- EU Rushes to Make ECB Single Bank Watchdog in Race to Save Spain. Europe’s quest to sever the link between Spain’s fiscal fate and its failing banks hinges on an obstacle-strewn race to hand greater powers to the European Central Bank. Until euro-area leaders overcome German doubts, ECB concerns, and turf battles everywhere, Spain will remain on the hook for a bailout of its banks of as much as 100 billion euros ($121 billion). Policy makers want to protect taxpayers from losses so potentially big they risk bankrupting governments, as happened in Ireland and Iceland. “We have got to cut the fatal loop between sovereigns and banks, which will otherwise bring the euro-zone project as it exists now down,” Adair Turner, chairman of the U.K. Financial Services Authority, said in a London speech yesterday.
- France 1st-Half Mortgage Lending Slumps 33%, Les Echos Reports. French mortgage lending declined 33 percent in the first half compared to the same period in 2011, Les Echos reported, citing a study by l’Observatoire Crédit Logement/CSA. The decline can be attributed to a collapse in demand, a lack of government aid, and a reduction in lending as a result of refinancing difficulties at banks, the newspaper said. Mortgage lending by banks in France this year will fall 25 percent to 30 percent to 110 billion euros ($133 billion) to 120 billion euros from 160 billion euros in 2011, the newspaper said.
- Orban’s Tax Binge Repels Investors as Recession Menaces Hungary. Hungarian snack maker Chio Magyarorszag Kft. was slated to receive funds last year from its Cologne-based parent, Intersnack Knabbergebaek GmbH, for two expansion projects. Then came the potato-chip tax. The special duty imposed by Prime Minister Viktor Orban’s government meant Gyor, Hungary-based Chio Magyarorszag missed out on getting the cash as Intersnack diverted the money to another one of its non-German subsidiaries. “We’ve been erased from the map,” said Gabor Agyai Szabo, the head of Chio Magyarorszag’s corporate relations and marketing, in a phone interview. “Hungary won’t be considered as long as regulations don’t change.”
- IMF Says China Downside Risks Significant. The International Monetary Fund said China’s slowing economy faces significant downside risks and relies too much on investment, urging leaders to boost consumption and channel citizens’ savings away from housing. While the economy “seems to be undergoing a soft landing,” achieving it is a key challenge, the Washington-based IMF said in a statement today. “China is well placed to respond forcefully, if needed, to a deterioration of the external environment, in particular through fiscal policy,” the IMF said. It repeated an assessment that the yuan is “moderately” undervalued, which China disputed.
- China to Flood Steel Market Hurting ArcelorMittal(MT): Commodities. China, the world’s biggest steel producer, is exporting at the highest level in two years, exacerbating a global glut that may hurt competitors from ArcelorMittal (MT) to U.S. Steel (X) Corp. Monthly shipments abroad rose to 8.7 percent of domestic output last month, the highest proportion since July 2010. Chinese steel mills, set for a record production in 2012, are ramping up overseas sales to avoid a softer domestic market, where prices for the commodity have dropped to a two-year low.
- Apple(AAPL) Falls Short of Analysts' Predictions Amid IPhone Slump. Apple Inc. (AAPL)’s profit and sales fell short of analysts’ projections for only the second time since 2003 as customers held off on iPhone purchases while waiting for a new model to be introduced later in the year. Net income climbed 21 percent to $8.82 billion, or $9.32 a share, in the period that ended June 30, Cupertino, California- based Apple said today in a statement. Sales rose 23 percent to $35 billion. Analysts had predicted profit of $10.37 a share on revenue of $37.2 billion, the average of estimates compiled by Bloomberg. Shares fell 6 percent in late trading.
- New South China Sea City Angers Neighbors. (video)
- Aflac(AFL) Drops as Insurer Reports Losses on Spanish Holdings. Aflac Inc., the world’s biggest seller of supplemental health insurance, dropped in extended trading yesterday after reporting losses on Spanish holdings. Aflac fell 1.7 percent to $41.30 after the close of regular trading in New York. The Columbus, Georgia-based insurer reported after-tax realized investment losses from impairments of $223 million in the second quarter, primarily from investments in Bankia SA (BKIA) and the government of Catalonia.
