Today's Headlines

Bloomberg:

• Spanish Deficit Reprieve Raises Risks Bonds Ignore: Euro Credit. Spanish Prime Minister Mariano Rajoy's reprieve in how long he has to tackle the biggest budget gap in the European Union is bad news for bondholders. "To return to sustainable growth, the government should promote investments and hiring," said Georg Grodzki, who helps oversee $515 billion as head of credit research at Legal & General Investment Management in London. "The danger is that in the name of reducing the pain, a bloated civil service and rigid work and pension rules are preserved." 

• European Stocks Drop for Second Day to One-Month Low. European stocks declined for a second day, extending a one-month low, amid speculation the Federal Reserve will scale back its debt-buying program. Roche Holding AG (ROG) sank the most since 2011 after a study showed that its Avastin drug failed to extend the lives of patients with a type of brain cancer. Munich Re and Hannover Re slipped more than 2.5 percent, leading reinsurers lower, as storms across central Europe caused rivers to swell, flooding Prague. Polymetal International Plc (POLY) added 1.9 percent after JPMorgan Chase & Co. raised its rating on the shares. The Stoxx Europe 600 Index dropped 0.8 percent to 298.59 at the close of trading, the lowest level since May 2.

• Japan Fails to Plow Weak Yen Profits Back Into Capital Spending. The Abenomics euphoria that’s boosted the Japanese stock market 28 percent this year has yet to convince chief executives to invest more in factories and equipment in the world’s third-largest economy. In the first full quarter of Prime Minister Shinzo Abe’s tenure, capital spending excluding software fell 5.2 percent from a year earlier, according to a survey from the Ministry of Finance released yesterday. Spending by Japan’s biggest companies dropped 4.9 percent in January-March, the biggest decline since the quarter after the March 2011 earthquake.

• China Growth Limited by Struggling Small Manufacturers. Chinese manufacturing indexes showed small businesses struggling, sapping momentum in the economy and underscoring the need for the government to shift support away from larger, state-backed companies. The official Purchasing Managers’ Index for smaller companies fell to 47.3 in May from 47.6 the previous month, even as the broader gauge rose to 50.8 from 50.6, the government said June 1. A private manufacturing index today that includes small enterprises fell more than forecast to 49.2, an eight-month low, from 50.4. Levels below 50 signal contraction.

• U.S. Farmland Values Seen Declining as World Grain Output Rises. Rising global production of wheat, soybeans and corn will decrease the U.S. share of world agriculture trade and may reduce the value of farmland, according to a study by Ohio State University. “A declining competitive advantage for U.S. crops will ultimately reduce the relative advantage of U.S. farmland and thus the price it can command,” Carl Zulauf and Nick Rettig, economists at Ohio State, said in a report May 31. Revenue per acre may drop amid falling prices and because of “relative yield declines. In short, the U.S. crop sector may be as vulnerable as it was in the late 1970s.” 

• Freight Trader Offers Subsidized Coal Shipping Amid Biggest Glut. A freight trader operating more than 40 vessels offered to subsidize the cost of delivering coal to Europe as the biggest glut of Panamax-class ships for at least two decades drives down rates for the carriers globally. GMI Resources UK LLC will contribute $2,000 a day to take about 74,000 metric tons of Australian or Indonesian coal to buyers in the Atlantic region, Steve Rodley, the company’s London-based co-chairman, said by phone today. The supply of Panamaxes expanded more than 50 percent since 2008, when record rates spurred unprecedented vessel ordering, according to data from Clarkson Plc, the world’s largest shipbroker. “It’s a result of chronic over-ordering of ships three or four years ago,” Rodley said by phone today, adding that the vessel surplus is “comfortably” the biggest since he joined the industry in 1994. “All the ships are delivering in the market and demand has not kept pace.Gold Advances as Manufacturing Unexpectedly Contracts in U.S.

• Gold Advances as Manufacturing Unexpectedly Contracts in U.S. Gold rallied in New York as an unexpected contraction in U.S. manufacturing boosted speculation that the Federal Reserve will maintain the pace of its stimulus to sustain the economic recovery. 

• Assad’s Hezbollah Ally Prepares Northern Attack, Opposition Says. Thousands of troops loyal to Syrian President Bashar al-Assad and allied Hezbollah militiamen are preparing to enter the province of Aleppo, a rebel stronghold close to the Turkish border, activists said. Assad’s forces will seek to enter the province’s northern region, Al-Jazeera television said, citing unidentified rebels.

• Fed’s Williams Says Sees Potential QE Taper This ‘Summer’. Federal Reserve Bank of San Francisco President John Williams said policy makers may start reducing the pace of bond purchases over the next three months and potentially end quantitative easing by year-end.

