Today's Headlines

Bloomberg:

• Spain Poised for a Cut to Junk as Default Swaps Near Records. Spain is poised for a downgrade to junk by Moody’s Investors Service, according to investors who sent the cost of default insurance for the nation’s biggest banks and companies close to record highs. Credit-default swaps on Banco Santander SA, the country’s biggest bank, jumped 23 percent this quarter to 454 basis points, compared with an all-time high of 474 in November. Banco Bilbao Vizcaya Argentaria SA rose 26 percent to 477, approaching May’s record 516, while phone company Telefonica SA surged 70 percent to a record 540 basis points. Moody’s downgraded 28 Spanish banks yesterday including a two-step cut for Banco Santander and a three-level reduction for BBVA, a week after it lowered Spain’s rating to Baa3, on the cusp of junk. The country remains on review for another cut by New York-based Moody’s after it sought a 100 billion-euro ($125 billion) international bailout for its banks and on speculation losses from its real estate industry will worsen. “There’s more to come if Moody’s downgrades the sovereign as we expect in the next few weeks,” said Suki Mann, a credit analyst at Societe Generale SA in London. “A one-notch move to Ba1 will likely see all the country’s banking system in junk territory, with the possible exception of Santander.”
  
• Italian, Spanish Notes Slide on Debt Sales. Italian notes had the biggest two- day drop in seven months, and Spanish securities slid, after borrowing costs rose at debt sales. Spain’s bonds led losses in the euro area after Moody’s Investors Service downgraded 28 Spanish banks and Bundesbank President Jens Weidmann said there can be no pooling of issuance in Europe until governments agree to give up their fiscal sovereignty. German bunds slipped before European Union leaders meet in two days about the crisis. The European Central Bank said Cypriot bonds have become ineligible as collateral in refinancing operations. “Demand is subdued, even for shorter-dated paper,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. The EU summit will probably be “a bit disappointing and for that reason we’d expect lower bund yields,” he said. The yield on Italian two-year notes climbed 35 basis points, or 0.35 percentage point, to 4.68 percent at 4:41 p.m. London time. The 88 basis-point increase in yields in the past two days is the biggest jump since Nov. 9. The 3 percent security due April 2014 tumbled 0.57, or 5.70 euros per 1,000- euro ($1,247) face amount, to 97.28. Similar-maturity Spanish yields were 36 basis points higher at 5.21 percent, adding to yesterday’s 42-basis point increase.
• Hollande Reality Makes French Debt Less Attractive. During his first two weeks in office, President Francois Hollande saw French borrowing costs go in one direction, and that was down. Not anymore. The yield on the French benchmark 10-year bond advanced to 2.63 percent at 4:00 p.m. in Paris, up from a euro-era low of 2.071 percent on June 1. It was as high as 2.902 percent on May 15, when Hollande took office. The rate is at risk of rising further with French banks vulnerable to the region’s debt-ridden nations as economic growth stalls.
• King is Pessimistic on Euro Crisis as Global Economy Teeters. Bank of England Governor Mervyn King said his vote for more stimulus this month reflected his worries about a deteriorating global economic outlook at a time when he’s pessimistic that Europe’s debt crisis can be resolved. “What’s concerned me in the last several months, and why I voted for easing in policy, is the worsening in the position in Asia and other emerging markets,” King told lawmakers in London today. Another reason is that “my colleagues in the U.S. are more concerned than they were at the beginning of the year about what’s happening in the American economy. It’s not a comfortable position,” he said. “I’m very struck by how much has changed” since the bank published forecasts on May 16, King said. “I am pessimistic, and I am particularly concerned because for two years now we’ve seen the situation in the euro area get worse, the problems have been pushed down the road.”
• Chemicals Flash U.S. Economic Slump Warning: Chart of the Day. Slowing production of chemicals from caustic soda to polyvinyl chloride is signaling a drop in U.S. industrial output and greater risk that the economy may slip back into a recession, American Chemistry Council data show. The CHART OF THE DAY shows the Chemical Activity Barometer trailing behind the Federal Reserve’s Industrial Production index by the most since March 2009, when the U.S. was still in the longest and deepest recession since the Great Depression. The gauge tracks chemical production and prices, hours worked at producers, manufacturing output, building permits, and share prices for companies including Dow Chemical Co. (DOW) and DuPont Co.
• Oil Declines for Second Day, Erasing Earlier 0.6% Gain. Oil fell for a second day, heading for the biggest quarterly decline in more than three years, as concern increased that Europe won’t solve its debt crisis and U.S. consumer confidence declined to a five-month low. Prices traded below $80 for a fourth day as borrowing costs for Spain and Italy neared a three-month high after German Chancellor Angela Merkel was said to have criticized a European proposal to reshape the euro zone. The New York-based Conference Board reported consumer confidence slid for a fourth month. “There is a lot of uncertainty in the market not just on the economic side but also on the fundamental side,” said Jacob Correll, a Louisville, Kentucky-based analyst at Summit Energy Inc., which manages more than $20 billion in companies’ annual energy spending. “Nothing that’s been done so far in Europe is really giving the market a lot of confidence.” Oil for August delivery fell 61 cents, or 0.8 percent, to $78.60 a barrel at 11:30 a.m. on the New York Mercantile Exchange. Prices have fallen 24 percent this quarter, the biggest drop since the final three months of 2008. Brent crude for August settlement rose 49 cents, or 0.5 percent, to $91.50 a barrel on the London-based ICE Futures Europe exchange. Brent’s premium to West Texas Intermediate widened for the third straight day, rising to $12.90 from yesterday’s $11.80.
• Home Prices in U.S. Cities Fall at Slowest Pace Since ’10. Residential real estate prices fell in April at the slowest pace in more than a year, adding to signs the U.S. housing market was firming. The S&P/Case-Shiller index of property values in 20 cities dropped 1.9 percent in April from the same month in 2011, the smallest decline since November 2010, after decreasing 2.6 percent in the year ended March, the group said today in New York. The median forecast of 28 economists in a Bloomberg News survey projected a 2.5 percent drop.
• Consumer Confidence In U.S. Declines To A Five-Month Low. Confidence among U.S. consumers dropped in June for a fourth consecutive month as mounting concern over jobs and incomes dimmed the outlook for spending. The Conference Board’s sentiment index fell to 62, a five- month low, from a revised 64.4 in May, figures from the New York-based private research group showed today. Another report showed home prices were stabilizing. The slide in confidence raises the risk that the slowdown in hiring revealed by last month’s jobs report will cause households to retrench, restraining the spending that accounts for about 70 percent of the economy. The weak labor market is overshadowing the benefit of the lowest gasoline prices in five months, one reason why companies like Ford Motor Co. (F) are keeping an eye on attitudes. “The employment situation continues to weigh on consumer minds,” said Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York, who correctly forecast the confidence index. “Usually consumers react to falling gasoline prices by increasing their spending, but this time around it looks like they’re a little bit cautious.” The Conference Board’s confidence gauge reflected growing concern about the short-term outlook. The gauge of expectations for the next six months fell to 72.3, the lowest level since November, from 77.3 a month earlier. The share of respondents in the Conference Board’s survey that expected more jobs to become available in the next six months declined to 14.1, the lowest this year, from 15.4 the previous month. The proportion projecting an increase in incomes dropped to 14.8 percent from 15.7 percent.
• EPA Greenhouse-Gas Rules Upheld By U.S. Appeals Court. The U.S. Environmental Protection Agency’s limits on industrial emissions of greenhouse gases including carbon dioxide were upheld by a federal appeals court. A three-judge panel of the U.S. Court of Appeals in Washington ruled today that the EPA’s interpretation of the Clean Air Act was “unambiguously correct” and that the opponents don’t have the legal right to challenge the so-called timing and tailoring rules. The panel considered challenges to the agency’s finding that greenhouse gases are pollutants that endanger human health and to rules determining when states and industries must comply with regulations curtailing their use. Companies such as Massey Energy Co., business groups including the U.S. Chamber of Commerce and states led by Texas and Virginia sought to stop the agency through more than 60 lawsuits. Some argued that the EPA relied on biased data from outside scientists.
• Bond Traders Shunning Freddie Means Taxpayers Lose: Mortgages. The bond market is telling Freddie Mac it’s not wanted even as taxpayers support two similar mortgage-finance companies. Securities it guarantees are hovering near record low prices relative to the debt of its larger rival Fannie Mae. That’s forcing Freddie Mac to rebate lenders that package loans into its bonds to compensate them for investors paying less for the debt, according to its disclosures and people familiar with its Market-Adjusted Pricing program. Banks slice off part of homeowner payments to buy its insurance. Freddie Mac still competes with Fannie Mae even now that they’re both 80 percent owned by the government after their 2008 bailouts. Expenses from the program may reach about $750 million annually, according to JPMorgan Chase & Co. analysts.
• A surplus of the largest oil tankers competing to load crude at Persian Gulf ports reached a six-month high on slowing demand to charter ships, a Bloomberg News survey showed. There are 14% more VLCCs available for hire over the next 30 days than there are likely cargoes, according to a Bloomberg survey of seven shipbrokers and owners today. That's 4 percentage points more than the prior week. In terms of the monthly average, the surplus was the highest in June since December, according to a Bloomberg index.
• Biggest U.S. Banks Curb Loans as Regional Firms Fill Gap. The biggest U.S. banks are extending less credit amid a faltering economic recovery as regional lenders step in to fill the gap. Total loans at the four largest U.S. banks -- JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), Citigroup Inc. (C) and Wells Fargo & Co. (WFC) -- fell 4.9 percent to $3.04 trillion in the first quarter from the same period in 2010, according to data compiled by Bloomberg. Lending by the 17 smallest of the 24 firms in the KBW Bank Index (BKX) increased 9.8 percent to $1.27 trillion.

