Stock futures jump ahead of payroll report

By Ryan Vlastelica

NEW YORK (Reuters) - Stock index futures jumped on Friday as investors looked ahead to the monthly payrolls report, which is expected to show solid jobs growth while not being strong enough to influence Federal Reserve policy.

The central bank's bond-buying stimulus program has been widely credited with both the steep stock market gains thus far in 2013, as well as recent volatility as market participants question the timeline for the program ending.

Fed Chairman Ben Bernanke has said the program would be slowed if the economy improves as the Fed expects, making economic data a major market driver. However, markets have sold off on bullish data on the theory that this means the stimulus will be ended sooner.

The Labor Department's non-farm payrolls report at 8:30 a.m. (1230 GMT) is expected to show about 165,000 jobs were added in June, below the 175,000 added last month. The unemployment rate is seen moving to 7.5 percent from 7.6 percent.

Cyclical shares, which are tied to the pace of economic growth, are likely to show the biggest reaction to the data. Bank of America (BAC) edged higher in light premarket trading.

S&P 500 futures rose 13.7 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures added 144 points and Nasdaq 100 futures rose 27.25 points.
Trading volume could be light with many traders away from the office. Markets were closed on Thursday for the Fourth of July holiday after an abbreviated session on Wednesday. The low participation could lead to more volatile markets.
On Wednesday, weekly jobless claims and the ADP employment report were both stronger than expected, a positive sign ahead of the jobs report. Markets ended slightly higher in a volatile session.
The S&P 500 is down 3.2 percent from its May 21 record closing high of 1,669.16. The benchmark index has been unable to close above its 50-day moving average since June 20, a level which is now at 1,624.68.
U.S. crude futures rose 0.1 percent, hovering at 14-month highs. While the jobs report could give a clue into the demand prospects for oil going forward, investors are also watching the continued unrest in Egypt, which could cause a further spike in prices on supply concerns.

The U.S. Securities and Exchange Commission has filed a lawsuit accusing unnamed defendants of insider trading in Onyx Pharmaceuticals Inc (ONXX) call options before the drugmaker publicly rejected a takeover bid by larger rival Amgen Inc (AMGN) and put itself up for sale.

(Editing by Chizu Nomiyama)

Investors Cheer Egypt Transition, See Brief Window of Hope

CAIRO—Judging by Egypt's surging market and rebounding currency a day after the military ousted President Mohammed Morsi, investors believe that Cairo's new leadership will shore up confidence in the country's markets and open the way for new economic aid from Arab neighbors.
But Egypt's new leaders—who, as of Thursday, were without a government and a constitution—will have little time to address the problems that have plagued the country since the uprising against Hosni Mubarak more than two years ago.
In the absence of solid word about any new government, investors cheered the relative lack of bloodshed in the handover and welcomed unconfirmed rumors that the interim president would oversee a technocratic government.
Egypt's main main index, the EGX-30, rose 7.3 percent, as the market added more than $3 billion in capitalization. The Egyptian pound strengthened to 7.0264 against the U.S. dollar, after hitting an all-time low of 7.0337 pounds on Wednesday. The cost of insuring Egyptian debt against default also fell.
"I think the market is speaking for itself now," said Ahmed Adel, senior analyst at Naeem Holding, a Cairo-based brokerage firm. "Everyone was expecting a civil war after Mr. Morsi repeatedly announced he wouldn't respond to protesters' demands and would remain in power."
Mr. Morsi's ouster has been welcomed by neighboring oil and gas-rich Gulf countries at odds with the ousted leader's Muslim Brotherhood-led government. Saudi Arabia's King Abdullah was the first to congratulate Egypt's newly inaugurated interim president. The United Arab Emirates reached out with its blessings, saying that it had followed the events in its "sisterly" country of Egypt with "appreciation and satisfaction."
The new leader of Qatar—which had been the main regional benefactor of Mr. Morsi's Muslim Brotherhood-led government—also sent congratulations.
The "very rapid and favorable diplomatic reactions from the U.A.E. and Saudi suggest that they may be much more willing to provide ad hoc financial assistance compared to under the previous Egyptian regime," said Hasnain Malik of Frontier Alpha, an independent research firm in Dubai.
Such support could trigger recovery for the the Egyptian pound and carry trade and influx of foreign direct investment, a note from Pharos Holding, a Cairo-based investment firm, said Thursday.
But several economists said the new government would have several months, at most, to reverse an economic skid dating to Mr. Mubarak's overthrow.
Mr. Morsi's government was criticized by his opponents for failing to reverse that downturn, as rolling unrest hurt the economy and battered tourism and foreign investment inflows. Egypt's unemployment was at 9% before the 2011 uprising that toppled Mr. Mubarak. The country, with a population of more than 80 million people, now has an unemployment rate of 13.2%, a mark that economists expect to hit 14% when 2013 figures are officially calculated.
Mr. Morsi's government also came under domestic criticism for its failure to make the structural changes necessary to unlock a $4.8 billion loan from the International Monetary Fund. Mr. Morsi's government appeared unwilling to restructure Egypt's generous subsidies on food and fuel, which had a wide popular appeal but drained the country's foreign reserves.
But the Arab world's most populous country also risks losing the unlocked aid from the IMF if its new government isn't recognized by the international community.
"There is a vast amount of uncertainty on how the events can develop, even though there are encouraging signs," said William Jackson, emerging markets analyst at London-based Capital Economics. "The armed forces have been reconciliatory and they want to keep the transition smooth and peaceful, they've also been quite keen on protecting the Suez Canal and factories."
After a year in which the Egyptian pound has sharply depreciated, foreign reserves have fallen to $16 billion and the country's sovereign debt has been downgraded to junk status, Egypt needs an intact government in order to repay debt and secure aid from global donors.
"A potential crunch point could come when the government needs to make quite large foreign-currency debt repayments or if it attempts to rein in public spending," said Mr. Jackson.
Egypt, a strategic ally of the U.S., also risks losing $1.55 billion in military and economic aid sent every year from Washington, as U.S. law prohibits its administration from aiding countries where a military is involved in an unconstitutional change in government.
Egypt also risks future unrest, as Mr. Morsi's supporters reiterated Thursday that they will demonstrate to reject what they called a military coup.
Still, many investors, whose caution over the past year was formed by a fear of polarization and sectarian strife, were more optimistic on Thursday.
"The previous government had no experience in running the country, and they didn't know how to make peace with political parties or investors," said Mr. Adel.
Several local investors appeared optimistic as well, saying the Brotherhood had alienated its opposition and scared away able technocrats.
"There were so many qualified politicians and economists who were offered positions and refused because they didn't trust the Muslim Brotherhood's government," said Karim Helal, the chairman of ADI Capital, the Egyptian investment banking arm of Abu Dhabi Islamic Bank. "Egypt has learned from its mistakes in the past two years and there is no way on earth it is going to repeat any of them."
Write to Reem Abdellatif at reem.abdellatif@dowjones.com

