- EU Leaders Ease Debt-Crisis Rules for Spain as Merkel Retreats. Euro-area leaders agreed to ease repayment rules for emergency loans to Spanish banks and relax conditions on potential help for Italy as an outflanked German Chancellor Angela Merkel gave in on expanded steps to stem the debt crisis. After 12 hours of talks ending at 4:30 a.m. in Brussels today, leaders of the 17 euro countries dropped the requirement that governments get preferred creditor status on crisis loans to Spain’s blighted banks, European Union President Herman Van Rompuy said. Banks can also be recapitalized directly by bailout funds rather than going through governments, he said. Euro-area leaders also discussed ways to reduce the risk premiums on Italian and Spanish bonds, which have driven concern by economists, investors and Europe’s global partners including the U.S. that the currency union risks coming apart. “There is a whole array of possible interventions and measures,” Luxembourg Prime Minister Jean-Claude Juncker, who heads the group of euro-area finance ministers, told reporters. “It will be a task for the central bank, the eurogroup and the commission and others to pull out the right card at the given time.” With the turmoil in its third year and Europe’s political landscape shifting against Merkel, French President Francois Hollande led a rebellion against Germany’s prescriptions with calls for immediate relief for hard-hit countries. He put French backing of a German-inspired deficit-control treaty on hold, and Italy and Spain withheld approval of a 120 billion-euro ($149 billion) growth-boosting package unless Germany authorized steps to calm their bond markets.
- Juncker Says Euro Leaders Keep All Options Open to Calm Markets. Luxembourg Prime Minister Jean- Claude Juncker, who heads the group of euro-area finance ministers, said euro leaders agreed on “short-term measures” to aid Spain and Italy. “We will keep all options open to make the interventions that need to be done to calm the situation,” Juncker told reporters in Brussels today after the first day of a European Union summit. “We will conclude this in definite tomorrow morning. We made significant progress.”
- Ireland's Second Bailout Looms With No Bank Accord: Euro Credit. Ireland's borrowing costs may signal the government is being drawn into needing a second bailout as the country struggles to cope with the legacy of the euro region's worst banking crisis to date. Irish October 2020 bonds, regarded as the benchmark, yielded 7.13 percent yesterday, less than a percentage point shy of the level that pushed the state into an international rescue in 2010. "At this point, a second bailout for Ireland is the most plausible option," Chris Johns, who manages about $7 billion at State Street Global Advisors in Dublin, said in an interview. "One of the main reasons Ireland can't go back to markets is that investors have significant concerns about our solvency and that's down in part to banking debt."
- Abound Solar to Suspend Operations, Will Seek Bankruptcy. Abound Solar Inc., a U.S. solar manufacturer that was awarded a $400 million U.S. loan guarantee, will suspend operations and file for bankruptcy because its panels were too expensive to compete. Abound borrowed about $70 million against the guarantee, the Loveland, Colorado-based company said today in a statement. It plans to file for bankruptcy protection in Wilmington, Delaware, next week. The failure will follow that of Solyndra LLC, which shut down in August after receiving a $535 million loan guarantee from the same U.S. Energy Department program.
- Commodities Fall Broadly On Health Care Ruling. Most commodity prices fell Thursday after a U.S. Supreme Court ruling on health care and a European summit meeting heightened concerns about demand for basic materials. The downturn was widespread and mirrored a decline in stocks. Investors worried that the provisions could mean less disposable income for businesses and consumers when economic growth already is slower, said Phil Streible, a commodities broker at RJ O'Brien.
- Demand for Auto-Loan Bonds May Hurt Credit Quality, Moody’s Says. Heightened competition in the subprime automobile-lending market may result in large investor losses if growing demand weakens underwriting standards, according to Moody’s Investors Service. The market has grown over the past two years as private equity firms, including Blackstone Group LP and Perella Weinberg Partners LP, are drawn to the sector’s profitability, Moody’s analysts including Peter McNally wrote today in a report. That recent influx of capital echoes trends that led to a lending bubble and heavy losses in the 1990s, signaling a similar downturn may be repeated if competition for attractive returns deteriorates the credit quality of portfolios.
