Today's Headlines

Bloomberg:

• Draghi Says Rate Cuts May Have 'Muted' Impact On Economy. European Central Bank President Mario Draghi said today’s cut in interest rates to a record low may have only a limited impact on the euro-area economy as it slides toward recession. “It’s clear that when demand is weak the transmission of price signals to the aggregated economy is muted,” Draghi said at a press conference in Frankfurt after lowering the benchmark and deposit rates by 25 basis points to 0.75 percent and zero respectively. The cuts will reduce the cost of central bank loans for struggling banks, Draghi said. China also lowered rates today and the Bank of England restarted its asset purchases, adding to a new round of global monetary stimulus. With Europe’s debt crisis curbing growth across the continent and damping the outlook for the world economy, the ECB was under pressure to ease monetary conditions, even though Draghi last month voiced misgivings about the effectiveness of a rate reduction. “The impact of today’s decision on the euro area will not be large” and “there is now little left for the ECB to do in terms of lowering interest rates,” said Julian Callow, chief European economist at Barclay’s Capital in London. “If the economy does not turn around during the second half, the Governing Council will have to address the case for outright large-scale asset purchases.”
• Spanish, Italian Bonds Slump as ECB Refrains From Extra Measures. Spanish and Italian bonds tumbled as the European Central Bank refrained from announcing any additional steps to cap debt yields in the two nations after cutting its benchmark interest rate to a record low. Spain’s 10-year yields climbed the most in the euro era after the nation’s borrowing costs increased at an auction amid concern the debt crisis is worsening. German two-year notes rose as the ECB also cut its deposit rate to zero to revive the region’s economy. Speaking in Frankfurt after the decision, ECB President Mario Draghi said the council didn’t discuss other non-standard tools. Spanish and Italian bonds jumped last week after euro-area leaders expanded steps to combat the turmoil. “The market was slightly disappointed as it hoped for the ECB to announce further steps to address the crisis,” said Lyn Graham-Taylor, a fixed-income strategist at Rabobank International in London. “The ECB may want to keep pressure on politicians to do their jobs. Our preference remains on core bonds as we expect the situation in the peripheral markets to deteriorate in the next few months.” The Spanish 10-year yield climbed 37 basis points, or 0.37 percentage point, to 6.78 percent at 5 p.m. in London after rising 43 basis points, the biggest increase since August 1994. The 5.85 percent bond due in January 2022 dropped 2.45, or 24.50 euros per 1,000-euro ($1,240) face amount, to 93.59. Italy’s 10-year bond yield increased 21 basis points to 5.98 percent. It earlier climbed to 6.04 percent, the first time it has breached the 6 percent level since June 29.
• European Bond Risk Rises as Central Bank Lowers Interest Rates. The cost of insuring against default on sovereign and corporate debt rose after the European Central Bank cut interest rates to a record low, while refraining from announcing additional steps to boost the economy . The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments rose 10 basis points to 279.5 at 3:40 p.m. in London. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings rose 22 basis points to 665. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings increased six basis points to 165. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers climbed 13 basis points to 268 basis points and the subordinated index increased 16 to 437.
• Euro Money Market to Get Little Stress Relief From ECB Rate Cuts. Estimates of future interbank euro borrowing costs fell to a record after today’s European Central Bank rate cuts, heightening concerns that ultra-low returns will further dissuade banks from lending to their peers. Three-month swaps linked to the euro overnight index average, or Eonia, fell to as low as 12.6 basis points after the ECB lowered its deposit rate by 25 basis points to zero percent. The measure of overnight unsecured lending transactions, the so- called Eonia-OIS swap, has fallen from 39 basis points at the start of the year. “The Eonia-OIS is likely to fall lower, and that may kill the interbank market because you’re taking such a large credit risk relative to the revenue you’re getting,” said Robin Belec, chief operating officer at In Touch Capital Markets Ltd. in London. “Banks that are short of liquidity may become more dependent on the ECB despite the zero deposit rate.” The cost for European banks to borrow in dollars rose to the highest in four months. The three-month cross-currency basis swap, the rate banks pay to convert euro interest payments into dollars, was 69 basis points below the euro interbank offered rate, the highest cost since March 5, from 58 yesterday. The one-year basis swap was 55 basis points below Euribor from minus 52 yesterday. Prices in the forward market for three-month Euribor relative to overnight indexed swaps -- known as the FRA/OIS spread -- rose to 30 basis points from 28. An increase signals banks are less willing to lend.
• German Companies Face Increased Loan Costs, Handelsblatt Says. Banking regulation will increase financing costs for German companies by about 5 billion euros ($6.3 billion) as banks pass on increased expenses to clients, Handelsblatt reported citing a study by the Technical University of Munich and the Association of Bavarian Business. Germany’s small- and medium-sized companies, are more reliant on bank loans than publicly trading companies that can tap the markets for funds, Handelsblatt said.
• Euro to Fall to $1.15 by Year End, UBS's Yu Says. (video)
  
