Friday Watch

Evening Headlines

Bloomberg:

• Euro May Have to Coexist With a German-Led Uber Euro: Business Class. It appears another rescue is on the way for Greece. It won't solve the currency union's problems. The real threat to the euro isn't that a weak peripheral country like Greece might withdraw in an effort to devalue its way to competitiveness, but rather that Germany might want to pull out. Germany's incentive to leave grows with each bailout, and Berlin could ultimately make a simple calculation that extrication will be less costly than continuing the sacrifice needed to keep the euro.
• Greece's banks face a $32 billion funding gap over the next year should depositors continue to withdraw their money at the current pace, according to Henderson Global Investors. Deposits by businesses and households held in Greek banks have declined more than 17% since December 2009. While the lenders have been able to make up the shortfall by posting collateral at the ECB or calling in loans to foreign banks, they are running out of assets, said Simon Ward, Henderson's London-based chief economist. "The end game is a full-scale bank crisis, so at some point depositors will have to be stopped from withdrawing their funds," said Ward, who helps oversee Henderson's $100 billion of assets. "I can't see what is going to plug the gap. Any new money coming from the European Union or International Monetary Fund is going to be needed for government finances so there seems to be an additional requirement for the banking system."
• Fed Said to Consider Expansion of Capital Reviews. The Federal Reserve may expand its annual review of bank capital beyond the 19 largest financial institutions to push rigorous risk-management standards into more banks, according to people familiar with the discussions. Firms with assets of $50 billion or more would be required to conduct an exam, with boards showing Fed examiners how stock buybacks, dividends, earnings, and new regulations affect capital over several years, said the people, who declined to be identified because the proposal isn’t final. The Fed completed its first annual study of capital plans in March, clearing the way for firms such as Wells Fargo & Co. (WFC) and JPMorgan Chase & Co. (JPM) to boost dividends. Bankers, including JPMorgan Chase Chief Executive Officer Jamie Dimon, have criticized stricter federal oversight of the biggest firms, saying new regulations may impair lending and economic growth.
• Maiden Lane Sales Spark Stampede to Dump Risk. Federal Reserve auctions of mortgage securities that the central bank assumed in the rescue of American International Group Inc. are fueling a selloff in credit markets as Wall Street rushes to hedge against losses on stockpiled debt. Declines in credit-default swaps indexes used to protect against losses on subprime housing debt and commercial mortgages accelerated this month, reaching almost 20 percent in the past five weeks as the cost of the insurance climbs, according to Markit Group Ltd. The plunge this week started infecting everything from junk bonds to the debt of financial companies. The Fed has been selling the $31 billion Maiden Lane II portfolio piecemeal after rejecting a $15.7 billion bid from AIG for the entire pool in March. Since then, Europe’s sovereign debt crisis has deepened and the U.S. recovery has shown signs of slowing, with unemployment rising to 9.1 percent, the highest level this year, and the economy growing 1.8 percent in the first quarter, less than forecast. “Dribbling risk into the market makes sense if everything is good and continues to improve,” said Ashish Shah, the head of global credit investments in New York at AllianceBernstein LP, which oversees $214 billion in fixed-income assets. “But when you get yourself into a position where the Street suddenly feels they’re long inventory and the macro backdrop is weaker, now you’re selling into weakness.”
• Hong Kong Auditor Rejected by U.S. as China Blocks Inspections. The Public Company Accounting Oversight Board rejected Hong Kong-based Zhonglei CPA Co.’s application to become a registered U.S. auditor, citing an inability to inspect its work for companies based in China. This was the first time the PCAOB blocked an auditor since toughening rules in October. The decision follows the U.S. Securities and Exchange Commission’s increased focus on Chinese- based companies that trade on American stock markets. Yesterday, the SEC cautioned investors about buying stakes in companies that gain listings through so-called reverse mergers, saying they may be prone to “fraud and other abuses.” “The PCAOB is putting a line in the sand that is telling China very clearly that if you want your CPA firms to be involved in companies listed here in the U.S., you’ve got to agree to ensure that there are high-quality audits, and that means letting us in to inspect,” said Lynn Turner, a former SEC chief accountant who serves on a PCAOB advisory group. The SEC has halted trading in firms such as Guangzhou, China-based Heli Electronics Corp. and Rino International Corp. of Dalian, China, in the past few months. More than 24 companies have disclosed auditor resignations or accounting problems to the SEC since March, Chairman Mary Schapiro wrote in an April 27 letter. As short sellers increased bearish bets against the stock, the Bloomberg Chinese Reverse Mergers Index of 78 shares listed in the U.S. has dropped 43 percent in 2011.
• Government is More to Blame for Weak Recovery Than Fading Stimulus: Echoes by John B. Taylor.
  
• Prudential's Grier Says Fed Oversight of U.S. Insurers Is Science Fiction. Prudential Financial Inc. (PRU) said new global rules for financial firms won’t work and the Federal Reserve’s revised mandate to potentially oversee insurers is science fiction. Prudential Vice Chairman Mark Grier told analysts today that Solvency II and Basel III, the insurer and bank standards being readied by European regulators, will fail in a crisis. In remarks about the Fed’s expanded role, Grier said he refers to systemically important financial institutions, or SIFIs, as “sci-fi,” which is short for science fiction. “Solvency II and Basel III aren’t even going to work,” Grier said today at Newark, New Jersey-based Prudential’s annual investor and analyst conference. “If there’s a crisis everybody’s going to go back to doing stress tests because no one’s going to believe those things.”
• China's Sina(SINA) Extends Stock Losses. Sina Corp., the owner of China’s third-most visited website and the Twitter-like Weibo service, fell for a fifth day in New York, extending losses after the biggest decline since 2008 yesterday. Sina slid 6.1 percent to $90.92 at 4 p.m., the lowest closing price since March 18. It plunged 11 percent yesterday. The MSCI China/Information Technology Index has fallen 6.3 percent this month, compared to a 2.2 percent decline on the benchmark emerging markets index. Allegations of accounting irregularities at some smaller Chinese companies have eroded demand for larger peers including Sina, Baidu Inc.(BIDU) and Sohu.com Inc. (SOHU), which have lost at least 17 percent of their value since the end of April, after reaching record highs that month, according to Aaron Kessler, an analyst at ThinkEquity LLC in San Francisco. Longtop Financial Technologies Ltd. (LFT), a Hong Kong-based software provider, was sued by an investor alleging the company overstated profit margins and concealed adverse facts last month. “There’ve been some accounting concerns in the sector, also concerns of a global economic slowdown that have impacted these names,” Kessler said.
• Bank of Korea Raises Key Interest Rate to 3.25%. The Bank of Korea raised interest rates for a third time this year to rein in inflation that has exceeded its target range and curb record household debt. Governor Kim Choong Soo boosted the benchmark seven-day repurchase rate to 3.25 percent from 3 percent, following quarter-percent increases in January and March, the central bank said in a statement in Seoul today.
• Food Inflation in India May Climb as Government Raises Minimum Crop Prices. Food-price inflation in India, Asia’s third-largest economy, may accelerate after the government raised the prices it pays farmers for food grains and oilseeds, making crops more expensive, economists said. The minimum prices for monsoon-sown crops including paddy, soybeans and corn were increased to help boost planting, the farm ministry said in New Delhi yesterday. The federal government sets the crop prices to assure farmers’ incomes, while selling subsidized grains and cooking oils to the poor. An increase in food prices would add to inflationary pressures in India, where the central bank has boosted interest rates nine times since March 2010. An index measuring wholesale prices of agricultural products advanced 9.01 percent in the week ended May 28 from a year earlier, the trade ministry said yesterday. Overall inflation in India has been above 8 percent for 16 months. The jump in global food costs has pushed 44 million more people into poverty since June 2010, according to a World Bank estimate. Higher prices helped spark the riots across northern Africa this year, toppling Tunisian President Zine El Abidine.
• Lagarde Favored Over Carstens for IMF's Top Post as Nomination Period Ends. Christine Lagarde, who has taken her campaign to head the International Monetary Fund to India and China while keeping her fans posted on Twitter, may be poised to defeat her main rival, Agustin Carstens.

