Gas prices have continued their rise.  Nationally, they are near 1-year highs.  We’ve had two consecutive monthly declines in real consumer spending (close to 70% of GDP).  A Q2 contraction is possible, which would signal a recession.  Continued turmoil is becoming a significant near-term risk for the U.S. economy.  

The South American nation might not make its next interest payments due in July. Time is short, and Argentina is running out of options, especially after a major court ruling earlier this week went in favor of the creditors.

At this point Argentina only has one path: Negotiate with its remaining creditors, including several American hedge funds.

“I am told the plan is set for next week to negotiate with holdouts to resolve this situation,” said Argentina’s Attorney Carmine Boccuzzi to state-run news agency Telam. Argentine officials are expected in New York next week to begin the deliberations.

In 2012, Federal Judge Thomas Griesa of New York’s southern district ruled that this wouldn’t do. He ordered Argentina to turn over more than $1.3 billion to the spurned debt investors. Argentina appealed, but the Supreme Court declined to hear the case Monday.

Earlier in the week, Argentine President Cristina Fernández de Kirchner expressed severe dissatisfaction with the ruling.

“I think we should distinguish between what is a negotiation from what is an extortion,” she said in a televised address.

There’s a lot riding on this for Argentina. This is “World Economic Cup” kind of pressure. If Argentina messes this up, U.S. investors will be far less likely to loan to the nation, and it needs the money. Annual GDP growth was just 1.4% last quarter, a slow rate for an emerging market economy, and the country had to devalue its currency in January.

According to Telam, the amount Argentina owes to various creditors in July – both the holdouts and creditors who accepted the restructured bonds – is equivalent to about half of the nation’s foreign currency reserves.

Henry Weisburg, a lawyer from firm Shearman & Sterling who specializes in international financial disputes and has been watching the case closely thinks that this week’s developments mark the end of Argentina’s court wrangling and open the door to other venues.

“I think that period is about to end, and this is going to become a much more political and financial matter,” Weisburg said.  - (CNN)

BEIJING, June 18 (Reuters) - China’s average home prices fell for the first time in two years in May and price weakness spread to more major cities, adding to signs of cooling in the property market which are posing a growing risk to the broader economy.

The 0.2 percent monthly price drop in May, though slight, follows data last week that showed growth in property investment slowed while property sales and new constructiontumbled, compounding the challenges for leaders in Beijing as they deal with an economic growth slowdown.

The real estate sector, which accounts for more than 15 percent of China’s economic output and directly impacts around 40 other business sectors, could determine the severity of that downturn.

Analysts said large inventories of unsold homes and recent sluggish sales are likely to trigger wider and deeper price cuts in coming months, as developers act to maintain cash flow. However, they said evidence of a sharp correction in home prices remains thin, putting to rest for now at least fears of a hard landing in the wider economy.

“The high inventories in some cities and developers’ recent promotions, together with unclear market expectations that kept buyers staying on the sidelines, led the prices to fall,” Liu Jianwei, a senior statistician at the National Bureau of Statistics (NBS), said in a statement accompanying the data on Wednesday.

New home prices fell in May from April in 35 of the 70 cities polled, up from eight cities in April.

Versus a year ago, new home prices rose 5.6 percent in May, easing from the previous month’s 6.7 percent rise and the slowest annual rise in 13 months.

A recent private survey showing China’s vacancy rates were around 22 percent suggest a considerable overhang of inventory, which could undermine property as an investment class and add momentum to price declines. With its stock markets in a prolonged slump, property has been one of the few investments in China to offer attractive returns.

Moody’s Investors Service last month cut its outlook for China’s property industry to negative from stable, noting expectations of a slowdown in sales growth and a large supply overhang in the market.

“The risk of a more persistent and sharper downturn in the property sector is now the biggest risk facing China’s economy in 2014 and 2015,” Wang Tao, an economist at UBS Bank, said in a note.

After a strong performance in 2013, China’s real estate market has softened. Sales have slowed and banks have become increasingly cautious about lending to developers and home-buyers.

Analysts said a moderate adjustment in the property market will be welcomed by the government, which has spent more than four years trying to tame record housing prices amid fears of an asset bubble.

But any signs of a more serious slowdown in the property market could indicate more policy support may be needed to head off risks to the banking sector and balance the world’s second-largest economy.

“We are not concerned about the likelihood of housing price collapse in China as the current turn is just a rational market adjustment,” said He Qi, deputy secretary-general of China Real Estate Association.

Recent policy tweaks at local level and government efforts to speed up lending may help the market from sliding further.