• Focus Media(FMCN) Leads Most Chinese ADRs Lower After PBOC. Most Chinese stocks traded in the U.S. fell after the nation cut the benchmark interest rates for a second time in a month as economists forecast the slowest economic growth in three years. “They often act preemptively when data is weak,” Erik Lam, the director of Asian equity sales at Auerbach Grayson & Co. in New York, said by phone today. “Beijing is set to publish lots of data next week.”
• China's New Rules May Curb Credit Growth, CBRC Official Says. China plans to retain a cap on loans at 75 percent of deposits and may add further requirements that constrain credit growth under draft rules, a senior official at the banking regulator said. The liquidity-risk management regulations may be more stringent than the loan-to-deposit ratio set by the nation’s commercial bank laws, the China Banking Regulatory Commission official said, asking not to be named because the discussions aren’t public. The comments refute a report in the Economic Information Daily, which said today that the ratio won’t be included in the new rules and may be scrapped.
• China Policy ‘Misinterpretation’ Fueled Home Prices, Yi Says. China’s home price increase was the result of a “misinterpretation” of the nation’s economic policies, a government think tank researcher wrote today. China’s new home prices rose for the first time in 10 months as the government eased its monetary policies to bolster the economy, SouFun Holdings Ltd., the nation’s biggest real estate website owner, said this week. “The current rise in house prices has to a large extent been a result of misinterpretation of the government’s policies to stimulate the economy, an increase in real estate speculation and excessive concerns among ordinary homebuyers that prices will continue to rise,” Yi Xianrong, a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences, wrote in a commentary in the China Daily today.
• Default Risk of CMBS Tenants Rises for 2nd Month, S&P Says. Weighted avg default risk of top 70 tenants in conduit/fusion CMBS rose slightly to end June at 20.4, up from 20.3 in May, 19.6 in April, S&P analyst James Manzi wrote in a note. A higher value of the CTI Index indicates more credit risk.
• ADP Says U.S. Companies Added 176,000 Workers In June. The 176,000 increase followed a revised 136,000 gain the prior month that was higher than initially estimated, according to figures released today by Roseland, New Jersey-based ADP Employer Services. The median forecast of economists surveyed by Bloomberg News called for a 100,000 advance.
• Budget Impasse May Cost 300,000 U.S. Non-Defense Jobs. At least 300,000 jobs in industries including computer services, tourism, package delivery and meat processing may be lost if Congress fails to avert $1.2 trillion in automatic federal spending cuts starting next year. Across-the-board reductions in non-defense spending will have a ripple effect over the next two years on companies that aren’t government contractors, according to the Bipartisan Policy Center in Washington, which made the forecast. Hundreds of thousands more jobs are at risk from additional Defense Department reductions, amid an 8.2 percent jobless rate in May. “You are going to see reductions, frankly, in every area of the American economy,” Dov Zakheim, a former Defense Department comptroller who worked with the policy center, said in an interview.
• Service Industries in U.S. Grew Less Than Forecast in June. Service industries in the U.S. expanded in June at the slowest pace since January 2010, a sign the biggest part of the economy is struggling to gain momentum. The Institute for Supply Management’s non-manufacturing index dropped to 52.1, less than projected, from 53.7 in May, the Tempe, Arizona-based group said today. The median forecast of 70 economists surveyed by Bloomberg News called for 53. Readings above 50 signal expansion. The ISM non-manufacturing survey’s measure of business activity dropped to 51.7, the lowest since November 2009, from 55.6. The gauge of new orders decreased to an eight-month low of 53.3 from 55.5. An index of prices paid decreased to 48.9, the weakest since July 2009, from 49.8. The employment gauge climbed to 52.3 from 50.8 in the prior month.
• Banks Pad Profits As U.S. Prolongs Refinancing Boom: Mortgages. The biggest U.S. mortgage lenders, whose first-quarter earnings were buoyed by gains on home-loan refinancings, are raking in more profits as record-low interest rates and government efforts prolong the boom. Revised federal programs making it easier for homeowners to lock in lower rates helped push the Mortgage Bankers Association refinancing index to a three-year high last month. That signals a windfall for banks including Wells Fargo (WFC) & Co. that renewed about 5 million loans in 2011 amid the Federal Reserve’s drive to keep borrowing costs near zero. Wells Fargo is the nation’s largest home lender.
• Wall Street Bank Investors in Dark on Libor Liability. Barclays Plc (BARC) investors, blindsided by the bank’s $451.4 million regulatory fine for trying to rig benchmark rates, saw the stock drop 16 percent a day later. Other bank shareholders may be just as surprised. Bank of America Corp., Citigroup Inc. (C), Royal Bank of Scotland Group Plc and UBS AG (UBSN) are among the lenders whose participation in setting the London and Europe interbank offered rates, known as Libor and Euribor, are under investigation. None of the banks would say if they set aside reserves to cope with potential liabilities and, if so, how much.
• Bye Bye Big Apple: Bank Jobs Leave New York. (video)
• Dimon Faces Image ‘Nightmare’ With Energy Probe at JPM(JPM). JPMorgan Chase & Co. (JPM) refusal to turn over e-mails in a federal probe of potential energy-market manipulation is the latest challenge for Chief Executive Officer Jamie Dimon as the bank faces multiple investigations. The U.S. Federal Energy Regulatory Commission sued JPMorgan July 2 to release 25 e-mails in an investigation of possible manipulation of power markets in California and the Midwest by J.P. Morgan Ventures Energy Corp., according to court filings by the Washington-based agency. FERC opened the probe in August after complaints from California and Midwest grid operators that JPMorgan’s bidding practices were abusive, the documents show. “He’s got a PR nightmare in front of him,” said Paul Miller, a former examiner for the Federal Reserve Bank of Philadelphia and analyst at FBR Capital Markets in Arlington, Virginia. “It’s another headline risk, which means more regulators, which means over-regulation, which will eventually hit their bottom line.”

