Tuesday Watch

Weekend Headlines
Bloomberg:

• Greek Aid Package to Be Decided by June. European Union leaders will decide on additional aid for Greece by the end of June and have ruled out a “total restructuring” of the nation’s debt, said Jean-Claude Juncker, head of the euro-area finance ministers’ group. Inspectors from the EU, International Monetary Fund and European Central Bank are set to wrap up a review of Greece’s progress in meeting the terms of last year’s 110 billion-euro ($157 billion) bailout in coming days. The EU will then formulate its plan for further aid to Greece, which remains shut out of financial markets a year after the rescue package. “We are waiting for their final judgment,” Juncker, who is also Luxembourg’s prime minister, said yesterday in Paris after meeting with French President Nicolas Sarkozy. “Their position will partly determine our position, so it’s too early. We will try to solve the Greek problem by the end of June.”
• Greek Day of Reckoning Looms in Ponzi Europe: Mario I. Blejer. One of the undeniable features of the European debt crisis is the tendency to obscure, verbally and politically, the real issues at play. Euphemisms, statistical gimmicks, meaningless institutional squabbling, undecipherable acronyms, and plain double talk proliferate as part of the debate.
• Iran Seeks to Slap Travel Sanctions on U.S. Officials, Mehr Says. Iran’s parliament approved the outlines of a bill to impose travel and financial restrictions on 26 U.S. officials, whom it accuses of being involved in "human rights violations," Mehr reported. The bill would also call for the officials to be tried on charges of “crimes against humanity” and “human rights abuses,” Kazem Jalali, the parliament’s National Security and Foreign Policy Committee spokesman said, according to a report published yesterday by the state-run news agency, which didn’t specify the names. Iran’s prosecutor general would submit the names and relevant documents to the prosecutor of the International Criminal Court, Mehr said. Iran’s Foreign Ministry will be in charge of following up on the implementation of the proceedings at international forums, it said.
• Tepco May Not Meet Deadline for Stabilizing Reactors, Kyodo News Reports. Tokyo Electric Power Co. may not be able to meet its year-end deadline to bring reactors at its Dai- Ichi nuclear plant under control, Kyodo News reported. The deadline was only a target, the report quoted an unidentified company official as saying yesterday. Since setting the deadline, the company has said meltdowns occurred at more rectors at the plant than previously thought. The additional damage will delay work, the report said, citing another company official.
• Fukushima Debacle Risks Chernobyl 'Dead Zone' as Radiation in Soil Soars. Radioactive soil in pockets of areas near Japan’s crippled nuclear plant have reached the same level as Chernobyl, where a “dead zone” remains 25 years after the reactor in the former Soviet Union exploded. Soil samples in areas outside the 20-kilometer (12 miles) exclusion zone around the Fukushima plant measured more than 1.48 million becquerels a square meter, the standard used for evacuating residents after the Chernobyl accident, Tomio Kawata, a fellow at the Nuclear Waste Management Organization of Japan, said in a research report published May 24 and given to the government. Radiation from the plant has spread over 600 square kilometers (230 square miles), according to the report. The extent of contamination shows the government must move fast to avoid the same future for the area around Tokyo Electric Power Co.’s Fukushima Dai-Ichi plant as Chernobyl, scientists said.
• China's production of rare earths, fueled by private companies that didn't pay medical insurance and disregarded environmental damage, was "out of control," Chen Zhanheng, a researcher at the Chinese Society of Rare Earths, wrote in a commentary. The nation's rare earth industry has output capacity of about 200,000 tons, which is almost double total global demand, Chen wrote. The "disorderly state" of China's rare earth industry makes export quotas necessary, Chen wrote. China has about 36% of the world's rare earth deposits and accounts for 95% of global supplies, Chen said.
