Evening Headlines
Bloomberg:
- EU to Speed Spanish Bank Aid. European governments will jump-start as much as 100 billion euros ($123 billion) in loans to shore up Spain’s banks and may move the costs off the Spanish government’s balance sheet in an effort to shield the euro region’s fourth-largest economy from the fiscal crisis. Thirty billion euros will be lent by the end of July with the goal of eventually using the euro-area bailout fund to recapitalize banks directly instead of saddling the Spanish government with the debts, Luxembourg Prime Minister Jean-Claude Juncker said. The initial cash will “be mobilized as a contingency in case of urgent needs in the Spanish banking sector,” Juncker told reporters early today in Brussels after chairing a nine- hour meeting of euro-region finance ministers. The program “will succeed in addressing the remaining weakness in the Spanish banking sector.”
- Merkel Winning Euro-Bond Clash as German Bunds Gain: Euro Credit. Investors are declaring German Chancellor Angela Merkel the winner in her battle against euro-region bonds as a way of easing the debt crisis. Since Merkel conceded to demands of relief for Spain and Italy at a EU summit on June 29 while opposing the sale of the bonds, the debt of the euro area's remaining AAA nations have outperformed U.S. Treasuries. Yields on 19-year debt from Germany, Finland and the Netherlands, whose credit-worthiness may be diluted by common borrowing with the likes of Spain, fell by an average 34 basis points since the EU meeting. "When you look at bund yields, the current levels are a strong signal that the market isn't really buying into this euro bond story otherwise we would have seen a massive pullback in yields across the AAA countries," said Michael Leister, a rates strategist at DZ Bank AG in Frankfurt. "Demand for safety and core products is still very strong."
- Luxembourg’s Mersch Appointed to ECB Six-Member Executive Board. Luxembourg’s Yves Mersch, the euro region’s longest-serving central banker, was named to the European Central Bank’s Executive Board in a victory for German- style monetary rigor. Mersch, 62, was appointed by euro-area finance ministers at a meeting in Brussels yesterday, Guy Schuller, a spokesman for Luxembourg Prime Minister Jean-Claude Juncker, told Bloomberg News. He will move into the slot vacated by Spain’s Jose Manuel Gonzalez-Paramo, stripping Spain of its claim to a permanent seat on the Frankfurt-based central bank’s six-member Executive Board. Juncker chairs meetings of euro finance chiefs. After five months of wrangling, Mersch defeated a Spanish nominee, Antonio Sainz de Vicuna, head of legal services at the ECB, as well as Mitja Gaspari, former head of Slovenia’s central bank. As Luxembourg’s representative on the ECB’s wider policy- setting Governing Council, Mersch has earned a reputation as an inflation hawk. He is the only central banker in office continuously since the euro debuted in 1999. “Mersch will do his bit to reinforce the reputation of the ECB as an inflation fighter,” said Christian Schulz, senior economist at Berenberg Bank in London. “That could make markets nervous at times.”
- Tucker’s Libor Testimony May Stoke Concerns About BOE Powers. Bank of England Deputy Governor Paul Tucker’s account of his involvement in the Libor scandal stoked new criticism of the bank’s oversight failures as he struggles to stay in contention for its top job next year. Tucker told lawmakers on Parliament’s Treasury Committee yesterday that he didn’t follow up concerns about Libor rates in 2007 because it looked at the time like a “dysfunctional” market, not a “dishonest” one. Barclays Plc (BARC) was fined a record amount last month for manipulating Libor from as early as 2005. “My concern is that the BOE clearly couldn’t see the wood for the trees,” committee member Andrew Leadsom said in an interview after Tucker’s testimony in London. “The amount of talk there was about Libor, it’s slightly incredible that a central banker didn’t see it as something to investigate.”
- China’s Import Growth Misses Estimates for June. China’s imports rose less than anticipated in June while export growth slowed, adding pressure on the government to support expansion after inflation data yesterday showed demand softening. Inbound shipments increased 6.3 percent from a year earlier, the customs bureau said in a statement today in Beijing, compared with the 11 percent median estimate in a Bloomberg News survey of 32 economists. Overseas sales gained 11.3 percent. The trade surplus rose to a three-year high of $31.7 billion. The increase in exports compared with a 15.3 percent gain in May.
