Monday Watch

Weekend Headlines
Bloomberg:

• Bank Swaps Show Reduced Stress - Test Fears as Bonds Rally: Credit Markets. Bond investors are gaining confidence in the ability of banks to ride out Europe’s government deficit crisis, driving the cost of insuring financial debt from default to the lowest in eight weeks. Credit-default swaps tied to the bonds of lenders from Banco Santander SA in Spain to Germany’s Deutsche Bank AG are at the lowest in three months relative to the rest of the corporate bond market in Europe. The Markit iTraxx Financial Index of swaps on 25 banks and insurers dropped more than 25 basis points last week, the biggest decline in two months. Investors are buying the region’s bank bonds at the fastest pace in six months on speculation the examination by the Committee of European Banking Supervisors will confirm lenders can withstand a shrinking economy and a drop in value of government bonds. “There was a fear the financial system would collapse,” said Philip Gisdakis, a Munich-based strategist at UniCredit SpA. “There’s a high probability the stress tests will show the core of the financial system is healthy and sound in the sense it can weather the storm. Some banks might need to raise more capital.” Financial firms in Europe sold the most bonds last week since the start of January, raising 11.4 billion euros ($14.4 billion), or 93 percent more than this year’s weekly average of 5.9 billion euros, according to data compiled by Bloomberg. Elsewhere in credit markets, the extra yield investors demand to own corporate bonds rather than government debt fell to the lowest in almost seven weeks. The cost of protecting company debt in the U.S. and Europe from default declined while global bond issuance more than doubled. Emerging market bonds rallied the most in two months. Spreads shrunk 5 basis points last week to an average of 192 basis points, or 1.92 percentage points, the narrowest since May 24, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. The gap reached a low this year of 142 on April 21 before expanding to as much as 201 on June 11. Yields fell to 3.97 percent, from 3.98 percent on July 2. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or speculate on creditworthiness, declined 11.96 last week to 110.54, the lowest since June 21, according to Markit Group Ltd. In London, the Markit iTraxx Europe Index of swaps on 125 companies with investment-grade ratings fell 11.73 basis points for the week to 114.69 basis points. Sales of corporate bonds globally rose to $49 billion last week from $20.8 billion in the prior period. Rising confidence in Europe’s banks can also be seen in their so-called Tier 1 bonds, which are used by lenders to bolster capital ratios. The securities have gained 1.52 percent this month, compared with a loss of 0.07 percent for a global index of the debt maintained by Bank of America Merrill Lynch and 0.02 percent for corporate bonds in the region. The Markit iTraxx Europe Index of credit-default swaps linked to 125 companies with investment-grade ratings fell 11 basis points last week to 115.5, according to Markit Group Ltd. The gap between the corporate and financial gauges is the tightest since April and down from a record 55 basis points on June 4. Yields on financial company bonds denominated in euros have climbed 60 basis points relative to benchmark rates since April 30 to 250 basis points, according to Bank of America Merrill Lynch’s EMU Financial Corporate Index. In the same period, the spread on the typical euro corporate security widened 47 basis points. Austerity measures to curb government spending and boost taxes have eased default concerns with swaps on Greece dropping to 849 basis points from a June 24 peak of 1,126 basis points, according to CMA DataVision. Contracts on Spain have fallen 59 basis points this month to 212 basis points. The government measures are taking the pressure off banks with default swaps on Banco Santander, the biggest Spanish lender, dropping 33.3 basis points last week to 158.3 and contracts on Banco Bilbao Vizcaya Argentaria SA falling 59.7 basis points to 194.6, according to CMA.
• BP(BP) in Talks to Sell $12 Billion in Assets to Apache Corp.(APA), Times Reports. declined to comment on a news report that it’s in exclusive talks to buy $12 billion of BP Plc’s assets, and Apache Corp.Exxon Mobil Corp.(XOM) declined to say whether it may be interested in a bid for BP. Apache’s Robert Dye and Exxon’s Alan Jeffers refused to comment on the report today in the London-based Times newspaper. Max McGahan, a spokesman for BP, also said he wouldn’t comment.
• Bank of America(BAC) Says $10.7 Billion of Trades Wrongly Classified. Bank of America Corp., the largest U.S. bank by assets, said it wrongly classified as much as $10.7 billion of short-term repurchase and lending transactions as sales from 2007 to 2009 to reduce its end-of-quarter assets. Bank of America said the inaccuracies aren’t material and “don’t stem from any intentional misstatement of the Corporation’s financial statements and was not related to any fraud or deliberate error,” according to a May 13 letter released yesterday from the U.S. Securities and Exchange Commission. “A $10.7 billion accounting error would be a material event for about 99.9 percent” of U.S. banks, said Cornelius Hurley, director of the Morin Center for Banking and Financial Law at Boston University School of Law. “It’s hard to see how the SEC can accept BofA’s rejoinder as being sufficient.”
• Banks in China Urged by Federation of Unions to Set Up Chapters, FT Says. The All China Federation of Trade Unions met banks including Morgan Stanley and JPMorgan Chase & Co. to encourage the lenders to set up union chapters for workers in China and to pay a tax to fund the activities, the Financial Times said, citing executives familar with the talks. Representatives from UBS AG and Goldman Sachs Group Inc. were also called into the meetings last month at which they were told they may be required to pay a 2 percent payroll tax to fund the labor activities, the report said.
• Gold-Rally Bets Drop Most Since April 2009 as Euro Climbs, CFTC Data Show. Bets on a gold rally by hedge-fund managers and other large speculators dropped the most since April 2009 after the metal traded below a key moving average following the euro’s rebound. In the week ended July 6, speculative long positions, or bets prices will rise, outnumbered short positions by 209,042 contracts on the Comex in New York, U.S. Commodity Futures Trading Commission data showed today. Net-long positions fell by 35,683 futures contracts, or 15 percent, from a week earlier.
