- Euro Leaders Turn to Central Bankers for Help to Tackle Crisis. Europe’s political leaders turn to the European Central Bank this week, seeking assistance from monetary policy makers to reinforce gains following euro-area leaders’ moves to calm markets and accelerate the currency bloc’s integration. The Frankfurt-based ECB may offer help on July 5, with economists expecting an interest rate cut. The bank has a track record of action following political progress, including bond purchases that followed bailout programs and unlimited three- year loans on the heels of pledges supporting fiscal discipline. Economists expect the ECB to lower its benchmark interest rate by at least 25 basis points to a record low of 0.75 percent, according to the median of 57 estimates in a Bloomberg survey, as a worsening economic outlook dampens price pressures.
- Ifo’s Sinn Says EU Accord Threatens Germany, Handelsblatt Says. The outcome of last week’s European summit threatens Germany’s financial stability, Handelsblatt reported, citing Hans-Werner Sinn, the president of the Munich- based Ifo research institute. “The German state is being drawn ever deeper into the southern European crisis, while investors from all over the world, who have gambled and lost, can now get out of the vortex at the last minute,” Sinn was cited as saying. The fiscal pact, which Germany had pushed for, won’t be taken seriously outside the country, Sinn said, according to Handelsblatt.
- Spain Overestimating Bank Profit Risks Seeking Too Little Relief. Spain, which for years underestimated losses at its banks, is poised to overestimate how much they can earn in an economy mired in recession. One of two outside advisers hired by the Spanish government to conduct stress tests on the nation's lenders estimated that losses could reach $347 billion in the next three years. While Spain's two largest lenders earn most of their income outside the country, smaller banks depend on domestic business. Most are paying higher rates for deposits than they earn on mortgages. Their most profitable trade - borrowing at 1% from the ECB and lending to the Spanish government at 6% - risks bankrupting the country. "As the economy keeps going south, the second-tier banks can't generate earnings and their losses will rise more," said Alberto Gallo, head of European macro credit research at Royal Bank of Scotland Group Plc in London. "There's no end to plugging banks' losses. The banks will eventually provide the straw that breaks the camel's back."
- Bundesbank Sees No European Bank Safe From Crisis, Focus Says. Bundesbank Vice President Sabine Lautenschlaeger said “no European bank is safe from considerable losses” if the region’s sovereign-debt crisis worsens, Focus magazine reported, citing an interview. German banks are better prepared than three years ago, though they are still susceptible to the crisis, the publication cited Lautenschlaeger as saying. There are currently no signs that investors are moving capital out of Germany because the country continues to be seen as a “safe haven,” Lautenschlaeger was cited as saying.
- German Exporters See Worsening Relations With Markets, WiWo Says. German exporters are facing worsening relations with potential buyers in target markets and are being asked to justify their government’s austerity and reform policy, WirtschaftsWoche reported, citing Anton Boerner, the president of Germany’s BGA exporters group. The euro zone needs to clarify after summer recess whether countries in crisis are willing to carry out necessary reforms, as otherwise the market would force a decision before the end of the year, Boerner was cited as saying. If countries want to keep the euro but aren’t capable of enacting reforms, budget sovereignty needs to be transferred to European level, he said according to the report.
- Corporate Bonds Lose Haven Appeal as Crisis Deepens: Euro Credit. Corporate bonds are losing their appeal as a haven from the euro-region crisis as Europe's weakening economy undermines companies' ability to withstand the financial storm.
- European Banks Bolster Capital With Shunned Bonds: Mortgages. Spanish and Portuguese banks are leading European lenders in buying back their own mortgage- backed securities at distressed prices to bolster capital and stockpile eligible collateral for European Central Bank loans. Banco Bilbao Vizcaya Argentaria SA, Banco Comercial Portugues SA and other lenders this year repurchased 6.6 billion euros ($8.4 billion) of asset-backed bonds they issued, more than double the level for all of 2011, according to data compiled by Deutsche Bank AG. Banks buy the debt, packages of loans in which they kept subordinated portions, for less than face value, and book a capital gain similar to the discount.
