Today's Headlines

Bloomberg:

• Greek Notes Slide on Collateral Demands; ECB Buys Italy Debt. Greek two-year notes slumped after some of the nation’s euro-region partners said they would seek collateral in exchange for new loans, fueling concern attempts to resolve the currency union’s debt crisis will be derailed. Two-year Greek yields climbed above 37 percent for the first time in almost a month. Austria, the Netherlands, Slovenia and Slovakia said yesterday they’d aim to emulate Finland’s deal with Greece, which was criticized by Austria’s finance minister for risking the viability of a rescue. Italian two-year notes erased losses as the European Central Bank was said to be buying the securities. The collateral issue “is something that goes against the logic of the whole bailout package,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “It has the scope to result in a conflict and to topple the whole second bailout package. We’re trading off equities; we’re in a risk-off environment.” The Greek two-year yield climbed 214 basis points to 37.47 percent as of 4 p.m. in London, breaching 37 percent for the first time since July 21. The yield reached a record 40.46 percent on July 20. The 10-year yield rose 65 basis points to 16.65 percent.
• Europe Banking Shares Tumble for Third Day on Funding, Earnings Concern. European banks tumbled, led by Lloyds Banking Group Plc (LLOY) and Intesa Sanpaolo SpA (ISP), on concern firms will struggle to fund themselves and increase earnings as the region’s sovereign debt crisis strangles economic growth. Lloyds, Britain’s second-biggest government-assisted bank, fell 6.2 percent in London trading, while Intesa slid 5.9 percent in Milan. The 46-member Bloomberg Europe Banks and Financial Services Index tumbled 3 percent after dropping the most in two years yesterday. While “the chances of a genuine liquidity crisis as experienced in 2008 are reasonably remote,” lenders may face a “slower-moving, but still toxic, funding crisis,” Deutsche Bank AG (DBK) analyst Matt Spick said in a client note. Moreover, “the weight of negative earnings momentum as we head into the second half represents a major ongoing risk for the European banks,” he said. The Bloomberg European banks index tumbled 10 percent this week on signs lenders are facing tougher funding conditions. Banks’ sale of long-term debt fell behind again in July and August, which may be the weakest month on record, and that could force firms to further reduce leverage, bad news for banks and the economy, Spick said in the note.
• Financial Debt Risk Jumps to Record in Europe on Growth Concern. The cost of protecting European financial debt surged to a record on concern global economic growth is faltering and banks will struggle to fund themselves. The Markit iTraxx Financial Index of credit-default swaps linked to senior debt of 25 banks and insurers increased as much as 12 basis points to 243, a record based on closing prices, according to JPMorgan Chase & Co. and was trading at 237 basis points at 10:30 a.m. in London. The Markit iTraxx SovX Western Europe Index of swaps linked to the debt of 15 governments increased for a third day, climbing 1 basis point to 291. Contracts on Spanish government debt rose 6 basis points to 370, according to CMA. Italy swaps added 8 basis points to 362 and France was up 2 to 152. The Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings increased 11 basis points to 655.5. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 2 basis points to 154 basis points.
• U.S. Corporate Credit Risk Benchmark Increases to Highest Since July 2010. The cost of protecting U.S. corporate debt from default rose to the highest level in more than 13 months as concern grew that the global recovery is slowing and Europe’s debt crisis is spreading. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 1.7 basis points to a mid-price of 118.7 basis points as of 11:19 a.m. in New York, according to Markit Group Ltd. That’s the highest since July 6, 2010. Credit-default swaps on New York-based Goldman Sachs rose 4.5 basis points to 209.8, according to data provider CMA, which is owned by CME Group Inc. and compiles quoted by dealers in the privately negotiated market. Contracts on Citigroup Inc., also based in New York, climbed 4.2 basis points to 210 basis points, CMA data show.
• Gold Set for Longest Weekly Rally Since 2007. Gold rose to a record above $1,880 an ounce in New York, poised for the longest run of weekly gains since April 2007, as escalating concern that the global economy is slowing drove equities lower. The metal is set for a seventh weekly advance as worse- than-expected U.S. economic data and Europe’s debt crisis boost speculation that growth will falter. Gold for December delivery gained $27.60, or 1.5 percent, to $1,849.60 on the Comex at 10:40 a.m. in New York, after touching $1,881.40, the highest ever. Before today, prices gained 4.6 percent this week and 12 percent since July 31.
