Bull Radar

Style Outperformer:

• Small-Cap Growth (+1.35%)

Sector Outperformers:

• 1) Education +4.42% 2) Disk Drives +2.69% 3) Semis +2.20%

Stocks Rising on Unusual Volume:

• STEC, NANO, FCX, SAP, MOBI, URBN, JVA, ZUMZ, KLAC, VECO, AIR, TGT, DDS, AEO, ESI, RENN, KSS, MGM, LYV, TWI, SHO, GPS, HUBG, LVS and VHC
  

Stocks With Unusual Call Option Activity:

• 1) AEO 2) PG 3) LVLT 4) NWSA 5) MCK
  

Stocks With Most Positive News Mentions:

• 1) AAPL 2) SKS 3) COST 4) UNG 5) TGT
  

Charts:

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

Thursday Watch

Evening Headlines

Bloomberg:

• Trichet Fights a War on Two Fronts. European Central Bank President Jean- Claude Trichet is fighting a war on two fronts as he seeks to contain price pressures while the Greek crisis threatens to blow the euro area apart. The ECB will raise interest rates for a second time this year, increasing the benchmark by 25 basis points to 1.5 percent, when council members meet in Frankfurt today, according to all 55 economist forecasts in a Bloomberg News survey. The central bank may increase borrowing costs further in the fourth quarter, according to a separate survey. Trichet is at odds with European leaders over how to contain the debt crisis, saying it’s up to nations to plug budget gaps as policy makers fight price gains.
  
• Hedge Funds Move Past Greece With Bets That Sovereign Debt Crisis Expands. Hedge funds that trade bonds and loans are increasing bets that Europe’s sovereign debt crisis will spread to Portugal, Spain and Italy, even after Greece won a temporary reprieve with 12 billion euros in aid. “Nothing you’ve seen so far has dealt with solvency, just liquidity,” said Simon Finch, head of credit trading at CQS UK LLP, a London-based hedge fund that oversees $11 billion. Finch, who has bought and sold corporate bonds and loans for 18 years, has stepped up trading in mobile-phone, utility and toll-road companies in the three countries. He expects their governments will be forced to slash spending to pay off lenders, slowing growth and reducing discretionary consumer outlays. CQS is among the hedge funds that say investors are underestimating the odds of distress or even default not only by Portugal, whose credit rating was downgraded this week to junk status by Moody’s, but also by the bigger Italy and Spain. The funds are moving beyond a direct wager that sovereign debt values will tumble, targeting potential fallout in the corporate-debt market and the banking industry.
• Greek Default Not 'Worst' Outcome for Banks. Greek creditors may be willing to risk a planned and managed default to help resolve the nation’s debt crisis, said the head of the world’s biggest group of international financial companies. “It may well be that some rating agencies reach judgements that involve a selective default,” Charles Dallara, the managing director of the International Institute of Finance, said in a Bloomberg Television interview yesterday. “I don’t think that a temporary period of selective default as it has been narrowly framed for sovereigns in the past is necessarily the worst thing that could happen here.” His comments, which contrast with the opposition to default by the European Central Bank, European Union and Greece itself, came as Germany revived a proposal for a bond swap to lengthen Greek debt maturities. The Germans dropped that suggestion two weeks ago after it was rejected by the ECB. Bonds in high-debt European nations tumbled yesterday after Portugal was downgraded to junk status, adding to concern Europe’s debt woes will continue to ripple beyond Greece. The extra yield investors demand to hold Portugal’s 10-year bonds over German bunds surged 148 basis points to a euro-era record 949. The yield on Italy’s 10-year bond reached the highest in almost three years, while Ireland’s two-year yield topped 15 percent for the first time. “The market has thought some debt forebearance was inevitable from day one, and we are keeping our fingers crossed that any restructuring, whether it is called that or not, will not lead to contagion and a global market meltdown,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York. “This is looking increasingly like a true default.” Investors are betting that Trichet will maintain efforts to support Greek banks, no matter the debt rating, said David Owen, managing director at Jefferies International in London. “The ECB can kick and scream but it has to keep pumping in liquidity or the Greek banking sector goes down and we have contagion,” Owen said. “Trichet won’t want to be remembered as contributing to an absolute disaster so it’s not a credible threat and that’s the way the market views it.”
• Swaps Traders Target Spain, Belgium After Greece: Euro Credit. Credit-default swaps traders are increasing bets that Spain and Belgium will be dragged deeper into Europe's sovereign debt crisis, while reducing trades involving Greece and Portugal. Investors had bought and sold 7,866 contracts insuring a net $18.7 billion of Spanish debt as of July 1, according to the Depository Trust & Clearing Corp. That's up 11% from what was at stake at the end of last year, and an increase of almost 35% from a year earlier. Belgian debt insurance contracts have soared 26% to $7.1 billion this year, while those involving Greece tumbled 25% to $4.8 billion and trades on Portugal dropped 23% to $6.1 billion. Traders are speculating the combination of an economic slump that's driven Spanish unemployment to 21% and a political vacuum in Belgium, which has been without a government for more than a year, will hobble efforts by those nations to curb budget deficits. "Spain is the wildcard," said Barnaby Martin, head of European credit strategy at Bank of America Merrill Lynch in London. "With growth data becoming more shaky, the market has become more concerned about contagion to Spain."
• Bank of America(BAC) Loses Bid to Dismiss Homeowner Mortgage Modification Suit. Bank of America Corp. (BAC) must face claims from homeowners who accuse the biggest U.S. bank of failing to honor agreements for modifying their mortgage loans, a federal judge ruled. Homeowners who say they met requirements for permanent modifications can proceed with their cases, according a decision filed today by U.S. District Judge Rya Zobel in Boston. Zobel dismissed some claims against the bank. “The complaint meticulously details each plaintiff’s initial and ongoing compliance with all conditions,” Zobel wrote. The complaint consolidates 26 cases originating in 19 states that were transferred to federal court in Boston, according to Zobel’s decision. Plaintiffs accused the bank of failing to comply with a U.S. government program for modifying loans and violating contracts with borrowers in temporary modifications.
• Zillow Seeks to Raise $48.5 Million in IPO. Zillow Inc., an online real-estate information service, is seeking to raise as much as $48.5 million in its initial public offering. The Seattle-based company is offering 3.46 million shares for $12 to $14 each, according to a filing today with the U.S. Securities and Exchange Commission. The IPO will price on July 19, according to data compiled by Bloomberg.
• Containers Flood Shipping Routes as Rates Fall: Freight Markets. Container lines are ignoring a drop in freight rates and bringing the highest proportion of the shipping fleet out of mothballs since 2008, when the global slump resulted in the industry's biggest losses.
• Samsung Second-Quarter Profit Drops. Samsung Electronics Co., the world’s largest maker of televisions, posted a 26 percent drop in second-quarter profit after a slump in sales of flat screens masked a surge in demand for smartphones and tablet computers. Operating profit in the three months ended June fell to about 3.7 trillion won ($3.5 billion), compared with 5.01 trillion won a year earlier, the Suwon, South Korea-based company said in a statement today, without giving an explanation. That compared with the 3.8 trillion won average of 25 analyst estimates compiled by Bloomberg.
• U.S. Consumer Bureau Plans to Write Rules for Mortgage Servicers. The Consumer Financial Protection Bureau is preparing to impose rules on U.S. mortgage servicing firms, said Raj Date, the bureau’s associate director. When the bureau begins formal operation July 21, “mortgage servicing will be one of CFPB’s priorities,” Date said in testimony prepared for delivery to members of the House Financial Services Committee today.
• Airlines Prepare to Take Off on Fuel Made From Algae, Wood Chips. After decades of waiting, commercial airlines have been given the go-ahead to use fuel made from algae, wood chips and other plants with obscure names. Test flights in recent years by United Continental Holdings Inc. (UAL), Japan Airlines Co. and Virgin Atlantic Airways Ltd. have shown that planes can fly on everything from coconut oil to jatropha, a plant that grows in the tropics. On July 1, ASTM International, an American organization that sets worldwide technical standards for the airline and other industries, gave approval for carriers to mix fuel made from organic waste and nonfood plants with kerosene, which is conventionally used to power planes, Bloomberg BusinessWeek reports in its July 11 edition.

