Friday Watch

Evening Headlines

Bloomberg:

• JPMorgan(JPM) Cuts China, H.K. Stocks to 'Underweight'. China and Hong Kong stocks were cut to “underweight” from “neutral” at JPMorgan Chase & Co., which said speculation that Chinese policymakers are ending their tightening efforts is “premature.” Asia’s largest economy is likely to increase banks’ reserve requirements by 50 basis points in the second half, analysts led by Adrian Mowat said in a report today. “The problem for the market is that investors are positioned for an end of the tightening cycle,” the analysts said. “We think it is premature to call an end to the tightening cycle.” JPMorgan had upgraded Chinese shares to “neutral” on April 6, saying the government will “engineer a soft landing” for the economy. The MSCI China Index has since declined 4.9 percent. The brokerage cut its rating on Hong Kong, saying that property prices are “excessive relative to income” and that the city’s real-estate market, along with those in China and Singapore, has “peaked.”
• SodaStream's(SODA) Kitchen Appliance Fizzes Up Shares Amid U.S. Push. Buzz about the $80-$200 appliances, which can turn tap water into over 100 flavors of soda in refillable bottles, has helped drive up SodaStream’s share price almost 200 percent since its initial public offering in November.
• Elizabeth Warren's Dream Becomes a Real Agency She May Never Get to Lead. Warren, 62, is a Harvard professor and perhaps the country’s top expert on bankruptcy law. Over the past four years she has managed to stoke a fervent debate over the government’s role in protecting American consumers from what she sees as the predatory practices of financial institutions, and she has positioned herself as the person to oversee a new federal agency to rewrite the rules of lending, Bloomberg Businessweek reports in its July 11 issue.

Wall Street Journal:

• Sights Set on Grand Debt Deal. President Barack Obama and congressional leaders agreed Thursday to strive for a blockbuster deficit-reduction deal and will spend the weekend determining whether political support is possible for a sweeping plan to curb entitlements and make major tax-code changes.
  
• Canada Has Plenty of Oil, But Does the U.S. Want It? In a 21st-century oil boom, this sparsely populated Canadian province has become one of the world's newest petroleum powerhouses. Foreign investors are piling in, and Alberta plans to double production over the next decade. The problem is that the U.S.—the biggest consumer of Alberta petroleum—may not want the additional oil.
• Failed Talks Signal Struggles for UAW. Failed labor talks that contributed to the closing of a Detroit auto-parts plant have implications for negotiations between the Detroit Three and the United Auto Workers union, which has signaled it hopes to recover wage givebacks now that U.S. auto makers are profitable. American Axle & Manufacturing Holdings Inc. may close a New York gear-making plant, where talks on a new union contract have sputtered, after saying it would close a Detroit axle-making facility once the current contract expires on Feb. 26.
• Chavez Is Believed to Have Colon Cancer.
• Mullen Accuses Tehran of Arming Iraq Militias. The top U.S. military officer accused Iran on Thursday of shipping new supplies of deadly weapons to its militia allies in Iraq, in what he described as Tehran's bid to take credit for forcing American troops to go home.
• Sorting the Real From the Phony Spending Cut Options. A balanced budget amendment will be hard, but block-granting Medicaid and food stamps to states would be a good start on reform.

MarketWatch:

• Emerging-Market Growth Slows to Two-Year Low. Weakness in second-quarter manufacturing production largely contributed to the slowest rate of growth in emerging markets in two years, but the platform for a “soft landing” is being built by battles waged against inflationary pressures, according to a study released Thursday. The HSBC Emerging Market Index came in at 54.2 for the second quarter, down from 55.0 in the first quarter, HSBC said in its quarterly assessment of purchasing-managers indexes in 16 countries. The current reading is below the long-run series average of 54.8.

CNBC:

• New Way High-Speed Traders Get Edge on Investors. A new report from a market research and data firm suggests that high frequency traders are pushing the limits of the ticker tape to the tune of one million orders per second or more. While the buy and sell orders are typically cancelled microseconds later—so-called quote stuffing—the practice is an attempt to slow down the prices seen by regular investors on their financial systems or websites, and profit off the nearly real-time prices the high-frequency firms receive from direct feeds set up through exchange-server farms, the report and other market experts suggest.

