Wednesday Watch

Evening Headlines
Bloomberg:

• Europe Stress Relieved With Swap Gap Vanishing: Credit Markets. The bond market is saying that the threat of a European banking crisis is ending. The gap between European and U.S. benchmark credit-default swap indexes, used to hedge against losses or speculate on creditworthiness, narrowed to 0.7 basis point yesterday, the lowest since June 4, prices from Markit Group Ltd. show. That premium soared to a record 23 basis points on May 7 on concern that budget deficits in southern Europe would infect credit markets worldwide. The Markit iTraxx Financial index of swaps linked to the senior debt of 25 European banks and insurers, which on June 8 soared to 61 basis points more than the broader iTraxx index on 125 companies, has fallen to within 7.75 basis points of the main index, according to JPMorgan prices. The financial index has plunged 88.5 basis points to 111.5 basis points since June 8, according to JPMorgan.
  
• Issa Asks FCIC to Explain Spending After Panel Seeks More Funds. U.S. Representative Darrell Issa is asking the Financial Crisis Inquiry Commission to explain its spending after the panel probing the 2008 credit market collapse requested that Congress supplement its $8 million budget. Issa, a California Republican, sent a letter to FCIC Chairman Phil Angelides today, seeking a list of contracts with media consultants and the amount of money spent on such services. Issa also asked Angelides, a Democrat who formerly served as California’s treasurer, to provide a full accounting of travel expenses by FCIC commissioners and their staffs, including payments for airfare, lodging and meals. “I am concerned that the FCIC’s own problems with financial mismanagement and partisanship may have resulted in a waste of taxpayer funds that does not warrant an additional appropriation,” wrote Issa, the top Republican on the House Oversight and Government Reform Committee.
• Tiger Global Said to Invest in LinkedIn at $2 Billion Valuation. Tiger Global Management LLC, a hedge fund founded by Chase Coleman, paid $20 million for a stake in LinkedIn Corp., valuing the professional-networking website at more than $2 billion, said two people familiar with the matter. The purchase, at $21.50 a share for about a 1 percent stake, was from existing shareholders and doesn’t represent new investment, said one of the people, who declined to be identified because the sale has not been disclosed.
• China Says Environment Accidents Almost Double as Rapid Growth Takes Toll. China, the largest polluter, said rapid economic growth is taking a toll on the environment with accidents doubling, underscoring the need to increase checks as after the worst metal and oil spills in years. Environment accidents jumped 98.1 percent in the first six months from a year ago, with at least 10 incidents each month, the environmental protection ministry said in a faxed statement in response to Bloomberg questions.
• UnitedHealth(UNH) Said Near $1.5 Billion Purchase of Services Firm. UnitedHealth Group Inc. is nearing an agreement to buy Executive Health Resources Inc., a medical services firm backed by Abry Partners LLC, for about $1.5 billion, said three people with knowledge of the talks. UnitedHealth would add the Newtown Square, Pennsylvania- based company to its Ingenix database management and consulting unit, said the people, who spoke on condition of anonymity because the talks are private.
• Three Former General Electric(GE) Bankers Are Indicted in Bid-Rigging Inquiry. Three former bankers with a General Electric Co. unit that sold investment contracts to state and local governments were indicted for conspiring to rig bidding to profit at taxpayers’ expense, the Justice Department said today.
• Medtronic(MDT) Wins U.S. FDA Panel's Backing for Its Experimental Spinal Device. A panel of U.S. advisers voted 6 to 5, with 3 abstentions, that the benefits of Medtronic Inc.’s experimental spinal fusion device outweigh the risks.
• Salary of $800,000 Sparks California Taxpayer Mutiny: Joe Mysak. The search is on for the next $800,000-a-year city manager. The taxpayers of Bell, California, a 2.5-square-mile city just outside Los Angeles forced the resignations last week of three public officials who made too much money. The taxpayers were responding to a Los Angeles Times article of July 15 that asked the question, “Is a City Manager Worth $800,000?” I think we all know the answer. The story reported that the city’s chief administrative officer was on a salary of $787,637, his assistant $376,288, the police chief $457,000. These paydays struck the Bell citizenry, and many other Californians, as a bit bloated. Ideas in public finance blow in from the West, an old municipal market saying goes. If the watchdogs where you live aren’t on the hunt for public officials making king-size compensation, they soon will be.
• High Iron Ore Prices Are 'Unsustainable,' Australia's IMX Resources Says. IMX Resources Ltd., a mining company that’s started the first new iron ore project in South Australia in a century, said high prices for the steel-making material aren’t sustainable in the long term and will drop. “You’d be living in a different world if you thought these prices were going to last forever,” Duncan McBain, managing director of the Perth-based company, said in an interview. “The pricing will come down.”
• Citigroup(C) May Move Prop Traders to Hedge Funds to Comply With Volcker Rule. Citigroup Inc. may move a team of proprietary traders into its hedge-fund unit, one of at least three alternatives the U.S. bank is studying to comply with the Dodd-Frank Act, people briefed on the matter said.

