Bloomberg:
- Italy, Spain 10-Year Bond Spreads Reach Euro-Era Record on Growth Concern. Italian and Spanish 10-year bonds dropped, pushing yields up to euro-era records versus benchmark German bunds, on concern that slowing growth will hamper efforts to tame the nations’ debt loads. “This has all the features of a self-fulfilling crisis,” said Harvinder Sian, a senior bond strategist at Royal Bank of Scotland Plc in London. “The rise in yields looks pretty relentless, and it doesn’t look as if the politicians are anywhere near to getting ahead of the curve.” The yield on 10-year Italian bonds rose six basis points to 6.06 percent at 3:20 p.m. in London. It earlier surged to 6.25 percent, the most since November 1997. The 4.75 percent security maturity in September 2021 fell 0.39, or 3.9 euros per 1,000- euro ($1,427) face amount, to 90.845. That pushed the difference in yield, or spread, over bunds, to as much as 384 basis points, the most since before the euro was introduced in 1999. “Suddenly, Italy joined the other peripherals,” said Justin Knight, a European rate strategist at UBS AG in London. “Investors are, in general, overweight Italy versus other peripheral markets, and it’s going to be a difficult position to unwind.” Spanish 10-year yields rose four basis points to 6.24 percent, after climbing to 6.46 percent, the most since 1997. That pushed the spread over similar-maturity German debt as high as 404 basis points. The crisis risks worsening should the Spanish yield touch 6.5 percent, RBS’s Sian said. “Anything materially above that risks an acceleration like we saw for Greece, Ireland and Portugal,” he said. “The political willingness to backstop the European Union is now what the market needs.” The cost of insuring against default on European sovereign and corporate debt rose, according to traders of credit-default swaps. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments jumped 11 basis points to 288, approaching the all-time high closing price of 306.5 set July 18. The 10-year euro swap spread, which shows the difference between the swap rate and the yield on benchmark German bunds and is used as a measure of perceived risk, rose for a seventh day, climbing as high as 73 basis points, the most since January 2009. The yield premium investors demand to hold Belgian 10-year bonds instead of benchmark bunds widened to a euro-era record of 207 basis points, even as demand improved at a debt sale.
- Obama Says Debt Plan Is 'First Step' on Path Toward Balancing U.S. Budget. President Barack Obama said final congressional passage of legislation to raise the federal debt ceiling and trim the deficit is a “first step” on a path that must include both increased revenue and spending cuts to narrow the government’s long-term budget shortfall.
- Consumer Spending in U.S. Fell in June. U.S. consumer spending unexpectedly dropped in June for the first time in almost two years and savings climbed, adding to evidence that the slump in hiring is hurting household confidence. Purchases declined 0.2 percent after a 0.1 percent gain the prior month, Commerce Department figures showed today in Washington. The median estimate of 77 economists surveyed by Bloomberg News called for a 0.1 percent increase. Incomes grew at the slowest pace since November. The lack of jobs combined with wage gains that have failed to keep pace with inflation raise the risk of further cuts in consumer spending, which accounts for 70 percent of the world’s largest economy. “The third quarter is looking very soft too. Consumers are facing lackluster wage growth in this phase of still-high gas prices.” Americans boosted savings, a sign of growing concern over the economy and jobs. The savings rate climbed to 5.4 percent, the highest since September, from 5 percent. Weekly earnings adjusted for inflation dropped 0.9 percent in the 12 months ended June on average, according to figures from the Labor Department. The cost of regular gasoline climbed in May to about a three-year high of $4 a gallon, and remained above $3.70 at the end of July, according to AAA, the nation’s biggest auto group.