• Rising Prices May Embolden Fed Dissenters in Opposing Moves to Spur Growth. Signs that consumer prices are rising even as the U.S. economy slows may delay additional moves by Federal Reserve Chairman Ben S. Bernanke to spur growth. The Fed chairman, who is scheduled to speak at a Jackson Hole, Wyoming, conference on Aug. 26, used the annual gathering of economists last year to hint at a second round of so-called quantitative easing, in which the Fed purchased $600 billion of Treasuries from November 2010 to June. “It’s hard to say we have stagflation, but we do have inflation too high for the Fed to do QE3,” said Marc Chandler, global head of currency strategy for Brown Brothers Harriman & Co. in New York.
• Retailers Raise Prices to Offset U.S. Labor Costs. Retailers and restaurants are raising consumer prices to help compensate for higher labor costs, which increased the most in almost three years during the second quarter. Fifty-three percent of these companies with annual sales of $10 million to $500 million have lifted prices during the last 12 months, up from 32 percent a year ago, according to a quarterly survey by Barlow Research Associates. This comes as U.S. inflation excluding food and energy costs accelerated at an annual pace of 1.8 percent in July, the biggest such gain in more than a year, according to Labor Department data released yesterday. Unit labor costs for nonfarm businesses rose 1.3 percent in the quarter ended June 30 compared with a year ago, as hourly compensation rose while productivity fell, Bureau of Labor Statistics data show. “This is an early sign that even with high unemployment, labor costs are starting to pick up, giving companies an incentive to raise prices,” said Peter Newland, an economist at Barclays Capital Inc. in New York. Labor costs are the biggest component of business expenses, he said. Sixty-one percent of the 149 public and private retailers and restaurants in the Barlow survey said they plan more price increases during the next 12 months. This indicates a “significant change” in attitude from the previous year, when 41 percent had such plans, according to John Barlow, president and founder of the Minneapolis-based business. “Middle-market companies have been aggressive in increasing prices because they’re trying to protect profit margins,” he said.
• Prices of supertankers carrying about 20% of the world's oil may fall 10% to the lowest level in 8 years as slowing global growth cuts earnings, RS Platou Markets AS said. Owners are contending with a supertanker fleet that's the largest in 29 years and growing at the fastest pace in more than three decades, forcing freight rates to a 14-year low. The vessels will earn about $15,600 a day over the next two years, 40% of the level secondhand vessels need to break even, according to Platou's Frode Morkedal.
• Emerging-Market Stocks Set for Fourth Weekly Slump Amid Global Concerns. Emerging-market stocks fell for a second day, setting the benchmark index on course for its longest streak of weekly losses since May, as signs the global economy is slowing drove investor outflows from riskier assets. The MSCI Emerging Markets Index slid 2.3 percent to 972.10 at 10:07 a.m. in New York, bound for a fourth straight week of losses. Mexico’s IPC slid 0.4 percent, falling for a second day. South Korea’s Kospi Index (KOSPI) sank 6.2 percent, the biggest drop since November 2008, while Taiwan’s Taiex index plunged 3.6 percent. Emerging-market equity funds posted $2.8 billion of outflows in the week ended Aug. 17, extending the biggest withdrawals since 2008 the previous week at $7.7 billion, Citigroup Inc. analysts led by Markus Rosgen said in a report today, citing figures by EPFR Global. Analysts at Morgan Stanley cut their forecasts for stock indexes in Southeast Asia, after economists from the brokerage lowered their estimates for global economic growth.
• Syria Kills 25 Protesters After Obama Calls on Assad to Quit. Syrian security forces killed at least 25 protesters and arrested more than 300 people after U.S. President Barack Obama, in concert with European allies, called on Bashar al-Assad to step down.
• Deutsche Bank AG(DB) put-options volume surged to a record on U.S. exchanges on speculation that Germany's largest lender will extend declines after falling to a two-year low. Almost 24,000 puts to sell changed hands, 11 times the four-week average and 24 times the number of calls to buy, as of 12:18 pm EST.
  