Wall Street Journal:

• Rate Swings Sting Europe's Borrowers. Households and small businesses across Central and Eastern Europe are sinking under the weight of foreign-currency debts. It's a sign of how the problems go beyond the borrowing by spendthrift governments that has been the main focus of investors.
  
• Citigroup(C) to Fund Housing Projects. Citigroup is bankrolling a $100 million fund to invest in low- and moderate-income housing in New York City, a move drawing cautious support from housing advocates critical of other private investments in affordable housing. The fund will focus on properties in the Bronx, Queens, Brooklyn and Upper Manhattan, said Ron Moelis, chief executive officer of L+M Development Partners, a New York firm that specializes in affordable housing and will manage the fund developed by Citigroup. He plans to invest primarily in buildings created for low-income tenants, including rent-stabilized buildings that are being foreclosed or in danger of foreclosure.
• Fund Holders Sue BlackRock(BLK) Advisors Over Auction-Rate Shares. A group of investors in several closed-end funds advised by BlackRock Advisors LLC has sued, alleging that the adviser breached its fiduciary duties to common shareholders by the way in which it redeemed auction-rate preferred securities.
• Google(GOOG) Develops a Facebook Rival. Google Inc. is in talks with several makers of popular online games as it seeks to develop a broader social-networking service that could compete with Facebook Inc., according to people familiar with the matter.
• Our Divisive President by Pat Caddell and Douglas Schoen. Rather than being a unifier, Mr. Obama has divided America on the basis of race, class and partisanship. Moreover, his cynical approach to governance has encouraged his allies to pursue a similar strategy of racially divisive politics on his behalf.

Bloomberg Businessweek:

• LNG Demand Growth in Asia Beats Oil on Emissions. Asia is boosting consumption of liquefied natural gas relative to oil as nations from China to India try to pollute less while driving economic growth. Demand for LNG in China and India is growing as much as nine times faster than that for crude, according to calculations based on data compiled from Facts Global Energy, BP Plc and the International Energy Agency. Oil use is shrinking in Japan and stagnant in South Korea. LNG use will rise 45 percent in China and 12 percent in India in 2011 from this year, said Facts, an energy consultant. “This strong demand growth will not purely be driven by gross domestic product,” Gavin Thompson, China gas study director for Wood Mackenzie Consultants Ltd., said in an e-mail from Edinburgh. “The gas demand story is about displacing oil products, not coal, in the industrial and residential sectors.” The energy consultant this week raised by 48 percent its forecast for China’s LNG demand in 2020.
• BP(BP) Oil From Spill Is Biodegrading, Easing Threat to East Coast. Oil from BP Plc’s record spill in the Gulf of Mexico is biodegrading quickly, probably eliminating the risk that crude will go around Florida and hit the U.S. East Coast, the National Oceanic and Atmospheric Administration said.

CNBC:

• BofA(BAC), Citi(C), Wells Fargo(WFC) Outlook Negative: Moody's. Moody's on Tuesday changed its outlook on Bank of America, Citigroup and Wells Fargo to negative, from stable, citing lessened government support for the institutions under new U.S. regulations.
• Democrat Energy Bill Raises Liability Cap to 100%. U.S. Senate Democrats unveiled a slimmed-down energy bill on Tuesday aimed at reforming offshore drilling and promoting alternative-fuel vehicles.

Business Insider:

• Anderson Cooper 360 - The Last Program CNN Hasn't Touched - Is Doing Horribly.
• Gasparino: Goldman(GS) Plans to Circumvent The Volcker Rule by Changing The Name From "Prop Trading" to "Client Trading".
• Office Tour: Behind the Scenes at Bloomberg TV.
  

CNNMoney:

• The Tax Hike Nobody's Talking About.

Forbes:

• The Flawed Assumption Behind Ending The Bush Tax Cut For The Rich by Bob McTeer.

