Today's Headlines

Bloomberg:

• Italy, Spain 10-Year Bond Spreads Reach Euro-Era Record on Growth Concern. Italian and Spanish 10-year bonds dropped, pushing yields up to euro-era records versus benchmark German bunds, on concern that slowing growth will hamper efforts to tame the nations’ debt loads. “This has all the features of a self-fulfilling crisis,” said Harvinder Sian, a senior bond strategist at Royal Bank of Scotland Plc in London. “The rise in yields looks pretty relentless, and it doesn’t look as if the politicians are anywhere near to getting ahead of the curve.” The yield on 10-year Italian bonds rose six basis points to 6.06 percent at 3:20 p.m. in London. It earlier surged to 6.25 percent, the most since November 1997. The 4.75 percent security maturity in September 2021 fell 0.39, or 3.9 euros per 1,000- euro ($1,427) face amount, to 90.845. That pushed the difference in yield, or spread, over bunds, to as much as 384 basis points, the most since before the euro was introduced in 1999. “Suddenly, Italy joined the other peripherals,” said Justin Knight, a European rate strategist at UBS AG in London. “Investors are, in general, overweight Italy versus other peripheral markets, and it’s going to be a difficult position to unwind.” Spanish 10-year yields rose four basis points to 6.24 percent, after climbing to 6.46 percent, the most since 1997. That pushed the spread over similar-maturity German debt as high as 404 basis points. The crisis risks worsening should the Spanish yield touch 6.5 percent, RBS’s Sian said. “Anything materially above that risks an acceleration like we saw for Greece, Ireland and Portugal,” he said. “The political willingness to backstop the European Union is now what the market needs.” The cost of insuring against default on European sovereign and corporate debt rose, according to traders of credit-default swaps. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments jumped 11 basis points to 288, approaching the all-time high closing price of 306.5 set July 18. The 10-year euro swap spread, which shows the difference between the swap rate and the yield on benchmark German bunds and is used as a measure of perceived risk, rose for a seventh day, climbing as high as 73 basis points, the most since January 2009. The yield premium investors demand to hold Belgian 10-year bonds instead of benchmark bunds widened to a euro-era record of 207 basis points, even as demand improved at a debt sale.
• Obama Says Debt Plan Is 'First Step' on Path Toward Balancing U.S. Budget. President Barack Obama said final congressional passage of legislation to raise the federal debt ceiling and trim the deficit is a “first step” on a path that must include both increased revenue and spending cuts to narrow the government’s long-term budget shortfall.
• Consumer Spending in U.S. Fell in June. U.S. consumer spending unexpectedly dropped in June for the first time in almost two years and savings climbed, adding to evidence that the slump in hiring is hurting household confidence. Purchases declined 0.2 percent after a 0.1 percent gain the prior month, Commerce Department figures showed today in Washington. The median estimate of 77 economists surveyed by Bloomberg News called for a 0.1 percent increase. Incomes grew at the slowest pace since November. The lack of jobs combined with wage gains that have failed to keep pace with inflation raise the risk of further cuts in consumer spending, which accounts for 70 percent of the world’s largest economy. “The third quarter is looking very soft too. Consumers are facing lackluster wage growth in this phase of still-high gas prices.” Americans boosted savings, a sign of growing concern over the economy and jobs. The savings rate climbed to 5.4 percent, the highest since September, from 5 percent. Weekly earnings adjusted for inflation dropped 0.9 percent in the 12 months ended June on average, according to figures from the Labor Department. The cost of regular gasoline climbed in May to about a three-year high of $4 a gallon, and remained above $3.70 at the end of July, according to AAA, the nation’s biggest auto group.
• Zapatero Postpones Planned Vacation as Spanish Bond Yields Surge Towards 7%. Spanish Prime Minister Jose Luis Rodriguez Zapatero delayed a planned vacation as the country’s borrowing costs approached the 7 percent mark that heralded bailouts of Greece, Portugal and Ireland. The prime minister is in “permanent” contact with Finance Minister Elena Salgado and has spoken with European Commission President Jose Manuel Barroso, according to his office. Zapatero’s economic advisers have discussed developments in financial markets with counterparts in Germany, France and Italy, according to one official, who asked not to be identified in line with government policy. Ten-year bond yields for Spain and Italy reached euro-era records today on concern that rising debt-servicing costs may wipe out the benefits of austerity measures and slow growth. “It’s extreme -- parallels to 2008 have been drawn,” said Peter Chatwell, a fixed income strategist at Credit Agricole CIB in London, referring to the height of the financial crisis when Lehman Brothers Holdings Inc. went bankrupt. “The problem we’ve got here is an extremely risk averse market, very thin liquidity and nothing of substance to stop the negative periphery trades being put on.”
• Barclays Will Cut 3,000 Jobs This Year as Investment Bank Revenue Declines. Barclays Plc (BCS), Britain’s second- largest bank by assets, said it’s eliminating about 3,000 jobs this year as second-quarter investment banking profit fell by more than a quarter.
• 2-year swap spread may reach 30 basis points as 2-year Treasury yields have "little space to drop with Libor belatedly rising," Credit Agricole's David Keeble writes.
• Rice, the best-performing grain this year, may sustain a rally as acreage in the U.S. slumps, reducing production from the third-largest exporter, according to Standard Chartered Plc. Futures may average $15 per 100 pounds in Chicago this quarter, Abah Ofon, an analyst at the bank, said by phone today, raising his forecast from $13. Higher prices of rice, staple for half the world, would fuel global food costs that reached an all-time high in February, according to the Food & Agriculture Organization.
• Gold Surges to Record as Fragile Global Economy Bolsters Demand for Haven. Gold futures surged to a record $1,645.80 an ounce as escalating concern that the global economy is losing momentum spurred demand for the precious metal as an investment haven. Gold futures for December delivery rose $23.60, or 1.5 percent, to $1,645.30 at 11:47 a.m. on the Comex in New York. Before today, the price gained 37 percent in the past 12 months.
• Oil Declines for Third Day on U.S. Economic Outlook; Stockpiles May Climb. Oil declined for a third day in New York, the longest losing streak since May, as signs that the U.S. economy is slowing countered speculation the world’s biggest crude consumer will resolve its debt crisis. Crude for September delivery dropped as much as $1.08 to $93.81 a barrel in electronic trading on the New York Mercantile Exchange and was at $94.18 at 1:08 p.m. London time. The contract yesterday fell 81 cents to $94.89, the lowest close since June 29. Prices are 16 percent higher the past year.
• China's Auditor Finds 'Questions' Over $51 Billion of Spending. China’s national auditor said it found 328 billion yuan ($51 billion) of spending at government agencies and companies last year that raised “questions.” The National Audit Office discovered 42.8 billion yuan in wasteful spending, 165.1 billion yuan in misstatements, and 3.4 billion yuan in misused public benefits, according to the report posted on the agency’s website. Local branches of the auditor also examined 36,900 individuals, with 82 officials referred to judicial or investigative bodies for further action, according to the report dated Aug. 1. Waste and misuse are adding to concerns that local governments will struggle to repay money they borrowed to fund infrastructure projects that the national auditor put at 10.7 trillion yuan as of the end of 2010.
• Tepco Reports Second Deadly Radiation Reading at Fukushima Plant. Tokyo Electric Power Co. reported its second deadly radiation reading in as many days at its wrecked Fukushima nuclear plant north of Tokyo. The utility known as Tepco said yesterday it detected 5 sieverts of radiation per hour in the No. 1 reactor building. On Aug. 1 in another area it recorded radiation of 10 sieverts per hour, enough to kill a person “within a few weeks” after a single exposure, according to the World Nuclear Association.
• U.S. 30-Year Yield Falls Below 4% on Debt Deal Vote, Slow Economy. Treasuries rose, pushing 30-year bond yields below 4 percent for the first time this year, as the Senate approved a deal to boost the debt limit and a government report showed consumer spending unexpectedly fell in June, reinforcing speculation the economy is slowing.
• Coach(COH) Falls Most Since March on Margins. Coach Inc. (COH), the largest U.S. luxury handbag maker, fell the most in more than four months after saying that a measure of profitability may not improve this year amid higher costs. The shares fell $3.65, or 5.6 percent, to $61.64 at 11:38 a.m. in New York Stock Exchange composite trading. Coach earlier dropped 6.6 percent, the biggest intraday decline since March 15.
• Syria Targets Hama as Europeans Push for Condemnation at UN. Syrian forces shelled Hama with tanks and artillery for a third day as European countries pushed for a United Nations resolution condemning President Bashar al-Assad’s latest crackdown. The army assault on the city of 800,000 drew protesters into the streets of Damascus and elsewhere in the country late yesterday and overnight into the second day of the Muslim holy month of Ramadan, Mahmoud Merhi, head of the Arab Organization for Human Rights, said by telephone from the capital.