Wall Street Journal:

• Banks Preparing For The End. Some of the biggest banks are being asked to submit by July 1 road maps for how they can be quickly and cleanly liquidated, but a top regulator said he doesn't back using the so-called living-will process to break them up. Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corp., also doesn't think that the new regulatory process will end "too big to fail"—the expectation that the government will bail out faltering financial firms rather than risk the damage their failure would inflict on the system.
• Spain: Jan-May Government Budget Deficit Widens to 3.4% of GDP. Spain's central government budget deficit widened to 3.4% of gross domestic product in the first five months of the year, the country's budget ministry said Tuesday. The figure compares with a deficit of 2.4% of GDP in the January-April period, Deputy Budget Minister Marta Fernandez Curras said at a press conference, blaming the larger deficit on Spain's poor economic performance during the period, as well as earlier transfers of funds to regions than seen last year. Fernandez Curras said the government expects an improvement in the economy in coming months, which should have a positive impact on fiscal efforts. Last year, the budget deficit through May was at 2.6% of GDP. In the five-month period, Spain's central government revenue dropped by 0.1%, while expenses were up 12%, due to a lower contribution from the value-added tax, as well as the accelerated transfers to regions, respectively.
  

MarketWatch:

• EU's Fiscal Union Road Map Gets Cool Reception. A document outlining a path to tighter fiscal integration across the euro zone and a European banking union got a cool reception from Germany and economists on Tuesday as European leaders prepare for a summit meeting later this week.

CNBC.com:

• Cramer's Ultimate Growth Stocks for 2012.
• Poll: Economy, Not Tax Fears, Turns Wealthy Against Obama.

Business Insider:

• Map Shows Which States Are The 'Greeces' Of America.
• Morgan Stanley's Amazing Presentation On The State Of Everything That's Important In The World.
• WILLEM BUITER: Spain And Italy Will Need Sovereign Bailouts, And Quite Possibly Very Soon.
• Another Dangerous Side Of Shadow Banking In China: Trusts.
  

Zero Hedge:

• European 'Bail-In' Risk Rises To Near-Six-Month Highs. (graphs)
• Is France's 'Germany-Containment' Strategy At Risk?
• Italy's Unelected PM Mario Monti: "Eurobonds, Or I Resign".
• As The ECB's Balance Sheet Hits A New Record High, Fair EURUSD Value Is 900 Pips Lower.

New York Times:

• Turkey Warns It May Target Any Syrian Forces Nearing Border.

Market Folly:

• Summary of Hedge Fund Bearish China Thesis: Kynikos, Corriente, Pivot, Eclectica, Greenlight & More.

