- Draghi May Enter Twilight Zone Where Bernanke Fears to Tread. European Central Bank President Mario Draghi is contemplating taking interest rates into a twilight zone shunned by the Federal Reserve. While cutting ECB rates may boost confidence, stimulate lending and foster growth, it could also involve reducing the bank’s deposit rate to zero or even lower. Once an obstacle for policy makers because it risks hurting the money markets they’re trying to revive, cutting the deposit rate from 0.25 percent is no longer a taboo, two euro-area central bank officials said on June 15. “The European recession is worsening, the ECB has to do more,” said Julian Callow, chief European economist at Barclays Capital in London, who forecasts rates will be cut at the ECB’s next policy meeting on July 5. “A negative deposit rate is something they need to consider but taking it to zero as a first step is more likely.” Should Draghi elect to cut the deposit rate to zero or lower, he’ll be entering territory few policy makers have dared to venture. Sweden’s Riksbank in July 2009 became the world’s first central bank to charge financial institutions for the money they deposited with it overnight. The Fed rejected cutting its deposit rate from 0.25 percent last year. With Europe’s debt crisis damping inflation pressures and curbing growth, the ECB may feel the benefits outweigh the negatives.
- German Parliament to Meet to Vote on Spain Bailout, Bild Reports. The German parliament will probably hold a special meeting on July 6, its first extraordinary session on the debt crisis, to vote on Spain’s request for a bailout, the Bild Zeitung newspaper reported, citing unidentified coalition lawmakers. Germany has to approve a so-called memorandum of understanding on Spain’s bailout petition, the newspaper said in a pre-release of an article to be published today. The parliament may meet again a week later to decide on Cyprus’s request for aid, the newspaper said.
- Mario Monti and the Limits of Technocracy. When Mario Monti was appointed -- not elected -- prime minister of Italy in November, most Italians saw him as a welcome respite from the flamboyant, bankrupt leadership of Silvio Berlusconi. With the economy headed for collapse, technocratic leadership and a break from politics as usual were exactly what they wanted. So they thought. Now, opinion polls put Monti’s approval rating at slightly more than 30 percent, down from more than 70 percent at the start of his tenure. The country’s media are disenchanted. Monti has failed to produce the miracle that Italy was hoping for, offering only painful remedies for years of misgovernment. It turns out that politics matter, and technocrats aren’t much good at politics.
- Monti Plays Italian Politics in Labor-Law Overhaul: Euro Credit. Italian Prime Minister Mario Monti, seeking to bridge European differences over how to end the region's debt crisis, is pushing a labor market overhaul at home that has divided his allies and sapped his support. The law, designed to revive Italy's economy by making it easier for distressed companies to fire workers, will pass parliament today ahead of tomorrow's European Union summit in Brussels. Italy's 10-year bond yield, at more than 6%, has jumped 30 basis points since June 9 when Spain became the fourth euro-region country to seek aid. "In the European scenario, Monti is doing very well said Tommaso Nannicini, a professor of political economy at Bocconi University in Milan. "However, on the domestic side he looks more and more incapable of keeping together his majority and gives the impression of a lack of political action."
- No Second-Half Rally for China’s Stocks, Top Fund Manager Says. China’s economy will probably stay in the “doldrums” in coming months, preventing a second-half rally for the nation’s equities, according to the country’s best-performing fund manager. The government will do just enough to prevent the world’s second-biggest economy from slowing further instead of taking more aggressive measures to boost growth, Yu Guang of Invesco Great Wall Fund Management Co. in Shenzhen, said in an e-mailed interview on June 21. Property, auto and household-appliance stocks may outperform even as the overall market stalls, said Yu, whose Core Competitiveness Fund has returned 25 percent this year, ranking it first among 714 China-based mutual funds, according to data compiled by Bloomberg as of June 25.
- SEC Said to Authorize Lawsuit Against Philip Falcone. Philip Falcone, the billionaire founder of Harbinger Capital Partners LLC, faces a lawsuit from U.S. regulators as soon as this week over claims he improperly borrowed client money from his hedge fund to pay his taxes, according to two people familiar with the matter.
