Friday Watch

Evening Headlines
Bloomberg:

• Euro Swap Spreads Narrow Fourth Day as Bank Funding Stress Concern Eases. Two-year euro swap spreads narrowed for a fourth day as signs funding pressures are easing at Europe’s financial institutions diminished the need for hedges against a deterioration in credit quality. The spread, which indicates the extra risk of trading with banks for two years instead of buying government securities, touched the lowest level in more than five weeks as the European Central Bank awarded temporary loans to ease the expiration of 12-month emergency funds. European banks yesterday asked for 131.9 billion ($164.7 billion) in three-month loans, less than economists expected. The euro rallied to the highest in a month against the dollar. “There’s a growing perception that the ECB may be moving toward shorter maturities and the state of the European banking system may not be as dire as we thought,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “The euro is becoming a bit detached from the risk jitters.” Two-year euro swap spreads were 1.7 basis points lower at 74.93 at 3:35 p.m. in New York after falling as low as 72.17 basis points, the lowest level since May 21.
• U.S. Corporate Credit Risk Benchmark Holds Near Three-Week High. An indicator of corporate credit risk in the U.S. held near a three-week high as data on manufacturing, jobless claims, and home sales fanned concern the economic recovery is faltering. Indexes that gauge the risk of corporate bonds in the U.S. and Europe were little changed as stocks fell after the number of contracts to purchase previously owned houses plunged in May by more than twice as much as forecast. Credit-default swaps on the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, rose 0.1 basis point to a mid-price of 122.8 basis points, the highest since June 11, after climbing as much as 3.7 basis points earlier, according to Markit Group Ltd. Swaps on Masco climbed 24.5 basis points to 284.5, the highest level in almost a year, according to CMA DataVision prices. Toll Brothers increased 17.4 basis points to 223.4 and M.D.C. gained 10.3 basis points to 191.3 at 4:30 p.m. in New York, CMA data show. Ryland Group Inc. climbed 22.3 basis points to 269.3, CMA said. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings added 1.6 basis point to 131.1, Markit prices show. The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit ratings increased 8 basis points to 584.7, according to Markit.
• Buffett's Berkshire(BRK/A) May Be Spared Collateral Posting Under Financial Bill. Warren Buffett’s Berkshire Hathaway Inc. , which lobbied Congress to exclude its derivatives contracts from new collateral requirements, may get its way as the financial regulatory overhaul nears approval. The new rules won’t alter previously written derivative contracts, Democratic Senators Chris Dodd of Connecticut and Arkansas’s Blanche Lincoln told Democratic Representatives Barney Frank of Massachusetts and Minnesota’s Collin Peterson in a letter. “It is a positive thing for Berkshire Hathaway,” said Michael Yoshikami, chief investment strategist at YCMNet Advisors. “It’s in writing from a lawmaker. It may not be over, but it’s virtually a promise.” Dodd’s letter was reported earlier today by Dow Jones Newswires. Berkshire estimated in April that it may need to post $6 billion to $10 billion in collateral if the new rules were applied to existing derivatives. Yesterday, Jay Gelb, an analyst with Barclays Plc said Omaha, Nebraska-based Berkshire may need $6 billion to $8 billion in collateral.
• Gillard Reaches Deal With Miners on Australian Tax. Australian Prime Minister Julia Gillard reached an agreement with mining companies on a new resources tax, ending a dispute that cost her predecessor Kevin Rudd his job and paving the way for an election this year. The mineral resources tax will be 30 percent, applying to iron ore and coal, while the levy on oil and gas projects will be 40 percent, the government said. The government said the tax will only apply to the profits of iron ore, coal, onshore petroleum and gas, representing three-quarters of the value of exports, unlike the Rudd proposal that also included most minerals extracted in Australia. The levy’s threshold, effectively the point where the tax kicks in, will now be based on the 10-year government bond rate, currently around 5 percent, plus 7 percent. Previously it was to apply to any profits above the 10-year government bond rate.
• Pimco's Crescenzi Sees 'Worst Kind' of Treasury Gains as Optimism Waning. The shrinking difference between short- and long-term Treasury yields has been “the worst kind” because it is driven by a pessimistic economic outlook, according to Pacific Investment Management Co., which runs the world’s largest bond fund. “The flattening of the yield curve has been the worst kind,” Anthony Crescenzi, a money manager at Newport Beach, California-based Pimco, wrote to clients yesterday. It occurred during “a decline in market interest rates on both ends of the yield curve. Investors have become less optimistic about the outlook for both the U.S. and global economy.” The spread, known as the yield curve, narrowed to 2.27 percentage points yesterday, the least since October. Nations will no longer be able to borrow to spur economic growth, Crescenzi wrote. “The last balance sheet has been tapped, forcing fiscal austerity upon all levels of government worldwide and affecting economic activity,” his report said. “Investors are increasingly of the belief that the inflation rate could continue to move lower.”
• BP's(BP) Gulf Spill to Drive Down Rig Rates, Create Oversupply. BP Plc’s oil spill in the Gulf of Mexico will drive down rental prices for deep-sea drilling vessels by about 20 percent, analysts say, creating an oversupply of rigs as demand slows. The Deepwater Horizon drilling rig that blew up and sank in April prompted President Barack Obama to ban deep-water drilling for six months. That halted 33 rigs in the Gulf of Mexico and led Statoil ASA, Anadarko Petroleum Corp. and Cobalt International Energy Inc. to declare force majeure, or suspend terms, on their rig hire contracts. Falling prices could pressure companies into making more deals. Rental rates for deep-water rigs may drop about a fifth to $350,000 a day in the next six months, according to the average estimate from Citigroup Inc., ODS-Petrodata Inc. and Sanford Bernstein & Co. “Some rigs are having force majeure declared on them, some could well be moved out, some could well sit,” said Gavin Strachan, an Aberdeen-based consultant at ODS-Petrodata, an energy analytics agency. “There’s potential oversupply.” At the same time, a total of 64 rigs are under construction worldwide, the biggest expansion since the early 1980s, according to Bernstein. The global deep-water rig utilization rate may drop by as much as 10 percentage points to 70 percent, driving down hiring rates, according to Standard Chartered Plc estimates. A U.S. court ruled Obama’s six-month moratorium on drilling in waters deeper than 500 feet (152 meters) was illegal. U.S. Interior Secretary Kenneth Salazar has appealed the ruling. Australia, Trinidad and Tobago, Tanzania and Norway are moving ahead with licensing plans to allow new deep-water exploration. The U.S., which will import about 14 percent of the world’s oil this year, may need to shorten the deep-water drilling ban to maintain supplies and preserve jobs in the industry. Oil output from the region may fall by as much as 300,000 barrels a day in the next five years, the International Energy Agency has forecast.
• U.S. House Approves Restrictions on Deals Between Drugmakers. The U.S. House approved a measure restricting the ability of drugmakers to enter agreements that the Federal Trade Commission has said keep generic medicines off the market.
• Macau Casino Revenue in June Declines on World Cup. Macau’s casino revenue declined 20 percent in June from the previous month as the World Cup kept some gamblers away from card games and slot machines in the world’s biggest betting hub.
• Hong Kong Stocks Fall, Erase Gain, on U.S., China Economies; Foxconn Drops. Hong Kong stocks fell, dragging the benchmark index to its first weekly drop in six, after Goldman Sachs Group Inc. cut its China economic growth forecast and worse-than-estimated U.S. economic reports fueled concern the global recovery may falter. The Hang Seng Index dropped 1.3 percent to 19,869.57 as of 12 p.m. local time, widening its losses in this holiday- shortened week to 4 percent.