Wall Street Journal:
- Currency Hedge Funds Lose on Euro Bets in June. Hedge funds that invest in currencies posted their biggest loss in three months in June as erratic moves in the euro thwarted bets that the common currency would extend its decline against the dollar, according to a survey released Tuesday.
- U.K. to Add 1,200 Troops for Games. The U.K. government said Tuesday it must deploy 1,200 extra military personnel to guard venues at the Olympic Games—with the opening ceremony set for Friday in London—following the failure of private contractor G4S GFS.LN +1.20% PLC to provide enough security guards.
- European Crisis Seen Spreading to Russia. Russia's economy is more vulnerable to the effects of the euro zone's fiscal and banking crises as commodity prices fall, the European Bank for Reconstruction and Development said Wednesday. Starting in October, the EBRD slashed growth forecasts for eight economies in Central Europe, or CEB, and the Baltics and seven economies in Southeastern Europe, or SEE, citing their close trade and financial links to the euro zone.
- Fed Under Pressure Over Libor. Pressure is growing on the Federal Reserve to explain whether its bank supervisors did anything to stop individual firms from attempting to manipulate a key interest rate after a team of its market analysts discovered signs of such activity in 2007. The issue is likely to come up this week when Treasury Secretary Timothy Geithner goes to Capitol Hill for hearings on Wednesday and Thursday. Mr. Geithner was head of the Federal Reserve Bank of New York in 2007 and 2008 and led an effort to push British officials to change how the London interbank offered rate was set.
- Lewis Hay: The Tax Cliff Endangers Seniors. Now is not the time to raise tax rates on investment income. Most people know that the U.S. government is rapidly approaching the edge of a fiscal cliff that will raise taxes for millions of Americans—at every income level and age. What is less known is that seniors, many of whom depend on investment income to fund their retirement, will be hurt the most.
- J.P. Morgan(JPM): Democrat tax proposal would hit stocks up to 15%. The tax debate that’s percolating on Capitol Hill could have a big impact on stock market returns, one analyst says. Hikes to the marginal high-income tax rate and capital gains tax rate by 5% and of the dividend tax rate by 24.5% — an idea bandied around by Democratic Party lawmakers — would hit the stock markets by 7% to 15%, according to a research note published by J.P. Morgan analyst Marko Kolanovic. Conversely, a Republican idea to cut the corporate tax rate by up to 10% would boost stocks by between 7% and 14%, he estimates.
- Two Events Will Shape The Next Tragic Act In Europe.
- NETFLIX(NFLX) SHARES COLLAPSE AFTER SUBSCRIBER FIGURES COME IN LIGHT.
- GM(GM) Stock Slides To Fresh Post-Bankruptcy Lows.
- The Li(e)bor Rigging Scandal Infographic For Dummies.
- David Stockman: "The Capital Markets Are Simply A Branch Casino Of The Central Bank".
- Broadcom(BRCM) Revenue Lifted By Strong Demand. Broadcom posted second-quarter revenue that was slightly ahead of Wall Street expectations and forecast a revenue increase in the current quarter, sending its shares up in after-hours trading.
- Japanese Exports Fall in June as Europe, China Slow. The 2.3 percent annual decline in exports was slightly less than economists' median forecast of a 3.0 percent annual drop, in a troubling sign for Japan's recovery from a devastating earthquake, tsunami and nuclear disaster last year.
- Moody's Cuts Outlook on EU Stability Facility to Negative. Moody's Investors Service has changed the outlook on the provisional (P)Aaa long-term rating of the European Financial Stability Facility (EFSF) to negative from stable, a blow to a fund that was supposed to backstop struggling EU members. The ratings agency said the move followed on from its decision earlier in the week to change the outlooks for Germany, the Netherlands and Luxembourg to negative. All three are guarantors for the EFSF, with Germany holding the largest share at just over 29 percent. "The change in the outlook of the EFSF reflects the now negative rating outlooks on all but one of its Aaa guarantors - namely Finland," Moody's said in a statement. Moody's said risks that could lead to a downgrade of the EFSF's rating, would include a deterioration in the creditworthiness of euro area member states, particularly Germany, France and the Netherlands. Any weakening of the commitment among euro area member states to the EFSF could also have negative rating implications, it added.
