Wednesday Watch

Evening Headlines
Bloomberg:

• Greek Leaders Given Bailout Ultimatum. Alexis Tsipras of Greece’s Syriza party squared off with political leaders before talks on forming a coalition, handing them an ultimatum to renounce support for the European Union-led rescue if they want to enter government. Tsipras said he expected Antonis Samaras of New Democracy and Evangelos Venizelos, the former finance minister who leads the Pasok party, to send a letter to the EU revoking their written pledges to implement austerity measures by the time he meets them today to discuss a government alliance. Samaras and Venizelos rejected the request. Samaras said he was being asked “to put my signature to the destruction of Greece.” “He interprets, with unbelievable arrogance, the election result as a mandate to drag the country into chaos,” Samaras said late yesterday in televised remarks. “I hope Mr Tsipras will have come to his senses by the time we meet.” Tsipras is due to meet with political leaders from about 5 p.m. in Athens. The stand-off since the inconclusive May 6 election has reignited European concerns over Greece’s ability to hold to the terms of its two bailouts negotiated since May 2010. With Parliament split and policy makers in Berlin and Brussels urging Greece to stay the course, the country at the epicenter of the debt crisis is again facing the risk of an exit from the euro.
• Moody's Bank Downgrades Risk Choking European Recovery. Moody’s Investors Service will this month start cutting the credit ratings of more than 100 banks, a move that risks pushing up their funding costs and forcing them to curb lending in a threat to economic growth. BNP Paribas SA (BNP), France’s biggest lender, Deutsche Bank AG, Germany’s largest, and New York-based Morgan Stanley are among firms that face having their short- and long-term debt downgraded to their lowest-ever levels by Moody’s, the ratings company said in February. The cuts, which would follow downgrades by Standard & Poor’s and Fitch Ratings last year, could erode profits, trigger margin calls and leave some firms unable to borrow from money- market funds that have strict rules on who they can lend to. Without access to funding from private sources, banks have had to sell assets and reduce lending. “I’d like to say the views of the rating agencies don’t matter anymore but, unfortunately, they do,” said Philippe Bodereau, London-based head of European credit research at Pacific Investment Management Co., the world’s largest bond investor.
• Dutch Retailers Face Profit Blow as Taxes Chill Spending. Retailers in the Netherlands may have their earnings pinched this year as increased sales taxes and higher excise duties push prices up at a time when household confidence is at the lowest level since 2003. “I am worried about the higher VAT rates and the fact the Dutch government didn’t come up with a good solution for the stagnant housing market,” Ton Anbeek, chief executive officer of furniture retailer Beter Bed Holding NV (BBED), said in a telephone interview. To meet European Union budget rules, the Dutch government will boost the highest value-added tax rate on consumer goods to 21 percent from 19 percent after reaching an austerity agreement with opposition parties last month. Excise duties on tobacco and alcohol will increase starting in October. Dutch consumer confidence hit the lowest level since 2003 in March, according to the Central Bureau of Statistics, after consumer spending dropped 1.3 percent in February.
• China’s Stocks Fall Most in 5 Weeks on Export Slowdown Concerns. China’s (SHCOMP) stocks fell, dragging the benchmark index down by the most in five weeks, as political tension in Greece heightened concern Europe’s debt crisis may further slow Chinese export growth. China Cosco Holdings Co. and Cosco Shipping Co. dropped at least 1.4 percent before a report tomorrow that will show Chinese export growth decelerated. SAIC Motor Corp. slid 2.3 percent after the Xinhua News Agency said China will ban executives at state-owned companies from excessive spending on items such as cars. Sany Heavy Industry Co. paced declines for construction machinery stocks after Nomura Securities Co. said sales of excavators last month were “disappointing.” The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, slipped 1 percent to 2,424.91 as of 9:35 a.m. local time, poised for the biggest drop since March 29. The Communist Party of China may delay its planned five- year congress “by a few months” because of an internal debate on the size and composition of nine-member standing committee of the Politburo, Reuters said, citing unidentified people with knowledge of deliberations. “There’s already a lot of uncertainty this year because of the political changes and if stimulus measures are stalled because the congress is postponed, that will have an impact on shares,” Wan said.