Wall Street Journal:

• Why Is The Gulf Cleanup So Slow? There are obvious actions to speed things up, but the government oddly resists taking them. As the oil spill continues and the cleanup lags, we must begin to ask difficult and uncomfortable questions. There does not seem to be much that anyone can do to stop the spill except dig a relief well, not due until August. But the cleanup is a different story. The press and Internet are full of straightforward suggestions for easy ways of improving the cleanup, but the federal government is resisting these remedies.
• Florida Sees New Threat to Its Beaches. Deepwater Drilling Project in Cuban Waters Set to Launch Next Year Could Kick Off a Spate of Exploration in the Region. Florida has long fought to prevent oil drilling anywhere near its white sandy beaches. But as the state continues to deal with oil from the Gulf of Mexico spill washing up on its shores, it faces a new threat: deepwater drilling in nearby Cuban waters. Maria Ritter, a spokeswoman for Spanish oil company Repsol YPF SA, said it plans to drill off Cuba, about 60 miles south of Key West, Fla., early next year. If successful, this would likely kick off a spate of exploration.The U.S. Geological Survey has said there could be a substantial amount of untapped oil off the Cuban coast, whetting the appetite of several global oil companies that have signed exploration leases. U.S. companies won't participate because of a longstanding trade embargo against Cuba.
• The 'Opposite Twins' Clash Over the Future of Europe. Europe's "opposite twins," as Mr. Sarkozy sometimes calls his country and Germany, are on different sides of crucial issues in Europe's debate over its economic future, from how best to encourage growth to how to tackle rising public debts.
• The Obama Tax Trap. How some Republicans are preparing to walk right into it.
• Total Chief: Don't Bar Deep Water Oil. Drilling in deepwater oil fields remains essential in spite of the moratorium in the U.S. Gulf of Mexico following the BP PLC oil spill, said Total SA Chief Executive Christophe de Margerie. Global demand for transportation fuels leaves no choice but to drill in such deepwater fields, he said. Exploration continues in other deep-sea fields around the world, such as the North Sea, off the west coast of Africa and offshore Brazil. "This remains a job that not only is normal but is necessary," he said in an interview with The Wall Street Journal at his Paris office.

Bloomberg Businessweek:

• Hedge Fund Stars Start Grooming Successors.
• Andy Grove: How America Can Create Jobs. The former Intel chief says "job-centric" leadership and incentives are needed to expand U.S. domestic employment again.

MarketWatch:

• Stocks, Like Most of Us, Like Job Growth. Correlation between stocks and jobs at strongest since 1960s. Here's a possible way to reconcile Americans with the stock market: Over the past 10 years, U.S. stocks have increasingly closely tracked the Labor Department's report on weekly jobless claims, rising when claims fall and falling when claims rise. Over at Wells Capital Management, chief investment strategist Jim Paulsen cranked up the firm's database, and the resulting chart does show a striking inverse correlation between jobless claims and stocks.

IBD:

• It Strives to Offer Mortgage Services From A to Z. Altisource Portfolio Solutions (ASPS) chief William Shepro isn't one to let grass grow under his feet.

Business Insider:

• Long-Term IS Budget Outlook: Anyone Still Laughing at Greece? (graph) The updated Long-Term Budget Outlook from the Congressional Budget Office (CBO) is out. What a surprise, the previously optimistic forecasts by the US administration do not appear to come to fruition.
• Google(GOOG) Buys Huge Flight Search Engine ITA For $700 Million.
  

Zero Hedge:

• CEBM Warns China Exports and Imports to Decelerate in Q3 and Onward. (full report)"As the government has unofficially adopted normalization strategy away from the stimulus we are likely to see property, infrastructure, and manufacturing investments lose steam in the second half. The deceleration of FAI may put downward pressure on China’s imports."
• Some Insights on David Viniar's Grilling by Brooksley Born on the Firm's Double Profit From AIG(AIG).
  

CNNMoney:

• Google's(GOOG) Three Pillars of Expansion. At a Google press event this week, the company unveiled ambitious plans for expansion. People often think of Google (GOOG) as a search company. While certainly the biggest search company in the world, it's what Google does with its search technology that makes it the cash-belching behemoth it is.
• House passes unemployment benefits extension. After a failed attempt earlier this week, the House voted to extend the deadline to file for federal jobless benefits Thursday. But the bill will be stuck in limbo as Congress takes a weeklong summer break. The bill would extend the deadline to file for extended unemployment benefits through November, and would retroactively pay out claims to those who saw their benefits expire in May. The legislation, which garnered a 270-153 vote, now moves on to the Senate. That chamber, however, closed up shop Wednesday evening for the summer recess after failing to pass its own version of the bill, which would raise the deficit by $33.3 billion. House Democrats have struggled to get support from Republicans, who oppose the extension because it adds to the nation's $1.4 trillion deficit.

Forbes:

• Fictitious Financial Reform by Brian S. Wesbury and Bob Stein. The upcoming overhaul won't address key problems that caused the crisis.

Huffington Post:

• Is the Financial Crisis Inquiry Commission Wimping Out on JPMorgan(JPM)? by Charles Gasparino. You would think if you were investigating the root causes of the financial crisis and were ordered to prepare the definitive account of the collapse of Lehman (and the rest of Wall Street), investigating the circumstances behind JP Morgan's collateral call would be high on your list, right? Well not if you're Phil Angelides, the chairman of the Financial Crisis Inquiry Commission, the Congress-mandated body led by the former treasurer of California. The commission has no plans to seek testimony from senior officials at JP Morgan, including its CEO Jamie Dimon, about the now infamous collateral call that sent Lehman into oblivion, and nearly the rest of Wall Street as the markets crumbled during those dark days in the Fall of 2008. People at just about every other firm I know of say JP Morgan was being heavy handed; it didn't need to turn the screws when it did, and only did so because Lehman wasn't just a creditor who owed the bank money, but also a competitor, which vied for business with JP Morgan in the markets. (JP Morgan made a similar collateral call at that time on Merrill, also leading to that firm's forced sale to Bank of America.) It's one of the many downsides of the dissolution of the Glass-Steagall law, which once separated investment banking from commercial banking. Once the financial supermarkets were created, firms like Citigroup and JP Morgan could squeeze competitors like Bear Stearns and Lehman by refusing to lend them money.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 26% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-five percent (45%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -19 (see trends).

Politico:

• We're Looking More Like France. President Barack Obama’s Democrats have set out to alter fundamentally the nature of the U.S. political system. The changes they’ve wrought will not be easily undone. Obama has sought to remake America into a social democracy — like Germany or France — with a larger public sector, expanded entitlements, stronger labor unions and a changed political structure. He’s doing quite well so far. Entitlement expansion. Obamacare has passed and is lurking in our federal and states’ budget futures. When the program is fully operational in 2014, federal spending for health care is expected to rise sharply. Many businesses could drop their coverage and force workers into the public “exchanges” created by the legislation. Millions more could be eligible for federal subsidies. This adds up to millions more advocates for even more generous benefits and higher federal spending. Democratic politicians should be only too happy to oblige. There’s another way we resemble nations of the European Union: high unemployment. Obama’s allies are selling the nonsense that 10 percent unemployment is the best we can do in this economy. It’s the best he can do if he follows European statist policies. Free-market principles, dominant since the Reagan years, kept U.S. unemployment at about half that in Europe for three decades.
• Obama speech fans immigration fight. Republicans greeted President Barack Obama’s call to arms on immigration reform Thursday with a demand of their own: that Obama visit the troubled U.S.-Mexico border and see for himself why it must be secured. It was a strong reaction to the president’s first policy speech on an issue that so far has defied a legislative solution. The conflict showed how unified the GOP has become in opposing any plan it views as amnesty — and how tough it will be for Obama to revive a key administration goal after months of neglect. The speech seemed as much about keeping immigration reform alive — and assuaging immigrant rights groups — as an imminent, presidential push for reform.
  

