Stocks Slightly Higher Into Final Hour on Bargain-Hunting, Short-Covering, Financial Sector Strength

Broad Market Tone:

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

Equity Investor Angst:

• VIX 24.51 +15.15%
  
• ISE Sentiment Index 78.0 +13.04%
  
• Total Put/Call 1.18 -12.59%
  
• NYSE Arms 1.20 -46.59%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 99.59 +1.87%
  
• European Financial Sector CDS Index 126.83 +1.57%
  
• Western Europe Sovereign Debt CDS Index 228.33 +2.81%
  
• Emerging Market CDS Index 230.99 +2.46%
  
• 2-Year Swap Spread 27.0 +2 bps
  
• TED Spread 21.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .04% -1 bp
  
• Yield Curve 253.0 -6 bps
  
• China Import Iron Ore Spot $174.20/Metric Tonne +.69%
  
• Citi US Economic Surprise Index -101.10 -3.4 points
  
• 10-Year TIPS Spread 2.18% -4 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -31 open in Japan
• DAX Futures: Indicating -43 open in Germany

Portfolio:

• Slightly Higher: On gains in my Retail longs, Index hedges and emerging market shorts
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and then added them back
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 hovers at its 200-day moving average on global growth worries, more poor US economic data, emerging markets inflation fears, Mideast unrest and rising eurozone debt angst. On the positive side, Utility, Defense, Bank, Insurance, Retail, Restaurant, Food and Tobacco shares are higher on the day. The UBS-Bloomberg Ag Spot Index is declining -.83%, lumber is rising +1.1% and oil is down another -.65%. On the negative side, Coal, Alt Energy, Ag, Steel and Semi shares are under significant pressure, falling more than -2.0%. Cyclicals are underperforming again. Tech shares continue to trade poorly. Copper is down -.28%. Shanghai copper inventories have risen +28% in 5 days. The 10-year yield is falling too much again, declining -5 bps to 2.92%. The US price for a gallon of gas is unch. today at $3.69/gallon. It is up .55/gallon in less than 4 months. The Greece sovereign cds is soaring +17.0% to 2,065.86 bps, the Spain sovereign cds is rising +3.73% to 299.33 bps, the Italy sovereign cds is rising +1.6% to 181.33 bps, the Portugal sovereign cds is rising +2.21% to 815.0 bps, the Brazil sovereign cds is jumping +4.32% to 115.83 bps, the Ireland sovereign cds is gaining +4.43% to 801.67 bps and the Belgium sovereign cds is gaining +4.13% to 159.67 bps. The Greece, Ireland and Portugal sovereign cds are hitting new record highs again today. The jump in the 2-year swap spread over the last 3 days is also a big concern. 3-Month Shibor is also surging +31 bps to 5.59%. The Shanghai Composite finished at session lows last night, falling another -1.5% and is now down -5.1% ytd. India's Sensex also continues to trade poorly, dropping another -.8%, and is now down -12.3% ytd. Brazil's Bovespa fell another -1.3% and is now down -12.3% ytd. The AAII % Bulls rose to 29.0 this week, while the % Bears fell to 42.75, which is a negative considering recent events. Many key US stocks are unable to bounce at their 200-day moving averages, as well. Until gauges of credit angst start to reverse lower, it is hard to see how the major averages can mount a sustainable advance. I expect US stocks to trade mixed-to-lower into the close from current levels on more global growth worries, rising eurozone debt concerns, technical selling, emerging markets inflation fears, rising Mideast unrest and more short-selling.

Today's Headlines

Bloomberg:

• Papandreou Reshuffle Fuels Dissent Among Allies as Financial Markets Slump. Greek Prime Minister George Papandreou’s decision to reshuffle his Cabinet and demand his allies vote confidence in his government fueled dissent within his Socialist ranks and roiled financial markets. The yield on Greece’s 2-year bond topped 30 percent for the first time on concerns Papandreou’s grip on power was slipping, threatening passage of a new austerity plan aimed at securing a second aid package and avoiding the euro-region’s first default. The resignation today of two members of Papandreou’s parliamentary group prompted Socialists lawmakers to demand an emergency meeting with the premier. The political turmoil came as European Union talks on forging a new bailout to prevent the first euro-area default stalled. The impasse over the aid formula and speculation that a government shakeup would disrupt passage of budget cuts and asset sales sent Greek bonds and the euro plunging. EU Economic and Monetary Affairs Commissioner Olli Rehn said in an interview that Greece would receive its next bailout payment. Papandreou sought to reassert his authority in a televised address last night hours after police used tear gas to break up protests in central Athens and media reported he was in talks to step down in favor of a unity government. He said he would reshuffle his Cabinet and then call a confidence vote in parliament. He has yet to announce the details of the government shakeup.
• Greek 2-Year Yield Surges Past 30% as Default Concerns Mount; Bunds Rise. Greek government bonds slumped, pushing the yield on the two-year note above 30 percent for the first time, as Prime Minister George Papandreou’s failure to win support for more austerity fueled speculation of a default. Portuguese and Irish two-year yields also climbed to the most since the euro’s 1999 debut, while the 10-year Spanish yield jumped to the highest since 2000 as the country’s borrowing costs rose at a debt sale. The cost of insuring against default on Greek, Irish and Portuguese government debt surged to records. Papandreou will reshuffle his Cabinet and seek a confidence vote today. German government bonds gained, pushing the 10-year yield to a five-month low. “The Greek drama is firmly catching everything under its wings and there’s no way around that story,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London. “Implementation risk is highly elevated. It’s completely risk- off mode and for a country like Spain to come to the market in this environment, it’s challenging.” The yield on Greece’s two-year notes jumped 128 basis points to 29.30 percent as of 4:35 p.m. in London, after being as high as 30.32 percent. Ireland’s two-year yield increased 86 basis points to 12.96 percent. The Portuguese two-year yield surged 58 basis points to 13.02 percent. Spanish 10-year bonds yielded 273 basis points more than similar-maturity bunds, the most since Dec. 1. The spread has widened more than 100 basis points since declining to its 2010 low on April 12. The Irish spread over bunds jumped to 864 basis points, after reaching the most since the euro’s debut, while Portugal’s securities yielded 800 points more than their German peers for the first time, before settling at 798 basis points. French bonds also declined relative to bunds, pushing the spread over their German counterparts to 42 basis points, the most since January. The yield spread between Austrian and German 10-year securities widened by four basis points to 51 basis points, also the most in five months. Credit-default swaps on Greece soared 280 basis points to 2,050, while those on Ireland rose 36 to 802 and Portugal climbed 17 to 814, according to CMA prices. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments jumped 14 basis points to a record 239.5.
• Greek Debt Rollover Requires Doubling Aid Fund, Wellink Says. European Central Bank Governing Council member Nout Wellink said the emergency fund for euro- area countries should be doubled to 1.5 trillion euros ($2.1 trillion) if private investors are pressured to contribute additional aid for Greece, Het Financieele Dagblad reported. “If credit-rating agencies see the debt rollover as involuntary and a partial default, then contagion of other peripheral euro-zone countries takes place,” Wellink, who also heads the Dutch central bank, said in an interview published today in the Amsterdam-based newspaper. “If you take these risks, you need to realize you should build a safety net for that,” Wellink said. “It should go to 1,500 billion euros and there should be more flexibility in how the money can be spent. Also, it should be willing to do things the ECB did before,” such as buying government bonds, he said. Wellink’s comments were confirmed by Dutch central bank spokesman Tobias Oudejans. Wellink, who steps down as Dutch central bank president this month, said the ECB strongly opposes an involuntary contribution from investors. “If a contribution isn’t voluntary, it will lead to a chain of reactions disadvantageous for all of us,” Wellink said. “Credit-rating agencies judge whether that is a credit event, and a little pressure already creates such a situation.” Dutch Finance Minister Jan Kees de Jager on June 14 said private-sector investors should contribute at least 30 percent of possible additional refinancing aid for Greece. A voluntary rollover of Greek debt by private investors could be made attractive by using “sweeteners,” such as granting special rights to new debt that old debt lacks, he said. “Then you start to nibble away at the voluntariness,” Wellink said. “Greece’s credit rating isn’t far away from a default, so it only needs a nudge to go wrong. Where the border between voluntary and involuntary lies, no one actually knows. But if you seek the edges, you need to be aware you have the obligation to jump in when there are problems.”
