- Spain Loan Prompts Bond Selling as Bailout Binds State to Banks. Spanish bond yields surged the most in four months in the first trading after the government in Madrid sought a bailout for its banks. Investors speculated the 100 billion euros ($125 billion) may not be enough. The lifeline from the euro area, aimed at loosening the connection between banks and the state, risks doing the opposite as foreign investors continue to shun the nation’s bonds and Prime Minister Mariano Rajoy’s government grows increasingly dependent on domestic lenders. “This 100 billion will be added to the public finances of Spain so it just reinforces the link between banks and the sovereign,” Olly Burrows, credit analyst at Rabobank International, said in a phone interview from London. “Spain is receiving funds to bail out its banks, which have been buying Spanish debt while everyone else has been getting out.” Spain agreed to take the aid in loans to be added to the public debt burden that rose to 69 percent of gross domestic product last year. The loans, which Economy Minister Luis de Guindos said will carry an interest that’s more favorable than market rates, will be channeled through the country’s bank- rescue fund.
- Pulling Plug on Greece Sells in German Town Opposing Merkel Plan. In the German town of Hassloch, sandwiched between vineyards and farms growing lettuce and asparagus, people have had enough of the debt crisis. “We can’t go on funding the Greeks, they’re beyond help,” Angelika Hoerner, 50, said as she served customers from behind a glass counter of her family’s butcher shop in the town of 21,000 in western Rhineland-Palatinate state. “It’s better to have an end with horror than horror without an end.” While nationwide polls show Germans are swinging against helping their poorer southern euro partner, opinions in Hassloch underscore a warning for Chancellor Angela Merkel as Greeks prepare for a second shot at electing a government on June 17. The town has been used since 1985 by market-research company GfK SE as a miniature Germany to test products ranging from Unilever NV (UNA)’s Dove soap to Ferrero Spa Rondnoir chocolates before they are rolled out across the country.
- Spanish Bailout Shows Europe Still Doesn’t Get It. The challenge of bailing out Spain’s banks is compelling Europe’s leaders to confront a question they had hoped never to contemplate: How to prevent financial and economic malaise from overwhelming the euro area’s fourth- largest economy. So far, their actions suggest they’re sticking with the strategy they pursued in Greece and expecting different results. They’d better think again.
- Goirigolzarri's Aid Demand Helped Push Spain To Bailout. Jose Ignacio Goirigolzarri, the man charged with cleaning up Bankia group, helped set Spain on its course to a banking bailout by asking for 19 billion euros ($23.8 billion) in state aid two weeks after becoming chairman. The demand for aid, made in consultation with the government and the Bank of Spain, revealed the deepening hole in the balance sheet of Bankia, the country’s third-biggest lender, and by extension other parts of the nation’s financial system. “He was the one who has thrown back the curtain in Spain itself and said ‘yes it really is this bad,’” said Simon Maughan, a financial industry strategist at Olivetree Securities Ltd. in London. “It wasn’t his intention to trigger a bailout but it may have been an unintended consequence.”
- Brazil Losing China Lifeline as Exports Slow: Chart of the Day. Brazilian exports to China are on course to have their worst performance in a decade, jeopardizing growth in Latin America's biggest economy, which has become increasingly commodities-dependent. Brazilian shipments to China rose 7.6% in the first four months of 2012 compared with the same period a year ago to $11.9 billion, leaving them on pace to fall short of a 43% increase in 2011. Since 2001, exports to China have grown an average 40% a year. The worst may be yet to come. Exports this year will contract from $44 billion in 2011 as China likely grows at its slowest pace in a decade, sapping demand for South America's raw materials, said Jose Augusto de Castro, vp of Brazil's Foreign Trade Assoc. "If the crisis takes down China, it'll be complete chaos for Brazil," said Castro, adding that he expects iron ore prices to drop further this year.
- S&P Says India May Lose Investment Rating. (video) Slowing economic growth and political roadblocks to policy making are just some of the risk factors to India’s BBB- long-term sovereign credit rating, S&P said in a statement.
- Fed's Lockhart Says Lower Yields Bolster Case for No New Action. Federal Reserve Bank of Atlanta President Dennis Lockhart said falling Treasury yields take pressure off the central bank for further action as policy makers prepare for a meeting next week. Lockhart, in a speech in Chicago, said recent U.S. economic data indicate the recovery may be losing steam, and that policy makers will need to take more steps to stimulate the economy if it becomes clear growth is slowing. "I don't think any of the options should be taken off the table under the current circumstances," Lockhart told reporters after the speech. "But I am not convinced at this moment that the circumstances quite yet call for additional action."
- GM(GM) Directors Undaunted by 33% Stock Slump Praise CEO Akerson. General Motors Co. directors praised Dan Akerson's performance as chief executive officer while saying he must now fix the automaker's European operations and begin grooming a successor.