USA Today:

• Goldman(GS) Execs Grilled for Taking AIG(AIG) Bailout Money. A Goldman Sachs executive told an inquiry panel Thursday that the firm had no regrets about collecting billions of dollars in taxpayer money for correctly predicting the demise of the U.S. housing market. David Viniar, Goldman's chief financial officer, said Uncle Sam had an obligation to honor American International Group's full debts. The firm was entitled to be paid $12.9 billion out of the $182 billion bailout that went to crippled insurance giant AIG — the largest federal rescue. "The government stepped into AIG's shoes" and therefore had to honor its contract with Goldman, Viniar told the congressionally appointed panel investigating the financial meltdown. The government "paid 100 cents on the dollar for something that was going for 48 cents at the time," said Bill Thomas, the panel's vice chairman and a former California Republican who was chairman of the House Ways and Means Committee. The panel probed Goldman's actions during a second day of hearings examining the firm's relationship with AIG, and how their derivatives trading helped push the country into financial crisis. A previously disclosed 2007 e-mail has Viniar indicating that the firm made more than $50 million in one day on bets that the housing market would founder.

AP:

• Ex-Justice Department Lawyer Says Whites' Rights Ignored. Witnesses described an ugly scene: Two members of the New Black Panther Party threatening white voters the day Barack Obama was elected president, flinging insults like "white devil" and "you're about to be ruled by the black man, cracker." The fallout from the case has become even uglier. Most charges against the men were dropped for lack of evidence, the U.S. Justice Department says. Now a former Justice Department lawyer is accusing his ex-superiors of ignoring white voters' rights and creating a systematic "one-way" approach in which only minorities are protected.The claims by J. Christian Adams are the latest installment of a long-running dispute over Justice Department enforcement of the nation's civil rights laws.

Reuters:

• NYC office construction my drop to one-fifth of '09. Construction of new offices in New York City is on pace to fall to one-fifth of last year's level, as developers focus on renovating instead of erecting new towers, a trade report said on Thursday.

Telegraph:

• What does the new EU regulation mean for bankers' pay: a Q&A. As European regulators draw up new regulations on bonuses, here's a guide to what they may mean.

Sydney Morning Herald:

• Small Australian Miners Unhappy With New Tax Regime. The federal government's new resources tax regime was hammered out with the big three miners at the expense of others, a lobby for smaller mining companies argues. Association of Mining and Exploration Companies chief Simon Bennison said his group was left out of the negotiations. Small miners would be disadvantaged by the new arrangements announced on Friday, Mr Bennison said. "The government feels the only way it can negotiate through these sorts of situations is with three companies," he told ABC Radio, referring to BHP Billiton, Rio Tinto and Xstrata. "That's an absolute nonsense. "That's not the way to do business. It typifies the way this government responds to small businesses in this country."

Yonhap News:

• U.N. Discussions on Ship Sinking Stalled: Sources. U.N. Security Council discussions on North Korea's sinking of a South Korean warship are stalled as China still balks at naming the communist neighbor the culprit and refuses even to call the case an attack, sources said Thursday. U.N. diplomats have been negotiating language in a document the Council plans to adopt on the March 26 sinking of the warship Cheonan, which left 46 sailors dead, after South Korea referred the case to the U.N. early last month for a rebuke of Pyongyang.

China Daily:

• The increase in minimum wages in Chinese provinces and cities must be followed by other measures to boost personal incomes as a share of gross domestic product to sustain growth in consumption. Personal incomes as a proportion of GDP have declined during most of the past 30 years and an increase in the minimum wage alone is unlikely to narrow the disparity, the editorial said.

Shanghai Daily:

• Foxconn Technology Group will move a "major part" of its production to Hebei province in northern China from the southern city of Shenzhen by the end of this year, citing company spokesman Tong Wenxin.

Evening Recommendations
Citigroup:

• Reiterated Buy on (STZ), target $21.
• Reiterated Buy on (GOOG), target $630.
  

Night Trading

• Asian equity indices are -1.0% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 141.0 -1.50 basis points.
• Asia Pacific Sovereign CDS Index 140.75 +2.5 basis points.
  
• S&P 500 futures +.20%.
  
• NASDAQ 100 futures +.27%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note
  

Economic Releases
8:30 am EST

• The Unemployment Rate for June is estimated to rise to 9.8% versus 9.7% in May.
• The Change in Private Payrolls for June is estimated to rise to 110K versus 41K in May.
• The Change in Non-farm Payrolls for June is estimated to fall to -130K versus 431K in May.
• Average Hourly Earnings for June are estimated to rise +.1% versus a +.3% gain in May.
  

10:00 am EST

• Factory Orders for May are estimated to fall -.5% versus a +1.2% gain in April.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• None of note
  

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

Stocks Cutting Losses into Final Hour on Falling Sovereign Debt Agnst, Euro Bounce, Short-Covering, Bargain-Hunting

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Most Sectors Declining
  
• Volume: Above Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 33.87 -1.94%
  
• ISE Sentiment Index 100.0 +2.04%
  
• Total Put/Call 1.25 +21.36%
  
• NYSE Arms 1.03 -33.45%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 126.20 bps +5.64%
  
• European Financial Sector CDS Index 150.63 bps +1.54%
  
• Western Europe Sovereign Debt CDS Index 152.50 bps -6.73%
  
• Emerging Market CDS Index 276.48 bps +1.50%
  
• 2-Year Swap Spread 36.0 unch.
  
• TED Spread 37.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .17% unch.
  
• Yield Curve 232.0 -1 bp
  
• China Import Iron Ore Spot $134.80/Metric Tonne -2.95%
  
• Citi US Economic Surprise Index -43.60 -7.7 points
  
• 10-Year TIPS Spread 1.77% -8 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -21 open in Japan
• DAX Futures: Indicating +40 open in Germany

Portfolio:

• Slightly Higher: On gains in my Technology/Retail long positions and ETF hedges
  
• Disclosed Trades: Covered some of my (IWM)/(QQQQ) hedges and covered some of my (EEM) short
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades modestly lower despite a bounce in the euro, the market's oversold state and falling sovereign debt angst. On the positive side, Oil Service, Restaurant, Retail, Gaming and Steel stocks are relatively strong, rising .5%+. The S&P GSCI Ag Spot Index is jumping another +2.2%, putting in its best two-day showing in many months. The Spain sovereign cds is falling another -7.1% to 246.59 bps, which is a large positive. The AAII % Bulls fell to 24.7 this week, while the % Bears rose to 42.0, which is also a positive. Tech shares are outperforming solidly, with the MS Tech Index rising +.3%. The large -3.66% decline in gold is also a positive. The On the negative side, Construction, HMO, Hospital and Biotech shares are under meaningful pressure, falling 1.0%+. Market leaders continue their recent underperformance and breadth is poor for just mild index losses, which is a negative. The 10-year yield appears to be stabilizing, despite more poor economic data, which is a positive. I would be surprised to see tomorrow's jobs report spark too negative a reaction in US stocks, given how pessimistic investors have become on the data. The sharp decline in gold, combined with the rise in the euro/decline in sovereign debt cds, could indicate a bounce in stocks has begun and this morning's lows will hold for a bit. However, I want to see further declines in broad credit angst gauges before becoming more aggressive on the long side. I expect US stocks to trade modestly higher into the close from current levels on falling sovereign debt angst, short-covering, bargain-hunting and the bounce in the euro.