• FX Concepts LLC, the world's largest currency hedge fund, said the euro's slide this week on Greece's debt crisis is the start of a "sustained" drop. "The situation is rapidly deteriorating in Greece," Jonathan Clark, vice chairman at NY-based FX Concepts, wrote in a research note today. "At this point a restructuring of debt termed 'reprofiling' appears inevitable as Greece won't be able to deliver the austerity required or be able to flat debt in the market."
• Basel is Said to Consider 3.5 Percentage Point Fee to Curb Growth of Banks. The Basel Committee on Banking Supervision is considering proposed capital surcharges of as much as 3.5 percentage points that the largest banks may face if they grow any bigger, according to two people familiar with the talks. Draft plans circulated before a meeting next week would subject banks to a sliding scale depending on their size and links to other lenders, said the people, who declined to be identified because the proposals aren’t public. Banks wouldn’t initially face the highest surcharge, which is intended as a deterrent to expansion, one person said. The largest banks may face a 3 percentage point levy at their current sizes, the person said.
• U.S. Puts Ally Bahrain on List of Human Rights Abusers. The U.S. has put Bahrain, a Persian Gulf ally, in the company of Iran, North Korea, Syria and Zimbabwe on its list of human rights violators to be scrutinized by the UN Human Rights Council. “The Bahraini government has arbitrarily detained workers and others perceived as opponents,” U.S. Ambassador Eileen Donahoe said in a statement to the council yesterday in Geneva. Bahrain, home to the U.S. Navy’s Fifth Fleet, has tried to crush protests that have wracked the country since February, as the Shiite majority population has agitated for the Sunni Muslim monarchy to allow greater economic opportunities and freedoms. Bahrain’s crackdown has put the U.S. in the position of speaking out against a country that is both a close ally and which received security assistance from Saudi Arabia in putting down the protests.
• Agriculture Markets Require Global Governance and Regulation, Sarkozy Says. French President Nicolas Sarkozy said world agricultural markets are “the least transparent of all” and require global governance and regulation. France as head of the Group of 20 nations this year proposes to introduce an agricultural market-information system similar to what exists for oil markets, Sarkozy said at a conference of international farm organizations in Paris today.
• Wheat Slumps to One-Month Low on Signals Global Supplies Will Be Adequate.
• India Raises Interest Rates for a 10th Time Since 2010 to Tame Inflation. India’s central bank raised interest rates for the 10th time since the start of 2010, extending the longest streak of monetary tightening in a decade after inflation accelerated. Stocks and rupee fell. The Reserve Bank of India increased the repurchase rate to 7.50 percent from 7.25 percent, according to an e-mailed statement today. India joins nations from China to South Korea in stepping up the fight against surging living costs, with the central bank signaling today it will continue to raise rates. Accelerating inflation has contributed to a 12 percent decline in the benchmark stock index in Mumbai this year, Asia’s worst drop, on concern the policy will hurt economic expansion. “Demand pressures need to be damped to ensure that inflation doesn’t become a structural problem in India,” said Anubhuti Sahay, a Mumbai-based economist at Standard Chartered Plc. “Even though growth is moderating, uncomfortably high inflation won’t give the RBI any respite in the near future.” India’s key wholesale-price inflation quickened to 9.06 percent in May from 8.66 percent in April.
• Consumers' Expectations Decline to Lowest in Two Years in Bloomberg Index. “Consumers’ biggest concerns are about jobs and income,” said Chris Low, chief economist at FTN Financial in New York. “The bottom line is that income is not keeping up with inflation right now. People “are making sacrifices.”
• Goldman Sachs(GS) Sees No Panic in Options as VIX Takes Six Weeks to Exceed 20.
• GE(GE) Pursues $3 Billion of Brazil Deals as Petrobras(PBR) Demand Rises. General Electric Co. (GE), which spent more than $4.1 billion on acquisitions since October to build its oil and gas unit, is bidding for about $3 billion of Brazil energy contracts over three years as the industry expands.
• Euro Recovery Versus Dollar on Greece Aid May Be Limited, Citigroup Says. A rebound in the euro if the European Union and the International Monetary Fund agree to give Greece an installment of aid will be limited and temporary, according to Citigroup Inc. “The uncertainty that has been generated by the process is going to continue to weigh on the euro,” said Steven Englander, head of Group of 10 currency strategy at Citigroup in New York, in a telephone interview. “The process itself and the degree to which this process is unsatisfactory become a part of the determination of asset prices.”

