- Spain Introduces Regional Debt Ceilings to Achieve Budget Goals. Spain’s 17 semi-autonomous regions will have to comply with debt ceilings starting this year as Prime Minister Mariano Rajoy seeks to convince investors the nation can avoid a second bailout amid surging borrowing costs. “We are all going to comply with deficit targets,” Budget Minister Cristobal Montoro said late yesterday during a news conference following a meeting with regional finance chiefs in Madrid. Several regional representatives told reporters the new rules will force them to deepen budget cuts. Rajoy is trying to avoid a broader bailout after securing 100 billion euros ($123 billion) in European loans for Spain’s banks. The yield on its 10-year debt rose to a euro-era high of 7.75 percent on July 25 even as Rajoy announced his fourth austerity package since Dec. 30. It then fell after European Central Bank President Mario Draghi said last week he would do whatever is needed to protect the single currency, regaining 14 basis points yesterday to close at 6.75 percent.
- Draghi Reshapes ECB Crisis Pragmatism as Trichet’s Dogma Fades. Mario Draghi defied his own staff at his first meeting as European Central Bank president and voted to cut interest rates. As the crisis rages on nine months later, he is shaping the institution more and more in his own image. Last week Draghi signaled he is willing to take the ECB further than his predecessor, Jean-Claude Trichet, in building a firewall around Spain and Italy. Earlier last month, he jettisoned Trichet’s mantra that senior bondholders at crippled banks shouldn’t suffer losses. “The ECB has become more pragmatic under Draghi, many taboos have been shed and precedents set,” said Christian Schulz, a former ECB economist now working for Berenberg in London. “There are a number of reasons for that: the crisis has escalated to the level that the tools devised under Trichet are just not sufficient anymore, and a less dogmatic board also helps.”
- Europe Puts at 19-Month Low on Bets Draghi Will Deliver: Options. Bearish options on European stocks fell to the cheapest levels compared with bullish ones in 19 months as traders bet that European Central Bank President Mario Draghi will deliver on his promise to save the euro. Puts with an exercise price 10% below the iShares MSCI EAFE Index Fund cost 10.39 points more than calls betting on a 10% rally, according to data on one-month options complied by Bloomberg. That was the lowest level for the price relationship known as skew since December 2010.
- French Buck Giving Powers to EU Like Germany Lost in 1945 Defeat. To policy makers in Berlin, who have been the target of global pressure to do more to douse Europe’s financial crisis, France poses the bigger obstacle. French President Francois Hollande is resisting Germany’s call to give up more sovereignty in steps toward the political union that German leaders, including Chancellor Angela Merkel and Bundesbank President Jens Weidmann, say is key to putting the 17-nation currency bloc on sound footing.
- Protecting Bank Debt Would Cost EU Taxpayers, Report Says. Protecting senior unsecured bank debt may cost “more than EU taxpayers can bear” and investors should be liable for their decisions, a committee of advisers to the European Systemic Risk Board said in a report today. “The examples of Ireland and Spain suggest, already at the national level, that the full protection of all senior creditors may exceed the government’s fiscal capacity,” the Advisory Scientific Committee said in the report on its website. The committee also is “concerned” about the recapitalization of Spanish banks without determining the actual losses of the banks first. “Adding capital without knowing what the assets are actually worth and how much capital is really needed entails a serious risk that the funds may simply be lost as the necessary resolution of the banks is delayed further,” according to the report. The committee supported the creation of a European bank supervisor and a European Resolution Authority to deal with failing lenders. The authority should be financed primarily by a levy on banks, the committee said.
- Corn Extends Biggest Monthly Gain in 24 Years on U.S. Drought. Corn gained, extending the biggest monthly rally in more than two decades as the worst U.S. drought in half a century persists, threatening global supply. December-delivery corn gained as much as 1% to $8.13 a bushel on the Chicago Board of Trade after jumping to a record $8.205 yesterday. Futures, which surged 27% last month, the biggest monthly gain since 1988, traded at $8.115 at 8:11 am Singapore time.
- Netanyahu Says Israel Still Considering Attack on Iran. Israeli Prime Minister Benjamin Netanyahu said he’s still debating with government advisers whether to strike Iranian nuclear facilities. The premier spoke in an interview with Channel 2 television broadcast as U.S. Secretary of Defense Leon Panetta arrived in Israel from Cairo to meet him, Defense Minister Ehud Barak and other officials tomorrow. “I haven’t decided yet whether to attack,” Netanyahu said. “However, I see the commitment of this regime of ayatollahs to develop nuclear bombs that are meant to destroy us, and I won’t let that happen.”
- Komatsu Falls on Report Profit Declined on China. Komatsu Ltd. (6301), the world’s second- biggest maker of construction equipment, fell after a Nikkei newspaper report said the company’s first-quarter operating profit declined for the first time in 10 quarters. The stock fell as much as 3.8 percent to 1,696 yen and traded 3.2 percent lower at 9:33 a.m. in Tokyo trading, extending its loss this year to 5.2 percent. Komatsu’s operating profit probably fell about 20 percent to 56 billion yen ($714 million) in the April-to-June quarter after sales of construction equipment in China halved due to lower public works spending.
