Today's Headlines

Bloomberg:

• Spanish Yields Rise to Euro-Era Record After Moody's Cuts Rating. Spain's bonds slumped, with 10-year yields rising to a euro-era record, after Moody's Investors Service cut the nation's credit rating to one step above junk, citing its rising debt burden and weakening economy. Italy's 10-year yield reached the highest level in almost five months after its borrowing costs surged at a sale of 4.5 billion euros ($5.65 billion) of three-, seven- and eight-year notes. Spanish 10-year bonds have dropped all four days this week after the nation requested as much as 100 billion euros of aid for its banks last weekend. German bunds gained. The "markets are telling us that they're unconvinced by the bank bailout and that the next step is that the government will have to concede, capitulate, and go for a sovereign loan," James Stewart, head of macro research at AX Markets in London, said in an interview with Mark Barton on Bloomberg Television's "Countdown." "That seems to me quite likely, and even now I think it's moving on from Spain to Italy." Spain's 10-year yield climbed 20 basis points, or 0.2 percentage point, to 6.95 percent at 1:27 p.m. London time after rising to 6.998 percent, the highest since the euro was introduced in 1999. The 5.85 percent bond due in January 2022 fell 1.305, or 13.05 euros per 1,000-euro face amount, to 92.405. The yield has jumped 74 basis points this week.
• Merkel Rejects Quick Fix to European Debt Crisis. Chancellor Angela Merkel rejected quick solutions proposed to fix Europe’s financial crisis such as joint debt sharing, saying Germany can’t save the world economy alone and fellow Group of 20 countries must help. Merkel, in a speech to parliament in Berlin today, said the debt crisis and Germany’s role in stemming it will be the “central topic” at next week’s G-20 summit in Mexico. While Germany will use its strength “in the service of European unity,” the euro and the global economy, Merkel said she opposes “seemingly easy” solutions that risk backfiring. “All eyes are on Germany,” she said. “But we also know that Germany’s power is not infinite. So our responsibility as Europe’s largest economy is to deploy our strength credibly, so that we can be of full use to Europe.” Merkel signaled a showdown with global peers at the June 18-19 meetings over ending the crisis that has made Spain the fourth euro-area country to need a bailout and driven up Italy’s borrowing costs.
• European Stocks Fall A Second Day; BSkyB, BT Group Slide. European stocks dropped for a second day as Moody’s Investors Service downgraded Spain and Cyprus, while Switzerland’s central bank said that Credit Suisse Group AG (CSGN) must increase its capital this year. Credit Suisse slumped 10 percent to its lowest price since 1992. British Sky Broadcasting Group Plc (BSY) and BT Group Plc (BT/A) tumbled 3.5 percent each, after winning the rights to show live English Premier League soccer matches by paying an extra 70 percent. Nokia Oyj (NOK1V) plunged 18 percent after reducing its outlook for the second quarter.
• 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 U.S. for 10- year borrowing has narrowed to the least in more than three months after Spain asked for a 100 billion-euro ($125 billion) 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. “There is a greater awareness now that the outcome of this crisis could well be quite painful for the German economy,” said Ciaran O’Hagan, a strategist at Societe Generale SA in Paris. “The contingent liability on Germany is rising. The losses we have seen have to be paid for by somebody and there is a sentiment that taxpayers in the rest of Europe are not going escape unscathed.”
• German Family-Owned Firms Doubt Euro, Merkel, Handelsblatt Says. Germany’s Foundation for Family Business said a growing number of entrepreneurs doubt that the euro will endure as a currency, Handelsblatt reported, citing Brun-Hagen Hennerkes, the foundation’s executive board chairman.
• Greek Stock Rally on Optimism New Democracy Will Win. Greek stocks rallied the most in more than nine months, while a gauge of banks jumped 21 percent, amid speculation that New Democracy, the party that backs an agreed bailout for the nation, may win the June 17 elections.
• Spanish Banks' Net ECB Loans Jump To Record 288 Billion Euros. Spanish lenders’ net borrowings from the ECB jumped to a record 287.8 billion euros ($361.4 billion) in May, highlighting the thirst of the financial system for funding before the country’s banking bailout. Net average ECB borrowings climbed from 263.5 billion euros in April, the Bank of Spain said on its website today. Gross borrowing was 324.6 billion euros in May, up from 316.9 billion euros in April. The increase in ECB borrowings “conveys the severity of the predicament some banks found themselves in ahead of last week’s bailout,” Martin van Vliet, an economist at ING Bank in Amsterdam, said in an e-mailed comment.