Today's Headlines

Bloomberg:

• Spain Bond Sale Hits Target as Moody's Threatens Cut. Spain sold 3.5 billion euros ($4.3 billion) of five-year bonds at an auction today, reaching the maximum sale target even as its borrowing costs rose after Moody’s Investors Service said it may cut the country’s top credit rating. Spain sold the notes at an average yield of 3.657 percent, compared with 3.532 percent at an auction of those bonds on May 6. Demand was 1.7 times the amount sold, below the bid-to-cover ratio of 2.35 at the May sale. “They did fill it at pretty much the maximum of their guidance, and when you consider the backdrop, you’d have to say that’s encouraging,” said Sean Maloney, a fixed-income strategist at Nomura International Plc in London.
• Dollar Drops to 7-Month Low Versus Yen on Outlook; Euro Climbs. The dollar tumbled to a seven-month low against the yen on speculation the world’s largest economy may be slow to recover, while the euro climbed amid signs that funding pressures are easing on Europe’s financial institutions. The euro surged as much as 2 percent to $1.2485, from $1.2238 yesterday, before trading at $1.2475. It was the biggest gain on an intraday basis since May 10, when European leaders announced an almost $1 trillion package to support debt-laden governments and shore up the shared currency.
• Gold Tumbles Most Since February as European-Bank Concerns Ease. Gold futures tumbled the most since February on signs that Europe’s financial industry may be in better shape than investors estimated, curbing demand for the metal as a haven. The euro jumped as much as 2 percent against the dollar after European banks borrowed less than the amount they are due to repay. “People are thinking maybe the European debt situation is not so bad,” said Matt Zeman, a trader at LaSalle Futures Group in Chicago. “Some of the safe-haven money is coming out of the market.” Gold futures for delivery in August fell $37.20, or 3 percent, to $1,208.70 an ounce at 1:07 p.m. on the Comex in New York. A close at that price would mark the biggest drop for a most-active contract since Feb. 4.
• Mortgage Rates on 30-Year U.S. Loans Fall to Record. Mortgage rates on 30-year U.S. loans slid to a record low for the second straight week, lowering borrowing costs for homebuyers as demand slumps. Rates for 30-year fixed loans sank to 4.58 percent in the week ended today from 4.69 percent last week, Freddie Mac said in a statement. The average 15-year rate fell to 4.04 percent, also a new low, the McLean, Virginia-based company said.
• Pending Sales of Existing U.S. Homes Fell 30% in May. The number of contracts to purchase previously owned houses plunged in May by more than twice as much as forecast after a homebuyer tax credit expired. The index of pending home resales dropped 30 percent from the prior month, figures from the National Association of Realtors showed today in Washington. The drop was the biggest in records dating to 2001 and compared with a 14 percent decrease forecast in a Bloomberg News survey of economists. All four regions saw decreases in May, today’s report showed, led by a 33 percent plunge in the South. Sales also fell 32 percent in both the Midwest and Northeast and 21 percent in the West. Compared with May 2009, nationwide pending sales were down 16 percent.
• Manufacturing in U.S. Expanded Less Than Forecast. Manufacturing in the U.S. expanded in June at a slowest pace this year as factories received fewer orders and demand from abroad cooled. The Institute for Supply Management’s manufacturing gauge fell to 56.2 last month from 59.7 in May. The ISM’s production index decreased to 61.4 from 66.6. The The new orders measure dropped to 58.5 from 65.7.employment gauge decreased to 57.8 from 59.8. The measure of export orders declined to 56 from 62. The measure of orders waiting to be filled dropped to 57 from 59.5. The index of prices paid decreased to 57, the lowest since November, from 77.5.
• Goldman Sachs(GS) Pressed By Born for Derivatives Data. Goldman Sachs Group Inc. has declined to provide the Financial Crisis Inquiry Commission with information on its revenue and profit from derivatives, unlike its rivals. “Some other firms have provided us with that data when we’ve asked for it and Goldman Sachs hasn’t,” Commissioner Brooksley Born said at a hearing today in Washington.
• Oil Has Longest Drop in Seven Weeks on China Data. Crude oil fell for a fourth day in New York, the longest losing streak in seven weeks, amid concern the economic recovery in the U.S. and China will slow and curb demand in the world’s two largest energy consumers. “The Chinese manufacturing index was disappointing and adds to the whole array of bearish macro data and sour market sentiment,” said Andrey Kryuchenkov, an analyst with VTB Capital in London. Oil for August delivery fell as much as $1.42, or 1.9 percent, to $74.21 a barrel in electronic trading on the New York Mercantile Exchange, its lowest since June 14.
• New York City Voters Oppose Mosque Near Ground Zero, Poll Says. New York City voters, by an almost 2- to-1 ratio, oppose a plan by a Muslim group to build a mosque and cultural center two blocks from the site of the Sept. 11 terrorist attacks, according to a Quinnipiac University poll. New Yorkers, by 52 percent to 31 percent, don’t want the Cordoba Initiative, a group that seeks to improve Muslim relations with Western societies, to build a community center near Ground Zero in Manhattan, the survey said. Opposition was strongest on Staten Island, where respondents were against the plan by 73 percent to 14 percent in favor. “Opponents suggest that the mosque would dishonor the memory of the attack’s victims,” Carroll said. The cultural center plans include a 500-seat auditorium, swimming pool, restaurants, bookstores and space for art exhibitions, according to the organization’s website. While a majority opposed the center, 55 percent of those questioned said “mainstream Islam” is a “peaceful religion.” To 22 percent of respondents, the religion “encourages violence against non-Muslims.”
• Biggest China Bears in Beijing, MIT's Johnson Says: Tom Keene. As Group of 20 nations look to China to underpin global growth, the Chinese anticipate their economy slowing, said Simon Johnson, a professor of finance at Massachusetts Institute of Technology’s Sloan School of Management. In China, bankers and economists expect their economy will slow after growth accelerated to the fastest pace in almost three years in the first quarter, Johnson said today in a radio interview with Tom Keene on Bloomberg Surveillance. “The biggest China bears I’ve met recently were in Beijing,” said Johnson, who said he was in China last weekend. Johnson said China can’t maintain growth at previous levels. Chinese who fear economic “overheating” worry their country’s heavy infrastructure investment, overburdened state sector and focus on objectives such as air quality instead of economic expansion will slow growth, Johnson said in a column today on the Economix blog on NYTimes.com. They do not agree with others who claim “China is going to be great,” he said. “They haven’t drunk the same Kool-Aid,” Johnson said during the radio interview. “G-20 and the industrialized countries are saying: ‘Assume China will grow fast, and that will help the world economy,’” Johnson said. “In China, they’re much less convinced they can continue to grow at these rates.” Johnson, who also co-authored with James Kwak the book “13 Bankers: The Wall Street Takeover and the Next Financial Meltdown,” said the U.S. financial-regulatory bill, approved by the House of Representatives yesterday, didn’t go far enough to restrict bank size, making it “nothing more than mush.” “The big banks have won, and they’ve won hands down, and they’ve won with a terrific smokescreen,” Johnson said. “There’s a lot of pretense there’s actually some sort of reform going on.”
• FDIC Securitization Rule May Harm Markets, Industry Group Says. U.S. securitization and mortgage- industry groups said a Federal Deposit Insurance Corp. plan for overhauling part of the $4 trillion asset-backed securities market could restrict credit and undermine economic recovery. The FDIC proposal requiring sellers of securitized loans to keep 5 percent of credit risk in exchange for protection that makes the bonds more attractive to investors “could greatly inhibit its effectiveness and the restart of the markets,” Tom Deutsch, executive director of the American Securitization Forum, said in a comment letter filed with the agency today.