Reuters:

• German govt, states agree solar incentive cuts-MPs. Germany's government and federal states have agreed cuts to incentives for the solar power industry after a weeks-long dispute, under which incentives will be capped for installed capacity of 52 gigawatts (GW), parliamentary sources said.
• Merkel: no EU total debt liability in my life: sources. "I don't see total debt liability as long as I live," Merkel was quoted as telling members of parliament from the Free Democrats (FDP), junior partners in her centre-right coalition, by sources who took part in the meeting. German Chancellor Angela Merkel was quoted as telling a meeting of one of the parties in her coalition on Tuesday that she does not think Europe will have shared total debt liability in her lifetime. The chancellor also said there would be no shared liability of debt in Germany either, days after her government agreed plans with federal states to issue joint "Deutschland bonds". Merkel has warned against focusing on proposals for shared debt liability - such as the eurobonds favored by France's new Socialist leader Francois Hollande - and other "easy" solutions to the euro zone crisis at this week's European Union summit. She said in a speech on Monday that sharing debt liability within the 17-nation single currency area would be "economically wrong and counterproductive".
• US gasoline demand down on uncertain outlook-MasterCard(MA). U.S. gasoline demand fell last week as an uncertain economic outlook forced motorists to cut back on non-essential driving, MasterCard's SpendingPulse report showed on Tuesday. Demand fell by 3.5 percent in the week to June 22 compared with the same week a year ago, MasterCard data showed. Week-over-week gasoline consumption was flat over the last two weeks. Gasoline sold for $3.48 a gallon last week, down 10 cents from two weeks ago and 3.9 percent lower than during the comparable week last year. The four-week moving average for demand fell for the 66th consecutive week, down 3.2 percent from a year earlier.
• Romney Would Get Tough on China - Portman. Republican presidential candidate Mitt Romney would move aggressively to open up more foreign markets for U.S. exports, while getting tougher with China on its trade and currency practices, Senator Rob Portman said on Tuesday. The potential Romney vice presidential running mate said President Barack Obama has allowed the United States to fall "behind in a very significant way (on trade) because we are not engaging in opening up markets virtually anywhere.
• Brazil loan defaults hit record high as borrowing costs fall. Loan delinquencies at Brazilian banks rose to a record in May in a sign that a slowdown is hitting Latin America's largest economy despite its strong jobs market and aggressive cuts in borrowing costs. Loans in arrears for 90 days or more, the most widely followed gauge of bank defaults, rose to the equivalent of 6 percent of outstanding loans in May, compared with a revised 5.9 percent the prior month, the central bank said on Tuesday. The so-called default ratio had risen in April. The level is the highest for the default ratio since the central bank began keeping records of this gauge in June 2000. Despite efforts by consumers to refinance credit at lower interest rates, especially auto loans, the pace at which delinquency rates are increasing has continued to grow since last year.
• OECD Raises Red Flag on US Long-Term Unemployment. The lengthy spells many Americans are spending without work risk leaving a lasting scar of higher unemployment on the U.S. economy and training programs are needed to avert the damage, the OECD said on Tuesday. The warning from the Organization for Economic Cooperation and Development comes against the backdrop of stalled U.S. jobs growth and an uptick in the unemployment rate in May. In a report on the U.S. economy, the Paris-based OECD estimated the unemployment rate which the economy could sustain without generating inflation at 6. 1 percent, up from 5.7 percent in 2007. In May, the rate stood at 8.2 percent.
• Spain Considers Eliminating Property Tax Breaks. Spain is considering eliminating tax breaks on housing and raising petrol tax, the Treasury Secretary Marta Fernandez Curras said on Tuesday. "This is one of the options, one of the recommendations, by the European Union which is under consideration," she said.
• Solar Production Glut to Persist to 2015 - Study. Solar panel manufacturers face three more years of tough conditions until the market shuts down excess production capacity, according to a new report issued on Tuesday by renewable power consultancy GTM Research. Production capacity for photovoltaic solar panels this year stands at 59 gigawatts, about double the 30 gigawatts expected to be sold into the global market, according to GTM analyst Shyam Mehta. About 21 gigawatts of the current production is expected to be retired by 2015 as panel prices continue their steep declines, GTM said.

Telegraph:

• First seafood caught off Fukushima since Japan nuclear disaster sold.
• A hopelessly misconceived blue print for Europe. Ambitious plans to be put before this week's EU summit – yes indeed, yet another crisis summit – to turn the eurozone into something much closer to a fiscal union make for easy analysis. On almost any level you care to take, they won't work. Here's the plan.
• Debt Crisis: Live. New proposals for a “banking union” pose a threat to London, proposals prepared for Friday's EU summit show, while Angela Merkel says there won't be shared debt in Europe "as long as I live".
• UK Deficit Goal at Risk After Weak Borrowing. George Osborne is facing a “major battle” to meet his deficit reduction targets after government borrowing rocketed above expectations due to the double-dip recession.

MNI News:

• China may not ease controls on the property market until the next administration is in office, citing a person close to the National Development and Reform Commission. The economic conditions don't warrant easing, the person said.
  

Handelsblatt:

• German Family Businesses Don't Back Merkel on Euro. Angela Merkel's current strategy is leading into an "abyss," Brun-Hagen Hennerkes, a board member of Germany's Foundation for Family Businesses, said. It is endangering Germany's national wealth even more, Hennerkes said. Hans-Peter Keitel, who heads Germany's BDI industrial employers association, was wrong to back Merkel without consulting members, Family Businesses Association head Lutz Goebel said.
  

Efe:

• The Spanish government is studying a possible increase in sales tax following a recommendation from the European Commission. The standard sales tax rate is 18%. Competition Commissioner Joaquin Almunia said yesterday that complying with commission recommendations is obligatory for Spain.
  

Jyllands-Posten:

• Denmark remains in the grips of a credit crunch as the country's banking industry continues to be plagued by losses that erode earnings, Business Minister Ole Sohn said.
  

Xinhua:

• China's latest revision to the draft budget law removed amendments easing restrictions on local government issuing bonds. An article allowing local governments to sells bonds within an approved quota was removed in the second reading of the bill and a ban on local governments issuing bonds was reinstated.

Shanghai Securities News:

• The sales of road pavers and bulldozers in China fell 30% last month because demand weakened on decreasing infrastructure projects, citing industry website China Construction Machinery Business Online. Sales of loaders fell by 26% and excavators decreased by 24% in May from a year earlier.

