- Spain Braces For Renewed Rajoy Austerity as Tax Take Hemorrhages. Spanish Prime Minister Mariano Rajoy may unveil a third austerity round within days as his six-month- old government tries to avoid a second bailout amid hemorrhaging tax receipts. Rajoy said on July 2 that the time has come to “press the accelerator pedal” as his government attempts to bring down near record borrowing costs. Government officials have said they are considering raising taxes on gas and products that currently have a reduced rate, such as food, water, public transportation, hotels and restaurants. Spain’s return to recession is undermining efforts to cut the euro-area’s third-largest budget deficit as tax receipts shrivel. Ten-year bond yields climbed back above 7 percent last week amid concern that Europe’s sovereign debt crisis is worsening. Spain became the fourth euro-region country to seek a bailout in June to shore up banks burdened with bad loans. “I have my doubts because it is very difficult to boost receipts amid austerity,” Antonio Javier Ramos Llanos, economy professor at Madrid’s Universidad Pontificia Comillas, said in an interview. “Citizens see they are paying more tax and public services cost more. That doesn’t incite them to spend at all.” Receipts dropped 1.5 percent during the first five months of the year as higher levies on income, electricity and tobacco failed to compensate for a 10 percent slump in value-added tax receipts. Spending rose 12 percent as the state bailed out regional governments and interest payments surged 32 percent.
- Rajoy Calls on EU to Deliver Debt Purchases as Spain Yields Rise. Spanish Prime Minister Mariano Rajoy said euro-zone countries must urgently implement decisions including government bond purchases agreed to in June as the country can’t finance its deficit under current conditions. The premier said he will announce additional measures this month to control the country’s budget shortfall. Spanish regional leaders must cut more spending as tax revenue slumps amid the country’s second recession since 2009, he said today in a speech in Navacerrada near Madrid. “It’s time to go from words to deeds,” Rajoy said. “Europe must comply as quickly as possible with the agreements its leaders reached in Brussels. The European project is at stake.” Rajoy is facing renewed pressure from bond investors after the European Central Bank took no action to lower yields at its July 5 meeting. Bond yields tumbled on July 2 after European leaders agreed to allow euro-area bailout funds to buy the debt of governments such as Spain and Italy. The additional yield investors demand to hold Spanish 10- year bonds rather than benchmark German bunds rose to 563 basis points yesterday from 486 basis points on July 2. Spain’s 10-year yield rose 62 basis points in the week that ended yesterday, July 6, the most since the five days through June 15, to 6.95 percent. It reached 7.04 percent yesterday, the highest since June 20.
- Belgium Seeks Extra 78 Million Euros for Budget, La Libre Says. Belgium’s federal government must find an extra 78 million euros ($96 million) for this year’s budget, La Libre reported, citing an interview with Budget Minister Olivier Chastel. Belgium’s budget deficit is at 2.9 percent of gross domestic product, instead of the planned 2.8 percent, Chastel said. Any new spending must be compensated by savings, he said, according to the newspaper.
- UBS, Credit Suisse Questioned by Finma Over Libor, Sonntag Says. The Swiss Financial Market Supervisory Authority, known as Finma, contacted UBS AG (UBSN) and Credit Suisse Group AG (CSGN) regarding investigations into how the Libor interest rate was set, Der Sonntag reported. Finma sent both banks detailed questions about the London interbank offered rate, the newspaper said, citing people close to the matter. Regulators in the U.S., Europe and Asia are investigating whether banks that help set key rates for $360 trillion of securities were involved in collusion. Barclays Plc was fined $451 million in the U.K. and U.S. on June 27 for submitting false Libor rates. “We are taking the investigations seriously and are fully cooperating with the authorities,” Tatiana Togni, a spokeswoman for UBS AG, said told Bloomberg News by telephone. Credit Suisse spokesman Marc Dosch, declined to comment when contacted by Bloomberg News. Tobias Lux, a spokesman for Finma, said the regulator is “following the Libor investigations closely and is in close contact with the banks concerned.”