Wall Street Journal:

• More 'Silent Raids' Over Immigration. The Obama administration intensified a crackdown on employers of illegal immigrants, notifying another 1,000 companies in all 50 states Wednesday the government plans to inspect their hiring records. Businesses across the U.S. that rely on low-skilled labor are working to stave off Immigration and Custom s Enforcement audits, which can lead to the loss of large numbers of employees, reduced productivity and legal expenses. Wednesday's surge in so-called silent raids drew criticism from both the U.S. Chamber of Commerce and immigrant advocates.
• Citigroup(C) Says Hacking Affected 360,000 Cards. Citigroup Inc. said about 360,000 credit cards were affected by last month's hacking attack, or nearly double the number previously indicated by the giant bank.
• Corrupt Chinese Officials Take $123 Billion Overseas. China’s rulers say corrupt cadres are the nation’s worst enemy. Now, according to a report that was given widespread coverage this week in local media, Beijing says that enemy resides overseas, particularly in the U.S. The 67-page report from China’s central bank looks at where corrupt officials go and how they get their money out. A favored method is to squirrel cash away with the help of loved ones emigrating abroad, schemes that often depend on fake documents. News of the study got prominent notice this week in Chinese media. A sample headline from page one of the Shanghai Daily on Thursday: “Destination America For China’s Corrupt Officials.”
• Bankers' Group Urges Private Investor Participation in Greek Package. An influential group of senior bankers said Thursday that holders of Greek bonds should help the country's government meet its funding needs in coming years.
  

MarketWatch:

• Greece Poses $41 Billion Risk to U.S. Banks.

CNBC.com:

• Why Your Money-Market Fund Could Be Hit by Greek Default.

Business Insider:

• Brand New Satellite Images of Chinese Ghost Cities. (pics)
• Anthony Weiner Resigns: Gets Heckled at His Own Press Conference. (video)
• China Sends Its Largest Patrol Ship Into Disputed Territory to Face Down Vietnam.
• 5 Ugly Details From This Morning's Philly Fed Report.
  

Zero Hedge:

• FRA-OIS Spread Jumps to 2011 Wides. (graph)

New York Times:

• Family Offices Look to Add More Hedge Funds. Ever since the financial crisis hit, small hedge funds have been under a cloud. They’ve struggled to raise money more than their bigger brethren, who appeal to investors looking for the safety of size. Big funds also benefit because big institutions like pensions and endowments with lots of assets — who represent the lion’s share of new investments — require larger funds with scale. Now, it appears there’s some good news for the little guy: family offices are looking to increase their investments in hedge funds, according to a new report from Rothstein Kass, an accounting firm.

NBC:

• Possible Al-Qaeda Hit List Targets Specific Americans. An al-Qaida-linked website has posted a potential hit list of targets that include names and photos of several U.S. officials and business leaders, calling for terrorists to target these Americans in their own homes, NBC New York has learned. The FBI has sent out a new intelligence bulletin to law enforcement agencies, warning that this new web-based threat, while not a specific plot, is very detailed. The bulletin said the list includes leaders "in government, industry and media." The FBI has notified those individuals who are named.

Institutional Investor:

• Ackman Considers $3 Billion Fund IPO in Quest for Permanent Capital.

Forbes:

• Who's The AIG(AIG) In This Financial Greek Tragedy?
• How Obamacare Will Further Explode the Deficit.
  

CNN Money:

• Small Business Lending Plummets. (graph) Bank lending to small businesses fell $15 billion in the first quarter of this year, according to a report released this week from the U.S. Small Business Administration's Office of Advocacy.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 23% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-two percent (42%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -19 (see trends).

Reuters:

• Germany Seeks Sept. Deadline for New Greek Package. Germany wants the deadline for for a second Greek rescue package to be pushed back to September, reflecting the problems Europe is having hammering out the details, EU and banking sources said on Thursday. One EU source told Reuters that German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble favoured a delay. "The argument goes: We don't know what to do, let's buy more time," the source said, adding that Berlin had its customary backing from the likes of the Netherlands, Finland and Slovakia.
• Dollar Funding Costs Soar on Greek Bailout Fears.
  

Financial Times:

• Petrol Price Steers US Towards Tapping into Reserves.

Telegraph:

• Corporate Bond Markets Hit by Greek Default Fears. Corporate bond markets have come to a standstill as investor fears over the likelihood of a Greek default intensify.

Financial Times Deutschland:

• German insurers are negotiating with the country's financial regulator BaFin about easing their treatment of Greek sovereign debt following the recent downgrades by rating firms, citing an internal letter from the German GDV insurer association.Otherwise insurers may need to reclassify or sell Greek government debt as a result of the rating downgrades.
  

Bilanz:

• Harvard University Professor Kenneth Rogoff said he expects Greece, Ireland and Portugal along with some other countries to restructure their debt, according to an interview. "Over the next couple of years, we'll see a lot of sovereign defaults in Europe," Rogoff said. He also said that if officials are waiting "too long" with a solution for Ireland, Greece and Portugal, "then perhaps Spain and Italy can't be rescued anymore."

