Today's Headlines

Bloomberg:

• Papandreou Wins Budget Vote. Greek Prime Minister George Papandreou clinched enough votes to pass the first part of an austerity plan aimed at meeting European Union aid requirements and staving off default for his debt-laden nation. Papandreou won by 155 votes to 138, a wider margin than last week’s confidence ballot, as some opposition lawmakers abstained rather than oppose a package that is the condition for further rescue funds. The vote was overshadowed by a 48-hour strike and scuffles outside Parliament that saw police fire tear gas at demonstrators protesting budget cuts and asset sales. Greek bonds rose as approval of the 78 billion-euro ($112 billion) plan sparked optimism Papandreou can keep the country’s coffers intact for now. Attention now shifts to a second bill tomorrow that authorizes implementation of the measures. “Markets will calm down a little bit and the situation will improve a little,” said Christoph Weil, an economist at Commerzbank AG in Frankfurt. “It’s of course only a matter of time until this starts all over again. Greece needs to continue to implement its reforms, and we can tell how difficult that is.”
• Sovereign, Bank Debt Risk Falls on Greece Vote, Rollover Bets. The cost of insuring against default on European sovereign and bank debt fell on speculation Greece’s government will approve austerity measures needed for a second bailout and investors will agree to rollover their bond holdings. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments dropped 6 basis points to 227 at 10 a.m. in London. “A positive vote in Greece today, and these proposals, would remove a significant risk in the near term,” London-based Frieser wrote in a note. “But the Greek issue will be a chronic one, so we wouldn’t get overly carried away on the news.” Swaps on Greece tumbled 60 basis points to 1,992 basis points, according to CMA. That’s down from a record 2,421 basis points June 27, and still implies an 82 percent chance of default within five years. Contracts on Ireland dropped 23 basis points to 756, Portugal declined 22 to 772 and Italy fell 11 to 180, while Spain was 11 lower at 277 and Belgium was down 9 at 151. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers decreased 6.5 basis points to 165.5 and the subordinated index dropped 10 to 288, according to JPMorgan Chase & Co. Contracts on the Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings decreased 8 basis points to 417. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings declined 1.75 basis points to 111.5 basis points.
• Greek Debt Restructuring is 'Unavoidable,' Nielsen Tells FTD. A Greek debt restructuring is “unavoidable,” Guillermo Nielsen, a former Argentinian finance secretary who oversaw the country’s defaulted debt exchange in 2005, told Financial Times Deutschland. “Politicians in the euro zone consider a restructuring as one of many options and seem to believe that they can ride out the problem,” the German newspaper cited Nielsen as saying. “But lawmakers only have the option between an orderly restructuring and a disorderly sovereign default. A haircut on debt is unavoidable.” Greece would need a haircut of at least 64 percent on its bonds to stabilize its debt and another aid package of 150 billion euros ($216 billion), of which two thirds should be used to support the banking sector and one third to stimulate the economy, Nielsen told the newspaper.
• Lagarde Must Shield IMF Balance Sheet, El-Erian Writes in FT. Christine Lagarde, newly installed as managing director of the International Monetary Fund, should prepare the fund’s balance sheet for the risk of future impairment resulting from loans made in the past year, Mohamed El-Erian, the chief executive officer of Pacific Investment Management Co., wrote in the Financial Times. This is necessary so the fund doesn’t follow the European Central Bank in obscuring a solvency problem by shifting a member-country’s debt to its own balance sheet, thus becoming part of the problem rather than part of the solution, the Pimco chief said. Lagarde should also restore an appropriate separation between the IMF job and the political ambitions of the holder, a separation that’s been damaged by the widely held view that Dominique Strauss-Kahn, who resigned as IMF chief last month, was using the post as a springboard to the presidency of France, El-Erian said.
• China Inflation is 10-Year Problem: PBOC Adviser. China’s inflation, already at a three-year high, is “most likely chronic” and will remain a problem over the next decade, Li Daokui, an academic adviser to the People’s Bank of China said today. The central bank, which has raised borrowing costs four times since October, needs to increase interest rates further to combat price gains, Li, a professor at Tsinghua University, said at a conference in Beijing. Li, 47, said he was giving his view as an academic. “High inflation pressure will be a long-term structural issue for China, mainly driven by cost-push factors such as rising wages, energy and resources prices,” said Chang Jian, a Hong Kong-based economist with Barclays Capital, who previously worked at the World Bank and Hong Kong Monetary Authority. Inflation accelerated to 5.5 percent last month and may top 6 percent in June, banks including China International Capital Corp and Mizuho Securities Asia Ltd. say. “China needs to correct the situation of negative real interest rates so another three to four rate increases are needed by the end of 2012 to change that,” Chang said. The benchmark one-year deposit rate has lagged behind consumer-price gains for more than a year. Inflation will be a long-term problem in China due to changes in the structure of the economy, Li told reporters today. Wages of “blue collar” workers have kept rising, pushing up manufacturing costs, while prices of agricultural products are climbing as farm workers don’t want to “feed pigs in the countryside” and are migrating to the cities, he said. There is widespread discontent in Chinese society with market reforms, Li said today, citing income inequality as one factor. Pressure to speed up political reform is “visibly increasing” to improve transparency and accountability, and fight corruption, Li said. Reform will be increasingly driven by “grass roots” with public opinion having more of an impact on policies than before, he said.