- Singh Answers Sought as Worst Power Crisis May Hurt Growth. Keeping the lights on has emerged as Indian Prime Minister Manmohan Singh’s most immediate challenge. The economy growing at its slowest pace in nearly a decade, the prospect of a drought, and having his government battered by 18 months of policy reversals and corruption allegations were bad enough. Two power-grid collapses in 36 hours have left 600 million people sweating through a failing monsoon, heaping more pressure on a prime minister whose legacy as an economic manager is coming under increasing scrutiny. “This looks even worse than it would normally because there’s an impression that India’s economy is falling apart right now,” said Surjit Singh Bhalla, chairman of New Delhi- based Oxus Fund Management, of this week’s power network failures.
- Sands China Says Macau Government Probes Data Transfer. Sands China Ltd. (1928), the Asian unit of Sheldon Adelson’s Las Vegas company, said its Venetian Macau Ltd. subsidiary is being investigated by the Macau government in connection with the transfer of some data to the U.S. The probe is related to the case of Steve Jacobs, the former Sands China chief executive officer who is suing the company, said company spokeswoman Melina Leong. The Macau government’s Office for Personal Data Protection notified the company of the probe, Sands China said in a statement to Hong Kong’s stock exchange today.
- China Home Prices Rise in Market ‘Turning Point,’ SouFun Says. China’s new home prices posted the biggest gain in more than a year, signaling a turning point for the nation’s property market, according to SouFun Holdings Ltd., the country’s biggest real estate website owner. Home prices rose 0.3 percent from June to 8,717 yuan ($1,369) per square meter (10.76 square feet), SouFun said in a statement today, based on its survey of 100 cities. That was the second monthly gain and the biggest rise since June 2011. China’s Premier Wen Jiabao said China will “unswervingly” implement property controls and prevent home prices from rebounding, the official Xinhua News Agency reported yesterday, citing a government meeting held on July 26. Home prices had been declining after the government placed restrictions on the number of properties people could buy in about 40 cities and raised down-payment requirements. “It is very clear that China’s property market is coming back,” said Vincent Mo, Chairman of SouFun, told Bloomberg Television today. The back-to-back monthly gain “showed the turning-point of China’s property prices,” he said. “It’s very difficult to expect the government’s policies to ease while home prices keep rising,” said Jack Gong, a Hong Kong-based property analyst at Jefferies Group Inc. “The policies in general are still tight, but there’s a lot of uncertainty in the fourth quarter.”
Wall Street Journal:
- Showdown Looms for ECB, Germans. The European Central Bank is primed for a debate this week over whether to use its printing press to save the euro, with Germany's conservative central bank positioned to determine the course of Europe's escalating debt crisis. The showdown pits ECB President Mario Draghi, a veteran Italian central banker who has headed the ECB since November, against Jens Weidmann, the 44-year-old Bundesbank president. Last week, Mr. Draghi said the ECB would "do whatever it takes to preserve the euro." The comments were viewed by investors as a signal that the central bank was poised to prop up government debt markets
- Group Gets U.S. License to Fund Syria Rebels. The U.S. has given a Washington-based group clearance to provide direct financial assistance to the Free Syrian Army, a new bid by the Obama administration to support Syria's opposition. The Treasury Department's Office of Foreign Assets Control approved a license last week allowing the Syrian Support Group "to engage in otherwise prohibited financial activities with the Free Syrian Army," Treasury spokesman John Sullivan said Tuesday. The license doesn't permit the group to ship military equipment or hardware, but it does authorize it to send financial aid.
- Jim DeMint: No Internet Taxation Without Representation. Subjecting online retailers to 10,000 local tax jurisdictions is a terrible idea.
- Payroll Tax Cut on Track to Quietly Expire. White House Isn't Pushing for an Extension and Both Parties Suggest They Would Go Along as Part of Bigger Tax Deal.
- Tehran Builds on Outreach to Taliban. Iran has allowed the Taliban to open an office in eastern Iran and discussed providing them with surface-to-air missiles, ramping up the potential for cooperation with the insurgents, according to senior Afghan and Western officials. Iran's shift came after the U.S. and Afghanistan sealed a long-term partnership agreement in May, and in an effort to expand its options for retaliation should its nuclear facilities be attacked, the officials said.
- Thousands Of Companies Around The World Reveal The Truth About The Economy.
- GRANTHAM: One Of The Twin Pillars Of The Markets Is Looking Shaky.
- OUCH: South Korea PMI Sinks To 47.2, Production And New Orders Fall Sharply. (graph)
- How Taxmageddon Will Crush The American Family [Infographic].
- Study Debunks The Fundamental Idea Behind Universal Healthcare.
- What Millions Of Young People In Spain Really Think.
