Wednesday Watch

Evening Headlines

Bloomberg:

• Fed Policy of Holding Rates Near Zero Subsidizes Large Banks, Hoenig Says. The U.S. central bank’s policy of holding interest rates near zero is a subsidy for large banks and redistributes wealth from savers to debtors, said Thomas Hoenig, president of the Federal Reserve Bank of Kansas City. Banks can borrow at 0.25 percent and buy Treasury bonds that yield 3 percent, keeping the difference. “It provides them a means to generate earnings and restore capital, but it also reflects a subsidy to their operations,” he said to the House Subcommittee on Domestic Monetary Policy and Technology today in Washington. “It is not the Federal Reserve’s job to pave the yield curve with guaranteed returns for any sector of the economy, and we should not be guaranteeing a return for Wall Street or any special interest group,” he said. The central bank’s policy of holding rates near zero also “redistributes wealth in this country from the saver to debtor by pushing interest rates on deposits and other types of assets below what they would otherwise be,” he said. The effect “requires savers and those on fixed incomes to subsidize borrowers.”
• Palestinians Say Time Is Right for Statehood. Palestinians have made a “final decision” to pursue the first formal step toward recognition of statehood and United Nations membership in September, the Palestinian Authority’s envoy to the world body said today. Ambassador Riyad Mansour announced a “march to legislation” at the UN, saying his government “can’t wait any longer for the government of Israel to negotiate with us in good faith.” The initial move will come at the opening of the UN General Assembly in New York in late September, he said. The Palestinian decision defies pressure from the Obama administration, which has said the move will undercut efforts to restart direct Israeli-Palestinian talks, and jeopardizes U.S. aid to the Palestinian Authority. The Senate on June 28 passed by unanimous consent a resolution with 89 co-sponsors that calls for President Barack Obama to consider “restrictions on aid” if the Palestinians proceed at the UN.
• Oil Company Subpoenas Said to Be Readied by FTC in Gasoline Price Probe. The U.S. Federal Trade Commission is preparing to issue subpoenas to oil companies and refiners as it probes rising gasoline prices, a person familiar with the matter said.
• Female U.S. Senators Call on Saudi Arabia to Let Women Drive. Fourteen female U.S. senators called on Saudi Arabia today to end its ban on women driving cars, adding new public support to a once-quiet campaign to change Saudi policy. In a letter to King Abdullah, the senators called on the kingdom to honor its commitments to the United Nations Human Rights Council and the Arab Charter on Human Rights by giving women the right to drive. “The prohibition on women driving motor vehicles, even in cases of emergency, makes it impossible for citizens to exercise a basic human right,” wrote Senator Barbara Boxer of California, the second-ranked Democrat on the Senate Foreign Relations Committee, along with 13 colleagues from both political parties.
• India Signals Tougher Inflation Resolve to Avert 'Hard Landing' of Economy. The Reserve Bank of India signaled it’s prepared to accept a slower expansion to pull down an inflation rate that risks causing a crash in the pace of growth in Asia’s third-largest economy if left unchecked. Governor Duvvuri Subbarao was forced to escalate what was already the steepest increase in borrowing costs among major Asian economies, after household expectations for inflation exceeded 12 percent, above the 9.44 percent current pace. The bank will add another half point to the benchmark rate by the end of 2011, the median of 11 estimates in a Bloomberg survey yesterday showed. “Policy makers now have accepted that demand is the underlying driver of inflation and needs to be brought down to cool inflation and avoid a hard landing,” said Jahangir Aziz, an economist at JPMorgan Chase & Co., who previously worked at India’s finance ministry and the International Monetary Fund. “Capacity constraints are much tighter and demand pressures much higher than they had thought.”
• Steelmaker Yields Rise as Record Redemptions Near: China Credit. Steel companies in the world's biggest producer of the metal face a record amount of debt redemptions as an oversupply of the commodity in Asia threatens to slash prices and trim profits. "China continues to see surplus capacity in the market and the larger companies are suffering from cash constraints due to lower profitability," said Helen Wang, a Hong Kong-based basic-materials analyst at MF Global Holdings Ltd, in a phone interview. "Steel companies could face the possibility of higher costs to refinance their debt, especially in a tighter monetary cycle."
• Oil Falls in New York After Industry Report Shows U.S. Stockpile Increase. Oil fell in New York as investors bet that rising U.S. crude stockpiles indicated fuel demand may falter in the world’s biggest consumer of the commodity. Futures slipped as much as 0.5 percent today after the industry-funded American Petroleum Institute said inventories climbed 3.96 million barrels to 358.2 million last week. Crude for September delivery slid as much as 54 cents to $99.05 a barrel in electronic trading on the New York Mercantile Exchange and was at $99.16 at 10:58 a.m. Sydney time. The contract yesterday climbed 39 cents, or 0.4 percent, to $99.59. Prices are 28 percent higher the past year.
• SEC Will Track Biggest Traders' Activity. The U.S. Securities and Exchange Commission will impose a system to monitor the behavior of high- frequency trading firms and hedge funds under new reporting standards for the most active market participants. SEC commissioners voted 5-0 today to adopt a tracking system for firms that buy and sell at least 2 million shares a day or meet other volume standards. The system, initially proposed three weeks before the May 2010 crash that temporarily erased $862 billion in U.S. share value, aims to help guard against market abuse and manipulation. “The collection of this information is particularly important given the increasingly prominent role played by very active market participants including high-frequency traders,” SEC Chairman Mary Schapiro said before the vote.
• Sovereign Ratings Should Be Free of Politics, S&P's Sharma Says. Credit-rating firms, which have weighed in on the debate over the U.S. debt ceiling, should be free from political pressure when they assess sovereign debt, Deven Sharma, the president of Standard & Poor’s, will tell lawmakers and regulators at a congressional hearing. “In a global economy where we rate more than 120 sovereign governments, it is particularly important that rating methodologies not become subject to influence by one or more countries seeking to benefit its own rating, which would undermine the independence, comparability and value of ratings to all,” Sharma said in testimony prepared for a House Financial Services subcommittee hearing tomorrow.
• Shanghai to Step Up Probes of Home Prices. Shanghai's government will step up inspections on the pricing of new homes to ensure that they aren't set at "unreasonably" high prices, as part of a nationwide effort to curb excessive gains.
• Juniper's(JNPR) Second-Quarter Sales, Profit Fall Short of Analysts' Estimates. Juniper Networks Inc. (JNPR), the second- largest maker of Internet networking equipment, reported quarterly sales and profit that fell short of analysts’ estimates after some customers postponed buying gear. Second-quarter profit excluding certain costs was 31 cents a share, the Sunnyvale, California-based company said today in a statement. Revenue rose 15 percent to $1.12 billion from $978.3 million a year earlier. Analysts on average projected profit of 33 cents a share and sales of $1.15 billion, according to a data compiled by Bloomberg. The shares fell as much as 17 percent.

