Market Week in Review

S&P 500 1,135.68 +2.23%*



The Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices

• S&P 500 1,135.68 +2.23%
  
• DJIA 10,620.16 +2.31%
  
• NASDAQ 2,346.85 +3.58%
  
• Russell 2000 693.98 +6.28%
  
• Wilshire 5000 11,758.38 +2.75%
  
• Russell 1000 Growth 505.55 +2.54%
  
• Russell 1000 Value 587.05 +2.29%
  
• Morgan Stanley Consumer 693.43 +1.79%
  
• Morgan Stanley Cyclical 887.84 +4.38%
• Morgan Stanley Technology 565.64 +2.14%
  
• Transports 4,487.73 +4.41%
  
• Utilities 379.82 +2.42%
  
• MSCI Emerging Markets 39.77 +3.25%
  
• Lyxor L/S Equity Long Bias Index 981.08 -1.43%
  
• Lyxor L/S Equity Variable Bias Index 861.27 -.43%
  
• Lyxor L/S Equity Short Bias Index 887.32 +1.62%
  

Sentiment/Internals

• NYSE Cumulative A/D Line +89,951 +3.57%
  
• Bloomberg New Highs-Lows Index +148 +432
  
• Bloomberg Crude Oil % Bulls 52.0 +4.0%
  
• CFTC Oil Net Speculative Position +92,895 -15.45%
  
• CFTC Oil Total Open Interest 1,470,234 +1.72%
  
• Total Put/Call 1.11 -7.50%
  
• OEX Put/Call 1.22 -7.58%
  
• ISE Sentiment 82.0 +1.69%
  
• NYSE Arms 3.10 +31.91%
  
• Volatility(VIX) 31.24 -23.44%
  
• G7 Currency Volatility (VXY) 13.53 -9.38%
  
• Smart Money Flow Index 9,140.65 -1.14%
  
• Money Mkt Mutual Fund Assets $2.878 Trillion +.9%
  
• AAII % Bulls 36.60 -6.47%
  
• AAII % Bears 36.60 +28.11%
  

Futures Spot Prices

• CRB Index 258.55 -1.06%
  
• Crude Oil 71.89 -4.60%
  
• Reformulated Gasoline 213.35 +.24%
  
• Natural Gas 4.34 +8.36%
  
• Heating Oil 206.79 -1.11%
  
• Gold 1,232.40 +1.84%
  
• Bloomberg Base Metals 201.07 +.69%
  
• Copper 312.15 -.92%
  
• US No. 1 Heavy Melt Scrap Steel 373.33 USD/Ton unch.
  
• China Hot Rolled Domestic Steel Sheet 4,438 Yuan/Ton -4.50%
• S&P GSCI Agriculture 294.90 -2.63%
  

Economy

• ECRI Weekly Leading Economic Index 132.0 -2.0%
  
• Citi US Economic Surprise Index +14.30 +2.8 points
  
• Fed Fund Futures imply 92.0% chance of no change, 8.0% chance of 25 basis point cut on 6/23
• US Dollar Index 86.23 +2.08%
  
• Yield Curve 267.0 +6 basis points
  
• 10-Year US Treasury Yield 3.46% +3 basis points
  
• Federal Reserve's Balance Sheet $2.318 Trillion +.44%
  
• U.S. Sovereign Debt Credit Default Swap 40.35 -5.31%
  
• Western Europe Sovereign Debt Credit Default Swap Index 114.17 -29.81%
  
• 10-Year TIPS Spread 2.23% +8 basis points
  
• TED Spread 30.0 -1 basis points
  
• N. America Investment Grade Credit Default Swap Index 108.35 -16.53%
  
• Euro Financial Sector Credit Default Swap Index 129.23 -18.72%
  
• Emerging Markets Credit Default Swap Index 251.09 -14.33%
  
• CMBS Super Senior AAA 10-Year Treasury Spread 254.0 +13 basis points
  
• M1 Money Supply $1.736 Trillion +2.45%
• Business Loans 611.90 -.55%
  
• 4-Week Moving Average of Jobless Claims 450,500 -2.0%
  
• Continuing Claims Unemployment Rate 3.6% unch.
  
• Average 30-Year Mortgage Rate 4.93% -7 basis points
  
• Weekly Mortgage Applications 578.10 +3.94%
  
• ABC Consumer Confidence -47 unch.
  
