Today's Headlines

Bloomberg:

• Rajoy Outlines Budget Cuts as Protests Hit Madrid. Spanish Prime Minister Mariano Rajoy rolled back social-welfare protections and raised taxes to clinch emergency aid and pacify investors as anti-austerity protesters marched in the capital. Rajoy announced cuts in unemployment benefits and public wages, signaled reductions in pensions and raised sales taxes as part of a 65 billion-euro ($80 billion) package of deficit cuts, risking a deeper recession. As striking miners clamored for aid to keep their industry alive in a march along Madrid’s main boulevard, Rajoy trimmed union funding by 20 percent. Spain’s desperation for foreign capital to sustain public services and keep its banks afloat has ripped control of policy from the government, leaving officials to implement the diktats of markets and the European Union. Preventing a meltdown in the fourth-biggest euro economy is key for policy makers to limit risks to the 17-nation currency union. “We have very little room to choose,” Rajoy told the national parliament in Madrid. “I pledged to cut taxes and now I’m raising them. But the circumstances have changed and I have to adapt to them.”
• Berlusconi Will Probably Run Again in 2013, Party Official Says. Former Italian Prime Minister Silvio Berlusconi will probably lead his People of Liberty party into the next elections due by April 2013, the party’s Secretary General Angelino Alfano said. “We are all asking him to run and I believe in the end, he will decide to lead the party,” Alfano said in an interview in Rome today with Sky TG24 television.
• Burberry Slowdown Spurs Luxury Goods Wobble. Burberry Group Plc (BRBY) led luxury-goods stocks lower after reporting sales that missed analysts’ estimates for a second straight quarter, fueling concern that Europe’s debt crisis and slowing growth in China are finally taking a toll on high-end demand. Burberry, the U.K.’s largest luxury company, fell as much as 6.9 percent in London trading, sliding to the lowest price since Jan. 3. Cie. Financiere Richemont SA (CFR), the maker of Cartier jewelry, dropped as much as 2.1 percent, while LVMH Moet Hennessy Louis Vuitton SA (MC) slid as much as 3 percent. “There is a slowdown in the broader global economy and as luxury is cyclical, this slowdown is starting to appear in the luxury-goods quarterly reports,” Luca Solca, global head of European equities at CA Cheuvreux, said today in an interview with Bloomberg Television.
• A Few FOMC Members Said More Stimulus Probably Would Be Needed. A few Federal Reserve policy makers said the central bank will probably need to take further action to boost the labor market and meet its inflation target, according to minutes of their June meeting. “A few members expressed the view that further policy stimulus likely would be necessary to promote satisfactory growth in employment and to ensure that the inflation rate would be at the Committee’s goal,” according to the record of the Federal Open Market Committee’s June 19-20 gathering released today in Washington. The minutes show two participants said additional bond purchases are appropriate, while two others said they would be warranted in the absence of “satisfactory progress” in cutting unemployment or if downside risks increase. FOMC members also said strains in global markets stemming from Europe’s debt crisis had increased since their April meeting, and that “U.S. fiscal policy would be more contractionary than anticipated.”
• Iraq Crude Production Overtakes Iran as OPEC Trims Output. Iraq’s crude production overtook Iran’s last month for the first time in more than two decades as Iran led a decline in OPEC output ahead of a European Union ban on purchases from the nation, according to the producer group. Iraq pumped 2.984 million barrels a day in June, outpacing Iran’s 2.963 million, the Organization of Petroleum Exporting Countries’ Vienna-based secretariat said today in its Monthly Oil Market Report. That’s the first time Iraq’s output has exceeded Iran’s since 1988, when the countries ended their eight-year war, statistics compiled by BP Plc (BP/) show.
• Industry Suppliers-Box Makers May Show Slow U.S. Growth. Investors may see more signs of slowing U.S. manufacturing growth when makers of corrugated boxes and distributors of supplies report quarterly earnings this month. W.W. Grainger Inc. (GWW) and Packaging Corp. of America are among companies that offer “good insight into industrial America,” said Tim Ghriskey, who oversees about $2 billion as chief investment officer of Solaris Group, based in Bedford Hills, New York. Data from these businesses can be particularly useful in verifying or contradicting the pace of activity measured by the government and third-party groups, he said.

