Global de-risking/de-leveraging starts to gain some traction.

Legendary Fed Chairman Paul Volcker spoke again this week before the New York Economics Club. I've included large portions from his talk below. As a member of the Federal Reserve going back to the early 1950s', Mr. Volcker offers incomparable experience and insight. The comments from this honorable statesman are always worthy of careful consideration.

Mr. Volcker has myriad issues with contemporary central banking and is no fan of the Fed's dual mandate. When asked for his preferred central bank mandate, he referred to the Bundesbank and monetary stability before providing the following: "A central bank is in charge of the currency. And the responsibility is for a stable currency."

Well, we live in an era where global central banks prefer weak currencies to stable ones. Almost in unison, today's monetary policy doctrines push currency devaluation. It's essentially this period's "beggar thy neighbor" cloaked in analytical elegance and sophistication. The Bernanke Fed's loose policies have weakened the dollar for years now. Monetary stimulus went to unprecedented extremes after the bursting of the mortgage finance Bubble, an inflationary course that was fatefully ramped significantly higher last summer with the move to open-ended QE. More recently, the Bank of Japan embarked on an extraordinary (and similarly fateful) monetary experiment to weaken the yen and inflate the price level.

It seems rather obvious that years of aggressive synchronized monetary stimulus have indeed fueled the greatest Bubble in history. More than four years ago, I presented the "global government finance Bubble" thesis. The "developing" markets and economies have been integral to my Macro Credit and Bubble Analysis. The conventional bullish view has held that China, Asia, Latin America and Eastern Europe were the "global locomotive" that was to pull the struggling developed economies out of the muck. I've taken a much dimmer view. Unprecedented monetary excess from the Fed and others helped push already overheated "developing" Credit systems and economies into dangerous "terminal phase" Credit Bubble Excess.

There are always unintended reflationary consequences. The Fed's $85bn monthly QE has spurred a powerful Bubble throughout U.S. securities and asset markets. The unintended include the reemergence of "king dollar" dynamics and the magnetic pull of speculative finance from the "developing" markets. The Bank of Japan has succeeded in weakening the yen, but at the expense of South Korea and "developing" Asia. The weak yen has further bolstered "king dollar," placing additional pressure on commodities markets, economies and currencies.

From Bloomberg: "China's economy is proving less responsive to credit, escalating pressure on Premier Li Keqiang to strengthen the role of private enterprise. The government's broadest measure of credit rose 58% to a record 6.16 trillion yuan ($1 trillion) in January-to-March, when gross domestic product gained 7.7%, compared with 8.1% a year earlier. Each $1 in credit firepower added the equivalent of 17 cents in GDP, down from 29 cents last year and 83 cents in 2007, when global money markets began to freeze..."

Other headlines of note this week: "India's economic growth slowest in a Decade;" "India's Bonds Complete Worst Week Since March...;""Brazil Faces 1970s Stagflation as Resource Boom Wilts;" "Latin America Disappoints After Squandering Commodity-Boom Era;" "BRIC-Worst Growth Sinking [Brazil's] Corporate Debt Market;" "China Slowdown Drives Asia Bond Risk Above Peers;" "Mexico Bond Yields Rise to Highest Since January; Peso Declines;" "Turkey's Trade Gap Balloons in April Sending Bonds, Lira Lower;" "Biggest Selloff Since 2011 Hammers [South African] Bonds;" and "Russia Yields Surge Most in Month... as Ruble Slides."

The more analysts dig into the analysis the less they like what they see. For the week, the South African rand dropped 5.1%. The Brazilian real sank 4.2%, the Chilean peso declined 2.5%, the Malaysian ringgit 2.0%, the Hungarian forint 2.0%, the Peruvian new sol 2.0%, the Mexican peso 2.1%, the Russian ruble 1.6%, the Philippine peso 1.6%, the Turkish lira 1.5% and the India rupee 1.5%.

Despite a surprise 50 bps increase in rates, the Brazilian real traded to a four year low this week (down 4.2% y-t-d). It is worth nothing that Brazil's local 10-year government yields jumped just over 100 bps during May to 10.48%. Mexico's 10-year local yields rose almost 100 bps to 5.45%. Russian yields were up about 80 bps for the month to 7.28% and Turkey's yields were up 70 bps to 6.71%. May was similarly unkind to many "developing" equities markets. Brazilian and Mexican stocks were down 3.6% and 1.6%. Argentine stocks (Merval) were down 9.3%, Peru 7.5%, and Chile 2.4%. Eastern Europe was generally mixed, while developing Asia was mostly positive for the month. Most commodities suffered a difficult May. The CRB Commodities index declined 2.1%. Lumber was down 9.7%, Cocoa 9.3%, Natural Gas 7.9%, Coffee 5.5%, Sugar 4.5%, Silver 4.6%, Gold 3.7%, Cotton 3.3% and corn fell 2.9%.

U.S. equities for the most part enjoyed a carefree May. The S&P500 rose 2.1%. The average stock (Value Line Index) jumped 3.9%. The small cap Russell 2000 gained 3.9% and the S&P400 Mid-Cap Index rose 2.1%. And the more speculative the better. The Nasdaq Composite rose 3.8%. The Nasdaq Telecom index gained 6.2%, the Interactive Week Internet index advanced 4.8%, the Philadelphia Semiconductor (SOX) index gained 5.5%, and the Nasdaq Biotech index jumped 4.1%. The KWB Bank index surged 8.3% and the NYSE Securities Broker/Dealer index jumped 9.6%. The Goldman Sachs Most Short Index gained 5.1% during May (up 23.2% y-t-d).

Curiously, Financial Euphoria took hold in U.S. risk markets just as "developing" markets began indicating mounting fragility. Considering the degree of exuberance that has taken hold here at home, we should not be surprised that our markets have dismissed the relevance of heightened currency, commodity and "developing" market weakness. Actually, as the U.S. equity market has succumbed to speculative dynamics, global macro concerns have only worked to provide additional fuel for the "melt-up." May was a big short squeeze month, and those shorting the U.S. markets were repeatedly forced to cover as the market lurched higher.

Financial Euphoria also helped see the backup in U.S. market yields in positive light. May saw 10-year Treasury yields jump 46 bps. Notably, benchmark Fannie Mae MBS yields surged 61 bps. With the Fed on deck to buy large quantities of Treasuries and MBS for months to come, it was easy not to take the backup in yields too seriously. Actually, most viewed higher yields as confirmation of their bullish thesis.