Irish Times:

• Noonan Will Impose Big Losses on Bondholders if ECB Agrees. MINISTER FOR Finance Michael Noonan says the Government has a plan to impose “substantial” losses on senior bondholders in Anglo Irish Bank and Irish Nationwide Building Society in a significant policy reversal. He says he has won support for the move from top officials at the International Monetary Fund in Washington, but the difficulty was “what attitude the European Central Bank may take”. He will ask EU authorities to let the Government impose losses on the senior bondholders. A European Commission spokesman said last night it would examine any proposal by the Government on the restructuring of the banks with the European Central Bank and IMF. There was no comment from the bank, which opposed so-called burden-sharing with senior bondholders at the Irish banks in the bailout talks last year. Mr Noonan also asked US treasury secretary Timothy Geithner to use his influence with France and Germany to obtain lower interest rates on bailout packages for Ireland, Portugal and Greece.

National Business Daily:

• A 25 basis point increase in China's lending rates would raise interest costs for local government financial vehicles by about $46 billion, according to the Shanghai-based newspaper's Ye Tan.

Bear Radar

Style Underperformer:

• Mid-Cap Growth (-.67%)

Sector Underperformers:

• 1) Gold & Silver -2.50% 2) Agriculture -2.50% 3) Steel -2.0%

Stocks Falling on Unusual Volume:

• MOS, VMED, CCMP, BTM, IVN, BMA, BCS, CPO, RDS/A, DTE, FNSR, INSU, DGIT, RBCN, CPRO, CIEN, OPLK, CTSH, JDSU, AVAV, SHPGY, ARUN, CAVM, GOLD, QCOM, IIVI, TZOO, ECPG, PIR, VCO, CSS, KFY, HEP, THO, MCO and DST
  

Stocks With Unusual Put Option Activity:

• 1) EGLE 2) ARMH 3) CX 4) MUR 5) MRO
  

Stocks With Most Negative News Mentions:

• 1) RF 2) CLF 3) GE 4) TBL 5) GS
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value (+.39%)

Sector Outperformers:

• 1) Homebuilders +1.47% 2) Retail +.86% 3) Insurance +.84%

Stocks Rising on Unusual Volume:

• LOW, HD, UNS, SIGA, CBST, CCOI, MDMD, RITT, JVA, CROX, SPRD, SUG, KR, SCL, CPF and ATU
  

Stocks With Unusual Call Option Activity:

• 1) ETFC 2) OCZ 3) KR 4) SFD 5) HRBN
  

Stocks With Most Positive News Mentions:

• 1) IRBT 2) CBST 3) PKD 4) BBY 5) LXP
  

Charts:

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

Thursday Watch

Evening Headlines

Bloomberg:

• Papandreou Calls Confidence Vote in Bid to Hang On. Greek Prime Minister George Papandreou will reshuffle his Cabinet and seek a confidence vote today, battling to control a shrinking majority and push through austerity measures demanded by international lenders. Papandreou sought to reassert his authority in a televised address last night hours after police used tear gas to break up protests in central Athens and media reported he was in talks to step down in favor of a unity government. Thousands remained outside Parliament late into the evening, with police estimating the crowd at 8,000 people at 10:20 p.m. The political turmoil came as European Union talks on forging a new bailout to prevent the first euro-area default stalled. The impasse over the aid formula and speculation that a government shakeup would disrupt passage of budget cuts and asset sales sent Greek bonds and the euro plunging yesterday. “If the no confidence motion fails, the market reaction is just the beginning,” Charles Diebel, head of market strategy at Lloyds Bank Corporate Markets in London, wrote in a note. “Then Armageddon scenarios come into play, which include default and potentially the whole contagion scenario plays out.” The yield on two-year Greek notes exceeded 28 percent for the first time and rates on 10-year bonds gained 35 basis points to 17.73 percent. The cost of protecting Greece against default climbed 149 basis points to a record 1,754 in London, according to prices compiled by CMA.
• Euro Trades Near Three-Week Low on Concern Over Greece's Political Turmoil. The euro traded 0.2 percent from a three-week low against the yen on concern a reshuffling of Greek Prime Minister George Papandreou’s Cabinet will lead to a negotiation of the terms of the country’s rescue package. The shared currency was 0.7 percent from a record low against the Swiss franc on speculation the Irish government will ask bondholders to share losses of some of the nation’s lenders. Demand for the yen as a refuge increased as Asian stocks extended a global slide in shares. “The market is still quite concerned about Greece,” said Matthew Brady, executive director for foreign exchange at JPMorgan Chase & Co. in Sydney. “It’s going to be a choppy ride for the euro, there’s no doubt about that. I’d prefer to still sell any rallies in euro.”
  