- Zapatero Postpones Planned Vacation as Spanish Bond Yields Surge Towards 7%. Spanish Prime Minister Jose Luis Rodriguez Zapatero delayed a planned vacation as the country’s borrowing costs approached the 7 percent mark that heralded bailouts of Greece, Portugal and Ireland. The prime minister is in “permanent” contact with Finance Minister Elena Salgado and has spoken with European Commission President Jose Manuel Barroso, according to his office. Zapatero’s economic advisers have discussed developments in financial markets with counterparts in Germany, France and Italy, according to one official, who asked not to be identified in line with government policy. Ten-year bond yields for Spain and Italy reached euro-era records today on concern that rising debt-servicing costs may wipe out the benefits of austerity measures and slow growth. “It’s extreme -- parallels to 2008 have been drawn,” said Peter Chatwell, a fixed income strategist at Credit Agricole CIB in London, referring to the height of the financial crisis when Lehman Brothers Holdings Inc. went bankrupt. “The problem we’ve got here is an extremely risk averse market, very thin liquidity and nothing of substance to stop the negative periphery trades being put on.”
- Barclays Will Cut 3,000 Jobs This Year as Investment Bank Revenue Declines. Barclays Plc (BCS), Britain’s second- largest bank by assets, said it’s eliminating about 3,000 jobs this year as second-quarter investment banking profit fell by more than a quarter.
- 2-year swap spread may reach 30 basis points as 2-year Treasury yields have "little space to drop with Libor belatedly rising," Credit Agricole's David Keeble writes.
- Rice, the best-performing grain this year, may sustain a rally as acreage in the U.S. slumps, reducing production from the third-largest exporter, according to Standard Chartered Plc. Futures may average $15 per 100 pounds in Chicago this quarter, Abah Ofon, an analyst at the bank, said by phone today, raising his forecast from $13. Higher prices of rice, staple for half the world, would fuel global food costs that reached an all-time high in February, according to the Food & Agriculture Organization.
- Gold Surges to Record as Fragile Global Economy Bolsters Demand for Haven. Gold futures surged to a record $1,645.80 an ounce as escalating concern that the global economy is losing momentum spurred demand for the precious metal as an investment haven. Gold futures for December delivery rose $23.60, or 1.5 percent, to $1,645.30 at 11:47 a.m. on the Comex in New York. Before today, the price gained 37 percent in the past 12 months.
- Oil Declines for Third Day on U.S. Economic Outlook; Stockpiles May Climb. Oil declined for a third day in New York, the longest losing streak since May, as signs that the U.S. economy is slowing countered speculation the world’s biggest crude consumer will resolve its debt crisis. Crude for September delivery dropped as much as $1.08 to $93.81 a barrel in electronic trading on the New York Mercantile Exchange and was at $94.18 at 1:08 p.m. London time. The contract yesterday fell 81 cents to $94.89, the lowest close since June 29. Prices are 16 percent higher the past year.
- China's Auditor Finds 'Questions' Over $51 Billion of Spending. China’s national auditor said it found 328 billion yuan ($51 billion) of spending at government agencies and companies last year that raised “questions.” The National Audit Office discovered 42.8 billion yuan in wasteful spending, 165.1 billion yuan in misstatements, and 3.4 billion yuan in misused public benefits, according to the report posted on the agency’s website. Local branches of the auditor also examined 36,900 individuals, with 82 officials referred to judicial or investigative bodies for further action, according to the report dated Aug. 1. Waste and misuse are adding to concerns that local governments will struggle to repay money they borrowed to fund infrastructure projects that the national auditor put at 10.7 trillion yuan as of the end of 2010.
- Tepco Reports Second Deadly Radiation Reading at Fukushima Plant. Tokyo Electric Power Co. reported its second deadly radiation reading in as many days at its wrecked Fukushima nuclear plant north of Tokyo. The utility known as Tepco said yesterday it detected 5 sieverts of radiation per hour in the No. 1 reactor building. On Aug. 1 in another area it recorded radiation of 10 sieverts per hour, enough to kill a person “within a few weeks” after a single exposure, according to the World Nuclear Association.
- U.S. 30-Year Yield Falls Below 4% on Debt Deal Vote, Slow Economy. Treasuries rose, pushing 30-year bond yields below 4 percent for the first time this year, as the Senate approved a deal to boost the debt limit and a government report showed consumer spending unexpectedly fell in June, reinforcing speculation the economy is slowing.