- Beck Said to Renew Clear Channel Radio Deal for $100 Million. Radio talk-show host Glenn Beck renewed his contract with Clear Channel Communications Inc. in a deal that doubles his pay to $100 million over five years, according to a person with knowledge of the situation.
- Facebook(FB) Audience, Engagement Growth Slowing, ComScore Says. Facebook Inc.'s audience growth in the U.S., along with time spent on the site, is slowing as the world's biggest social network saturates its home market, according to ComScore Inc. The number of visitors rose 5 percent in April from a year earlier, down from a 24 percent surge in the same month of 2011, market researcher ComScore Inc. said in an e-mailed statement today. The average time spent on the site by each vistor climbed 16 percent, less than the 23 percent increase a year earlier.
- U.S. Exempts India, Korea From Iran Oil Sanctions, Not China. The U.S. added seven economies to the list of nations qualifying for an exemption from financial sanctions on Iranian oil imports, penalties intended to pressure Iran's leaders to abandon any nuclear weapons ambitions. India, South Korea, Turkey, South Africa, Malaysia, Sri Lanka and Taiwan will not be penalized by the U.S. for continuing to import oil from Iran over the next six months because they have proven they "have all significantly reduced" the volume of the oil they buy from Iran, Secretary of State Hillary Clinton said in a statement yesterday.
- Citadel, CQS Hire Asia Managers as Small Hedge Funds Buckle. Citadel LLC and CQS (U.K.) LLP are among global hedge funds providing refuge to managers in Asia as smaller firms struggle to raise money.
- JPMorgan(JPM) Knew of Risks. Some top J.P. Morgan Chase & Co. executives and directors were alerted to risky practices by a team of London-based traders two years before that group's botched bets cost the bank more than $2 billion, according to people familiar with the situation.
- Loophole at MF Global Is Headache for Regulators. Most of the senior executives at MF Global Holdings Ltd. weren't registered with commodities regulators, meaning the executives can't be charged with supervision failures related to the firm's collapse. The situation is a headache for regulators as they press ahead with their 7½-month investigation of MF Global. "Failure to supervise" sanctions generally are much easier to prove than allegations of deliberate wrongdoing, according to legal experts uninvolved in the case. In addition, the probe hasn't yet produced smoking guns that show anyone at MF Global knowingly raided the customer funds that went missing in the firm's final days.
- Ethanol's Long Boom Stalls. Fuel-Additive Plants Close as Gasoline Demand Falls, Federal Mandates Are Met.
- Hedges' Assets: $5 Trillion. Funds May Triple Over Five Years, Survey Says; New Offerings to Stoke Growth. The hedge-fund industry may more than double in size during the next five years, to more than $5 trillion in assets, as private fund firms broaden their offerings to compete with traditional money managers, according to a recent Citigroup Inc. survey. The poll of investors, consultants and money managers predicted that hedge funds could lure $2 trillion in new money to investment vehicles long associated with mutual-fund companies and other institutional managers, including "long-only" funds that buy and hold stocks.
- Emails Reveal How the White House Bought Big Pharma. The following emails are among those released by the House Energy and Commerce Committee as part of its investigation into the health-care deal-making between the White House and industry groups. Some of the names were redacted by the committee for privacy reasons. A related editorial is nearby.
- SEC probes hit a wall in uncooperative China. Regulators refusing to help U.S. counterparts probe fraud charges. It appears to be dawning on officials at the U.S. Securities and Exchange Commission (SEC) that cooperative, cross-border financial investigations are completely foreign to China.
- Credit Suisse Explains "The Real Issue", And Why There Is Two Months Tops Until France Is In The Bulls Eye.
- Charting The Simple Reason Why Every 'Bailout' In Europe Will Be Faded.
- At The End Of May NYSE Short Interest Soared To November 2011 Levels, Leading To Epic Short Squeeze. (graph)
- US Headed for Europe-Style Fiscal Crisis: Max Baucus. The United States is on a "dangerous path" that could lead to a European-style fiscal crisis, the Senate's top tax legislator warned on Monday, while calling for more tax revenue and ending corporate incentives to shift profits and jobs overseas.
- Why Markets No Longer Rally on European Bailouts.
- El-Erian: Time Running Out for European Credibility. Monday’s disappointing market reception to the bailout package for Spanish banks is a reminder to European policymakers of something that is more than familiar to veteran sovereign crisis managers in emerging countries: The greater the erosion of policymaking credibility, the harder it is to get the private sector to buy into your plans.
- Regulator Releases 'Road Map' on Swaps Overhaul. The Securities and Exchange Commission detailed a plan on Monday to phase in dozens of new rules governing over-the-counter swaps.
- Worry for Italy Quickly Replaces Relief for Spain. Concerns grew on Monday that Italy could be the next victim of Europe’s financial infection, leading nervous investors to sell Italian stocks and bonds and damping euphoria over a weekend deal to bail out Spain’s banks.