- Metro Sees Small Increase in German Consumption, Bild Reports. Metro AG (MEO) Chief Executive Officer Olaf Koch forecast a “small increase at best” in German consumption this year, which will have a “significant impact” on the German retailer’s business, Bild am Sonntag reported today, citing an interview.
- Norway Banks Under Pressure as Asset-Bubble Risks Swell. Norway’s Finance Minister Sigbjoern Johnsen is putting pressure on the country’s banks to rein in mortgage lending to over-indebted households as the government grapples with the growing threat of a property bubble. Banks have “an obligation to say to people I think that by taking a loan this size you might get water over your head,” Johnsen said in an interview in Oslo. “Norwegian households have never had such a high proportion of debt compared to their net income, so that requires a keen eye and some concern.”
- China Must Prevent Rebound in Property Prices, Wen Says. China must “unswervingly” continue its property controls and prevent prices from rebounding, Premier Wen Jiabao said yesterday, after the central bank cut interest rates and triggered a surge in property stocks. Local governments that introduced or covered up a loosening of curbs on residential real-estate must be stopped, Wen said during a visit to Changzhou city in eastern Jiangsu province, according to the official Xinhua News Agency. Restricting speculative demand and investment in property must be made a long-term policy, he said. Wen’s comments underscore the government’s determination to maintain restrictions on housing purchases. “We must unswervingly continue to implement all manner of controls in the property market to allow prices to return to reasonable levels,” Wen was quoted as saying when he met residents and local government officials in charge of affordable housing. “We cannot allow prices to rebound, or all our efforts will come to naught,” he said. Market expectations about property prices are changing and citizens are worried prices will rise again, he said. Signals in the market are “chaotic” and misleading and speculative information must be stopped, Wen said, according to Xinhua. Property controls are still in a “critical period” and the task remains “arduous,” Wen said yesterday. The government must “promote the study and implementation of changes to the property-tax mechanism, and to speed up the establishment of a comprehensive long-term mechanism and policy framework for controlling the property market,” Xinhua cited Wen as saying.
- China’s Stock Futures Fall on Concerns About Economy, Property. Chinese stock-index futures fell after Premier Wen Jiabao said he won’t relax on property controls even as China’s economy faces “relatively large” downward pressure. Futures on the CSI 300 Index expiring in August, the most active contract, slid 0.5 percent to 2,468.80 as of 9:22 a.m. local time.
- Chinese Firm to Build Power Plant in Central Iran, Times Reports. A Chinese company has invested some $500 million for the construction of a coal-fired power plant in central Iran, Tehran Times reported, citing Iranian Deputy Energy Minister Mohammad Behzad. Behzad, who didn’t name the company, said the power plant will be located in the city of Tabas in Yazd Province and will be able to generate 650 megawatts of electricity. The project requires a total of 7 trillion rials ($570 million) and is planned to start operating within six years, Behzad said, according to the newspaper.
- Night of Frenzied Buying Portends Slowing China Car Sales. Major Chinese cities are increasingly resorting to quotas to curb vehicle emissions and ease traffic congestion. Mizuho Financial Group Inc. (8411) predicts that will slow auto sales, which could threaten carmakers such as General Motors Co. (GM) and Volkswagen AG (VOW) that depend on growth in the world’s largest vehicle market to counter declining demand in Europe.
- Hong Kong May Revise Growth Forecast on Global Recovery Concerns. Hong Kong and Vietnam signaled growth may fall short of government forecasts this year as Asian policy makers stepped up efforts to protect their economies and currency markets from the worsening global outlook. Hong Kong may revise its 2012 economic forecast next month, Financial Secretary John Tsang said on July 7. In Vietnam, Deputy Prime Minister Vu Van Ninh said the country may miss its growth target and the central bank told lenders to cut borrowing costs on existing loans to help businesses. The Philippines unveiled plans to contain currency gains that may hurt exports.
