Wednesday Watch

Evening Headlines
Bloomberg:

• Euro Slides Toward 2-Year Low Amid Spain Bank Concerns. The euro fell to an almost two-year low after Spain’s borrowing costs climbed as the nation struggles to rescue its troubled banks, fueling concern Europe’s debt crisis is spreading. The European currency was poised for the biggest monthly decline since September after Bank of Spain Governor Miguel Angel Fernandez Ordonez resigned a month early amid criticism over the May 9 nationalization of Bankia group, Spain’s third- biggest lender. The dollar gained versus peers before data this week forecast to show consumer confidence remained weak and the jobless rate rose across the 17 nations that share the euro. Australia’s dollar fell after retail sales decreased. “Spanish yields have risen to the extent that the nation can’t raise funds easily, and a further gain in the yields will increase the possibility” that the country will require a bailout, said Kengo Suzuki, a foreign-exchange strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. “Even from the perspective of its economic fundamentals, the euro is susceptible to selling.”
• Greek Opinion Poll Shows Majority Want to Revise Bailout Terms. Most Greeks want to see terms for an international financial rescue revised, according to an opinion poll conducted weeks before a second general election on June 17. Nearly eight in 10, or 77 percent, of the 1,600 Greeks surveyed by GPO for Athens-based Mega TV, said the terms of the bailout should be revised. The poll results were broadcast on Mega TV. Most Greeks, or 81 percent, said they wanted to remain in the single currency, the poll showed. More than half, or 52.4 percent, said they should stay in the euro if they were forced to accept the current austerity measures accompanying the bailout while 44.5 percent said they shouldn't. The poll showed Greeks divided on whether they would leave the euro area, with 48 percent saying there was a low possibility compared with 45 percent saying the possibility was high.
• EU Won't Treat Irish as Greeks If They Vote 'No". The eyes of the world are on elections in Greece next month that could determine whether it defaults and triggers contagion throughout the euro area. By contrast, Ireland’s referendum tomorrow on whether to ratify Europe’s new fiscal treaty is passing almost unnoticed. That’s odd, because although Ireland can’t veto the pact -- its full name is the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union -- the government is warning voters that the very same thing could happen here as in Greece.
• Greece Exit From Euro Seen Exposing Flaws of Deposit Guarantees. The threat of Greece exiting the euro is exposing flaws in how banks and governments protect European depositors' cash in the event of a run. National deposit-insurance programs, strengthened by the EU in 2009 to guarantee at least 100,000 euros, leave savers at risk of losses if a country leave the euro and its currency is redenominated. The funds in some nations also have been depleted after they were used to help bail out struggling lenders, leading policy makers to consider implementing an EU-wide protection plan. "These schemes were not designed to deal with a complete meltdown of a banking system," said Andrew Campbell, professor of international banking and finance law at the Univ. of Leeds in the U.K. and an adviser to the International Assoc. of Deposit Insurers. "If there's a systemic failure, there needs to be some form of intervention."
• Spain Ejects Clean-Power Industry With Europe Precedent: Energy. Spanish renewable-energy companies that once got Europe’s biggest subsidies are deserting the nation after the government shut off aid, pushing project developers and equipment-makers to work abroad or perish.
• Mercedes Laying Off 1,500 Workers in Brazil as Sales Fall. Daimler AG (DAI)’s Mercedes-Benz, Brazil’s second biggest truck and bus manufacturer by market share, said it’s laying off 1,500 workers in Brazil for five months to adjust output to a drop in sales. All affected employees work at Mercedes’ plant in Sao Bernardo do Campo, Brazil, the company said today in an e-mailed statement. The company employs about 14,000 workers in Brazil, where it has 25.5 percent of the truck and bus market, according to data from the country’s dealerships association, known as Fenabrave. The Sao Bernardo do Campo unit is Daimler’s biggest manufacturing facility outside Germany, according to the company’s website. Declines in truck and bus sales “created the need to reduce production” and a larger-than-needed workforce caused the layoffs, Mercedes said in the statement. Truck and bus sales fell 28 percent in the first two weeks of May from a year earlier, according to Fenabrave.
• RIM(RIMM) Shares Plunge After Company Reports Surprise Operating Loss. Research In Motion Ltd., reeling from sluggish BlackBerry sales, forecast a surprise operating loss for the first quarter and hired banks to advise on strategic options. The shares tumbled 15 percent in late trading. JPMorgan Chase & Co. and RBC Capital Markets have been hired to help RIM evaluate options, including forging partnerships, licensing its software and looking at "strategic business model alternatives," the Waterloo, Ontario-based company said today in a statement. RIM also is attempting to streamline operations by reducing spending and headcount.
• Syrian Diplomats Expelled as Houla Massacre Spurs Annan Mission. The U.S. joined its Western allies in expelling top Syrian diplomats, blaming the regime-backed Shabiha militia for the "vile, despicable" massacre of women and children in the town of Houla.
• Wells Fargo(WFC) Promises More Than $435 Million to End Memphis Suit. Wells Fargo & Co. (WFC), the largest U.S. home lender, pledged more than $435 million in mortgage credit and investments to end a discrimination lawsuit brought by Memphis, Tennessee.
• How Political Clout Made Banks Too Big to Fail. The U.S. has historically kept the financial sector in check through a combination of sound principles and serendipitous decisions. But as the financial system gained strength in recent years, it also gained political influence. In the last decade, it has become too concentrated and too powerful, which has damaged not only the economy but the financial sector itself. How did it happen?
• Japan’s Currency Chief Sees Threat From Very Rapid Gains in Yen. “Very rapid” gains in the yen are “counter-productive” and Japanese officials are closely monitoring the foreign-exchange market, the nation’s top currency official said. “The disorderly and speculative movement of any currency is not constructive” for economic growth, Vice Finance Minister Takehiko Nakao said in an interview yesterday in Hong Kong, where he’s attending a meeting of the Financial Stability Board. This is especially so for Japan as the nation recovers from last year’s earthquake and tsunami, he said.
• Rubber Inventory Rising in China as Slowdown Cuts Demand. Rubber stockpiles in China’s Qingdao port, the main shipment hub for the commodity used in tires, are starting to expand as demand slows in the world’s largest consumer, said the Qingdao International Rubber Exchange Market. “Demand from downstream tire makers seems to be weak at the current stage, so destocking has slowed down,” said exchange chairman Li Xiangou, who correctly forecast in March that high inventories may pressure prices. Futures have plunged 50 percent from a record in February 2011, cutting costs for tire makers such as Bridgestone Corp. (5108), Goodyear Tire & Rubber Co. (GT) and Michelin & Cie. Prices slumped as China, the biggest car market, expanded last quarter at its slowest pace in almost three years and Europe struggled to contain its debt crisis. Chinese vehicle sales dropped 1.3 percent in the first four months, the worst performance since 1998, says the China Association of Automobile Manufacturers. The market “has yet to come to terms with a scenario where Chinese demand is diminishing faster than anticipated,” said Wang Chen, head of research at commodity hedge-fund Hangzhou Dunhe Investment Co. “Weak auto sales in China, especially falling sales of trucks, coincide with a lackluster market in the U.S. and Europe, and may lead to a glut of the commodity that hasn’t yet been reflected in prices.”

