Today's Headlines

Bloomberg:

• Euro-Area Unemployment Climbs to Record on Spanish Cuts. Euro-area unemployment reached the highest on record as a deepening economic slump and budget cuts prompted companies from Spain to Italy to reduce their workforces. The jobless rate in the 17-nation euro area rose to 11.1 percent in May from 11 percent in April, the European Union’s statistics office in Luxembourg said today. That’s the highest since the data series started in 1995. Europe’s companies are under pressure to lower costs to protect earnings as the worsening fiscal crisis erodes exports and consumer spending. Companies including Deutsche Lufthansa AG, PSA Peugeot Citroen and Spanish news agency Efe are seeking to eliminate jobs to cope with flagging demand. “The overall picture is worrying, as problems in the real economy are being compounded by problems in financial markets,” said Mark Miller, an economist at Capital Economics Ltd. in London. “The tone of the business surveys has been pretty downbeat of late, suggesting that labor market conditions may deteriorates for some time yet. It’s very difficult to see an immediate end to this.” In the euro area, 17.561 million people were unemployed in May, an increase of 88,000 from the previous month, today’s report showed.
• German Adviser Sees Risk in ESM Bond Buying, Handelsblatt Says. Easing the conditions for the euro area’s rescue fund to buy Italian sovereign bonds risks swamping the financial backstop, Oxford University economist Clemens Fuest wrote in a commentary in Handelsblatt. Using the planned European Stability Mechanism in an attempt to lower the borrowing costs of highly indebted countries might lead bondholders to sell massively to the ESM, exhausting its finances and forcing governments to commit more resources, Fuest, a member of the German Finance Ministry’s group of academic advisers, said in the op-ed article published in the Dusseldorf, Germany-based newspaper today.
• Euro-Area Manufacturing Contracted for 11th Month in June. Euro-area manufacturing output contracted for an 11th straight month in June as Europe’s debt crisis sapped demand across the continent. A gauge of euro-region manufacturing held at 45.1 in May, London-based Markit Economics said today in a final estimate. That compares with an initial estimate of 44.8 on June 21.
• Hollande Needs EU43 Billion 2012-13 Savings, Auditor Says. France needs as much as 43 billion euros ($54 billion) in savings this year and next, the national auditor said, setting the stage for budget cuts by Socialist President Francois Hollande. The coming year is “a crucial one in which the budgetary calculation will be difficult -- more difficult than thought because of slower growth,” Didier Migaud, who heads the audit body, told journalists today in Paris. “It will require an unprecedented brake on spending and higher taxes.”
• Spain Overestimating Bank Profit Risks Seeking Too Little. 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 274 billion euros ($347 billion) in the next three years.
• Peugeot May Lift Job Cuts Target to 10,000 Posts, Union Says. PSA Peugeot Citroen (UG) plans to eliminate more jobs in 2012 than previously announced, cutting as much as 10 percent of its French workforce, to reduce operational costs amid the region’s slumping auto market, a union official said. “They will raise the job cuts target in France alone to 8,000-10,000,” Christian Lafaye, the head of Peugeot’s second- biggest union FO, said in an interview, declining to say where he got the information. Europe’s second-largest automaker said in November it aimed to reduce headcount by 6,000 in the region.
• UN Plan’s Failure to Force Assad Exit Seen as Russian Win. A United Nations-brokered peace plan for Syria is a victory for Russia because it lacks clear wording excluding Syrian President Bashar al-Assad from taking part in a transition of power, analysts in London and Washington said.
• U.S. Manufacturing Contracts For First Time In Three Years. Manufacturing in the U.S. unexpectedly shrank in June for the first time in almost three years, indicating a mainstay of the expansion may be faltering. The Institute for Supply Management’s index fell to 49.7, worse than the most-pessimistic forecast in a Bloomberg News survey, from 53.5 in May, the Tempe, Arizona-based group’s report showed today. Figures less than 50 signal contraction. Measures of orders, production and export demand dropped to three-year lows. Assembly lines may be slowing as consumers temper purchases of vehicles and other goods and companies limit investments in new equipment. At the same time, export markets for manufacturers like DuPont Co. (DD) and Steelcase Inc. (SCS) are finding it more difficult as Europe struggles with a debt crisis and Asian economies including China weaken. The ISM’s U.S. production index decreased to 51, the lowest since May 2009, from 55.6. The new orders measure dropped to 47.8, the weakest since April 2009, from 60.1, and the gauge of export orders declined to 47.5 from 53.5. The slump in orders from the previous month was biggest since October 2001, after the September 11 terrorist attacks. The employment gauge decreased to 56.6 from 56.9 in the prior month. The measure of orders waiting to be filled fell to 44.5 from 47. The inventory index dropped to 44 from 46, while a gauge of customer stockpiles rose to 48.5 from 43.5. A figure less than 50 means manufacturers are reducing stockpiles. The index of prices paid decreased to 37 from 47.5.
• Oil Drops as U.S. Manufacturing Shrinks in June. Oil fell after manufacturing in the U.S. unexpectedly shrank for the first time in almost three years in June. Prices tumbled as much as 3.4 percent as the Institute for Supply Management’s U.S. factory index fell to 49.7 in June from 53.5 a month earlier. Euro-area unemployment reached the highest level on record in May, the European Union’s statistics office said today. Oil’s decline followed a 9.4 percent jump June 29. “The ISM number strongly suggests that we’ve got a long haul before we see improvement in the economy and oil demand,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “Economic data combined with the spike on Friday are going to convince people to get out of the market.”
• Berkshire’s(BRK/A) Pederson Says U.S. Businesses Scaling Back. Berkshire Hathaway Inc. (BRK/A)’s furniture- rental unit saw a slowing in demand from business clients in the second quarter, indicating that firms are curbing spending on projects amid less optimism about the U.S. economy. Demand is “simmering compared to where it was at the beginning of the year, when it looked like the recovery, at least from our perspective, would have been pretty robust,” said Jeff Pederson, the new chief executive officer of Berkshire’s CORT Business Services Corp., the world’s largest provider of rental furniture.
• Defense Cuts of $500 Billion Vex Officials as Ax Nears. With $500 billion in cuts to U.S. defense programs over 10 years set to begin on Jan. 2, industry contractors and analysts say the challenge isn’t only the amount of the cuts, it’s how they’ll be managed.