- Russia Must Drop Assad Before Talks, U.S. Official Says. A meeting of world powers to discuss ending the conflict in Syria won’t happen unless Russia first agrees that Syrian President Bashar al-Assad must be replaced, a U.S. State Department official said. United Nations Special Envoy Kofi Annan is seeking to convene a June 30 gathering in Geneva to persuade major powers and neighboring states to support a political transition to end the Syrian conflict, which has claimed more than 10,000 lives, according to human rights groups.
- Coal Set for Worst Rout Since Post-Lehman Slump: Energy Markets. Coal for power stations is headed for its worst quarter in more than three years as China's slowing economy tempers demand for electricity amid brimming stockpiles and increased shipments into Asia. Thermal coal at the Australian port of Newcastle, the benchmark price for Asia, cost $83.1 a metric ton as of June 22, down 20% this quarter, according to IHS McCloskey, a coal-data provider.
- Expanded Oil Drilling Helps U.S.Wean Itself From Mideast. America will halve its reliance on Middle East oil by the end of this decade and could end it completely by 2035 due to declining demand and the rapid growth of new petroleum sources in the Western Hemisphere, energy analysts now anticipate. The shift, a result of technological advances that are unlocking new sources of oil in shale-rock formations, oil sands and deep beneath the ocean floor, carries profound consequences for the U.S. economy and energy security. A good portion of this surprising bounty comes from the widespread use of hydraulic fracturing.
- Has Peak Oil Peaked? Remember the days when a threatened hurricane and news of Syria downing a Turkish jet would send oil prices spiking? Peak oil, the Malthusian scenario whereby global oil-supply growth has reached its limit, appears to have, er, peaked. Oil prices aren't responding to the usual stimuli.
- Down and Out in Stockton. The latest city to confront bankruptcy and how it got there.
- Hong Kong housing projects host wealthy tenants. Fancy cars, rich lifestyles mark welfare system gone wild.
- Some 18 Year Old Made A Site That's Going To Get People Fired For Using Facebook(FB).
- There's New Evidence That Pakistan's Intelligence Agencies Helped Plan The 2008 Mumbai Attacks.
- Everything You Need To Know About The European Bailout Mechanisms In One Huge Slide.
- Ray Dalio: Don't Assume That Germany Will Bail Europe Out; Consider The "Fat Tail" A Significant Possibility.
- Momentarily Stepping Back From The Trees To Show These Two Charts Of The Forest. (graphs)
- Liquidation Is Vital.
- Turkey Mobilizing: Media Manipulation, Provocation Or Reality?
- Germany's Credit Rating Slashed by Egan-Jones. Credit ratings agency Egan-Jones on Tuesday downgraded its credit rating for Germany to "A+" with a negative outlook from "AA-," noting the need to watch for fallout should Greece exit the euro zone. Whether or not Greece or other euro-zone members exit the monetary union, Germany will be left with "massive" additional, uncollectible receivables, Egan-Jones said in a statement.
- Spain Considers Sweeping Tax Hikes to Please EU. Spain is considering raising consumer, energy and property taxes, the government said on Tuesday, as it struggles to reduce a public deficit that may have already exceeded one of its budgeted ceilings for the full year.
- US Judge Issues Injunction on Samsung Galaxy Tab Sales. A U.S. judge on Tuesday granted Apple's bid to stop Samsung Electronics from selling its Galaxy Tab 10.1 tablet in the United States, giving the iPhone maker a significant win in the global smartphone and tablet patent wars.
- Spanish Officials Hailed Banks as Crisis Built. As Spain edged closer to a real estate and banking crisis that led to its recent bank bailout, Spanish financial leaders in influential positions mostly played down concerns that something might go terribly wrong.