Wall Street Journal:

• Bond Deal May Augur More European Travails. A crack opened in Europe's credit markets last week that could portend deeper trouble for the region's banks and governments. Investors balked at buying a €1 billion ($1.46 billion) bond offering by Banco Santander SA that was backed by debt of Spanish local governments, according to people familiar with the sale. That left a group of big European banks that managed the deal holding roughly €500 million of the debt. The lack of demand, unforeseen by Santander or the managers, underscores the jittery nature of the region's credit markets. That some of the biggest banks in Europe, including Commerzbank AG, HSBC Holdings PLC and Société Général SA, were left holding the bag also demonstrates how easily sovereign risk can spread around the euro zone.
• France to Set Calendar for Possible Lagarde Probe. A French criminal court said it would announce a calendar Friday for reviewing accusations that Finance Minister Christine Lagarde had overstepped her authority. Ms. Lagarde is campaigning for the top job at the International Monetary Fund.
• Report Slams U.S. Nuclear Regulator. The U.S.'s top nuclear-power regulator "strategically" withheld information from his colleagues in an effort to stop work on a controversial proposed waste dump, according to a report by the agency's internal watchdog, a finding likely to inflame debate about how to handle the nation's nuclear waste. The June 6 report by Nuclear Regulatory Commission Inspector General Hubert T. Bell offers an unflattering portrait of the NRC and its leader, Gregory Jaczko, who is described as having a temper that makes it "difficult for people to work with him."
• The Lone Star Jobs Surge. The Texas model added 37% of all net U.S. jobs since the recovery began. Richard Fisher, the president of the Federal Reserve Bank of Dallas, dropped by our offices this week and relayed a remarkable fact: Some 37% of all net new American jobs since the recovery began were created in Texas. Mr. Fisher's study is a lesson in what works in economic policy—and it is worth pondering in the current 1.8% growth moment. Using Bureau of Labor Statistics (BLS) data, Dallas Fed economists looked at state-by-state employment changes since June 2009, when the recession ended. Texas added 265,300 net jobs, out of the 722,200 nationwide, and by far outpaced every other state.
• A Gulf Drilling Revival. Notice how the energy breakthroughs are in oil and natural gas. Exxon Mobil Corp.'s huge new oil discovery in the Gulf of Mexico is good news for domestic energy production, but it's even better news as a sign that last year's panic over the BP spill won't continue to cripple American offshore oil exploration. Every so often, reality triumphs over politics.

CNBC:

• US Regulators Scramble to Warn on Chinese Stocks. Regulators scrambled to warn of the risks surrounding Chinese companies that have listed in the United States through reverse mergers, though critics said the intervention was too little, too late following a series of accounting scandals. Brokerages also continued to crack down by preventing investors from borrowing on margin to buy many Chinese stocks amid concerns about whether they were overvalued. The U.S. Securities and Exchange Commission said Thursday that it was urging investors to review company filings and in particular watch for those who are not required to file financial reports with the regulator, but plenty of investors have already been burned.

Business Insider:

• The Dangerous Indian Supergene Was Just Found In a Military Hospital. It makes bacteria resistant to antibiotics.
• GBTV! Here is Glenn Beck's New Internet Channel(Roger Ailes May Have Good Reason To Be Worried).
  

Zero Hedge:

• US Treasury Burns $90 Billion in 8 Days.
• 30% of People With a 401(k) Have Taken Out a Loan Against It: New All Time Record.
  

IBD:

• Fertilizer Makers Flex Muscle as Crop Prices Rise. Companies like CF Industries (CF), Agrium (AGU) and Potash Corp. of Saskatchewan (POT) have maintained pricing power as demand for crops for food and fuel has grown.

Forbes:

• Extract Baby, Extract! There's No Stopping Canadian Tar Sands Oil.

NY Times:

• Muddy Waters Research Is a Thorn to Some Chinese Companies. Carson C. Block makes even Wall Street cringe. Last week, the founder of the investment firm Muddy Waters Research issued a scathing report on a Chinese forestry company, calling it a “pump and dump” scheme that has been “aggressively committing fraud.” The remarks set off a sharp sell-off in shares of the company, Sino-Forest, prompting Canadian authorities to temporarily halt trading. Since the report, the stock has fallen more than 70 percent, erasing billions of dollars in value from a company whose investors include Paulson & Company, the hedge fund run by the billionaire John A. Paulson. “They overstated assets by billions of dollars and funneled money to an undisclosed subsidiary,” said Mr. Block, whose firm is based in Hong Kong and the United States.

TechCrunch:

• Google(GOOG) Acquires AdMeld for $400 Million.

Time:

• Senate Dems Distance Themselves from the Obama Agenda.

USA Today:

• Retailers Respond as Value Mania Hits Even The Well-To-Do. They make more than $100,000 a year. They're recently back from a vacation to Aruba — via freebie air miles. And they go shopping together for their groceries every week — at Walmart.

Reuters:

• Groups Sue Obama Administration Over Drilling Approval. Environmental law firm Earthjustice, which filed suit on behalf of several groups, claims the Obama administration's approval ignored relevant concerns involved with deepwater drilling.
• Short Bets on U.S. Stocks Rise in Late May. Short interest on both the New York Stock Exchange and Nasdaq rose through the second half of May, the exchanges said on Thursday, suggesting investors added to short positions on expectations of further losses as the market lost ground. Short interest on the NYSE rose 2.17 percent to 13.22 billion shares through May 31, from 12.94 billion shares as of May 13. Short interest on the Nasdaq rose 3.41 percent in the second half of May to 7.25 billion shares, from 7.01 billion shares as of May 13.