Wall Street Journal:

• Spain Bank Sub Bondholders Try to Sell. Investors left holding positions in Spanish subordinated bonds were trying to sell them Wednesday after the Spanish government hinted these type of instruments might be forced to take losses. Late Tuesday it emerged that investors holding any equity or hybrid capital instruments issued by Spanish banks that might need a euro-zone bailout could see their investments completely wiped out. Conservative-type bondholders—like banks, funds and Asian investors—were left trying to exit their positions in weaker Spanish banks, but with few investors interested in buying they were finding it hard to sell, bond traders said. The bond prices didn't collapse on the news, with these bonds having been dumped by investors for some time, as the precedent set by Irish banks in 2010 made investors more aware of the risk associated with subordinated debt. However, "unlike in Ireland, the move to force losses on junior bondholders is a significantly more contentious issue in Spain where retail customers make up a large proportion of the investor base," said Daiwa Capital Markets credit analyst Michael Symonds. Bondholders at Spain's larger banks—Banco Santander SA, SAN.MC +1.86% Banco Bilbao Vizcaya Argentaria SA BBVA.MC +2.48% and CaixaBank SA CABK.MC +0.94% —won't likely be affected by the change as they aren't likely to take part in the bailout. But smaller banks will be impacted, with trading on their bonds over the past months evidence of these concerns. "Expect subordinated peripheral debt to trade lower as there had been some expectations that it would be treated with compassion because of the retail bias," said Investec fixed-income analysts Elisabeth Afseth and Brian Barry in a note.
• Fed Official Doubts Euro Fix. Financial markets are pulling the euro zone apart and the chances of finding a solution to the currency union's debt crisis appear distant, a U.S. central banker said Tuesday. James Bullard, president of the Federal Reserve Bank of St. Louis, said in an interview that during a roughly week-long trip to Europe he has reassessed the odds of whether euro-zone policy makers can reach a conclusive settlement to end a crisis that's hurting U.S. and global economic growth.

CNBC.com:

• Why Millions of Americans Still Can't Refinance Their Mortgage. Mortgage rates hit new lows and applications to refinance fell for the third straight week. It defies logic, unless of course you operate in today’s tight mortgage market.
• Dimon Should Be Included in JPM(JPM) Clawbacks. (video)
  

Business Insider:

• San Bernardino Is The Third California City To Go Bankrupt In Two Weeks.
• Karl Rove's Super PAC Hammers Barack Obama's Economic 'War On Women'. (video)
• Reuters: CEO Of Collapsed Brokerage Forged Signatures And Fabricated Bank Balances.
• How Long Until The Market Decides That Spain Is Killing Itself?

Zero Hedge:

• The World Of LI(E)BOR And Worst Case Lawsuits.
• Goldman(GS) Cuts US Q2 GDP Two Times In Two Hours.
• Desperate Acts Of Government Continued - Europe Edition.

NewsBusters:

• Romney Gets Standing Ovation From NAACP, But CNN Calls Reception 'Very Negative'.

The Hill:

• Reid Rejects GOP Request to Vote on Obama's Tax Plan. Senate Majority Leader Harry Reid (D-Nev.) on Wednesday rejected a Republican request to vote on President Obama’s income tax plan amid defections within his caucus on tax policy. Sen. Orrin Hatch (Utah), the senior Republican on the Finance Committee, accused Democrats of filibustering the president’s tax plan. “They are filibustering their own bill. So what does that tell us? Here’s what it tells us. It tells us that the president’s tax increase plan is not just an economic disaster; it is a political loser,” Hatch said. Senate Democratic leaders are worried about potential defections within their caucus on taxes. At least seven Democratic senators have declined to rule out supporting a temporary extension of the Bush-era income tax rates. Several Senate Democrats running for reelection and Democratic Senate candidates have balked at Obama’s proposal to extend income tax rates only for families earning below $250,000.