Wall Street Journal:

• German Move Roils Talks on Greece. European governments' plan for private-sector creditors to help Greece's next bailout without triggering a default were thrown into doubt Wednesday, as senior German officials resurrected a once-rejected proposal that would cost investors more. The German proposal—calling for investors to be encouraged to swap Greek government bonds for new bonds—had been ditched a month ago after strong opposition from the European Central Bank and governments including France, because it would lead to Greece being called in default by rating agencies.
  
• Storage Wars: Web Growth Sparks Data-Center Boom. For years, as Internet use boomed, builders of the giant, air-conditioned computer warehouses known as data centers couldn't keep up with demand. Now, though many investors continue to pile into the data-center business, one of the few hot spots in real estate, others fear the peak may be past.
• The Satellite: Extra Storage for Tablets on the Go. Two companies are coming out with small, portable, companion hard disks that massively increase the storage capacity of tablets. And because most tablets lack USB connectors, these external hard disks stream their content to the tablets over a special, local Wi-Fi network they create. No Internet access is required.
• Zillow 'Zestimate' Shifts, Prompting Howls. On June 14th, Bill Trumbo, a 68-year-old retired financial analyst in Phoenix, Ariz., logged onto his bank’s online personal financial management account and found that his house in Phoenix had lost nearly $100,000 in value overnight. Huh? The explanation came that same day, when the real-estate website Zillow.com sent out a press release saying it had modified the formula it uses to estimate the value of some 97.3 million American homes, known as the Zestimate, to expand the coverage of its database of homes and improve accuracy. The company had added 25 million new Zestimates, incorporated user-submitted data about improvements and gave greater weight to more recent sales data. For some, the value of their home went up. Others saw dramatic decreases.
• Affymetrix(AFFX) Expecgts Lower 2Q Revenue; Shares Down. Affymetrix Inc. (AFFX) said its second-quarter revenue declined due to lower academic and consumables sales, sending shares down after-hours Wednesday. Shares were down 17% to $6.65 after-hours Wednesday as results sharply missed Wall Street expectations for top-line growth. The company, whose products are used by pharmaceutical, diagnostic and biotechnology companies, said preliminary data show $64 million to $65 million in revenue for the second quarter. Analysts polled by Thomson Reuters most recently expected a top line of $74 million. Sales to academic customers declined across all regions, particularly in North America, while consumables revenue dropped about 10%, the company said.