- Apple's(AAPL) Miss Could Undermine Already Wobbly Stock Market. “Obviously, it’s big for the Nasdaq. It’s 20 percent of the index. Overall, it’s an important indicator with respect to the economy and sentiment in general,” said Dan Greenhaus, chief global strategist at BTIG.
- Syria sends armored column to Aleppo, strikes from air. Syria sent thousands of troops surging towards Aleppo in the early hours of Wednesday, where its forces have been pounding rebel fighters from the air, engulfing the country's largest city in total warfare to put down a revolt.
- Medical marijuana hub Los Angeles moves to ban dispensaries. The Los Angeles City Council decided unanimously on Tuesday to ban all storefront medical marijuana shops, in a blow to a industry that operates in violation of federal law but has become the largest collection of pot dispensaries in California. The 14-0 vote by the council comes after conflicting court decisions on how far local jurisdictions in California can go in cracking down on the cannabis shops. Some observers say the issue could end up before the state's Supreme Court.
- Toshiba falls 7 pct on Apple results, NAND production cuts. Shares in Japan's Toshiba Corp fell 7 percent to a more than three-year low early on Wednesday after Apple Inc posted worse-than-expected results and the company said it would cut memory chip production by 30 percent.
- Higher costs hurt Buffalo Wild Wings(BWLD) 2nd qtr. U.S. casual dining chain Buffalo Wild Wings Inc's second-quarter results fell short of Wall Street estimates as menu-price increases failed to offset rising costs of chicken wings. The company's shares were down 15 percent in after-market trading.
- Panera(PNRA) sales up more than expected, shares jump. Panera Bread Co reported better-than-expected second quarter earnings on Tuesday after sales growth at its established bakery-cafes exceeded analysts' estimates, and shares rose almost 6 percent.
- Europe is sleepwalking towards imminent disaster, warn top economists. The euro has completely broken down as a workable system and faces collapse with “incalculable economic losses and human suffering” unless there is a drastic change of course, according to a group of leading economists.
- France to Lift Bonus for Buying Electric Cars. Maximum bonus will rise to 7,000 euros from 5,000 euroas as part of a package of measures to support France's auto industry. State will make EU600m available for auto-industry liquidity needs and investment. State orders will have to include a minimum 25% of electric or hybrid vehicles.
- China will probably take countermeasures if the European Commission begins an investigation of Chinese solar makers based on an anti-dumping complaint from Germany's SolarWorld AG, citing a commerce ministry official.
- China may raise transaction taxes and fees on the sales of existing homes as port of new measures to curb speculation, citing a person familiar with the situation. The government may also impose a property tax on existing homes that are vacant. The government will likely extend a property tax trial to cities in addition to Chongqing and Shanghai in the second half of the year, citing Yang Hongxu, deputy head of E-House China R&D Institute.
- None of note
- Asian equity indices are -.75% to -.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 179.0 +5.0 basis points.
- Asia Pacific Sovereign CDS Index 141.5 +1.25 basis points.
- FTSE-100 futures -.50%.
- S&P 500 futures -.16%.
- NASDAQ 100 futures -.82%.
Earnings of Note
10:00 am EST
- New Home Sales for June are estimated to rise to 371K versus 369K in May.
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,000,000 barrels versus a -809,000 barrel decline the prior week. Distillate supplies are estimated to rise by +1,400,000 barrels versus a +2,619,000 barrel gain the prior week. Gasoline inventories are estimated to fall by -1,000,000 barrels versus a -1,815,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall by -.1% versus a -.7% decline the prior week.
- (RAVN) 2-for-1
- (TROX) 5-for-1
Other Potential Market Movers
- The 5Y T-Note auction, weekly MBA mortgage applications report, UK GDP and the Germany 30Y Bund auction could also impact trading today.