There's an alternative bearish view worth contemplating: In the midst of all the Euphoria, the global "system" actually commenced another de-risking and de-leveraging cycle. Huge amounts of leverage have accumulated in highly speculative global markets over the past four years - from global currency "carry trades," to commodities, "developing" market debt, and even U.S. corporates and MBS. Seemingly annual bouts of impending market tumult have been held at bay by aggressive central bank intervention. This one has started in the midst of unprecedented monetary stimulus from the Fed, BOJ and others.

I'm of the view that the so-called "global reflation trade" became one enormous speculative bet on unending dollar devaluation, China/Asia expansion, commodities inflation and Latin American growth. Yet on almost all fronts, this scenario is increasingly challenged. "King dollar" dynamics have overwhelmed Bernanke Fed dollar devaluation. China, in particular, and "developing" economies more generally suffer from myriad ill-effect of years of rampant Credit expansion and attendant imbalances and fragilities. Moreover, more easy money and stimulus would only worsen the situation. Commodities markets have weakened, partially as a result of deteriorating China/Asian/"developing"/global growth dynamics. Furthermore, commodities prices tend to come under pressure in anticipation of more aggressive exports by the increasingly vulnerable "commodities" economies. Recall how the collapse of the soviet empire pressured the price of about everything those countries had to sell?

There are aspects of the current environment that are reminiscent of 1998. U.S. equities were on a bull run - fueled by liquidity abundance coupled with the bullish perception that global macro issues had been resolved by the IMF and global central banks. It was at the time difficult for me to believe that the markets were ignoring the unfolding Russian debacle - confident that "the West could never allow Russia to collapse." And, importantly, the marketplace was oblivious to unfolding derivative problems that manifested in the collapse of Long Term Capital Management. Again, the view was that global central banks would not tolerate a major derivatives blowup.

Well, the global "system" has had more than four years of ongoing artificially low rates, unprecedented liquidity overabundance and central bank market backstopping that would seem to ensure the accumulation of all varieties of financial excesses. And as far as I'm concerned, this latest speculative run in U.S. stocks is just one more excess adding to already major global fragilities. It's worth noting that stocks, commodities and bonds all were in retreat on Friday. At least for a day, it had the look of de-risking, de-leveraging and waning liquidity.

There's always that thin line between fervent speculative excess along with the perception of unending liquidity abundance and a vulnerable speculative Bubble. Emerging market (EM) funds suffered their worst week of outflows since December 2011. In the nineties, the emerging markets came to be called "roach motels." Part of the ongoing EM bull story has been the large accumulation of international reserves by these economies - that would ensure no nineties-like repeat of "hot money" flight and attendant financial and economic dislocation. To what extent these reserve holdings enticed only larger "hot money" inflows is today a pertinent issue. Also apropos is the consequence to market liquidity if the EM central banks were forced to sell some of their reserve holdings to support their currencies against a "hot money" (de-risking/de-leveraging) run to the exits.

And we can't forget the crowded - and potentially weak-handed - global leveraged speculating community and their ongoing struggles for decent performance. The yen gained almost 1% this week versus the dollar, as Japanese stocks were hammered. The Abe/Kuroda Bubble is suffering a credibility crisis. It's going to be another interesting summer.

From "Central Banking at a Crossroad," Paul Volcker, The Economic Club of New York, May 29, 2013

"In no doubt, the challenge of orderly withdrawal from today's (vs. 1950s) broader regime of quantitative easing is far more complicated. The still growing size and composition of the Fed's balance sheet implies the need for, at the least, an extended period of disengagement. Moreover, the extraordinary commitment of Federal Reserve resources alongside other instruments of government intervention is now totally dominating the largest sector of our capital markets - that for residential mortgages. Indeed, I do not believe it an exaggeration to note that the Federal Reserve with assets of $3.5 Trillion and still growing is, in effect, acting as the world's largest financial intermediator, by acquiring long-term obligations and financing short-terms, of course aided and abetted by the unique privilege to create its own liabilities.

Beneficial effects of the actual and potential monetization of public and private debt - the essence of the various QE programs - appear limited and diminishing over time. The old "pushing on a string" analogy is relevant. And the risks of encouraging speculative distortions and the inflationary potential of the current approach plainly deserve attention. All of this has given rise, obviously, to debate within the Federal Reserve Board itself. In that debate, I trust not sight is not lost of the merits - economically and politically - of an ultimate return to more orthodox central banking approaches.

I do not doubt the ability and the understanding of chairman Bernanke and his colleagues. They have a very considerable range of tools and instruments available to them to manage the transition. They include the novel approach of paying interest on excess reserves, potentially sterilizing their monetary impact. What is at issue - what is always at issue - are matters of good judgment, leadership and institutional backbone. The willingness to act with conviction in the face of predictable political opposition and substantive debate is, as always, a requisite part of a central bank's DNA.

Those are not qualities that can be learned from textbooks. Abstract economic modeling and the endless regressions to econometricians will be of little help. The new approach of "behavioral" economics itself is recognition of the limitations of mathematical approaches, but that new "science" is in its infancy.

I think a reading of history may be more relevant. Here and elsewhere the temptation has been strong to wait and see before acting to remove stimulus and then moving toward restraint. Too often the result is to be too late, to fail to appreciate growing imbalances and inflationary pressures before they are well ingrained.

There is something else beyond the necessary mechanics and the timely action that is at stake: the credibility of the Federal Reserve, its commitment to maintain price stability and its ability to stand up against pressing and partisan political pressures is critical. Independence cannot be just a slogan. Nor does the language of the Federal Reserve Act itself assure protection, as was demonstrated in a period after World War II. Then, as now, the law and its protections seem clear, but then it was the Treasury for a long time that called the tune.

In the last analysis, independence rests on perceptions of high competence, of unquestioned integrity and the will to act. Clear lines of accountability to the Congress and to the public need to be honored. Moreover, maintenance of independence in a democratic society ultimately depends on something beyond those internal institutional qualities. The Federal Reserve - any central bank - should not be asked to do too much - to undertake responsibilities that it cannot responsibly meet with its appropriately limited powers.

I know it's fashionable to talk about a dual mandate - that policy should somehow be directed to two objectives of price stability and full employment. Fashionable or not, I find that mandate both operationally confusing and ultimately illusionary. Operationally confusing and in breeding incessant debate in the Fed and the markets about which way policy should lead - month to month, quarter to quarter - with close inspection of every passing statistic. More important, illusionary implies a tradeoff between economic growth and price stability - a concept that I thought had been long refuted not just by Nobel prize winners but by experience.