• FX: Report of China's Congress Delay May Be AUD Negative: BNP Paribas. Reuters' report that China's Communist Party is considering a delay in its 5-year congress by a few months is likely to fuel speculation there's political infighting within the ruling party, BNP said in a note. This may have markets question the govt's ability to keep the Chinese economy on track in preventing a hard landing. While this may push USD/CNY 12-mo NDF higher, AUD will also remain vulnerable as the political news unfolds.
• Ross Says Looming ‘Freak Show’ May Threaten U.S. Economy. The U.S. economy is at risk of slipping back into recession in 2013 because of likely impasses in Washington over taxes and mandatory spending cuts, said Wilbur Ross, the billionaire investor. “That’s too big a hit for the economy to take,” Ross said today during a discussion at Bloomberg Markets’ Global Financial Elite lunch in New York. “We’re going to have another freak show at the end of the year.” Ross said he’s worried that President Barack Obama and Congress won’t be able to agree on extending tax cuts passed under former President George W. Bush that expire at the end of 2012, or on mandatory spending cuts tied to the extension of the country’s debt-ceiling agreement. He said he’s optimistic about the U.S. economy between now and then, and found a new way to describe the shape of the recovery beyond a “W.” “It’s more like punctuation,” he said. “Dots, dashes, question marks and an occasional exclamation point.” W.L. Ross & Co., his namesake firm known for buying distressed assets in industries from steel to financial services, is largely avoiding investments in what he called “the Club Med countries” of Europe, according to Ross. “It’s way too unsettled, even for our tastes, to be in Spain or countries like that just yet,” he said, adding that he has made deals in countries including Ireland. “You have to be very selective within Europe.”
• India Driving Away Telecom Operators Amid Probe: Tech. India’s mobile-phone industry, once a symbol of rapid growth, is turning into something else: a demonstration of the difficulty of doing business there. Some telecom companies have left and others said they may follow. India has rewritten tax rules, scrapped 122 licenses tainted by graft allegations and recommended charging 11 times more for airwaves in a bid to wrest more money from operators to help plug the widest budget deficit among the biggest emerging markets.
• Rubber Drops Most in 6 Months as European Woes Threaten Recovery. Rubber plunged by the most in six months as political turmoil in Greece deepened concerns Europe’s debt crisis may worsen, threatening the global recovery and sapping investor appetite for the commodity used in tires. October-delivery rubber fell as much as 4.4 percent to 291 yen a kilogram ($3,642 a metric ton), the lowest level for a most-active contract since Jan. 18, before trading at 291.1 yen on the Tokyo Commodity Exchange at 10:50 a.m. It was the largest drop since Nov. 10. The contract has lost 7.8 percent this week.
• FHA New Foreclosures Jump as Modified Loans Default: Mortgages. The number of Federal Housing Administration-insured home loans entering foreclosure jumped in March after half the mortgages it modified to ease repayment terms were in default again a year or more later. “The credit standards are way too loose -- you can get into a house with very little skin in the game, and if home prices drop by a small amount, you’re underwater,” said David Lykken, managing partner at Mortgage Banking Solutions, an Austin, Texas-based consulting firm. “We’ve got to start getting reasonable about standards. What they’ve done so far, some very slight attempts at tightening, don’t really count.”