Boston Globe:

• Massachusetts Legislature Approves Plan to Bypass Electoral College. The Massachusetts Legislature has approved a new law intended to bypass the Electoral College system and ensure that the winner of the presidential election is determined by the national popular vote. "What we are submitting is the idea that the president should be selected by the majority of people in the United States of America," Senator James B. Eldridge, an Acton Democrat, said before the Senate voted to enact the bill. Under the new bill, he said, "Every vote will be of the same weight across the country." But Senate minority leader Richard Tisei said the state was meddling with a system that was "tried and true" since the founding of the country. "We've had a lot of bad ideas come through this chamber over the years, but this is going to be one of the worst ideas that has surfaced and actually garnered some support," said Tisei, who is also the Republican candidate for lieutenant governor. The bill, which passed on a 28-to-9 vote, now heads to Democratic Governor Deval Patrick's desk. The governor has said in the past that he supports the bill, said his spokeswoman Kim Haberlin. Under the law, which was enacted by the House last week, all 12 of the state's electoral votes would be awarded to the candidate who receives the most votes nationally. Supporters are campaigning, state by state, to get such bills enacted. Once states accounting for a majority of the electoral votes (or 270 of 538) have enacted the laws, the candidate winning the most votes nationally would be assured a majority of Electoral College votes. That would hold true no matter how the other states vote and how their electoral votes are distributed. Illinois, New Jersey, Hawaii, Maryland, and Washington have already approved the legislation, according to the National Popular Vote campaign's website.

Politico:

• No Deal in Sight for Rangel. Rep. Charles Rangel’s chances of striking a deal with the House ethics committee grew more distant Tuesday, even as the public airing of charges against him drew closer. New tinges of partisanship gripped the ethics process, making it appear far less likely that Rangel can find a settlement that suits both him and the panel’s Republican contingent.
• Congress Clears War Funding. Tens of billions of dollars in new Afghanistan war funding cleared Congress late Tuesday, even as the House easily upended a liberal challenge to the increased U.S. military presence — and drone attacks — across the border in Pakistan. The back-to-back votes buy precious time for President Barack Obama to show progress on his strategy for the region. But even as the anti-war movement remains weak in Congress, Obama can’t ignore a growing split among House Democrats over the cost of his military commitments at a time of tighter budgets and economic troubles at home.
• Issa: Obama "pre-occupied" with BP(BP) Politics. Rep. Darrell Issa (R-Calif.), one of the Obama administration’s harshest critics, is once again taking aim at the federal response to the BP oil spill – this time, over a White House decision to dispatch administration aides to Florida to deal with the political fallout from the crisis. “This is just the latest manifestation of the Obama administration’s pre-occupation with public relations dictating and in some cases hindering the effort to address the effects of the Gulf Coast oil spill,” Issa told POLITICO in a statement. “Rather than streamline the process and focus on ensuring that local officials have access to the resources they are literally begging for, the Obama administration has responded by dispatching campaign aides. It’s concerning that the West Wing appears more pre-occupied with the politics and public relations of this crisis, than actually managing it.”

Reuters:

• CB Richard Ellis(CBG) Posts 2nd-Qtr Profit, Revenue Up. CB Richard Ellis Group Inc, one of the world's largest commercial real estate service companies, posted a second-quarter net profit and its strongest revenue growth since 2007, sending shares up 5.5 percent in after-hours trade.
• Broadcom(BRCM) Revenue Up On Wireless Chip Demand. Broadcom Corp (BRCM) posted higher quarterly earnings and revenue on Tuesday on strong demand for its chips used in smartphones such as Apple Inc's (AAPL) iPhone and in broadband equipment. Broadcom shares rose 1.4 percent to $38.05 in extended trade after closing at $37.53 on Nasdaq.

Financial Times:

• Greece 'Ahead of the Curve' on Fiscal Targets. Greece is determined to show it can outperform tough fiscal targets set by the European Union and International Monetary Fund, said George Papaconstantinou, finance minister. But the government still faces strong resistance to structural reforms – from opening up closed-shop professions such as truck driving to cutting about 50,000 jobs in local government and lossmaking state enterprises. In an interview with the Financial Times, Mr Papaconstantinou said in the first half of this year the budget deficit had been slashed by 45 per cent after deep cuts in public consumption and capital investment. He said Greece has taken more measures than were necessary to cut the deficit this year from 13.6 per cent to 8.1 per cent of gross domestic product. A 30-member mission from the so-called troika – the EU, IMF and European Central Bank – arrived in Athens this week to assess reforms launched in return for a €110bn loan package, which rescued Greece from a sovereign default. Mr Papaconstantinou sounded confident that the troika would award Greece a pass mark on progress, enabling it to draw down a second €9bn ($11.7bn, £7.5bn) loan tranche in September. “We are ahead of the curve, mostly due to reduction of expenditures ... Revenues are lagging slightly behind ... but we’re reasonably optimistic that even on the revenue side we’ll meet the targets,” he said. An increase of 4 percentage points in value added tax, on top of a 30 per cent rise in excise taxes, would help boost inflows in the second half, he said. The impact of cuts in public sector wages and pensions on overall spending would bring further reductions, he added. Mr Papaconstantinou also predicted that Greece’s recession would be shallower than forecast, with the economy set to shrink this year by 3 to 3.5 per cent, compared with an earlier projection of 4 per cent. But he admitted there were “danger zones” that could undermine fiscal consolidation, such as persistent spending overruns at state hospitals.
• Pakistani Ex-Spy Master Blames US for Web Leak. A former Pakistani spy master has hit back at allegations he supported the Taliban, saying the US orchestrated a mass leak of confidential files in a bid to scapegoat him for its failures in Afghanistan. The claim by Hamid Gul, a retired general, is unlikely to gain much traction in Washington, where the publication of 75,000 classified reports by WikiLeaks, a website, has renewed debate over its Afghan strategy. But Mr Gul’s allegations that a hidden US government hand played a role in the huge breach of classified files may resonate in Pakistan, where anti-American sentiment runs high and conspiracy theories feed mainstream discourse.

