Today's Headlines

Bloomberg:

• Investors Pay to Fund EFSF Aid With Bills at Negative Yield. Investors are paying the European Financial Stability Facility for the privilege of financing Europe’s temporary rescue fund, with demand to buy its debt increasing even as yields drop below zero. The facility auctioned 1.49 billion euros ($1.8 billion) of six-month bills at a yield of minus 0.0113 percent today, Germany’s Bundesbank, which acts as agent for the sales, said in a statement. Participants bid for 2.97 times the amount of debt allocated, compared to a so-called bid-to-cover ratio of 2.06 when the fund sold 182-day bills at a yield of 0.1421 percent on June 19. A negative yield on EFSF bills means investors who hold them to maturity will receive less than they paid to buy them. “Investors are keen to snap up any kind of paper that can offer security and the EFSF, to some extent, has safe-haven status,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “You can call it a paradox, but that’s the reality of the market.”
• Draghi Meets Noonan as ECB Shift Strengthens Irish Hand. Ireland’s Michael Noonan may press for a break on bank debt as he meets Mario Draghi after the European Central Bank argued for imposing losses on senior bondholders in failed lenders. Noonan and the ECB President will discuss today in Frankfurt “the long-term sustainability of the Irish financial system,” Paul Bolger, a spokesman for the Irish finance minister, said by e-mail yesterday. Those talks take place against the backdrop of a move by the ECB to advocate losses on senior bondholders at crippled euro-area banks, as cited yesterday by two officials with knowledge of the ECB’s thinking.
• ZEW Investor Confidence Declines To Lowest Since January. German investor confidence declined for a third month in July as the euro area’s debt crisis and cooling global demand dimmed the economic outlook. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, fell to minus 19.6 in July from minus 16.9 in the previous month. In the U.K., inflation dropped to the lowest in 2 1/2 years.
• Hungary Starts IMF Talks as Economists Predict Delay. Hungary will probably miss its goal of obtaining an International Monetary Fund loan by the end of October as Prime Minister Viktor Orban gears up for a re- election bid in 2014, according to a survey of economists. Talks which started today in Budapest will yield an agreement after October, according to eight of 12 economists surveyed by Bloomberg News yesterday. Four expect a deal in October, six by the end of the year and two in 2013.
• Bernanke Predicts Slow Progress On Unemployment. Federal Reserve Chairman Ben S. Bernanke told lawmakers that progress in reducing unemployment is likely to be “frustratingly slow” and repeated that the central bank is ready to take further action to boost the recovery, while refraining from pledging any new policies.
  
• US to Lose 710,000 Jobs From Tax Rise, Chamber Says. The U.S. would lose 710,000 jobs and economic output would fall by 1.3 percent, or $200 billion, if tax cuts for high earners are allowed to lapse, said a report prepared for the U.S. Chamber of Commerce and other supporters of the tax breaks. The study by Ernst & Young LLP supports Republican efforts to extend all of the George W. Bush-era tax cuts set to expire at the end of the year. President Barack Obama called on Congress last week to pass a one-year extension of tax cuts for married couples making less than $250,000 a year while letting rates rise for higher earners. “The higher tax rates will have significant adverse economic effects in the long run: lowering output, employment, investment, the capital stock and real after-tax wages when the resulting revenue is used to finance additional government spending,” wrote the report’s authors, Robert Carroll and Gerald Prante. In addition to the Chamber of Commerce, the largest U.S. business lobby, the report was issued on behalf of the Independent Community Bankers of America, the National Federation of Independent Business and the S Corporation (SCI) Association. The report’s authors said they used an Ernst & Young economic model to examine the “long run” effects of an increase in the top tax rates.
• Homebuilder Confidence Surges. The National Association of Home Builders/Wells Fargo confidence index climbed 6 points, the biggest gain since September 2002, to 35 this month, a report from the Washington- based group showed today. The gauge exceeded the most-optimistic projection in a Bloomberg News survey of 46 economists. Readings below 50 mean more respondents said conditions were poor.
• International Demand for US Assets Rises on Europe Crisis. International demand for U.S. financial assets rose in May as investors sought shelter from the debt crisis in Europe. Net buying of long-term equities, notes and bonds totaled $55 billion during the month, compared with net purchases of $27.2 billion in April, the Treasury Department said today in Washington. Economists surveyed by Bloomberg News projected net buying of $41.3 billion of long-term assets, according to the median estimate. Including short-term securities such as stock swaps, foreigners bought a net $101.7 billion in May, compared with net selling of $8.2 billion the previous month.
• US Industrial Production Rises, Utilization Falls. Output at factories, mines and utilities rose 0.4 percent last month after a revised 0.2 percent drop in May that was larger than previously reported, according to Federal Reserve data issued today in Washington.
• New Oriental(EDU) Slides After Company Discloses SEC Probe. New Oriental Education & Technology Group Inc. (EDU), a Chinese test prep and online-education provider, fell the most since 2008 after it said the U.S. Securities and Exchange Commission was looking into its financial statements. New Oriental’s U.S. shares fell as much as 33 percent in intraday trading in New York, and were down 29 percent to $15.90 at 10:16 a.m. Before today, the shares had dropped 7.4 percent this year. The investigation may concern whether the company appropriately consolidated the earnings of Beijing New Oriental Education & Technology, a variable interest entity, into its statement, New Oriental said today in a quarterly earnings statement.
• Traxis to Liquidate Biggs’s Hedge Fund, Transfer Assets.

Wall Street Journal:

• State Finances on Unsustainable Path, Report Says. Rising pension and health-care costs are hampering states' efforts to improve infrastructure and provide college education to lower-income students, according to a new task force. A report by the State Budget Crisis Task Force, which is co-chaired by Paul Volcker, a former Federal Reserve chairman, and Richard Ravitch, a one-time lieutenant governor of New York, said the gap between entitlement costs and state revenues available to pay for them have become unsustainable.
  

MarketWatch:

• The Top 10 Threats Facing Real Estate. CRE outlines biggest concerns for next three decades.
• 'QE3' Won't Stop Fiscal Cliff.
  

CNBC.com:

• Pawn Shops Go Upscale for Affluent Clients.
• Why The Fed Can't Save Economy, Or Markets 'On Its Own'. While some Washington leaders demanded Tuesday that the Federal Reserve come through with more stimulus, the reality could be that it has run out of ways it can help.

Business Insider:

• Stunning 'What If' Charts Of California's Pension Shortfall.
• JACK WELCH: 'This Movement Afoot That Hates On Business Is Craziness — It Will Destroy America As We Know It'.
• Paul Ryan Went On An Epic Rant Over Obama's Comment About Business.
• The Next iPhone Will Have A Thinner Screen With A Higher Quality Display.
• China Sends Largest Fleet Ever To Disputed Islands.

