Evening Headlines
Bloomberg:
- Spanish Subsidies on the Line as Miners’ March Reaches Madrid. Secundino Menendez Fernandez, a coalminer with a sunburned face, may represent the biggest threat to Prime Minister Mariano Rajoy’s plan to balance Spain’s books. Menendez, who usually spends his days 700 meters below ground, arrives today in Madrid with about 160 fellow miners after trudging 285 miles (460 kilometers) under the blazing summer sun from the northern region of Asturias. They are protesting Rajoy’s cuts to subsidies that equated to more than 290,000 euros ($356,000) per miner last year. Union leaders aim to draw more than 100,000 protesters to a rally in the capital. The demonstration will test Rajoy’s attempt to maintain order as he pushes through the most severe budget cuts since the country returned to democracy 35 years ago. The run-up to the demonstration has been marked by violent clashes between armored police and masked pickets who blocked highways and railroads in northern Spain and shot fireworks and golf balls from improvised launchers made from metal pipes. “The miners will start to matter to investors if the protests turn violent and they block the ability of government to continue implementing reforms,” Antonio Barroso, a political analyst at Eurasia Group in London, said in a July 9 telephone interview. “The government can’t afford a huge protest that shuts down the country.”
- Spanish Banks to Take Stress Tests as Part of Rescue, Bild Says. The 14 biggest Spanish banks have to undergo a stress test as a condition for the aid from the European Financial Stability Fund, Bild reported citing a memorandum of understanding without clarifying the nature of the document. Bank restructuring plans will be set up by November on the basis of the results of the test, enabling the banks to live without aid in the medium term, the newspaper said. Banks that receive money from the rescue fund will face pay caps for their board members, the newspaper added.
- German Court Says Parliament’s Approval to ‘Be Respected’. Germany’s top court said a decision on whether to suspend legislation for the euro bloc’s permanent bailout fund and fiscal treaty could take months rather than weeks due to the complexity of the ruling. The Federal Constitutional Court in Karlsruhe heard arguments yesterday on whether to put German approval of the European Stability Mechanism and fiscal pact on hold until it rules on their legality. Both houses of parliament approved the new laws on June 29 with a two-thirds majority. German President Joachim Gauck withheld his signature due to legal challenges that were discussed at the hearing. “The legislature fundamentally holds broad leeway for discretion, which the constitutional court must respect,” court President Andreas Vosskuhle said, adding that the principle counts particularly with a two-thirds mandate. Still, “arriving at a decision is not easy in many respects.” He signaled the court may take a more deliberative approach to its initial decision, potentially further delaying the ESM from coming into force.
- Portugal Lurches Into Austerity Trap With Creditors: Euro Credit. Portugal's international creditors may soon have to ease terms of the country's bailout to prevent the plan from derailing as the government faces setbacks in attaining its deficit goals. Prime Minister Pedro Passos Coelho's struggle to meet deficit pledges were further hampered last week when about $2.5 billion of planned cuts to pensions and civil servants' holiday pay were ruled unconstitutional. With Portugal's 10-year bond yield above 10%, returning to the markets next year may be untenable, requiring more international aid despite the premier's insistence he won't seek concessions.
- CFTC Faces Scrutiny After $200 Million Peregrine Fund Shortfall. The top U.S. futures regulator is facing renewed scrutiny after suing Peregrine Financial Group Inc. for a customer funds shortfall nine months after MF Global Holdings Ltd. collapsed. The Commodity Futures Trading Commission filed a complaint against Peregrine in federal court in Chicago today after an industry self-regulator cited a $200 million shortfall in customer segregated funds. The National Futures Association said the brokerage’s chairman may have falsified bank records after only $5 million was found in an account that was reported to have $225 million on or about June 29. Peregrine is under investigation over the allegedly missing funds after Russell Wasendorf Jr., the firm’s chairman and chief executive officer, unsuccessfully attempted suicide. Republicans who scolded the CFTC over its handling of MF Global cited similarities to the New York brokerage’s failure. “I would have expected regulators to be particularly attentive to situations like the one at PFG in the wake of the MF Global collapse, so I’m disappointed this wasn’t discovered earlier,” Representative Randy Neugebauer, a Texas Republican who is leading an investigation of MF Global’s $1.6-billion customer-fund shortfall, said in an e-mail.