Fox Business:

• Dick Fuld to Street: I'm Here for You. It’s been nearly three years since the fall of Lehman Brothers and the firm’s former CEO, Dick Fuld, has a message for people on Wall Street looking for financial advice: I’m here to help you. The FOX Business Network has learned that Fuld is looking to jump start the consulting business he started after Lehman’s bankruptcy three years ago by pitching himself as a financial handy man, willing to help private equity players run businesses they’ve acquired based on his many years running Lehman Brothers.
  

MarketWatch:

• China Government Advisers Predict More Rate Hikes. A number of Chinese government scholars told local media on Thursday that China may not be done tightening after Wednesday's rate increase, Beijing's fifth hike in eight months.
• China's Market-Oriented Reforms in Retreat. China’s “market forces have regressed” as government agencies have started to play a more obstructive role in resource allocation, Wu Jinglian, one of China’s foremost economists, said on July 4.

CNBC:

• Visa(V) Sees Lower Revenue Growth After Debit Crackdown. Visa, the world's largest card processing network, said revenue growth will slow next year after U.S. regulators finalized their crackdown on debit card processing fees.
• Lagarde to Give China Senior IMF Job. China is close to clinching a top-level post at the International Monetary Fund, IMF sources said on Wednesday after the Fund's new chief pledged to give more power to emerging economies.
• Dennis Gartman: PIIGS Will Go Bankrupt Within 18 Months. Italy and Spain CDS blew out on Wednesday with investors growing ever more worried that these two nations will be the next hotspots in Europe, with leaders doing little more than chasing the EU's financials woes from one nation to the next. Will the EU ever corner the problem? According to strategic investor Dennis Gartman the short answer is 'No.' He tells Fast Money it ain't gonna' happen.

Business Insider:

• Obscure Provision in New Patents Bill Suggests That Wall Street Owns The U.S. Congress.

Zero Hedge:

• Bidders for 30 Million Barrels of Strategic Petroleum Reserve Disclosed; JP Morgan(JPM) Requests $158 Million in Crude. We wonder just what JPM plans on doing with this crude, which as predicted, will be transported by vessel, and offloaded at such time as JPM sees fit, probably well after the product is trading at a substantial premium to the purchase price. Ironically, JPM wants more crude than Sunoco and Tesoro: so next time one tries to gas up their car, we suggest looking for the JP Morgan gas station. But by far the most important news is that 80% of the bid are based on a vessel-based distribution, meaning it will be weeks if not months before the SPR disposed crude finally makes it into circulation, if at all, and has an actual supply-side benefit.

IBD:

• Is Russian 'Reset' Worth Kicking Allies to Curb? The Obama administration continues to burn America's allies in its pursuit to please our foes. The most recently burned is the Czech Republic.
• Triumph Group(TGI) Rides Wings of Boeing(BA).
  

Forbes:

• The Next Big Boom Towns In The U.S.

NY Times:

• Building Boom in China Stirs Fears of Debt Overload. In the seven years it will take New York City to build a two-mile leg of its long-awaited Second Avenue subway line, this city of nine million people in central China plans to complete an entirely new subway system, with nearly 140 miles of track. And the Wuhan Metro is only one piece of a $120 billion municipal master plan that includes two new airport terminals, a new financial district, a cultural district and a riverfront promenade with an office tower half again as high as the Empire State Building. The construction frenzy cloaks Wuhan, China’s ninth-largest city, in a continual dust cloud, despite fleets of water trucks constantly spraying the streets. No wonder the local Communist party secretary, recently promoted from mayor, is known as “Mr. Digging Around the City.” The plans for Wuhan, a provincial capital about 425 miles west of Shanghai, might seem extravagant. But they are not unusual. Dozens of other Chinese cities are racing to complete infrastructure projects just as expensive and ambitious, or more so, as they play their roles in this nation’s celebrated economic miracle. In the last few years, cities’ efforts have helped government infrastructure and real estate spending surpass foreign trade as the biggest contributor to China’s growth. Subways and skyscrapers, in other words, are replacing exports of furniture and iPhones as the symbols of this nation’s prowess. But there are growing signs that China’s long-running economic boom could be undermined by these building binges, which are financed through heavy borrowing by local governments and clever accounting that masks the true size of the debt. The danger, experts say, is that China’s municipal governments could already be sitting on huge mountains of hidden debt — a lurking liability that threatens to stunt the nation’s economic growth for years or even decades to come.