- Iran Seeks to Bypass Oil Curbs Using Local Fuel Exporters. An association of Iranian oil-product exporters will help the government bypass European Union sanctions and ship as much as 500,000 barrels a day, state-run Mehr news agency reported.
- Thousands Protest Alleged Fraud in Mexico Presidential Election. Tens of thousands of Mexicans marched in the capital yesterday to protest alleged fraud and vote-buying in the country’s July 1 presidential election. Beating drums and waving flags, the protesters chanted “Out Pena,” in reference to Enrique Pena Nieto, whose victory restored the once-dominant Institutional Revolutionary Party, or PRI, to power after a 12-year hiatus.
- Egypt’s Mursi Defies Military Over Parliament. Egypt’s newly elected President Mohamed Mursi issued a decree to reinstate the parliament, reversing a move by the former ruling military council and challenging the nation’s highest court. The decree also calls for an early parliamentary election to be held within 60 days of the approval of a new constitution in a public referendum, the official Middle East News Agency reported yesterday. The charter has yet to be drafted. “The decision will raise tension in the political arena, especially between the Supreme Council of Armed Forces and the Muslim Brotherhood,” Nabil Abdel-Fattah, political analyst at the Ahram Center for Political and Strategic Studies, said by phone. “By reinstating parliament, the president is challenging the rule of law and the judiciary.”
- Banks’ Living Wills Don’t Defuse Systemic Risk. The living wills were prepared in compliance with the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act and are a major step forward in terms of revealing how global megabanks are structured. Yet they are shockingly incomplete and flawed in one crucial aspect: They neglect to explain how cross- border assets and liabilities would be handled in different legal jurisdictions.
- VIX Falls to Cheapest Since '08 Before Earnings Reports: Options. The biggest June rally in U.S. stocks since 1999 has pushed options prices to the lowest level before any earnings season in almost four years even as analysts predict profits will fall. The VIX has lost 36% since its 2012 peak last month. It slipped 6.8% below the S&P 500's 20-day historical volatility, a measure of actual swings on July 6, Bloomberg data show. That's the cheapest contracts have been one trading day before Alcoa Inc. reports profit since October 2008.
Wall Street Journal:
- Tighter Control for Euro Banks. Officials Move Toward Creating Agency With Power to Police Bloc's Big Institutions. Senior euro-zone finance officials, moving ahead on a plan to create a single overarching bank supervisor for all the countries in the 17-nation currency bloc, are settling on a framework that would create a new agency reporting to the European Central Bank to police the largest banks in the currency union, people involved in the discussions said.
- New Jolt Looms for Investors: Earnings. Investors already fretting about the health of the world's biggest economies now face another worry: disappointing earnings. Companies begin reporting second-quarter earnings this week, starting with Alcoa Inc. on Monday. Already, 42 companies—including Ford Motor Co. and Texas Instruments Inc.—have warned investors that profits will be lower than initially expected, in large part because of slowing demand from customers around the world, particularly in Europe. Analysts say the darkening outlook is only partly baked into current share prices.
- Retailers See Gay Population as Next Audience to Court. They are turning their attention to gays and lesbians, a group that wields substantial buying power but isn't fully integrated into mainstream advertising. Similar to other moves to attract different minority groups, the push comes with risks, as it could threaten the retailers' relationships with some of their longtime shoppers.
- BofA(BAC) Linked to Drug Probe. FBI Says Mexican Cartel Funneled Money Through Bank to Horse-Racing Firm. A Mexican cocaine-trafficking cartel used accounts at Bank of America Corp. to hide money and invest illegal drug-trade proceeds in U.S. racehorses, the Federal Bureau of Investigation said. The alleged ties between the violent drug gang known as Los Zetas and the second-largest U.S. bank by assets were described in a 35-page affidavit filed in federal court in Texas last month. According to an FBI agent, a horse-buying and training business created to launder drug money had accounts at the Charlotte, N.C., bank.
