- Credit Suisse(CS) Cut 3 Levels as Moody’s Downgrades Banks. Credit Suisse Group AG credit rating was cut three levels and Morgan Stanley (MS)’s was reduced by two as Moody’s Investors Service downgraded 15 banks in moves that may shake up competition among Wall Street’s biggest firms. Credit Suisse was cut to A2, the same as JPMorgan Chase & Co. (JPM) and BNP Paribas SA (BNP), as Moody’s completed a review of global banks with capital-markets operations it announced in February. Morgan Stanley and Zurich-based UBS AG (UBSN), the other firms singled out for three-level reductions, were lowered two steps instead, the ratings firm said yesterday in a statement. “All of the banks affected by today’s actions have significant exposure to the volatility and risk of outsized losses inherent to capital-markets activities,” Moody’s Global Banking Managing Director Greg Bauer said in the statement. Lower ratings can lead to higher costs for borrowing and collateral. The downgrades leave Citigroup Inc. (C) and Charlotte, North Carolina-based Bank of America Corp. (BAC) as the lowest-rated banks among the 15 at Baa2, two levels above junk. Moody’s kept the long-term ratings of both lenders on negative outlook, which means they may be cut again.
- IMF Sees Euro Crisis at Critical Stage, Sees Bank Stress. The euro area crisis has reached a “critical stage” and member nations must make a “strong commitment” to the shared currency to stop the plunge in investor confidence, the International Monetary Fund said in a report that recommended issuing common debt as one solution. “Despite extraordinary policy actions, bank and sovereign markets in many parts of the euro area remain under acute stress, raising questions about the viability of the monetary union itself,” the Washington-based organization said in a report today. “The financial and economic environment continues to deteriorate. Investors are withholding funding from member states most in need, moving capital to safe havens and driving risk premiums to new records.” Europe’s monetary system needs a closer union of its banks and more fiscal integration to “arrest the decline in confidence engulfing the region,” the IMF said. A “strong commitment” to the monetary union would restore faith in the shared currency, the organization said.
- Rajoy’s Blown Credibility Puts Spain at Risk of Sovereign Rescue. Spanish Prime Minister Mariano Rajoy has spent much of the political capital he won seven months ago in the biggest landslide in 30 years, floundering against a crisis that risks making Spain the first $1 trillion economy to need a sovereign bailout, investors and analysts say. Rajoy, singled out by leaders at the Group of 20 summit, has been taunted by opposition lawmakers and commentators as borrowing costs soared to a euro-era record even after Spain’s banks received a 100 billion-euro ($127 billion) lifeline. Rajoy called the rescue a victory that solved lenders’ problems. “He clearly doesn’t get it,” said Gary Jenkins, founder of Swordfish Research Ltd. near London, who has tracked bond markets for more than 15 years. “Spain needs someone who can come in and grasp the seriousness of the situation and react to that, not just pretend everything’s okay.”
- Euro Chiefs Spar on Greek, Spanish Aid. European finance ministers battled over the strategy to contain the debt crisis, with creditor countries resisting leniency for Greece and playing down market concerns about the bailout of Spanish banks. Lenders of 240 billion euros ($301 billion) to Greece offered no sign of granting extra time for the newly installed Athens government to meet deficit-cut targets. With Spain set to request as much as 100 billion euros to rescue its teetering banks, the officials quarrelled over how to design a recapitalization program that doesn’t scare investors away from Spanish government bonds. “We still need progress on this issue,” French Finance Minister Pierre Moscovici told reporters late yesterday after a meeting of euro-area finance ministers in Luxembourg. The setup of the Spanish package is so politically sensitive that it will be decided by government leaders at a June 28-29 summit. That summit, the 19th since Greece’s financial meltdown rattled the euro, will try to resolve competing visions over how to reshape the 17-nation economy, with Germany and its fiscally disciplined neighbors unwilling to foist additional burdens on their taxpayers. A foretaste of that confrontation will come later today, when German Chancellor Angela Merkel travels to Rome for crisis talks with Italian Prime Minister Mario Monti, Spanish Prime Minister Mariano Rajoy and French President Francois Hollande. The configuration reflects the shifting alliances that have left Merkel fighting increasingly on her own as concerns about Europe’s economic health migrate from small countries on the periphery to larger ones in the core.
