Evening Headlines
Bloomberg:
- Euro Crisis Deepens, Moody's Downgrades Spain, Cyprus. The European debt crisis deepened as the credit ratings of Spain and Cyprus were downgraded by Moody’s Investors Service. Moody’s yesterday cut Spain’s rating three steps to Baa3 from A3, citing the nation’s increased debt burden, weakening economy and limited access to capital markets. Moody’s also lowered Cyprus’s bond rating to Ba3 from Ba1, attributing the downgrade to the material increase in the likelihood of a Greek exit from the euro area, and the resulting increase in the probable amount of support that the government may have to extend to Cypriot banks. Moody’s is following the sentiment of financial markets that weren’t calmed by Europe’s 100 billion-euro ($126 billion) weekend bailout of Spanish banks, said Clay Lowery, a vice president at Washington-based Rock Creek Global Advisors LLC and former assistant Treasury secretary for international affairs. For Moody’s, “it’s not whether you’re going to make money off your investment, it’s what is the creditworthiness of the borrower,” Lowery said. “Spain’s debt load has gotten larger with much more senior debt, so at least the potential for them to default has now gone up.”
- Europe's Divisions Widen as Policy Makers Clash. Tensions among European leaders are breaking into the open as bond investors reject their fixes for a debt crisis that threatens to overwhelm the euro region’s financial firewalls. German Finance Minister Wolfgang Schaeuble sniped at Greek yacht owners in comments published yesterday while Spanish Prime Minister Mariano Rajoy declared “battle” on the European Central Bank. Austrian Finance Minister Maria Fekter retracted a forecast that Italy would need aid, and Spain pushed back against Finnish advice on how to use its 100 billion-euro ($126 billion) bank bailout. Rifts are deepening with Greek elections on June 17 risking the first exit from the single currency as voters buckle under the continent’s most severe austerity program. Spanish bond yields reached a record after the nation’s request for aid for its banks fueled speculation the world’s 12th biggest economy may need a full rescue. “What we’re seeing now says much about the deepening cracks in Europe’s political financial and economic edifice,” Nicholas Spiro, managing director at Spiro Sovereign Strategy in London, said in a telephone interview.
- Germany's Haven Status Fades as Crisis Bill Mounts: Euro Credit. The haven status that drove German yields to record lows is fading as the fourth bailout of a euro member stokes investor concern that the currency bloc's biggest economy will be left picking up a mounting tab. "If the euro-region continues, then there must come a time when there is a fiscal union and burden-sharing, and that would make the market think more deeply about the creditworthiness of Germany," said Ralf Ahrens, who helps manage about $20 billion as head of fixed income at Frankfurt Trust. The discount Germany enjoys relative to the US for 10-year borrowing has narrowed to the least in more than three months after Spain asked for a 100 billion-euro lifeline for its banks on June 9. Traders of credit-default swaps also are buying protection against the risk of losses on German bonds, with the costs of insuring the nation's debt surging to the most since January compared with similar contracts on U.S. debt.
- Italy Holds First Bond Sale After Spain Rescue. Italy holds its first bond auction since Spain’s 100 billion-euro ($126 billion) bank rescue request drove up yields, as the government seeks to convince investors the country won’t be the next to need aid. The Treasury sells as much as 4.5 billion euros of three-, seven- and eight-year bonds today, one day after it was forced to pay 3.972 percent to sell one-year bills, 1.63 percentage points more than at the previous sale a month ago. “The outright demand for this paper is still extremely scarce and it’s ultimately left to the domestic banks and any primary dealers who have obligations to the debt agency in Italy to step up and absorb the supply,” said John Wraith, a fixed- income strategist at Bank of America Merrill Lynch in London. The bailout for Spain aimed to shore up the nation’s banks and stop contagion from spreading to Italy and beyond. The rescue had the opposite effect, driving Spain’s 10-year yield to a euro-era high this week and pushing up Italian borrowing costs in the process. Prime Minister Mario Monti is now trying to convince investors that with a budget deficit and jobless rate less than half that of Spain, that Italy remains a safe bet.
- Credit Suisse Sees China ‘Weak’ for Years as Forecast Cut. “Investment is unlikely to see a meaningful rebound in the foreseeable future,” Tao Dong, the bank’s chief China economist said in a note today. “Government stimulus could moderate the downside risks to growth and perhaps cushion the down-cycle, but we do not see it providing sustainable upward growth momentum.” “We expect China to be in a weak growth cycle for the next several years featuring a weak credit cycle, weak export cycle and weak property cycle,” Tao said. An emerging “deflationary force” may lead to sharp declines in nominal gross domestic profit and corporate profits, he said, adding that the economy is quickly losing momentum.
- China's Stocks Drops As Credit Suisse Cuts GDP Growth Forecast. Chinese stocks fell after Credit Suisse Group AG cut its economic growth forecast for China and a Moody’s Investors Service downgrade of Spain’s sovereign rating hurt prospects for a resolution to Europe’s debt crisis.
