- Bad-Loan Alarm Sounded by Record Bank Spread Jump: China Credit. Borrowing costs for Chinese banks have surged the most in at least six years this month as rating companies say a cash crunch threatens to swell bad loans. The yield spread for one-year AAA bank bonds over similar-maturity sovereign notes jumped 56 basis points so far this month to 163 basis points, the most in ChinaBond records going back to 2007. Even as China Construction Bank Corp. President Zhang Jianguo said yesterday cash conditions have normalized, the benchmark seven-day repurchase rate was fixed at 6.85%, almost twice the 3.84% average for this year. Money-market rates touched the highest level last week since at least 2004, prompting three of the largest rating agencies to warn banks may run out of cash to pay investors in their wealth management products and to extend new loans, increasing the risk their customers will default. "There could be unintended consequences from the central bank's approach," said Liao Qiang, a Beijing-based director at S&P. "We expect some deleveraging at banks' interbank and wealth management businesses to unfold. Credit would slow. This could pressure banks' asset quality."
- Hong Kong Stocks Fail to Lure JPMorgan(JPM) With Worst Developed Drop. Hong Kong stocks are set for the biggest decline among developed markets this half as concern about China’s economy drives valuations 22 percent below the five-year average. The Hang Seng Index tumbled 9.8 percent in 2013, trailing the Standard & Poor’s 500 Index by the most in 15 years and wiping more than $145 billion from the value of shares.
- Hong Kong Protests to Underscore Leung’s Record-Low Appeal. Tens of thousands of demonstrators will march in Hong Kong on Monday, calling for greater democracy and action to narrow the wealth gap, as city leader Leung Chun-ying battles near record-low popularity. The July 1 rally, to mark the anniversary of Hong Kong’s 1997 return to Chinese rule, will draw at least 50,000 people, said Jackie Hung, convenor at the Civil Human Rights Front, which is organizing the protest.
- Japan Recovery Strengthened in May. Consumer prices excluding fresh food were unchanged from a year before as a weakening yen sent utility costs up at the fastest pace in almost five years. Prices excluding fresh food and energy fell 0.4 percent in May from a year earlier, the statistics bureau in Tokyo reported today. Industrial production advanced 2 percent from April driven by demand from power companies. Retail sales gained 1.5 percent from the previous month.
- Asian Stocks Gain. Toyota Motor Corp. (7203), the world’s biggest carmaker, rose 1.7 percent in Tokyo, pacing gains among the exporters. Mitsubishi UFJ Financial Group Inc., Japan’s No. 1, climbed 4.3 percent after the nation’s industrial output and retail sales exceeded expectations. Sands China Ltd., a Macau casino operator controlled by billionaire Sheldon Adelson, added 1.9 percent in Hong Kong after saying revenue from high-stake gamblers hasn’t declined as China’s economic growth slows. The MSCI Asia Pacific Index climbed 1.4 percent to 130.05 as of 11:11 a.m. in Tokyo, with all 10 industry groups on the measure rising.
- Copper Set for Worst Quarter Since 2011 on China Concerns. Copper and the London Metal Exchange Index of six primary metals headed for the biggest quarterly declines since September 2011 amid as signs of slowing in China and uncertainty about the future of stimulus in the U.S. Metal for delivery in three months on the LME dropped as much as 1.3 percent to $6,660.50 a metric ton and was at $6,753.50 by 10:42 a.m. in Shanghai. Copper fell 10 percent this quarter while the index dropped 9.9 percent. The index touched 2,911 on June 24, the lowest since June 2010. Economists from Goldman Sachs Group Inc. to China International Capital Corp. this week cut their China growth forecasts for this year. China’s central bank on June 25 called on big banks to further their roles as market stabilizers, as signs of the nation’s biggest squeeze on credit in at least a decade pushed interbank borrowing costs to a record last week. China accounts for more than 40 percent of world copper consumption.
- Gold Extends Decline to 34-Month Low on Worst Quarter Since 1920. Gold fell for a fifth day to the lowest in 34 months and was set for the worst quarterly slump in at least nine decades amid speculation the U.S. Federal Reserve will reduce stimulus as economic data beat estimates. Silver headed for its biggest quarterly loss since 1980. Spot bullion slid as much as 1.7 percent to $1,180.50 an ounce, the lowest since August 2010, and traded at $1,192.80 at 9:54 a.m. in Singapore. Prices have dropped 25 percent since the start of April, the biggest quarterly slide since at least 1920, according to data compiled by Bloomberg. Silver headed for its worst quarter since the Hunt brothers tried to corner the market, while platinum tumbled to the lowest since October 2009.