Wall Street Journal:

• Buyout Shops Get Mauled by Market. Private equity is being pummeled. Few shares are experiencing the kind of beating that big buyout firms are enduring. Firms like Blackstone Group LP, KKR & Co., Apollo Global Management LLC and Fortress Investment Group LLC have seen their shares fall between 19% and 27% so far this month, compared with a drop of 9.5% for the Dow Jones Industrial Average. On Thursday, the carnage continued, as these stocks fell between 1.6% and 11%, while the Dow average fell 3.7%. The troubles for these shares underscore how disappointing many private-equity companies have been for investors.
• ECRI Leading Index Goes Negative. (graph) The Economic Cycle Research Institute’s weekly leading index fell again this week, and its four-week rolling average fell into negative territory for the first time since early December.

MarketWatch:

• H-P(HPQ) Hits Multiyear Low, But Other Techs Rise. H-P shares fell $5.90, or 20%, at $23.63 and traded at their lowest points since August 2005 and less than half of what it was just 18 months ago.

CNBC.com:

• Fed Needs to Be Monitoring European Banks: Dudley. The U.S. Federal Reserve is keeping an eye on European banks struggling with the continent's debt crisis because of the turbulence in financial markets, one of the central bank's most influential policymakers said on Friday.
• Foreign Banks Complain of 'Imperialist' US Tax Rule. A U.S. law meant to snuff out billions of dollars in offshore tax evasion has drawn the criticism of the world's banks and business people, who dismiss it as imperialist and "the neutron bomb of the global financial system." The unusually broad regulation, known as FATCA, or the Foreign Account Tax Compliance Act, makes the world's financial institutions something of an extension of the tax-collecting Internal Revenue Service—something no other country does for its tax regime.
• US Can Recover, 'Extreme Action' Needed in Europe: Economist. The US and European Union pose divergent threats to a global economic recovery and despite weak growth in the United States, the euro zone debt crisis is more likely to impede a recovery, Paul Donovan, deputy head of Global Economics told CNBC.

Business Insider:

• Moody's Analyst Breaks Silence: Says Ratings Agency Rotten To Core With Conflicts, Corruption, And Greed.
• Who Is Behind The 'US Day Of Rage' Against Wall Street? What, exactly, is a “US Day of Rage?” Well, on September 17th we may find out for certain, but until then, The Blaze is revealing what information does exist about this very nefarious-sounding campaign.
• Europe Is A 'Focus of Terrorist Plots'. Europe is still “a focus of terrorist plots”, according to a new security report released by the US State Department.

Zero Hedge:

• Here Is Who Is Getting Creamed On Today's Hewlett Packard(HPQ) Bloodbath... And Why It Is Just Not Paulson's Year.

New York Times:

• Number of "Green Jobs" Fails to Live Up to Promises.

MIT Technology Review:

• The Cause of Riots and the Price of Food. (graph) If we don't reverse the current trend in food prices, we've got until August 2013 before social unrest sweeps the planet, say complexity theorists.

Gallup:

• Obama Job Approval: 40% Approve, 52% Disapprove. (graph)

Reuters:

• Hedge Fund Cairn Sees France, Germany Downgrades. France's top AAA credit rating is likely to be downgraded and Germany could easily follow as the costs of bailing out weaker euro zone economies push up their own debt piles, says credit hedge fund firm Cairn Capital's chief investment strategist. London-based Cairn, which has $24.5 billion in assets under management and advice across its business, said either future contributions to the European Financial Stability Facility (EFSF) rescue fund, or France's own economic troubles, could see it lose its coveted rating. "There are very deep economic flaws in the whole euro mechanism," said Graham Neilson, citing high debt levels, weak growth, divergence between member states and the European Central Bank's focus on inflation expectations. "France is likely to be downgraded either on its own metrics but more likely as a result of potentially higher EFSF costs. The bigger the EFSF, the more France is liable (and) the worse France's credit rating the more it could be liable." France's own economics could also lead to a downgrade, said Neilson. "France's banks are three times more exposed to Italy than any other banking system in Europe and France's debt metrics and growth profiles are poor." He added that Germany was also vulnerable to a downgrade, which would likely increase its cost of borrowing and put further stress on the global economy after S&P's downgrade of the United States earlier this month. "Germany could also quite easily be downgraded if the EFSF is forced to be larger, in a scenario where France and Germany end up with debt to GDP ratios of 120-125 percent. That's not good, that's not AAA," he said, adding that was likely to be the reason the EFSF had so far not been increased in size.
• Jobless Rates Rise in Many U.S. States in July. Unemployment rates increased in more than half of the U.S. states in July as the shaky national economy took its toll on jobs, Labor Department data released on Friday showed. Unemployment rates rose in 28 states and the District of Columbia, while they fell in nine states and were unchanged in 13, according to the data.
  