Wall Street Journal:

• U.S. Averts Default as Obama Signs Bill. The Senate voted 74-26 Tuesday to approve sweeping legislation to raise the country's $14.29 trillion debt ceiling and cut the budget deficit by at least $2.1 trillion over the next decade, a major victory for Republicans who have long battled to shrink the size of the U.S. government.
• Live Blog: The Next Stage.
  
• Billionaire: Debt-Deal Totals Are 'Rounding Errors'. Billionaire investor Wilbur Ross, who has made his name in distressed assets, said the debt deal reached in Congress is unlikely to have much of an effect on the actual economy. Mr. Ross, appearing on the WSJ News Hub, said the deficit reductions planned by lawmakers as part of the deal to raise the federal borrowing limit amount to only "rounding errors" in terms of size. He said the deal hasn't put the debt issues behind the country and that the U.S. lacks an "overall strategy" that would help settle the various debates on energy, spending and, especially, taxes.
• Exploration Raises Tensions in South China Sea. After appearing to make progress in cooling tensions over the South China Sea in recent weeks, Southeast Asia and China face the potential for more trouble ahead as oil and gas companies expand their exploration work in the contested waters.
• Japan Intensifies China Rhetoric. Japan intensified its rhetoric against China's military Tuesday, accusing Beijing for the first time of "assertiveness" and saying it needs to keep a closer watch on how China views the contested waters between the two countries.

CNBC.com:

• Industrials Break Down, Now in Correction Mode.
• Europe on Brink of 'Major Financial Collapse': Guggenheim CIO.
  

Business Insider:

• The Biggest Middle Class Tax Increase In History Will Come In Five Months.

Zero Hedge:

• You Want to Create Jobs? Here's How. 1. The only engine for jobs is small business, so quit pandering to global corporations and start pandering to the people who might actually hire someone in America.

New York Times:

• Revolving Door at SEC Is Hurdle to Crisis Cleanup. A senior lawyer for the Securities and Exchange Commission recently took center stage in a major case involving a controversial mortgage security sold by Goldman Sachs. There was just one slight twist in the legal proceedings. The S.E.C. lawyer was not the prosecutor taking the deposition. He was the witness.
• Pressure Builds on Italy and Spain Over Finances.
  

HedgeCo.Net:

• Hedge Funds Bullish on US Equities, Will Need to Invest Aggressively to Pass 2008 Highwater Marks. Even ahead of the US debt ceiling agreement, hedge fund managers have been turning increasingly bullish on US equities. With TrimTabs and BarclayHedge reporting 43% of managers expressing bullish sentiments about the S&P 500 (in July), it seems as though hedge funds are holding tight to the belief that the US has turned the corner in its financial crisis. The bullish equities outlook is the highest it has been since December of last year, and was up 15% over the outlooks expressed only one-month prior. “This reversal is striking,” Sol Waksman , Founder and President of BarclayHedge. “Hedge fund managers were meaningfully bullish on domestic stocks in only one month in the first half of the year.

Market Folly:

• Hedge Fund Third Point Reduces Equity Exposure For Third Consecutive Month.

Seeking Alpha:

• European Default Risk Spikes. (graphs)
  

Politico:

• Obama's Approval Dives in Pennsylvania. President Obama's approval numbers have taken a hit in swing-state Pennsylvania, the latest Quinnipiac University survey out this morning shows. Just 43 percent of voters approve of the job he's doing, while 54 percent disapprove, according to the survey.
  

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 23% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-one percent (41%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -18 (see trends ).
• Rasmussen Employment Index Down Sharply: Just 18% Report Their Firms Hiring. The Rasmussen Employment Index, which measures workers’ perceptions of the labor market each month, fell nearly eight points in July to the lowest level since March. At 70.1, the Employment Index is down seven points from the beginning of the year and down 13 points since last November when hiring expectations peaked. Generally speaking, a decline in the Rasmussen Employment Index suggests the upcoming government reports on job creation will be worse than prior months.

Reuters:

• Frontline(FRO) is pulling some of its largest oil carriers from the market, citing an interview with CEO Jens Martin Jensen. Jensen sees "few signs" of short term improvement in the tanker market. "There is no point in us transporting oil for free in any case, so we have decided that, given the market situation, to pull some ships out to see what happens," he said.
• Italian Banks Caught in Sovereign Debt Crossfire. Big holdings of Italian bonds by the country's banks are making them a proxy for funds responding to debt concerns by cutting their exposure to Italy. Italian banks had hitherto weathered the financial crisis better than their European peers, thanks to a tradition of conservative lending and relatively limited exposure to riskier assets, such as Greek bonds. But that inward culture, once seen as a strength at times of market turbulence, is now being perceived as a weakness -- making the banks inextricably linked to the fate of Italy's borrowing costs. Shares in Italy's two biggest banks, UniCredit and Intesa Sanpaolo have dropped about 20 percent since investors began dumping Italian assets at the start of July.

