Bull Radar

Style Outperformer:

• Mid-Cap Growth (+1.69%)

Sector Outperformers:

• 1) Gold & Silver +3.09% 2) Disk Drives +2.99% 3) Oil Service +2.71%

Stocks Rising on Unusual Volume:

• TI, TIE, ABB, UBS, TEF, SI, NWSA, CLNE, CSTR, JVA, WPRT, GSM, GOLD, ZAGG, ACOM, KCI, TRH, RMD, ING and CBT
  

Stocks With Unusual Call Option Activity:

• 1) CSTR 2) CTL 3) PEP 4) CPB 5) AUY
  

Stocks With Most Positive News Mentions:

• 1) ERTS 2) WAG 3) NFLX 4) ADTN 5) MGP
  

Charts:

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

Stocks Falling into Final Hour on Tech Sector Pessimism, Rising Food/Energy Prices, Eurozone Debt Angst, Global Growth Worries

Broad Market Tone:

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

Equity Investor Angst:

• VIX 18.81 +2.23%
  
• ISE Sentiment Index 140.0 +70.73%
  
• Total Put/Call 1.02 -12.07%
  
• NYSE Arms 1.07 -79.09%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 96.76 +.53%
  
• European Financial Sector CDS Index 141.67 -1.86%
  
• Western Europe Sovereign Debt CDS Index 288.50 +3.34%
  
• Emerging Market CDS Index 218.64 +.42%
  
• 2-Year Swap Spread 29.0 +1 bp
  
• TED Spread 23.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .02% +1 bp
  
• Yield Curve 254.0 -1 bp
  
• China Import Iron Ore Spot $173.10/Metric Tonne +1.06%
  
• Citi US Economic Surprise Index -99.10 -11.3 points
  
• 10-Year TIPS Spread 2.29% unch.
  

Overseas Futures:

• Nikkei Futures: Indicating -100 open in Japan
• DAX Futures: Indicating +20 open in Germany

Portfolio:

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

BOTTOM LINE: Today's overall market action is just mildly bearish as the S&P 500 trades slightly lower despite eurozone debt angst, Asian equity weakness, emerging markets inflation fears, tech sector pessimism, rising food/energy prices, US debt ceiling worries and global growth concerns. On the positive side, Education, Insurance, HMO and Medical Equipment shares are especially strong, rising more than +.75%. (XLF)/(IYR) have outperformed throughout the day. Lumber is rising +1.97% and copper is gaining +.69%. The Spain sovereign cds is falling -3.95% to 318.22 bps and the Portugal sovereign cds is falling -6.3% to 1,062.27 bps. Weekly retail sales rose +5.4% this week versus a +3.8% gain the prior week. On the negative side, Airline, Road & Rail, Wireless, Semi, Networking, Software, Paper, Steel, Oil Service and Alt Energy shares are especially weak, falling more than -1.0%. Tech shares have been heavy throughout the day. Gold is up +.77%, oil is rising +1.8% and the UBS-Bloomberg Ag Spot Index is gaining +2.4%. Rice is jumping +3.6%. The US price for a gallon of gas is +.01/gallon today to $3.64/gallon. It is up .50/gallon in less than 5 months. The China sovereign cds is gaining +2.09% to 90.50 bps, the US sovereign cds is gaining +2.5% to 51.25 bps, the Brazil sovereign cds is gaining +1.68% to 115.66 bps and the Japan sovereign cds is gaining +1.7% to 93.90 bps. The Emerging Markets Sovereign CDS Index is surging +10.0% to 190.75 bps. The Western Europe Sovereign CDS Index is hitting another record high. The Citi Asia-Pacific Economic Surprise Index has broken down technically, falling -10.0 points today to -19.80, which is the worst level since April 29th, 2009. The Hang Seng fell -3.06% last night, finishing at session lows, and continues to trade poorly. This index is down -5.96% ytd. As well, Brazil's Bovespa fell another -.9% today and is down -13.8% ytd. The UBS-Bloomberg Ag Spot Index is close to a technical breakout, which is a large negative. The fact that some in the Fed are even contemplating QE3 at this point is a large negative, given the hugely destabilizing consequences of QE2. Given that it appears US economic strategy relies heavily on our multi-national exports to developing nations, further negative pressure on the US dollar would only exacerbate the already problematic inflation in emerging markets, thus raising the odds of hard landings in those same economies that we are heavily relying upon. While short-term traders would likely cheer QE3, any further QE would greatly curtail the lifespan of the current global economic recovery, in my opinion. I still believe the situation in Europe needs to stabilize, commodity prices need to fall further, the US debt ceiling issue needs resolution and forward earnings guidance must be ok for stocks to build meaningfully on their recent rally off the lows. I expect US stocks to trade mixed-to-lower into the close from current levels on eurozone debt angst, emerging markets inflation fears, rising food/energy prices, tech sector pessimism, US debt ceiling concerns, profit-taking, more shorting and global growth worries.