- Passport to Wind Down Materials Hedge Fund After 31% Loss. Passport Capital LLC, the $3.4 billion hedge fund founded by John Burbank, plans to wind down its materials fund after a 31 percent loss this year, according to a letter to investors obtained by Bloomberg News. The Passport Materials Fund fell 17 percent in the second quarter, the fund’s portfolio managers, James Cunningham and Sebastien Boifort, said in a letter to investors dated yesterday. The fund has taken longer than expected to exit private investments, the three largest of which are Ferrous Resources Ltd., Satimola Ltd. and Canadian Sinosun Energy Inc., the managers said. The fund lost 45 percent over one year, an annualized 13 percent over three years and 9.8 percent over five years.
- China Wants Sea Spat Off Asean Agenda as Clinton Urges Talks. China warned nations to avoid mentioning territorial disputes with the Philippines and Vietnam at a security meeting this week, rebuffing U.S. Secretary of State Hillary Clinton’s call for talks on the issue.
- Senate Democrats to Unite Behind Obama Tax-Hike Plan, Baucus Says. The top Senate tax writer predicted Democrats in the chamber will back President Barack Obama’s latest push to extend only part of the Bush-era tax cuts, calling talk of Democratic dissension “background noise.”
Wall Street Journal:
- Claw Is Out for 'Whale' Officials. J.P. Morgan Chase & Co. plans to reclaim millions of dollars in stock from executives at the center of the trading blunder that shocked Wall Street and tarnished the reputation of Chief Executive James Dimon. The nation's biggest bank is expected to claw back compensation from individuals including Ina Drew, who ran the company's Chief Investment Office, or CIO, according to people familiar with the bank's plans. Ms. Drew was a top lieutenant of Mr. Dimon's before she resigned this spring following the disclosure of the trading losses.
- Paulson Ex-Lieutenant Caught in Fund's Slide. John Paulson has lost a lot of money for investors recently—one of his largest hedge funds lost more than half of its value last year and continued its decline this year. One surprising victim of the fund manager's recent bad run: Paolo Pellegrini, a former lieutenant who helped make Mr. Paulson a multibillionaire. Mr. Pellegrini was one of the architects of Mr. Paulson's wager against subprime mortgages that netted $15 billion in 2007 for his hedge-fund firm, Paulson & Co. Mr. Pellegrini subsequently left to launch his own hedge fund, before pulling the plug nearly two years ago to focus on investing his own money.
- House Set to Vote on Health-Law Repeal. The House is expected to vote Wednesday to repeal President Barack Obama's health-care law, as Republicans continue their furious response to the Supreme Court decision to uphold the law. The House has voted 30 times previously to undo all or part of the health law, and the Senate is all but certain to ignore the House action. But GOP leaders want to reaffirm their opposition to it in advance of November's elections.
- Air Jordan and the 1%. There was a lot more income inequality on the Chicago Bulls roster after Michael Jordan's years with the team, but everyone was better off.
- China, Brazil lead Q2 slowing in emerging markets. Emerging market economies continued to show signs of weakening in the second quarter, with China and Brazil leading the slowdown, according to a new survey. The HSBC Emerging Markets Index, which is based on surveys of 21 Purchasing Managers Indexes conducted across 16 markets, eased to 53.0 in the second quarter from 53.6 in the first quarter.
- Some Awful Stock Market Behavior.
- Companies Are Laying People Off At The Highest Rate In Two Years.
- INFOGRAPHIC: The LIBOR Scandal Explained.