• Credit Suisse(CS) Urged by Central Bank to Boost Capital. Credit Suisse Group AG (CSGN) needs a “marked increase” in capital this year to prepare the bank for a possible worsening of Europe’s sovereign-debt crisis, the Swiss central bank said. The shares fell as much as 11 percent. “For Credit Suisse, given the low starting point and the risks in the environment, it is essential that it already substantially expand its loss-absorbing capital base during the current year,” the Swiss National Bank said in its annual financial stability report today. The central bank, which also recommended UBS AG (UBSN) boost capital, said improvements can be achieved by suspending dividend payments or selling new shares in addition to the banks’ plans for cutting assets.
• Jobless Claims in U.S. Unexpectedly Rose Last Week. Claims for unemployment insurance payments unexpectedly climbed by 6,000 to 386,000 in the week ended June 9, Labor Department figures showed today in Washington. Economists projected jobless claims would fall to 375,000 from a previously reported 377,000 the prior week, according to a Bloomberg survey of 49 economists. Estimates ranged from 370,000 to 385,000. The unemployment insurance report showed the four-week moving average of claims, a less-volatile measure, climbed to 382,000, the highest since April 28, from 378,500.
• Consumer Prices in U.S. Fall. The consumer-price index declined 0.3 percent, more than forecast and the biggest drop since December 2008, after no change the prior month, the Labor Department reported today in Washington. Economists projected a 0.2 percent decrease, according to the median estimate in a Bloomberg News survey. The so-called core measure, which excludes more volatile food and energy costs, increased 0.2 percent for a third month.
• California Hedge Fund Is Latest Euro Crisis Casualty. Hedge-fund manager Paul Sinclair is the latest casualty of Europe’s sovereign-debt turmoil, almost six thousand miles away from the epicenter of the crisis. Sinclair, who is based in Los Angeles, is liquidating his $458 million health-care equities fund, Expo Capital Management LLC, after more than five years, as political decisions made on the other side of the globe have undermined his stock picks and spurred losses for a second year.
• Ship Rates to Reach 22-Year Low as More Vessels Leave Yards.. Hire costs for Capesize ships, the largest carriers of iron ore and coal, are poised to reach the lowest level in at least 22 years after more vessels left yards. Daily charter rates will average less than $10,000 this year, Oslo-based investment bank Arctic Securities ASA said today in an e-mailed note. It lowered a prior estimate after shipyards delivered a larger-than-expected number of new vessels, outpacing demand and weighing on hire costs.
• Oil Climbs on Speculation About Fed Stimulus, OPEC Output. Crude gained on speculation the Federal Reserve will loosen monetary policy to spur growth and members of OPEC will leave their production ceiling unchanged. Oil advanced as much as 1 percent as a worse-than-expected jobless claims report fueled expectations that Fed policy makers will announce new stimulus measures after a meeting next week. OPEC oil ministers in Vienna are deciding whether to keep a 30 million-barrel-a-day limit.
• China Productivity Jolt Urged as Growth Forecasts Cut: Economy. Corporate profits are falling, deflation is looming and the nation faces years of “weak” growth, Credit Suisse economist Tao Dong said. To unleash productivity gains and restore the economy’s strength, the government should break monopolies in banking and utilities, open the services industry, and deregulate interest rates and the exchange rate, he said. “Investment is unlikely to see a meaningful rebound in the foreseeable future,” Hong Kong-based Tao said. “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.”
• Bank Warns of Major Canada Shock If Europe Crisis Worsens. Canada faces a “major shock” to its financial system and economy if Europe’s crisis worsens, the country’s central bank said. While Canada’s financial system has fared well and conditions in the country remain “very stimulative,” deepening turmoil in Europe may boost funding costs for the nation’s banks and generate losses from assets linked to the euro zone, the Bank of Canada said today in its semi-annual Financial System Review. Non-performing loans at Canadian banks would also increase if growth slows.
• India's Inflation Exceeds Estimates as Rate Decision Looms. Indian inflation quickened more than estimated in May as food and fuel prices surged, an acceleration that may fail to prevent an interest-rate cut next week to shore up slowing growth. The benchmark wholesale-price index rose 7.55 percent from a year earlier, after climbing 7.23 percent in April, the commerce ministry said in New Delhi today.
• Nokia(NOK) to Eliminate Up to 10,000 Jobs to Halt Mounting Losses. Nokia Oyj reduced its earnings forecast for the second time this year and said it will cut as many as 10,000 more jobs and shut production and research sites in Chief Executive Officer Stephen Elop's biggest overhaul. The stock fell 18 percent to the lowest level since 1996, pushing Nokia's market value below $10 billion.
  

