Today's Headlines

Bloomberg:

• Spain Regional Rescue Risk Tipping Point on Yields: Euro Credit. Spain’s plan to help cash-strapped regions sell debt risks piling additional liabilities on the central government as borrowing costs approach the level that pushed other nations into bailouts. The government is under pressure to devise a way to help the nation’s 17 regions regain access to capital markets. Yields on 2013 debt issued by Catalonia, the biggest and most-indebted region, traded at 8.3 percent today, compared with 3.6 percent for equivalent Spanish securities and 4.3 percent for state- guaranteed bonds. Spain is weighing how to rescue the regions as the rate on its 10-year debt moves closer to the 7 percent level that led Greece, Ireland and Portugal to seek aid from the European Union and the International Monetary Fund. The regions, which owe a combined 140 billion euros ($175 billion), are adding to the burden as liabilities swell following the bailout of Bankia group, the country’s third-biggest lender. “Some kind of central-government funding that gets disbursed to the regions is probably the most cost-effective way to do it,” said Harvinder Sian, a London-based fixed-income strategist at Royal Bank of Scotland Group Plc. “The problem is loading up on extra issuance at this point where the market is fragile; it could be a tipping point to get you toward 7 percent.”
• Rajoy Seeks European Backing as Spain's Access Narrows. Spain backtracked on a plan to use government debt instead of cash to bail out Bankia, as Prime Minister Mariano Rajoy struggles to shore up the nation’s lenders without overburdening public finances. An Economy Ministry spokesman said yesterday that the government was considering using an injection of treasury debt instead of cash to recapitalize BFA-Bankia, as laid out in legislation approved in February. Spanish bond yields rose and investors criticized the idea, which the spokesman, speaking anonymously under ministry policy, said today had become a “marginal” option for the 19 billion-euro ($24 billion) rescue.
• Spain Delays and Prays That Zombies Repay Debt: Mortgages. Spanish banks are masking their full exposure to soured property loans while they continue to prop up zombie developers, leading to credit-rating downgrades and plummeting share prices. Spain is working to clean up its banks, requiring lenders set aside more for possible losses on loans deemed performing to developers like Metrovacesa SA (MVC), which hasn’t completed a project in more than a year and has none under way. While that represents about 30 billion euros ($38 billion) of increased provisions, it’s not enough because many loans said to be performing aren’t being repaid, according to Mikel Echavarren, chairman of Irea, a Madrid-based finance company specializing in real estate. “Spain has engaged in a policy of delay and pray,” Echavarren said in an interview. “The problem hasn’t been quantified by anyone because there is huge pressure not to tell the truth.”
• Greek Euro Exit Aftershocks Risk Reaching China. Greece, responsible for 0.4 percent of the world economy, now poses a threat to international prosperity as investors raise bets its days using the euro are numbered. A Greek departure from the currency would inflict “collateral damage,” says Pacific Investment Management Co.’s Richard Clarida, a view echoed by economists from Bank of America Merrill Lynch and JPMorgan Chase & Co. At worst, it could spur sovereign defaults in Europe as well as bank runs, credit crunches and recessions that may spark more euro exits. Global trade and financial ties mean the pain wouldn’t be confined to the euro area. JPMorgan Chase estimates a 1 percentage point slump in the euro countries’ economy drags down growth elsewhere by 0.7 percentage point. Exporting nations from the U.K. to China would suffer and commodity producer Russia would face falling oil prices. While the U.S. may fare better, even it would feel echoes similar to the financial infection following the bankruptcy of Lehman Brothers Holdings Inc.
• Spain Banks Are 'Done and Dusted,' Savoldelli Says. (video) Fabio Savoldelli, finance professor at Columbia University, talks about hedge-fund strategy for Europe and the region's debt crisis.
  