Barron's:

• Apple(AAPL): J.P. Morgan Boosts Price Target To Street High $390. J.P. Morgan analyst Mark Moskowitz this morning repeated his Overweight rating on Apple (AAPL), added the stock to the firm’s “Analyst Focus List,” and increased his target price on the stock to a Street-high $390, up from $316. “Apple stands to be the high-growth, technology leader, having no rival for some time,” he writes in a research note. “The iPhone and iPad rapid growth phenomena, coupled with untapped opportunities internationally for Mac, underpin our confidence in the stock’s major appreciation from current levels.” Moskowitz writes that Apple is “the growth story without rival,” and says he doubts the latest round of estimate revisions will be the last. He sees sales and profit growth “far exceeding 20%” over the next two years. He notes that at 14x his calendar 2011 EPS estimate, the stock trades below its 3-year average multiple of 23x.

NY Post:

• $500 Billion Cash Stash. High prices, weak growth deter PE deals. Private-equity firms sitting on $500 billion of uninvested cash and facing a deadline for spending it are nonetheless taking their sweet time making deals -- much to the chagrin of sellers eager to do a deal before capital-gains tax rates rise next year.
• Paterson Flees From Hedge Fund Tax. Gov. Paterson is running away from his $50 million tax on hedge fund managers, a day after his Connecticut counterpart lauded the levy as a boon to the Nutmeg State. The New York executive trashed the tax on out-of-state fund executives as a potential job-killer and blamed “special interests” for its inclusion in a legislative budget plan unveiled last weekend. “We were not favorable to this,” he insisted during an interview on WOR 710AM this morning. “We did it because we couldn’t get the Legislature to do the other revenue raisers that we thought were far more constructive.” The tax – endorsed by Paterson last week after negotiations with the Legislature – could soon be voted into law as part of a $1 billion “revenue” bill. Now, Paterson says he agrees with critics that the action could spur fund managers to simply relocate offices to low-tax locales, like Greenwich, Conn. Connecticut Gov. Jodi Rell, a Republican, sent a letter to the New York Hedge Fund Roundtable yesterday proclaiming “Connecticut welcomes you!” “What Gov. Rell said is right,” Paterson said. “She’s trying to take advantage of it. That is why that is worth revisiting.”

Business Insider:

• The Housing Industry Will Never Recover If Qualified People Can't Get A Home Loan.

The Daily Beast:

• A New Magazine for Terrorists. The man who inspired the Fort Hood shooter, the Christmas Day attacker, and the Times Square bomber is launching an online magazine in English aimed at aspiring jihadists. Lloyd Grove on why it has American officials worried. Al Qaeda in the Arabian Peninsula, known by the acronym AQAP at the CIA, is about to release its first English-language magazine. It’s a Web-based journal of propaganda aimed at inciting violent acts among would-be terrorists living in the United States, Great Britain, Australia, and other Western countries. American officials are deeply concerned.

Bespoke Investment Group:

• State Default Risk and a Comparison to Sovereign Debt. (graph/table)

Reuters:

• China will "gradually" cancel export rebates on steel, base metals and products over the next 5 1/2 years, citing Fan Jianping, director general of the State Information Center's Economic Forecasting Department. The government may impose export taxes on the metals and products during the same period, as it seeks to limit production capacity.
• Exclusive: U.S. small businesses cut borrowing in May: Paynet. Borrowing by small U.S. businesses in May dropped to its lowest level in seven months, data released by PayNet Inc on Thursday shows, a sign that the nascent recovery may already be faltering. The Thomson Reuters/Paynet Small Business Lending Index, which measures the overall volume of financing to U.S. small businesses, sank about 5 percent from the prior month on a seasonally adjusted basis, hitting its lowest reading since October. It was the fourth-lowest level on record. William Phelan, PayNet's president and founder, said the numbers suggest the economic recovery has stalled. "We are in these irons," he said in an interview, using a sailor's term for a boat pointed so straight into the wind that its sails flap ineffectively. "Small business owners are cautious about expanding. They are retaining their capital and they are not interested in going out on a limb at this point because they are uncertain about the future." Impending regulatory overhauls in the U.S. healthcare and finance industries are making it difficult for small businesses to gauge what their costs will be in the future, and are holding them back from spending now, Phelan said. Investment in plants and equipment at small businesses has decreased for most of this year, the index shows. While that trend in itself does not signal the economy is headed for a so-called double dip recession, it does raise the chances, Phelan said. "Smaller companies may not have the resources to last in stalled economic times," Phelan said. "I'd be really cautious that a time like this couldn't force us into a double dip if this continues."

Financial Times:

• Immelt Hits Out at China and Obama. Jeffrey Immelt, General Electric’s chief executive, has launched a rare broadside against the Chinese government, which he accused of being increasingly hostile to foreign multinationals. He warned that the world’s largest manufacturing company was contemplating better prospects elsewhere in resource-rich countries and that those nations did not want to be “colonised” by Chinese investors. “I really worry about China,” Mr Immelt told an audience of dozens of top Italian executives, referring to the Chinese government which he accused of becoming increasingly protectionist. “I am not sure that in the end they want any of us to win, or any of us to be successful.” Mr Immelt also had harsh words for Barack Obama, US president, lamenting what he called a “terrible” national mood and expressing concern that over-regulation in response to the global financial crisis would damp a “tepid” US economic recovery. Business did not like the US president, and the president did not like business, he said, making a point of praising Angela Merkel, Germany’s chancellor, for her defence of German industry. “People are in a really bad mood [in the US],” the 54-year-old executive told an audience of somewhat surprised Europeans who had seen higher levels of US growth as a beacon of recovery. “We [the US] are a pathetic exporter… we have to become an industrial powerhouse again but you don’t do this when government and entrepreneurs are not in synch.” “China and India remain important for GE but I am thinking about what is next,” he said, mentioning what he called “most interesting resource-rich countries” in the Middle East, Africa, Latin America plus Indonesia. “They don’t all want to be colonised by the Chinese. They want to develop themselves,” he said. The comments from the GE chief echo a rising chorus of complaints from foreign business groups in China about the regulatory environment they face. However, it is extremely unusual for senior executives at companies with extensive operations in the country to voice such public criticisms, for fear of retaliation from Beijing.

Handelsblatt:

• Twenty-one percent of European executives say the euro's existence is "no longer secure" after the sovereign debt crisis, a Handelsblatt poll showed. Some 42% of the 1,180 managers polled in five countries said they expect the currency to show "sustained weakness." Polling company Psephos GmbH conducted the survey in June, questioning managers in Germany, France, the UK, Switzerland and Italy. The companies they represent employ a minimum of 500 workers.
  

Kathimerini:

• Greece's Court of Audit deemed at least five provisions in the labor reform bill as unconstitutional. The court found that planned measures, including merging the public-sector workers' pension fund with IKA, are unlawful. The Court of Audit said that changes such as the scale of pension payments can only be altered by legislative reform and not by ministerial decree. The Athens Bar Association, civil servants union ADEDY and the Federation of Retired Civil Servants plan to submit objections to the measures.

Caixin Online:

• Bank of China Ltd. plans to raise up to $8.8 billion in additional share offering.

