“The difference between perception and reality is where our opportunities lie.” — unknown

1. Bond Fund Outflows Hit Record Level on the Fed Tapering Fears — CNBC, “Mutual and exchange-traded funds are unloading bonds at a record pace. The combined outflow of $47.2 billion in Junes is the highest in any month on record, handily eclipsing the previous record of $41.8 billion in October 2008,” reported by TrimTabs Investment Research.

2. EU Finance Mininsters agree on rules for bank rescues — EU Finance Ministers have agreed on measures to deal with failing banks. The proposals include imposing losses of up to 8% of a bank’s total liabilities on shareholders, creditors and then deposits of over €100,000, after which governments will be able to supply funds of up to 5% of liabilities.
3. New Rules Expected for Insurance Accounting May Lead to Erratic Earnings — NYTimes, The Financial Accounting Standards Board (FASB) stated that it will propose new rules for insurance accounting that seem likely to increase volatility in reported profits for many insurers and lower reported revenue for rapidly growing companies. Under the new rule, Insurers would have to recognize premium revenue over time, when insurance is being provided, rather than when it is received, while the reporting of costs might be delayed as well.
4. China Credit crunch spreads to China’s “Main Street.” — WSJ reported businesses turn to alternatives such as bankers’ acceptances to pay their bills instead of cash despite efforts by the People’s Bank of China to ease the credit crunch in the country’s financial markets.
5. Rising bond yields hurt bank balance sheets — falling bond prices and rising yields are threatening the recovery in the balance sheets of global banks, which have built up huge portfolios of liquid securities. i.e. Bank of America’s (BAC) $315B portfolio comprises of 90% in mortgage bonds and Treasurys. However some analysts believe that QE tapering should lead to an increase in interest margins and offset the one-time hit to book values because of rising bond yields.
6. EU agrees to the first budget cut in its history — The EU has agreed a seven-year €960B budget that represents the first spending cut in its history. The bloc also approved plans to invest €6B on tackling youth unemployment and for the European Investment Bank to lend hundreds of billions of euros to small and medium-sized businesses.

The week ahead — Economic data from Econoday.com: