Today's Headlines

Bloomberg:

• Spain Struggles to Sell Debt as French Yields Fall to Record. Spain’s five-year borrowing costs surged as the government pushed through spending cuts in the face of public protests, while France paid record-low yields of less than 1 percent to sell securities of the same maturity. Spanish five-year notes yielded an average 6.459 percent at auction today, up from 6.072 percent a month ago. Prime Minister Mariano Rajoy, who didn’t turn up to defend his cuts in parliament, secured passage of the plan with 180 votes, indicating none of the opposition in the 350-seat chamber supported it. The premier, who asked other euro nations for as much as 100 billion euros ($123 billion) last month to bail out banks, is fighting to maintain access to capital markets.
  
• German Lawmakers Back European Bailout of Spanish Banks. German lawmakers backed a euro-area bailout of Spanish banks after Finance Minister Wolfgang Schaeuble gave assurances that Spain will remain liable for the aid and parliament will be consulted on each step of the rescue. Lower-house lawmakers were forced to interrupt their summer break as they were recalled to Berlin for a special session on bank recapitalizations for Spain of as much as 100 billion euros ($123 billion). They voted 473 to 97 in favor of the bill after the main opposition parties were persuaded to back Chancellor Angela Merkel’s government and most coalition dissent quelled.
• Deutsche Bank, HSBC Traders Investigated in Libor Probe. Traders at Deutsche Bank AG (DBK), HSBC Holdings Plc (HSBA), Societe Generale SA (GLE) and Credit Agricole SA (ACA) are under investigation for interest-rate manipulation in a global probe that led to a record fine for Barclays Plc (BARC) last month, a person with knowledge of the matter said.
• Jobless Claims in U.S. Rise. Applications for jobless benefits increased by 34,000 to 386,000 in the week ended July 14, Labor Department figures showed today. Economists forecast 365,000 claims, according to the median estimate in a Bloomberg News survey.
• Americans Hold Dimmest View on Economic Outlook Since January. The most Americans in six months said the economy in July was getting worse, indicating the slowdown in hiring is dimming moods as the third quarter begins. The share of households viewing the U.S. as heading in the wrong direction rose to 36 percent, the highest since January, from 33 percent in June. The Bloomberg monthly expectations gauge was minus 11, matching June as the lowest level since January. The weekly Bloomberg Consumer Comfort Index fell to minus 37.9 in the period ended July 15, the lowest in a month. Limited wage gains and unemployment stuck above 8 percent risk further slowing consumer spending and leaving the U.S. more vulnerable to a global slowdown. There is also growing pessimism little is being done in Washington to avoid the so-called fiscal cliff at the end of the year, when higher taxes and automatic spending cuts kick in, raising the risk of recession. “A soft labor market and political tensions surrounding potential changes in tax policy are weighing on consumer sentiment,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “Consumers are concerned about their incomes and have become much more cautious about spending. The economy is limping into the third quarter.”
• Home Sales to Factories Point to Second-Half Weakness: Economy. Sales of existing U.S. homes unexpectedly dropped. Home purchases slid 5.4 percent in June to a 4.37 million annual rate, an eight-month low, figures from the National Association of Realtors showed today in Washington.
• Manufacturing in Philadelphia Area Contracts for Third Month. Manufacturing in the Philadelphia region shrank for the third consecutive month as new orders and employment declined. The Federal Reserve Bank of Philadelphia’s general economic index rose to minus 12.9 in July from minus 16.6 the month before. Economists forecast the gauge would improve to minus 8, according to the median estimate in a Bloomberg News survey. The index showed the third straight month of contraction in new orders, to minus 6.9 from minus 18.8. Manufacturers were also less optimistic about the prospects for future business, with the six-month outlook for orders falling to 26.1 from 38.2. A gauge of employment declined to minus 8.4 this month from 1.8 in June. The six-month outlook for future hiring also worsened by 7.4 points to 11.3.