- FHA Underestimates Mortgage Delinquency Rates, Study Says. More than 40 percent of the U.S. Federal Housing Administration loans originated from 2007 through 2009 will be delinquent within five years and the agency’s data underestimate that risk, according to a study by the Federal Reserve Bank of New York and New York University. “Having such a very large fraction of the people who borrow from you become delinquent could never be regarded as good public policy,” said Andrew Caplin, a professor of economics at New York University and one of the study’s authors.
- Leveraged Loan Sales Shrink 30% on Buyout Slump: Credit Markets. The amount of leveraged loans made in the U.S. is down almost 30% this year from the same period of 2011 as a slowing economy cuts borrowings for buyouts to a three-year low.
- RIM(RIMM) Reports Loss as It Cuts Jobs, Delays BlackBerry 10. Research In Motion Ltd., losing ground to Apple Inc. (AAPL) and Google Inc. (GOOG), said it will delay the BlackBerry 10 phone release, cut 5,000 jobs and posted a quarterly loss that was five times bigger than projected. The stock plunged 22 percent after the company reported a first-quarter loss of 37 cents a share, excluding some items. Analysts had estimated a 7 cent loss, according to data compiled by Bloomberg. Sales tumbled 43 percent to $2.8 billion, missing an estimate of $3.05 billion.
- Mortgage Seizure Plan Sparks AllianceBernstein Talks With County. Bondholders including Angelo Gordon & Co. and AllianceBernstein LP heard from a California county’s top executive amid mounting concern it will use eminent domain to seize mortgages packaged into securities to aid homeowners who owe more than the properties’ values. The Association of Mortgage Investors organized a conference call on June 27 with San Bernardino County Chief Executive Officer Greg Devereaux, said Chris Katopis, the Washington-based group’s executive director. Staff and members of other trade organizations were also invited to participate, he said, amid speculation the unprecedented strategy may serve as a template for other areas.
- Eminent Domain Is Bad Ploy for Underwater Mortgages. Officials in San Bernardino County, California, believe they have figured out a clever way to solve the county’s, and possibly the nation’s, housing problems. Detailed by a Cornell University professor, and pitched by influential San Francisco investors who stand to make a fortune from it, this new idea is based on one of the oldest concepts: the taking of other people’s property. County officials, joined by the cities of Ontario and Fontana, are considering using an expansive interpretation of eminent domain -- typically used to acquire real property to build public works -- to seize the mortgages, not the real property, of those homeowners who owe more than their homes are worth. The funds would be provided by private investors, who would pay the holders of the mortgages “fair market value” and then write new ones for the homeowners based on much lower principal amounts, reflecting the new depressed values of the homes. The firm behind this complex plan, Mortgage Resolution Partners, may be in the running to acquire vast numbers of mortgages at discounted rates.
- Banker to the Bankers Knows the Numbers Are Lying. The Bank for International Settlements, which acts as a bank for the world’s central banks, should know fudged numbers when it sees them. What may come as a surprise is how openly it has been discussing the problem of bogus balance sheets at large financial companies. “The financial sector needs to recognize losses and recapitalize,” the Basel, Switzerland-based institution said in its latest annual report, released this week. “As we have urged in previous reports, banks must adjust balance sheets to accurately reflect the value of assets.” The implication is that many banks are showing inaccurate numbers now.
- Australian Puts Reach 14-Month High as Commodities Slump: Options. The bear market in commodities and slowing economic growth in China is driving the cost of protecting against losses in Australian stocks to the highest level in 14 months. Puts 10% below the S&P/ASX 200 Index cost 1.37 times more than calls 10% above, according to data on six-month options compiled by Bloomberg. The price relationship known as skew, a measure of bearishness, reached 1.52 on June 22, the highest since April 2011.
