Today's Headlines

Bloomberg:

• Spanish, Italian Bonds Rise on Bets European Officials May Act on Crisis. Spanish and Italian bonds rose for the first time in six days after the Swiss central bank cut interest rates, stoking speculation euro-area policy makers may also take action to ease stresses in financial markets. German bunds swung between gains and losses as European Commission President Jose Barroso today urged governments to quickly approve a planned upgrade of the euro-area rescue fund, saying the perception that leaders haven’t found a “systemic” answer to the crisis is hurting investor sentiment. The European Commission said it will issue a statement on the “situation in the financial markets” today, while the European Central Bank will make its monthly decision on interest rates tomorrow. “There’s short-covering driven by an expectation of some sort of action,” said Steven Major, global head of fixed-income research at HSBC Holdings Plc in London. The Italian 10-year bond yield dropped three basis points to 6.10 percent at 4 p.m. in London. The 4.75 percent security maturing in September 2021 rose 0.19, or 1.9 euros per 1,000- euro ($1,428) face amount, to 90.57. The difference in yield, or spread, between Italian 10-year bonds and similar-maturity German debt was little changed at 372 basis points. The yield on 10-year Spanish bonds also fell three basis points, to 6.26 percent. The Spanish spread over bunds shrank four basis points to 387 basis points.
• ADP Says U.S. Companies Added 114,000 Jobs. Companies in the U.S. added 114,000 workers to payrolls in July, according to a private survey. The increase followed a revised 145,000 gain the prior month, according to data from ADP Employer Services. The median forecast of economists surveyed by Bloomberg News called for an advance of 100,000.
• U.S. Service Industry Grows Less Than Forecast. Service industries expanded in July at the slowest pace in 17 months as orders and employment cooled, indicating the biggest part of the U.S. economy had little spark to begin the second half of the year. The Institute for Supply Management’s index of non- manufacturing businesses, which covers about 90 percent of the economy, dropped to 52.7 from 53.3 in June. Readings above 50 signal expansion, and the median projection in a Bloomberg News survey was for 53.5 in July.
• MasterCard(MA) Jumps as Card Spending Increases. MasterCard Inc. (MA), the world’s second- biggest payments network, climbed the most in five weeks in New York trading after second-quarter profit beat analysts’ estimates, helped by an increase in customers’ spending. The stock gained 8.5 percent to $323.85 at 12:27 p.m. on the New York Stock Exchange, the biggest jump since June 29 and the highest since the company’s initial public offering in May 2006. Net income rose 33 percent to $608 million from the same period a year earlier, the Purchase, New York-based firm said today in a statement. Earnings per share of $4.76 exceeded the $4.23 average estimate of 29 analysts surveyed by Bloomberg as net revenue increased 22 percent to $1.7 billion.
• Crude Oil Declines to Five-Week Low on Concern U.S. Economy Is Faltering. Crude oil tumbled to a five-week low on concern that a faltering economy will curb fuel demand in the U.S., the world’s biggest oil-consuming country. “The main driver is the economy,” said Sean Brodrick, a natural resource analyst with Weiss Research in Jupiter, Florida. “If the U.S. economy is slowing the easiest path for oil is lower. We’ll soon be testing support just below $90.” Crude oil for September delivery dropped $2.15, or 2.3 percent, to $91.64 a barrel at 1:29 p.m. on the New York Mercantile Exchange. Futures touched $91.22, the lowest level since June 28. Prices have climbed 11 percent in the past year.
• Wal-Mart(WMT) Visits Drop as Products Fail to Draw. Visits to Wal-Mart Stores Inc. (WMT)’s U.S. locations open at least a year dropped 2.6 percent from February through June, according to an internal memo, while rivals are attracting customers.

Wall Street Journal:

• Former Top Fed Officials Signal Support For QE3 If Inflation Slows. The U.S. economy faces a risk of falling back into recession and the Federal Reserve might need to consider a new round of securities purchases to deal with it, even though it isn’t in a strong position to address a slowdown, three former top officials at the central bank said. In an exclusive interview with the Wall Street Journal, Donald Kohn, Vincent Reinhart and Brian Madigan – the last three directors of the Fed’s powerful monetary affairs committee — put the risk of a new economic contraction at between 20% and 40%.

