Today's Headlines

Bloomberg:

- MasterCard Inc.(MA), the world’s second- biggest electronic payments network, said the “freefall” in U.S. retail spending has abated amid an increase in consumer confidence. “The recovery is showing signs of life,” McWilton said at the conference, sponsored by KBW Inc., adding that consumer confidence is improving.

- Shares of US banks are in “the beginning stages of a multi-year bull market” and will perform better than benchmark stock indexes, according to analysts at RBC Capital Markets. RBC raised its rating on the group to “overweight” from “sector weight” today. Earnings potential has replaced “burn down analysis” as the main catalyst for stock price moves, the report said.

- European Central Bank President Jean- Claude Trichet indicated the ECB has no immediate plans to increase its asset-purchase plan or cut interest rates further as the economy shows signs of recovery. Interest rates are “appropriate,” Trichet said at a press conference in Frankfurt today after the ECB held its benchmark at a record low of 1 percent. Asked if the bank will expand its bond plan, Trichet replied: “We have decided to embark on a 60 billion-euro purchase of covered bonds, full stop.”

- Fifth Third Bancorp(FITB), the largest lender based in Ohio, led the KBW Bank Index higher after saying it more than filled the $1.1 billion capital gap found by federal stress tests, and that the company will concentrate on paying back the U.S. bailout fund.

- Intel Corp.(INTC), the world’s largest maker of semiconductors, agreed to buy software company Wind River Systems Inc.(WIND) for about $884 million, a bid to get its chips into more consumer electronics and wireless devices. The price is $11.50 a share in cash, Santa Clara, California-based Intel said today in a statement, offering a 44 percent premium over Wind River’s closing price yesterday.

- General Dynamics Corp.(GD), the maker of the U.S. Army’s Abrams battle tanks, agreed to buy Axsys Technologies Inc.(AXYS) for about $643 million to expand its line of surveillance equipment such as infrared cameras. The $54-a-share acquisition will be neutral to 2009 earnings and add to profit after that, Falls Church, Virginia- based General Dynamics said today in a statement.

- Derivatives dealers would face new regulations under a Commodity Futures Trading Commission proposal that seeks to ensure privately negotiated contracts are subject to the same oversight as trades on an open exchange. Regulators must make sure that dealers aren’t able to make slight modifications to the structure of derivatives transactions to evade public reporting requirements for standardized contracts, CFTC Chairman Gary Gensler told the Senate Agriculture Committee today in Washington. “All derivative dealers should be subject to capital requirements, initial margining requirements, business conduct rules and reporting and recordkeeping requirements,” Gensler said in prepared remarks. “Standards that already apply to some dealers, such as” banks, should be strengthened, he said.

- Bonds of retailers fell out of distressed territory yesterday for the first time since September after slashing jobs, costs and inventories. The extra yield investors demand to own bonds of Sears Holdings Corp. and other similar retailers rated below investment grade narrowed to an average of 9.93 percentage points more than Treasuries, according to Merrill Lynch & Co. index data. The spread has held above 10 percentage points, a level investors consider “distressed,” since Sept. 23, eight days after Lehman Brothers Holdings Inc. filed for bankruptcy. Retailer bonds and stocks are rallying as cost cutting bolsters cash flow and traders bet the U.S. recession is easing.

- Crude oil rose to a seven-month high after Goldman Sachs Group Inc. said prices may reach $85 by the end of the year as demand recovers and supplies shrink.

Wall Street Journal:

- United Airlines(UAUA) has asked Boeing Co.(BA) and Airbus to propose dueling bids for up to 150 new airliners -- the latest example of major companies exploiting the recession to bargain-hunt. For the two aircraft makers, the deal could be worth more than $10 billion at a time when both are watching other customers cancel or defer orders.

- Rio Tinto PLC(RTP) Thursday said it is "pursuing a range of options" to shore up its heavily indebted balance sheet as Aluminum Corp. of China's proposed $19.5 billion investment in the Anglo-Australian miner appeared headed for the scrap heap.

- A Connecticut bill that sought to impose transparency regulations on hedge funds has effectively died after the state House of Representatives didn't bring the measure to a vote.