Wall Street Journal:

• Turmoil in Greece Raises Euro Risk. Though Financial Markets Are Relatively Calm, Concern Grows About Impact of Potential Exit From the Common Currency. Financial markets' relatively calm reaction to the Greek turmoil masked rising risks Greece is on a road that leads to its exit from the euro zone, with hard-to-predict consequences. The weekend's inconclusive elections were seen by many as a possible beginning of the end, by choice or by necessity, for Greece's membership in the common currency.
  
• Annan Raises Fear of Syria Civil War. The Syrian conflict is at risk of breaking into a war that could split the Middle East, the lead international envoy to the country said, presenting his increasingly fragile peace plan as "the only remaining chance" to avert such a fate.
• Expanded Credit Elusive In Private Mortgage Bonds, Issuers Say. If there is a way to begin expanding credit with private mortgage bonds, companies that have issued such securities in the past few years aren't seeing it.
• NYSE Sees Danger of Exchanges Becoming 'Showrooms' for Prices. U.S. stock exchanges are in danger of becoming "showrooms" for prices in an equities market that's increasingly moving behind closed doors, the head of NYSE Euronext (NYX) warned Tuesday.
• Traders See SEC Speed Trap. Investors and regulators blame high-speed traders and computer-driven exchanges for causing problems in the stock market, but some traders are saying the real culprit is the market's own rules. The Securities and Exchange Commission instituted a broad set of rules in 2007 to direct buy and sell orders among stock exchanges. Since then, high-frequency traders along with exchanges have profited from loopholes in the rule, according to Blair Hull, founder of the Chicago investment firm Matlock Capital LLC.
• Broadcom(BRCM) CEO Sees Consolidation Ahead In Mobile-Chip Sector. Consolidation is ahead for the wireless semiconductor sector, according to the chief executive of chip maker Broadcom Corp. (BRCM), with many companies likely to face either a financial or technological squeeze. Scott McGregor, speaking at an investor conference, said the high cost and difficulty of developing new processors for smartphones and tablet computers will cause many chip makers to exit the market.
• Veteran Indiana Senator Ousted. Indiana Sen. Richard Lugar, whose 35 years in the Senate made him one of the longest-serving members, was ousted by a Republican primary opponent Tuesday after running a stumbling campaign and facing a tea-party movement eager to take advantage of his missteps.
• Rising Costs Hit Homeowners Chasing Lower Rates. Mortgage rates may be at rock-bottom levels, but the cost of getting a loan is on the upswing, thanks to reduced competition among banks and tougher lending requirements. Mortgage closing costs averaged $4,143 in 2011, the most recent data available, up 12.4% from a year earlier, according to Bankrate.com. Borrowers seeking to refinance often don't have to pay that full amount, but the prices for some of the most common components of a refinance have jumped as well. Origination fees, for instance, climbed by 12% to an average of $1,045 in 2011, according to Bankrate.com. Attorney costs and other settlement fees rose 9.6% to an average of $544.
• Chesapeake's(CHK) Private Jets in Cross Hairs. A shareholder of embattled natural-gas giant Chesapeake Energy Corp. accused the company of understating the cost of personal jet travel provided to top executives and outside directors by as much as $10 million per year. In a lawsuit filed in state court in Oklahoma City, the shareholder claims that Chesapeake directors misled investors by stating in regulatory filings that personal use of company aircraft was "limited" and that the company's fleet of jets was used "primarily" for business travel.
• North Carolina Backs Ban on Gay Marriage. North Carolina voters on Tuesday approved a constitutional amendment defining marriage as strictly between a man and a woman. The amendment was ahead 61% to 39% with 80% of the precincts reporting statewide, after earlier driving record turnout for early voting.
• Peltz's Trian to Take Stake in Ingersoll(IR). Nelson Peltz's Trian Fund Management LP is expected to report taking a more-than-7% stake in industrial conglomerate Ingersoll-Rand PLC, people familiar with the matter said, as some analysts have maintained the company is underperforming against its rivals.

Business Insider:

• How Goldman Sachs(GS) Blew The Facebook(FB) IPO.
• BOMBSHELL: The Al-Qaeda Underwear Bomber Was Actually A CIA Double Agent.
• 4 Ways That French Foreign Policy Will Change Under Hollande.

Zero Hedge:

• Spain Appears Unsure What A "Bank Bailout" Means.
• John Taylor Says "To Hell With Germany".
• America Will Have Negative Unemployment In January 2022.
  

CNBC:

• Green Mountain's(GMCR) Stiller 'Hurt' to Lose Chairman Title. "I am really shocked and hurt, Stiller told CNBC on Tuesday evening. "There were no SEC laws broken, nothing that was in violation of Federal law. I'm stunned. I've always been transparent with the board. I think it's an overreaction."
• Disney(DIS) Earnings Top Expectations; Shares Rise. Walt Disney reported on Tuesday quarterly earnings and revenue that beat Wall Street's expectations, driven by growth at its media networks such as sports powerhouse ESPN and its theme park business.
• Street Gangs: A New Breed of White Collar Criminals? Gangs are expanding and becoming more violent, posing an increasing risk to communities across the country, according to the National Gang Intelligence Center. And their latest threat is not drugs or prostitution, it’s white-collar crime.

IBD:

• Vitamin Shoppe(VSI) Rallies 15% On Healthy Earnings Growth.