- Pimco Sees German Bonds Losing Safe Haven Status, WiWo Reports. Pacific Investment Management Co. expects Germany to lose its status as a safe haven and has reduced the amount of the country’s sovereign debt it holds, WirtschaftsWoche reported, citing Andrew Bosomworth, who leads Pimco’s operations in the country. Germany will have to pay whether the euro zone survives the debt crisis or not, either in contributions to rescue funds and joint debt liability or to reduce the impact of an ensuing recession and to rescue lenders, the German publication cited Bosomworth as saying. Pimco has switched its focus to bonds from the US, the U.K. and Scandinavia, Bosomworth was cited as saying.
- Greenspan Says Europe Like a ‘Leaking Boat’ With Holes. Alan Greenspan, a former Federal Reserve chairman, today compared Europe to a “leaking boat” and said political consolidation is the only solution to the region’s financial crisis. “The problems in Europe are the fiscal deficits of all the various countries that are involved,” Greenspan said in an interview on CNBC television. “It’s like a leaking boat in which we keep bailing it out and we’re very pleased with ourselves that we’d be able to keep bailing it out. The problem is we haven’t fixed the holes yet.”
- Flossbach Sees Euro Union Down to 6 Countries, O Globo Says. Bert Flossbach, chief executive officer of German asset-management firm Flossbach von Storch AG, sees the euro monetary union reduced to six countries in Central Europe, O Globo newspaper reported, citing an interview. Greece, Portugal, Cyprus will be the first countries to leave the bloc, he said, adding that Italy’s and Spain’s economic situations also raise concerns. Greece won’t be able to pay back the amount of credit granted by the European Central Bank during the crisis and the market will see its exit out of the bloc with relief, Flossbach is quoted as saying. The European Union will have to financially help the Italian and Spanish banks, otherwise the effect of the crisis would contaminate other banks in an “unthinkable disaster,” Flossbach is quoted as telling O Globo.
- France Sees Public Investment Bank by Year-End, Parisien Says. Arnaud Montebourg, France’s minister for productive recovery, said a public investment bank will be created by the end of the year, Le Parisien reported in its Sunday edition, citing an interview. The law to create the bank will be ready after the summer holidays, Montebourg said, according to the newspaper. Private banks are not “sufficiently interested” in the real economy, preferring to be active in global markets, and the “confusion” between the role of savings banks and investment banks has “many adverse effects,” Montebourg said, according to Le Parisien. Montebourg said it’s “absurd” that banks post “indecent margins at the cost of crushing our industrial economy,” and setting profit margins at 15 percent enters the realm of “unscrupulousness and indecency,” the paper wrote.
- US Steel(X) Gets Warnings Shot On Ratings From S&P. Standard & Poor's lowered its outlook on U.S. Steel Friday, citing weaker prices and sagging demand for steel. S&P cut U.S. Steel to negative from stable but kept its rating on the company's debt at BB, two notches down from the lowest investment grade. S&P credit analyst Marie Shmaruk said in a statement that the firm changed its view because U.S. Steel Corp.'s performance could weaken over the next year. The main culprit is "deteriorating pricing as a result of excess domestic supply, increased imports, and lower scrap prices." Risks that S&P sees for Pittsburgh-based U.S. Steel include ties to markets that swing with economic cycles, high levels of debt and a "significant" underfunded obligation to its pension plan.
- Bristol-Myers(BMY) to Acquire Amylin(AMLN) for $5.3 Billion. Bristol-Myers Squibb Co., which failed to get U.S. approval for a new diabetes treatment in January, will pay $5.3 billion for Amylin Pharmaceuticals Inc., the maker of two drugs on the market for the disease. The purchase comes a month after Bristol’s top seller, the blood-thinner Plavix with $7.1 billion in sales last year, began facing generic competition. In 2013, the New York-based company loses patent protection on its $1.6 billion HIV drug, Sustiva. Under the agreement announced yesterday, Bristol-Myers will pay $31 a share in cash, a 10 percent premium to the June 29 closing price for San Diego-based Amylin. At the same time, AstraZeneca Plc (AZN), based in London, will pay Bristol $3.4 billion to help develop Amylin’s drug portfolio, the companies said.