• Crude Oil Extends Gain After Larger-Than-Expected Decline in Inventories. Oil rose the most in six weeks in New York after the U.S. government reported that supplies dropped almost three times as much as expected. Crude recouped all of its declines since the International Energy Agency’s June 23 announcement that its members will release 60 million barrels of oil from strategic reserves, including 30 million barrels from the U.S. The Energy Department said inventories fell for a fourth week, the longest stretch of drops this year, as imports decreased. “They show that we’re losing a lot of imports already, and we could see more of a decline in expected deliveries to the U.S. because of the IEA release.” Crude for August delivery rose $2.57, or 2.8 percent, to $95.46 a barrel at 12:43 p.m. on the New York Mercantile Exchange. Earlier, prices advanced as much as 3.2 percent and were poised for their biggest one-day increase since May 18. Futures have risen 26 percent in the past year. Imports fell 271,000 barrels a day, or 3 percent, to 8.88 million, the first drop in three weeks. Crude also rose amid speculation OPEC may reduce output in response to IEA’s release of oil from reserves. “There are concerns Saudi Arabia will cut production” in response to the IEA move, said Roland Stenzel, an oil trader at E&T Energie Handelsgesellschaft mbH, said from Vienna.
• Soggy Corn Fields Curb U.S. Planting as Demand for Ethanol, Feed Increase. U.S. corn farmers were unable to plant on soggy or flooded fields from Arkansas to North Dakota this year, signaling tighter grain stockpiles even after rising demand for livestock feed and ethanol sent prices surging. The U.S. Department of Agriculture may cut its planting forecast on June 30 to 90.629 million acres, according to a Bloomberg News survey of 31 analysts. That’s less than the 92.178 million that farmers predicted in a government survey three months ago and would be the USDA’s biggest such reduction from the March forecast since 1995. Higher grain prices mean consumers are paying more for everything from Hormel Foods Corp. (HRL)’s Jennie-O turkey to Del Monte Foods Co. (DLM)’s Kibbles ‘n Bits dog food. Global food prices are up 37 percent in the past year, reaching a record in February, according to the United Nations.
• India Bonds Drop a Second Day on Concern Inflation Will Quicken. India’s 10-year bonds declined a second day on concern inflation will accelerate after fuel prices were raised. Refiners including Indian Oil Corp., the nation’s biggest, increased diesel prices by 3 rupees (7 cents) a liter, kerosene by 2 rupees a liter and cooking gas by 50 rupees for every 14.2 kilogram bottle on June 24. “The fuel price increase will definitely push up inflation and that’s damping appetite for debt,” said Paresh Nayar, the Mumbai-based head of money markets and currency at FirstRand Ltd. “The bill sale is also a temporary negative from the point of view of liquidity.” The yield on the 7.8 percent bond due April 2021 rose two basis points, or 0.02 percentage point, to 8.28 percent as of the 5 p.m. close in Mumbai, according to the central bank’s trading system. The wholesale-price index, the main inflation gauge, rose 9.06 percent in May from a year earlier, compared with 8.66 percent in April, according to data published June 14. Wholesale prices will increase by more than 10 percent in July from a year earlier due to the fuel-price rise, Nomura Holdings Inc. Mumbai- based economists Sonal Varma and Aman Mohunta wrote in a note to clients yesterday.
• China Swaps Jump as Rate Speculation Revives. China’s interest-rate swaps jumped by the most in one week on speculation policy makers will boost interest rates after the central bank lifted the yield on one- year bills for a second sale. Inflation is likely to average 5.3 percent this year, topping the government’s 4 percent target, the Economic Information Daily reported today, citing Li Jianwei, director of the macro economy research institute under the State Council’s Development Research Center. “You have a lot of funding stresses” said Matthew Huang, Asian currency and rates strategist at Macquarie Group Ltd. in Singapore. “Most of the banks are still expecting another rate hike.” The one-year interest rate swap, the fixed cost needed to receive the floating seven-day repurchase rate, increased six basis points to 3.82 percent as of 5:12 p.m. in Shanghai, according to data compiled by Bloomberg. Consumer-price increases may stabilize in the third quarter before accelerating in the fourth, driven by rising wages and imported inflation, the newspaper cited Li as saying. Inflation may reach 7.1 percent in the third quarter of next year, partly due to higher commodity prices, he said.
• Monsanto(MON) Raises Forecast as Net Gains 77%. Monsanto Co. (MON), the world’s largest seed company, raised its full-year profit forecast and posted third-quarter earnings that topped analysts’ estimates on higher sales of Roundup weed killer and genetically modified seeds.
• Stop The Fiscal War Against Our Children Now: Laurence Kotlikoff. Our war in Afghanistan may be ending, but our war against our children continues in full force. The Congressional Budget Office just released its annual long-term fiscal forecast. It shows, after some simple calculations, that our government’s fiscal gap -- the bill presumably being left to our children -- has grown enormously over the past year. How big is the fiscal gap? By my own calculations using the CBO data, it now stands at $211 trillion -- a huge sum equaling 14 times the country’s economic output. To arrive at that figure, I assumed that annual noninterest spending, as well as taxes, would grow indefinitely by 2 percent a year beyond 2075, the point at which the CBO’s estimates end.

