Today's Headlines

Bloomberg:

• Merkel Rejects Euro-Area Breakup, Presses Debt Cuts. German Chancellor Angela Merkel rejected a breakup of the euro area, saying the currency’s failure would threaten European unity and prosperity built up since World War II. A return to national currencies by debt-strapped countries such as Greece and Spain, or a German return to the deutsche mark, isn’t a solution to the debt crisis that requires all European countries to commit to austerity, Merkel said in a speech in the eastern German city of Magdeburg today. “Do we peoples of Europe want to return to going it alone?” she said. “Or do we want to move forward together? Are we ready to recommit to Europe and sacrifice more for Europe, so Europe and the euro can survive the severe test it is facing during these months and emerge stronger than before? I’m in favor of us daring to do exactly that.” Merkel’s remarks came as polls show a majority of Germans wary of bailouts for other euro-area countries and lawmakers in her coalition seek to limit the scope for future contributions by Germany, Europe’s largest economy and the biggest single contributor to the aid packages. “If the euro fails, the European project will be put at risk,” she said in Magdeburg’s medieval cathedral after receiving the city’s Emperor Otto Prize for leadership on European integration. “That is why we are doing everything possible to bolster the currency.”
• Greek Two-Year Yields Surge to More Than 44% on Deepening Bailout Concern. Greek two-year notes slumped, driving yields to a euro-era record, on concern the nation’s second bailout will be delayed as its euro-region partners squabble over a collateral deal. Italian two-year notes fell before the nation sells 10.5 billion euros ($15.1 billion) of debt this week, even as the European Central Bank bought the securities today. The ECB also purchased Spanish debt, according to people familiar with the transactions. Greek yields have surged since Finland said on Aug. 16 it secured a collateral deal to ensure its contribution would be repaid, garnering criticism from other euro-area nations. German bonds fell as the nation sold 10-year debt. “There are concerns that the second aid package won’t go through,” said Christoph Rieger, head of fixed-income strategy at Commerzbank AG in Frankfurt. “If Finland sticks to its word and demands collateral, we will be in a gridlock situation.” Greek two-year yields soared more than 4 percentage points to a record 44.08 percent as of 3:58 p.m. in London.
• Gold Tumbles Most Since December 2008. Gold plunged in New York, heading for the biggest drop in 18 months, on speculation that financial markets may be stabilizing, eroding the appeal of the precious metal as a haven. Bullion has tumbled more than 5 percent in two days, erasing gains in the past two weeks that sent the metal up as much as 16 percent since Aug. 5 to a record $1,917.90 an ounce yesterday. On Aug. 16, Wells Fargo & Co. said rising speculative demand from investors had pushed the market into a “bubble that is poised to burst.” “This is liquidation from a crowded trade,” Adam Klopfenstein, a senior market strategist at MF Global Holdings Ltd. in Chicago, said in a telephone interview. “In the short run, there’s more optimism and that doesn’t bode well for gold. Investors have been using gold more as a fear barometer than a proxy for inflation.” Gold futures for December delivery plunged $72.30, or 3.9 percent, to $1,789 an ounce at 12:11 p.m. on the Comex in New York. A close at that level would be the biggest loss since Feb. 4, 2010.
• Bank Default Swaps at Record High as Fed Boost Bets Evaporate. Credit-default swaps insuring bank debt rose to a record in Europe as investors pared bets the Federal Reserve will pledge a third round of stimulus measures to boost the U.S. economy. The cost of contracts on the Markit iTraxx Financial Index of swaps linked to senior debt of 25 banks and insurers climbed 4 basis points to 255, according to JPMorgan Chase & Co. at 5:30 p.m. in London. The subordinated index was up 15 at an all-time high of 460, based on closing prices. The cost of insuring company debt is also increasing, with the Markit iTraxx Crossover Index of default swaps on 40 companies with mostly high-yield credit ratings rising 24 basis points to 720.5, according to JPMorgan, the highest since July 2009. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 7 basis points to 172.5 basis points. The Markit iTraxx SovX Western Europe Index of swaps linked to 15 governments was little changed at 302 basis points.
• BofA(BAC) Has No Urgent Capital Need: Whitney. Meredith Whitney, the bank analyst who correctly predicted Citigroup Inc.’s dividend cut three years ago, said Bank of America Corp. (BAC) has no urgent need to raise capital. The shares rose as much as 11 percent. “I don’t think that there’s a mad dash to raise capital immediately,” Whitney said today in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “They’re going to steadily raise capital over time.”
• Qaddafi Vows 'Martyrdom' as Hunt Intensifies. Muammar Qaddafi vowed “martyrdom” or victory a day after Libyan rebels overran his Bab Al Aziziya compound in Tripoli. Qaddafi, 69, also called on his supporters to “cleanse” Tripoli of “rats,” Al Arabiya television reported, citing a recording of comments broadcast early today by a local radio station.
• Orders for Durable Goods in U.S. Rise 4%. Orders for U.S. durable goods climbed more than forecast in July as a surge in demand for aircraft and autos eclipsed a decrease in business equipment, including computers and machinery. Bookings for goods meant to last at least three years rose 4 percent, the most in four months, after falling a revised 1.3 percent in June, a Commerce Department report showed today in Washington. The median projection of 81 economists surveyed by Bloomberg News called for a 2 percent gain. Orders excluding the volatile transportation category, unexpectedly advanced 0.7 percent. Orders for non-defense capital goods excluding aircraft, a proxy for future business investment, dropped 1.5 percent, the most in six months, after a revised 0.6 percent gain in June. Shipments of those items, used in calculating gross domestic product, increased 0.2 percent after rising a revised 1.9 percent the prior month that was more than previously estimated.
• Hurricane Irene Heads for U.S. Northeast. Irene strengthened to a Category 3 major hurricane as it churned through the Bahamas today on a path forecast to take it to North Carolina’s Outer Banks and into New England. The storm, with winds of 115 miles per hour (185 kilometers per hour), may cause “devastating damage,” the National Hurricane Center said in an advisory at 11 a.m. Eastern time. Evacuations began today on the Outer Banks.
• Wall Street Banks Plan $5 Billion in CMBS Sales as Spreads Soar. Wall Street banks are planning to sell as much as $5 billion of bonds tied to commercial mortgages as they offload loans agreed to before credit markets stumbled and amid growing concern that the economy is faltering. The securities will be offered in September and October, bringing 2011 sales to about $25 billion, according to Julia Tcherkassova, a commercial-mortgage debt analyst at Barclays Capital in New York. The extra yield buyers demand to own top-ranked commercial- mortgage debt rather than Treasuries jumped 69 basis points since the end of July to 295 basis points, or 2.95 percentage points, according to a Barclays Plc index. The spread reached 298 basis points on Aug. 9, the widest level since July 2010.