- Coach(COH) Falls Most Since March on Margins. Coach Inc. (COH), the largest U.S. luxury handbag maker, fell the most in more than four months after saying that a measure of profitability may not improve this year amid higher costs. The shares fell $3.65, or 5.6 percent, to $61.64 at 11:38 a.m. in New York Stock Exchange composite trading. Coach earlier dropped 6.6 percent, the biggest intraday decline since March 15.
- Syria Targets Hama as Europeans Push for Condemnation at UN. Syrian forces shelled Hama with tanks and artillery for a third day as European countries pushed for a United Nations resolution condemning President Bashar al-Assad’s latest crackdown. The army assault on the city of 800,000 drew protesters into the streets of Damascus and elsewhere in the country late yesterday and overnight into the second day of the Muslim holy month of Ramadan, Mahmoud Merhi, head of the Arab Organization for Human Rights, said by telephone from the capital.
- U.S. Averts Default as Obama Signs Bill. The Senate voted 74-26 Tuesday to approve sweeping legislation to raise the country's $14.29 trillion debt ceiling and cut the budget deficit by at least $2.1 trillion over the next decade, a major victory for Republicans who have long battled to shrink the size of the U.S. government.
- Live Blog: The Next Stage.
- Billionaire: Debt-Deal Totals Are 'Rounding Errors'. Billionaire investor Wilbur Ross, who has made his name in distressed assets, said the debt deal reached in Congress is unlikely to have much of an effect on the actual economy. Mr. Ross, appearing on the WSJ News Hub, said the deficit reductions planned by lawmakers as part of the deal to raise the federal borrowing limit amount to only "rounding errors" in terms of size. He said the deal hasn't put the debt issues behind the country and that the U.S. lacks an "overall strategy" that would help settle the various debates on energy, spending and, especially, taxes.
- Exploration Raises Tensions in South China Sea. After appearing to make progress in cooling tensions over the South China Sea in recent weeks, Southeast Asia and China face the potential for more trouble ahead as oil and gas companies expand their exploration work in the contested waters.
- Japan Intensifies China Rhetoric. Japan intensified its rhetoric against China's military Tuesday, accusing Beijing for the first time of "assertiveness" and saying it needs to keep a closer watch on how China views the contested waters between the two countries.
- Industrials Break Down, Now in Correction Mode.
- Europe on Brink of 'Major Financial Collapse': Guggenheim CIO.
Zero Hedge:
- You Want to Create Jobs? Here's How. 1. The only engine for jobs is small business, so quit pandering to global corporations and start pandering to the people who might actually hire someone in America.
- Revolving Door at SEC Is Hurdle to Crisis Cleanup. A senior lawyer for the Securities and Exchange Commission recently took center stage in a major case involving a controversial mortgage security sold by Goldman Sachs. There was just one slight twist in the legal proceedings. The S.E.C. lawyer was not the prosecutor taking the deposition. He was the witness.
- Pressure Builds on Italy and Spain Over Finances.
- Hedge Funds Bullish on US Equities, Will Need to Invest Aggressively to Pass 2008 Highwater Marks. Even ahead of the US debt ceiling agreement, hedge fund managers have been turning increasingly bullish on US equities. With TrimTabs and BarclayHedge reporting 43% of managers expressing bullish sentiments about the S&P 500 (in July), it seems as though hedge funds are holding tight to the belief that the US has turned the corner in its financial crisis. The bullish equities outlook is the highest it has been since December of last year, and was up 15% over the outlooks expressed only one-month prior. “This reversal is striking,” Sol Waksman , Founder and President of BarclayHedge. “Hedge fund managers were meaningfully bullish on domestic stocks in only one month in the first half of the year.
