Tuesday Watch

Evening Headlines
Bloomberg:

• Duke Says Fed Has 'No Plans' to Use More Monetary Policy Tools. Federal Reserve Governor Elizabeth Duke said the central bank has no current plans to deploy additional tools for stimulating the economy. The Fed could alter its communications strategy, lower the interest rate it pays on excess reserves or replace mortgage- backed securities that are rolling off its balance sheet, Duke said today in an interview with Bloomberg Television, when asked what tools the central bank has at its disposal. “I would emphasize there are no plans to do that at this point,” she said. “There are a lot of reserves out there in the system,” Duke said. “We don’t think the barrier is there’s not enough money out there.” She also said “I think we are in the right place” on monetary policy. On the economy, Duke said, “we are seeing moderate growth, we are seeing subdued inflation.”
• CSX(CSX) Profit Beats Analysts' Estimates as Auto Sales Boost Railroad Traffic. CSX Corp., the third-largest U.S. railroad by 2009 revenue, reported second-quarter profit that topped analysts’ estimates as improved automobile sales led an increase in rail traffic.
• U.S. Hospitals Improving Speed, Quality of Heart-Attack Care. Hospitals in the U.S. are delivering faster emergency care to heart-attack patients, increasing their survival, an analysis found. In 2009, 88 percent of patients with the most urgent kind of heart attacks received artery-clearing procedures within the recommended 90 minutes of arriving at the hospital, compared with 64.5 percent in 2007, the study found.
• Suntech Power(STP) Falls Most in Two Month After Citigroup Recommends 'Sell'. China’s Suntech Power Holdings Co., the world’s largest maker of polysilicon solar-power modules, fell the most in two months in New York after Citigroup Inc. recommended selling the stock and said next year’s earnings may miss analysts’ estimates. Suntech declined 7 percent to $10.57, the biggest drop since May 6.
• China Stocks Drop Most in Two Weeks as Government Maintains Property Curbs. China’s stocks fell, with the benchmark index declining the most in two weeks, after the government quashed speculation it will abandon real-estate curbs that drove property prices to snap 15 months of gains. “The government isn’t likely to relax tightening measures as it wants to transform the country’s growth model to focus on consumption rather than investment,” said Zhang Qi, an analyst at Haitong Securities Co. in Shanghai. The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, lost 29.73, or 1.2 percent, to 2,460.99 as of 10:27 a.m., the most since June 29. The gauge has slumped 25 percent in 2010, making it Asia’s worst performer, on concern government efforts to curb inflation and property speculation will slow the economy. The Ministry of Housing and Urban-Rural Development reiterated that it will maintain curbs on speculative purchases and increase market supply. The statement was in response to media reports that said China may abandon its current property policies, it said. China’s banking regulator also said it has made no changes to policies on home loans, according to a statement posted late yesterday to the website of the China Banking Regulatory Commission. The regulator called on commercial banks to strictly enforce home loan rules, it said. Harvard University professor Kenneth Rogoff said July 6 that a “collapse” in real estate is beginning, while Barclays Capital forecasts prices may fall as much as 30 percent in the next 12 months.

Wall Street Journal:

• Finance Bill Close to Passage in Senate. Democrats Clinch Support of Republicans Brown and Snowe, Likely Reaching the 60 Votes Needed for the Legislation.
• (BP) Installs Sealing Cap on Errant Well. Apparent Success of Company's Latest Effort Holds Promise of Containing a Nearly Three-Month Long Environmental Crisis.
• Avis Aims to Outbid Rival Hertz for Dollar. Avis Budget Group Inc. is proceeding with plans to make an offer for Dollar Thrifty Automotive Group Inc. that would top rival Hertz Global Holdings Inc.'s $1.2 billion bid, and is looking to take on more debt to finance the deal, people familiar with the matter said Monday.

Bloomberg Businessweek:

• EU Officials Want Banks to Seek Private Cash Before State Help. European officials want banks to try to raise money themselves before seeking state support if stress tests by regulators reveal “vulnerabilities.” “It is firstly up to the banks themselves,” Dutch Finance Minister Jan Kees de Jager said in Brussels late yesterday after a meeting with euro-area counterparts.

CNBC:

• Cramer: Is Washington's War Against Business Over? “Could we be seeing a cease-fire, or even a truce, in Washington’s war against business?” Cramer asked viewers on Monday. “That would be about the most bullish thing that could happen right now.” (video)
• Alcoa(AA) Starts Earnings Season by Beating Street.
  

Business Insider:

• White House Issues New, BIGGER Deepwater Drilling Moratorium. After a Louisiana judge shot down the first deepwater moratorium, the White House has come back with an even broader ban:

GreenwichTime.com:

• New U.S. Attorney Vows Crackdown on Hedge Funds. Seconds after officially becoming Connecticut's new U.S. Attorney, David Fein announced a crackdown on securities fraud, particularly criminal management in the operation of hedge funds. Fein said he is in the process of building a securities fraud task force composed of investigators and prosecutors. Its aim will be to "investigate and prosecute sophisticated financial fraud that has caused so much harm to investors and the financial market."