Reuters:

• Adtran(ADTN) sees weak third quarter revenue; shares plunge. Network gear maker Adtran Inc said it expects the slowing economy to hurt third-quarter revenue, sending its shares down to a two-year low. The company, which reported lower-than-expected second-quarter revenue on Tuesday, said it expects third-quarter revenue to be flat to slightly up on a sequential basis. "During the quarter it has become apparent that customer sentiment in the current environment from an economic and regulatory perspective has deteriorated," a company executive said on a post-earnings call on Wednesday.
• Huge demand for 10-year notes at record low yields.
• EU watchdog warns banks still face major challenges. The European Banking Authority said there remained significant challenges ahead for Europe's banks having just cleared the first hurdle to bolster their capital buffers. The EBA said that 27 banks had hiked their combined capital by 94.4 billion euros ($115.7 billion) to meet the expectations of the watchdog and fill a 76 billion euro shortfall to help make them strong enough to withstand the euro zone debt crisis. Europe's banking watchdog had given banks until the end of June to hold core Tier 1 capital of 9 percent of risk weighted assets as part of efforts to restore confidence in the sector. EBA Chairman Andrea Enria said the recapitalisation had been a "necessary and important step" but cautioned that banks had a long way to go to recover from the financial crisis and comply with new global regulations.
• France, Germany raid Swiss banks, clients on tax. German tax authorities have launched raids into Credit Suisse clients and French officials searched the homes of UBS employees, part of crackdowns on foreigners suspected of evading taxes through the two largest Swiss banks. Switzerland's strict banking secrecy rules, which have helped build a $2 trillion offshore financial sector, have infuriated cash-strapped governments elsewhere as they try to stop tax evasion by wealthy citizens. Roughly 5,000 German clients of Credit Suisse are being probed on suspicion of tax evasion and some had their homes searched, a source at the bank said on Wednesday, as European tax officials broaden their investigation to clients from banks.
• Spain tourism body, carmakers warn over VAT hike. The tourism sector would lose around 2 billion euros ($2.45 billion), an industry body said, while car manufacturers estimated they would sell between 20,000 and 25,000 fewer vehicles in the next five months. A sharp rise in Spain's sales tax rates will cost billions of euros in lost earnings and thousands of jobs, representatives of key industries said on Wednesday, complicating the country's efforts to pull itself clear of recession. Prime Minister Mariano Rajoy announced the value added tax hikes on Wednesday as part of a scaled-up austerity programme imposed under pressure from European partners and designed to slash 65 billion euros from the public deficit by 2014. General VAT was raised to 21 percent from 18 percent and the reduced rate for the leisure industry to 10 per cent from 8 percent.
• Brazil retail sales fall unexpectedly in May.

Telegraph:

• Merkel breaks German law on ESM rescue. You can see why Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble are back-pedalling so frantically over the EU summit deal. While Mrs Merkel seemingly agreed to let the European Stability Mechanism (bail-out fund) rescue banks directly – starting with Spain – she did not have the authority from the Bundestag to do so. Indeed, she violated a categorical prohibition by the budget committee or Haushaltsausschuss.
• Spain's Day of Pain: In Pictures.
  

yle Uutiset:

• Finnish Prime Minister Katainen Says Euro Crisis "Very Dangerous". Prime Minister Jyrki Katainen says the current euro crisis is just as serious as that in 2010 when the Greek economy came close to collapse. In an interview given to the newspaper Helsingin Sanomat Wednesday, the premier noted the current strained relationship between southern and northern euro states was unprecedented.

Les Echos:

• European bank recapitalizations have cost the equivalent of 4% to 5% of gdp and guarantees are about 10% of gdp, European Union Competition Commissioner Joaquin Almunia said.
  

Cinco Dias:

• Spain is considering increasing the reduced rate of value-added tax, which applies to restaurants, hotels and bars, to 10% from 8%.
  

O Estado de Sao Paulo:

• The Brazilian government plans to reduce economic growth forecast for this year to 2.7% to 3% from 4.5%. The new estimate is likely to be officially announced July 20th.

The Times of India:

• US Breaks Ranks, Pushes Global Cap-and-Trade Scheme. In what could make the trade battle over EU's carbon tax on aviation more complicated for India, the US has suggested that countries adopt a global carbon tax system under the International Civil Aviation Organization (ICAO) and adopt a worldwide cap-and-trade regime. It had earlier decided along with the BASIC group — China, Brazil, South Africa and India — Russia and 20 other countries to oppose the EU move with counter-measures. The US has asked for a meeting of 16 countries on the issue in Washington at the end of July where India too is invited. The US has softened its opposition to the EU tax directive, stepping away from countries like India and China on the issue. A global carbon tax regime on aviation would mean escalation of flying costs across the world and not just for travelers to the EU.