Tuesday Watch

Late-Night Headlines
Bloomberg:
- A strengthening US dollar should push investors away from energy and materials stocks and may make emerging markets “vulnerable,” Bear Stearns(BSC) said. Better-than-expected economic data and forecasts that the Fed has finished cutting interest rates should boost the US currency, Bear Stearns Chief Investment Strategist Jonathan Golub said. “We believe that the significant outperformance of emerging markets over the past several years can largely be explained by a weakened dollar and skyrocketing commodity prices,” Golub said. “These markets should be increasingly vulnerable in a strengthening dollar environment.”
- Some investment-grade bonds backed by auto loans are showing better returns than equity investments in financial companies, according to analysts at Wachovia Corp. Spreads on top-rated auto asset-backed securities have narrowed in recent weeks. The yield on AAA auto loan debt fell to 90 basis points over benchmark rates as of May 9, compared with a high of 150 basis points more than the benchmark on April 25, according to data from Deutsche Bank AG.
- Treasuries were little changed as investor demand for higher-yielding assets pushed Asian stocks higher and sent measures of corporate credit risk down.
- Yen May Extend Declines on Bets Worst of Financial Crisis Over.
- Corn and soybeans fell on speculation that drier weather forecast for the next 10 days will accelerate US planting, after delays from wet, cold conditions in the past month.
- Finmeccanica Agrees to Buy DRS Technologies for $4 Billion.
- London’s property market had the most widespread price declines in at least 14 years last month as the slump in financial services deepened and banks curbed lending, the Royal Institution of Chartered Surveyors said.
- China’s strongest earthquake in 58 years may reduce the nation’s energy demand as damaged power plants and transmission lines force companies to idle some generators. “Demand for oil was already down in April,” said Phil Flynn, a senior trader at Alaron Trading Corp.
- Flour Corp.(FLR) earnings jumped 63% on 32% revenue growth during the first quarter. The shares surged 7.6% in after-hours trading.

Wall Street Journal:
- CIT Group(CIT) Receives Buyer Interest for Lending Subsidiaries.

MarketWatch.com:
- Hewlett-Packard(HPQ) and Electronic Data Systems(EDS) confirmed Monday that they are in “advanced discussions” that could result in H-P acquiring the technology services giant and creating a more-formidable competitor to IBM Corp.(IBM).
- While the threat posed by Microsoft’s(MSFT) takeover bid appears to be receding, Yahoo Inc.(YHOO) may now be confronted by opportunistic investment funds seeking to cash in by pushing the company back toward a deal.

CNBC.com:
- Barton Biggs of hedge fund Traxis Partners says “we’ve seen the worst” and he is “feeling pretty bullish.” (video)
- JPMorgan(JPM) Makes Offers to 6,000 Bear Stearns(BSC) Staff.

USA Today.com:
- George Soros sees ‘reflexivity’ theory of economics as life’s work. Soros, now in his eighth decade and enjoying a personal fortune estimated at $9 billion, yearns to be seen as something other than a financial oracle or Democratic Party sugar daddy. Conservative websites routinely assail him as “anti-American.” The Hungarian émigré, who built a worldwide reputation by out-thinking markets, desperately wants to be acknowledged as a philosopher. His bid for such recognition – in a new book published last week – lies in a theory called “reflexivity,” which Soros argues should supplant conventional economic thought that’s based on coolly calculating rational actors. Soros makes no bones about his judgment that the current financial crisis is the “worst since the 1930s.” Despite Soros’ apocalyptic rhetoric, the Dow is hovering near 13,000 and unemployment is a relatively low 5%. Soros explains the disconnect with the tale of the man who falls off the Empire State building and thinks to himself halfway down: “So far, so good.” “That’s where we are right now,” Soros laughs. He says, when pressed, Americans ultimately won’t escape this episode without suffering a noticeable decline in their standard of living.

Reuters:
- The ability to pay interest on bank reserves would give the US Federal Reserve a powerful tool to tap if it wanted to take further steps to ease credit strains but was worried lower interest rates might spark inflation.

