- Italy’s Bond Rating Cut by Moody’s on Contagion, Funding Risks. Italy’s bond rating was cut and its negative outlook reiterated by Moody’s Investors Service as the euro area’s third-biggest economy faces higher funding costs and contagion risk from Greece and Spain. The ratings company lowered Italy’s government bond rating by two steps to Baa2 from A3, citing a greater risk of a Greek exit from the euro and the Spanish banking system experiencing greater credit losses, according to a statement released in Frankfurt today. That makes Italy’s rating the same as those of Kazakhstan, Bulgaria and Brazil, according to data compiled by Bloomberg. “Italy’s near-term economic outlook has deteriorated, as manifest in both weaker growth and higher unemployment, which creates risk of failure to meet fiscal consolidation targets,” Moody’s said. “Failure to meet fiscal targets in turn could weaken market confidence further, raising the risk of a sudden stop in market funding.”
- Italy Exits Before Greece in BofA Game Theory: Cutting Research. Italy and Ireland have more incentive to quit the euro than Greece, while Germany may have limited room to prevent departures from the currency union, according to Bank of America Merrill Lynch. Using cost-benefit analysis and game theory, BofA Merrill Lynch foreign exchange strategists David Woo and Athanasios Vamvakidis concluded in a July 10 report that investors “may be underpricing the voluntary exit of one or more countries” from the bloc. “Our analysis produces a few surprising results that even readers who may disagree with our conclusion are likely to find interesting,” the strategists wrote. Italy, the euro area’s third-largest economy, would enjoy a higher chance of achieving an orderly exit than others and would stand to benefit from improvements in competitiveness, economic growth and balance sheets, they said.
- Spain Threatens Deficit-Troubled Regions, Offers Help. Spain’s government threatened regions that are having trouble meeting deficit goals while offering to help them regain access to bond markets at a time when the nation is trying to restore investor confidence. Several Spanish regions risk missing their budget-deficit target of 1.5 percent of gross domestic product this year and have been given one week to take corrective measures, Budget Minister Cristobal Montoro said in Madrid late yesterday after a meeting with regional finance chiefs. The Cabinet will examine today a mechanism to provide exceptional assistance with bond redemptions to regional governments that are shut out of markets, he said. The aid will be conditional on additional budget cuts.
- Hollande’s Pledge to Block Firings Defied by Peugeot’s Reality. PSA Peugeot Citroen (UG)’s plan to close a factory in France for the first time in two decades represents the biggest challenge to Socialist President Francois Hollande’s promise to prevent a wave of job cuts. For Hollande, who pledged during his campaign to block what he called an expected “parade of firings,” the cuts by France's largest carmaker leave him squeezed between businesses seeking measures to spur growth and demands of his union supporters. Peugeot, whose announcement yesterday brought its job cuts to 14,000, is hardly alone.
- China Economic Data Questioned as Electricity Use Slows. The figures that go into China’s gross domestic product are “man-made” and “for reference only,” Li Keqiang, then a regional Communist Party head, said in 2007. The comments by Li, now a vice premier who’s expected to become premier next spring, were revealed in a diplomatic cable published by WikiLeaks in late 2010. Li’s remarks are especially relevant as China announced today that the economy expanded 7.6 percent last quarter from a year earlier, the slowest pace in three years.
- Most Chinese Stocks Drop as Second-Quarter Economic Growth Slows. Most Chinese stocks fell after a government report today showed the nation’s economy grew at the slowest quarterly pace in three years in the second quarter. Jiangxi Copper Co. (600362) led declines for commodity companies after a statistics bureau report showed the economy expanded 7.6 percent, trailing analysts’ estimate for 7.7 percent. China Shenhua Energy Co., the biggest coal producer, slid 1.2 percent after Sanford C. Bernstein cut its 2013 price forecast for thermal coal. Industrial & Commercial Bank of China Ltd. and China Minsheng Banking Corp. advanced after new lending exceeded estimates last month.