- France to Restrict Minimum Wage Increase to 2%, Echos Reports. The French government will restrict an increase in the minimum wage to no more than 2 percent, Les Echos reported, without citing anyone. An official decision will be taken by June 26, when the government is due to meet with labor unions and employers, the newspaper said. An increase as of July 1 will take the gross hourly minimum wage to 9.40 euros ($11.80), Les Echos reported.
- Commodities Fall Into a Bear Market. Commodities tumbled into a bear market as U.S. reports on manufacturing, jobless claims and home sales signaled a faltering economy after the Federal Reserve refrained from announcing another round of stimulus. The Standard & Poor’s GSCI Spot Index of 24 raw materials fell 2.8 percent to settle at 559 at 3:56 p.m. New York time. The gauge has dropped 22 percent from this year’s highest close of 715.52 on Feb. 24, entering a bear market. Earlier, the measure touched 558.14, the lowest since November 2010. Metals and energy led today’s slump.
- FDA report shows extent of problems with metal-on-metal hip implants. Almost 16,800 adverse events associated with metal-on-metal hip implants were reported in the U.S. from 2000-2011, regulators said. The reports almost quadrupled to 682 in 2008 from the year earlier, and rose again after a unit of Johnson & Johnson began recalling hip devices in 2010, according to report posted today on the Food and Drug Administration’s website. Adverse event reports in 2011 totaled 12,137 for the metal-on-metal devices, compared with 6,332 associated with other types of hip implants, according to the FDA document.
- Made in China Not Worth Hassle for Small Firms Returning to U.S. When Sonja Zozula and Jerry Anderson founded LightSaver Technologies Inc. in 2009, everyone told them they should make their emergency lights for homeowners in China. After two years of outsourcing to factories there, last winter they shifted production to Carlsbad, California, about 30 miles (48 kilometers) from their home in San Clemente. “It’s probably 30 percent cheaper to manufacture in China,” Anderson says. Besides hassles including shipping, “it’s a question of, ‘How do I value my time at three in the morning when I have to talk to China?’” he says. As costs in China rise and owners consider the challenges of using factories 12,000 miles and 12 time zones away, many small companies have decided manufacturing overseas isn’t worth the trouble. American production is “increasingly competitive,” says Harry Moser, founder of the Reshoring Initiative, a group of companies and trade associations trying to bring factory jobs back to the U.S. “In the last two years there’s been a dramatic increase” in the amount of work returning.
- International Game(IGT), Bally(BYI) Win Nevada Online Casino Licenses. The Nevada Gaming Commission issued its first two licenses for online betting, bringing the state with the most casino revenue a step closer to real wagering on poker from home. International Game Technology (IGT), based in Reno, Nevada, and Las Vegas-based Bally Technologies Inc. (BYI) received approvals today, according to Michael Lawton, a senior research analyst with the Nevada Gaming Control Board. Companies must still get their systems approved by independent testing laboratories before starting service, Lawton said.
- Liquidnet Says SEC Investigating Dark-Pool Disclosures. The U.S. Securities and Exchange Commission is investigating Liquidnet Holdings Inc. for shortcomings in how the dark-pool owner guarded information about firms using its platform, according to a letter the company sent clients today. SEC staff is “conducting an investigation regarding these matters and has made additional requests for information and documents,” the operator of two equity trading venues said in an e-mail obtained by Bloomberg News. New York-based Liquidnet said the issues identified by the SEC involving its equity capital markets business have been corrected.
- India Puts Rise to Record. (video) Options traders are paying the most on record for bearish contracts on Indian stocks versus bullish ones, protecting against declines as inflation accelerates amid concern the country will lose its investment-grade status.