Today's Headlines

Bloomberg:

• Berlusconi Vows to Speed Up Austerity Plan Approval as Market Rout Eases. Italian Prime Minister Silvio Berlusconi vowed to hasten passage of a 40 billion-euro ($56 billion) deficit-cutting plan to stop a market selloff that threatens Europe’s single currency. The “crisis prompts us to speed up” approval of the budget cuts, the premier said today in an e-mailed statement, his first public comments on a rout that saw Italian stocks lose almost 7.5 percent over two sessions and bond yields soar to the highest in a decade. Speaking of the austerity plan, Berlusconi pledged “to bolster its content and draw up additional measures aimed at balancing the budget by 2014.”
• Italian Bonds Snap Six-Day Drop on Speculation ECB Bought Country's Debt. Italian and Spanish bonds rose on speculation the European Central Bank bought the debt of the euro region’s most-indebted nations to stabilize markets amid concern that the debt crisis is worsening. Greek 10-year yields fell the most in almost two weeks while equivalent-maturity Spanish yields retreated from a euro- era record reached earlier. Italian bonds rose, with yields below 6 percent after breaching the level for the first time since 1997.
• No 'Immaculate Solution' to European Sovereign Debt Crisis, El-Erian Says. European policy makers need to quickly address the worsening sovereign-debt crisis in Greece, Italy and Spain before it becomes a greater threat to the euro- zone’s integrity, according to Pacific Investment Management Co.’s Mohamed A. El-Erian.
• Greece Won't Manage to Sell All Assets Required in Aid Plan, Economou Says. Greece’s deputy finance minister, Pantelis Economou, said the country won’t manage to sell everything on its list of planned state-asset sales and real- estate developments. “We will sell a lot less than planned,” he told lawmakers yesterday, according to a transcript posted on the Parliament’s website. Economou said there isn’t enough investor interest in the assets for sale as “credit default swaps and spreads are the kinds of thing they have their eyes on.” Concrete assets are “riskier,” he said.
• Stress-Test Data May Spur Instability, EU Document Says. The risks to financial stability from analysts using European Union stress-test data to conduct their own exams on banks “should not be underestimated,” according to a confidential document prepared by EU officials. There is an expectation the European Banking Authority stress-test results will be “challenged by market tests” aiming to address “the perceived weaknesses in the design,” according to the draft document obtained by Bloomberg News. That may result in nations with lower-rated sovereign debt struggling to borrow money to fund their banks, according to the document. “The conditions in EU financial markets and the economy have deteriorated since the stress scenarios were envisaged,” Sony Kapoor, managing director of policy group Re-Define Europe, said in a telephone interview today. “While the tests are still robust under current conditions, the safety buffer for further deterioration has shrunk.” This year’s exams, which will be published on July 15, will include a review of how lenders would handle a 0.5 percent economic contraction in the euro area in 2011, a 15 percent drop in European equity markets as well as possible trading losses on sovereign debt. The banks will be expected to maintain a Core Tier 1 capital ratio of at least 5 percent under the stress-test scenarios, the EBA has said.
• European Unity Project Mustn't Be Abandoned, Soros Writes in FT. The European status quo has become untenable, yet it should still be possible to mobilize a “silent majority” in favour of further advance toward a united Europe, said George Soros, the billionaire investor. Writing in the Financial Times, Soros said the euro was from the start an incomplete currency, in the sense that it had a central bank but no treasury, and its architects thought, wrongly, that markets would correct their own excesses; hence they set up rules designed to stop only public-sector excesses. The excesses, however, were mainly in the private sector, as interest-rate convergence generated economic divergence; lower rates in the weaker countries led to housing bubbles, while the strongest country, Germany, had to keep a tight rein to cope with reunification; and finance was compromised by the spread of risky financial instruments and unsound lending practices, Soros said. As integration has turned into disintegration, Europe’s political establishment has turned from spearheading further unification to defending the status quo, he said. A Greek default may be inevitable, but it needn’t be disorderly; the rest of the eurozone must be safeguarded, and that means strengthening it through a wider use of Eurobonds and a eurozone deposit-insurance arrangement, Soros concluded.
• Rice May Extend Gains as Supplies Tighten on Thailand Traders' Hoarding. Rice prices in Thailand, the world’s biggest exporter, may extend gains as supplies tighten at the end of the harvest season and millers hoard the grain on expectations of an increase in government’s purchase price. Export prices of rice may climb 49 percent to $800 per metric ton in the fourth quarter as the newly elected government led by Pheu Thai Party implements a pledge to buy the grain from farmers above market rates, according to a survey of four exporters, millers and traders. Rising prices in Thailand may support a 60 percent jump in rice futures in Chicago and increase global food costs tracked by the United Nations that advanced in June for the 10th time in the past 12 months. Rice rose globally in June, “reflecting strong import demand and uncertainty over export prices in Thailand,” the Food and Agriculture Organization said last week. “Costlier rice from Thailand, which accounts for about 30 percent of worldwide shipments, will drive prices higher around the globe,” said Sumeth Laomoraphorn, chief executive officer of C.P. Trading Co., Thailand’s fourth-largest exporter.
• Corn Advances as U.S. Forecasts Inventory Decline; Soybeans Extend Rally. Corn rose to the highest price this month after the government said U.S. stockpiles will be smaller than expected, heightening concern that costs for food and fuel will climb. Soybean prices also gained. Corn futures for December delivery rose 14.75 cents, or 2.3 percent, to $6.475 a bushel at 11:19 a.m. on the Chicago Board of Trade, after touching $6.4875, the highest since June 30. Before today, the price was up 60 percent in the past year. Soybean futures for November delivery gained 2 cents, or 0.1 percent, to $13.49 a bushel on the CBOT, heading for a seventh straight gain, the longest rally since December. Before today, prices were up 41 percent in the past year.
• Crude Oil Advances for First Day in Three as Europe Works on Debt Crisis. Oil rose for the first time in three days in New York as European governments worked to halt the region’s credit crisis. Crude for August delivery rose 59 cents, or 0.6 percent, to $95.74 a barrel at 11:23 a.m. on the New York Mercantile Exchange. Earlier, prices fell to $93.55, the lowest level since July 1. Futures have risen 28 percent in the past year.
• Thomas Cook Shares Plunge as Tour Operator Cuts Full-Year Forecast. Thomas Cook Group Plc (TCG), Europe’s second-largest tour operator, plunged in London trading after cutting its full-year profit forecast because of unrest in North Africa and a squeeze on consumer spending in the U.K. The shares fell as much as 36.7 pence, or 30 percent, to 86 pence, reducing the company’s market value by about 321 million pounds ($507 million) to 752 million pounds.
• News Corp.(NWSA) Boosts Stock Buyback to $5 Billion. News Corp. (NWSA), whose stock has dropped for four days amid a probe into alleged phone hacking by the company’s U.K. journalists, almost tripled its stock-buyback program to $5 billion.
• Obama's Proposals 'Smoke, Mirrors': McConnell. Senate Republican Leader Mitch McConnell said President Barack Obama is putting an expansion of government ahead of the goal of a bipartisan plan to cut the U.S. deficit, and said Democrats have prevented a large-scale “grand bargain.” ‘I was one of those who had long hoped we could do something big for the country,’’ McConnell said in remarks on the Senate floor today. “But in my view the president has presented us with three choices: smoke and mirrors, tax hikes, or default. Republicans choose none of the above.” Instead, he said, “Republicans will choose a path that actually reflects the will of the people -- which is to do the responsible thing and ensure the government doesn’t default on its obligations.”