- The number of investors withdrawing their investments with hedge funds has slowed to about one-fifth of the record redemption levels at the end of 2008, according to new research, but investors still are holding off putting new money into an industry recovering from its worst year to date. A Morgan Stanley report called ‘Wholesale Financials’ estimates that in the second quarter investors have redeemed 5% of all money invested in the $1.3 trillion hedge-fund industry. If that estimate is correct, it would be just one fifth of the record 25% investors pulled in the fourth quarter. Investors pulled 10% of their money in the first quarter, according to the report.

- Not so long ago, we were warned about the prospect of devastating deflation, a widespread decline in wages and prices. Today, we hear equally dire warnings of an outbreak of inflation. It's like preparing for an epochal drought and suddenly being told, "Never mind! Get ready for a flood of Biblical proportions." An immediate outbreak of inflation is improbable.

CNBC:

- Billionaire investor Carl Icahn told CNBC in a telephone interview that he thinks the future of large pharmaceutical companies is in buying biotechnology companies.

- Fewer U.S. workers filed new claims for jobless benefits for a third straight week last week and productivity rose at a stronger-than-expected pace in the first quarter, data showed on Thursday, supporting budding hope that the recession was losing force.

NY Times:

- Ramius, one of the nation’s largest hedge fund managers, struck a deal on Thursday to merge with Cowen Group, a boutique investment banking firm that has struggled recently as takeover deals have dried up. The combined company, which will continue to use the Cowen name, will encompass a broad mix of financial services including equity and debt raising, proprietary trading, asset management and research.

MarketWatch:
- Ford Motor Co.'s(F) joint venture partner in China reported a 49% rise in vehicle sales during May, with 27,800 vehicles snapped up by consumers during the month.

Forbes:

- Investors who were attracted to Highland Capital's tough investment style are now feeling a little roughed up. Before the credit crisis hit, investors poured money into hedge funds run by Highland Capital Management in Dallas, which at its peak was running $38 billion. The two founders, James Dondero and Mark Okada, had a reputation for scoring big returns using leverage and tough tactics like squeezing fees out of companies whose outstanding debt Highland purchased. Now three of Highland's funds, including its Crusader Fund, have failed, and investors are getting more of Highland's hardball tactics than they bargained for.

USAToday:

- It's official: The Internet is a part of daily life. According to a new report by the Census Bureau, Internet use tripled from 1997 to 2007. Sixty-two percent of U.S. households used the Internet from home; 18% did that in 1997.

- The Obama administration's plan to boost aid to Afghanistan is shaping up as a boon to private contractors, including a company whose previous work on U.S.-funded Afghan aid programs has been criticized by auditors. Despite Secretary of State Hillary Rodham Clinton's call to reduce the reliance on foreign aid contractors, the main U.S. aid agency is continuing to award multimillion-dollar contracts as it proposed to increase development spending in Afghanistan to $2.8 billion. Clinton has dubbed past Afghanistan aid efforts a "heartbreaking" failure. Last month, the U.S. Agency for International Development awarded a $150 million cooperative agreement to a partnership led by DAI, a Maryland company whose past Afghanistan contracts have been criticized by USAID's inspector general. The program is to promote alternatives to poppy crops.

Politico:

- In a nearly 6,000-word address Thursday extending an olive branch to the Muslim world, President Barack Obama managed never to utter the one word that comes to mind most often when many Americans think about Islam: terrorism. While both the White House and the Pentagon denied earlier this year that the Obama administration had issued orders to stamp out the phrase “war on terror,” the president’s decision to rely on the word “extremism” throughout his high-profile speech made clear his desire to execute a rhetorical shift. More than that, Obama sought to decouple Islam entirely from those who perpetrate violence. “Islam is not part of the problem in combating violent extremism — it is an important part of promoting peace,” Obama said.

LATimes:

- Though California is in the throes of a budget crisis, Vice President Joe Biden said Wednesday that the state's high-speed rail project is well-positioned to compete for a significant share of the $8 billion that the Obama administration set aside in the American Recovery and Reinvestment Act for rail lines. This summer, California officials will be vying against other states to get funding for a planned high-speed rail corridor that would ferry passengers between Los Angeles and San Francisco in a 2-hour, 40-minute trip. Voters approved $9 billion in bonds for the project in November -- and promoters hope the federal government and the private sector will kick in enough money to help them complete the $34-billion first phase.