- WATCH: Top Romney Backer Taunts Andrea Mitchell Over Obama's 'Outsourcing'.
- Firm With Money At Collapsed Brokerage PFG Launches Blistering Attack On Failure Of Regulators.
- These Police Surveillance Drones Could Be Watching You Right Now.
- Bearish Enough To Buy? The Real Fear Index Says Not So Fast. (graph)
- PFG's Chairman Was Forging Bank Documents For Years Even As The CFTC Gave An "All Clear".
- Because Once You Drop By Bankruptcy Court, You Don't Stop: San Bernardino On Chapter 9 Deck.
- Italy Is More Worrying Than Spain: Pro. (video) Chief Economist, Bank of Singapore says Italy has the potential for a Greek style of political instability. He adds that Prime Minister Mario Monti's political career could be on a thin edge.
- Rate Scandal Stirs Scramble for Damages. As unemployment climbed and tax revenue fell, the city of Baltimore laid off employees and cut services in the midst of the financial crisis. Its leaders now say the city’s troubles were aggravated by bankers’ manipulation of a key interest rate linked to hundreds of millions of dollars the city had borrowed.
- China's Slowing Economy Claiming Firms' CEOs, Profits. China's slowing economy is hammering corporate profits and costing some CEOs their jobs as investors show little patience for companies that fall behind, even for a brand founded by a former Olympic star gymnast and revered sports hero.
- Big Bank Earnings Will Have Us Cringing: Bove.
NY Post:
- Dalio Hits Midyear Off -2.7%. Ray Dalio’s Bridgewater Associates, the world’s largest hedge-fund firm, with $120 billion in assets, has hit a rough patch. After leaving its rivals in the dust for the past two years with mouth-watering double-digit returns, Bridgewater is now trailing them. Its flagship fund, Pure Alpha, fell 2.7 percent in 2012’s first half. Dalio is a widely watched guru of the financial markets. But his devotion to the dollar helped drive Pure Alpha into the red, a source close to the fund told The Post.
MoneyNews:
- CBO: In Recession, Top 1% Had Lower Income, Higher Tax Rate. Before-tax income for the top 1 percent of U.S. households fell by 36.3 percent from 2007 to 2009 while their federal tax rate increased to 28.9 percent from 28.3 percent, said a report by the Congressional Budget Office.
- Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows Mitt Romney attracting 47% of the vote, while President Obama earns support from 44%. Five percent (5%) prefer some other candidate, and four percent (4%) are undecided.
- Hedge fund withdrawals jump to highest since '09: data. Hedge fund outflows surged to their highest level in almost three years this month, data from hedge fund administrator GlobeOp shows, in a sign investors may be losing faith in the sector after mixed performance amid choppy markets. Net outflows from hedge funds, as measured by the GlobeOp Capital Movement Index, which tracks monthly net subscriptions to and redemptions from funds managing around $187 billion in assets, were 1.17 percent of that total during the month to July 1. The withdrawals compare with net inflows in each of the previous five months and were the highest level of net outflows since October 2009, when clients pulled out 3.76 percent. The withdrawals may be an early indicator that investors, who have continued to pile into the $2 trillion hedge fund industry in recent years on hopes it can help them survive choppy markets, are reconsidering their options. Hedge funds lost an average 5.3 percent last year, according to Hedge Fund Research (HFR), after the crisis in the euro zone and worries of a global recession rattled investors and punished all but the most bearish of strategies. After achieving its best first-quarter performance since 2006 this year, the hedge fund industry lost some ground in April and May, and the average fund is now up 1.7 percent in the first six months of 2012.
- FBI warned U.S. Labor Department data might be leaked-report.
- Hhgregg sees bleak year ahead on weak TV demand. Hhgregg forecast a wider-than-expected loss for the first quarter and cut its full-year outlook, as it grapples with higher costs and shrinking demand for electronics. Shares of the appliance and electronics chain fell 22 percent after the bell. They closed at $11.54 on Tuesday on the New York Stock Exchange.