The Age:

• Gillard Bows to Mining Giants on Tax. JULIA Gillard has caved in to the mining industry, watering down the tax on so-called super profits as she clears the decks for a federal election. After a two-month-long dispute that ultimately cost Kevin Rudd his leadership, the new Gillard government has agreed to:

Bear Radar

Style Underperformer:

• Small-Cap Value (-.88%)

Sector Underperformers:

• Gold (-4.88%), Biotech (-2.41%) and HMOs (-2.07%)

Stocks Falling on Unusual Volume:

• STR, REGN, VRUS, DNDN, EGO, SA, ABG, AMED, GTIV, XRTX, LHCG, IPXL, AUXL, CRUS, RGLD and ALXN
  

Stocks With Unusual Put Option Activity:

• 1) CBS 2) GCI 3) EK 4) XRX 5) NVS
  

Stocks With Most Negative News Mentions:

• 1) TM 2) BP 3) GS 4) RAD 5) TSN
  

Bull Radar

Style Outperformer:

• Large-Cap Value (-1.54%)

Sector Outperformers:

• Oil Service (-.52%), Education (-.77%) and Software (-.86%)

Stocks Rising on Unusual Volume:

• STD, IOC and AIXG
  

Stocks With Unusual Call Option Activity:

• 1) CAM 2) JBLU 3) TQNT 4) JCI 5) JBL
  

Stocks With Most Positive News Mentions:

• 1) DAL 2) GOOG 3) C 4) YHOO 5) IBM

Thursday Watch

Evening Headlines
Bloomberg:

• Fed's Maiden Lane Made Taxpayers Junk-Bond Buyers Without Congress Knowing. Federal Reserve Chairman Ben S. Bernanke and then-New York Fed President Timothy Geithner told senators on April 3, 2008, that the tens of billions of dollars in “assets” the government agreed to purchase in the rescue of Bear Stearns Cos. were “investment-grade.” They didn’t share everything the Fed knew about the money. The so-called assets included collateralized debt obligations and mortgage-backed bonds with names like HG-Coll Ltd. 2007-1A that were so distressed, more than $40 million already had been reduced to less than investment-grade by the time the central bankers testified. The government also became the owner of $16 billion of credit-default swaps, and taxpayers wound up guaranteeing high-yield, high-risk junk bonds.
• Spain's Aaa Rating on Review for Downgrade at Moody's. Spain’s top credit ranking was placed on review for a possible downgrade by Moody’s Investors Service as the country prepares to sell as much 3.5 billion euros ($4.3 billion) of five-year notes today. “Deteriorating” growth prospects and challenges in meeting fiscal targets mean Spain’s Aaa classification may be lowered by as much as two grades, Moody’s analysts including Senior Vice President Kristin Lindow in New York said yesterday in a statement. The moves came before today’s auction provides a test of investor sentiment toward the euro region’s fourth-largest economy and puts pressure on the Socialist government to deepen spending cuts as it starts drafting next year’s budget. “It will add to the general nervousness before the Spanish auction,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. Prior to Moody’s decision, investors had expected strong demand at the five-year note auction on easing concerns about the region’s banks after lenders sought less cash than forecast at a European Central Bank tender. The extra yield demanded on Spanish debt rather than German equivalents fell to 198.4 basis points yesterday from 204.9 basis points. That compares with a euro-era high of 221 basis points on June 16. Spain, which faces 24.7 billion euros of maturing debt in July, is trying to convince investors it can cut the third- largest deficit in the euro region, while bolstering the country’s savings banks and lifting the economy out of a two- year slump. Moody’s said it will “review” next year’s budget “to assess whether the deficit target for 2011 can be achieved.” That increases pressure on the minority Socialist government, which cut civil servants’ wages last month and will increase the value-added tax rate today, as it starts drafting next year’s budget ahead of its presentation to Parliament by the end of September. The government expects to cut the budget deficit to 6 percent of gross domestic product next year from 11.2 percent in 2009, aiming to bring the shortfall in line with an EU limit of 3 percent in 2013. Moody’s expects the deficit to remain “just over” 5 percent that year, lead Spain analyst Kathrin Muehlbronner said in a telephone interview. That will push the debt ratio to close to 80 percent by 2014, she said. Last year Spain’s debt burden was 53 percent of GDP, less than Germany’s and below the euro region average.
  
• European Banks Not Out of the Woods Yet After ECB Tender, Investors Say. European banks are still dependent on life-support from the region’s central bank even after asking it for less money than analysts estimated. “We’re not out of the woods yet,” said Florian Esterer, who helps manage about $46 billion at Zurich-based Swisscanto Asset Management. “The cajas, the Greeks and maybe the Landesbanken have problems getting short-term refinancing. That is why the ECB is still providing funding.” “It’s an event that calms nerves but doesn’t change the picture at all,” said Juergen Lanzer who helps manage about $230 billion at Schroders Plc. “Some of the Spanish, Portuguese, Greek and Irish banks still have sizeable balance sheets that they would struggle to refinance without the ECB.”
• China Manufacturing Slows Again Amid Growth Concern. China’s manufacturing expanded at a slower pace for a second month in June, adding to signs that growth in the world’s third-largest economy is moderating. The Purchasing Managers’ Index fell to 52.1 from 53.9 in May, the Federation of Logistics and Purchasing said in an e- mailed statement today. That was less than the median 53.2 estimate in a Bloomberg News survey of 12 economists. An output index fell to 55.8 in June from 58.2 in May, today’s report showed. A measure of new orders slid to 52.1 from 54.8 and an export-order index dropped to 51.7 from 53.8. A measure of input prices decreased to 51.3 from 58.9, the biggest fall in the 11 sub-indexes.
• Europe Naphtha Exports to Asia to Slide on China Slowdown: Energy Markets. Naphtha exports from Europe to Asia may drop to zero this month as demand from Chinese chemical producers slows, making forward prices more expensive than those for prompt delivery for the first time in eight months. There may be no shipments of the oil product, used to make gasoline and petrochemicals, in July, compared with 300,000 metric tons in June and 500,000 tons in May, according to the median estimate in a Bloomberg survey of six Europe-based traders. “The chemical market is still weak and China isn’t buying,” said Jinsu Yim, a Singapore-based analyst at Chemical Market Associates Inc., which advises oil refiners, banks and manufacturers. The current lower demand for naphtha in Asia is shown by spot naphtha cargoes from the Middle East trading last week at a premium of about $9 a ton to benchmark Persian Gulf prices, according to two traders in Asia. This is less than half the premium Kuwait set in June for term supplies to Asian buyers for August to July next year, two traders with knowledge of the company’s negotiations said at the time.
• Fed Officials Avoid Talk of Further Stimulus to Stoke Growth. Federal Reserve policy makers expressed caution about the outlook for the U.S. recovery and bank lending without backing any new steps by the central bank to stimulate growth. Atlanta Fed President Dennis Lockhart said today that while the recovery isn’t sustainable enough yet to warrant raising interest rates, he doesn’t see a need for additional asset purchases to aid the economy. Fed Governor Elizabeth Duke said it may take years to return to pre-recession credit levels and that there’s “no single step” to unclog lending markets. Fed Governor Kevin Warsh, appointed in 2006 by then-President George W. Bush, a Republican, said any decision by the central bank to expand its $2.35 trillion balance sheet must be subject to “strict scrutiny.” Lockhart told reporters today after a speech in Baton Rouge, Louisiana, that he respects Warsh’s view. “Whenever you are purchasing government obligations in the current conditions of deficits and rising national debt, you have to think about the long-term credibility, which I think was Kevin’s point,” Lockhart said.
• India's Gold Imports May Fall 36% as Price Damps Demand, Association Says. Gold imports in India, the world’s biggest consumer, may fall as much as 36 percent this year as higher prices and volatility slows demand, the Indian Bullion Market Association said. Purchases may be about 350 tons to 400 metric tons in the year ending March 31, 2011, compared with about 550 tons a year earlier, the association’s President Anjani Sinha said yesterday in a phone interview in Mumbai. Imports are down by about half in the last three to four months, he said.
  
