- UniCredit, Intesa Among 13 Italian Banks Cut by Moody’s. UniCredit SpA (UCG) and Intesa Sanpaolo SpA (ISP) were among 13 Italian banks that had long-term debt, deposit or issuer ratings cut by Moody’s Investors Service, which cited the government’s weakened creditworthiness. UniCredit, Italy’s biggest bank, and Intesa, the nation’s second-largest lender, had their debt and deposit ratings lowered two steps to Baa2, Moody’s said yesterday in a statement. It was the second time in two months that Moody’s downgraded the firms. The outlook on both is negative, in line with the government’s, the ratings company said. Moody’s reduced the country’s bond rating last week to Baa2 from A3 and said further cuts are possible as the nation grapples with weak growth and elevated unemployment. The new grade is two levels above junk. “Despite UniCredit’s substantial international activities, its important exposure to its domestic market means that its stand-alone rating is constrained by the level of the sovereign rating,” Moody’s said. “Intesa’s business is almost entirely domestic in nature,” so that bank’s grade is also limited by the government’s, according to the ratings firm. Ten banks had long-term debt and deposit grades cut yesterday and three had issuer ratings reduced, Moody’s said. Ratings fell one step for seven of the affected companies, and two levels for the remaining six. Paola Di Raimondo, a UniCredit spokeswoman, had no comment and Intesa’s Matteo Fabiani didn’t immediately respond to an e- mail left outside of regular business hours.
- Euro Seen at $1.15 as Bund Yields Fall on ECB: Chart of the Day. The ECB's deposit-rate cut this month has spurred a flight to German bunds that could cause the euro to slide about 6% to the lowest since 2003. "Lenders are more likely to park their funds in bunds after the rate cut," which will accelerate a drop in German yields and add pressure on the 17-nation currency, said Yuji Saito, foreign-exchange department director in Tokyo at Credit Agricole SA. It's a "matter of time" before the euro falls bel0w $1.20, he said, adding that an eventual decline to $1.15 is possible provided the U.S. Federal Reserve doesn't initiate a third round of so-called quantitative easing.
- China’s Foreign Investment Drops 6.9% in June. Foreign direct investment in China dropped 6.9 percent in June from a year earlier as slowing global growth reduced companies’ enthusiasm for expanding in the world’s second-biggest economy. Inbound investment declined to $12 billion, the Ministry of Commerce said today in Beijing. That’s the largest fall since December and compares with a less than 0.1 percent gain in May following a six-month slide. The data indicate Europe’s debt crisis and six quarters of a domestic economic slowdown may be limiting inflows of cash. Premier Wen Jiabao warned the momentum for a recovery isn’t yet in place and pledged to intensify fine-tuning of policies, the official Xinhua News Agency reported July 15.
- China Slowdown Stymies Plan to Curb Shadow-Banking Risks. China’s economic slowdown threatens to derail efforts to curb underground lending -- measures championed by Premier Wen Jiabao as crucial to future growth. Wen’s proposals to rein in the shadow-banking system, estimated to be about one-third the size of official lending, may be sidelined as a result, according to half a dozen economists interviewed by Bloomberg News. “With an economy slowing more aggressively than the authorities perhaps want, the imperative to crack down on shadow financing becomes increasingly conflicted,” said Alistair Thornton, a Beijing-based economist with research firm IHS Global Insight Ltd. (IHS) “With the government increasingly in firefighting mode, the desire to push through tough reform in the financial sector inevitably takes a back seat to staving off a hard landing and managing global economic volatility.”
- Gross Says U.S. Nearing Recession as Goldman Sachs(GS) Cuts Forecast. Pacific Investment Management Co.’s Bill Gross said the U.S. is approaching a recession as economists at Goldman Sachs Group Inc. (GS) and Deutsche Bank AG lowered their forecasts for growth. Goldman Sachs analysts led by Jan Hatzius cut their estimate for second-quarter gross domestic product growth to 1.1 percent from 1.3 percent, while Deutsche Bank’s chief U.S economist, Joseph LaVorgna, reduced his forecast to 1 percent from 1.4 percent. Federal Reserve Bank of Kansas City President Esther George said yesterday the U.S. economy probably won’t grow much faster than 2 percent in 2012. The U.S. is “approaching recession when measured by employment, retail sales, investment, and corporate profits,” Gross, who runs Pimco’s Total Return Fund, the world’s largest mutual fund, wrote on Twitter yesterday.
- Dollar Declines Before Bernanke Senate Testimony Today. The dollar weakened against most of its major peers amid speculation Federal Reserve Chairman Ben S. Bernanke will hint at further monetary easing in testimony today.