Business Insider:

• The CIA Put A Ton Of Cash Into A Software Firm That Monitors Your Online Activity. American intelligence communities are interested in your YouTube video, flickr uploads, tweets -- even your online book purchases -- and for over a year they've been laying down some serious cash to get a better look at all of them.

Zero Hedge:

• No, It's Not The Nat Gas "Fractal" Algo: Nanex Discloses The Very Ominous Implications of Today's Berserk Crude Algo.
• China's Ticking Debt Bomb. Once local government debts, costs of re-capitalizing state-owned banks, bonds issued by state-owned banks, and railway bonds are included, China’s total debt amounts to 70 to 80 percent of GDP, roughly the level of public debt in the United States and the United Kingdom. Since most of China’s debt has been borrowed in the last decade, China is on an unsustainable trajectory at the current rate of debt accumulation, particularly when economic growth slows down, as it’s expected to do in the coming decade."
• Retirement Fund Plunder Update: $206 Billion So Far, $62 Billion Left.
  

NY Times:

• In Rough Year, Renaissance Notches 21% Gain. Begun in 2005, REIF is one of the few funds open to public investors at the roughly $19 billion Renaissance and has returned 6 percent on average since then. The Standard and Poor’s 500-stock index has returned an average of 3.3 percent per year over the same period.This year’s gains is a welcome turnaround for REIF’s investors, who sustained losses in 2007, 2008 and 2009.
• U.S. Admiral Ties Pakistan to Killing of Journalist. Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, said Thursday that he believed that the government of Pakistan had “sanctioned” the killing of a Pakistani journalist who had written scathing reports about the infiltration of Islamic militants into the country’s security services.
• Behind the Gentler Approach to Banks by U.S. As the financial storm brewed in the summer of 2008 and institutions feared for their survival, a bit of good news bubbled through large banks and the law firms that defend them. Federal prosecutors officially adopted new guidelines about charging corporations with crimes — a softer approach that, longtime white-collar lawyers and former federal prosecutors say, helps explain the dearth of criminal cases despite a raft of inquiries into the financial crisis. Though little noticed outside legal circles, the guidelines were welcomed by firms representing banks. The Justice Department’s directive, involving a process known as deferred prosecutions, signaled “an important step away from the more aggressive prosecutorial practices seen in some cases under their predecessors,” Sullivan & Cromwell, a prominent Wall Street law firm, told clients in a memo that September.

Forbes:

• Warren Buffett To Exercise $5B Goldman Sachs(GS) Warrants in 2013. Buffett will continue to benefit from his $5 billion investment in Goldman Sachs during the financial crisis.

CNN:

• Obama Warns He Will Veto Any Short-Term Debt Deal. Two sources close to discussions tell CNN that at the top of the meeting with congressional leaders today the president said unequivocally he will veto any short term deal that does not extend the debt limit through 2012.

American Spectator:

• Obamacare Tragedy Primed To Further Explode the Deficit. President Obama bludgeoned Obamacare through Congress on the claim, backed by CBO, that it would not add to the deficit, even though it adopts or wildly expands three entitlement programs. As I discuss in my new book, America’s Ticking Bankruptcy Bomb, close analysis of the CBO score and additional new data indicates that, quite to the contrary, Obamacare will likely add $4 to $6 trillion to the deficit over its first 20 years, and possibly more. Of course, the deficit is not the biggest problem. Even bigger is that regardless of the deficit, Obamacare involves trillions of increased government spending and taxes. Worst of all is that it involves a loss of control over, and the quality of, our own health care. All of this is ultimately a tragedy because as my book also explains, the uninsured could all easily be covered without any individual or employer mandate for just a small fraction of the cost of Obamacare, as discussed below.

Rasmussen Reports:

• 23% Confident Policymakers Know What They're Doing About The Economy. Seventy-five percent (75%) are not confident in the country’s policymakers. These figures include two percent (2%) who are Very Confident and 39% who are Not At All Confident.