Financial Times:
- Parts of the largely unregulated $62,000bn credit derivatives market may have to be subject to the kind of tighter controls that at present govern the insurance industry, NY’s insurance regulator said on Monday.
- Google(GOOG) triumphant: Search wars look settled. The scale of Google’s victory over Microsoft in online advertising is hard to exaggerate. (very good article)
- Wages the least of Europe’s worries. The ECB should stop trying to put out the inflation fire and instead end the growth freeze by cutting interest rates.

TimesOnline:
- There is talk that the US dollar’s long decline might be over. George Soros said recently that he was ending his long bearish stance on the dollar and had gone neutral. The dollar is now absurdly undervalued. In purchasing power parity terms, the US consumer is at something like a 40% disadvantage to his and her counterparts in Europe. The US trade deficit is plummeting. The financial crisis is probably past the worst. US interest rates may not have touched bottom, but they are surely close. Meanwhile, doubts about eurozone growth are starting to proliferate.
- UK Government backs down on corporate tax. Several big multinational British companies had said that they were prepared to move their headquarters from the UK amid concerns that the Treasury was preparing to tax the profits they derived overseas.

Commercial Times:
- Taiwan’s automobile sales in the first 10 days of May plunged 42.5% from a year earlier on the incoming government’s plan to raise fuel prices, citing figures from the transportation ministry.

South China Morning Post:
- China’s plan to let investors engage in margin lending and short selling of equities may not be launched until the close of the Olympics Games.

Tuoi Tre:
- Vietnam’s rice prices fell by 400 to 500 dong per kilogram, to between 5,200 dong and 5,500 dong a kilogram as farmers started harvesting a new crop in some areas, citing Nguyen Hoang Chuong, a trader based in the country’s main rice-producing area.

Late Buy/Sell Recommendations
Morgan Stanley:
- Concern over a reversal of the current yuan-appreciating trend, in response to potential US dollar strength, is rising. At the market level, this would make the overall offshore China equities universe less attractive for US dollar investors, although the aggregate impact on earnings would likely be limited. The Morgan Stanley FX Strategy team has turned cautious on Asian currencies for the first time in close to two years.

Night Trading
Asian Indices are -.25% to +1.5% on average.
S&P 500 futures +.05%.
NASDAQ 100 futures +.09%.

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

Earnings of Note
Company/EPS Estimate
- (FOSL)/.39
- (CSIQ)/.25
- (WMT)/.75
- (LIZ)/.10
- (TJX)/.40
- (AMAT)/.22
- (WFMI)/.31
- (ERTS)/.00
- (MELI)/.10

Upcoming Splits
- (CLF) 2-for-1

Economic Releases
8:30 am EST
- The Import Price Index for April is estimated to rise 1.6% versus a 2.8% gain in March.
- Advance Retail Sales for April are estimated to fall .2% versus a .2% gain in March.
- Retail Sales Ex Autos for April are estimated to rise .2% versus a .1% gain in March.

10:00 am EST
- Business Inventories for March are estimated to rise .4% versus a .6% rise in February.

Other Potential Market Movers
- The Fed’s Evans speaking, Fed’s Fisher speaking, Fed’s Hoenig speaking, Fed’s Yellen speaking, Fed’s Plosser speaking, Fed’s Warsh speaking, Fed’s Bernanke speaking, Fed’s Pianalto speaking, IBD/TIPP Economic Optimism Index, (GM) conference, (OI) analyst meeting, (JKHY) analyst conference, Goldman Sachs Power/Utility Conference, UBS Global Financial Services Conference, Bank of America Health Care Conference, Robert W. Baird Growth Stock Conference, Merrill Global Metals/Mining/Steel Conference, Merriman Curhan Ford Clean Tech Conference, Morgan Stanley Communications Conference and CSFB Semi/Hardware Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and technology shares in the region. I expect US equities to open mixed and to strengthen into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.