CNBC.com:

• Mortgage Applications Rose Last Week on Lower Rates. The MBA's seasonally adjusted index of refinancing applications rose 7.8 percent, while the gauge of loan requests for home purchases rose 5.1 percent.

Business Insider:

• Boehner Introduces Revised Debt Ceiling Plan, Senate Democrats Pledge To Vote Against It.
  
• 11 Big Things Worrying Hedge Funder John Burbank.
• Google+ Panic at Facebook? Engineers Embrace Another "Lockdown" In Response to Google's Social Network.
• Sorry Liberals, There's Almost No Chance The "Super Committee" Can Raise Taxes.
• "Sudden and Unexpected" Burst Of Downsizing Causes Layoffs to Explode Nearly 60% in July.
  

Rasmussen Reports:

• 69% Say It's Likely Scientists Have Falsified Global Warming Research.

Reuters:

• Sovereign Rot Hits Italian Banks. Italian banks' reliance on the ECB has jumped to its highest since the beginning of the year as they struggle to access the bond market as a result of the sovereign crisis. "We are increasingly concerned about Italy and its banks being drawn into a vicious circle of shrinking market access, rising funding costs and deteriorating credit ratings and - ultimately - fundamentals," said Georg Grodzki, head of credit research and Legal and General Investment Management.

Telegraph:

• ECB To Protect Europe By Buying Bonds. The European Central Bank is expected to signal it is stepping into the eurozone debt crisis on Thursday by reopening its purchases of government debt, amid fears the turmoil will claim the economy of a nation that is "too big to bail".

Bear Radar

Style Underperformer:

• Large-Cap Value (-.19%)

Sector Underperformers:

• 1) Oil Tankers -3.09% 2) Coal -1.69% 3) Papers -1.68%

Stocks Falling on Unusual Volume:

• PVA, MRO, CLMT, TTI, CTL, MSTR, GRMN, VCLK, GTIV, OPEN, POWI, RRD, CSGS, LINC, BRKR, AUXL, XTXI, JAZZ, THO, SPW and OC
  

Stocks With Unusual Put Option Activity:

• 1) OC 2) FTNT 3) BYD 4) CIGX 5) SVM
  

Stocks With Most Negative News Mentions:

• 1) HRBN 2) DIOD 3) PENN 4) OSG 5) AGP
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth (+.01%)

Sector Outperformers:

• 1) Gold & Silver +1.51% 2) Networking +.41% 3) Restaurants +.32%

Stocks Rising on Unusual Volume:

• MA, RGLD, MMC, EXPD, INT, IBKC, GNET, AMAG, JCOM, NXTM, BOOM, PEET, RLOC, KNXA, MPWR, MDRX, EZCH, REXX, TRMB, HSNI, PNK, FIX, TRMB, DGI, SFSF, FNGN, NXTM, CLH, PWR, AMAG, MA, WBMD, DIN, IDCC, FEIC, PEB, LXK, AMT, WTS, TLEO, VRSK, HRS and MTOR
  

Stocks With Unusual Call Option Activity:

• 1) MCK 2) FTR 3) GRMN 4) MA 5) MWE
  

Stocks With Most Positive News Mentions:

• 1) AAPL 2) MA 3) STJ 4) GOOG 5) CBOE
  

Charts:

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

Wednesday Watch

Evening Headlines

Bloomberg:

• Recession Panel Majority Sees Rising Odds of a Renewed U.S. Economic Slump. The odds of another U.S. downturn are rising amid cutbacks in spending by consumers and the government, according to five of the nine members of the U.S. panel that dates recessions. “This economy is really balanced on the edge,” Harvard University economics professor Martin Feldstein, a member of the Business Cycle Dating Committee of the National Bureau of Economic Research, said in an interview on Bloomberg Television’s “Surveillance Midday” with Tom Keene. “There’s now a 50 percent chance that we could slide into a new recession. Nothing has given us much growth.” A greater-than-expected slowdown in the first half of 2011 poses risks for the world’s largest economy, said economist Robert Hall of Stanford University, the panel’s chairman. Gross domestic product climbed at a 1.3 percent annual rate from April through June after a 0.4 percent gain in the prior quarter that was less than earlier estimated, Commerce Department figures showed July 29. “The slower the growth rate, the more likely it is that an adverse shock would cause a recession,” Hall said in an interview.
• Moody's Affirms U.S. Ratings, Warns of Downgrades. Moody’s Investors Service and Fitch Ratings affirmed their AAA credit ratings for the U.S. while warning that downgrades were possible if lawmakers fail to enact debt reduction measures and the economy weakens. The outlook for the U.S. grade is now negative, Moody’s said in a statement yesterday after President Barack Obama signed into law a plan to lift the nation’s borrowing limit and cut spending following months of wrangling between Democratic leaders and Republican lawmakers. The compromise “is a positive step toward reducing the future path of the deficit and the debt levels,” Steven Hess, senior credit officer at Moody’s in New York, said in a telephone interview yesterday. “We do think more needs to be done to ensure a reduction in the debt to GDP ratio, for example, going forward.” JPMorgan Chase & Co. estimated that a downgrade would raise U.S. borrowing costs by $100 billion a year, while Obama said it could hurt the broader economy by increasing consumer borrowing costs tied to Treasury rates. The ratio of general government debt, including state and local governments, to gross domestic product is projected to climb to 100 percent in 2012, the most of any AAA-ranked country, Fitch said in April.
  