- Stockton Threatens to Bbe First City to Stiff Bondholders. History may be against Stockton, California, which this week became the biggest city to file bankruptcy in the U.S., saying it may try to impose losses on lenders. Since at least 1981, and possibly as far back as the 1930s, no U.S. municipality has used bankruptcy to force bondholders to take less than the full principal due, according to experts and court records. Before the June 28 court filing, Stockton officials said they will try to impose cuts on all creditors, not just employees. “We’re trying to spread the pain, unfortunately, to others besides employees,” City Manager Bob Deis told City Council members at a June 26 hearing.
- Google(GOOG) Said to Face U.S. Probe Over Motorola Patents. A U.S. antitrust regulator has opened a formal probe into whether Google Inc. Motorola Mobility unit is honoring pledges it made to license industry- standard technology for mobile and other devices on fair terms, three people familiar with the situation said.
- Iran Oil Sanctions Starting Risks Biggest OPEC Loss Since Libya. European Union sanctions on Iran entered into full force today after exemptions on some contracts and insurance ended, boosting crude prices and pressure on the Persian Gulf nation to halt its nuclear-enrichment program. The reduction in Iranian exports may become the biggest supply disruption from a member of the Organization of Petroleum Exporting Countries since an armed rebellion all but halted pumping in Libya last year, according to the International Energy Agency. It also comes just as a strike by Norwegian workers is curbing flows from North Sea fields.
- Barclays(BCS) Chairman Said to Be Poised to Resign After Libor Fine. Barclays Plc (BARC) Chairman Marcus Agius plans to resign after the bank was fined a record 290 million pounds ($455 million) for trying to rig interest rates, sparking a political outcry, according to a person briefed on the matter. An announcement may come as soon as today, said the person, who asked not to be identified because the move hasn’t been made public. Agius, 65, has been chairman of Britain’s second-largest bank by assets since January 2007.
- China Auto Stocks Fall After Report Guangzhou to Limit Cars. SAIC Motor Corp. led shares of Chinese automakers lower in Shanghai and Shenzhen after media reports said Guangzhou city would start limiting the number of cars on its roads. SAIC shares fell as much as 5.5%, Great Wall Motor Co. fell 9% and Guangzhou Automobile Group Co. shares fell 5.7% in Shanghai. The one-year trial, which takes effect immediately will cap the number of new cars at 120,000, the paper said, citing a government notice.
- Mursi Vows to Support Palestinians, Respect Existing Treaties. Egypt’s new Islamist President Mohamed Mursi today vowed to support the Palestinians in their quest for a homeland, while also saying his government will respect its existing international agreements, an acknowledgment of its peace treaty with Israel. Mursi, in his first speech after he was sworn into office, also said that bloodshed in Syria must end and that Egypt won’t stand for any attempts to violate Arab regional security. The remarks underscored a push to reclaim for Egypt the mantle of Arab leadership following the ouster of Hosni Mubarak in February 2011. “I declare from here that Egypt -- the people, the nation, the government and the presidency -- stands by the Palestinian people until they get all their legitimate rights,” Mursi said, speaking in the same Cairo University hall where U.S. President Barack Obama had addressed Egyptians and the Muslim world in 2009. “We will work for the completion of the national Palestinian reconciliation so that the Palestinian people can unite their ranks to regain their land and sovereignty.”
- Linde Agrees to Acquire Lincare Holdings(LNCR) for $4.6 Billion. Linde AG (LIN) said it will buy Lincare Holdings Inc. (LNCR), a homecare health company, for $4.6 billion. Linde will pay $41.50 a share for each Lincare share, a 22 percent premium to the stock’s closing price on June 29. The deal is expected to close in the third quarter, and will be funded through a loan and available cash.
