Today's Headlines

Bloomberg:

• Merkel Parries Push For Debt Plan As Chiefs Agree On Growth Pact. German Chancellor Angela Merkel parried attempts to get her to accept more flexible use of the euro-region’s rescue funds and collectively financing debt, while agreeing with leaders of Italy, Spain and France on a proposal to spur economic growth. In a meeting in Rome, Merkel, Italian Prime Minister Mario Monti, French President Francois Hollande and Spanish Prime Minister Mariano Rajoy said they would lobby their European Union partners to accept a growth plan worth as much as 130 billion euros ($162 billion), or about 1 percent of the euro- region’s economic output. They didn’t give specifics about the plan or how it would be financed. European leaders are looking for a way out of their almost three-year-old debt crisis that has forced four countries to seek bailouts. Leaders are racing to come up with a plan by a summit on June 28-29 to convince the investors that they can salvage the region’s monetary union. In an interview today with a group of European newspapers including Le Monde and El Pais, Monti said the weeklong run up to the summit may prove critical to the survival of the euro. Should leaders fail to produce a blueprint for a tighter fiscal and financial union, there will “be progressively greater speculative attacks” on the currency bloc’s “weaker” nations.
• Bundesbank Swipes at Draghi as European Fault Lines Deepen. The Bundesbank opposition to the European Central Bank’s plan to help ailing financial institutions is its latest swipe at the crisis-fighting efforts of Mario Draghi’s central bank. As Spanish banks scramble for collateral to use in the refinancing operations that are keeping them afloat, the ECB said today it will cut the rating thresholds and amend eligibility requirements for some asset-backed securities. While the move will give stressed banks greater access to ECB liquidity, it may also increase the amount of risk on the central bank’s balance sheet. “We’re critical of this,” Bundesbank spokesman Michael Best said. In terms of collateral, “we won’t accept what we don’t have to accept,” he said. The criticism highlights one of the fault lines dividing European officials as they struggle to end a crisis threatening to rip the currency union apart. As Draghi’s officials scramble to put together policies that will fight the latest stage of the turmoil, German policy makers are emphasizing the dangers of pursuing unorthodox policies that potentially put taxpayers on the hook for future losses. “It’s almost the usual game: the ECB has to do something to alleviate a liquidity crisis and the Bundesbank isn’t very happy about it,” Holger Schmieding, chief economist at Berenberg Bank in London, said in a telephone interview. “The Bundesbank being critical doesn’t fully counteract what the ECB is doing, but possibly makes it a little less effective.”
• German June Business Confidence Drops To Two-Year Low. German business confidence fell to the lowest in more than two years in June as the worsening sovereign debt crisis clouded the economic outlook. The Munich-based Ifo institute said today its business climate index, based on a survey of 7,000 executives, dropped for a second straight month to 105.3 from 106.9 in May. That’s the lowest reading since March 2010. Economists predicted a decline to 105.6, according to the median of 39 estimates in a Bloomberg News survey. Italian consumer confidence fell to a record low, a separate report showed. “The euro area is clearly on the downward turn,” said Stella Wei Wang, an economist at Nomura International Plc in London. “If there is no quick political response to the crisis, the confidence shocks we see now in Europe will worsen the situation.”
• Italy Consumer Confidence Falls Amid Rising Taxes, Unemployment. Italian household confidence fell this month to a record low as joblessness rose and Prime Minister Mario Monti’s fiscal measures deepened the country’s fourth economic recession since 2001. The confidence index fell to 85.3, the lowest since the data series began in 1996, from 86.5 in May, national statistics office Istat said in Rome today. Economists forecast a reading of 86, according to the median of 15 estimates in a Bloomberg News survey. Italy’s new property tax, known as IMU, made its debut this month with the first of three payments due on June 18. The IMU, which marked the return of taxation on primary residences after four years, was part of the 20 billion-euro ($25.1 billion) package that the government passed to cut the country’s deficit. That plan and other measures that have pushed gasoline prices to record levels helped push the economy deeper into the recession. Italy’s joblessness rose in April to a seasonally adjusted 10.1 percent, the highest in 12 years.
• Ghost of Nazi Past Haunts Austerity-Gripped Europe: Euro Credit. The specter of the 1930s financial crisis that culminated in the rise of Adolf Hitler’s Nazi party and the Second World War is stalking Europe.
• Spain Said To Weigh Imposing Losses On Junior Bank Bondholders. Spanish policy makers are considering forcing investors who hold equity and junior debt in banks to absorb losses in a restructuring, according to a person with knowledge of the plan. Such burden sharing is among conditions being negotiated with the European Union in a 100 billion-euro ($126 billion) rescue for Spain’s financial industry, said the person, who asked not to be named as the conversations are private. Depositors who bought subordinated instruments such as preferred stock may be partially shielded from losses through a compensation plan being considered, the person said. Spain is poised to make a formal request for bank aid after asking for the credit line on June 9. The country’s lenders, rocked by the end of a real estate boom, would need as much as 62 billion euros in capital to withstand a worst-case economic scenario, according to Roland Berger and Oliver Wyman, consulting firms hired by the government to conduct stress tests.