Financial Times:

• Powerful People Held to Account for Financial Crisis. Reckless Endangerment: How outsized ambition, greed, and corruption led to economic Armageddon, by Gretchen Morgenson and Joshua Rosner, Times Books, $30 Gretchen Morgenson, a New York Times business report­er and col­umnist, is never one to pull her pun­ches – and certainly not in her new book, Reckless Endangerment, about the causes of our recent “economic Armageddon”, as the book’s subtitle has it. Reckless Endang­erment is written with Josh­ua Rosner, a fin­ancial and policy analyst at Graham Fisher & Company. The gist of the argument is that Fannie Mae and Freddie Mac, the two housing-oriented, government-sponsored entities (GSEs) now in receivership and liquidation mode, and their defen­ders in Congress laid the foundations for the Great Recession. The book is late to the party, but Morgenson says that it “identifies powerful people whose involve­ment in the debacle has not yet been chronicled and it connects key incidents that have seemed heretofore un­related”.
• Traders Flummoxed by Natural Gas 'Flash Crash'. Energy traders have been puzzled by a fleeting plunge in natural gas futures, the latest instance of anomalous price moves following the shift of commodities to electronic platforms. The New York Mercantile Exchange floor had been closed for more than five hours when late on Wednesday Nymex July natural gas dropped 39 cents, or 8.1 per cent, to $4.510 per million British thermal units. After a few seconds, it bounced back up.

Yonhap News:

• South Korean Finance Minister Bahk Jae Wan said the government should use "all possible policy measures" to stabilize prices. Price instability is likely to continue for a while, Bahk told a government meeting.

21st Century Business Herald:

• China's soybean demand may not be as strong as it looks because some domestic companies are increasing imports to obtain funds through letters of credit, citing a company executive. About 10% to 15% of more than 6 million tons of soybean inventories at China's main ports may be inflated by the trade financing, citing a Shenyin & Wanguo Futures Co. manager Lin Xunfeng.

China Business News:

• China may allow the country's three largest oil companies to adjust fuel prices while crude oil costs are below $130 a barrel. Filling stations may be allowed to raise or cut fuel prices when crude oil costs change more than 4% on average over 22 consecutive working days, according to a plan under discussion.

Haaretz.com:

• UN Report: Iran Accelerating Development of Long-Range Missiles. Monitors sent to various countries uncover and document unauthorized activity by Iranian officials. A report by a panel of experts convened by the United Nations reveals that over the past year Iran has stepped up the pace of its efforts to develop long-range missiles. The report by the panel, which was convened a year ago after the UN Security Council imposed stiffer sanctions against Iran in an effort to halt the Iranian nuclear program, has not been officially released. In a campaign led by the United States, the United Nations has shown concern over Iran's development of medium- and long-range missiles in addition to the nuclear program itself. Iran's efforts to develop missiles have therefore been monitored along with Iranian weapons-smuggling operations.

Evening Recommendations
Citigroup:

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

Night Trading

• Asian equity indices are -1.0% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 112.50 -.5 basis point.
  
• Asia Pacific Sovereign CDS Index 117.0 +1.0 basis point.
  
• S&P 500 futures -.32%.
  
• NASDAQ 100 futures -.26%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (LULU)/.38

Economic Releases
8:30 am EST

• The Import Price Index for May is estimated to fall -.7% versus a +2.2% gain in April.

2:00 pm EST

• The Monthly Budget Deficit for May is estimated at -$59.0B versus -$135.9B in April.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The (TRV) investor conference and the (ARRS) analyst conference could also impact trading today.
  

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

Stocks Rising into Final Hour on Short-Covering, Bargain-Hunting, Financial/Commodity Sector Strength

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Most Sectors Rising
  
• Volume: Light
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 17.30 -7.93%
  
• ISE Sentiment Index 120.0 +53.85%
  
• Total Put/Call 1.08 -7.69%
  
• NYSE Arms .49 -55.46%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 98.33 +1.53%
  
• European Financial Sector CDS Index 114.25 +1.90%
  
• Western Europe Sovereign Debt CDS Index 197.25 +2.42%
  
• Emerging Market CDS Index 217.56 -1.13%
  
• 2-Year Swap Spread 19.0 -1 bp
  
• TED Spread 21.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .03% unch.
  
• Yield Curve 257.0 unch.
  
• China Import Iron Ore Spot $172.60/Metric Tonne +.52%
  
• Citi US Economic Surprise Index -98.20 +10.5 points
  
• 10-Year TIPS Spread 2.21% +1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating +98 open in Japan
• DAX Futures: Indicating +27 open in Germany

Portfolio:

• Higher: On gains in my Retail, Biotech, Medical and Tech sector longs
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades near session highs despite global growth worries, emerging markets inflation fears, rising Mideast unrest, Japan nuclear concerns, rising eurozone debt angst and rising food/energy prices. On the positive side, HMO, Oil Service, Agriculture and Road & Rail shares are especially strong, rising more than +1.75%. Cyclicals are outperforming. (XLF) has traded well throughout the day. The 10-year yield is bouncing +6 bps higher to 3.0%. Lumber is gaining +.36%. The AAII % Bulls fell to 24.42%, while the % Bears jumped to 47.67 this week, which is also a big positive. On the negative side, Steel, Airline, Gaming, REIT and Biotech shares are lower on the day. (IYR) has been heavy throughout the day. Oil is rising +.63% and the UBS-Bloomberg Ag Spot Index is gaining +.62%. The US price for a gallon of gas is down -.02/gallon today to $3.73/gallon. It is up .59/gallon in less than 4 months. The Spain sovereign cds is gaining +2.0% to 258.66 bps, the Italy sovereign cds is climbing +2.28% to 161.33 bps, the Portugal sovereign cds is gaining +1.48% to 719.47 bps, the Greece sovereign cds is surging +1.93% to 1,519.28 bps, the Ireland sovereign cds is up +1.2% to 690.83 bps, the Belgium sovereign cds is rising +3.24% to 145.17 bps and the UK sovereign cds is rising +4.3% to 61.84 bps. The Portugal sovereign, Ireland sovereign and Greece sovereign cds are hitting new record highs today. The Citi Latin America Economic Surprise Index remains close to a 52-week low. (SINA), a beloved Chinese momentum stock, has continued to crash on large volume. The Shanghai Composite fell another -1.7% last night and looks to be rolling over again technically. US stocks had become very oversold and today's bounce is welcome. However, breadth isn't that great, volume is light and leadership is poor. Much of today's advance appears to be related to short-covering. As well, none of the fundamentals that have been weighing on equities are showing any improvements yet. This stock bounce could last another couple of days, but we need to see some real improvements in fundamentals before stocks will likely mount a more convincing move higher. I expect US stocks to trade mixed-to-lower into the close from current levels on global growth worries, rising eurozone debt concerns, emerging markets inflation fears, rising Mideast unrest, rising food/energy prices and more shorting.