- Brazil's 'Sub Prime' Defaults Rising. It doesn’t matter that Brazil’s benchmark interest rates are at historic lows, last year’s push by the government to extend debt payments for car loans brought in a rash of “subprime” borrowers. Now the banks, from Itau Unibanco (ITUB) to Bradesco (BBD) are paying the price for miscalculating the safety of those new car loans. The default rate on consumer and corporate loans over 90 days late rose 0.1 percentage points to a total of 6 percent, the Central Bank of Brazil said Tuesday, marking the highest ever default rate since the bank starting monitoring it in June 2000. While the default rate is not rising quickly, it is not falling either, as the Central Bank had hoped to see in their latest report. That’s the overall number. Car loans are the worst of the lot. Defaults on auto loans increased 0.2 percentage points to a total of 6.1 percent in May. Auto loan default rates are up 2.5 percent over the last 12 months, the highest out of all the consumer credit monitoring by the Central Bank.
- AeroVironment(AVAV) profit beats on higher unmanned drone sales. Drone maker AeroVironment Inc posted a better-than-expected fourth-quarter profit and forecast a strong 2013, helped by higher sales of its unmanned drones, sending shares up 9 percent after the bell.
- Monti lashes out at Germany ahead of summit. Mario Monti has set the stage for a tough fight with Germany at the EU summit this week, insisting that he will continue to push Italy’s proposal to use eurozone bailout funds in an attempt to stabilise financial markets. Italy’s technocratic prime minister’s frustration with Germany surfaced in a combative speech to parliament, saying he would not go to Brussels to “rubber-stamp” pre-written documents and was ready to extend the two-day summit until Sunday night if needed to reach agreements before markets reopen on Monday.
- Q&A: the Gang of Four's euro plan. It is billed as the master plan to save the euro and has been grandly entitled "Towards a genuine Economic and Monetary Union".
- Weidmann Says Bids to Cheat Treaty Undermine Euro. "Crafty" attempts to "cheat" one's way past EU treaties by quick introduction of euro-area liability such as euro bonds, deposit insurance, joint debt fund undermine confidence in monetary union, Bundesbank President Jens Weidmann wrote. Attempts to first take what should be a final step of ever close integration threatens monetary union. It is "irritating" that some govts openly push for central banks to clean up fiscal problems and solve difficulties by printing money, he said. The central bank mandate is to maintain price stability; financing govt debt is forbidden.
- Global PC Sales May Fall Up To 10% in Q3: Report. Global sales of personal computers (PCs) may drop as much as 10 percent in the third quarter from a year earlier due to weakening demand, according to a Forbes report known in Seoul on Wednesday. PC sales could fall around 5-10 percent in the July-September period from the previous year as PC giants such as Dell(DELL) and Hewlett-Packard(HPQ) continue to suffer softening demand, according to a recent Forbes report that cites Jefferies & Company Inc. analyst Peter Misek.
- Shanghai Bans Non-Local Singles From Buying Homes. Single residents without Shanghai registration, so-called hukou, are no longer allowed to buy property in the city, citing several district real estate trading centers. The ban has yet to spread to the whole city, but started 2 weeks ago in districts including Huangpu, Jingan, Yangpu and Baoshan. The ban was also confirmed by unidentified developers.
- None of note
- Asian equity indices are -.25% to +.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 186.0 -1.5 basis points.
- Asia Pacific Sovereign CDS Index 151.25 +1.75 basis points.
- FTSE-100 futures +.37%.
- S&P 500 futures -.01%.
- NASDAQ 100 futures +.08%.
Earnings of Note
8:30 am EST
- Durable Goods Orders for May are estimated to rise +.5% versus a +.2% gain in April.
- Durables Ex Transports for May are estimated to rise +.7% versus a -.6% decline in April.
- Cap Goods Orders Non-defense Ex Air for May are estimated to rise +1.9% versus a -1.9% decline in April.
- Pending Home Sales for May are estimated to rise +1.5% versus a -5.5% decline in April.
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,300,000 barrels versus a +2,861,000 barrel gain the prior week. Distillate inventories are expected to rise by +1,225,000 barrels versus a +1,156,000 barrel gain the prior week. Gasoline supplies are estimated to rise by +1,000,000 barrels versus a +943,000 barrel gain the prior week. Finally, Refinery Utilization is estimated unch. versus a -.1% decline the prior week.
- (DLTR) 2-for-1
Other Potential Market Movers
- The 5Y T-Note auction, weekly MBA mortgage applications report, CSFB Basic Materials Conference, (TDG) analyst day and the (BWS) investor day could also impact trading today.