Evening Headlines
Bloomberg:
- Germany, Netherlands Rating Outlooks Cut to Negative by Moody’s. Germany, the Netherlands and Luxembourg had the outlooks for their Aaa credit ratings lowered to negative by Moody's Investors Service, which cited “rising uncertainty" about Europe’s debt crisis. Risks that Greece may leave the 17-nation euro currency and “increasing likelihood” of collective support for European countries such as Spain and Italy were among reasons for the change, Moody’s said yesterday in a statement. “Given the greater ability to absorb the costs associated with this support, this burden will likely fall most heavily on more highly rated member states if the euro area is to be preserved in its current form,” Moody’s said.
- Spain Edges Toward Bailout as Rajoy Rescues Regions: Euro Credit. Spain's bailout of its regions risks pushing the nation closer to needing a full international rescue as it struggles to maintain market access with 10-year bond yields hovering at 7.5%. "It's the straw that broke the camel's back," Lyn Graham-Taylor, a fixed income strategist at Rabobank in London, said in a telephone interview. "It's almost a waiting game now until they seek a sovereign bailout."
- Euro Near 11-Year Low Versus Yen on Spain, Italy Concern. The euro was 0.7 percent from an 11- year low against the yen amid signs Europe’s prolonged debt crisis is damping economic growth. Japan’s currency climbed even as the government said its ready to counter excessive moves. The 17-nation currency held a four-day decline versus the dollar after bond yields jumped in Spain and Italy and billionaire hedge-fund manager John Paulson was said to have told clients he sees a 50 percent chance the euro will unravel. Moody’s Investors Service cut its rating outlook for Germany and the Netherlands to negative yesterday, citing increasing chances they’ll have to support indebted European nations. Australia’s dollar gained after a Chinese manufacturing gauge rose. “There are few reasons to buy the euro,” said Junichi Ishikawa, an analyst in Tokyo at IG Markets Securities Ltd. “Investors are worried that the debt crisis is spreading to Spain and Italy.”
- Hollande Transaction Tax Drives Investors’ Quest for Loopholes. French President Francois Hollande’s transaction tax is set to take effect Aug. 1. Not all investors will be paying it. To escape the tax, many institutional investors will turn to so-called contracts for difference, or CFDs, offered by prime brokers that let them bet on a stock’s gain or loss without owning the shares. Traders have used it successfully to skirt the U.K.’s stamp duty.
- China’s Stocks Decline to Lowest Since 2009 on Economy Concern. China’s stocks fell, dragging the benchmark index to its lowest level since 2009, on concern the slowing global growth will hurt earnings. China Coal Energy Co. and Datong Coal Industry Co. dropped among coal producers as oil traded near a one-week low in New York. China Vanke Co. (000002) and Poly Real Estate Group Co. advanced after the China News Service said Nanjing city plans to offer public housing fund loans for first home purchases. A private survey today released by HSBC Holdings Plc and Markit Economics signaled the nation’s manufacturing may contract at a slower pace in July.
- China's Growth Slowdown Is Welcome, Pettis Writes in FT. The decline in China’s growth rate is a good thing for the country and the world, Peking University finance professor Michael Pettis writes in the Financial Times. China appears to be heading for a hard landing, and it must sharply reduce interest rates and expand credit to save itself and the world from disaster, Pettis, a senior associate at the Carnegie Endowment, writes. While Chinese rebalancing -- which will involve raising the consumption contribution to its Gross Domestic Product -- will mean declining growth and rapidly increasing real interest rates, instead of “panicking and demanding that Beijing reverse the process, we should be relieved that China is finally solving its problems,” he writes. Fears that slower growth will lead to social dislocation in China and economic dislocation in the rest of the world will not be realized if the change is managed well, Pettis writes, noting that “if Chinese growth slows even to 3 percent, as I expect it will, but household income continues growing at 5-6 percent, this is far from being socially disruptive.”
- China Shadow Bankers Go Online as Peer-to-Peer Sites Boom. Peer-to-peer lending is taking off in China as traditional methods of private lending among family and acquaintances, part of the country’s unregulated $2.4 trillion shadow-banking system, move online. More than 2,000 websites have been set up nationwide since 2007, China National Radio reported in May. Loans brokered online increased 300-fold to 6 billion yuan in the first half of 2011, the latest figures available, from the full year total in 2007, the report said.
- Europe Heat Wave Wilting Corn Adds to U.S. Drought: Commodities. Heat waves in southern Europe are withering the corn crop and reducing yields in a region that accounts for 16 percent of global exports at a time when U.S. drought already drove prices to a record.