ECB, BOE Signal Low Rates to Remain

FRANKFURT—Europe's central bank broke with longstanding tradition by pledging that interest rates will remain at record lows far into the future—distancing itself from speculation it would follow any U.S. move toward less growth-friendly policies as the euro zone's financial crisis flares up again.
The strategy shift by the European Central Bank, which has long prided itself for keeping all its options open, came amid a political crisis in Portugal that threatened to bring down the government of a country largely seen as a model for Europe's troubled periphery. As of late Thursday, Portugal's coalition government appeared to have found a way to stay together. But doubts linger about the country's financial health and political stability.
The renewed euro-crisis concerns, combined with a recent rout in global bonds triggered by the Federal Reserve, raised doubts that the euro bloc would emerge from its recession this year as hoped. Thursday's soothing message from the ECB, as well as the Bank of England, underscored the stakes as officials around the world try to safeguard fragile economies as financial markets swing wildly.
In separate meetings, the Bank of England and ECB kept interest rates unchanged and announced no new stimulus measures. And they took aim at last month's rise in global bond yields with a weapon that central bankers use when other policy options start running dry: the bully pulpit.
The ECB will keep rates where they are, or even lower, for "an extended period," ECB President Mario Draghi said after the bank's monthly meeting. The ECB held its main policy rate at 0.5%. There was, however, an "extensive discussion" within the ECB's rate board on whether to reduce rates Thursday, Mr. Draghi said, and there is a "downward bias" on rates "for the foreseeable future."
The decision to adopt forward guidance was unanimous. It means that even conservative ECB members such as German central-bank chief Jens Weidmann—who has warned of the dangers of keeping rates low for too long—saw the benefits.
European equity markets rallied. The euro and sterling declined against the dollar, which should boost European exports. Expansionary monetary policy tends to weaken a currency. Markets in the U.S. were closed for the Fourth of July holiday.
Though Mr. Draghi didn't specify how long an "extended period" may be, he sought to amplify the importance of the ECB's new communications strategy, calling it "unprecedented." Mr. Draghi's predecessors at the ECB long resisted such pledges.
Still, Mr. Draghi stopped short of the data-focused road map the Fed gives. The U.S. central bank has said it would keep rates near zero as long as the unemployment rate is above 6.5% and inflation expectations stay anchored.
The ECB's strategy "is a weak form of forward guidance. But it is guidance nonetheless," said Holger Schmieding, economist at Berenberg Bank.
Mr. Draghi's comments didn't materially alter the outlook for ECB policy, analysts said. Even before Thursday's meeting many economists expected interest rates to stay where they are well into next year at least. Those expecting a change thought the next move would be a rate cut, not an increase. "A rate cut is there if needed but is not imminent," Mr. Schmieding said.
The ECB said the economy should gradually improve in the coming months. Euro-zone gross domestic product has contracted for 18 straight months through the first quarter of 2013. Inflation remains subdued.
But a vibrant, job-creating rebound remains elusive. Unemployment is at a record 12.2% in the euro zone, trimming spending on big-ticket items such as automobiles. It is above 25% in Spain and Greece and approaching 18% in Portugal, putting additional strain on public debt. Small businesses in southern Europe pay considerably higher rates on loans than their German counterparts, ECB data showed Thursday.
Marie Diron, adviser to the Ernst & Young Euro Zone Forecast, said the ECB should have focused less on communications and more on concrete measures to spur credit such as easing its collateral rules to make small-business loans more attractive. "It was a missed opportunity," she said.
Mr. Draghi's soothing words came as reminders of Europe's debt crisis resurfaced this week after months of relative calm. The resignations of Portugal's finance and foreign ministers put the country's coalition government in doubt in recent days.
Portuguese stock and bond markets tumbled Wednesday, casting doubt on whether the country will be able to regain access to bond markets by next June as envisioned in its bailout program. But the damage didn't spread significantly to Spain or Italy, suggesting the ECB's bond program, Outright Monetary Transactions, continues to be seen as a credible firewall against contagion even if its rules prevent it from being used to help Portugal soon. Portuguese equity and bond markets recouped some of their losses Thursday, in part on the broad rally after Mr. Draghi's comments and on reduced fears that the government would collapse.
The OMT "is as effective a backstop as ever," Mr. Draghi said. He praised progress Portugal has made since taking a bailout two years ago, calling it "remarkable, if not outstanding."
In London, the Bank of England's rate-setting panel concluded its monthly policy meeting with an admonishment to financial markets that rising interest rates were unwarranted and could derail a fledgling recovery in the U.K. economy.
The U.K. central bank left its benchmark interest rate at 0.5% and the size of its bond-buying stimulus program unchanged at £375 billion ($570 billion). But it added in a rare statement that Britain's recovery is weak by historical standards and the economy is likely to chug along below potential for some time, despite some promising data the past few weeks.
"The implied rise in the expected future path of Bank Rate was not warranted by the recent developments in the domestic economy," the rate-setting board said, referring to the BOE's benchmark interest rate. In May, money markets signaled that the BOE's benchmark rate would stay at a record low of 0.5% until 2016. Early last week, at the height of the Fed-inspired selloff, some money-market contracts were pricing in a rise in the central-bank benchmark as early as mid-2014.
The BOE's move to bear down on borrowing costs foreshadows a looming shift in communications under Mark Carney, the BOE's new governor. Economists expect Mr. Carney, one of the pioneers of guidance as head of the Bank of Canada, to follow the Fed and the ECB and introduce some form of forward guidance on British central-bank policy as soon as next month, probably at a news conference now set for Aug. 7.
Officials are already thrashing out how best to use guidance to spur growth in Britain's economy. Mr. Carney is likely to follow the Fed and link future policy changes to the unemployment rate, spending or some other economic variable, analysts say.