Telegraph:

• Afghanistan War Logs Could Lead to Revenge Killings, Say Intelligence. The lives of informants and double agents have been placed at risk by the release of tens of thousands of secret military documents, intelligence officials have said. Col Dave Lapan, a US Defence Department spokesman, said the military may need weeks to review all the records to determine "the potential damage to the lives of our service members and coalition partners". Teams of US military analysts were examining the documents, which catalogue attacks on and by coalition forces. One of their chief concerns is to assess the potential damage to the military's human intelligence network that has been built up over nearly a decade inside Afghanistan and Pakistan. Such figures range from Afghan village elders who have worked behind the scenes with US troops to militants who have become double agents. Wikileaks insists it has behaved responsibly, even withholding some 15,000 records that are believed to include names of specific Afghans or Pakistanis who helped US troops on the ground. But with the information gradually being uploaded on to the Wikileaks website, Michael Hayden, the former director of the CIA, predicted that the Taliban would take anything that described a US strike and the intelligence behind it "and figure out who was in the room when that particular operation, say in 2008, was planned, and in whose home". The militants would then likely punish the traitor who had worked with the Americans, he said. Robert Riegle, former senior intelligence officer, said: "It's possible that someone could get killed in the next few days."

Nikkei:

• Intel Corp.(INTC) will cut the production capacity of a new chip plant in Dalian, Liaoning Province, by 25%, citing documents from China's Ministry of Environmental Protection. The plans will affect the $2.5 billion investment planned for the plant, scheduled to begin operations in October.

China Securities Journal:

• China's land supply increased 65.1% in the first half from a year earlier, citing the Ministry of Land and Resources. The average price of land for property development fell 5% in the second quarter as compared with the first quarter.

China Daily:

• China's Communist Party will hold "high-level" talks with the U.S. Democratic and Republican parties, citing Li Jun, spokesman for the International Department of the Communist Party's Central Committee.

China Business News:

• China may link employee wage increases to local consumer prices, according to a draft of salary rules which will be submitted to the State Council soon, citing Yang Yongqi, a labor law specialist at the Chinese Academy of Labor Security Sciences.

Evening Recommendations
Citigroup:

• Reiterated Buy on (LMT), target $97.
• Reiterated Buy on (BRCM), raised target to $45.
  

Night Trading

• Asian equity indices are +.25% to +1.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 113.0 unch.
• Asia Pacific Sovereign CDS Index 109.5 -4.25 basis points.
  
• S&P 500 futures unch.
  
• NASDAQ 100 futures +.08%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (UTHR)/.44
• (TBL)/-.35
• (CEG)/.75
• (PX)/1.14
• (NEM)/.87
• (WLP)/1.56
• (GLW)/.53
• (CMCSA)/.32
• (S)/-.18
• (IP)/.41
• (PFCB)/.56
• (IACI)/.20
• (GD)/1.61
• (HES)/1.12
• (D)/.67
• (BA)/1.01
• (COP)/1.56
• (LVS)/.08
• (ESRX)/.59
• (AKAM)/.34
• (CERN)/.67
• (SYMC)/.35
• (BMC)/.65
• (V)/.93
• (LRCX)/.96
• (RYL)/-.24
• (EQR)/.55
• (FLS)/1.65
• (CLF)/2.07
• (GMCR)/.18
• (JNY)/.33

Economic Releases
8:30 am EST

• Durable Goods Orders for June are estimated to rise +1.0% versus a -1.1% decline in May.
• Durables Ex Transports for June are estimated to rise +.4% versus a +.9% gain in May.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,725,000 barrels versus a +360,000 barrel gain the prior week. Gasoline supplies are estimated to rise by +275,000 barrels versus a +1,118,000 barrel gain the prior week. Distillate inventories are expected to rise by +2,000,000 barrels versus a +3,935,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.5% versus a +1.0% increase the prior week.

2:00 pm EST

• Fed's Beige Book
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The $37 Billion 5-Year T-Note Auction, weekly MBA mortgage applications report, Keefe Bruyette Woods Community Bank Conference, (IRIS) Financial Analyst Meeting and the (SCHW) Business Update could also impact trading today.
  

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