- Cisco(CSCO) Plans to Eliminate 1,300 Jobs in Drive to Cut Costs. Cisco Systems Inc. (CSCO), the biggest maker of computer-networking equipment, plans to eliminate about 1,300 jobs, or 2 percent of the workforce, as Europe’s debt crisis and sluggish corporate spending threaten sales. The cuts are part of a “continuous process of simplifying the company, as well as assessing the economic environment in certain parts of the world,” San Jose, California-based Cisco said today in an e-mailed statement.
Wall Street Journal:
- Paulson: 50-50 Chance Euro Will Fall in 3 Months-2 Years - Source. Billionaire hedge fund manager John Paulson believes there is a 50-50 chance the euro may fall in the next three months to two years, a person familiar with the situation said Monday. The hedge-fund manager, who made billions by betting on the subprime mortgage crisis, made the statement in a conference call with investors reviewing second-quarter performance, the person said. The call is the boldest any hedge-fund manager has made so far on the ongoing European sovereign debt crisis. Bridgewater Associates, the world's largest hedge fund, said in an investor letter sent earlier this month on market outlook that Europe has to do more in terms of default, redistribution and monetization to achieve an orderly deleveraging. "Steps have been taken in this direction, but they remain well short of what is necessary," it said. The fund added that there are "good reasons" to doubt the notion of an orderly deleveraging among European banks and sovereigns. "This fat tail event must be considered a significant possibility," it said, but stopped short of mentioning a possible euro-zone breakup. Mr. Paulson has been bearish on the heavy indebtedness of peripheral European countries, having told investors earlier this year he is shorting European sovereign bonds and buying credit-default swaps on European debt. He has dialed down the net exposure of his funds accordingly. Paulson & Co.'s Advantage Fund has slashed its net long exposure to 11% from 32% at the end of January, while its credit fund has a net short exposure of 9%, down from 27% at the end of January, the person said.
- Libor Probe Expands to Bank Traders. Groups From at Least Nine Institutions Allegedly Banded Together to Rig Key Global Interest Rates. Several groups of traders are under investigation by regulators around the world for allegedly banding together to rig interest rates, people close to the probe said. The continuing criminal and civil scrutiny includes more than a dozen traders from at least nine banks, often allegedly working together in small groups to target different interest rates on separate continents, the people said.
- Syria Says It Has Chemical Weapons. Syria's government acknowledged for the first time Monday that it had weapons of mass destruction, saying it has the capability to use its chemical and biological weapons in case of a foreign attack.
- China Push in Canada Is Biggest Foreign Buy. Deal Could Help China Secure Oil And Gas Supplies. Cnooc Ltd. swept into Canada with China's biggest overseas acquisition yet, a $15.1 billion deal to buy one of that country's largest energy producers that reignites a debate over the role of Chinese state players in North America's energy industry.
- Fed Official Wants Tougher Volcker Rule. A top Federal Reserve official sharpened her public criticism of a draft measure restricting banks' ability to trade with their own money, arguing in a speech Monday that regulators should draw the exemptions to the rule more narrowly. In remarks prepared for a speech in Colorado, Fed governor Sarah Bloom Raskin argued for a stronger version of the so-called Volcker rule that would be more difficult for banks to work around.
- Colorado Suspect Is Silent at His Hearing. The alleged gunman in the shooting spree that killed 12 and wounded 58 others at a cinema appeared in court here Monday, his hair dyed a reddish orange, and seemed to be drifting off as lawyers began to discuss his fate. Carol Chambers, the district attorney for Colorado's 18th Judicial District, said after the hearing that prosecutors may seek the death penalty against suspect James Holmes but first want to discuss the matter with the wounded and families of those killed in the mass shooting in Aurora, a Denver suburb, last week. She said a decision may take several months.
- Spain Blames Mario. It's not the ECB's job to bail out Madrid. Yields on Spanish 10-year debt are hitting new euro-era highs only days after European finance ministers signed off on the country's €100 billion bank bailout. No surprise: The bailout's size and structure rest on highly optimistic assumptions, Spain's GDP forecast is falling, and debt-laden regional governments are petitioning Madrid for rescue. If investors still aren't giving Spanish bonds the benefit of the doubt, it's because the outlook for Spain is no brighter despite exertions in Brussels and Madrid.
Business Insider:
- LIBOR EXPERT: The Fed Has Destroyed LIBOR.
- Here's Why You're So Uncomfortable With Spending Right Now.
- This Ex-IMF Economist Probably Won't Be Asking Christine Lagarde For A Recommendation.
- Migrant Workers In China Are Returning Home As Job Losses Mount.
- Sounds Like Every Ridiculous Thing You Ever Thought About Congressional Hearings Might Be True.
- This Homicide Map Shows How Bad Things Are Getting In Chicago.
Zero Hedge:
- China's Schrodinger Economy Continues To Contract And Expand At Same Time.
- Is Vegas Signaling The Consumer Is Folding?
