Today's Headlines

Bloomberg:

• Germany ESM Risks Are Limited, Schaeuble Tells Mittelbayerische. Germany’s financial risks from participation in the European Stability Mechanism are limited to 190 billion euros ($232 billion), Finance Minister Wolfgang Schaeuble said in an interview with Mittelbayerische Zeitung. Reports of an agreement on shared liability for banks in the European Union at a euro region leaders’ meeting on June 29 are untrue, the newspaper cited Schaeuble as saying on its Internet site. Schaeuble told the newspaper he’s “confident” that Germany’s highest court will reject legal motions to stop the ESM, the euro region’s future financial backstop.
• European Equity Protection at Record Low Versus Bonds: Options. Investors are paying the least ever to protect against losses in European stocks relative to corporate bonds, a sign to Standard Life Plc, Exane BNP Paribas and JPMorgan that equity volatility will increase. The VStoxx Index tumbled 12% to 22.6 last week, the cheapest since April 3. That's the lowest ever compared with the Markit iTraxx Europe Index, according to Bloomberg. Equity volatility is too inexpensive given the global economic slowdown and the deepening European debt crisis, according to Standard Life's Frances Hudson and Pierre-Olivier Beffy, chief economist at Exane in Paris.
• Bank Senior Bond Risk Rises Amid Reports ECB Is Banking Bail-Ins. The cost of insuring against default on senior bank bonds rose after the European Central Bank was said to drop its opposition to holders of the securities taking losses in bailouts. The Markit iTraxx Senior Financial Index of credit default swaps on 25 banks and insurers increased seven basis points to 280 at 1:44 p.m. in London, the highest since July 9, data compiled by Bloomberg show. The ECB backed imposing losses on senior bondholders of the most troubled Spanish banks at a July 9 meeting, a position rejected by euro-area finance ministers, said an official with knowledge of the ECB’s thinking. Credit-default swaps on Banco Santander SA (SAN), which isn’t calling for capital under Spain’s bank bailout, rose nine basis points to 434 basis points, Bloomberg data show. Swaps on Banco Bilbao Vizcaya Argentaria SA (BBVA), Spain’s second-biggest bank, climbed eight basis points to 456 basis points, the highest since July 12. “The fact it was even considered is bad news for euro- region banks,” said Ramon Nieto, a fund manager at Geroa EPSV Fondos, which oversees 1.1 billion euros of assets in San Sebastian, Spain.
• German Court Won't Rule On Bailout Fund For 8 Weeks. Germany’s top court will take more than eight weeks to decide whether to suspend the euro-area’s permanent bailout fund, leaving Europe’s anti-crisis coffer less than half full to respond to the debt crisis. The Federal Constitutional Court in Karlsruhe will issue a ruling on bids to halt Germany’s participation in the European Stability Mechanism and the fiscal pact on Sept. 12, it said today in an e-mailed statement. That’s more than two months after it held a hearing on the measures.
• London House Prices Plunge as Supply Rise Adds to Lull: Economy. London home sellers cut prices by a record for the month of July as an increase in supply added to pressure on the property market during the traditional summer lull, Rightmove Plc (RMV) said. Asking prices dropped 3.6 percent from June to an average 460,304 pounds ($715,600), the operator of Britain’s biggest property website said in an e-mailed report today. Across England and Wales, values fell 1.7 percent to 242,097 pounds.
• IMF Cuts Global Outlook as EU Ensnares Emerging Economies. The International Monetary Fund cut its 2013 global growth forecast as Europe’s debt crisis prolongs Spain’s recession and slows expansions in emerging markets from China to India. Growth worldwide will be 3.9 percent next year, less than the 4.1 percent estimate in April, the fund predicted in an update of its World Economic Outlook. Spain’s economy will contract 0.6 percent instead of a prior forecast for 0.1 percent growth, and India’s projection for next year was reduced 0.7 percentage point to a 6.5 percent expansion, it said. “In the past three months, the global recovery, which was not strong to start with, has shown signs of further weakness,” the Washington-based IMF said in the report. “Downside risks continue to loom large, importantly reflecting risks of delayed or insufficient policy action.”
• Retail Purchases In U.S. Unexpectedly Decrease -.5%. Retail sales in the U.S. unexpectedly fell for a third month in June as limited employment gains took a toll on consumers. The 0.5 percent drop followed a 0.2 percent decrease in May, Commerce Department figures showed today in Washington. The decline exceeded the most pessimistic forecast in a Bloomberg News survey that called for a median 0.2 percent gain in sales. Other reports today showed manufacturing in the New York region picked up this month and U.S. inventories increased in May. Stocks fell as the retail sales report prompted economists at Morgan Stanley, Goldman Sachs Group Inc. and Credit Suisse to lower their forecasts for economic growth in the second quarter. A cooling job market is sapping the household spending that makes up 70 percent of the economy, curbing sales at retailers such as Target Corp. (TGT) and Macy’s Inc. (M) “Weak spending growth and weak employment are reinforcing one another in a disconcerting negative feedback loop,” said Jay Feldman, a director of U.S. economics at Credit Suisse in New York, who cut his tracking estimate for second-quarter economic growth to 1.6 percent from 2 percent.