• China's Zhou to Monitor U.S. Debt as Xinhua Sees 'Bomb' Yet to Be Defused. Governor Zhou Xiaochuan said China’s central bank will closely monitor U.S. efforts to tackle its debt as the official Chinese news agency criticized what it called the “madcap” brinksmanship of American lawmakers. The People’s Bank of China welcomed legislation that raised the U.S. debt limit and prevented a default, Zhou said in a statement on the central bank’s website today. Xinhua News Agency said the move “failed to defuse Washington’s debt bomb for good,” in a commentary dated yesterday.
• LBO Loan Costs in Europe Exceed Lehman Crisis: Credit Markets. Private-equity firms face funding costs for European leveraged buyouts that exceed even the aftermath of Lehman Brothers Holdings Inc.'s collapse as a weakening global economy and Europe's debt crisis damp demand for high-yield, high-risk loans. Interest rates on loans to finance LBOs have risen to average 450 basis points more than benchmarks since June, from 413 basis points in the first five months, according to data compiled by Bloomberg. Margins peaked at about 437 basis points following Lehman's bankruptcy in late 2008.
• Commercial Mortgage Late Payments Hit Record in Signal of Market Distress. Late payments on commercial mortgages bundled and sold as bonds rose the most in more than 12 months, adding to concern that the market is deteriorating three years after the financial crisis choked off funding to borrowers. Delinquencies on the debt jumped 51 basis points in July to a record 9.88 percent, according to real estate data provider Trepp LLC. The increase follows two months of declines, the New York-based firm said today in a statement. The jump is partly because of how loan servicers report mortgages that are in foreclosure, Trepp said. “Much of the positive momentum that had been surrounding the CMBS market recently has now all but vanished in the past few weeks,” according to the statement from Trepp. Borrowers are falling behind on payments as a revival in new debt sales stumbles after investors pushed back on deal terms. Wall Street banks sold $3 billion in commercial mortgage- backed securities last month at the highest yields since issuance resumed in November 2009 and Standard & Poor’s exacerbated market turmoil by withdrawing rankings last week on new deals. S&P’s decision forced Goldman Sachs Group Inc. (GS) and Citigroup Inc. (C), to scuttle a $1.5 billion deal after it was placed with investors. Wall Street lenders may incur ”hundreds of millions of dollars” in losses as prices on commercial-mortgage bonds tumble, Barry Sternlicht, the chief executive officer of Starwood Capital Group LLC, said on a conference call with investors today for Starwood Property Trust, a unit of the firm. The company used a “wild hedge” that prevented Starwood from losing “a lot of money,” he said. “Most of our peers in this business did not have hedges like this in place to our knowledge,” Sternlicht said.
• Corzine's Obama Covenant in MF Global Offering Stuns Wall Street. MF Global Holdings Ltd. (MF) took the cult of the Wall Street chief executive officer to a new level with a plan to sell bonds that pay a higher rate if Chairman and CEO Jon Corzine quits to take a job from the U.S. president. The futures broker is selling $300 million in five-year unsecured notes, said a person familiar with the offering who declined to be identified because the terms aren’t final. The notes will pay an extra percentage point of interest if Corzine is named to a federal post and confirmed by the Senate before July 2013, New York-based MF Global said in a regulatory filing. “That seems crazy,” said William Larkin, a fixed-income portfolio manager who oversees $500 million at Cabot Money Management Inc. in Salem, Massachusetts, and has 22 years of experience. “I’ve never heard of something like this.”