Wall Street Journal:

• Confusion Surrounds Giant IPO. A $6 billion listing of a giant Chinese state-owned insurer is taking on new twists and turns as bankers gear up for an increasingly taxing deal. In addition to previous demands that already have raised eyebrows among bankers, People's Insurance Co. (Group) of China Ltd. is now asking banks that want to be on the deal to seek so-called cornerstone investors, according to people familiar with the matter.
• Romney Says Win Secures GOP Nod. Mitt Romney Tuesday night claimed his win in the Texas primary gives him the requisite number of delegates to clinch the Republican presidential nomination. "I am honored that Americans across the country have given their support to my candidacy and I am humbled to have won enough delegates" to be the GOP nominee, Mr. Romney said in a statement.

Business Insider:

• Tim Cook On Facebook, The iPad, And Just About Everything Else.
• A Controversial New Bill Could Force Hospitals To Provide Free Care In Illinois.
• Here Are The Most In-Demand Jobs Around The World Right Now.
• More And More People Think That The Next Debt Ceiling Fight Will Be A Catastrophe.
• The Arab Spring Created A Bunch Of Mini Irans.

Zero Hedge:

• On Europe: "A Willing Lender Of Last Resort May Not Be Enough".
• Housing Recovery - Hope and Reality. (graphs)
• ECB Calls Spain's Bluff... Or Does It? And Did Europe Just Check To The Fed?.

CNBC:

• Asia’s Message to Europe: Bite the Bullet and Implement Reforms. Europe should be “realistic,” devalue its currency and bear the pain of reforms so that it can emerge from the debt crisis stronger like Asia did in 1997, said Bank of Thailand’s Governor Prasarn Trairatvorakul.
• Sun to Set on Commodities Super-Cycle: Morgan Stanley(MS). The massive commodities boom of the past decade is at its tail end given the slowdown in one of the largest consumers, China, says Ruchir Sharma, Head of Emerging Markets at Morgan Stanley Investment Management. “China's growth is downshifting to a lower plain, its very commodity-intensive phase of growth is coming to an end. This to me marks a big decade of increase in commodity prices coming to an end,” Sharma told CNBC Asia’s “Squawk Box” on Wednesday. “I suspect that we're headed now for two decades down as far as commodity prices are concerned. This is the sunset of the big commodities super-cycle,” he said.

