Today's Headlines

Bloomberg:

• The cost of insuring against default on European financial-company debt stayed higher after eight banks failed the region's stress tests. The Markit iTraxx Financial Index of cds on the senior debt of 25 banks and insurers was 9.5 basis points higher on the day at 189 basis points as of 5:30 pm in London, unchanged after the test results were released. A gauge of subordinated bond risk rose 16 basis points to 329.5, like the senior index at the highest since January, according to JPMorgan Chase. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose 15 basis points to a record 297. Contracts on the Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings increased 13 basis points to 460, the highest since December 6. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 2.75 basis points to a more than one-year high of 122.75 basis points.
• SocGen, UBS Recommend Buying Protection Against Breakup of Euro. Societe Generale SA recommended buying insurance against a euro “meltdown,” and UBS AG said the Danish krone may offer protection as Europe’s debt crisis threatens to deteriorate. “It is not too late to get hedges,” SocGen strategists David Deddouche and Olivier Korber wrote in an investor report dated yesterday. “We simply cannot rule out entirely a further dramatic collapse” of the euro against the dollar, and a rebound in the 17-nation currency to above $1.40 “provides a fresh opportunity to hedge against such an event through tail options,” they said. UBS currency strategist Chris Walker said “a significant escalation in the euro-zone debt crisis, to the extent the existence of the euro is itself threatened, could lead to the abandonment” of Denmark’s currency peg to the euro. Though this would cause short-term volatility, longer term the krone would likely appreciate against other Scandinavian currencies and the euro, he wrote.
• New York Area Manufacturing Unexpectedly Shrinks for Second Straight Month. Manufacturing in the New York region unexpectedly contracted for a second straight month in July as orders shrank at a faster pace, a sign the industry may be at risk of stalling. The Federal Reserve Bank of New York’s general economic index rose to minus 3.8, less than the most pessimistic forecast in a Bloomberg News survey, from minus 7.8 the prior month. The median forecast called for an index of 5. The measure of New York-area manufacturing last contracted for two straight months in the period ended in June 2009, when the recession ended. Estimates in the Bloomberg survey of 48 economists ranged from zero to 15. The Empire State gauge of new orders dropped to minus 5.5 last month, the lowest since November, from minus 3.6 in June. A gauge of unfilled orders slumped to minus 12.2, the weakest reading this year. A measure of shipments rose to 2.2 from minus 8. The employment measure dropped to 1.1 from 10.2. An index of prices paid fell to 43.3 from 56.1, while prices received declined to 5.6 from 11.2.
• U.S. Consumer Confidence Unexpectedly Declines to 2-Year Low. Confidence among U.S. consumers unexpectedly fell in July to the lowest level in more than two years, adding to concern that weak employment gains and falling home prices may keep households from spending. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment decreased to 63.8, the weakest reading since March 2009, from 71.5 the prior month. The gauge was projected to rise to 72.2, according to the median forecast of 62 economists surveyed by Bloomberg News. The Michigan survey’s index of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, decreased to 76.3, the lowest level since November 2009, from 82 the prior month. The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, dropped to 55.8, the weakest since March 2009, from 64.8 the prior week. Consumers in today’s confidence report said they expect an inflation rate of 3.4 percent over the next 12 months, the lowest since February, compared with 3.8 percent in the prior survey. Americans expected a 2.8 percent rate of inflation over the next five years, the figures tracked by Federal Reserve policy makers, compared with 3.0 percent the prior month. It was the lowest price-expectation this year.
• Income Expectations Point to Slowdown in U.S. Consumer Spending. Consumers are turning more pessimistic about their income prospects, an indication that household spending will grow at a slower pace compared with a year earlier. The share of Americans foreseeing a drop in wages over the next six months topped the proportion projecting an increase by 2.6 percentage points in June, data from the Conference Board, a New York research group, showed. That is the lowest reading since October 2010, according to Lynn Franco, director of the group’s consumer research center. The correlation between the three-month averages of income expectations and real spending is 0.88, according to Bloomberg News calculations.
• Inflation Measure Rises as Manufacturing Stalls. A measure of consumer prices climbed more than forecast in June and manufacturing stalled, highlighting the dilemma faced by Federal Reserve policy makers as they seek to boost growth without stoking inflation. Consumer prices excluding food and energy climbed 0.3 percent for a second month, the biggest back-to-back gain in three years, the Labor Department said today in Washington. Factory production was unchanged last month, data from the Fed showed.
• Gold Futures Head for Longest Rally Since 2009 on U.S., Europe Debt Woes. Gold futures rose, heading for the longest rally since November 2009, on mounting concern that debt woes in the U.S. and Europe will escalate, boosting the appeal of the precious metal as a haven. Gold futures for August delivery rose 20 cents to $1,589.50 at 11:49 a.m. the Comex in New York.
• Soybeans Head for Longest Rally Since 2007 on Weather Woes; Corn Climbs. Soybean futures for November delivery rose 11.5 cents, or 0.8 percent, to $13.955 a bushel at 10:27 a.m.. on the Chicago Board of Trade. The oilseed headed for the 10th straight gain, the longest rally since September 2007. Before today, the price climbed 44 percent in the past 12 months. Corn futures for December delivery jumped 14.75 cents, or 2.2 percent, to $6.9325 a bushel. Earlier, the price reached $6.96, the highest for a most-active contract since June 14. Before today, the grain surged 71 percent in the past year.
• Citigroup(C) Profit Beats Estimates. Citigroup Inc. (C), the third-biggest U.S. bank, said profit rose 24 percent, beating analysts’ estimates on higher investment-banking fees and fewer losses tied to troubled assets.
• Obama Singles Out Drug Companies for Savings. Drug companies may be targets for Medicare spending cuts as U.S. lawmakers push to reach an agreement on a deficit plan ahead of an Aug. 2 deadline, President Barack Obama said. “The drug companies, for example, are still doing very well through the Medicare program,” Obama said today at a news conference. “Although we have made drugs more available at a cheaper price to seniors who are in Medicare through the Affordable Care Act, there’s more work to potentially be done there,” he said in referring to the 2010 health-care overhaul.
• BofA(BAC) Drops Below $10, First Time in 2 Years. Bank of America Corp. (BAC), the biggest U.S. lender by assets, fell below $10 a share in New York trading today as concern mounted about the company’s ability to restore profit. The lender’s shares dropped 9 cents, or 0.9 percent, to $9.98 as of 1:53 p.m. in New York Stock Exchange composite trading.