- Singapore GDP Unexpectedly Shrinks as Europe Crimps Exports. Singapore’s economy unexpectedly contracted last quarter as manufacturing fell, adding to signs of a deepening slowdown in Asian expansion as Europe’s debt crisis curbs demand for the region’s goods. Gross domestic product fell an annualized 1.1 percent in the three months through June from the previous quarter, when it climbed a revised 9.4 percent, the Trade Ministry said in an e- mailed statement today. The median of 14 estimates in a Bloomberg News survey was for a 0.6 percent gain. The economy expanded 1.9 percent from a year earlier. “The outlook on the growth side looks dim,” said Chua Hak Bin, a Singapore-based economist at Bank of America, who accurately predicted today’s GDP contraction. “If a technical recession does occur, chances are the Monetary Authority of Singapore may have to ease policy come October.”
- Copper Traders Most Bearish in Six Weeks on Demand: Commodities. Copper traders are the most bearish in six weeks on concern demand will slow in China, Europe and the U.S. at a time when hedge funds are betting on lower prices. Thirteen analysts surveyed by Bloomberg said they expect prices to drop next week and nine were bullish. A further six were neutral, making the proportion of bears the highest since June 1. Speculators have been wagering on a price drop since May and held a net-short position of 1,749 contacts on July 3, U.S. Commodity Futures Trading Commission data show. More than $1.2 trillion has been wiped from the value of global equities since early July amid concern growth is stalling.
- Fed’s Williams Sees 8% Unemployment Into 2013. Federal Reserve Bank of San Francisco President John Williams said he expects the unemployment rate to remain at or above 8 percent into next year as the economy enters a period of slower job growth.“Progress on bringing down the unemployment rate has probably slowed to a snail’s pace and perhaps even stalled,” Williams said today in the text of a speech in Portland, Oregon.
- Goldman Sachs(GS) Said to Hire Former Geithner Aide Williams. Goldman Sachs Group Inc. (GS), the fifth- biggest U.S. bank by assets, hired Andrew Williams, a former U.S. Treasury Department spokesman, for its corporate communications unit, said two people familiar with the matter.
Wall Street Journal:
- Spaniards Feel Sting of Big Budget Cuts. When Spain's government announced €65 billion ($79.7 billion) in planned budget cuts on Wednesday, it didn't take long for local Mazda salesman Sergio Junquera to feel the impact.
- U.S. Concerned as Syria Moves Chemical Stockpile. Syria has begun moving parts of its vast arsenal of chemical weapons out of storage facilities, U.S. officials said, in a development that has alarmed many in Washington. The country's undeclared stockpiles of sarin nerve agent, mustard gas and cyanide have long worried U.S. officials and their allies in the region, who have watched anxiously amid the conflict in Syria for any change in the status or location of the weapons. American officials are divided on the meaning of the latest moves by members of President Bashar al-Assad's regime.
- At J.P. Morgan(JPM), Whale & Co. Go. Three London-based employees at the center of J.P. Morgan Chase & Co.'s multibillion-dollar trading blunder, including one known as the "London whale," have left the bank, according to people familiar with the company. Achilles Macris, Javier Martin-Artajo and Bruno Iksil are the latest casualties of an episode that already has cost the bank $25 billion in market value and tarred the reputation of Chief Executive James Dimon as Wall Street's savviest risk manager.
- Odds Are Macau Gambling Estimates Too High. Sterne, Agee trimmed back on Las Vegas Sands, Wynn and Melco. Sterne, Agee & Leach. We believe second-quarter consensus is too high in the wake of earnings season for Macau names, potentially delaying more positive sentiment for individual securities with exposure to the Island/the Macau sector in general.
- Here's Jeff Gundlach's New Epic Presentation On 'Financial Expressionism' And The State of The Economy.
- Here Are 4 Triggers That Could Cause A Meltdown In China's Enormous Shadow Banking System.
- The London Olympics Security Situation Is Looking Like A Complete Disaster.
- Clarifying The Entirely Unremarkable Shift In ECB Deposits.
- Moody's Downgrades Italy's To Baa2 From A3, Negative Outlook - Full Text.
- Forget China's Goal-Seeked GDP Tonight; This Is The Chart That Keeps The PBOC Up At Night.
- China Logs Slowest Quarterly Growth Since 2009.
- Pew! Pew! US Videogame Sales Fall for 7th Month.
- Banks’ Libor Costs May Hit $22 Billion. Twelve global banks that have been publicly linked to the Libor rate-rigging scandal face as much as $22bn in combined regulatory penalties and damages to investors and counterparties, according to Morgan Stanley estimates.
- 'Bad News' for Commodities Regardless of China GDP: Trader.