- CMBS Leverage Most Since '07 as Standards Loosen: Credit Markets. Landlords are piling the most debt onto commercial properties in five years as Wall Street banks bundle the loans into bonds to meet rising demand from investors seeking high yields amid record-low interest rates. The size of mortgages bundled into bonds will surpass 100% of building values for the first time since 2007, before the market shut down, according to Moody's Investors Service. That measure of leverage on loans tied to everything from skyscrapers to strip malls is poised to climb 4.5 percentage points this quarter, the NY-based ratings company said in a July 11 report. Lenders are offering larger loans borrowers look to pay off a wave of debt taken out during the real estate bubble and as yield-starved investors are pushed toward riskier assets.
- Good Dirt Gone Dry Wilting Corn Crop as Food Costs Rally. The worst Midwest drought since 1988 is baking farms from Arkansas to Ohio and threatening corn output that the U.S. said last week will be the second-largest ever. The price of the grain used in food for people and livestock is surging at a time when retail-meat costs already are near record highs. Global food prices are poised to rebound from a 21-month low in June because of weaker-than-expected supply in the U.S., the world’s largest corn exporter, the United Nations said July 5.
- Treasury's 10-Year Yield May Decline to 1%, Says Top Strategist. Treasury 10-year note yields may drop as low as 1% as global economic growth slows and concern increases as the U.S. approaches a "fiscal cliff," according to CRT Capital Group LLC's David Ader. "Yields are already extremely low," Ader, head bond strategist at CRT in Stamford, Connecticut, who has been ranked first by Institutional Investor magazine in government-debt strategy for the past six years, said. "The economy has taken a leg down. Today's retail number is the straw that breaks the camel's back."
- Tokyo Anti-Nuclear Rally Attracts Thousands as Protests Grow. Tens of thousands of people packed Tokyo’s Yoyogi Park yesterday for Japan’s biggest anti-nuclear rally since the Fukushima disaster last year in growing protests against government moves to restart atomic reactors.
- HSBC Probe Shows Bank Allowed Money Laundering. HSBC Holdings Plc (HSBA) did business with firms linked to terrorism, failed to guard against money- laundering violations in Mexico and bypassed U.S. sanctions against Iran, according to U.S. Senate investigators. HSBC affiliates worldwide gave terrorists, drug cartels and criminals a portal into the U.S. financial system, the Permanent Subcommittee on Investigations said in a 335-page report yesterday detailing a decade of lax controls. Lawmakers plan to question senior executives from the London-based bank, Europe’s largest, at a hearing in Washington today.
- Pennsylvania Cut to Aa2 by Moody’s on Pension Concerns. Pennsylvania had its general- obligation debt rating cut a step to Aa2 by Moody’s Investors Service, which said rising pension liabilities will weigh on the state’s economic recovery. The grade, Moody’s third-highest rating, also reflects moderate economic growth and the state’s relatively high debt level, according to a statement today from the New York-based company. Moody’s also changed its outlook for the credit to stable from negative.
- Delta(DAL) Working to Find Source of Needles in Food. Delta Air Lines Inc. (DAL) is working with investigators in the U.S. and the Netherlands after objects that appeared to be sewing needles were found in sandwiches on four flights from Amsterdam to the U.S. yesterday. One person was injured and declined medical treatment after a flight landed in Minneapolis, Kristin Baur, a Delta spokeswoman, said in an interview today. The incident is being investigated by the U.S. Federal Bureau of Investigation and officials in the Netherlands as well as Gate Gourmet, Delta’s caterer, she said.
- Yahoo(YHOO) Names Google’s(GOOG) Marissa Mayer as Chief Executive.
Wall Street Journal:
- U.S. to Launch Broad Review of Futures Firms. Regulators will conduct a sweeping review of futures firms across the country, seeking to ensure that the firms' bank accounts contain the cash they say they do, according to people familiar with the planned scrutiny. The broad check of futures firms comes in the wake of the scandal at Peregrine Financial Group Inc., in which more than $200 million in customer funds has gone missing.
- GM(GM) Sees Expanded European Losses. General Motors Co. expects to report substantial losses in Europe for the rest of the year, damping hopes of a second-half recovery that the auto maker earlier had anticipated, according to people familiar with GM's European operations. The dimmer view of the world's largest auto maker by volume emerged after other auto makers had warned of mounting European losses as the region's sovereign debt woes and a sagging economy weigh on automobile sales. Ford Motor Co. last month warned that it expects its international losses to triple in the second quarter, mainly because of widening losses in European operations.