- Ford(F) Sees Incentives, Inventories Rising in China. Ford Motor Co., playing catch up in China, said slower growth there is boosting incentives and inventories in the world’s largest vehicle market. “We have seen some increase in incentives and inventories rise in the last six months as a result of the slowing of growth,” Joe Hinrichs, chief of Ford’s Asian operations, said in a presentation yesterday at the Deutsche Bank Global Industrials and Basic Materials Conference in Chicago. “It has gotten more competitive.”
- Swaps Index Traded By Iksil Shrinks as Dimon Seeks to Stem Loss. Wagers in the credit derivatives index said to contribute to JPMorgan Chase & Co.'s $2 billion loss dropped last week to the lowest in three months in a sign that the biggest U.S. bank and hedge funds trading against it may be unwinding bets. The net amount of credit protection bought or sold through Series 9 of the Markit CDX North America Investment Grade Index fell 7.5 percent to $138.4 billion in the week ended June 8, the biggest drop since July, according to the Depository Trust & Clearing Corp. The so-called net notional outstanding surged an unprecedented 67 percent to $150 billion in the 17 weeks ended April 27 as JPMorgan trader Bruno Iksil was said to have amassed a position in the index so large it distorted the market.
- The Regional Feds Need More Independence. All the fuss about whether Jamie Dimon, the chief executive officer of JPMorgan Chase & Co., should remain on the New York Federal Reserve Bank board is missing a larger issue. The entire board is connected to the banking industry and needs reform. It is imperative that the board include some directors who are independent of the banking industry because it performs many vital public functions, including selecting the president of the New York Fed, who also serves as vice chairman of the policy- making Federal Open Market Committee. Yet none of the current directors is entirely independent, not even the six who by law should represent the public.
- Clinton Blames Russia of Fueling Syria's Spiral to Civil War. Syria is "spiraling toward civil war," with Russia supporting the violence by continuing to arm President Bashar al-Assad's regime, U.S. Secretary of State Hillary Clinton said. "We have repeatedly urged the Russian government to cut these military ties completely and to suspend all further support and deliveries," Clinton said yesterday at the State Department. "We know -- because they confirm -- that they continue to deliver."
- Microsoft(MSFT) Said to Be in Talks to Buy Yammer Social Network. Microsoft may pay more than $1 billion, and a deal may be reached as soon as June 15, said one person, who declined to be identified because the negotiations are private.
- Greece's Rural Voters 'on a Tightrope'. The talk among farmers in this small Greek village these days is about the pain inflicted by the strict terms of the European Union's bailout of their country, as well as the potential perils of rejecting the deal and, perhaps, facing a future outside the euro zone. How voters in Greece's countryside weigh these factors will play a large part in determining the outcome of what is expected to be a close race in critical national elections Sunday between the conservative New Democracy party and its antiausterity, left-wing rivals, Syriza.
- BHP Billiton(BHP) Lowers Outlook for Commodity Prices -Financial Times. BHP Billiton Ltd. has cut slightly its expectations for commodities prices over the next three to five years, the Financial Times reported Wednesday, citing people familiar with the matter. The mining company's cuts to its medium-term outlook don't affect its longer-term outlook for the market, the people told the newspaper.
- Italy's Reform Stall. Monti wants growth but can't pass policies to spur it. If last weekend's bailout of Spain was supposed to reduce the risk of euro-contagion ahead of Sunday's elections in Greece, it hasn't had the desired effect. Yields on Spanish government debt have since hit a high of 6.78% on 10-year bonds. Who would have thought that adding as much as $125 billion in sovereign liabilities would make Madrid more of a credit risk? Now markets are looking to Italy, where the economy is forecast to shrink by 1.9% this year, and where Mario Monti's reform agenda seems to be stalling.
- The Drumbeat For An International War In Syria Is Building.
- Obama's Stunning Loss Of African-American Support Has Extended To Nevada.
- Hannan: "The Euro Is The Problem, Not The Solution".
- These Three Spanish Banks Will Be Downgraded Tomorrow.
- Biderman & Santschi On "Why Germany Should Leave The Euro".
- Banks Are Ignoring New Bonus Rules: G20 Study. Banks are failing to comply with global rules requiring them to peg bonuses to long-term company performance, the regulatory task force of the Group of 20 leading economies said on Wednesday.
NY Times:
- Dread and Uncertainty Pervade Life in a Diminished Greece. Anyplace else, they might be signs of progress: Traffic moves faster on once clogged streets. Cigarette smoking has dropped sharply. Far less garbage heads for landfills each day. But this is Athens, and the statistics are grim reminders of a middle-class society in rapid decline. Many fear that elections, including voting scheduled for Sunday, offer no clear route out of a deepening political and economic crisis. From its wealthy northern suburbs to the concrete blocks of downtown, there is a sense of an endgame in Athens. “It’s the last days of Pompeii,” said Aris Chatzistefanou, a co-director of “Debtocracy,” a provocative 2011 documentary about the Greek crisis, as he stood, drink in hand, outside a cafe in Exarchia, a thrumming graffiti-filled neighborhood whose night life remains a rare pocket of defiant joy amid the unremitting gloom.