The Blaze:

• 'Captain America' Movie Will Keep Name Around The World Except In These Countries... Paramount Pictures and Marvel Studios gave distributors around the world the option of shortening the title of “Captain America: The First Avenger“ to simply ”The First Avenger,” out of concern about anti-American sentiment. But the only countries that took them up on it were Russia, Ukraine and South Korea.

WeeklyStandard.com:

• Why Won't the GOP Agree to a Tax Increase? (graph) If a picture is worth a thousand words, this one should make clear why the GOP is not putting tax increases on the table. The fiscal path the country is on will take us to an unprecedented level of spending and taxation. Why should the Republicans want to facilitate this process any more?

USA Today:

• Tough New Clean-Air Rules Will Target Drifting Pollution. Environmental Protection Agency Administrator Lisa Jackson is expected to announce tough new regulations Thursday that seek to significantly reduce emissions from many coal-fired power plants. The new measures will cover plants in as many as 28 states whose pollution blows into other states. The new regulations will likely inflame already heated opposition in some quarters to EPA regulations. A policy rider announced Wednesday by House Republicans would prevent EPA from regulating greenhouse gas emissions from power plants for one year. Rep. Mike Simpson, R-Idaho, chairman of the House Appropriations Committee's Interior, Environment and Related Agencies panel, said the provision was necessary to rein in out-of-control and job-killing regulation.

Reuters:

• Democrats Challenge Obama's Afghan Withdrawal Plan. Democratic lawmakers fed up with the lingering war in Afghanistan launched a new challenge to President Barack Obama's plan for a measured U.S. troop withdrawal over the next year as they resumed debate on Wednesday on a $649 billion defense spending bill.
• Zumiez(ZUMZ), Hot Topic(HOTT) June Same-Store Sales Beat Estimates. Teen retailers Zumiez Inc and Hot Topic Inc beat same-store sales estimates for June, as discounts brought in more shoppers to their stores .

Telegraph:

• Solar panels 'save just £70 a year'. The benefits of solar panels have been called into question after the Energy Savings Trust (EST) reduced the estimated saving on electricity bills to just £70 a year. The EST had previously estimated the savings to households at around £120 annually, but after trials carried out by the government-funded Carbon Trust, the energy advice group amended its estimates. The admission will be a blow to the growing number of "rent-a-roof" schemes, where households receive free solar panels in return for savings on their electricity bill. However, as many of these schemes lock households into a 25-year contract, many householders are expected to be reluctant to take part for such paltry savings.
• US Will Enter Second Recession if Debt Limit is Not Raised, Warns President Barack Obama. Not raising the $14.29 trillion (£9 trillion) debt ceiling would lead to "a whole new spiral into a second recession or worse", Obama said as he answered questions on the short-messaging service during a "Twitter Town Hall" being streamed live from the White House.

Commercial Times:

• Asustek Computer probably didn't meet its target for 2Q sales to rise as much as 5% from 1Q because of weak demand in China and Europe. 2Q analyst estimates are for a 37% rise q/q in sales.

South China Morning Post:

• Bad Loan Fears Put Pressure on Chinese Banks. Mainland lenders under pressure from investors and short-sellers amid concern about the health of their balance sheets after huge stimulus loans. Agricultural Bank of China became the most shorted stock in Hong Kong yesterday as investors grew more concerned about the expiration next week of the lock-up period for cornerstone investors in its IPO. The movement followed news that Singapore state investment firm Temasek Holdings had sold down its stakes in the mainland's two other big lenders, China Construction Bank and Bank of China, on Tuesday.
  

China Business News:

• Risks related to China's local government financing vehicles are difficult to ascertain because of overly long financing periods, rolling over of loans, optimistic land revenue expectations and implicit government credit guarantees, citing an official from the China Banking Regulatory Commission.

People's Daily:

• China's consumer prices may rise 6.2% in June, citing Ba Shusong, a researcher at the State Council's Development Research Center. July's consumer prices may rise about 6% from surging pork prices, Ba said. The central bank may raise rates once or twice again to curb inflation, Ba said.

Evening Recommendations
Capstone:

• Rated (LNKD) Sell, target $45.
  

Night Trading

• Asian equity indices are -.25% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 113.0 +2.0 basis points.
  
• Asia Pacific Sovereign CDS Index 118.50 +1.5 basis points.
  
• S&P 500 futures +.46%.
  
• NASDAQ 100 futures +.51%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (ISCA)/.27

Economic Releases
8:15 am EST

• The ADP Employment Change for June is estimated at 70K versus 38K in May.

8:30 am EST

• Initial Jobless Claims for this week are estimated to fall to 420K versus 428K the prior week.
• Continuing Claims are estimated to fall to 3700K versus 3702K prior.