• Irish Disease Returns to Economy as Job Scarcity Spur Exodus From Country. Unemployment and emigration, the twin diseases that blighted Ireland in the 1980s before its economic boom, are returning to ail the country after the bust. The jobless rate will probably remain above 14 percent through the next year, according to economists at Allied Irish Banks Plc and Ulster Bank in Dublin. That’s double the level of three years ago. The unemployment rate was 14.2 percent in June and the statistics office will publish July data at 11 a.m. tomorrow. Meanwhile, more people are leaving the country than at any time since 1989. “Things are desperate,” Joe Cox, 51, who lost his job 11 months ago after running a hardware store before Ireland’s property bubble imploded, said outside a welfare office in Dublin. “Employers don’t even reply a lot of the time.”
• Oil Slides a Fourth Day as U.S. Spending Drops, Moody's Warns of Downgrade. Oil declined for a fourth day in New York, its longest losing streak since May, as investors bet that signs of a slowing U.S. economy indicate fuel demand will falter in the world’s biggest crude-consuming nation. “The economic numbers are reflecting that demand is weak in the U.S.,” said Jonathan Barratt, a managing director of Commodity Broking Services Pty in Sydney, who predicts oil will average $100 a barrel this year. “Prices could come back to the $90 level, if not more.” Crude for September delivery dropped as much as 69 cents to $93.10 a barrel in electronic trading on the New York Mercantile Exchange, and was at $93.32 at 11:55 a.m. Sydney time. Oil is extending losses in New York after dropping below the 200-day moving average yesterday, a long-term support level at about $95 a barrel, according to data compiled by Bloomberg. A breach of technical support usually means prices will continue to fall.
• Best U.S. Consumer Spending Forecaster DeKaser Sees Rebound in Second Half. Richard DeKaser, the best forecaster of U.S. consumer spending, projects expenditures will “rebound somewhat” in the second half of the year, reflecting the drop in fuel costs and a recovery in auto sales. The deputy chief economist at the Boston-based Parthenon Group calls for a 2.5 percent gain in spending in the second half of the year and 1.7 percent next year. Purchases rose at a 0.1 percent annual rate in the second quarter, the worst performance in two years, according to Commerce Department data.
• Wall Street Faces Disclosure to States, Cities. Wall Street banks hired to arrange bond sales for U.S. states and cities may be forced to tell public officials about potentially costly risks and conflicts of interest involved in the financings. The Municipal Securities Rulemaking Board, which draws up regulations for banks that work in the tax-exempt debt market, said today that it asked the U.S. Securities and Exchange Commission to approve the rules placing greater disclosure requirements on bond underwriters.
• Emerging Market Stocks Poised for 'Ominous' Drop: Technical Analysis. An "ominous" head-and-shoulders pattern has formed over the MSCI Emerging Markets Index(EEM), which may foreshadow declines that will take it to the lowest level in almost a year, according to Auerbach Grayson & Co. Investors should sell stocks of developing nations except for Russia, South Korea and Indonesia, Richard Ross, global technical strategist at Auerbach Grayson, said in a note to clients.
  