- Goldman(GS) Builds Private Bank. Shift Into Lower-Margin Lending Reflects Harsh Climate Facing Wall Street. Goldman Sachs Group Inc. is building an in-house bank to lend money to wealthy people and companies, in a significant shift that underlines the harsh business climate facing Wall Street since the financial crisis. The New York securities firm, known for its aggressive trading and big corporate deal-making, is ramping up its activities to become a private bank to serve wealthy customers around the world.
- President's Populist Pitch Divides Suburban Voters. Barack Obama and Republican challenger Mitt Romney are battling over suburban, upper middle-class voters. The question is whether these voters agree with Mr. Obama's more populist economic message—or whether the tax-the-rich rhetoric is pushing them away.
- Credit-Derivatives Market Suggests Investor Unease with Banks -Moody's. Despite U.S. banks' efforts to rid their balance sheets of risky assets and improve capital ratios in recent years, investors continue to perceive banks to be far riskier than they were before the financial crisis, according to Moody's Analytics.
- Inside Canada, China Asserts Itself. Chinese companies once were happy to let Canadians and Americans represent them here. No longer. Today, they're increasingly using Chinese nationals as they invest billions into natural resource projects. These nationals can be seen from one end of Canada to the next, variously negotiating deals with Native American groups or prospecting for minerals in remote areas.
- Indonesian Boom Starts to Stall. Sliding Rupiah Is Latest Signal of an End to Good Times; 'It Went From Market Darling to Pariah' A steep slide in the Indonesian rupiah is the latest signal that investors are worried the good times in Southeast Asia's largest economy could be coming to an end. The rupiah has slid more than 3% against the dollar in the past six months, more than double the decline of the Singapore dollar and Malaysian ringgit. In Asia, only the Indian rupee has done worse. Indonesia's stocks and government bonds have also lagged behind.
- Toying With Recession. Patty Murray explains why Democrats want to jump off the tax cliff. Democrats must feel really good about their election chances, because their latest campaign strategy is to say how willing and eager they are to leap off the January tax cliff. They're all but daring Republicans to make the Democrats' day by refusing to raise taxes before the election. That was the chest-pounding message Monday from Patty Murray, the Washington Democrat who runs her party's Senate campaign committee. In a speech at the Brookings Institution, she declared that if Republicans won't raise taxes on income above $250,000 before November, Democrats will gladly let all of the Bush tax rates expire at the end of the year—even on the middle class, and no matter the economic consequences.
- China’s version of ‘Too big to fail’: Andy Xie. Some aspects of financial system are still a cause for concern.
- SEX, PORN, BOOZE, AND GOLF WITH BANKERS: Investigation Reveals All Kinds Of Bad Behavior At Treasury Department.
- Criminal Inquiry Shifts To JPMorgan's Mispricing Of Hundreds Of Billions In CDS: Is Dimon The Next Diamond?
- Consumers Flash Warning Signal.
- Calpers Generates 1% Return, Misses Discount Rate Target By 87%.
- Government to Oversee Credit Reporting for First Time. The companies that determine Americans' credit scores are about to come under government oversight for the first time.
- Can Policymakers Stomach Another Bout of Food Inflation? A drought-fueled rally in soybeans, corn and wheat is raising fears of another round of food price inflation, posing an unwelcome complication for policymakers, particularly in emerging Asia, where higher consumer prices may hinder their ability to ease monetary policy. Central banks in the developing economies such as China, where food comprises nearly a third of the overall consumer inflation basket, are at greatest risk.
- British Bank Fighting Bid for Data in Rate Case. Even as lawmakers in London hammered a top Barclays executive over the bank’s role in a rate-rigging scandal, another financial firm that is largely owned by the British government is fighting an investigation into the vast scheme. The Royal Bank of Scotland, one of more than 10 banks under scrutiny from authorities around the globe, is refusing to turn over crucial information to Canadian regulators, court documents from Ottawa show.
- VMware(VMW) Blockbuster: Maritz Out as CEO after 4-Year Tenure. Paul Maritz is out as VMware CEO, and he is being replaced by Pat Gelsinger, president and COO of EMC(EMC) Information Infrastructure Products division, CRN has learned. Multiple sources familiar with the situation confirmed the CEO switch to CRN Monday. But it is unclear if Maritz, who has led VMware since 2008, will be taking another position within EMC or leaving the company.
- Ace Hardware adding smaller 'Express' stores. Ace Hardware has launched a scaled-down version of itself in nearly 400 locations, the Oak Brook-based company said Monday. The new format, designed for 5,000 square feet or less, stocks more than 11,000 of the retailer's most popular and profitable products, the company said in a statement.