Reuters:

• Exclusive: Top Commodities Funds Take Fresh Beating in June. Two of the biggest commodity hedge funds suffered a second month of painful losses in June, falling victim to a rout across raw goods markets, a hedge fund investor told Reuters on Thursday. Clive Capital, a top commodities fund with more than $4 billion under management, and energy-focused BlueGold, with around $2 billion, hit a rough patch in May and June due in part to a series of sharp drops in oil prices, said the investor, who is familiar with the funds' returns. The 19-commodity Reuters-Jefferies CRB index fell nearly 9 percent over May and June, the largest two-month loss since the 2008 financial crisis. London-based Clive, led by star trader Chris Levett, lost around 8 percent last month and brought its year-to-date drop to near 10 percent, the investor said, requesting anonymity. London's BlueGold, led by French oil trader Pierre Andurand, dropped 5 percent in June and brought its year-to-date losses to near 12 percent, the investor said. Paul Touradji's New York-based commodities-focused Touradji fund, which managed around $2.5 billion as of January, fell around 3 percent in June, bringing year-to-date losses to near 13 percent, a separate fund industry source said. Unless they recover in the second half, BlueGold and Clive may face their first annual losses, hedge fund industry sources said. The two funds suffered large losses on May 5, when oil plunged more than $10 a barrel in one of the steepest one-day drops ever, the sources said.
• Big Pickups Clog US Dealer Lots, Concern Analysts. Big pickup trucks are clogging many U.S. dealer lots, causing headaches for General Motors Co (GM) and other automakers, and raising concerns about price wars and lower profits later in the year.
• US House Defeats Move to Stop Funds for Libyan War. A move to stop funding for President Barack Obama's military intervention in Libya was narrowly defeated in the U.S. House of Representatives on Thursday, underscoring Congress' unhappiness with the undeclared war. Both political parties split on the measure, highlighting how tensions over U.S. involvement -- in conjunction with NATO -- in Libya's civil war have crossed party lines and created unusual alliances.
• Texas Fight With EPA Grows With Power-Plant Rule. Texas Governor Rick Perry and two top state regulators on Thursday blasted the U.S. environmental agency for including Texas in a rule to slash sulfur dioxide emissions from power plants, warning that the last-minute action could threaten the state's electric supply. "Today's EPA announcement is another example of heavy-handed and misguided action from Washington, D.C., that threatens Texas jobs and families and puts at risk the reliable and affordable electricity our state needs to succeed," said Perry, a potential Republican presidential contender, in a statement.
• Equity and Debt Funds Pull in Fresh Cash - Lipper.
• U.S. Fed Balance Sheet Grows to Another Record Size. The U.S. Federal Reserve's balance sheet expanded to a record size in the week ended July 6 as the central bank bought more bonds in an effort to support the economy, Fed data released on Thursday showed.

Financial Times:

• European Companies' Debt Costs Rise After Downgrade. Borrowing costs for some of Europe’s biggest companies have risen sharply this week as the region’s sovereign debt crisis has intensified. The multi-notch debt downgrade of Portugal to “junk” by Moody’s led to a deterioration in sentiment in sectors including financials and telecoms. Portuguese bank Banco Espirito and Portugal Telecom were two companies whose corporate debt yields, which move inversely to prices, rose as confidence crumbled. Outside Portugal, Telecom Italia and Santander, Spain’s biggest bank, have also seen their bond yields rise this week. In the US, investors have backed away from US commercial paper issued by foreign banks, according to the latest weekly data released on Thursday by the Federal Reserve.
• Central Banks Pull Most Gold in a Decade From BIS. Central banks have pulled 635 tonnes of gold from the Bank for International Settlements in the past year, the largest withdrawal in more than a decade. The move, disclosed in the BIS’s annual report, marks a sharp reversal from the previous year when central banks added to deposits of gold at the so-called “bank for central banks” rather than lending it directly to the private sector amid growing concerns over counterparty risk.