Ex US Marine Speaks The Truth! - Obama Is A Puppet

41 IMF Bailouts And Counting – How Long Before The Entire System Collapses?

Broke nations are bailing out other broke nations with borrowed money.  Round and round we go – where we stop nobody knows.  As of April, 41 different countries had active financial “arrangements” with the IMF.  Sometimes they are called “bailouts” and sometimes they are called other things, but in every single case they involve loans.  And most of the time, these loans come with very stringent conditions.  It is a form of “global governance” that most people don’t even know about.  For decades, the IMF has been able to use money as a way to force developing nations to do what it wants them to do.  But up until fairly recently, this had mostly only been done with poor nations.  But now an increasing number of wealthy nations are turning to the IMF for help.  We have already seen Greece, Portugal, Ireland and Cyprus receive bailouts which were partly funded by the IMF, Spain has received a bailout for its banking sector, and as I noted yesterday, it is being projected that Italy will need a major bailout within six months.  How long can this go on before the entire system collapses?
Well, that would depend on how much money the lender has.
And so where does the IMF get their money?
The IMF gets their money from a bunch of nations that are absolutely drowning in debt themselves.
The IMF is funded by “wealthy” nations that dominate the global economy.  The following is how Wikipedia describes the IMF’s quota system…

The IMF’s quota system was created to raise funds for loans. Each IMF member country is assigned a quota, or contribution, that reflects the country’s relative size in the global economy. Each member’s quota also determines its relative voting power. Thus, financial contributions from member governments are linked to voting power in the organization.

These are the five largest contributors to IMF funding…
United States – 16.75%
Japan – 6.23%
Germany – 5.81%
France – 4.29%
UK – 4.29%
But those countries are in trouble themselves.  The U.S. has a debt to GDP ratio of over 100%.  Japan has a debt to GDP ratio of over 200%.
The truth is that these countries are funding the IMF with borrowed money.
So what happens when the contributors run out of money and can’t contribute anymore?
All over the globe, an increasing number of countries are reaching out to the IMF for help.  For example, on Thursday we learned that Pakistan is getting a new bailout from the IMF…

Pakistan and the International Monetary Fund have reached an initial agreement on a bailout of at least $5.3 billion.
Pakistani Finance Minister Muhammad Ishaq Dar and IMF mission chief Jeffrey Franks announced the agreement at a press conference Thursday.

And the new government in Egypt is hoping that the revolution that just occurred will not stop the flow of IMF funds…

In recent months, a handful of neighboring countries such as Qatar have been keeping Egypt’s economy afloat by loaning the country’s central bank cash. That has bought Morsi government time to delay implementing the politically-sensitive measures the IMF has sought as a precondition before it gives Cairo a $4.8 billion credit line. In particular, the IMF had said that Egypt must raise taxes and begin phasing out fuel subsidies.
It’s not the only cash at stake. Other international donors have vowed another $9.7 billion for the country once the IMF program is in place. Roughly $1.55 billion in bilateral aid from Washington could also be held up: under U.S. law, the administration can’t loan money to countries where the military is involved in an unconstitutional change in government.

But what often happens with these bailouts is that the “conditions” that are imposed prove extremely difficult to meet.  For example, Greece has not implemented all of the “reforms” that they were ordered to implement, and so the flow of future funds may be threatened…

As Greece looks set to miss a key reform deadline set by international lenders, which could jeopardize further financial aid, a Greek government minister said it wasn’t Greece’s fault that it couldn’t live up to the demands of a flawed bailout program.
“There are failures [by Greece],but you assume that the program that has been effectively imposed on us is perfect, which is far from the case,” Nikos Dendias, minister of Public Order and Citizen Protection, told CNBC on Thursday.
His comments come after Greek finance ministry officials said on Wednesday that Greece would not meet targets on reforming its public sector by the deadline set by international lenders, putting further financial aid in jeopardy.

Once a nation gets hooked on bailout money from the IMF or from other international sources, it can be very hard to get off of it.  But that is what these globalist organizations like – they want to be able to use money as a form of control.
As we saw with Greece, sometimes a nation will need bailout after bailout.  And it appears that is also going to be the case with Portugal.  The Portuguese government is on the verge of collapsing and their financial situation is being described as “very fragile”…

Portugal had been held up as an example of a bailout country doing all the right things to get its economy back in shape. That reputation is now harder to sustain and even before this latest crisis, the International Monetary Fund reported last month that Lisbon’s debt position was “very fragile”.
Coming soon after the near-collapse of the Greek government, which has been given until Monday to show it can meet the demands of its own EU-IMF bailout, the euro zone may be on the brink of falling back into full-on crisis.

Right now, Portuguese bond yields are absolutely soaring and the Portuguese economy is rapidly heading into depression.
Portugal is going to desperately need the assistance of the IMF.
But what happens when the nations that primarily fund the IMF start failing themselves?
The U.S. is a complete and total financial disaster and so is Japan.  Much of Europe is already experiencing a full-blown economic depression and even China is showing signs of trouble.
So if the “wealthy” nations fail, who is going to be there to help the “poor” nations?
Republished with permission from: The Economic Collapse

Politician: Call Snowden to Germany as witness

A conservative German politician has called on the judiciary to circumvent whistleblower Edward Snowden's asylum denial - by summoning him as a witness in a criminal case against US spy programmes.

"Clearly Snowden is reporting serious crimes that took place on German soil and may even have been directed against people in office," said Peter Gauweiler, parliamentarian for the Christian Social Union, Bavarian sister party to Angela Merkel's Christian Democratic Union.

Speaking to the Süddeutsche Zeitung, Gauweiler said that federal state prosecutors are already obliged to investigate the US spying that Snowden has uncovered, since they are responsible for the protection of state secrets.

"Edward Snowden should be questioned as a witness," he said. "That man has vital evidence."

He said the German judiciary has the power to grant Snowden safe passage if he is being called as a witness, at least for a limited amount of time. This would take the matter out of the hands of the government, which denied the whistleblower political asylum on Tuesday evening.

"Then the case would no longer be in the sphere of politics, but in the cool objectivity of criminal process, being led by what is in Germany an independent judiciary," Gauweiler added.

German state prosecutors have already been investigating the US spy activities since June 27nd. "The federal prosecutor is structuring the observation process from publicly available sources," a federal spokesman said.