- China Home Prices Rise for First Time in 10 Months, SouFun Says. China’s new home prices rose for the first time in 10 months as the government eased its monetary policies to bolster the economy, according to SouFun Holdings Ltd. (SFUN), the nation’s biggest real estate website owner. Home prices increased 0.1 percent from May to 8,688 yuan ($1,367) per square meter (10.76 square feet), SouFun said in an e-mailed statement today, based on its survey of 100 cities. Beijing led gains among the nation’s 10 biggest cities, climbing 2.3 percent from May, followed by the southern business hub of Shenzhen, which added 0.8 percent.
Wall Street Journal:
- Merkel Faces More Domestic Criticism. German Chancellor Angela Merkel won parliamentary backing for Europe's permanent bailout fund and a sturdier fiscal pact, considered key for fortifying the euro-zone, but faces new hurdles at home after political adversaries followed through with previous threats and filed legal challenges before Germany's highest court.
- Afghan Phaseout of Security Firms Draws Concerns. The Afghan government's plan to phase out private security firms has "increased the uncertainty over security" for U.S.-funded aid projects and increased the cost of guarding them, an audit released Friday by a U.S. government watchdog agency said. The Special Inspector General for Afghanistan Reconstruction, or Sigar, said security costs for more than a dozen major development projects could increase by over $55 million over one year as contractors switch to the Afghan Public Protection Force, a state-owned security force that is replacing private firms.
- Syrian Transition Plan Falters. A plan by world powers for a Syrian political transition appeared doomed Sunday, with Bashar al-Assad's regime interpreting the outcome as a fresh lifeline from Russia—its principal international backer—while the lack of any reference in the plan to Mr. Assad's departure from office angered the Syrian opposition. With no sign of any commitment by Syria's warring sides to embrace the transition plan outlined in Geneva on Saturday, many warned that violence could worsen even beyond the levels seen in June, which is now believed to have been the bloodiest month in the Syrian conflict.
- Grinding Energy Shortage Takes Toll on India's Growth. India is facing an energy crisis that is slowing economic growth in the world's largest democracy. At stake is India's ability to bring electricity to 400 million rural residents—a third of the population—as well as keep the lights on at corporate office towers and provide enough fuel for 1.5 million new vehicles added to the roads each month. Shortages of coal, oil and natural gas will require India to import increasing amounts of high-cost fossil fuels, say energy experts, risking inflation and putting the country in stepped-up competition with China, Japan and South Korea.
- Profit Forecasts Feel Europe's Effect. Europe is a mess. China is disappointing. So investors will be watching nervously as U.S. companies report quarterly earnings over the next few weeks for any signs of collateral damage in the American economy.
- The Half-Life Of The New Euro Bailout Will Be Measured In Weeks.
- LIVE: Thousands Of Companies Around The World Reveal The Truth About The Global Economy.
- POLL: The Supreme Court's Approval Rating Plunges After The Obamacare Decision.
- Why The Debt-Dependent Status Quo Is Doomed in One Chart.
- Barron's: Get Ready For A Chinese Hard Landing.
- CITI: 10 Reasons Why We're Worried About The US Consumer.
- Why Germany's TARGET2-Based Eurozone Preservation Mechanism Is Merely A Ticking Inflationary Timebomb.
- Germany Cries: "Europe Is Coming For Our Money", Greece Promptly Obliges.
- Spain Reminds Us What The Main Problem With Blank Checks Is: Says Q2 GDP Will Be Worse Than Q1.
- Turkey Scrambles F-16s On Syria Border As US Intelligence Says Syrian Story Was Correct All Along.
- The Four Paths Forward For The Euro Area.
- China HSBC PMI Hits 7-Month Low of 48.2 in June. China's factory activity shrank in June at the fastest pace in seven months as new export orders tumbled to depths last seen in March 2009, a private sector survey showed, underlining the risk of a lurch lower for the Chinese economy. The HSBC Purchasing Managers' Index (PMI) fell to 48.2 after seasonal adjustments, its lowest since November 2011, and little changed from a flash, or preliminary, estimate of 48.1. The final reading in May was 48.4.
- Apple(AAPL) Settles China iPad Trademark Dispute for $60 Million.