Wall Street Journal:

• Money Funds Buck Euro-Zone Retreat. At a time when many money-market mutual funds are piling out of Europe, some are looking for more of it in their quest for higher returns. Eight of the 20 money funds with the most exposure to Europe, as measured by total assets at the end of May, increased their euro-zone holdings between last August and May 31, according to iMoneyNet, a research firm in Westborough, Mass. Managers of the eight money-market mutual funds that ramped up their European holdings include BlackRock Inc.(BLK) and Goldman Sachs Group Inc(GS).
• Fresh Skirmishes Over ‘Obamacare’. The parties’ back-and-forth continued Monday following the Supreme Court’s health care decision.
• Get Ready for the New Investment Tax. It really is happening. Until this week, investors were waiting to see what the Supreme Court would do about the 3.8 percentage-point surtax on investment income, part of President Obama's health-care overhaul.
  

CNBC.com:

• Euro Zone Compared to 'Titanic' as Data Disappoint. The euro zone is lacking in “lifeboats” as the Titanic once was, a UK politician warned Monday as employment and manufacturing data painted a gloomy picture of the region’s prospects. Former Defense Secretary Liam Fox, from the UK’s ruling Conservative Party, said in a speech Monday: “Off the euro sailed, lauded as unsinkable as once the Titanic was, and still no one worried about the lifeboats.” Manufacturing shrank again in June and companies are preparing for more bad news to come, according to Markit's Eurozone Manufacturing Purchasing Managers' Index (PMI), which was unchanged at 45.1 in June — the lowest reading in two years. Euro zone jobs figures also made for difficult reading, with unemployment in the region hitting its highest ever level of 11.1 percent in May. There are continuing worries about youth unemployment, with the countries worst-affected by the crisis suffering badly.
• No Big Stimulus for China Even If Slowdown Worsens.
• Stung by Recession, Young Voters Shed Image as Obama Brigade. In the four years since President Barack Obama swept into office in large part with the support of a vast army of young people, a new corps of men and women have come of voting age with views shaped largely by the recession . And unlike their counterparts in the millennial generation who showed high levels of enthusiasm for Mr. Obama at this point in 2008, the nation’s first-time voters are less enthusiastic about him, are significantly more likely to identify as conservative and cite a growing lack of faith in government in general, according to interviews, experts and recent polls.
• Fed Will Take Away Punch Bowl When Time Comes: Williams. The Federal Reserve is prepared to take away the "punch bowl" of easy monetary policy when the time comes, although getting the timing right while keeping inflation low will be a tough job, a top Fed official said Monday.