Wall Street Journal:

• Euro Risks More Losses After ECB Move. The euro plunged after the European Central Bank cut interest rates to a record low to prop up the ailing euro-zone economy, and analysts said the depreciation was likely to continue now that the interest-rate incentive to hold the common currency had become negligible. The euro slumped to a one-month low against the dollar and extended its losses against a range of other currencies after the ECB cut its deposit rate to zero and its main policy rate to 0.75% in an effort to thaw lending markets and stimulate economic activity.
• Rate Scandal Set to Spread. Former Barclays CEO Lambasted in Parliament as Other Banks Brace for Fallout. A day after abruptly resigning amid a mushrooming scandal over interest-rate manipulation, former Barclays PLC chief Robert Diamond on Wednesday was assailed by British lawmakers for the bank's actions, in a preview of the scrutiny likely to lie ahead for other big lenders that are under investigation. Barclays last week agreed to pay $453 million to settle U.S. and British authorities' allegations that the British bank tried to manipulate the London interbank offered rate, or Libor, which is the benchmark for interest rates on trillions of dollars of loans to individuals and businesses around the world.
  

MarketWatch:

• Apple(AAPL) Said to Plan Smaller iPad for This Year. Apple Inc.'s AAPL +2.36% component suppliers in Asia are preparing for mass production in September of a new tablet computer with a smaller screen, people familiar with the situation said, suggesting that the Cupertino, Calif., company is close to launching a smaller tablet. Two of the people said that the new tablet will likely come with a screen smaller than 8 inches, compared with the 9.7-inch screen of Apple's latest version of the iPad, which was released in March. The iPad's screen size has remained the same since the first model was released in 2010.

Fox News:

• Countrywide made discount loans to buy influence with members of Congress, House report says. The former Countrywide Financial Corp., whose subprime loans helped start the nation's foreclosure crisis, made hundreds of discount loans to buy influence with members of Congress, congressional staff, top government officials and executives of troubled mortgage giant Fannie Mae, according to a House report. The report, obtained by The Associated Press, said that the discounts -- from January 1996 to June 2008, were not only aimed at gaining influence for the company but to help mortgage giant Fannie Mae. Countrywide's business depended largely on Fannie, which at the time was trying to fend off more government regulation but eventually had to come under government control.