Foreign Policy:

• The End of the Roman Holiday. With their economy teetering on the brink, Italians are going to have to make major changes to save La Dolce Vita. The Bank of Italy has admitted that if the interest rates on Italian bonds don't lower sometime soon, it will pose a "substantial" problem for the Italian economy, perhaps pushing the country back into recession -- and perhaps, in the worst case scenario, out of the eurozone.

Telegraph:

• Italy Calls Emergency Meeting as Eurozone Crisis Resurfaces. A fresh wave of eurozone panic prompted Italian authorities to call an emergency meeting on Tuesday and Spain's prime minister to delay his holiday as borrowing costs for the two nations hit fresh highs.
• IMF: UK's George Osborne May Miss Plan to Eliminate Deficit. Chancellor George Osborne is in danger of missing his key performance yardstick of eliminating the structural deficit over the next five years, the International Monetary Fund (IMF) has warned.

Sueddeutsche Zeitung:

• Lars Feld, a member of German Chancellor Angela Merkel's council of economic advisers, said he expects financial market turbulence stemming from Europe's debt crisis to return by September "at the latest," citing an interview. Markets will question whether Greece's rescue package is big enough and if other debt-stricken countries will have sufficient discipline, Feld said.

Handelsblatt:

• German banks may still be harmed by the sovereign debt crisis even if they passed European stress tests, citing Raimund Roeseler, executive director of BaFin, the country's regulator. Roeseler said the default of a single euro-area country would be "very painful" for German banks, though it still could be dealt with.

la Repubblica:

• Greece, Portugal and Ireland will likely be forced to quit the euro within a year and Italy may need a European Union-led rescue, Allen Sinai, president of Decision Economics, said in an interview. Sinai told the newspaper he was "pessimistic" about Italy and that the country may soon need "an intervention along the lines of the Greek model." Managing the debt crisis has been undermined by the lack of a central fiscal authority for the region, and the euro-area may end up a club for only Europe's strongest economies, he said.

Shanghai Daily:

• Shanghai Manufacturing Activities See 1st Decline. SHANGHAI'S industrial activities shrank for the first time in 10 months in June as the government tightened policies and the city embarked on an economic restructuring. The city's Purchasing Managers' Index, a gauge of manufacturing activities, lost 1 point from a month earlier to 49.3 in June, the Shanghai Statistics Bureau said yesterday. A reading below 50 means manufacturing activities contracted.
  

Bear Radar

Style Underperformer:

• Mid-Cap Growth (-2.41%)

Sector Underperformers:

• 1) Oil Tankers -5.61% 2) Road & Rail -3.31% 3) Alternative Energy -3.31%

Stocks Falling on Unusual Volume:

• AIXG, DB, UBS, TIE, BP, SU, PFE, OME, RRD, IIVI, CTRP, AMED, TXRH, LEAP, IPHS, FDML, ECPG, HSII, VRA, GTIV, ATPG, SHOO, TEVA, DXPE, TRLG, ZOLL, EXPD, CNMD, PRAA, JKL, VB, GET, IAI, EFG, RXI, FOE, BGC, VTI, IBB, PH, IYT, AWI, EZU, PWR, VECO, CFN, MLM, STE, MDRX, FMC, H, VMC, CACI, ASH, HS, JBL, HOT, VQ, THO, CQB, COH, EXPD, CRK, VRA, PPO, GGP, ATPG, OSG, BPI, BGC, MTOR and PCS
  

Stocks With Unusual Put Option Activity:

• 1) CTRP 2) TIE 3) SWY 4) DIG 5) ANR
  

Stocks With Most Negative News Mentions:

• 1) ZOLL 2) ITW 3) AMR 4) AKS 5) SU
  

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume
  

Bull Radar

Style Outperformer:

• Small-Cap Growth (-.81%)

Sector Outperformers:

• 1) Gold & Silver +1.29% 2) Computer Services +.19% 3) Education -.31%

Stocks Rising on Unusual Volume:

• LQDT, TIMX, JCOM, SNCR, CGNX, CVLT, FWLT, SBRA, IPGP, MDAS, VOLC, SOHU, NVDA, TMX, IIT, OIS, HLF, ROG, CVG, SM, CCC, NUS, UIS, SBRA, WRC and KND
  

Stocks With Unusual Call Option Activity:

• 1) BZ 2) HTZ 3) LEAP 4) CI 5) VVUS
  

Stocks With Most Positive News Mentions:

• 1) JCP 2) PH 3) NWSA 4) RT 5) PCL
  

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume
  

Tuesday Watch

Evening Headlines

Bloomberg:

• House Passes $2.1 Trillion U.S. Debt Ceiling Plan. The House of Representatives approved legislation to raise the U.S. debt limit by at least $2.1 trillion and cut federal spending by $2.4 trillion or more, one day before a threatened default. The House voted 269-161 for the plan negotiated by leaders and President Barack Obama over the weekend. Ninety-five Democrats voted in favor and 66 Republicans in opposition. The measure goes to the Senate for a final vote planned tomorrow. “We’re coming up to a deadline we all must recognize: default,” said Representative Paul Ryan, a Wisconsin Republican and chairman of the Budget Committee. “Both parties got us in this mess; both parties are going to have to work together to get us out.” Ryan called the spending cuts connected to the debt-ceiling increase “a huge cultural change” for Congress.
• Italy, Spain Stuck in No-Go Debt Zone for Merrill, DWS Funds: Euro Credit. Merrill Lynch Global Wealth Management, unconvinced that the second Greek bailout has stemmed the debt crisis, won’t put any of its $1.5 trillion of assets into Italian or Spanish bonds.The unit of Bank of America Corp. (BAC) has spurned bonds from Greece, Portugal, Ireland, Spain and Italy since deciding to avoid them in April of last year, according to Johannes Jooste, a senior Merrill portfolio strategist in London. Merrill isn’t alone: Frankfurt-based DWS Investment, which oversees $390 billion for clients, and Legal & Investment Management say they are “underweight” Spanish debt. The lack of enthusiasm from bond buyers threatens the latest rescue deal for Greece, which was struck two weeks ago to reassure investors as contagion from the debt crisis sent Italian and Spanish bond yields soaring. “We are not convinced that this is the finality of the haircuts,” Jooste said in an interview, referring to losses absorbed by those private investors through the debt-exchange program. “There is still a question mark of whether there will be haircuts for countries apart from Greece.” The extra yield investors demand to hold 10-year Italian bonds instead of benchmark German bunds rose to 355 basis points yesterday, a euro-era record. Spanish 10-year yields have jumped almost 50 basis points to 6.2 percent since the summit. “The recent solution for Greece has not changed our perception about the peripheral market, and we are not quite sure if the problem is contained,” said Ralf Schreyer, head of European fixed income at DWS. The additional yield investors demand to hold 10-year Spanish debt over bunds reached 375 basis points yesterday, compared with the average of 44 basis points in the past decade. Yields on 10-year Spanish and Italian bonds are only about a percentage point away from the 7 percent mark that prompted Greece, Portugal and Ireland to seek bailouts. Rising borrowing costs and a poor growth outlook are two reasons Jonathan Cloke, a portfolio manager at Legal & General, cited for holding off on purchasing of Italian and Spanish government securities. In addition to being underweight Spanish bonds, Legal & General no longer owns Greek, Irish and Portuguese debt. “I don’t think Italy and Spain can carry on financing at the current yield levels,” said Cloke. “There will have to be some ways of reducing their interest rates, although I’m not quite sure how. And with the European Central bank expected to keep raising interest rates, I’m worried these countries are not going to get growth they need to reduce debt.”
• Democrats Renew Push for Business Tax Increases After Deal. The private equity managers, oil companies and high-income earners that have been the Obama administration’s prime targets for tax increases will be in Democrats’ crosshairs again in the next phase of deficit- reduction efforts. The debt-limit bill being considered in Congress today would empower a 12-member joint committee of lawmakers to seek $1.5 trillion in deficit cuts, with a Dec. 23 deadline for the House and Senate to act. Democrats, who didn’t get any specific revenue increases in the debt ceiling compromise Congress is considering today, are likely to return to their previous proposals, said Representative Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee. “The joint committee would be tasked to look at ways to reduce the deficit, and it has to be done in a balanced fashion,” Van Hollen told reporters. “It has to include closing these corporate tax loopholes for special interests and looking at other revenue sources from the very top income earners.” President Barack Obama in his budget recommended taxing the profit share -- or carried interest -- earned by private equity managers, venture capitalists and others at ordinary income tax rates and not the more lightly taxed capital gains rate. He called for ending tax benefits for oil and gas companies and for capping the itemized deductions of upper-income Americans.
• China's Stocks Decline to 6-Week Low on Manufacturing Slowdown, Inflation. China’s stocks fell, driving down the benchmark index to a six-week low, after manufacturing growth slowed in the world’s two largest economies and an official Chinese newspaper said inflation pressure is still high. Industrial & Commercial Bank of China Ltd. led declines for lenders on concern the government will intensify measures to curb inflation. Jiangxi Copper Co., China’s biggest producer of the metal, lost 2.4 percent on speculation a slowing global economy will curb demand for metals. “Economic data from around the world seem to suggest that global growth is slowing and that’ll sour sentiment especially when there’s still uncertainty over the debt crisis in Europe,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “Inflation is still the biggest domestic problem for China and no one knows how soon it will peak.” The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, lost 34.17 points, or 1.3 percent, to 2,669.61 as of 9:46 a.m. local time, the lowest since June 22.
• Auto Sales Stall as Unemployment Curbs Chance of Return to U.S. Peak: Cars. U.S. auto sales have stalled, casting doubt on a rebound this year as persistent unemployment and tighter lending deter buyers. Light-vehicle deliveries in July, to be released tomorrow, may have run at an 11.8 million seasonally adjusted annual rate, the average estimate of 12 analysts surveyed by Bloomberg. That would trail the 12.5 million rate in the first half. The auto industry may lose 1.5 million in projected sales in 2011, according to consultant AlixPartners LLP. The economy isn’t picking up as fast as anticipated, and the drag may continue beyond this year, AlixPartners said. That may put a return to average annual sales of 16.8 million vehicles from 2000 to 2007 out of reach. Unemployment reached the highest level this year in June. “This curve of unemployment looks like it’s got a lot of legs,” Mark Wakefield, an AlixPartners director in Southfield, Michigan, said in a telephone interview. “This is one of the first recent cycles where demand is not going to go back above its prior peak, because there are just so many structural things that are different this time around.”
• Minnesota Has Outlook Revised to Negative by Moody's. Minnesota had the outlook on its debt revised to negative from stable by Moody's Investors Service, which cited "political intractability" resulting in one-time budget moves to end a 20-day government shutdown last month. "Sooner or later, we need to fix the state's budget so that it does not rely on one-time solutions," said Jim Schowalter, the state's Management & Budget commissioner, in a statement.
• Tanker Demolitions Slowing Creates Worst Glut in 29 Years: Freight Markets. Demolitions of supertankers, which carry about 20 percent of the world’s oil, are slowing as ship owners accept unprofitable rates rather than write off assets, creating the industry’s biggest glut in 29 years. Scrapping vessels, each the size of the Chrysler Building, will drop 19 percent to 2.8 million deadweight tons of carrying capacity this year, according to London-based Clarkson Plc, the world’s largest shipbroker. The fleet will expand 7.5 percent to 176.7 million deadweight tons, the most since 1982, as demand for seaborne crude advances 2.8 percent, the broker estimates. Owners are effectively paying clients $1,037 a day to charter vessels on the industry’s benchmark route in the single- voyage market, the first negative rate since at least 2008. Frontline Ltd., the biggest operator of the ships, needs $29,700 to break even. Unprofitable voyages may still be preferable to the $22.5 million that BW Maritime Pte Ltd. estimates owners would lose by scrapping tankers five years earlier than the standard lifetime of about 25 years. “Hope springs eternal,” said Andreas Sohmen-Pao, chief executive officer of Singapore-based BW Maritime, which has 15 supertankers in its fleet of 105 ships. “Faced with a choice of crystallizing a loss which could have knock-on consequences for financing arrangements and bank loans and so on, people say, well, better to sweat it out and see if something changes.”
• China's Expanding Naval Reach Worries Japan Over Routine Warship Presence. Japan expressed mounting concern over China’s expanding naval reach, saying in the government’s annual defense report that it expects the rising maritime power’s ships to become commonplace near its waters. “China plans to expand its sphere of maritime activities, carrying out operations and training as an ordinary routine practice in waters surrounding Japan,” said the report, which was released today in Tokyo. The areas Japan believes it will encounter China’s navy include the “East China Sea and the Pacific Ocean, as well as the South China Sea.”
• European Stocks Slide 10% From 2011 High as Debt Crisis Spreads. European stocks dropped 10 percent from this year’s high, becoming the first major region to enter a so-called correction, as falling Spanish and Italian bonds showed the debt crisis is spreading and U.S. manufacturing trailed forecasts. Banks, insurers and technology companies led the decline in the benchmark Stoxx Europe 600 Index from a 2 1/2-year high on Feb. 17, driving the measure to a 2011 loss of 5 percent. Every industry decreased more than 17 percent, according to data compiled by Bloomberg. UniCredit SpA, Italy’s largest bank, plunged 40 percent in the period and Commerzbank AG, Germany’s second-largest lender, tumbled 47 percent.