• Sovereign Default Enters Apparatchik Lexicon: Mark Gilbert. The notion that default might be the only sensible exit strategy for an indebted euro nation is finally gaining traction with the authorities. With global financial markets still in a state of disrepair, investors would be wise to tread softly amid the potential nightmares. A draft European Union document, dated June 25 and scheduled for discussion July 12-13, was obtained this week by Bloomberg reporter Meera Louis. The draft suggests the forthcoming stress tests planned for the region’s banks should assess the dangers posed by “exposures to sovereign risk.” That’s a euphemism for asking whether banks would blow up if a government couldn’t pay its debts. Including that scenario in the analysis is an admission that the prospect of restructuring has, in the minds of the euro’s apparatchiks, moved up the scale to “possible” from “out of the question.”
• Kan May Face Ghost of Hashimoto as Japan's Economy Weakens Before Tax Rise. Japan’s slowing recovery from its worst postwar recession is signaling the world’s second-biggest economy may be too weak to sustain the higher consumption taxes under consideration by Prime Minister Naoto Kan.
• Oil Falls a Fourth Day After Unexpected Increase in U.S. Gasoline Supplies. Crude oil fell for a fourth day in New York, its longest losing streak in seven weeks, amid concern the economic recovery in the U.S. and China will slow, curbing demand in the world’s two largest energy consumers.Gasoline inventories rose 537,000 barrels to 218.1 million in the week ended June 25, ending a seven-week gain, according to an Energy Department report yesterday. Supplies, 3.5 percent above the five-year average, were forecast to decrease by 400,000 barrels, based on a Bloomberg News survey of analysts. U.S. fuel consumption declined 2.6 percent to 19 million barrels a day, the lowest level since April, the report showed.
• Australia Mining Stocks to Drop on China Freight. Australian mining stocks are poised to keep tumbling, as two leading indicators from China, the world's largest metals buyer, have dropped to at least nine-month lows, according to Westpac Banking Corp. The decline in the freight index, which charts rates for cargoes from Dampier in Western Australia to Qingdao in China, “is as pure a read as you’ll get of what’s actually happening between the two economies.” said Huw McKay, a senior international economist at Westpac in Sydney. Further falls in China’s purchasing and shipping costs “would certainly put a lot of pressure on mining stocks,” McKay said.

Wall Street Journal:

• The Dodd-Frank Financial Fiasco by John B. Taylor. The bill all but guarantees bailouts as far as the eye can see, while failing to address real problems like Fan and Fred and our outdated bankruptcy code. The sheer complexity of the 2,319-page Dodd-Frank financial reform bill is certainly a threat to future economic growth. But if you sift through the many sections and subsections, you find much more than complexity to worry about. The main problem with the bill is that it is based on a misdiagnosis of the causes of the financial crisis, which is not surprising since the bill was rolled out before the congressionally mandated Financial Crisis Inquiry Commission finished its diagnosis.
• From Russia With Gripes. Suburban Spy Suspect Didn't Feel Appreciated by Mother Country Handlers.
• China Agency Nears Times Square. China's state news agency could soon be the newest Times Square neighbor of media giants Thomson Reuters and Conde Nast. Xinhua, one of the Chinese government's main news outlets and propaganda arms, is finalizing a deal to move to the top floor of the 44-story skyscraper at 1540 Broadway, Xinhua's North America bureau chief, Zeng Hu, confirmed in an interview.
• Obama and the Fiscal 'Road to Hell'.
  

Bloomberg Businessweek:

• Chinese Provinces Raise Minimum Wages to Curb Labor Disputes. At least nine Chinese provinces and cities will raise minimum wages from today by as much as a third after Premier Wen Jiabao called for measures to head off growing worker unrest in the world’s third-largest economy.

CNBC:

• California Economy Is a Sign of What's Coming: Fiorina. All of the United States will end up like California if Washington does not focus on private sector job creation and reduce spending, Carly Fiorina, a Republican nominee for Senate, told CNBC Wednesday. "California is kind of a test case of what happens when government gets too big, spending gets too high, regulation gets too thick, entitlements get too rich. We start destroying jobs and that's what we are doing in California," said Fiorina. "And the reason I'm running for the U.S. Senate is because I think California is a harbinger of things to come if we don't have people in Washington focusing on job creation."

MarketWatch:

• Hurricane Alex Sending Oil to Gulf Coast Beaches. Hurricane Alex, which strengthened overnight from a tropical storm, is heading for the coastline near the Texas-Mexico border and is starting to churn oil from the massive BP spill on to beaches along the Gulf of Mexico, officials said Wednesday.

IBD:

• With Regulation, Electronic Markets Hope to Conquer New Business. That suits Intercontinental Exchange (ICE) just fine.

NY Times:

• Energy Savers, Loan Losers. The Obama administration is devoting $150 million in stimulus money for programs that help homeowners install solar panels and other energy improvements, which they pay for over time on their property tax bills. At the same time, the two government-chartered agencies that buy and resell most home mortgages are threatening to derail the effort by warning that they might not accept loans for homes that take advantage of the special financing. The mixed messages have alarmed state officials and prompted many local governments to freeze their programs, which have been hailed as an innovative way to help homeowners afford the retrofitting of a house with solar panels, which can cost $30,000 or more before incentives.
• Documents Show Goldman(GS) Pressure on AIG(AIG). Goldman’s aggressive and repeated demands for billions in cash from A.I.G. drove the insurer to the brink of failure in September 2008. The documents also revealed for the first time the dollar amounts behind Goldman’s negative bet on A.I.G., which Goldman put in place to hedge its risk that A.I.G. might fail and not pay its obligations. Under the terms of the $182 billion rescue, which was overseen by the Federal Reserve Bank of New York and the Treasury, the banks that had insured mortgage securities with A.I.G. were made whole on those contracts when they agreed to unwind them. Some $46 billion of the A.I.G. bailout money went to those banks.

Business Insider:

• Flashback: Steve Ballmer's First Take On The iPhone, January 2007. (video)

Zero Hedge:

• The Credit Default Swap Wolfpack Is Now Coming After France... China. (table)
• CALPERS and Risk: Together Forever? Before clocking a $100 billion loss in early 2009, the California Public Employees' Retirement System, known as Calpers, had the swagger of a hedge fund and the certainty of a saint. Other pension funds followed its lead, loading up on leverage, investing in unrated CDOs, shoving money into high-priced private equity deals and barreling into commodities and real estate. The question now is whether a loss of nearly 40% of its market value -- the worst loss in the system's 77-year history -- has brought Calpers sufficiently back down to earth to avoid another such debacle, and whether other chastened pension systems have followed suit.