Wall Street Journal:

• China Premier Signals Pressure on Prices. Chinese Premier Wen Jiabao sounded a hawkish note on inflation ahead of key data expected to show slowing economic growth, emphasizing that the government will continue to make cooling prices its key priority.
• Buffet-Backed BYD Sees Big First-Half Drop. Warren Buffett-backed China car and battery maker BYD Co. Tuesday said first-half profit is expected to fall up to 95% from a year ago because of intensifying competition and the cancellation of government subsidies for car buyers.
• Riskier Loans Make a Comeback, as Private Firms Take the Field. After years as the lending market's undesirables, aspiring home buyers with less-than-stellar credit are being offered home loans again—with some of the same conditions and catches critics say tripped up subprime borrowers five years ago. According to analysts, a handful of private investment firms have started making home loans to borrowers who fail to meet banks' requirements, which got tighter post-crash and have largely stayed that way. And for now they are holding them on their books, which is novel. At least two, Athas Capital Group, of California, and New Penn Financial, which is owned by Shellpoint Partners, of New York, are also making jumbo loans, or loans in most parts of the country that exceed $417,000, as the federal government appears to be scaling its support of that market.

CNBC.com:

• Trade Deficit Soars to Highest Level in Nearly Three Years. The U.S. trade deficit surged in May to the highest level in more than two and a half years, driven upward by a big increase in oil imports.
• Confidence From Business Owners Slipping. Confidence among US business owners slipped last month amid expectations of weak sales and a deterioration in business conditions over the next six months, a survey showed on Tuesday. The National Federation of Independent Business' optimism index dipped 0.1 point to 90.8 last month from May. Continued pessimism among small business owners could add to fears that the economy might take longer to dig out of the soft patch it has been trapped in since the beginning of the year.
• Moody's Report Sparks Selloff in Chinese Firms. Moody's warnings on accounting and governance risks at dozens of small Chinese companies sparked a selloff in their shares and bonds on Tuesday, as investors already unnerved by accounting scandals at overseas-listed Chinese firms stampeded for the exits. Shares and bonds issued by the firms on the ratings agency's list bore the brunt of selling on Tuesday. Some of the stocks tumbled more than 20 percent at one point, contributing to a 3.7 percent drop in the Hang Seng Chinese Enterprises Index, which tracks major Hong Kong-listed Chinese shares.

Business Insider:

• The Italian Debt Chart That Everyone Needs Seared Onto Their Brain.
• The "Smartest Man in Europe" is Very Gloomy.
• The 6 Reasons Italy Has Come Under Attack.
  

Zero Hedge:

• Willem Buiter Says If ECB Does Not Intervene in Thursday's Italian Bond Auction, It Will Likely Fail. Willem Buiter, Citigroup's chief economist and former BOE policy maker, told reporters in London today that "the ECB will intervene on whatever scale is necessary to allow Italy to conduct its auction on Thursday. If the ECB doesn’t come in, the Italian bond auction is likely to fail. What we’re going to have is the ECB is going to be doing the heavy lifting."
• Fed Minutes Released: "Some FOMC Members Think QE3 Would Be Appropriate.
  

AutomatedTrader:

• Sovereign CDS Index Activity Jumps as European Crisis Widens. Trading activity on a derivatives index that tracks the cost of protecting debt issued by 15 European sovereigns jumped Monday to its second-highest level ever after investors shunned Italian government bonds, stoking fears of contagion spreading from the still-unresolved Greek debt crisis. The iTraxx SovX Western Europe index's 303 trade count was more than four times its daily average since its inception last December, reflecting adjustments by traders of sovereign positions in response to changing market conditions, according to Markit, which administers the index. "It really does look like the magazine is empty of bullets--all spent in the rehearsal," wrote Suki Mann, a credit strategist at Societe Generale in London, in a market commentary Tuesday. "While politicians pontificate, Europe burns." The current version of the SovX Western Europe, series 5, started trading this past March 21; since then, its daily count has averaged 74 trades. The record high trade count on the SovX Western Europe was 385 last Thursday, a day when the cost of protecting Portuguese sovereign debt using CDS rose above 1,000 basis points for the first time, and CDS spreads on Greece and Ireland rose to new records, Markit said.

Seeking Alpha:

• Top 30 Growth Stocks Hedge Funds Are Crazy About.