• Iron Ore Imports by China Drop for Third Month in June on Slowing Demand. Iron ore imports by China, the largest buyer, fell for a third month as steel prices slide amid weakening demand from automakers and builders. Exports of steel products gained to the highest level since September 2008. Imports dropped 9 percent to 47.2 million metric tons in June from 51.9 million tons in May, according to data provided by the General Administration of Customs today. Imports fell 15 percent from 55.3 million tons a year earlier. Chinese steel prices have fallen 17 percent from an 18- month high on April 15 following government moves to curb property speculation. Chinese steelmakers are likely to cut output this quarter because of weak demand from auto and appliance makers, Xu Lejiang, chairman of Baosteel Group Corp., the country’s second-biggest mill, said on June 8. Steelmakers may default on quarterly iron ore contracts, he said, while saying his company would respect the agreements. “We don’t believe that exports at current levels are at all sustainable for more than another month or two,” said Michelle Applebaum, an independent steel analyst in Chicago. “As raw material costs continue to spiral skyward, the cash costs of running a steel mill in China have escalated to the point that for the Chinese to be dumping high-cost steel into other markets is like turning ‘gold into straw.’”
• China's Copper, Product Imports Decline Third Month. Copper imports by China, the largest consumer, fell for a third month in June as expectations of a slowdown in demand and concerns about the strength of the global economic recovery reduced orders. Shipments of copper and products declined 17 percent to 328,231 metric tons in June, the customs office said today. That compares with May’s 396,712 tons, and is 31 percent less than 477,220 tons a year earlier, according to Bloomberg calculations. “The drop in June copper imports is unexpected because previously the market consensus was looking at possibly 430,000 tons,” said Judy Zhu, an analyst at Standard Chartered Bank, said by phone from Shanghai. “The drop may attest to importers growing uneasy about the economic recovery and their expectation that demand for the base metal will be reduced in the second half.”
• Euro Area Breakup Would Boost Region's Economies, Capital Economics Says. The breakup of the euro area would save the 16-nation region from years of economic stagnation by boosting weaker members’ competitiveness as well as domestic demand in Germany to spark growth, Capital Economics said. “The threatened breakup of the euro zone, which many see as a potential disaster, would actually open the door to renewed economic growth, not just for weaker members of the zone, but for Europe as a whole,” Capital Economics analysts including Roger Bootle in London said in a report released today. Europe’s weaker economies face “years of economic pain” as they deflate costs and prices to regain competitiveness with Germany, which runs a large trade surplus and restrains domestic demand, Capital Economics said. Italy, Spain, Ireland, Portugal and Greece could quickly narrow the competitiveness gap if they returned to their own currencies, which would depreciate and allow exports to expand, it said. “This would offer them an escape route from their difficulties through economic growth, rather than depression,” the economists wrote. A full abandonment of the euro would also help Germany as a restored deutsche mark would appreciate and make the government expand domestic demand to maintain jobs and growth, pushing up the German standard of living, according to the report. That, in turn, would further fuel imports from euro countries, helping to rebalance Europe’s economy.
• Osborne Says Budget Cuts Needed to Avoid 'Downward Spiral' in U.K. Economy. Britain’s budget cuts were necessary to deal with a deficit that was the “clearest threat” to the U.K.’s economic recovery, Chancellor of the Exchequer George Osborne said. “The most likely cause of a downward spiral” in the British economy “would be a concern that we couldn’t deal with our deficit,” Osborne said, according to a transcript of CNN’s “Fareed Zakaria GPS” program scheduled for broadcast today. “That is the clearest threat. And I think we have acted to deal with that.”
• Netanyahu Says International Sanctions Unlikely to Stop Iran Nuclear Drive. Israeli Prime Minister Benjamin Netanyahu said Iran’s nuclear program probably can’t be stopped by new United Nations and U.S. economic sanctions imposed during the past month. Netanyahu, speaking in an interview broadcast on “Fox News Sunday” today, said the threat of U.S. military action might curb a drive for a nuclear weapons capability. He argued that a nuclear Iran couldn’t be contained. “We’ve had effective nuclear peace for more than half a century because everybody understood the rules,” the Israeli leader said. “I don’t think you can rely on Iran.”
• States Can't Count on More Federal Bailout Money, Bowles Tells Governors. States can’t count on the federal government for more budget bailouts, the heads of President Barack Obama’s debt commission told governors today. States that are expecting Congress to authorize more bailout money are “going to be left with a very large hole to fill,” said Erskine Bowles, co-chairman of the National Commission on Fiscal Responsibility and Reform. States including New York and California have urged Congress to extend stimulus spending authorized to combat the recession, including extra Medicaid funding and money to pay public school teachers. “I don’t think we can count on the federal government again,” Bowles, White House chief of staff under former President Bill Clinton, said at the National Governors Association meeting in Boston. “They just do not have the financial resources.” David Paterson of New York, Edward Rendell of Pennsylvania and Jennifer Granholm of Michigan and three other governors, all Democrats, traveled to Washington to appeal for funds after the Senate failed to approve $16 billion in extra financing for Medicaid and extended jobless benefits. Former Republican Senator Alan Simpson of Wyoming, the panel’s other co-chairman, told governors today that the depth of the federal government’s spending imbalance is “shocking,” which limits the help it can provide for strained state budgets. “The pig is dead,” said Simpson, referring to so-called pork barrel spending that Congress directs to states. “There’s no more bacon.”
  