• Container lines plan to add a record amount of capacity in 2013, outpacing growth in demand for shipping services, which may drive maritime-transport rates lower, according to NH Investment & Securities Co. The capacity of the global container-shipping fleet may increase by a net 1.9 million boxes in 2013 if all options and letters of intent for new vessels are exercised, according to Alphaliner. That would expand the fleet by 11%, the fastest annual increase in five years, according to the Paris-based maritime data provider. "We may have to start worrying about overcapacity again," said Jee Heon Seok, an NH Investment analyst in Seoul. "Shipping lines have rushed to make orders before ship prices increase, and they seem to have forgotten about the consequences they could face when the vessels are delivered."
• Copper in New York Declines for First Day in Five on U.S. Economy Slowdown. Copper in New York fell for the first time in five days before reports this week that may show the economy is slowing in the U.S., the world’s second-largest consumer of the metal after China. July delivery copper dropped as much as 1.2 percent to $4.135 a pound on the Comex in New York and was down 0.5 percent at $4.1635 by 1:15 p.m. local time in electronic trading. The London Metal Exchange and U.S. markets are closed today for holidays, and today’s trades will be counted in tomorrow’s pricing.
• Alwaleed Says Saudi Arabia Seeks $70 to $80 Oil to Preserve Sales to West. Prince Alwaleed bin Talal said an oil price of $70 to $80 a barrel is in the best interests of Saudi Arabia because it diminishes the urgency in the U.S. and Europe to develop alternative energy sources. The rebellion in Libya, political turmoil in Bahrain and speculative buying are responsible for driving oil prices to more than $100 a barrel, Alwaleed said.
• Hoenig Seeks Higher U.S. Interest Rates to Boost Saving, Avoid New Bubbles. Federal Reserve Bank of Kansas City President Thomas Hoenig, the central bank’s longest-serving policy maker, said the U.S. needs to raise interest rates to encourage individuals to save and avoid future asset bubbles. Hoenig, who doesn’t vote on monetary policy this year, has repeatedly urged the central bank to tighten lending to prevent inflation and asset price bubbles. He voted eight times in 2010 against record monetary stimulus led by Chairman Ben S. Bernanke, tying former Governor Henry Wallich’s record in 1980 for most dissents in a single year. “I’m not advocating for tight monetary policy, but I do think we have to get off of zero if we want to avoid repeating some of the mistakes of the past with a very easy credit environment,” Hoenig said.
• Syrian Forces Kill Two Near Homs as Wave of Arrests Made Around Damascus. Syrian security forces carried out widespread arrests overnight as anti-government protesters took to the streets in the suburbs of the capital after 13 people were killed in rallies. Demonstrations took place in the Damascus suburbs of Douma, Barzeh, Harasta and Daraya yesterday night, said Mahmoud Merhi, head of the Arab Organization for Human Rights, in a phone interview from Syria. Security forces fired on anti-government protesters in several cities May 27 as they broke up rallies nationwide, pushing the death toll past 1,100 since demonstrations against the government of President Bashar Al- Assad began in mid-March, said Ammar Qurabi, head of Syria’s National Organization for Human Rights. Syrian opposition groups and activists will hold a conference in Turkey May 31 in support of the protesters demanding political changes, according to Qurabi.
• China's power producers may curb operating hours to reduce financial losses even as the nation faces an electricity shortage that may be the worst on record.
• Merkel Will Scrap German Nuclear Plants by 2022 After Fukushima Disaster. German Chancellor Angela Merkel’s coalition endorsed a blueprint to shut its nuclear-power plants by 2022, repealing the law she pushed to extend the life of the reactors to become the biggest nation to exit atomic power.