- ‘Proud’ JPMorgan Chief Apologizes. Jamie Dimon, the outspoken chief executive of JPMorgan Chase under scrutiny for a multibillion-dollar trading loss at his firm, apologized for the mishap on Wednesday even as he mounted a fierce defense of his bank. Testifying at a much-anticipated hearing before the Senate Banking Committee, Mr. Dimon said that he was “proud” of the bank, highlighting the firm’s “fortress” balance sheet and its performance during the financial crisis. “We’re doing what a bank is supposed to do,” he told a panel of lawmakers, few of whom posed combative questions during the roughly two-hour hearing.
- Exodus resumes: Investors yank $3 billion out of stock mutual funds. Investors went back to bailing out of the stock market during the first week of June, as worries about sluggish U.S. job growth and ongoing debt problems in Europe kept investors on edge. U.S. stock mutual funds lost $3.1 billion in the week ended June 6, according to the Investment Company Institute. That marks the 15th out of 16 weeks that investors have yanked money out.
- Experience More With Expanded Tweets. Starting today, you can discover more interactive experiences inside any Tweet on twitter.com and mobile.twitter.com. When you expand Tweets containing links to partner websites, you can now see content previews, view images, play videos and more.
Reuters:
- France backs stronger ECB role in bank surveillance. France wants the European Central Bank to have a stronger role in overseeing banks in the single currency bloc as part of a package of urgent reforms to increase financial stability in Europe, sources said on Wednesday. Joint supervision of banks is one of the key issues to be discussed at a European Union leaders summit in late June that will focus on deepening financial and fiscal integration to bring the raging euro zone crisis under control. Officials in Brussels have suggested that a so-called European "banking union" could include strengthening the London-based European Banking Authority, the EU's fledgling supervisor. Paris, however, prefers supervision of euro zone banks to remain in the single currency area. "France is keen for the European Central Bank to play this role," said a high-level source. "There is no way that France is going to hand power over its banks to an organisation based in London."
- Moody's sees rising odds of default by Stockton, California. The city of Stockton, California, faces a growing likelihood of defaulting on some of its debt obligations as the conclusion of confidential talks with its creditors aimed at averting bankruptcy nears, Moody's Investors Service said on Wednesday. Stockton is in mediation with its creditors, trying to obtain concessions to help close a $26 million budget gap before the July 1 start of its new fiscal year.
- Rise in US oil supplies haunts Opec talks. At a seminar in the Opec headquarters in Vienna on Wednesday, the rise in US oil supplies was the shadow that fell over every discussion. Over the past three years, the US has accounted for the entire net increase in global oil output, excluding Opec members and former Soviet republics.
- Europe's sovereign funk denies solutions. It's hard to know whether to laugh or cry. Every week, seemingly, brings some new miracle cure, some further quack remedy, produced as if from the back of a lorry, which promises finally to fix the eurozone debt crisis once and for all.
- Moody's says Spain faces being cut to 'junk' within three months: full statement. Moody's has warned it could cut Spain to "junk" within three months, as it slashed the country's credit rating by three notches, citing the increased debt burden linked to its bank bail-out. Here is the rating agency's statement in full.
- None of note
- Asian equity indices are -.75% to unch. on average.
- Asia Ex-Japan Investment Grade CDS Index 190.0 unch.
- Asia Pacific Sovereign CDS Index 152.0 -4.0 basis points.
- FTSE-100 futures -.13%.
- S&P 500 futures +.44%.
- NASDAQ 100 futures +.52%.
Earnings of Note
Company/Estimate
- (PIR)/.16
- (SFD)/.53
- (KR)/.73
8:30 am EST
- The 1Q Current Account Deficit is estimated to widen to -$131.9B versus -$124.1B in 4Q.
- The Consumer Price Index for May is estimated to fall -.2% versus unch. in April.
- The CPI Ex Food & Energy for May is estimated to rise +.2% versus a +.2% gain in April.
- Initial Jobless Claims are estimated to fall to 375K versus 377K the prior week.
- Continuing Claims are estimated to fall to 3270K versus 3293K prior.
Upcoming Splits
- None of note
Other Potential Market Movers
- The Italian bond auction, ECB's Likanen speaking, ECB's Weidmann speaking, Eurogroup head Junker speaking, 30Y T-Bond auction, weekly EIA natural gas inventory report, weekly Bloomberg Consumer Comfort Index, (CNC) investor day, (CIT) investor day and the (APA) investor day could also impact trading today.
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