Many Chinese local governments, which badly need proceeds from land sales to pay maturing debts, have eased home-buying restrictions and made it easier in recent months for buyers to borrow from local housing provident funds. - (Reuters)

Japanese longer-term bonds headed for their worst day in one year after the central bank cut allocations for buying the debt. 

“The yield curve could steepen as the BOJ announced plans to buy fewer bonds maturing in 25 years or more,” said Shuichi Ohsaki, an interest-rate strategist in Tokyo at Bank of America Merrill Lynch, one of 23 primary dealers obliged to bid at government bond auctions.

Japan’s 30-year yield climbed as much as 6 basis points to 1.72 percent, the highest since June 11 and the biggest jump in a year, according to Japan Bond Trading Co. The yield was at 1.705 percent as of 4:05 p.m. in Tokyo.

“Yesterday’s change to the BOJ’s purchasing operations should be enough to change the dynamics of the yield curve,” Akito Fukunaga, director and chief rates strategist for Japan research at Barclays, another primary dealer, wrote in a note to clients today, adding that he expects that supply-demand conditions for the 30- to 40-year debt to deteriorate “substantially” over the short term.

Kuroda reiterated in parliament today that, while he isn’t concerned that trading is drying up in the Japanese government bond market, the central bank will continue to watch developments in the market closely and take appropriate action to avoid problems.

JGB investors said the central bank’s debt purchases have suppressed trading volume and yields, a Ministry of Finance official said at a press briefing today.

A participant at today’s meeting said that even as inflation picks up, yields will remain stable as BOJ buying continues, according to the official. Some investors recommended increasing the issuance of inflation-linked bonds in the future based on demand, he said. - (bloomberg)

Insurgents in eastern Ukraine said they were losing the battle with government forces.

A fork in the road appears for Putin.  The insurgents are losing the battle.  Does he help them or allow Ukrainian forces to wipe them out?

NATO’s secretary-general said Thursday that several thousand more Russian troops had been deployed on Ukraine’s eastern border, just hours after pro-Moscow separatists refused a call to lay down their weapons as part of a proposed peace plan by Ukraine’s president.

“We now see a new Russian military buildup around the Ukrainian border. At least a few thousand more Russian troops are now deployed,” Anders Fogh Rasmussen said during remarks at a London think tank.

But Ukrainian troops and pro-Russian separatists were locked in fierce fighting in the east of Ukraine after rebels rejected the call to lay down their arms in line with Poroshenko’s plan, government forces said.

Poroshenko also said Thursday that he would sign an association agreement with the European Union on June 27, including the Deep and Comprehensive Free Trade Agreement. 

Negotiations about the agreement began in 2008after Ukraine joined the World Trade Organization. The deal was delayed because Ukrainian leaders feared that signing it would anger Russia, Ukraine’s largest trading partner.

In the end, Moscow-supported Ukrainian President Viktor Yanukovych backed out — igniting street protests in Kiev that led to the dissolution of his regime in February. Russia in turn annexed the Crimean peninsula, and separatist rebellions in eastern Ukrainefollowed in early April. Many rebels have called for union with Russia.

Ukrainian forces, which lost 49 servicemen on June 14 when separatists brought downa military helicopter in Luhansk region, have been gradually tightening their encirclement of rebel positions to the south and east of Krasny Liman, including the rebel stronghold of Slovyansk.

“There is an ongoing active phase of the ATO [anti-terrorist operation] in the region of Krasny Liman,” said Seleznyov, the government forces spokesman.

Asked about the report that 4,000 separatists could be involved, Seleznyov replied: “Then there’ll be 4,000 coffins.” - (Aljazeera)

Interesting to note that this build up of troops is occuring just before EU and US officials get together to discuss further sanctions on Russia.

• Lew says Russia may face tougher sanctions

WASHINGTON (MarketWatch) — An index of manufacturing conditions in the Philadelphia region surprised to the upside in June, suggesting that factory activity may be accelerating across the nation.

The Philadelphia Fed’s business outlook survey rose to 17.8 from 15.4 in May. The result was well above the 14.0 reading expected in a MarketWatch-compiled economist poll.

This is the highest reading from the Philadelphia index since last September. The index sagged in the winter, reaching a nadir of negative 6.3 in February but has come roaring back ever since. - (marketwatch)

WASHINGTON (MarketWatch) — Economic growth could pick up during the second half of this year, according to a gauge of leading indicators that grew in May, a fourth month of expansion, data released Thursday say.

“Recent data suggest the economy is finally moving up from a 2% growth trend to a more robust expansion,” said Ken Goldstein, economist at the Conference Board, a New York-based membership and research group.