- America Already Is Europe. In spending, debt and progressivity of taxes, the U.S. is as much a social-welfare state as Spain. In 1938—the year my organization, the American Enterprise Institute, was founded—total government spending at all levels was about 15% of GDP. By 2010 it was 36%. The political right can crow all it wants about how America is a "conservative country," unlike, say, Spain—a country governed by the Spanish Socialist Workers Party for most of the past 30 years. But at 36%, U.S. government spending relative to GDP is very close to Spain's. And our debt-to-GDP ratio is 103%; Spain's is 68%. At first blush, these facts seem astounding. After all, Spanish political attitudes differ dramatically from our own. How can we be slouching down the same debt-potholed, social-democratic road as Spain? There are three explanations, all of which point to a worrying future for America.
- THIRD WORLD AMERICA: Class War Gets Violent In Chicago.
- Finland Is Ruining A Lot Of Summer Vacations In Europe.
- Trouble Is Coming For China And Europe, And It Isn't Priced In.
- Banks' Defenses to Potential Trillions in Libor Claims Fail.
- The Horror... The Horror: European July, August Sovereign Bond Issuance Calendar.
- China Shuns US And Invests Direct In Iran Oil-Fields.
- Protest Turns Deadly In Qatif As Saudis Use Live Ammo On Protesting Shi'ites.
- The World's Biggest Bank Just Got Thrown Into The Lieborgate Mess.
- Japan Machinery Orders Drop 14.8%. Japan's core machinery orders tumbled in May in a sign that lingering worries about Europe's debt crisis, a slowing Chinese economy and weak economic data from the United States are hindering the country's recovery from last year's devastating earthquake. Core machinery orders, which help to gauge the strength of capital spending, fell 14.8 percent in May, much more than the median forecast for a 3.3 percent decrease in a Reuters poll, as both manufacturers and service sector companies cut orders. Japan's current account surplus also slumped by 62.6 percent in May from the same period a year earlier, faster than the median estimate for a 14.5 percent annual decline, as rising energy imports weighed on Japan's trade balance.The weaker-than-expected data suggests that Japan's growth could lose momentum as companies scale back investment due to a weak global economy.
- China June Inflation Cools to 2.2% From Year Ago.
- Global Uncertainty to Weigh on US Growth: Fed Official. Slow U.S. economic growth will probably continue for quite some time as firms postpone hiring and investment in the face of an uncertain global economy, a top Federal Reserve official said on Monday. Boston Fed President Eric Rosengren, a dovish policymaker at the U.S. central bank, warned about the weak recovery in the U.S. labor market and the significant number of Americans who remain unemployed more than three years after the recession.
- The tax man cometh to police you on health care. The Supreme Court's decision to uphold most of President Barack Obama's health care law will come home to roost for most taxpayers in about 2½ years, when they'll have to start providing proof on their tax returns that they have health insurance. That scenario puts the Internal Revenue Service at the center of the debate, renewing questions about whether the agency is capable of policing the health care decisions of millions of people in the United States while also collecting the taxes needed to run the federal government.
Wall Street All-Stars:
- Something's Rotten in Paris. Moves by the new socialist government are setting the country up to become the next major victim of the European financial crisis.
- Fiscal cliff cloud hangs over jobs.
- Floodgates on U.S. derivative reforms set to open. The U.S. swaps regulator is set to finalize this week a critical reform that will trigger banks and traders having to comply with costly new derivatives rules. The Commodity Futures Trading Commission will vote on Tuesday on a definition of a "swap," which will start a countdown on compliance dates for big swaps players to start registering with regulators and reporting their trades.