Zero Hedge:

• Is Jamie Dimon Really Master of the Universe?
• The Gathering Pace of Muni Fails.
• Capacity Utilization Plateaus Despite Ongoing Record Inventory Stocking. (graph)
• Sicily Is San Bernardino: With First Italian Region On Verge Of Default, Montius Pilate Washes His Hands.
• Peugeot, Its Record High Default Probability, And A Brief Primer On Corporate Viability Under Socialism.

Insider Monkey:

• 10 Most Popular Technology Stocks Among Hedge Funds.

hedgeweek:

• European Debt Problems are Major Determinant of Hedge Fund Performance in 2012. Hedge funds gained 0.66 per cent in June, according to the Barclay Hedge Fund Index compiled by BarclayHedge. The index is up 2.39 per cent year to date. “Each time that sentiment regarding Europe turns more negative, hedge funds have a down month as investors move into risk-off mode and sell equities,” says Waksman.

Gallup:

• U.S. Economic Confidence Falls to Lowest Since January. (graph)
  

Reuters:

• State Street(STT) to buy Goldman hedge fund administrator. State Street Corp, already a major service provider to hedge funds, said on Tuesday it will pay $550 million to buy Goldman Sachs Group Inc's hedge fund administration unit, making it the No. 1 in the world in that business.
• Iron Ore-Shanghai rebar hits contract low, ore prices fall.
• JP Morgan(JPM) downgrades DeereDE) on drought woes. J.P. Morgan Securities downgraded Deere & Co to "underweight" from "overweight," saying it expects the world's largest farm equipment maker to be hurt by the drought in the U.S. Midwest and declining farm yield.
• Chinese internet stocks down on economy concerns. U.S.-listed shares of Chinese internet companies fell on Tuesday on ongoing concerns about a weak economic outlook in the world's second largest economy. Hong Kong shares produced their best day in more than two weeks and Chinese insurers and railway sectors jumped on anticipation of more policy support, but the gains were seen largely technical. Profit warnings that have emerged daily during the past week and Premier Wen Jiabo's downbeat comments on the Chinese economy pressured the internet stocks, one of the strongest growing sectors in equities. U.S.-traded shares of Baidu(BIDU) fell 3.5 percent to $103.63. Youku(YOKU) shares fell 8.5 percent to $16.48 and Sina Corp(SINA) shares lost 7.8 percent to 44.15. Sohu.com(SOHU) shares were down 4.2 percent to $35.68.
• Funds Fear Legal Risk Over Euro Zone Break-Up Plans. European fund managers are keeping contingency plans for a euro zone break-up under wraps in case investors who incur losses use the information as ammunition with which to sue them. Too much or too little public planning for a collapse of the indebted currency union could land investment firms with lawsuits, management consultants and legal experts said.
• Coal Drops Weighs on Kansas City Southern Revenue.
  

AP:

• Boy Scouts Reaffirm Ban on Gays. After a confidential two-year review, the Boy Scouts of America on Tuesday emphatically reaffirmed its policy of excluding gays, ruling out any changes despite relentless protest campaigns by some critics. An 11-member special committee, formed discreetly by top Scout leaders in 2010, "came to the conclusion that this policy is absolutely the best policy for the Boy Scouts," the organization' national spokesman, Deron Smith, told The Associated Press. Smith said the committee, comprised of professional scout executives and adult volunteers, was unanimous in its conclusion — preserving a long-standing policy that was upheld by the U.S. Supreme Court in 2000 and has remained controversial ever since.

Telegraph:

• Debt crisis: unemployment in Portugal is 'number one' concern. Portugal may have its 2012 deficit target relaxed if the country’s economy continues to weaken, the International Monetary Fund has suggested, as the fund highlighted an alarming rise in unemployment during the first three months of the year.

BBC:

• Syria: Assad Regime 'ready to use chemical weapons'. The most senior Syrian politician to defect to the opposition has told the BBC the regime will not hesitate to use chemical weapons if it is cornered. Nawaf Fares, ex-ambassador to Iraq, said unconfirmed reports indicated such weapons might have already been used.

Der Standard:

• European Central Bank Governing Council member Ewald Nowotny said Greece itself has to make an effort before it can expect to receive outside help. "A country that maneuvered itself into such a crisis must make a personal contribution to get help from outside," Nowotny said in an interview. "Only when this is done, can you deal with the question of additional time" to repay its debts, he said.

De Tijd:

• Belgium's debt rose to the highest in 8 years to 377 billion euros or 101.8% of gdp in the first quarter of 2012, citing its calculations of government data. De Tijd said the 15.6 billion-euro increase was due to budget shortages and Belgian loans to other countries that use the euro.
  

Les Echos:

• French Stock Transaction Tax Applies to 109 Companies. France's planned tax on financial transactions will apply to sales of shares in 109 companies, citing a government decree. They include Air Liquide, Altarea, Mercialys, Hermes, Legrand, Orpea, Ipsen. The tax will be a .2% levy.
• U.S. Funds Hold 31% of CAC 40 Investments. U.S. funds hold the biggest share of invested funds in France's CAC 40 benchmark index, citing a report by FactSet and OpinionWay.
• Sotheby's Says Rich French Are Moving Abroad. Rich French families are leaving the country because of fiscal measures being put in place by Francois Hollande's government, citing Sotheby's International Realty France.
  

Xinhua:

• Chinese premier says there are "more factors of instability and uncertainty," citing his remarks to U.S. group headed by Thomas Donohue, president of the U.S. Chamber of Commerce.

Bear Radar

Style Underperformer:

• Small-Cap Value +.25%

Sector Underperformers:

• 1) Networking -2.21% 2) Coal -1.55% 3) Alt Energy -1.01%

Stocks Falling on Unusual Volume:

• AUQ, TUDO, YOKU, TSLA, TTM, KGC, SLT, HD, LNG, BTE, E, DTSI, JBHT, CTAS, HUBG, MFRM, BRCM, SOHU, FMCN, SINA, BIDU, WERN, WWD, ININ, NTES, IPAR, MLNX, SCSS, JOBS, LSTR, VMW, WWD, NRP, STT and SFG
  

Stocks With Unusual Put Option Activity:

• 1) SINA 2) KBE 3) PNC 4) HBC 5) NOV
  

Stocks With Most Negative News Mentions:

• 1) HD 2) DE 3) ACI 4) MS 5) STT
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth -.23%

Sector Outperformers:

• 1) Ag +.43% 2) Telecom +.39% 3) HMOs +.21%

Stocks Rising on Unusual Volume:

• MOS, HNP, ALNY, MAT, DGIT and IPG
  

Stocks With Unusual Call Option Activity:

• 1) URBN 2) PFE 3) KO 4) CYH 5) ADSK
  

Stocks With Most Positive News Mentions:

• 1) PEP 2) LMT 3) CMG 4) BA 5) AET
  

Charts:

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

Tuesday Watch

Evening Headlines
Bloomberg:

• UniCredit, Intesa Among 13 Italian Banks Cut by Moody’s. UniCredit SpA (UCG) and Intesa Sanpaolo SpA (ISP) were among 13 Italian banks that had long-term debt, deposit or issuer ratings cut by Moody’s Investors Service, which cited the government’s weakened creditworthiness. UniCredit, Italy’s biggest bank, and Intesa, the nation’s second-largest lender, had their debt and deposit ratings lowered two steps to Baa2, Moody’s said yesterday in a statement. It was the second time in two months that Moody’s downgraded the firms. The outlook on both is negative, in line with the government’s, the ratings company said. Moody’s reduced the country’s bond rating last week to Baa2 from A3 and said further cuts are possible as the nation grapples with weak growth and elevated unemployment. The new grade is two levels above junk. “Despite UniCredit’s substantial international activities, its important exposure to its domestic market means that its stand-alone rating is constrained by the level of the sovereign rating,” Moody’s said. “Intesa’s business is almost entirely domestic in nature,” so that bank’s grade is also limited by the government’s, according to the ratings firm. Ten banks had long-term debt and deposit grades cut yesterday and three had issuer ratings reduced, Moody’s said. Ratings fell one step for seven of the affected companies, and two levels for the remaining six. Paola Di Raimondo, a UniCredit spokeswoman, had no comment and Intesa’s Matteo Fabiani didn’t immediately respond to an e- mail left outside of regular business hours.
• Euro Seen at $1.15 as Bund Yields Fall on ECB: Chart of the Day. The ECB's deposit-rate cut this month has spurred a flight to German bunds that could cause the euro to slide about 6% to the lowest since 2003. "Lenders are more likely to park their funds in bunds after the rate cut," which will accelerate a drop in German yields and add pressure on the 17-nation currency, said Yuji Saito, foreign-exchange department director in Tokyo at Credit Agricole SA. It's a "matter of time" before the euro falls bel0w $1.20, he said, adding that an eventual decline to $1.15 is possible provided the U.S. Federal Reserve doesn't initiate a third round of so-called quantitative easing.
• China’s Foreign Investment Drops 6.9% in June. Foreign direct investment in China dropped 6.9 percent in June from a year earlier as slowing global growth reduced companies’ enthusiasm for expanding in the world’s second-biggest economy. Inbound investment declined to $12 billion, the Ministry of Commerce said today in Beijing. That’s the largest fall since December and compares with a less than 0.1 percent gain in May following a six-month slide. The data indicate Europe’s debt crisis and six quarters of a domestic economic slowdown may be limiting inflows of cash. Premier Wen Jiabao warned the momentum for a recovery isn’t yet in place and pledged to intensify fine-tuning of policies, the official Xinhua News Agency reported July 15.
• China Slowdown Stymies Plan to Curb Shadow-Banking Risks. China’s economic slowdown threatens to derail efforts to curb underground lending -- measures championed by Premier Wen Jiabao as crucial to future growth. Wen’s proposals to rein in the shadow-banking system, estimated to be about one-third the size of official lending, may be sidelined as a result, according to half a dozen economists interviewed by Bloomberg News. “With an economy slowing more aggressively than the authorities perhaps want, the imperative to crack down on shadow financing becomes increasingly conflicted,” said Alistair Thornton, a Beijing-based economist with research firm IHS Global Insight Ltd. (IHS) “With the government increasingly in firefighting mode, the desire to push through tough reform in the financial sector inevitably takes a back seat to staving off a hard landing and managing global economic volatility.”
• Gross Says U.S. Nearing Recession as Goldman Sachs(GS) Cuts Forecast. Pacific Investment Management Co.’s Bill Gross said the U.S. is approaching a recession as economists at Goldman Sachs Group Inc. (GS) and Deutsche Bank AG lowered their forecasts for growth. Goldman Sachs analysts led by Jan Hatzius cut their estimate for second-quarter gross domestic product growth to 1.1 percent from 1.3 percent, while Deutsche Bank’s chief U.S economist, Joseph LaVorgna, reduced his forecast to 1 percent from 1.4 percent. Federal Reserve Bank of Kansas City President Esther George said yesterday the U.S. economy probably won’t grow much faster than 2 percent in 2012. The U.S. is “approaching recession when measured by employment, retail sales, investment, and corporate profits,” Gross, who runs Pimco’s Total Return Fund, the world’s largest mutual fund, wrote on Twitter yesterday.
• Dollar Declines Before Bernanke Senate Testimony Today. The dollar weakened against most of its major peers amid speculation Federal Reserve Chairman Ben S. Bernanke will hint at further monetary easing in testimony today.
• CMBS Leverage Most Since '07 as Standards Loosen: Credit Markets. Landlords are piling the most debt onto commercial properties in five years as Wall Street banks bundle the loans into bonds to meet rising demand from investors seeking high yields amid record-low interest rates. The size of mortgages bundled into bonds will surpass 100% of building values for the first time since 2007, before the market shut down, according to Moody's Investors Service. That measure of leverage on loans tied to everything from skyscrapers to strip malls is poised to climb 4.5 percentage points this quarter, the NY-based ratings company said in a July 11 report. Lenders are offering larger loans borrowers look to pay off a wave of debt taken out during the real estate bubble and as yield-starved investors are pushed toward riskier assets.
• Good Dirt Gone Dry Wilting Corn Crop as Food Costs Rally. The worst Midwest drought since 1988 is baking farms from Arkansas to Ohio and threatening corn output that the U.S. said last week will be the second-largest ever. The price of the grain used in food for people and livestock is surging at a time when retail-meat costs already are near record highs. Global food prices are poised to rebound from a 21-month low in June because of weaker-than-expected supply in the U.S., the world’s largest corn exporter, the United Nations said July 5.
• Treasury's 10-Year Yield May Decline to 1%, Says Top Strategist. Treasury 10-year note yields may drop as low as 1% as global economic growth slows and concern increases as the U.S. approaches a "fiscal cliff," according to CRT Capital Group LLC's David Ader. "Yields are already extremely low," Ader, head bond strategist at CRT in Stamford, Connecticut, who has been ranked first by Institutional Investor magazine in government-debt strategy for the past six years, said. "The economy has taken a leg down. Today's retail number is the straw that breaks the camel's back."
  