CNBC.com:

• Greece Admits Veering From Bailout Obligations. Greece conceded on Thursday it had slipped "in some respects" in implementing the cuts and reforms demanded by lenders in exchange for saving Athens from bankruptcy, and tried to persuade them to cut the country some slack.
• Merkel Makes New Enemies, This Time at Home. With her insistence on deeply unpopular austerity measures, German Chancellor Angela Merkel has won few friends in debt-laden southern European counties. Many saw in her tough stance and refusal to make concessions an unwavering commitment to the interests of her own electorate. But suggestions that she bowed to pressure from other euro zone leaders at a key summit last week have left her with new enemies, this time closer to home.
• China's Fleet of 'Ghost' Ships Signals Worsening Slowdown. China's huge fleet of coastal ships, usually confined to plying the Chinese seaboard, has sailed out of the shadows to seek international business in yet another sign that China's economy is slowing. The fleet, previously unnoticed by the global market, is suffering from a slowdown in China's coastal trade amid weaker domestic demand from utilities and steel mills and a growing glut in Chinese coal and iron ore stockpiles. The vessels are now being forced to seek new business such as in the Indonesian coal trade, dealing a further blow to the depressed global dry bulk shipping market. "There are many more ships lying idle at Chinese ports now - the environment for making money is not so good," said a source at one of the big five coastal shippers, who asked not to be identified.
• Spanish Banks’ Tale of Woe to Drag On. There is still more agony to come for Spanish banks.

Business Insider:

• Obama Gloats On The Supreme Court Decision: 'The Law I Passed Is Here To Stay'.
• Iran Says It's Time For The US And Israel To 'Disappear From The World'.

Zero Hedge:

• The Socialization Of America Is Economically Impossible.
• ECB Margin Calls Surge And Basis-Swaps Plunge. (graphs)
  

Mish's Global Economic Trend Analysis:

• Record Number of Homes for Sale in Melbourne; Sub-Prime Collapse; "No End in Sight" for Arrears on Low-Doc Loans. Given the alleged housing shortage in Australia, it is interesting to note a Record number of houses for sale in Melbourne.

Reuters:

• US to file WTO complaint against China on auto duties. The United States will file a complaint against China on Thursday with the World Trade Organization for imposing duties on more than $3 billion worth of U.S.-made autos, a senior U.S. official said. The complaint comes as President Barack Obama campaigns in Ohio, an important election battleground state where auto plants have been affected by the duties.
• U.S. crop worry to fuel world food prices in July: U.N. Searing heat in the U.S. Midwest is expected to see global food prices snap three months of declines in July, the UN said on Thursday, as some international grain prices surged to highs last seen during the 2007-08 food crisis.
• Copper dips on strong dollar; shrugs off rate cuts. Copper dipped on Thursday on a stronger dollar, retreating from gains after a surprise rate cut by China and a similar move by the European Central Bank that had been widely expected. Three-month copper on the London Metal Exchange fell 0.89 percent to $7,656 a tonne by 10.34 a.m EDT after earlier rising as much as 0.8 percent to a session high of $7,790 after the Chinese rate cut. Aluminium fell 0.61 percent to $1,944 a tonne.
• "Stagnant" Economy Takes Toll On U.S. Retailers' June Sales. Costco Wholesale Corp (COST), Macy's Inc (M), Kohl's Corp (KSS) and Target Corp (TGT) all reported disappointing June sales at stores open at least a year. Stubbornly high unemployment and anxiety about the economy took a toll on top U.S. retailers' sales in June, raising concerns that shoppers are penny-pinching ahead of the back-to-school season. "In part, this was a function of a macroeconomic environment that is stagnant at best," Macy's Chief Executive Terry Lundgren said in statement. A steady stream of weak economic reports, stubbornly high unemployment and a volatile stock market hurt shoppers' morale last month, underscored by a tumbling Thomson Reuters/University of Michigan's consumer sentiment index. Lower-priced retailers, like TJX Cos Inc (TJX), which runs the T.J. Maxx chain, and Ross Stores Inc (ROST), reported some of the largest gains as shoppers looked for deals on designer-brand clothes and home goods.
• UN urges countries to impose global taxes to boost aid. The United Nations on Thursday urged countries to impose international taxes to raise more than $400 billion a year, such as a carbon tax, a currency transaction tax and a billionaires tax, to offset cutbacks in aid by many countries amid global economic turmoil. The U.N. World Economic and Social Survey found the needs of developing countries were not being met, more money was needed to fight challenges like climate change and new taxes would help "donor countries overcome their record of broken promises."
• Portugal Risks Missing Fiscal Goal: Monitor. Bailed-out Portugal is likely to miss the 2012 budget deficit target set by international lenders unless the recession-hit nation sees improved indirect tax revenues, a parliament body that monitors budget execution warned. The debt-laden country slid into its worst recession since the 1970s after imposing tough tax hikes and spending cuts to put its public finances in order. Unemployment is at record highs of over 15 percent, undermining tax revenues.
• U.S. Ethanol Output Falls to 10-Month Low.
  

