blow Up' Tripoli: Russian Envoy. Libyan leader Muammar Qaddafi may “blow up” the capital Tripoli if rebels seize the city, Mikhail Margelov, Russia’s envoy for negotiating Qaddafi’s departure, told the Izvestiya newspaper. Prime Minister Baghdadi Mahmudi told Margelov the regime is ready to implement a “suicidal plan” if insurgents overrun Tripoli, the envoy said in an interview with the Moscow-based newspaper. “Qaddafi has plenty of missiles and explosives.” His comments were confirmed by his spokeswoman, Varvara Paal.
• India's Inflation Accelerates to 9.44%, Adding to Interest-Rate Pressure. India’s inflation accelerated, sustaining pressure on the central bank to tighten monetary policy this month, even as price gains that were less than economists estimated boosted optimism the longest stretch of interest-rate increases in a decade is nearing an end. The benchmark wholesale-price index rose 9.44 percent in June from a year earlier after a 9.06 percent jump in May, according to the commerce ministry. Food-price inflation quickened to a three-week high of 8.31 percent in the week ended July 2, the ministry said in a separate statement today.
• Euro Crisis in 'Uncharted Territory' Menaces Eastern States. The European debt crisis has entered “uncharted territory,” rekindling concern it will spread eastward through banking and trade links, according to the European Bank for Reconstruction and Development. Italy’s Unicredit SpA (UCG) and Intesa Sanpaolo SpA (ISP), two of eastern Europe’s biggest lenders, fell to the lowest in more than two years July 11 as political infighting threatened to delay efforts to cut the budget deficit in the country with Europe’s largest debt burden. European leaders this week failed to agree on a new aid package for Greece. “We are in uncharted territory,” Erik Berglof, chief economist at the London-based EBRD, which invests in eastern Europe and Central Asia, said in a July 12 interview. “The source of the contagion seems to be in worse shape.”
• JPMorgan(JPM) Shares Rise as Profit Beats Estimates. JPMorgan Chase & Co. (JPM) rose the most in eight months in New York trading after earnings beat analysts’ estimates and revenue unexpectedly climbed on gains from underwriting stocks and bonds. JPMorgan shares jumped as much as 4.1 percent after the New York-based bank reported its highest half-year profit ever, at almost $11 billion. Second-quarter net income increased 13 percent from a year earlier, to $5.43 billion, or $1.27 a share, six cents higher than the average estimate of analysts surveyed by Bloomberg.
• Crude Oil Futures Decline After Bernanke's Comments on More Fed Stimulus. Crude oil fell after Federal Reserve Chairman Ben S. Bernanke said the Fed isn’t planning more bond- buying to stimulate economic growth. Futures dropped as much as 2.1 percent after Bernanke testified to Congress that the central bank would be cautious about initiating a third round of quantitative easing because of higher inflation this year

Wall Street Journal:

• Reid Criticizes Cantor as Debt Talks Stall. House Majority Leader Eric Cantor "has shown that he shouldn't even be at the table" in negotiations over raising the U.S. borrowing limit, Senate Majority Leader Harry Reid said Thursday, reflecting Democratic frustration with House Republican conservatives in the continuing battle over raising the debt ceiling and cutting the deficit.
  
• Asia Quietly Frets Over U.S. Debt. Officials and analysts in some of the nations with huge holdings of U.S. Treasury bonds voiced concern about Washington's handling of its debt but said they have few alternatives for parking their cash. The announcement by Moody's Investors Service that it is considering an unprecedented downgrade of the U.S. government's top Aaa bond rating highlighted a big potential problem for China, Japan and other countries that have turned their trade surpluses into trillions of dollars in American debt instruments. U.S. debt looks less safe than it has long been considered, but there's a lack of alternatives that are both more attractive and liquid enough to absorb such sums. Asian government officials were largely circumspect on Thursday, reflecting in part concerns that being too critical risks further hurting the value of their holdings.‬
• Credit Suisse To Ax 1,500 Jobs, Including at Private Bank - Source. Credit Suisse Group (CS) is preparing to ax roughly 3% of its total workforce, or at least 1,500 jobs, including staff cuts at its private banking unit which is struggling with a costly surge in the Swiss franc, a person familiar with the situation told Dow Jones Newswires.
• FBI Opens News Corp.(NWSA) Hacking Probe.
  