Several criminal complaints have already been handed in based on Snowden's revelations.

There is also another way that Snowden, who has been holed up at Moscow airport for a week and a half, could enter Germany legally - should the Bundestag call a parliamentary committee on the spy revelations, it would be able to invite Snowden to appear and testify.

But Gauweiler would prefer the judicial option. "An investigation within the context of a judicial inquiry would be more appropriate than any political action - especially during election campaign times," he said.

The Local/bk

Have Central Bankers Lost Control? Could The Bond Bubble Implode Even If There Is No Tapering?

By Michael Snyder

Are the central banks of the world starting to lose control of the financial markets?  Could we be facing a situation where the bond bubble is going to inevitably implode no matter what the central bankers do?  For the past several years, the central bankers of the planet have been able to get markets to do exactly what they want them to do.  Stock markets have soared to record highs, bond yields have plunged to record lows and investors have literally hung on every word uttered by Federal Reserve Chairman Ben Bernanke and other prominent central bankers.  In the United States, it has been remarkable what Bernanke has been able to accomplish.  The U.S. government has been indulging in an unprecedented debt binge, the Fed has been wildly printing money, and the real rate of inflation has been hovering around 8 to 10 percent, and yet Bernanke has somehow convinced investors to lend gigantic piles of money to the U.S. government for next to nothing.  But this irrational state of affairs is not going to last indefinitely.  At some point, investors are going to wake up and start demanding higher returns.  And we are already starting to see this happen in Japan.  Wild money printing has actually caused bond yields to go up.  What a concept!  And that is what should happen – when central banks recklessly print money it should cause investors to demand a higher return.  But if bond investors all over the globe start acting rationally, that is going to cause the largest bond bubble in the history of the planet to burst, and that will create utter devastation in the financial markets.
Central banks can manipulate the financial system in the short-term, but there is usually a tremendous price to pay for the distortions that are caused in the long-term.
In Bernanke’s case, all of this quantitative easing seemed to work well for a while.  The first round gave the financial system a nice boost, and so the Fed decided to do another.  The second round had less effect, but it still boosted stocks and caused bond yields to go down.  The third round was supposed to be the biggest of all, but it had even less of an effect than the second round.  If you doubt this, just check out the charts in this article.
Our financial system has become addicted to this financial “smack”.  But like any addict, the amount needed to get the same “buzz” just keeps increasing.  Unfortunately, the more money that the Fed prints, the more distorted our financial system becomes.
The only way that this is going to end is with a tremendous amount of pain.  There is no free lunch, and there are already signs that investors are starting to wake up to this fact.
As investors wake up, they are going to realize that this bond bubble is irrational and entirely unsustainable.  Once the race to the exits begins, it is not going to be pretty.  In fact, the are indications that the race to the exits has already begun…

During the month of June, fixed income allocations fell to a four-year low, according to the American Association of Individual Investors, as major bond fund managers like Pimco experienced record withdrawals for the second quarter. That pullback sent places like emerging markets and high-yield bonds reeling—just as the Federal Reserve signaled plans to taper its easy-money policies within the coming years. Benchmark bond yields ticked up on that news, and in an unexpected twist, the stock market nosedived as well.

A lot of people out there have been floating the theory that the Fed will decide not to taper at all and that quantitative easing will continue at the same pace and therefore the markets will settle back down.
But what if they don’t settle back down?
Could the bond bubble implode even if there is no tapering?
That is what some are now suggesting.  For example, Detlev Schlichteris pointing to what has been happening in Japan as an indication that the paradigm has changed…

My conclusion is this: if market weakness is the result of concerns over an end to policy accommodation, then I don’t think markets have that much to fear. However, the largest sell-offs occurred in Japan, and in Japan there is not only no risk of policy tightening, there policy-makers are just at the beginning of the largest, most loudly advertised money-printing operation in history. Japanese government bonds and Japanese stocks are hardly nose-diving because they fear an end to QE. Have those who deal in these assets finally realized that they are sitting on gigantic bubbles and are they trying to exit before everybody else does? Have central bankers there lost control over markets?
After all, money printing must lead to higher inflation at some point. The combination in Japan of a gigantic pile of accumulated debt, high running budget deficits, an old and aging population, near-zero interest rates and the prospect of rising inflation (indeed, that is the official goal of Abenomics!) are a toxic mix for the bond market. It is absurd to assume that you can destroy your currency and dispossess your bond investors and at the same time expect them to reward you with low market yields. Rising yields, however, will derail Abenomics and the whole economy, for that matter.

The financial situation in Japan is actually very similar to the financial situation in the United States.  We both have “a gigantic pile of accumulated debt, high running budget deficits, an old and aging population, near-zero interest rates and the prospect of rising inflation”.  In both cases, rational investors should demand higher returns when the central bank fires up the printing presses.
And if interest rates on U.S. Treasury bonds start to rise to rational levels, the U.S. government is going to have to pay more to borrow money, state and local governments are going to have to pay more to borrow money, junk bonds will crash, the market for home mortgages will shrivel up and economic activity in this country will slow down substantially.
Plus, as I am fond of reminding everyone, there is a 441 trillion dollar interest rate derivatives time bomb sitting out there that rapidly rising interest rates could set off.
So needless to say, the Federal Reserve is scared to death of what higher interest rates would mean.
But at this point, they may have lost control of the situation.

Central Banks: We Will Keep Doing What Hasn’t Worked And What Won’t Ever Work

Communication Only “Tool” Left

The message on this 4th of July from Central Banks is “we will keep doing what hasn’t worked and what won’t ever work” until it does work.
Case Number One
In central bank case number one Draghi Says ECB Rate to Stay Low for ‘Extended Period’
 President Mario Draghi said the European Central Bank expects to keep interest rates low for an “extended period” as he tries to restrain market borrowing costs, in a new departure for an institution averse to setting policy in advance.
“The Governing Council expects the key ECB interest rates to remain at present or lower levels for an extended period of time,” Draghi said at a press conference in Frankfurt. “What the Governing Council did today was to inject a downward bias in interest rates for the foreseeable future. Our exit is very distant.”  
The ECB chose words over deeds after an “extensive discussion” about cutting interest rates, and the support for the new language was unanimous, according to Draghi. He said the bank kept an open mind on whether to cut the deposit rate below zero.
“The Governing Council had all options on the table this month and will keep them there in case things worsen again,” said Christian Schulz, senior economist at Berenberg Bank in London. “This time, they decided against another rate cut and decided to stage a mini revolution by introducing forward guidance instead.” 
Historically, Draghi and predecessor Jean-Claude Trichet have said that the ECB “never precommits” to any future monetary policy.
Draghi said the reason for taking what he called an “unprecedented” step was the ECB’s expectation that the subdued outlook for inflation will extend into the medium-term amid broad-based weakness in the 17-nation euro-area economy.Case Number Two
In central bank case number two Pound Slumps Most Since 2011 as BOE Signals Rates to Stay Low.