- Is Merkel 'Biggest Loser' in Euro Zone Showdown? Angela Merkel was portrayed across Europe as the big loser of a euro zone showdown in Brussels after the German chancellor was forced to accept the crisis-fighting measures championed by countries struggling with their debts. Newspapers in Spain, Italy and France on Saturday toasted the triumph of their leaders - Mario Monti, Mariano Rajoy and Francois Hollande - in pushing Merkel into a U-turn that would long have been unthinkable.
Wall Street All-Stars:
- Apple(AAPL) wins court order blocking U.S. sale of Samsung Galaxy Nexus. A U.S. District Court has handed Apple a victory against one of its biggest competitors in the smartphone market by blocking U.S. sales of the Samsung Galaxy Nexus. U.S. District Judge Lucy Koh granted Apple a preliminary injunction against the Galaxy Nexus phone, which went on sale in the United States in mid-December. This is the second Samsung Galaxy product blocked by Koh this week: On Tuesday, she granted Apple a preliminary injunction against U.S. sales of the Galaxy Tab 10.1 tablet computer.
- Doubts Greet Plan for a New Euro Zone Bank Regulator. “Creating a common supervisor is an important step in the right direction, but we still don’t know whether it will be a brand new agency or an existing one with minor changes,” said Antonio Garcia Pascual, chief economist for Southern Europe at Barclays in London. “What’s important is that this agency ends the inadequate examination of lenders, from national champions to small savings banks, due to factors like local resistance and political interference.”
- Roberts switched views to uphold health care law. Chief Justice John Roberts initially sided with the Supreme Court's four conservative justices to strike down the heart of President Obama's health care reform law, the Affordable Care Act, but later changed his position and formed an alliance with liberals to uphold the bulk of the law, according to two sources with specific knowledge of the deliberations. Roberts then withstood a month-long, desperate campaign to bring him back to his original position, the sources said. Ironically, Justice Anthony Kennedy - believed by many conservatives to be the justice most likely to defect and vote for the law - led the effort to try to bring Roberts back to the fold. "He was relentless," one source said of Kennedy's efforts. "He was very engaged in this." But this time, Roberts held firm. And so the conservatives handed him their own message which, as one justice put it, essentially translated into, "You're on your own." The conservatives refused to join any aspect of his opinion, including sections with which they agreed, such as his analysis imposing limits on Congress' power under the Commerce Clause, the sources said. Instead, the four joined forces and crafted a highly unusual, unsigned joint dissent. They deliberately ignored Roberts' decision, the sources said, as if they were no longer even willing to engage with him in debate.
- Fiat CEO: Italy June car sales in double-digit dip. Italian car sales posted a double-digit fall in June, Fiat chief executive Sergio Marchionne said on Sunday, a day before the release of the latest such figures.
- France to lower GDP forecasts for 2012, 2013 - finmin. French Finance Minister Pierre Moscovici said on Sunday the government would lower its economic growth forecasts for 2012 and 2013 given the worsening economic climate. In an interview with Le Figaro newspaper, Moscovici said the government would reduce its 2012 forecast to at least 0.4 percent from 0.7 percent when its revised budget was presented to the cabinet on Wednesday. "As for 2013, everybody knows that we won't reach 1.7 percent. (So) betting on a range between 1 percent to 1.3 percent ... seems more credible," he said.
- Maturing European CMBS loans repayment unlikely. Investors are unlikely to be repaid on the majority of European loans due this month that form the basis of the type of commercial mortgage-backed securities deals which thrived until the 2007-08 subprime crisis. A total of €2.5bn worth of commercial mortgage loans that were packaged together as securities and then sold on to investors are due to mature in July – the biggest month to date for maturing loans connected to European CMBSs.
- Call for tougher rules on US hedge funds. Manny Roman, a leading light of the UK hedge fund industry, has called for tighter regulation of the sector in the US to help prevent future scandals.
- The real victor in Brussels was Merkel. If you look behind the curtain, you will find that, for Italy at least, nothing has changed at all. The European Stability Mechanism was already able to purchase Italian bonds in the open market. The instrument was there, but not used. The agreed changes are subtle. Italy must still sign a memorandum of understanding, and subject itself to the troika – the International Monetary Fund, the European Central Bank and the European Commission. The procedure will be less invasive, more face-saving. But there will still be a procedure.
- Republicans See Way to Repeal. Party says will use process of ‘reconciliation’ if Romney wins.
- Italy has won this euro battle, but not the war. Long-suffering investors, desperate for some good news, have seized on the headlines from the latest in a long series of “last-ditch” European summits.
- Libor rigging 'was institutionalised at major UK bank'. Interest rate rigging was institutionalised at one of Britain's biggest banks, an insider has claimed, with market manipulation openly discussed between managers, staff and customers.
- Europe’s bad debts 'will bite in 2013’. Bad debts in the eurozone are a “ticking time bomb” for the continent’s economy, with the worst effects expected to be felt next year, a report has warned.
- Eurofer Sees Russia WTO Spot Hurting Steel. Russia's accession to the WTO in Sept. threatens 60% to 70% of Europe's steel production capacity over time as import quotas are eliminated, citing Wolfgang Eder, CEO of Voestalpine AG. European steelmakers need to cut their annual capacity of 210m tons by 30m to 50m tons, Eder was cited as saying.
- Germany's planned financial transaction tax may yield as much as 11.2 billion euros in annual revenue for the government, citing a study by the DIW economic research institute.
- Asmussen Says 'Not Out of Woods' on Debt Crisis. The ECB Executive Board member said European governments need to continue their reform push as the ESM alone can't resolve the crisis, citing an interview. Asmussen said budget consolidation in the countries whose debt load is viewed as unsustainable by markets, and structural reforms in those countries that lack "competitiveness".
- Spain is negotiating with European Union to allow direct aid for its banks to be given to lenders that have already been nationalized. Spain wants mechanism for directly recapitalizing banks to be applied retroactively. Bankia, NovaCaixa, CatalunyaCaixa and Banco de Valencia could get direct aid. Direct aid can only be given when there is a supranational mechanism of financial supervision in place which may take a year, citing unidentified sources in the European Union.
- Spain's government is studying which items that currently have a reduced value-added tax rate of 8% can be taxed at 18% as a way of increasing tax revenues for the state. Travel, hotel and catering, food and sanitary products, home building are currently taxed at the reduced rate. The government may also raise super reduced tax rate of 4% to reduced rate of 8% for some items. Super reduced tax rate items included bread, milk, cereal, fruit, books, magazines and social housing.
- North Korea's former leaders, Kim Jong Il, ordered the development of nuclear weapons before his death, citing an internal Workers' Party of Korea document. The 19-page document, created by the party in February, said uranium enrichment was for military purposes, according to the report.
- Chinese Vice Premier Li Keqiang urged continuing curbs on speculative home demand and called for more efforts to build affordable housing units, citing his comments.
Economic Information Daily:
- Jan. -May profits at large and medium-sized Chinese iron and steel companies fell 94% on the year to 2.53b yuan, citing a person from the China Iron and Steel Association. Lower steel product prices, rising costs, weak demand and overcapacity have hurt the profits, citing an official from the association.
- U.S. sends message to Israel, Iran, schedules joint military exercise with IDF. Senate votes for greater military support of Israel including what could be seen as direct support for an Israeli attack on Iran's nuclear program.
- Made positive comments on (AET), (RCL) and (LAZ).
- Asian indices are unch. to +1.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 170.0 -13.0 basis points.
- Asia Pacific Sovereign CDS Index 145.50 -3.5 basis points.
- FTSE-100 futures +.39%.
- S&P 500 futures -.18%.
- NASDAQ 100 futures -.24%.
Earnings of Note
10:00 am EST
- ISM Manufacturing for June is estimated to fall to 52.0 versus a reading of 53.5 in May.
- ISM Prices Paid for June is estimated to fall to 45.7 versus 47.5 in May.
- Construction Spending for May is estimated to rise +.2% versus a +.3% gain in April.
- (AME) 3-for-2
- (TTC) 2-for-1
- The Fed's Williams speaking and the Eurozone Manufacturing report could also impact trading today.