The Federal Reserve, after all, has only one basic instrument so far as economic management is concerned - managing the supply of money and liquidity. Asked to do too much - for instance to accommodate misguided fiscal policies, to deal with structural imbalances, or to square continuously the hypothetical circles of stability, growth and full employment - then it will inevitably fall short. If in the process of trying it loses sight of its basic responsibility for price stability, a matter that is within the range of its influence, then those other goals will be beyond its reach.

Back in the 1950s, after the Federal Reserve finally regained its operational independence, it decided to confine its open market operations almost entirely to the short-term money markets - the so-called "bills only doctrine." We can't go back to that - we can't go home again to the simpler days of the 1950s and 1960s. Markets and institutions are much larger, far more complex. They have also proved to be more fragile, potentially subject to large, destabilizing swings in behavior. The rise of shadow banking, the relative decline of regulated commercial banks, the rapid innovation of new instruments have all challenged both central banks and other regulatory authorities.

But one simple logic remains. It is, I think, reinforced by these developments. The basic responsibility of a central bank is to maintain reasonable price stability - and by extension that means it must take account of the stability of financial markets generally. In my judgment, those functions are complimentary and they should be doable.

With or without a numerical target, the broad responsibility for price stability over time does not in any way imply an inability to conduct ordinary counter-cyclical policies. Indeed, in my judgment confidence in the ability and commitment of the Federal Reserve or any central bank to maintain price stability over time is precisely what makes it possible to act aggressively in supplying liquidity in recession or when the economy is in a prolonged period of growth well below potential.

Credibility is an enormous asset. Once earned, it must not be frittered away by yielding to the notion that a "little inflation right now" is a good thing to release animal spirits and to pep up investment. The implicit assumption behind the siren call must be that the inflation rate can be manipulated to reach economic objectives - up today, maybe a little more tomorrow, and then pulled back on command. But all experience amply demonstrates that inflation, when fairly and deliberately started, is hard to control and reverse. Credibility is lost.

I have long argued that central bank concern for stability must range beyond prices for goods and services to the stability and strength of financial markets and institutions generally. I am afraid we collectively lost sight of the importance of banks and markets robustly able to maintain efficient and orderly functioning in time of stress. Nor has market discipline alone restrained episodes of unsustainable exuberance before the point of crisis. Too often, we were victims of theorizing that markets and institutions could and would take care of themselves.

My concerns in that respect and their relevance to central banking and the organization of regulatory authority, were more fully expressed in a speech to this Club several years ago. Congress was then beginning to consider reform legislation. It was recognized that regulatory agencies, perhaps most specifically the Federal Reserve, had exhibited a certain laxity and ineffectiveness in the period leading up to the financial breakdown, particularly with respect to the mortgage market...

The erosion of confidence and trust in the financial world, in the financial authorities that oversee it, and in government generally is palpable. That can't be healthy for markets or for the regulatory community. It surely can't be healthy for the world's greatest democracy, now challenged in its role of political and economic leadership..."

For the Week:

The S&P500 declined 1.1% (up 14.3% y-t-d), and the Dow fell 1.2% (up 15.4%). The Morgan Stanley Consumer index dropped 2.6% (up 18.6%), and the Utilities were hit for 3.4% (up 6.5%). The Banks gained 1.2% (up 20.1%), and the Broker/Dealers rose 1.8% (up 31.1%). The Morgan Stanley Cyclicals slipped 0.1% (up 16.4%), and the Transports fell 1.6% (up 18.5%). The S&P 400 MidCaps slipped 0.3% (up 16.1%), while the small cap Russell 2000 was little changed (up 15.9%). The Nasdaq100 dipped 0.3% (up 12.1%), while the Morgan Stanley High Tech index added 0.2% (up 11.0%). The Semiconductors jumped 1.5% (up 22.0%). The InteractiveWeek Internet index gained 0.3% (up 16.4%). The Biotechs added 0.1% (up 28.2%). Although bullion was little changed on the week, the HUI gold index rallied 7.5% (down 38.2%).

One-month Treasury bill rates ended the week at 2 bps and 3-month rates closed at 3 bps. Two-year government yields were up 5 bps to 0.295%. Five-year T-note yields ended the week 13 bps higher to 1.02% (13-month high). Ten-year yields jumped 11 bps to 2.13%. Long bond yields were up 10 bps to 3.27%. Benchmark Fannie MBS yields rose 12 bps to 2.94% (12-month high). The spread between benchmark MBS and 10-year Treasury yields widened slightly to 81 bps. The implied yield on December 2014 eurodollar futures jumped 10.5 bps to 0.625%. The two-year dollar swap spread increased one to 16bps, and the 10-year swap spread rose 3 to 18 bps. Corporate bond spreads were wider. An index of investment grade bond risk rose 4 to 79 bps. An index of junk bond risk jumped 21 to a five-week high 392 bps. An index of emerging market debt risk increased 14 to a two-month high 296 bps.

Debt issuance slowed. Investment grade issuers included Pfizer $4.0bn, Northrop Grumman $2.85bn, GE Capital $1.0bn, Roper Industries $800 million, Florida Power & Light $500 million, Alexandria Real Estate $500 million, National Rural Utility Cooperative $400 million and Hospitality Properties $300 million.

Junk bond funds saw outflows jump to $875 million (from Lipper). Junk issuers included Ingles Markets $700 million, 313 Group $580 million, Ahern Rentals $420 million, Nationstar Mortgage $300 million, Meritor $275 million, Regal Entertainment $250 million and Goodman Networks $100 million.

Convertible debt issuers included Concur Technologies $425 million and Netsuite $270 million.

The notably short list of international dollar debt issuers included Kommunalbanken $2.0bn, Agrium $1.0bn, Banco Santander Chile $250 million and Ultrapetrol $200 million.

Italian 10-yr yields increased 2 bps to 4.15% (down 35bps y-t-d). Spain's 10-year yields were up 2 bps to 4.42% (down 85bps). German bund yields jumped 11bps to 1.54% (up 22bps), and French yields rose 13 bps to 2.07% (up 7bps). The French to German 10-year bond spread widened 2 to 53 bps. Ten-year Portuguese yields gained 4 bps to 5.50% (down 125bps). Greek 10-year note yields jumped 51 bps to 9.16% (down 131bps). U.K. 10-year gilt yields rose 11 bps to 2.00% (up 18bps).