- Commerce Secretary John Bryson taking medical leave after crashes. U.S. Commerce Secretary John Bryson will take a medical leave after being involved in two San Gabriel Valley hit-and-run crashes, the White House announced Monday night. “Secretary Bryson informed the White House tonight that he will be taking a medical leave of absence from his position as Commerce secretary as he undergoes tests and evaluations.
- Obama Donors Get Deal; Depositors Get 'stiffed again'. A billionaire Chicago family that has donated and raised hundreds of thousands of dollars for President Obama got a deal from the federal government to avoid paying all of a $460 million settlement it agreed to in the 2001 failure of a Chicago-area bank it owned, while 1,400 former depositors are still owed more than $10 million in lost savings. And now, 11 years later, the prospect that any of the depositors will get their money back is bleak.
- Long-term unemployment crisis rolls on. The national unemployment rate has fallen from its recession highs, but Americans who have been out of work for six months or more are still having trouble finding work. The numbers are staggering. The ranks of the long-term unemployed swelled last month from 5.1 million to 5.4 million, and those individuals now account for 42.8% of the unemployed.
- U.S. money funds still vulnerable-NY Fed blog. U.S. money market mutual funds are still vulnerable to heavy redemptions in times of financial turmoil, which could destabilize the broader banking system, Federal Reserve staff members said in blog post on Monday.
- Texas Instruments(TXN) narrows Q2 financial forecast. Texas Instruments Inc (TXN.O) on Monday narrowed its forecasts for second-quarter earnings and revenue, but kept the midpoints of its target ranges intact as demand for its chips held up, despite global economic uncertainties. The maker of chips for a wide variety of products, including cellphones and industrial equipment, forecast revenue in a range of $3.28 billion to $3.42 billion. It previously estimated revenue of $3.22 billion to $3.48 billion. It now expects earnings per share in a range of 32 cents to 36 cents. Its previous target was 30 cents to 38 cents.
- Banks eye intangible assets as collateral. Several US banks want to tap the value of the intellectual property holdings of their borrowers as a way of trimming their capital requirements, which are to be made tougher under Basel III rules.
- This latest euro fix will come apart in less than a month. Another day, another sticking plaster solution from beleaguered eurozone policymakers.
- Spain deal poses more questions than answers. After the fiesta, comes the hangover. Still, the inevitable headaches and handwringing over Spain surprised with the speed of their arrival.
- European airlines could go out of business, warns economist Brian Pearce. European airlines could go out of business because of the continent's economic weakness, the aviation industry's leading economist has warned.
- Financial aid must be restricted to existing mechanisms, has to be precisely limited and must only be granted based on credible obligations by recipient countries, former ECB Chief Economist Otmar Issing wrote. Asking for aid based on "solidarity" ridicules democratic principles and economic reason and would mean some countries could make others pay for permanently living above their means. There is no room in the euro area for countries that demand ever more aid and won't stick to agreed obligations. Germany is right to adhere to EU treaties and should demand the same from others, he said.
- Austrian Finance Minister Maria Fekter said Italy may require European Union assistance because of the high interest payments on its debt. "Italy has to get itself out of the dilemma of very high deficits and debt, but it could be that because of the high interest that Italy already has to pay in the market for refinancing that it also could come to help payments," Fekter said in an interview. "The size that Italy would need as a state is in a dimension which probably couldn't be managed by the rescue umbrella alone," Fekter said.
- Fitch Ratings gives 'strong indications' it plans to revise Queensland's AA+ rating down to AA within weeks. QUEENSLAND'S battered credit rating looks set to take another hit with ratings agency Fitch preparing to downgrade the state's outlook yet again. The Courier-Mail can reveal Fitch Ratings last week met with Queensland Treasury and gave "strong indications" it planned to revise its AA+ rating down to AA within weeks.
- None of note
- Asian equity indices are -.75% to -.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 196.0 +9.0 basis points.
- Asia Pacific Sovereign CDS Index 153.50 -7.25 basis points.
- FTSE-100 futures +.10%.
- S&P 500 futures +.45%.
- NASDAQ 100 futures +.45%.
Earnings of Note
7:30 am EST
- The NFIB Small Business Optimism Index for May is estimated to fall to 94.0 versus 94.5 in April.
8:30 am EST
- The Import Price Index for May is estimated to fall -1.0% versus a -.5% decline in April.
2:00 pm EST
- The Monthly Budget Deficit for May is estimated to widen to -$125.0B versus -$57.6B in April.
- None of note
Other Potential Market Movers
- The Fed's Tarullo speaking, 3Y T-Note auction, Greek Bill Auction, weekly retail sales reports, IBD/TIPP Economic Optimism for June, William Blair Growth Stock Conference, Morgan Stanley Financials Conference, (BIIB) analyst day and the (JNPR) analyst meeting could also impact trading today.