- EU Trials New Crisis Model in Spain Trading Budget Cuts for Time. European leaders are testing the latest version of their debt crisis strategy in Spain, granting Prime Minister Mariano Rajoy more time to reduce the budget deficit in exchange for deeper spending cuts. Rajoy yesterday announced 65 billion euros ($80 billion) of austerity measures in a renewed effort to meet European Union budget targets after he was granted a one-year extension on the deadline to meet EU limits. Europe’s concession to recession-wracked Spain has raised expectations in Ireland and Portugal that they can win more time to rein in their budget deficits after Germany’s hardball tactics in Greece spurred a rebellion against bailout politics there.
- Germany May Turn to Labor Programs as Crisis Worsens, Union Says. Germany’s industrial workforce is bracing for a global slowdown by mulling some measures last used during the financial crisis to save jobs, said Berthold Huber, chairman of Europe’s largest manufacturing union. “The experience from 2008 has taught us that an economy can slump within the shortest period of time and as a union, we need to be prepared for that,” Huber, chairman of IG Metall, said in an interview in Frankfurt on July 4. “For such an event, we need crisis measures. Germany won’t be able to fully decouple from an economic downward trend in Europe.”
- Spain Targets First Cash From Renewables With Energy Tax. Mariano Rajoy’s pledge to tax utilities and power consumers signals Spain is planning to raise cash from renewable energy for the first time, a blow to an industry already struggling with subsidy cuts. The prime minister told Parliament yesterday he’d impose a levy to spread the expense of closing a gap between costs and revenue in the country’s electricity business, which has racked up debts of 25 billion euros ($31 billion). Details may be announced as early as tomorrow after the weekly Cabinet meeting.
- Singapore GDP Growth Probably Slowed as Europe Crisis Hurt Asia. Singapore’s economic growth probably slowed last quarter as the European debt crisis constrained exports while elevated inflation prompted the central bank to tighten policy. Gross domestic product rose an annualized 1 percent in the three months through June from the previous quarter, less than the 10 percent pace in the period through March, according to the median of 14 estimates in a Bloomberg News survey. The report is due tomorrow.
- Bank of Korea Unexpectedly Cuts Benchmark Interest Rate. The Bank of Korea unexpectedly cut borrowing costs for the first time in more than three years, joining an international push for monetary stimulus as Europe’s debt crisis threatens to undermine global growth. Governor Kim Choong Soo and his board lowered the benchmark seven-day repurchase rate to 3 percent, the first cut since February 2009, the central bank said in a statement in Seoul today. Two of 16 economists surveyed by Bloomberg News predicted the move while the rest forecast no change. “What we’re seeing is a global policy response from Europe to China and now Korea to stave off a deep recession,” said Kong Dong Rak, a fixed-income analyst at Taurus Investment & Securities Co. in Seoul. “Bond market players are shocked by the sudden reversal of the monetary policy stance.”
- Australian Employers Reduce Payrolls in June, Jobless Rate Rises. Australian employers unexpectedly cut payrolls in June, the first reduction in four months, and the unemployment rate rose as evidence mounts that Europe’s turmoil is discouraging hiring. The local currency fell. The number of people employed fell by 27,000, almost erasing a revised 27,800 gain in May, the statistics bureau said in Sydney today. That compares with the median estimate for no change in employment in a Bloomberg News survey of 25 economists. The jobless rate rose for a second month, to 5.2 percent from 5.1 percent.
- China’s Economy Needs Spending Power, Not Steel Factories. China has produced a tattoo beat of disquieting news since March, when Premier Wen Jiabao lowered the government’s growth target for 2012 to 7.5 percent, down from the 8 percent target in place since 2005. Real estate prices, trade growth, construction and luxury watch sales are all declining. The government has issued stern edicts for officials to cut back on flashy cars, banquets and other perks.