American Chronicle:

- New York State's pay-to-play pension scandal appears to be pushing at least one prominent New York hedge fund close to the brink. Mezzacappa Management, founded by former Lazard Freres Vice Chairman Damon Mezzacappa, recently shed a raft of employees - including the firm's chief investment officer - amid withdrawal requests from the firm's single largest investor, the scandal- scarred New York State Common Retirement Fund, sources tell The Post. Now, the firm's 73-year-old founder, who launched the Fifth Avenue-based business in 1999, is considering the company's fate, which may include shutting it down, sources said.

Reuters:
- Discounter Wal-Mart Stores Inc says it will add more than 22,000 jobs in its U.S. namesake stores in 2009. The forecast points to lower growth compared with last year, as the world's biggest retailer opens fewer of its U.S. Wal-Mart discount stores to focus on expansions and renovations. Last year, the company created 33,800 U.S. jobs, though that figure also included new jobs at its much smaller Sam's Club members-only chain of warehouse stores.

Financial Times:
- US President Barack Obama called for a new beginning in relations between America and the Muslim world on Thursday with a dramatic address in Cairo that sought to overcome decades of deep mistrust. Drawing repeated rounds of applause as he quoted the Koran and spoke frankly to every segment of Muslim society – young people, women, leaders – Mr Obama appeared as a defender of Islam. Pointing to the glorious days of Muslim civilization, and to his own family background, he said in an hour-long speech: “I consider my responsibility as president of the US to fight against negative stereotypes of Islam whenever they appear.” The much-awaited speech in the domed hall of Cairo University did not lay out a detailed plan for Middle East peace, as some governments in the region had hoped. Mr Obama said the US relationship with Israel was “unbreakable” and called on Palestinians to pursue their aspirations for statehood peacefully. But he also had sharp words for Jewish state, insisting that the US “does not recognize the legitimacy of continued Israeli settlements” on occupied Palestinian land, and calling on Israel to improve the daily lives of Palestinians. He went further: “Let there be no doubt... the situation for the Palestinian people is intolerable,” he said, adding that America would not turn its back to the legitimate aspirations for dignity and a state of their own. For young people in the region, it was perhaps the last part of the speech that was most appealing, as Mr Obama promised to increase scholarships to the US, host a summit on entrepreneurship, and launch a fund to support technological development. Ayatollah Ali Khamenei, Iran’s supreme leader, weighed in on Wednesday, hours before Mr Obama spoke in Cairo, to remind Muslims that they hated the US. ”The nations in the region hate the US from the bottom of their hearts because they have seen violence, military intervention and discrimination,” Mr Khamenei said. ”The new US government seeks to transform this image. I say firmly, that this will not be achieved by talking, speech and slogans.”

Bear Radar

Style Underperformer:
Mid-cap Growth (+.64%)

Sector Underperformers:
Education (-2.90%), Medical Equipment (-2.49%) and Airlines (-1.11%)

Stocks Falling on Unusual Volume:
ANF, GPS, FDO, BAX, RTP, TBSI, LNCR, UTIW, PLCE, MATK and ICON

Stocks With Unusual Put Option Activity:
1) BAX 2) HNT 3) CAH 4) TIVO 5) MTL

Bull Radar

Style Outperformer:
Mid-cap Value (+.98%)

Sector Outperformers:
Banks (+3.38%), I-Banks (+2.56%) and Oil Service (+2.55%)

Stocks Rising on Unusual Volume:
WIND, AXYS, CYBX, CONN, BRLI, GROW, CIEN, APSG, CPRT, OGXI, ATHR, NAFC, CMTL, BOBE, AFAM, EXBD, SHPGY, DDRX, TEVA, ANDE, SU, CMN, MMSI, AA, PSMT, GAI, VLO, BVF, DCP, PTI and ROG

Stocks With Unusual Call Option Activity:
1) CMG 2) PSS 3) LEN 4) AGN 5) MF

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Thursday Watch

Late-Night Headlines
Bloomberg:

- The yen weakened against the euro and the dollar after Fitch Ratings reiterated its confidence in the U.S. and U.K.’s AAA ratings, damping demand for Japan’s currency as a refuge from the global financial crisis. The dollar gained for a second day versus the yen after Federal Reserve Chairman Ben S. Bernanke said large U.S. budget deficits threaten financial stability, suggesting the government will prevent the shortfall from widening further.

