- Pressure Builds on Spain as G-2o Leaders Chide Europe on Crisis. Group of 20 leaders prodded Spain to spell out details of its bank bailout as the deepening debt crisis in Europe exposed tensions among the world's biggest economies. With Greece on a financial lifeline and Spain asking for as much as 100 billion euros ($127 billion) in aid for its blighted banks, emerging economies pledged more money to stem the turmoil while chastising the euro area's guardians for damaging market confidence. G-20 chiefs "talked about how we need clarity on Spain's application as soon as possible," German Chancellor Angela Merkel said today in the Mexican resort of Los Cabos, where leaders began their final day of deliberations. "We all know that banks that aren't properly capitalized are a real source of turmoil and risk for the economy." Hanging over the meeting were record borrowing costs for Spain, the 17-nation euro region's fourth-largest economy, that is now threatening to spill over into Italy, where bond yields have also been rising. With the global recovery slowing, officials from China to India and Brazil signaled exasperation with Europe's slow response to the debt crisis, which is now in its third year.
- Greek Leaders Poised to Agree on Three-Way Governing Coalition. Haggling among Greek political leaders is set to continue for a third day as they bid to form a coalition that will seek relief from austerity measures tied to emergency loans. Socialist Pasok leader Evangelos Venizelos said a new government could be ready today. Antonis Samaras’ New Democracy party, which won June 17 elections, is hammering out a three-way government committed to staying in the euro. He would partner with Venizelos’s Socialist Pasok, which finished third, and Democratic Left. They would hold 179 seats in the 300-member parliament. Talks resume at 1 p.m. in Athens. “The most critical matter isn’t the form the government takes but the national negotiating team which will seek the best possible revision of the loan accord,” Venizelos told reporters at the party headquarters as they wrapped up a second day of talks. “We must do what we can to fight the recession and unemployment and bring growth and jobs. This is what determines the framework in which the government and the country will move.” European officials have held out the prospect of flexibility after the election that amounted to a referendum on remaining in the 17-nation currency union. Venizelos, the former finance minister who negotiated a second 130 billion-euro ($165 billion) rescue package earlier this year, spoke as representatives of the three parties met on a joint policy program. All three party leaders have committed to forming a government that will keep Greece in the euro area and fight to change some austerity measures that have led the country into a fifth straight year of recession. The government in Athens may seek to push back against required cuts in pensions and the minimum wage and the pace of budget-deficit reductions.
- Banks Face $15 Billion Demand on Spain Downgrade: Credit Markets. Spanish lenders face the prospect of needing as much as 12 billion euros of extra collateral for their central bank loans, raising pressure on the banks as they negotiate a 100 billion euro bailout. The additional security will be required on about 245 billion euros of sovereign and government-guaranteed debt pledged by Spanish banks should DBRS Inc. become the fourth ratings company to downgrade the nation to the cusp of junk, according to JPMorgan Chase(JPM). Bonds of Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA are the worst performers in the Bank of America Merrill Lynch EMU Financial Corporate Index this month. The ECB will demand deeper discounts on Spanish debt should DBRS cut its A High rating to match grades from Moody's Investors Service, Standard & Poor's and Fitch Ratings, according to JPMorgan. "People are already asking if the 100 billion-euro bailout will be enough for their needs, and having to raise another 12 billion won't help," said Olly Burrows, a London-based credit analyst at Rabobank Intl. "It's too much pressure on Spanish banks that are already squeezed."
- LCH Raises Margin Costs for Trading Spanish Bonds Amid Crisis. LCH Clearnet Ltd., Europe’s biggest clearing house, raised the extra deposit it takes from clients to trade most Spanish government bonds as concern mounts that euro-area leaders are failing to tame the debt crisis. The margin needed for Spanish securities due in 10 years to 15 years will be increased to 14.7 percent from 13.6 percent, according to a statement on LCH Clearnet’s website yesterday, which was confirmed by Rachael Harper, a spokeswoman for the company. The rate was also boosted on all Spanish debt due from zero months through seven years.
- RBS’s Hester Says Europe Crisis Resolution to Take Years. Royal Bank of Scotland Group Plc Chief Executive Officer Stephen Hester said it may take years before Europe finds a solution to the debt crisis as economies in the region struggle to implement reforms. “At issue is the ability for some countries in Europe, particularly in southern Europe, to make themselves more competitive,” Hester, 51, said today in an interview with Bloomberg Television in Hong Kong. “In the meantime, we’re talking about pieces of sticking plaster to buy time for economic reform to bite.”
- Cyprus Said to Face Europe Pressure for $13 Billion Aid. European authorities are pushing Cyprus to take a full bailout package worth as much as 10 billion euros ($12.7 billion), resisting the country’s attempt to limit any aid to its banking system, two officials said. Bargaining with Cyprus, which is also pursuing a loan from Russia, will continue on June 21 when euro-area finance ministers grapple with salvaging Spain’s banking system and a possible relaxation of Greek aid terms. If the Russian loan comes through, the country could use that agreement to improve its bargaining position with its euro-bloc partners.