- Infosys Net Income Misses Estimates as Clients Curb Spending. Infosys Ltd. (INFO), India’s second-largest software exporter, reported first-quarter profit that missed analysts’ estimates as customers cut information-technology spending amid economic uncertainty. Net income rose to 22.9 billion rupees ($412 million), or 40.06 rupees a share, in the three months ended in June, from 17.2 billion rupees, or 30.14 rupees, a year earlier, Bangalore- based Infosys said today. That compares with the 24.2 billion rupee median of 31 analyst estimates compiled by Bloomberg.
- Syria Faces UN Sanctions Push as Ally Russia Resists. Syria would face United Nations sanctions under a Security Council resolution drafted by Western powers seeking to overcome Russian resistance to measures that would hasten the fall of President Bashar al-Assad. The move came after Kofi Annan, the UN’s special envoy to Syria, yesterday asked the UN’s decision-making body via video link from Geneva to “send a message to all that there will be consequences for noncompliance” with his peace efforts.
- Telefonica(TEF) Latin America Luster Fades on Brazil Slowdown. Telefonica SA (TEF)’s days of guaranteed earnings expansion in Latin America may be over, leaving Chief Executive Officer Cesar Alierta with few growth markets as he tries to sell a stake in the assets to repay debt. Revenue growth from the 15 countries including Brazil and Peru is poised to slow to 2.7 percent in 2013 from 12 percent last year, according to an estimate by Sanford C. Bernstein. Telefonica Brasil SA, which made almost half of Telefonica’s 29 billion euros ($35.5 billion) in Latin American sales last year, may see its 2012 profit margins drop to the lowest level since at least 2004, Banco de Sabadell analysts predict.
- Peregrine Customers’ Claims Priced at 25 Cents on Dollar. Customers’ claims on Peregrine Financial Group Inc., whose founder “misappropriated” more than $200 million of their money according to regulators, may fetch less than a quarter of their value in the wake of the firm’s bankruptcy, a trader said. Quotes of 22 cents on the dollar to 25 cents were given today to half a dozen Peregrine customers who called CRT Capital Group LLC, which buys and sells distressed debt, said Joseph Sarachek, managing director of claims trading.
Wall Street Journal:
- Egyptian Leader's Visit Sends Signal to Saudis. Egypt's Mohammed Morsi made the first foreign visit of his presidency to Saudi Arabia in what political observers called an apparent effort to offer assurances about his aims as the most visible symbol of the rise of political Islam in the region. The visit by Mr. Morsi, who won the presidency as the candidate of Egypt's Muslim Brotherhood, takes him to a security-minded monarchy wary that homegrown Islamist movements will take encouragement from the political rise of Islamist blocs in countries transformed by Arab Spring uprisings.
- President Presses Democrats to Support Tax-Hike Plan. President Barack Obama used a White House meeting Wednesday to rally Democratic leaders behind his proposal to raise taxes on families with adjusted gross income above $250,000, an issue that people in both parties see as working to their advantage. Still, a coming Senate vote puts political pressure on vulnerable Democrats who have been wary about the proposal's reach.
- Europe's Woes Slow Renault. Renault SA lowered its sales-growth target for 2012 as the sputtering European economy offset growth elsewhere. Renault said it sold 1.33 million cars and light commercial vehicles in the first half of the year, down 3.3% from the same period last year. Sales in Europe fell 15% as the economic turmoil sapped demand, even as sales outside the region rose 14%. As a result, Renault said it no longer expects 3% to 4% growth in automobile sales in 2012, and may not be able to match its 2011 sales.
- GOP House Moves to Repeal Health Law in Symbolic Vote. The House voted on Wednesday to repeal President Barack Obama's health-care law, a symbolic act in the wake of the Supreme Court's recent ruling upholding the legislation. The 244-185 vote was largely along party lines, with five Democrats joining all Republicans in voting to undo Mr. Obama's much-debated program.
- Italy Faces 'War' in Economic Revamp, Monti Warns. Prime Minister Mario Monti said Italy faced a "war" at home and abroad as his government pushes to revamp the euro-zone's third-biggest economy and extricate it from the region's debt crisis. The premiere's remarks at a banking conference in Rome came as allies of the premier's predecessor, Silvio Berlusconi, began clamoring for the controversial billionaire to run for office in the next election. That prospect is likely to unnerve investors and EU authorities who pushed for Mr. Berlusconi's ouster in November.