- Korea Home Price Slide Persists With Property Anxiety. Yook Jeong Soo last month renewed a two-year lease on his three-bedroom home on the outskirts of Seoul, preferring to pay the 30 percent rent increase his landlord demanded rather than buy in the city’s housing market. “The rent rise was huge, I know, but why should I bother buying a house now with borrowed money when I’m not so confident the price will go up?” said the 49-year-old office worker. “The heyday is over for the housing market.”
- Vanishing Households Undercut Claim of Australia Shortage. Australia has almost 1 million fewer households than assumed in government forecasts of a housing shortage, raising doubts about a supply shortfall cited as the main reason the nation will avoid a U.S.-style crash. The Pacific nation had 7.8 million households, data released yesterday from the 2011 Census showed. That compared with estimates of 8.7 million as of June 2010, according to the latest figures used by the National Housing Supply Council, a group created by the government in May 2008 to monitor housing demand, supply and affordability. Australia’s population also grew by 300,000 less than previously estimated, to 21.5 million.
- Gross Warns of Risk Assets as Aberdeen Underweight on Equities. Bill Gross, who runs the world’s largest mutual fund at Pacific Investment Management Co., warned against risk assets, as Aberdeen Asset Management Plc (ADN) said it’s underweight on stocks. Asian shares extended a global rout after manufacturing gauges for the euro area, China and the Philadelphia region signaled contraction. The Federal Reserve this week refrained from introducing a third round of so-called quantitative easing even as the central bank cut its U.S. growth forecast. Gross, who manages $261 billion for the Pimco Total Return Fund, said in a Twitter post that risk markets are vulnerable as the “monetary bag of tricks empties.” “We’re still certainly very comfortable running our underweight equity positions that we took out in March,” said Peter Elston, the Singapore-based head of Asia-Pacific strategy and asset allocation at Aberdeen, which oversees about $270 billion. “Economies will continue to contract. There will be this realization that the governments are not perhaps as able to act as they have been in recent years,” he said in an interview with Bloomberg Television today.
- A Closer Look at Bernanke's Incremental Approach. Federal Reserve Chairman Ben Bernanke has borne his share of criticism and puzzlement in the past 24 hours — both at his post-meeting press conference and in the blogosphere in places like this, this and this — for not moving more aggressively Wednesday to address a deteriorating economic outlook. The Fed could have launched a big new bond buying program, the thinking goes. Why not go ahead and do it right away, when the central bank’s forecasts for growth and unemployment look so much worse than they did in April and its inflation projections are falling?
- Who Is That Masked Hedge Fund? It is the latest in-vogue accessory among hedge-fund managers: a "masked fund." Bridgewater Associates has "ZQPGGAV00000," John Paulson has "Paulson Fund 1" while Cliff Asness's AQR Capital Management prefers "805-1355888867." The cryptic monikers, more product barcodes than real handles, enable the hedge-fund managers to shield the identities of their funds from the prying eyes of regulators and outsiders in forms filed with the Securities and Exchange Commission. Some 150 private investment advisers opted to mask the real names of their individual funds when they complied with new rules that forced many hedge-fund firms to register with the SEC.
- Emails Tie Goldman(GS) Manager, Rajaratnam. The ties between a top Goldman Sachs Group Inc. manager and the controversial hedge fund Galleon Group Inc. were closer than previously known.
- Courting the Chinese Buyer. Buyers from China are pouring billions into residential property—and developers are courting them with everything from feng shui to lucky numbers.
- EU Banks' Risk in Eyes of Beholder. Worry Is That Lenders Are Boosting Gauge of Their Health. Regulators and investors are concerned that some European banks are artificially boosting a key measure of their financial health, a worry that is further eroding market confidence in the Continent's banks. Such concerns have been building up for more than a year. But they have intensified lately, with a parade of banks announcing that they intend to increase their capital ratios—a key gauge of their abilities to absorb future losses—partly by tinkering with the way they assess the riskiness of their assets. Spanish banks, including Banco Santander SA, are among those that have announced plans to boost their capital ratios.