• Technology Stocks Cheapest to S&P 500 as UBS Foresees Rally on Record Cash. Computer and software shares have slumped to the lowest valuations in two decades, a sign to Barclays Wealth and UBS AG they will rebound as Standard & Poor’s 500 Index companies start spending their record cash. Technology companies in the benchmark index for U.S. equities fell as much as 17 percent this year, pushing prices down to 15.6 times reported annual income, according to data compiled by Bloomberg. The biggest industry in the index hasn’t been this cheap since at least 1992, excluding the six months between Lehman Brothers Holdings Inc.’s bankruptcy and the start of the bull market in March 2009. Falling valuations and a rebound in spending may lift shares even if U.S. growth slows, according to UBS. Corporate cash rose six straight quarters through March, boosting speculation executives will upgrade computers after reducing investments for three years. The technology industry has more money available than any S&P 500 group, giving management leeway to invest in new products, buy shares or raise dividends. Valuations for S&P 500 computer producers, software developers and chip makers are lower than at 96 percent of the time since 1992, Bloomberg data show. Using analysts’ estimates for 2010 earnings, the group is even cheaper, at 13.1 times projections. That’s the lowest multiple compared with the S&P 500 since Bloomberg started tracking the data in 2006. U.S. firms are increasing spending on computers and software, according to a Goldman Sachs Group Inc. index of estimated technology purchases that rose to 56 last month. A reading of more than 50 indicates expansion, while lower than 50 is a contraction. The measure dropped to a low of 25 last year, compared with 80 in 2005, data from the New York-based investment bank showed.
• Housing Gets Sick on Keynesian Roller Coaster: Kevin Hassett. New home sales data have been gathered by the U.S. Census Bureau since the early 1960s. In May, they dropped to their lowest level in recorded history, increasing the risk of the dreaded double-dip recession. Many nonpartisan economists who have studied stimulus spending have generally concluded that it is counterproductive and destabilizing. The history of the homebuyers’ credit provides a case study that illustrates where that conclusion comes from.