Wall Street Journal:

• What's Wrong With America's Job Engine? Wary Companies Rely on Temps, Part-Timers, Hire Overseas. What's wrong with the American job engine? As United Technologies Corp. Chief Financial Officer Greg Hayes put it recently: "Sales have come back, but people have not.'' That's largely because the economy is growing much too slowly to absorb the available work force, and industries that usually hire early in a recovery—construction and small businesses—were crippled by the credit bust. Then there's the confidence factor. If employers were sure they could sell more, they would hire more. If they were less uncertain about everything from the durability of the recovery to the details of regulation, they would be more inclined to step up their hiring.
• Soros Investment Chief's Departure Comes Amid Poor Performance. George Soros’s move to return money to outside investors, and his top investment pro’s abrupt departure from Mr. Soros’s firm, come amid disappointing performance. His firm, Soros Fund Management LLC, has lost about 6% so far this year through the second quarter, according to a person familiar with the matter. That compares with a gain of 7.5% for the Standard & Poor’s 500, and a loss of 2.3% for the average ‘macro’ hedge-fund manager through the first half of the year, according to Hedge Fund Research. Last year, the firm gained 2.5%, below the nearly 13% price gain for the S&P 500.
• Valeant(VRX) Makes Approach For Meda. Valeant Pharmaceuticals International Inc. has made a takeover approach for Swedish specialty drug maker Meda AB, people familiar with the matter said, a deal that if consummated could be worth over $4 billion and mark the latest sign that a global wave of healthcare consolidation is underway.
• Illumina(ILMN) 3Q Net Up 2.8%, Shares Fall On Modest Boost To Outlook. Illumina Inc.'s (ILMN) third-quarter earnings rose 2.8% as revenue growth outstripped its higher costs, and the maker of biotechnology instruments raised its projections for this year. But shares were down 8.3% at $63.87 after hours as the boosted outlook was still short of analysts' expectations.
• The GOP's Reality Test. The Speaker has made mistakes in his debt negotiations, not least in trusting that Mr. Obama wants serious fiscal reforms. But thanks to the President's overreaching on taxes, Mr. Boehner now has the GOP positioned in sight of a political and policy victory. If his plan or something close to it becomes law, Democrats will have conceded more spending cuts than they thought possible, and without getting the GOP to raise taxes and without being able to blame Republicans for a debt-limit crackup or economic damage. If conservatives defeat the Boehner plan, they'll not only undermine their House majority. They'll go far to re-electing Mr. Obama and making the entitlement state that much harder to reform.

MarketWatch:

• NASDAQ Short Interest Down 1.1%. Short interest in Nasdaq-listed stocks dropped 1.1% in the first half of July from the prior two-week period, according to the exchange's semimonthly statistic.