- In Europe, Idle Car Factories Live On. Few places illustrate the troubles of the European auto industry better than Fiat SpA's vast Mirafiori plant near Turin, Italy. The factory was churning out cars earlier this week but suddenly became a ghost town on Thursday and Friday, its production lines silent and the company's adjacent headquarters offices almost entirely empty and darkened. The same thing happened on two day earlier this month and will again on four more days in July. Shutdowns similar to those at Mirafiori have become a regular occurrence all across Western Europe and reveal an auto-industry crisis that is quietly reaching dire proportions.
- This Could Be The First Of Many Chinese Developers To Implode.
- A Video Of This Woman Getting Verbally Attacked by Teenagers Went Viral, And Now The Internet Has Raised More Than $300K To Make Her Feel Better. (video)
- Deutsche Bank's Bull Joe Lavorgna: Here's The Bad News....
- Here We Go: Moody's Downgrade Is Out - Morgan Stanley Cut Only 2 Notches, To Face $6.8 Billion In Collateral Calls.
- Taibbi Is Back With The Scam Wall Street Learned From the Mafia.
- No Fast Recovery Seen as M&A Activity Drops 25%. Mergers and acquisitions activity fell 25 percent worldwide in the first half of 2012 as global economic uncertainty reined in companies' expansion plans — and bankers don't expect much improvement over the rest of the year.
- As Facebook(FB) Seeks Answers, SEC Investigates Exchanges.
- NBC News Faces Shift in Television Dominance. Struggling with declining ratings across all three franchises, however, and with news this week that the network is preparing to replace Ann Curry on “Today,” NBC executives are facing a new narrative that is being embraced by the competition. For the first time in more than a decade, NBC News appears to be adrift.
- Women's Financial Confidence Falters. From 2011 to 2012, women became disproportionately less likely than men to pay their credit card balance in full each month, have an emergency savings fund and have a general understanding of stocks, bonds and mutual funds, the survey found. The gap between men and women widened by at least 6 percentage points in each of those cases. The survey results are particularly worrisome given women's longer life expectancy, combined with the fact that they have less income on average over time from being out of the workforce longer to care for children and subsequently less Social Security to fall back on, says Financial Finesse CEO Liz Davidson.
- Ryder(R) cuts forecast on weak rental demand. Logistics company Ryder Systems Inc cut its quarterly earnings forecast, citing lower demand for its commercial rental services. The company also plans to cut costs and reduce its commercial rental fleet as it expects the weakness to continue through the year. Used vehicle inventory will be high for the remainder of the year, Ryder said in a statement. "Although commercial rental revenue has improved both year-over-year and seasonally, May results reflected lower rental growth than previously discussed," Ryder said in a statement, blaming weak demand and pricing. Ryder forecast second-quarter earnings of 90 cents to 95 cents per share, down from its earlier view of $1.07 to $1.12 per share. Higher medical benefit costs are also expected to hurt earnings. Its shares fell 9 percent to $37 in after-market trading from its Thursday close of $40.75.
- Retail investors net sellers of equity funds-Lipper.
- U.S. Earnings Outlook Pounded by Global Turmoil. Weakening business activity worldwide is hitting U.S. companies where it hurts, with more of them signaling disappointing results than at any time over the past decade. Many bellwether companies, including two Dow components, have come out in recent days with profit warnings, and the slowing in Europe has been cited as a major factor for those outlooks. For every company that has raised its second-quarter profit outlook, 3.6 have warned, the worst ratio since the third quarter of 2001, according to Thomson Reuters data. Firms including PepsiCo Inc, package shipper FedEx Corp and tobacco company Philip Morris all lowered earnings expectations in recent days, citing concerns about Europe. On Wednesday, Procter & Gamble Co cut its growth forecasts for the second time in two months. The consumer products giant also reduced its profit view as it deals with slowing demand in Europe and China.
- Arch Coal(ACI) cuts tenth of workforce on weak market. Arch Coal Inc will cut about a tenth of its workforce, or 750 jobs, as it closes three higher-cost mining complexes and associated plants in response to the weak U.S. market for thermal coal.