Today's Headlines

Bloomberg:

• Greece Is Said to Require $65 Billion More in Emergency Loans From EU, IMF. European governments and the International Monetary Fund would lend as much as an extra 45 billion euros ($65 billion) to Greece under an expanded plan to avoid the euro area’s first sovereign default, two people with direct knowledge of the talks said. European estimates put Greece’s 2012-14 financing gap at as much as 170 billion euros, the people said. It would be filled by the loans, plus around 57 billion euros in unspent aid from last year’s bailout, roughly 30 billion euros in asset-sale proceeds and about 30 billion euros in rollovers by creditors. Structuring the rollovers remains the most sensitive part of the package, with European Central Bank President Jean-Claude Trichet warning on a teleconference of euro-area officials yesterday that German calls for a debt exchange might lead rating companies to declare Greece in default, the people said. “It’s hard to imagine something that’s truly voluntary in the current climate,” Bart Oosterveld, managing director for sovereign risk at Moody’s Investors Service, told reporters in Frankfurt today. “The default risks for peripheral European countries continue to increase.”
  
• Greece, Portugal, Ireland Risk Surges to Record, Credit-Default Swaps Show. The cost of insuring against default on government debt sold by Greece, Portugal and Ireland surged to records, according to traders of credit-default swaps. Contracts on Greece soared 30 basis points to 1,522, Portugal increased 16 to 722 and Ireland rose 10 to 690 as of 2:30 p.m. in London, according to CMA. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose 4 basis points to 203, the highest since Jan. 12. Swaps on Spain increased 6.5 basis points to 261.5, Italy climbed 6 basis points to 165 and Belgium was 4 basis points higher at 144, according to CMA. The Markit iTraxx Crossover Index of swaps on 40 companies with mostly high-yield credit ratings increased 2 basis points to 395, the highest since March 17, while the Markit iTraxx Europe Index of 125 investment-grade companies rose 1 basis point to a five- month high of 107.25, according to JPMorgan Chase & Co. The Markit iTraxx Financial Index of swaps linked to the senior debt of 25 European banks and insurers climbed 4.5 basis points to 163.5 and the subordinated index jumped 10 to 278, both the highest since March, JPMorgan prices show.
• ECB's Trichet Signals July Interest Rate Increase. The European Central Bank signaled a July rate increase while damping investor expectations for further moves by reiterating a forecast that inflation will fall below its 2 percent limit next year. The euro dropped more than a cent and German government bonds fell after ECB President Jean-Claude Trichet said the central bank hadn’t raised next year’s inflation forecast from 1.7 percent, fueling speculation it won’t increase rates as quickly as previously expected. At the same time, Trichet signaled the bank intends to lift its benchmark in July after keeping it at 1.25 percent today. Latest data confirm “continued upward pressure on inflation” and “strong vigilance is warranted,” Trichet said. “It means that we are in a mode where there might be in the next meeting an increase of rates, but we are never pre- committed. We are not signaling any particular pace for the next decisions on our interest rates.”
• Initial Jobless Claims in U.S. Unexpectedly Rose Last Week. U.S. initial jobless claims unexpectedly rose last week, a sign that the labor market is struggling to gain traction. Jobless claims increased by 1,000 to 427,000 in the week ended June 4, Labor Department figures showed today in Washington. Economists surveyed by Bloomberg News projected a drop in claims to 419,000, according to the median forecast. It was the ninth consecutive week that claims were above 400,000. Today’s data showed the four-week moving average, a less volatile measure than the weekly figures, fell to 424,000 last week from 426,750. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, fell to 2.9 percent from 3 percent, today’s report showed.
  