Wall Street Journal:

• Uneasy House OK's Debt Deal. Both Parties Find Fault With Bill; Senate to Vote Tuesday. The House passed a $2.4 trillion debt-ceiling increase Monday night with the Senate planning to follow on Tuesday, after one of the most ferocious fights ever over government spending.
• Giffords Returns to House to Cast a ''Yes' Vote. In a surprise, Rep. Gabrielle Giffords (D., Ariz.) on Monday returned to Congress for the first time since being shot in the head nearly seven months ago, putting aside the effects of a grave injury to vote in favor of the debt package.
• Live Blog: The U.S. Debt Battle.
• Left for Extinct, a Steel Plant Rises in Ohio. On the edge of the Mahoning River, where once stood dozens of blast furnaces, more than 400 workers are constructing what long has been considered unthinkable: a new $650 million steel plant. When complete, it will stand 10 stories tall, occupy one million square feet and make a half million tons of seamless steel tubes used in "fracking" or drilling for natural gas in shale basins.
• Egyptians Turn Against Liberal Protesters. Mobs of ordinary Egyptians joined with soldiers to drive pro-democracy protesters from their encampment in Tahrir Square here Monday, showing how far the uprising's early heroes have fallen in the eyes of the public. Six months after young, liberal activists helped lead the popular movement that ousted President Hosni Mubarak, the hard core of these protesters was forcibly dispersed by the troops. Some Egyptians lined the street to applaud the army. Others ganged up on the activists as they retreated from the square that has come to symbolize the Arab Spring. Squeezed between an assertive military and the country's resurgent Islamist movement, many Internet-savvy, pro-democracy activists are finding it increasingly hard to remain relevant in a post-revolutionary Egypt that is struggling to overcome an economic crisis and restore law and order.

MarketWatch:

• China Must Psych Out Inflation by Andy Xie. A cost-price spiral psychology has become a powerful multiplier influencing China’s inflation dynamic. Will it spiral out of control? This cost-price spiral could be broken with an interest rate overshoot. But since policy makers are currently reluctant to raise rates, inflation psychology is strengthening its grip on the economy. Some analysts and government officials point to price trends for one or two consumer items, and then use these patterns to reach conclusions about inflation. This is erroneous and dangerous.

CNBC:

• Signs of a Double-Dip Have Emerged: Meredith Whitney.

Business Insider:

• Will Cyprus Be The Straw That Breaks The EU? I’m always amazed when relatively minor events somehow conspire to change the course of history. In this example a lousy brush fire may be the catalyst for an unwinding of the EU.
• China Also Fakes These Stores: Disney, Nike, D&G, McDonald's, Starbucks and More.
  

IBD:

• From Gas to Fiber Optic, MasTec(MTZ) Builds Cables.

NY Times:

• India's Widening Iron Ore Scandal Hurts Stocks. India’s wave of corruption scandals has hit yet another industry, iron ore mining, implicating companies that include the flagship of one of this nation’s richest men.

Washington Post:

• Chinese Police Shoot Dead 2 Suspects in Attack Blamed on Militants Trained in Pakistan. Police in far western China shot dead two suspects sought for their alleged involvement in a deadly attack blamed on Muslim extremists trained in Pakistan, the government said. The pair, identified as 29-year-old Memtieli Tiliwaldi and 34-year-old Turson Hasan, were discovered late Monday hiding in corn fields in a suburb of the Silk Road city of Kashgar, where a pair of weekend attacks killed a total of 20 people, according to a notice posted on the Xinjiang regional government website.

Nature.com:

• The Impact of Mergers on Pharmaceutical R&D. Mergers and acquisitions in the pharmaceutical industry have substantially reduced the number of major companies over the past 15 years. The short-term business rationale for this extensive consolidation might have been reasonable, but at what cost to research and development productivity?

The Blaze:

• Horrific Video Captures The Reported 'Ramadan Massacre' In Syria.

Politico:

• Sources: Joe Biden Likens Tea Partiers to Terrorists. Vice President Joe Biden joined House Democrats in lashing tea party Republicans Monday.

Reuters:

• Putin Says U.S. Is a "Parasite" on Global Economy. Russian Prime Minister Vladimir Putin accused the United States Monday of living beyond its means "like a parasite" on the global economy and said dollar dominance was a threat to the financial markets. "They are living beyond their means and shifting a part of the weight of their problems to the world economy," Putin told a Kremlin youth group while touring its summer camp north of Moscow. "They are living like parasites off the global economy and their monopoly of the dollar." "Countries like Russia and China hold a significant part of their reserves in American securities ... There should be other reserve currencies." U.S.-Russian relations soured during Vladimir Putin's 2000-2008 presidency but have warmed significantly under President Barack Obama, who took office in 2009 promising a "reset" in bilateral ties.

Financial Times:

• Euro Area 'Fiscal Federalism' Won't Happen, Buiter Writes. Recent developments in the euro area sovereign debt and banking sector crises have shown that "fiscal federalism is not going to happen," Citigroup Inc. Chief Economist Willem Buiter wrote. The euro area is left with two alternatives, he said. "The first is to disband" and the second is for the bloc to move to a "you break it you own it" policy, where insolvency of a nation is settled between its taxpayers and its creditors, without any permanent financial support from any other members' taxpayers. Before the end of the Greek bailout program, there will be "deep coercive debt restructurings for Greece and other periphery sovereigns," Buiter wrote.

Telegraph:

• Italy in Eye of the Storm as Cash Runs Low. Fears of a double-dip downturn on both sides of the Atlantic have set off fresh mayhem in Southern European bond markets, dashing hopes that Europe's summit deal in late July would contain the escalating crisis. "The markets know that the EU's bail-out find (EFSF) won't be able to buy Italian and Spanish bonds on the secondary market for another three or four months because the deal has to be ratified by national parliaments," said David Owen from Jefferies Fixed Income. The summit accord did not increase the EFSF's firepower above €440bn (£380bn), leaving it unclear how EU leaders expect to cope as contagion engulfs the eurozone's bigger players. "The longer this paralysis goes on, the more investors fear a break-up scenario where the core countries pull out and leave the rest with the euro," Mr Owen said. JP Morgan warned clients that Italy has a thin margin of safety and risks running out of cash to cover spending as soon as September. "Italy and Spain will run out of cash in September and February respectively, if they lose access to funding markets," said the bank's fixed income team of Pavan Wadhwa and Gianluca Salford. Worries about Italy's immediate cash level risks leading to "a self-fulfilling negative spiral." While Italy has low private debt and avoided much of the credit bubble, it suffers from economic stagnation and a steady loss of competitiveness. Monetary tightening by the European Central Bank has compounded the problem, triggering a collapse of all key measures of the Italian money supply. The warning came as the eurozone's PMI manufacturing data for July dropped to a 21-month low, with clear signs of a slowdown spreading to Germany, Austria and Holland. "It makes pretty dismal reading," said Howard Archer from IHS Global Insight. "It points to a marked loss of momentum in the previously healthily expanding core northern eurozone economies, as well as deepening growth problems in the struggling southern periphery."