• Diggle's New Hedge Fund Bets on Volatility as Crisis Shifts to Public Debt. Stephen Diggle, the Singapore-based hedge fund manager who made $2.7 billion for investors as markets see-sawed in 2007 and 2008, is betting on price swings in government debt, currency and commodity markets amid concern that the debt crises in Europe and the U.S. may worsen. There has been an “unprecedented level of transfer of indebtedness from banks to governments” after the global financial crisis that followed the 2008 collapse of Lehman Brothers Holdings Inc., said Diggle, who started Vulpes Investment Management after liquidating Artradis Fund Management Pte’s volatility funds this year. “The fault lines have moved away from the private sector to the public sector,” Diggle, 47, said. “These sorts of distortions are coming about principally because of government activity rather than excessive fear or greed amongst investors, which is what normally causes volatility.” “I’m not sure if the next crisis will be centered on the stock markets,” said Diggle. “It’s likely to be centered on government debt markets, currency markets and probably commodity markets.”

Wall Street Journal:

• Deficit Battle Shifts to Panel. The Senate approved—and President Barack Obama immediately signed—the long-awaited deal to raise the nation's debt limit Tuesday, as the battle shifted to how a special committee created by the measure will cut the deficit by $1.5 trillion.
• Worries Mount Over Italy and Spain. Government bonds and financial markets in Italy and Spain continued their relentless downward march Tuesday, heightening concern about the potential spread of the euro zone's debt crisis into two of the region's most vulnerable countries. In Italy, the government shifted into emergency mode on Tuesday, as government-bond yields climbed and the share prices of the Italian banks that hold many of them slid precipitously.
• Europe's Banks Retreat. Barclays Latest to Turn Defensive as Chief Executive Cites "Loss of Confidence". Banks across Europe are retrenching in efforts to shield themselves from the continent's financial crisis and an increasingly bleak international economic outlook. Some banks are scrambling to dump government bonds and cut credit lines in southern Europe's economic laggards, while others are stockpiling cash. They are also firing thousands of workers and warning about a growing number of red flags they see among customers. With the crisis starting to infect Spain and Italy, where borrowing costs recently have skyrocketed, some banks appear to be accelerating their cleanup and fortification efforts. Barclays, which has suffered more than £1 billion in losses on corporate and commercial real-estate loans in Spain, said it was holding about £6.6 billion, or €7.6 billion ($10.8 billion), of such assets as of June 30. That is down sharply from the roughly €11.1 billion figure it reported as of Dec. 31 in the stress tests. "The size of the balance sheet in Spain is absolutely shrinking," said John Winter, the head of the corporate-banking arm at Barclays. He said the bank is focusing, in particular, on reducing its portfolio of Spanish construction and property loans. A similar move is under way at HSBC Holdings PLC. Iain Mackay, the bank's chief financial officer, said Monday that HSBC has been limiting credit lines for customers in Spain and Italy.
• BofA(BAC) Proposes Loan-Forgiveness Deal. Bank of America Corp. is having preliminary conversations about a home-foreclosure settlement that would reduce the amounts owed by some of its troubled borrowers in exchange for a broad release from legal claims against the lender, said people familiar with the talks.
• Census Shows New York Exodus. New Yorkers are flocking to other states at the fastest rate in the nation. And most of them are leaving from New York City, according to a new analysis of U.S. Census data. Over the past decade, about 1.6 million New Yorkers, or 8% of the state's population, decamped to another part of the country, a bigger percentage drop than any other state, said the analysis released Tuesday by the Empire Center for New York State Policy.
• Amazon(AMZN) Battles States Over Sales Tax.
• Where's Your Budget, Mr. President? by Paul Ryan. Ever since they fudged the numbers to pass ObamaCare, Democrats have abandoned credible spending plans.

MarketWatch:

• Bin Laden Group to Build World's Tallest Tower. An affiliate of Saudi Arabia's Kingdom Holding Co., Jeddah Economic Co., has signed a deal worth roughly $1.23 billion with the Bin Laden Group to build the world's tallest tower in Jeddah, Saudi Arabia, the Wall Street Journal reported Tuesday.

CNBC:

• US Rating 'Will Remain Under Pressure': Fitch. Fitch's triple-A rating on U.S. debt is safe, for now, but that could change if "fundamental weakness" in the economy isn't addressed, Fitch Managing Director David Riley told CNBC Tuesday.

Business Insider:

• The Updated Guide To Europe's Impending Debt Disaster. Way back in March we gave you a guide to the debt situation in Europe. Since then, Portugal needed a bailout, Greece needed a second bailout, Cyprus now probably needs a bailout, and Belgium still has no government. In light of the changes, here's our updated guide to the economic conditions of the PIIGS and other countries in Europe that the markets worry about.
• A War of Words Erupted After Deutsche Bank Dropped $11 Billion in Italian Government Bonds.
• Israel Will Bomb Iranian Nuclear Sites Next Month, Ex-CIA Agent Predicts.
• More Than Half of Mexico's Top Prosecutors Have Resigned En Masse.
  

Zero Hedge:

• Food Stamp Use Surges By Most In Years as Alabama Food Stamp Recipients Double In May. (graph)

Forbes:

• Higher Taxes and An Epic Tax Fight Are On The Horizon.

Politico:

• Debt Ceiling Bill's Super Committee Has Lobbyists Preparing. K Street wasted little time putting clients on notice about the next phase of the debt ceiling debate with a simple message: Nobody is safe from the super committee.

