Today's Headlines

Bloomberg:

• China Money Market Rates Will Stay Elevated for a While: UBS. PBOC seems to have intentionally withheld liquidity in past two weeks to curb loan growth, while regulators may be preparing to clean up interbank activities, UBS economists including Hong Kong-based Wang Tao wrote in a note. Money-market rates seen staying elevated for a while, credit growth to slow in coming months. UBS sees increased risk of unintended liquidity crunch as some of banks' off-balance sheet activities unwind. China may maintain macro, property policies, with no additional easing such as rate or RRR cuts nor significant tightening of credit, real estate rules.
• China Swaps Gain Most in Five Years on Prolonged Cash Squeeze. China’s one-year interest-rate swap rose by the most in five years as the central bank refrained from adding funds to the financial system to ease a cash squeeze, causing demand to fall at a government debt auction. The finance ministry’s sale of 30 billion yuan ($4.9 billion) of 10-year bonds today drew bids for 1.43 times the amount on offer, the least since August 2012. The People’s Bank of China asked lenders to submit orders for 14-day reverse-repurchase agreements and 28-day repurchase contracts this morning, according to a trader at a primary dealer required to bid at the auctions. The PBOC has refrained from using reverse repos, which inject funds, since Feb. 7. “The cash shortage may get even worse before the quarter-end because banks will have to hoard cash to meet loan-to-deposit ratio requirements,” said Chen Qi, a strategist at UBS Securities Co. in Shanghai. “The central bank probably won’t come out to intervene unless there is a sharp decline in economic growth and large capital outflows.”
• Emerging-Market Stocks Drop Before Fed as Chinese Shares Tumble. Emerging-market stocks fell a second day as investors awaited a Federal Reserve statement to gauge the outlook for economic stimulus. The Shanghai Composite Index tumbled to a six-month low as financial shares slumped. China Citic Bank Corp. and China Minsheng Banking Corp. led declines for lenders as the repurchase rate, a measure of interbank funding availability, jumped to the highest level since June 2011. OAO Gazprom snapped a two-day rally in Moscow, while KGHM Polska Miedz SA tumbled in Warsow amid a decision to pay higher dividends than proposed by management. Brazil’s Ibovespa fell for the third time in four days, led by Vale SA. The MSCI Emerging Markets Index lost 0.4 percent to 949.77 at 11:10 a.m. in New York. The gauge has retreated 9.4 percent since May 22.
• Spain Banks Risk Loan-Book Losses Amid Recession, IMF Says. The IMF said Spain's recession is weakening lenders and called on the government to do more to lower a 27% jobless rate. The International Monetary Fund said Spain’s recession is putting the country’s lenders at risk of a further deterioration on their loans. “The macro downsides could trigger a negative feedback loop between credit and the economy, with deteriorating loan books and pressure on profits,” the IMF said in a report today. Banks should continue to “reinforce the quality and quantity of capital, including by being very prudent on cash dividends.” Spanish banks’ bad loans rose in April to 10.9 percent of their total lending from 10.5 percent a month earlier as companies and individuals are buffeted by a contraction that pushed unemployment to 27 percent. Economy Minister Luis de Guindos said yesterday lenders will need 2 billion euros ($2.7 billion) of capital to offset losses related to new rules that demand higher provisions for refinancing and restructured loans.
• Commerzbank Agrees to Cut 5,200 Jobs to Increase Profit.
• Most European Stocks Decline Before Fed as Nordea Slides. Most European stocks slipped as investors awaited the conclusion of the Federal Reserve’s policy meeting for indications on the duration of stimulus measures. Nordea Bank AB sank the most in a year after the Swedish government sold a $3 billion stake in the country’s biggest lender. Konecranes (KCR1V) Oyj slid 6.7 percent after the Finnish engineering company lowered its profit forecast. Alcatel-Lucent (ALU) SA rallied to a 14-month high after announcing plans to sell at least 1 billion euros ($1.3 billion) of assets.
• Bernanke Says Fed May ‘Moderate’ Purchases in 2013, End in 2014. The Federal Reserve may “moderate” its pace of bond purchases later this year and may end them around mid-2014, Chairman Ben S. Bernanke said. “If the incoming data are broadly consistent with this forecast, the committee currently anticipates that it would be appropriate to moderate the pace of purchases later this year,” Bernanke said at a press conference in Washington. “And if the subsequent data remain broadly aligned with our current expectations for the economy, we will continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year.”
• Fed Keeps $85 Billion Pace of Bond Buying, Sees Risks Waning. “The committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall,” the Federal Open Market Committee (TREFQE2) said today at the conclusion of a two-day meeting in Washington. It repeated that it’s prepared to increase or reduce the pace of purchases depending on the outlook for the job market and inflation. Chairman Ben S. Bernanke is expanding the Fed’s balance sheet toward $4 trillion as he seeks to reduce a jobless rate that stands at 7.6 percent after four years of economic growth. Concern that the Fed is closer to reducing the pace of asset purchases pushed 10-year Treasury yields to a 14-month high.
• Aluminum Contango Widest in Four Years as Stockpiles Swell. Aluminum's discount to the contract for delivery in three months rose to the highest in more than four years amid a surplus and record-high inventories. The metal for immediate delivery traded $46.25 a metric ton lower than the contract for delivery in three months by 1 p.m. on the LME, the widest contango since December 2008, LME data show. Aluminum inventories monitored by the LME climbed to a record for a third day, bourse data showed today.
• Hog Futures Soar to Two-Year High on Pork Demand; Cattle Advance. Wholesale pork rallied 39 percent since the end of March, reaching a 22-month high yesterday of $1.0743 a pound, government data show.
• World Fish Prices Climb to Record on Demand for Salmon and Tuna. Global fish prices rose to a record in May on rising demand for salmon and falling supplies of tuna, according to the UN’s Food & Agriculture Organization. An index of fish prices tracked by the Rome-based United Nations agency rose to 168 points in May, advancing 6.3 percent from April and up 16 percent from a year ago, data published in the FAO’s biannual Food Outlook report last week show.
• Grassley Criticizes Potential $70 Million in IRS Bonuses. The Internal Revenue Service may be nearing an agreement to pay unionized employees $70 million in bonuses that aren’t legally required, said Republican Senator Charles Grassley. A government-wide directive says such bonuses shouldn’t be paid while automatic federal spending cuts are in effect, Grassley of Iowa wrote in a letter to Daniel Werfel, the interim chief of the IRS. “While the IRS may claim that these bonuses are legally required under the original bargaining unit agreement, that claim would allegedly be inaccurate,” Grassley wrote in a letter dated yesterday. “In fact, the original agreement allows for the re-appropriation of such award funding in the event of budgetary shortfall.” 
• FBI Uses Drones in Domestic Sureillance, Mueller Says. The FBI uses drones in domestic surveillance operations in a “very, very minimal way,” Director Robert Mueller said. Mueller, in Senate testimony today, acknowledged for the first time that the Federal Bureau of Investigation uses “very few” drones in a limited capacity during its investigations.