Xinhua:

• China may raise interest rates around Aug. 10, Xinhua08.com, Xinhua News Agency's financial serives website, said yesterday, citing its own research. China's consumer price index growth in July may hit 6.3%, according to the report.

21st Century Business Herald:

• China Minmetals Non-Ferrous Metals Co. has proposed that all domestic producers of rare earths voluntarily halt output from early August because the national output quotas for 2011 have been reached, citing the company. Halting output of the minerals would also help ensure the stability of the rare earths market, citing a company official.
  

Financial News:

• China's inflation pressure is still high and the rising prices are the most prominent problem facing its economy, the Financial News said in a front-page commentary today. China's economic growth faces a complex environment as the world economy continues to recover slowly with many uncertainties still existing, according to the commentary. The nation needs to study the possible impact the persistent sovereign debt crisis in Europe, the U.S. debt issues and the rising fiscal deficit in Japan may have on the country.

Evening Recommendations
Citigroup:

• Rated (TA) Buy, target $8.

Night Trading

• Asian equity indices are -1.75% to -.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 116.50 +3.0 basis points.
  
• Asia Pacific Sovereign CDS Index 117.0 -1.0 basis point.
  
• S&P 500 futures -.35%.
  
• NASDAQ 100 futures -.30%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (NYX)/.59
• (PH)/1.80
• (VSH)/.51
• (IT)/.31
• (BDX)/1.43
• (MRO)/1.16
• (EXPD)/.46
• (MLM)/1.07
• (PFE)/.58
• (OSG)/-1.39
• (EMR)/.90
• (OMX)/.00
• (ADM)/.85
• (DUK)/.31
• (COH)/.65
• (AMT)/.23
• (H)/.15
• (THC)/.08
• (WBMD)/.22
• (CEPH)/2.07
• (VMC)/-.05
• (MDRX)/.22
• (SFSF)/.00
• (CBS)/.46
• (OPEN)/.27
• (IPGP)/.55
• (MSTR)/.59
  

Economic Releases
8:30 am EST

• Personal Income for June is estimated to rise +.2% versus a +.3% gain in May.
• Personal Spending for June is estimated to rise +.1% versus unch. in May.
• The PCE Core for June is estimated to rise +.2% versus a +.3% gain in May.
  

Afternoon

• Total Vehicle Sales for July are estimated to rise to 11.8M versus 11.41M in June.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The weekly retail sales reports, Keefe Bruyette Woods Community Bank Conference, Goldman Sachs Small-cap Healthcare Day and the Deutsche Bank Small Cap Value Conference could also impact trading today.
  

BOTTOM LINE: Asian indices are lower, weighed down by technology and industrial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Lower into Final Hour on Rising Eurozone Debt Angst, Global Growth Worries, Healthcare Sector Pessimism, Emerging Market Inflation Fears

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Most Sectors Declining
  
• Volume: Above Average
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 23.68 -6.22%
  
• ISE Sentiment Index 90.0 -23.08%
  
• Total Put/Call 1.09 -9.92%
  
• NYSE Arms 2.01 +68.82
  

Credit Investor Angst:

• North American Investment Grade CDS Index 95.53 +.05%
  
• European Financial Sector CDS Index 162.36 +7.65%
  
• Western Europe Sovereign Debt CDS Index 286.83 +.82%
  
• Emerging Market CDS Index 212.87 -.02%
  
• 2-Year Swap Spread 22.0 -1 bp
  
• TED Spread 19.0 +1 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .07% -1 bp
  
• Yield Curve 237.0 -6 bps
  
• China Import Iron Ore Spot $176.10/Metric Tonne +.34%
  
• Citi US Economic Surprise Index -92.60 -1.2 points
  
• 10-Year TIPS Spread 2.42% -1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating -150 open in Japan
• DAX Futures: Indicating +27 open in Germany

Portfolio:

• Slightly Lower: On losses in my Technology, Medical and Biotech sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and then covered some of them
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is slightly bearish as the S&P 500 is still hovering just above its 200-day moving average on rising eurozone debt angst, US debt ceiling concerns, more poor US economic data, emerging market inflation fears and global growth worries. On the positive side, Utility, Ag, Telecom and Gaming shares are slightly higher on the day. Oil is falling -.77%. (XLF) has held up well throughout the day. Cyclicals are also relatively firm, despite poor economic data. The US sovereign cds is plunging -15.94% to 53.95 bps, which is a big positive. On the negative side, HMO, Hospital, Education, Biotech, Medical, Networking, Steel, Oil Tankers, Coal, Drug, Software and Defense shares are under significant pressure, falling more than -1.50%. Healthcare-related shares are substantially underperforming. The HMO and Hospital Indices are both falling -17% from their 52-week highs. The Networking Sub-Index is down -25.0% from its April 27th high. The UBS-Bloomberg Ag Spot Index is rising +.45%, Lumber is dropping -4.02% and Copper is down -1.6%. Lumber is now back near its June 16th 52-week low. Rice is rising +.8% today and is still near a multi-year high, soaring about +26.0% in less than 1 month. The US price for a gallon of gas is unch. today at $3.71/gallon. It is up .57/gallon in less than 5 months. The Italy sovereign cds is jumping +5.73% to 328.0 bps, the France sovereign cds is rising +2.28% to 124.83 bps, the Spain sovereign cds is surging +5.47% to 382.85 bps, the Belgium sovereign cds is rising +2.54% to 204.33 bps and the Ireland sovereign cds is rising +3.09% to 814.20 bps. The Italy sovereign cds has soared +114 bps in 7 days. The Spain and France sovereign cds are making new record highs today. Italy is right near an all-time high. The Eurozone Financial Sector CDS Index is very close to record highs, as well. The Shanghai Composite rose just slightly last night despite sharp gain in other Asian indices. French(-2.3%), Italian(-3.87%), Spanish(-3.24%) and German(-2.86%) stocks put in key reversals lower today on volume and finished at session lows. Italian stocks are now down -12.1% ytd. I still suspect that a larger portion of recent US stock losses are the result of ongoing European debt concerns, lowered forward earnings guidance and emerging market growth/inflation worries than most investors perceive. I still expect stocks to see a surge higher on any US debt deal resolution, however gains may prove unsustainable unless other still developing headwinds subside very soon. The action in European equities and cds today is a huge concern. US stocks held up much better today than I would have expected as a result of US debt deal optimism. I expect US stocks to trade mixed-to-higher into the close from current levels on US debt deal optimism, short-covering, bargain-hunting and technical buying.