NY Times:

• Challenges Mount for Chinese Maker of Electric Cars. Four years ago, the BYD Company promoted the electric battery technology it was developing as a way to help China transform the automobile. No less an investor than Warren E. Buffett, one of the world’s richest men, boasted about the company’s prospects and bought a 10 percent stake.

Forbes

• Six Solyndras: Obamacare Blows $3 Billion on Faulty CO-OP Insurance Loans.

Reuters:

• Facebook(FB) faces extended U.S. review of Instagram deal. Facebook has received notice that U.S. antitrust regulators will give its proposed purchase of the popular photo-sharing app maker Instagram a lengthy investigation, an industry source told Reuters on Tuesday. Facebook has received a "second request" from the Federal Trade Commission, essentially a request for relatively large amounts of data that the regulators will sift through to ensure that the deal complies with antitrust law. A prolonged review adds another headache to the No. 1 social network, whose shares on Tuesday slid below $29 to a new low as nervous investors continued to show their concerns about Facebook's long-term business prospects and rich initial public offering price of $38.
• Apple(AAPL) CEO wants to make more products in U.S. Apple Inc Chief Executive Tim Cook said he would like to see more of the company's products assembled at home than in China and contain more U.S. components such as semiconductors.
• 'Corzine rule' proposed for futures brokers. Futures brokers would need to get approval from a top executive before making big withdrawals from customer accounts under a rule now pending and referred to in the industry as the "Corzine rule", after MF Global's former CEO Jon Corzine.

Financial Times:

• ECB Rejects Madrid Plan to Boost Bankia. A Spanish plan to recapitalise Bankia, the troubled lender, by indirectly tapping the European Central Bank for cash, was bluntly rejected as unacceptable by the ECB, European officials said. News of the rejection came as Spain faces elevated borrowing costs in the bond markets, tries to persuade investors it can contain problems in a banking sector weighed down by €180bn of bad property loans and, on Tuesday, saw its central bank governor stand down early.

Telegraph:

• Spanish data underscore dangerous economic slide. Spanish retail sales plunged a record 9.8pc last month underscoring a dangerous economic slide that could derail Madrid's efforts to shore-up its banks and struggling regions.
• Christine Lagarde attack on Greece backfires as she pays no tax. Christine Lagarde, the International Monetary Fund managing director who provoked an angry reaction from the Greek people after telling them to pay their taxes, does not pay tax on her own salary, it has emerged.

Capital.gr:

• EU May Extend To 2014 Deadline For Spain To Reach 3%-Of-GDP Deficit -Report. The European Commission will ask European Union finance ministers to grant an additional year to Spain to reach a deficit target of 3% of its gross domestic product, extending the deadline to 2014 from 2013, El Pais reported in its Wednesday Internet edition, citing an EU draft document. The broader flexibility to meet budgetary-deficit objectives, however, is conditioned on speeding up the increase in Spain's retirement age, increasing the taxable base of the value-added tax and ensuring regional governments comply with the country's stability program, among other things, the paper reported. Brussels will also demand that Spain create an independent fiscal institution--already in place in countries such as Sweden and the U.K.--to carry out analyses, give advice and control Spain's fiscal policy, the report said.

South China Morning Post:

• The European Union Chamber of Commerce interviewed 557 cos. and almost a quarter said they may move their operations from China to other developing countries because of rising labor costs and a change in regulations, citing Davide Cucino, the chamber's president. More than 40% of respondents said China's policies related to foreign-invested cos. were less fair than they were two years ago. Almost 60% expected the country's labor costs to rise in the next two years, it said.

Hunan Daily:

• Chinese Premier Wen Jiabao said the country faces increasing downward economic pressure, citing a speech by Wen.

Evening Recommendations
Citigroup Global Markets:

• Upgraded (LNKD) to Buy, target $125.

Night Trading

• Asian equity indices are -1.0% to -.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 193.0 -1.75 basis points.
  
• Asia Pacific Sovereign CDS Index 160.75 unch.
  
• FTSE-100 futures -.61%.
  
• S&P 500 futures -.46%.
  
• NASDAQ 100 futures -.43%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (TFM)/.36
• (BAH)/.40
• (LGF)/.21

Economic Releases
10:00 am EST

• Pending Home Sales for April are estimated unch. versus a +4.1% gain in March.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Rosengren speaking, Fed's Dudley speaking, Fed's Fisher speaking, Italy 10Y Bond auction, ECB's Draghi speaking, weekly MBA Mortgage Applications report, Sanford C. Bernstein Strategic Decisions Conference, Lazard Alt Energy Conference, Cowen Tech/Media/Telecom Conference and the (RDC) investor day could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and financial 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.