• Corn Futures Climb to Three-Year High as USDA Slashes Inventory Estimates. Corn jumped to the highest in almost three years after the U.S. Department of Agriculture forecast tighter supplies, as adverse weather hurt crops. U.S. stockpiles before the start of the 2012 harvest may fall to 695 million bushels, the lowest since 1996, even as farmers harvest a record crop, the USDA said. World inventories are projected to drop to the lowest since 2004 next year. Prices have more than doubled in the past year as global production trailed gains in demand for livestock feed and biofuels. “Today’s report should be viewed as very bullish,” Bill Gary, the president of Commodity Information Systems in Oklahoma City, said in a report to clients. Corn “ending stocks were forecast at the second tightest level in history,” based on reserves to cover daily usage, he said. The rally is boosting costs for meat producers including Tyson Foods Inc. (TSN) and ethanol makers such as Poet LLC. Global food prices have climbed in nine of the past 11 months, touching a record in February. Food-price inflation, high unemployment and corruption spurred unrest in northern Africa and the Middle East this year, ousting leaders in Tunisia and Egypt. Corn futures for July delivery rose 20 cents or 2.6 percent, to $7.84 a bushel at 10:34 a.m. on the Chicago Board of Trade. Earlier, the grain touched $7.93, the highest since June 2008.
• Maersk Only Shipper With Europe-Asia Profit as Rates Fall: Freight Markets. A.P. Moeller-Maersk A/S may be the only shipping line to profit from growing trade between Asia and Europe even as rates reach a two-year low. While Maersk is ordering the world’s biggest ships for the routes, companies such as Hapag-Lloyd AG may lose out. Maersk, the largest container shipping line, probably was the only major operator to make money on Asia-Europe trade in the first quarter, said Ben Gibson, a freight derivatives broker in London at Clarkson Plc, the world’s largest shipbroker.
• China's Ministry of Railways, the nation's biggest issuer of corporate debt, is paying a record yield premium to sell bonds as construction of the world's biggest high-speed network strains its finances. The difference between yields on its 10-year notes and similar-maturity Treasuries doubled in the last five months to reach 141 basis points this week, the most in ChinaBond data going back to September 2008. The gap was 140 basis points yesterday, having widened 36 basis points since the ministry reported a first-quarter loss of 3.76 billion yuan on May 4. The rail operator has 2 trillion yuan of borrowings, including 56 billion yuan of bonds falling due by end-2011.
• Muni Bond Holdings Cut by Mutual Funds, Households, Fed Says. U.S. mutual funds, money-market accounts and individuals cut their holdings of municipal bonds as borrowing by state and local governments dropped during the first three months of the year, the Federal Reserve said. The number of municipal bonds outstanding slid by $20.5 billion to $2.9 trillion during the first quarter, the Fed said in a release today. That marked the steepest drop since 1995, according to data compiled by Bloomberg. Holdings by households, the biggest owners of the debt, slipped by $5.6 billion to $1.08 trillion, while those owned by money- market and mutual funds dropped by $23.8 billion.
• Bair Says U.S. Must Avoid Amnesia in Response to Crisis. Federal Deposit Insurance Corp. Chairman Sheila Bair strongly defended higher capital buffers for the biggest banks and said U.S. regulators must guard against pressure to be less vigilant in financial-industry oversight as the nation recovers from the 2008 credit crisis. “I see a lot of amnesia setting in now,” Bair said today during a question-and-answer session at the Council on Foreign Relations in New York, where she discussed her tenure at the FDIC and the government’s response to the worst financial crisis since the Great Depression.
• Crude Oil Futures Rise a Third Day as OPEC Fails to Agree on Output Quotas. Crude oil increased for a third day after OPEC’s failure at a meeting in Vienna to reach an accord on output targets for the first time in at least 20 years. Futures gained as much as 1.7 percent after what Saudi Oil Minister Ali al-Naimi said “was one of the worst meetings we’ve ever had.” Ministers from the 12-nation Organization of Petroleum Exporting Countries were unable to come to an accord in five hours of talks yesterday. Crude oil for July delivery climbed $1.03, or 1 percent, to $101.77 a barrel at 1:45 p.m. on the New York Mercantile Exchange. Prices are up 37 percent in the past year.
• Biofuel From Algae, Wood Chips Approved for Airlines, ATA Says. U.S. safety authorities granted initial approval for biofuel from non-food materials to be blended with traditional jet fuel on commercial flights worldwide, the Air Transport Association said today. Fuel processed from organic waste or non-food materials, such as algae or wood chips, may comprise as much as 50 percent of the total fuel burned to power passenger flights, ATA spokesman Steve Lott and a Boeing Co. (BA) official told Bloomberg. The preliminary approval, granted this week by the Pennsylvania-based American Society for Testing & Materials, may allow Airbus SAS and Deutsche Lufthansa AG (LHA) to carry out a flight they have planned in the coming weeks using one engine powered 50 percent by biofuel from jatropha, camelina and animal waste.
• Dodd-Frank Swaps Rules to Create 'Black Hole' Because of Unresolved Issues. Swaps users may face a “black hole” when Dodd-Frank Act rules take effect next month because too much remains unresolved for markets to operate properly, the Senate Agriculture Committee’s top Republican said. “We don’t even know what a swap is” under the financial overhaul, Senator Pat Roberts said in an interview today at Bloomberg’s office in Washington. The Kansas Republican said the Commodity Futures Trading Commission needs to outline what provisions will apply when Dodd-Frank takes effect, and which will require rule-making that will delay implementation.

Wall Street Journal:

• Carriers Sweat as Texting Cools Off. Growth in the volume of text messaging is slowing sharply, just as new threats emerge to that lucrative source of wireless carrier profits. While U.S. cellphone users sent and received more than 1 trillion texts in the second half of 2010, according to CTIA, a wireless industry trade group, that was just an 8.7% increase from the prior six months. It was the slimmest gain since texting exploded last decade.

MarketWatch:

• Smucker(SJM) Warns of Spike in Production Costs. Jam maker J.M. Smucker, also home to Folgers coffee, Dunkin’ Donuts and Jif peanut butter, said Thursday the cost to make its products will jump 25% over the next 12 months. That is yet another sign consumers will be paying higher prices at grocery stores and that food companies face an uphill battle in trying to contain skyrocketing costs for staple food ingredients.
• Lagarde Supports Bigger IMF Role for China. French Finance Minister Christine Lagarde, a leading candidate in the race to be the next International Monetary Fund chief, said Thursday she agrees with Chinese leaders that the selection of the next IMF head should proceed "irrespective of nationality" and it would be appropriate if Beijing's current representative in the organization played a key role in future IMF management.

CNBC.com:

• Fed Easing Has Helped China and Brazil: El-Erian.

Business Insider:

• Don't Look Now, But The Japanese Nuclear Crisis is Entering a New Phase. In the latest addition to the ongoing Japanese spiral, officials there are considering evacuating more towns as new "hot-spots" of radiation are discovered farther from the foundering nuclear plant. The new locations are far outside the 19 mile radius previously imposed.
• Troika Report Leaked: Prognosis "Bleak" for Greece, Where Reforms Have Come to a "Standstill".
  

Zero Hedge:

• A Classic Technical Signal: China Breaks Down. (graph) China's stock market has broken a long-term flag to the downside. Look out below.
• US Taxpayers About to be Saddled With Another European Bailout Courtesy of AIG(AIG).
• German Federal Constitutional Court to Challenge Greek Bailout, Claims Action is Unconstitutional.
  

New York Times:

• Goldman(GS) Fined $10 Million Over 'Trading Huddles'. Massachusetts regulators have fined Goldman Sachs $10 million, a penalty that stems from an investigation of its research department. As part of the agreement, the bank has also agreed to halt internal meetings between traders and research analysts, gatherings known inside Goldman as “trading huddles.” “We verified that there was a preference of some customers at the expense of others,” William Galvin, the state’s chief financial regulator, said in an interview.

Chicago Tribune:

• CME Group(CME) Eyeing Illinois Exit. The executive chairman of Chicago-based CME Group said the exchange company is considering a move from Illinois, citing the state's corporate tax rate increase. In response to a January move by the Illinois government to raise the state's corporate tax rate to 7 percent from 4.8 percent, CME executive chairman Terry Duffy said he and CME's chief financial officer, Jamie Parisi, were exploring the possibility of moving CME's corporate tax-paying base. CME's threat comes at a time when other Illinois companies, including Caterpillar and Sears Holdings Corp., have raised the possibility of leaving Illinois. Other states have tried to dangle lucrative incentive packages to lure companies, and Illinois has offered up many incentives of its own to successfully retain big companies like Motorola Mobility. The result has resembled a national bidding war for some of Illinois' top companies.
  

CNN Money:

• Source: Weiner Told NY Colleague He Doesn't Plan to Resign, Citing Polling and Wife.

Real Clear Politics:

• Europe is Warning Us. All this European turmoil raises a paradox. If dispirited Europeans are conceding that something is terribly wrong with their half-century-long experiment with socialism, unassimilated immigrants, cultural apologies, defense cuts and post-nationalism, why in the world is the Obama administration intent on adopting what Europeans are rejecting?