• Bernanke’s Twist Sharpens Year-End Anxiety Over Stimulus. Federal Reserve Chairman Ben S. Bernanke has repeatedly warned lawmakers that a fiscal cliff threatens the economy. Now he’s created a precipice of his own. The Fed on June 20 extended its Operation Twist program to swap $267 billion in short-term securities with longer-term debt through December. That end date coincides with reductions in federal spending, a halt to payroll-tax cuts and expiration of income-tax cuts enacted under President George W. Bush. The timing of Bernanke’s easing raises the stakes for the Fed’s four remaining policy meetings this year as investors focus on whether the central bank will provide stimulus for 2013 to help the economy overcome the impact of the fiscal tightening due to take hold in January, said Vincent Reinhart, chief U.S. economist at Morgan Stanley. “They create their own monetary cliff to match the fiscal cliff,” said Reinhart, former head of the Fed board’s Division of Monetary Affairs. That may mean “a world of hurt” for the central bank because there would be a perception the Fed allows fiscal politics to influence its actions.
• Fed's Bullard Says QE3 Would Have 'High Hurdle'. Federal Reserve Bank of St. Louis President James Bullard said today a possible third round of quantitative easing would face a “pretty high hurdle.” “We can do that and I think it would be effective,” Bullard said in a television interview on Bloomberg Surveillance with Tom Keene. “But we’d be taking a lot more risk on our balance sheet. We’d be going further into uncharted territory.” Bullard said that “Treasury yields have gone to extraordinarily low levels. That took some of the pressure off the FOMC since a lot of our policy actions would be trying to get exactly that result.”
• JPMorgan(JPM) CDS Position Rose 400% Against Bank Rivals, Data Show. JPMorgan Chase & Co., whose losses from credit swaps will top $2 billion, amassed a trading position in the contracts last quarter at least four times as large as that of its closest U.S. competitor, a government report showed. Comparing purchases and sales of credit swaps in the first quarter and the fourth quarter last year, JPMorgan bought $148 billion more in notional value of the swaps and sold $232 billion more of the contracts, the Office of the Comptroller of the Currency said today. That compared with Citigroup Inc. (C) buying $36 billion more in credit swaps quarter-on-quarter and selling $46 billion more, while Goldman Sachs Group Inc. (GS) purchased $15 billion more and sold $16 billion more from one quarter to the next, the OCC data show. Bank of America Corp. (BAC) reduced the amounts of credit- default swaps it bought by $589 billion and sold by $587 billion quarter-on-quarter, OCC said. JPMorgan lost $761 million in revenue from trading credit derivatives and securities in the three months ended in March, the OCC said. It earned $2.5 billion in interest-rate derivatives and securities and $545 million in foreign exchange positions, OCC said. All U.S. commercial banks earned $7 billion in revenue by trading over-the-counter derivatives and securities in the first quarter, down 5 percent from the year-earlier period as credit trading slowed, the OCC said in the report. The U.S. agency said its main measure of credit risk in derivatives markets, the so- called net current credit exposure, fell 12 percent, or $53 billion, to $377 billion.
• Syrian Army Kills 144 as 54 Soldiers Also Die, Group Says. Syrian security forces killed 144 people yesterday, a rights group said, making it one of the bloodiest days in recent weeks in President Bashar al-Assad’s crackdown on opposition groups. More than 30 of the deaths came in the central region of Homs, and another 29 in Daraa in the south, the U.K.-based Syrian Observatory for Human Rights said in an e-mailed statement today. It said at least 54 soldiers also died. The Observatory said that Syrian forces shelled towns in the northern Idlib region today, while protests were held in Aleppo, the second-biggest city, which is near the Turkish border. Homs also came under heavy artillery fire again, Al Arabiya television reported.
• Wash Trading by High-Frequency Firms Said To Face Scrutiny. High-frequency trading firms are drawing scrutiny from U.S. regulators seeking evidence that they may be distorting market prices by conducting transactions with themselves, said two people with knowledge of the matter. So-called wash trades, in which a party buys a contract from itself, could be executed inadvertently by firms with multiple algorithms active in the same stock or derivative, said the people, who requested anonymity because the review isn't public. Such trades, which can alter the price of shares if they are executed above or below market rates, would be illegal if deemed intentional efforts to manipulate stocks.
• GM(GM) Recalls 413,418 Chevrolet Cruzes on Engine Fires. General Motors Co. (GM) is recalling 413,418 Chevrolet Cruzes, its best-selling car model in the U.S. last year, following engine-compartment fires. GM is recalling the compact cars from model years 2011 and 2012 in the U.S. because liquids can be trapped near the engine and catch fire, the Detroit-based company said today in an e- mailed statement.