Wall Street Journal:

• Deadly Blasts Rock Uganda's Capital. Bomb blasts ripped through two establishments in Uganda's capital late Sunday in an apparent terrorist attack targeting crowds that gathered to watch the final World Cup soccer match. A police official in Kampala said the death toll from the two explosions had risen to 64, according to the Associated Press.
• BP(BP) Optimistic on New Oil Cap. Containment Could Take 6 More Days, But Company Is Pleased With Progress.
• Absolute-Return Funds: Not Always What They Seem. So-called absolute-return funds—portfolios that purport to deliver gains in any market environment—are hot. But many aren't living up to their billing. Through May, funds with "absolute return" in their names saw net inflows of roughly $5 billion, up from $2.7 billion last year and $322 million in 2008, according to Morningstar Inc.
• The Climategate Whitewash Continues. Global warming alarmists claim vindication after last year's data manipulation scandal. Don't believe the 'independent' reviews. Last November there was a world-wide outcry when a trove of emails were released suggesting some of the world's leading climate scientists engaged in professional misconduct, data manipulation and jiggering of both the scientific literature and climatic data to paint what scientist Keith Briffa called "a nice, tidy story" of climate history. The scandal became known as Climategate.Now a supposedly independent review of the evidence says, in effect, "nothing to see here." Last week "The Independent Climate Change E-mails Review," commissioned and paid for by the University of East Anglia, exonerated the University of East Anglia.

Marketwatch.com:

• What to Make of China's Slowing Imports? Commentary: Analysts say stimulus investment boom to unravel.

CNBC:

• US Senate Aims to Take Up Final Reform Bill This Week. Democrats will have little margin for error this week as they push for final U.S. congressional approval of the most comprehensive rewrite of financial rules since the Great Depression.
• China Won't Kickstart Google(GOOG) But Shares Attractive.
  

NY Times:

• Illegal Workers Swept From Jobs in 'Silent Raids'. The Obama administration has replaced immigration raids at factories and farms with a quieter enforcement strategy: sending federal agents to scour companies’ records for illegal immigrant workers. While the sweeps of the past commonly led to the deportation of such workers, the “silent raids,” as employers call the audits, usually result in the workers being fired, but in many cases they are not deported. Over the past year, Immigration and Customs Enforcement has conducted audits of employee files at more than 2,900 companies. The agency has levied a record $3 million in civil fines so far this year on businesses that hired unauthorized immigrants, according to official figures. Thousands of those workers have been fired, immigrant groups estimate.
• Wall St. Hiring in Anticipation of an Economic Recovery. While much of the country remains fixated on the bleak employment picture, hiring is beginning to pick up in the place that led the economy into recession — Wall Street.
• Volcker Pushes for Reform, Regretting Past Silence.
  