• Interest Rate Swap Spreads Widen Most Since November on European Debt Woes. U.S. interest-rate swap spreads widened the most since November after Moody’s Investors Service said it may cut the credit ratings of three French banks with investments in Greece. The difference between the U.S. two-year swap rate and the comparable-maturity Treasury note yield, known as the swap spread, widened 4.6 basis points to 24.75 basis points. “There is some worry that with what is going on in Greece there will be downgrades and this will cause a problem in funding and result in a rise in Libor,” said Ira Jersey, an interest-rate strategist in New York at Credit Suisse Group AG. “Swap spreads are widening as direct result of these concerns.”
• Japan's Ad-Hoc Radiation Tests Raise Concerns. Kimie Nozaki, a mother of three children living 60 kilometers from the crippled Fukushima nuclear reactors, said she doesn’t trust the government’s testing program for radiation-contaminated food. “Information from the government lacks detail, which makes me even more nervous,” said Nozaki, who lives in Fukushima city about 35 miles from the plant that’s been emitting radiation since March 11 in the world’s worst nuclear disaster since Chernobyl. Three months after an earthquake and tsunami crippled the plant, Japan doesn’t appear to have a comprehensive food testing regime, said Peter Burns, the former chairman of the United Nations Scientific Committee on the Effects of Atomic Radiation. Prolonged exposure to radiation in the air, ground and food can cause leukemia and other cancers, according to the London-based World Nuclear Association. “My impression is the monitoring has been a bit piecemeal,” Burns said by phone from his home in Melbourne on June 14. “The Japanese are usually highly motivated and organized to implement such systems, so I would think they will get there, but certainly what I’ve seen to date hasn’t been awe- inspiring.” Products including spinach, mushrooms, bamboo shoots, tea, milk, plums and fish have been found to be contaminated with cesium and iodine as far as 360 kilometers from the station. Contamination was detected in 347 food samples from eight prefectures by June 9, according to the Ministry of Health, Labour and Welfare.
  
• China Development Bank Cancels Bond Sale. China Development Bank Corp. canceled one-year floating-rate bonds sale today on “market conditions”, according to statement on the Chinese government’s bond clearing house website.
• China's economy will likely grow at a slower pace than previously forecast in 2011 and 2012 amid inflationary pressures and continued monetary tightening, according to Credit Suisse Group AG. GDP may increase 8.7% this year, down from a previous estimate of 8.8%, and expand 8.5% in 2012, instead of 8.9%, Credit Suisse analyst Dong Tao wrote in a report.
• Oil Rises After Slumping to Four-Month Low; US Distillate Demand Drops. Futures climbed as much as 0.7 percent after plunging the most since May 11 yesterday. Crude’s 14-day relative strength index, a measure of how rapidly prices are advancing or declining, dropped to 38 yesterday, the lowest in four weeks. U.S. consumption of distillate fuel, a category that includes diesel and heating oil, tumbled 5.2 percent last week to 3.6 million barrels a day, the lowest level since January, according to the Energy Department.

Wall Street Journal:

• Regulators Set to Clash on Capital Rules for Banks. Two top U.S. regulators are set to clash over whether setting bank-capital requirements too high will restrict lending and hurt American companies trying to compete internationally. In remarks prepared for a hearing of the House Financial Services Committee on Thursday, Federal Deposit Insurance Corp. Chairman Sheila Bair and Acting Comptroller of the Currency John Walsh will offer starkly contrasting views of new requirements for banks’ capital cushions being imposed in the wake of the 2008 financial crisis. Their remarks, seen by Dow Jones Newswires, come as U.S. and international regulators are working on several efforts that will require the largest financial institutions to hold more and higher-quality capital. Walsh is particularly concerned with new surcharges proposed for the world’s biggest financial institutions, saying that he supports a capital surcharge for the largest banks, but believes the amount should be “moderate.” “We are concerned with how much more we can and should turn up the dial on our banks without having negative effects on lending,” Walsh said. Bair, however, will argue for robust standards. Bair said that European banks have implicit state support. That, she said, “is not the model we want for the U.S. banking system.” She added, “I am very concerned about the potential for the European banking system to become a future source of financial instability.”
• WSJ/NBC News Poll: $4-a-Gallon Gasoline Contributed to Growing Pessimism on Economy. Pessimism over the economy has soared to levels not seen since the summer of 2008, fueled in part by high gas prices, the latest Wall Street Journal/NBC News poll shows. Amid jitters over squeezed pocketbooks and a possible second recession, the poll found that only 29% of Americans think the economy will improve over the next year, while 30% think it will worsen. The last time the poll found more pessimists than optimists on the economy was in July 2008. The economy "is going nowhere, and the public is unbelievably pessimistic about the future," said Peter Hart, a Democratic pollster who directs the Journal/NBC News poll with Republican Bill McInturff. "Everyone has been affected by everything, from gas to home values to unemployment." Nearly seven in 10 of those polled said they had been affected "a great deal" or "quite a bit" by increased gas prices since the start of the year. Just over half said the same about higher food prices, more than complained about unemployment or falling home values. More than a third of all respondents said their personal economic situation had gotten worse over the last year, while less than one fifth said their situation had improved.