Japan's wild Nikkei equity index sank 5.7% (up 32.5% y-t-d). Japanese 10-year "JGB" yields ended the week up 2 bps to 0.85% (up 7bps). The German DAX equities index increased 0.5% for the week (up 9.7%). Spain's IBEX 35 equities index gained 0.7% (up 1.9%). Italy's FTSE MIB rallied 1.9% (up 5.8%). Emerging markets were mixed. Brazil's Bovespa index sank 5.1% (down 12.2%), while Mexico's Bolsa gained 2.6% (down 4.8%). South Korea's Kospi index rallied 1.4% (up 0.2%). India's Sensex equities index gained 0.3% (up 1.7%). China's Shanghai Exchange increased 0.5% (up 1.4%).

Freddie Mac 30-year fixed mortgage rates surged 22 bps to 3.81%, with a four-week gain of 46 bps (up 6bps y-o-y). Fifteen-year fixed rates were up 22 bps to 2.98% (up one basis point). One-year ARM rates were down a basis point to 2.54% (down 21bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates up 18 bps to 4.18% (down 20bps).

Federal Reserve Credit jumped $16.0bn to a record $3.353 TN. Fed Credit expanded $567bn over the past 34 weeks. Over the past year, Fed Credit expanded $518bn, or 18.3%.

Global central bank "international reserve assets" (excluding gold) - as tallied by Bloomberg - were up $672bn y-o-y, or 643%, to a record $11.145 TN. Over two years, reserves were $1.288 TN higher, for 13% growth.

M2 (narrow) "money" supply declined $11.9bn to $10.542 TN. "Narrow money" expanded 6.4% ($637bn) over the past year. For the week, Currency increased $1.4bn. Demand and Checkable Deposits added $3.3bn, while Savings Deposits fell $12.3bn. Small Denominated Deposits declined $1.5bn. Retail Money Funds fell $2.8bn.

Money market fund assets rose $12.2bn to $2.136 TN. Money Fund assets were up $41bn from a year ago, or 1.6%.

Total Commercial Paper outstanding rose $14.3bn this week to $1.048 TN. CP has declined $17.9bn y-t-d, while having expanded $19bn, or 1.9%, over the past year.

Currency and 'Currency War' Watch:

May 31 - Bloomberg (Gabrielle Coppola and Josue Leonel): "Brazil's real fell to a four-year low, spurring the central bank to intervene in the currency market for the first time since March to stem the selloff. The real pared its drop after the central bank sold 17,600 out of 30,000 currency swap contracts worth $877 million before resuming its decline. Yields on interest-rate futures contracts rose the most in four years as policy makers unexpectedly stepped up the pace of increases in benchmark borrowing costs on May 29..."

The U.S. dollar index declined 0.4% to 83.38 (up 4.5% y-t-d). For the week on the upside, the Japanese yen increased 0.9%, the Swiss franc 0.7%, the euro 0.5%, the Danish krone 0.5% and the British pound 0.5%. For the week on the downside, the South African rand declined 5.1%, the Brazilian real 4.2%, the Mexican peso 2.1%, the New Zealand dollar 1.9%, the Australian dollar 0.8%, the Norwegian krone 0.6%, the Canadian dollar 0.6%, the South Korean won 0.2% and the Taiwan dollar 0.1%.

Commodities Watch:

The CRB index declined 1.1% this week (down 4.5% y-t-d). The Goldman Sachs Commodities Index fell 1.4% (down 4.8%). Spot Gold was little changed at $1,388 (down 17.2%). Silver declined 1.1% to $22.24 (down 26.4%). July Crude dropped $2.18 to $91.97 (up 0.2%). July Gasoline fell 2.6% (unchanged), and June Natural Gas sank 7.0% (up 19%). July Copper was unchanged (down 10%). July Wheat increased 1.1% (down 9%), and July Corn gained 0.7% (down 5%).

U.S. Bubble Economy Watch:

May 31 - Bloomberg (Shobhana Chandra): "Consumer spending in the U.S. unexpectedly declined in April for the first time in almost a year as incomes stagnated, indicating that the largest part of the economy will struggle to pick up without bigger job gains."

May 28 - Bloomberg (Lorraine Woellert): "Home prices rose in the 12 months through March by the most in seven years as the recovery in residential real estate gained momentum. The S&P/Case-Shiller index of property values increased 10.9% from March 2012, the biggest 12-month gain since April 2006... Property values may keep climbing as cheaper borrowing costs and gains in confidence lure buyers while the number of houses on the market remains near the lowest level in a decade. Rising prices are shoring up household finances, which could give a lift to sales at retailers including Williams-Sonoma Inc., and help builders such as PulteGroup Inc."

May 28 - Wall Street Journal (Nick Timiraos): "Rising home prices have fueled the return of a practice that some blamed for inflating the bubble: house flipping. In California, the number of homes sold in recent months that had been flipped -- or bought and resold within six months -- has reached the highest levels since late 2005, according to PropertyRadar... About 6,000 homes have been flipped in the state this year through April, or more than 5% of all homes sold statewide. While flipping is re-emerging nationwide, brokers say it is happening most in California, where home prices have risen sharply over the past year. Six of the 10 largest price gains in major U.S. cities over the past year have been in California, according to Zillow. In April, home values rose by 25% from a year earlier in San Jose, San Francisco and Sacramento, and by 18% in Los Angeles.

May 27 - Reuters (Bill Rigby and Alistair Barr): "While much of corporate America is retrenching on the real estate front, the four most influential technology companies in America are each planning headquarters that could win a Pritzker Architecture Prize for hubris. Amazon.com this week revealed plans for three verdant bubbles in downtown Seattle, joining Apple's circular 'spaceship,' Facebook's Frank Gehry-designed open-office complex and a new Googleplex on the list of planned trophy offices. 'It signals a desire, a statement, to say that we're special, we're different. We have changed the world and we are going to continue to change it,' said Margaret O'Mara, associate professor of history at the University of Washington, who has written about the building of Silicon Valley. 'It's also a reflection of robust bank accounts. They have a lot of cash.' Historically, however, when a company becomes preoccupied with the grandeur of its premises, it often signals a high point in its fortunes."

Federal Reserve Watch:

May 29 - Bloomberg (Michelle Jamrisko and Mary Van Beusekom): "Federal Reserve Bank of Boston President Eric Rosengren said the Fed should press on with record stimulus to speed economic growth, reduce 7.5% unemployment and boost inflation running below 2%. 'While we have seen some improvement in labor market conditions, significant accommodation remains appropriate at this time,' Rosengren said... 'Core inflation remains at the very low end of recent experience, and the unemployment rate is close to the cyclical peaks of the past two recessions.'"

