- Merkel Balks at Sovereign Debt Purchases to Overcome Crisis. German Chancellor Angela Merkel balked at committing to direct sovereign debt purchases through the euro-area bailout fund, pushing back on calls by the bloc’s leaders who backed the measure as a way to ease the crisis. Such a move, while legally possible, “is not up for debate” at present, Merkel said yesterday in Berlin. French President Francois Hollande championed the idea of using the European Stability Mechanism to purchase indebted countries’ bonds as a way to counter rising yields. Just returned from the Group of 20 summit in Los Cabos, Mexico, Merkel said: “I haven’t heard about such things.” “There is no concrete planning that I know about, but there is the possibility of purchasing sovereign bonds on the secondary market,” Merkel told reporters in Berlin after meeting with Dutch Prime Minister Mark Rutte. “But this is a purely theoretical statement about the legal situation.” Merkel’s non-committal stance on the measure opens a fresh conflict as euro finance ministers meet today and Italian Prime Minister Mario Monti hosts a four-way summit in Rome tomorrow.
- IOU Maturities Cut With European Banks Roiled: Credit Markets. Average maturities on corporate IOUs relied on for everyday needs from payroll to rent are at about the lowest this year as U.S. money-market mutual funds seeks to curb risk with Europe's debt crisis escalating. Declining maturities on commercial paper held by prime funds, a leading indicator of stress, have fallen to 40 days as of June 15 from 45 days at the end of April, according to figures from Crane Data LLC compiled by Credit Suisse Group AG.
- Italy, Spain Heading for Full Bailouts, Fidelity’s Stuttard Says. Italy and Spain, which account for more than a quarter of the euro-area economy, are heading for sovereign bailouts in the next 12 months that will send shockwaves through the global economy, Fidelity Investments’s Jamie Stuttard said. Both sovereigns will likely stumble over debt auctions in the next year, forcing European authorities to find official funding for them to hold the single-currency area together, Stuttard, Fidelity’s head of international bond portfolio management in London, said in a telephone interview on June 19.
- Italians Openly Dodge Property Tax in Test for Monti’s Austerity. Luciano Di Pardo, a lawyer in Milan, is dodging Italian Prime Minister Mario Monti’s new real estate tax. “I didn’t pay it,” Di Pardo, 75, said of the levy that was the centerpiece of Monti’s austerity budget. “I get that we are on the edge of failure and disaster, but you can’t keep taking from ordinary people.” The new levy, which should have cost Di Pardo about 500 euros ($630) when the first payment was due on June 18, may mark the limit of how much Monti can squeeze out of taxpayers. The belt-tightening is also sinking the prospects of Monti’s supporters in parliament and deepening Italy’s fourth recession since 2001.
- ECB's Coeure Tells FT EU Fiscal Union Is a `Necessity'. European Central Bank executive board member Benoit Coeure sees increased economic integration in the European Union as an essential step toward stability, the Financial Times reported, citing an interview. Coeure, who is responsible for the ECB’s market operations, told the FT that his answer to people who are in doubt about “the necessity of fiscal union” is that “if they want to keep the euro and have the benefits that the euro has brought to their economies, they have to make steps towards a fiscal union.” Europe is in the third year of an economic crisis and reaching a point where “deeper questions are being asked,” the FT cited Coeure as saying. Central to those questions is the shape of a future banking and fiscal union to bolster the monetary union, Coeure said, according to the newspaper. Without such strengthening, “the system will not be stable and we will continue to experience crises,” Coeure told the FT. Couere said a cut in the ECB’s main interest rate -- at 1 percent since December -- was “discussed at the last governing council meeting,” and that he “would expect the next council to discuss it again,” the FT reported. While he supports using the EU’s bailout fund to intervene in government bond markets as a stopgap measure, he is not eager for the ECB to take on that role, saying that the Securities Markets Program isn’t considered “the best instrument to use at the current juncture” because it’s not advisable to “mix the central bank with the fiscal authorities,” he told the newspaper.