Telegraph:

• ECB Tightens Noose on Southern Europe. The European Central Bank has raised interest rates a quarter point to 1.5pc to curb inflation and signalled more to come, despite faltering growth in southern Europe and acute stress in peripheral bond markets. Jean-Claude Trichet, the ECB's president, brushed aside warnings that tightening at this delicate juncture might push Spain and Italy into the danger zone, insisting that every eurozone country stands to lose if the ECB fails to anchor price stability. "The debt problems are contained in Spain and Italy for now but the eurozone is dealing with finer and finer margins," said Simon Derrick, currency chief at the BNY Mellon. "The situation is magnitudes worse than where we were a few months ago and the global outlook is following the pattern of mid-2008 before the Lehman crisis, so people are getting nervous," he said. Hans Redeker, currency chief at Morgan Stanley, said the danger for the eurozone is that long-term investment inflows have dried up. They have been replaced by a growing reliance on hot money funds, attracted by Europe's higher rates. "This money is fickle. It will move out on the slightest sign of trouble. Europe's capital flows are sounding alarms," he said. By raising rates, the ECB may have made matters worse. The ECB's monetary tightening has asymmetric effects, with greater impact on heavily-indebted and rate-sensitive economies in Spain and Ireland than on core Europe. Over 90pc of Spanish mortgages are priced off the floating 1-year Euribor rate, which has risen 66 basis points to 2.19pc this year. Only 20pc of German loans are on floating rates. Rate rises are ratcheting up the pressure as each month a fresh cohort of Spanish households sees a sharp upward adjustment in their mortgage payments. There is a hangover of 680,000 unsold properties on the market, according to government figures. "There is no sign of recovery," said Raj Badiani from IHS Global Insight. "House sales are falling again at double-digit rates and if this spills over into 2012, the pressure on the Spanish banking system could become unbearable," he said.

Business Standard:

• Go Slow on Loans to Commercial Real Estate Projects: RBI to Banks. The Reserve Bank of India (RBI) has asked banks to go slow on lending to the commercial real estate sector. The regulator fears an asset price bubble. The RBI advisory comes in the backdrop of a sharp increase in lending to commercial real estate projects in the last one year and non-performing asset (NPA) growth in the sector staying higher than the growth in overall loan delinquencies. In the last two weeks, RBI has engaged with the top management of several banks. During these meetings, it also sought opinion on performance of the commercial real estate sector. “The central bank officials indicated that we should go slow on loans to commercial real estate due to an increase in NPAs amid slackening demand for such properties,” said the chairman and managing director of a public sector bank. According to RBI data, bank lending to commercial real estate registered 20 per cent growth in the year ended May 30 as compared to 1.2 per cent in the previous year. Bankers said RBI’s concerns stemmed from the fact that in case of a fall in real estate prices, banks would face asset quality pressures.

Financial News:

• China wo0n't reverse its prudent monetary policy in the short term, citing officials and researchers. The government will watch existing controlling measures and take action in the second half if necessary, citing the officials and researchers. Sheng Songcheng, head of the central bank's statistics department, and Yan Qingmin, assistant chairman of the China Banking Regulatory Commission, were among officials and researchers cited.

21st Century Business Herald:

• China shouldn't halt monetary tightening in the second half, citing Yu Xuejun, director of the China Banking Regulatory Commission's branch in Jiangsu province. Inflation in China is likely to remain high until the first half of next year, fueled by the nation's fast rising industrial product prices, citing Yu.

Evening Recommendations
Citigroup:

• Reiterated Buy on (MJN), boosted estimates, target $77.
  

Capstone:

• Rated (PFCB) Buy, target $46.50.
  

Night Trading

• Asian equity indices are -.25% to +1.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 111.50 -1.5 basis points.
  
• Asia Pacific Sovereign CDS Index 116.50 -2.0 basis points.
  
• S&P 500 futures -.08%.
  
• NASDAQ 100 futures +03%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (GBX)/.21

Economic Releases
8:30 am EST

• The Change in Non-farm Payrolls for June is estimated at +105K versus +54K in May.
• The Change in Private Payrolls for June is estimated to rise to +132K versus +83K in May.
• The Unemployment Rate for June is estimated at 9.1% versus 9.1% in May.
• Average Hourly Earnings for June are estimated to rise +.2% versus a +.3% gain in May.