Global Bubble Watch:

May 29 - Bloomberg (Gabrielle Coppola and Cristiane Lucchesi): "Brazil's sputtering economy is on display in the bond market, where companies' dwindling investments have helped spark a slump in debt sales. Companies have issued 21.1 billion reais ($10.2bn) of bonds in the local market in the first four months of the year, a 16% decrease from same period in 2012, when offerings reached a record... Overseas corporate sales have fallen 6% to $24 billion this year..."

May 29 - Bloomberg (Kyoungwha Kim): "The yield premium investors demand to buy China's riskiest bonds is widening, ending a record five-quarter run of declines, after a crackdown on shadow banking strained corporate finances. The yield gap on three-year AA- notes over AAA debt jumped 15 bps to 137 since March 31, after narrowing 147 bps from the end of 2011... Chinese regulators are forcing trust funds and wealth management plans to shift assets into publicly traded securities, robbing property developers and local-government finance vehicles of so-called shadow banking funds... 'Risky companies or projects would have difficulty refinancing old debt,' said Rees Kam, a senior strategist at SJS Markets Ltd., a Hong Kong-based... company that specializes in fixed income. 'Investors fear some of these companies may default on existing bonds. Chinese growth is also more likely to surprise on the downside, which will drive junk spreads to rise further.'"

May 31 - Bloomberg (Lisa Abramowicz): "Junk bonds are headed for their first monthly loss in a year as dealers take on more of the debt amid rising yields and a record pace of issuance. Dollar-denominated speculative-grade bonds have declined 0.3% in May after returning 15.4% the previous 11 months, according to Bank of America Merrill Lynch index data. The 21 primary dealers that do business with the Federal Reserve boosted positions in the debt by $2.7 billion in the three weeks ended May 22 to $8.35 billion..., as companies sold $44.1 billion of the debt, an unprecedented pace for the period. The losses are prompting a pullback by investors from funds that buy junk debt."

May 31 - Bloomberg (Katie Linsell): "Investors lost money in European corporate bonds for the first time in four months in May... Returns on investment-grade notes dropped to minus 0.5% for the month, compared with a 1% profit in April, according to Bank of America Merrill Lynch's Euro Corporate index."

May 28 - Bloomberg (Krista Giovacco): "Private-equity firms from Bain Capital to Onex Corp. are raising loans through companies they own to pay themselves dividends at a pace that exceeds even the frothy days leading to the worst financial crisis since the Great Depression. Borrowers controlled by buyout firms are on pace to raise more than $11.5 billion this month through dividend deals, a record and up from $3.6 billion in April, according to Standard & Poor's Capital IQ Leveraged Commentary & Data... An increasing number of borrowers are taking advantage of investor demand for relatively high yields as the Federal Reserve keeps benchmark interest rates at about zero for a fifth year. Rather than refinancing debt at lower interest rates or funding expansion, dividend loans do little more than add leverage."

May 27 - Financial Times (Stephen Foley): "Investors are giving up many of the protections that have traditionally accompanied lending to risky companies, with the hunt for high-yielding assets shifting the balance of power towards borrowers. Many of the world's most highly-indebted companies have been able to issue new loans without covenants, which limit the amount of debt they can take on or which give lenders a major say in the business if its results start to lag. The proportion of so-called 'cov lite' loans has soared to more than 50% of all leveraged loan issuance so far this year, twice the level seen during the credit boom in 2007. Leveraged loans are issued by high-risk companies, such as those owned by private equity firms, and sold to investors through the credit markets. Some strategists argue that 'cov lite' lending could be a 'new normal', the wisdom of which will be tested in the next economic downturn."

Global Credit Watch:

May 27 - Bloomberg (Peter Millard): "Bondholders of billionaire Eike Batista's flagship oil producer are signaling the company is at far greater risk of non-payment than its debt ratings imply. Yields on $2.56 billion of 2018 bonds from OGX Petroleo & Gas Participacoes SA, rated six levels below investment grade by Standard & Poor's and Fitch Ratings at B-, more than doubled this year to 22.5%."

May 27 - Bloomberg (Rachel Evans): "Borrowers in Asia are seen as the least creditworthy relative to their global peers in almost a year on signs of faltering growth in China. The Markit iTraxx Asia index of credit-default swaps traded as much as 20 bps higher than the average of four others from around the world this month, the biggest premium since June... As recently as March, Asian borrowers were seen as better credits than the rest of the world. Confidence in Asia is being dented by slowing growth in the region's biggest economy, where manufacturing is contracting for the first time in seven months."

May 31 - Bloomberg (V. Ramakrishnan): "Indian bonds completed the worst week since March 1 after central bank Governor Duvvuri Subbarao said retail inflation remains elevated and the nation's balance of payments is under stress. The pace of consumer-price gains held above 9% for 14 months through April, while a record current-account deficit contributed to a 4.8% slide in the rupee this month, the biggest in a year. Subbarao also said slowing economic growth is a concern for policy makers."

May 27 - Bloomberg (Mark Sweetman and Vladimir Kuznetsov): "Just last month investors were flocking to buy Russian debt. Now over three days, two companies pulled sales and the government scrapped an auction. ZAO Russian Standard Bank... shelved a sale of subordinated notes a day after OAO Mobile TeleSystems, or MTS, decided against going ahead with a ruble-denominated offering to international investors..."

May 31 - Bloomberg (Vladimir Kuznetsov): "Russia's 2027 ruble bonds had their worst month in at least a year as investors shunned riskier assets amid concern the U.S. Federal Reserve may pare back stimulus and on expectations May inflation will quicken. The yield on benchmark OFZ bonds due February 2027 rose 10 bps... to 7.54%... That's the highest since November 20, with the advance for May of 74 bps... The ruble weakened."

May 29 - Bloomberg (Taylan Bilgic): "Turkey's bond yields surged the most since October 2008 as investor speculation of a tapering in U.S. economic stimulus measures damped appetite for riskier assets. The lira headed for its lowest level to the dollar in a year. Yields on two-year benchmark notes climbed 26 bps... to 5.52%..."

May 31 - Bloomberg (Selcan Hacaoglu and Benjamin Harvey): "Steps by the European Union and Russia to arm opposing sides in Syria's conflict are aggravating tensions over the border in Turkey and increasing investor risk. The cost of protecting Turkish debt against default has risen 21 bps to 133 since car bombings on May 11 killed 52 people in Reyhanli, a town near the Syrian border."