Business Insider:

• The Government Just Admitted For The First Time It Is Using Cell Phone Data To Track Your Location. A group of Senators questioned the general attorney for the National Security Agency Tuesday about whether U.S. intelligence agencies are using cell phone geo location data to track U.S. citizens without their knowledge. According to The Wall Street Journal, the leader of the National Counterterrorism Center Matthew Olson told the Senate Select Committee on Intelligence that: "There are certain circumstances where that authority may exist."
• Chinese Luxury Price Inflation Is Even Crazier Than Overall Price Inflation. HuRun, which calculates an alternative luxury index for a basket of 61 high-end goods and services (38 of which are imported), said the prices of luxury goods in China were up 7.73% this year, compared with a 6.4% inflation rate for consumer goods overall. Notably, yachts and jets have seen the largest price surges, rising 22.1% over last year's prices. The cost of cosmetics and accessories have risen 16.6%, while luxury property prices have jumped 14.4%, HuRun said.

Zero Hedge:

• Watch Kansas Fed's Hoenig Explain Why He Is Not A Fan Of QE3 And Why He Believe Buying Government Debt Is Dangerous.

NY Times:

• U.S. May Have Way to Cover Bills After Deadline. Thanks to an inflow of tax payments and maneuvering by the Treasury Department, the government can probably continue to pay all of its bills for several days after Aug. 2, providing potentially critical breathing room for Congress to raise the debt ceiling, according to estimates by several Wall Street banks and a Washington research organization. The consensus is that the government will not run short of money until Aug. 10.

Forbes:

• Humphrey-Hawkins Meets the IMF. Noting that joblessness and bleak career prospects for the young are a factor in not only unrest-gripped emerging nations but most developed countries as well, Lagarde told the Council on Foreign Relations that this issue is part of a “social instability” challenge to be met at the Fund. (It was one of three “challenges,” she said, the other two being sovereign debt and economic growth. Growth and social instability meet at the workplace. )
• This U.N. Program Should Have Taxpayers Seeing REDD. While the Obama administration’s push to regulate domestic greenhouse gas emissions has mostly stalled, the worldwide fight for carbon suppression continues. Consider an ambitious United Nations effort that, while not widely known in the U.S., has implications for developing world economic growth and for American taxpayers.

Washington Post:

• Hero to Liberals, Soros Ends Hedge Fund Career to Escape Regulations. George Soros, the liberal left’s most prominent billionaire donor and activist, is winding down his career as a hedge fund manager, marking a major milestone in a financial and philanthropic career that spanned four decades. Citing new rules that would have required it to submit to more federal oversight, Soros’ management firm said Tuesday that it plans to close its $25.5 billion funds to outside investors and become a family-only enterprise. The move raised eyebrows in financial circles because Soros was an outspoken advocate for reforming Wall Street in the wake of the financial crisis. The change also enables Soros, who turns 81 next month, to become further involved in various philanthropic and political causes to which he has already devoted more than $7 billion, according to a person familiar with the company, who spoke on the condition of anonymity to discuss the firm’s transition. To liberals, Soros has towered as a prominent source of financial support. “He helped to build some of the progressive infrastructure that has, I think, made a significant difference in the debate,” said Robert Borsage, co-director of the Campaign for America’s Future, one of the liberal groups funded by the Democracy Alliance. “But perhaps his most important philanthropy in this area has yet to come.” Borsage points to Soros’s recent backing of the Institute for New Economic Thinking, a group devoted to promoting liberal economic policies, as a next step in countering the spread of conservative thought in academia. “George is distinctive in his philanthropy for his understanding of the importance of ideas,” Borsage added. Ironically, Soros’s backing for the sweeping financial reforms — which was embodied in landmark legislation enacted by Congress last year — helped put an end to his time in the hedge fund business. The act requires hedge funds, which manage pools of money on behalf of investors, to register with the Securities and Exchange Commission by early next year. “An unfortunate consequence of these new circumstances is that we will no longer be able to manage assets for anyone other than a family client as defined under the regulations,” the firm’s deputy chairmen, Jonathan Soros and Robert Soros, wrote in a letter to investors Tuesday.

Gateway Pundit:

• Long-Term Federal Budget Surplus/Deficit Graph.

The Blaze:

• Ohio Fall Ballot Cleared: Voters To Decide If State Opts Out Of Obamacare.

Politico:

• White House Press Secretary Jay Carney Mocks Press.
• Debt Ceiling Scenario Mulled by Congress.
  

Rasmussen Reports:

• Generic Republican Candidate 48%, Obama 42%.