• Tokyo Anti-Nuclear Rally Attracts Thousands as Protests Grow. Tens of thousands of people packed Tokyo’s Yoyogi Park yesterday for Japan’s biggest anti-nuclear rally since the Fukushima disaster last year in growing protests against government moves to restart atomic reactors.
• HSBC Probe Shows Bank Allowed Money Laundering. HSBC Holdings Plc (HSBA) did business with firms linked to terrorism, failed to guard against money- laundering violations in Mexico and bypassed U.S. sanctions against Iran, according to U.S. Senate investigators. HSBC affiliates worldwide gave terrorists, drug cartels and criminals a portal into the U.S. financial system, the Permanent Subcommittee on Investigations said in a 335-page report yesterday detailing a decade of lax controls. Lawmakers plan to question senior executives from the London-based bank, Europe’s largest, at a hearing in Washington today.
• Pennsylvania Cut to Aa2 by Moody’s on Pension Concerns. Pennsylvania had its general- obligation debt rating cut a step to Aa2 by Moody’s Investors Service, which said rising pension liabilities will weigh on the state’s economic recovery. The grade, Moody’s third-highest rating, also reflects moderate economic growth and the state’s relatively high debt level, according to a statement today from the New York-based company. Moody’s also changed its outlook for the credit to stable from negative.
• Delta(DAL) Working to Find Source of Needles in Food. Delta Air Lines Inc. (DAL) is working with investigators in the U.S. and the Netherlands after objects that appeared to be sewing needles were found in sandwiches on four flights from Amsterdam to the U.S. yesterday. One person was injured and declined medical treatment after a flight landed in Minneapolis, Kristin Baur, a Delta spokeswoman, said in an interview today. The incident is being investigated by the U.S. Federal Bureau of Investigation and officials in the Netherlands as well as Gate Gourmet, Delta’s caterer, she said.
• Yahoo(YHOO) Names Google’s(GOOG) Marissa Mayer as Chief Executive.

Wall Street Journal:

• U.S. to Launch Broad Review of Futures Firms. Regulators will conduct a sweeping review of futures firms across the country, seeking to ensure that the firms' bank accounts contain the cash they say they do, according to people familiar with the planned scrutiny. The broad check of futures firms comes in the wake of the scandal at Peregrine Financial Group Inc., in which more than $200 million in customer funds has gone missing.
• GM(GM) Sees Expanded European Losses. General Motors Co. expects to report substantial losses in Europe for the rest of the year, damping hopes of a second-half recovery that the auto maker earlier had anticipated, according to people familiar with GM's European operations. The dimmer view of the world's largest auto maker by volume emerged after other auto makers had warned of mounting European losses as the region's sovereign debt woes and a sagging economy weigh on automobile sales. Ford Motor Co. last month warned that it expects its international losses to triple in the second quarter, mainly because of widening losses in European operations.
• Goldman(GS) Builds Private Bank. Shift Into Lower-Margin Lending Reflects Harsh Climate Facing Wall Street. Goldman Sachs Group Inc. is building an in-house bank to lend money to wealthy people and companies, in a significant shift that underlines the harsh business climate facing Wall Street since the financial crisis. The New York securities firm, known for its aggressive trading and big corporate deal-making, is ramping up its activities to become a private bank to serve wealthy customers around the world.
• President's Populist Pitch Divides Suburban Voters. Barack Obama and Republican challenger Mitt Romney are battling over suburban, upper middle-class voters. The question is whether these voters agree with Mr. Obama's more populist economic message—or whether the tax-the-rich rhetoric is pushing them away.
• Credit-Derivatives Market Suggests Investor Unease with Banks -Moody's. Despite U.S. banks' efforts to rid their balance sheets of risky assets and improve capital ratios in recent years, investors continue to perceive banks to be far riskier than they were before the financial crisis, according to Moody's Analytics.
• Inside Canada, China Asserts Itself. Chinese companies once were happy to let Canadians and Americans represent them here. No longer. Today, they're increasingly using Chinese nationals as they invest billions into natural resource projects. These nationals can be seen from one end of Canada to the next, variously negotiating deals with Native American groups or prospecting for minerals in remote areas.
• Indonesian Boom Starts to Stall. Sliding Rupiah Is Latest Signal of an End to Good Times; 'It Went From Market Darling to Pariah' A steep slide in the Indonesian rupiah is the latest signal that investors are worried the good times in Southeast Asia's largest economy could be coming to an end. The rupiah has slid more than 3% against the dollar in the past six months, more than double the decline of the Singapore dollar and Malaysian ringgit. In Asia, only the Indian rupee has done worse. Indonesia's stocks and government bonds have also lagged behind.
• Toying With Recession. Patty Murray explains why Democrats want to jump off the tax cliff. Democrats must feel really good about their election chances, because their latest campaign strategy is to say how willing and eager they are to leap off the January tax cliff. They're all but daring Republicans to make the Democrats' day by refusing to raise taxes before the election. That was the chest-pounding message Monday from Patty Murray, the Washington Democrat who runs her party's Senate campaign committee. In a speech at the Brookings Institution, she declared that if Republicans won't raise taxes on income above $250,000 before November, Democrats will gladly let all of the Bush tax rates expire at the end of the year—even on the middle class, and no matter the economic consequences.

Fox News:

• The Truth About the Obama/Romney Outsourcing Controversy. (video)
  

MarketWatch:

• China’s version of ‘Too big to fail’: Andy Xie. Some aspects of financial system are still a cause for concern.
  

Business Insider:

• SEX, PORN, BOOZE, AND GOLF WITH BANKERS: Investigation Reveals All Kinds Of Bad Behavior At Treasury Department.

Zero Hedge:

• Criminal Inquiry Shifts To JPMorgan's Mispricing Of Hundreds Of Billions In CDS: Is Dimon The Next Diamond?
• Consumers Flash Warning Signal.
• Calpers Generates 1% Return, Misses Discount Rate Target By 87%.

CNBC:

• Government to Oversee Credit Reporting for First Time. The companies that determine Americans' credit scores are about to come under government oversight for the first time.
• Can Policymakers Stomach Another Bout of Food Inflation? A drought-fueled rally in soybeans, corn and wheat is raising fears of another round of food price inflation, posing an unwelcome complication for policymakers, particularly in emerging Asia, where higher consumer prices may hinder their ability to ease monetary policy. Central banks in the developing economies such as China, where food comprises nearly a third of the overall consumer inflation basket, are at greatest risk.

NY Times:

• British Bank Fighting Bid for Data in Rate Case. Even as lawmakers in London hammered a top Barclays executive over the bank’s role in a rate-rigging scandal, another financial firm that is largely owned by the British government is fighting an investigation into the vast scheme. The Royal Bank of Scotland, one of more than 10 banks under scrutiny from authorities around the globe, is refusing to turn over crucial information to Canadian regulators, court documents from Ottawa show.

