- Spanish Bond Drop Sends Yields to Record on Rajoy Budget Concern. Spain’s bond yields rose to a record as Fitch Ratings’s prediction that Prime Minister Mariano Rajoy will miss budget-deficit targets stoked concern a 100 billion- euro ($124 billion) lifeline for banks won’t be enough to stabilize the economy. The yield on 10-year government debt rose for a third day, gaining 33 basis points to 6.83 percent. The spread over German bunds widened 23 basis points to 542 basis points as of 4:06 p.m. in Madrid. Rajoy has built his strategy for avoiding a full-blown sovereign bailout around meeting deficit goals that economists at Goldman Sachs Group Inc. (GS) and Societe Generale SA (GLE) said can’t be achieved. Investors’ concerns are straining Europe’s defenses before an election in Greece that may determine whether the country stays in the euro area. “An economy in recession like Spain can’t cut its deficit by 6 percentage points, it’s impossible,” said Jose Carlos Diez, chief economist at Madrid-based brokerage Intermoney SA. “Does Brussels want us to change the law of gravity as well?” Greeks will vote June 17 on whether to back Alexis Tsipras, who wants to scrap the austerity plan dictated by the EU and the International Monetary Fund, as a condition of its bailout. New Democracy leader Antonis Samaras, who supports the bailout conditions, said backing Tsipras will see Greece effectively thrown out of the euro. There is a 50.7 percent chance that a euro member leaves the single currency area by the end of next year, according to bets on Intrade.com. That compares with 55 percent a week ago.
- Europe's AAA Members at Risk as Crisis Worsens, Fitch Says. Sovereign credit ratings inside the euro area, including those of AAA nations, risk downgrades as policy makers fail to demonstrate they can end the region's debt crisis, according to Fitch Ratings. Ratings in the currency bloc are under "strong downward pressure," Fitch Managing Director Ed Parker said at an event in Oslo today. If there's "no light at the end of the tunnel soon," the risk of a breakup of the 17-member single currency bloc will rise, he said. Policy makers are likely to continue "muddling through" and the pattern of arriving at solutions at the "last minute" is raising the cost of managing the crisis, he said.
- Fitch Downgrades 18 Spanish Banks, Cites Concern About Bad Loans. Fitch Ratings, citing the potential of loans at some lenders to deteriorate, cut its credit ratings on 18 Spanish banks, including Bankia SA (BKIA), after its downgrade of Spain last week. Bankia’s long-term issuer default rating was cut to BBB from BBB+ with a negative outlook, the ratings company said in an e-mailed statement today. CaixaBank (CABK) SA was reduced to BBB from A-, Banco Sabadell SA to BBB from BBB+ and Banco Popular Espanol SA (POP) to BBB- from BBB, Fitch said. Spain on June 9 sought a European bailout of as much as 100 billion euros ($125 billion) to support ailing lenders, the fourth euro member to seek a rescue since the debt crisis started almost three years ago. Fitch, which estimates the capital needs of Spanish banks at as much as 60 billion euros under a “base case” scenario, said it had considered its sovereign downgrade for Spain on June 7 and also the potential for loans of certain banks to worsen in taking today’s actions on the lenders.
- German Greens Set Condition For Fiscal Pact, Die Welt Reports. Germany’s opposition Green Party won’t support a fiscal pact on euro-area budgetary discipline without a debt repayment fund, Die Welt reported, citing an interview with Lisa Paus, a member of parliament who has been involved in negotiations. The fiscal pact stipulates only that everyone should save and doesn’t determine how debt will be cut, the newspaper cited Paus as saying.
- Bundesbank's Dombret Says ECB Has Done Its Job To Solve Crisis. Bundesbank board member Andreas Dombret said the European Central Bank has done its job to buy time for governments to fix weaknesses in the euro’s foundations. “To those who ask what else the Eurosystem can do, I say that we have done our part, now it’s up to the political leaders to deliver on the fiscal and structural policy side and decide on governance issues,” Dombret said in an interview in London yesterday. “This is why it can’t be a short-term fix.”
- Greeks Continue to Withdraw Deposits in June, Kathimerini Says. Greece’s banking system has continued to hemorrhage deposits this month, amid uncertainty over the outcome of elections on June 17, Kathimerini reported, without saying how it got the information. Many people are putting money in shares of mutual funds denominated in dollars because of the bureaucratic difficulty of taking money out of Greece, or are keeping cash at home, the newspaper said. Deposits are leaving the banking system at a rate of 100 million to 500 million euros ($125 million to $625 million) a day, Kathimerini said, without specifying over how long a period that rate of outflow has continued.
