Evening Headlines
Bloomberg:- Draghi Stresses Limits of ECB Tools as Pressures Mount. The European Central Bank may be running out of options it can stomach. With the euro area assailed by spreading recession, financial-market instability and political impasse over the direction the single currency should take, ECB President Mario Draghi yesterday stressed the limitations of his current policy tools, from standard interest-rate cuts to bond-buying and liquidity injections. Moves such as quantitative easing or capping bond yields to calm markets remain taboo for the ECB, which says its main job is to ensure stable prices. “It’s clear that they are very low on, if not completely out of, ammunition,” said Nick Kounis, head of macro research at ABN Amro in Amsterdam. “There are options that would have a more significant effect, but they’re outside of the ECB’s comfort zone. There’s an element of helplessness.”
- Spain Selling Bonds as Deepening Debt Crisis Threatens Demand. Two days after a senior government official said Spain’s access to debt markets was closed, the country will try to sell as much as 2 billion euros ($2.5 billion) of bonds at interest rates that will probably be higher than at its last auction of similar maturities. Budget Minister Cristobal Montoro said June 5 that European institutions should help come up with funds to shore up the nation’s lenders as “the door of the markets isn’t open to Spain.” The Treasury is selling two-, four- and 10-year debt, with France auctioning as much as 8 billion euros of securities. “Comments along the lines of being locked out of the market are very worrying,” John Davies a fixed-income strategist at WestLB AG in London, said in an interview. “Normally, the approach is to try and sound optimistic and talk things up. That’s not how the Spanish rhetoric has sounded recently. It’s going to be painful if they issue 10-year bonds above 6 percent.”
- Meister Calls on Spain to Seek Aid Soon, Rheinische Post Says. Michael Meister, the deputy floor leader of German Chancellor Angela Merkel’s Christian Democratic Union party, urged Spain to seek aid from the European Financial Stability Facility as quickly as possible, Rheinische Post said. Every day that the Madrid government continues to wait “just makes the whole matter more expensive for all of us,” Meister said, according to an interview with the newspaper. If Spain doesn’t apply for aid soon, it will have to seek a bigger amount in a few weeks, Rheinische Post cited Meister as saying.
- My Self-Esteem a Mess Is Spain Refrain for 4 Million Unemployed. Four years ago, Wendy Atkinson Navarro, 36, had a job, a husband and a home. Now, she is divorced, out of work and living with her mother near Madrid, a casualty of Spain's recession that has driven unemployment above 24 percent and is unnerving young people. "My self-esteem is a mess," Atkinson said. "My nephew is 15 years old, and the only difference between him and me is I have kids. That's how I feel."
- Germany's five-year credit default swaps rose yesterday, exceeding Japan's for the first time in two years, according to CMA prices. Germany's CDS were at 104.94 bps yesterday, while Japan's were at 103.79. That's the first time Germany's were more expensive than Japan's since May 29, 2009.
- China Delays Bank Capital Rule Tightening as Economy Slows. China plans to start tightening bank capital rules at the beginning of next year, further delaying the requirements to ensure lending support to a slowing economy. The China Banking Regulatory Commission had said in August the standards would begin Jan. 1 this year. New draft rules seek to set "reasonable" schedules for banks to meet capital targets in a way that helps "maintain appropriate credit growth," the government said on its website yesterday, without giving a deadline for full compliance with the standards. "Chinese banks are under a lot of pressure," Chen Xingyu, an analyst at Phillip Securities in Shanghai, said by phone. The delay is "not a surprise," as the government is "helping banks ease the pressure to raise capital again," Chen said.
- Carmakers Aggravate China Glut as Dealers Struggle. China’s biggest auto-dealer association said carmakers need to scale back their sales targets or sweeten incentives because the worsening glut of vehicles across the nation’s dealerships is unsustainable. Average inventory carried at Chinese dealerships bloated to a level exceeding two months of sales by the end of May, compared with more than 45 days at the end of April, Luo Lei, deputy secretary general of the state-backed China Automobile Dealers Association, said in an interview yesterday. That’s forcing dealers to deepen discounts and sell cars at a loss to meet mandatory sales targets set by automakers, he said. “Dealers can’t shoulder the burden anymore,” said Luo, whose association is authorized by the central government and represents 2,100 dealership groups. “Their backs are broken.”
- Hiring Hiccup Sets Off Alarms in Lousy Recovery by Caroline Baum.
- Copper Buyers Balk as Europe Crisis Unfolds, Top Producer Says. Codelco, the world’s largest copper producer, said buyers are delaying metal purchases amid concern that Europe’s debt crisis will slow global growth. Declining prices, including a 12 percent slump last month, reflect global demand that is falling short of Codelco’s estimated 3 to 3.5 percent annual growth rate, said Thomas Keller, the state-owned company’s chief executive officer. “Everybody is more cautious about making decisions both on the demand and supply side,” Keller said in an interview in Santiago yesterday. “The somewhat lower copper price these days is a reflection of that situation.”