…

The Diminishing Effects Of QE Programs

There has been much angst over Bernanke’s recent comments regarding an “improving economic environment” and the need to begin reducing (“taper”) the current monetary interventions in the future.  What is interesting, however, is the mainstream analysis which continues to focus on one data point, to the next, to determine if the Fed is going to continue its interventions.   Why is this so important?  Because, as we have addressed in the past, the sole driver for the markets, and the majority of economic growth, has been derived solely from the Federal Reserve’s programs.   The reality is that such analysis is completely useless when considering the volatility that exists in the monthly data already but then compounding that issue with rather subjective “seasonal adjustments.”
The question, however, is whether such “QE” programs have actually sparked any type of substantive, organic, growth or simply inflated asset prices, and pulled forward future consumption, for a short term positive effect with negative long term consequences?  The 4 panel chart below shows the annual changes of real GDP, employment, industrial production, and personal consumption expenditures.   I have noted the beginning and end of the 3 different “QE” programs.

As you can see during the first round of Quantitative Easing, which was also combined with a variety of artificial stimulus, bailout and support programs, the economy got a sharp boost from extremely depressed levels.  The influx of liquidity stabilized the economy and production levels recovered.   However, it is clear that after that initial boost, subsequent programs have done little other than to stabilize the economy while flooding the asset markets with liquidity.  As shown, even with these programs in play, the current annualized growth trends of the data are showing clear deterioration.  This puts the Federal Reserve in a difficult position of trying to exit support as the economy weakens.

ART CASHIN: I Was Out With My Drinking Buddies Last Night, And We Were All In A Frenzy About This Chart

Here’s what that chart looks like via the St. Louis Fed:

St. Louis Fed

Kyle Bass Hunkers Down: “We Dramatically Reduce Portfolio Risk”

Kyle Bass goes to Japan and finds all as expected…

After traveling through Japan for the past couple of weeks and with their economic experiment at the forefront of the financial press, it is an appropriate time to give an update on Hayman’s current thoughts regarding the island nation. My travels took me from Kyoto, the cultural heart of Japan to Tokyo, Japan’s financial epicenter. I met with all kinds of thoughtful and wonderful people throughout my trip – from tea service with Zen priests in Kyoto to the metaphorical Zen priests of finance in Tokyo. The Japanese people are some of the most inviting, respectful, and thoughtful people with whom I have ever had the opportunity to spend time. There is no doubt that culturally and historically, Japan is one of the richest countries in the world.

Unfortunately, I had this overriding feeling of sorrow and empathy for most of the people with whom I met because my conclusions regarding their potential financial fate were reinforced on this trip. Most large and complex problems do not have a single cause, and there are countless decisions and circumstances that have led Japan to its current situation. While there is no formulaic determination for the solvency of a sovereign balance sheet (despite many attempts to develop one), the inescapability of economic gravity remains constant. Japan and its leadership face an unsolvable equation in my opinion. The structural problems in Japan have existed for years and were evident during our original analysis of the situation in late 2009, but it is fascinating to observe the progression of the decline over time and the recent broad acknowledgement of their plight.

And also learns something new, if not unexpected…

Despite the abundant quantitative data indicating the fragility of the financial system and the risks posed by further indebtedness, very few individuals in Tokyo have expressed a willingness to embrace the difficult choices required to resolve this looming crisis. During my trip to Kyoto, I was introduced to a Japanese phrase that encapsulated the strangely fatalistic viewpoint that many local Japanese market participants have toward the twin threats of debt and deflation. This concept explains a resignation to the unfolding of events and a willingness to submit to this unfortunate reality rather than to fight a seemingly inevitable or impossible challenge. It seems apposite to reprint it here as we watch the beginning of this endgame in the Japanese debt markets unfold:

“Shikata ga nai”

It cannot be helped.

Martin Hennecke – Fed Can’t Phase Out QE, Crisis Not Over

Tyche Group’s Martin Hennecke discusses, How Governments can get out of debt by Inflating and where are now with Gold going much higher in the long term.

Karl Denninger on Bernanke’s Last Stand and Unwinding Rehypothecation

 

MP: Ireland a Lapdog for US Imperialism | Hero

Steady U.S. job gains to keep Fed's focus on tapering

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. job growth probably slowed in June, but not enough to shift the Federal Reserve away from expectations that it will start scaling back its massive monetary stimulus later this year.

Employers are expected to have added 165,000 new jobs to their payrolls last month, according to a Reuters survey of economists, slightly below the 175,000 positions created in May.

The unemployment rate is expected to fall a tenth of a percentage point to 7.5 percent.

The Labor Department will release its closely watched employment report on Friday at 8:30 a.m. EDT, two weeks after Fed Chairman Ben Bernanke offered an upbeat assessment of the economy's outlook and said the U.S. central bank expected to start trimming its bond purchases later this year.

"If we get this number, the Fed would still feel that the outlook is on track for them to make an announcement later this year on the tapering," said Sam Bullard, a senior economist at Wells Fargo in Charlotte, North Carolina.