Today's Headlines

Bloomberg:

• Manufacturing Index Falls to Two-Year Low. Manufacturing in the U.S. almost stalled in July, threatening to deprive the two-year recovery of one of its main drivers. The Institute for Supply Management’s factory index slumped to 50.9, the lowest since July 2009, from 55.3 a month earlier, the Tempe, Arizona-based group said today. Figures less than 50 signal contraction, and the July index was lower than the most pessimistic forecast in a Bloomberg News survey. “Businesses have cut back on orders and employment because they are just not seeing the demand that they expected,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “The economy is just not picking up momentum in the second half.” The median forecast in the Bloomberg survey of 80 economists called for a decline to 54.5. Estimates ranged from 51 to 56. The U.S. ISM report showed the new orders measure dropped to 49.2 in July from 51.6, while orders waiting to be filled fell to the lowest since April 2009. The measure of production in July decreased to the lowest level since June 2009, while inventories contracted. A gauge of factory employment declined to the lowest since December 2009, while a measure of exports increased.
  
• Debt-Limit Agreement Likely to Pass, Republicans Say. Republican leaders, with no extra time before a default threatened for tomorrow, voiced optimism that Congress will pass a compromise with President Barack Obama to raise the U.S. debt limit by at least $2.1 trillion and slash federal spending by $2.4 trillion or more. The House plans to vote today on the agreement reached during a weekend of negotiations that capped a months-long struggle between Obama and Republicans over raising the $14.3 trillion debt ceiling. Senate Majority Leader Harry Reid said he expects a vote “hopefully during” today’s session. “We’re very optimistic we’re going to do well,” said Senate Republican leader Mitch McConnell, of Kentucky, emerging from a meeting where he briefed Senate Republicans on the plan. In the House, Budget Committee Chairman Paul Ryan said, “It’s a good agreement, it’s going to pass.” Both parties worked to sell the deal to their rank and file -- meeting resistance from some Democrats who fault it for failing to increase taxes and from a faction of Republicans who say it’s insufficient to rein in the debt.
• Manufacturing Weakens From China to U.K. Manufacturing indexes from Asia to the U.S. to Europe fell in July as demand weakened and the global recovery from recession lost momentum. U.K., Russian and Australian manufacturing shrank last month, while the pace of factory growth slowed in Europe and China, according to surveys today. An index of U.S. manufacturing dropped more than economists forecast to a two- year low, even after the dollar’s 7 percent drop against the euro this year. “Manufacturing is slowing and some of these readings are in recessionary territory,” said David Owen, chief European economist at Jefferies International Ltd. in London. In the U.K., a factory gauge by Markit Economics fell to 49.1, the lowest since June 2009, from 51.4, and a measure for Russia slipped to 49.8 from 50.6. Australia’s index slid to a two-year low of 43.4 from 52.9. Readings below 50 indicate contraction. Europe’s index of manufacturing growth cooled to 50.4, the slowest pace in 22 months, from 52 in June. China’s purchasing manufacturing index moderated to 50.7 from 50.9, the China Federation of Logistics and Purchasing said, as the faltering recovery in the U.S. and Europe limited demand for goods from the world’s second-largest economy.
  
• Asia's Economic 'Soft Patch' Jars With Inflation, Posing Dilemma on Rates. Asian manufacturing is cooling even as accelerating inflation puts pressure on officials to keep tightening monetary policy, adding to headwinds for the global economy after recoveries faltered in the U.S. and Europe. Manufacturing in China, Australia and Taiwan weakened in July, purchasing managers’ indexes released today showed. South Korea’s inflation quickened to the fastest pace since March, Thailand’s held above 4 percent for a fourth month and a gauge of Australian prices exceeded the central bank’s target ceiling.
• China Blames Terrorists Trained in Pakistan After Xinjiang Clashes Kill 20. Violence in western China’s Xinjiang region in the past two days left at least 20 people dead in the city of Kashgar, with police calling one of the incidents a “premeditated terrorist attack” led by militants trained in Pakistan, according to official Chinese reports. Yesterday a “group of terrorists” entered a restaurant in Kashgar, the westernmost city in China near the border with Tajikistan and Kyrgyzstan, killing the owner and a waiter and setting fire to the building, the Kashgar government said on its website. The attackers then killed four people and injured 12 in knife attacks outside the restaurant before five of them were killed by police, the report said. Another four suspects were arrested, the official Xinhua News Agency said. An “initial police probe” showed that the leaders of the “religious extremists” involved in the attack trained in bomb- making and firearms in Pakistan at camps run by the East Turkestan Islamic Movement, Xinhua said today. “Because China has been playing the terrorism card for so long now, fewer and fewer people believe them,” Gladney said in an interview. “There is a total lack of credibility.”
• 'Gossip Girl' Couture Is Back-To-School Boon. Angela Ricci is shopping for lacy tops, ruffled skirts and floral dresses to wear when she begins her senior year of high school in Pittsburgh. One thing she won’t be buying: jeans. “I want to show a new kind of style and make a better impression,” said Ricci, 17. “I think that my generation is inspired to dress up a little more.” Teens like Ricci are following the example of television shows such as “Gossip Girl” -- in which actress Blake Lively prances to class in couture -- as they head to stores to stock up for the new school year. Retailers, stung by slowing sales growth and record cotton costs, are obliging with blouses and dresses that sell for higher prices. Spending on clothing and shoes in the back-to-school season, the second-largest sales period of the year for retailers, may rise to $28.8 billion in the U.S., up 3.6 percent from $27.8 billion a year earlier, according to the New York- based International Council of Shopping Centers. Dressy clothes would be a bright spot in a slower-growing back-to-school season. Total back-to-school purchases, including books and electronics, may increase 2.9 percent, decelerating from 5 percent growth a year earlier, the council said.
• Tepco Says Highest Radiation Yet Detected at Fukushima Dai-Ichi. Tokyo Electric Power Co., operator of Japan's crippled Fukushima Dai-Ichi nuclear plant, said it detected the highest radiation to date at the site. Geiger counters, used to detect radioactivity, registered more than 10 sieverts an hour, the highest reading the devices are able to record, Junichi Matsumoto, a general manager at the utility, said today. The measurements were taken at the base of the main ventilation stack for reactors No. 1 and No. 2.

Wall Street Journal:

• Live Blog: The U.S. Debt Battle.
  
• Skilled-Nursing Stocks Plunge On Medicare Rate Change. Nursing-home operators Sun Healthcare Group Inc. (SUNH), Skilled Healthcare Group Inc. (SKH) and Kindred Healthcare Inc. (KND) lost more than a quarter of their market value Monday after Medicare said it would reduce reimbursement rates to those facilities by 11.1% over the next fiscal year. The Centers for Medicare & Medicaid Services said the cuts, which take effect in October, are in response to unexpected increases in nursing-home payments this fiscal year after the agency tweaked coverage rates last year. The skilled-nursing industry had lobbied hard since the government released its initial proposal for an 11.3% rate cut in April. The agency's final decision--announced late Friday--will have "a devastating impact" on the companies, according to one analyst, and the industry is now looking to Congress for help. The Alliance for Quality Nursing Home Care, a lobbying group for the industry, said in a statement late Friday that the change in reimbursement rates "will dangerously destabilize the nation's second-largest health facility employer, place patients and their care at deep risk, and put tens of thousands of health jobs in immediate jeopardy." The group's president, Alan Rosenbloom, said the move "crossed the line from over-correction into real Medicare cuts." Investors had expected more modest cuts, perhaps in the range of 5% to 7%, Wells Fargo said; however, given the current budget constraints in Washington, the firm warned that Congress likely won't be rushing in to offer meaningful relief.
• Base Metals: Weak U.S. Manufacturing Cuts Into Copper Prices. Copper grazed one-week lows after downbeat U.S. manufacturing data soured trader optimism over U.S. debt deal. The most actively traded contract, for September delivery, was recently down 8.40 cents, or 1.9%, at $4.3955 a pound on the Comex division of the New York Mercantile Exchange. The contract had touched a low of $4.3795. Thinly traded August-delivery copper was down 9.40 cents, or 2.1%, at $4.3800 a pound.
• Chip Sales Fell -1.5% in June. Global chip sales fell 1.5% in June from a month earlier as weak consumer demand offset growth in corporate-replacement purchases, smartphone demand and increased spending on information-technology infrastructure.

Fox Business:

• Dems Preparing to Renew Push for Revenue Increases on Proposed Deficit Panel. Democratic officials indicated Sunday that they would revive their push for revenue increases later this year, presuming Congress can first clear away the immediate crisis over the debt ceiling.
  

CNBC.com:

• 'Band Aid' Deal May Pressure S&P to Slash US Rating. Sunday night's deal that will see the US debt ceiling raised if it passes a vote in the House is merely a "band aid" and certainly not a game changer, according to an assessment from Barclays Capital. The deal “is certainly not a game-changing breakthrough, and will keep the possibility of a near-term rating downgrade alive; it represents, in our view, just a band-aid approach on the way to more sustainable public finances,” said Julian Callow, the chief European economist at Barclays Capital in a research note on Monday. The big problem for Callow is the slowdown in the US economy, which could mean any savings are offset by significantly lower revenue. “All of the putative fiscal savings could effectively be wiped out if US GDP outturns continue to be significantly weaker than is assumed in government fiscal baseline projections,” Callow said. Like Callow, Danske Bank chief analyst Allan von Mehren believes a downgrade of US debt is now in the cards. “Lower growth will also weigh on the budget and – all else equal -- requires even higher discretionary budget cuts to reduce the deficit and get debt under control,” said Mehren in a research note. “It is not an easy decision to downgrade sovereign debt of the world’s leading reserve currency and it will require some courage to do this.” “We believe, though, that S&P’s credibility is at stake here – and given the signals it has sent we believe it will prove hard not to follow through and downgrade US debt,” Mehren said.
• Japan Readying Intervention to Reverse Yen: Nikkei.
• Debt Deal Will Add to 'New Normal' Slowness: El-Erian. The emergence of a potential debt ceiling deal in Washington might forestall default and a credit downgrade, but won't fix what ails the U.S. economy, Pimco's Mohamed El-Erian said.

Business Insider:

• Live Coverage: Democratic Press Conference Canceled, Boehner Appearance Postponed, As Vote-Counting Continues.
  
• More and More People Are Betting On An Italian Default. Credit default swaps for Italy are surging, Der Spiegel reports. Citing figures from the Depository Trust and Clearing Corp, the German publication notes that the country has the highest gross CDS volume at $306 billion, ahead of Brazil ($179 billion) and Spain ($176 billion).
• JPMorgan(JPM) Warns of an Even More Disappointing Employment Index Number This Friday.
• Central Falls Files For Bankruptcy After Union Fails to Agree to Pension Cuts.
• And Now There Is A Fake Ikea Store In China.
  

Zero Hedge:

• CBO Scores "Bipartisan" Plan at Half of S&P Required Savings; Only 2% of Total Cuts to Take Place Before Obama Reelection.

NY Post:

• Foursquare Sets Revenue Plan. Foursquare is looking to cash in on all those check-ins. The social network, which has been known for having a fast-growing footprint -- more than 10 million members have checked in more than 750 million times to about 15 million venues worldwide, and a healthy valuation, $600 million after its recent $50 million round of financing -- but very little revenue, is now ready to pump up its top line, The Post has learned.

TheStreet.com:

• Oil's Relief Rally Loses Steam. The relief rally of crude oil prices came to a halt Monday as poor manufacturing data overshadowed a debt deal by lawmakers in Washington. Brent crude futures for September delivery were shedding 70 cents to $116.04, hitting a five-day low of $114.78 earlier. They hit a month-high of $120.40 earlier Monday. West Texas Intermediate light sweet crude oil for September delivery was tumbling $1.38 to $94.32, earlier reaching to a one-month low of $93.42.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Monday shows that 23% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-two percent (42%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -19 (see trends ).

Reuters:

• United States Approves "Free" Birth Control for Women. U.S. health insurance companies must offer women free birth control and other preventive health care services under Obama administration rules released on Monday.
• Syrian Tanks Shell Hama, Heaviest Barrage of Assault-Witnesses. Syrian tanks shelled residential neighbourhoods all over Hama on Monday in the heaviest barrage of a two-day attack on the city to crush street demonstrations against President Bashar al-Assad, witnesses said. Intense shelling began after Ramadan evening prayers, concentrating on districts near the al-Bilal roundabout in the northwest of the city, the Jarajmeh district in the east and northern neighborhoods near the Omar bin al-Khattab mosque, they said. "The shells are falling once every ten seconds," one of the witnesses told Reuters by phone, and the thump of artillery and explosions could be heard in the background.

Telegraph:

• Spain Will Need a Bailout. (video)

AFP:

• Italian Stocks Plunge -3.87%. Italian stocks closed down 3.87 percent on Monday with shares in Italy's top banks leading the losses as the long-term borrowing rate on government bonds rose sharply, reflecting investor nerves. The main FTSE Mib index dropped to 17,720 points with shares in insurance company Fondiaria-SAI plummeting 9.19 percent, UBI Banca plunging 7.93 percent and Intesa Sanpaolo lost 7.86 percent. UniCredit, Italy's largest bank, dropped 4.32 percent. Business daily Il Sole 24 Ore said there had been "a new wave of sales in Milan" while financial website firstonline.info said: "The Obama effect has run out" -- referring to a debt deal in the United States. The difference between the rate on Italian and German 10-year government bonds -- a key indicator of investment risk -- rose sharply to over 350 basis points.

China Business News:

• China's banking regulator issued a notice to banks warning them of associated risks when cooperating with financing and guarantee agencies.

Grain News:

• China may impose price caps on seeds produced by foreign-owned companies to reduce their influence in the domestic market, citing a person close to the government. A joint investigation by several ministries found overseas companies are expanding into the grain seed market after dominating the flower and vegetable seed industries.