Rasmussen Reports:

• Election 2012: Generic Republican 47%, Obama 42%.

Reuters:

• Google(GOOG)+ Attracts 25 Million Visitors - comScore. Google Inc's new social network has attracted 25 million users, making it the fastest website to reach that audience size, according to data released on Tuesday by comScore. Google+, launched in late June, had 25 million unique visitors as of July 24 and is growing at a rate of roughly one million visitors a day, comScore noted in a presentation. In contrast, it took Facebook about three years to attract 25 million visitors, while Twitter took just over 30 months, according to comScore.
• Moody's Puts State-Linked U.S. Institutions on Negative Watch. Credit rating agency Moody's Investors Service reaffirmed the Aaa ratings of several major state-linked U.S. financial institutions on Wednesday but, in line with its outlook for sovereign debt, gave notice of a possible downgrade. Moody's statement applies to mortgage firms Fannie Mae and Freddie Mac, the Federal Home Loan Banks and the Federal Farm Credit Banks. "In conjunction with the revision of the U.S. government outlook to negative, the rating outlook for these directly linked issuers has also been revised to negative," it said.
  
• Corrosiveness of Oil Sands Crude An Unproven Science. There is little hard evidence that the Canadian oil is more corrosive than conventional crude, scientists and regulators say. Environmental groups, led by the New York-based Natural Resources Defense Council (NRDC), contend that the oil from the Alberta tar sands, when blended with light hydrocarbons to allow it to flow, eats away at the insides of long-haul pipelines because of its high acidity and mineral content.
• S&P Says Markets Have Discounted Possible U.S. Downgrade. A senior official at rating agency Standard & Poor's said on Wednesday that global markets have already discounted a possible U.S. ratings downgrade, and that Asian nations' ratings were generally on an uptrend despite global economic woes. "Market is to some extent already discounted to the potential risk of a U.S. downgrade," Takahira Ogawa, director of sovereign ratings at S&P, told Reuters. He said Indonesia, the Philippines and South Korea have a relatively larger proportion of debt held by foreign funds and could be more vulnerable to any risk aversion, but said most Asian sovereign ratings were on the uptrend. However, he said Japan's finances remained a worry. "We see Japan sovereign risk still increasing but not to the extent for us to have another action," Ogawa said.

Global Finance:

• US Hasn't Given Japan Support For Possible Currency Intervention - Source. The U.S. hasn't given its backing to Japan for possible intervention in currency markets, a person familiar with the matter told Dow Jones Newswires on Tuesday. Japan's government has received no support from the U.S. for intervention, the person said, declining to elaborate. Japanese Finance Minister Yoshihiko Noda and other officials have stepped up their threats of intervening to curtail the strength of the yen, as the dollar has approached the post-World War II lows reached before Japan and its Group of Seven counterparts joined in March to sell the yen in the first coordinated intervention in a decade.
  

Financial Times:

• Eurozone Bail-Out Triggers Loom Large. Spanish and Italian debt is edging closer to a number of triggers that could take the eurozone crisis to a new peak. Spreads on the eurozone’s third- and fourth-largest economies – the premium they pay to borrow over Germany – hit 404 basis points for Spain and 384bp for Italy on Tuesday. That edges both countries closer to higher margin calls for Europe’s biggest clearing house, LCH.Clearnet, a move that has previously deepened market problems for other peripheral eurozone countries. LCH imposes an additional margin requirement of 15 per cent when the yield spread rises above 450bp. “These spreads are not sustainable … Something has to give,” said one senior European capital markets banker.

Telegraph:

• Europe's Money Markets Freeze as Crisis Escalates in Italy and Spain. The European money markets have begun to seize up as pressure mounts on the Italian and Spanish banking systems, tracking the pattern seen during the build-up towards the financial crisis in 2008. The three-month euribor/OIS spread, the fear gauge of credit markets, reached the highest level in two years today, jumping 7 basis points to 40 in wild trading. "Europe's money markets are undoubtedly starting to freeze up," said Marc Ostwald from Monument Securites. "It's not as dramatic as pre-Lehamn but it is alarming and shows the pervasive degree of fear in the markets. People are again refusing to lend except on a secured basis."