- Citigroup(C) Faces $5 Billion Hit on Dollar’s Rise. Citigroup Inc. book value could take a $3 billion to $5 billion “hit” this quarter as currencies in some of its biggest markets decline against the U.S. dollar, said Charles Peabody of Portales Partners LLC. The Mexican peso and the Brazilian real are among currencies that have weakened, which could lead to “value destruction” for Citigroup, according to Peabody, an analyst for New York-based Portales who was interviewed today by Tom Keene on “Bloomberg Surveillance.” The bank disputed Peabody’s conclusion in an e-mailed statement. Citigroup, ranked third by assets among U.S. lenders, relies on developing nations for more than half its profit as Chief Executive Officer Vikram Pandit pushes deeper into regions such as Latin America and Asia. The New York-based bank has an “intense focus on capturing emerging-market trade,” Pandit, 55, told shareholders in a March 9 letter. Peabody based his comments on a June 18 analysis of Citigroup’s foreign revenues from more than half a dozen “influential geographies (C)” and what they’re worth when converted into dollars from currencies ranging from the British pound and Turkish lira to the Korean won. There have been “extreme movements” in some of these markets in the second quarter, including the Mexican peso, the Brazilian real, the Indian rupee and the Polish zloty, he wrote. The peso and Turkish lira had the biggest impact on currency translation adjustments in the first quarter, he said, citing Citigroup’s quarterly filings.
- China Manufacturing Slump May Match That of 2008 Crisis. China’s manufacturing may shrink for an eighth month in June, matching the streak during the global financial crisis in a signal the government’s stimulus has yet to reverse the economy’s slowdown. The 48.1 preliminary reading for a purchasing managers’ index released by HSBC Holdings Plc and Markit Economics today compares with a final 48.4 for May. A reading above 50 indicates expansion. If confirmed on July 2, it would equal the run of below-50 readings from August 2008 to March 2009.
- China’s Stocks Decline to 3-Month Low on Manufacturing Concern. China’s stocks fell, dragging the benchmark index to the lowest level in three months, after a report showed China’s manufacturing may shrink for an eighth month in June and the U.S. cut its economic growth estimates. Jiangxi Copper Co. and China Shenhua Energy Co. the biggest copper and coal producers, declined at least 2 percent on concern demand for commodities will slow. Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp. fell after the 21st Century Business Herald said the four biggest lenders saw net deposits decline by a combined 460 billion yuan ($72 billion) in the first two weeks of this month. The Shanghai Composite Index (SHCOMP) lost 35.5 points, or 1.6 percent, to 2,257.38 at the 11:30 a.m. local-time break, set for the lowest close since March 29 and a weekly decline as financial markets are closed tomorrow for a holiday.
- Hanwha Chemical Says Polysilicon Glut to Last Until 2014. The oversupply of polysilicon on world markets may last until at least 2014, pushing more high- cost producers of the raw material used for solar panels into bankruptcy, Hanwha Chemical Corp. (009830) said. The unit of Hanwha Group, which has built a supply chain of solar businesses through acquisitions since 2010, is “skeptical for the moment” about acquisitions as many of the polysilicon assets put up for sale are inefficient, Senior Vice President J.C. Song said in an interview in Seoul. “The polysilicon prices are now covering cash costs at a handful of top-tier producers, which means they are below production costs for the remaining ones,” Song said yesterday. “While it limits expansion and new entrances, the glut may continue until 2014 or 2015.”
- Flaherty Said to Tighten Canada Mortgage Rules to Avert Bubble. Canadian Finance Minister Jim Flaherty will tighten mortgage-length rules for the third-time as the Group of Seven country with the soundest government finances tries to avert a household debt crisis, a government official said. Flaherty will shorten the maximum amortization period on mortgages the government insures to 25 years from 30 years, the person said, speaking on condition they not be identified because the decision hasn’t been made public. The changes were first reported by the Canadian Broadcasting Corp. in a report that was confirmed by the government official.
- Obama Spends More Than He Raises as Aides See Romney Edge. President Barack Obama spent more on his re-election effort last month than he raised, ending May with $109.7 million cash on hand, according to U.S. Federal Election Commission reports filed today. The $39.1 million his campaign took in was outpaced by $44.6 million it paid for television advertisements, employees, offices and other expenses, the reports show. The spending rate is a reversal from the past three months, when the campaign was taking in millions of dollars more than it was spending.