Wall Street Journal:

• Cyber Combat: Act of War. The Pentagon has concluded that computer sabotage coming from another country can constitute an act of war, a finding that for the first time opens the door for the U.S. to respond using traditional military force. In part, the Pentagon intends its plan as a warning to potential adversaries of the consequences of attacking the U.S. in this way. "If you shut down our power grid, maybe we will put a missile down one of your smokestacks," said a military official.
• AT&T's(T) Critics on Deal Growing. Opposition is steadily growing to AT&T Inc.'s proposed $39 billion takeover of T-Mobile USA, as competitors, state regulators and elected officials have come out in recent days expressing concerns about the acquisition from Deutsche Telekom AG. The views add to pressure on a combination—of the second- and fourth-largest wireless carriers in the U.S.—that has already raised serious initial concerns at the Justice Department, which is worried it will hurt competition, according to people familiar with the matter.
• Australia Fund Says No to Euro-Zone Rescue Bonds. Australia's Future Fund doesn't plan to buy the debt being issued to rescue ailing euro-zone countries, Chairman David Murray said.
• Libya's Goldman(GS) Dalliance Ends in Losses, Acrimony. In early 2008, Libya's sovereign-wealth fund controlled by Col. Moammar Gadhafi gave $1.3 billion to Goldman Sachs Group to sink into a currency bet and other complicated trades. The investments lost 98% of their value, internal Goldman documents show. What happened next may be one of the most peculiar footnotes to the global financial crisis. In an effort to make up for the losses, Goldman offered Libya the chance to become one of its biggest shareholders, according to documents and people familiar with the matter.

Dow Jones:

• Former Federal Reserve Chairman Paul Volcker said the U.S. central bank may soon raise interest rates to curb inflation, citing comments he made in Madrid. Volcker said that the U.S. budget deficit and interest rates close to zero will eventually lead to "inflationary problems." The time to raise interest rates "is getting very close," Dow Jones cited Volcker as saying.

CNBC:

• NYSE Euronext(NYX) Plans Dual Clearing Venues With LCH. Exchange giant NYSE Euronext is looking to set up two parallel clearing services if it seals its proposed deal to buy Anglo-French clearing house LCH.Clearnet as well as merging with Deutsche Boerse.
• China's Economy Slows, But Inflation Still Looms. Chinese manufacturers’ backlogs of orders are gradually shrinking in many industries. Purchasing managers have become less optimistic about their businesses’ prospects. And after surging past the United States in car sales over the last two years, the Chinese auto market unexpectedly stalled last month, as carmakers curtailed production plans. Because China’s cooling economy is partly a result of Beijing’s efforts to contain inflation, some economists are not worried, saying a slight slowdown could be positive. And they say that after the government eases off the brakes, economic growth should quickly pick back up. But other experts worry that inflation is already so entrenched that the government may be forced to continue braking the economy for a considerable time. “They have to continue to tighten policy into what we expect will be a sharp growth downturn, already likely to be under way,” said Diana Choyleva, an economist in the Hong Kong office of Lombard Street Research, an economic forecasting firm based in London.
• 'Delicate Moment' for Global Economy as Manufacturing Slows. High input prices, supply chain disruptions from the tsunami disaster in Japan and slowing demand from China have combined to brake manufacturing momentum in Europe, the United States and Asia in recent months following a steady run of robust growth. Just how sharp the slowdown is will become clearer this week with the release of data from factory purchasing managers in major economies across the globe.

NY Times:

• Shale Boom in Texas Could Increase U.S. Oil Output. More than a dozen companies plan to drill up to 3,000 wells around here in the next 12 months. The Texas field, known as the Eagle Ford, is just one of about 20 new onshore oil fields that advocates say could collectively increase the nation’s oil output by 25 percent within a decade — without the dangers of drilling in the deep waters of the Gulf of Mexico or the delicate coastal areas off Alaska.

NY Post:

• Senator Schumer: Probe Oil Refiners' Profits. New York Sen. Charles Schumer wants the government to investigate U.S. oil refiners' skyrocketing profits, which he said are to blame for high gas prices. "Something is rotten," said the Democrat, speaking today at a gas station on Manhattan's West Side. He said refiners' profits have more than doubled since last year. Meanwhile, the price of unleaded gas went up by almost 12 percent in just the two weeks ending May 6, topping $4 a gallon in New York. The senator said he believes refiners may be fixing prices by cutting back on stockpiles — by keeping refining capacities to only 81 percent and through exports that diminish domestic availability.