Bear Radar

Style Underperformer:

• Small-Cap Value +.15%

Sector Underperformers:

• 1) Coal -3.34% 2) Gold & Silver -1.97% 3) Computer Services -.82%

Stocks Falling on Unusual Volume:

• SNTA, AEM, EXK, WFT, DXPE, VLTR, PCYC, MEOH, VCLK, TSLA, CSTR, APKT, CGNX, FARO, SAFM, GEVA, GOLD, NDSN, SINA, HOG and RBN
  

Stocks With Unusual Put Option Activity:

• 1) NWSA 2) EMR 3) KBH 4) NOK 5) HRB
  

Stocks With Most Negative News Mentions:

• 1) DOW 2) VCLK 3) CTSH 4) GS 5) WFC
  

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Growth +.03%

Sector Outperformers:

• 1) Education +4.56% 2) Homebuilding +1.71% 3) Ag +1.09%

Stocks Rising on Unusual Volume:

• APOL, FUL, NWSA, SAH, DV, MOS, PGI, ROSG and STX
  

Stocks With Unusual Call Option Activity:

• 1) APOL 2) KWK 3) ESI 4) SQNM 5) NWSA
  

Stocks With Most Positive News Mentions:

• 1) CELG 2) PKT 3) RIMM 4) BA 5) LMT
  

Charts:

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

Tuesday Watch

Evening Headlines
Bloomberg:

• Moody’s Downgrades 28 Spanish Banks on Sovereign Risk. Banco Santander SA (SAN) and Banco Bilbao Vizcaya Argentaria SA (BBVA), Spain’s largest lenders, were downgraded by Moody’s Investors Service because of the country’s sovereign debt and souring real-estate loans. At least a dozen lenders were lowered to junk status, Moody’s said yesterday in a statement. The ratings company downgraded six banks by four levels and 10 by three grades with the rest getting one- and two-tier declines. “In Spain you have a combination of a significant sovereign-debt burden coupled with a collapsing real estate market,” said Bruce Simon, chief investment officer at Los Angeles-based City National Bank, which manages $14 billion in client assets and doesn’t own debt issued by the lenders. “That’s doubling the pressure on Spanish banks.” The lenders are facing the “reduced creditworthiness” of the nation as well as the “expectation that exposures to commercial real estate (CRE) will likely cause higher losses, which might increase the likelihood that these banks will require external support,” the ratings firm said in its statement.
• German Lawmakers to Meet in July on Spain, Rheinische Post Says. German lawmakers will probably extend their current session into July to vote on Spain’s request for European Union aid to its banks, the Rheinische Post said, citing Hermann Otto Solms, the deputy president of the lower house of parliament, or Bundestag. The aim is to hold the vote by July 9, the newspaper reported in an e-mailed article to appear in tomorrow’s edition. Without emergency business, the Bundestag’s summer recess is due to start June 30, according to the chamber’s official schedule.
• Libor Guardians Said to Resist Changes to Broken Rate. The U.K. bankers and regulators charged with reviewing Libor in the wake of regulatory probes are resisting calls to overhaul the rate because structural changes risk invalidating trillions of dollars of contracts. The group, established by the British Bankers’ Association in March after probes into allegations that traders rigged the London interbank offered rate, may propose a code of conduct for banks and impose greater scrutiny of Libor’s correlation with other financial data over time, according to three people with knowledge of the discussions who asked not to be identified because the talks are private. It won’t propose structural changes such as basing the rate on actual trades or taking away oversight of the benchmark from the BBA, the people said.
• Shipping Bears Ascendant as Fleet Growth Swamps Cargoes: Freight. Shipping analysts are getting more bearish on the outlook for rates to haul iron ore and coal as China, the biggest consumer of both commodities, grows at the slowest pace in three years at a time of record fleet expansion. Capesizes, each holding about 180,000 metric tons of cargo, will earn an average of $11,709 a day in 2012, the lowest in at least 14 years, the median of 10 analyst estimates compiled by Bloomberg shows. They predicted $15,000 in a December survey. The fleet will expand 13 percent this year, compared with a 4 percent advance in cargo volumes, according to London-based Clarkson Plc (CKN), the world’s biggest shipbroker. Rates tumbled 85 percent since the start of January, more than for any other type of commodity carrier, as everyone from the World Bank to the Federal Reserve cut growth estimates. China, which imports more iron ore than all other nations combined, is expanding at the slowest pace since 2009 and the 17-nation euro region returned to recession this quarter, the median of 16 economist forecasts shows. “China’s growth hasn’t been as good as some people had hoped,” said Rahul Kapoor, a Singapore-based analyst at RS Platou Markets AS, who cut his 2012 forecast to $10,000 from $13,000 in December. “That’s being compounded by rather negative demand for iron ore in Europe. Fleet growth has also been huge and above most people’s expectations.”
• Princeton’s Blinder Says Fed Has Weak Weapons for Growth. Princeton University economist Alan Blinder said remaining options for Federal Reserve policy probably won’t provide a powerful boost to the U.S. economy. “The basic problem for the Fed is it’s used all the heavy artillery a long time ago and it’s down to relatively weak weapons,” Blinder, a former Fed vice chairman, said in an interview today on Bloomberg Radio’s “The Hays Advantage” with Kathleen Hays. “Even a full-scale QE3 in mortgage-backed securities is not that powerful a weapon these days with mortgage rates as low as they are” and impediments to the market, including borrowers who can’t refinance because their mortgage is larger than their home’s value, he said. The Fed, seeking to cut borrowing costs, has bought $2.3 trillion of securities in two rounds of quantitative easing, or QE.
• Syria Knew Identify of Jet Before Shooting, Turkey Says. Syrian forces knew the identity of a Turkish military jet before shooting it down over international airspace, according to Turkey’s ambassador to the United Nations. “Radio communication among Syrian authorities clearly demonstrates that the Syrian units were fully aware of the circumstances and the fact that the aircraft belonged to Turkey,” Ertugrul Apakan, Turkey’s representative to the UN said in a letter to Secretary General Ban Ki-Moon obtained yesterday. Syrian forces also shot at a Turkish rescue plane sent to look for the downed pilots, even after Turkey “established coordination with the Syrian authorities,” according to the letter. Turkey’s latest allegations about last week’s events off the coast of Syria further raised tensions ahead of a North Atlantic Treaty Organization meeting on the incident today in Brussels.
• SodaStream(SODA) Plans to Enter U.S. Grocery, Drug Stores in 2014. SodaStream International Ltd. (SODA) plans to bring its do-it-yourself soda machines to U.S. drugstores and supermarkets in 2014 as the Israeli company looks to expand sales and household usage in the world’s No. 1 beverage market. “We will do it in 2014,” Chief Executive Officer Daniel Birnbaum said in a phone interview yesterday. “We will test a bit next year but it’s too early. There is a temptation to do it now but we have to make sure that when we enter retailers we provide enough velocity to justify the shelf space.”
• Swine Flu Deaths May Have Been 15 Times Higher Than Reported. The 2009 swine flu pandemic may have killed 15 times more people globally than reported at the time, according to the first study to estimate the death toll. The H1N1 influenza virus probably killed about 284,500 people worldwide, compared with 18,500 deaths reported to the World Health Organization, researchers from the U.S. Centers for Disease Control and Prevention wrote in the journal Lancet Infectious Diseases today. More than half the deaths may have been in southeast Asia and Africa, compared with 12 percent of officially reported fatalities, the authors wrote.
• Congress Said to Delay Automatic Budget Cuts Until March. Republican and Democratic congressional leaders are weighing whether to delay automatic federal spending cuts until March 2013, according to a House aide and industry officials who were briefed on the discussions. The $1.2 trillion in automatic spending cuts over a decade, half of which would affect the Defense Department, are scheduled to begin in January 2013. At the same time, lawmakers must decide what to do about Bush-era tax reductions scheduled to expire at the end of the year. Leaders in both chambers are discussing whether to propose a catch-all bill that would delay the automatic cuts, fund the government through March or later and temporarily extend the George W. Bush-era tax cuts and other tax laws, said the House aide and industry officials, who asked to speak on condition of anonymity. “It is being seriously considered as one of the options and there is no doubt about that,” Steve Bell, the senior director of the Economic Policy Project at the Bipartisan Policy Center, said in an interview.