CNBC:

• CME Group Inc.(CME), the world's largest futures exchange, is talking with officials from other states about relocating because of Illinois' corporate tax rate increase to 7%, Executive Chairman Terry Duffy said.

Zero Hedge:

• His Name Was John Paulson (And His Fund Was Down 20%). As the WSJ's Greg Zuckerman reports, Advantage Plus fund "lost more than 13% in the early part of this month, through June 10, leaving it down 19.65% for the year, according to two investors briefed on the performance.
• Why The Wheels Are Falling Off China's Boom.
  

RTT News:

• China Leading Index Rises in April. China's leading economic index rose at a slower pace in April, indicating a more moderate expansion of the economy in the coming months, the Conference Board said Thursday. The leading economic indicator rose 0.2 percent month-on-month to 154.5 in April, slower than a 0.9 percent increase in March.

Reuters:

• Finisar(FNSR) Q1 Forecast Disappoints; Shares Sink. Network equipment maker Finisar Corp (FNSR.O) forecast a dismal first quarter, hurt by a continued slowdown in demand from Chinese telecom equipment makers, sending its shares down 16 percent in extended trading on Wednesday.

Financial Times:

• Portugal's Coelho Warns of Two 'Terrible Years' Ahead. Portugal's incoming Social Democrat Prime Minister Pedro Passos Coelho said the country faces two "terrible years" of recession and joblessness, with a return to growth only possible if it follows "a very rigorous program of austerity and structural reforms," the FT said, citing an interview. The austerity and reform plan "cannot fail" as failure would mean Portugal is unable to return to the financial markets in 2013, Coelho said. Coelho plans to speed up the rate at which Portugal sells off state-owned companies.
• Germany Eases Stance Over Greece Bondholder Proposal. Germany is easing its stance on the timeframe for participation of private bondholders in any new bailout plans for Greece after the IMF indicated it was ready to support the payment of the next $17 billion portion of Greece's current rescue package next month, citing German officials. The country still insists that bondholders must make a "substantial and quantifiable contribution."
  

TimesOnline:

• The UK may have to contribute between 700 million euros and 1 billion euros to a second rescue fund for Greece if Germany succeeds in persuading other European Union nations to include an emergency fund of 6 billion euros to 8 billion euros in the new bailout, citing officials in Brussels.

Economic Information Daily:

• An interest rate increase by China isn't "far away" as not doing so would do more harm to the economy, the Economic Information Daily said in a front-page editorial signed by the newspaper's Wang Yinghui. The increase in banks' reserve requirement ratios on June 14 can't replace an interest rate increase, which is the most "powerful weapon" to contain inflation, according to the newspaper, which is run by the government's Xinhua News Agency.

China Daily:

• The China Banking Regulatory Commission will order banks to examine their guarantee businesses through July to prevent risks from guarantee companies, citing Zhu Yongyang, a deputy director at the regulator's financing guarantee department. The regulator also plans to inspect banks on the spot in the coming months to avoid such risks, citing Zhu.

Evening Recommendations
Citigroup:

• Reiterated Sell on (HSY), target $64.
  

Night Trading

• Asian equity indices are -1.50% to -1.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 117.50 +4.0 basis points.
  
• Asia Pacific Sovereign CDS Index 119.50 +2.5 basis points.
  
• S&P 500 futures +.35%.
  
• NASDAQ 100 futures +.31%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (KR)/.64
• (PIR)/.11
• (SFD)/.81
• (WGO)/.13
• (ATU)/.46
• (JW/A)/.49
  

Economic Releases
8:30 am EST

• Initial Jobless Claims for last week are estimated to fall to 420K versus 427K the prior week.
• Continuing Claims are estimated to fall to 3670K versus 3676K prior.
• The 1Q Current Account Deficit is estimated to widen to -$130.0B versus -$113.3B in 4Q.
• Housing Starts for May are estimated to rise to 545K versus 523K in April.
• Building Permits for May are estimated to rise to 557K versus 551K prior.
  