- JPMorgan(JPM), Wells Fargo(WFC), GE(GE) and MetLife(MET) to Fund Oklahoma Wind Farm. JPMorgan Chase & Co. (JPM), the largest U.S. bank, led a group of investors that agreed to provide $220 million in tax-equity financing for an Oklahoma wind farm. JPMorgan, Wells Fargo & Co. (WFC), Metropolitan Life Insurance Co. and General Electric Co. (GE)’s GE Capital unit will provide the funds in the fourth quarter, Enel SpA (ENEL), the project developer, said today in a statement.
Wall Street Journal:- New Risk to Europe's Growth: Banks Cut Lending to Cities. For decades, when this medieval town wanted to borrow for a building project, officials just needed to walk into one of the many banks between city hall and the nearby 13th-century cathedral. This year, they have had to look farther afield. Unable to raise the money to keep city construction projects on track, Mayor Jean-Pierre Gorges has dispatched aides to Beijing in hopes of negotiating a loan from China Development Bank. As France's new president, François Hollande, tackles the many challenges posed by the deepening euro-zone crisis, from Spain's troubled banking system to Greece's potential exit from the currency union, here's the latest: Many municipalities can't fund their investment projects. This is no small matter because local governments in Europe carry out the majority of public infrastructure investments, from roads to sewage to hospitals, including more than 70% of those in France. So at a time when governments across Europe are searching for sources of growth and employment, localities' funding squeeze is making their job harder. "The impact on economic growth will be substantial," said Bernard Dreyfus, an academic who studies local-government finances.
- EU Lenders Plan Relies on Investors. The European Union proposed legislation for dealing with failing banks that aims to shift the cost of future bank collapses away from taxpayers and onto investors. The plan, drafted by the European Commission, the EU's executive arm, is the latest effort to ensure that the massive government-funded bank bailouts of recent years aren't repeated. It includes a controversial idea that delayed the proposal for months: forcing bank shareholders and even bank creditors to absorb losses if a firm runs into trouble.
- Probe Widens Into Mortgage Lenders. Federal officials are broadening their investigations of mortgage lenders that use a popular federally backed mortgage program, a move that could force more banks to pick up some of the rising tab for losses at the Federal Housing Administration.
- Children's CT Scans Pose Cancer Risk. A new study offers the most solid evidence to date that radiation from CT scans increases children's risk of developing leukemia and head and neck cancer.
- Beijing Dims the Lights on Data for Investors. Beijing has curtailed access to information often used by investors and short sellers to evaluate Chinese companies, which could further cloud an often murky market for foreign investors. A Chinese government agency that compiles extensive Chinese corporate records has begun to withhold information that includes financial reports, shareholder changes and assets transfers, according to lawyers, investors and research companies.
- Small Firms' Big Customers Are Slow to Pay. Many Large Companies Are Hoarding Cash, Squeezing Small Businesses That Have Fewer Resources and Less Access to Loans.
- Tax Evasion Eating Into Italian GDP. More than a quarter of the Italian economy eludes taxation, due to underground and criminal economic activities that push up borrowing costs and discourage investment in the country's most vulnerable regions, a senior Bank of Italy official said Wednesday. "Knowing an enemy's size and potential to create damage is essential in defining a winning strategy," Anna Tarantola, deputy director-general of the central bank, told the parliamentary anti-mafia committee in Rome.
- Facebook(FB) Early Buyers Burned Too.
- Labor Faces New Challenge. Organized labor, reeling from blows to government workers in Wisconsin and California elections, is grappling with the prospect of diminished political clout and fewer members in public-sector unions that have formed the core of the movement's power in recent years. Now, even in some Democratic pockets of the country, voters are signaling they are comfortable with shaving benefits and bargaining power from government-worker unions.
Business Insider: Zero Hedge:
CNBC:
- Ackman, Loeb, other hedge funds lose in May. May's stock market rout dealt a blow to many on Wall Street including several big hedge fund stars whose bets on prominent U.S. companies looked badly timed. Even William Ackman and Daniel Loeb, two of the $2 trillion industry's most respected players, failed to escape last month's sharp sell-off and finished May in the red. Ackman's Pershing Square Capital Management lost 7 percent, dropping more than the Standard & Poor's 500 index's 6 percent decline. Loeb's Third Point Partners dipped 2.6 percent, while the Third Point Ultra fund fell even more. Both managers are still in the black for the year, however.The news was much worse at some other hedge funds. Whitney Tilson, Ackman's college friend who has often invested in similar stocks, reported a 13.6 percent drop in his T2 Partners in May, acknowledging that most of his stock picks "got clobbered."