NY Times:

• German Patience With Greece on the Euro Wears Thin. Just weeks ago, the idea that Greece would leave the euro zone was almost unthinkable. Now, with Greece’s newly empowered political parties refusing to abide by the terms of the country’s international loan agreement and Europe’s leaders talking tough, that outcome is looking increasingly likely. Germany’s devotion to the euro and the European Union runs extremely deep and cuts across the political spectrum. But the frustration with Greece here is undeniable. There is a growing conviction that it is up to Greece to follow through on its commitments, that Europe is done negotiating. “Germans are now predominantly of the opinion that they would be better off if Greece left the euro zone,” said Carsten Hefeker, professor of economics and expert on the euro at the University of Siegen. “If the country really is continuing on the path they are taking now, it would be hard to justify keeping them in. How do you deal with a country that says we don’t want to keep any of the commitments we have made?”

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows Mitt Romney earning 49% of the vote and President Obama attracting 44% support. Three percent (3%) would vote for a third party candidate, while another three percent (3%) are undecided.

Reuters:

• Exclusive - Chesapeake(CHK) CEO arranged new $450 million loan from company financier. In the weeks before Chesapeake Energy CEO Aubrey McClendon was stripped of his chairmanship over his personal financial dealings, he arranged an additional $450 million (278.6 million pounds) loan from a long-time backer, according to a person familiar with the transaction.

Financial Times:

• Greek Left Attacks 'Barbarous' Austerity. Greece is heading for a clash with international lenders as the radical leftwing party that came second in the weekend’s election called for the ripping up of a “barbarous” austerity programme underpinning its bailout and questions mounted about the country’s future inside the euro.
• Hollande At Odds With Key Partners On Structural Reform. What got less attention was Mr Hollande’s revealing admission that he did not share Mr Draghi’s vision, quickly endorsed by Angela Merkel, the German chancellor, that such a growth plan should be focused on structural reforms, such as increasing labour market flexibility. Mr Hollande was not coy about this. “Can we really believe that liberalism, privatisations and deregulation, which led us to the financial crisis we are in, will help us get out of the crisis?” he said. His emphasis at the European level is on boosting investment and employment in new energy technology, infrastructure and small businesses through the use of project bonds and institutions such as the European Investment Bank and EU structural funds.

Telegraph:

• Crisis escalates as insurrection breaks German control of Europe. The political dam has broken in Europe. German Chancellor Angela Merkel no longer has enough allies in the club of EU prime ministers to impose her hairshirt agenda. Her methodical plans are disintegrating on every front. The immediate fate of Greece - and the euro - is in the hands of a boyish motorcycle Marxist. Syriza leader deal Alexis Tsipras has vowed to tear up the hated Memorandum, as the EU-IMF "troika" loan package is known. He showed no sign of backing off as he met his country's president and began talks on the formation of an implausible Left front. "The popular verdict clearly renders the bailout null and void," he said.
• Greece Drifts Closer to Euro Exit. A rudderless Greece was drifting closer towards a euro exit on Tuesday night as the man tasked with forming a new government vowed to abandon its austerity promises.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -1.50% to -.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 173.0 +4.0 basis points.
  
• Asia Pacific Sovereign CDS Index 139.0 -.5 basis point.
  
• FTSE-100 futures +.28%.
  
• S&P 500 futures -.45%.
  
• NASDAQ 100 futures -.41%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (FCN)/.61
• (ABVT)/.69
• (DTG)/1.35
• (AOL)/.17
• (M)/.40
• (NWSA)/.31
• (PCLN)/3.95
• (BMC)/.80
• (ATVI)/.04
• (MNST)/.38
• (CSCO)/.47
• (CUZ)/.12
• (CGX)/.77
• (BKC)/.36

Economic Releases
10:00 am EST

• Wholesales Inventories for March are estimated to rise +.6% versus a +.9% gain in February.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,000,000 barrels versus a +2,840,000 barrel gain the prior week. Distillate inventories are estimated to rise by +125,000 barrels versus a -1,903,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -750,000 barrels versus a -2,009,000 barrel decline the prior week. Finally, Refinery Utilization is expected to rise by +.5% versus a +1.3% gain the prior week.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Plosser speaking, Fed's Pianalto speaking, 10Y T-Note Auction and the weekly MBA mortgage applications report could also impact trading today.
  

BOTTOM LINE: Asian indices are lower, weighed down by financial and technology shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.