Politico:

• Issa Probes White House Donor Meetings. House Ovesight and Government Reform Committee Chairman Darrell Issa is investigating the president's fundraising activities. "In what could be considered the committee’s sharpest probe to date of the White House, Issa sent a letter to Obama’s top lawyer Monday evening asking for a slew of documents relating to what the California Republican termed as 'an array of potentially illegal fundraising behavior,'" Fast Break writes for the hometown paper. "Issa singled out a White House meeting in March between Obama, Democratic National Committee officials and members of the business community — who were all Obama donors. The meeting was organized by the DNC. He’s also calling into question the Obama administration’s decision to provide access to administration officials – possibly including the White House chef – to large donors. ... 'We have an obligation to inquire into the activities of the now closed White House political office because these activities – some of them are continuing but they’re continuing less formally,' Issa said in a brief interview with POLITICO Monday evening.
• Pakistan Threatens U.S. Over Border Troops. Pakistan could pull troops from its border with Afghanistan and deal a setback to America’s war against the Taliban if the United States slashes aid to the country, the Pakistani defense minister threatened Tuesday. “If at all things become difficult, we will just get all our forces back,” Defense Minister Ahmed Mukhtar said in an interview airing in Pakistan, Reuters reported. “If Americans refuse to give us money, then okay,” he said. “I think the next step is that the government or the armed forces will be moving from the border areas. We cannot afford to keep military out in the mountains for such a long period.”

Rasmussen Reports:

• Support for Miliary Action in Libya Is Down to 24%.

Reuters:

• China Says Piracy Problem Not "Extremely Serious". China said on Tuesday its crackdown on pirated goods has made great strides, a claim borne out by government statistics but not necessarily by a trip to one of Beijing's many shops where pirated software, movies and clothes are readily available. The United States and other Western countries have repeatedly complained that China has not kept promises to stamp out intellectual property theft. The U.S. Trade Representative's office in May listed China as a country with one of the worst records for preventing copyright theft for the seventh year. Chinese piracy and counterfeiting of U.S. software and a wide range of other intellectual property cost American businesses alone an estimated $48 billion and 2.1 million jobs in 2009, the U.S. International Trade Commission said in May.
• US Muni Board Could Increase Derivatives Oversight. The board that writes the rules for the U.S. municipal bond market could soon ratchet up oversight of the sale of derivatives at the heart of a massive fraud scandal, the board's executive director said on Tuesday. Some of the world's largest banks have been ensnared in a federal probe into allegations their employees chose in advance which investment house would win the auctions of guaranteed investment contracts.
• India's May Industrial Output Up 5.6% Y/Y. India's industrial output in May rose a slower-than-expected 5.6 percent from a year earlier, government data showed on Tuesday. The median forecast in a Reuters poll was for an annual rise of 8.2 percent. April's industrial output growth was revised downwards to 5.8 percent from 6.3 percent. Manufacturing output , which constitutes about 80 percent of the industrial production, rose an annual 5.6 percent, the federal statistics office said in a statement. During April-May, industrial output grew 5.7 percent from 10.8 percent a year ago. Industrial output grew 7.8 percent in the 2010/11 fiscal year that ended in March, slower than 10.5 percent clocked in the previous fiscal year.
• U.S. Watchdog to Be Year-Round Cop for Big Banks. The new U.S. consumer financial watchdog is gearing up to deploy hundreds of examiners to large banks, saying on Tuesday it will do year-round policing at the biggest and riskiest banks. Republicans and the bank industry have disparaged the agency as an unnecessary layer of regulation that, if overzealous, could restrict consumer choice and lending.

Handelsblatt:

• World Trade Organization Director General Pascal Lamy said European governments should withdraw support measures given to the financial industry and carmakers, citing an interview.

The Economic Observer:

• Moody's Investor Service Vice President Yvonne Zhang urged the Chinese government and banking industry to disclose financial information, according to an interview.

Xinhua:

• China, North Korea Pledge to Enhance Friendly Ties. Top leader Kim Jong Il of the Democratic People's Republic of Korea (DPRK) and visiting Chinese Vice Premier Zhang Dejiang pledged here Tuesday to further strengthen the friendly relations between the two neighboring nations. During a meeting with Kim, Zhang stressed that on the occasion of the 50th anniversary of the Treaty of Friendship, Cooperation and Mutual Assistance Between China and the DPRK, his visit was aimed at conveying the friendly sentiment of the Chinese people to their DPRK counterparts and pushing forward the bilateral friendly and cooperative relationship. Citing Kim's three trips to China since early last year, Zhang said that the visits and Kim's meetings with Chinese President Hu Jintao infused strong power into the development of the bilateral relations. Beijing is ready to work with Pyongyang to constantly deepen their communications and cooperation in various fields and further boost the DPRK-China friendship, said the Chinese vice premier, who arrived here Sunday with a delegation.

Bear Radar

Style Underperformer:

• Small-Cap Growth (-.31%)

Sector Underperformers:

• 1) Semis -3.81% 2) Airlines -1.21% 3) Alt Energy -1.09%

Stocks Falling on Unusual Volume:

• CV, MCHP, NVLS, QSFT, INFY, PM, AIXG, STO, JVA, QSFT, SGEN, GPOR, MXIM, TRCR, CBOU, ASML, FAST, GKSR, ASYS, CYMI, SOLR, KLAC, LRCX, POWI, XLNX, NLY, WWW, TSL, AKO/A, NCR, TXN, SMH, DOW, ETH and ADI
  

Stocks With Unusual Put Option Activity:

• 1) PXP 2) TSL 3) NVLS 4) NLY 5) BBT
  

Stocks With Most Negative News Mentions:

• 1) TSO 2) MXIM 3) ANN 4) DYN 5) RUE
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value (+.29%)