- New Rules on Jobs Data May Be Delayed Amid Outrage. New rules governing advance media access to the monthly jobs report from the Labor Department may not roll out all at once on July 6th as planned, a department official said Wednesday, due to ongoing negotiations with media organizations.
- Australia's Coal Mining Boom Ends as Prices Tumble. Falling coal prices and soaring costs have forced Australia's producers to start trimming output and letting go of some workers, hurting miners, rail and port operators and potentially threatening plans for more than $30 billion of investment in new mines.
- India's Economy: How Bad Is It? A 52-year-old handyman who has lived in New Delhi for 30 years, Ram Samujh has seen bad times before. But these days, as India faces an economic slowdown amid double-digit inflation, the future looks especially bleak.
IBD:
NY Times:
- Goldman Sachs(GS) Expected to Name Fewer Partners. As Goldman Sachs shrinks, its elite inner circle will also be getting smaller. The Wall Street firm is expected to name fewer than 100 new partners this fall, one of the smallest classes in recent years, according to people briefed on the matter but not authorized to speak on the record.
Reuters:- Exclusive - Europe Set to Regulate for Greener Cars. The European Commission is set to propose tighter carbon emissions standards for new EU cars, according to a draft proposal that is likely to divide the auto industry.
- Bill Clinton Becomes Romney's Favorite Surrogate for Obama. One of the top unanswered questions of the 2008 presidential campaign has come roaring back: What's Bill Clinton thinking? The former president has increased his profile in recent days, speaking out on behalf of the re-election campaign of President Barack Obama, a fellow Democrat. But some of Clinton's candid remarks have undermined Obama's attacks on Republican challenger Mitt Romney, leaving Democrats fuming, Republicans cheering and observers on both sides scratching their heads.
Financial Times:- Federal Reserve Set to Unveil Capital Proposals. US banking industry groups and lenders, including Citigroup and Wells Fargo, have been trying to persuade lawmakers that the measure, which is among a batch of proposals to implement the Basel III accords, will hurt them relative to overseas competitors. They also say that they may have to curtail purchases of long-term US Treasuries and municipal debt. They argue that the net effect of the change will force them to hold more capital over and above the stated requirements and that because of different accounting treatments, their foreign peers will have their capital levels protected from changes in the market value of some securities holdings.
- The euro and the “hope” trade. (graphs) One other thing from Wednesday’s SocGen Hedge Fund Watch that’s worth noting, especially given the ECB’s decision to hold rates steady earlier today:
Telegraph:
21st Century Business Herald:
- China Rate Cut Would Be 'Wrong Move'. China cutting interest rates would be a "wrong move," 21st Century Business Herald said today in an editorial. A rate cut would deepen inflation expectations and cause banks to lose deposits that could be lent to support economic growth, according to the editorial. A lending rate cut would reduce lenders' net interest margins, increasing risk exposure, the editorial said. A cut wouldn't likely improve domestic demand or ease pressure on production overcapacity, according to the editorial.
Evening Recommendations
Night Trading- Asian equity indices are +.25% to +1.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 194.0 -8.0 basis points.
- Asia Pacific Sovereign CDS Index 163.25 -6.5 basis points.
- FTSE-100 futures +.69%.
- S&P 500 futures +.17%.
- NASDAQ 100 futures +.11%.
Morning Preview Links
Earnings of NoteCompany/Estimate
- (CMVT)/.08
- (NAV)/.67
- (SJM)/.99
- (COO)/1.20
- (TITN)/.38
Economic Releases
8:30 am EST
- Initial Jobless Claims are estimated to fall to 378K versus 383K the prior week.
- Continuing Claims are estimated to rise to 3250K versus 3242K prior.
3:00 pm EST
- Consumer Credit for April is estimated to fall to $11.0B versus $21.35B in March.
Upcoming Splits
Other Potential Market Movers
- The Fed's Bernanke testifying before JEC, Fed's Fisher speaking, Fed's Rosengren speaking, Fed's Lockhart speaking, Fed's Kocherlakota speaking, BoE rate decision, Spanish bond auction, France bond auction, ICSC Chain Store Sales report for May, weekly EIA natural gas inventory report, weekly Bloomberg Consumer Comfort Index, RBC Consumer Outlook Index for June, Sandler O'Neil Brokerage Conference, CSFB Construction Conference, Stifel Nicolaus Energy Conference, (ALTR) mid-quarter update, (PAAS) analyst day, (CRUS) investor day, (SHFL) analyst day, (EXC) analyst meeting, (BSFT) analyst day, (AZPN) investor day and the (FEIC) investor meeting could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by technology and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.
