Today's Headlines

Bloomberg: 

• European Car Sales Fall to 20-Year Low Amid Unemployment. European car sales fell to a 20-year low in May as record joblessness caused by a recession in the euro area reduced demand at PSA Peugeot Citroen (UG), Renault SA (RNO), Fiat SpA (F) and General Motors Co. (GM) Registrations dropped 5.9 percent to 1.08 million vehicles from 1.15 million a year earlier, the Brussels-based European Automobile Manufacturers’ Association, or ACEA, said today. The figure was the lowest for the month since 1993, said Quynh-Nhu Huynh, the group’s economics director. The ACEA compiles data for the 27-nation EU plus Switzerland, Norway and Iceland. Peugeot, Renault, Fiat and GM’s deliveries fell at least 10 percent in the region last month as price cuts failed to attract buyers. European political leaders are seeking ways to revive a shrinking economy weighed down by the sovereign-debt crisis, with unemployment in the 17 countries using the euro reaching 12.2 percent in April. “We have to wait at least five years until the car market will basically recover,” Ferdinand Dudenhoeffer, director of the Center for Automotive Research at University of Duisburg-Essen in Germany. “That means that the debt crisis in southern Europe will deepen and last”for awhile. 

• Danske Bank Told to Boost Risk-Weighted Assets by $18 Bln. Danske Bank A/S (DANSKE), Denmark’s biggest lender, was told by the country’s financial watchdog it had underestimated risky assets as global regulators increase scrutiny of banks’ internal models. Danske fell as much as 8 percent in Copenhagen trading after the Financial Supervisory Authority ordered the bank to adjust its models in a step that will force it to add about 100 billion kroner ($18 billion), or 13 percent, to risk-weighted assets “over time,” according to a statement late yesterday. 

• European Stocks Little Changed; Kabel Deutschland Gains.

• Abe Risk Jump Trails Only Portugal as Arrow Misses: Japan Credit. Japan's bond risk climbed the most among developed nations after Portugal in the past month as confidence waned in Prime Minister Shinzo Abe's economic policy. Premiums on credit-default swaps protecting Japanese government bonds for five years surged 26 basis points to 80 basis points in the month through June 14, according to CMA. Contracts for Portugal's debt jumped 31 points, while those for US Treasuries declined 4 points.  

• China Home-Price Gains Add to Dilemma on Cash Crunch: Economy. Chinese property prices rose at the fastest pace in more than two years in major cities, defying tougher government curbs and constraining the ability of policy makers to ease credit in response to weakening economic growth.

• China Insiders Sell Most Shares in May in 4 Years, UBS Says. Major shareholders, senior management and individuals with stakes of more than 5 percent sold a net 24.7 billion yuan ($4 billion) of Chinese A shares in May, the most for a month since June 2009, UBS AG said. The biggest sales were in computer-related shares, media and “special equipment” sectors, UBS strategists including Qin Xia wrote in a report dated today. Net stakes rose only in chemical raw materials and telecom operations, while the sell-off in smaller companies as a percentage of the free-float reached new post-2008 highs, they wrote. The Shanghai Composite added 0.3 percent at 2,155.90 at 2:30 p.m. local time, after touching its lowest level in almost six months last week. The index has lost 25 percent in the past four years, the most among the world’s 10 biggest stock markets, according to data compiled by Bloomberg. The MSCI All-Country World Index has rallied 34 percent in that time. 

• PBOC Sacrifices Growth as Bank Curbs Invert Swaps: China Credit. China's interest-rate traders are the most pessimistic on economic growth in 21 months, as Fitch Ratings says policy markers are focused on fixing the nation's banks to avert an industry crisis. The five-year interest-rate swap, which exchanges fixed payments for the floating seven-day repurchase rate, was 21 basis points below the one-year rate yesterday, the biggest discount since September 2011, Bloomberg data show. "The PBOC is doing the opposite of what the banks were hoping it would do," said Ju Wang, a senior strategist at HSBC Holdings Plc in Hong Kong. "It is focusing on cleaning up the banks' balance sheets and the financial system in spite of the liquidity squeeze."   