CRN:

• VMware(VMW) Blockbuster: Maritz Out as CEO after 4-Year Tenure. Paul Maritz is out as VMware CEO, and he is being replaced by Pat Gelsinger, president and COO of EMC(EMC) Information Infrastructure Products division, CRN has learned. Multiple sources familiar with the situation confirmed the CEO switch to CRN Monday. But it is unclear if Maritz, who has led VMware since 2008, will be taking another position within EMC or leaving the company.

Chicago Tribune:

• Ace Hardware adding smaller 'Express' stores. Ace Hardware has launched a scaled-down version of itself in nearly 400 locations, the Oak Brook-based company said Monday. The new format, designed for 5,000 square feet or less, stocks more than 11,000 of the retailer's most popular and profitable products, the company said in a statement.

ABC News:

• Obama’s Aides Owe Some Money in Back Taxes. A few dozen people who work for President Obama are having some trouble paying their taxes. The IRS has released its Federal Employee and Retiree Delinquency Inventory, and it shows that 36 of Obama’s aides owe a total of $833,970 in back taxes. Other government employees owe a lot, too. At the Environmental Protection Agency, 413 people owe more than $19 million; at the Federal Deposit Insurance Corp., which is supposed to “maintain stability and public confidence in the nation’s financial system,” 185 employees owe more than $3 million; and five people at the U.S. Tax Court owe $62,508.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Monday shows Mitt Romney attracting 46% of the vote, while President Obama earns 44%. Five percent (5%) prefer some other candidate, and five percent (5%) more are undecided.

Reuters:

• Monetary policy not a cure for unemployment -Fed's George. A top Federal Reserve policymaker said on Monday that while persistently high unemployment is weighing on the sluggish U.S. economic recovery, she is not sure monetary policy can put people back to work. "At this point we have a tremendously accommodative policy for the economy to begin the process of recovery," Kansas City Federal Reserve President Esther George said in introductory remarks at a conference on agriculture. "Will monetary policy put people back to work at this point? That's not clear." George will be a voter on the Fed's policy-setting Federal Open Market Committee in 2013. She declined to say whether she thinks the central bank should deliver another dose of monetary stimulus to help the economy grow more vigorously.
• Ford(F) to slash 15 pct of workforce in Australia.
• Morgan Stanley(MS) cuts 2012 U.S. auto sales, earnings estimates. Morgan Stanley lowered its 2012 U.S. auto sales projections by about 3 percent and cut its earnings-per-share estimates for the North American auto sector due to weaker-than-expected sales in the United States and Europe. The firm now expects U.S. auto sales to be 14.4 million this year, down from its earlier projection of 14.8 million.
• Illinois's unpaid bills backlog still big despite revenue rise. Illinois made a small dent in its unpaid bills, which total an estimated $7.5 billion, despite steep increases in individual income tax, the state comptroller's office reported on Monday. Due partly to income tax collection, Illinois cut its general fund u npaid b ills by $1.91 billion to $3.656 billion in the fourth fiscal quarter of 2012, ended June 30, according to a spokesman for the state comptroller. That compares with a year ago when the backlog of unpaid bills amounted to $3.798 billion.
• J.B. Hunt(JBHT) profit meets estimate, revenue misses. Trucker J.B. Hunt Transport Services reported quarterly profit that matched Wall Street estimates while revenue increased slightly less than expected on higher expenses. The company said higher volume in its intermodal (JBI) and dedicated contract services (DCS) divisions were offset by higher costs for driver wages, rail transportation costs, maintenance, and other charges.
• FLIR Systems(FLIR) estimates second-quarter below expectations. Surveillance products maker FLIR Systems Inc (FLIR.O) estimated its second-quarter earnings to be below market expectations, hurt by weaker demand for several products, particularly in Europe. "Delays in customer delivery schedules negatively impacted revenue during the quarter, particularly in the cores and components line of products in the thermal vision and measurement segment," Chief Executive Earl Lewis said.

Telegraph:

• World economy heads for another perfect storm. The International Monetary Fund’s latest “World Economic Outlook” makes for chilling reading. A perfect storm in which all parts of the world economy go down together seems fast to be gestating somewhere out in the mid-Atlantic.
  

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are +.25% to +1.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 166.0 +2.5 basis points.
  
• Asia Pacific Sovereign CDS Index 136.0 +2.0 basis points.
  
• FTSE-100 futures +.11%.
  
• S&P 500 futures +.48%.
  
• NASDAQ 100 futures +.47%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CMA)/.62
• (MTB)/1.68
• (KO)/1.19
• (SCHW)/.18
• (MMR)/-.13
• (STT)/.97
• (MAT)/.20
• (HST)/.33
• (MOS)/1.15
• (OMC)/1.00
• (GS)/1.18
• (AMTD)/.26
• (JNJ)/1.29
• (FRX)/.32
• (YHOO)/.23
• (URI)/.50
• (CSX)/.47
• (WYNN)/1.51
• (INTC)/.52

Economic Releases
8:30 am EST

• The Consumer Price Index for June is estimated unch. versus a -.3% decline in May.
• The CPI Ex Food & Energy for June is estimated to rise +.2% versus a +.2% gain in May.
  

9:00 am EST

• Net Long-term TIC Flows for May are estimated to rise to $41.3B versus $25.6B in April.

9:15 am EST

• Industrial Production for June is estimated to rise +.3% versus a -.1% decline in May.
• Capacity Utilization for June is estimated to rise to 79.2% versus 79.0% in May.

10:00 am EST

• The NAHB Housing Market Index for July is estimated to rise to 30.0 versus 29.0 in June.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Bernanke testifying before Senate Banking Committee, Fed's Pianalto speaking, weekly retail sales reports, German ZEW Survey and the China Housing Price report could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by consumer and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

Stocks Falling into Final Hour on Rising Global Growth Fears, Eurozone Debt Angst, Rising Food/Energy Prices, Tech Sector Weakness

Broad Market Tone:

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

Equity Investor Angst:

• VIX 17.11 +2.21%
  
• ISE Sentiment Index 105.0 +11.7%
  
• Total Put/Call .93 -7.0%
  
• NYSE Arms 1.14 +87.27%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 112.98 +.99%
  
• European Financial Sector CDS Index 281.05 bps +2.90%
  
• Western Europe Sovereign Debt CDS Index 265.17 -2.9%
  
• Emerging Market CDS Index 253.19 -1.99%
  
• 2-Year Swap Spread 23.75 +.75 basis point
  
• TED Spread 36.75 +1.0 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -48.50 +1.0 basis point
  

Economic Gauges:

• 3-Month T-Bill Yield .09% unch.
  