• Worst-in-Generation Drought Dims U.S. Farm Economy Hopes. A worst-in-a-generation drought from Indiana to Arkansas to California is damaging crops and rural economies and threatening to drive food prices to record levels. Agriculture, though a small part of the $15.5 trillion U.S. economy, had been one of the most resilient industries in the past three years as the country struggled to recover from the recession. “It might be a $50 billion event for the economy as it blends into everything over the next four quarters,” said Michael Swanson, agricultural economist at Wells Fargo & Co. (WFC) in Minneapolis, the largest commercial agriculture lender. “Instead of retreating from record highs, food prices will advance.”
• Treasury 5-Year Note Yield Drops to Record as Retail Sales Fall. Treasury five-year note yields fell to record lows as an unexpected decline in retail sales for a third straight month raised concern the economic recovery is stalling and drove investors to the refuge of government debt. Investors seeking the safest assets amid concern global growth is faltering and Europe’s sovereign-debt crisis is worsening also drove yields to all-time lows in the U.K., Canada, France, Germany and the Netherlands. Treasuries gained earlier after Germany’s top court said it will take more than eight weeks to rule on the euro-area’s bailout fund. Federal Reserve Chairman Ben S. Bernanke is scheduled to testify in Washington tomorrow amid speculation he will call for more economic stimulus.
• JPMorgan Blaming Traders for Bad Marks Baffles Ex-Employees. JPMorgan Chase & Co.’s assertion that traders at its London chief investment office may have intentionally mismarked trades, masking losses that total at least $5.8 billion, makes little sense, according to former executives with direct knowledge of the unit’s operation.
• Gilead Wins U.S. Approval for First HIV Prevention Pill. Gilead Sciences Inc. (GILD) won U.S. approval to market its HIV treatment Truvada to prevent the virus that causes AIDS in healthy people who are at high-risk of contracting the disease.
• Egypt Court to Rule on Constitution as Army Warns Islamists. An Egyptian court is set to hear a challenge to the panel charged with writing a new constitution, as the country’s army chief issued a warning to its elected Islamist leaders that may deepen the standoff between them. Field Marshal Mohamed Hussein Tantawi said yesterday that the military would not allow a “certain group” to dominate the political landscape, according to the state-run Middle East News Agency. The comment, at a ceremony in the city of Ismailiya, was interpreted as directed against the Muslim Brotherhood, from whose ranks newly elected President Mohamed Mursi was drawn.
• China's Car Dealers Will Boost Discounts On Inventory, NDRC Says. China’s automobile dealers will increase incentives and discounts as they struggle with a worsening glut in the world’s biggest vehicle market, according to the nation’s top economic planner. Average retail vehicle prices fell 1.2 percent in June from a year earlier, with those for passenger vehicles dropping 1.9 percent, said Cheng Xiaodong, head of a unit that monitors auto prices at the National Development and Reform Commission. In May, passenger-vehicle prices slumped the most in about two years because of overstocking. “The oversupply situation persists,” Cheng said in an e- mailed statement today. “Facing slugging demand and rising inventory, dealers will increase discounts and incentive offerings in the coming months.”
• Traxis Partners Founder Barton Biggs Dies at Age 79. Barton Biggs, the money manager whose attention to emerging markets during a 30-year career at Morgan Stanley made him one of the first global investment strategists, has died. He was 79.
• Par Pharmaceutical Agrees to be Bought by TPG. Par Pharmaceutical Cos. (PRX), a maker of generic drugs, agreed to be acquired for $1.9 billion by TPG Capital as the private-equity firm looks to gain from efforts to curtail health-care costs. Par stockholders will receive $50 a share in cash, the Woodcliff Lake, New Jersey-based company said in a statement today.
• Microsoft(MSFT) Joints Intel(INTC) Facing Slower Growth as China Stalls: Tech. Intel Corp. (INTC) and Microsoft Corp. (MSFT), whose products run at least 80 percent of the world’s personal computers, are set to report lackluster sales growth as China’s slowing economy exacerbates stalling demand for PCs. Intel, the largest maker of microprocessors, and Microsoft, the No. 1 software company, will report quarterly earnings this week. Analysts project both will say sales rose 5 percent or less from a year earlier, as consumers choose tablet computers and smartphones over PCs or hold off on purchases altogether.