- Is Spain's 15%+ 'Legal-Arbitrage' 6 Month Return Signaling An Imminent Bailout?
CNBC:
- We Have Entered the World of Disaster Economics. Are the bond markets going mad? It is a question that many investors might ask. For as anxiety has erupted in the eurozone, something striking has occurred with respect to US Treasuries and German Bunds.
- Texas Instruments'(TXN) Earnings Beat; Forecast Falls Short. Texas Instruments reported second-quarter earnings that beat analysts' expectations but its projections for third-quarter earnings and revenue fell short of forecasts. Shares fell in after-hours trading on Monday.
- Typhoon Hits Hong Kong; Hang Seng Delays Opening.
Gallup:
Reuters:
- US public pension funds to face calls to set realistic targets. U.S. public pension funds are expected to report poor annual returns in the coming weeks, results that are likely to increase calls for more realistic retirement promises for teachers, police officers and other public workers. At least three of the nation's largest U.S. public pension funds have already announced returns of between 1 percent and 1.8 percent, far below the 8 percent that large funds have typically targeted.
- U.S. tax cut votes prelude to bigger "fiscal cliff" fight. The U.S. Congress is set to begin debating this week whether to extend hundreds of billions of dollars in expiring tax cuts in what amounts to a round of shadow boxing in advance of the real battle after the November elections.
- Mario Draghi has just weeks to save the euro, but will Germany let him?
- Ten Italian cities at risk of bankruptcy, schools may not reopen. Italy's financial outlook darkened on Monday amid warnings that 10 cities are at risk of bankruptcy and schools may not be able to open in the autumn because of drastic spending cuts.
- Eurozone danger mounts as Spain spins out of control. Spain is battling to avert a fully-fledged sovereign rescue after borrowing costs spiralled out of control, with dangerous knock-on effects in Italy and Eastern Europe.
People's Daily:
- China may introduce new property curbs if prices rebound "out of expectations," People's Daily said in a commentary written by Tian Shan.
- Chinese banks shouldn't give discounts to mortgages below benchmark interest rates, citing a Chinese Academy of Social Sciences report. The central bank has maintained a policy of allowing discounts of up to 30% for first time home buyers, which triggered a change in market expectations, citing Ni Pengfei, who chaired the writing of the report from CASS's National Academy of Economic Strategy. The government should improve current property policies to reverse the recent rising price trend and prevent a "retaliatory rebound," the report said. Mortgage rates for second-home purchases should be raised to 1.2 times the benchmark rate and loans not provided for third homes, the report said.
- China's State Council plans to send six teams to inspect property markets and lending in 12 provinces as authorities are "highly concerned" about potential risk. the China Banking Regulatory Commission will continue to strictly control risk for real estate financing.
- None of note
- Asian equity indices are -.50% to unch. on average.
- Asia Ex-Japan Investment Grade CDS Index 174.0 +4.0 basis points.
- Asia Pacific Sovereign CDS Index 140.25 +7.25 basis points.
- FTSE-100 futures +.36%.
- S&P 500 futures +.02%.
- NASDAQ 100 futures +.16%.
Earnings of Note
Company/Estimate
- (BEAV)/.68
- (AKS)/.05
- (RAI)/.76
- (BTU)/.53
- (CPLA)/.64
- (APD)/1.41
- (R)/.93
- (LXK)/.88
- (BIIB)/1.56
- (LMT)/1.91
- (JAH)/1.10
- (DD)/1.46
- (WHR)/1.69
- (EMC)/.39
- (UA)/.05
- (MO)/.57
- (SPG)/1.81
- (UPS)/1.17
- (T)/.62
- (ITW)/1.09
- (RHI)/.35
- (NFLX)/.05
- (ALTR)/.39
- (IGT)/.29
- (CHRW)/.71
- (AAPL)/10.37
- (LLTC)/.45
- (ILMN)/.36
- (JNPR)/.16
- (NSC)/1.53
- (PNRA)/1.43
- (RVBD)/.21
- (BRCM)/.69
- (AFL)/1.61
- (WAT)/1.16
- (BWLD)/.68
- (DPZ)/.46
- (GNTX)/.29
8:58 am EST
- The Preliminary Markit US PMI for July is estimated to fall to 52.0 versus 52.5 in June.
10:00 am EST
- The Richmond Fed Manufacturing Index for July is estimated to rise to -1.0 versus -3.0 in June.
- The House Price Index for May is estimated to rise +.4% versus a +.8% gain in April.
Upcoming Splits
- (RAVN) 2-for-1
- (TROX) 5-for-1
Other Potential Market Movers
- The Eurozone PMI Data, Spanish bond auction, Itlay's Monti meeting Sicily government, 2Y T-Note auction, German/French/Spain Finance Ministers meeting and the (CPB) analyst day could also impact trading today.