Reuters:

• Deutsche Bank Has Not Cut Exposure to Greece. Deutsche Bank has not significantly cut its exposure to Greek government bonds, a spokesman said on Thursday. "We have kept to the agreement," the spokesman said, referring to the commitment of the German financial industry made last year to keep existing loans to Greece and Greek banks until 2012.
• Fed's Plosser Warns of Inflation Risks from QE. Senior U.S. Federal Reserve official Charles Plosser warned on Thursday of the risks to future inflation from its program of quantitative easing and reiterated that the bar for more stimulus for the economy was "very high." Charles Plosser, President of the Philadelphia Federal Reserve Bank and a policy voter at the Fed this year, said he believed that as the US economy improved, the potential for a rise in inflation was "quite large." "There's about 1.5 trillion dollars of what we call excess reserves in the banking system: they're just sitting there, they're not creating inflation, at least not yet. But they do have the potential to do that," he told Britain's BBC radio.

Handelsblatt:

• The European Central Bank should "give up its blockade against any kind of debt rescheduling" for Greece, Gerhard Schick, finance policy spokesman for the opposition Green party in German parliament, said. Giving further aid to Greece should serve the goal of reaching debt levels that are sustainable in the long run, Schick said, adding that proposals on Greece laid down by Finance Minister Wolfgang Schaeuble fail to reach that goal.

Shanghai Daily:

• Rising Food Prices See Cut in Chinese Consumer Spending. CHINESE bankcard holders trimmed their non-essential spending in May due to rising food prices caused by a drought that ravaged central and eastern China, an industry index showed yesterday. The bankcard consumer confidence index dipped to 86.11 in May, down 0.28 point from a year ago. It also slipped 0.69 point from April, said China UnionPay Co yesterday. The index tracks expenses of card users, including 200,000 individuals, in affluent cities who frequently use the cards to pay for 90 percent of their expenses. A higher index signals that more bankcards are being used to pay for non-necessity expenditure such as luxury goods and travel. "Bankcard holders are cutting non-necessity consumption as the rise in food prices pushes them to shop less, apart from basic needs," the Shanghai-based firm said in a statement. Prices of pork and vegetables rose as central and eastern China were hit by a drought that lasted two months, UnionPay said. Data from the Ministry of Agriculture showed the agricultural products wholesale index rose to 186.3 at the end of May from 180.1 at the start of the month. The decline in auto sales in the country in May also hit consumer confidence. Passenger car sales fell 6 percent to 1.01 million in May from April on the expiry of incentives, high fuel prices and output cuts by some Japanese auto makers due to the March earthquake and tsunami.
  

Bear Radar

Style Underperformer:

• Small-Cap Value (+.74%)

Sector Underperformers:

• 1) REITs -.81% 2) Gaming -.31% 3) Steel -.05%

Stocks Falling on Unusual Volume:

• BIDU, SINA, IMAX, SLG, WLL, CLF, VRTX, CIEN, LAYN, NICE, ONXX, TNAV, PZE, UNG and PHK
  

Stocks With Unusual Put Option Activity:

• 1) COG 2) IYR 3) GT 4) TXN 5) ATI
  

Stocks With Most Negative News Mentions:

• 1) SPG 2) C 3) MSFT 4) GM 5) PPL
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value (+.82%)

Sector Outperformers:

• 1) HMOs +2.13% 2) Agriculture +1.81% 3) Gold & Silver +1.62%

Stocks Rising on Unusual Volume:

• JVA, TITN, IPXL, AVGO, EBIX, WPRT, SJM, MW, MTN, TPX, MOS, IPG, URI, SEE, CF, CI, DE and TWI
  

Stocks With Unusual Call Option Activity:

• 1) FLEX 2) EGO 3) VRTX 4) GT 5) TXN
  

Stocks With Most Positive News Mentions:

• 1) HLF 2) AVGO 3) TGI 4) OAS 5) SJW
  

Charts:

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

Thursday Watch

Evening Headlines

Bloomberg:

• Trichet May Play ECB Rate Card as Germany Risks Split on New Greek Rescue. European Central Bank President Jean- Claude Trichet may today play the interest-rate card and signal to European governments that the euro region’s debt crisis is theirs to solve. Two days after German Finance Minister Wolfgang Schaeuble opened a rift with the ECB over how to fix Greece’s debt crisis, Trichet is likely to signal that the ECB is ready to raise interest rates for a second time in three months in July, a Bloomberg News survey showed. The central bank today will keep its benchmark at 1.25 percent, a separate survey showed. The latest phase of the Greek crisis risks exacerbating tensions between the ECB and the German government. “If there’s a hardening of attitudes between Germany and the ECB, the ECB are just going to dig in their heels and insist on their independence,” said James Nixon, chief European economist at Societe Generale SA in London. “They’re going to tell European governments it’s their problem and they can clear up the mess.”
• Papandreou's Tourism Gains Threatened by Fresh Wave of Strikes. Prime Minister George Papandreou’s attempts to draw tourists to Greece may be undermined by union calls for strikes against new government austerity measures. Unions representing more than 3 million workers are planning walkouts this month as Papandreou completes 78 billion euros ($114 billion) of budget cuts and state asset sales to meet European Union bailout requirements. Members of the PAME labor union took over the Finance Ministry offices in Athens on June 3 and 50,000 people demonstrated two days later. Unions have proposed a general strike for June 15 and transport, communications and power unions plan demonstrations today.
• Texas Instruments(TXN) Cuts Earnings Forecast on Slower Chip Orders From Nokia. Texas Instruments Inc. (TXN), the largest analog-semiconductor maker, gave a second-quarter sales and profit forecast that fell short of analysts’ estimates, dragged down by sluggish demand for wireless-phone chips. Second-quarter profit will be 51 cents to 55 cents a share on sales of $3.36 billion to $3.5 billion, the Dallas-based company said in a statement today. Analysts on average had projected profit of 57 cents on $3.55 billion in revenue, according to a Bloomberg survey. Texas Instruments’ analog chips go into everything from e- book readers to industrial air conditioners, making its earnings a broad indicator of demand across the electronics industry. A decline in chip orders from Nokia Oyj, its main wireless customer, is eroding revenue, Texas Instruments said. Texas Instruments fell as low as $30.87, a decline of 5.5 percent, in late trading after the announcement.
• South Korea to Weigh Rate Increase as Household Debt Poses Risk for Growth. The Bank of Korea will weigh an interest-rate increase tomorrow as swelling household debt and weakness in the global economy pose threats to growth. Officials must decide whether protecting the nation’s expansion is more important than taming inflation that’s exceeded a 4 percent target ceiling each month this year.
• Power Shortages Loom in Japan. The Fukushima nuclear crisis will extend a power shortage beyond Tokyo as local authorities resist starting idle reactors around Japan until safety guidelines are set in the wake of the worst atomic disaster since Chernobyl.
• Brazil Raises Key Interest Rate to 12.25% After Inflation Exceeded Target. Brazil’s central bank raised its benchmark interest rate for a fourth straight meeting today after consumer prices exceeded the upper limit of its target range for the first time since 2005. Policy makers, led by central bank President Alexandre Tombini, raised the Selic rate by a quarter point to 12.25 percent, as expected by 51 of 52 analysts surveyed by Bloomberg. Annual inflation in the world’s seventh-largest economy rose to 6.51 percent, above the top of the bank’s target range, in April and accelerated to 6.55 percent in May. Policy makers said in April, and repeated today, that a “sufficiently prolonged” series of rate increases will ease prices back to target in 2012.
• Three-month dollar Libor may fall below the fed funds target rate today for the first time in 16 months, signaling a decline in interbank lending as banks hoard cash, according to Brown Brothers Harriman & Co. "If Libor were to slip below the Fed's target rate, it would signal growing concerns about financial fundamentals," said Lena Komileva, global head of Group of 10 strategy at Brown Brothers in London.
• Regions Financial(RF) Says Debit-Card Rule May Erase 75% of Swipe-Fee Revenue. Regions Financial Corp. (RF), Alabama’s biggest bank, said a proposed rule that caps debit-card swipe fees may cost the lender 75 percent of its revenue from that business. Regions collected $346 million in such fees last year, Chief Financial Officer David Turner said today at an investor conference in New York. “The 12-cent cap that they put on just isn’t even remotely close to covering our costs,” Turner said, referring to rules proposed by the Federal Reserve. The lender may have to decide whether to “even offer a debit card, or, if we do, have the customer pay for that,” he said.
• N. Korea Poses 'Growing' U.S. Threat: Panetta. North Korea’s 1 million troops, ballistic missile program and nuclear enrichment activities underscore that it’s a “growing and direct threat” to the U.S., according to CIA Director Leon Panetta, nominated to succeed Defense Secretary Robert Gates.
• Obama Team Eyes Payroll Tax Break for Employers. President Barack Obama’s advisers have discussed seeking a temporary cut in the payroll taxes businesses pay on wages amid economic reports suggesting the recovery is slowing, according to people familiar with the matter. The idea, in preliminary stages of discussion, is among several being debated in the administration with the aim of boosting hiring, the people said on condition of anonymity to discuss internal deliberations. The unemployment rate in May rose to 9.1 percent, the highest level this year, and the economy is a main focus of the political discussion in Washington.