Wall Street Journal:

• Greece Secures Austerity Vote. Greece's Parliament approved a five-year austerity plan demanded by its international creditors as a condition for a new bailout that promises short-term relief, but fails to resolve deeper questions about the country's ability to pay back its debts.
• Geithner Rejects GOP Debt-Ceiling Plan. Treasury Secretary Timothy Geithner pushed back against calls from a group of Republican lawmakers to prioritize paying interest on debt and cut spending instead of raising the debt ceiling.
• OPEC Calls on IEA to Avoid Oil Releases. OPEC's top official said Wednesday he wants to mend fences with the International Energy Agency and avoid a repeat of a release of oil from stockpiles that has strained consumer-producer relations. Abdalla Salem El-Badri, secretary general of the Organization of Petroleum Exporting Countries, said he hoped to set up a sit-down meeting with IEA Executive Director Nobuo Tanaka to discuss better coordination between consumers and producers. "We don't want this to be repeated," Mr. El-Badri said of the IEA's controversial release. Mr. El-Badri said he would tell Tanaka, "Let us not disturb the market."

CNBC.com:

• Commercial Lenders Take Step into Riskier Deals. The market for commercial real estate loans is coming back, but already some industry professionals are warning that risky practices that were common in the recent boom are returning.
• CNBC 2nd Quarter Survey Results.
  

Business Insider:

• Obama's Team Worried About His Reelection Chances.
• China's Small Businesses Are Going Bankrupt, Divesting and Increasing Capital Outflows.
  

Zero Hedge:

• This Message Saluting The Latest Banker Bailout Via The Greek Conduit, Brought to You by Dexia.
• Italy Banks Go For The Trifecta on Sigma X.
  

New York Times:

• Speculation Behind High Gas Prices, Report Says. Speculative commodities trading on Wall Street is significantly inflating prices at the gas pump, according to a new report by researchers at the University of Massachusetts, Amherst. The report criticizes regulators for not restraining speculative energy trading and calls upon the Commodity Futures Trading Commission to finally put trading limits in place. Turmoil in oil-producing countries across the Middle East and growing demand for oil elsewhere was responsible for some of the run-up in gasoline prices. But, the report contended, oil speculators drove much of this year’s surge in prices. The speculation, according to the report, cost the average consumer an extra 83 cents a gallon in May, amounting to a more than $1 billion premium across the country. Exxon Mobil’s chief executive, Rex W. Tillerson, recently told Congress that absent speculative trading, oil should cost only $60 to $70 a barrel, compared with the $90-to-$100 mark where it has hovered for several months. “A big chunk of what all of us are paying at the pump for gasoline today is going straight into the pockets of Wall Street speculators,” said the report’s co-author, Robert Pollin, a director of the Political Economy Research Institute and an economics professor at the University of Massachusetts, Amherst. Dr. Pollin, teaming up with a group of consumer advocates who favor strict financial regulation, is lobbying regulators to rein in speculative trading. Under the Dodd-Frank regulatory law enacted last year, the Commodity Futures Trading Commission is supposed to “diminish, eliminate or prevent excessive speculation.” Congress instructed the agency to start enforcing trading limits in January. But the commission has so far delayed a plan to enact so-called position limits on 28 commodities — oil, wheat, corn and the like. Existing position limits apply to only nine items. “There’s no reason that you can’t make position limits work,” Dr. Pollin said. “This is something that Congress passed, and it is the obligation of the C.F.T.C. to represent the interests of the American people and that means establishing serious position limits without hordes of exemptions.”
• China Opens Oil Field in Iraq. China’s largest oil company has begun operations at Al-Ahdab oil field in Iraq, making the field the first major new area to start production in Iraq in 20 years, according to an official news report on Tuesday.

Politico:

• Obama May Be Losing the Faith of Jewish Democrats. David Ainsman really began to get worried about President Barack Obama’s standing with his fellow Jewish Democrats when a recent dinner with his wife and two other couples — all Obama voters in 2008 — nearly turned into a screaming match.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows that 22% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Thirty-eight percent (38%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -16 (see trends).
• 75% Say U.S. Not Doing Enough to Develop Its Gas and Oil Resources. Just 19% believe the United States does enough to develop its own gas and oil resources.

Reuters:

• Exclusive: S&P to Deeply Cut U.S. Ratings If Debt Payment Missed. The United States would immediately have its top-notch credit rating slashed to "selective default" if it misses a debt payment on August 4, Standard & Poor's managing director John Chambers told Reuters. Chambers, who is also the chairman of S&P's sovereign ratings committee, told Reuters on Tuesday that U.S. Treasury bills maturing on August 4 would be rated 'D' if the government fails to honor them. Unaffected Treasuries would be downgraded as well, but not as sharply, he said.
• Three Week Outflow Streak for Equity Funds - ICI.
  

Qilu Evening News:

• China is studying control measures on property markets in smaller cities including Shandong province's Yantai city as prices rose sharply after the government limited purchases in major cities.

China National Radio:

• Banks in southern Chinese province of Guangdong are able to withstand a 50% price decline in home prices in the province, citing a stress test.

Bear Radar

Style Underperformer:

• Small-Cap Growth (+.58%)

Sector Underperformers:

• 1) Homebuilders -1.31% 2) Airlines -.57% 3) Medical Equipment -.18%

Stocks Falling on Unusual Volume:

• PVA, WBMD, MERU, CBOU, CREE, VRA, AHT, CBD, KBH, AYI, SIGA, TQNT, GBX and SHAW
  

Stocks With Unusual Put Option Activity:

• 1) KBH 2) PXP 3) SHAW 4) COG 5) MMR
  

Stocks With Most Negative News Mentions:

• 1) KR 2) MEE 3) GS 4) XOM 5) RIMM
  

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume
  

Bull Radar

Style Outperformer:

• Large-Cap Value (+1.01%)

Sector Outperformers:

• 1) Gold & Silver +2.77% 2) Oil Service +2.56% 3) Ag +2.43%

Stocks Rising on Unusual Volume:

• MMR, SM, IVN, FCX, TI, BAC, C, MRVL, SPRD, EXXI, SAIA, LOGI, ROSE, ZAGG, ABMD, ALGT, AIXG, SFSF, NUVA, STLD, USAP, SCHN, LSTZA, GOLD, IPXL, ASEI, ERTS, CRZO, BJ, CBD, LNN, MMR, X, BK, MON, AKS, UCO, MOS, MDR, TAOM, IDT and HAL
  

Stocks With Unusual Call Option Activity:

• 1) ATML 2) CSTR 3) SHAW 4) MON 5) ATI
  

Stocks With Most Positive News Mentions:

• 1) JEC 2) NKE 3) MON 4) KFT 5) WPI
  

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume
  

Wednesday Watch

Evening Headlines

Bloomberg:

• Papandreou Bids to Avert Greek Default. Greek Prime Minister George Papandreou’s bid to avert the euro region’s first sovereign default will culminate today with a budget vote in a Parliament besieged by protesters amid a wave of national strikes. Papandreou may scrape through approval by quelling dissent from the 155 votes he commands in the 300-seat Parliament and recruiting opposition allies to deliver a 78 billion-euro ($112 billion) austerity package that will determine if his indebted nation can receive further rescue funds. Rallying lawmakers might be easier than enacting the plan as Greek discontent deepens on higher taxes and so-called “crisis wage levies.” “The odds favor the government and a parliamentary approval,” said Wolfango Piccoli, an analyst at Eurasia Group in London. “But this will be a Pyrrhic victory and an early election later this year or early 2012 is almost certain. It is difficult to see how the current government can implement the required measures to meet the bailout conditionalities.”
• Greek 'Indignants' Face Down Politicians. His face covered in white powder to stop the tear gas from stinging, George Styliatis is into his second month of trying to topple Greece’s leadership. “We need this government to fall, we need a new constitution, a new Greece,” Styliatis, 41, an unemployed former ambulance driver, said as he mingled in central Athens during a general strike yesterday. “They wanted us divided, but at this time, as you see around us, all the people are here.” Nowhere in Europe are politicians facing the wrath of the people who put them in power more than in Greece. As Prime Minister George Papandreou tries to unite his party behind a package of cuts, increased taxes and asset sales, protesters are galvanizing their opposition to the politicians they blame for needing it in the first place.
• Morgan Stanley(MS) Said to Suffer Trading Loss. Morgan Stanley (MS), the firm targeting a 2 percent market-share gain in fixed-income trading this year, was burned by a wager on U.S. inflation expectations in the second quarter, three people informed of the dealings said. The bank’s interest-rates trading group lost at least tens of millions of dollars on the trade, which the firm has been unwinding, two of the people said, declining to be identified because the transaction isn’t public.
• Emerging Markets Will Press Lagarde. Christine Lagarde won the support of emerging-market nations for her successful bid to become managing director of the International Monetary Fund by promising them greater influence at the global lender. Now she’ll be under pressure to deliver.
• Basel Regulators Said to Scrutinize Banks' 'Flawed' Risk-Weighting Methods. Global banking regulators are moving their attention to disparities in the way firms measure the riskiness of their assets on concern lenders may be using their internal models to mitigate rules aimed at making them boost capital. The Basel Committee on Banking Supervision agreed on June 25 to make systemically important financial institutions hold core Tier 1 capital of as much as 9.5 percent of total risk- weighted assets. Now regulators are preparing to assess how banks set risk weightings amid criticism firms’ calculations are inconsistent, said a person with direct knowledge of the matter who declined to be identified because the talks are private. “There is no question that the weightings can be manipulated,” said Charles Goodhart, a former Bank of England policy maker and professor at the London School of Economics. “They are light years away from being scientific. The idea that risk can be captured and then not adjusted to reflect dynamic markets is absolutely flawed.”
• Shilling: China Heading for a Hard Landing, Pt. 3. China is hoping to cool its white- hot economy without precipitating a recession. Doing so will be extremely difficult: Inflation fears are growing, the government’s ability to respond is quite limited, and China’s economic model, which leaves bureaucrats guessing about the market effects of their directives, is ultimately untenable.

Wall Street Journal:

• NATO Copter Ends Kabul Hotel Siege. A helicopter from the coalition led by the North Atlantic Treaty Organization fired on and killed three militants on the roof of Kabul's InterContinental Hotel, ending the nearly six-hour siege by gunmen and suicide bombers that demonstrated the Taliban's ability to stage dramatic attacks in Afghanistan's capital.
• Wall Street Wielding the Ax. The trading slump on Wall Street has battered profits and is about to cost some people their jobs.
• BofA(BAC) Nears Huge Settlement. Bank of America Corp. is close to an agreement to pay $8.5 billion to settle claims by a group of high-profile investors who lost money on mortgage-backed securities purchased before the U.S. housing collapse, said people familiar with the matter. The payment would be the largest such settlement by a financial-services firm to date, exceeding the total profits of the Charlotte, N.C., bank since the onset of the financial crisis in 2008.
• UAW, Car Makers Gear Up for Talks. The United Auto Workers union plans to kick off contract negotiations next month with Detroit auto makers, the industry's first labor talks since the U.S. bailout gave union trusts stakes in General Motors Co. and Chrysler LLC.
• Fed Extends Lending Program for Central Banks. The Federal Reserve, amid persistent worries about Europe's sovereign debt crisis, last week quietly approved the extension of a crisis-lending program that allows the European Central Bank to tap the U.S. for dollars, Federal Reserve Bank of St. Louis President James Bullard said. The Fed's dollar-lending agreements with the ECB—as well as the central banks of England, Canada, Japan and Switzerland—were scheduled to expire Aug. 1. The Fed and other central banks haven't yet disclosed renewal of the agreements, known as swap lines.
• A Stealth Tax Hike. The White House wants Republicans to agree to tax increases that no one wants to call tax increases, and for an insight into this political method let's focus on one proposal in particular—the phase-out of itemized deductions for upper-income taxpayers. We hope the tea party is paying attention, because this kind of maneuver is why people hate Washington.