• Yield Curve 124.0 -1 basis point
  
• China Import Iron Ore Spot $130.1/Metric Tonne -2.03%
  
• Citi US Economic Surprise Index -64.0 -2.4 points
  
• 10-Year TIPS Spread 2.08 unch.
  

Overseas Futures:

• Nikkei Futures: Indicating +21 open in Japan
• DAX Futures: Indicating -10 open in Germany
  

Portfolio:

• Slightly Higher: On gains in my biotech sector longs and index hedges
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short, then covered some of them
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades slightly lower on rising eurozone debt angst, tech financial sector weakness, rising food/energy prices, more disappointing US economic data, US "fiscal cliff" worries, earnings concerns and rising global growth fears. On the positive side, Energy shares are especially strong, rising more than +.75%. The Germany sovereign cds is falling -6.7% to 77.83 bps(-21.9% in 5 days), the France sovereign cds is down -4.7% to 162.99 bps and the UK sovereign cds is down -3.0% to 62.63 bps. On the negative side, Oil Tanker, Coal, Steel, Internet, Semi, Networking, HMO, Insurance and Restaurant shares are under pressure, falling more than -1.0%. Cyclicals are underperforming again. Tech shares are relatively heavy once again. Oil is up +1.2%, Copper is down -.3%, Lumber is falling -1.8% and the UBS-Bloomberg Ag Spot Index is surging another +2.0%. The UBS-Bloomerg Ag Spot Index is up +25.2% in about 6 weeks, which is rapidly becoming a problem for the hopes of further meaningful central bank stimulus in emerging markets. Rice is on the verge of a technical breakout, as well. The 10Y T-Note Yld is falling another -2 bps to 1.46%. Major Asian indices were mixed overnight as a +.6% gain in Australia was offset by a -1.74% decline in China. The Shanghai Comp is down -2.3% ytd and is testing its early Jan. lows. China’s ChiNext Index(Chinese Nasdaq) plunged -4.7% overnight and looks to be rolling over again technically. Major European are mostly lower, led down by a -2.0% decline in Spain. Spanish equities are now down -2.3% in 5 days and -23.7% ytd, which remains another red flag for the still deteriorating situation in the region. The Bloomberg European Bank/Financial Services Index is dropping -.5%. Brazilian equities are down -1.7% today and are losing -5.9% ytd as they test their early June lows. The Spain sovereign cds is up +1.3% to 562.12 bps, the Italy sovereign cds is gaining +1.1% to 501.37 bps and the China sovereign cds is gaining +1.7% to 115.67 bps. Moreover, the Italian/German 10Y Yld Spread is rising +1.6% to 487.63 bps, the Spain 10Y Yld is rising +2.3% to 6.82% and the European Investment Grade CDS Index is gaining +2.15% to 169.65 bps. US weekly retail sales have decelerated to a sluggish rate at +2.2%, which is the slowest since the week of April 5th of last year. US Trucking Traffic continues to soften. The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its late-December peak. Moreover, the Citi US Economic Surprise Index has fallen back to late-Aug. levels. Lumber is -4.0% since its March 1st high despite improving sentiment towards homebuilders and the broad equity rally ytd. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite expectations for a strong spring home selling season. The Baltic Dry Index has plunged around -50.0% from its Oct. 14th high and is now down around -35.0% ytd. China Iron Ore Spot has plunged -28.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +145.0% ytd. Oil tanker rates have plunged recently, with the benchmark Middle East-to-US voyage down to 25.0 industry-standard worldscale points, which is the lowest since Oct. 2009. The CRB Commodities Index is now down -19.6% since May 2nd of last year despite the recent surge in food prices. I continue to believe the recent plunge in the German cds relative to the rest of Europe is related to traders’ rapidly shifting perceptions with regards to whether or not Germany is really going to puts its balance sheet on the line to “save” the euro. This is another large red flag for the entire situation, in my opinion. Spanish and Italian yields are back in the danger zone. Copper, oil, lumber and the euro currency remain in intermediate-term downtrends. The 10Y T-Note continues to trade too well, which remains a big red flag. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. Key gauges of credit angst remain technically strong. The Citi Eurozone Economic Surprise Index is at -71.90 points, which is near the lowest since mid-Sept. of last year. Massive tax hikes and spending cuts are still yet to hit in several key eurozone countries that are already in recession. A lack of competitiveness remains unaddressed. Moreover, the “solutions” for the European debt crisis I still hear being bandied about are only bigger kick-the-cans that if implemented will eventually lead to an even bigger catastrophe as Germany is engulfed, in my opinion. The European debt crisis is also really beginning to bite emerging market economies now, which will further pressure exports from the region and further raise the odds of more sovereign/bank downgrades. I continue to believe the bar for additional QE is likely higher than the Fed is letting on. Uncertainty surrounding the effects on business of Obamacare, the "US fiscal cliff " and the election outcome uncertainty will likely become more and more of a focus for investors as the year progresses. Finally, the upcoming earnings season could prove more challenging than usual for big multi-nationals given US dollar strength and the precipitous declines in some key parts of the global economy during the quarter. Stocks that miss earnings estimates are being severely punished despite the obvious headwinds. There is a growing disconnect between US equity action and the deteriorating macro environment that is eerily similar to last July, in my opinion. The macro likely must begin improving very soon for equities to avoid a similar fate into the fall. For this year's equity advance to regain traction, I would expect to see a resumption in European credit gauge improvement, a subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices, a US "fiscal cliff" solution and higher-quality stock market leadership. I expect US stocks to trade modestly lower into the close from current levels on rising eurozone debt angst, earnings worries, rising food/energy prices, rising global growth fears, more shorting, tech sector weakness, more weak US economic data and US "fiscal cliff" concerns.

Today's Headlines

Bloomberg:

• Germany ESM Risks Are Limited, Schaeuble Tells Mittelbayerische. Germany’s financial risks from participation in the European Stability Mechanism are limited to 190 billion euros ($232 billion), Finance Minister Wolfgang Schaeuble said in an interview with Mittelbayerische Zeitung. Reports of an agreement on shared liability for banks in the European Union at a euro region leaders’ meeting on June 29 are untrue, the newspaper cited Schaeuble as saying on its Internet site. Schaeuble told the newspaper he’s “confident” that Germany’s highest court will reject legal motions to stop the ESM, the euro region’s future financial backstop.
• European Equity Protection at Record Low Versus Bonds: Options. Investors are paying the least ever to protect against losses in European stocks relative to corporate bonds, a sign to Standard Life Plc, Exane BNP Paribas and JPMorgan that equity volatility will increase. The VStoxx Index tumbled 12% to 22.6 last week, the cheapest since April 3. That's the lowest ever compared with the Markit iTraxx Europe Index, according to Bloomberg. Equity volatility is too inexpensive given the global economic slowdown and the deepening European debt crisis, according to Standard Life's Frances Hudson and Pierre-Olivier Beffy, chief economist at Exane in Paris.
• Bank Senior Bond Risk Rises Amid Reports ECB Is Banking Bail-Ins. The cost of insuring against default on senior bank bonds rose after the European Central Bank was said to drop its opposition to holders of the securities taking losses in bailouts. The Markit iTraxx Senior Financial Index of credit default swaps on 25 banks and insurers increased seven basis points to 280 at 1:44 p.m. in London, the highest since July 9, data compiled by Bloomberg show. The ECB backed imposing losses on senior bondholders of the most troubled Spanish banks at a July 9 meeting, a position rejected by euro-area finance ministers, said an official with knowledge of the ECB’s thinking. Credit-default swaps on Banco Santander SA (SAN), which isn’t calling for capital under Spain’s bank bailout, rose nine basis points to 434 basis points, Bloomberg data show. Swaps on Banco Bilbao Vizcaya Argentaria SA (BBVA), Spain’s second-biggest bank, climbed eight basis points to 456 basis points, the highest since July 12. “The fact it was even considered is bad news for euro- region banks,” said Ramon Nieto, a fund manager at Geroa EPSV Fondos, which oversees 1.1 billion euros of assets in San Sebastian, Spain.
• German Court Won't Rule On Bailout Fund For 8 Weeks. Germany’s top court will take more than eight weeks to decide whether to suspend the euro-area’s permanent bailout fund, leaving Europe’s anti-crisis coffer less than half full to respond to the debt crisis. The Federal Constitutional Court in Karlsruhe will issue a ruling on bids to halt Germany’s participation in the European Stability Mechanism and the fiscal pact on Sept. 12, it said today in an e-mailed statement. That’s more than two months after it held a hearing on the measures.
• London House Prices Plunge as Supply Rise Adds to Lull: Economy. London home sellers cut prices by a record for the month of July as an increase in supply added to pressure on the property market during the traditional summer lull, Rightmove Plc (RMV) said. Asking prices dropped 3.6 percent from June to an average 460,304 pounds ($715,600), the operator of Britain’s biggest property website said in an e-mailed report today. Across England and Wales, values fell 1.7 percent to 242,097 pounds.
• IMF Cuts Global Outlook as EU Ensnares Emerging Economies. The International Monetary Fund cut its 2013 global growth forecast as Europe’s debt crisis prolongs Spain’s recession and slows expansions in emerging markets from China to India. Growth worldwide will be 3.9 percent next year, less than the 4.1 percent estimate in April, the fund predicted in an update of its World Economic Outlook. Spain’s economy will contract 0.6 percent instead of a prior forecast for 0.1 percent growth, and India’s projection for next year was reduced 0.7 percentage point to a 6.5 percent expansion, it said. “In the past three months, the global recovery, which was not strong to start with, has shown signs of further weakness,” the Washington-based IMF said in the report. “Downside risks continue to loom large, importantly reflecting risks of delayed or insufficient policy action.”
• Retail Purchases In U.S. Unexpectedly Decrease -.5%. Retail sales in the U.S. unexpectedly fell for a third month in June as limited employment gains took a toll on consumers. The 0.5 percent drop followed a 0.2 percent decrease in May, Commerce Department figures showed today in Washington. The decline exceeded the most pessimistic forecast in a Bloomberg News survey that called for a median 0.2 percent gain in sales. Other reports today showed manufacturing in the New York region picked up this month and U.S. inventories increased in May. Stocks fell as the retail sales report prompted economists at Morgan Stanley, Goldman Sachs Group Inc. and Credit Suisse to lower their forecasts for economic growth in the second quarter. A cooling job market is sapping the household spending that makes up 70 percent of the economy, curbing sales at retailers such as Target Corp. (TGT) and Macy’s Inc. (M) “Weak spending growth and weak employment are reinforcing one another in a disconcerting negative feedback loop,” said Jay Feldman, a director of U.S. economics at Credit Suisse in New York, who cut his tracking estimate for second-quarter economic growth to 1.6 percent from 2 percent.
• Worst-in-Generation Drought Dims U.S. Farm Economy Hopes. A worst-in-a-generation drought from Indiana to Arkansas to California is damaging crops and rural economies and threatening to drive food prices to record levels. Agriculture, though a small part of the $15.5 trillion U.S. economy, had been one of the most resilient industries in the past three years as the country struggled to recover from the recession. “It might be a $50 billion event for the economy as it blends into everything over the next four quarters,” said Michael Swanson, agricultural economist at Wells Fargo & Co. (WFC) in Minneapolis, the largest commercial agriculture lender. “Instead of retreating from record highs, food prices will advance.”
• Treasury 5-Year Note Yield Drops to Record as Retail Sales Fall. Treasury five-year note yields fell to record lows as an unexpected decline in retail sales for a third straight month raised concern the economic recovery is stalling and drove investors to the refuge of government debt. Investors seeking the safest assets amid concern global growth is faltering and Europe’s sovereign-debt crisis is worsening also drove yields to all-time lows in the U.K., Canada, France, Germany and the Netherlands. Treasuries gained earlier after Germany’s top court said it will take more than eight weeks to rule on the euro-area’s bailout fund. Federal Reserve Chairman Ben S. Bernanke is scheduled to testify in Washington tomorrow amid speculation he will call for more economic stimulus.
• JPMorgan Blaming Traders for Bad Marks Baffles Ex-Employees. JPMorgan Chase & Co.’s assertion that traders at its London chief investment office may have intentionally mismarked trades, masking losses that total at least $5.8 billion, makes little sense, according to former executives with direct knowledge of the unit’s operation.
• Gilead Wins U.S. Approval for First HIV Prevention Pill. Gilead Sciences Inc. (GILD) won U.S. approval to market its HIV treatment Truvada to prevent the virus that causes AIDS in healthy people who are at high-risk of contracting the disease.
• Egypt Court to Rule on Constitution as Army Warns Islamists. An Egyptian court is set to hear a challenge to the panel charged with writing a new constitution, as the country’s army chief issued a warning to its elected Islamist leaders that may deepen the standoff between them. Field Marshal Mohamed Hussein Tantawi said yesterday that the military would not allow a “certain group” to dominate the political landscape, according to the state-run Middle East News Agency. The comment, at a ceremony in the city of Ismailiya, was interpreted as directed against the Muslim Brotherhood, from whose ranks newly elected President Mohamed Mursi was drawn.
• China's Car Dealers Will Boost Discounts On Inventory, NDRC Says. China’s automobile dealers will increase incentives and discounts as they struggle with a worsening glut in the world’s biggest vehicle market, according to the nation’s top economic planner. Average retail vehicle prices fell 1.2 percent in June from a year earlier, with those for passenger vehicles dropping 1.9 percent, said Cheng Xiaodong, head of a unit that monitors auto prices at the National Development and Reform Commission. In May, passenger-vehicle prices slumped the most in about two years because of overstocking. “The oversupply situation persists,” Cheng said in an e- mailed statement today. “Facing slugging demand and rising inventory, dealers will increase discounts and incentive offerings in the coming months.”
• Traxis Partners Founder Barton Biggs Dies at Age 79. Barton Biggs, the money manager whose attention to emerging markets during a 30-year career at Morgan Stanley made him one of the first global investment strategists, has died. He was 79.
• Par Pharmaceutical Agrees to be Bought by TPG. Par Pharmaceutical Cos. (PRX), a maker of generic drugs, agreed to be acquired for $1.9 billion by TPG Capital as the private-equity firm looks to gain from efforts to curtail health-care costs. Par stockholders will receive $50 a share in cash, the Woodcliff Lake, New Jersey-based company said in a statement today.
• Microsoft(MSFT) Joints Intel(INTC) Facing Slower Growth as China Stalls: Tech. Intel Corp. (INTC) and Microsoft Corp. (MSFT), whose products run at least 80 percent of the world’s personal computers, are set to report lackluster sales growth as China’s slowing economy exacerbates stalling demand for PCs. Intel, the largest maker of microprocessors, and Microsoft, the No. 1 software company, will report quarterly earnings this week. Analysts project both will say sales rose 5 percent or less from a year earlier, as consumers choose tablet computers and smartphones over PCs or hold off on purchases altogether.