- Japan’s Industrial Output Falls Most Since 2011 Quake. Japan’s industrial output fell the most since the March 2011 earthquake and tsunami as weakness in European demand limited automobile output. Production declined 3.1 percent in May from April, the Trade Ministry said in Tokyo today. That compared with the median estimate in a Bloomberg News survey for a 2.8 percent drop. The slide was 0.2 percent the previous month.
- Chinese Industrial Companies’ Profits Drop for Second Month. Chinese industrial companies’ profits fell for a second month in May, a government report showed today, as slowing economic growth hurt corporate earnings. Income dropped 5.3 percent from a year earlier to 390.9 billion yuan ($61 billion), the National Bureau of Statistics said on its website today. That compares with a 2.2 percent decline in April and 4.5 percent gain in March. The deterioration adds to signs that government measures to stimulate the world’s second-biggest economy have yet to reverse a slowdown that may deepen for a sixth quarter.
Wall Street Journal:
- Unwanted Label of 'Tax' Saves Health Measure. He never wanted people to think of it as a tax. Whenever President Barack Obama talked about his health-care overhaul, political realities forbade use of the T-word. But his signature domestic policy, which he signed into law in March 2010, survived because the high court ruled Thursday that the enforcement tool at its core is just that: a tax.
- The Tax Duck. A sampling of Democratic denials—from President Obama on down—that the individual mandate is a tax, as the Supreme Court ruled it is.
- Medicaid Decision Looms for States. The Supreme Court's decision to let states opt out of the health overhaul's Medicaid expansion without losing current funding for the program lifts a budget mandate from states but could mean fewer Americans gain insurance coverage under the law.
- J.P. Morgan(JPM) Models Get Regulatory Spotlight. Regulators have stepped up scrutiny of J.P. Morgan Chase & Co.'s internal controls by asking the bank to demonstrate that its risk models are designed and working properly, according to people close to the situation. The Office of the Comptroller of the Currency, the bank's primary regulator, has requested reviews of models that measure the possible effects of everything from trading losses to interest-rate moves, the people said.
- In a Shift, Chinese Exporters Cling to Dollars. Many Chinese exporters are starting to hoard the dollars they earn, betting that the yuan is unlikely to appreciate much more, a shift in strategy that is having a ripple effect throughout the country's financial system.
- Turkey Sends Troops to Syria Border. Military Units Redeploying After Downing of Jet; Assad Defiant on Eve of International Meetings on Transition Plan. Turkey appeared to deploy armored military units on its border with Syria, raising tensions in the region after Ankara promised "decisive steps" in response to Syria's shooting down of a Turkish military jet last week.
- U.S. Clears China From Iran Oil Sanctions. The U.S. exempted China from penalties for doing business with Tehran as the latest set of U.S. sanctions targeting Iran's oil exports took effect on Thursday. The State Department, which had determined that China had significantly reduced its purchases of Iranian crude, had previously exempted 19 other countries, all traditional purchasers of Iranian crude. That left China, the biggest buyer of Iranian oil, potentially shut out of doing business with the U.S.
- It's Up to the Voters Now. The last chance to stop ObamaCare is in November. If there is a modicum of hope in Chief Justice John Roberts's inglorious one-man opinion Thursday, it is that Americans were reminded again that they cannot count on others to protect their liberty. Certainly judges aren't reliable. They can be turned by the pressure of the media and the whims of vanity. If Americans want to repeal ObamaCare, their only recourse is to demand it at the ballot box in November.
- NY Fed: ECB Taps $11.5 Billion from Dollar Swap Facility in Latest Week. The European Central Bank borrowed dollars from the Federal Reserve during the week ended June 27, replacing more than the amount rolling off from prior loans, the New York Federal Reserve Bank reported Thursday. New dollar borrowings by the ECB totaled $11.542 billion for the week. This includes a seven-day tap of $1.6 billion at an interest rate of 0.66%, and $9.942 billion in an 84-day loan at a rate of 0.67%. Past borrowings of $8.697 billion matured. Total borrowings from the facility rose to $27.059 billion from $24.215 billion. A majority of these loans is held by the ECB.