- Spain bows to ‘bad bank’ idea. Spain is ready to create a single “bad bank” to house the distressed assets of its teetering financial sector, as it prepares to finalise terms of an EU bailout that is dividing the eurozone and spooking markets.
- China Said to Plan to Retaliate if EU Investigates Subsidies. An EU investigation into govt subsidies to Huawei and ZTE Corp would be met with Chinese investigations into European subsidies for agriculture, autos, renewable energy and telecom cos., Chinese officials said.
- Detecting good and bad hedge fund managers.
- German president tells Angela Merkel to come clean on EU debt deal. Joachim Gauck, the German president, has ordered Chancellor Angela Merkel to clarify exactly what she agreed behind closed doors at the EU crisis summit ten days ago.
- However many bailouts, the eurozone will soon be the twilight zone. All the bailout mechanisms under the sun cannot make the eurozone work.
- Paul Tucker 'aware of move to fix Libor’. Deputy Bank of England governor, Paul Tucker, will be grilled by MPs over the Libor scandal and whether regulators decided to turn a blind eye to misconduct.
Corriere della Sera:
- Bank of Italy Governor Ignazio Visco said Italy needs to insist in spending cuts and needs to boost investments to foster economic growth, in an interview today. Italy's gross domestic product will probably fall 2% this year, with higher government spreads cutting growth for about .5%, he said.
- United Nations Efforts in Syria Failing, Annan Tells Le Monde. International efforts to find a political solution to the violence in Syria are failing, United Nations special envoy Kofi Annan told French newspaper Le Monde. “Evidently, we haven’t succeeded,” Annan, who also represents the Arab League, said in an interview with Le Monde published today.
- Spain is preparing more spending controls for ministries as it bids to show its reining in its budget deficit.
- Banks are stalling on making loans to some Spanish regions as they wait to see what form government financial aid for them may take.
The Border Mail:
- Home Owners Facing Loan Repayment Disaster. MANY people who bought houses on Melbourne's fringes in recent years could be facing financial ruin after a slump in prices has left them owing more to the bank than their homes are worth, experts have warned.
- China doesn't need a new stimulus like the 4t yuan package after the 2008 financial crisis to counter the global economic slowdown, former People's Bank of China adviser Li Daokui wrote in a commentary.
- Chinese Government Suffers Credibility Crisis. Several recent social issues, such as protests in Shifang and the shopping mall fire in Jixian county, Tianjin, have showed that official accounts of the disasters were too weak when facing fierce Internet inquires. The crisis of credibility of the government has repeatedly kept issues from being wrapped up normally, leading to confused public opinion. Despite the efforts that governments at different levels have made to improve their credibility, in specific cases, the public has perceived the opposite. When a local government mishandles a public affair, an apology is often absent in the aftermath of the emergency, dragging the whole official system down.
- Iran to Close Hormuz Strait if Threatened: Commander. The chairman of Iran’s Joint Chiefs of Staff has reiterated that the Islamic Republic does have the plan to shut down the strategic Strait of Hormuz but would only execute it if the nation’s security is threatened.
- Made positive comments on (TWI), (WWW), (NFLX), (TIF) and (APC).
- Made negative comments on (FFIV), (PLCM), (EMC), (IBM), (STX), (WDC), (ELX) and (QLGC).
- Asian indices are -1.25% to -.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 172.0 +5.0 basis points.
- Asia Pacific Sovereign CDS Index 139.0 +3.5 basis points.
- FTSE-100 futures +.19%.
- S&P 500 futures -.27%.
- NASDAQ 100 futures -.22%.
Earnings of Note
3:00 pm EST
- Consumer Credit for May is estimated to rise to $8.0B versus $6.515B in April.
- (UA) 2-for-1
- The Fed's Evans speaking, Fed's Fed's Williams speaking, final EU summit document; MOU on Spain bank aid, EU Finance Ministers Meeting, details of EU fiscal pact, China CPI/PPI and the German 10Y Bond Auction could also impact trading today.