10:00 am EST

• The Philly Fed for June is estimated to rise to 7.0 versus a reading of 3.9 in May.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Fisher speaking, Bloomberg Economic Expectations Index for June, weekly EIA natural gas inventory report, weekly Bloomberg Consumer Comfort Index, (HRL) investor day, (MCK) investor day and the (AOL) investor day could also impact trading today.
  

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

Stocks Falling into Final Hour on Soaring Eurozone Debt Angst, Rising Global Growth Worries, Emerging Markets Inflation Fears, Technical Selling

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Every Sector Declining
  
• Volume: Around Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 21.12 +15.66%
  
• ISE Sentiment Index 67.0 -58.13%
  
• Total Put/Call 1.36 +32.04%
  
• NYSE Arms 1.87 +205.51%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 97.76 +.78%
  
• European Financial Sector CDS Index 130.50 +15.20%
  
• Western Europe Sovereign Debt CDS Index 222.08 +3.90%
  
• Emerging Market CDS Index 225.85 +3.95%
  
• 2-Year Swap Spread 25.0 +5 bps
  
• TED Spread 20.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .05% unch.
  
• Yield Curve 259.0 -6 bps
  
• China Import Iron Ore Spot $173.0/Metric Tonne +.12%
  
• Citi US Economic Surprise Index -97.70 -2.3 points
  
• 10-Year TIPS Spread 2.22% -3 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -105 open in Japan
• DAX Futures: Indicating -32 open in Germany

Portfolio:

• Slightly Lower: On losses in my Retail, Medical and Tech sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, added to my (EEM) short and then covered some of my (IWM)/(QQQ) hedges
  
• Market Exposure: Moved to 50% Net Long

BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 trades near session lows as it approaches its 200-day moving average on global growth worries, emerging markets inflation fears, rising Mideast unrest, Japan nuclear concerns and soaring eurozone debt angst. On the positive side, Gaming, Restaurant, Biotech and Defense shares are relatively strong, falling less than -1.0%. The UBS-Bloomberg Ag Spot Index is declining -1.15% and oil is plunging -4.2%. Distillate demand has dropped -3.6% over the last 4 weeks versus last year. The potential downside in oil is rather large still, in my opinion. On the negative side, Coal, Alt Energy, Energy, Oil Service, Ag, Networking, Insurance, Construction, Education, Tobacco, REIT, Homebuilding, HMO, I-Banking, Wireless and Software shares are under significant pressure, falling more than -2.5%. Small-caps and cyclicals are underperforming. (XLF) has been relatively weak again today. Tech shares also continue to trade poorly. Lumber is falling another -3.0% and Copper is down -1.33%. Shanghai copper inventories are surging +20.1% today. Lumber has plunged -33% in less than 3 months. The 10-year yield is falling too much again, declining -13 bps to 2.96%. The US price for a gallon of gas is -.01/gallon today to $3.69/gallon. It is up .55/gallon in less than 4 months. The Greece sovereign cds is soaring +9.65% to 1,761.32 bps, the Spain sovereign cds is rising +5.72% to 288.67 bps, the Italy sovereign cds is rising +6.46% to 180.0 bps, the Portugal sovereign cds is rising +7.78% to 794.17 bps, the Ireland sovereign cds is gaining +5.82% to 767.67 bps and the UK sovereign cds is gaining +4.46% to 65.81 bps. The Spain and UK sovereign cds have broken out technically. The Greece, Ireland and Portugal sovereign cds are hitting new record highs again today. The jump in the 2-year swap spread over the last 2 days is also a big concern. 3-Month Shibor is also surging +36 bps to 5.28%. The Shanghai Composite finished at session lows last night, falling -.9% and India's Sensex also continues to trade poorly, dropping another -.96%. Both Chinese and Indian govt officials continue to sound hawkish as they deal with inflation problems that are more pronounced than many investors perceive. As well, Spanish and Italian equities fell over -2.0% today and remain under significant pressure. Israeli stocks have been very poor performers over the last 6 weeks and are now down -11.3% ytd. Gauges of investor angst are finally nearing levels that are more appropriate for the current macro backdrop, which is a large positive. However, it appears as though uncertainty regarding the current Greece debt situation will remain until late next week at the earliest. Many key stocks are breaking or are at key technical levels, as well. The S&P 500 will likely test its 200-day moving average by week's end. I expect US stocks to trade mixed-to-lower into the close from current levels on more global growth worries, rising eurozone debt concerns, technical selling, emerging markets inflation fears, rising Mideast unrest and more short-selling.