• Oil Rises to 8-Week High On Rising Mideast Tension. Oil advanced to the highest level in eight weeks on rising concern that the Middle East will lose stability, disrupting supplies from a region responsible for about 30 percent of world production. Prices gained as much as 3.4 percent after Israeli Prime Minister Benjamin Netanyahu blamed Lebanon’s Iranian-backed Hezbollah organization for the killing of Israeli tourists in Bulgaria and threatened a forceful response. In Damascus, Syria, government forces battled rebels in retaliation for a blast that killed three top anti-insurgency leaders. “People are very concerned about what’s going on in the Middle East and that’s giving oil a boost,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas- based energy consultant. “Iran is back in the spotlight and the situation in Syria is deteriorating. It increases geopolitical risk in the region and builds into fears that production may be disrupted.” Crude for August delivery increased $2.91, or 3.2 percent, to $92.78 a barrel at 12:39 p.m. on the New York Mercantile Exchange after climbing to $92.90, the highest intraday level since May 22. Oil’s seven-day gain is the longest since Feb. 24. Prices are down 6.3 percent this year. Brent oil for September settlement advanced $2.77, or 2.6 percent, to $107.93 a barrel on the London-based ICE Futures Europe exchange.
• Soybeans Rise to Record as Expanding Drought Hurts Midwest Crop. Soybean futures rose to a record as the worst drought in more than 50 years threatens crops in the U.S., the world’s biggest producer. About 48 percent of the Midwest was in severe to exceptional drought as of July 17, up from 33 percent a week earlier, the government said today. The U.S. has declared almost 1,300 counties in 29 states as natural-disaster areas because of the heat. Soybean fields are in the worst shape since 1988, when drought reduced output 20 percent, Department of Agriculture data show. “Soybeans are going downhill fast, and there are few signs for relief,” Gregg Hunt, a market analyst at Archer Financial Services Inc. in Chicago, said in a telephone interview. “Expanding drought will lead very tight U.S. supplies and higher prices to slow demand.” Soybean futures for November delivery rose 1.8 percent $16.4875 a bushel at 11:18 a.m. on the Chicago Board of Trade. Earlier, the price reached a record $16.7375. The previous all- time high for the most-active contract was $16.3675 on July 3, 2008.
• Midwest Weather Expected to Be Hot and Dry Through July. The Midwest will probably remain dry through the end of the month and the heat that has been wilting crops may persist until September. Temperatures in the Great Plains and Midwest are expected to remain 5 to 7 degrees Fahrenheit above normal (2.8 to 3.9 Celsius) through the end of July, according to MDA EarthSat Weather in Gaithersburg, Maryland. The company’s 30- to 60-day outlook calls for above-normal temperatures to grip the center of the U.S. through September.
• Feeding Frenzy Seen If Wall Street Sues Itself Over Libor. Wall Street, grappling with mounting regulatory probes and investor claims over alleged interest-rate manipulation, may face yet another formidable foe: Itself. Goldman Sachs Group Inc. (GS) and Morgan Stanley are among financial firms that may bring lawsuits against their biggest rivals as regulators on three continents examine whether other banks manipulated the London interbank offered rate, known as Libor, said Bradley Hintz, an analyst with Sanford C. Bernstein & Co. Even if Goldman Sachs and Morgan Stanley forgo claims on their own behalf, they oversee money-market funds that may be required to pursue restitution for injured clients, he said.
• Deutsche Bank(DB) Said to Consider Staff Cuts at Investment Bank. Deutsche Bank AG (DBK), Europe’s biggest bank by assets, is considering cutting about 1,000 positions at its investment bank as revenue declines, according to a person with knowledge of the matter. The cuts will be mostly outside Germany, where the firm’s investment banking operations are focused, said the person, who asked not be identified as Deutsche Bank’s plan hasn’t been made public.
• China Developers Face ‘Significant’ Liquidity Woes, KPMG Says. Chinese developers face “significant liquidity issues” and rising funding costs after regulators curbed borrowing through trust companies and property sales fell, according to KPMG LLP. Although there are “indications” that restrictions on real estate trusts may ease soon, the impact is unclear with investor sentiment changing, according to a KPMG report entitled Mainland China Trust Survey 2012. The report, emailed yesterday, didn’t elaborate on what the indications are. Growth in Chinese developers’ new funding slumped by almost 16 percentage points to 5.7 percent in the first half from a year earlier, after the nation’s home sales dropped 6.5 percent as the government maintained property curbs to stem speculation, the National Bureau of Statistics said July 13. New funds channeled through real estate trusts dropped more than 50 percent to 84.6 billion yuan ($13 billion) in the six months ended June 30, according to Use Trust, a Chinese consulting and research firm for the country’s trust industry. “Given the situation of certain real estate developers, many of whom have sourced financing from trust companies, there’s concern among both the trust companies and regulatory authorities around these products,” KPMG said in the report.
  