CNNMoney:

• Congressional Budget Office Chief: Budget Outlook 'Daunting'. Douglas Elmendorf, chief budget cruncher for Congress, got to play the role of bad-news bear before the president's bipartisan fiscal commission on Wednesday. His job: Present the Congressional Budget Office's latest assessment of the long-term federal budget. The gist of his testimony went something like this: The outlook is bad under current law and daunting if many current policies are extended as expected. And even that may understate the fiscal problem the country faces, because it doesn't factor in potential effects of debt on economic growth. Under the rosiest scenario painted by Elmendorf, the debt held by the public is on track to rise to 80% in 2035 from 62% at the end of this year. At that point, interest payments on that debt would jump to 4% of GDP, up from roughly 1% today. That's the equivalent of a third of all federal revenue. Spending on health care remains the federal budget's biggest problem, even after accounting for the estimated impact of the health reform law enacted in March. Specifically, Elmendorf noted that spending on major mandatory health care programs such as Medicare is on track to double by 2035, up to 10% of GDP from 5% today. That increase is the equivalent of $700 billion this year in additional spending, Elmendorf said. Add in the less dramatic increase in Social Security spending, and the cost to federal coffers of mandatory entitlement programs will reach 16% of GDP by 2035. That's not very far below what the government has spent on all federal programs and activities on average over the past 40 years.

Huffington Post:

• The Failure of Financial Reform, Itemized. It is really quite incredible that of all the things that went wrong to cause the latest economic crisis, the new financial reform bill does almost nothing with regards to the following key issues. Here are the original problems and the actions being taken.

HedgeFund.net:

• New York State Pension Commits $200M to Emerging Hedge Fund Managers. Rock Creek was given the directive to focus on hedge fund firms that are women- and minority-owned, and that have less than $500 million in assets. The CRF also wants its money to be invested with “newer” hedge fund firms.

Rasmussen Reports:

• 60% Support Offshore Drilling, Still Critical of Obama and Oil Companies.

Politico:

• Stark: 'Our borders are quite secure'. (video) Rep. Pete Stark (D-Calif.) got into a heated exchange over immigration with some border security activists Saturday, asking a member of the Minutemen, “Who are you going to kill today?”

USA Today:

• 2010 Had Worst Start for Stocks in Nearly a Decade. The second half can't start fast enough for investors who have suffered through the worst start to a year for the stock market since 2002. Coming off the brutal second quarter that ended Wednesday, the big concern is whether the current 15% pullback in stocks is just a routine decline or the start of something more ominous.

AP:

• US Officials: Al-Qaida Operative Tied to NY Plot. U.S. counterterrorism officials have linked one of the nation's most wanted terrorists to last year's thwarted plot to bomb the New York City subway system, authorities said Wednesday. Current and former counterterrorism officials said top al-Qaida operative Adnan Shukrijumah met with one of the would-be suicide bombers in a plot that Attorney General Eric Holder called one of the most dangerous since the 9/11 terror attacks. Federal prosecutors in Brooklyn have named Shukrijumah in a draft terrorism indictment but on Wednesday the Justice Department was still discussing whether to cite his role. Some officials feared that the extra attention might hinder efforts to capture him. Shukrijumah's involvement shows how important the subway bombing plot was to al-Qaida's senior leadership. Intelligence officials believe Shukrijumah is one of the top candidates to become al-Qaida's next head of external operations, the man in charge of planning attacks worldwide. Current and former counterterrorism officials discussed the case on condition of anonymity because they were not authorized to speak about it.

Reuters:

• Medicare Looking at Dendreon(DNDN) Cancer Vaccine. The U.S. Medicare program said on Wednesday it was evaluating data on Dendreon Corp's (DNDN) prostate cancer therapy to decide whether to cover the product for seniors nationwide. Shares of the company fell 23 percent to $25 on the news after closing at $32.33 on Nasdaq. The Centers for Medicare & Medicaid Services (CMS) said it had opened a national coverage analysis after receiving inquiries following the approval of Dendreon's Provenge therapy in April. Nationwide Medicare coverage could help make the product successful, while a denial could sharply hit sales.
• AIG(AIG) CEO Threatened to Quit if Chairman Stays - Report. American International Group Inc Chief Executive Robert Benmosche said last week he would quit unless Chairman Harvey Golub leaves the company, Bloomberg reported on Wednesday.
• Environmental Groups Seek Halt to BP(BP) Oil Burnings to Save Turtles.
  

Financial Times:

• EU Agrees To Tough New Bonus Guidelines. European Union lawmakers and member states backed the toughest restrictions on bankers bonuses seen so far on Wednesday, sowing confusion across an already jittery financial services sector. Under legislation expected to pass the European parliament next week, between 40 and 60 per cent of bonuses would have to be deferred for three to five years and half the upfront bonus would have to be paid in shares or in other securities linked to the bank’s performance. As a result, the cash portion would be limited to between 20 per cent and 30 per cent, far tighter the limits currently used by most members of the 27-nation bloc. The agreement caught bankers and regulators by surprise and left them scrambling to figure out how the rules would work. The UK Financial Services Authority, which already has a remuneration code in place, said it was studying how the proposed directive would affect its practices.

Telegraph:

• Miners Wary of Super Tax as Talks With Australian Government Continue. Talks between the Australian government and the world's largest mining companies will continue into the next few days after both sides failed to reach an agreement on a proposed 40pc tax on miners' profits.
• Angela Merkel's Political Woe Punctures Market Euphoria. Fears over the political survival of German Chancellor Angela Merkel sent tremors through European markets late on Wednesday, puncturing the near euphoric mood after a crucial funding operation by the European Central Bank eased doubts over bank stress.

Financial Times Deutschland:

• Bundesbank President Axel Weber supports the German banking industry's opposition to the "full and uncontrolled" disclosure of the results of stress tests.

Yonhap News:

• U.S. Repeats Calls on China to Condemn N. Korea for Ship Sinking: State Dept. The United States Wednesday repeated calls on China to join forces in condemning North Korea at the U.N. Security Council for the torpedoeing of a South Korean warship in March. "The president framed this, we think, appropriately so," State Department spokesman Philip Crowley said. "We continue our discussions with China and other countries in New York, but we think at this point there's little ambiguity and, we believe the international community needs to send a direct and clear message to North Korea." Crowley was responding to the Chinese Foreign Ministry, which has said China's position on the sinking of the Cheonan is "fair and justified" and denounced President Obama for his remarks on China's "willful blindness" to North Korea on the Cheonan issue in Toronto Saturday while meeting with South Korean President Lee Myung-bak on the margins of the G-20 economic summit.

China Business News:

• The basic direction of China's monetary and fiscal policy won't change this year, Citing Fan Jianping, head of the economic forecast department of the State Information Center.

Evening Recommendations
Citigroup:

• Reiterated Buy on (WRI), target $24.

Piper Jaffray:

• Rated (JBHT) Overweight, target $42.
• Rated (WERN) Overweight, target $28.
  

Night Trading

• Asian equity indices are -1.75% to -.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 142.50 -4.5 basis points.
• Asia Pacific Sovereign CDS Index 138.25 -1.75 basis points.
  
• S&P 500 futures -.68%.
  
• NASDAQ 100 futures -.66%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (STZ)/.35

Economic Releases
8:30 am EST

• Initial Jobless Claims for last week are estimated to fall to 455K versus 457K the prior week.
• Continuing Claims are estimated to rise to 4550K versus 4548K prior.
  

10:00 am EST

• ISM Manufacturing for June is estimated to fall to 59.0 versus a reading of 59.7 in May.
• ISM Prices Paid for June is estimated to fall to 70.0 versus a reading of 77.5 in May.
• Construction Spending for May is estimated to fall -.8% versus a +2.7% gain in April.
• Pending Home Sales for May is estimated to fall -14.2% versus a +6.0% gain in April.
  

Afternoon

• Total Vehicle Sales for June are estimated to fall to 11.4M versus 11.64M in May.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Treasury's Geithner speaking, Challenger Job Cuts report, weekly EIA natural gas inventory report and the (GIS) Investor Day could also impact trading today.
  

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