- General Motors Corp.(GM) and Chrysler LLC were “just plain wrong” to take taxpayer funds and leave local dealers and their customers to fend for themselves, Senator Jay Rockefeller said as lawmakers faulted the automakers today. Rockefeller, leading a hearing on dealership closings, said Chrysler is eliminating 40 percent of its retailers in his state of West Virginia, and GM is cutting more than 30 percent. “Chrysler gave its dealers less than one month’s notice prior to termination, which is truly unbelievable,” he said.

- The Boston Globe can’t survive in its current form and may impose pay cuts of at least 23 percent if its largest union doesn’t approve a cost-saving contract next week, the newspaper’s publisher said.

- Iranian President Mahmoud Ahmadinejad has hurt the nation by creating tensions with other countries, his main challenger in the June 12 presidential election said in a televised debate last night. “In your foreign policy, you have damaged the nation’s dignity,” former Prime Minister Mir Hossein Mousavi said during the debate in Tehran broadcast by state television. “Shame has been brought on Iran. You have created tension with other countries. Heavy costs have been brought on the nation in these four years.” Ahmadinejad’s management style has been “based on adventurism, instability, unlawfulness and radicalism,” Mousavi said, adding that he entered the race because he is “worried about Iran’s future.”

- China stocks were downgraded at BNP Paribas, which said investors should instead buy more Indian equities because valuations, fund flows and liquidity in the South Asian nation have become more favorable. Chinese shares were cut to “neutral” from “overweight,” analysts led by Clive McDonnell said in a report today, keeping India “overweight.”

- Japanese investors are buying Treasuries at the fastest pace since 2004 as the lowest hedging costs in 16 years let them earn about double the yields on local bonds without risking losses if the dollar weakens. The cost for Japanese buyers to protect US investments against exchange-rate shifts plunged this year along with the London Buying currency-hedged Treasuries is becoming “mainstream” for Japanese institutions, said Credit Suisse Group AG in Tokyo. interbank offered rate, used to set hedging fees for US dollar investments.

Wall Street Journal:

- Hedge fund managers, often seen as racy and risky gamblers who either turn in big returns or big losses, more recently seem to be making safe bets tailored for your grandparents' portfolio. A more conservative betting style may make sense in the current market and prevent the possibility of losses many hedge funds experienced in 2008. But it also may draw the ire of investors who could start to wonder why they're paying high fees for a "not-too-hot, not-too-cold," betting strategy. Additionally, if a trend toward safer bets by hedge funds persists, it may allow a somewhat new product - mutual funds that aim to replicate hedge fund performances but without the high fees - to gain a better foothold.

- Adobe Systems Inc.(ADBE), which makes the Flash software widely used on computers to play Internet videos, is trying to crack a new market: smart phones.

- Federal Reserve Chairman Ben Bernanke warned Congress and the White House that the U.S. economy will suffer if they don't move soon to rein in the federal budget deficit, which the Fed chief blamed for helping to push long-term interest rates higher.

- The president said correctly in an NPR interview on Monday that "part of being a good friend is being honest," and that we need to be honest with Israel about "the fact that the current direction, the current trajectory, in the region is profoundly negative, not only for Israeli interests but also U.S. interests." The president also needs to be honest with the Muslim world. That means addressing the causes of the poverty and tyranny which are so pervasive that they create a widespread belief the U.S. is at best indifferent -- and at worst actively complicit -- in maintaining those conditions in order to deny Muslims their rightful place in the world.

CNBC.com:
- A new report shows the five U.S. states poised to lead the nation out of recession.

- One senior banker recently told me he was advising all his corporate clients to “barrel through the opening” in the capital markets by raising as much money through debt and equity offerings as possible. Many companies seem to be taking that advice and each day the debt and equity markets remain receptive to such offerings is another day that companies once thought certain bankruptcies may be able to breathe new life into their future.