- UK Manufacturing Output Declined More Than Forecast. U.K. manufacturing fell more than economists forecast in April, pointing to continued weakness in the economy at the start of the second quarter. Factory output dropped 0.7 percent from March, led by pharmaceuticals, aircraft maintenance and food and drink production, the Office for National Statistics said today in London. The median forecast of 30 economists in a Bloomberg News survey was for a decline of 0.1 percent.
- Gold Climbs for Third Straight Session on Stimulus Bets. Gold gained for the third straight session in New York on speculation that policy makers will announce additional stimulus measures to boost growth, increasing demand for bullion as a hedge against inflation. Gold futures for August delivery advanced 0.5 percent to $1,604.60 an ounce at 10 a.m. on the Comex in New York. Prices gained 0.6 percent in the previous two sessions.
- Blankfein Says U.S. Economy in ‘Tough Position’ Next Few Months. The U.S. economy will continue to struggle for the next few months as some business owners wait for the national election before making investments, Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein said. “I think we’re in a tough position for the next three or four or five months,” Blankfein said today in an interview on MSNBC. “There’s a lot of uncertainty.” Business owners aren’t sure what the results of the U.S. election will be or how it will affect their taxes, he said. A common view is that “it’s going to be very consequential so I think I’ll wait -- I think there’s a lot of that going on,” Blankfein said.
- House of Dimon Marred by CEO Complacency Over Unit's Risk.
- Michael Kors(KORS) Fiscal 4Q Profit Triples, Shares Soar. Michael Kors Holdings Ltd. said Tuesday that its fiscal fourth-quarter net income more than tripled as the company opened new stores and demand grew for its luxury clothing and accessories. The results beat Wall Street expectations and the company also issued better-than-expected predictions for the current quarter and year, sending its shares up 14 percent in premarket trading.
- Postal Service to 'Look Like Greece' Without Aid, Donahoe Says. The U.S. Postal Service “will look like Greece” if Congress fails to help it cut costs, U.S. Postmaster General Patrick Donahoe said. Donahoe, speaking today at the PostalVision 2020 conference in Washington, said the service’s annual expenses will rise to $81 billion by 2016 without congressional action to allow cuts, including reducing a requirement to pay in advance for health benefits for future retirees. “If we don’t do something about the costs of this organization, we will look like Greece,” he said. The Postal Service, which lost $3.2 billion in the quarter ended March 31, is seeking congressional permission to run its own health benefits plans and labor agreements to relax work rules and use more part-time employees. About 78 percent of the service’s expenses are labor costs, including the 20 percent of the total that pays for future retiree health-care expenses and other health-care benefits, Donahoe said.
- World Bank Warns of Years of Volatility. The global economy will face years of volatility as Europe's debt turmoil weighs on investor sentiment and growth prospects, the World Bank warned Tuesday in its latest economic update.
- FDIC's Hoenig, Norton Concerned About Bank Capital Rules. Two new members of the Federal Deposit Insurance Corp.’s board said Tuesday they have some concerns about whether new bank-capital rules will do enough to limit risk in the financial system.
- Thousands of Russians Rally Against Putin. Tens of thousands of Russians marched in Moscow Tuesday to demand that President Vladimir Putin step down, defying a crackdown on opposition leaders a day earlier and heavy new fines for violations at protests.
- French Economy a Problem for Hollande. The French government is in the process of revising its economic growth forecasts for next year after a weak start to 2012, underscoring the challenges for President François Hollande as he seeks to control debt and deficit levels while delivering on a promise to foster growth domestically and in Europe.
- Starbucks(SBUX): Economic Issues in Europe Hurt Sales, Turnaround Efforts. Starbucks Corp. (SBUX) said its business in Europe is struggling "more than expected" in the current quarter, as broader economic challenges in Europe are hurting the coffee giant while it is attempting to orchestrate a turnaround in the region. "We continue to struggle from macro challenges in Europe. This was true in the first quarter, it was profoundly true in the second quarter, and it's even more than expected in the third quarter," Chief Financial Officer Troy Alstead said at an investor presentation Tuesday. "The third quarter isn't over yet, but it's clear we will have increased pressure on our earnings from [the Europe, Middle East and Asia, or EMEA division] in the third quarter."
- India Output Growth Flat, Adds to BRIC Straggler's Gloom. India's industrial output growth flatlined in April, piling pressure on policymakers to cut rates and revive the economic fortunes of the BRIC nation that Standard & Poor's warned could be downgraded to junk status because of political inaction. Tuesday's data showed industrial production rose just 0.1 percent in April from a year earlier, lower than a forecast in a Reuters poll of a 1.7 percent increase. That followed a 3.2 percent fall in March, revised figures showed. "The data clearly points to industrial growth being extremely weak, and it is in clear need of monetary as well as fiscal support," said Abheek Barua, chief economist at HDFC Bank in New Delhi. Capital goods, which includes such items as factory machinery, fell 16 percent in April from a year earlier. This key investment indicator has risen only once in the last eight months. Output in the mining sector, another key economic driver, fell 3.1 percent year on year in April, the second consecutive monthly decline.