Business Insider:

• Boehner Has "No Idea" If Last Ditch Debt Limit Plan Can Pass House.
• ORSZAG: This Economy is MUCH Weaker Than It Appears. In a column for Bloomberg, former White House budget man Peter Orszag argues that nobody has even yet begun to understand how frail the American economy is, and how long it will take to get back on solid footing.
• China is Building a Giant Stadium in the Middle of Nowhere, Finance by Insanely Optimistic Borrowing. (video)
  

Zero Hedge:

• Some Perspective On Italian Bonds. It seems like the market is enjoying the "success" of the Italian bond auctions. Given the extreme intraday volatility we have had this week, it is hard to argue that we won't see a spike higher in stocks on this news, but the reality is that:
• It Begins: JPMorgan(JPM) Lowers Q3 GDP.
  

New York Times:

• ConocoPhillips(COP) to Split Into Two.

Safehaven:

• Europe's Default Crisis: It's the CDS, Stupid. Greek bonds have lost half to three-quarters of their face value. Six national strikes have all ended in violence already this year. In the three months to April, public investment spending fell 42% from the start of 2010, but total spending still rose - and tax revenues sank - forcing the budget deficit still wider as the economy shrank 5.5% year-on-year. What to do? Greece's debt cannot be serviced, much less repaid. Everything says default - stop paying, write it down or write it off, with or without the lenders' consent. Default is certain, and history (that old balls-ache) says it would be better for creditors if the "restructuring" came before Greece misses a payment. Yet incredibly, most everyone outside Greece - everyone who thinks they have a vested interest, at least - wants restructuring delayed and delayed again. Why? Because of the banks, stupid.

Gallup:

• Generic "Republican Candidate" Extends Lead vs. Obama to 47% to 39%.

Reuters:

• Ireland Needs Quick Solution to Euro Crisis - IMF. Ireland's debt burden is manageable but it needs European leaders to quickly agree on a solution to the bloc's debt crisis if its sky-high borrowing costs are to fall, a senior IMF official said on Thursday.

Financial Times:

• Subprime Selling Off, Again. Securitised subprime — it’s still not doing well. It’s worth asking the obvious question — why? Here’s Goodman: In other words, Goodman reckons subprime has now over-sold. But there’s another reason Goodman mentions to explain the sell-off — fear in the market regarding Greek-exposed European banks selling their assets. It’s a not-so-nice example of how interconnected the financial system remains.

Telegraph:

• Italy Pays High Price in Debt Sale as Senate Clears Cuts. Italy's Senate has approved a crucial austerity package and got a key bond auction away as it moved to persuade investors that the debt-laden country will not become the next victim of the eurozone crisis.

Napi Gazdasag:

• The number of Hungarians with loans overdue more than 90 days rose to a record 806,000 in June, an 18% increase from a year earlier, citing BISZ Zrt. that manages the central loan information database.

El Mundo:

• Four Spanish savings banks, or cajas, and one bank will fail the stress tests, citing people in the financial markets.

Imerisia:

• Greek Prime Minister George Papandreou yesterday held a meeting with this finance minister and the chairman and chief executive of the country's biggest bank to discuss the implications of a "selective default" on Greek debt.

China Securities Journal:

• Some commercial banks in Chinese cities of Chongqing and Nanchang have suspended loans to individuals for home purchases, citing bank officials in the cities.

AsiaOne:

• China Expands Home Purchase Caps. China's cabinet on Thursday extended home purchase restrictions to more cities and reminded local governments to keep in place measures to tighten the property market, in its latest move to curb housing inflation. It also ordered local governments to step up efforts in building more affordable homes and curbing rental prices. Rising home and rental prices are fuelling broader inflation in China. Beijing has made it a top priority to check soaring prices which have in the past led to social unrest, threatening the rule of the Communist Party. "Right now, the property tightening campaign is at a critical point and we must stick to the same direction and maintain the same force of tightening measures," the cabinet said in a statement published on its website, www.gov.cn. Average annual home price rises across the nation slowed to 4.2 per cent in May, a touch down from April's rise of 4.3 per cent. The National Bureau of Statistics is set to announce the June data next Monday. "That means the central government will not relax its tightening policy anytime soon and that's within market expectations," said Li Shaoming, an analyst with China Jianyin Investment Securities in Beijing.