NY Post:

• Clintons Dealing for $11 Million Westchester Mansion. Looks like Bill and Hillary Rodham Clinton are moving on up -- to a deluxe mansion away from prying eyes. Sources told The Post the Clintons are planning to trade their almost-modest suburban Chappaqua home for a sprawling $10.9 million estate in the bucolic Westchester town of Bedford Hills, complete with 20 acres of gorgeous land surrounded by New York's elite. The massive compound -- sweetly named Clover Hill Farm -- comes with high fences, two guesthouses and a mansion fit for Bubba's millionaire lifestyle. The home -- found only after a long cruise down a private road -- is 7,000 square feet with a large foyer, wood paneled library with fireplace, chef's kitchen with fireplace, five bedrooms, six full bathrooms and two half bathrooms.

Business Insider:

• Europe Fears, Volatility, And High-Frequency Trading Is Causing Mom & Pop To Hate Stocks. The small investor has had it with the stock market. That's the line from the WSJ citing accelerating mutual fund outflows as evidence that the "little guy" is disgusted with equities to a degree that's rarely been seen in history. While the data is compelling -- the straight years of outflows, which have really gathered steam of late -- what are more interesting here are the anecdotes for why.
• Japan Just Showed Why U.S. Democrats Will Be Doomed If They Try To Raise Taxes. Japan's incumbent political party suffered a massive defeat at the polls this Sunday, as upper house elections left the Democratic Party of Japan with just 47 seats. The result was far short of prime minister Naoto Kan's 54-seat goal, though the DPJ should still retain power due to their majority in the lower house. So what's being blamed for their defeat this Sunday? Trying to raise taxes:

Zero Hedge:

• The Financial Con of the Decade Explained So Simply Even a Congressman Will Get It.
• Deciphering Joe Cassno's Lies Before The Financial Crisis Inquiry Commission. Joe Cassano is a very good liar, which is why it would be so hard to prosecute him for perjury. When testifying before The Financial Crisis Inquiry Commission, the former head of AIG Financial Products kept blending in half-truths with his audaciously dishonest claims, so that the overall effect was nonsensical.

LA Times:

• New Federal Ban on Deep-Water Drilling is Planned. Salazar says he will issue a new moratorium to replace the one rejected by a federal court. He cites ‘the inadequacy of the ability to contain the ongoing spill.'

Chicago Tribune:

• Clean Coal Dream a Costly Nightmare. Five Chicago suburbs and dozens of other Midwest towns in power-plant deal now face the prospect of rising electricity bills. Sold on a promise of cheap, clean electricity, dozens of communities in Illinois and eight other Midwest states instead are facing more expensive utility bills after bankrolling a new coal-fired power plant that will be one of the nation's largest sources of climate-change pollution. As the Prairie State Energy Campus rises out of a Downstate field, its price tag already has more than doubled to $4.4 billion — costs that will largely be borne by municipalities including the suburbs of Naperville, Batavia, Geneva, St. Charles and Winnetka. The communities are locked into 28-year contracts that will require higher electricity rates to cover the construction overruns, documents and interviews show. Municipal officials told the Tribune they expect costs to soar even higher before the plant begins operating next year. Then there are the environmental costs of the project, which was designed by St. Louis-based Peabody Energy, the world's largest private coal company, to burn fossil fuel from one of its nearby coal mines. Though the company and its partners promote the plant as a national model for environmentally friendly "clean coal" technology, Prairie State will be the largest source of carbon dioxide built in the United States in a quarter-century. Each year, it will churn more than 13 million tons of heat-trapping gases into the atmosphere, an amount equivalent to adding 2 million cars to the nation's highways. Most U.S. power plants emitting that much climate-change pollution date to the 1960s and '70s. The pollution also could make the plant more expensive to operate. Climate and energy legislation pending in Congress would slap a price on greenhouse-gas emissions, requiring Prairie State's owners to spend hundreds of millions more a year. Local officials didn't account for those costs when buying into the plant. It is difficult to estimate what the tens of thousands of households in the five suburbs ultimately will pay for electricity. But even without any carbon-related costs, the Prairie State plant will drive up energy costs for communities that have long prided themselves on keeping rates lower than ComEd and other competitors, according to records obtained by the Tribune under the Freedom of Information Act.