Wall Street Journal:

• The Great Property Bubble of China May Be Popping. After years of housing prices gone wild, China's property bubble is starting to deflate. Residential prices are heading downward in some major cities, damping some undesired real-estate speculation but raising the prospect that the Chinese economy may slow more rapidly than anticipated with profound consequences for global growth. World Bank economists warned at a Beijing press briefing on Wednesday that a real-estate bubble was among the biggest economic risks China faces. Already, in nine major cities tracked by Rosealea Yao, an analyst at market-research firm Dragonomics, real-estate prices fell 4.9% in April from a year earlier. Standard Chartered Bank estimates that China's so-called tier-two cities, such as Dalian and Tianjin, may have 20 months of housing inventory by year end, putting "substantial" pressure on prices. Standard Chartered forecasts price cuts of 10% to 20% "in many cities." A number of analysts think official data, which have continued to show a slight rise in prices, understate the slowdown as the government can affect the numbers by pressing developers to withhold or add high-value properties to the market depending on what it wants the data to show. Chinese officials, facing widespread anger from ordinary citizens who can no longer afford to buy a home, have sought to slow the rise in housing prices. The unanswered question is whether the government can manage to reduce prices gradually in a way that won't undermine economic growth. Calculations based on Soufun data show that in the opening months of 2006 an average-price new apartment in China's capital would cost around $100,000—the equivalent of 32 years' disposable income for the average resident. By 2011, the average price had more than doubled to $250,000, but relatively modest increases in income mean it would now take 57 years of saving for the average resident to cover the cost. In Shanghai, apartment sales tumbled 37% in April, to 11,000 units, compared with 17,500 units in January, according to the Shanghai Real Estate Trading Center. According to Dragonomics, sales volume in the nine cities it tracks fell by about half since the start of the year.
• Case for ObamaCare Repeal Grows Stronger.
• Big Funds See Red in China. Hedge-fund titan John Paulson is hardly alone in his wager on a Chinese company whose stock lately has swooned. Several other prominent money managers, including mutual-fund giants that invest individuals' money, made similar bets on stocks now struggling. A Wall Street Journal review shows that some big-name investors, from Fidelity Investments to Carlyle Group, in recent years snapped up shares in Chinese companies that trade on Western exchanges.
• Eyes on Goldman(GS)-Libya Dealings. Regulators Are Examining Whether the Big Bank, and Others, May Have Broken Bribery Laws.
• FrontPoint's Eisman to Exit Firm. Hedge-fund manager Steve Eisman, known for his big bets against subprime mortgages and for-profit colleges, is leaving his firm, FrontPoint Partners, a person familiar with the matter said.
• Policy Makers Split Over Size of Bank Capital. U.S. regulators aim to propose higher capital standards for financial firms in late July but remain divided over how much money banks and other firms should hold to protect against potential losses. The Federal Reserve, Treasury Department and many international policy makers agree that large financial institutions that pose risk to the global financial system should have bigger capital cushions. But policy makers are split over just how much capital is necessary.
• New Cracks in Oil Cartel. An acrimonious OPEC meeting failed to produce an agreement to increase oil production despite tight supplies and rising prices, bringing to the fore long-simmering divisions between key cartel players Saudi Arabia and Iran and calling into question the group's ability to influence oil prices.
• Rents on the Rise Again. Landlord Concessions Disappear as Vacancy Rate Falls; Bidding Wars Return.

MarketWatch:

• Fed On Hold Until Sept., Bullard Says: Report. The Federal Reserve will want to wait until after its meeting in mid-September before deciding on an exit strategy, St. Louis Fed president James Bullard said in a published interview on Wednesday.