Politico:

• Gibbs Stokes Dems' November Anxiety. Robert Gibbs says he merely “stated the obvious” in predicting Republicans could win control of the House in November. But Democratic strategists are privately grumbling that the White House press secretary gift-wrapped a bludgeon and handed it to the GOP. “It was the dumbest thing in the world to do,” one major Democratic money-bundler told POLITICO. “Barack Obama doesn’t understand this [election] is a referendum on his agenda.” Gibbs’ perhaps too-candid remarks about losing the House has exacerbated Democratic anxieties about the prospect of fighting a political war on two fronts, against Republicans and their own White House.
• Group to Oppose Obama Mideast Policy. Leading conservatives will launch a new pro-Israel group this week with a scathing attack on Rep. Joe Sestak, the Democratic Senate candidate in Pennsylvania, the first shot in what they say will be a confrontational campaign against the Obama administration’s Mideast policy and the Democrats who support it. The Emergency Committee for Israel’s leadership unites two major strands of support for the Jewish state: The hawkish, neoconservative wing of the Republican Party, many of whom are Jewish, and conservative Evangelical Christians who have become increasingly outspoken in their support for Israel.
  

Reuters:

• Whitman Takes Lead in Poll for California Governor. Republican Meg Whitman on Monday took the lead over Democrat Jerry Brown for the first time in a general election poll, four months before voters go to the polls to chose the next California governor. Whitman, the former CEO of eBay Inc making her first run for political office, leads Brown, the state's attorney general, by a margin of 46 percent to 39 percent, according to the survey by CBS-5 KPIX TV.
• NYSE Short Interest Drops from Year High. Short interest on the New York Stock Exchange fell from its highest level in almost a year in late June, the exchange said on Monday, with further falls seen ahead following the best week for stocks in a year. Short interest on the NYSE fell 2.7 percent to 14.08 billion shares in late June, while on the Nasdaq it held steady, rising just 0.1 percent to 7.39 billion shares.
• Novellus Systems(NVLS) Q2 Beats Wall Street. Novellus Systems Inc (NVLS), which provides equipment for the semiconductor industry, posted quarterly results above expectations, helped by a surge in bookings and shipments. For the second quarter, the chip-gear maker reported net income of $63.3 million, or 66 cents per share, compared with a loss of $50 million, or 55 cents per share, a year ago.

Telegraph:

• Twelve Killed as Violence Spreads to Northern Afghanistan. At least 11 police officers and a government official were killed in three separate insurgent attacks in increasingly restive provinces of northern Afghanistan. The deaths came as an Afghan rights group said escalating violence in the country was now the worst since the early months of the nearly 9-year-old war.
  

Financial Times Deutschland:

• Lawmakers in German Chancellor Angela Merkel's CDU/CSU bloc are considering introducing stricter tax rules for the country's banks, citing members of the bloc. Lawmakers may seek to prevent lenders from setting up "bogus banks" in tax havens, the newspaper said.

Globe and Mail:

• The Disintegration of the Welfare State. 'Italy's public finances are a time bomb waiting to explode'.

China Daily:

• More than half of Chinese textile companies may go bankrupt if the yuan appreciates 5% against the U.S. dollar, citing Gao Young, vice president of the China National Textile and Apparel Council
  

China Business News:

• China needs to "normalize" monetary policy to stabilize economic growth, Wu Xiaoling, a former People's Bank of China deputy governor, said. Wu called last year's policy "extremely loose," the report said.

Evening Recommendations
Citigroup:

• Rated (WLP) Buy, target $58.
• Rated (GTS) Buy, target $25.
• Rated (HNT) Buy, target $30.
• Rated (OCLR) Buy, target $16.50.
  

Night Trading

• Asian equity indices are -.50% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 128.0 +2.0 basis points.
• Asia Pacific Sovereign CDS Index 125.50 +1.75 basis points.
  
• S&P 500 futures -.09%.
  
• NASDAQ 100 futures unch.

Morning Preview Links

Earnings of Note
Company/Estimate

• (FAST)/.44
• (YUM)/.54
• (AIR)/.30
• (INTC)/.43
• (ADTN)/.35
  

Economic Releases
8:30 am EST

• The Trade Deficit for May is estimated at -$39.0 Billion versus -$40.3 Billion in April.

2:00 pm EST

• The Monthly Budget Deficit for June is estimated at -$69.4 Billion versus -$94.3 Billion in May.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The NFIB Small Business Optimism Index, $21 Billion 10-Year Treasury Notes Auction, weekly retail sales reports, SEMICON West, ABC Consumer Confidence Reading, IBD/TIPP Economic Optimism Index, (LRCX) analyst meeting, (KLAC) analyst meeting and the (DLM) analyst day could also impact trading today.
  

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