NY Times:

- The new chairman of the Commodity Futures Trading Commission will ask Congress on Thursday to impose substantial new costs and restrictions on large banks and other financial institutions that deal in the complex and largely unregulated financial instruments known as derivatives. If adopted, Mr. Gensler’s proposal would fundamentally alter the way that derivatives dealers do business by imposing requirements, for example, for capital reserves and collateral — assets that would be forfeited in a default. The rules would impose significant new expenses on derivatives dealers, and could reduce their profitability. Mr. Geithner said his proposal recognized the significant role that unregulated derivatives, particularly credit-default swaps, played in the financial crisis. Such swaps, a form of insurance against the default of a bond, played a central role in the near collapse of the American International Group last year. Rather than limiting risk as they are supposed to do, the swaps wound up spreading the crisis globally. “Gensler has to show that the C.F.T.C. will have teeth and we can implement some things right now,” said Senator Maria Cantwell, Democrat of Washington. She said she had asked Mr. Gensler in recent days to revoke exemptions given to some oil futures traders through what are called no-action letters that she said could permit the manipulation of prices to consumers. The proposal on swaps dealers would include antifraud and antimanipulation provisions as well as potential limits on market positions and holdings. It would apply regardless of whether a dealer issued standard derivatives or specially tailored ones to meet the needs of specific companies. One major criticism of the Geithner plan was that it would permit less regulation of some of the more complicated derivatives that are custom-written, rather than plain-vanilla instruments, and would open a loophole that would keep much of the market unsupervised and opaque. But Congressional officials said Mr. Gensler, in his testimony, would describe mechanisms to both supervise the marketplace of customized derivatives and impose standards that presume most derivatives are standard and subject to more rigorous oversight.

- As governments worldwide try to spend their way out of recession, many countries are finding themselves in the same situation as embattled consumers: paying higher interest rates on their rapidly expanding debt. Increased rates could translate into hundreds of billions of dollars more in government spending for countries like the United States, Britain and Germany. Even a single percentage point increase could cost the Treasury an additional $50 billion annually over a few years — and, eventually, an additional $170 billion annually. This could put unprecedented pressure on other government spending, including social programs and military spending, while also sapping economic growth by forcing up rates on debt held by companies, homeowners and consumers.

IBD:

- The Obama team has a list of defense programs it wants to cancel or tamp down. But spending on intelligence gathering, surveillance and reconnaissance — or ISR — and cybersecurity are not among them. Applied Signal Technology (APSG), a supplier of technology in both areas, reported after Tuesday's market close that its second-quarter profit more than doubled from the prior year to 31 cents a share. Revenue jumped 18% to $53.5 million.

Business Week:
- The days of home buying with little or no money down may be back—this time thanks to Uncle Sam. Blamed for contributing to the housing bubble, zero-down-payment loans largely vanished when the market crashed and Congress blocked seller financing for government-backed loans. Now the federal government will be forking over cash at closing.

- A new bill in Washington aimed at tightening the rules for companies in the U.S. that hire skilled workers from abroad could threaten the business model for outsourcing firms such as Wipro Technologies (WIT), Infosys Technologies (INFY), and Tata Consultancy Services (TCS). Top executives at those firms say the legislation could also escalate into a trade dispute between India and the U.S.

- A handful of upgrades from some of the biggest names in mobile software is set to upend the way smartphone users get and share apps. Apple's (AAPL) new iPhone 3.0 software includes features that, if activated by Apple, may let users share software with one another, according to a person familiar with the technology. Eventually, iPhone users may even get a commission when they've induced someone else to make a purchase, says Richard Doherty, director at consultant Envisioneering Group. Separately, a group of software developers led by Google (GOOG) is also considering enabling user-to-user gifting and recommendations through its mobile applications store, Android Market, a person familiar with the plans tells BusinessWeek.com.

Forbes:

- The 10 Hardest Jobs To Fill In America.

Politico:

- Plunging into his maiden mission to the Middle East, President Barack Obama was greeted in this desert kingdom Wednesday by a Royal Honor Guard with 21-gun salute — and the release of a threatening audio tape by Osama bin Laden. Aides say Obama's big message will be that he wants to build a bridge to the Arab and Muslim worlds so the U.S. can move forward in its relationships. But at the same time, he will raise tough issues like democracy, human rights and the challenges of negotiating Middle East peace.