11:00 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,500,000 barrels versus a -4,375,000 barrel decline the prior week. Distillate supplies are expected to rise by +900,000 barrels versus a +258,000 barrel gain the prior week. Gasoline inventories are expected to fall by -150,000 barrels versus a -1,428,000 barrel decline the prior week. Refinery Utilization is estimated to rise by +.25% versus a -1.1% decline the prior week. Finally, natural gas supplies are estimated to rise by 82 bcf versus a 78 bcf injection the prior week.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The BoE rate announcement, ECB rate announcement, ICSC Chain Store Sales for June, Fed's Hoenig speaking, Fed's balance sheet report, RBC Consumer Outlook Index for July and the weekly Bloomberg Consumer Comfort Index could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by industrial 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 75% net long heading into the day.

Stocks Slightly Higher into Final Hour on Short-Covering, Investor Performance Angst, Growth Stock Gains

Broad Market Tone:

• Advance/Decline Line: Slightly Higher
  
• Sector Performance: Mixed
  
• Volume: Light
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 16.51 +2.80%
  
• ISE Sentiment Index 94.0 -42.33%
  
• Total Put/Call 1.02 -6.42%
  
• NYSE Arms 1.18 -24.62%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 93.07 +2.29%
  
• European Financial Sector CDS Index 126.67 +7.49%
  
• Western Europe Sovereign Debt CDS Index 241.50 +5.54%
  
• Emerging Market CDS Index 209.31 +1.42%
  
• 2-Year Swap Spread 25.0 +1 bp
  
• TED Spread 24.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 267.0 -2 bps
  
• China Import Iron Ore Spot $168.70/Metric Tonne +.12%
  
• Citi US Economic Surprise Index -81.30 unch.
  
• 10-Year TIPS Spread 2.34% -1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating -32 open in Japan
• DAX Futures: Indicating +26 open in Germany

Portfolio:

• Higher: On gains in my Retail, Medical, Biotech longs and Emerging Markets shorts
  
• Disclosed Trades: None
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 hugs the flat line despite emerging markets inflation fears, soaring eurozone debt angst, global growth concerns, more disappointing US economic data and recent equity gains. On the positive side, Software, Disk Drive, Computer Service, Medical Equipment, Hospital, Education and Road & Rail shares are especially strong, rising more than +.75%. Small-Caps and cyclicals are outperforming. (IYR) has traded well throughout the day again. Growth stock leaders continue to strongly outperform. Oil is falling -.2% and the UBS-Bloomberg Ag Spot Index is down -.4%. Weekly retail sales rose +3.8% last week versus a +3.5% gain the prior week. On the negative side, Homebuilding, I-Banking, Bank, Telecom, Semi, Steel, Energy, Oil Tanker and Coal shares are under pressure, falling more than -.75%. (XLF) has underperformed throughout the day again. Gold is up +.91%, Lumber is falling -3.3%, copper is down -.4% and Rice is up +1.8%. Rice futures are up +17.0% in 5 days. The US price for a gallon of gas is +.01/gallon today to $3.57/gallon. It is up .43/gallon in less than 5 months. The Spain sovereign cds is up +8.71% to 293.43 bps, the Greece sovereign cds is up +12.4% to 2,168.19 bps, the Ireland sovereign cds is gaining +13.5% to 837.78 bps, the Italy sovereign cds is up +12.5% to 218.67 bps, the Belgium sovereign cds is up +11.38% to 167.0 bps, the Portugal sovereign cds is up +18.34% to 917.24 bps and the UK sovereign cds is up +7.75% to 67.73 bps. Moreover, the Eurozone Investment Grade CDS Index is rising +5.98% to 84.42 bps. The Italy sovereign cds is breaking out technically. As well, the Portugal and Ireland sovereign cds are hitting new record highs. European contagion fears are intensifying today, which is a major negative. As well, the situations in emerging markets with rising inflation and slowing growth are worsening more than most investors perceive, in my opinion. Given the extent of the bad news over the last 2 days and recent sharp equity gains, stocks remain extraordinarily resilient. I suspect this is mainly the result of how badly many large hedge funds are lagging this year and how swiftly markets rebounded last week. However, the news needs to improve very soon for the bulls or a meaningful pullback is is in the offing. I expect US stocks to trade modestly lower from current levels into the close on soaring eurozone debt angst, emerging markets inflation fears, global growth worries, profit-taking, more shorting and financial sector pessimism.

Today's Headlines

Bloomberg:

• Portugal Cut to Junk by Moody's Roils Spain, Italy Bonds as Risk Remains. Portugal’s downgrade to junk status and wrangling over the role of investors in a new Greek bailout package fueled concern about the solvency of the region’s high- debt nations, sending their bonds tumbling. The extra yield investors demand to hold Portugal’s 10-year bonds over German bunds surged 148 basis points to a euro-era record 949 after Moody’s slashed yesterday its credit rating four levels to Ba2, below investment grade. The yield on Italy’s 10-year bond reached the highest in almost three years, while Ireland’s 2-year yield topped 15 percent for the first time. “It’s a reminder that the sovereign debt crisis does not end with Greece and that risks remain with other nations in addition to Greece,” said Gary Pollack, who helps oversee $12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York.
• Sovereign, Corporate Credit-Default Swap Indexes Rise in Europe. The cost of insuring against default on European sovereign and corporate debt rose for a third day, according to traders of credit-default swaps. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose 11 basis points to 240.5 at 8:30 a.m. in London. Swaps on Portugal soared 67 basis points to 838, the highest level in more than a week, according to CMA. Contracts on Greece climbed 38 basis points to 1,962, Ireland jumped 25 to 760 and Spain rose 11 to 288, while Italy increased 11 to 209 and Belgium was 8 higher at 159. Contracts on the Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings increased 13 basis points to 409, the highest in a week, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 3.25 basis points to 109.25 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 8 basis points to 168 and the subordinated index climbed 12 to 298.
• Company Bond Window 'Slams Shut' on Portugal. Portugal’s downgrade to junk may stifle corporate bond sales in Europe, killing off a mini- revival in issuance spurred by investor optimism about Greece’s efforts to avoid default. “The primary window has almost slammed shut just as spectacularly as it had flung open,” said Suki Mann, senior credit strategist at Societe Generale SA in London.
• Stress Tests May Show 26 Rated Banks Need Aid, Moody's Estimates. European stress tests may show that 26 rated banks of the 91 lenders being examined by the European Banking Authority could need financial support, Moody's Investors Service said today.
• Ireland May Be Next to Face Junk After Portugal. Ireland’s credit rating may be cut to junk by Moody’s Investors Service after Portugal yesterday lost its investment grade rating, according to analysts. “If not re-entering the public funding markets has significance for a sovereign’s rating, then clearly if our view proves correct, then Ireland will suffer an imminent downgrade,” Cathal O’Leary, head of fixed income sales at Dublin-based NCB Stockbrokers, said in a note today. The yield on Irish two-year notes climbed 239 basis points to 15.27 percent as of 2:35 p.m. in London, the first time it has been above 15 percent. The downgrade of Portugal highlighted “contagion risks” for Ireland, Goodbody Stockbrokers said today.
• EU Seeks to Curb Big Three Rating Firms After Portugal Downgrade. European policy makers lashed out at rating companies after Moody’s Investors Service cut Portugal’s debt to junk, reviving calls to curtail their clout. German Finance Minister Wolfgang Schaeuble said the grip of the big three rating companies had to be broken when asked about Moody’s downgrade. “I have said before that we have to curb the influence of the rating agencies,” Schaeuble told reporters in Berlin today. There’s a need to “break up” the companies’ dominance, he said. European Commission President Jose Barroso said he “deeply” regrets the timing and magnitude of Portugal’s downgrade by Moody’s and said proposals for increasing regulation of the rating companies in Europe would come out this year.
• U.S. Housing Recovery Stymied by Government. The two women, who haven’t met, illustrate the deadlock crippling the U.S. housing market five years into the crash: While a record share of Americans want to buy homes, U.S. policies, often working at cross-purposes, are making it more difficult. Government-controlled Fannie Mae and Freddie Mac have boosted standards so high that some people previously considered prime borrowers no longer qualify. That’s limiting a real estate rebound that also has been damped by a state attorneys general probe into foreclosure practices and an Obama administration loan-modification program that has fallen short of expectations.
• China Raises Rates to Counter Inflation. China raised benchmark interest rates for the third time this year, adding to efforts to cool the world’s fastest-growing economy after inflation accelerated to the quickest pace since 2008. The one-year lending rate will increase to 6.56 percent from 6.31 percent tomorrow, the People’s Bank of China said on its website. The one-year deposit rate rises to 3.5 percent from 3.25 percent. A government report next week will show that China’s inflation accelerated to 6.2 percent in June, according to the median forecast in a Bloomberg News survey of economists. Consumer prices rose 5.5 percent in May, the most since July 2008, mainly driven by food costs. Standard & Poor’s has cut the outlook for the nation’s property developers to “negative” on the likelihood of slower sales and lower prices. Hazards for the economy also include power shortages, a credit squeeze for small and medium-sized companies, and signs export demand is weakening.
• China Faces 'Crisis' If Monetary Policy Lossened, Xie Says. China faces an “inevitable crisis” if the government loosens monetary policy in the second half of the year, according to Andy Xie, an independent economist. “The market consensus is that China will loosen in the second half,” Xie, formerly Morgan Stanley’s chief Asia economist in Hong Kong, said on Bloomberg Television today. Such a move could boost inflation and investors should “duck for cover” if that happens, he said.