Wall Street Journal:

• ECB Change of Heart Rumbles Spanish Bank Debt. Reports that the European Central Bank pushed for senior bondholders to shoulder losses in the Spanish bank recapitalization plan propelled investors to insure against potential losses on bonds issued by the country's banks Monday. The cost of insuring against default on bonds issued by Banco de Sabadell SAB.MC -1.99% (SAB.MC), Banco Popular de Espana (POP.MC) and Bankinter BKT.MC -2.70% (BKT.MC) pushed higher after the Wall Street Journal reported that the ECB advocated imposing losses on the senior bonds of Spanish banks that seek financial help. Finance ministers from the euro area chose not to follow the ECB's advice when they agreed to the Spanish plan July 9. "That they are now not only considering but advocating it, that is potentially quite worrying for the asset class," Mr. Barry said. "There's a lot of uncertainty so we could see some weakness in the months ahead." Reflecting the heightened nerves, credit default swap spreads on Spanish banks likely to seek bailout cash were all wider--Banco de Sabadell CDS swung 38 basis points wider to 810 basis points. Banco Popular de Espana's CDS widened 20 basis points to 727 basis points, while Bankinter's CDS pushed 5 basis points wider to 665 basis points, according to data provider Markit. "We are seeing demand for protection on Spanish banks," a CDS trader said. "There is a weaker tone across the board, but the market is not too liquid, everyone is still digesting [the news]."
• The Scandal Behind the Financial Scandals.
• WTO: China Discriminates Against U.S. Credit Cards. A World Trade Organization panel has determined that China's tight control over credit- and debit-card transactions discriminates against U.S. card companies, a decision the card issuers hope will lead to new business opportunities in China's fast-growing payments market.

CNBC.com:

• Fewer US Companies Planning to Hire; Europe Looms. Only 23 percent of the firms polled in June plan to add to staff in the next six months, the National Association for Business Economics said on Monday. NABE's prior survey, conducted in late March and early April, had shown 39 percent of companies planning to add workers.
• Drop in New York Sales Tax Revenue Signals Slow Growth. New York City's sales tax collections grew 2.79 percent in the second quarter from a year ago, according to the New York State Department of Taxation and Finance. That is less than half the 7.7 percent rise seen in the 2011 second quarter versus the 2010 second quarter. The latest result looks particularly dismal when compared with the 24.73 percent increase seen in the second quarter of 2010 over the same 2009 quarter.
• JPMorgan(JPM) Has Bigger Worry Than ‘London Whale’: Bove. JPMorgan has put its "London Whale" trading losses behind it, but the question now is how much money the bank can make from its regular operations, Dick Bove, Rochdale Securities bank analyst, told CNBC’s “Squawk Box” on Monday.

Business Insider:

• 36 Percent Of Fukushima Children Have Abnormal Growths From Radiation Exposure.
• Mexican Drug Cartels Have Infiltrated All Of These US Cities.
• The Ultimate, Worst-Case, Fiscal Cliff Nightmare Scenario.

Zero Hedge:

• European Bank Spreads Jump To Worst Of Year. (graph)
• The Problem In A Nutshell: Annualized GDP Growth Of 1%; Annualized US Debt Growth of 21%. (graph)
• IMF Says Japan And Spain Are Done, "Debt Ratio Will Never Stabilize".
• The 4 Most Disconcerting Charts For European Equity Holders.
• US Ship Mistakenly Fires On Friendly Boat Off Dubai, As Russia Condemns Saudi Treatment Of Religious Protesters.

Reuters:

• The downward pressures are so strong that the slowdown in China's economy may extend beyond the third quarter, citing Chen Dongqi, deputy head of the National Development and Reform Commission's macroeconomic research institute.
  

Telegraph:

• IMF slashes UK growth forecasts. Britain’s growth prospects have dropped sharply over the past three months, according to the International Monetary Fund as the eurozone crisis weighs on recovery.

The Independent:

• David Blanchflower: UK Economy Still Has Further to Fall. It seems unlikely any announcement will have any effect on the economy much before 2015.

Frankfurter Allgemeine Zeitung:

• Solar energy subsidies will cost Germany more than $134.5 billion euros, citing a study from the Essen-based RWI Institute. Cost of 100 billion euros were reached at the beginning of 2012 and Germany will face costs until 2030.
  

Xinhua:

• China Jan.-June FDI Falls 3% on Year to About $59.1B, Citing Vice Commerce Minister Wang Chao. Jan.-May FDI fell 1.9% to $47.1B, according to a statement posted on the ministry's website from June 15.
• China shouldn't blindly expand investment as it seeks to avoid a slowing economy, citing members from the Chinese People's Political Consultative Conference.
  

Shanghai Daily:

• Shanghai trade volume dips in H1. SHANGHAI'S trade volume declined 2.4 percent in the first half from a year earlier due to weak overseas demand and a decrease in the number of textile companies.
  

Shanghai Securities News:

• China State Council Probing Rebound in Home Prices. China's State Council is organizing several research groups to conduct a survey on the country's property market, citing people familiar with the situation. The groups are probing the reason for rebounding home prices. The groups will give advice on policy measures to counter further price rises, according to the report.