- Small Business Owners in 'Holding Pattern': Survey. If there is one thing for certain among small business owners, it’s that the amount of uncertainty they are facing has made it difficult for them to make decisions on spending and jobs. That’s evident in the results of the National Federation of Independent Business’ latest Small Business Optimism Index, released Tuesday. While the Index fell by 0.1 points, leaving it basically unchanged from April, the various components tell a tale of business owners unsure of many economic factors which would prompt them to invest in inventory and hiring.
- Euro Zone Capital Flight: Currency Strategists. The euro zone crisis has entered its third phase, that of a flight of capital, and this will push the euro much lower, foreign exchange strategists from Nomura wrote in a market note.
- Mad Dash for Cash Hits Highest Level Since Crisis.
- Russia is Sending Attack Helicopters to Syria; Will 'Escalate The Conflict Dramatically'.
- Obama Is Doing Stunningly Bad Among African Americans In North Carolina.
- What Does European Credit Know That Stocks Don't? (graph)
- "Due To The Current Market Environment In Europe", Saxo Bank Quadruples CHF Margins From 1% to 4%.
- The US "Budget Surplus" Miracle Is Over: $125 Billion Deficit In May. (graph)
- China Tells U.S. What It Can Do With Its Iran Oil Import Sanctions.
- DirecTV(DTV) Could Also Deploy Ad Skip Technology. DirecTV Group, the largest U.S. satellite TV operator, could deploy technology that would enable its millions of subscribers to automatically skip television advertising, its top executive said on Monday.
- NetApp(NTAP) Sticks to Pessimistic View of Economy. Data storage company NetApp Inc said the economic view in Europe was increasingly uncertain, justifying the pessimistic outlook it gave at the time of its last quarterly results. Chief Executive Tom Georgens said Europe, a major market for the U.S. company, was stronger than expected for most of the year but worries about the debt situation in the south of the continent were starting to spread to Germany, Britain and France. "Clearly we are concerned about the trajectory of where we are heading," he said at the Reuters Media and Tech summit. "Not only the trajectory is a concern but there is a wide range of potential outcomes."
- Managed Money Traders Set to Switch View on Corn: Maguire. Managed money traders have whittled their net exposure to the corn market back to its lowest level in close to two years lately as a near-record-large corn planted area total weighed on market sentiment as the 2012 growing season got under way. Souring economic confidence stemming from economic and political disarray in Europe also sparked a broad shedding of risk by large speculators in recent weeks.
- China Ready to Impound EU Planes in CO2 Dispute. China will take swift counter-measures that could include impounding European aircraft if the EU punishes Chinese airlines for not complying with its scheme to curb carbon emissions, the China Air Transport Association said on Tuesday.
- Greek Radical Leftist Rejects Call for Unity Govt. The leader of Greece's leftist SYRIZA party on Tuesday ruled out forming a government with pro-bailout parties after June 17 elections that could decide the nation's future in the euro zone. Instead, SYRIZA chief Alexis Tsipras said that, if elected, he would lead a government of the left against the painful austerity measures demanded by the European Union and the International Monetary Fund.
- US Gasoline Demand Dips on Weak Economy - Mastercard. Demand dropped 3.5 percent in the week to June 8, compared with year-earlier levels, and was 0.5 percent lower than the previous week, MasterCard said. "This past week was the third in a row of increasing year-over-year declines, even while prices at the pump continued to fall," said John Gamel, gasoline analyst for MasterCard Advisors SpendingPulse.
- Brazil's Tombini Sees Years of Slow Global Growth.
- Banks Seek to Offload Risk on Insurers. Now when and where did that last happen… In Tuesday’s FT, Brooke Masters reported on a rather novel approach that some banks are trying to take in order to reduce their capital requirements. The trick is to reduce the predicted loss that would be experienced if a borrower were to default. This is effectively done by getting an insurer to guarantee the future value of the collateral held as security for the loan.
- Debt Crisis: Live. Spanish 10-year bond yields jump past 6.8pc, a 13-year high, as German Chancellor Angela Merkel warns that any funds for the country will be tied to reforms of its banking sector.
- EC Preparing Secret Plans for Greek Euro Exit. Legal advice on capital controls, including limits on withdrawals from Greek bank accounts, and emergency border restrictions, has been provided by the European Commission to eurozone governments drawing up plans for Greece to leave the euro.
- The European Commission is pressuring Spain to delay meeting its deficit target of 3% of gdp for 2013 by one year.