• China Has No Plan For Large-Scale Stimulus, Xinhua Says. China has no plan to introduce stimulus measures on the scale deployed during the global financial crisis to counter this year’s economic slowdown, the official Xinhua News Agency reported. “The Chinese government’s intention is very clear: It will not roll out another massive stimulus plan to seek high economic growth,” Xinhua said yesterday in the seventh paragraph of a Chinese-language article on economic policy, without attributing the information. “The current efforts for stabilizing growth will not repeat the old way of three years ago.” The Xinhua article made no mention of central bank tools including interest rates and the reserve-requirement ratio, previously used to bolster growth. It carried the byline of two reporters and wasn’t labeled as opinion or commentary. Pumping in government money to achieve growth targets is “not sustainable” and China will instead focus on encouraging private investments in railways, infrastructure, energy, telecommunications, health care and education, the story said.
• China Investment Appeal Waning Adds to Wen's Challenge. China’s rising labor costs and a deteriorating regulatory environment are prompting almost a quarter of European Union companies to consider shifting investments to other countries, a survey showed. Twenty-two percent of 557 respondents said they may move investment to developing economies including those in Southeast Asia and South America, where doing business is easier, according to a confidence survey conducted in February by the EU Chamber of Commerce in China and Roland Berger Strategy Consultants and released today in Beijing.
• FHFA Index release showed half of U.S. states' housing prices have yet to bottom out; housing will continue to pressure state/local govt budgets, writes RBC Capital Markets Municipal strategist Chris Mauro. Housing market strength has been concentrated in agricultural, resource rich states, he said.
• Consumer Confidence In U.S. Fell in May to Four-Month Low. Confidence among U.S. consumers unexpectedly fell in May to the lowest level in four months as optimism about employment prospects faded. The Conference Board’s index decreased to 64.9 this month from a revised 68.7 in April, figures from the New York-based private research group showed today. The share of Americans expecting fewer job opportunities in the next six months climbed to the highest level since November, raising the risk that consumers will limit spending. A 30-cent decline in gasoline prices since early April failed to brighten spirits, showing that more progress is needed in the job market. The Conference Board’s measure of present conditions decreased to 45.9, the weakest reading since January, from 51.2 a month earlier. The gauge of expectations for the next six months fell to 77.6 from 80.4. “Taken together, the retreat in the present situation index and softening in consumer expectations suggest that the pace of economic growth in the months ahead may moderate,” Lynn Franco, director of economic indicators at the Conference Board, said in a statement. The share of consumers who said jobs are currently plentiful decreased to 7.9 percent from 8.4 percent. Those who said jobs are hard to get climbed to 41 percent from 38.1 percent.
• Home Prices in U.S. Fall Again in March. The S&P/Case-Shiller index of property values fell 2.6 percent from a year earlier after a 3.5 percent drop in February, the group reported today in New York. The decline matched the median forecast of economists surveyed by Bloomberg News.
• Miami Hedge Fund Misled Clients About Managers' Stake, SEC Says. A Miami-based hedge fund and two of its executives agreed to pay almost $3 million to resolve U.S. regulatory claims that they deceived investors about their own stake in the fund and failed to disclose conflicts of interest. Quantek Asset Management LLC falsely represented that it had “skin in the game” along with investors in a $1 billion Latin America-focused hedge fund from 2006 to 2008, the U.S. Securities and Exchange Commission said today in an administrative order. Quantek, which made the claims in due diligence questionnaires and so-called side-letter agreements, also didn’t properly disclose loans to one of the executives and its former parent company, Bulltick Capital Markets Holdings LP, the SEC said.
• Facebook(FB) Shares Slump Below $30 As Options Trading Starts. Facebook Inc. (FB) shares fell to a new low, extending losses from the worst-performing large initial public offering during the past decade to more than 20 percent. The stock fell 7.4 percent to $29.55 as of 12:07 p.m. in New York, below the prior low of $30.94 on May 22. Facebook debuted on May 18 after underwriters sold shares at $38.

Wall Street Journal:

• Flat U.S. Wages Help Fuel Rebound in Manufacturing. The celebrated revival of U.S. manufacturing employment has been accompanied by a less-lauded fact: Wages for many manufacturing workers aren't keeping up with inflation. The wage lag is a key factor contributing to the rebounding competitiveness of U.S. industry. A recent uptick in factory employment and the return of some production to U.S. shores from abroad both added jobs that probably otherwise wouldn't exist. But sluggish wages also are squeezing workers' incomes and spending. That, in turn, hurts retailers who target middle-income earners and restrains the vigor of the economic recovery.
• BofA(BAC)-Merrill Analysts Slash Estimates On Investment Banks. Bank of America Merrill Lynch analysts this morning have slashed earnings estimates on J.P. Morgan, Goldman Sachs, Morgan Stanley and Citigroup, warning about weak investment banking revenues. The analysts, led by Guy Moszkowski, warn that the first-quarter revenue improvement “did not represent sustained industry inflection point,” and that several other larger fears have now contributed to concerns as well. Those include the ongoing European mess, the impact on regulations from J.P. Morgan’s trading losses and Moody’s looming threat of downgrades. All of that could keep bank shares “range-bound” for the summer months.
• Chinese Banks Back Away From Europe Lenders. Some of China's biggest banks have cut off a handful of their European counterparts from borrowing and derivatives trading as they seek to reduce their exposure to the simmering crisis on the Continent, people familiar with the matter said. Chinese state-owned banks including Industrial & Commercial Bank of China Ltd., Bank of China Ltd. and Bank of Communications Co. have scaled back their dealings with France's Société Générale SA, BNP Paribas SA and Crédit Agricole SA and at least in one case with Switzerland's UBS AG, people familiar with the matter said.
• Union Urges No Vote on Caterpillar(CAT) Offer. Union leaders at a Caterpillar Inc. plant here say they will urge striking workers to reject a slightly revised contract offer from the maker of construction and mining equipment. "It's still a terrible contract," Tim O'Brien, president of the local branch of the International Association of Machinists and Aerospace Workers, or IAM, said in an interview on Tuesday. The workers, who have been on strike for a month, are due to meet Wednesday morning to vote on the latest Caterpillar offer. Mr. O'Brien said about 780 workers are out on strike.

MarketWatch:

• Spain Pressured as Market Weighs Bankia Fallout. Bankia SA shares recovered some of a nearly 30% drop on Monday, but stayed significantly lower as markets got the first chance to react to news of a bigger-than-expected bailout need for the troubled lender and mulled the broader implications for the euro-zone crisis. Shares of Bankia (ES:BKIA), which had been suspended Friday ahead of that bailout news and took several minutes to begin trading on Monday, sank to an all-time low of €1.11 at one point, but ended off 13% to €1.36, according to FactSet Research.
• Are T-Bonds Sending Us a Warning?
  

CNBC.com:

• Big Shift in ECB Balance Sheet a Sign of Banking Stress?

Business Insider:

• 50 Brands That Are Changing Our World.
• The Governor Of The Bank Of Spain Will Leave His Post Early After Charges Of 'Grave Misconduct' Over Bankia.
• Chart: Here's Why Renewable Energy Has Miles To Go Before It Leaps Into Mainstream.
• This is the Report That Might Be Freaking Everyone Out About Europe Right Now.
• Dallas Fed Manufacturing Report Plunges to -5.1(analysts expected 3.0).
• Just Keep Refreshing This Page Every Day For The Rest Of The Week.
• Spanish Retail Sales Have Their Largest Collapse In History. (graph)
  

Zero Hedge:

• Is Germany's CDS Pricing a 6% EUR Devaluation? (graph)
• Egan Jones Cuts Spain Again: From BB- to B, Outlook Negative.

Fiscal Times:

• JPMorgan's(JPM) Loss: What Banks Still Haven't Learned by Knowledge@Wharton.

Reuters:

• Lower Rates Give No Respite To Brazil Stocks. In normal times, an aggressive central bank campaign to cut interest rates would provide fodder for stock market bulls. That’s not happening in Brazil. Its interest rate, the Selic, has fallen 350 basis points since last August and is likely to fall further at this week’s meeting to a record low of 8.5 percent. Yet the Sao Paulo stock market is among the world’s worst performers this year, with losses of around 4 percent. That’s better than fellow BRIC Russia but far worse than India and China.
• The Future of the Euro is at Stake: Spanish Deputy PM. Europe must move quickly with measures to pull Spain back from the brink of a debt crisis, with the future of the euro common currency at stake, Spanish Deputy Prime Minister Soraya Saenz de Santamaria said. Saenz, a long-time politician in the centre-right People's Party, spoke with Reuters Editor-at-Large Harold Evans during a critical week for Spain as it seeks to fund a 19-billion-euro rescue of one of its biggest banks and the country's autonomous regions face a liquidity crunch.
• Hedge Funds Take Bets Against Core Euro Zone Bonds. Hedge funds are piling into bets against the bonds of core euro zone countries like Germany and France, signaling a growing fear that nations once considered safe havens could be dragged down by the crisis in peripheral states like Greece and Spain. After a buoyant first quarter for markets, when fears over the euro zone debt crisis receded thanks to a 1-trillion-euro ($1.3 trillion) cash boost from the European Central Bank, hedge funds have been quick to make sure they don't miss out as concerns over the future of the single currency resurface. Rather than bet on the likes of Greece and Spain, whose problems are now well documented, funds are shorting the bonds of core countries as a so-called 'tail hedge' - the purchase of protection against extreme events such as the launch of eurobonds, which would drive up the cost of borrowing for Germany, or even a break up of the currency bloc.

Telegraph:

• Spain's Rajoy Fights Losing Battle to Stave Off EU Rescue. Spanish premier Mariano Rajoy has given a fateful hostage to fortune. He told the nation that there will no EU rescue of Spain's banking system, even as `Black Monday' brought a further crash in bank shares and the IBEX index dropped to nine-year lows.
• Debt Crisis: A $46 Trillion Problem Comes Sweeping In. Bad stuff, they say, comes in threes. We've already got the banking and the eurozone sovereign debt crises. Next comes the corporate funding crisis.

Capital.gr:

• Spain Debt Insurance Costs Near Record High. The cost of insuring Spanish debt against default was brushing its record highs Tuesday, as the troubles of its banking sector continue to concern investors. At around 0750 GMT, five-year credit default swaps on Spain were at 554 basis points, three basis points off the record high closing level of 557 basis points reached late Monday, according to data-provider Markit. On Monday, the yield on Spanish 10-year government bonds touched 6.5%. Italy's debt insurance costs rose two basis points to 521 basis points ahead of a sizeable, up to ER8.5 billion, six-month paper auction, while other European countries CDS spreads were more mixed. France was five basis points tighter at 200 basis points and Germany was stable at 99 basis points, just below the psychological threshold of 100 basis points. The iTraxx SovX Western Europe index of 15 European sovereigns was one basis point tighter at 315 basis points.

Valor Economico:

• Brazil's President Dilma Rousseff is concerned that the economic crisis in Spain may undermine investments in the Latin American country and will discuss the matter in a meeting with King Juan Carlos next week, citing a government official. In the first four months of the year, Spain invested $739 million in Brazil, down from $4.7 billion in the same period a year ago.
  

O Globo:

• The Brazilian government may revoke measures taken since 2010 to weaken the real and curb credit expansion if there are indications of a global collapse.