Wall Street Journal:

• Obama Presses Congress as House Sets Vote. "Time is running out," Mr. Obama said in a news conference from the White House. He said he wants lawmakers to take the next day to figure out the best possible plan to raise the debt ceiling and present it to him.
• EU Parliament Economic Leader Slams Germany Amid Stress Test Woes. The head of the European Parliament's economics committee criticized Germany's banking regulator in an interview Friday, and raised concerns that the European Banking Authority and its leader, Andrea Enria, will be sidelined due to national self-interests.

MarketWatch:

• Google(GOOG) Still Cheap Despite Gains, Street Says.

CNBC.com:

• One Democrat's Advice: Raising Taxes Doesn't Add Revenue.
• Clorox(CLX) is 'Very Undervalued': Carl Icahn.
  

Business Insider:

• Yields Continue to Move Higher in Europe. When I said the chart of the Spanish 10 year yield was the most important chart in the world I was wrong. It turns out that the problems in Europe could be even worse than I thought. The markets are not even stopping at Spain. They appear to be going for Spain AND Italy.
• Andrew Ross Sorkin is the New Anchor of CNBC's 'Squawk Box'.
  

Zero Hedge:

• More Deutsche Bank(DB) Pain as Dexia Files $1 Billion Lawsuit Against Bank for Selling it Toxic Mortgages.
• Stress Test 2 Results Are Out: 8 Banks Fail - 5 Spanish, 2 Greek, 1 Austrian. The farce continues: Moody's predicted 26 failures, Eurostat gives us 8.

New York Times:

• European Banks Urged to Bolster Reserves Following Stress Tests. About two dozen European banks were put under official pressure Friday to bolster their reserves, after a much-anticipated test of whether they would be able to survive such economic shocks as a further deterioration in the sovereign debt crisis.

Insider Monkey:

• Eric Sprott Lost 8.6% in June. Canadian energy hedge funds were slammed in June. The reason is simple- they aren’t really hedged. Eric Sprott’s flagship fund lost 8.6% in June. Other well-known Canadian energy funds didn’t perform any better. Rohit Seghal’s Dynamic Power Hedge lost 5.1% in June and 16.5% during the first six months of 2011. One of the worst performers among Canadian energy funds was Front Street Capital. Front Street’s energy fund lost more than 17% in June. Salida Capital’s energy fund was also among top losers, falling 9.3% in June. Btw, Salida Capital paid $1.7 Million in 2009 to have lunch with Warren Buffett.

Forbes:

• Why Europe is Really Freaked Out Over a Greek Default.

Rasmussen Reports:

• 67% Oppose Upcoming 'Ban' on Traditional Light Bulbs. Just 20% of adults think the sale of traditional light bulbs should be banned.
• Obama Earns Positive Ratings From 38% on Economy. 38% rate the president’s handling of economic issues as good or excellent, but 43% give him a poor rating in this area.

Reuters:

• Exclusive: Germany, Italy Resist Second IEA Oil Release. Germany and Italy are expected to oppose any second release of emergency oil reserves by the International Energy Agency, which needs the backing of all 28 of its members if it is to pour more oil on a volatile crude market. The IEA is expected to confer with its member countries by July 23 to decide whether to draw further on emergency oil stocks after its June 23 announcement of a 60 million-barrel release.
• Libya's Agoco Ready to Pump Oil - Petroleum Economist. Libya's rebel-held oil firm Arabian Gulf Oil Company (Agoco) has completed repairs at the Sarir and Misla oilfields and is ready to start pumping oil, trade publication Petroleum Economist reported on Friday, citing a senior industry source.
• Valeant(VRX) Seeks to Become Major Skincare Player. Valeant Pharmaceuticals International Inc is signaling its intent to become a major skincare company with a string of mid-sized acquisitions in the sector.

Financial Times:

• Eurozone CDO - It's Triple-A Time. With the market now falling over itself to target the next peripheral in line for the Greek-treatment — even jumping over Spain to get to Italy — here’s a timely investment recommendation from Porter. Just go for the top tranches of the eurozone CDO, already. In fact, he says, the market is starting to get that going bearish on the senior tranche of the eurozone CDO may be the way to go. It’s easier said than done, of course, but he’s recommending investors start buying German 10-year CDS as a way into the trade.

Telegraph:

• US Risks AAA Rating Even With Debt Deal. America risks eviction from the club of the most creditworthy nations even if Congress agrees to raise the debt ceiling, rating agency Standard & Poor's (S&P) has warned.

Handelsblatt:

• S&P uses a strict definition for sovereign debt defaults that leaves little room for flexibility, senior S&P executive Torsten Hinriches said in an interview. Asked if the company could envisage a debt-restructuring model that would not count as a default, Hinrichs said S&P's default criteria of "timely and complete" interest payments and bond redemptions "answer this." Adopting a more flexible definition would be "difficult," said Hinrichs, the head of S&P in the German-speaking countries, and in northern and eastern Europe.