Rasmussen:

- Support for health care reform has slipped slightly as more voters think President Obama should work harder on his promise to cut the federal deficit in half in the next four years. Thirty-six percent (36%) of U.S. voters say cutting the deficit is the most important of the four priorities the president cited in a speech to Congress in February, according to a new Rasmussen Reports national telephone survey. That’s up from 32% in March. At the same time, 24% rate health care reform as the most important of Obama’s priorities, down from 29% in the earlier survey. But a growing number of voters (63%) – up from 54% in March - also see cutting the deficit in half as the goal the president is least likely to achieve.

Reuters:

- The Obama administration plans to unveil on June 17 its sweeping plan to overhaul financial regulation, according to a source familiar with thinking at the U.S. Treasury Department. The proposal will serve as a framework for lawmakers as they embark on the thorny task of restructuring how banks, hedge funds, derivatives, and other financial firms and securities are policed.

- Morgan Stanley (MS) is likely to be part of the first wave of major banks to exit the U.S. government's bank bailout program after recently selling more than $2 billion of shares, research analysts said on Wednesday. Analysts at Goldman Sachs Group Inc (GS) and Bank of America Corp (BAC) wrote that Morgan Stanley has raised more equity than it needed to pass the government's capital tests last month, and now has capital levels similar to JPMorgan Chase & Co (JPM), which also sold shares this week.

- The European Central Bank is set to keep interest rates on hold on Thursday with markets keen to see the details of its covered bond purchase plan as well as clues on whether rates may yet be cut further. Analysts are also awaiting the ECB's new staff projections for economic growth and inflation for this year and next, which could show scope for further policy easing.

Financial Times:

- Some of Britain’s biggest hedge funds have warned the UK Treasury they will be forced to leave the country unless a draft European directive is radically changed. Some have already begun back-up preparations to move to Switzerland in case the rules – described by one manager as a “French plot against London” – are not rewritten. New York is also a possible destination, according to another. Ian Wace, co-founder of hedge fund manager Marshall Wace, told the Treasury this week it should modify tax rules to allow the thousands of Cayman Islands-based funds to move to be fully regulated in London, rather than have much of the industry abandon Europe. “If this directive goes through as drafted, large chunks of the industry will be leaving Europe, whereas we have the opportunity today to have large chunks of this industry coming to Europe,” he said. People present said the FSA officials accepted that the “killer” rules limiting borrowing – and defined to include the implicit borrowing built in to derivatives – would make popular strategies such as global macro, made famous by George Soros, impossible.

- The US made one of its strongest statements for years on human rights in China on Wednesday, as Beijing intensified efforts to quell dissent over the 20th anniversary of the Tiananmen massacre. Hillary Clinton, secretary of state, called on China to “provide a public accounting of those killed, detained or missing” after the 1989 crackdown, to “cease the harassment of participants in the demonstrations and begin dialogue with the family members of victims”. Her written statement to mark Thursday’s anniversary came after the square was closed, with entry blocked by armed police. Citing the “tragic loss of hundreds of innocent lives” in 1989 and describing the anniversary as an “opportunity” to free the remaining detainees, she said that ­Beijing should “give the rule of law, protection of internationally-recognised human rights, and democratic development the same priority as it has given to economic reform”. Her comments reflected the competing pressures on US policy towards Beijing, contrasting with the ­emollient message of Tim Geithner, US Treasury ­secretary, who travelled to China this week to call for closer ties and to issue reassurance about the country’s investments in the US. Mrs Clinton’s statement comes after a push within China to suppress dissent around the anniversary. CNN was added on Wednesday to the list of overseas information providers blocked by censors, including the BBC, Financial Times, the International Herald Tribune and even Twitter.

TimesOnline:

- One of Bernard Madoff's sons is obsessed with his father's crime and the other is still in shock over the $65 billion Ponzi scheme, according to a new exposé on the convicted fraudster. In the new edition of Vanity Fair, the magazine reveals the torment of Mark and Andrew Madoff, who both worked for their father's securities business but have not been accused of wrongdoing connected to his giant investment scam. Andrew, 43, described his father's crime as "a father-son betrayal of biblical proportions".