• Weekly Retail Sales +3.3% +90 basis points
  
• Nationwide Gas $2.88/gallon -.04/gallon
  
• U.S. Cooling Demand Next 7 Days 10.0% below normal
• Baltic Dry Index 3,914 +12.86%
  
• Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 52.50 -8.7%
  
• Rail Freight Carloads 208,809 -1.97%
  
• Iraqi 2028 Government Bonds 83.50 +4.05%
  

Best Performing Style

• Small-Cap Value +6.35%

Worst Performing Style

• Large-Cap Value +2.29%

Leading Sectors

• Airlines +8.24%
• Gold +7.41%
• Computer Services +6.69%
• Oil Tankers +6.65%
• HMOs +6.11%

Lagging Sectors

• I-Banks +1.51%
• Oil Service +1.08%
• Agriculture unch.
• Drugs -.21%
• Education -.45%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Sharply Lower into Final Hour on Rising Financial Sector Pessimism, Increasing Economic Fear, Tax Hike Worries, Regulatory Concerns

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Every Sector Declining
  
• Volume: Above Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 32.66 +22.41%
  
• ISE Sentiment Index 80.0 -24.53%
  
• Total Put/Call 1.15 +33.72%
  
• NYSE Arms 1.36 +59.15%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 108.35 bps +9.47%
  
• European Financial Sector CDS Index 134.13 bps +16.66%
  
• Western Europe Sovereign Debt CDS Index 114.17 bps +7.03%
  
• Emerging Market CDS Index 249.93 bps +5.54%
  
• 2-Year Swap Spread 35.0 +5 bps
  
• TED Spread 30.0 +2 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .15% unch.
  
• Yield Curve 265.0 -6 bp
  
• China Import Iron Ore Spot $166.60/Metric Tonne -1.71%
  
• Citi US Economic Surprise Index +14.30 +.4 point
  
• 10-Year TIPS Spread 2.22% -8 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -252 open in Japan
• DAX Futures: Indicating +15 open in Germany

Portfolio:

• Slightly Lower: On losses in my Biotech, Medical and Technology long positions
  
• Disclosed Trades: Covered some of my (IWM), (QQQQ) hedges and some of my (EEM) short
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is very bearish as equities trade near session lows this afternoon on good volume despite positive economic reports. On the positive side, HMO and Gold stocks are outperforming, falling less than -1.0%. Oil is lower again on more euro weakness, rising supply and worries over China demand. Lower energy prices and mortgage rates should help the US economy offset some of the weakness coming from overseas slowdowns. On the negative side, REIT, Construction, Bank, Steel, Alt Energy, Education, Homebuilding, Networking, Semi, Paper, Oil Service and Coal shares are under meaningful pressure, falling 3.0%+. The eurozone investment grade cds index is jumping another +15.47% today to 101.75 bps. As well, the Spain sovereign cds is jumping +10.8% to 167.93 bps, the Portugal sovereign cds is soaring +17.8% to 2234.76 bps and the Russia sovereign cds is surging 11.0% to 162.86 bps. Other gauges of credit angst are also meaningfully higher. Today, decline was a bit too orderly for my liking, however gauges of investor angst are surging meaningfully again, which is a large positive. Asian shares will likely come under significant pressure on Sunday night and I will closely monitor our market's open Monday morning before further shifting market exposure. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, rising financial sector pessimism, more regulatory worries, tax hike concerns, increasing sovereign debt angst, china bubble worries, rising economic fear and technical selling.

Broad Market Tone:

• Advance/Decline Line: Slightly Higher
  
• Sector Performance: Most Sectors Rising
  
• Volume: Around Average
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 35.60 -11.25%
  
• ISE Sentiment Index 119.0 +85.94%
  
• Total Put/Call .88 -33.83%
  
• NYSE Arms 1.15 +241.58%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 118.39 bps -4.13%
  
• European Financial Sector CDS Index 148.80 bps +5.27%
  
• Western Europe Sovereign Debt CDS Index 137.0 bps +8.59%
  
• Emerging Market CDS Index 299.42 bps -1.62%
  
• 2-Year Swap Spread 47.0 +4 bps
  
• TED Spread 36.0 +1 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .15% unch.
  