Wall Street Journal:

• Rebels Set Gadhafi Bounty; Tripoli Fighting Goes On. With fresh gunfire erupting in and around Tripoli on Wednesday, Libya's rebel leadership acknowledged that the battle to control the North African country is far from over, and offered a financial reward of more than $1 million for anyone who captures Col. Moammar Gadhafi.
• Tens of Thousands of Greek Businesses Face Closure - Survey. Tens of thousands of small Greek businesses could shut down in the next year, a local trade group warned Wednesday, adding that a quarter of a million jobs could soon be lost as a result.
• IHS Ups Media-Tablet Forecast On Strong iPad Growth. Industry researcher IHS iSuppli raised its forecast of media tablet shipments this year, saying Apple Inc.'s (AAPL) iPad will continue to dominate the fast-growing market for years.
  

CNBC.com:

• CBO Warns of Recent Negative Economic Data. The United States could be in for a prolonged economic "slump," Congressional Budget Office Director Douglas Elmendorf said on Wednesday as his agency released its latest estimates of the country's fiscal situation. In a blog released along with the unveiling of CBO's updated budget and economic outlook, Elmendorf said that recent turmoil in global financial markets "threatens to prolong" a "severe slump" the United States finds itself in. He also said that the CBO forecast released on Wednesday did not take into account some economic indicators released over the past several weeks and some other developments. "Incorporating that news would have led CBO to temper its near-term forecast for economic growth," Elmendorf said.

Business Insider:

• Why China's Debt Problems Are Worse Than America's.

Zero Hedge:

• Downside Hedge Fund Bets on S&P 500 Highest Since 2008. Who says hedge funds are ambivalent about the current market? As of last week, they have not been more bearish on the S&P since before Lehman. From SocGen: "Hedge funds have opened the biggest net short positions since early 2008, concentrated on the most liquid segment of the market, i.e. the S&P 500.
• Dozens of Italian Businessmen Send Letter to Parliament Demanding Imposition of Capital Controls Instead of EPS Cutting Austerity.
  

Harvard Journal of Law & Public Policy:

• Obama Should Change Course On Climate Fight. Although Congress did not put climate change legislation on President Obama's desk, the Obama Administration still moved ahead with various regulatory measures to control greenhouse gas emissions. Using authority under the Clean Air Act and other existing environmental statutes, the EPA and other agencies have been expanding existing regulatory programs to cover GDG emissions and address climate change concerns. Several measures are already in place and others are in the regulatory pipeline, although citizen suit litigation could produce still more. These initiatives will produce a dramatic expansion of federal environmental controls on private economic activity. Taken together, these controls could represent the largest expansion of federal environmental regulation in decades, and yet they have never been explicitly endorsed, yet alone authorized, by Congress. Worse still, there is little reason to believe that these measures will do much to reduce the threats posed by global climate change. Extensive GHG regulation will not notably mitigate projected warming.

Gallup:

• Obama Job Approval: Approve 39%, Disapprove 53%. (graph)

Reuters:

• "Black Box" Hedge Funds Profit in Volatile Markets. Hedge funds run by sophisticated computer programs are profiting from large falls in stock markets and a rocketing gold price this month, even as funds managed by human beings struggle to cope with high market volatility. Insiders say so-called managed futures funds, which try to latch onto market trends, are making money from declining bond yields and falling equities, as investors seek safe havens amid the eurozone debt crisis and after the U.S.'s credit rating downgrade. These "black box" funds are up 4.2 percent so far this month, according to Hedge Fund Research's HFRX index, while the average hedge fund is down 4.0 percent and managers betting on rising and falling stock prices have lost a hefty 7.3 percent on average.

Telegraph:

• Germany Fires Cannon Shot Across Europe's Bows. German President Christian Wulff has accused the European Central Bank of violating its treaty mandate with the mass purchase of southern European bonds.

Handelsblatt:

• The euro region's bailout fund won't get blanket powers from the German parliament to help indebted nations, the president of the country's lower chamber said, denying an earlier report. Norbert Lammert, a member of the ruling Christian Democrats and parliament's most senior lawmaker, said a report in the newspaper today citing plans by Finance Minister Wolfgang Schaeuble to pass parliamentary control over bailouts to the fund would "definitely not happen."
  

Finanza & Mercati:

• Italy may extend the so-called Robin-Hood tax to telecommunications and highway companies.

Middle East News Agency:

• The European Commission approved a $145 million aid package to Egypt to help improve living conditions in Cairo and create jobs, citing a statement by the commission. Some of the funds will go toward recycling and renewable energy projects, citing the statement.