- Tour The Grand Streets Of China's Most Famous Ghost City.
- Why Another Major China Stimulus Package Is Not Coming.
- China PMI Misses And Prints Lowest In 8 Months With 10 Of 11 Sub-Indices Contracting. (graph)
- The European Tinder Box.
- The Subprime President. Obama also nationalized student loans, a subprime category of its own, given that all student buyers are untested. This move drove private lenders who relied on market standards out of the business and gave government a monopoly over subprime students. Educational financing since then has evolved into a bubble, and universities have read that as an incentive to raise tuition rates. As a result, education is no longer about balancing risk with potential reward but, like housing, about "giving everyone a college education" regardless if everyone would benefit. All this undercuts a market of customers who have saved money, built wealth and acquired the means to repay. It flips the meaning of "success" and creates an upside-down economy built not on value, but on dictated results that in the end are unsustainable.
- Thoratec's(THOR) Pump Keeps Hearts Beating Longer.
- US housing mess: It's not the worst. You've heard that all real estate is local, but the bubble has been global -- though certainly not uniform. Take a look at how other countries have fared.
- US judge strikes down EPA water rules for mines. The Environmental Protection Agency overstepped its powers by setting up water-quality criteria for coal mining operations in Appalachia, a federal judge ruled Tuesday. U.S. District Judge Reggie B. Walton in Washington ruled that the EPA infringed on the authority given to state regulators by federal clean- water and surface-mining laws. A coal mining industry coalition sued the EPA and Administrator Lisa Jackson, and the lawsuit was joined by West Virginia and Kentucky. The ruling represents the latest setback to the Obama administration's attempts to crack down on mountaintop removal coal mining.
- Oakland leaders urge broad battle with Goldman Sachs(GS). Oakland leaders took their financial troubles to the doorstep of Goldman Sachs on Tuesday, urging other cities to join them in fighting a bank that has become a lightning rod for criticism of the U.S. financial system. Oakland is trying to get out of a Goldman-brokered interest rate swap that is costing the cash-starved city some $4 million a year. The swap, entered into 15 years ago as part of a bond sale to hedge against rising interest rates, has turned sour for Oakland now that interest rates are near zero.
- LabCorp(LH) target of massive private equity buyout -report. A private equity consortium is aiming to scoop-up lab-testing company, Laboratory Corporation of America Holdings in a huge leveraged buyout and take it private, Mergermarket reported, quoting sources familiar with the situation.
- US office building sales rebound hits a speed bump. The rebound in U.S. office building sales hit a speed bump in the second quarter as weak demand for office space made it more difficult for prospective buyers to predict the income from their investments.
- BMC Software(BMC) misses estimates on lower bookings. BMC Software Inc posted quarterly results below analysts' expectations as a strong dollar and economic headwinds dragged down enterprise business software bookings, sending its shares down more than 3 percent in extended trade.
- Fears grow for rise in food prices. The increase in grain prices is already being felt around the world. In Indonesia, the tofu industry has threatened to strike over rising soyabean prices; in Mexico, the cost of corn tortillas is on the rise; and Iran last week witnessed a rare protest over the cost of chicken. But the economic effects of the sharp rise in agricultural commodities have barely begun. A jump of 30-50 per cent in benchmark corn, wheat and soyabean prices has revived memories of the world’s last food crisis in 2007-08, and large consumers from Egypt and Morocco to South Korea and Taiwan are bracing for a renewed bout of food inflation.
- UBS(UBS) to sue Nasdaq(NDAQ) over Facebook(FB) IPO. UBS is threatening to sue Nasdaq after technical problems at the exchange cost it nearly £230m on the Facebook IPO.
- None of note
- Asian equity indices are -1.0% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 160.0 +1.0 basis point.
- Asia Pacific Sovereign CDS Index 128.25 -1.75 basis points.
- FTSE-100 futures -.41%.
- S&P 500 futures -.07%.
- NASDAQ 100 futures +.04%.
Earnings of Note
8:15 am EST
- The ADP Employment Change for July is estimated to fall to 120K versus 176K in June.
10:00 am EST
- ISM Manufacturing for July is estimated to rise to 50.2 versus 49.7 in June.
- ISM Prices Paid for July is estimated to rise to 40.0
- Construction Spending for June is estimated to rise +.4% versus a +.9% gain in May.
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,000,000 barrels versus a +2,717,000 barrel gain the prior week. Distillate supplies are estimated to rise by +1,100,000 barrels versus a +1,708,000 barrel gain the prior week. Gasoline inventories are estimated to rise by +800,000 barrels versus a +4,134,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.5% versus a +1.0% gain the prior week.
2:15 am EST
- The FOMC is expected to keep the benchmark fed funds rate at .25%.
- Total Vehicle Sales for July are estimated to fall to 14.0M versus 14.05M in June.
- None of note
Other Potential Market Movers
- The Eurozone Manufacturing PMI data, Final Markit US PMI for July and the weekly MBA mortgage applications report could also impact trading today.