- Obama’s Aides Owe Some Money in Back Taxes. A few dozen people who work for President Obama are having some trouble paying their taxes. The IRS has released its Federal Employee and Retiree Delinquency Inventory, and it shows that 36 of Obama’s aides owe a total of $833,970 in back taxes. Other government employees owe a lot, too. At the Environmental Protection Agency, 413 people owe more than $19 million; at the Federal Deposit Insurance Corp., which is supposed to “maintain stability and public confidence in the nation’s financial system,” 185 employees owe more than $3 million; and five people at the U.S. Tax Court owe $62,508.
- Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Monday shows Mitt Romney attracting 46% of the vote, while President Obama earns 44%. Five percent (5%) prefer some other candidate, and five percent (5%) more are undecided.
- Monetary policy not a cure for unemployment -Fed's George. A top Federal Reserve policymaker said on Monday that while persistently high unemployment is weighing on the sluggish U.S. economic recovery, she is not sure monetary policy can put people back to work. "At this point we have a tremendously accommodative policy for the economy to begin the process of recovery," Kansas City Federal Reserve President Esther George said in introductory remarks at a conference on agriculture. "Will monetary policy put people back to work at this point? That's not clear." George will be a voter on the Fed's policy-setting Federal Open Market Committee in 2013. She declined to say whether she thinks the central bank should deliver another dose of monetary stimulus to help the economy grow more vigorously.
- Ford(F) to slash 15 pct of workforce in Australia.
- Morgan Stanley(MS) cuts 2012 U.S. auto sales, earnings estimates. Morgan Stanley lowered its 2012 U.S. auto sales projections by about 3 percent and cut its earnings-per-share estimates for the North American auto sector due to weaker-than-expected sales in the United States and Europe. The firm now expects U.S. auto sales to be 14.4 million this year, down from its earlier projection of 14.8 million.
- Illinois's unpaid bills backlog still big despite revenue rise. Illinois made a small dent in its unpaid bills, which total an estimated $7.5 billion, despite steep increases in individual income tax, the state comptroller's office reported on Monday. Due partly to income tax collection, Illinois cut its general fund u npaid b ills by $1.91 billion to $3.656 billion in the fourth fiscal quarter of 2012, ended June 30, according to a spokesman for the state comptroller. That compares with a year ago when the backlog of unpaid bills amounted to $3.798 billion.
- J.B. Hunt(JBHT) profit meets estimate, revenue misses. Trucker J.B. Hunt Transport Services reported quarterly profit that matched Wall Street estimates while revenue increased slightly less than expected on higher expenses. The company said higher volume in its intermodal (JBI) and dedicated contract services (DCS) divisions were offset by higher costs for driver wages, rail transportation costs, maintenance, and other charges.
- FLIR Systems(FLIR) estimates second-quarter below expectations. Surveillance products maker FLIR Systems Inc (FLIR.O) estimated its second-quarter earnings to be below market expectations, hurt by weaker demand for several products, particularly in Europe. "Delays in customer delivery schedules negatively impacted revenue during the quarter, particularly in the cores and components line of products in the thermal vision and measurement segment," Chief Executive Earl Lewis said.
- World economy heads for another perfect storm. The International Monetary Fund’s latest “World Economic Outlook” makes for chilling reading. A perfect storm in which all parts of the world economy go down together seems fast to be gestating somewhere out in the mid-Atlantic.
- None of note
- Asian equity indices are +.25% to +1.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 166.0 +2.5 basis points.
- Asia Pacific Sovereign CDS Index 136.0 +2.0 basis points.
- FTSE-100 futures +.11%.
- S&P 500 futures +.48%.
- NASDAQ 100 futures +.47%.
Earnings of Note
8:30 am EST
- The Consumer Price Index for June is estimated unch. versus a -.3% decline in May.
- The CPI Ex Food & Energy for June is estimated to rise +.2% versus a +.2% gain in May.
9:00 am EST
- Net Long-term TIC Flows for May are estimated to rise to $41.3B versus $25.6B in April.
9:15 am EST
- Industrial Production for June is estimated to rise +.3% versus a -.1% decline in May.
- Capacity Utilization for June is estimated to rise to 79.2% versus 79.0% in May.
10:00 am EST
- The NAHB Housing Market Index for July is estimated to rise to 30.0 versus 29.0 in June.
- None of note
Other Potential Market Movers
- The Fed's Bernanke testifying before Senate Banking Committee, Fed's Pianalto speaking, weekly retail sales reports, German ZEW Survey and the China Housing Price report could also impact trading today.