Business Insider:

• The Euro Starts With a Big Spike, As Europe Goes "Can Kicking" One More Time. News that Greece will likely try austerity+new loans+supervisory measures one more time means the likely day of reckoning has been postponed again.
• Greeks Yank Billions Out of Country's Banks as Crisis Worsens.
• Currency Guru Stephen Jen Gives 4 Reasons The Euro Crisis Will Only Get Worse.
  

Zero Hedge:

• Moody's Places Japan Aa2 Rating on Downgrade Review, Notes Possibility of JGB Funding Crisis.
  
• Fadel Gheit Throws Wall Street's Big Banks Under The Oil Speculating Bus. Public Relation people at Goldman Sachs can not be too happy about this. Fadel Gheit, a veteran of Oppenheimer and oil and gas industry dating back to the Mobil era, went on record and called the Big Banks--Goldman Sachs. along with Morgan Stanley--out on manipulating the oil market during a Bloomberg TV interview on May 25.
• Carl Icahn Confesses That The "System Is Not Working Properly", Warns of Another "Major Problem" Coming. There's just way too much leverage and way too much risk-taking, with other people's money. I know a lot of my friends on Wall Street will hate my saying this, but the Glass Steagall thing or something like it wasn't a bad thing.
• Brian Sack and The Robots Claim Another Market Neutral Victim. The pioneer James Advantage Market Neutral Fund is now closing.
• CIA Warns of a Greek Military Coup, Rebellion, If Austerity Intensifies.
  

Forbes:

• The Administration's Argument for Obamacare Makes No Sense.

USA Today:

• Gas Tanks Are Draining Family Budgets. There's less money this summer for hotel rooms, surfboards and bathing suits. It's all going into the gas tank.

Reuters:

• Kazakh Opposition Calls for Halt to China Expansion. Opposition activists in Kazakhstan called on the government on Saturday to stop Chinese investment in the country's natural resources, saying Beijing could be preparing a land grab in Central Asia. Several hundred people gathered in Almaty, the country's largest city, for an officially sanctioned rally against Chinese expansion into Kazakhstan, a vast former Soviet republic holding 3 percent of the world's recoverable oil reserves. "Chinese relations to resource exploitation have imperialist undertones," said Vladimir Kozlov, leader of the unregistered Alga! opposition party.

Financial Times:

• Private-equity officials say they are concerned by rising levels of debt in buyouts. In some instances, debt levels have reached seven times operating profit, a level hardly seen since the credit crisis started.
• Beijing Steps Up TV Censorship. The Chinese government has stepped up censorship of local television in a sign of the broadening of a political crackdown that has landed many dissidents in jail.

Telegraph:

• EU Plans to Strip UK of Bank Regulation Powers. Sovereign control of financial regulation is under threat from European moves to harmonise rule books across member states, the three men at the heart of the future Bank of England have warned.

Der Spiegel:

• Greece's return to the capital markets in March 2012 is a "very ambitious target," European Union Economic and Monetary Affairs Commissioner Olli Rehn said in an interview. An exit of Greece from the European Monetary Union is "not a serious option" and a restructuring of the country's debt isn't on the European Commission's agenda because it would have negative consequences for the Greek financial system and could initiate a chain reaction affecting the rest of Europe, Rehn said.

Efe:

• Paul Volcker, former Federal Reserve Chairman, said that restructuring Greek debt would worsen the country's problems and called for deeper economic reforms there, citing comments he made in Madrid.

Globe and Mail:

• Canada's Flaherty Warns of Frail Global Economy. Finance Minister Jim Flaherty fears the world could be faced with another recession, given the fragility of the global economy and especially the troublesome debt and deficit situation across the border. “I am quite worried,” Mr. Flaherty told CTV’s Question Period Sunday. “We have lived three-and-a-half years now since the credit crisis started in late August, 2007. We are seeing in Europe, in particular, some very difficult situations.”