Business Insider:

• The German Supreme Court Is Going To Make A Decision That Will Make The Obamacare Drama Look Like Child's Play.
• Chart of the Day: The Last Time ISM New Orders Collapsed Like This, It Was Right After the 9/11 Attacks.
  

Zero Hedge:

• There Aren't Enough Rich People To Tax.
• Euro Bailout Fatigue.
• Sorry, Bucko, Europe Is Still In A Death Spiral.
• China's Landing Getting Harder As Stimulus Fails To Prime Pump.

Insider Monkey:

• How Did Einhorn's, Ackman's and Paulson's Stock Picks Perform? Second quarter wasn’t very kind to most hedge fund managers‘ long positions. S&P 500 index ETF (SPY) lost 2.84% during the quarter. Most hedge funds’ large-cap stock picks performed even worse than this. In this article we will take a look at the performance of top hedge fund managers’ large-cap stock picks.

FINalternatives:

• FoFs Manage Historically Low Percentage of HF Assets. Funds of hedge funds managed a historically low percentage of overall hedge fund assets in Q1 2012 according to research from eVestment|HFN. Funds of funds accounted for only 36% of assets in hedge funds at the end of the first quarter, down from 38% at the same time last year and 49% three years ago. Funds of funds managed an estimated $909.8 billion as of March 2012, compared to total hedge fund AUM of an estimated at $2.554 trillion.

Reuters:

• World manufacturing downturn deepest in 3 yrs-PMI. Global manufacturing activity contracted in June at the fastest pace in three years, dragged down by the euro zone but also by weakness at U.S. and Chinese factories, a business survey showed on Monday. The JPMorgan Global Manufacturing PMI fell to 48.9 in June from 50.6 in May, dropping below the 50 mark that divides growth from contraction for the first time November, and its lowest reading since June 2009.
• US May construction spending hits 2-1/2 yr high. U.S. construction spending rose to its highest level in nearly 2-1/2 years in May as investment in residential and federal government projects surged, a rare dose of good news for the flagging economic recovery. Construction spending increased 0.9 percent to an annual rate of $830.0 billion, the highest level since December 2009, the Commerce Department said on Monday. That followed an upwardly revised 0.6 percent rise in April.

Telegraph:

• Debt crisis: Finland threat to plans to unleash ESM. Finland, one of the eurozone’s few remaining AAA-rated economies, has pledged to block Brussels’ celebrated plans to allow its new bail-out fund to buy sovereign bonds in the market.

Die Welt:

• The European Union can master the euro region's sovereign-debt crisis without resorting to jointly issued government bonds, EU Energy Commissioner Guenther Oettinger said. Chancellor Angela Merkel has made it clear that Germany won't support so-called euro bonds now or in the near future, Oettinger said.
  

Globe and Mail:

• The Heart of Euro Crisis Still Untouched. When the markets aren’t expecting anything beyond more empty promises, delay and denial, even modest progress can take on the appearance of a genuine breakthrough in tackling a two-year-old debt crisis that has turned radioactive and spread to the core of the monetary union. But is this really the time to be loading up on European equities, Spanish bonds or the euro itself? Not in the view of crisis watchers who have seen this movie too many times.

Xinhua:

• China Major Ports Face Coal Inventory Oversupply. Coal inventories at China's major ports of Qinhuangdao, Tangshan and Huanghua have reached record highs in recent days, citing official statistics. Coal supplies for the 3 ports were 18.3m tons on June 30.