- Blackstone(BX) shedding U.S. office building assets-source.
- BofA(BAC) cutting commercial banking jobs--sources. Bank of America Corp has been cutting jobs in its commercial banking unit in recent weeks even as it tries to boost the group's business, people familiar with the situation said, reflecting the bank's broader struggles to grow in a tepid economy.
- Voxx International(VOXX) loss wider than expected, shares fall. Audio equipment maker Voxx International Corp reported a bigger-than-expected quarterly loss, hurt by a patent litigation settlement charge and expenses related to the company's acquisition of Germany's Hirschmann. Shares of the company were down 18 percent at $8.02 after the bell. They closed at $9.77 on Tuesday on the Nasdaq.
- Spain pressed to inflict losses on savers. European authorities are pressing Spain to inflict billions of euros of losses on small savers by wiping out certain types of bank debt before its financial institutions are recapitalised using eurozone rescue funds. The bailout conditions for Spain’s banks would force any lender taking aid fully to write off their preferred shares and subordinated bonds, according to a draft memorandum of understanding seen by the Financial Times.
- Spain vows to 'deep clean' financial sector after rescue deal. Under the deal to bailout Spain's stricken banks, the Government must come up with a roadmap of structural reforms by the end of July.
- Germans in court battle to block eurozone bailouts. The German Constitutional Court may take up to three months to rule on an injunction by private citizens and Left-wing lawmakers aimed at blocking the eurozone bailout machinery, leaving markets hanging in suspense as the eurozone debt crisis eats at confidence.
- Peter Bofinger, an economic adviser to German Chancellor Angela Merkel, told Austrian broadcaster ORF it would be an "economic catastrophe" if Germany's highest court rejects the euro area's permanent bailout fund. "It would be an economic catastrophe that would probably exceed the consequences of the Lehman shock," if the Federal Constitutional Court rejects the European Stability Mechanism, Bofinger said in an interview broadcast today, referring to the collapse of Lehman Brothers Holdings Inc.. in 2008. "If such a resolution mechanism isn't legally possible, this would de facto mean the end of the euro area."
- China National Building Material Co. may cut the size of its planned IPO in Shanghai to about 10b yuan, from 15b yuan previously, citing a person close to the company.
- China May Slow State-Owned Company Investment Approval. The State-Owned Assets Supervision and Administration Commission may slow the pace of approving investment by central-government-owned companies for projects that are costly, risky or involve non-core businesses.
- None of note
- Asian equity indices are -.50% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 168.50 -5.0 basis points.
- Asia Pacific Sovereign CDS Index 139.25 -.5 basis point.
- FTSE-100 futures -.65%.
- S&P 500 futures +.04%.
- NASDAQ 100 futures +.03%.
Earnings of Note
Company/Estimate
- (MAR)/.42
- (ADTN)/.36
- (TXI)/-.30
8:30 am EST
- The Trade Deficit for May is estimated at -$48.6B versus -$50.1B in April.
10:00 am EST
- Wholesale Inventories for May are estimated to rise +.3% versus a +.6% gain in April.
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,375,000 barrels versus a -4,270,000 barrel decline the prior week. Distillate inventories are expected to rise by +625,000 barrels versus a -1,051,000 barrel decline the prior week. Gasoline inventories are estimated to rise by +500,000 barrels versus a +151,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise by +.2% versus a -.6% decline the prior week.
2:00 pm EST
- Minutes of FOMC Meeting
Upcoming Splits
- None of note
Other Potential Market Movers
- The weekly MBA mortgage applications report, Germany CPI, China Money Supply, Germany 30Y Bond auction, USDA crop report, 10Y T-Note auction, BOJ rate decision, UBS Energy Conference and the (CVX) Q2 Update could also impact trading today.
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