Wall Street Journal:

• Russia, China Veto Syria Resolution at U.N. Russia and China vetoed a Security Council resolution that would have threatened sanctions against the Syrian leadership, which is under assault by armed rebels in the streets of the capital Damascus. It was the third time Russia and China have vetoed Security Council resolutions that aimed to pressure the government to leave power. This last failure at diplomacy once again highlighted the growing realization that Syria's fate would be decided by bloody clashes in the streets of the capital, and not the halls of the U.N.
• It's Time to Buy Dollar, Hedge Fund FX Concepts Says. Investors should ignore growing expectations of a third round of quantitative easing by the Federal Reserve and pile into the dollar because the U.S. economy is slowing and big trouble is brewing in the euro zone, the head of one of the world's biggest currency hedge funds said Thursday.
• Strikes Threaten to Disrupt London Games. The build-up to the Olympic Games continued to be mired in difficulty after U.K. border officials Thursday said they will stage a 24-hour strike the day before the opening ceremony and the government said it was putting extra army personnel on standby to guard venues. In a move that threatens to cause chaos at Britain's borders as thousands of tourists arrive for the Olympics, the Public and Commercial Services Union said thousands of Home Office staff who are members of the union, including around 5,000 Border Agency staff, will take part in the industrial action next Thursday. The move by the PCS threatens to hold the U.K. government in ransom when the eyes of the world are on Britain.
  

MarketWatch:

• Leading economic index declines in June. ‘The U.S. economy is growing very slowly,’ economist says. The index of leading economic indicators fell 0.3% in June to 95.6, mostly reversing the increase in May, the Conference Board reported Thursday.Weakness in business orders, consumer confidence and building permits contributed to the decline, the board said.

Business Insider:

• This Is The Poll That Should Really Scare Barack Obama.
• FT: 'WORLD BRACED FOR NEW FOOD CRISIS'.
• Read The Letters That Whitney Tilson And Glenn Tongue Sent Investors About Breaking Up.

Zero Hedge:

• Spanish Bond Spreads Hit All-Time Record Highs. (graph)
• Oil Spikes As Netanyahu Threatens Iran.
• The Stunning Political Reality Of The Fiscal Cliff Debate.
• As The US Drought Spreads To India, Will The Black Swan Be Deep Fried.

New York Times:

• Bank of America(BAC) Posts $2.5 Billion Profit, but Mortgage Woes Remain. Despite reporting better-than-expected profits Wednesday, Bank of America continues to have a money pit in its home-loan market. The housing woes of the last few years are still taking a toll on the bank, however. Investors are increasing their demands that Bank of America repurchase soured mortgages, arguing the mortgages were improperly underwritten and sold in the first place. These so-called put-back claims totaled $22.7 billion in the second quarter of 2012, up from $16.1 billion in the first quarter. Chris Kotowski, an analyst at Oppenheimer, noted that the $22.7 billion figure was more than double the total of such claims in the second quarter of 2011, when they stood at $9.9 billion. “It’s not just that it’s going up, it’s going up at an accelerated rate,” Mr. Kotowski said. “It’s hard to know what the ultimate cost will be.” Those concerns help explain why Bank of America’s stock sank nearly 5 percent to $7.53 a share on Wednesday, even though profits were better than expected.