- Is Subprime Lending Fueling the Auto Surge? New research shows that lenders are loosening their standards for auto loans for people with damaged credit, but this is better news for lenders than it is for borrowers — or auto companies. In a quarterly study, credit scoring company FICO found that just over half of lenders say the biggest increase in subprime lending will be for car loans, a jump that comes as the new-car market regains its bearings and picks up steam again.
- Geithner drawn into Libor scandal. While president of the Federal Reserve Bank of New York, Timothy F. Geithner pressed British regulators to reform the way it calculated a critical global benchmark called the London interbank offered rate, or Libor, according to a June 1, 2008 e-mail obtained by The Washington Post. Writing to the head of the Bank of England, among others, Geithner made six recommendations, which included eliminating incentives that could encourage banks to manipulate the rate and to establish a “credible reporting procedure.”
- Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows Mitt Romney attracting 46% of the vote, while President Obama earns support from 45%. Five percent (5%) prefer some other candidate, and three percent (3%) are undecided.
- Syrian govt forces kill over 200 in village attack: activists. More than 200 people, mostly civilians, were massacred in a Syrian army and militia onslaught on a village in the rebellious province of Hama on Thursday, opposition activists said.
- San Bernardino under investigation, mulls bankruptcy move. Authorities are investigating financially troubled San Bernardino, California, where the city council voted this week to approve a bankruptcy filing amid a claim by the city attorney that fraudulent accounting may have contributed to the city's problems.
- FBI probes China's ZTE over Iran tech deals-report. The FBI has opened a criminal investigation into Chinese telecoms gear maker ZTE Corp's sale of banned U.S. computer equipment to Iran and its alleged attempts to cover it up and obstruct a Department of Commerce probe, the Smoking Gun website reported.
- Lexmark(LXK) slashes 2nd-qtr outlook on weak European demand. Printer maker Lexmark International Inc cut its second quarter outlook, hurt by the impact of exchange rates and weaker-than-expected demand in Europe, sending shares down nearly 10 percent in after market trading. The company expects second quarter adjusted earnings in the range of 87 cents to 89 cents per share, lower than the previous guidance of 95 cents to $1.05 per share. Lexmark said sales for the current quarter would decline 12 percent, compared with a drop of 7 to 9 percent anticipated earlier. "Looking ahead, the company expects these same factors to impact the second half of 2012," Lexmark said in a statement.
- Institutional investors exit equity funds - Lipper.
- Honeywell(HON) chief warns on debt gridlock. A prominent US chief executive has urged business leaders to press politicians to agree on a solution to the country’s debt problems as concern rises that gridlock in Washington is damaging the economy.
- Euro tumbles as Asian funds shun EU chaos. The euro has plunged to multi-year lows against a range of currencies on fears of a deepening slump in Italy and Spain, and ugly disputes between eurozone leaders.
- France’s story of failure should drive our success. A car industry shedding jobs in the thousands after a chronic loss of competitiveness undermined by the dead hand of state aid. Sound familiar?
- Greek unemployment rate at new record of 22%. Greek unemployment hit a record 22.5pc in April and may keep edging higher, with even the key tourism sector unlikely to provide more than fleeting support over the summer as visitors stay away from the recession-hit country.
- South Korea may resume purchase of Iran crude as Iran govt offers $1b worth of insurance coverage to tankers carrying crude to South Korea.
- Large Number of Chinese IPOs in 2H May Hurt Stock Market. The value of IPOs in China in 2H may be around 3 times as much as in 1H, citing a survey of private equity funds by www.simuwang.com.
- None of note
- Asian equity indices are -.25% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 168.0 +5.0 basis points.
- Asia Pacific Sovereign CDS Index 138.0 +1.5 basis points.
- FTSE-100 futures +.35%.
- S&P 500 futures +.36%.
- NASDAQ 100 futures +.48%.
Earnings of Note
8:30 am EST
- The Producer Price Index for June is estimated to fall -.5% versus a -1.0% decline in May.
- The PPI Ex Food & Energy for June is estimated to rise +.2% versus a +.2% gain in May.
9:55 am EST
- Preliminary Univ. of Mich. Consumer Confidence for July is estimated to rise to 73.5 versus 73.2 in June.
- None of note
Other Potential Market Movers
- The Fed's Lockhart speaking and BOJ Monthly Report could also impact trading today.