May 28 - Bloomberg (Eric Sabo): "Three bond restructurings totaling about $9.7 billion in the Caribbean this year are failing to ignite economic growth and may not help the region avoid more defaults, according to Moody's... The bond swaps this year didn't go far enough to fixing the Caribbean's 'unsustainable' mix of debt and deficits, Warren Smith, the president of the Caribbean Development Bank, said... Jamaica and Belize, which restructured about $9.5 billion in local and global bonds this year for the second time since 2006, face a 'high probability' that they will default again, Moody's said... Among Caribbean island economies, only the Bahamas is expected to grow more than 1.5% this year... Moody's said..."

China Bubble Watch:

May 30 - Bloomberg (Kristine Aquino): "China's economy is proving less responsive to credit, escalating pressure on Premier Li Keqiang to strengthen the role of private enterprise. The government's broadest measure of credit rose 58% to a record 6.16 trillion yuan ($1 trillion) in January-to-March, when gross domestic product gained 7.7%, compared with 8.1% a year earlier. Each $1 in credit firepower added the equivalent of 17 cents in GDP, down from 29 cents last year and 83 cents in 2007... Without a refocus away from state-approved projects, Li and President Xi Jinping risk overseeing both a further slowdown in growth and an increase in non-performing loans. 'Less efficient and more highly leveraged borrowers have been kept afloat, tying up credit that could be used to generate more growth,' said David Loevinger, former senior coordinator for China affairs at the U.S. Treasury Department. 'To boost growth, China needs to channel more financing to its private enterprises, which are both more profitable and less leveraged than their state-owned counterparts.' State enterprises have seen their return on equity fall to 5.9% last year from 10.2% in 2010..."

May 27 - Bloomberg: "China's President Xi Jinping signaled a tolerance for slower expansion to avoid environmental degradation as policy makers outlined plans for the private sector to take a bigger role in boosting growth. The country won't sacrifice the environment to ensure short-term growth, Xi said during a study session of the Communist Party's top leadership... Xi and Li, who took over respectively as president and premier in March, are laying the groundwork to cut the government's role in the economy, open state-dominated industries to private investment and revamp the household registration system that's hampering urbanization... 'Reforms are more pressing now -- growth is running out of space, there's more pressure on the labor markets and local governments have too much debt,' said Jean-Pierre Cabestan, head of the department of government and international studies at Hong Kong Baptist University who has studied Chinese politics for three decades. 'They need to boost the economy but they can't do it with another stimulus or some form of quantitative easing.'"

May 29 - Bloomberg: "Chinese banks are adding assets at the rate of an entire U.S. banking system in five years. To Charlene Chu of Fitch Ratings, that signals a crisis is brewing. Total lending from banks and other financial institutions in China was 198% of gross domestic product last year, compared with 125% four years earlier, according to calculations by Chu... 'There is just no way to grow out of a debt problem when credit is already twice as large as GDP and growing nearly twice as fast,' Chu, 41, said... Chu's view puts her in a minority among those charting the future of the world's biggest nation. She questions how long China can maintain the model of growth driven by bank lending that has allowed its economy to sidestep the global financial crisis... Her views have struck a nerve. 'Everyone is talking about credit -- about the credit cycle, leverage and credit-quality problems,' said Stephen Green, head of Greater China research at Standard Chartered Plc in Hong Kong, adding that there's not enough good data available. 'It's a big black box, and it's quite scary.'"

May 29 (South China Morning Post): "On Monday the Hong Kong government's Census and Statistics Department published trade numbers showing that in April the city imported HK$160 billion worth of stuff from the mainland... A couple of weeks earlier China's General Administration of Customs released its own data, showing that the mainland's exports to Hong Kong in the same month were worth HK$306 billion - almost twice as much. So according to official figures, goods worth HK$306 billion left Shenzhen on their way to Hong Kong, but only HK$160 billion worth of stuff actually arrived here... Altogether over the last six months, the mainland exported HK$726 billion more stuff to Hong Kong than Hong Kong imported from the mainland. What's happening is that mainland companies are massively overstating the value of their export shipments to take advantage of a profitable interest-rate carry trade. With US dollar interest rates just a whisker above zero, and benchmark Chinese rates at a little over 3%, the differential is big enough to generate an attractive arbitrage opportunity."

May 30 - Bloomberg: "Corporate bond sales overseen by China's top planning body slumped to a 20-month low in May as policy makers clamped down on issuance by entities that may struggle to meet debt payments. Offerings approved by the National Development and Reform Commission fell to 15.7 billion yuan ($2.6bn) as of May 28, less than a third of April's 49.1 billion yuan... So-called enterprise bonds, which accounted for 18% of all debt sold by companies in China in the first four months of 2013, are dominated by local-government financing vehicles..."

May 31 - Bloomberg: "China's old people are plagued by depression, illness and poverty, a survey showed, illustrating the challenge the country faces as its restrictive family- planning policy results in a surge in the elderly population. Among people 60 years old and over, 22.9%, or 42.4 million, live on annual income of less than 3,200 yuan ($520), compared to 15.1% of people age 45 to 59, according to the survey, conducted in 2011-2012... The proportion of China's more than 1.3 billion people over age 60 is set to rise to 34% in 2050 from 12% in 2010... 'China confronts rapid population aging at a relatively early stage of her economic development, which limits the amount of financial resources available for supporting the elderly,' the survey's authors... wrote."

Japan Bubble Watch:

May 29 - Bloomberg (Andy Sharp): "Koichi Hamada, an economic adviser to Japanese Prime Minister Shinzo Abe, told South Korea to adjust its own monetary policies if officials are concerned at the effects of a yen weakened by unprecedented easing. 'Each country can take care of itself through its own monetary policy,' Hamada, 77, said... South Korean officials 'shouldn't blame the Japanese central bank, they should demand the Korean central bank have a proper monetary policy,' he said. South Korean exporters... stand to lose ground to Japanese rivals because of the yen's 20% slide against the dollar in the past six months. The currency's decline is adding to the risk of deteriorating relations between the nations, after South Korean Finance Minister Hyun Oh Seok said... that the weak yen is a bigger economic risk than North Korean threats...'The Korean central bank can undo some of the negative effects from Japan's monetary expansion,' Hamada said... Governor Haruhiko Kuroda 'should continue to trust in his judgment and ease further' if needed, said Hamada, who was tapped by Abe last year to advise on monetary policy."