• Protests Show Brazil Dream Fades as Rousseff Popularity Ebbs. Francisco Soares, a 32-year-old Brasilia electrician, felt good about life two years ago when he started commuting in his first car, blasting the music and passing packed buses. Since then, bills started piling up, the cost of living jumped and last week he had to sell his wheels. After a decade that saw 40 million people rise from poverty, Brazil’s middle class finds itself squeezed by faster inflation, rising debt and a weaker currency. Consumers are spending less at supermarkets and hairdressers as the classic weekend event, a prime cut barbecue, becomes a stretch for some. Continuing a wave of demonstrations sparked by increasing bus fares, protesters yesterday held the biggest march in two decades, halting traffic in Sao Paulo, attacking the state legislature in Rio de Janeiro and climbing on the roof of Congress in Brasilia. The emerging middle class was the engine of economic growth and made the developing nation one of the world’s top five markets for cars and mobile phones.

• Surprising Slowdown in Nonresidential Building: EcoPulse. (video) Private nonresidential construction is losing steam in the U.S., a sign that commercial real estate may be a drag on the economy as business leaders are reluctant to make large property investments. Spending on lodging, office, commercial and manufacturing buildings grew 5.6 percent in April to about $11 billion from a year ago on a nonseasonally-adjusted basis, the slowest pace in almost two years, data from the Census Bureau show. Four years into the economic expansion, “we’d expect to see more lasting signs of strength,” said Kermit Baker, chief economist for the American Institute of Architects. “That hasn’t happened yet.”

• Copper Declines to Six-Week Low in New York Before Fed Meeting. Copper fell to the lowest in six weeks in New York before Federal Reserve policy makers begin a meeting that may indicate when the central bank will start curbing debt purchases intended to stoke the U.S. economy. A two-day meeting of the Federal Open Market Committee begins today. The Fed is buying $85 billion of debt a month. Copper futures for delivery in September slid 1.7 percent to $3.1555 a pound at 10:18 a.m. on the Comex in New York. The metal touched $3.151, the lowest for a most-active contract since May 3. 

• Americans Exporting More Oil First Time Since ’70s. Advances such as hydraulic fracturing are leading to record production that may outstrip refinery capacity within 18 months to three years, said Benjamin Salisbury, a senior energy policy analyst at FBR Capital Markets Corp. in Arlington, Virginia. Net petroleum imports now account for about 40 percent of demand, down from 60 percent in 2005, according to the U.S. Energy Information Administration, the Energy Department research unit.

• Keystone Seen Failing to Sop Up Canada Oil Glut. Canadian oil prices are forecast to fall compared with world benchmarks because production from oil sands, fields of sand coated with heavy oil beneath about 90,000 square kilometers (34,749 square miles) of boreal forest in northern Alberta, is estimated to more than double to 3.8 million barrels a day by 2022. Keystone, the 1,179-mile link from Alberta to Nebraska first proposed in 2008 and delayed in part by environmental activists, would only briefly relieve the glut.

• Deutsche Bank Sees ‘Subdued’ Commodity Prices as Supercycle Ends. Deutsche Bank AG (DB) said commodity prices are poised to remain in “subdued territory for years to come” after a bull run that drove prices up almost fourfold in the last 12 years. Banks from Citigroup Inc. to Goldman Sachs Inc. have called an end to the commodities supercycle as the economy in China, top user of raw materials, grows at a slower pace and the country shifts to consumer-driven growth. The Standard & Poor’s GSCI Index of 24 raw materials fell 2.5 percent this year after almost quadrupling since 2001.

Fox News: 

• Video shows workers offering 'Obamaphones' to those vowing to sell them -- for drugs. A Republican senator renewed his criticism of a government-backed program that hands out cell phones after an undercover video showed vendors helping people obtain the phones even after saying they wanted to sell them for drugs and other items. The video was released by conservative activist James O'Keefe and his group Project Veritas. It claimed to show undercover investigators visiting Philadelphia locations for phone vendor Stand Up Wireless and locations for one other company. In one exchange, the investigator -- posing as someone who wants a free phone -- asks if the phone will belong to him after he gets it. "Whatever you want to do with it," the worker says. The investigator floats the possibility of getting "money for heroin." The employee responds: "Hey, I don't judge." 

CNBC: 

• Markets More Doubtful of Fed Easing Benefits: CNBC Survey. The effects of the Federal Reserve's bond-buying program are looking more lackluster and more disruptive to market functioning, according to the latest CNBC Fed survey. The net percent of respondents who believe quantitative easing, or "QE," can help lower mortgage rates and bond yields has fallen, as has the net percent who say it will raise stock prices. 

