Friday Watch

Late-Night Headlines
Bloomberg:
- Lehman Brother(LEH) and UBS AG(UBS) sold $1 billion in debt backed by commercial mortgages, receiving enough demand to lower the interest rate. “We haven’t seen this kind of demand all year,” said Kent Born, a senior managing director of the commercial mortgage lending group at PPM America. PPM has more than $72 billion in assets under management in the US. “I see this pricing as a very strong indicator for the market.”
- Sugar mills in Brazil’s major producing region will turn a record 58% of this year’s cane crop into ethanol as surging oil prices boost demand for alternative fuels.
- The cost of protecting Japanese and Australian corporate bonds from default declined, according to traders of credit-default swaps. The Markit iTraxx Japan index fell 6 basis points to 98 basis points. The Australia index declined 15 basis points to 103 basis points.
- China’s stocks fell, with the benchmark set for the biggest weekly decline on record amid concern government measures to stem inflation will dent economic growth and corporate profits.
- Google Inc.(GOOG), owner of the most popular search engine, reported a 30% increase in first-quarter profit after international expansion countered a slowdown in US advertising spending. The shares soared 18% in after-hours trading.
- FBI Director Robert Mueller said the agency’s investigation into the subprime loan meltdown may uncover financial crimes committed by hedge funds and private equity firms.
- Yuan gains will slow as China shifts policy late this year to support exporters’ earnings, say Deutsche Bank AG and Citigroup, two of the world’s three biggest currency traders. “We are now looking at a greater risk of an economic slowdown in China and therefore a modest slowdown in the pace of yuan appreciation,” said Mirza Baig, a Singapore-based economist at Deutsche Bank, who forecasts the policy shift in the third quarter. “Export profits may collapse and export jobs may fall,” wrote Huang Yiping, chief Asia economist of Citigroup in Hong Kong.
- India’s central bank ordered banks to set aside more money to cool lending, adding to government efforts to rein in inflation running near a three-year high.
- Democratic presidential candidate Barack Obama hinted today that he may be finished debating rival Hillary Clinton, dismissing the forums as little more than a chance for her to “twist the knife.”
- SanDisk Corp.(SNDK), the biggest maker of digital-camera memory cards, reported revenue that topped analysts’ estimates after selling more storage for MP3 players and mobile phones. The stock rose 4.4% in extended trading.
- Intuitive Surgical Inc.(ISRG) the maker of a machine for robot-assisted surgery, said first-quarter profit jumped 88% on higher sales. The company fell 8.6% in late trading after saying stock compensation costs would double.

MarketWatch.com:
- A benchmark measure of corporate-credit risk has fallen sharply since mid-March, as lenders and investors have looked past massive debt write-downs expected at the likes of Citigroup Inc.(C) and Merrill Lynch(MER) to signs that the financial system is on firmer ground. An index tracking spreads on credit-default swaps, a type of tradable insurance against the possibility a company will renege on its debt, has tumbled 40% since mid-March.

CNBC.com:
- Merrill’s(MER) Stock Surges Amid Hope Worst May Be Over.
- Google(GOOG) Profit Jumps 30%, Blows Past Expectations.

c/net:
- Tests show BMW’s hydrogen car cleans the air.

CNNMoney.com:
- The best place to buy a home these days. The 6 cities where home prices are likely to rise the most – or fall the least – in the next 12 months.

SmartMoney:
- Advisors are moving out of international stock funds and back into US stock funds.

Portfolio.com:
- Things have officially gone from bad to worse at the NY Times Co.(NYT).

Reuters:
- Speaking to a group of nearly 2,000 Microsoft(MSFT) enthusiasts at a technology conference in Seattle, Ballmer asked how many people use Yahoo as their primary Web search engine. Only a handful of arms went up – fewer than for Microsoft’s Windows Live search. The overwhelming majority raised their hands for Google Inc.(GOOG). After the tepid response for Yahoo’s search, Ballmer said jokingly: “Wow! We offered 31 bucks a share.”
- Legendary Texas oil man T. Boone Pickens has gone green with a plan to spend $10 billion to build the world’s biggest wind farm. But he’s not doing it out of generosity – he expects to turn a buck.
- US video game sales rise 57% in May.

Financial Times:
- Global rice prices have overshot their true value based on supply and demand fundamentals and could fall by 40% to around $500 a ton once current seasonal demand has been met, Mari Pangestu, Indonesia’s trade minister, predicted.
- Deutsche Bank(DB) and other investment banks are working on plans to develop a clearing house for the credit derivatives markets in an effort to allay growing regulatory and investor fears about “counterparty risk.”

International Herald Tribune:
- US dollar steadies as worries about subprime crisis ease.

Sydney Morning Herald:
- Cancer researchers are hailing an Australian medical breakthrough that slows the growth of turmors.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (GOOG), target $600. Broad revenue upside. Google’s own Website revenue came in at $3.26B - $121MM or 4% higher than our estimate. Google’s Network revenue came in at $343MM - $19MM or 6% higher than our estimate. TAC was right-in line with our expectations. Adjusting for $202MM FX(in-line with our estimate), we calculate that Y/Y organic net revenue growth was 40%. First pass? We are more positive – Google’s underlying fundamentals appear to remain intrinsically strong and the company continues to have significant option value – display, mobile, etc… There is some deceleration, but it appears to be much more large numbers law trendline than feared, creating a very attractive buying opportunity.
- Reiterated Buy on (APH), raised target to $53.50.
- Reiterated Buy on (CELG), target $79.
- Reiterated Buy on (MAR), target $48.
- Reiterated Buy on (IGT), lowered target to $48.
- Reiterated Buy on (UTX), raised estimates, target $86.

Piper Jaffray:
- Reiterated Overweight on (ITW), lowered target to $63.

Night Trading
Asian Indices are -1.0% to unch. on average.
S&P 500 futures unch.
NASDAQ 100 futures +.33%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Upgrades/Downgrades
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (CAT)/1.33
- (C)/-.95
- (HON)/.82
- (MAN)/.82
- (SLB)/1.11
- (XRX)/.27
- (CAO)/-.18

Upcoming Splits
- None of note

Economic Releases
- None of note

Other Potential Market Movers
- The Fed’s Lacker speaking, Fed’s Rosengren speaking and Morgan Stanley Commodities & Shipping Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by mining and pharmaceutical stocks in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.