Telegraph:

• Quantitative easing misery for pensioners and savers. The Bank of England is expected to pump billions of pounds more into the economy today. A decision to resume "quantitative easing" (QE) could also send inflation rising again – more bad news for pensioners and savers, who would struggle to make a "real" return on their cash.
• China 'uses state funds to stockpile rare earths'. China is using state funds to stockpile rare earths, metals which are key to making mobile phones and other modern items, according to reports from Beijing.

AFP:

• Greece default likely: Sweden's Borg. Attempts to help Greece avoid bankruptcy appear doomed to fail, Swedish Finance Minister Anders Borg said Thursday, adding however that Athens might still manage to cling to the euro.

Ansa:

• Prime Minister Mario Monti's government may postpone a 2 percentage points increase of the value-added tax planned for October to July 2013, citing a draft of a decree law that is being discussed at a cabinet meeting today.
  

Folha de S. Paulo:

• Brazil President Dilma Rousseff's aides are considering the possibility of the economy growing 2% this year, below the official estimate by the central bank of 2.5%, citing government officials.
  

Xinhua:

• Xinjiang Top Official Oversees Counter-Terrorism Drill. A top official of northwest China's Xinjiang Uygur autonomous region oversaw a counter-terrorism drill staged by special forces in Urumqi ahead of the anniversary of the July 2009 riots. Zhang Chunxian, secretary of the Xinjiang committee of the Communist Party of China, on Wednesday asked the soldiers to keep vigilant against all sorts of hostile forces and to strike "three forces" -- a term for separatists, extremists, and terrorists -- with "iron fists."

Bear Radar

Style Underperformer:

• Large-Cap Value -.77%

Sector Underperformers:

• 1) Education -3.03% 2) Banks -1.33% 3) Energy -1.13%

Stocks Falling on Unusual Volume:

• LFL, CATO, STO, PRLB, SHPGY, MAPP, CPSI, SZYM, VVUS, BCOV, ZUMZ, LIFE and FMCN
  

Stocks With Unusual Put Option Activity:

• 1) CTSH 2) WFT 3) M 4) KSS 5) RIO
  

Stocks With Most Negative News Mentions:

• 1) AMD 2) CMS 3) RATE 4) ANH 5) SFD
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth +.19%

Sector Outperformers:

• 1) Retail +1.49% 2) Restaurants +1.38% 3) Homebuilders +.82%

Stocks Rising on Unusual Volume:

• ROST, KSS, LTD, DLTR, CHU, MLNX, OSUR, NFLX, LQDT, LF, YELP, TJX and VC
  

Stocks With Unusual Call Option Activity:

• 1) PCX 2) MNKD 3) ALXN 4) SYY 5) FXY
  

Stocks With Most Positive News Mentions:

• 1) LCC 2) JWN 3) ROST 4) TJX 5) APC
  

Charts:

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

Thursday Watch

Night Trading

• Asian equity indices are -.75% to -.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 164.50 +2.0 basis points.
  
• Asia Pacific Sovereign CDS Index 134.75 -5.0 basis pionts.
  
• FTSE-100 futures +.02%.
  
• S&P 500 futures -.42%.
  
• NASDAQ 100 futures -.30%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (ISCA)/.40
• (JDAS)/.57
• (CIM)/.11
  

Economic Releases
8:15 am EST

• The ADP Employment Change for June is estimated to fall to 100K versus 133K in May.

8:30 am EST

• Initial Jobless Claims are estimated to fall to 385K versus 386K the prior week.
• Continuing Claims are estimated to rise to 3300K versus 3296K prior.

10:00 am EST

• ISM Non-Manufacturing for June is estimated to fall to 53.0 versus 53.7 in May.