• Corporate Yield Gap at Post-Lehman High on Curbs: China Credit. The premium investors demand to hold China's corporate bonds rather than sovereign debt rose to the highest level since Lehman Brothers Holdings Inc. failed as central bank policies curb economic growth and earnings. The gap between yields on 10-year bonds issued by top-rated companies and government securities widened 47 basis points this year to 173, hitting a 33-month high of 176 on July 1, Chinabond data show.
• Service Industries In U.S. Expanded Slower. Service industries in the U.S. expanded at a slower pace in June, a sign the economy cooled at the end of the first half of 2011. The Institute for Supply Management’s index of non- manufacturing businesses decreased to 53.3, less than projected, from 54.6 in May. Economists forecast the gauge would drop to 53.7, according to the median estimate in a Bloomberg News survey. The non-manufacturing survey’s measure of new orders decreased to 53.6 from 56.8 the prior month, today’s report showed. A gauge of order backlogs dropped to the lowest level this year. A measure of business activity eased to 53.4 from 53.6 in May. The group’s employment gauge was little changed at 54.1 in June after 54 a month earlier. The index of prices paid declined to 60.9 from 69.6.
• Announced U.S. Job Cuts Rose 5.3% in June, Challenger Says. Employers in the U.S. announced more job cuts in June than a year earlier, the first increase since February and a sign the labor market is struggling to improve. Planned firings rose 5.3 percent to 41,432 last month from June 2010, according to figures released today by Chicago-based Challenger, Gray & Christmas Inc. The figures are consistent with others indicating weaker demand in the first half of 2011 has prompted some companies to trim their workforces. Employers in June probably boosted payrolls at a pace that failed to reduce the jobless rate, according to a Bloomberg News survey before a report in two days. “The employment picture remains a bit cloudy,” John A. Challenger, chief executive officer of Challenger, Gray & Christmas, said in a statement. “Hiring is coming in spurts and is not quite robust enough to make a significant dent in unemployment.”
• Danish Nurses Challenge Hedge Funds by Financing Windmills. Kirsten Gosvig’s pension fund bought a $485 million stake in Denmark’s largest offshore wind-power project, an investment that’s forecast to earn at least twice the average historical return of hedge funds. PKA Ltd., which manages retirement money for the 40-year- old nurse, will earn 7 percent to 9 percent a year on the Anholt wind farm. That’s the view of PensionDanmark, which joined PKA in the first investment ever by pension funds in an unbuilt wind park at sea. The return would beat the HFRX Global Hedge Fund Index’s 2.8 percent compounded annual gain in the last 10 years. Pension funds are sinking money into offshore projects that banks consider too risky as the payback depends on unproven gear that will be pummeled by gales and corrosive salt water in a 20- year lifetime.
• Risk of Fastest G-20 Inflation Sends Yields Higher: India Credit. Investors are driving up yields on India's bonds by the most since April as economists say there is a risk inflation may accelerate to the fastest among the Group of 20 nations. Wholesale-price increases will touch 10% by September, eight of 10 analysts surveyed by Bloomberg News predicted, while the other two said the rate will be higher than the 9% estimated by policy makers.
• Gold Gains for Second Day as Europe Debt Concerns Boost Demand for Haven. Gold rose for a second straight day as mounting government debt in Europe boosted demand for the precious metal as a haven. The euro declined against the dollar after Moody’s Investors Service cut Portugal’s credit rating to junk, renewing concerns another European nation will need a bailout. Gold fell in the previous two weeks as Greece avoided a default. “You’re getting a flight-to-quality fear coming in for gold,” said Adam Klopfenstein, a senior market strategist at broker Lind-Waldock in Chicago. “With the anxieties in Portugal and the ongoing debt-ceiling problems in the U.S., there are too many bullish cases for gold.”
• U.S. Farmland Boom May Peak on Rates After Five-Year Surge, Rabobank Says. A five-year bull market in U.S. farmland values may peak this year as interest rates increase and crop prices decline, Rabobank International said. Land costs may fall by as much as 15 percent in the next seven years, Sterling Liddell and Vernon Crowder, vice presidents at the bank, said in an interview. Gains in the past five years ranging from as much as from 70 percent in Nebraska to 20 percent in California were spurred by record grain and livestock prices and the lowest borrowing costs ever, Rabobank said in a report released today. “Margins are once again expected to diminish as increases in the volume of commodity production combine with higher input costs to squeeze profit margins,” the analysts said in the report. “The result should be a slowing in U.S. agricultural land value growth, accompanied by occasional sharp decreases.”
• Goldman(GS) Took Biggest Loan in Fed Program. Goldman Sachs & Co. borrowed $15 billion from the U.S. Federal Reserve on Dec. 9, 2008 -- the biggest single loan from a program whose details have been secret until today. The central bank released data for its so-called single- tranche open-market operations, which lent as much as $20 billion at a time between March 7, 2008, and Dec. 30, 2008, as confidence in credit markets collapsed. The data were released in response to a Freedom of Information Act request by Bloomberg News.