- Subbarao: India's Inflation Rate Is Disturbing. (video) Indian inflation exceeds acceptable levels and restraining it may require sacrificing economic growth, central bank Governor Duvvuri Subbarao said.
- Indians Grow Weary of Socialism in the Skies. Two decades into their country's post-liberalization new economy, many Indians, especially the sizeable middle-class, have substantially revised ideas about government spending that were accepted without question in the old days of socialism.
- IPad Boom Strains Lithium Supplies After Prices Triple. Investors from JPMorgan Chase & Co. to BlackRock Inc. are trying to make money from the exploding popularity of iPads and increasing sales of hybrid cars by investing in producers of lithium for batteries. Prices for the conductive metal, the lightest in the periodic table, have tripled since 2000 in a market now worth $1 billion a year as uses expand in vehicles, ceramics, electronics and lubricants. Apple Inc. (AAPL) and Toyota Motor Corp. (7203), maker of the Prius electric-gasoline car, have few alternatives as they pursue higher performance and mobility, leading Dahlman Rose & Co. analysts to forecast lithium demand will double by 2020.
- South Korean Taxi Drivers Go on First Nationwide Strike. South Korean taxi drivers began their first nationwide strike today, demanding a fare increase and the right to burn diesel amid rising fuel costs.
- Europe Debt Crisis Restrains Rebound in Japan’s Exports: Economy. Japan reported its first trade deficit with the European Union since the Finance Ministry began tracking data in 1979 as the debt crisis roiling Spain and Greece limits a rebound in Japanese exports.
- Obama Plan Means Higher Taxes on Business. President Barack Obama’s plan to raise tax rates for the top 2 percent of U.S. households would mean higher taxes on the people who report 53 percent of business income reported on individual returns, according to the Joint Committee on Taxation. The nonpartisan analysts prepared the data at the request of Republicans on the Senate Finance Committee. Orrin Hatch of Utah, the panel’s top Republican, said the document was “irrefutable proof” that tax rates shouldn’t go up. “With our economy as weak as it is, it makes absolutely no sense to hit more and more small businesses with a tax hike,” he said in a statement.
- G-20 Leaders Divide Over Euro-Zone Crisis. World leaders papered over their differences after clashing over the euro-zone debt turmoil, deferring concrete decisions to other meetings amid worries about another global crisis. The Group of 20 advanced and developing economies, after a two-day summit, pushed European nations to integrate their banking systems quickly to calm the financial turbulence hitting Spain and threatening to ricochet around the world.
- CFTC Moves to Brake High-Speed Traders. U.S. regulators are about to take a big step toward reining in high-frequency trading: defining what it is. On Wednesday, a Commodity Futures Trading Commission subcommittee is expected to propose a roughly 60-word definition of high-frequency trading that would define it broadly, a bad sign for traders who had hoped for narrower language. The announcement follows three months of sometimes contentious meetings by an industry group that was formed by the CFTC to help the agency wrestle with the impact of rapid-fire trading on financial markets.
- Dimon: 'We Don't Gamble'. J.P. Morgan(JPM) CEO Gets Tougher Treatment From House Than He Got in Senate.
- Steelmakers Gird for a Downturn. The steel industry faces its worst prospects in four years, with prices and demand falling, prompting a call by industry executives to cut costs and shut unprofitable mills. The gloomy outlook mostly reflects the European crisis and slowing construction in China. It represents a sharp contrast from earlier this year when, buoyed by the automotive and energy-extraction industries, steelmakers were able to push through price increases and step up production.
- Egyptian Opposition Finds Unity Against Military. Egypt's Islamist and liberal forces, wary about the results of the weekend's presidential election, cast aside their ideological differences to protest the ruling military's moves to extend its grip on power.
- Farm Bill Holds Windfall for Foreign Insurers. Several foreign insurers stand to collect millions of dollars in new U.S. taxpayer-funded subsidies as part of a proposed shift in farm policy. A Senate bill would expand the federal crop-insurance program while eliminating direct subsidy payments to farmers. Such an expansion would benefit numerous U.S. insurance companies—as well as several based in Australia, Bermuda and Switzerland that in recent years acquired five of the nine largest U.S. crop-insurance companies.
- US, EU May Consider Trade Pact to Spur Growth. The U.S. and European Union said Tuesday they would consider a comprehensive trade pact and other measures to spur job and economic growth on both sides of the Atlantic.
- Tomorrow Is The Day Of Reckoning For Obama's Attorney General.
- Even The Airports In Europe Are Bizarrely Empty.
- Here's Why Microsoft's(MSFT) Surface Tablet Is Guaranteed To Have Small Sales.
- Your EBT Card Has Been Denied... At The Spearmint Rhino.
- Forget EURIBOR And Basis-Swaps; EUREPO Curve Inversion Signals Major European Funding Stress. (graphs)
- Guest Post: Who Destroyed The Middle Class? (Part 1).
- The Consequences Of The Rise Of European Nationalism.