10:00 am EST

• Wholesale Inventories for May are estimated to rise +.6% versus a +.8% gain in April.

3:00 pm EST

• Consumer Credit for May is estimated at $4.0 Billion versus $6.25 Billion in April.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• None of note
  

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

Stocks Surging into Final Hour on Better Economic Data, Short-Covering, Investor Performance Angst, Debt Ceiling Optimism

Broad Market Tone:

• Advance/Decline Line: Substantially Higher
  
• Sector Performance: Most Rising
  
• Volume: Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 16.01 -2.02%
  
• ISE Sentiment Index 94.0 -42.33%
  
• Total Put/Call .81 -20.59%
  
• NYSE Arms .73 -36.92%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 91.0 -2.22%
  
• European Financial Sector CDS Index 121.50 -5.19%
  
• Western Europe Sovereign Debt CDS Index 245.67 +1.73%
  
• Emerging Market CDS Index 206.09 -1.44%
  
• 2-Year Swap Spread 24.0 -1 bp
  
• TED Spread 23.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .02% +2 bps
  
• Yield Curve 267.0 unch.
  
• China Import Iron Ore Spot $170.70/Metric Tonne +1.19%
  
• Citi US Economic Surprise Index -73.70 +7.6 points
  
• 10-Year TIPS Spread 2.38% +4 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +140 open in Japan
• DAX Futures: Indicating +49 open in Germany

Portfolio:

• Higher: On gains in my Retail, Medical, Biotech and Technology longs
  
• Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and then added them back
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 builds on recent gains despite being technically overbought, emerging markets inflation fears, rising eurozone debt angst, increasing food/energy prices and global growth concerns. On the positive side, Coal, Steel, Internet, Software, Semi, Disk Drive, Networking, Bank, Construction, Homebuilding, Retail, Gaming and Education shares are especially strong, rising more than +2.0%. Small-Caps and cyclicals are outperforming again. Tech shares have traded well throughout the day. Growth stock leaders continue to strongly outperform. (XLF) is also outperforming and the Transports are making a record high. Copper is jumping +2.35% and Lumber is rising +2.28%. The Belgium sovereign cds is down -2.99% to 162.33 bps. On the negative side, Computer Service, HMO, Restaurant, Telecom and Drug shares are either flat or lower on the day. Oil is rising +2.0%, the UBS-Bloomberg Ag Spot Index is up +2.2% and Rice is up +3.2%. Rice futures are up +21.0% in 5 days. The US price for a gallon of gas is +.01/gallon today to $3.58/gallon. It is up .44/gallon in less than 5 months. The Spain sovereign cds is up +2.6% to 301.73 bps, the Ireland sovereign cds is gaining +2.15% to 855.65 bps and the Portugal sovereign cds is up +7.35% to 984.07 bps. The Portugal and Ireland sovereign cds are hitting new record highs. European contagion fears continue to intensify, which is a major negative. The Shanghai Composite fell -.6% overnight, finishing at session lows. Brazil's Bovespa continues to trade very poorly, falling another -.52% today, and is now down -10.2% ytd. Moreover, Italian and Spanish stocks gave up their nice gains after US economic data and finished at session lows in slightly negative territory. The AAII % Bulls rose to 41.77 this week, while the % Bears fell to 24.68, which is a large negative. Investor bullishness has moved from low levels to high levels in a very short period of time, especially given the extent of the still developing headwinds. The odds are increasing for another stock pullback, unless the situation in Europe improves meaningfully very soon. I expect US stocks to trade mixed-to-lower from current levels into the close on rising eurozone debt angst, emerging markets inflation fears, rising food/energy prices, profit-taking and more shorting.