Job growth has averaged 155,800 per month over the past three months, just about the amount economists say is needed to gradually push down the unemployment rate.
There is a risk, however, that June payrolls could beat expectations after reports on Wednesday showed a pickup in the pace of hiring by private businesses and the service industries.
The Fed is purchasing $85 billion in bonds each month in an effort to keep borrowing costs down and spur stronger growth.
Economists said even if June payrolls come in weaker than expected, it would probably not stop the Fed from curtailing purchases later this year.
"It will force them to reconsider the size and not necessarily the timing of any tapering," said Millan Mulraine, senior economist at TD Securities in New York. "My view is tapering is essentially baked into the cake."
Twenty-eight of 60 economists polled by Reuters in late June said they expect the Fed to begin dialing back its purchases in September, with most expecting the program to end by June 2014.
The majority also forecast the Fed initially would cut purchases by $20 billion a month.
A batch of economic data, including housing, manufacturing and auto sales, have general been consistent with the Fed's views of diminished downside risks to the economic outlook.
However, debt problems in Europe and slowing growth in China are hampering export growth.
The recent signals from Bernanke that a start date for reducing bond purchases is approaching triggered a global selloff in stock and bond markets, which have come to rely on the Fed as a steady source of demand for financial assets. Interest rates on everything from U.S. Treasury debt to home mortgage loans moved sharply higher, threatening to curtail credit for consumers and businesses.
DECLINING WORKFORCE PARTICIPATION

The central bank is closely watching the unemployment rate. It has said it expects the jobless rate to drop to around 7 percent by the middle of next year, when it anticipates ending the bond purchases.

Economists said there was a chance the labor force could shrink, leading to a bigger-than-forecast drop in the jobless rate, given that the number of people entering the labor force had gone up in each of the previous two months.
Those workforce entrants have lifted the participation rate - the share of working-age Americans who either have a job or are looking for one - up from a 34-year low touched in March.
Declining participation as older Americans retire and younger people give up the hunt for work in frustration has accounted for much of the drop in the unemployment rate from a peak of 10 percent in October 2009.

The private sector is expected to account for all the anticipated job gains in June, with payrolls there expected to have increased by 175,000, little changed from the prior month.

Government employment, in contrast, is forecast shrinking by 10,000 jobs. Economists, however, say the job losses were not due to the deep government spending cuts known as the sequester.

While the budget cuts that took hold on March 1 do not appear to be hitting government payrolls directly, some economists said they were weighing on private employers and helped explained a sharp slowdown in hiring in the health care and social assistance sector.

Consumer-related areas such as retail and wholesale trade are expected to show further gains in employment in June, reflecting strengthening demand that was highlighted by a surge in automobile sales in June.

"Consumers are pulling the economy forward," said Sung Won Sohn, an economics professor at California State University Channel Islands in Camarillo, California.

Manufacturing payrolls are expected to be flat after three straight months of declines. But there is a high risk of another contraction after a gauge of national factory employment released on Monday tumbled to the lowest in nearly four years in June.
Construction employment likely added to May's gains as the housing recovery pushes ahead, but it remains constrained by a still sluggish non-residential sector.
Other details of the report are expected to show average hourly earnings rose by 0.2 percent after being flat in May. Tepid wage growth is holding back the consumer-driven economy.

The length of the average workweek is expected to have held steady at 34.5 hours.

(Editing by Jan Paschal)

Banks rigged €10 trillion derivatives market, Brussels says

Thirteen big banks colluded to shut out competition from the multi-trillion euro derivatives market, according to an investigation by the European Commission.
The EU's executive arm said that its investigation, which began in 2011, had uncovered anti-competitive practices during the 2008-9 financial crisis.
The commission investigation focuses on the credit default swap (CDS) market which allows banks and businesses to hedge against possible losses.
However, more controversially, they were used by Goldman Sachs and others to speculate on the probability of a Greek debt crisis in 2010.
There are almost 2 million active CDS contracts with a joint notional amount of €10 trillion worldwide.
Most CDS contracts are negotiated privately between so-called 'over the counter' derivatives.
However, critics of the practice say that the lack of transparency distorts the market and increases the risk of the parties being unable to meet their obligations.
EU lawmakers adopted legislation on derivatives trading in 2012 requiring all trades to be cleared through an exchange, making the practice more transparent and reducing risk.
The banks allegedly coordinated their behaviour to jointly prevent the Deutsch Bourse stock market and the Chicago Mercantile Exchange from being issued licenses allowing them to enter the CDS market.
The two exchanges were allegedly shut out of the market between 2006 and 2009, covering the end of the credit boom and the financial crisis in 2008-9.
In a statement issued on Monday (1 July) the commission commented that its preliminary conclusion was that the banks had "delayed the emergence of exchange trading of these financial products because they feared that it would reduce their revenues."
The banks involved include a handful of Europe's largest financial institutions such as Barclays, BNP Paribas, Deutsche Bank and the Royal Bank of Scotland (RBS).
The UK-based Barclays and RBS were also involved in last year's Libor rate-fixing scandal which saw a handful of big banks rig the interest rate at which banks lend to each other, driving up the price of financial products to customers.
Speaking to journalists on Monday (1 July) EU competition chief Joaquin Almunia warned that fines would be meted out if the market manipulation was confirmed.
EU anti-trust rules allow the Commission to impose fines worth up to 10% of a firms annual turnover.
"Exchange trading of credit derivatives improves market transparency and stability," he added, in a nod to the new EU rules.

Zombie Days: Friday May Bring Bad News Companies Would Rather You Didn’t See

By Marek Fuchs

When it comes to the stock market, investors should beware the Zombie Days.
World War Z
A Zombie Day is the Friday after a Thursday holiday. This Friday, July 5, will be a Zombie Day and, working together in the comments section below, we’re going to take a proactive stance in fighting back against it.
First, though, let’s delve into what a Zombie Day is all about. Though these Fridays are working business days, few pay attention. Most market participants are, say, sleeping off Thanksgiving hangovers or, in the case of this week, on the beach keeping their kids out of the undertow.
Companies rarely sleep
Companies, though – at least ones in any degree of trouble – rarely sleep. In fact, they take the opportunity of the quiet and inattention to release news they are ethically or legally obligated to but that they don’t really want you to see.
There has been a long, sordid history of bad news released on Zombie days – from presidents pardoning controversial criminals to companies admitting to stock backdating or firing thousands of employees.

Corinthian Colleges (COCO) still stands as a prime example. Back in 2006, this headline hit up in the Wall Street Journal on the Friday after Thanksgiving: Corinthian Says Option Grants Were Backdated. They had to release the news but were hoping no one saw. And few did. Welcome to Zombie Day.

Ironically, a portion of those options were originally backdated in the days after the September 11 terrorist attacks. Talk about a company with a tendency toward operating under cover of night.

And speaking of the time surrounding September 11 – only the heartless would have fired workers. That’s just what happened, though, when the United States Mint determined the slowing economy was lowering demand for coins. They didn’t want to be seen as cold, however, so they took advantage of a Zombie Day. The Mint timed the firings so that, on the day after Thanksgiving when everyone was zonked out on tryptophan, The New York Times ran with the headline: Facing Decreased Demand for Coins, Mint Starts Layoffs.”