Wall Street Journal:

• ECB Change of Heart Rumbles Spanish Bank Debt. Reports that the European Central Bank pushed for senior bondholders to shoulder losses in the Spanish bank recapitalization plan propelled investors to insure against potential losses on bonds issued by the country's banks Monday. The cost of insuring against default on bonds issued by Banco de Sabadell SAB.MC -1.99% (SAB.MC), Banco Popular de Espana (POP.MC) and Bankinter BKT.MC -2.70% (BKT.MC) pushed higher after the Wall Street Journal reported that the ECB advocated imposing losses on the senior bonds of Spanish banks that seek financial help. Finance ministers from the euro area chose not to follow the ECB's advice when they agreed to the Spanish plan July 9. "That they are now not only considering but advocating it, that is potentially quite worrying for the asset class," Mr. Barry said. "There's a lot of uncertainty so we could see some weakness in the months ahead." Reflecting the heightened nerves, credit default swap spreads on Spanish banks likely to seek bailout cash were all wider--Banco de Sabadell CDS swung 38 basis points wider to 810 basis points. Banco Popular de Espana's CDS widened 20 basis points to 727 basis points, while Bankinter's CDS pushed 5 basis points wider to 665 basis points, according to data provider Markit. "We are seeing demand for protection on Spanish banks," a CDS trader said. "There is a weaker tone across the board, but the market is not too liquid, everyone is still digesting [the news]."
• The Scandal Behind the Financial Scandals.
• WTO: China Discriminates Against U.S. Credit Cards. A World Trade Organization panel has determined that China's tight control over credit- and debit-card transactions discriminates against U.S. card companies, a decision the card issuers hope will lead to new business opportunities in China's fast-growing payments market.

CNBC.com:

• Fewer US Companies Planning to Hire; Europe Looms. Only 23 percent of the firms polled in June plan to add to staff in the next six months, the National Association for Business Economics said on Monday. NABE's prior survey, conducted in late March and early April, had shown 39 percent of companies planning to add workers.
• Drop in New York Sales Tax Revenue Signals Slow Growth. New York City's sales tax collections grew 2.79 percent in the second quarter from a year ago, according to the New York State Department of Taxation and Finance. That is less than half the 7.7 percent rise seen in the 2011 second quarter versus the 2010 second quarter. The latest result looks particularly dismal when compared with the 24.73 percent increase seen in the second quarter of 2010 over the same 2009 quarter.
• JPMorgan(JPM) Has Bigger Worry Than ‘London Whale’: Bove. JPMorgan has put its "London Whale" trading losses behind it, but the question now is how much money the bank can make from its regular operations, Dick Bove, Rochdale Securities bank analyst, told CNBC’s “Squawk Box” on Monday.

Business Insider:

• 36 Percent Of Fukushima Children Have Abnormal Growths From Radiation Exposure.
• Mexican Drug Cartels Have Infiltrated All Of These US Cities.
• The Ultimate, Worst-Case, Fiscal Cliff Nightmare Scenario.

Zero Hedge:

• European Bank Spreads Jump To Worst Of Year. (graph)
• The Problem In A Nutshell: Annualized GDP Growth Of 1%; Annualized US Debt Growth of 21%. (graph)
• IMF Says Japan And Spain Are Done, "Debt Ratio Will Never Stabilize".
• The 4 Most Disconcerting Charts For European Equity Holders.
• US Ship Mistakenly Fires On Friendly Boat Off Dubai, As Russia Condemns Saudi Treatment Of Religious Protesters.

Reuters:

• The downward pressures are so strong that the slowdown in China's economy may extend beyond the third quarter, citing Chen Dongqi, deputy head of the National Development and Reform Commission's macroeconomic research institute.
  

Telegraph:

• IMF slashes UK growth forecasts. Britain’s growth prospects have dropped sharply over the past three months, according to the International Monetary Fund as the eurozone crisis weighs on recovery.

The Independent:

• David Blanchflower: UK Economy Still Has Further to Fall. It seems unlikely any announcement will have any effect on the economy much before 2015.

Frankfurter Allgemeine Zeitung:

• Solar energy subsidies will cost Germany more than $134.5 billion euros, citing a study from the Essen-based RWI Institute. Cost of 100 billion euros were reached at the beginning of 2012 and Germany will face costs until 2030.
  

Xinhua:

• China Jan.-June FDI Falls 3% on Year to About $59.1B, Citing Vice Commerce Minister Wang Chao. Jan.-May FDI fell 1.9% to $47.1B, according to a statement posted on the ministry's website from June 15.
• China shouldn't blindly expand investment as it seeks to avoid a slowing economy, citing members from the Chinese People's Political Consultative Conference.
  

Shanghai Daily:

• Shanghai trade volume dips in H1. SHANGHAI'S trade volume declined 2.4 percent in the first half from a year earlier due to weak overseas demand and a decrease in the number of textile companies.
  

Shanghai Securities News:

• China State Council Probing Rebound in Home Prices. China's State Council is organizing several research groups to conduct a survey on the country's property market, citing people familiar with the situation. The groups are probing the reason for rebounding home prices. The groups will give advice on policy measures to counter further price rises, according to the report.