- Egyptians Hoard Food as Protests Raise Concern of More Mayhem. Ashraf Fouad has stuffed 30,000 Egyptian pounds ($4,300) in a wall safe in his Cairo apartment. Across town, Niven Mankarious has been stocking up on chicken, cheese and other food to last her family a month. Like many Egyptians, they are anxious over the unclear direction their country is taking and fearful that violence will be ignited by June 30 protests aimed at ousting the country’s first democratically elected civilian president, the Islamist Mohamed Mursi. Tensions over this watershed in Egypt’s transition from autocratic rule has battered its stocks and bonds, with the risk of sovereign default at an all-time high.
- Nike(NKE) Fourth-Quarter Profit Tops Estimates as U.S. Gains. Orders for the Nike brand from June to November, excluding the effects of currency exchange-rate changes, advanced 8 percent. Analysts projected a gain of 8.8 percent, the average of five estimates compiled by Bloomberg. Orders on that basis advanced 12 percent from a year earlier. Nike declined 1.9 percent to $61.15 in extended trading at 7:31 p.m. in New York. The company’s business in China looks like it’s “still a work in progress,” Svezia said, after orders there were little changed. “There was some hope that they were turning the corner.” In China, which had been one of Nike’s fastest-growing markets, sales excluding currency fluctuations fell 1 percent, the third quarterly decline in a row. The company has blamed the deterioration on a slowing Chinese economy and the discounts.
- Senate Approves Overhaul of Immigration Laws. Lawmakers Voted 68-32 to Back Bipartisan Bill; Now Goes to House. The Senate easily passed the most sweeping changes to immigration law in nearly 30 years, sending the landmark measure to the House, where conservative lawmakers threaten to slow the drive to grant legal status to many of the estimated 11 million people living illegally in the U.S. The 68-32 vote Thursday marked a major step in a long-debated overhaul to the immigration system and drew ceremonial flourish. Vice President Joe Biden presided over the proceedings, and lawmakers rose from their desks to cast their votes, a rarely used gesture of formality.
- Anti-U.S. Anger Rises in Egypt. Secularist-Leaning Opposition Groups Say White House Is Supporting the Islamist Leadership They Hope to End. As Egyptians prepare for massive protests against President Mohammed Morsi on Sunday, a large piece of opposition activists' anger is being directed at the U.S. and its perceived support for Egypt's ruling Islamists. A flurry of newspaper articles, talk shows and public statements over the past few weeks have singled out the U.S. for particular scorn while accusing America's diplomatic mission in Cairo of acting as a sort of puppet master behind Mr. Morsi's administration.
- Google(GOOG) Is Developing Android Game Console. Google is developing a videogame console and digital wrist watch powered by its Android operating system. Google is hoping to combat similar devices that Apple(AAPL) may release in the future.
- Cover the IRS, Don't Cover for It. Apologists in the media and elsewhere falsely claim the scandal was just a bungle.
- Obama's Keystone Debacle. The president's environmentalist base has him boxed in on the pipeline.
- China top auditor warns on rising debt: report. China's top auditor on Thursday warned about risks threatening the country's economic development and called for better management of state-owned assets, according to a Xinhua news report. Speaking at an ongoing session of the Standing Committee of the National People's Congress -- China's parliament -- Liu Jiayi, auditor general of the National Audit Office, said local governments must improve their debt management as their borrowings have surged. The debt level at 18 provincial-level governments and municipalities had soared to 3.85 trillion yuan ($626 billion) by the end of last year, according to a report submitted to the committee, the report said. Audits showed some companies "blindly invested" in some industries, and some 45 projects without approval had invested 58.3 billion yuan by the end of 2011, Liu reportedly said.
- South Korea industrial output unexpectedly shrinks. South Korea's industrial production unexpectedly shrank in May, swinging back to contraction from April's brief turnaround to expansion in months, government data showed Friday. Industrial output was down 1.4% on-year in May largely on falling shipments of machinery and oil-refinery goods, after a revised 1.6% expansion in April following two months of contraction, according to Statistics Korea. The May reading failed to meet the median forecast of a 1.3% on-year expansion projected in the Dow Jones poll of seven economists.