Sector Outperformers:

• 1) Education +1.89% 2) REITs +1.37% 3) Gold & Silver +1.09%

Stocks Rising on Unusual Volume:

• CPTS, GFI, RADS, CLNE, MEDH, WPRT, JNY, BGC, MGM, REXX and CF
  

Stocks With Unusual Call Option Activity:

• 1) MJN 2) GFI 3) TWX 4) LRCX 5) WY
  

Stocks With Most Positive News Mentions:

• 1) BA 2) KLAC 3) LMT 4) MSFT 5) IROQ
  

Charts:

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

Tuesday Watch

Evening Headlines

Bloomberg:

• Euro Falls to 4-Month Low Versus Yen on Concern Debt Crisis to Reach Italy. The euro fell to an almost four- month low versus the yen after the International Monetary Fund head said “nothing should be taken for granted” on Greece, stoking concern its debt crisis will spread to larger economies. The 17-nation currency fell to a record low versus the Swiss franc before the Italian Treasury sells one-year bills today and as much as 5 billion euros ($7 billion) of bonds on July 14 amid surging yields on the nation’s debt. The yen and dollar rose against most of their major counterparts as Asian stocks extended a worldwide slump, spurring demand for refuge assets. Australia’s dollar weakened after an industry report showed business confidence declined to a six-month low.
• Italy Becoming Spain Makes Crisis 'Systemic'. Investors are treating Italy increasingly like Spain as contagion pushes bond yields in two of Europe's biggest economies towards levels that forced Greece, Ireland and Portugal to request external help. The gap between Italy's benchmark 10-year yield and that of Spain narrowed to 35 basis points yesterday, the least since November, even as Spanish debt yielded more than 6% for the first time. The Italian yield jumped 71 basis points in the last five day to a nine-year high of 5.71%, on concern that the euro-region's largest debt load is becoming unsustainable. Greece, Ireland and Portugal asked for bailouts after their 10-year yields breached 7%. "This changes everything," said Antonio Garcia Pascual, chief southern European economist at Barclays Capital in London. "We are dealing with systemic countries now. These kinds of spreads require the immediate attention of the EU." At 28% of euro-region GDP, the Spanish and Italian economies account for almost five times the 6% of Greece, Portugal and Ireland combined.
  
• Portugal Slump to Deepen as Austerity Bites, Central Bank Says. Portugal’s economy will shrink more than forecast this year and contract in 2012 as the austerity measures that were required for an international bailout take hold, the country’s central bank said. Gross domestic product will shrink 2 percent this year and 1.8 percent in 2012 after expanding 1.3 percent in 2010, the Bank of Portugal said in its summer economic bulletin today. In March, before Portugal sought a rescue, the estimates were a 1.4 percent contraction this year and 0.3 percent growth in 2012.
  
• China's Stocks Slump on Europe Debt Crisis, Property Curbs. China’s stocks fell, driving down the benchmark index by the most in almost two weeks, on concerns Greece’s debt crisis may spread to bigger economies in Europe and the Chinese government is intensifying property curbs. “Inflation is still a big problem in China now and the government won’t ease tightening until inflationary pressure really recedes,” said Wu. Shanghai will start a trial to cap prices of newly built residential properties in planned urban areas in Pudong New District in the second half of this year, Xinhua reported yesterday, citing the city’s Mayor Han Zheng. Poly Real Estate, China’s second-largest developer by market value, dropped 2.6 percent to 10.95 yuan. China Vanke Co., the nation’s biggest listed property developer, slid 1.8 percent to 8.60 yuan.
• China Money Supply Growth, Lending Rebounds. China’s new loans rose more than estimated in June and money supply growth rebounded even after the central bank raised interest rates and reserve requirements to cool credit growth that’s fueling inflation. New loans were 633.9 billion yuan ($98 billion), compared with the 622.5 billion yuan median estimate in a Bloomberg News survey and 551.6 billion yuan in May. M2, the broadest measure of money supply, rose 15.9 percent, the People’s Bank of China said on its website. Foreign-exchange reserves, the world’s largest, rose to $3.2 trillion at the end of June from $3.04 trillion at the end of March. “Monetary policy is not in a position to loosen yet given elevated inflationary pressures and still stable domestic demand,” Chang Jian, a Hong Kong-based economist at Barclays Capital said before the data. “Credit controls should remain in place and special support needs to be given to smaller companies and vulnerable sectors that have been disproportionately affected by the credit tightening.” Barclays Capital’s Chang estimates the PBOC will raise interest rates again in the third quarter, the sixth increase since it started in mid-October. Economists at Nomura Holdings Inc. also forecast a move in the third quarter along with another 100 basis-point increase in banks’ reserve requirements, taking the total for the biggest banks to 22.5 percent. Nomura last week raised its 2011 inflation forecast to 5.2 percent from 4.9 percent to reflect the recent surge in pork prices while UOB Kay Hian Holdings Ltd. revised its estimate to 5.4 percent from 4.8 percent in a report yesterday.
• Crude Oil Falls for a Third Day on European Debt Concern, U.S. Stockpiles. Oil fell for a third in New York as concern that the European debt crisis will spread stoked speculation that fuel demand may falter. Futures dropped as much as 0.5 percent, extending yesterday’s 1.1 percent decline, as soaring yields on Italian bonds heightened concern Europe’s third-largest economy won’t be able to finance its debt. Crude also dropped before an Energy Department report tomorrow that may show U.S. gasoline supplies increased for the first time in four weeks. “The market is now more concerned about debt problems in core European countries, namely Italy,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne, said in an e-mailed note today. “Commodity markets are expected to remain under pressure, with a rising U.S. dollar, weaker equities and greater risk-aversion weighing on demand expectations.” Crude for August delivery fell as much as 55 cents to $94.60 a barrel in electronic trading on the New York Mercantile Exchange, and was at $94.67 at 11:42 a.m. Sydney time.
• Gold Tops $1,550 on Concern Europe's Sovereign-Debt Crisis Will Escalate. “Inflation will continue to be a big problem globally and this will keep gold prices supported,” said Chi Duofeng, an analyst at Bohai Futures Co. in Changchun, China. “We remain bullish on gold for at least the rest of the year as the global macro-economic picture isn’t encouraging.”
• Janus Capital(JNS) Leads Fund Manager Declines on Withdrawals, EU Debt Crisis. Janus Capital Group Inc. (JNS), owners of the Janus, Perkins and Intech fund families, led asset-manager declines, after investors continued to exit its funds in June. The Denver-based firm fell 6.8 percent today in New York Stock Exchange composite trading, losing the most among Standard & Poor’s 18-company index for asset managers and custody banks. The index fell 3.9 percent over concern that Europe’s debt crisis may threaten Italy. “It was a terrible month for the industry, but given they are mostly in equities and the relative poor performance of their funds, Janus will look worse than the others,” Jason Weyeneth, an analyst in New York with Sterne, Agee & Leach Inc., said in a telephone interview. Janus’s 20 largest stock and bond mutual funds, representing about 55 percent of assets under management, lost an estimated $954 million to client withdrawals in June, according to data compiled by Bloomberg. Investors pulled a net $18.5 billion in the past seven quarters and more than $2 billion from mutual funds in the three months ended June 30.
• NCR(NCR) Buys Radiant Systems(RADS) for $1.2 Billion. NCR Corp. (NCR) agreed to acquire Radiant Systems Inc. (RADS), a maker of customer-service sales equipment and software, for $1.2 billion. The $28-a-share purchase has been approved by both companies’ boards, according to a statement NCR released today. The price represents a 31 percent premium to Alpharetta, Georgia-based Radiant’s closing price today of $21.45.
• Boeing(BA) May Lose $400 Million More on Tanker, Air Force Says. Boeing Co. (BA) may be required to absorb more than $700 million and the Air Force another $600 million in overruns if projections of cost increases on the KC-46 tanker program materialize, according to newly released U.S. Air Force figures. Boeing’s $700 million cost is a combination of a previously reported $300 million and another $432 million the Air Force disclosed today, putting Boeing’s profit from the tanker contract in jeopardy if the contract exceeds its $4.9 billion ceiling.
• Spanish Spending Vote Looms as Zapatero Seeks to Stave Off Election Risk. Spanish Prime Minister Jose Luis Rodriguez Zapatero will seek lawmaker backing today for a spending plan for next year as his Socialist government prepares a budget that may determine whether he can finish his mandate.