Xinhua:

• China's property tax may be expanded nationwide after revising a trial program imposed on the cities of Chongqing and Shanghai, citing Chongqing Mayor Huang Qifan. Construction of large homes fell, and luxury home sales and prices declined after Chongqing started the trial on Jan. 28, citing Huang.

Shanghai Daily:

• Home Sales in China may decline by more than 10% this year because of government tightening measures, citing Nie Meisheng, head of the China Real Estate Chamber of Commerce.
• China Rates May Rise Next Week on High CPI. The three-day Dragon Boat Festival holiday, which ends next Monday, may be the time when the People's Bank of China, the central bank, is likely to announce another interest rate increase, UBS Securities Co said in a note. "Although China's economic growth has shown signs of moderation, inflationary pressure remains high and it pushes China to continue to tighten its monetary policies," the brokerage said. It estimated the Consumer Price Index, the main gauge of inflation, may surge 5.5 percent in May and then climb to 6 percent in June. The recent droughts in central China may be the reason for food prices to rise and so push up the CPI.

Securities Times:

• Beijing's existing home sales may fall to a 28-month low in May, citing data from the city's government-run property transaction website. About 7,190 existing homes were sold from May 1 to May 29, a decline of 47% from the same period a year earlier.

Financial News:

• China's inflation can't be curbed unless it maintains a prudent monetary policy, citing former deputy central bank governor Wu Xiaoling said. "The market" has been calling for a looser monetary policy because of concerns about risks of a hard-landing in China, he said.

Economic Information Daily:

• Jing Xuecheng, a former deputy head of China central bank's research bureau, said that a research report on converting the U.S. debt held by China to equity has been submitted to relevant departments.

Chinesestock.org:

• Credit Squeeze Drives Yields Toward 17-Month High in Mainland. Chinese companies are turning to the bond market for financing amid the biggest credit squeeze in three years, pushing relative yields toward a 17-month high. The weighted average lending rate on bank loans rose to 6.91 percent in March, 60 basis points higher than the one-year benchmark and 260 basis points above the yields of AAA-rated corporate bonds for the same maturity. The premium investors demand to hold five-year corporate notes instead of sovereign debt reached 166 basis points on May 25, near the high of 169 in March. "Corporate demand for capital has far exceeded banks' lending capacity this year, so for most companies bond financing becomes the only viable alternative," said Wu Haiwen, a Shanghai-based fixed-income analyst at Shanghai Pudong Development Co. "That's bad news for the market. We expect the yield spread between top-rated corporate bond and government debt to widen."

Oriental Morning Post:

• China's June consumer prices may increase about 5.7% from a year earlier and interest rates will likely be raised next month, citing Li Xunlei, chief economist at Guotai Junan Securities Co.

Haaretz:

• Netanyahu: Israel Cannot Prevent UN Recognition of Palestinian State. PM says it's impossible to recognize a Palestinian state without passing through the UN Security Council but assures such a move is bound to fail.

Weekend Recommendations
Barron's:

• Made positive comments on (FL), (TJX) and (PSMT).

Night Trading

• Asian indices are -.25% to +1.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 110.0 -1.5 basis points.
• Asia Pacific Sovereign CDS Index 115.25 -.75 basis point.
  
• S&P 500 futures +.58%.
• NASDAQ 100 futures +.62%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (PVH)/1.16

Economic Releases
9:00 am EST

• The S&P/CS 20 City MoM% SA for March is estimated to fall -.24% versus a -.18% decline in February.

9:45 am EST

• The Chicago Purchasing Manager for May is estimated to fall to 62.0 versus a reading of 67.6 in April.

10:00 am EST

• Consumer Confidence for May is estimated to rise to 66.5 versus 65.4 in April.

Upcoming Splits

• (FFIN) 3-for-2
• (CHD) 2-for-1
• (FTNT) 2-for-1
  

Other Potential Market Movers

• The 3-Month/6-Month Treasury Bills Auctions, NAPM-Milwaukee for May, Dallas Fed Manufacturing Activity Index for May and the Keybanc Industrial/Automotive 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 stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the week.