Seeking Alpha:
- European Default Risk Spikes. (graphs)
- Obama's Approval Dives in Pennsylvania. President Obama's approval numbers have taken a hit in swing-state Pennsylvania, the latest Quinnipiac University survey out this morning shows. Just 43 percent of voters approve of the job he's doing, while 54 percent disapprove, according to the survey.
- Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 23% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-one percent (41%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -18 (see trends ).
- Rasmussen Employment Index Down Sharply: Just 18% Report Their Firms Hiring. The Rasmussen Employment Index, which measures workers’ perceptions of the labor market each month, fell nearly eight points in July to the lowest level since March. At 70.1, the Employment Index is down seven points from the beginning of the year and down 13 points since last November when hiring expectations peaked. Generally speaking, a decline in the Rasmussen Employment Index suggests the upcoming government reports on job creation will be worse than prior months.
- Frontline(FRO) is pulling some of its largest oil carriers from the market, citing an interview with CEO Jens Martin Jensen. Jensen sees "few signs" of short term improvement in the tanker market. "There is no point in us transporting oil for free in any case, so we have decided that, given the market situation, to pull some ships out to see what happens," he said.
- Italian Banks Caught in Sovereign Debt Crossfire. Big holdings of Italian bonds by the country's banks are making them a proxy for funds responding to debt concerns by cutting their exposure to Italy. Italian banks had hitherto weathered the financial crisis better than their European peers, thanks to a tradition of conservative lending and relatively limited exposure to riskier assets, such as Greek bonds. But that inward culture, once seen as a strength at times of market turbulence, is now being perceived as a weakness -- making the banks inextricably linked to the fate of Italy's borrowing costs. Shares in Italy's two biggest banks, UniCredit and Intesa Sanpaolo have dropped about 20 percent since investors began dumping Italian assets at the start of July.
- The End of the Roman Holiday. With their economy teetering on the brink, Italians are going to have to make major changes to save La Dolce Vita. The Bank of Italy has admitted that if the interest rates on Italian bonds don't lower sometime soon, it will pose a "substantial" problem for the Italian economy, perhaps pushing the country back into recession -- and perhaps, in the worst case scenario, out of the eurozone.
- Italy Calls Emergency Meeting as Eurozone Crisis Resurfaces. A fresh wave of eurozone panic prompted Italian authorities to call an emergency meeting on Tuesday and Spain's prime minister to delay his holiday as borrowing costs for the two nations hit fresh highs.
- IMF: UK's George Osborne May Miss Plan to Eliminate Deficit. Chancellor George Osborne is in danger of missing his key performance yardstick of eliminating the structural deficit over the next five years, the International Monetary Fund (IMF) has warned.
- Lars Feld, a member of German Chancellor Angela Merkel's council of economic advisers, said he expects financial market turbulence stemming from Europe's debt crisis to return by September "at the latest," citing an interview. Markets will question whether Greece's rescue package is big enough and if other debt-stricken countries will have sufficient discipline, Feld said.
- German banks may still be harmed by the sovereign debt crisis even if they passed European stress tests, citing Raimund Roeseler, executive director of BaFin, the country's regulator. Roeseler said the default of a single euro-area country would be "very painful" for German banks, though it still could be dealt with.
- Greece, Portugal and Ireland will likely be forced to quit the euro within a year and Italy may need a European Union-led rescue, Allen Sinai, president of Decision Economics, said in an interview. Sinai told the newspaper he was "pessimistic" about Italy and that the country may soon need "an intervention along the lines of the Greek model." Managing the debt crisis has been undermined by the lack of a central fiscal authority for the region, and the euro-area may end up a club for only Europe's strongest economies, he said.
- Shanghai Manufacturing Activities See 1st Decline. SHANGHAI'S industrial activities shrank for the first time in 10 months in June as the government tightened policies and the city embarked on an economic restructuring. The city's Purchasing Managers' Index, a gauge of manufacturing activities, lost 1 point from a month earlier to 49.3 in June, the Shanghai Statistics Bureau said yesterday. A reading below 50 means manufacturing activities contracted.
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