Wall Street Journal:

• Itlay Fears Jolt Markets. Italy, long a bystander to the euro-zone's debt woes, was thrust into the maelstrom Monday, as investors fled the country's bonds and Europe's leaders struggled to keep the crisis from infecting the Continent's third-largest economy. Fears over Italy's solvency and political stability were compounded by market frustration that Europe's leaders haven't yet come up with a solution to Greece's deepening debt problems: The gap between the yields on Italy's 10-year sovereign bonds and safer German Bunds jumped by more than 100 basis points, or a whole percentage point, to a record high of 285.6, compared to a week ago.
• Challenges Auditing Chinese Firms. A series of alleged frauds at Chinese companies listed in the West has spotlighted the role of some of the world's biggest auditors in a fast-growing market where they have expanded quickly and competed aggressively in recent years. Since February, the so-called Big Four accounting firms have resigned or been dismissed from at least seven Chinese companies listed in the U.S., according to SEC filings. In most of those cases, the auditors said they had concerns about the accuracy of information provided by their clients, and in three instances, auditors quit the accounts before completing the auditing of any financial reports. Dozens of mostly smaller Chinese companies listed outside that country have come under fire in recent months from regulators and investors, as a wave of fraud alleged by short sellers has erased billions of dollars in the Chinese firms' market value and triggered lawsuits and U.S. regulatory probes.
• Hedge-Fund Investors Scout Out Web Firms. Spurred by their appetite for technology companies and seeking higher returns, a growing number of hedge-fund managers have started to invest more in private Internet companies. When daily-coupon website LivingSocial Inc. said it raised $400 million in April, the firms putting up cash included hedge-funds Tiger Global Management, Lone Pine Capital and Brookside Capital, people familiar with the matter say. Tiger's name popped up again in late June, when the New York firm grabbed a piece of the $100 million financing round for Square Inc., a mobile-payments start-up led by Twitter co-founder Jack Dorsey. A handful of hedge funds already had a history of such investments, but the activity has increased recently as investors try to cash in on the surging valuations of Facebook Inc., LinkedIn Corp., Zynga Inc., Groupon Inc. and a smattering of smaller companies. The inflows are giving young companies access to big pools of capital and the Rolodexes of some sophisticated investors. But they're also pushing the already frothy valuations of some companies even higher and rattling the clubby venture-capital scene. Hedge funds have typically invested in ventures that they can sell at a moment's notice, while venture-capital firms are known for advising start-ups and taking a longer-term view. "Hedgies investing in start-ups directly is scary," says Jeff Clavier, founder of SoftTech VC, a small but influential seed-stage venture firm based in Palo Alto, Calif. "They are the antichrist of patient, supportive early-stage investing."
• Musharraf, Eyeing Return to Power, Says Less US Aid to Pakistan 'Disastrous'.
• Novellus(NVLS), Microchip(MCHP) Set Negative Tone to Chip Earnings. Novellus Systems Inc. (NVLS) and Microchip Technology Inc. (MCHP) provided weak guidance Monday, warning that customers are feeling more cautious and raising concerns about the semiconductor industry's second half of 2011. The comments come early in the earnings season, with larger companies--such as Intel Corp. (INTC), Texas Instruments Inc. (TXN) and Qualcomm Inc. (QCOM)--expected to post results in the coming weeks. Nonetheless, the comments build on the weakness seen over the past several weeks in the semiconductor industry, which experienced booming growth following the recession. Consumer spending on PCs has remained soft, some large handset makers have been struggling and macroeconomic worries have hurt demand. As a result, analysts have been lowering growth forecasts, particularly for PC sales, and chip stocks have taken a hit. Novellus, which makes tools used in semiconductor manufacturing, on Monday warned for the second quarter in a row that its customers, the companies that actually manufacture processors, are pushing out orders, worried about macroeconomic conditions despite end-market demand "that doesn't seem that bad." "Clearly there is a burgeoning worldwide feeling of caution on economic expansion," Novellus Chairman and Chief Executive Richard Hill said during a conference call. "I see executives' moods on investments deteriorating instead of getting more confident...There are things going on around us tending to make more and more of us pessimistic rather than optimistic, and that's not a good sign." As a result, he forecast third-quarter earnings below analysts' expectations, sending shares down 5.7% to $33.75 after hours. Meanwhile, Microchip--which provides microcontrollers and analog semiconductors that change sound and light into digital signals--cut its view for first-quarter results. It said it saw "broad-based weakness" in the June quarter because of lower automotive production activities, as well as consumer softness amid poorer economic conditions. Gleacher analyst Doug Freedman, who called Microchip "very broad-based," said he expects to hear similar commentary from the rest of the semiconductor industry. Microchip's shares tumbled 7.3% to $34.75 after hours. Other chip companies with automotive and analog exposure also declined, including Texas Instruments, down 1.7% at $31.90, and Analog Devices Inc. (ADI), down 2.7% at $37.52.
• Conrad Wants $2 Trillion. President Obama demanded again yesterday that Republicans raise taxes in return for giving him the debt-limit increase he's also demanding. Nice of him to be so accommodating. He has in mind, oh, something in the neighborhood of $1 trillion. But it turns out he's a piker compared to Senate Democrats, whose budget leader has announced that his tax target is $2 trillion. Mr. Obama said yesterday it's time to "eat our peas," and $2 trillion is a lot of peas.