- Deeper Slowdown Suspected in China. Official data due this week are expected to show growth in China slowing to its lowest rate since the global financial crisis. But some economists say they are turning up evidence that the true picture could be even worse.
- Too Bad We Didn't Learn From MF Global, Because It's Happening Again.
- Anti-Austerity Protests In Spain Got So Bad Today That Police Had To Begin Firing Rubber Bullets.
- A Whole Bunch Of Cities And Counties Are Now Seeing Their Finances Collapse.
- "The Use Of Temps Is Outpacing Outright New Hirings By A 10-To-1 Ratio".
- US Attorneys General Jump On The Lieborgate Bandwagon; 900,000+ Lawsuits To Follow, And What Happens Next.
- JPMorgan(JPM) Pushed Sales of Its Funds Even at Clients’ Expense, Brokers Say. Regulators are examining JPMorgan Chase’s sales tactics, after claims that the nation’s largest bank pushed its own mutual funds over competitors’ investments. Authorities are responding to current and former JPMorgan financial advisers who said they had felt pressure to sell the bank’s products even when cheaper or better performing options were available.Several brokers told The New York Times that they had been encouraged to favor JPMorgan funds, and they described a broader culture that emphasized sales over client needs.
- Shake-Up at New York Fed Is Said to Cloud View of JPMorgan’s Risk. After the financial crisis, regulators vowed to overhaul supervision of the nation’s largest banks. As part of that effort, the Federal Reserve Bank of New York in mid-2011 replaced virtually all of its roughly 40 examiners at JPMorgan Chase to bolster the team’s expertise and prevent regulators from forming cozy ties with executives, according to several current and former government officials who spoke on the condition of anonymity. But those changes left the New York Fed’s front-line examiners without deep knowledge of JPMorgan’s operations for a brief yet critical time, said those people, who spoke on the condition of anonymity because there is a federal investigation of the bank.
- Fear of Year-End Fiscal Stalemate May Be Having Effect Now. With the economy having slowed in recent weeks, business leaders and policy makers are growing concerned that the tax increases and government spending cuts set to take effect at year’s end have already begun to cause companies to hold back on hiring and investments.
- Investor flight out of stocks continues. Investors continued to flee the stock market last week, as they digested a deal by eurozone political leaders to stabilize credit markets and strengthen the region's banking system, and received further evidence of a U.S. economic slowdown. U.S. stock mutual funds lost $3.1 billion during the week ended July 3, according to the Investment Company Institute. Investors have now withdrawn money from the stock market for 19 of the past 20 weeks.
- Fed's Man in Dallas Says 'No' to QE3. A US Federal Reserve president has warned against a third round of quantitative easing, suggesting it will encourage riskier investment, allow Congress to dodge the hard decisions on America’s gaping budget deficit and produce more financial disruption when the central bank eventually tries to take the cash back. Richard Fisher, the president of the Federal Reserve Bank of Dallas, said the challenge was to generate jobs from the money already created by $US2.7 trillion of Fed bond purchases. The Fed’s Open Market Committee, which sets US monetary policy, meets next on July 31.
- Supervalu(SVU) Profit Falls, Suspends Dividend. Grocery store operator Supervalu Inc suspended its dividend and took other measures to fund aggressive price cuts to try to win back customers, while also launching a reviewing strategic alternatives. The company, which has seen customers flee in recent years for lower prices at Wal-Mart Stores Inc, also on Wednesday said that profit fell 45 percent in the quarter ended June 16. Supervalu shares fell 24.3 percent to $4 in extended trading Wednesday afternoon.
- Brazil cuts rate for 8th time as recovery falters. Brazil cut its benchmark interest rate to a record-low 8 percent on Wednesday as policymakers scramble to revive an economy that has failed for nearly a year to respond to a barrage of stimulus measures. The central bank's monetary policy board, known as Copom, unanimously decided to lower the so-called Selic rate by half a percentage point, as expected. It was the eighth consecutive cut since last August, when the Selic stood at 12.5 percent.