Rasmussen Reports:

• 50% Rate Obama's Economic Performance as Poor. Obama administration officials continue to insist that the economy is showing signs of improvement, but most voters aren’t buying it. The Discover (R) Consumer Spending Monitor shows that just 28% of Americans think the economy is getting better, while 48% say it’s getting worse. A new Rasmussen Reports national telephone survey finds that 50% of voters now view President Obama’s handling of the economy as poor. This is the president’s highest negative rating in this area since he took office in January 2009. Thirty-six percent (36%) give Obama good or excellent marks for his handling of economic issues.

Politico:

• President Obama's Policy Time Bombs. President Barack Obama has long boasted about the transformative change he’s bringing to the country. But by the time those reforms finally arrive, he could be long gone from the White House. Some of Obama’s biggest promises won’t go into effect until long after his first term — and in some cases, well past a second. In fact, buried deep within some of the Democrats’ most significant reform bills are dozens of policy time bombs set to blow at more politically convenient times. The Democratic reform triumvirate — health care, Wall Street and energy — is filled with provisions designed to front-load policy benefits and delay political pain.
• Robert Gibbs Warns of Republican House. The White House is issuing a man-the-battle-stations call to Democrats with a very public warning Sunday that the House of Representatives could fall into Republican hands this fall if Democrats don’t mount aggressive campaigns. “I think there's no doubt there are enough seats in play that could cause Republicans to gain control. There's no doubt about that,” White House Press Secretary Robert Gibbs said on NBC’s “Meet the Press. “This will depend on strong campaigns by Democrats and again, I think, we have to take the issues to them.”
  

AP:

• Surge of Attacks Kills 6 US Troops, 12 Afghans. A wave of attacks killed six U.S. troops and at least a dozen civilians in Afghanistan's volatile south and east, as American reinforcements moving into Taliban-dominated areas face up to the fierce resistance they expected.

Reuters:

• Businesses Step Up Criticism of Obama's Agenda. Some U.S. business groups, upset about budget and regulatory policies they say are costing jobs, are accusing President Barack Obama of pursuing an agenda that is hurting the U.S. economic recovery.
• China Credit, Money, FX Reserves Growth Slows. The pace of money and credit growth in China slowed markedly in June as the central bank steered its anti-crisis monetary policy back to normal, while the country's official currency reserves barely grew last quarter.

Financial Times:

• US Small Businesses Lose Out Over Loan Rate. US small businesses are having to pay more to borrow relative to the Federal Reserve’s benchmark rate than at any time in at least a quarter of a century, according to official data from the central bank. The data suggest that small businesses – which form the backbone of the US economy – are not receiving the full benefit from the ultra-low rates that are supporting some larger employers. The Fed’s data show that in early May interest rates on small commercial and industrial loans, on average worth about $500,000, were 3½ per cent higher than the federal funds rate, the widest gap since the series began in 1986.
• Poor Liquidity Controls Leave a Lasting Legacy on Funds of Hedge Funds. For the funds of hedge funds industry, the financial crisis is still far from over (PDF of top 50). Funds of funds used to be the favoured route for investors into the esoteric and often opaque world of hedge funds. Of the $2,000bn (£1,323bn, €1,592bn) or so of investments made in the hedge fund industry at its peak in 2007, nearly half came via funds of funds.