- Most Chinese Stocks Fall After Trade Report; Poly Real Declines. Most Chinese stocks fell after a government report showed imports rose less than anticipated in June while export growth slowed. Poly Real Estate Group Co. (600048), the nation’s second-biggest developer, declined 3.1 percent after forecasting lower first- half profits. China Southern Airlines Co. led gains for carriers after the nation’s economic planning agency said the government will lower fuel prices tomorrow. The Shanghai Composite Index (SHCOMP) slipped 0.3 percent to 2,165.40 at 10:18 a.m. local time, with seven stocks falling for every two gaining. “The macro-economy figures won’t surprise the market and will continue to be ugly due to weak demand at home and abroad,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “Worries about the strength of the economy will weigh on the market and continue to drive stocks down.”
- Oil Declines From Two-Day High as Norway Orders End to Strike. Oil dropped from the highest close in two days after Norway ended a strike by energy workers that had threatened to halt production by western Europe’s largest crude exporter. Futures slipped as much as 1.1 percent in New York after the Norwegian government ordered compulsory arbitration in the dispute, preventing a lockout of platform workers that was scheduled to start at midnight yesterday. Norway pumped 1.63 million barrels of oil a day in May, or about 1.8 percent of global consumption, data from the Norwegian Petroleum Directorate show. “Traders are probably taking the premium out of oil now that they think the strike will be settled,” said David Lennox, an analyst at Fat Prophets in Sydney. “It was looking like the strike was going to deteriorate further. That risk premium is certainly coming out of crude.”
- Paulson Funds Fell in June as Rally Undercut Euro Wager. John Paulson, the billionaire hedge- fund manager seeking to reverse record losses in 2011, posted declines in all his funds last month as rising stock markets undermined his wager that Europe’s sovereign debt crisis will worsen. The losses were led by a 7.9 percent drop in his Advantage Plus Fund, according to an update to investors obtained by Bloomberg News. That leaves the fund, which seeks to profit from corporate events such as takeovers and bankruptcies and uses leverage to amplify returns, down 16 percent this year.
- RIM(RIMM) Customers Working on Contingency Plans. Research In Motion Ltd. (RIM) customers from GoDaddy Group Inc. to asset manager Thames River Capital UK Ltd. are preparing for the worst: the loss of the BlackBerry service their employees depend on to communicate. RIM’s stock has slumped more than 70 percent in the past year, and tumbled 19 percent on June 29 after the company posted a quarterly loss and delayed the BlackBerry 10 operating system, increasing the pressure on RIM to find a buyer or sell assets. While RIM has built infrastructure to ensure continued service, some customers are devising backup plans as RIM prepares to face shareholders at its annual meeting tomorrow.
- Komatsu Has No Plans to Buy Joy Global(JOYG) After Study, CEO Says. Komatsu Ltd. (6301), the world’s second- biggest maker of dump trucks, has no plans to bid for Joy Global Inc. (JOY) after studying the U.S. company as there are few synergies to aid its foray into underground mining equipment.
- Shipping Rally Ending as China Hoards Record Coal Heaps: Freight. Record coal stocks at power plants in China, the biggest consumer of the fuel, are threatening to reverse the rally in rates for commodity carriers and diminish returns for ship owners to the lowest in more than a decade. The utilities have 91 million metric tons in reserve and stockpiles at the largest ports come to more than 90 percent of capacity, according to the China Coal Transport & Distribution Association and SteelHome, a Shanghai-based research company. Panamax rates will drop 48 percent to an average of $5,000 a day this quarter, said Steve Rodley, managing director at Global Maritime Investments Ltd., which operates 64 ships. He correctly predicted a slump in earnings for larger Capesizes in March.
Wall Street Journal:
- Mayor Cuts Workers' Pay to Minimum Wage. Unions representing city workers in Scranton, Pa., plan to ask a county judge to hold the mayor in contempt of court after he cut the pay of almost 400 municipal employees—including himself—to the state's minimum wage, saying the city can't pay the full salaries.