Wall Street Journal:

• Default Coverage Costs More as Crisis Touches Berlin. Credit-default swaps on Germany, hitherto the safest of safe havens, have come under the gun as fears over the creditworthiness of Europe's strongest economy finally take root. The slow climb of German bund yields may have grabbed the headlines, but analysts point out that CDS rates—the cost of insuring a country's debt against default—also provide a telling measure of sentiment. The risk of German taxpayers having to foot the bill for their European neighbors has long been acknowledged. Likewise, the Continent's powerhouse defaulting on its debt is seen as a nearly impossible event. Nevertheless, growing calls from France, Italy and Spain for a permanent solution to the two-year-long crisis, such as arrangements for stronger governments to back the borrowings of weaker nations, are now beginning to affect its CDS rate, analysts say. Since the start of March, the cost of insuring $10 million of German debt against default for five years has risen from around $75,000 a year to around $101,000 a year Monday. By contrast, CDS on $10 million of U.K. debt cost around $70,000 a year, and only around $50,000 a year for U.S. debt. Christopher Clark, a credit strategist for ICAP, said pressure from the markets is mounting on Berlin. "There is a growing sense that Germany's balance sheet might have to be put on the line. The growing momentum for building a comprehensive solution to the crisis, which will inevitably lean on German credit, has taken some of the shine off German bunds and CDS spreads lately," Mr. Clark said. "The CDS market was the first market to react, most likely because it [is] not affected by flight-to-quality flows and can therefore be seen as a more responsive indicator on how the market perceives underlying risk." Strategists for Dutch bank ING Groep NV say, Germany's views won't stop a wide array of euro-saving "remedies" being discussed at the meeting in Brussels on Thursday and Friday. Unsurprisingly, each of the proposals would have a negative effect on Germany's perceived creditworthiness. Germany has already contributed to the permanent ESM fund, but it is still on the hook for a share of any losses the fund incurs. Both funds appear increasingly likely to be drawn upon. If Madrid loses access to the markets, supporting Spain's financing needs would cost the bailout funds €250 billion, ING economists say. But if Italy, which planned to borrow €440 billion in 2012 alone, falls under pressure, then the combined bailout funds would certainly be overwhelmed. "There is no rescue mechanism in place that could cater for an Italian bailout," ING analysts Alessandro Giansanti and Padhraic Garvey said in a note to clients.
• Court Splits on Arizona Law. Justices Rein In Law Aimed at Curbing Illegal Immigrants but Allow Police Checks. The Supreme Court struck down the harshest parts of an Arizona law targeting illegal immigrants, ruling the state interfered with congressional authority over U.S. borders, but it let stand a requirement that police check the immigration status of people they stop for traffic or other offenses.
• Chinese Target U.S. Homes. Lennar Corp. (LEN), one of the U.S.'s largest home builders, is in talks with the China Development Bank for approximately $1.7 billion in capital to jump-start two long-delayed San Francisco projects that would transform two former naval bases into large-scale housing developments, according to people familiar with the discussions.
• New Japan Defense Chief to Boost Security of Southwest Waters. Japan's new defense minister said the government is preparing to enhance its air and sea defense capabilities to protect islands and waters in the nation's southwest, part of the broad swath of the western Pacific where China has increased its maritime activities in recent years. "Japan has 6,800 islands, and territory that stretches over 3,300 kilometers [2,000 miles]; it's necessary to have troops at its southwestern end to beef up our warning and surveillance capability," Satoshi Morimoto told The Wall Street Journal on Monday in his first interview with a non-Japanese news organization since he took office this month.
• News Corp.(NWSA) Mulls Splitting in Two. News Corp. NWSA -1.35%is considering splitting into two companies, separating its publishing assets from its entertainment businesses, say people familiar with the situation. The split would carve off News Corp.'s film and television businesses, including 20th Century Fox film studio, Fox broadcast network and Fox News channel from its newspapers, book publishing assets and education businesses. News Corp.'s publishing assets include The Wall Street Journal, the Times of London and the Australian newspaper, as well as HarperCollins book publishing. If a separation occurs, the publishing company would be far smaller than the entertainment company.
• Weber Sees Euro Zone Surviving Crisis Intact. This week's long-anticipated European Union summit will fail to deliver a lasting solution to the euro-zone's economic and financial woes, according to former German central banker Axel Weber. In an interview with The Wall Street Journal, Mr. Weber, a former president of the Deutsche Bundesbank and former member of the European Central Bank's governing council, tamped expectations among some investors of a decisive deal at the meeting of European leaders Thursday and Friday in Brussels. "This is another policy meeting," Mr. Weber, who is now chairman of the Swiss bankUBS AG, said.

MarketWatch:

• Macau Casinos Fall On China Rule-Change Report.
• Seagate(STX) to Replace Progress Energy in S&P 500.
  