- SocGen Expects Chinese PMI To Fall Again.
- BILL O'REILLY: 'Now The Government Calls The Shots'.
- 17 House Democrats Crossed Party Lines To Hold Attorney General Eric Holder In Contempt.
- Juncker 'Hoped For More' As Italy And Spain (Oh, And Ireland Now) Get (To Share Same-Size) 'Band-Aid'.
- Charting The End Of 'Stock-Picking' Alpha. (graphs)
- California Is Not Spain, Uganda, Or Greece; But Stockton Sure Is: Largest US City Bankruptcy Is Now Official.
- Small Business on Obamacare: No Reason to Hire or Invest. Small business owners and advocates responded to today’s Supreme Court decision on the Patient Protection and Affordable Care Act with anger, confusion and a lot of questions about where they go from here. “At this point, I have more questions than I have answers,” said Larry Mocha, president, Air Power Systems in Tulsa, Okla. “We already provide health insurance for our employees and have for many years. How will this impact our premiums? How will this impact [America’s] health-care system? And how will this impact my small business?”
- Ford Motor(F), Citing Europe’s Woes, Says Foreign Losses to Triple in Quarter. Europe’s economic woes are taking a much bigger bite out of the profits of Ford Motor, which until now has largely avoided the hefty losses that have dragged down the profits of many of its rivals. The company said on Thursday that its total international losses would triple in the second quarter, with Europe accounting for the most of the loss. Ford lost $190 million in the first quarter in its international operations, which include Europe, South America and the Asia-Pacific region. Europe was responsible for $149 million of the total. The company’s chief financial officer, Robert Shanks, said in an interview that conditions in Europe were “getting tougher,” as manufacturers stepped up discounts to jump-start sales, which are at their lowest level in more than a decade. “We lost $190 million in the first quarter, and it will be three times greater than that” in the second quarter, Mr. Shanks said in the interview, held at Ford’s world headquarters. A loss on international operations of $500 million to $600 million in the quarter, which will end on Saturday, would depress Ford’s overall earnings for the period. The company previously forecast that international losses in the second quarter would be roughly the same as in the first quarter.
- Cross Currency Swaps And EUR/USD: The Missing Link. (graphs) The focus of the euro crisis is becoming more and more about the links between banks' capital requirements and sovereign debt, which explains why the correlation between core/non-core sovereign spreads and the cross currency basis is negative.
- Roberts to the rescue for Romney. Obamacare is unconstitutional if it were to be enacted via the Commerce Clause, but not if it’s simply a tax, the justice wrote. “Because the Constitution permits such a tax, it is not our role to forbid it, or to pass upon its wisdom or fairness.” In so doing, Justice Roberts has just busted Campaign 2012 wide open. The high court’s ruling leaves in place 21 tax increases costing nearly $700 billion. Of those taxes, 12 would affect families earning less than $250,000 per year. Now that Obamacare’s penalty is a “tax,” not a “fee,” Mr. Obama is breaking a 2008 campaign pledge not to raise taxes on Americans earning less than $250,000. This new “tax” will hit across the economic spectrum, despite his campaign declaration that health care should “never be purchased with tax increase on middle-class families.” Now, Mr. Obama and congressional Democrats have enacted the largest tax increase in history.
- Wall Street still ignoring the fiscal cliff. Most economists aren't factoring the doomsday scenario into their forecasts. Here we go again. Wall Street has a history of not focusing on bad news until it's too late. Then panic ensues. We might be seeing that pattern again with the so-called fiscal cliff. A recent survey found that 93% of top Wall Street strategists and economists still aren't factoring into their estimates for next year the epic mix of tax increases and spending cuts that are expected to kick in January 1. The question is whether Wall Street is correctly handicapping the fiscal cliff, or just being ignorant.