- Political Spending by Unions Far Exceeds Direct Donations. Organized labor spends about four times as much on politics and lobbying as generally thought, according to a Wall Street Journal analysis, a finding that shines a light on an aspect of labor's political activity that has often been overlooked. Previous estimates have focused on labor unions' filings with federal election officials, which chronicle contributions made directly to federal candidates and union spending in support of candidates for Congress and the White House.
- Obama Intensifies Tax Fight. Obama is launching a push to extend tax cuts for the middle class, as he seeks to shift the election-year economic debate away from the dismal jobs market.
- Big Dealers Sweat as Swaps Face Reckoning. In a potential setback for large financial firms, regulators are expected to vote Tuesday on a rule requiring banks with more than $10 billion in assets to trade swaps through a central clearinghouse, according to a person familiar with the rule. The vote will be accompanied by a separate ruling on the precise definition of swaps, the financial contracts at the heart of the 2008 credit crisis. That definition will set in motion a series of other rules affecting trillions of dollars of financial contracts.
- Alcoa(AA) Pinched by Low Prices. Alcoa Inc. sank to a slight loss in the second quarter as aluminum prices fell to their lowest levels in more than two years. The Pittsburgh-based concern, viewed as a bellwether because it is typically the first major U.S. company to report quarterly results, kicked off what is expected to be a painful earnings season on Wall Street, as other companies feel the effects of global economic weakness. Already, at least 42 companies have issued profit warnings for the latest quarter.
- What's Wrong With the Federal Reserve? Business investment is held back by uncertainty about taxes and regulation. Printing dollars won't help.
- Australia business confidence weakens. Aggressive interest rate cuts by the Reserve Bank of Australia in May and June have so far failed to spark much of recovery for business, with confidence weaker in June and overall trading conditions only marginally better. National Australia Bank's business confidence index fell to -3 in June from -2 in May, while its business conditions index rose to -1 from -4 in the same period.
Zero Hedge:
- The Ultimate Krugman Take-Down.
- Earnings Season Preview: +9.7% 2012 EPS Growth Still Too High.
- Futures Brokerage PFG Best Freezes Accounts Following Discovery Of Accounting Irregularity.
- PFG Is Now MFG(lobal) Part 2 As $220 Million In Segregated Client Money Has Just Vaporized.
NY Times:
- Consumer Bureau Proposes New Mortgage Disclosure Rules. As part of a continuing overhaul of the home mortgage market, the Consumer Financial Protection Bureau on Monday issued proposed rules to bolster fairness and clarity in residential lending, including requiring a good-faith estimate of costs for homebuyers. The proposed rules have two central elements — the loan estimate and the closing disclosure — that would provide would-be homebuyers with a simple accounting of likely payments and fees to prevent costly surprises.
Washington Examiner:
- Obama has outraised Romney in the Hamptons by 38.6%. You’ll hear plenty this week about Mitt Romney raising money in the Hamptons, and so I thought it was worth putting things in perspective. According to data from the Center for Responsive Politics, Romney has reported $119,550 from the 13 zip codes that count as The Hamptons according to Wikipedia. Obama has raised $165,867.
- Obama's Record on Outsourcing Jobs Draws Criticism From the Left. While White House officials say they have been waiting on Congress to act, Obama’s critics, primarily on the political left, say he has repeatedly failed in other ways to protect American jobs from being moved overseas. They point to a range of actions they say he should have taken: confronting China, reining in unfettered trade and reworking a U.S. visa program that critics say ends up sending high-tech jobs abroad.
- Closer to a bailout? FHA's mortgage delinquencies soar. Increasingly, FHA-insured loans are falling into foreclosure or serious delinquency. And taxpayers could ultimately be on the hook for FHA's growing number of troubled mortgages. The agency's finances are already on shaky ground, and additional losses from loans going sour could prompt the need for a federal bailout, experts said. "We can't escape this one," said Joseph Gyourko, a real estate professor at the University of Pennsylvania's Wharton School. "This is an arm of the U.S. government."
- Texas Rejects 2 Pillars of Federal Health Care Overhaul. Texas turned down an expansion of Medicaid coverage and said it will not create a state-run health care insurance exchange, joining the chorus of states that are rejecting two key parts of the Obama administration’s health care overhaul.