Business Insider:

• A New Drug Resistant Form Of Tuberculosis Is Spreading In India.
• The New Egyptian President Reportedly Said 'Jihad Is Our Path And Death In The Name Of Allah Is Our Goal'.
• Is Disney(DIS)/Pixar's Newest Lead Character Gay?

Zero Hedge:

• Biderman On The Bernanke Put, Black Swans, And The Failure Of 'Perceived Truths'.
• On The Verge Of A Historic Inversion In Shadow Banking. (graphs)
• The Absurdity of NATO.
  

CNBC:

• Asia Hedge Funds Ditch Short-Selling for Long-Only Game. Some of Asia's oldest hedge funds are ditching short-selling as investors pull out of the strategy on concerns that bearish bets are failing to pay off and not worth the hefty fees they bring. The move from the traditional hedge fund structure to long only investing is part of the growing shake-out of Asia's $124 billion industry, and is a potential blow to the investment banks supporting the sector.

IBD:

• Zumiez(ZUMZ) To Catch Wave With European Buyout Deal.

NY Times:

• Italy is Poised to Pass Labor Laws Most View as Flawed.
  

Forbes:

• Is Your Hedge Fund Style "Drifting"? Quick, Catch It! Hedge fund style “drift” is said to occur when a hedge fund manager strays from their stated investment strategy. The term used to be an esoteric one, used only by professional hedge fund analysts. However, “drifting” is a problem that is lately coming into view more by regulators and in litigation by disgruntled investors.

CNN:

• Government Wants More People On Food Stamps. More than one in seven Americans are on food stamps, but the federal government wants even more people to sign up for the safety net program. The U.S. Department of Agriculture has been running radio ads for the past four months encouraging those eligible to enroll. The campaign is targeted at the elderly, working poor, the unemployed and Hispanics. The department is spending between $2.5 million and $3 million on paid spots, and free public service announcements are also airing. The campaign can be heard in California, Texas, North Carolina, South Carolina, Ohio, and the New York metro area.

Rasmussen Reports:

• Generic Congressional Ballot: Republicans 44%, Democrats 39%.

Reuters:

• Barclays says $8.2 bln Pulled from Commodities in May.
• Facebook(FB) taps COO Sandberg to be first woman on board. Facebook Inc named Chief Operating Officer Sheryl Sandberg a director on Monday, elevating the first woman to a board that includes seven men.

Financial Times:

• EU Could Rewrite Eurozone Budgets. The European Union would gain far-reaching powers to rewrite national budgets for eurozone countries that breach debt and deficit rules under proposals likely to be discussed at a summit this week, according to a draft report seen by the Financial Times. The proposals are part of an ambitious plan to turn the eurozone into a closer fiscal union, giving Brussels more powers to serve like a finance ministry for all 17 members of the currency union. They are contained in a report to be presented at the summit, which will also outline plans for a banking union and political union.

Les Echos:

• France plans to freeze spending for three years from 2013 through 2015, excluding debt and pension payments, citing a statement to the cabinet by Prime Minister Jean-Marc Ayrault. Spending is to be frozen in absolute terms without taking into account inflation.

Globe and Mail:

• Moody's Warns on Canadian Mortgage Debt. The federal government’s attempt to cool the housing market “may have come too late” to prevent a harsh landing for residential real estate, Moody’s Investors Service is warning. After Finance Minister Jim Flaherty announced last week that Ottawa is tightening the rules on government-backed mortgages to keep the housing market from overheating, Moody’s said it is concerned the efforts may not be enough. High levels of household debt in Canada have left consumers with little flexibility to adapt to shifting markets, the credit rating agency said.

The Hindu Business Line:

• Government Allows Crude Oil Imports Thru Iranian Tankers. The Government has decided to allow public sector oil companies to import crude oil from Iran by Iranian tankers for a period of six months from July 1. This follows the representation made by the Petroleum Ministry following the European insures’ decision to deny cover to vessels carrying Iranian cargo from next month. Indian tankers are insured with the European protection and indemnity (P&I) clubs and therefore they will not be able to carry Iranian crude oil from July 1, unless they are able to get alternative insurance cover. A Shipping Ministry official confirmed that local refiners are allowed to import oil from Iran on c.i.f. basis for six months or till the European Union lifts its sanctions against Iran.

Xinhua:

• China's central government will sell bonds on behalf of local governments, citing the revised draft for the budget law. Local government's can't currently issue debt directly.
  

Evening Recommendations
Piper Jaffray:

• Rated (TITN) Overweight, target $35.

Raymond James:

• Raised (ETH) to Strong Buy, target $26.
• D0wngraded (GEOY) to Underperform.
  

Night Trading

• Asian equity indices are -1.0% to -.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 187.5 +7.0 basis points.
  
• Asia Pacific Sovereign CDS Index 149.50 +3.75 basis points.
  
• FTSE-100 futures +.03%.
  
• S&P 500 futures +.11%.
  
• NASDAQ 100 futures +.22%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (RBN)/.90
• (AVAV)/.72
• (HRB)/2.07

Economic Releases
9:00 am EST

• The S&P/CS Home Price Composite 20 City YoY Index for April is estimated to fall -2.5% versus a -2.57% decline in March.

10:00 am EST

• Consumer Confidence for June is estimated to fall to 63.0 versus 64.9 in May.

Upcoming Splits

• (DLTR) 2-for-1
  

Other Potential Market Movers

• The Spanish Bill/Italian Bond auctions, German inflation data, 2Y T-Note auction, Richmond Fed Manufacturing Index for June, weekly retail sales reports, (NTAP) analyst day, (DG) investor meeting, (SMSC) analyst day and the Oppenheimer Consumer Conference could also impact trading today.
  

BOTTOM LINE: Asian indices are lower, weighed down by commodity and technology 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 Eurozone Debt Angst, Rising Globla Growth Fears, Tech/Financial Sector Weakness, Technical Selling

Broad Market Tone:

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

Equity Investor Angst:

• VIX 19.91 +9.94%
  
• ISE Sentiment Index 83.0 +31.75%
  
• Total Put/Call 1.19 +19.0%
  
• NYSE Arms 1.92 +73.0%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 119.03 +3.21%
  
• European Financial Sector CDS Index 290.62 +5.24%
  
• Western Europe Sovereign Debt CDS Index 298.25 +1.20%
  
• Emerging Market CDS Index 300.60 +3.4%
  
• 2-Year Swap Spread 23.5 -.25 basis point
  
• TED Spread 38.50 unch.
  
• 3-Month EUR/USD Cross-Currency Basis Swap -58.0 -3.5 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .08% unch.
  