Wall Street Journal:

• Blackstone(BX) Super Sizes $15 Billion Fund. Blackstone Group’s new buyout fund already seemed huge last December, as the firm put the finishing touches on its much-anticipated launch. At $15 billion, the new fund was the largest since the financial crisis. But the buyout fund has seen enough interest that it is now sized at $16 billion, according to people close to the matter. And, though the people don’t expect it to grow much larger, it could come in at about $16.5 billion, making it one of the largest buyout funds on record.
• Salaries Sliding for Recent Law School Grads. Even for the lucky members of the law school class of 2010 who found jobs, their average salaries were 10 percent lower than those of their predecessors, a new report reveals.
• Emissions Plan May Hit Luxury Cars. The U.S. government's future fuel economy regulations could saddle auto makers with steep fines or bar the sale of certain models. Instead of fees ranging from $5 to hundreds of dollars a vehicle sold in the U.S., companies that violate government standards could get hit with penalties up to $25,000 a vehicle beginning in 2016.
  

CNBC.com:

• Hedge Fund Tax Advocates Are Fooling Themselves. Multiply $22 billion by 0.2 to arrive at a revenue number of $4.4 billion per year. (Which assumes that hedge fund managers would not take steps—such as restructuring their partnerships or moving them off-shore—to avoid the taxes.)
• Small Businesses Cut Jobs in June After Four-Month Gain. U.S. small business owners cut jobs in June, breaking a four-month streak of growth as employment was dragged down by cutbacks at construction firms, a survey released on Wednesday showed.

Business Insider:

• What You Saw Today Was Basically Europe's Worst Nightmare Playing Out.
• CNN Cancels Eliot Spitzer's Show.
• The 15 Fastest Growing Retailers In America.
• From Paradise to Slum: Shocking Facts About the NYC Wealth Gap.
• U.S. Warns Terrorists May Try to Surgically Implant Explosives in Humans to Blow Up Jets.
• The Latest on the Wage Inflation Mess Breaking Out All Over China.
• Credit Crisis in Brazil: Consumer Loan Rates Hit 47%, Defaults Soar.
  

Zero Hedge:

• Fed Releases Details on Secret $855 Billion Single-Tranche OMO Bailout Program: Just Another Foreign Bank Rescue Operation.

Reuters:

• Exclusive: Germany Puts Greek Bond Swap Back on Table. Germany has put a Greek bond swap back on the table as a model for private sector involvement in fresh aid for Athens, Deputy Finance Minister Joerg Asmussen told Reuters Insider TV on Wednesday. "The model put forward by some French banks is still a good base for discussions and we are currently working on this," Asmussen said in the interview, referring to a French proposal to roll over Greek debt. "But since rating agencies have signaled that they will consider modalities (such as) the French proposal as a selective default -- that means a rating event -- we can also put other options like a bond exchange on the table," he said, adding discussions would take place over the summer break.

MoneyWeek:

• What China's Bad Debt Problems Mean For You. Chinese news site Caixin reported that the company building toll roads in the Yunnan province in southwest China had failed to repay its debts. Income from toll roads fell short of hopes, meaning the company couldn’t repay the loans granted to it by various banks. In the end the local government bailed it out. But as one source told Caixin: “the issue has merely gone from [being] on the table to [being] under the table.” Why does this matter? Because it might be the tip of the iceberg.

Folha de S.Paulo:

• Brazil's government has offered cancer treatment to Venezuelan President Hugo Chavez.

Jiji Press:

• BOJ Expected to Lower Growth Forecast. The Bank of Japan is expected to lower its forecast for the country's economic growth for fiscal 2011 in light of the steep downturn following the March disaster, informed sources said Wednesday. The central bank is likely to cut its growth forecast for the year ending next March to a level below 0.5 pct from the previously estimated 0.6 pct, the sources said. The BOJ's Policy Board will review the forecast made in April at a two-day monetary policy meeting starting Monday.

Shanghai Daily:

• Shanghai Loses Its Edge to Competing Regions. SHANGHAI has lost ground in commercial activities due to fierce competition from other cities in China, the Shanghai Commission of Commerce said yesterday. Commission Chairman Sha Hailin said the strategically important sector is a "life and death issue to Shanghai in the next five years." Sha said "this sense of urgency" will help push Shanghai to maintain its position.

Bear Radar

Style Underperformer:

• Large-Cap Value (-.60%)

Sector Underperformers:

• 1) Steel -1.41% 2) Oil Tankers -1.31% 3) Semis -1.32%

Stocks Falling on Unusual Volume:

• BCS, MRO, TI, STD, SBNY, OVTI, NWSA, ZAGG, AIXG, VECO, ATMI, PEGA, OPEN, VMED, NTGR, PTEN, CSH and WMS
  

Stocks With Unusual Put Option Activity:

• 1) ACN 2) EMC 3) TM 4) AXL 5) CNX
  

Stocks With Most Negative News Mentions:

• 1) OC 2) INTU 3) BBBB 4) NTCT 5) IPGP
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth (-.01%)

Sector Outperformers:

• 1) Road & Rail +1.04% 2) Disk Drives +1.04% 3) Gold & Silver +.83%

Stocks Rising on Unusual Volume:

• REDF, EGO, TZOO, SLW, NGD, TSO, MEDH, SODA, JVA, KCI, LVB, VHC, IMGN, SZYM and SAVE
  

Stocks With Unusual Call Option Activity:

• 1) BX 2) EUO 3) XRX 4) RDN 5) VHC
  

Stocks With Most Positive News Mentions:

• 1) VZ 2) AXL 3) SAVE 4) TSO 5) WAG
  

Charts:

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