Today's Headlines

Bloomberg:

• Companies Added 157,000 Workers to Payrolls. Companies in the U.S. added twice as many workers as forecast in June, signaling an improvement in the labor market that may help bolster the economy in the second half of the year. The 157,000 increase followed a 36,000 gain the prior month, according to data from ADP Employer Services. The median forecast in a Bloomberg News survey called for an advance of 70,000. Other reports today showed fewer Americans filed jobless claims and consumer confidence eased from a 10-week high. While hiring may be picking up, a sustained drop in the unemployment rate from 9.1 percent may require bigger job gains. Payroll increases of around 200,000 a month are needed for a sustained decline in the unemployment rate, according to Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. The Bloomberg Consumer Comfort Index decreased to minus 45.5 for the period ended July 3 from minus 43.9 the prior week. All three components in the Bloomberg survey fell. An index of consumers’ views of the economy decreased to minus 80.9, the worst showing since the week ended April 3, from minus 79.2 the prior week. The gauge of personal finances declined to minus 8.4, the lowest in four weeks, while the buying climate measure was little changed at minus 47.1.
• Portugal, Spain Government Notes Fall as Trichet Comments Provide No Balm. Government notes from Europe’s most- indebted nations declined as European Central Bank measures to accommodate recently-downgraded Portuguese bonds failed to alleviate concern the debt crisis is spreading. Yields on Portuguese and Irish two-year notes rose to records even after ECB President Jean-Claude Trichet said in Frankfurt today that policy makers “decided to suspend the application of the minimum credit-rating threshold” for Portugal. German bunds slid after the central bank raised borrowing costs and Trichet said monetary policy in the euro region remains “accommodative.” “The situation is simply so bad,” that “really the market is focused on the other negatives, like Portugal being downgraded,” said Niels From, chief analyst at Nordea Bank AB in Copenhagen. “There is a negative spiral for Portugal and there are definite concerns about contagion to other bigger peripherals.” The yield on two-year Portuguese notes was up 84 basis points at 17.59 percent as of 3:08 p.m. in London after reaching a record 18.28 percent. Spanish two-year note yields rose four basis points to 3.66 percent, Italian yields on securities of similar maturity increased six basis points to 3.33 percent and Irish two-year yields jumped 67 basis points to 15.98 percent. Greek two-year notes fell, pushing the yield up 35 basis points to 28.79 percent.
• Spain's Regions Need to Boost Deficit Control, Think Tank Says. Spain's regional governments must boost "rigor and discipline" to meet central government deficit targets, and the government's austerity measures need to be carried out on time, a think tank said. Spain, which is aiming to cut its budget deficit to 6% of gdp this year from 9.2% in 2010, need to gain the trust of the financial markets, said Fernando Casado, director of the Business Council for Competitiveness. "Anything that may lead to a delay of the reforms will have a negative impact," Casado said at Telefonica SA's headquarters in Madrid today.
• World Food Prices Increased 1% Last Month on Cost of Sugar, Dairy Products. World food prices rose in June as the cost of sugar, meat and dairy increased, adding to inflationary pressure that has prompted central banks across the world to raise interest rates. An index of 55 food commodities rose to 233.8 points from 231.4 points in May, the United Nations’ Food and Agriculture Organization said in a report on its website today. The gauge climbed to an all-time high of 237.7 in February. The European Central Bank raised rates today for the second time this year and China did so for the third time yesterday in a bid to control inflation partly blamed on food costs. “We’re not yet seeing any break,” Abdolreza Abbassian, a senior economist at the FAO, said via phone from Rome today. “Almost in every country, including in Europe, the issue of higher food prices has already become tangible.”
• Oil Climbs to Three-Week High in New York After U.S. Companies Add Workers. Oil surged to a three-week high in New York on signs that the U.S. economic recovery is whittling down crude inventories in the world’s largest user of the commodity. Futures climbed as much as 2.1 percent in New York after reports showed that U.S. companies added 157,000 workers in June and applications for unemployment benefits declined last week. Crude for August delivery gained as much as $2.05 to $98.70 a barrel in electronic trading on the New York Mercantile Exchange. That’s the highest since June 15.
• JPMorgan(JPM) to Pay $228 Million to Settle Bid-Rig Case. JPMorgan Chase & Co. (JPM) agreed to pay $228 million to settle federal charges that the bank conspired to rig the bidding on investment contracts sold to state and local governments, the Securities and Exchange Commission said. JPMorgan, the second-biggest U.S. bank, agreed to pay $177 million to settle federal and state charges and to return $51.2 million to municipal borrowers affected by the conduct, the SEC said in a statement.
• Goldman Sachs(GS) Sued for Alleged Fraud by Liberty Mutual on Freddie Mac Stake. Liberty Mutual Insurance Co. and Safeco Corp. sued Goldman Sachs Group Inc. (GS) for “making misleading statements and omissions” in a preferred-stock offering for the Federal Home Loan Mortgage Corp. (FMCC) in 2007. The plaintiffs, which also include Peerless Insurance Co., said they invested $37.5 million in the offering of Freddie Mac shares, which was underwritten by Goldman, according to a filing yesterday in federal court in Massachusetts. Goldman claimed Freddie Mac “already met its regulatory capital requirements” and that the offering was made to increase the mortgage company’s capital base, the plaintiffs said. “The stated purpose for the offering was false,” the plaintiffs said in the complaint. “Goldman knew or recklessly ignored that Freddie Mac did not meet its regulatory capital requirements, and Freddie Mac remained severely undercapitalized even after the sale of the preferred stock.”
• Ecuador May Buy Oil Hedge Against 'Drastic' Drop in Prices. Ecuador, the smallest member of the Organization of Petroleum Exporting Countries, may buy oil hedges to protect against sharp declines in the price of crude, central bank President Diego Borja said today. The government hasn’t decided when it might purchase the oil hedges, Borja said in an interview on television channel Ecuavisa, without providing more details. Ecuador’s President Rafael Correa said July 2 a possible economic slowdown in Europe and the U.S. could push crude prices lower in 2012, according to a statement in the presidential gazette.