• Illinois Awaits Further Credit Cut After Latest Pension Flop. With handshakes, hugs and a few kisses, Illinois lawmakers left the capitol May 31 without repairing a leaking pension system that they have been saying for years must be fixed. Now they wait to discover the consequences of inaction; Illinois, already the lowest-graded state in the nation, faces yet another credit-rating cut. 

• CEOs Group Calls Too-Big-to-Fail Bill Threat to U.S.-EU Accord. Prospects for a new trade agreement with the European Union are being threatened by measures that would boost capital requirements for the biggest banks, a group representing U.S. chief executive officers said in a letter.

Wall Street Journal: 

• SUVs, Pickups Push U.S. Auto Sales Higher.

Fox News:

• Wife of former IRS chief a top adviser to left-leaning DC group.

MarketWatch:

• New air-travel taxes in the works. White House budget proposals could mean consumers pay more.

CNBC:

• Hacker Claims Airplanes Vulnerable at 30,000 Feet. Cyber hackers have already shown what damage they can do, but this may be the scariest hacking story yet, if it came true.

• Two-Thirds of Americans Don't Know If They Will Insure Under Obamacare. There's no assurance folks will be buying insurance under Obamacare, and that could spell trouble for the Affordable Care Act.

• Turkey Violence: More Complex Than Arab Spring. (video)

• Look Out, S&P Companies Warn About Q2 Earnings. If earnings guidance is any guide, the S&P could be in trouble. The second quarter earnings picture that we can piece together from S&P 500 guidance is a negative one indeed.

Zero Hedge: 

• Huge Manufacturing ISM Miss And Lowest Print Since June 2009. (graph)

• Visualizing The European Monetary (Dis)Union. (graph)

• Abenomics On Hold As USDJPY Slides Back Under 100. (graph)

• Turkish Stocks Collapse Most In 10 Years, Bond Yields Surge Most On Record. BIST-100 Closes -10.47% - Biggest drop since March 2003. (graph)

• Thank You CTRL-P: Deposits Rise To Record $2.1 Trillion Over Bank Loans.

• Merkel To Brussels On Fiscal Union: "Nein".

• The Full List Of 2013's Bilderberg Attendees.

Business Insider: 

• Three Of Wall Street's Hottest Trades Are Getting Shredded.

• Justice Scalia Writes A Scathing Dissent Opposing Forced DNA Collection.

• Global Manufacturing Is Barely Above Stagnation. (table)

• The Saudis Do NOT Want To Talk About America's Shale Revolution.

New York Times: 

• China Is Reaping Biggest Benefits of Iraq Oil Boom. Since the American-led liberation of 2003, Iraq has become one of the world’s top oil producers, and China is now its biggest customer.

Reuters: 

• Fed can soon "seriously consider" stimulus pullback - Lockhart. The Federal Reserve will soon be able to consider reducing the pace of its bond-buying stimulus, a top Federal Reserve official told Fox Business on Monday.

• European car sales show little sign of upturn. French, Italian and Spanish car sales fell in May, bringing the crisis-hit European market closer to a two-decade low and dampening the hopes of manufacturers for any recovery in 2013. Automakers suffering from weak economies and excess plant capacity had taken heart when demand picked up a little in April, suggesting a slide of almost 10 percent in Europe's first-quarter car sales would not play out in the full year. But the decline in French sales deepened last month, with a slide of 10.3 percent after a 5.2 percent fall in April. In Italy, Europe's fourth-largest market, car sales fell 7.9 percent in May, although the drop was less steep than a 10.8 percent fall in April. In Spain, they fell 2.6 percent in May, a month after recording their first year-on-year gain since last August, the Spanish car industry association said on Monday.

Telegraph: 

• IMF halves German 2013 growth forecast. Germany's 2013 growth prospects have been cut in half by the International Monetary Fund, as it warned that the outlook for Europe's strongest economy could worsen if a eurozone recovery fails to materialise. 

• ILO warns 'more than 200m jobless by 2015'. More than 200m people across the world are predicted to be jobless in 2015, a report has claimed, with employment rates not expected to return to pre-crisis levels for another four years.  

Handelsblatt:

• German Family-Led Companies Say Economy Worsens. Germany's family-led companies are turning more pessimistic on economy's prospects, citing "spring survey" for Deutsche Bank, BDI Industry Association. Some 54% deem situation good or very good, down from 73% in study a year earlier.

Euromoney:

Restructuring: Flowers slams Europe over inaction


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• Restructuring: Flowers Slams Europe Over Inaction. Danger of 'Lehman-Type Event'; Advocates US Model of Receivership. 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.

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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