- Gordon Brown was confronted by an e-mail plot to ditch him and the threat of further ministerial resignations as Labour braced itself for a disastrous showing in today’s European and local elections. On a day of extraordinary drama it emerged that Labour MPs were being asked to sign a letter tomorrow calling on Mr Brown to go. There are high- level predictions that up to 75 may do so. Hours earlier, Hazel Blears had quit the Cabinet without offering any praise for Mr Brown’s leadership. The Prime Minister continued with plans to shake up his Government and was preparing to bring Ed Balls into the Treasury despite indications from friends of Alistair Darling, the Chancellor, that he was reluctant to move. In a sign of the febrile atmosphere, Downing Street was forced to deny claims that Mr Brown had asked John Reid, the former Home Secretary, whether he wanted the job back. Whips are braced for ministers to unleash fierce attacks on Mr Brown after the polls close tonight. They have been warned that a fifth minister may walk out over the coming days.

Economic Daily News:

- China plans to buy as many as 300 million mobile phones that use so-called third-generation technology in the next three years, citing China Unicom VP Zhang Junan. New subscribers and replacement demand will help boost demand for 3G phones, Zhang said.

Commercial Times:

- Micro-Star International Co. has developed a netbook computer that uses Google’s(GOOG) Android operating system, citing Chairman Hsu Hsiang. The company is ready to sell the computer under a client’s brand, he said, without identifying the client. Separately, Micro-Star expects shipments of its notebook computers to as much as double in the second half from the first half, Hsu said.

Late Buy/Sell Recommendations
Citigroup:

- We are reiterating our Buy on (GOOG) – our top Large Cap Internet stock pick – and increasing our price target from $450 to $580(23x ’10 PF EPS of $25.51, which is 10% discount to two-year avg. multiple) based on Three Key Updates: 1) Based on SEM checks, our participation in the Seattle SMX Advanced conference and our model sensitivity work, we believe June Quarter Street estimates are reasonable. This may not sound like a Bullish read, but after two quarters of negative intra-quarter Street revisions, we view this as a stable positive. 2) Street estimates assume little-to-no cyclical recovery in Google’s business model. We respectfully disagree. 3) In the Founders’ Letter, GOOG discloses that almost 1/3^rd of its Searches in Japan are coming from Mobile Our checks suggest these are largely incremental Searches. New comScore survey data shows that 35% of all US Mobile users and 48% of users with newer phones are using Mobile Internet services, with Search the #1 Mobile Browsing activity. Major Smartphone launches this Summer(Palm Pre, iPhone, Android versions) will further boost Mobile Internet. The So-What here is that the Mobile Internet is beginning to emerge as a material Secular Growth driver for GOOG. devices.

- Reiterated Buy on (CME), boosted target to $375.

CSFB:

- Reiterated Buy on (LOPE), raised estimates, target $21.

Oppenheimer:

- Rated (FL) Outperform, target $15.

- Rated (FINL) Outperform, target $9.

Night Trading
Asian Indices are -.75% to +.25% on average.
S&P 500 futures +.06%.
NASDAQ 100 futures +.05%.

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Earnings of Note
Company/EPS Estimate
- (MTN)/1.56

- (CIEN)/-.09

- (COO)/.49

- (WIND)/.05

- (GES)/.28

Economic Releases

8:30 am EST

- Final 1Q Non-farm Productivity is estimated to rise 1.2% versus a prior estimate of a .8% rise.

- Final 1Q Unit Labor Costs are estimated to rise 2.9% versus a prior estimate of a 3.3% gain.

- Initial Jobless Claims for last week are estimated to fall to 620K versus 623K the prior week.

- Continuing Claims are estimated to rise to 6855K versus 6788K prior.

- ICSC Chain Store Sales for May are estimated to rise .6% versus a .7% gain in April.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Pianalto speaking, Fed’s Dudley speaking, Bernanke speaking at Fed Conference, weekly EIA natural gas inventory report, Keefe Bruyette Financial Services Conference, CSFB Engineering/Construction Service Conference, (MCO) Investor Day, Goldman Basic Materials Conference, Lazard Alt Energy/Infrastructure Conference, Sandler O’Neil Electronic Trading Conference, Citi Power/Utility Conference, BofA-Merrill Tech Conference and the Raymond James Investors Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and consumer stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.