The Australian:

• IMF Warns Interest Rates Will Have to Rise. THE International Monetary Fund warns that interest rates will need to rise further to deal with the mining boom, tax reform needs to be more urgent to ease two-speed economy pressures and the budget needs to build bigger surpluses to prepare for a possible slump in Chinese export demand. The head of the IMF's annual staff mission to Australia estimates house prices here are 10-15 per cent overvalued and says they are likely to remain flat for several years.

Xinhua:

• China's Dagong Global Credit Rating Co. cut the credit rating for the U.S. to A from A+ with a negative outlook after the U.S. government announced its debt limit would be increased again, citing a statement from Dagong.

China Digital Times:

• China Extends Surveillance Into Supermarkets, Cinemas and Classrooms.

Securities Times:

• Beijing's land sales for residential developments reached 16 billion yuan for the first seven months of this year, 15% of last year's total, citing Beijing Land Consolidation and Reserve Center. Home purchases limits and tighter credit have affected real estate developers' funds, according to the report.

Financial News:

• China must maintain continuity and stability of policy while implementing prudent monetary policy in the second half of this year, the Financial News said in a front-page commentary today. Controlling consumer price increases to within 5% this year won't be easy and needs great effort, the commentary said. China should use tools, including open market operations and reserve requirement ratios, to maintain liquidity at an appropriate level, according to the commentary by a writer at the central bank publication. The nation needs to increase flexibility of the exchange rate, the commentary said.

People's Daily:

• China should curb inflation in the next few years as it affects social and economic stability, Lin Zhaomu, a researcher with the National Development and Reform Commission's academy of macroeconomic research, wrote in a commentary today. Imported inflation, rising domestic costs, investment demand and excess liquidity are the main drivers of rising consumer prices these days, Lin wrote.

Beijing Times:

• China failed to sell 353 parcels of land at auction in the first seven months of this year, 242% more than the same period a year earlier, because of government curbs on the property market, citing Beijing Homelink Real Estate Co.

Evening Recommendations
Citigroup:

• Reiterated Buy on (MDRX), target $25.

CSFB:

• Reiterated Outperform on H, lowered target to $50.
  

Night Trading

• Asian equity indices are -2.0% to -1.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 123.0 +6.5 basis points.
  
• Asia Pacific Sovereign CDS Index 122.25 +4.75 basis point.
  
• S&P 500 futures +.15%.
  
• NASDAQ 100 futures +.09%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (KKR)/.40
• (MA)/4.23
• (OC)/.58
• (EE)/.63
• (DVN)/1.53
• (TWX)/.56
• (MMC)/.48
• (PWR)/.17
• (ICE)/1.67
• (SPW)/.89
• (WCG)/.95
• (TRW)/1.71
• (KCP)/.03
• (CECO)/.66
• (MDR)/.31
• (ATW)/1.03
• (ATVI)/.05
• (WMB)/.39
• (PRU)/1.54
• (CQB)/1.13
• (TSO)/1.32
• (GGC)/.35
• (IPI)/.36
• (SKYW)/.01
• (BID)/1.56
• (CEG)/.84
• (DNDN)/-.71
• (CMCSA)/.40
• (CLX)/1.19
• (ANDE)/1.72

Economic Releases
8:15 am EST

• The ADP Employment Change for July is estimated at +100K versus +157K in June.

10:00 am EST

• ISM Non-Manufacturing for July is estimated to rise to 53.5 versus 53.3 in June.
• Factory Orders for June are estimated to fall -.8% versus a +.8% gain in May.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,500,000 barrels versus a +2,296,000 barrel increase the prior week. Distillate inventories are expected to rise by +1,500,000 barrels versus a +3,385,000 barrel gain the prior week. Gasoline supplies are estimated to rise by +250,000 barrels versus a 1,022,000 barrel gain the prior week. Finally, Refinery Utilization is estimated unch. versus a -2.0% decline the prior week.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Challenger Job Cuts report for July, weekly MBA mortgage applications report, (MDAS) Investor Day and the Leerink Swann Life Science Tools/Diagnostics Roundtable Conference could also impact trading today.
  