- SEC Said to Depose SAC's Cohen in Revived Insider-Trading Probe. Steven A. Cohen, the billionaire manager of SAC Capital Advisors LP, is facing renewed scrutiny from U.S. regulators over whether he made illegal trades based on inside information, two people familiar with the matter said. Cohen, 56, was recently deposed by Securities and Exchange Commission investigators in New York about trades made close to news such as mergers and earnings that generated profits at his hedge fund, said one of the people, who asked not to be identified because the investigation isn't public. Neither Cohen nor SAC Capital, which oversees about $14 billion, has been accused of wrongdoing.
- Vote to Sanction Holder Escalates Gun-Probe Fight. A standoff between Republicans and the Obama administration over a botched gun-trafficking operation escalated Wednesday, with a House committee voting to hold Attorney General Eric Holder in contempt of Congress.
- Lawmakers Push for Overhaul of IPO Process. A bipartisan group of lawmakers called on regulators to overhaul the way initial public offerings are conducted, concerned that last month's flubbed stock sale by Facebook Inc. shows the current system unfairly punishes small investors. In a letter to Securities and Exchange Commission Chairman Mary Schapiro, Rep. Darrell Issa (R., Calif.) prodded the agency to revamp rules for pricing and disclosure in IPOs.
- Israeli Strike on Iran Stays on Hold, for Now. Israel is unlikely to launch a strike on Iran as long as sanctions on Tehran intensify and diplomatic efforts continue, despite the failure of international talks in Moscow this week, Israeli officials and security experts said. That puts Israeli leaders in a bind: While lack of progress on diplomatic attempts to curb Iran's nuclear program bolsters Israel's position that Tehran won't compromise, it needs to wait for diplomacy and sanctions to be exhausted so it can better persuade others to join it in taking tougher measures, analysts said.
- Egypt Fraud Probe Stalls Vote Result. Panel Delays Naming of New President as Muslim Brothers Warn of Mayhem if It Is Denied Victory. Egypt's Presidential Election Commission delayed the announcement of a winner of the weekend poll so it could investigate fraud claims by both contenders, deepening suspense and suspicion as the country waited to learn who would be declared its first freely elected president.
- Regulators Back Off Tougher Curbs on Oil. Europe and Syria took center stage at the Group of 20 meeting in Los Cabos, Mexico, this week. But in the oil industry, all eyes were on a report that signaled regulators are backing away from efforts to ratchet up scrutiny of the $2 trillion-a-year market. In an interim report to the G-20, ahead of final recommendations later this year, the International Organization of Securities Commissions, an association of global financial-markets regulators such as the Securities and Exchange Commission, retreated from an earlier proposal to set up a regulatory body to oversee the so-called physical oil market.
- Plugging the National Security Leaks. Accountability is the key. A Congressional investigation makes more sense than a special prosecutor.
- A Look At India's Economic And Political Problems That Has Everyone Freaking Out.
- Meet The 14 People Who Could Be Mitt Romney's Vice President.
- EL-ERIAN: The Fed's New Policy Is Causing 'Distortions That Will Take Years To Resolve'.
- JPMorgan(JPM) Trading Loss Could Reach $6 Billion. JPMorgan Chase has lopped more than two-thirds of its London Whale-trading blubber, but the debacle still could cost CEO Jamie Dimon $4 billion to $6 billion in trading losses, according to people familiar with the matter. Sources tell The Post that the vast majority of the esoteric derivative trade has been unwound.
- Investors fled Europe-linked hedge funds in May-report. Investors cut their exposure to hedge funds that invest in and are located in Europe during May as the euro zone financial crisis wrought havoc on global markets, data showed on Wednesday. Investors last month withdrew about $9.3 billion from hedge funds located in Europe and pulled $9.1 billion from hedge funds that invest mostly in Europe, hedge fund tracking firm eVestment|HFN found. "The higher rate of decline has been from those funds investing primarily in European markets and the reason is fairly straightforward; a lack of desire for exposure to European corporates, whether hedged or not, which are being impacted by the region's slowing growth and sovereign difficulties," said Peter Laurelli, vice president of research at eVestment|HFN.