MarketWatch:

• Slowdown in Corporate India to Hit Growth Rate. (video)
• China Risks Property Bubble Burst. (video)
  

CNBC:

• IEA Move Sees Spread Bets Turn Sour for Oil Traders. Many traders and hedge funds are nursing losses after a whiplash reversal in one of the biggest commodity trading trends of the year – a bet on a widening spread between different types of crude oil. Traders say the unexpected release of the Western countries’ petroleum strategic stocks last week left many in the oil market wrong-footed, particularly those that had traded on the relative price differential of Brent crude and Dubai crude. The price difference has narrowed sharply between the lower quality, heavy sour Dubai crude, the benchmark for Middle East supplies, and the premium quality, light sweet Brent, the North Sea’s benchmark. The spread has plunged to a six-month low, dropping nearly 50 per cent in just four days, traders said. So far companies have not disclosed any losses but given how widespread the bet on widening spreads had been, the move would have hit many traders hard.
• Top States For Business - 2011 Overall Rankings.
• BYD Says Quarterly Profit Falls 84% On Year. BYD, the Chinese automaker backed by U.S. billionaire Warren Buffett, said its net profit for the first quarter of 2011 fell 84.4 percent year-on-year.

Business Insider:

• Why The Current Crisis Will Not Bring Europe Closer Together by STRATFOR.

Zero Hedge:

• 1 Sievert Water Leaking From Fukushima As Full Body Radiation Checks Begin Across Prefecture.
• Greek Debt Rollover - Who Is Getting Rolled Over? The analysis clearly demonstrates that the Troika is put into more risk sooner, and with less control than it would be without the rollover. Greece will be paying a higher coupon over the next 3 years by offering the SPV rates in line with its existing long bonds. The banks get immediate risk relief from a combination of cashing out 20% of their short dated Greek bonds and structuring the SPV to ensure maximum recovery. The banks have also made a proposal that ensures they will be receiving a good rate of interest in spite of the relatively low headline coupon mentioned. It is no wonder why the banks are falling all over themselves to agree to the plan. It sounds like they are being kind, but they are much better off with the plan by shifting near term risk to the Troika and longer term rate risk to Greece.

IBD:

• Illumina(ILMN) Brings Down Cost of DNA Analysis. The new frontier of genetic analysis is developing so fast that industry leader Illumina (ILMN) plans to come out with an iPad app.

Forbes:

• It's Groundhog Day In Greece, And It Will Be For A While. Rioting, appeasement of EU leaders in return for bailout funds and unpopular austerity measures--we've seen it twice now, and it's going to happen again.

Seeking Alpha:

• Why Credit Default Swaps Should Vanish.
  

The New York Review of Books:

• Egypt: The Victorious Islamists by Yasmine El Rashidi.

USA Today:

• Future of Federal Solar Programs in Doubt. The solar power industry is facing a double threat from a Congress that may turn off the flow of federal subsidies and take a pass on mandating renewable-energy standards that would increase demand.

Reuters:

• SEC On Lookout for Bubble-Era IPO Practices. Some recent red-hot initial public offerings have the Securities and Exchange Commission concerned that Wall Street's underwriters may be tempted to revive some troubling tech bubble practices. "You can't help but be concerned by IPO valuations," Robert Khuzami, the SEC's enforcement chief, told an audience of Wall Street lawyers and compliance officers in New York on Tuesday.
• Gas, Oil Abundant in Alaska's Cook Inlet - Report. Alaska's Cook Inlet basin still has potential for abundant natural gas and oil discoveries even after five decades of production, according to a federal report issued on Tuesday, signaling potential revenue for the state and more interest from developers. In the first resource assessment issued since 1995, the U.S. Geological Survey said the inlet area likely holds 19 trillion cubic feet of recoverable natural gas -- nearly nine times the last estimate -- and 600 million barrels of recoverable crude oil. The new report is much more optimistic about remaining natural gas in the inlet than the assessment issued 16 years ago, a difference the USGS attributed to improved data, new geologic information and better technology for recovering the oil and gas.
• Nearly Half US States Close Budget Gaps With Cuts - CBPP. A majority of U.S. states have passed their budgets for the fiscal year starting July 1, according to the Center on Budget and Policy Priorities. As of Monday, 32 states had enacted their budgets, with at least 24 slashing spending on public services, as they are still gripped by the effects of the recession, the think-tank that tracks states' fiscal conditions said on Tuesday.
• Shaw Group(SHAW) Forecast Weak Q4 Earnings, Shares Down. Shaw Group Inc, which provides engineering, construction and technology services, posted quarterly results that missed market estimates, partly hurt by accounting impairments, and forecast a weak fourth-quarter profit. Shares of the company fell more than 13 percent in after-market trade.