• Yield Curve 245.0 -4 bps
  
• China Import Iron Ore Spot $148.30/Metric Tonne -2.37%
  
• Citi US Economic Surprise Index +20.50 +1.1 points
  
• 10-Year TIPS Spread 1.95% -1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating +12 open in Japan
• DAX Futures: Indicating +13 open in Germany

Portfolio:

• Higher: On gains in my Technology, Medical and Biotech long positions
  
• Disclosed Trades: Added to (GOOG) long and took profits in another long
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 is hugging the flat line, cutting morning losses, despite another disorderly decline in the euro and meaningful rises in some gauges of credit angst. On the positive side, Gaming, Road&Rail, HMO, Biotech, Medical, Internet and Gold stocks are especially strong, rising .75+%. The Spain sovereign cds is falling -2.4% to 197.0 bps, the Japan sovereign cds is falling --4.5% to 90.0 bps and the Russia sovereign cds is dropping -7.1% to 186.4 bps. The Shanghai Composite gained another +3.5% overnight and European equities stabilized despite the large drop in the euro. On the negative side, Oil Tanker, Oil Service, Energy, Bank and Construction shares are under pressure, falling 1%+. Several important gauges of credit angst are moving higher again despite the bounce in stocks off morning lows. (XLF) has been a bit heavy throughout the day. The bulls have been unable to gain upside traction as a result. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting, short-covering and diminishing economic fear.

Today's Headlines

Bloomberg:

• Euro Breakup Talk Increases as Germany Loses Proxy.
• Euro Falls to Lowest Since Lehman as Breakup Concern Increases. The euro fell to its lowest level since the collapse of Lehman Brothers Holdings Inc. on concern that the 16-nation currency may be headed for disintegration. The shared currency fell through $1.24 for the first time since November 2008 as German Chancellor Angela Merkel said that Europe is in a “very, very serious situation.”
• Moody's(MCO) Says 80% Chance Greek Credit Rating Will Be Cut Again. Moody’s Investors Service said there is a “greater than” 80 percent chance it will cut its rating on Greece’s debt again as the government struggles to push through measures to reduce its budget deficit. “A multi-notch downgrade is likely,” Moody’s said in a statement. The rating company cut Greece to A3 from A2 on April 22 and said today that an upgrade is “unrealistic in the foreseeable future.” “The specific magnitude of the downgrade depends on the likelihood that Greece adheres to the conditions of the euro area/IMF package and the levels at which debt will stabilize or reverse,” Moody’s said. “The scale of the current fiscal austerity program has increased political risk as the Greek population is being asked to accept very demanding conditions.” “While Greece is now sheltered from the capital markets, the success of its budgetary consolidation will depend ultimately on the resolve of politicians and citizens,” said Peter Vanden Houte, an economist at ING in Brussels. “Since some ‘consolidation fatigue’ is likely to occur, we still do not entirely exclude the possibility of a Greek debt restructuring. This would imply that bouts of market unrest are still likely to occur over the next two years or so.”
• Greece Leads Surge in Credit Risk as Ackermann Doubts Debt Plan. Greece led a jump in the cost of insuring against losses on government bonds after Deutsche Bank AG Chief Executive Josef Ackermann said he doubted whether the nation would be able to pay its debts in full. Credit-default swaps on bank and company borrowings also rose as the debt rally triggered by the European Union’s $1 trillion pledge to ease the region’s deficit crisis faded. Swaps on Greece jumped 79.5 basis points to 608, Portugal increased 47 to 248, Spain rose 25 to 180, Ireland climbed 27 to 197 and Italy was up 10.5 at 140 basis points. It will require “incredible efforts” by Greece to meet its borrowing commitments, Ackermann said in an interview with ZDF television. Investor concern that debt-reduction measures by governments in the region will undermine economic growth today drove the euro below $1.25 for the first time since March 2009. “There are still major doubts about the euro-zone’s ability to produce the kind of growth required to get back onto a more stable footing,” said Gary Jenkins, head of credit strategy at Evolution Securities Ltd. in London. Confidence in bank debt was also weakened by concerns federal investigations into bank practices in the U.S. may lead to more regulations that will hurt profits. European banks may face 244 billion euros ($302 billion) in lost earnings and increased capital requirements because of stricter rules, Credit Suisse Group AG analysts estimated. The Markit iTraxx Financial Index of swaps on the senior debt of 25 banks and insurers jumped 15 basis points to 147 and the subordinated index rose 19 to 215, JPMorgan prices show. Contracts on the Markit iTraxx Crossover Index of default swaps linked to 50 companies with mostly high-yield credit ratings increased 46 basis points to 506.5, the first rise this week, according to JPMorgan Chase & Co. prices. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings climbed 11.5 basis points to 109, JPMorgan prices show.
• Visa(V), MasterCard(MA) Fall on 'Surprising' Debit-Card Vote. Visa Inc. fell as much as 9.4 percent and MasterCard Inc. slid 7.9 percent in New York trading after the U.S. Senate included limits on debit-card fees in the financial-overhaul bill. The Federal Reserve would be empowered to curb debit-card interchange, or “swipe” fees, charged to merchants on each transaction under rules approved by the Senate. Visa, the world’s biggest payment network, dropped $6.46, or 7.5 percent, to $79.27 at 10:47 a.m. in New York Stock Exchange composite trading, and has fallen 18 percent since its record closing high of $96.59 on April 23. MasterCard fell $16.30, or 7 percent, to $216.01, and has tumbled 15 percent in three weeks. Shares of payment networks and banks came under pressure last week as Senate Majority Whip Richard Durbin pushed curbs on debit interchange fees. The limits may crimp revenue at Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co., the biggest U.S. debit-card issuers.
• Oil Falls to a Three-Month Low on European Debt Concern. Crude oil declined to a three-month low in New York on concern that Europe’s sovereign-debt crisis will reduce global economic growth and fuel consumption. Oil fell as much as 4.5 percent, the biggest one-day drop since Feb. 4, and the euro tumbled after the Spanish daily El Pais reported that French President Nicolas Sarkozy threatened to pull out of the currency. Supplies at Cushing, Oklahoma, where New York-traded West Texas Intermediate oil is delivered, rose to a record last week, according to the Energy Department. “The sovereign debt crisis and the fact that the Saudis don’t want to see $90 oil are responsible for the drop in oil prices,” said Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington. “The only problem for the Saudis is there’s no fine-tuning of the oil price.” “We’re still in this phase of deleveraging,” said Tobias Merath, head of commodity research at Credit Suisse Group AG in Zurich. “We’re seeing concerns about the bailout package. With the European sovereign debt problems, banks need to reduce their risky activities. What’s also getting everyone’s attention is the development in the inventories.” Crude-oil stockpiles at Cushing increased 784,000 barrels last week to 37 million, the highest level since the Energy Department started keeping records at the storage hub in 2004. “Cushing supplies keep going up, and the contango tells you to continue to do more,” said Kyle Cooper, managing director at IAF Advisors in Houston. “It’s self-reinforcing.”
• Copper, Aluminum, Zinc Drop on Growth Risk in China. Copper, aluminum and zinc tumbled on concern that demand may weaken as economic growth cools in China, the world’s largest metals consumer, and European nations slash budgets to curb deficits.
• Thai Troops Clash With Bangkok Protesters; 5 Killed.
• BP(BP) Trying to Insert Tube Into Leaking Gulf Oil Pipe. BP Plc, the largest oil and natural- gas producer in the Gulf of Mexico, is trying to insert a tube into a leaking pipe at a well off Louisiana, advancing a plan to divert much of the crude into a ship on the surface. “We’ll try to keep this oil from entering” the Gulf, Doug Suttles, BP’s chief operating officer for exploration and production, said today in an interview on CNN. The company may know the results of the effort in 24 hours, Mark Proegler, a company spokesman, said in an interview.
• Spain's Core Inflation Turns Negative for First Time. Spain’s underlying inflation rate turned negative in April for the first time on record, just as Prime Minister Jose Luis Rodriguez Zapatero pushes through the country’s biggest budget cuts in more than three decades. Core consumer prices, which exclude energy and fresh food, fell 0.1 percent from a year earlier, after rising 0.2 percent in March, the National Statistics Institute in Madrid said today. That’s the first annual decline since the data were first collected in 1986.
• Swap Spreads Widen as European Debt Crisis Buoys Dollar Libor. U.S. interest-rate swap spreads widened as the cost for three-month dollar loans in London rose to the highest since August while the European debt crisis sent the euro tumbling, global shares lower and Treasury yields down. The difference between the two-year swap rate and the comparable-maturity Treasury note yield, known as the swap spread, widened 4.19 basis points, or 13.5 percent, to 35.13 basis points. The spread has increased from this year’s low of 9.63 basis points on March 24, the narrowest since 1993. The spread is based in part on expectations for the London interbank offered rate, or Libor, and is used as a gauge of investor perceptions of credit risk. “There is a bit of a scramble now for dollar funding, and that is putting some upward pressure on spreads,” said Michael Darda, the chief economist at MKM Partners LP in Greenwich, Connecticut. “The origin of the pressure is that you have this weakness that is being played out in the sovereign debt markets in Europe. The European banks are very much exposed to that debt.”