- Bed Bath(BBBY) costs rise; fending off Amazon(AMZN). Bed Bath & Beyond Inc gave a weaker-than-expected profit outlook for the current quarter as it spends sooner than expected to improve its e-commerce business, sending the U.S. home goods chain's shares down about 11 percent.
- Red Hat(RHT) Forecasts Weak 2nd Qtr, Shares Fall. Red Hat Inc, the world's largest distributor of Linux operating software, forecast second-quarter revenue below Wall Street estimates after quarterly billings fell short of analysts' expectations. Shares of Red Hat fell 10 percent in after-market trading.
- Sir Jeremy Heywood: spending cuts will last for 10 years. Britain could be facing a decade of spending cuts, the country’s most senior civil servant said on Wednesday night.
- Debt crisis: bond buying plan to ease euro debts only 'theoretical' says Angela Merkel. Angela Merkel put Germany on a collision course with its European neighbours by insisting an idea to allow bail-out funds to buy Spanish and Italian debt was "purely theoretical".
- Hedge fund manager says that Greece must leave euro or it will fail. Greece should exit the euro and the European Central Bank (ECB) should guarantee euro bloc debt, according to a senior GLG hedge fund manager.
- Bank Regulator Warns Hedge Funds of Crunch. The Bank of England regulator Robert Jenkins yesterday warned senior hedge fund managers to beware of a potential massive clampdown on their trading activities if the eurozone crisis triggers a return to the kind of liquidity crunch that followed the collapse of Lehman Brothers. In a stark warning to traders who have become complacent again with the assumption that liquidity in financial markets – the willingness of investors to buy and sell assets – could be taken for granted, Mr Jenkins, pictured, warned that this may not be the case. "Short-term traders count on it; algo [algorithmic "black box"] trading depends on it. Long/short strategies presume you can short... "But here's the thing: confronted with sudden surges in cross-border flows, elected government will attempt to intervene in the interests of stability generally and to protect their taxpayers specifically, " Mr Jenkins said. He added that "like air and water, market liquidity is no longer limitless and no longer free".
- Lenovo Cuts PC Shipment Guidance to 13%-15% Growth. Co. told suppliers it will lower guidance of its global PC shipment growth for this year to 13%-15%, from previous forecast of 20%-25%. Shares fell as much as 7.2% today on 45% above avg. volume. Dell(DELL) shipments growth will be flat vs. earlier guidance of about +5% y/y.
- China 4 Big Banks Lost 460b Yuan Deposits in Early June. Industrial and Commercial Bank of China Ltd., China Construction Bank Corp., Bank of china Ltd. and Agricultural Bank of China Ltd. saw net deposits decline by a combined 460b yuan in the first two weeks of this month, citing a lender.
- None of note
- Asian equity indices are -1.25% to -.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 174.50 -4.5 basis points.
- Asia Pacific Sovereign CDS Index 142.25 -2.0 basis points.
- FTSE-100 futures -.36%.
- S&P 500 futures -.45%.
- NASDAQ 100 futures -.38%.
Earnings of Note
8:30 am EST
- Initial Jobless Claims are estimated to fall to 383K versus 386K the prior week.
- Continuing Claims are estimated at 3278K versus 3278K prior.
8:58 am EST
- The preliminary Markit US PMI for June is estimated to fall to 53.3 versus 54.0 in May.
- Philly Fed for June is estimated to rise to 0.0 versus -5.8 in May.
- Existing Home Sales for May are estimated to fall to 4.57M versus 4.62M in April.
- The House Price Index for April is estimated to rise +.4% versus a +1.8% gain in March.
- Leading Indicators for May are estimated to rise +.1% versus a -.1% decline in April.
- None of note
Other Potential Market Movers
- The ECB's Draghi speaking, Spanish bond auction, Spanish mark-to-market audit results, Eurozone PMI, Bloomberg Economic Expectations Index for June, weekly Bloomberg Consumer Comfort Index, week EIA natural gas inventory report, (PM) investor day, (VRX) investor day and the (HOT) investor day could also impact trading today.