- US Charges Chinese Wind Company with Stealing Trade Secrets. Chinese wind turbine maker Sinovel Wind Group Co and two of its employees were charged with stealing trade secrets from U.S.-based AMSC by the Department of Justice (DoJ) on Thursday.
- CFTC Sues Jon Corzine Over MF Global Failure; Seeks to Ban Him From Futures Industry. U.S. regulators on Thursday settled charges against MF Global over the futures brokerage's collapse, and also charged former Chief Executive Jon Corzine and former Assistant Treasurer Edith O'Brien in connection with the alleged misuse of customer funds.
- Why The Status Quo Is Doomed. (graphs)
- The Two Big Summer Risks. (graphs)
New York Times:
- An Old Champion Returns for Mortgage-Based Bonds. With the recent turmoil in the bond markets, however, the offering was not without drama. The structure of the offering was changed to offer buyers more protection against losses, according to a person briefed on the matter who was not authorized to speak about the private deal. The firm, Shellpoint Partners, of which Mr. Ranieri is chairman, sold $251 million in residential mortgage-backed securities tied to loans that are not backed by Fannie Mae or Freddie Mac. The largest portion of the deal was sold at a rate of 2.85 percentage points above ultrasafe government debt, according to the person briefed on the deal.
- Moody’s Shows Wider Pension Gap for States. Moody’s Investors Service, dissatisfied with the way states measure what they owe their retirees, released its own numbers on Thursday, showing that the 50 states have, in aggregate, just 48 cents for every dollar in pensions they have promised. That is much less than the 74 cents on the dollar that the states now report, suggesting the states are short by about $980 billion, with many local governments, like school districts, being on the hook for additional billions that they have not disclosed at all.
- Accenture(ACN) cuts full-year outlook as consulting slows further. Outsourcing and consulting services provider Accenture Plc cut its full-year outlook, citing a pullback in spending by its consulting business clients, after reporting third-quarter revenue below analysts' estimates. Shares of Accenture, whose clients include London's Heathrow Airport, Nokia Oyj, Baker Hughes Inc and AstraZeneca UK, were down 7 percent at $74.60 in extended trading on Thursday.
- Some big U.S. cities at risk of another housing bubble -Shiller. Dramatic home price gains in some of America's largest cities point to a potentially new housing bubble in those areas, according to Robert Shiller, who helped create a closely watched gauge of U.S. housing prices.
- U.S. muni bond funds report $4.53 bln outflows, largest on record. U.S. municipal bond funds reported $4.53 billion of net outflows in the week ended June 26, the largest withdrawal on record going back to 1992 and more than twice the $2.22 billion of net outflows the week before, according to data released by Lipper on Thursday.
- U.S. Fed balance sheet grows in latest week. The U.S. Federal Reserve's balance sheet grew in the latest week on increased Treasuries holdings, Fed data released on Thursday showed.
- Nike(NKE) to tackle rising Asian labour costs. Nike is to tackle rising labour costs at its Asian factories by “engineering the labour out” of its shoe and clothing production as it seeks to defend its profits. Don Blair, Nike’s chief financial officer, said its objective was to reduce the number of people making its products as he highlighted the impact of a sharp increase in wages in Indonesia.
- Tempers fray in France as drastic cuts loom. France's budget watchdog has called for another round of drastic cuts and an immediate freeze in public sector pay and benefits, warning that public finances are badly off track as deep recession eats into tax revenues.
- None of note
- Asian equity indices are +.50% to +1.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 151.50 +1.5 basis points.
- Asia Pacific Sovereign CDS Index 112.75 -4.5 basis points.
- FTSE-100 futures -.28%.
- S&P 500 futures -.16%.
- NASDAQ 100 futures -.16%.
Earnings of Note
9:00 am EST
- The NAPM-Milwaukee for June is estimated to rise to 45.2 versus 40.7 in May.
- The Chicago Purchasing Manager for June is estimated to fall to 55.0 versus 58.7 in May.
- Final Univ. of Mich. Consumer Confidence for June is estimated to rise to 83.0 versus a prior estimate of 82.7.
- None of note
- The Fed's Stein speaking, Fed's Lacker speaking, Fed's Pianalto speaking, Fed's Williams speaking and the Canadian GDP report could also impact trading today.