May 27 - Bloomberg (Toru Fujioka): "Bank of Japan minutes show the concern of 'a few' board members that inflation expectations may fail to flow through to actual price increases, leaving the BOJ short of its 2% goal through March 2016. Those policy makers say it's 'highly uncertain whether changes in inflation expectations would lead to a rise in the actual rate of inflation,' according to the record of an April 26 meeting..."

May 31 - Bloomberg (Monami Yui and Shingo Kawamoto): "Japan's government bond yields have climbed to levels near lending rates, reducing the incentive for banks to make loans and undermining the effects of the nation's unprecedented monetary stimulus. The average rate on new long-term loans was 0.9% in April..., bringing the gap with yields on benchmark 10-year sovereign notes to 9 1/2 basis points."

May 30 - Bloomberg (Kristine Aquino): "Reserve Bank of Australia Governor Glenn Stevens has gone an interest-rate cut too far for Mrs. Watanabe, as Japan's households look closer to home for returns. Aussie uridashi sales slumped 71% to A$1.8 billion ($1.7bn) this year, even as A$9.4 billion in such debt matures in 2013... Japanese investors cut Aussie debt holdings by a record 1.7 trillion yen ($17bn) in the five months through March... Japanese individual investors, a group often nicknamed Mrs. Watanabe because many are housewives, are piling into local assets as unprecedented Bank of Japan monetary easing drives the best equities gains in the developed world."

May 28 - Bloomberg (Andy Sharp): "Koichi Hamada, the retired Yale University professor advising Prime Minister Shinzo Abe, says the Bank of Japan can add to already unprecedented stimulus if necessary to drive an economic revival. Governor Haruhiko Kuroda 'should continue to trust in his judgment and ease further' if needed, said Hamada, 77, who was tapped by Abe last year to advise on monetary policy... Abe's challenge now is to implement structural reforms to maintain a recovery threatened by volatile bond yields and a stock market that last week plunged the most in two years."

India Watch:

May 31 - Associated Press (Nirmala George): "India's economy expanded at its slowest pace in a decade last fiscal year, adding to pressure on the government to speed up economic reforms. Government figures released Friday showed that growth for the 12 months ended March 31 slowed to 5%, far below the 8% rate the country has averaged in the past 10 years... The latest figures confirm the fears of analysts that high inflation, weak consumer spending, and delays in economic reforms have dampened investment in the Indian economy."

Asia Bubble Watch:

May 30 - Bloomberg (Kristine Aquino): "Asia outside of Japan is poised for its first week in eight without any corporate bond sales denominated in U.S. dollars as regional bond risk and Treasury yields jumped... The drought this week comes after companies raised a record $81.4 billion since the start of 2013, the most for any first five months of the year in Bloomberg-compiled figures going back to 1999."

Latin America Watch:

May 31 - Bloomberg (Raymond Colitt): "Brazil's President Dilma Rousseff fully backs the central bank's monetary policy and will ensure its autonomy to do what is needed to tame inflation, a government official knowledgeable of economic policy said. Rousseff had agreed with the need for the central bank, which accelerated the pace of interest rate increases this week, to adopt a more aggressive tone against inflation... The bank's board on May 29 raised its benchmark Selic rate by 50 bps to 8% in a bid to tame inflation that has been forestalling an economic recovery."

May 29 - Bloomberg (David Biller): "Brazil's economy grew less than expected for the fifth straight quarter as faster inflation erodes purchasing power. Swap rates fell. Gross domestic product increased 0.6% in the three months through March from the fourth quarter... Risks are mounting that growth will remain sluggish now that the central bank board has started raising borrowing costs to prevent price increases from further hurting consumers... 'Nothing in Brazil is at crisis levels, but it's all going in the wrong direction,' Tony Volpon, the head of emerging- market research in the Americas at Nomura Holdings Inc., said... 'There's a perception of just steady deterioration.'"

May 28 - Bloomberg (David Biller and Juan Pablo Spinetto): "The second-biggest depreciation among major currencies has failed to stop the deterioration of Brazil's current account, signaling the real may need to weaken further to restore competitiveness. ...Brazil's current account gap surpassed 3% of gross domestic product in April, the widest in almost 11 years. The Brazilian currency lost 25% since reaching a 12-year high on July 26, 2011, the worst performance among major currencies after the South African rand... In the medium-term 'the currency would have to weaken to equilibrate somehow this current account balance,' Paulo Vieira da Cunha, a former Brazil central bank director, said... 'If you're running into these very large current account deficits, there's something the matter.'"

May 29 - Bloomberg (Raymond Colitt and Nacha Cattan): "Latin America is disappointing investors, economists and businesses with slower-than-forecast growth as waning commodity prices and strong currencies hit nations that failed to diversify and become more competitive. The five biggest investment-grade markets in the region -- magnets for foreign capital as rich countries stalled -- expanded below projections or show signs of weakness... While cruising at twice the speed of the 1980s for the past decade, the region has reduced poverty and debt. Still, it has done too little to invest windfall revenue in roads, technology and education, and to promote businesses outside of mining and agriculture. Instead of reducing vulnerabilities to commodity boom-and-bust cycles, Brazil, Mexico, Colombia, Chile and Peru increased primary exports to an average 71.3% of foreign sales from 58.3% in the decade through 2011. 'The easy growth has been collected; now comes the difficult part,' Alberto Ramos, a senior economist at Goldman Sachs... said... 'They need to find domestic sources of growth, rather than relying on abundant external liquidity and high commodity prices.'"

Europe Watch:

May 29 - New York Times (Jack Ewing): "The European Central Bank warned on Wednesday that the euro zone's slumping economy and a surge in problem loans were raising the risk of a renewed banking crisis, even as overall stress in the region's financial markets had receded. In a sober assessment of the state of the zone's financial system, the E.C.B. said that a prolonged recession had made it harder for many borrowers to repay their loans, burdening banks that had still not finished repairing the damage caused by the 2008 financial crisis. Last year 'was not a good year for banks at all,' Vítor Constâncio, the vice president of the E.C.B., said... A similar snapshot of the state of the euro zone economy was issued... by the Organization for Economic Cooperation and Development in Paris. It warned of the dangers posed by weakly capitalized banks, a problem it said underlined the need for European Union leaders to push through with a so-called banking union that would include centralized supervision of lenders. The limited ability of European banks to absorb losses and the lack of a full banking union are potential threats to achieving a lasting stability... Reduced tensions on financial markets seem to have dampened the desire to push for progress in creating joint banking mechanisms, it added."