11:00 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,300,000 barrels versus a -133,000 barrel decline the prior week. Distillate inventories are estimated to rise by +1,000,000 barrels versus a -2,279,000 barrel decline the prior week. Gasoline supplies are expected to rise by +1,000,000 barrels versus a +2,078,000 barrel gain the prior week. Finally, Refinery Utilization is expected to rise by +.25% versus a +.7% gain the prior week.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Spanish/French 10Y Bond Auction, BoE rate decision, ECB rate decision, ECB's Draghi speaking, Challenger Job Cuts for June, ICSC Chain Store Sales report for June, RBC Consumer Outlook Index for July, weekly MBA mortgage applications report and the weekly Bloomberg Consumer Comfort Index could also impact trading today.
  

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

Stocks Rising into Final Hour on Global Central Bank Stimulus Hopes, Less Eurozone Debt Angst, Short-Covering, Technical Buying

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Most Sectors Rising
  
• Volume: Light
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 16.77 -.18%
  
• ISE Sentiment Index 126.0 unch.
  
• Total Put/Call .88 -15.38%
  
• NYSE Arms 1.15 -11.43%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 106.46 -2.51%
  
• European Financial Sector CDS Index 245.50 -3.22%
  
• Western Europe Sovereign Debt CDS Index 267.17 -2.75%
  
• Emerging Market CDS Index 276.46 +2.15%
  
• 2-Year Swap Spread 23.75 -1.25 basis points
  
• TED Spread 38.0 -1.0 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -61.75 -5.0 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .08% +1 basis point
  
• Yield Curve 132.0 +4 basis points
  
• China Import Iron Ore Spot $135.40/Metric Tonne +1.42%
  
• Citi US Economic Surprise Index -63.20 +.7 point
  
• 10-Year TIPS Spread 2.10 +2 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating +64 open in Japan
• DAX Futures: Indicating -6 open in Germany
  

Portfolio:

• Higher: On gains in my tech and biotech sector longs
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short, then added them back
  
• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• Euro Area Bought Some Time in Staving Off Breakup, Rogoff Says. European leaders probably bought “a little bit of time” in staving off a euro-area breakup after last week’s summit even as the region remains a long way from stabilization, Harvard University Professor Kenneth Rogoff said. Greek Prime Minister Antonis Samaras asked European leaders last week to loosen austerity measures tied to 240 billion euros ($303 billion) in financial aid from international donors for his country. Greece will struggle to meet its targets and still probably default, Rogoff said in an interview with Bloomberg Television today. “They are going to continue to do more and more radical measures to stand still,” Rogoff said. “We’re very, very far from a long-term vision. It’s a long difficult path, still. We’re a long ways from stabilization.”China is going through a “delicate political transition” that makes it harder to deal with its economic problems, he said. “I still expect sometime over the next few years to see a significant slowdown in China’s rate of growth that may prove very difficult to handle, especially for a world that’s just not expecting it,” he said.
• UK Mortgage Lending Declines, Construction Shrinks: Economy. U.K. mortgage approvals fell in May and construction shrank at the fastest rate in 2 1/2 years in June, adding to signs the housing market is slowing amid growing concern over the economic outlook. Lenders granted 51,098 loans to buy homes, compared with 51,627 the previous month, the Bank of England said today in London. A gauge of building output based on a survey fell to 48.2 from 54.4 in May, a separate report by Markit and the Chartered Institute of Purchasing and Supply showed.
• Barclay's(BCS) Three Top Managers Quit Amid Bank of England Dispute. Robert Diamond stepped down today as chief executive officer and Jerry Del Missier quit as chief operating officer, the London-based lender said in a statement. Chairman Marcus Agius will also leave once he has found a replacement for Diamond, who has worked at the bank for the past 16 years.
• Sarkozy Home and Offices Searched By Police, France Inter Says. Former French President Nicolas Sarkozy’s home and his Paris offices were searched today by police, France Inter said, without citing a source for the information. Police went to the home he shares with wife Carla Bruni as well as his law office and another bureau he keeps at the request of judges in Bordeaux looking into allegations of campaign finance violations, the radio station reported on its website.
• China Slowdown Cuts Luxury Spending, Hong Kong Retailing. China’s slowdown dragged Hong Kong’s retail-sales growth to the weakest pace since 2009 as shoppers visiting from the mainland cut back on purchases of luxury goods such as jewelry and watches.
• Brazil Rate-Futures Yields Fall to Record on Shrinking Industry. Yields on Brazilian interest-rate futures contracts dropped to a record low on speculation the central bank will deepen cuts in borrowing costs after a report showed industrial production fell more than economists forecast. Output declined 0.9 percent in May from a month earlier, the national statistics agency said today in Rio de Janeiro. Economists had expected a decline of 0.6 percent, according to the median forecast in a Bloomberg survey of 40 analysts. “The industrial sector is what suffers most from the global deceleration, which the market should be interpreting as a possibility for more stimulus,” Flavio Serrano, senior economist at Banco Espirito Santo de Investimento, said in a phone interview from Sao Paulo.
• Bank Bond Risk Nearing 3-Year High on Bad Loans: India Credit. Credit risk for India’s financial institutions is climbing toward a three-year high after the central bank warned that cash shortages and rising bad loans threaten lenders in Asia’s third-largest economy. The cost of insuring the debt of State Bank of India, the nation’s largest, against non-payment for five years has jumped 84 basis points from a four-month low of 280 reached in February, according to data provider CMA. Credit-default swaps on ICICI Bank Ltd. climbed 71 basis points to 425 in the period, while those on Bank of China Ltd. decreased three basis points to 207. The average cost of such contracts for 172 global banks rose 16 basis points to 354, data compiled by Bloomberg show. Indian banks’ soured loans may jump to 4.6 percent of total advances in the year through March 2013 from 2.9 percent in the prior period in a “severe-risk scenario,” as the economy expands at the slowest pace in nine years, the Reserve Bank of India said in a report on June 28.
• Recent U.S. Home Price Gains 'at Risk' From Foreclosures: Trulia. Foreclosure backlog pressure means "recent" price "leaps" in areas including Phoenix, Fla. metros "at risk" of shrinking or reversing, Trulia says in June price, rent monitors report. Areas with highest prices increases all "at-risk," with high shr still in foreclosure.
• Oil Rises on Stimulus Speculation, Iranian Supply. Oil surged on speculation that central banks from Europe to China will ease monetary policy to spur growth while sanctions against Iran curb supply. Prices gained as much as 5.1 percent as the European Central Bank is forecast to cut interest rates this week. A state-owned newspaper in China said the time is right to increase liquidity in the banking sector. Iran fired several missiles during a three-day military exercise as the country threatened to block tanker traffic in the Strait of Hormuz. Oil for August delivery climbed $3.61, or 4.3 percent, to $87.36 a barrel at 11:31 a.m. on the New York Mercantile Exchange. Prices are 12 percent lower this year. Brent for August settlement traded above $100 a barrel for the first time since June 11. The futures gained $3.32, or 3.4 percent, to $100.66 on the London-based ICE Futures Europe exchange.
• IMF Lowers U.S. Growth Projections to 2%. The U.S. economy will grow by 2 percent this year and about 2.25 percent in 2013 amid a “tepid” recovery and the European debt crisis, the International Monetary Fund said, lowering its previous projections. The U.S. economy remains “subject to elevated downside risks, in light of financial strains in the euro area and uncertainty over domestic fiscal plans,” the IMF said in a statement today. In an April report, the IMF forecast U.S. growth of 2.1 percent this year and 2.4 percent in 2013.
• GM(GM), Chrysler Sees June U.S. Auto Sales Beating Estimates. General Motors Co. (GM), Ford Motor Co. and Chrysler Group LLC said U.S. auto sales exceeded estimates in June as gains for the three carmakers and Nissan Motor Co. (7201) surprised analysts by surpassing projections.
• Orders to U.S. Factories Rise for First Time in Three Months. Orders placed with U.S. factories rose in May for the first time in three months, easing concern that manufacturing is faltering. The 0.7 percent increase in bookings followed a revised 0.7 percent drop in the prior month, the Commerce Department said today in Washington. The median forecast of economists in a Bloomberg News survey called for a rise to 0.1 percent.
• JPMorgan(JPM) Probed Over Potential Power-Market Manipulation. JPMorgan Chase & Co. (JPM) is being investigated by the Federal Energy Regulatory Commission over potential power-market manipulation, according to documents provided by the Washington-based agency. JPMorgan has allegedly withheld e-mails that FERC had sought in the investigation, prompting the agency to ask the U.S. District Court for the District of Columbia to order the bank to submit them or provide a reason for withholding, according to filings from FERC.
• Fink Says U.S. Leaders ‘Snoring Away’ Amid Europe Wake-Up. BlackRock Inc. (BLK)’s Laurence D. Fink, who heads the world’s largest asset manager, said U.S. lawmakers need to provide more certainty about spending and tax policy as European leaders grapple with deficits. “Our politicians are guardians too, and they’re not acting in ways that guardians should,” Fink said today in an interview on Bloomberg Television’s “Market Makers” with Erik Schatzker and Trish Regan. “Europe is a great wake-up call and they’re still snoring away.” The U.S. is facing a so-called fiscal cliff at the end of the year when automatic spending cuts would begin and tax cuts will expire without action by a U.S. Congress that has been mired in political disputes. Fink said employers including defense contractors will be discouraged from investing in their operations until lawmakers signal how they’ll proceed. “We need more clarity, and that is my message to every politician I see,” said Fink. “It’s all about confidence. No one is investing for tomorrow.”

Wall Street Journal:

• Athens Seeks Improved Bailout Deal. Greece will push for a better bailout agreement when it resumes long-stalled talks with international lenders this week, despite warnings from a European central banker Monday that the country must press ahead with its reform program and not dally further in meeting its commitments. The heads of a delegation of officials from the European Commission, International Monetary Fund and European Central Bank—known as the troika—will begin a three-day visit to Athens on Thursday to assess Greece's progress in implementing its latest €173 billion ($219 billion) bailout program.

CNBC.com:

• Spain May Need More Aid Despite EU Summit Steps. Spanish Prime Minister Mariano Rajoy will find it tough to avoid asking for a full-scale sovereign bailout despite steps taken at an EU summit to help the country's indebted banks and pressured borrowing costs.
• France Faces Major Test as It Enters 'Danger Zone'. Having been in power for less than two months Francois Hollande is facing the first major test of his pro-growth election (related: 10 Game-Changing Elections) commitments after a warning from the national audit office that France’s economy is in the “danger zone” and risks falling into a “debt spiral.”

Business Insider:

• Dubai's Magnificent Burj Khalifa Is A Complete Flop With Buyers.
• Incredible Photos Of A Massive Chinese-Built Ghost Town In The Middle Of Angola.
• Richard Koo Talked To Some German Politicians, And They Admitted To What They REALLY Think About Greece.
• Consumer Discretionary Spending 'Plummets'.

Zero Hedge:

• Farage On EU Summit 'Breakthrough': "It's Not Credible; Nobody Believes You". (video)
• France Gives "Fairness Doctrine" Details; Will Tax Millionaires At 75%.
• US Military Re-Surging In Persian Gulf As Turkey Scrambles Jets For Third Day And Iran Fires Medium-Range Missiles.
• ECB Further Eases Collateral Terms.
  

Chicago Tribune:

• Iran says test-fires missiles over threats of attack. Iran said on Tuesday it had successfully tested medium-range missiles capable of hitting Israel in response to threats of military action against the country, Iranian media reported, the latest move in a war of nerves with the West.

Seeking Alpha:

• Hedge Against Inevitable Euro Meltdown: 'The Least Bad Option'.

Reuters:

• Einhorn's Greenlight Capital up 3.7 pct in H1-source.

Telegraph:

• Debt crisis: live. France slashed its growth forecasts as the country's new socialist government outlined plans for the next five years, while Spain said it would take additional steps to cut its deficit target and aid teams started trawling through Cyprus' finances.
• Barclays scandal: Bob Diamond resigns - live. Barclays publishes "smoking gun" email that reveals conversation between the Deputy Governor of the Bank of England Paul Tucker and Bob Diamond over key bank lending rate.

Stern:

• Horst Seehofer, head of the Christian Social Union, the Bavarian sister party of Chancellor Angela Merkel's Christian Democratic Union, said his party can't back limitless German commitments to help solve the euro region's sovereign debt crisis. Merkel's coalition doesn't have a majority in parliament without the votes of CSU lawmakers, Seehofer said. The CSU chief is threatening to leave the coalition if Merkel accepts billions of euros more in risks from attempts to save the euro, he said. His budget concern is that financial markets start questioning Germany's ability to shoulder rescue costs.
  

Augsburger Allgemeine Zeitung:

• Bavarian Finance Minister Markus Soeder said preparations should be made for a Greek exit from the euro region, citing an interview. Greece "can't and doesn't want to" make efforts to stabilize its finances, Soeder said. Soeder is a member of the Christian Social Union, the Bavarian sister party of Chancellor Angela Merkel's Christian Democratic Union.