Reuters:

• Las Vegas Sands(LVS) Q2 Swings to Profit, Shares Up. Las Vegas Sands Corp , the casino operator run by billionaire Sheldon Adelson, swung to a net profit in the second quarter, bolstered by improved business in the world's two most lucrative gambling markets, Macau and Singapore.
• S&P Sees 2nd Greek Debt Haircut, New Downgrade - CNBC. A new and bigger restructuring of Greek debt is likely within the next two years, an official from credit ratings agency Standard & Poor's said on Tuesday, adding a further downgrade of Greece's sovereign debt rating was "pretty certain." "The rating has a negative outlook, so we're pretty certain it's going to go lower because, of course, an actual debt restructuring is now on the table," David Beers, S&P's global head of sovereign ratings, told CNBC television.
  
• Panera(PNRA) Sales Miss Forecast, Shares Fall. Panera Bread Co (PNRA.O) reported softer-than-expected second-quarter sales at established restaurants, and its shares fell 4 percent after hours on Tuesday.
• Amazon(AMZN) Revenue, Spending Surges. Amazon.com Inc will use its surging revenue to boost growth and drive expansion into areas such as Web content and cloud computing rather than boost its margins. The largest Internet retailer reported a jump in quarterly revenue on sales of its Kindle electronic reader and other electronics and forecast better-than-expected revenue for the current quarter, sending its shares up more than 6 percent late on Tuesday.

Financial Times:

• Foreign Investment in Brazil Market Dives 70%.

BBC:

• Lockerbie Bomber Seen On TV Rally. The man convicted of blowing up a plane over the Scottish town of Lockerbie in 1988 has appeared at a rally broadcast by Libyan state television. Abdelbaset al-Megrahi was released from prison in Scotland almost two years ago on health grounds. Introducing him at a televised rally of members of Megrahi's tribe, the presenter said his conviction was the result of a conspiracy. He said his release had been a victory against oppression. The 1988 bombing of the US airliner, flying from London to New York, killed 270 people.

Shanghai Securities News:

• China may publish a new list of cities that will be required to limit home purchases by families in two months. The eastern Chinese cities of Kunshan, Jiaxing, Changshu and Yangzhou and the southern Chinese city of Zhuhai are likely to be on the list. The State Council this month said second and third-tier cities that have seen excessive price gains should restrict the number of homes each family is allowed to buy.

Financial News:

• China may raise interest rates at least once by the end of the year, citing experts.

Evening Recommendations
Citigroup:

• Reiterated Buy on (HSY), target $65.
• Reiterated Buy on (ILMN), target $90.

Piper Jaffary:

• Upgraded (TSCO) to Overweight, raised target to $80.
  
• Upgraded (PETM) to Overweight, raised target to $53.
• Upgraded (DLTR) to Overweight, raised target to $87.
  

Night Trading

• Asian equity indices are -.50% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 115.50 -1.5 basis points.
  
• Asia Pacific Sovereign CDS Index 117.0 -1.25 basis points.
  
• S&P 500 futures +.15%.
  
• NASDAQ 100 futures +.05%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (DPS)/.76
• (GLW)/.47
• (PX)/1.37
• (ENR)/1.25
• (IACI)/.38
• (DBD)/.31
• (AET)/1.08
• (WLP)/1.80
• (DOW)/.79
• (ZMH)/1.19
• (BA)/.97
• (R)/.77
• (COP)/2.21
• (DAL)/.44
• (OII)/.48
• (TER)/.41
• (V)/1.23
• (AFL)/1.54
• (GMCR)/.36
• (CLF)/3.72
• (WFM)/.48
• (OI)/.61
• (CCI)/.10
• (CTXS)/.55
• (EQR)/.60
• (FLS)/1.80
• (AVB)/1.12
• (GMR)/-.26
• (CBG)/.24
• (WYN)/.56
• (SEE)/.38
• (NOC)/1.67
• (GD)/1.72
• (AKAM)/.37
• (LRCX)/1.09
• (SYMC)/.37
• (MUR)/1.65
• (JNY)/.25
• (AN)/.45
• (BMC)/.68
• (ATI)/.73
• (EXC)/.95
• (PFCB)/.55
• (HES)/1.97

Economic Releases
8:30 am EST

• Durable Goods Orders for June are estimated to rise +.3% versus a +1.9% gain in May.
• Durables Ex Transports for June are estimated to rise +.5% versus a +.6% gain in May.
• Cap Goods Orders for Non-Defense Ex Air for June are estimated to rise +1.0% versus a +1.6% gain in May.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,000,000 barrels versus a -3,727,000 barrel decline the prior week. Distillate supplies are estimated to rise by +1,625,000 barrels versus a +3,432,000 barrel gain the prior week. Gasoline supplies are estimated to rise by +400,000 barrels versus a +757,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.3% versus a +2.3% gain the prior week.

2:00 pm EST

• Fed's Beige Book

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The 5-Year T-Note Auction, weekly MBA mortgage applications report and the (PII) Analyst/Investor Meeting could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and financial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.