Wall Street Journal:

• Spain to Make Official Aid Request Monday. Spain's government said Friday it plans to make its official request for European Union aid for its banking sector Monday, and expects to have the terms for such aid set by July 9, as discussions continue on ways to inject European aid funds directly into ailing Spanish banks.
• Strassel: Axelrod's ObamaCare Dollars. Emails suggest the White House pushed business to the presidential adviser's former firm to sell the health-care law.

CNBC.com:

• Auditor: Total Illinois Deficit Nears $44 Billion. The state's overall deficit climbed to nearly $44 billion last year, easily the worst in the nation, the Illinois auditor general reported Thursday. The red ink grew by 16.8 percent in a single year, Auditor General William Holland said. The new report includes all of Illinois' assets and liabilities and gives a broader picture of the state's financial condition than simply reviewing the annual budget — one of steady deterioration. With no cash available, more state payments were late and for larger amounts, the audit found. Illinois ended the fiscal year with $4.7 billion in unpaid bills. The state fell further behind in paying tax refunds. Bookkeeping was slow and disorganized. The deficit stood at $43.8 billion as of June 30, 2011, the auditor said. That's $10 billion more than the deficit of the next-highest state, New Jersey, and $33 billion higher than the deficit in California, another state that has been plagued by financial problems.
• IMF Sowing Seeds of the Crisis It Helped Plant - Opinion.

Business Insider:

• That Is An Ugly Fall-Off In Economic Confidence. (graph)
• WATCH: Parents Of Murdered Border Patrol Agent Say The Feds Are Lying About Their Botched Gunrunning Operation.
• David Rosenberg: The Last 2 Fiscal Cliffs Were Awful For America.
• Check Out The Growth Of America's Economy Once You Subtract The Growth Of America's Debt... (graphs)
• Major Storm System Brewing IN The Gulf Of Mexico.
  

Zero Hedge:

• Merkel Reminds Europe Of The Golden Rule.
• Syria Shoots Down NATO-Member Turkey's Military F-4 Jet.
• Spain and The Citi: Here is What Happens Next In The Country With All The Pain.
  

NY Post:

• Press lets scandal hide in plain sight. There’s a reason you don’t know much about the complicated and confusing mess known as “Fast and Furious.” The mainstream media have largely ignored this Obama administration scandal, which would have dominated mainstream front pages and homepages and programs for months had it all taken place under a Republican administration.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Friday shows Mitt Romney attracting 48% of the vote, while President Obama earns 43%. Six percent (6%) prefer some other candidate, and another three percent (3%) are undecided.

Reuters:

• Oil cos evacuate some US Gulf staff on storm threat. Energy companies began evacuating non-essential personnel from operations in Gulf of Mexico on Fr iday due to the threat of a weather system in the region developing into a tropical cyclone. Anadarko Petroleum Corp. and Murphy Oil Corp said they were removing non-essential workers from the offshore region, but added production had not been affected. Murphy operates three oil and gas platforms in the Gulf, while Anadarko operates eight.
• Rating Agencies Under New Pressure In Italy. Italian state auditors are investigating whether downgrades of Italy by the three major rating agencies last year hurt the debt-laden country's finances by making it accelerate austerity measures that have deepened its recession. European policymakers, struggling to shore up state finances, have accused analysts of being too quick to cut euro zone sovereign ratings despite bailouts and their spending cuts and tax increases. The rating agencies already face a separate criminal probe in a southern Italian town. "It is not right for agencies to speak so irreverently about Italian sovereign debt, causing economic consequences that everybody can see," Angelo De Dominicis, who heads the prosecutors' office of the Rome state audit court, told Reuters on Friday.
• Spain to stress test banks again, focus on seven. Spain will carry out yet another stress test of its banks by October with a focus on seven lenders, documents released after an independent audit of the banking sector showed on Friday. Doing the test gives Spain at least two more months to negotiate for direct cash injections into lenders as part of a European aid package of up to 100 billion euros ($125 billion), designed to keep the country from sinking deeper into the euro zone debt crisis.
• Germany's Schaeuble says Greece must fulfil commitments. Greece must fulfil the commitments it made in return for its programme of financial aid, German Finance Minister Wolfgang Schaeuble said on Friday, adding that there was no scope for flexibility on the goal of cutting its national debt to 120 percent of GDP. "Greece must fulfil the conditions of the programme," Schaeuble told reporters on the sidelines of a meeting of EU finance ministers in Luxembourg. "We must put a programme together that people in the world believe can work... with 120 percent we have been relatively generous. There is no room for manoeuvre."

Telegraph:

• UK House prices could fall by 11pc, predicts Coutts.

BBC:

• Egypt's Military Warns of "iron fist" Response. Egypt's justice minister has warned that those who threaten the country's security will face "an iron fist". Abdel Aziz al-Gindi was speaking after 12 people died and more than 180 were wounded during clashes between Muslims and Christians in Cairo. More than 190 people detained after the fatal clashes will face military trials, Egypt's army says. The ruling Supreme Council of the Armed Forces called the move a "deterrent" against further violence. "The government's hand is not shaking. The government is not weak," Mr Gindi said, speaking after an emergency cabinet meeting convened by Prime Minister Essam Sharaf. Mr Sharaf postponed a visit to the Gulf to hold the meeting. Mr Gindi said the government would "immediately and firmly implement the laws that criminalise attacks against places of worship and freedom of belief", which would allow for the death penalty to be applied. He said the Egyptian people, police and army were "standing together to foil the counter-revolution", following the popular protests that unseated the government in February.