BOTTOM LINE: Asian indices are lower, weighed down by technology and commodity shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

Stocks Falling into Final Hour on Soaring Eurozone Debt Angst, US Tax Hike Worries, Global Growth Concerns, Technical Selling

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Almost Sector Declining
  
• Volume: About Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 23.83 +.72%
  
• ISE Sentiment Index 98.0 +13.95%
  
• Total Put/Call 1.18 +2.61%
  
• NYSE Arms 3.01 +53.32%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 96.91 +1.44%
  
• European Financial Sector CDS Index 172.68 +11.50%
  
• Western Europe Sovereign Debt CDS Index 290.17 +1.16%
  
• Emerging Market CDS Index 214.12 +1.26%
  
• 2-Year Swap Spread 25.0 +3 bps
  
• TED Spread 23.0 +4 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .04% -3 bps
  
• Yield Curve 231.0 -6 bps
  
• China Import Iron Ore Spot $177.40/Metric Tonne +.74%
  
• Citi US Economic Surprise Index -90.40 +2.2 points
  
• 10-Year TIPS Spread 2.35% -7 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -91 open in Japan
• DAX Futures: Indicating -12 open in Germany

Portfolio:

• Slightly Lower: On losses in my Technology, Medical, Retail and Biotech sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and added to my (EEM) short
  
• Market Exposure: Moved to 50% Net Long

BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 breaks convincingly below its 200-day moving average on soaring eurozone debt angst, rising food prices, US tax hike concerns, more poor US economic data, emerging market inflation fears, financial sector pessimism and global growth worries. On the positive side, Computer Service and Telecom shares are holding up relatively well, falling less than -.75%. Oil is falling -1.7%. Weekly retail sales rose +4.3% versus a +4.2% gain the prior week. On the negative side, Airline, Road & Rail, Gaming, REIT, Homebuilding, Bank, Disk Drive, Paper, Oil Tanker, Coal and Alternative Energy shares are under significant pressure, falling more than -2.75%. (XLF)/(IYR) have underperformed throughout the day. Cyclicals are also relatively weak. The Transports are breaking convincingly below their 200-day moving average on volume. The Networking Sub-Index is down -26.3% from its April 27th high. The 10-year yield is again falling too much, down -13 bps to 2.61%. My intermediate-term technical indicators are now giving sell signals on the yield curve. The UBS-Bloomberg Ag Spot Index is rising +1.47%, Lumber is dropping another -4.2%, gold is surging +2.4% and Copper is down -.43%. Lumber is now back to its June 16th 52-week low. Rice is rising another +.8% today and is still near a multi-year high, soaring about +27.0% 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 +9.2% to 359.17 bps, the France sovereign cds is rising +6.77% to 134.0 bps, the Spain sovereign cds is surging +4.80% to 404.62 bps, the Germany sovereign cds is rising +2.26% to 65.46 bps, the UK sovereign cds is rising +3.44% to 76.53 bps, the Belgium sovereign cds is rising +8.77% to 225.50 bps and the Ireland sovereign cds is rising +3.06% to 841.47 bps. The Italy sovereign cds has soared +144 bps in 8 days. The Spain, Italy and France sovereign cds are making new record highs today. The German sovereign cds is breaking out to a multi-year high. The Eurozone Financial Sector CDS Index is very close to record highs, as well. Asian indices were weak overnight despite the US debt deal, with India's Sensex falling another -1.1%, which leaves it down -11.7% ytd. Germany's DAX has broken down badly over the last 2 days and is now down -1.7% ytd. French(-1.8%), Italian(-2.53%) and Spanish(-2.18%) stocks continue to trade very poorly. Italian stocks are now down -14.4% ytd and are down -23.3% from their Feb. 17th 52-week high. The action in European equities and cds remain a huge concern. The situation again appears to be spinning out of control. Most gauges of investor angst are registering too much complacency given the magnitude of current headwinds. While the US debt ceiling situation has been resolved, talk of super committee imposed significant tax hikes in the future still leaves significant uncertainty for businesses and thus hiring. It is somewhat amazing that we appear to be following the European spending cut/tax hike model that has so miserably failed and left their budgets in even worse shape as economic growth falters. I am hearing QE3 talk again, notwithstanding how badly QE2 failed in its stated goals. With oil still near $100/bbl and the UBS-Bloomberg Ag Spot Index trading as if another record high is in the offing, the odds of QE3 are likely pretty low and would prove another huge mistake if implemented. I expect US stocks to trade mixed-to-lower into the close from current levels on soaring eurozone debt angst, US tax hike worries, global growth concerns, technical selling, emerging markets inflation fears, rising food prices and financial sector pessimism.

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.