Egypt Turmoil Grows — Just A Few Hours Left Before Army's Deadline To Morsi Expires

REUTERS/Mohamed Abd El Ghany

CAIRO (AP) — With a military deadline for a resolution to Egypt's political crisis looming, the country braced for a showdown Wednesday after embattled President Mohammed Morsi insisted he will not step down in the face of demands by millions of protesters, vowing to protect his "constitutional legitimacy" with his life.

On the streets, the sense that both sides are ready to fight to the end sharpened, with overnight clashes between supporters of the Islamist president and opponents that left at least 23 dead, most of them in a single incident of fighting outside Cairo University.

The violence came just hours before a deadline set by the military was to expire Wednesday for Morsi to find a solution with the opposition or the army would impose its own political plan. The draft would see the military suspend the constitution, disband parliament and install a new leadership.

With his political fate hanging in the balance, Morsi demanded in a speech late Tuesday that the powerful armed forces withdraw their ultimatum, saying he rejected all "dictates" — from home or abroad.

In an emotional address aired live to the nation, the Islamist leader who a year ago was inaugurated as Egypt's first freely elected president accused loyalists of his ousted autocratic predecessor Hosni Mubarak of exploiting the wave of protests to topple his regime and thwart democracy.

"There is no substitute for legitimacy," said Morsi, at times angrily raising his voice, thrusting his fist in the air and pounding the podium. He warned that electoral and constitutional legitimacy "is the only guarantee against violence."

The statement showed that Morsi and his Muslim Brotherhood are prepared to run the risk of challenging the army. It also entrenches the lines of confrontation between his Islamist supporters and Egyptians angry over what they see as his efforts to impose control through the Brotherhood and his failures to deal with the country's multiple problems.

As anti- and pro-Morsi supporters geared up for the fourth consecutive day of mass rallies Wednesday, it was clear that Egypt's crisis has become a struggle over whether a popular uprising can overturn the verdict of the ballot box.

Morsi's opponents say he has lost his legitimacy through mistakes and power grabs and that their turnout on the streets over the past three days shows the nation has turned against him.

On Tuesday, millions of jubilant, chanting Morsi opponents again filled Cairo's historic Tahrir Square, as well as avenues adjacent to two presidential palaces in the capital, and main squares in cities nationwide. After Morsi's speech, they erupted in indignation, banging metal fences to raise a din, some raising their shoes in the air in a show of contempt. "Leave, leave," they chanted.

The president's supporters also moved out in increased marches in Cairo and other cities, and stepped up warnings that it will take bloodshed to dislodge him. While Morsi has stuck to a stance that he is defending democracy in Egypt, many of his Islamist backers have presented the fight as one to protect Islam.

Political violence was more widespread on Tuesday, with multiple clashes between the two camps in Cairo as well as in the Mediterranean city of Alexandria and other cities. A march by Morsi supporters outside Cairo University came under fire from gunmen on nearby rooftops.

At least 23 people were killed in Cairo and more than 200 injured, according to hospital and security officials who spoke on condition of anonymity because they were not authorized to talk to the media. Most of the killings took place outside Cairo University in Cairo's twin city of Giza.

The latest deaths take to at least 39 the people who have died since the first day of protests, Sunday.

On Monday, the military gave Morsi an ultimatum to meet the protesters' demands within 48 hours. If not, the generals' plan would suspend the Islamist-backed constitution, dissolve the Islamist-dominated legislature and set up an interim administration headed by the country's chief justice, the state news agency reported.

The leaking of the military's so-called political "road map" appeared aimed at adding pressure on Morsi by showing the public and the international community that the military has a plan that does not involve a coup.

On his official Twitter account, Morsi urged the armed forces "to withdraw their ultimatum" and said he rejects any domestic or foreign dictates."

In the 46-minute speech Tuesday, he implicitly warned the military against removing him, saying such action will "backfire on its perpetrators."

Fearing that Washington's most important Arab ally would descend into chaos, U.S. officials said they are urging Morsi to take immediate steps to address opposition grievances, telling the protesters to remain peaceful and reminding the army that a coup could have consequences for the massive American military aid package it receives. The officials spoke on condition of anonymity because they were not authorized to speak publicly.

Morsi's adviser Ayman Ali denied that the U.S. asked Egypt to call early presidential elections and said consultations were continuing to reach national conciliation and resolve the crisis. He did not elaborate.

The army has insisted it has no intention to take power. But the reported road map showed it was ready to replace Morsi and make a sweeping change in the ramshackle political structure that has evolved since Mubarak's fall in February 2011.

The constitution and domination of the legislature after elections held in late 2011-early 2012 are two of the Islamists' and Brotherhood's most valued victories — along with Morsi's election last year.