• Yield Curve 131.0 -5 basis points
  
• China Import Iron Ore Spot $137.10/Metric Tonne -.22%
  
• Citi US Economic Surprise Index -61.60 +2.8 points
  
• 10-Year TIPS Spread 2.07 -1 basis point
  

Overseas Futures:

• Nikkei Futures: Indicating a -87 open in Japan
• DAX Futures: Indicating +8 open in Germany
  

Portfolio:

• Slightly Lower: On losses in my tech, medical, retail and biotech sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, added to my (EEM) short, then covered some of them
  
• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• Merkel Hardens Resistance to Euro-Area Debt Sharing. Chancellor Angela Merkel hardened her resistance to euro-area debt sharing to resolve the region’s financial crisis, setting Germany on a collision course with its allies at a summit of European leaders this week. Merkel, speaking to a conference in Berlin today as Spain announced it would formally seek aid for its banks, dismissed “euro bonds, euro bills and European deposit insurance with joint liability and much more” as “economically wrong and counterproductive,” saying that they ran against the German constitution. “It’s not a bold prediction to say that in Brussels most eyes -- all eyes -- will be on Germany yet again,” Merkel said. “I say quite openly: when I think of the summit on Thursday I’m concerned that once again the discussion will be far too much about all kinds of ideas for joint liability and far too little about improved oversight and structural measures.” The German chancellor will face an increasingly united bloc of euro-area nations at the summit as fellow leaders in France, Italy and Spain plus investors such as George Soros press her for more ambitious policies to help bring down borrowing costs across the 17-nation euro region. Soros urged Merkel to agree to a fund to buy Italian and Spanish bonds in return for those governments implementing budget cuts, or risk a “fiasco.”
• France May Cut 2013 Economic Growth Goal, Vidalies Tells I-tele. France may lower its 2013 growth target because of existing economic conditions, Minister ResPonsible for Parliamentary Relations Alain Vidalies told I- tele today. The government may lower its target to below the 1.7 percent previously anticipated, I-tele cited Vidalies as saying in an interview. Vidalies noted that economic analysts have forecast 0.9 percent to 1.3 percent growth for next year, the channel reported. “We will likely to have take into account the reality of economic growth in the 2013 budget law,” Vidalies told the television channel.
• European Stock Fall Before Summit As Soros Warns on Euro. European stocks fell for a third day on concern that a summit of the region’s leaders this week will not lead to decisive measures to contain its debt crisis as Germany’s Angela Merkel hardened her resistance to debt sharing. Unicredit SpA (UCG) and BNP Paribas (BNP) SA led a selloff in banks, both falling at least 5 percent. Nokia Oyj (NOK1V) lost 11 percent amid speculation Samsung Electronics Co.’s earnings may miss some analyst estimates. Shire Plc (SHP) slumped 11 percent after regulators approved a generic version of its second-biggest selling drug. The Stoxx Europe 600 Index (SXXP) retreated 1.5 percent to 242.82 at the close of trade, extending its decline in the last three days to 2.7 percent and erasing the gauge’s advance for the year.
• Greek Finance Minister Quits Days Into The Job On Illness. Greek Prime Minister Antonis Samaras consented to the resignation of his finance minister, Vassilios Rapanos, four days after naming him to the post. Rapanos, a former National Bank of Greece (TELL) SA chairman, sent his letter of resignation while still hospitalized after collapsing on June 22. The resignation was accepted by Samaras, according to a phone-text message from the premier’s office in Athens today.
• Nowotny Says ECB Would Rather Have EFSF Buying Bonds. European Central Bank Governing Council member Ewald Nowotny said the ECB would rather have the European Financial Stability Facility buy government bonds than itself, according to an interview in Austria’s Kurier newspaper. “The EFSF has the option to buy government bonds in the secondary market,” Nowotny was quoted as saying by the Vienna- based newspaper. “The ECB has welcomed this opportunity because it doesn’t want to go on with its own program to buy government bonds.” Nowotny said he expects the European Union’s summit this week to define the general direction of policy measures to fight the euro area’s debt crisis. Those measures need to be worked out in more detail after the summit, he said. “We have to be careful not to create great, unrealistic expectations which mean that disappointment is a foregone conclusion,” he said. “The proposals include a political union, a fiscal union and a banking union. All three proposals are very far-reaching.” Nowotny said that a prolongation of the Greek aid program can only be considered after “taking stock” with the new government in Athens.
• Greece Seen Blocked From Debt Markets Until 2017: Euro Credit. Greece may have to wait at least another five years before it can sell bonds to investors, according to financial institutions that trade debt with European governments. A new administration in Athens and signs that European Union leaders are willing to loosen Greek austerity measures failed to convince primary dealers that the country will be able to return to the market before its second bailout ends in the next three years.
• Internet Stocks Lead Rout On Citigroup(C) Outlook: China Overnight. Internet companies led declines in Chinese stocks traded in the U.S., sending the benchmark index to the lowest level in three weeks, after Citigroup Inc. (C) reduced its expansion estimate for Asia’s biggest economy this year. The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese companies sank 2.9 percent to 87.67 by 12:46 p.m. in New York. Elong Inc. (LONG), a Chinese online travel company whose largest shareholder is U.S.-based Expedia Inc. (EXPE), fell for the first time in three days while Qihoo 360 Technology Co., a computer security software developer based in Beijing, retreated to a four-month low. Melco Crown Entertainment. Ltd. traded at the widest discount to the Hong Kong stock since June 15. Citigroup cut its forecast for China’s 2012 gross domestic product to 7.8 percent from 8.1 percent, citing a slowdown in domestic activity in the second quarter and further weakening of European demand.
• Credit Swaps in U.S. Rise as European Leaders Head to Summit. A benchmark gauge of U.S. corporate debt risk rose as euro-area policy makers prepare to debate stimulus measures in a two-day summit this week that may decide the future of the currency bloc. The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark used to hedge against losses on corporate debt or to speculate on creditworthiness, increased 2.9 basis points to a mid-price of 118.2 basis points at 8:10 a.m. in New York, according to prices compiled by Bloomberg. European Union leaders are set to consider further integration measures in the currency bloc during a June 28-29 summit in Brussels as they strive to hold down rising bond yields. French President Francois Hollande and Italian Prime Minister Mario Monti have voiced support for joint euro-area debt issuance, while German Chancellor Angela Merkel has signaled rejection of the idea.
• New Home Sales Reach Two-Year High As U.S. Rates Fall: Economy. Purchases climbed to a 369,000 annual rate, the most since April 2010 and up 7.6 percent from the prior month, the Commerce Department reported today in Washington. The median estimate in a Bloomberg News survey of 67 economists was 347,000. The number of houses on the market held near a record low. Falling borrowing costs may keep luring buyers to builders like Toll Brothers Inc. (TOL), even as a cooling job market and limited access to credit restrain the recovery.
• China Faces Summer Steel Output Cut On Prices: Chart of the Day. China’s steelmakers, the biggest in the world, may cut output in the next two months as prices have dropped at a time when the main raw material became costlier. The CHART OF THE DAY shows the benchmark price of hot- rolled steel coil has dropped 1.2 percent in China since May 23, while iron ore has increased 5.8 percent. The profit squeeze means daily steel output may fall as low as 1.8 million metric tons by the end of August, about 12 percent less than the record high in April, according to estimates by Custeel.com, a Beijing- based industry researcher.
• Oil Declines Below $80 For A Third Day On Euro-Zone Debt. Oil fell below $80 a barrel for a third day on concern that a meeting of European Union leaders this week will fail to check the region’s debt crisis, leading to a reduction in fuel demand. Futures dropped as much as 2.2 percent as George Soros warned that a failure by EU leaders to produce drastic measures could spell the demise of the bloc’s shared currency. Crude climbed earlier as oil and gas installations in the Gulf of Mexico were shut because of Tropical Storm Debby. Prices slid as the storm moved toward Florida and away from energy fields. “The market is hanging on every development out of the euro zone,” said John Kilduff, a partner at Again Capital LLC, a New York-based energy hedge fund. “Things don’t look promising for the summit. Nothing appears to be in the cards that will end the crisis and an ultimate breakdown looks likely.” Oil for August delivery declined 62 cents, or 0.8 percent, to $79.14 a barrel at 1:31 p.m. on the New York Mercantile Exchange. Earlier, they touched $78.03. Futures are down 20 percent this year. Prices have fallen 23 percent since the end of March, heading for the biggest quarterly decline since the final three months of 2008. Brent oil for August settlement slid 28 cents, or 0.3 percent, to $90.70 a barrel on the London-based ICE Futures Europe exchange.