Wall Street Journal:

• Spanish Crisis Deepens. The financial crisis threatening the Spanish government deepened Thursday as Spain's borrowing costs surpassed their euro-zone record. The move followed yet another sovereign credit downgrade and coincided with fresh evidence Thursday of economic and financial stress as the decline of Spanish housing prices accelerated to a 12.6% annual rate in the first quarter and Spanish banks increased their reliance on European Central Bank funding.
  
• Trade Protectionism Rises as Economies Slow. As worries rise about an economic slowdown, major nations around the world are ramping up measures to protect their economies from trade threats.
  
• Stanford Sentenced to 110 Years in Prison for Ponzi Scheme. R. Allen Stanford, the once-highflying financier convicted of masterminding a $7 billion Ponzi scheme, was sentenced Thursday to 110 years in federal prison. The punishment amounts to an effective life sentence for Mr. Stanford, who is 62 years old and used to live extravagantly aboard yachts, jets and homes around the world.

CNBC.com:

• Fed Easing: What Market Wants vs What May Happen.

Business Insider:

• THIS USED TO BE THE 10TH RICHEST SHOPPING STREET IN THE WORLD—Now Look At IT.
• China Is Desperately Reinflating The Real Estate Bubble.
• Italy Trembles On The Brink Of The Impossible.
• These Are The Weapons Facing Any Country That Intervenes In Syria.
• A Brand New Troubling Sign For The Housing Market. Despite talk of a housing bottom, new data shows that foreclosure filings jumped 9 percent from April to 205,990 according RealtyTrac's latest foreclosure report.
• Europe's Contagion Spreads into China.
  

Zero Hedge:

• Egan Jones Cuts France To BBB+, Outlook Negative.
• With Egypt On The Verge Of A Military Coup And Martial Law, Art Cashin Issues A Warning.
• Why a European Banking Union is Far From Imminent.
• Just What Is Mario Draghi Hiding? ECB Declines To Respond To Bloomberg FOIA Request On Greek-Goldman Swaps.
• Peripheral Stocks Pump As Spanish Bonds Dump. (graph)
  

Reuters:

• Analysis: Zombie Borowers Threaten Bailed-Out Spanish Banks. Spanish banks are a little jauntier after a dose of European cash to purge them of their toxic real estate assets, but their refinancing of moribund companies in other sectors could put them back in the emergency room. Whether out of optimism or desperation, Spanish banks have refinanced billions of euros of debt owed by struggling companies large and small, including property-related firms, to prevent them going bust and avoid writing down the loans while they wait for economic recovery, financial sources said. But with rising unemployment, falling consumer spending and a return to recession, any recovery looks a long way off, even after the 100 billion euro ($125 billion) lifeline that Spain's euro zone partners stumped up for its banks on June 9. "Very often banks have rather continued supporting companies on pre-insolvency scenarios instead of facing losses head on and making write-offs and forcing the company into liquidation. This has been very common," said Alberto Manzanares, refinancing expert at the Clifford Chance law firm in Madrid. The bad loan ratio in the Spanish banking system has already hit an 18-year high of 8.37 percent of outstanding loans in March as Spain's borrowing costs soared, thrusting the country into the heart of the euro zone debt crisis. Defaults are expected to rise as recession pushes more families and companies under and if a sector audit as part of the European rescue flushes out refinancing of insolvent companies.
• United Tech(UTX) Europe's Downturn Worse Than Expected. Europe's downturn has gotten worse than United Technologies Corp executives expected coming into the year, and the company is concerned about Greece's troubles spreading, a top executive at the diversified U.S. manufacturer said. "Clearly, the situation in Europe has gotten a lot worse than we had expected," Greg Hayes, the company's chief financial officer said on Thursday. "Greece doesn't bother me except for the contagion impact."

Politico:

• Layoff Threats Put Congress On Notice. Facing economic uncertainty, defense contractors are plotting to spur Congress to nix the automatic budget cuts set to begin next year. The plan? Threaten to send out layoff notices — hundreds of thousands of them, right before Election Day.
  

Financial Times:

• Merkel Stands Firm on Tackling Crisis. Angela Merkel, the German chancellor, declared on Thursday that Europe was “in a race with the markets” to turn its monetary union into a fully fledged political union, even as she warned her partners not to overburden the German economy in the eurozone crisis.

Telegraph:

• Debt Crisis: Live. Spanish borrowing costs hit record high of 7pc, a level widely-believed to be unaffordable, while the ECB says it can do no more to help debt-laden eurozone nations.
• America Will Soon Need To Take Advice It Offers Europe. It should not have been a surprise that US Treasury Secretary Timothy Geithner veered between fits of laughter and a tone of chilling gravity when he spoke to the Council on Foreign Relations in Washington this week.
• Dutch Disease. (graph) Dutch retail sales collapsed by 11pc in April, even worse than the 9.7pc drop in Spain. (Royal holidays cannot explain this). As you can see from today’s chart by Lombard Street Research, it is a sight to behold.

Capital.gr:

• Slovakia: We Will Demand That Greece Leaves The Eurozone. Slovakia supports Greece remaining in the euro zone but it should quit if it fails to honor its commitments, Slovak Prime Minister Robert Fico said on Thursday. Fico according to Reuters said Europe should do all it can to keep Greece in because there were more benefits if it stayed than if it left, but the Greeks must stick to the agreed terms of aid. "If the Greeks do not meet the commitments they have made, do not meet their financial commitments, do not repay loans, Slovakia will demand that Greece leaves the euro zone," Fico told a news conference.
• Libyan Oil Minister Wants Oil Price above $100. Libya's oil minister Abdurahman Benyezza would like to see oil prices above $100 a barrel, he said Thursday at a scheduled meeting of the Organization of the Petroleum Exporting Countries in Vienna. "I think that price would be good for global economy" [although] the "main point is to stabilize the price," he said.