• Plot to Bomb NYSE Foiled by Surveillance Program: FBI. (video)

• Icahn Proposes Dell Tender, Becomes Second Largest Shareholder. (video)

Zero Hedge: 

• Housing Starts, Permits, CPI All Miss. (graphs)

• 200,000 Take To Brazil's Streets In Largest Protest In Two Decades. (video)

• When Correlation Is Causation. (graphs)

• Goldman(GS) Slams Abenomics: "Positive Impact Is Gone, Only High Yields And Volatility Remain; BOJ Credibility At Stake". 

• The Cyprus Bail-In Blows Up: President Urges Complete Bailout Overhaul (Full Letter). 

• China Joins The Broken "Keynesian Multipler" Club.

Business Insider: 

• The Defining Image Of Brazil's Largest Protest In 20 Years. 

• Protesters Taking Over This Brazil Metro Station Exemplifies The Huge Wave Gripping The Country. (video)

• BRAZIL'S MOST CIRCULATED PAPER: 'Nobody Knows What Is Happening'.

• In 5 Charts You'll Understand Why Brazil Looks Ready To Erupt.

• IT'S WORKING: The Shale Boom Has Given America Tons Of Political Leverage In The Middle East.

Moody's: 

• Moody's: US subprime auto ABS risk factors are rising. Risk factors such as weakening loan credit, stiff competition among originators, and readily available funding for asset-backed securities (ABS) all portend higher credit losses for subprime auto lending, according to a new report from Moody's Investors Service. "Risk Factors Still on Rise for US Subprime Auto ABS" follows a June 2012 Moody's report on increasing risks in the subprime auto lending market, "US Subprime Auto Lending Market Harkens Back to 1990s." The new report cites a number of factors affecting the rise in subprime auto credit risk, including more private equity money entering the market that will further intensify increasing competition from banks and credit unions. "The increased competition among subprime lenders is resulting in more loans to borrowers of weaker credit quality," said Peter McNally, a Moody's Vice President and co-author of the report.

Reuters:

• China Will Probably Resume Approving IPOs From End-July. "It is almost certain" that mainland China IPO approvals will resume at end of July, citing sources present at a meeting of China Securities Regulatory Commission Vice Chairman Yao Gang and brokerages.

• Hedge funds brace for renewed debt crisis. The euro zone's debt crisis may be far from over, while Japan's money-printing gamble to revive its economy could destabilise global markets if it doesn't work, some hedge fund managers say. They are taking the view that the rally in financial markets over much of the past year, fuelled by central bank money printing, could mask a failure to tackle some European countries' and banks' debt problems, and the sell-off of recent weeks may be the start of a longer downward move.

• Euro zone must agree bank recaps on Thursday - EU's Rehn. Euro zone finance ministers must hammer out an agreement at a meeting later this week over how to recapitalise banks, the European Union's top economic official said on Tuesday.

ValueWalk:

• 10% Down, 90% Mortgage Financing Option Is Back Again. After its virtual disappearance for several years, the 10 percent down payment mortgage financing are back in action. Brendon DeSimone writes in Zillo Blog that some lenders have started offering 90 percent mortgage financing again on almost all types of loans.

Telegraph:

• What Anthony Bolton's departure says about the prospects for China. Did the departing Fidelity manager fear that a credit crisis was about to engulf the Chinese economy?

Expansion:

Restructuring: Flowers slams Europe over inaction


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• Bank of Spain wants to carry out a confidential stress test of lenders in the fall. Regulator wants to review assets of banks ahead of EBA, ECB stress test exercise. Asset review may help govt decide whether more European bailout funds are needed for banking system.

Echoing fears that European policymakers remain in a state of cognitive dissonance – recognizing the need for root-and-branch overhaul of peripheral banks, but backtracking on joint liability plans – Christopher Flowers, the legendary FIG investor who now runs the £2.3 billion ($3.5 billion) private equity group JC Flowers, sounded the alarm over the negative sovereign-bank feedback loop. In a shot across the bows of market bulls, who cite the return of capital flows to weaker eurozone states, Flowers issued a stark warning: "There is a scenario where we have a Lehman-type event: we wake up some Thursday and a big country is in trouble. "And the ECB will have to decide to support banks x, y, z. And then the ECB will, in fact, decide to own bank x, y, z.


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Xinhua:

• China 2012 Health-Care Costs Gain 18.8% on Year. Est. total cost of health care services in nation last yr was 2.89t yuan, citing statistics bulletin from Natl Health & Family Planning Commission.