Financial Times:

• Greece's Asset Sale May Fall Short, Milan Study Says. Greece's planned sale of state assets, which is intended to raise $72 billion for the country by 2015, may not bring in more than a quarter of that amount, unless more prime land and cultural heritage are added to the sales list, citing a report by Privatisation Barometer, a Milan-based institute backed by Frondazione Eni Enrico Mattei and KPMG.

Sueddeutsche Zeitung:

• Germany's Bundesbank placed conditions on involving German banks in a Greek rescue, citing the institute's board member Joachim Nagel. In no way must "the participation of private creditors lead to a higher burden for public budgets," citing Nagel. The banks' involvement must be completely voluntary and shouldn't be viewed as a payment shortfall by the ratings agencies.

Apple Daily:

• Cheung Kong (Holdings) Ltd. expects "downward pressure" on Hong Kong home prices in the second half of this year because property values are beyond the reach of most residents, citing Justin Chiu, executive director of the developer.

Hong Kong Economic Journal:

• Shanghai city government's investment vehicle for property and highway construction, may not be able to repay current loans from this month and has asked for an extension of its repayment period.

Dong-a Ilbo:

• South Korea discovered deposits of rare-earth elements in two local regions, citing the Korea Institute of Geoscience and Mineral Resources. The deposits found in Chungju and Hongcheon may be enough to meet Korea's consumption for at least 30 years.

Yonhap News:

• South Korea's finance ministry called for a meeting with officials from local banks and foreign bank branches today to express the government's concerns about rising short-term external debt, citing the finance ministry.

Economic Information Daily:

• China's inflation is likely to average 5.3% this year, citing Li Jianwei, director of the macro economy research institute under the State Council's Development Research Center. Consumer-price gains may stabilize in the third quarter before accelerating in the fourth quarter, driven by rising wages and imported inflation, citing Li. Inflation may reach 7.1% in the third quarter of next year partly due to higher commodity prices, he said.

Xinhua:

• China has "indisputable" rights to islands in the South China Sea and surrounding waters, citing Yang Li, a spokesman for the State Council's Taiwan Affairs Office.

gulfnews.com:

• Dozens Injured by Troops as thousands Protest in Tahrir Square, Cair. Egyptian security forces firing tear gas clashed with more than 5,000 rock-throwing protesters in central Cairo late Tuesday, leaving dozens injured in the latest unrest to rattle the country, witnesses and medical officials said.

Evening Recommendations
Citigroup:

• Reiterated Buy on (CLF), target $127.

Night Trading

• Asian equity indices are -.50% to +1.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 116.50 -2.5 basis points.
  
• Asia Pacific Sovereign CDS Index 124.0 -2.75 basis points.
  
• S&P 500 futures -.21%.
  
• NASDAQ 100 futures -.12%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (KBH)/-.33
• (FDO)/.95
• (GIS)/.52
• (AYI)/.63
• (MON)/1.10
• (AM)/.80

Economic Releases
10:00 am EST

• Pending Home Sales for May are estimated to rise +3.0% versus an -11.6% decline in April.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,500,000 barrels versus a -1,711,000 barrel decline the prior week. Distillate supplies are estimated to rise by +1,050,000 barrels versus a +1,173,000 barrel gain the prior week. Gasoline inventories are expected to rise by +775,000 barrels versus a -464,000 barrel decline the prior week. Finally, Refinery Utilization is estimated unch. versus a +3.1% gain the prior week.
  

Upcoming Splits

• (MMS) 2-for-1
• (AMX) 2-for-1
  

Other Potential Market Movers

• The Greece austerity vote, Fed's Raskin speaking, 7-Year Treasury Notes Auction, weekly MBA mortgage applications report, (DELL) analyst meeting and the (TDG) analyst day could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity 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 day.

Stocks Surging into Final Hour on Less Eurozone Debt Angst, Quarter-End Window Dressing, Short-Covering, Earnings Optimism

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Almost Every Sector Rising
  
• Volume: Below Average
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 19.42 -5.54%
  
• ISE Sentiment Index 109.0 unch.
  
• Total Put/Call .94 +9.30%
  
• NYSE Arms .71 +13.40%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 98.49 -2.24%
  
• European Financial Sector CDS Index 127.49 -3.11%
  
• Western Europe Sovereign Debt CDS Index 239.50 -.96%
  
• Emerging Market CDS Index 224.55 -3.54%
  
• 2-Year Swap Spread 23.0 -4 bps
  
• TED Spread 23.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .02% +1 bp
  
• Yield Curve 255.0 +2 bps
  
• China Import Iron Ore Spot $168.40/Metric Tonne -.06%
  
• Citi US Economic Surprise Index -99.40 -2.5 points
  
• 10-Year TIPS Spread 2.29% +6 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +112 open in Japan
• DAX Futures: Indicating +59 open in Germany

Portfolio:

• Higher: On gains in my Retail, Biotech, Medical and Tech longs
  
• Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges, then added them back
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is bullish as the S&P 500 moves further off its 200-day moving average despite eurozone debt angst, global growth concerns, emerging market inflation fears, rising food/energy prices, US debt ceiling worries and more weak US economic data. On the positive side, Education, , Gaming, Restaurants, Construction, HMO, Biotech, Networking, Steel, Oil Service, Energy and Coal shares are especially strong, rising more than +1.75%. Small-caps and cyclicals are outperforming. As well, "growth" shares are strongly outperforming "value" again today. The 10-year yield is rising +10 bps to 3.03%. Copper is rising +1.1%. The Greece sovereign cds is falling -3.4% to 2,036.50 bps, the Spain sovereign cds is falling -2.93% to 288.0 bps, the Italy sovereign cds is down -5.2% to 194.0 bps, the Ireland sovereign cds is -3.37% to 796.17 bps, the Russia sovereign cds is down -4.36% to 153.17 bps, the Hungary sovereign cds is down -5.8% to 266.85 bps, the Saudi sovereign cds is declining -4.17% to 97.14 bps and the UK sovereign cds is down -3.2% to 66.5 bps. Weekly retail sales rose +3.5% this week versus a +3.9% gain the prior week. On the negative side, Bank, Oil Tanker, Airline, Tobacco and I-Banking shares are flat-to-modestly lower on the day. (XLF)/(IYR) have underperformed throughout the day. Lumber is falling -2.6%, oil is rising +2.2% and the UBS-Bloomberg Ag Spot Index is rising +2.2%. The US price for a gallon of gas is -.02/gallon today to $3.55/gallon. It is up .41/gallon in less than 5 months. The China sovereign cds is near a 52-week high, rising +2.2% to 88.6 bps and the Emerging Markets Sovereign CDS Index is gaining +3.3% to 183.08 bps. Some key Asian indices were unable to rally overnight. Eurozone cds are lower, but not as much as I would have expected given the strength of equity markets in anticipation of a positive Greece outcome. Breadth is better today, but volume remains lackluster. As well, the lack of participation by the financials is a worry. Stocks should rally on tomorrow morning's expected outcome, however profit-taking may surface later in the day as the longer-term eurozone debt situation remains a large problem. I expect US stocks to trade mixed-to-higher from current levels into the close on short-covering, quarter-end window dressing, less eurozone debt angst, bargain-hunting and technical buying.

Today's Headlines

Bloomberg:

• Stocks, Euro Rise Amid Greece Optimism. Stocks gained, erasing the MSCI All- Country World Index’s 2011 loss, while the euro rose and Treasuries fell amid speculation Europe will take action to prevent a Greek default. “With the German banks on board, you find the solution which alleviates some of the European debt problems,” said Tom Wirth, senior investment officer for Chemung Canal Trust Co., which manages $1.6 billion in Elmira, New York. “If you can get beyond that sovereign crisis, then confidence comes back and we can see a rally in risk assets.”
• Greek Strike Overshadows Budget Vote. Greek police fired tear gas to disperse protesters in the center of Athens as labor unions shut down government services before a vote on austerity measures that may determine if the nation can avoid a default. Lawmakers have now begun a second day of debate on Prime Minister George Papandreou’s five-year plan of budget cuts and asset sales after a crowd estimated by police to number 20,000 thronged outside Parliament to mark a 48-hour general strike. Hooded youths faced volleys of tear gas as they attacked riot officers, smashed windows at a McDonald’s Corp (MCD) restaurant and set two vans on fire. “We are determined to stop this plan from passing and if it does pass, we will continue our efforts,” said Dimitra Oikonomou, 50, a schoolteacher who joined today’s rallies. “The government might not listen to us now, but in the end they will hear it all at once.”
  
• German Banks Said to Meet Government Tomorrow Over Greek Aid Contributions. German banks and insurers will use a French proposal as a blueprint for discussion when they meet with finance ministry officials in Berlin tomorrow to seek an agreement on their role in a Greek rescue, two people with knowledge of the matter said. The working-level talks will focus on possible adjustments to the French banks’ plan to roll over a portion of maturing bonds to help prevent a Greek default, said the people, who declined to be identified because the talks are private. Germany’s banking associations agreed with government officials today to pursue such a model, one of the people said. The talks are part of Europe-wide efforts to get creditors to share the burden of a second Greek bailout and prevent the euro-region’s first default, a year after a 110 billion-euro ($157 billion) package failed to stop the debt crisis from spreading.
• Sovereign Bond Risk Retreats From Record in Europe, Swaps Show. The cost of insuring against default on European sovereign debt pulled back from record levels, according to traders of credit-default swaps. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments dropped 11 basis points to 232 at 4 p.m. in London. A decline signals improvement in perceptions of credit quality. Swaps on Portugal tumbled 51 basis points to 795, Ireland dropped 38 to 780 and Greece fell 36.5 to 2,072.5, according to CMA. Contracts on Belgium, Italy and Spain also fell. Swaps on the Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings decreased 12 basis points to 422, the first decline in five days, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell 3 basis points to 112.25 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers decreased 6.5 basis points to 169 and the subordinated index dropped 13 to 293.5.
  