May 29 - Bloomberg (Jeff Black): "Lending to companies and households in the euro area contracted for a 12th straight month in April as the currency region struggles to leave its longest-ever recession behind. Loans to the private sector fell 0.9% from a year earlier after dropping an annual 0.7% in March... Lending declined 0.3% from March."

May 31 - Bloomberg (Angeline Benoit): "The euro-area jobless rate rose to a record in April after the currency bloc's recession deepened in the first quarter... The euro-area unemployment rate rose to 12.2% from 12.1% in March..."

May 27 - Bloomberg (Niklas Magnusson and Johan Carlstrom): "A week of riots in Stockholm has torn a hole in Sweden's image as a beacon of social harmony. In Husby, a suburb north of the capital where 60% of residents were born outside Sweden and unemployment is twice the national average, youths torched cars, schools and other buildings in a show of anger that has unsettled one of Europe's richest nations. The riots spread to more than 10 other suburbs in Stockholm. 'Exclusion, poverty and unemployment' are the main causes of the riots, Yves Zenou, a professor at Stockholm University..."

May 28 - Wall Street Journal (Gustav Sandstrom): "Denmark cut its growth forecast for 2013 by more than half, the latest evidence that malaise in the wider European economy is crimping the immediate outlook for the export-oriented Nordic states. The Danish Finance Ministry said it now expects gross domestic product to grow at a modest clip of 0.5%; six months ago it forecast a rate of 1.2%. 'Conditions abroad put limits to how fast growth can return' for Denmark, said Economic Minister Margrethe Vestager. 'We are for better or worse connected to those we trade with.' About 35% of Denmark's exports go to the euro zone and 60% to the wider European Union..."

May 29 - Bloomberg (Jana Randow): "ECB Executive Board members Joerg Asmussen and Yves Mersch oppose ABS purchases, German newspaper Die Welt reported... Bundesbank President Jens Weidmann also against ABS-purchase program... Asmussen voted against May rate cut... Mersch is against any further use of non-standard measures... Noyer Says He's Not Convinced About Merit of negative rate."

Germany Watch:

May 28 - Bloomberg (Stefan Riecher): "German unemployment rose more than four times as much as economists estimated in May as the euro area's sovereign debt crisis and a long winter took their toll on Europe's largest economy. The number of people out of work climbed a seasonally adjusted 21,000 to 2.96 million... That's the fourth straight monthly gain... 'This is a clear warning that the debt crisis is finally taking its toll on the German labor market,' said Carsten Brzeski, senior economist at ING Groep... However, weak data 'can also be explained by the relatively high number of public holidays in May and the still cold weather. Therefore, it is far too premature to start singing Swan Songs on the labor market.'"

May 31 - Bloomberg (Jeff Black): "German retail sales unexpectedly fell for a third month in April as unemployment rose, suggesting the recovery in Europe's largest economy is struggling to take hold. Sales... dropped 0.4% from March, when they fell a revised 0.1..."

May 28 - Bloomberg (Dalia Fahmy): "Taxi driver Michael Ruedor lived for 20 years in a downtown Berlin apartment close to Checkpoint Charlie before rising rents forced him out. 'Only millionaires are in my building now,' Ruedor, 56, said... The native Berliner moved two years ago to the suburb of Britz, about 8 kilometers (5 miles) south of the central Mitte district that he used to call home. Housing costs in Germany's largest cities are rising at the fastest pace since reunification in 1990 as investors seeking to capitalize on growth in Europe's biggest economy turn to real estate... In a country where the ratio of renters to owners is among the highest in Europe, Germany's housing boom is an unwelcome shock for many voters that threatens to turn into a liability for Chancellor Angela Merkel in federal elections on Sept. 22."

France Watch:

May 31 - Bloomberg (Gregory Viscusi and Tony Czuczka): "German Chancellor Angela Merkel pressed France to pursue an economic overhaul in return for getting more time to cut its budget deficit, a task French President Francois Hollande said nobody will dictate to him. The leaders of Europe's two biggest economies... said they agreed that France has to make further efforts to match Germany's higher competitiveness. They differed on how much leeway France had to go about it. One day after the European Commission gave France two extra years to bring its budget below the ceiling at the same time as recommending an economic revamp, Merkel said fiscal leeway must be accompanied by reform. Hollande said that while the commission was 'doing its job' in making recommendations, 'the measures we take, the modalities of how we do it, are the responsibility of the French government.'"

May 28 - Bloomberg (Mark Deen): "French consumer confidence unexpectedly dropped, matching the record low it set in 2008, as President Francois Hollande's tax increases hurt purchasing power and the economy returned to recession. Household sentiment fell to 79 in May from a revised 83 in April... Economists expected a reading of 85..."

Italy Watch:

May 27 - Bloomberg (Lorenzo Totaro and Flavia Rotondi): "Comedian-turned politician Beppe Grillo said he expects his Five Star Movement to face former premier Silvio Berlusconi this year in an electoral showdown reminiscent of the final battle of 'Highlander,' a film about an immortal Scottish warrior. Voters 'will have to choose between us or Berlusconi and, as in Highlander, there can be only one survivor; I hope it won't be Berlusconi,' Grillo said... After winning a quarter of the votes in February elections, Grillo's Five Star Movement refused to strike a deal with the Democratic Party, which won the ballot while falling short of a majority in the Senate. Eventually the PD opted to form a coalition government with Berlusconi's party, keeping Grillo's forces from gaining power despite their showing. Grillo expects that Prime Minister Enrico Letta's coalition of rivals won't last much beyond September with new elections possible before year end."

May 31 - Bloomberg (Lorenzo Totaro): "Italy's jobless rate reached a 36-year high in April as companies didn't hire staff amid pessimism about the outlook of an economy that's probably in its eighth quarter of recession. Joblessness rose to 12% after the March reading was revised up to 11.9% from an initial 11.5%... The April rate was higher than the 11.6% median of seven estimates... Europe's fourth-biggest economy will contract 1.8% in 2013 as weak household demand extends the longest recession in over two decades, the Organization for Economic Cooperation and Development said this week."

May 31 - Bloomberg (Sonia Sirletti and Flavia Rotondi): "Bad loans at Italian banks may keep rising for the next year as the nation's economy sputters, the director general of Italy's banking association said... Italian companies and households are struggling to repay debts, forcing banks to set aside more money for soured loans. Corporate and household bad loans rose to a record 131 billion euros ($171bn) in March... Gross non- performing loans as a proportion of total lending increased to 6.6% from 5.4% a year earlier."