- Hedge Funds Bet on Big German Bunds Sell-Off. Leading hedge fund managers are betting on a significant sell-off in German government bonds in the coming months after a sharp fall in yields on the debt paper driven by a flight to safety in the eurozone. More than 50 percent of managers polled at an industry conference in Monaco on Tuesday said they expect Bund yields to double within a year. Gavyn Davies, the founder of hedge fund Fulcrum Asset Management, told the Gaim conference that every hedge fund’s analytical model was signaling that the German bond market was too expensive. He said Bund yields were being depressed by a big “capital flight” from other eurozone countries that was “one heck of a powerful force”. However, the former Goldman Sachs chief economist said this pressure would not continue to push down yields indefinitely. Among those hedge fund managers already shorting German bonds is John Paulson, the U.S. hedge fund manager who rose to prominence in 2007 thanks to correctly betting that the U.S. housing market would collapse. Bill Gross, the chief investment officer of the world’s largest bond fund, Pimco, is also bearish on the prospects for German debt. “Bunds are attractive to short because they are at historical lows in spite of the fact that the German fiscal position can only deteriorate,” said one hedge fund manager of a large top-tier global macro firm. “It is an obvious trade if you can wait.” Managers believe the cause of such a sell-off will be Spain’s difficulties which they expect to worsen and lead to a costly bailout. Jamil Baz, the chief investment strategist at GLG Partners said policy makers’ tools were becoming weaker and weaker. “The crisis has not even started,” he said, predicting that deleveraging in the eurozone could take 20 years to accomplish.
- No Need for Easing, Fed’s Work Is Done: Former Fed Governor. The Federal Reserve’s monetary easing has reached its limit and it is now time for the government to put fiscal policy to work, according to Robert Heller, former governor of the U.S. central bank. “Monetary policy, the foot is on the gas pedal, has been there for a long time, three years now,” Heller, who served on the Fed’s board from 1986 to 1989, told CNBC Asia’s “Squawk Box” on Wednesday. “And I think the Fed has done what it can do. It’s now the time for fiscal policy to do its part.”
- Adobe(ADBE) Earnings Beat, but Shares Fall on Guidance. Adobe Systems, maker of Photoshop and Acrobat software, reported a quarterly profit that beat expectations but fell slightly, as costs rose 8 percent.
- Further Chinese Interest Rate Cuts Seen As Last Resort. China's central bank could rely on cutting the amount of cash the banks must hold as reserves to bolster growth but reserve further interest rate cuts as the last-resort policy option, economists familiar with Beijing's policy-making process said.
- Valero(VLO) Idles Nebraska Ethanol Plant Due To Margins. Valero Energy Corp temporarily shut down its ethanol plant in Albion, Nebraska, on Tuesday due to poor profit margins at the facility, a company spokesman said.
- Hedge Funds Battered By Euro Crisis. “The crisis has not even started,” said Jamil Baz, chief investment strategist at GLG Partners, part of the world’s second-largest hedge fund, the Man Group, on Tuesday. “It will take 20 years for us to reach escape velocity,” he told a room of about 300 hedge fund traders and investors at a hotel in the Larvotto – attendees at one of the hedge fund industry’s biggest annual conferences: Gaim. “It will be devastating,” Mr Baz’s pessimism was outdone by Niall Ferguson, the Harvard historian in vogue in financial circles. “Over-optimistic,” he said.
- G20 summit: perils of a half-baked rescue for Spain and Italy. Germany and France are doubling up on a high-risk gamble. The tentative deal at the G20 summit to mobilise the EU's rescue machinery to douse the raging fire in Spain and Italy comes in the nick of time, but is fraught with fresh dangers.
- Finland's Finance Minister Jutta Urpilainen said she opposes any easing of the austerity and reform measures agreed to by the European Union and Greece in exchange for its bailout. What has been agreed upon must be complied with, citing Urpilainen as saying in an interview.
- Chinese retailers are facing the most difficult year they've had in a decade in 2012 as sales decline, citing Shanghai Friendship Group Inc. General Manager Li Guoding. About 26 Shanghai-based department stores will sell about 70% of their goods at a 50% discount on June 22-July 1, citing Li.
- Rated (WFM) Buy, target $104.
- Rated (HUM) Buy, target $95.
- Rated (UNH) Buy, target $70.
- Rated (CECO), (NAUH), (DV), (LRN), (LOPE), (APOL) and (AMBO) Outperform.
- Asian equity indices are -.25% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 179.0 -1.0 basis point.
- Asia Pacific Sovereign CDS Index 144.25 +2.75 basis points.
- FTSE-100 futures -.25%.
- S&P 500 futures -.21%.
- NASDAQ 100 futures -.06%.
Earnings of Note
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,300,000 barrels versus a -191,000 barrel decline the prior week. Distillate inventories are expected to rise by +1,000,000 barrels versus a -63,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +1,000,000 barrels versus a -1,724,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.3% versus a +1.0% gain the prior week.
- The FOMC is expected to leave the benchmark fed funds rate at .25%.
- None of note
Other Potential Market Movers
- The Fed's Bernanke speaking, FOMC's economic forecast, EU Finance Minister's Meeting, HSBC China PMI (Flash), weekly MBA mortgage applications report, Citi Water/Renewables Conference and the RBC Metals/Mining Conference could also impact trading today.