- Goldman(GS) trims U.S. staff: sources. Goldman Sachs Group Inc trimmed staff in its U.S. operations on Thursday, amid a slowdown in capital markets activity, three people familiar with the matter said.
- Nike(NKE) profit hit by costs, shares fall. Nike Inc missed quarterly profit estimates for the first time in at least two years as higher spending and increased costs of materials used in its shoes and T-shirts hurt margins, while demand eased in international markets. The results sent shares of the world's largest sportswear maker down nearly 13 percent in extended trading on Thursday. Orders of Nike branded shoes and clothes scheduled for delivery from June through November, a closely-watched metric of demand known as "futures orders" rose 7 percent. That is less than half of the rise of futures orders in the fiscal third quarter. In the fourth quarter that ended May 31, futures orders rose only 5 percent in Greater China, down from a 24 percent increase a year earlier, a sign that even the popular Nike "swoosh" is not immune to slowing global economic growth.
- NYC public hospitals see big financial hit from healthcare law. The New York City Health and Hospital Corporation expects to lose $2.3 billion over eight years from the Medicaid cuts included in President Barack Obama's new healthcare law. The U.S. Supreme Court on Thursday upheld Obama's signature healthcare overhaul requiring that most Americans get insurance by 2014 or pay a financial penalty. Alan Aviles, the HHC chief executive officer, said on Thursday that although more people will have insurance, this will not make up for the loss of Medicaid funds. HHC is the nation's biggest public hospital system and it serves 1.3 million New Yorkers every year. Aviles did not yet know how much the city's public hospitals would save by treating more insured patients. But "It is highly unlikely that it will come remotely close to $2.3 billion," he said.
- United Technologies(UTX) sent military copter tech to China. United Technologies Corp o n T hursday admitted selling China software that helped Beijing develop its first modern military attack helicopter, one of hundreds of export control violations over nearly two decades. At a federal court hearing in Bridgeport, Connecticut, United Technologies and its two subsidiaries, Pratt & Whitney Canada and Hamilton Sundstrand Corp, agreed to pay more than $75 million to the U.S. government to settle criminal and administrative charges related to the violations. As part of the settlement, Pratt & Whitney Canada pleaded guilty to two federal criminal charges - violating a U.S. export control law and making false statements.
- RBS and Lloyds drawn into rate-rigging scandal. Royal Bank of Scotland and Lloyds have been accused of systematically rigging financial markets in a growing international scandal which wiped billions off the value of shares in Britain’s biggest banks.
- Banks Face Ban From Selling Interest Rate Swaps. Banks will be banned from selling interest rate swaps to small businesses as part of a settlement package to be announced by the Financial Services Authority (FSA), which could see lenders make large compensation payments to firms mis-sold complex derivatives.
- The US: the second half of 2012 promises to be tougher than the first.
- None of note
- Asian equity indices are +.50% to +1.5% on average.
- Asia Ex-Japan Investment Grade CDS Index 183.0 -.5 basis point.
- Asia Pacific Sovereign CDS Index 149.0 -1.0 basis point.
- FTSE-100 futures +1.68%.
- S&P 500 futures +1.12%.
- NASDAQ 100 futures +1.13%.
Earnings of Note
8:30 am EST
- Personal Income for May is estimated to rise +.2% versus a +.2% gain in April.
- Personal Spending for May is estimated unch. versus a +.3% gain in April.
- The PCE Core for May is estimated to rise +.2% versus a +.1% gain in April.
- Chicago Purchasing Manager for June is estimated to fall to 52.3 versus 52.7 in May.
9:55 am EST
- Final Univ. of Mich Consumer Confidence for June is estimated at 74.1 versus a prior estimate of 74.1.
- (AME) 3-for-2
- (TTC) 2-for-1
Other Potential Market Movers
- The Fed's Bullard speaking, Fed's Dudley speaking, French/Canadian GDP, Italian 10Y Bond Auction, NAPM-Milwaukee for June, BoE Financial Stability Report and the European Commission Quarterly Report could also impact trading today.