Wall Street Journal:

• Pimco's El-Erian: Greece Vulnerable for Euro Zone Sabbatical. One of the world's biggest bond investors warned Thursday that the euro-zone debt troubles may spin out of control should policy makers continue to kick the can down the road. In written comments for a live question-and-answer event at Reuters.com on Thursday, Mohamed El-Erian, chief executive and co-chief investment officer of Pacific Investment Management Co., or Pimco, said: "If it wishes to avoid a really disorderly outcome, Europe will be forced to opt for one of two corner solutions: fiscal union, or debt restructuring and, possibly, a euro-zone sabbatical for at least one (and possibly up to three) of the 17 members of the euro-zone." "The more Europe delays this choice—and it is a difficult one—the greater the risk that policy makers may lose control of the situation," said Mr. el-Erian. He added that Greece is the most vulnerable country for both a debt restructuring and a euro-zone sabbatical.
• News Corp.(NWSA) to Close Its News of the World Tabloid. News Corp. said it will close its News of the World newspaper, a dramatic move to quell a scandal over the U.K. paper's controversial reporting tactics, which have led to allegations that, in its pursuit of scoops, it intercepted voice mails of celebrities, murdered girls and terrorist victims.
• Ethanol Subsidies May End by August. Key Senate lawmakers have reached a deal to end two ethanol subsidies by the end of the month, sooner than expected and a sign of how tax policy can change as attention focuses on the deficit.
  

MarketWatch:

• Debt Talks 'Constructive' But No Deal: Obama. Talks with congressional leaders about cutting the federal deficit and raising the debt limit were “very constructive,” but Democrats and Republicans are still far apart on issues, President Barack Obama said Thursday.
• Positive June Retail Sales Augur Well For Back to School. U.S. retailers, from discounter Target Corp. to high-end retailer Saks Inc., posted better-than-expected June sales, giving an encouraging sign about the state of consumers heading into the industry’s key back-to-school and second-half selling season. All but three of 25 retailers that reported their June numbers topped expectations, according to Thomson Reuters. Overall, sales rose 6.5%, topping the 4.9% analysts expected and marked the strongest showing since February 2004 when comparisons strip out the Easter-benefited months, analyst Jhraonne Martis at Thomson Reuters said in an email.

CNBC.com:

• Tough June for Hedge Funds as They Struggle to Keep Gains. For Paulson & Co., the $38 billion fund company, the last couple of months have been brutal, rendering its Advantage fund down roughly 15 percent, according to one investor.
• Apple(AAPL) Just Inked iPhone Deal with China Mobile?
  