Telegraph:

• Copying the UK's NHS is the Last Thing the US Should Do. The US government, meanwhile, is galloping doggedly in the opposite direction, bizarrely determined to occupy precisely the ideological ground which Britain is abandoning. Barack Obama has, indeed, appointed a man as head of the American public health care programmes who professes a passion (no other word will do) for some of the most discredited features of our NHS. Dr Donald Berwick is to head the Centers for Medicare and Medicaid Services, which effectively means that he will be in charge of Obamacare – the new universal health care system on which the President has staked his political credibility. The appointment has created an extraordinary kerfuffle, partly because it was made under highly contentious circumstances – as a “recess” appointment which allowed it to bypass Congressional approval – but primarily on account of Dr Berwick’s widely disseminated statements extolling the virtues of the most disliked aspects of state-funded medical care as we know it.
• PIIGS May Yet Fly, But Not While They're Trapped in This Rickety Eurozone. Two of the eurozone's economic problems are dangerously inter-related. The first is enormous levels of government debt – about 120pc of GDP for Greece and Italy. The second is the loss of competitiveness of the eurozone's southern members, which also, generally speaking, are the ones with high budget deficits and/or ratios of government debt to GDP.

Der Spiegel:

• Banks Skeptical Despite Signs of Economic Recovery. Germany's economy is growing. Global exports are booming. The euro is recovering. What's not to like? Plenty, according to a survey of German banks. Fully 60 percent fear that the euro crisis will worsen and jeopardize economic growth. According to the semi-annual "Bank Barometer" survey carried out by Ernst & Young in Germany, which was released on Thursday, only 39 percent of the 120 banks surveyed feel that the situation on the financial markets will improve in the next six months. In December, 65 percent thought it would. Sixty percent now worry that the European debt crisis and concurrent difficulties that have struck Europe's common currency will endanger Germany's recovery. "Credit markets continue to harbor great distrust against some euro-zone countries. As long as this distrust persists, turbulence will continue," Claus-Peter Wagner, head of Financial Services at Ernst & Young Germany, said in the press release accompanying the report. "The unresolved debt crisis in the euro zone hangs like the sword of Damocles over recovery."
• German Euro Insolvency Plan Comes With Haircut, Spiegel Says. Germany’s plan to allow the “orderly insolvency” of indebted euro-area countries would force bondholders to give up part of their claims, Der Spiegel reported, without saying how it got the information. The proposal, drafted by the German Finance and Justice Ministries, calls for setting up a “Berlin Club” of governments to oversee such insolvencies, the magazine reported in an e-mailed advance copy of an article for its July 12 edition. Holders of sovereign bonds, while taking a so-called haircut, would be guaranteed half the bond’s face value as an incentive to take part in debt restructuring, Spiegel said. German Chancellor Angela Merkel’s government views the threat of “orderly insolvency” as a way to keep investors and euro-area governments from piling up excessive debt, wean debt- stricken countries from bailouts and buttress the euro, the weekly said.
• The German government plans to trim the fund that helps companies get credit to 60 billion euros from 115 billion euros, citing an unpublished cabinet decision. The reduction is possible because the economic crisis was less severe than expected, the magazine said. The so-called Germany Fund, which offers loans and guarantees, is scheduled to shut down at the end of this year.
  

Securities Times:

• China can't change its macro-economic policy as the economy has not improved, citing Wang Yiming, deputy director of macroeconomic research at the National Development and Reform Commission. Investment and consumption should gradually replace the government's stimulus package, Wang said.
• China's introduction of a property tax is certain, citing Qin Hong, a vice director at the policy research center of the Ministry of Housing and Urban-Rural Development. The government needs to pick the right time to introduce the tax, Qin said.
  

Weekend Recommendations
Barron's:

• Made positive comments on (DIN) and (WMT).
• Made negative comments on (ADS).

Night Trading

• Asian indices are +.50% to +.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 126.0 -1.0 basis point.
• Asia Pacific Sovereign CDS Index 123.75 -3.0 basis points.
• S&P 500 futures -.12%.
• NASDAQ 100 futures -.12%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (SHAW)/.54
• (AA)/.12
• (CSX)/.98
• (NVLS)/.60
  

Economic Releases
10:00 am EST

• None of note
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Lacker speaking, Fed's Bernanke speaking, Fed's Duke speaking, $35 Billion 3-Year Treasury Note Auction, (NVLS) analyst event, (CPB) analyst meeting and the (CVX) interim update could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by technology and financial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the week.