Wall Street Journal: 

• Parsing the Fed: How the Statement Changed.
• Squeezed China Banks Warn of Lending Hit. A cash squeeze gripping China's financial markets is beginning to trickle into the broader economy, as bank executives warn of higher interest rates and more-cautious lending. A cash squeeze gripping China’s financial markets is beginning to trickle into the broader economy, as bank executives warn of higher interest rates and more-cautious lending and scramble to raise funds by offering higher returns to investors. The impact will depend on the length of the squeeze, which began two weeks ago with a surge in the rates at which banks lend money to each other. So far the impact appears moderate, and Beijing retains significant financial firepower to intervene if a major threat to the financial system arises. But on Wednesday, a benchmark interbank lending rate rose to its highest level in nearly two years, as the cash crunch showed no signs of letting up.
• Brazil Protesters Block Highways. A week of demonstrations in Brazilian cities continued into daylight hours for the first time Wednesday as officials at all levels of government prepared to negotiate on at least some of the protesters' demands over issues related to government and quality of life. Demonstrators slung rows of burning tires and garbage across three major highways leading into São Paulo, Brazil's manufacturing and financial hub, blocking access for motorists. "This is a protest about transportation and the needs of the working class for decent transportation," said Maria das Dores, one of the organizers of Wednesday's protest. She said organizers decided to block main arteries into São Paulo in order to dramatize the transport problems of Brazilian workers.

