Wednesday Watch

Late-Night Headlines
Bloomberg:
- Merrill Lynch(MER) said the subprime mortgage crisis may be close to the end of its cycle as it takes time for US interest rate cuts to add more liquidity into the financial system. “It’s the beginning of the end of the subprime crisis,” Merrill’s Vice Chairman William McDonough said at a Singapore conference. “We are beginning to have the situation where some mortgage-backed securities are being sold. We are beginning to have liquidity in the market,” he said.
- The risk of US companies defaulting on their debt fell as Federal Reserve Chairman Ben S. Bernanke said the central bank will increase auctions of cash to banks as needed. Contracts on the Markit CDX North America Investment Grade Index of 125 companies in the US and Canada declined 4.5 basis points to 98.5 basis points in NY as of 4:51 pm, according to CMA Datavision.
- Applied Materials(AMAT) said second-quarter profit dropped 26% after it filled fewer orders from computer-memory makers. The stock rose 44 cents to $20.30 in extended trading.
- Hillary Clinton won the West Virginia primary by a wide margin, television networks projected. Clinton sent out a text message to supporters saying the race was “far from over.”
- China’s industrial production expanded at a slower pace in April as export growth cooled. Output rose 15.7% from a year earlier versus estimates of a 17.5% gain and a 17.8% increase in March.
- Electronic Arts(ERTS) reported a wider fourth-quarter loss as the company spent more to develop new titles. Sales and profit excluding some costs beat analysts’ estimates. The stock rose 38 cents to $54.95 in extended trading.
- Australia’s Wheat Harvest May Rise ‘Significantly’.
- Euro’s 10-Year Anniversary Shows Half-Empty Glass.
- European finance ministers welcomed the euro’s decline from a record against the US dollar and France’s Christine Lagarde said it may be overvalued by as much as 20% versus the US currency.

Wall Street Journal:
- China Earthquake Exposes A Widening Wealth Gap.

MarketWatch.com:
- The editor of the average stock market timing newsletter has reacted to the last three week’s rally and decline by becoming significantly less optimistic. That, from a contrarian point of view, is a good sign.
- If the commodities-as-investments trend continues, the market disruptions will only worsen. Without regulatory intervention, we will do enormous damage to the U.S. commodity production and distribution chain. This, in turn, will impose inefficiencies and very real costs on the U.S. economy in a fragile period. While there are no easy solutions, the path to fixing this problem starts with recognizing the destructive role played by the volume of commodity participation by the investment community.

CNBC.com:
- Bain Capital LLC and Thomas H. Lee Partners LP will buy Clear Channel Communications(CCU) for $36 a share in a settlement with the six banks they had sued over financing and an earlier takeover agreement.

Reuters:
- If you’re still torn about whether or not stocks are a buy, market historian Jeremy Siegel says to measure them against other asset classes, particularly US Treasury securities. “No question, there should be a strong bias in favor of equities,” Siegel told a group of independent wealth managers in NY.
- Auto parts supplier American Axle(AXL) said on Tuesday contract talks with the UAW union aimed at settling a three-month-old strike had stalled since Sunday.
- US rice futures fell more than 3% in early Asian trading on Wednesday, extending an overnight fall on an expected rise in global rice output this year.
- Fannie Mae(FNM) on Tuesday said it sold $2 billion in preferred stock to bolster its capital position.
- The U.S. economy will remain sluggish in the months ahead, but "accommodative" interest rates will help it pick up later this year and in 2009, Chicago Federal Reserve Bank President Charles Evans said on Tuesday.

Financial Times:
- The US Federal Reserve is reconsidering the way it deals with asset price bubbles in a move that could see the central bank using regulation – or even interest rates – to fight unjustified increases.

Asian Investor:
- The investment strategy of fixed-income specialist Pimco has changed over the past four weeks, according to Bill Gross, from being weighted towards US Treasuries to emphasizing spread products. Gross now thinks that recent undertakings by the Fed and the US Treasury Dept. to support the housing market will bear fruit and that the US economy will avoid recession. Pimco has decided it looks like housing prices will stabilize and mass foreclosures will be prevented, and has therefore begun to move away from expensive Treasuries into high-quality credit institutions, particularly financials that should survive the crisis.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (OSG), target raised to $96.
- Reiterated Buy on (OI), target $66.

Night Trading
Asian Indices are -.75% to +.50% on average.
S&P 500 futures -.16%.
NASDAQ 100 futures -.10%.

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
- (JBX)/.43
- (DE)/1.75
- (FRE)/-.83
- (M)/-.02
- (CTRP)/.18
- (A)/.48
- (BRCD)/.14
- (SINA)/.19
- (TK)/.98

Upcoming Splits
- (CLF) 2-for-1

Economic Releases
8:30 am EST
- The Consumer Price Index for April is estimated to rise .3% versus a .3% gain in March.
- The CPI Ex Food & Energy for April is estimated to rise .2% versus a .2% gain in March.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil build of 2,250,000 barrels versus a 5,654,000 barrel build the prior week. Gasoline supplies are expected to fall by -220,000 barrels versus a 794,000 barrel increase the prior week. Distillate inventories are estimated to rise by 1,000,000 barrels versus a -107,000 barrel decline the prior week. Finally, Refinery Utilization is expected to rise .68% versus a -.41% decline the prior week.

Other Potential Market Movers
- The Fed’s Yellen speaking, Fed’s Lockhart speaking, Fed’s Kroszner speaking, Fed’s Rosengren speaking, weekly MBA Mortgage Applications report, (ERIC) capital markets day, (ITRI) analyst meeting, (NBL) analyst meeting, (IKN) investor conference, (AFL) analyst meeting, Robert W. Baird Growth Stock Conference, CSFB Special Situations Conference, Bank of America Health Care Conference, Merrill Metals/Mining/Steel Conference, CSFB Semi/Hardware Conference, Morgan Stanley Communications Conference, UBS Global Financial Services Conference and Goldman Sachs Power/Utility Conference could also impact trading today.

BOTTOM LINE: Asian indices are mixed as gains in commodity stocks are offsetting losses in financial shares in the region. I expect US equities to open modestly lower and to strengthen into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.