Reuters:

• World Grain Price Surge Triggering Defaults. Grains suppliers are starting to default on previously agreed sales to major importers, including top wheat buyer Egypt, rather than deliver on contracts that are now losing money because of the huge rally in prices sparked by the U.S. drought. The worst drought in more than 50 years is wilting crops in the U.S. Midwest and sending prices into overdrive, with corn alone surging by around 50 percent in the last month. Soybeans have also hit record highs, with wheat not far behind. Crop downgrades in Russia, Ukraine and Kazakhstan as drought followed a bitterly cold winter have added to global price rises, stoking fears of unrest especially in Middle Eastern countries, where high food prices can trigger political protest.
• GM(GM) announces production of Chevrolet Trax in Mexico. U.S. carmaker General Motors Co. on Thursday said it would build the Chevrolet Trax vehicle and a new generation of pickups at plants in Mexico. The Detroit-based company is investing $120 million in a plant in the central state of San Luis Potosi to produce the SUV crossover, said GM Mexico president, Ernesto Hernandez. GM will unveil the Trax at the Paris Motor Show in September before hitting the Mexican market in the fourth quarter, Hernandez added. A further $200 million would head to the Silao plant in Guanajuato state, where work on a new generation of pickups would begin in 2013. Hernandez expected the investments, which total $420 million, would create 1,000 new jobs.
• Morgan Stanley(MS) plans further staff cuts on weak outlook. Morgan Stanley expects to reduce payroll by just over 1,000 employees by the end of this year, part of a plan to cut headcount by 7 percent as measured from the end of 2011, as it prepares for weak economic growth globally and low trading volume, the investment bank said on Thursday. Morgan Stanley, reporting a 24 percent decline in second-quarter revenue, is the latest bank to sound gloomy notes about the economy. Banks have had to cope with companies' reluctance to issue debt and equity, the European debt crisis, and slow stock and bond trading.
• Value retailer Five Below(FIVE) sizzles in market debut. Five Below Inc's shares surged as much as 65 percent in their market debut, as investors rushed to grab a piece of the teen-focused value retailer.
• Troubled Calif. cities view on debt a concern - Moody's. Defaults and bankruptcies by municipal bond issuers are likely to remain few but the cases of the California cities of Stockton and San Bernardino may signal unwillingness among financially troubled cities to pay their debt obligations, a Moody's Investors Service report released on Thursday said. "The looming defaults by Stockton and San Bernardino raise the possibility that distressed municipalities -- in California and, perhaps, elsewhere -- will begin to view debt service as a discretionary budget item, and that defaults will increase," Anne Van Praagh, the Moody's managing director who wrote the report, said in a statement.
• European car discounts revved up to the max. Free road tax, cheap petrol, cash rebates and even a free car. These are only some of the knock-down offers European automakers are offering in a brutal price war to try to lure the few consumers still buying cars in a deepening five-year slump.

Telegraph:

• David Cameron: no end in sight for austerity. David Cameron doesn’t “see a time” when the government’s austerity programme will end.
• IMF loses all faith in the euro project.

Handelszeitung:

• Harvard University Professor Kenneth Rogoff sees an increasing risk that some countries will leave the 17-nation euro area. "At the moment, everyone wants to advance their own interests: Germany wants a political union, the ECB a conservative fiscal policy and peripheral nations an easing of savings measures," Rogoff said in an interview. "It's a real game of poker that creates a lot of instability." "It's difficult to assess the timing," he said when asked about the development of the euro area's turmoil. "It's only clear that the crisis is far from over. In the end, there are only two possible solutions: either Europe is ready to adopt a dramatic centralization of power in Brussels, or the euro will break up."
  

El Mundo:

• Spain Sees Tax Receipts 27% Below Prior Estimate. The Spanish government cut its forecast for tax receipts from the tax hikes approved on July 13 to EU25.1B through 2014 from EU 34.4B, citing official documents.
  

Les Echos:

• French households could face an increase of 50% in electricity prices by 2020 if current legislation and consumption patterns don't change, according to the country's Senate.
  

Globe and Mail:

• Inflation in China weighs on Yum Brands(YUM). Yum Brands Inc., owner of the Taco Bell, Pizza Hut and KFC chains, said Wednesday its second-quarter net income rose 5 per cent, overcoming a rare setback in China with the help solid sales elsewhere, including supersized gains at U.S. Taco Bell stores. The company said its operating profit sagged by 4 per cent in China, adjusted for currency fluctuations, as a result of high commodity inflation that squeezed restaurant profitability.
  

Xinhua:

• China Will Not Relax Property Control Policies. The nation will continue its "firm grip" on the real estate market, seeking to prevent housing prices from rebounding, citing an "urgent" government notice.