Wall Street Journal:

• New York Times to Begin Website Charges in January.

CNBC:

• Goldman Sachs(GS) Did Nothing Illegal: Clinton Says.
• Is Ending Home Mortgage Interest Deduction in Play?
  

NY Post:

• Lloyd Blankfein Pays for New Home With Cash. Goldman Sachs overlord Lloyd Blankfein is so rich, he bought his $26 million "Master of the Universe" duplex at 15 Central Park West in cash before finally selling his five-bedroom, seven-bath prewar duplex at 941 Park Ave. Blankfein just accepted an offer on that apartment, reports The Post's Jennifer Gould Keil. The luxurious abode, asking $15 million last year, was most recently listed for $13.5 million -- on top of which a buyer must pay $11,327 a month maintenance.

Business Insider:

• Surprise! Cost of Healthcare Bill Already Spiraling Beyond Estimates, And Democrats Are Ignoring The Reasons Why. There's been a spate of bad news recently about the health care bill. Henry Waxman canceled his War on Accounting, not because there was a sudden breakout of common sense on Capitol Hill, but because his committee's investigation revealed that companies had begun exploring whether they should drop their health insurance plans entirely--a move that would cost over $100 billion dollars thanks to the huge new subsidies the government would have to dole out.
• 8 Huge European Banks That Got Hammered Today.
  

The Detroit News:

• Failure to Rein in Fannie Mae, Freddie Mac Weakens Financial Reform. Two of the biggest players in the mortgage meltdown of the last two years are Fannie Mae and Freddie Mac, which held or guaranteed about $5 trillion in mortgages when they imploded in 2008. Any reform of the financial markets that doesn't deal with them is not serious. Senate Democrats had a chance to act on reform this week and instead punted, ordering the Obama administration to study what to do about them. The two mortgage giants have consumed about $145 billion in federal bailouts -- and according to congressional projections that total could reach more than $380 billion over the next decade. Fannie Mae this week asked for another $8 billion in federal assistance; Freddie Mac last week asked for close to $11 billion in such assistance.

Philadelphia Inquirer:

• Philly City Council Approves Proposed Real Estate Tax Hike. A divided City Council approved a temporary 9.9 percent property-tax hike Thursday, but balked at Mayor Nutter's sugary-drinks tax and seemed ready instead to pass a budget that would deplete the already meager cash reserves Nutter had set aside for next year. Yet as far as Nutter is concerned, the $3.85 billion budget is far from done. The drinks tax could still return. It was only tabled, not rejected. And Nutter - who has lobbied hard for it - has not given up on the bill, which he considers essential to fully fund his 2010-11 budget and five-year plan. "We still have a great amount of work left to do. My primary concern at the moment is we run the very, very serious risk of not being able to pay for core services, whether it's foster care or health-care services or the seasonal workers at recreation centers," he said.

L.A. Times:

• Insurers Shun California's Request to Stop Investing in Iran-Related Companies. Reporting from Sacramento. Nearly 300 insurance companies licensed to do business in California have refused to comply with a state regulator's request that they stop making new investments in corporations engaged in energy or defense-related work in Iran. The insurers, including more than a dozen major firms such as State Farm, Geico and Prudential, are questioning the authority of state Insurance Commissioner Steve Poizner to impose sanctions. The U.S. government has identified Iran's government as a sponsor of terrorism. Poizner estimates that as of the end of 2008 insurers that do business in California held about $6 billion worth of stock in foreign-owned corporations that operate in the Islamic Republic of Iran in the areas of defense and energy, including nuclear power and petroleum.