The largest positive contributions to May’s reading came from the interest rate spread, jobless claims and manufacturing hours. Meanwhile, the sole negative contribution came from building permits. And two indicators were neutral: core durable goods orders and consumers’ expectations.

“Going forward, the biggest challenge is to sustain the rise in income growth which will drive consumption,” Goldstein said. - (Marketwatch)

Economic growth set to continues.  A growth scare with budding fears of inflation could set Treasuries back over the coming months.

FRANKFURT–Investor confidence in Germany fell for the sixth month in a row, despite expectations for a rise, a closely watched survey released Tuesday showed. The ZEW sentiment survey of 234 analysts and institutional investors showed the indicator for economic expectations fell to 29.8 in June from 33.1 in May.

Could this be linked to Russia/Ukraine/Sanctions???

WASHINGTON (MarketWatch) — Federal Reserve Chairwoman Janet Yellen was more kitten than lion on Wednesday, sticking to her guns that the central bank can hold short-term interest ratessteady until the middle of next year and then raise them gradually, and downplaying recent strong inflation readings.

In its latest dot-plot forecast, the Fed did see a slightly faster pace of tightening in the cards. But the slight increase was overlooked by the market that focused more on Yellen’s remark that the recent inflation data was “noisy.”

In contrast to Bank of England Governor Mark Carney, Yellen suggested the Fed is comfortable that it can hold rates steady for a considerable time after it ends its asset purchase program. Last week, Carney warned that the first interest-rate hike could come sooner than the market expected.

Zach Pandl, senior interest rate strategist at Columbia Management Investment Advisers, said investors took Yellen’s remarks as “a green light” to continue to expect low bond yields.

The Fed chairwoman said that investors should not take ultra-low rates for granted.

It is important “for market participants to recognize that there is uncertainty about what the path of interest rates, short-term rates, will be, and that’s necessary because there’s uncertainty about what the path of the economy will be,” she said.

As expected, the central bank trimmed bond purchases by another $10 billion, staying on track to end its long-running stimulus program before the end of the year. This is the fifth straight meeting with a $10 billion cut in the asset purchases. The Fed will now buy $35 billion a month in Treasurys and mortgage-related assets, starting in July.

The Fed lowered its forecast for “longer run” interest rates to 3.75% from closer to 4%. The last change is important because it signals the central bank won’t push up interest rates all that high during this recovery phase.

Most Fed officials are reluctant to raise interest rates too rapidly too soon because the level of unemployment is still historically high almost five years into an economic recovery, especially among people who have been out of work six months or longer.

Even the surprising sharply drop in the official U.S. unemployment rate over the past year to 6.3% has not persuaded Fed officials that the labor market is recovering as fast as the central bank hopes.

Some of the drop reflects people leaving the labor force because they’re too discouraged about finding work, Yellen said in a press conference after the bank meeting. “We’ve had an unusually long duration of unemployment,” she said.

Bowing to the inevitable, the Fed trimmed its growth forecast for 2014 because of the weak report on gross domestic product for the first quarter. But that weakness did not cause any revisions to the stronger growth of above 3% in 2015.

The Fed trimmed its forecast for unemployment, but officials did not materially change their forecast for inflation despite some higher-than-expected inflation data over the past three months. Inflation would stay at or below 2% through 2016.

Yellen said she believes the recent spike in consumer inflation reflect some “noise” that’s exaggerated the upward rise in prices. The risks of higher inflation still remain low, she said. - (Marketwatch)

Divergence of monetary policy among the big central banks may bring about intriguing trade opportunities in currencies.  

Furthermore, a growth scare would result in treasury sell offs.  Higher rates may ruffle feathers among equity investors.

WASHINGTON (MarketWatch) – The Senate on Thursday confirmed Stanley Fischer as vice chairman of the Federal Reserve’s board of governors. In separate votes, senators also confirmed Lael Brainard to the Fed’s board, and confirmed Jerome Powell for a fresh board term. The Fed’s board will now have five governors for its next meeting, on June 17-18. Two seats remain vacant.

Oil prices rally, with the U.S. benchmark marking its highest close since September, as violence in Iraq escalates, raising concerns about potential disruptions to the nation’s oil supplies.

“The situation in Iraq is immensely serious, but in a post-shale oil universe, how does the oil trading market price this?,” said Richard Hastings, macro strategist at Global Hunter Securities.

“It becomes difficult to estimate the price in the event of a disruption in oil exports from Basra, so the markets are also afraid of being exposed in long positions, and then get clobbered in case the situation stops short of disrupting Basra,” he said. The port city is located in southeastern Iraq.

But “if this were happening in a pre-U.S. shale world, then oil prices might be about 10% to 12% higher than what we are seeing today,” said Hastings. – (marketwatch)