Wall Street Journal:

• Four Scenarios for Thursday’s Ruling on Health Care.
• S&P's Methods Under Lens. The Securities and Exchange Commission is examining Standard & Poor's Ratings Services' 11th-hour decision to pull its ratings on a high-profile deal backed by commercial-real-estate loans, say current and former employees questioned recently by the regulator. The scrutiny relates to S&P's decision in July 2011 to pull its ratings on a new $1.5 billion commercial-mortgage-backed security, or CMBS, issued by Goldman Sachs Group Inc. and Citigroup Inc. The unusual step sent the commercial mortgage securities market into turmoil and scuttled the deal for weeks, angering investors and issuers.
• Nasdaq(NDAQ): 'Arrogance' Contributed to Facebook(FB) IPO Flop.
  

CNBC.com:

• Greece, Ireland, Portugal, Spain, Italy — France? With a gaping public deficit and record level of debt, the euro zone's second largest economy wants to be sure it is not sucked into the bloc's game of debt-crisis dominoes, hence Paris's forceful lobbying for ways to shore up Europe's banks. France is one of the strongest advocates of a Europe-wide banking union and, with an eye on its own banks' exposure to vulnerable debt in struggling countries, for immediate recapitalization of banks from euro zone rescue funds. "I think the French are pushing this for a simple reason: They bloody well know they're next in line. They're after Italy," said Nicholas Spiro, head of consultancy Spiro Sovereign Strategy.
• Dell(DELL) Bids $2.32 Billion for Quest Software(QSFT): Source.

Business Insider:

• Scalia Slams Obama In His Arizona Immigration Dissent.
• Small Cities Will Be The Best Housing Markets For The Next 20 Years.
• The Russians Just Tweeted An Epic Diatribe Bashing The State Department.
• Microsoft(MSFT) Acquires Yammer For $1.2 Billion.
• This Is The #1 Most Devastating Chart For The Spanish Banking System.
• Citi's Economic Surprise Index Takes A Dive. (graph)
  

Zero Hedge:

• European Bloodbath As Merkel Won't Go Dutch.
• Markets Tumble As Socialist Kool-Aid Fails To Materialize. (graphs)
• Turkey Claims Syria Fired On Second Turkish Jet, Says "Act Won't Go Unpunished", Has Invoked NATO Articles 4 And 5.
• The Two Scariest Charts In Europe (Got Scarier).

Reuters:

• Weidmann Opposes Allowing ESM to Tap ECB Financing. Bundesbank President Jens Weidmann said on Monday he opposed the idea of allowing the the euro zone's permanent bailout fund to access the European Central Bank's refinancing operations. "I regard that as monetary financing," Weidmann told a forum in Hamburg, with regard to the European Stability Mechanism (ESM). Weidmann added that the contagion effects from a Greek exit from the euro zone would be considerable, though Greece would suffer most. However, these contagion risks were not a reason for other euro zone states to be blackmailed by Athens, he said.

Telegraph:

• Debt crisis: live.
• France must find €10bn of savings. France must find up to €10bn (£8bn) of savings to bring its budget deficit under control this year, finance minister Pierre Moscovici has said. The government has set a target of cutting its deficit to 4.5pc of GDP this year and will unveil a new budget on July 4 to outline the measures required. Mr Moscovici told French television that savings of between €7bn and €10bn would be needed, but insisted they would not be found through painful austerity. “There’ll be tax increases, there’ll be spending cuts,” he said. “But I reject any talk of austerity. We must avoid a budget policy that hurts economic activity.”

Les Echos:

• Lazard's Pigasse Says ECB Should Buy Dollar Assets. Matthieu Pigasse, deputy CEO for Europe, says "massive" purchases of dollar assets should be done to lower euro, renew region's growth.
  

El Periodico:

• Spanish Prime Minister Mariano Rajoy would lose his parliamentary majority if elections were held now, a poll showed today. The ruling People's Party would win 38% of the vote, giving it 168 to 172 of the 350 seats in Parliament, the poll showed, compared with the 185 he won in November. The Socialists would win 109 to 112 seats, similar to the 110 they won in November. United Left would win 19 to 20 seats, UPD would win 11 to 12 and CiU would win 15 to 16.