Politico:

• President Obama Rips, Raises Cash from Wall Street. President Barack Obama Wednesday went from his White House to Main Street tour of Buffalo to raising money for Democrats from Wall Street executives in Manhattan, even as he continued to blame them for the economic crisis and to seek sweeping industry reforms in Congress. “We’re engaged in a debate right now about common-sense Wall Street reform,” Obama said at the $15,000-a-person fundraiser Thursday night.
• Pence: No European Bailouts. Seizing on conservative anger toward the federal government’s financial assistance for U.S. banks and auto companies and the recent headlines about Greece’s economic woes, Pence and a group of other House Republicans have introduced symbolic legislation that would halt American involvement in any International Monetary Fund aid to European Union nations. “I just don’t believe American taxpayers should be forced to bear the risk of nations that have avoided making tough choices,” Pence said in an interview previewing his remarks to the gun-rights group’s convention in Charlotte. There is little the U.S., as only one member of the IMF, can do to stop the bail out of Greece.
• Senator Dick Durbin, Moderates Clash on Bank Bill. Democratic Sen. Dick Durbin came out swinging against big banks Thursday — and it forced some of his colleagues to duck. A Durbin amendment to the Wall Street reform bill — regarding how much banks can charge merchants for taking debit cards — passed 64-33 Thursday, with 10 Democrats voting no. And in the process, the vote pit Durbin against moderates in the Democratic Caucus — a particularly uncomfortable place to be for a man who is No. 2 in the Senate Democratic leadership.

Reuters:

• Exclusive: Waddell is Mystery Trader in Market Plunge. A big mystery seller of futures contracts during the market meltdown last week was not a hedge fund or a high frequency trader as many have suspected, but money manager Waddell & Reed Financial Inc, according to a document obtained by Reuters. Waddell sold on May 6 a large order of e-mini contracts during a 20-minute span in which U.S. equity markets plunged, briefly wiping out nearly $1 trillion in market capital, the internal document from CME Group Inc said. The e-minis are one of the most liquid futures contracts in the world, providing holders exposure to the benchmark Standard & Poors 500 Index. The contracts can act as a directional indicator for the underlying stock index. Regulators and exchange officials quickly focused on Waddell's sale of 75,000 e-mini contracts, which the document said "superficially appeared to be anomalous activity."
• Obama Was Target of Indonesia Militants. Indonesian militants captured in recent police raids were planning a series of attacks including a Mumbai-style hotel siege targeting foreigners and an assault on the president at an independence day ceremony, police said on Friday. The men also planned to target U.S. President Barack Obama, who is scheduled to visit the country later this year, and plotted the attacks to install sharia law in the world's most populous Muslim nation, officials said.
• FACTBOX - S&P 500 Exposure to European Economies.
• US Future Economic Growth Gauge Shows Recovery Slowing.
  

Financial Times:

• IMF Warns Rich Countries on Debt. The world’s rich economies are continuing to pile up public debt in spite of a recovery in the global economy, according to the International Monetary Fund. In a regular report on public finances released on Friday, the fund suggested increases in value added taxes and excise duties as a way to plug the deficits.

Frankfurter Rundschau:

• The combined deficit of German cities such as Frankfurt and Hamburg will rise to a record in 2010, citing data of the DST association of local authorities. The shortfall will increase to 15 billion euros after a deficit of 7 billion euros in 2009, Petra Roth, mayor of Frankfurt and president of the association, said.

El Economista:

• Spain's government is considering raising the top rate of income tax, as well as increasing tax on investment vehicles for the wealthy and applying a banking levy.

El Pais:

• French President Nicolas Sarkozy threatened to pull out of the euro unless German Chancellor Angela Merkel agreed to back the European Union's bailout plan at a meeting last weekend in Brussels, citing comments that Spain's premier Jose Luis Rodriguez Zapatero made at a meeting of socialist politicians.

La Tribune:

• The U.S. plans to adopt Basel II capital rules next year, European Union Financial Services Commissioner Michel Barnier said. "That's what I have been told," Barnier said, after a three-day U.S. visit, during which he met Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke and the heads of Goldman Sachs Group Inc.(GS) and JPMorgan Chase(JPM).

MEES:

• Iraq aims to boost oil production capacity by more than 20% to 3.2 million barrels a day by the end of next year, citing an interview with an oil ministry official. The country expects to add 600,000 barrels a day of output capacity from projects signed last year with international oil companies, citing an interview with Iraq's deputy minister for upstream, Abd al-Karim Laibi.