- Marriott(MAR) sees weakness in international markets. Hotel operator Marriott International Inc reported a higher quarterly profit but said it was seeing weakness in some international markets. The company, which owns the Ritz-Carlton, Residence Inn and Courtyard by Marriott brands, slightly lowered its fee revenue outlook for the full year citing weak overseas demand. Marriott also cut its forecast for revenue per available room (revPAR) from the international markets but raised its full-year earnings forecast.
- Callaway Golf(ELY) to cut workforce by 12%. Callaway Golf Co, grappling with weak demand for golf equipment, plans to cut 12 percent of its workforce to reduce costs. Callaway said the job cuts would impact all regions and levels of organization and that the cost-cutting initiative would sharpen its focus on its core brands, Callaway and Odyssey.
- Global PC shipments flat in 2nd qtr - Gartner. Global PC shipments were flat in the second quarter, as economic uncertainty and a booming market for smartphones and tablets constrained growth, research firm Gartner Inc said. Worldwide PC shipments totaled 87.5 million units in the second quarter, down 0.1 percent from a year earlier, the industry research firm said. Gartner estimates Hewlett-Packard Co's shipments fell 12.1 percent, while those of Dell Inc slipped 11.5 percent in the quarter.
- Banks face swaps threat after cut ratings. Sovereigns, banks, deals – the whole financial system relies on ratings provided by Moody’s, Standard & Poor’s and Fitch. So when Moody’s downgraded 15 of the world’s biggest banks last month, many financial institutions and investors were focused on the wider impact a rating drop would have on the derivatives swaps agreements at the heart of many structured finance deals.
- Global miners stage ‘retreat to the core'. Global mining groups, such as BHP Billiton, Vale and Anglo American, are pruning their expansive portfolios, as calls from shareholders for greater focus and spending discipline prompt them to shed non-core assets.
- Proud Spain again humbles itself to the euro’s demands. With one in four Spanish workers out of a job, output contracting by the day and Asturian miners marching through the capital, the Spanish prime minister, Mariano Rajoy, has determined to push through a further €65bn (£51bn) of austerity measures, as if deliberately set on a strategy of economic death by a thousand cuts.
- China Has Little Room for Rate, Reserve Cuts, Yu Bin Says. China has relatively little room to cut interest rates and the reserve requirement ratio, citing government economist Yu Bin. Deflation is unlikely this year, he said. 2Q economic data isn't "very ugly," Yu said. China doesn't need a massive stimulus as 1H GDP is within the expected range, he said.
- China 2Q employment demand fell "a little" from 1Q, citing the Ministry of Human Resources and Social Security. Pressure on employment during the second half of the year may increase, citing analysts.
- The southern Chinese province of Guangdong has experienced larger-than-expected downward pressure on its economy this year, citing governor Zhu Xiaodan. Downward pressure hasn't eased in the second half of the year, Zhu said.
- Rated (DNKN) Overweight, target $39.
- Asian equity indices are -1.5% to -.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 163.0 -5.5 basis points.
- Asia Pacific Sovereign CDS Index 136.5 -2.75 basis points.
- FTSE-100 futures -.31%.
- S&P 500 futures -.27%.
- NASDAQ 100 futures -.19%.
Earnings of Note
8:30 am EST
- The Import Price Index for June is estimated to fall -1.8% versus a -1.0% decline in May.
- Initial Jobless Claims are estimated to fall to 370K versus 374K the prior week.
- Continuing Claims are estimated to fall to 3300K versus 3306K prior.
2:00 pm EST
- The Monthly Budget Deficit for June is estimated to widen to -$60.0B versus -$43.1B in May.
- None of note
Other Potential Market Movers
- The Fed's Williams speaking, 30Y T-Bond auction, China Industrial Production/Fixed Asset Investment reports, China GDP, Greece Unemployment Rate, UK 10Y Bond auction, Australia Unemployment Rate, weekly EIA natural gas inventory report, weekly Bloomberg Consumer Comfort Index and the JMP Securities Healthcare Conference could also impact trading today.