Business Insider:

• Karachi EXPLODES: Dozens Already Dead as Wave of Violence Sweeps Through Pakistan's Largest City.
• Check It Out: Default Odds Have Worsened For Virtually Every Single Country In Europe Today.
  

Zero Hedge:

• Obama Administration to Extend Mortgage-Free Living for America's Unemployed to One Year.
• Imagine Grand Central Station After A Flesh-Eating Virus Outbreak And You Get Guangzhou South Station. (pics)
  

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 24% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Thirty-nine percent (39%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -15 (see trends).

Reuters:

• China may reduce investment on seven strategic emerging industries, including high-speed rail and wind power, on concerns of corruption and overcapacity, citing two persons close to the Communist Party leadership.
• Junker Says Wants European Rating Agency. Eurogroup chairman Jean-Claude Juncker said on Thursday he was in favour of having a European credit rating agency and that it was not right to downgrade countries like Portugal just as they were implementing reforms. Juncker, joining the ranks of policymakers who have criticised rating agencies, said they would lose relevance if they continued to act like they have been. European politicians accused credit rating agencies on Wednesday of anti-European bias after Moody's downgrade of Portugal's debt to "junk" cast new doubt on EU efforts to rescue distressed euro zone states without debt restructuring.

Telegraph:

• There Has Been No Global Warming Since 1998. The headline of this post really shouldn’t be controversial. It chimes perfectly with what Kevin “null hypothesis” Trenberth wrote in that notorious 2009 Climategate email to Michael Mann: The fact is that we can’t account for the lack of warming at the moment and it is a travesty that we can’t. And it’s what Phil Jones admitted in a BBC interview when he said that there had been no “statistically significant” warming since 1995. Why then am I mentioning it now? W-e-l-l, because just as ze war is to the Germans, Chappaquiddick is to the Kennedy family and that Portland masseuse incident to Al Gore, so the recent lack of warming is to the, er, Warmists. They hate it. It’s an affront to everything they believe in. Damn it, if the world isn’t warming with the alacrity they’d prefer, how are they going to keep the funding gravy train going, and how are they going to persuade an increasingly sceptical populace that the “science” is “settled”, the debate over and the time for action is now? That’s why they can’t be reminded of the truth often enough.

Portfolio.hu:

• Investors who purchased Greek bonds should "pay for their mistake," Market Mobius, who oversees about $50 billion as the executive chairman of Templeton Emerging Markets Group, said. "What needs to be done now is there ought to be strong leadership to recognize the debt, to downgrade it, to have the people who made these purchases of these bonds take a haircut, pay for their mistake," Mobius said.

Expansion:

• Spain is considering creating a state-owned holding company controlled by the bank rescue fund to manage its stakes in the weakest savings banks which will likely be nationalized as investors shun their stock.

Caijing:

• About one third of China's municipal financing vehicles have negative net operating cash flow, citing a Guotai Junan research note. The vehicles' ability to repay debt has decreased as their money flow to current liabilities and interest ratios have fallen to 47% in the first quarter, the note said.

China Business Daily:

• A unit of the Aviation Industry Corp. of China, a fighter jet maker, is purchasing grains and oilseeds for stockpiling on behalf of the government. The company has bought 200,000 metric tons to 300,000 tons of corn and is preparing to purchase wheat through a joint venture with a local grain warehouse in Hebei.

Bear Radar

Style Underperformer:

• Large-Cap Value (+.75%)

Sector Underperformers:

• 1) Telecom -.41% 2) Computer Services -.21% 3) HMOs -.14%

Stocks Falling on Unusual Volume:

• TSRA, ASYS, VMW, MHK, HUM, AGP, ABV, GT, BABY, ZAGG, SCHS, BWLD, CPHD, ISRG, CHSI, LMIA, COST, ILMN, TZOO, FST, KCI, AH, SCO, XCO and LL
  

Stocks With Unusual Put Option Activity:

• 1) KBH 2) FXC 3) JASO 4) JWN 5) CTXS
  

Stocks With Most Negative News Mentions:

• 1) CSIQ 2) RADS 3) CPHD 4) FNF 5) ISRG
  

Charts:

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

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.