CNBC:

• International Paper(IP) Makes Hostile Bid for Temple-Inland. International Paper has gone hostile in its $3.3 billion bid to acquire rival packaging producer Temple-Inland and become the king of North America's corrugated packaging business.

Business Insider:

• Cisco(CSCO) to Fire 10,000 People.
• What The U.S. Government Doesn't Want You To Know About Saudi Arabia's Involvement in 9/11.
• Here's What's In That Brand New Report on Banks and Sovereign Debt. Banks in the Eurozone face some huge threats. That's the implication of a new report from the Bank of International Settlements, which devised a chilling analysis of why the economic situation in Europe is quickly going from bad to worse. The study analyzes the impact of sovereign risk on banks, in part based on data taken from the last few years. The bottom line: As goes the country, so goes the banking system.
• Why Are Protesters Attacking The U.S. Embassy In Syria? As Syria's "Arab Spring" drags into a fourth month, there is no end in sight to the bloody uprising that has left more than 1,500 Syrians dead and stranded thousands more in refugee camps along the border. The chaos has now spread to Damascus, the previously quiet capital city, where protesters loyal to the government of President Bashar al-Assad stormed the U.S. Embassy today.
• Traders Freak Out About How Bad Things Have Become On The Street: "Everyone Is Looking Over Their Shoulder".
• Pakistan Arrests Doctor For Running CIA Vaccination Drive to Get Bin Laden's DNA.
  

Zero Hedge:

• Spanish Region "Discovers" Its Budget Deficit Is Double What Was Previously Thought. There was a time when countries would use Goldman's "innovative" currency swaps to hide billions of debt off the books. Those days are gone. Now governments, at both the state and regional level, just outright lie about what their deficit and debt is. Case in point, Spain's Castilla La Mancha region, best known for being the stomping ground for one Don Quixote, where the cities of Toledo and Albacete are located, has just announced that it has "a budget deficit more than twice as large as previously thought, raising new concerns over the true state of regional finances and helping to send Spain's risk premium to new historic highs.
• Full Letter From Greece's G-Pap Blasting His Rescuers and Confirming Beggars Can Be Choosers.
• An Explanation of What is Really Going On Behind the Scenes as Rome Burns.
  

IBD:

• Hibbett's(HIBB) Expansion Strategy Moves to Major Leagues.

NY Times:

• A Small City's Depleted Pension Fund Rattles Rhode Island. The small city of Central Falls, R.I., appears to be headed for a rare municipal bankruptcy filing, and state officials are rushing to keep its woes from overwhelming the struggling state.

Forbes:

• Oil Drilling vs. President Obama's Climate Crusade. What hampers the oil industry slows the U.S. economy. Energy exploration and production should be a top priority right now. Instead, this engine of economic recovery faces both direct and stealthy threats from the Obama administration's anti-drilling regulators.

Rasmussen Reports:

• Generic Congressional Ballot: Republicans 44%, Democrats 38%.