• Greek Rollover Would Probably Rate as Default, Fitch Says in FT. A “voluntary rollover” of Greek bonds, as they mature, into bonds with similar terms would “very likely” be viewed by Fitch Ratings Ltd. as a sovereign default, according to David Riley, Fitch’s group managing director with responsibility for sovereign ratings and international public finance. In a letter to the Financial Times, published today, Riley disputed a statement in a June 24 FT article that Fitch has “signaled” that it wouldn’t downgrade Greek bonds to default in the event of such a rollover, which wouldn’t amount to “a failure to pay coupons or principal.” In fact, the Greek sovereign rating would probably be placed in “restricted default,” Riley wrote. Fitch is “guided by the spirit as well as the letter” of its yardsticks and “if it looks like a default, we will rate it as a default,” Riley said.
• Crude Oil in New York Rises From Near Four-Month Low. Oil rose from a four-month low amid speculation that Greek lawmakers will approve austerity measures to prevent a default on the country’s debt and on forecasts U.S. fuel demand will rise before the Fourth of July holiday. Crude increased as much as 1.7 percent as the euro strengthened ahead of the Greek vote tomorrow that would prevent the euro-zone’s first sovereign debt default. The U.S. Independence Day weekend typically marks the peak consumption period for U.S. motorists. Crude for August delivery rose 76 cents, or 0.8 percent, to $91.37 a barrel at 11:36 a.m. on the New York Mercantile Exchange. Futures have gained 17 percent in the past year and have fallen 14 percent so far in the second quarter.
• U.S. Consumer Confidence Hits Seven-Month Low. Consumer confidence dropped to a seven-month low in June as Americans grew concerned about the outlook for jobs and wages. The Conference Board’s sentiment index decreased to 58.5 from a revised 61.7 in May that was higher than previously estimated, figures from the New York-based private research group showed today. Home prices fell in the year ended in April by the most in 17 months, another report showed. Unemployment hovering around 9 percent, deterioration in the housing market and a drop in share prices may restrain Americans’ sentiment, raising the risk that the biggest part of the economy will stagnate.
• Obama's $7 Billion Renewable Energy Grants Targeted for Audits. Government investigators are auditing some of President Barack Obama’s more than $7 billion in renewable energy grants to determine whether the money was awarded properly and the recipients were eligible. Examiners are reviewing 14 of the 2,600 projects that received tax dollars under the initiative to promote wind and solar power created in the 2009 stimulus bill, according to Richard Delmar, counsel to the Treasury Department’s inspector general. Under the program run by the Treasury, developers receive as much as 30 percent of the cost of a project.
• Obama Serves Lobster Not Justice to 'Fat Cats': William D. Cohan. As we head into the 2012 presidential election cycle, the new, official Obama administration policy on Wall Street is crystalline: Hands off the bad guys.
• Siemens Sees Growth Easing in Second Half as Boost From Economy Eases Off. Siemens AG (SIE) predicted growth will be tougher to achieve in the second half as the stimulus from an economic rebound is petering out, sending the shares of Europe’s largest engineering company on their biggest drop in 15 weeks. “The tailwind from the economic recovery is likely over,” Chief Financial Officer Joe Kaeser told analysts in Shanghai today, in comments broadcast on the Internet. “Now, increased efforts are required for continued growth.”
• Trichet's 'Strong Vigilance' Comment Signals ECB to Raise Rates Next Week. European Central Bank President Jean-Claude Trichet said policy makers are in “strong vigilance mode,” signaling they intend to raise interest rates next week even as Greece struggles to avert a default. “We’re taking the decision progressively to anchor inflation expectations,” Trichet said at a press conference in Amsterdam today following a seminar with central bankers from the Asia-Pacific region. “As far as we’re concerned, we’re in strong vigilance mode,” he said, repeating a phrase the ECB uses to indicate a rate increase is imminent.

Wall Street Journal:

• Firms Loosen Grip on Cash. Companies are starting to spend some of their record piles of cash, making acquisitions and increasing capital expenditures that could provide a much-needed boost to the economy.

MarketWatch:

• Lagarde Selected as Next IMF Managing Director.

CNBC.com:

• Economy May Grow 4% in Second Half: Dallas Fed Chief.
• Consumer Stocks Doing Well Despite Economic Gloom.
  

Business Insider:

• Here's Google's(GOOG) Long Awaited Facebook-Clone: Google+.
• ZYNGA: IPO Filing Likely Tomorrow, Looking For $15 Billion To $20 Billion Valuation.
• California Reaches Budget Deal Including New Taxes and Fees.
• The Speed at Which China's Local Governments Are Taking On Debt Is "Terrifying".
  

Zero Hedge:

• Streaming Video From Syntagma Square - First Day of Greek General Strike.

Muddy Waters Research:

• Open Letter to Spreadtrum Communications(SPRD) Chairman.

Rasmussen Reports:

• Generic Republican 46%, Obama 42%.

Reuters:

• Exclusive: Up to 15 EU Banks to Fail Stress Test. Up to one in six European banks is set to fail an EU-wide financial health check, according to euro zone sources close to the stress-testing, as officials scramble to set up backstops for those at risk. The result, which the European Central Bank (ECB) and others hope will persuade investors that the EU is finally coming clean about the extent of its banks' problems, will put pressure on reluctant states to prop up lenders if they cannot raise money themselves. Euro zone sources said the European Banking Authority is set to announce within weeks that between 10 and 15 of the 91 banks being scrutinized in the tests had failed, with casualties expected in Greece, Germany, Portugal and Spain.
• Surging China Costs Turn Some U.S. Makers Homeward. U.S. makers of everything from running shoes to refrigerators shifted much of their production overseas over the past few decades, chasing the low unit prices that foreign factories could offer as a result of their lower wages. But over time, executives said, much of those savings have been erased by other costs that crept up -- goods damaged in transit, the need to maintain traveling quality-control staffs and the need to maintain about twice as much inventory as a hedge against delays in shipping.

Die Welt:

• European Central Bank Executive Board member Juergen Stark said he does not expect the international community to finance Greece further after July if the country does not implement its austerity plan, citing an interview. Stark added that he did not doubt the will of the Greek parliament overall to implement the agreed savings plan.

Handelsblatt:

• The German economy may grow 4% this year and 2.3% in 2012, citing IMK research institute.

Shanghai Daily:

• China Internet Vendors Concerned About New Tax.
• Shanghai Home Sales Likely to Dwindle. SALES of both new and existing houses are likely to register a month-on-month decline in Shanghai in June while prices remained stable, real estate companies said.