• Bank Funding Costs Rise on Europe Tension. The benchmark for unsecured dollar loans between banks, three-month Libor LIBOR, rose above 30 basis points for the first time since early April.
• ECB's Stark: Risky to Keep Rates Too Low For Long. European Central Bank heavyweight Juergen Stark said leaving interest rates too low for too long was risky, highlighting reservations at the ECB about reversing policy course despite markets' recession fears.
• French PM: Euro Bonds Could Threaten French Rating. French Prime Minister Francois Fillon on Friday reiterated his country's opposition to the introduction of common euro zone bonds without further fiscal consolidation in the currency bloc, saying such a move could threaten France's AAA credit rating. "Some people are calling for the creation of European bonds ... which they present as a panacea," Fillon wrote in an editorial published in Le Figaro daily. "But they forget to say that would raise the price of French debt and could even call its credit rating into question."
• Illinois Tool Works(ITW) Reports Slowdown in Growth. Industrial conglomerate Illinois Tool Works Inc said on Friday that growth at a number of worldwide end markets slowed through the three-month period ended July 31.

Telegraph:

• Barack Obama's Martha's Vineyard Vacation Looks Like An Act Of Presidential Hara-Kiri. With 14 million Americans out of work, a volatile stock market and a historic downgrade of the country’s credit rating, President Obama is set to begin a 10-day retreat Thursday at a 28-acre Martha’s Vineyard compound called Blue Heron Farm, which costs an estimated $50,000 per week to rent. That divide — and the presumed hypocrisy of a president who has pledged not to rest “until every American looking for a job can find one,” going golfing and biking on an island playground for wealthy celebrities — has been too much for political pundits to resist.

WAZ:

• S&P's Rating Services' German Unit head Torsten Hinrichs is "skeptical" about a possible issuance of common euro-area bonds, citing an interview. "The main condition for joint euro bonds to work in the long term would be a strong political and economic integration in Europe. We are still far away from that," he said.

Tiroler Tageszeitung:

• Jean-Claude Juncker, who leads the group of euro-area finance ministers, said the countries sharing the currency must give up sovereign powers for a common "economic government" to make sense, according to an interview. "An economic government without relinquishing national competencies would be dead on arrival," Juncker was quoted as saying.

Expansion:

• Spanish Prime Minister Jose Luis Rodriguez Zapatero will bring back a wealth tax he suspected in 2008 to attempt to meet his budget deficit-reduction target, citing people familiar with the government's plans. The measure may be reinstated as early as today.

Savon Sanomat:

• No country is likely to get collateral for their loan guarantees to Greece and thus Finland probably won't participate in the Greek bailout, OP-Pohjola Group CEO Reijo Karhinen said. "For the first time I'm concerned the euro system may fail," Karhinen, who heads Finland's second-biggest banking and insurance group, said.

Kathimerini:

• Greece's 2011 budget deficit may exceed the 7.6% of GDP target given a higher-than-expected decline in economic growth and rising unemployment. Finance Minister Evangelos Venizelos informed the cabinet yesterday of the possible need to either re-discuss the deficit target with its lenders or consider further fiscal measures worth between 3 billion and 4 billion euros to achieve the original target.

Marbridge Daily:

• China's MIIT Prepares New Online Search Regulations. According to a source within China's Ministry of Industry and Information Technology (MIIT), relevant MIIT departments have drafted new regulations for the online search industry, including restrictions that would affect Chinese internet company Baidu's (Nasdaq: BIDU) paid search rankings. MIIT is currently seeking feedback on the regulations, according the source, and has no timetable set for implementation. MIIT has reportedly been assessing search engine companies since as early as 2009 in order to accelerate the development of legal oversight mechanisms, but has yet to implement any such regulations. According to the source, MIIT's next step will be to implement its new policies, which will include restrictions on paid search advertising like Baidu's.

Haaretz.com:

• Israel Air Force Bombs Targets in Gaza Following Deadly Terror Attack. Palestinian attacks on Israel continue, firing 22 Grad and Qassam rockets into south Israel over the course of Friday afternoon; IAF kills two PRC activists in strikes.