- Intel(INTC) bankrolls next-gen chipmaking, buys into ASML for $4.1 billion. Intel Corp will spend more than $4 billion to buy up to 15 percent of ASML and bankroll the Dutch company's research into costly next-generation chipmaking technology, a major vote of confidence in the European firm that sent its U.S. shares soaring 6 percent.
- AMD(AMD) warns of 11 pct decline in revenue; shares slide. Chipmaker Advanced Micro Devices warned on Monday that its second-quarter revenue would be down about 11 percent from the prior quarter due to softer-than-expected sales in China and Europe and a weak consumer-buying environment, knocking its shares down 6 percent. The company had previously forecast second-quarter revenue would increase 3 percent from the first quarter, plus or minus 3 percentage points.
- Patriot Coal(PCX) files for bankruptcy protection. Patriot Coal Corp filed for bankruptcy on Monday, the first U.S. coal producer to seek court protection since prices began to plummet as electricity producers turned to cheaper natural gas. The company and nearly 100 affiliates were part of the Chapter 11 filing in the U.S. bankruptcy court in Manhattan. Patriot said it had $3.57 billion of assets and $3.07 billion of debts, and has arranged for $802 million of financing to help it continue mining and shipments during the reorganization. Coal producers' shares have plummeted as natural gas prices tumbled to the lowest in a decade this year, and the U.S. Environmental Protection Agency proposed new rules that would make it nearly impossible to build coal-fired power plants.
- WD-40(WDFC) 3rd-qtr results miss estimates. Cleaning products maker WD-40 Company's quarterly results missed Wall Street estimates, hurt by lower sales in its American segment. The company also said it expects its full-year results to be at the lower end of its outlook owing to continued uncertainty in Europe and oil price volatility. WD-40 forecast full-year earnings of $2.33 to $2.45 per share on net sales of $353.0 million to $370.0 million. "We expect Europe to come in flat at best for the full year as compared to the prior fiscal year," the company said. The company's American segment, which contributes about 50 percent of total sales, reported a 5 percent drop.
- US consumer watchdog to ban some fees for high-cost mortgages. The U.S. consumer finance watchdog proposed banning some fees and creating other new protections for people who take out high-cost mortgages. The Consumer Financial Protection Bureau said on Monday its new rule would attack abusive practices surrounding mortgages with high interest rates or high fees by blocking "balloon payments," or lump sum amounts usually due at the end of a loan, capping fees lenders can charge for late payments, and banning fees to modify loans.
- ECB pledges action as southern Europe buckles. The European Central Bank has vowed to do whatever it takes to hold the euro together after the North-South gap in borrowing costs reached fresh extremes, pushing the two halves of monetary union closer to breaking point.
Economic Information Daily:
- Non-performing loans of financial institutions in the eastern Chinese province of Zhejiang are rising, citing a person from a state-owned bank.
- China's Power Use Growth Slowed to About 4% in June. Growth of electricity use in China slowed to about 4% in June, from about 5% in May, citing preliminary data from local energy agencies.
- China Housing Ministry to Increase Local Accountability. China's housing ministry plans to hold local governments more accountable for easing property market curbs, citing a person close to the ministry. The government should tighten home purchase restrictions and ask local authorities to implement curbs more strictly, citing Yang Hongxu, deputy head of E-House China R&D Institute.
- None of note
- Asian equity indices are -.75% to unch. on average.
- Asia Ex-Japan Investment Grade CDS Index 173.50 +1.5 basis points.
- Asia Pacific Sovereign CDS Index 139.75 +.75 basis piont.
- FTSE-100 futures +.06%.
- S&P 500 futures -.42%.
- NASDAQ 100 futures -.35%.
Earnings of Note
Company/Estimate
- (HITK)/.77
- (WWW)/.44
- (SHAW)/.58
7:30 am EST
- The NFIB Small Business Optimism Index for June is estimated to fall to 93.3 versus 94.4 in May.
Upcoming Splits
- None of note
Other Potential Market Movers
- The EU Finance Ministers Meeting, German High Court ruling on ESM Agreement, Fed's Bullard speaking, weekly retail sales reports, IBD/TIPP Economic Optimism Index for July, JOLTs Job Openings report for May, 3Y T-Note auction, China Trade Balance and the (GIS) Investor Meeting could also impact trading today.
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