Reuters:

• Alcoa(AA) Q2 Profit Jumps on Metal, Alumina Prices. Alcoa Inc, America's biggest aluminum producer, posted a big jump in second-quarter profit on Monday, matching Wall Street estimates, partly due to soaring prices for the metal and alumina, its raw material. But some analysts said a recent softening of aluminum prices might affect the company's third-quarter results and Alcoa's stock slipped 7 cents to $15.84 in after-hours trade on the New York Stock Exchange.

Financial Times:

• European Banks Tell EU to Commit to Greek Debt Buyback, FT Says. European banks have demanded that the European Union commit itself to a buyback of Greek debt and for the euro area and IMF to take urgent action "to avoid market developments spinning out of control and risk contagion accelerating." The FT cited a proposal by the Institute of International Finance, representing the banks, in a paper presented to euro area finance ministers today.
• Banks Act to Woo Hedge Funds. Banks are offering easier credit terms to hedge funds in an increasingly fierce competition for their business, according to new Federal Reserve survey data. The Fed’s poll of 20 of the largest securities dealers, launched last year in an attempt to fill in information black holes that stoked the crisis, also found a rebound in their clients’ leverage.

Telegraph:

• German 'Nein' Leaves Italy and Spain in Turmoil. Chancellor Angela Merkel called for more "frugality" in Italy, sticking to her script that Rome can solve its woes with an austerity budget. Her finance minister Wolfgang Schäuble said any boost to the EU's €500bn (£440bn) bail-out machinery was "out of the question". Mr Schäuble denied reports that Berlin was ready to empower the fund to purchase Spanish and Italian bonds pre-emptively on the open market, a move seen by experts as vital to halt dangerous contagion to the larger economies. The market's verdict on EU foot-dragging was instant and brutal. EU leaders seem unable to keep pace with the fast-moving events. Eurogroup finance ministers focused yesterday on details of "burden-sharing" for banks that lent to Greece, no longer the most urgent matter. A summit of top EU officials ended with no hint of how the crisis could be contained. "We've painted ourselves into a corner. At this point, either someone – Germany, the European Central Bank – has to fundamentally shift position, or everything blows up," an EU official told Reuters. Berlin has resisted any move to buy or guarantee the bonds of distressed debtors, viewing it as a slippery slope towards a fiscal union and a breach of Germany's Basic Law. The ECB in turn has refused to buy Spanish and Italian bonds, saying it is the task of EU governments.

Guardian:

• Greece Set to Default On Massive Debt Burden, European Leaders Concede. European leaders bowed to the inevitable and conceded that Greece is likely to default on its massive debt burden, which would be a first among the 17 countries using the euro. They also abruptly shifted tack in the eurozone debt crisis by raising the possibility of using the eurozone's bailout fund to buy back Greek debt on the markets, meaning sizeable losses for Greece's private investors and reduced debt levels for Athens. Following 12 hours of fraught negotiations in Brussels haunted by the risks of contagion in the eurozone spreading to Italy, now being targeted by the financial markets for the first time in the 18-month crisis, the 17 governments of the eurozone pointedly failed to rule out a sovereign debt default by Greece.

Passauer Neue Presse:

• Wolfgang Gerke, president of the Bavarian Center of Finance in Munich, said any potential plan by the ECB to double the European Union rescue fund to $2.1 billion would be "irresponsible," citing an interview with Gerke. Such "slogans" create scares and unsettle the financial markets, Gerke said.

HKET:

• Chinese inflation is being driven by property price increases, which will be key to controlling consumer prices, Yi Xianrong, a researcher at the Chinese Academy of Social Sciences, wrote in a commentary. Moves to create a more market-based economy are "pivotal" in cooling overpriced real estate, Yi wrote.

The Australian:

• Labor Support Collapses to 27% in Latest Newspoll. LABOR'S support has slumped to a record low, with the Coalition sitting at all-time highs as Tony Abbott extends his lead as preferred prime minister over Julia Gillard. In the two-week lead-up to Sunday's announcement of the carbon tax details, Labor's primary vote fell three percentage points to a record low of 27 per cent, while the Coalition's support rose three points to 49 per cent for its highest primary vote since the Howard government in October 2001.

Securities Times:

• Land sales in the city of Beijing declined 52% in the first half from a year earlier to $4.7 billion, citing SouFun Holdings Ltd., operator of China's biggest real-estate website. Shanghai's land sales in the first half declined 27% from a year earlier to 49.4 billion yuan. Combined land sales in 130 Chinese cities dropped 5.5% in the first half from a year earlier to 752.4 billion yuan.

South China Morning Post:

• Auditors Face Uphill Battle With Chinese Companies. Auditors face an increasingly difficult task trying to verify the financial records of some mainland companies.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -2.0% to -.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 121.50 +6.5 basis points.
  
• Asia Pacific Sovereign CDS Index 125.0 +8.5 basis points.
  
• S&P 500 futures -.68%.
  
• NASDAQ 100 futures -.65%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (WWW)/.46
• (FAST)/.30
• (TXI)/-.28
• (XCO)/.18

Economic Releases
7:30 am EST

• NFIB Small Business Optimism for June is estimated to rise to 91.2 versus a reading of 90.9 in May.
  

8:30 am EST

• The Trade Balance for May is estimated to widen to -$44.1B versus -$43.7B in April.

2:00 pm EST

• FOMC Minutes from June 21-22 Meeting.

Upcoming Splits

• (OKS) 2-for-1
• (TGI) 2-for-1
  

Other Potential Market Movers

• The JOLTs Job Openings report for May, IBD/TIPP Economic Optimism Index for July, 3-Yr Treasury Note Auction, weekly retail sales reports, ThinkEquity Internet/Gaming Symposium, SEMICON West 2011, (RIMM) Shareholder Meeting and the (LRCX) Analyst/Investor Meeting could also impact trading today.
  

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