Fox News:

• Columbia's Cons: Ivy League social work program run by team of former prisoners. EXCLUSIVE: In the hallowed halls of Columbia University, a nest of ex-cons — who have served time for murder, attempted murder, robbery and assault — hold court on their unique brand of social justice for admiring students enrolled in the school's social work program, a FoxNews.com investigation has found.

CNBC: 

• FedEx(FDX) Shares Dip on Growth Concerns. FedEx said on Wednesday it was cutting its capacity between the United States and Asia, sending its shares lower on concerns about future growth, even as the world's biggest air-freight company posted a stronger-than-expected profit. The company, considered an economic bellwether because of the massive volume of goods it moves around the world, is still trying to adjust to increasing demand for cheaper ground transport rather than pricier but faster air shipping. 
• Tesla(TSLA) Recalls Some Model S Cars Due to Seat-Mount Defect.
• Will Obamacare Hurt Jobs? It's Already Happening, Poll Finds. Small business owners' fear of the effect of the new health-care reform law on their bottom line is prompting many to hold off on hiring and even to shed jobs in some cases, a recent poll found. "We were startled because we know that employers were concerned about the Affordable Care Act and the effects it would have on their business, but we didn't realize the extent they were concerned, or that the businesses were being proactive to make sure the effects of the ACA actually were minimized," said attorney Steven Friedman of Littler Mendelson. His firm, which specializes in employment law, commissioned the Gallup poll.

Zero Hedge: 

• "It's A Massacre" - Each Day 134 Retail Outlets Close In Italy.
• "A Classic Minsky Trap Appears To Have Developed".
• The Bloom Has Fallen Off The Brazilian Rose.
• Whistleblower Forces China To Come Clean Over Data Manipulation.
• Rick Santelli Rages: "What Is Bernanke So Afraid Of?"

Business Insider: 

• Men's Wearhouse(MW) Mysteriously Fires Chairman And Founder. 
• There's A New Bill To Keep Your TV (Or Xbox) From Spying On You.
• GUNDLACH: The Only Place Investors Will Make Money In The Coming Weeks Is 'The Most Hated Asset Class On The Planet'.

Reuters: 

• German finmin: ECB's bond buys would trigger independence debate. Activating so far unused plans of the European Central Bank to buy bonds of stricken euro zone states right now would trigger a debate about the independence of its monetary policy, German Finance Minister Wolfgang Schaeuble said on Wednesday. Schaeuble also said Germany defended the independence of the central bank's monetary policy like no other. The legality of the ECB's plans, so-called Outright Monetary Transactions (OMT), were subject of a hearing by Germany's top court last week.
• METALS-Copper slips to 6-week low ahead of Fed statement. Copper slid on Wednesday to its lowest in over six weeks, the third straight day of losses, as investors worried about the potential for less stimulus from the U.S. Federal Reserve ahead of the conclusion of its two-day policy meeting.

Mish's Global Economic Analysis:

• Cash Squeeze in China, Interest Rate Swaps Rise Most in 22 Months; China's Credit Bubble About to Pop; Shadow Banking Crackdown.

Telegraph:

• China's central bank tightens screw on shadow banking system. China's central bank has sent a "warning signal" to the country's overextended lenders, as it rejected a plea to increase money supply, pushing short term borrowing costs to a six-year high.

Xinhua:

• China Economy May Stabilize at Current Level, Citing Ba. China's economy won't likely deteriorate "by another notch," citing Ba Shusong, a researcher at the State Council Development Research Center. China may continue a "slightly tight" macro policy until year-end, Ba said. Companies shouldn't expect a large-scale government stimulus plan, he said.