Why didn’t Mint officials scream the news from rooftops? Then more than a few people would have learned that, headed into the first Christmas after a national tragedy, they were firing hundreds.
The sordid stories
We can go on…and on…recapping sordid news stories designed to slip down the Zombie Day cracks. More importantly, though, we need to work together to catch some of these news stories. If corporate and federal officials are relying on us to snooze or barbecue our way through Friday and use it to suit their purposes as a receptacle of bad news, we have to fight back.
The nonfarm payroll report on Friday might contain surprises (expectations are for around 165,000, and the number tends to be volatile in any given month), but will not in and of itself be a surprise. We know it’s coming.
What will the Jack-In-the-Box bit of news be? It is obviously metaphysically impossible to predict. But any company on the ropes or without a strong tradition of forthrightness tends to be the sort to gravitate to Zombie Day news releases.

And working together, we’re going to try our best to catch them, putting a klieg light on the news they want to go gently into that Zombie Night. Toward that end, please join me, on July 5, in posting in the space below any news you believe needs to be shouted to the skies. This will hopefully serve as a clearinghouse for news released on Friday that no one wanted you to see.

Will all the news you see below be the sort that companies wanted you to miss? No. Obviously, some of the news might simply coincide with July 5. Just because it is released on a Zombie Day doesn’t mean you should be automatically condemning. But always give the news an extra look.

Avoid a Zombie Day Apocalypse.

Marek Fuchs was a stockbroker for Shearson Lehman Brothers before becoming a journalist who wrote The New York Times' County Lines column for six years. Fuchs speaks regularly on business and journalism issues at venues ranging from annual meetings of the Society of American Business Editors and Writers to PBS to National Public Radio. His recent book, "Local Heroes: Portraits of American Volunteer Firefighters," earned widespread praise. He is on the writing faculty at Sarah Lawrence College. When Fuchs is not writing or teaching, he serves as a volunteer firefighter. You can contact him on Twitter: @MarekFuchs.

Formula for Friday Could Fuel Market Flare-Up

All the tinder capable of supporting market flare-ups is piled at investors' feet as Wall Street enters the Independence Day holiday Thursday.

Consider this: The monthly employment report reliably makes traders nervous as a cat. Vacation-thinned market sessions can make for whippy index moves. Whenever major overseas economic news breaks when the U.S. is observing a holiday, pent-up responses build up for the next day’s opening bell. A slow-motion coup in Egypt is fueling a fear rally in the oil market.

And, these days, the Federal Reserve’s open expectation that better job-growth news will allow it to reduce its stimulus project raises the stakes for all economic-data releases.

All these elements add up to what could be an interesting day on Friday, when U.S. markets reopen for a full trading day following the July 4th holiday.

The numbers game

At 8:30 a.m. ET on Friday, nonfarm payrolls for June will be released, allowing traders who choose not to take a four-day summer weekend to respond to the numbers. The opening of trade will also come after a Thursday marked by policy meetings of both the European Central Bank and the Bank of England; any notable developments that come from across the pond could be factored into U.S. market activity on Friday.

It’s a rather odd arrangement: a single day’s trading sandwiched by a national holiday and a weekend. The last time this occurred was more than a decade ago, as the tech bust bear market was teasing and torturing investors. July 5, 2002, the Standard & Poor’s 500 shot up by 3.6%. Interestingly (and probably meaninglessly) the July 5, 2002, close proved the market’s high point for the next 11 months, at which time the mid-2000s bull market got rolling.

Chances are that any market response to the payrolls change – which is forecast to match May’s addition of 175,000 net new jobs – will be a reflex move near the market open, after which stock and bond markets will enter pre-weekend, thinly staffed torpor. Adam Warner, a veteran options trader and expert on how volatility is priced in derivatives markets, said Wednesday that there seemed to be no hints that traders were bracing for an outsized move.

And for all the concentrated attention on employment-report day by market mavens, since 2000, days when payrolls and unemployment rates are reported do not generally see greater intraday volatility than the average trading day.

This doesn’t mean, of course, that Friday won’t see a quicksilver move in bond yields and stock indexes as investors recalibrate their assumptions about the thrust behind the U.S. economic expansion and what it might mean for Fed easing.

Lowering the stakes
It appears that, in the past week or so, Fed emissaries have tried to lower the stakes attached to any single quantum of economic data as a driver of the timing and magnitude of the eventual slowing in Fed balance-sheet expansion. While the Fed’s plans are decisively “data dependent,” policy makers have signaled they believe growth and job prospects will improve, and now have a reasonably high threshold for reassessing that stance.
Fed governor Jeremy Stein last Friday quite pointedly said the Fed’s policy-setting committee “will give primary weight to the large stock of news that has accumulated since the inception of the program, and will not be unduly influenced by whatever data releases arrive in the few weeks before the meeting — as salient as these releases may appear to be to market participants.”
This means investors should firmly be in a mode of hoping for upbeat economic news that supports the Fed’s default growth scenario, rather than taking solace in soft data that could, in theory, keep monetary policy hyper-easy.

Barclays market strategist Barry Knapp this week has argued that the nonfarm jobs release has a greater shot at spurring a downside market reaction than a cheery one, mainly because Stein’s message above suggests the employment report would need to be dramatically, uncomfortably weak for investors to begin pricing in an easier, friendlier Fed.

In all, it’s probably a net positive that the S&P 500 has traded choppily just above the 1,600 mark, and 10-year Treasury yields have hovered right below 2.5% over the past week. Any dramatic moves ahead of the odd, one-day, jobs-data sweepstakes would probably represent an untrustworthy display of trader bravado and conjecture.