- Troubling times for high fee ‘concierges’. The future of the battered funds of funds industry – which once accounted for as much as two-thirds of all investments in hedge funds worldwide – is coming under scrutiny. According to Hedge Fund Research, funds of funds now make up only a third of the hedge fund industry’s $2tn investor base. And many believe that is bound to shrink further.
- Debt crisis: desperate Monti needs Merkel summit deal to stop revolt at home. Italy's technocrat government risks a parliamentary mutiny unless premier Mario Monti can secure major concessions from Germany at a crucial summit of the eurozone's Big Four powers in Rome on Friday.
- The Fast and Furious scandal is turning into President Obama's Watergate. Fast and furious hasn’t been discussed a lot in the mainstream media, which is why the facts can seem so preposterous when you read them for the first time. But the story is slowly unraveling and the public is catching up with the madness.
- The IMF helping the euro is feeding the monster on our doorstep. IMF help would set the eurozone on the road to fiscal and political union – let’s not encourage it.
- Downgrade for UK Banks Raises Fears of Credit Crunch. Some of the world's biggest banks – including Barclays, HSBC and Royal Bank of Scotland – had their credit ratings downgraded last night as a result of the eurozone crisis. Moody's downgrades came amid fears that the euro crisis will prompt another credit crunch by making banks afraid of lending to each other, or to anyone else.
- Mario Monti: we have a week to save the eurozone. Italian prime minister warns that there is no room for failure in talks between single currency's big four countries. Italy's prime minister, Mario Monti, has warned of the apocalyptic consequences of failure at next week's summit of EU leaders, outlining a potential death spiral whose consequences would become more political than economic. The Italian leader is to hold talks with Chancellor Angela Merkel of Germany, the French president, François Hollande, and Spain's prime minister, Mariano Rajoy, in the hope that the single currency's big four countries can pave the way for a breakthrough at next week's meeting. Speaking to the Guardian and a group of leading European newspapers, Monti said that, without a successful outcome at the summit, "there would be progressively greater speculative attacks on individual countries, with harassment of the weaker countries". The attacks would be focused not only on those who had failed to respect EU guidelines, but also on those like Italy, which he said had abided by the rules "but which carry with them from the past a high debt". Monti warned: "A large part of Europe would find itself having to continue to put up with very high interest rates that would then impact on the states and also indirectly on firms. This is the direct opposite of what is needed for economic growth." Outlining the result of a failure at the talks, Monti said that, faced with creeping economic paralysis, "the frustration of the public towards Europe would grow", creating a vicious circle. "To emerge in good shape from this crisis of the eurozone and the European economy, ever more integration is needed," said Monti. Yet, if the summit failed to resolve the problems quickly, "public opinion, but also that of the governments and parliament… will turn against that greater integration". Monti said he could see the beginnings of the process "even in the Italian parliament, which has traditionally been pro-European and no longer is".
- SCG Results Could Slow On Global Troubles. A prolonged European debt crisis and a slower-than-expected US economic recovery could weigh on the results of the Siam Cement Group (SCG) in the second half of the year. Kan Trakulhoon, the president and chief executive, said the situation in Europe has remained "worrisome", although following the recent elections, Greece has been able to form a government. Prospects for economic recovery in the US dimmed recently, especially in terms of housing, due partly to the European situation, he said. The US and Europe together account for 5% of SCG exports. However, the concern is that if the situation in the US and Europe worsens, Asean and other markets in Asia will be negatively affected.
- Rated (RDEN) Outperform.
- Asian equity indices are -1.50% to -.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 181.0 +6.5 basis points.
- Asia Pacific Sovereign CDS Index 143.0 +.75 basis point.
- FTSE-100 futures -1.05%.
- S&P 500 futures +.31%.
- NASDAQ 100 futures +.23%.
Earnings of Note
- None of note
- None of note
Other Potential Market Movers
- The ECOFIN Meetings and the EU Summit could also impact trading today.