CNBC:

• 'Monstrous Risks' in Emerging Markets: Bernstein. Emerging markets face "monstrous" risks this year, with investors continually ignoring intensifying inflationary pressures and credit bubbles, leading market strategist Richard Bernstein warned on Wednesday. Bernstein, who now runs his own firm after being chief investment strategist for Merrill Lynch & Co, said the love affair with emerging markets is overdone. "I think what people are completely missing is that the risk is not here in the United States," he told the Reuters 2011 Investment Outlook Summit. "The risk is in emerging markets. There are just monstrous risks in emerging markets right now in my opinion." Red flags are mounting. Brazil's and India's government yield curves are inverting, a condition in which short-term rates rise above longer yields. Historically, such an inversion almost invariably precedes a recession, as investors temporarily accept lower long rates in anticipation of the decline in yields that typically accompanies an economic downturn. Bernstein noted that the Standard & Poor's 500 Index is up 1.7 percent this year and that U.S. equities have been the better bet than emerging markets over the last two years. A government yield curve in general would be upward sloping. But the signal that there's increased risk of a bear market is not at the beginning of a tightening cycle, it's when a central bank has tightened too much, he said. The markets almost always take notice. "How do you know when the central bank has tightened too much? It's when the yield curve inverts. Historically that has been a fantastic indicator," Bernstein said. Indian and Brazil's yield curve inverted last week. "If you look at inverted yield curves around the world, the most inverted yield curves are Greece, Ireland and Portugal, and then comes India and Brazil. There is your warning sign that no one is talking about," he said. Bernstein said emerging market investors are putting a blind eye to the warning signals of a deep decline in emerging markets. "The common thing you hear, is 'well, they are overheating,' which is such a positive spin," Bernstein said. "The markets are still priced for very rapid unhindered growth, and I just think the probability of that is getting less and less."
  
• The Next-Big Shift in Social Networking: 'Niche' Sites.

Zero Hedge:

• Time For Chinese Fraudcaps to Exit Stage Left. One of the most unbelievable developments in the past few days has been the rank, unprecedented, totally amateur and outright pathetic backlash against writers of "short China" theses by the management teams of these same companies that have garnered the all too deserved definition of "Fraudcaps." We have shown before that the hit rate of pieces accusing Chinese companies is well north of 80% as exhibited by the fact that virtually all companies currently halted indefinitely on the Nasdaq are of Chinese origin.

IBD:

• Altera(ALTR) Rides The Rise Of Wireless Networks.

NY Times:

• Bank Said No? Hedge Funds Fill a Void in Lending. Hedge fund managers have been called plenty of names. Now, they can add another: local banker.
• U.S. Is Intensifying a Secret Campaign of Yemen Airstrikes. The Obama administration has intensified the American covert war in Yemen, exploiting a growing power vacuum in the country to strike at militant suspects with armed drones and fighter jets, according to American officials.
• Lagarde 'Very Positive' After Talks With China. Finance Minister Christine Lagarde of France, the top candidate to run the International Monetary Fund, said Thursday that she backed a bigger say for China at the organization while making it clear that the euro zone crisis would be a priority if she wins the job.

Politico:

• Sources: Huma Abedin, Anthony Weiner's Wife, Is Pregnant.

Reuters:

• Citi(C) Confirms Data Breach at Citi Account Online. Citigroup Inc confirmed a computer breach at Citi Account Online, giving hackers access to the data of hundreds of thousands of bank card customers.
• Chinese Stocks in US Hit as Brokers Wary of Lending. Chinese stocks listed in the United States took a beating on Wednesday as brokers raised red flags about trading risks following a series of accounting scandals that have afflicted the sector. The New York-traded shares of Chinese real estate service provider Syswin Inc (SYSW.N) tumbled 23.1 percent to $4 and online video company Ku6 Media Co Ltd (KUTV.O) lost 9.7 percent to $3.18. Orsus Xelent Technologies Inc (ORS.A), a designer and distributor of cellular phones, dropped 13.5 percent to $1.99. However, well-known bigger companies not on the list, such as Renren Inc (RENN.N), were also hit. Renren lost 13.6 percent to close at $10.51.
• China to Play Major Role in Cuban Oil Development. China looks ready to play a major role in the development of Cuban oil, including the island's soon-to-be explored fields in the Gulf of Mexico, after the signing of energy-related accords during a visit this week by Vice President Xi Jinping. The text of the agreements has not been disclosed, but they appear aimed at making China a significant oil partner with its fellow communist-run country, which is likely to raise eyebrows in the nearby United States.
• Urban Outfitters(URBN) Retail Segment Comp Sales Down So Far in Q2. Urban Outfitters Inc said its comparable retail segment net sales are down in the low single-digits so far in the second quarter on top of a 1.1 percent fall in the most recent quarter.
• U.S.-Focused Equity Fund Outflows Hit Six Weeks - ICI.
  

AFP:

• Bashir Committing New Crimes in Darfur: Prosecutor. Sudan's President Omar al-Bashir is committing new crimes in Darfur and challenging the authority of the UN Security Council, the chief international warcrimes prosecutor said Wednesday. "Crimes against humanity and genocide continue unabated in Darfur," International Criminal Court chief prosecutor Luis Moreno-Ocampo told the Security Council. He said new air attacks on civilians and killings of ethnic minorities had been carried out in the conflict-stricken western region, where the United Nations says at least 300,000 people have died since an uprising started in 2003. "These millions of victims displaced are still subjected today to rapes, terror and conditions of life aimed at the destruction of their communities, constituting genocide," Moreno-Ocampo said.

Financial Times Deutschland:

• German banks shed about a third of the Greek debt they held in May 2010, perhaps reducing their role in negotiations on a second bailout for Greece. German banks in January and February held more than 10.3 billion euros in Greek bonds, compared with about 16 billion euros in April 2010. The numbers appear to contradict figures from the Bank for International Settlements.

Commercial Times:

• Taiwan plans to ban some telecommunications equipment imports from China because of national security concerns.

Shanghai Securities News:

• China's small- and medium-sized companies may face the worst cash shortage since the 2008 financial crisis, citing a report from All-China Federation of Industry & Commerce. Cash, labor and power shortages as well as high costs and taxes are making it difficult for the enterprises to survive.

Evening Recommendations
William Blair:

• Rated (MMM) Outperform, target $110.
• Rated (ABB) Outperform, target $31.
• Rated (TYC) Outperform, target $59.

Night Trading

• Asian equity indices are -1.0% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 113.0 +3.0 basis points.
  
• Asia Pacific Sovereign CDS Index 116.0 +1.0 basis point.
  
• S&P 500 futures +.13%.
  
• NASDAQ 100 futures +.13%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (SJM)/.99
• (MTN)/2.17
• (TITN)//.22
• (BF/B)/.64
• (NSM)/.27

Economic Releases
8:30 am EST

• Initial Jobless Claims for last week are estimated to fall to 419K versus 422K the prior week.
• Continuing Claims are estimated to rise by 3700K versus 3711K prior.
• The Trade Deficit for April is estimated to widen to -$48.8B versus -$48.2B in March.
  

10:00 pm EST

• Wholesale Inventories for April are estimated to rise by +1.0% versus a +1.1% gain in March.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Plosser speaking, Fed's Yellen speaking, ECB Rate Announcement, BoE Rate Announcement, 30-Year Treasury Bond Auction, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory data, Sandler Exchange/Brokerage Conference, (PLXS) investor day, (PRU) investor day, (NVE) investor meeting and the (APD) investor conference could also impact trading today.
  

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