S&P Downgrades Barclays, Deutsche & Credit Suisse On Eurozone Uncertainty

S&P is not so sure about European investment banking.
Barclays Plc, Deutsche Bank AG, and Credt Suiise Group all had their credit ratings lowered by Standard & Poor’s due to new rules and “uncertain market conditions.
S&P also said the risks included unstable global markets, the “uncertain implications of the unwinding of quantitative easing measures” and the eurozone crisis.
Credit ratings for Barclay’s and Deutsche Bank were cut from A+ to A long-term and A-1 short-term.“We consider that these banks’ debtholders face heightened credit risk owing to the industry’s tighter regulation, fragile global markets, stagnant European economies and rising litigation risk stemming from the financial crisis,” S&P said. “A large number of global regulatory initiatives are increasingly demanding for capital market operations.”
Barclay’s fell 3.7 percent to 272.60 pence, whilst Credit Suisse fell 2.6 percent to 25.03 francs and Deutsche Bank slipped 3.4 percent to 30.38 euros. UBS fell 2.4 percent to 15.81 francs in Zurich trading.
Credit Suisse and Barclays Bank bond risk soared last week to the highest levels in 2013, and five-year credit-default swaps insuring the debt of Credit Suisse against non-payment advanced to 135 basis points on June 24, the highest since October, while contracts on Barclay’s rose to 177.7, the highest level since November.”“The downgrade by S&P is a reminder to investors on the risk of these lenders in the uncertain environment,” said Ronald Wan, a committee member at Hong Kong Securities and Investment Institute. “The market is expecting the U.S. economy to recover but it’s unlikely to be a very strong recovery and the fate of the quantitative easing policy is still unclear. The stock valuation of these lenders may be negatively affected by the downgrade.”

Happy July 4! Sequestration Cancels Celebrations Nationwide

Huffington Post – by Amanda Terkel
WASHINGTON — Expect fewer patriotic displays this July 4, thanks to federal budget cuts.
Around the country, military bases are extinguishing fireworks displays and towns are canceling appearances by military bands due to sequestration’s $85 billion in across-the-board spending reductions.  
Camp Lejeune in North Carolina is one of the bases that won’t have fireworks this year. The commanding general, Brig. Gen. Thomas Gorry, told the Associated Press that the cancellation would “ensure that we can mitigate the fiscal challenges we are currently facing.”
Last year, the July 4 event cost the base $100,000, with $25,000 spent on fireworks.
“I know fireworks might seem silly to other people,” said Brandy Rhoad Stowe, who has enjoyed the celebration with her kids. “But what is the Fourth of July without fireworks?”
Some other celebrations affected by sequestration:

• Fireworks canceled at Fort Bragg, N.C. Fort Bragg has had July 4 fireworks for 30 years, with more than 50,000 people turning out for the celebration. “Our soldiers have been deploying from the very beginning of the battles in Iraq and Afghanistan and will be some of the last to come home,” said Fort Bragg spokesman Tom McCollum. “So we’ve called on them to do a lot and now when it comes time to celebrate the nation’s freedom, something they all defend, we have had to cut back on the observance here on the post.”

• Shaw Air Force Base scraps July 4 party. The base in South Carolina traditionally puts on a “Jammin’ July 4th” fireworks display. Shaw estimates that about 35,000 people attend the event. This year, however, it will host a smaller “freedom bash” on July 3 with “pool games, face painting and bouncy castles.”

• Navy band pulls out of Rock Island, Ill. festivities. The Horizon Great Lakes Navy Band has had to cancel an appearance at the celebration in Rock Island on July 3, due to sequestration.

• National Mall clean-up postponed. The National Park Service will put offpicking up trash from the July 4 celebration on the National Mall until July 5, instead of getting to it overnight. The change will cut overtime costs. “In past years, once the crowd thinned out and was pretty much gone, maintenance crews would come in and start cleaning,” said NPS spokeswoman Carol Johnson. “It would be an all-night thing, and by the time people were coming back to the Capitol, coming to the Mall, it’s cleaned up.”

• Boaters may be stranded in Nashville. Due to sequestration, the U.S. Army Corps of Engineers will not be providing workers with overtime, meaning there won’t be a lock operator to let boats back through after the July 4 fireworks celebration. “I have a feeling what’s going to happen is a bunch of boaters are going to get down there, get stuck and not be able to get home,” said Angela Bagsby, who owns Black Jack Cove Marina. “I really think it’s going to be the smaller boats that are going to get put into some dangerous situations.”

Fireworks will also be canceled at Joint Base McGuire-Dix-Lakehurst (New Jersey), Marine Corps Logistics Base (Georgia), Cowpens National Battlefield (South Carolina) and Joint Base Pearl Harbor-Hickam (Hawaii).
While many families will be feeling the impact of sequestration this week with the cancellation of these activities, going without fireworks is of course a minor inconvenience compared to the budget cuts’ other effects: Seniors are having to gowithout Meals on Wheels, children are losing spots in Head Start programs, the Forest Service is fighting an intense fire season with fewer resources and thousands of federal employees are being furloughed.

The EU Is Yesterday Whereas The Rest of The World Is Tomorrow

The EU was is and always will be a low growth economy.  This is inevitable from the inherent inflexibility from centralised decision taking. Add to this its large ageing demographies problems and huge debts and the EU is on a journey to nowhere in world terms.
OECD predictions are that the EU will have around half the world trade it has today by 2050 (from 16% down to 8%).
That could be very optimistic as the EU is not driven by economics but solely by its political agenda of ever-increasing centralisation.
Politics is irrational and ignores the real world downsides that are inevitable from policies that totally ignore economics and markets.
The FTT was a purely political decision which will cost the EU dear once is in place.
The creation of Eurozone has meant increased debt, poverty, and unemployment. There is no way the PIIGS will ever be able to compete with Germany with its  long term massive investments now they are locked to a common currency.
Germany consistently improves it manpower costs though investment and is around 15% more efficient than a decade ago.
The PIIGS are in a race they can only lose where they will continually need to reduce wages to match German efficiency improvements as they do not haver the  money to invest.
The EU does not have and never can have policies to compete with the world as competition is the antithesis of the EU level playing field.
Companies that want  to grow will have to invest in the market of the developing world as the EU market can never have high growth.
Inevitably as the decades pass the balance of UK trade must move increasingly towards the growing rest of the world and against the EU.
What use are low growth EU markets to the profit line? Profit is the driver for companies.
The EU is yesterday whereas the rest of the world is tomorrow.

There is a gathering electoral storm – Nigel Farage MEP

Teen Traders on Banks JPM and BAC

Tune in everyday at lunch to see what is going on in the VIX pit at the CBOE.

Martin Hennecke – Fed Can’t Phase Out QE, Crisis Not Over

July 3 (Bloomberg) — Tyche Group’s Martin Hennecke discusses Federal Reserve monetary policy and bank credit ratings on Bloomberg Television’s “Asia Edge.” (Source: Bloomberg)