At least one anti-Morsi TV station put up a clock counting down to the end of the military's ultimatum, putting it at 4 p.m. Wednesday (1400 GMT, 10 a.m. EDT), though a countdown clock posted online by Morsi opponents put the deadline at 5 p.m. (1500 GMT, 11 a.m. EDT). The military did not give a precise hour.

Morsi also faced new fissures within his leadership.

Three government spokesmen — two for Morsi and one for the prime minister — quit on Tuesday as part of high-level defections that underscored Morsi's increasing isolation and fallout from the military's ultimatum. Five Cabinet ministers, including the foreign minister, resigned Monday, and a sixth, Sports Minister El-Amry Farouq, also quit Tuesday.

One ultraconservative Salafi party, al-Nour, also announced its backing for early elections. The party was once an ally of Morsi but in recent months has broken with him.

In a significant move, opposition parties and the youth movement behind the demonstrations agreed that reform leader and Nobel Peace laureate Mohamed ElBaradei would represent them in any negotiations on the country's political future. The move appeared aimed at presenting a unified voice in a post-Morsi system, given the widespread criticism that the opposition has been too fragmented to present an alternative to the Islamists.

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Markets Are Making A Comeback After Two Good Reports

U.S. futures are rebounding in the wake of two good jobs reports.

At 8:15, ADP told us the private U.S. companies added 188,000 payrolls in June.  This was better than the 160,000 expected.

At 8:30, we learned that initial weekly jobless claims fell to 343,000 from 348,000 a week ago. Economists were looking for a reading of 345,000.

Dow futures are down 37 points and S&P futures are down 4.5 points.

Before the reports, Dow futures were down 72 points and S&P futures were down 8.5 points.

Treasuries are selling off.

Here's a look an overnight look at Dow futures via FinViz:

FinViz

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The UK Just Turned In An Amazing Number For Its Services Sector

There are increasing signs that the UK is coming back.

The latest: A very strong reading on the services PMI front.

For June the index shot to a 27-month high, hitting 56.9 from 54.7 last month.

This chart shows the nice spike.

The timing of the rebound is perfect for Mark Carney, the new Bank of England governor, who has his first policy meeting tomorrow.

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EURO CRISIS ON: Portugal Crashes After Finance Minister Resigns

AP

And it's like the good old days in Europe today.

The Portuguese stock markets is crashing over 6%.

Interest rates on Portuguese bonds are spiking.

The cause? The Finance Minister has resigned in a dispute over austerity.

From WSJ:

Mr. Gaspar said in his resignation letter that he had first offered to step down last October amid evidence that public and political support for the country's austerity program was fading. Protests and strikes have become more common since then, and some lawmakers from the governing coalition have joined its critics in saying austerity is doing the country more harm than good.

"It is my conviction that my exit will contribute to reinforce your leadership and cohesion within the government," Mr. Gaspar wrote to Prime Minister Pedro Passos Coelho in the letter.

Europe is red across the board.

Germany is down 1.5%. Italy is off 1.8%. Spain is down 2.6%.

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VANGUARD: Here Are 3 Reasons Why You Should Still Own Bonds

Amid concerns of a Fed taper, investors pulled a record $23.3 billion from bond funds in the week ending June 26.

Bank of America's Michael Hartnett dubbed it a 'bond market liquidation' in a note to clients.

But Joe Davis, chief economist at Vanguard, still owns Treasuries.

Back in March 2012, when investors were reallocating their bond portfolios, Davis wrote that he was sticking to his overall bond allocation, including Treasury bonds.

In a new webcast, Davis reiterates the arguments made in that piece. He says there are three key reasons to hold on to Treasuries:

"...It was, one was just because interest rates are low does not mean that they have to rise tomorrow and, again, that was more than two years ago and so it’s taken some time for rates to rise, and who’s to say if they’re going to rise immediately the next two days, either? 

"Secondly is that with low interest rates, that did imply muted return for bond portfolios over the next several years, and that there was more risk of a one-year or one-month loss going forward than there had been over the past 30 or 40 years just because the low-income cushions in those portfolios, and that has played out at least in the past day or two, and then, finally, most importantly, and why I still own U.S. Treasury bonds as part of a broadly diversified portfolio, is that bonds are just inherently, as a broad asset class, less volatile than equities, and that played out yesterday. Equities were down more than fixed income even though rising rates was the source of the concern, and so that’s just the broad tenet.

"I think for all of us, we just have to know and realize why we own fixed income securities in a portfolio, and the one thing that I would say that would be different is that rates today are slightly higher than they were at that post. And so, if anything, that would imply a slightly higher expected return going forward for bonds than at the time we did that."

Davis believes that investors need to have "explicit Treasury exposure" to have a balanced portfolio. 

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