Today's Headlines

Bloomberg:

• The cost of insuring against default on European financial-company debt stayed higher after eight banks failed the region's stress tests. The Markit iTraxx Financial Index of cds on the senior debt of 25 banks and insurers was 9.5 basis points higher on the day at 189 basis points as of 5:30 pm in London, unchanged after the test results were released. A gauge of subordinated bond risk rose 16 basis points to 329.5, like the senior index at the highest since January, according to JPMorgan Chase. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose 15 basis points to a record 297. Contracts on the Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings increased 13 basis points to 460, the highest since December 6. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 2.75 basis points to a more than one-year high of 122.75 basis points.
• SocGen, UBS Recommend Buying Protection Against Breakup of Euro. Societe Generale SA recommended buying insurance against a euro “meltdown,” and UBS AG said the Danish krone may offer protection as Europe’s debt crisis threatens to deteriorate. “It is not too late to get hedges,” SocGen strategists David Deddouche and Olivier Korber wrote in an investor report dated yesterday. “We simply cannot rule out entirely a further dramatic collapse” of the euro against the dollar, and a rebound in the 17-nation currency to above $1.40 “provides a fresh opportunity to hedge against such an event through tail options,” they said. UBS currency strategist Chris Walker said “a significant escalation in the euro-zone debt crisis, to the extent the existence of the euro is itself threatened, could lead to the abandonment” of Denmark’s currency peg to the euro. Though this would cause short-term volatility, longer term the krone would likely appreciate against other Scandinavian currencies and the euro, he wrote.
• New York Area Manufacturing Unexpectedly Shrinks for Second Straight Month. Manufacturing in the New York region unexpectedly contracted for a second straight month in July as orders shrank at a faster pace, a sign the industry may be at risk of stalling. The Federal Reserve Bank of New York’s general economic index rose to minus 3.8, less than the most pessimistic forecast in a Bloomberg News survey, from minus 7.8 the prior month. The median forecast called for an index of 5. The measure of New York-area manufacturing last contracted for two straight months in the period ended in June 2009, when the recession ended. Estimates in the Bloomberg survey of 48 economists ranged from zero to 15. The Empire State gauge of new orders dropped to minus 5.5 last month, the lowest since November, from minus 3.6 in June. A gauge of unfilled orders slumped to minus 12.2, the weakest reading this year. A measure of shipments rose to 2.2 from minus 8. The employment measure dropped to 1.1 from 10.2. An index of prices paid fell to 43.3 from 56.1, while prices received declined to 5.6 from 11.2.
• U.S. Consumer Confidence Unexpectedly Declines to 2-Year Low. Confidence among U.S. consumers unexpectedly fell in July to the lowest level in more than two years, adding to concern that weak employment gains and falling home prices may keep households from spending. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment decreased to 63.8, the weakest reading since March 2009, from 71.5 the prior month. The gauge was projected to rise to 72.2, according to the median forecast of 62 economists surveyed by Bloomberg News. The Michigan survey’s index of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, decreased to 76.3, the lowest level since November 2009, from 82 the prior month. The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, dropped to 55.8, the weakest since March 2009, from 64.8 the prior week. Consumers in today’s confidence report said they expect an inflation rate of 3.4 percent over the next 12 months, the lowest since February, compared with 3.8 percent in the prior survey. Americans expected a 2.8 percent rate of inflation over the next five years, the figures tracked by Federal Reserve policy makers, compared with 3.0 percent the prior month. It was the lowest price-expectation this year.
• Income Expectations Point to Slowdown in U.S. Consumer Spending. Consumers are turning more pessimistic about their income prospects, an indication that household spending will grow at a slower pace compared with a year earlier. The share of Americans foreseeing a drop in wages over the next six months topped the proportion projecting an increase by 2.6 percentage points in June, data from the Conference Board, a New York research group, showed. That is the lowest reading since October 2010, according to Lynn Franco, director of the group’s consumer research center. The correlation between the three-month averages of income expectations and real spending is 0.88, according to Bloomberg News calculations.
• Inflation Measure Rises as Manufacturing Stalls. A measure of consumer prices climbed more than forecast in June and manufacturing stalled, highlighting the dilemma faced by Federal Reserve policy makers as they seek to boost growth without stoking inflation. Consumer prices excluding food and energy climbed 0.3 percent for a second month, the biggest back-to-back gain in three years, the Labor Department said today in Washington. Factory production was unchanged last month, data from the Fed showed.
• Gold Futures Head for Longest Rally Since 2009 on U.S., Europe Debt Woes. Gold futures rose, heading for the longest rally since November 2009, on mounting concern that debt woes in the U.S. and Europe will escalate, boosting the appeal of the precious metal as a haven. Gold futures for August delivery rose 20 cents to $1,589.50 at 11:49 a.m. the Comex in New York.
• Soybeans Head for Longest Rally Since 2007 on Weather Woes; Corn Climbs. Soybean futures for November delivery rose 11.5 cents, or 0.8 percent, to $13.955 a bushel at 10:27 a.m.. on the Chicago Board of Trade. The oilseed headed for the 10th straight gain, the longest rally since September 2007. Before today, the price climbed 44 percent in the past 12 months. Corn futures for December delivery jumped 14.75 cents, or 2.2 percent, to $6.9325 a bushel. Earlier, the price reached $6.96, the highest for a most-active contract since June 14. Before today, the grain surged 71 percent in the past year.
• Citigroup(C) Profit Beats Estimates. Citigroup Inc. (C), the third-biggest U.S. bank, said profit rose 24 percent, beating analysts’ estimates on higher investment-banking fees and fewer losses tied to troubled assets.
• Obama Singles Out Drug Companies for Savings. Drug companies may be targets for Medicare spending cuts as U.S. lawmakers push to reach an agreement on a deficit plan ahead of an Aug. 2 deadline, President Barack Obama said. “The drug companies, for example, are still doing very well through the Medicare program,” Obama said today at a news conference. “Although we have made drugs more available at a cheaper price to seniors who are in Medicare through the Affordable Care Act, there’s more work to potentially be done there,” he said in referring to the 2010 health-care overhaul.
• BofA(BAC) Drops Below $10, First Time in 2 Years. Bank of America Corp. (BAC), the biggest U.S. lender by assets, fell below $10 a share in New York trading today as concern mounted about the company’s ability to restore profit. The lender’s shares dropped 9 cents, or 0.9 percent, to $9.98 as of 1:53 p.m. in New York Stock Exchange composite trading.

Wall Street Journal:

• Obama Presses Congress as House Sets Vote. "Time is running out," Mr. Obama said in a news conference from the White House. He said he wants lawmakers to take the next day to figure out the best possible plan to raise the debt ceiling and present it to him.
• EU Parliament Economic Leader Slams Germany Amid Stress Test Woes. The head of the European Parliament's economics committee criticized Germany's banking regulator in an interview Friday, and raised concerns that the European Banking Authority and its leader, Andrea Enria, will be sidelined due to national self-interests.

MarketWatch:

• Google(GOOG) Still Cheap Despite Gains, Street Says.

CNBC.com:

• One Democrat's Advice: Raising Taxes Doesn't Add Revenue.
• Clorox(CLX) is 'Very Undervalued': Carl Icahn.
  

Business Insider:

• Yields Continue to Move Higher in Europe. When I said the chart of the Spanish 10 year yield was the most important chart in the world I was wrong. It turns out that the problems in Europe could be even worse than I thought. The markets are not even stopping at Spain. They appear to be going for Spain AND Italy.
• Andrew Ross Sorkin is the New Anchor of CNBC's 'Squawk Box'.
  

Zero Hedge:

• More Deutsche Bank(DB) Pain as Dexia Files $1 Billion Lawsuit Against Bank for Selling it Toxic Mortgages.
• Stress Test 2 Results Are Out: 8 Banks Fail - 5 Spanish, 2 Greek, 1 Austrian. The farce continues: Moody's predicted 26 failures, Eurostat gives us 8.

New York Times:

• European Banks Urged to Bolster Reserves Following Stress Tests. About two dozen European banks were put under official pressure Friday to bolster their reserves, after a much-anticipated test of whether they would be able to survive such economic shocks as a further deterioration in the sovereign debt crisis.

Insider Monkey:

• Eric Sprott Lost 8.6% in June. Canadian energy hedge funds were slammed in June. The reason is simple- they aren’t really hedged. Eric Sprott’s flagship fund lost 8.6% in June. Other well-known Canadian energy funds didn’t perform any better. Rohit Seghal’s Dynamic Power Hedge lost 5.1% in June and 16.5% during the first six months of 2011. One of the worst performers among Canadian energy funds was Front Street Capital. Front Street’s energy fund lost more than 17% in June. Salida Capital’s energy fund was also among top losers, falling 9.3% in June. Btw, Salida Capital paid $1.7 Million in 2009 to have lunch with Warren Buffett.

Forbes:

• Why Europe is Really Freaked Out Over a Greek Default.

Rasmussen Reports:

• 67% Oppose Upcoming 'Ban' on Traditional Light Bulbs. Just 20% of adults think the sale of traditional light bulbs should be banned.
• Obama Earns Positive Ratings From 38% on Economy. 38% rate the president’s handling of economic issues as good or excellent, but 43% give him a poor rating in this area.

Reuters:

• Exclusive: Germany, Italy Resist Second IEA Oil Release. Germany and Italy are expected to oppose any second release of emergency oil reserves by the International Energy Agency, which needs the backing of all 28 of its members if it is to pour more oil on a volatile crude market. The IEA is expected to confer with its member countries by July 23 to decide whether to draw further on emergency oil stocks after its June 23 announcement of a 60 million-barrel release.
• Libya's Agoco Ready to Pump Oil - Petroleum Economist. Libya's rebel-held oil firm Arabian Gulf Oil Company (Agoco) has completed repairs at the Sarir and Misla oilfields and is ready to start pumping oil, trade publication Petroleum Economist reported on Friday, citing a senior industry source.
• Valeant(VRX) Seeks to Become Major Skincare Player. Valeant Pharmaceuticals International Inc is signaling its intent to become a major skincare company with a string of mid-sized acquisitions in the sector.

Financial Times:

• Eurozone CDO - It's Triple-A Time. With the market now falling over itself to target the next peripheral in line for the Greek-treatment — even jumping over Spain to get to Italy — here’s a timely investment recommendation from Porter. Just go for the top tranches of the eurozone CDO, already. In fact, he says, the market is starting to get that going bearish on the senior tranche of the eurozone CDO may be the way to go. It’s easier said than done, of course, but he’s recommending investors start buying German 10-year CDS as a way into the trade.

Telegraph:

• US Risks AAA Rating Even With Debt Deal. America risks eviction from the club of the most creditworthy nations even if Congress agrees to raise the debt ceiling, rating agency Standard & Poor's (S&P) has warned.

Handelsblatt:

• S&P uses a strict definition for sovereign debt defaults that leaves little room for flexibility, senior S&P executive Torsten Hinriches said in an interview. Asked if the company could envisage a debt-restructuring model that would not count as a default, Hinrichs said S&P's default criteria of "timely and complete" interest payments and bond redemptions "answer this." Adopting a more flexible definition would be "difficult," said Hinrichs, the head of S&P in the German-speaking countries, and in northern and eastern Europe.

Bear Radar

Style Underperformer:

• Large-Cap Value (-.41%)

Sector Underperformers:

• 1) Defense -1.81% 2) Airlines -1.40% 3) Banks -.81%

Stocks Falling on Unusual Volume:

• INTX, GEL, FLIR, C, JPM, MRK, BHP, SGEN, OSIS, ECYT, ENSG, QLIK, MDSO, RYAAY, INFA, TIBX, MSTR, ASMI, GTIV, CRDN, AAWW, HITK, BODY, MANT, PENN, GHL, RAH, AKO/A and ERY
  

Stocks With Unusual Put Option Activity:

• 1) SPLS 2) ANN 3) SWN 4) DB 5) MBI
  

Stocks With Most Negative News Mentions:

• 1) OZRK 2) CY 3) PENN 4) DMND 5) MANT
  

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Growth (+.89%)

Sector Outperformers:

• 1) Internet +2.99% 2) Oil Service +2.38% 3) Coal +2.31%

Stocks Rising on Unusual Volume:

• UDRL, GOOG, HK, RRC, SFY, PDC, REDF, HES, CLX, VMI, CHK, AVX, COG, FST, GDP, EOG, RRC, XCO, CRK, SM, PXD, SWN, CLX, SD, BAS, PXP, ROSE, BAS, VCLK, ROSE and XOP
  

Stocks With Unusual Call Option Activity:

• 1) CLX 2) HK 3) VRX 4) SWN 5) FST
  

Stocks With Most Positive News Mentions:

• 1) ANGO 2) GOOG 3) LMT 4) NNN 5) VRX
  

Charts:

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

Friday Watch

Evening Headlines

Bloomberg:

• European Bank Stress Tests Compromised by Greek Non-Default, German Mutiny. European regulators’ attempts to bolster confidence in the region’s banking industry today are being undermined by their unwillingness to test for a Greek default and a mutiny by Germany’s Landesbank Hessen-Thueringen. The European Banking Authority will release the results of the stress tests for 91 banks as part of an effort to reassure investors the region’s banks have sufficient capital. Helaba, as the landesbank is known, refused to allow the EBA to publish its results in full, saying the EBA’s data “would lead to a halving of the core capital without legal grounds.” German regulator Bafin has also attacked the London-based EBA. Bafin Chairman Jochen Sanio said last month the watchdog lacks “legitimacy.” “The EBA has no teeth,” Bob Penn, financial-services partner at Allen & Overy LLP, said in a telephone interview in London. It can’t “make requirements from any individual bank because the framework was set up to allow national regulators to keep supervisory powers,” he said. “This isn’t Helaba poking a stick in the eye of the EBA, it’s Bafin.”
• About 10 Banks May Fail European Capital Stress Tests, FT Says. Results of European bank stress tests to be released later today may show that about 10 failed because they had less than the required five percent core tier 1 capital, the Financial Times reported, without saying where it got the information. The publication of the test results on 91 banks could lead to a series of distressed debt deals as the disclosure of previously unpublished information on banks’ credit exposures could prompt bids for credit portfolios from specialist buyers, the FT said, citing unnamed investment bankers and restructuring consultants.
• Europe Group Says Basel OTC Rules Have 'No Logic," FT Reports. The European Association of Corporate Treasurers said in a briefing note for European Union officials that new Basel rules on bank capital, that assign higher than expected capital costs to over-the-counter derivative transactions carried out by banks, have “no logic” unless the intention is “punitive behaviour towards OTC derivatives,” the Financial Times reported, citing the note. This is “a flaw that is irrational in substance,” the EACT said, according to the newspaper.
• Sovereign Default Concern Spurs Texas Fund to Weigh Added Hedges. Concern that Texas's public university endowment may lose a fifth of its value from a major euro-zone default or a crisis in the dollar prompted calls for more aggressive hedging today. Managers who oversee the $20.3 billion fund should beef up protection against market declines, said Gene Powell, the chairman of the University of Texas Board of Regents. "We need to do this and do it very soon," Powell said during a meeting of the fund manager's board in Austin. "None of us saw 2008 and this could be worse than 2008."
• CFTC Will Postpone Dodd-Frank Regulations for $601 Trillion Swaps Market. The U.S. Commodity Futures Trading Commission finalized a plan delaying until as late as the end of the year new regulations for the $601 trillion swaps market. The CFTC published an order today that would provide “temporary relief” from Dodd-Frank Act rules that had been slated to take effect on July 16, a year after the law’s enactment. The delay will give the CFTC time to write more than 40 rules aimed at reducing risk and boosting transparency after largely unregulated trades helped fuel the 2008 credit crisis.
• PIMCO is staying cautious on Asia's bond market as the debt crisis in developed nations clouds prospects for China, India and Indonesia. "In the next six to twelve months, it's going to be quite bumpy on the global front," Chia-Liang Lian, Pimco's Singapore-based emerging-markets portfolio manager, said in an interview in Hong Kong. "We'll continue to maintain a very defensive posture in regard to our credit selection in Asian credit space."
• JPMorgan's(JPM) Dimon Says Mortgage Clash Swells as 'Everybody Is Going to Sue'. JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon said clashes over faulty mortgages may drag on as investors and regulators demand compensation for soured loans issued at the peak of the housing market. “There have been so many flaws in mortgages that it’s been an unmitigated disaster,” Dimon said during a conference call today. “We just really need to clean it up for the sake of everybody. And everybody is going to sue everybody else, and it’s going to go on for a long time.”
• Americans Lose Faith in Stock Pickers. Money continues to pour out of mutual funds that buy U.S. stocks. Investors are showing increasing disenchantment with money managers who pick U.S. stocks. Mutual funds that invest in domestic equities have lost an estimated $8 billion to redemptions this year through June 29, putting them on track for an unprecedented five straight years of withdrawals, according to data from the Investment Company Institute. Over the 10 years through May 31, investors withdrew $51 billion more from domestic equity funds than they deposited.
• Citrix Systems(CTXS) Acquires Cloud.com to Challenge Rivals VMware(VMW), Amazon(AMZN).
• BHP Billiton(BHP) to Acquire Petrohawk(HK) for $12.1B. BHP Billiton Ltd. (BHP), the world’s largest mining company, agreed to acquire Petrohawk Energy Corp. (HK) for about $12.1 billion in cash in its biggest acquisition. Melbourne-based BHP will pay $38.75 a share using cash and loans, the companies said in a statement today. That’s 61 percent more than Houston-based Petrohawk’s average price over the past 20 trading days and compares with the 25 percent average premium in 17 deals worth at least $5 billion for oil and gas producers in the past five years, Bloomberg data show.
• Ralcorp(RAH) to Spin Off Post Foods After Failing to Find Buyer for Cereal Unit. Separately, Ralcorp said third-quarter profit excluding some items may be as much as $1.18 per share, trailing the $1.38 average of 11 analysts’ estimates compiled by Bloomberg. The company also cut its full-year profit projection to $5.20 to $5.35 a share from a May forecast of as much as $5.55, because of surging raw-ingredient costs. Ralcorp fell $4.62, or 5.3 percent, to $82 at 5:55 p.m. in trading after the regular close of the New York Stock Exchange.

Wall Street Journal:

• Plan B Emerges on Debt. A backup plan to cut the federal deficit and keep the U.S. government from default gained momentum Thursday even as President Barack Obama and congressional leaders paused their negotiations to determine if they can reach a deal. Ratcheting higher the pressure on Washington to strike a deal, Standard & Poor's for the first time said there was a 50% chance it would downgrade its rating of long-term U.S. debt within three months because the chances of default were "increasing" and the political debate about deficit reduction and the debt ceiling had "only become more entangled."
• Italy Urges Unity on Debt Crisis. Italy, caught in the cross-hairs of financial markets, is renewing its push for common European bonds as the answer to a growing loss of confidence in European governments' ability to contain a crisis that is engulfing 40% of the euro zone's economy. In an interview on Thursday, Italian Economy Minister Giulio Tremonti said the stalemate over how to provide more aid to debt-laden Greece underscored deeper discord that has hampered the euro-zone for months. "The historical function and trend of the European Union, by design, has always been convergence. What's emerging now is segmentation, egoism, localism," he said. Italy, Europe's third-largest economy, has suddenly been drawn into the Continent's debt crisis as escalating worries over Greece's solvency have spilled over to Italy, whose debt load is 120% of gross domestic product. Although Italy successfully sold €5 billion in long-term public debt on Thursday, yields on 10-year bonds have continued to rise to 5.63%. Their spread over equivalent German debt widened to 2.9 percentage points from 2.07 points a week ago. "After the spirit of May came the autumnal spirit of Deauville and that season hasn't ended," Mr. Tremonti said, adding that eurobonds could be the solution for newfound unity. "I am for eurobonds.…Eurobonds are in the spirit of May." Mr. Tremonti has long been a proponent of eurobonds, a debt instrument that would be jointly backed by all members that share the euro. Mr. Tremonti believes these bonds should gradually replace large chunks of national debts in the euro zone. Mr. Tremonti said eurobonds need not necessarily exclude private-sector involvement. He added that euro-zone countries would only bridge their differences "when everybody realizes the crisis, which already affects 40% of the euro zone, is a common problem."
• As Its Deposits Soar, J.P. Morgan Parks Cash at Central Banks. As deposits piled up at J.P. Morgan Chase & Co. (JPM) in the second quarter, the bank took them and parked the money in deposits at central banks around the world. The giant bank parked $170 billion in deposits at central banks at the end of June, it reported Thursday. The amount was four times the amount a year earlier, and is considerably more than all the deposits held by SunTrust Banks Inc. (STI), which, with about $120 billion in deposits, is the seventh-largest U.S. bank by that measure.
• Fiat Preps Chrysler Merger. Chrysler Group LLC and Fiat SpA, auto makers that bounced back from severe financial crises a few years ago, are preparing to rejoin the auto industry's top ranks through a merger that would have the financial and production heft to compete globally. Sergio Marchionne, chief executive officer of Chrysler and Fiat, has begun selecting a single executive team to oversee the companies' business operations, said people familiar with the matter.
• In Interview, Murdoch Defends News Corp.(NWSA)
  
• California Bill Requiring Gay History in Schools Signed Into Law. Gov. Jerry Brown has signed a bill making California the first state in the nation to add lessons about gays and lesbians to social studies classes in public schools. Mr. Brown, a Democrat, signed the landmark bill requiring public schools to include the contributions of people who are gay, lesbian, bisexual and transgender in social studies curriculum. The Democratic-majority Legislature had passed the bill last week on a largely party-line vote. The new law, SB48, requires the California Board of Education and local school districts to adopt textbooks and other teaching materials that cover the contributions and roles of sexual minorities, as soon as the 2013-2014 school year. The legislation leaves it to local school boards to decide how to implement the requirement. It does not specify a grade level for the instruction to begin. Randy Thomasson, president of SaveCalifornia.com, a conservative family group, said under the new law parents will have no choice but to take their children out of public school and homeschool them to avoid what he said was "immoral indoctrination." The new law applies only to public schools, not private schools or families who homeschool.
• Flir(FLIR) Forecasts Weak 2Q Results on Government Demand Decline. Flir Systems Inc. (FLIR) predicted profit would fall in the second quarter as continued weak government demand weighed on revenue. Shares in the night-vision goggle maker fell 8.1% to $29.50 in after-hours trading.
• Blockbuster Looks To Woo Netflix(NFLX) Customers With DVD Promo. Blockbuster LLC on Thursday unveiled a DVD-rental promotion aimed at swiping customers from Internet-based rival Netflix Inc. (NFLX), taking aim at the online video service two days after Netflix raised its prices.
• Key Credit Gauge Loses Clout. Low Demand for Overnight Loans Means Libor Status as Measure of Banks' Health Is Waning. A crucial barometer of global banking health is losing its clout as a macroeconomic indicator, but the move is benefiting some consumers and others whose low interest-rate loans still are pegged to it.
• Time to Short the Euro? On Friday, long-awaited results of Europe's bank "stress tests" could push the euro lower. With Europe's debt woes mounting, some savvy currency investors are shorting the euro against the dollar -- a bold bet considering the greenback's own shaky status.
• The Obama Downgrade. The real reason the U.S. could lose its AAA rating. Americans should understand that the debt ceiling is merely the trigger. The gun is the spending boom of the last three years and the prospect that Washington lacks the political will to reduce it in the years to come. On spending, it is important to recall how extraordinary the blowout of the last three years has been. We've seen nothing like it since World War II. Nothing close.

Business Insider:

• Pentagon Admits 24,000 Files Were Hacked, Declares Cyberspace A Theater Of War. Unveiling the military's first-ever cybersecurity strategy, Deputy Secretary of Defense William Lynn admitted today that a "foreign intelligence service" stole 24,000 Defense Department files from Pentagon computer systems this March. The hack — one of the largest the Pentagon has ever suffered — was data-related, Lynn said. "A great deal of it concerns our most sensitive systems, including aircraft avionics, surveillance technologies, satellite communications systems, and network security protocols."
• Tensions Escalate In Asia and Could Possibly Lead To War. It's China vs. Vietnam and the Philippines.

IBD:

• Goldcorp(GG) Shines as Gold Prices Hit New Highs.

Forbes:

• The Next Crisis Will Arise in the BRIC Countries. A steep rise in credit; rapid increases in house prices to levels way beyond available income; use of overvalued property as further collateral to demand additional funding from the banking system, resulting in even higher levels of debt; an increase in the amount of credit needed for the marginal growth of gross domestic product; a constrained installed capacity that yields to inflationary tensions; a labor force with double digit wage rises; limitless liquidity flowing into sectors with low productivity, such as real estate; a relaxation of the rules for granting loans; a rapid increase in corporate debt as a consequence of accelerated investment, mergers, and acquisitions, all fanned by the intoxicating feeling that demand will just keep going up; a central bank incapable of containing such a self-complacent liquidity binge, with interest rates far below those recommended by the Taylor rule; a political class living off an apparent bonanza, refusing to carry out the reforms needed to avoid disaster when the cycle eventually changes, ignoring calls for serious cutbacks in spending, or rises in taxes that could counteract the exuberance. Spain in 2006? The U.S.? Britain? Iceland, Greece, Ireland? No. I am talking about emerging countries, in particular Brazil, Russia, India and China, the four known collectively as the BRICs.

LA Times:

• Plastic Bag Bans Upheld by California Supreme Court. The justices unanimously rule that local governments may impose such prohibitions without always needing an environmental impact report.
• California May Join Probe of Wall Street's Role in Mortgage Meltdown. New York's and Delaware's investigation could lead to criminal charges against financial executives. 'California was disproportionately harmed by the mortgage crisis, and our homeowners badly need relief,' the state's attorney general says.

BankThink:

• Bank of America's(BAC) Alarmingly Modest Goal for Basel III Capital. During the credit crisis, Bank of America Corp. symbolized everything that was wrong with banking: a too-big-to-fail global bank with questionable acquisitions (Countrywide and Merrill Lynch), poor lending standards, and poor liquidity and capital management – one that received capital injections from the government time and again. Regulators and legislators must have had B of A in the back of their minds while crafting a new regulatory framework for banks in the form of Basel III and Dodd-Frank. Astonishingly, it appears that B of A does not understand the role it played in the crisis.

Rasmussen Reports:

• 55% Oppose Tax Hike In Debt Ceiling Deal. Just 34% think a tax hike should be included in any legislation to raise the debt ceiling.
• Consumer Confidence Hits Two-Year Low, 52% Believe Their Own Finances Getting Worse.
  

Reuters:

• Google(GOOG) Smashes Street Expectations, Shares Surge. Google Inc's results soundly trounced Wall Street's most bullish expectations, sending its shares up 12 percent and easing concerns that its battle with Facebook and Twitter is costing too much and hindering growth. The Internet giant's flagship search advertising business, combined with new efforts like display and mobile advertising, boosted the company's revenue by 36 percent in its first three months under the helm of new Chief Executive Larry Page. The media-averse Page, who provoked grumbles by saying only a few words on the last quarterly earnings call, ticked off a string of fresh statistics on Thursday that underscored the company's progress on various fronts, including the strong start for its 2-week old social networking service. Page told analysts the company had signed up more than 10 million people for Google+: the company's biggest foray into the hot social networking arena and the vanguard of its battle with Facebook and Twitter for websurfers' time and attention. "Google should be viewed as a growth company again this quarter," said Stifel Nicolaus analyst Jordan Rohan. "The combination of mobile search, Android, ad exchange, YouTube, and the core search businesses, they're all doing well. Google is no longer a one-trick pony."

Financial Times:

• Merkel Warned on Greek Bail-Out Standoff. Pressure mounted on Angela Merkel, the German chancellor, to make a quick decision on how to get private bondholders to pay part of a new €115bn Greek bail-out, with senior Italian officials and the IMF warning that continued uncertainty risked undermining the eurozone. The calls came as fears that a stalemate could last through the summer forced Rome to pay some of its highest rates on record in order to borrow €3bn ($4.3bn) from the bond market.

City A.M.:

• Europe's Debt Crisis is Getting Worse. The numbers are big. As of this May, Eurozone banks had made loans to Eurozone governments of €1.156 trillion and held securities issued by them of €1.442.7 trillion, while their capital and reserves totalled €2.118.8 trillion, says International Monetary Research. The problem is that the system as a whole would be in deep trouble if the losses on Eurozone government bonds end up higher than €500bn. And of course such losses would hit different institutions in very different ways: many would not be able to survive even a much smaller overall loss. This is going to be a long weekend. Let’s hope it is a false alarm.

Passauer Neue Presse:

• Hans-Werner Sinn, head of the Munich-based Ifo economic institute, said that Greece faces a decade-long "illness" if it stays in the euro area and tries to increase its competitiveness by lowering wages and prices, citing an interview with Sinn. A return to its old currency, the drachma, would be an easier route for Greece, Sinn said.

Folha de S. Paulo:

• Venezuelan President Hugo Chavez accepted an offer from Brazilian President Dilma Rousseff to receive treatment for cancer in Sao Paulo. Chavez may be treated at the Sirio Libanes hospital.

Sydney Morning Herald:

• Abbott Eyes Mandate to Dump Carbon Tax. TONY ABBOTT says he will call a double dissolution election if he wins power and Labor and the Greens combine in the Senate to stop him from repealing the carbon tax. The Opposition Leader, who is sitting on a massive election-winning lead in the polls, issued the edict in front of a community forum in Brisbane last night. He said if the government was ''walloped'' at the next election over the carbon tax, it would be unthinkable that a humiliated Labor would not allow an Abbott government to rescind it.

Chosun Ilbo:

• The U.S. has proposed capping each nation's foreign exchange reserves during the Group of 20 finance ministers' meeting in Paris earlier this month, citing a South Korean official.

South China Morning Post:

• Hong Kong Mass-Market Home Prices Forecast to Decline. Prices of mass-market housing in Hong Kong will decline 5 to 10 per cent from their May peak, pushed down by government measures to cool the market, according to property consultant DTZ.

21st Century Business Herald:

• Beijing's new home prices fell 7% in June as compared with May, citing data from the Beijing Municipal Commission of Housing and Urban-Rural Development. The Chinese capital's restrictions on home purchases will be kept for "a long period," citing Yang Bin, director of the Beijing housing commission.
• China's 17 major banks saw total outstanding lending rise by about 7 to 9% to the end of June from the beginning of the year, to more than $340 billion, citing data.
  

International Oil Daily:

• The administration of U.S. President Barack Obama is considering a second sale of oil from its strategic petroleum reserve, citing several people in the market. The amount would be similar to the first 60 million-barrel release led by the IEA, including 30 million barrels sold by the U.S., Oil Daily said.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.50% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 120.50 -1.5 basis points.
  
• Asia Pacific Sovereign CDS Index 124.25 +1.75 basis points.
  
• S&P 500 futures +.01%.
  
• NASDAQ 100 futures +.46%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (MAT)/.16
• (C)/.96
• (GPC)/.89
• (FHN)/.11
• (WBS)/.35
  

Economic Releases
8:30 am EST

• The Consumer Price Index for June is estimated to fall -.1% versus a +.2% gain in May.
• The CPI Ex Food & Energy for June is estimated to rise +.2% versus a +.3% gain in May.
• Empire Manufacturing for July is estimated to rise to 5.0 versus a reading of -7.79 in June.
  

9:15 am EST

• Industrial Production for June is estimated to rise +.3% versus a +.1% gain in May.
• Capacity Utilization for June is estimated to rise to 76.9% versus 76.7% in May.

9:55 am EST

• Preliminary Univ. of Mich. Consumer Confidence for July is estimated to rise to 72.0 versus a reading of 71.5 in June.

Upcoming Splits

• (SNHY) 3-for-2
  

Other Potential Market Movers

• The EU bank stress test results could also impact trading today.
  

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

Stocks Falling into Final Hour on Rising Eurozone Debt Angst, US Debt Ceiling Concerns, Tech Sector Pessimism, More Shorting

Broad Market Tone:

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

Equity Investor Angst:

• VIX 20.91 +5.02%
  
• ISE Sentiment Index 79.0 -22.55%
  
• Total Put/Call 1.07 +8.08%
  
• NYSE Arms 1.18 +41.47%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 96.0 +1.33%
  
• European Financial Sector CDS Index 143.50 +3.01%
  
• Western Europe Sovereign Debt CDS Index 283.50 -1.05%
  
• Emerging Market CDS Index 222.30 +.92%
  
• 2-Year Swap Spread 27.0 -1 bp
  
• TED Spread 24.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 258.0 +5 bps
  
• China Import Iron Ore Spot $174.10/Metric Tonne unch.
  
• Citi US Economic Surprise Index -96.10 +1.9 points
  
• 10-Year TIPS Spread 2.26% -3 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -21 open in Japan
• DAX Futures: Indicating -15 open in Germany

Portfolio:

• Slightly Higher: On gains in my ETF hedges and Emerging Markets shorts
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and then covered some of them
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 reverses to session lows despite gains in Asian equities, less financial sector pessimism, a bounce in the euro and some positive economic data. On the positive side, Restaurant shares are higher on the day. Oil is falling -2.1% and the UBS-Bloomberg Ag Spot Index is down -1.17%. On the negative side, Airline, Education, Wireless, Networking, Internet, Steel, Hospital, I-Banking, Disk Drive, Semi, Software, Oil Service, Oil Tanker, Defense and Alt Energy shares are especially weak today, falling more than -1.5%. Small-caps and cyclicals are underperforming. Tech shares continue to trade poorly. The Transports, which had been leading the market, are now testing their 50-day moving average. Gold is up +.2%, copper is falling -.36% and lumber is down -1.32%. Rice is jumping another +1.9%. Rice is hitting a new multi-year high and has soared +30.0% in less than 2 weeks. The US price for a gallon of gas is +.01/gallon today to $3.66/gallon. It is up .52/gallon in less than 5 months. The Spain sovereign cds is up +1.43% to 3223.13 bps, the Portugal sovereign cds is up +2.22% to 1,097.37 bps and the Ireland sovereign cds is up 2.25% to 1,081.77 bps. Moreover, the US sovereign cds is jumping +7.92% to 54.50 bps. The Western Europe Sovereign CDS Index is hovering near its record high and the European Financial Sector CDS Index is near its recent high. The Ireland sovereign cds is making a new record high today, as well. The 2-yr euro swap spread is moving +6.75% today to 72.94 bps, which is near its recent record. The Libor-OIS spread has moved up +4 bps to 16.0 bps over the last 9 days. Shanghai copper inventories have risen +33.0% in 5 days. Brazil's Bovespa fell another -1.9% today to the lowest since May 2010 and is down -14.1% ytd. Italian equities fell another -1.1%, finishing at session lows, and are down -7.6% ytd. The euro currency put in a fairly large reversal lower today. The currency looks vulnerable over the short and longer-run. The AAII % Bulls fell to 39.31 this week, while the % Bears rose to 29.25, which is still a negative considering the magnitude of the current headwinds. The broad market feels heavy today. The damage is worse than the major averages suggest. I expect US stocks to trade modestly lower into the close from current levels on rising eurozone debt angst, emerging markets inflation fears, tech sector pessimism, US debt ceiling concerns, profit-taking, more shorting and global growth worries.

Today's Headlines

Bloomberg:

• Europe Is Said to Face IMF Doubts on Greek Financial Aid Without Debt Cut. European finance ministers are concerned that the International Monetary Fund will curb its share of a Greek rescue of as much as 115 billion euros ($163 billion) unless the plan includes deep cuts in Greece’s debt burden, two people with knowledge of the talks said. A program that fails to generate a sustainable reduction in Europe’s biggest debt load may require governments to finance a bigger share of the three-year lifeline, said the people, who declined to be named because the talks are in progress. The IMF has provided one third of the three previous euro bailouts, including Greece’s in 2010. Doubts over the IMF’s role represent an added obstacle in the effort by policy makers to stem a crisis that spread to Italy this week, increasing the urgency for a solution as yields soared to euro-era records in the most debt-laden nations. “European policy makers still misunderstand market dynamics,” Royal Bank of Scotland Group Plc (RBS) economists led by London-based Jacques Cailloux said in a research note. “We expect the crisis to continue deteriorating and threaten the entire euro area.”
• Italian Banks Face Higher Borrowing Costs as Debt Crisis Enters New Phase. Italian banks, saddled with the nation’s record borrowing costs, may struggle to reverse a drop in profitability that’s already turned UniCredit SpA (UCG) and Intesa Sanpaolo SpA (ISP) into European laggards. Italy’s two biggest lenders have about 55.4 billion euros ($78.4 billion) of debt maturing in 2012, according to the banks. Investor concern that the sovereign debt crisis is spilling over to Italy, which has the region’s largest debt, pushed the country’s 10-year bond yields to their highest relative to German bunds since the introduction of the euro, adding about 1 percentage point to funding costs this month. The crisis has entered a new phase and higher financing costs for some European nations are here to stay, Bank of Italy Governor Mario Draghi said yesterday. For the banks, that translates into pressure on earnings and may force cost cutting, greater competition for deposits and a contraction in lending, mirroring the challenges Spanish lenders are also facing. “The widening of sovereign spreads is so critical for southern European banks,” Morgan Stanley analyst Huw van Steenis wrote in a note to clients July 12. “Deleveraging remains the base case for those banks with high funding costs and impacts bank earnings and is a drag on economies.”
• Sovereign, Corporate Bond Risk Rises, Credit-Default Swaps Show. The cost of insuring against default on European sovereign bonds rose, according to traders of credit-default swaps. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments climbed 1 basis point to 284 at 1:30 p.m. in London. An increase signals deterioration in perceptions of credit quality. Swaps on Italy jumped 8 basis points to 291, according to CMA. Belgium increased 3 basis points to 188, Ireland climbed 9 to 1,073 and Portugal rose 10 to 1,096, while Spain was 12 higher at 326. Greece dropped from a record, falling 70 basis points to 2,280. The cost of insuring corporate debt rose. The Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings increased 2 basis points to 443, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 0.5 basis point to 118.5 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 2.5 basis points to 178.5 and the subordinated index rose 2 to 312.5.
• ECB, Banks, EU Meet in Rome on Greek Plan, Official Says. Officials from the European Central Bank, the European Commission and private lenders are meeting in Rome to discuss a second rescue plan for Greece, an Italian Treasury official said. Today’s talks are part of European efforts to get creditors to share the burden of a second Greek bailout a year after a 110 billion-euro ($158 billion) package failed to stop the debt crisis from spreading.
• Bernanke: No Plans Now for Bond Purchases. Federal Reserve Chairman Ben S. Bernanke told Congress that the central bank isn’t currently ready to embark on a third round of government bond-buying to stimulate the economy. “We’re not prepared at this point to take further action,” Bernanke said today, in response to a question from Senate Banking Committee Chairman Tim Johnson, a Democrat from South Dakota. Johnson asked Bernanke why the Fed wasn’t immediately starting a new stimulus program given the weak economic recovery and rising unemployment. “Today the situation is more complex,” Bernanke told lawmakers. “Inflation is higher. Inflation expectations are close to our target,” he said. “We are uncertain about the near-term developments in the economy. We’d like to see if, in fact, the economy does pick up, as we are projecting.”
• U.S. Jobless Claims Declined More Than Forecast Last Week. The number of Americans filing first-time claims for unemployment benefits dropped last week to the lowest level since April, a sign weakness in the labor market may be starting to abate. Applications for jobless benefits decreased 22,000 in the week ended July 9 to 405,000, Labor Department figures showed today. Economists forecast 415,000 claims, according to the median estimate in a Bloomberg News survey.
• UBS May Cut 5,000 Jobs to Save $1.2 Billion Annually, Tages-Anzeiger Says. UBS AG (UBSN) may cut 5,000 jobs to help save 1 billion Swiss francs ($1.2 billion) a year, Tages- Anzeiger reported today, citing unidentified “insiders.”
• Qaddafi May 'Blow Up' Tripoli: Russian Envoy. Libyan leader Muammar Qaddafi may “blow up” the capital Tripoli if rebels seize the city, Mikhail Margelov, Russia’s envoy for negotiating Qaddafi’s departure, told the Izvestiya newspaper. Prime Minister Baghdadi Mahmudi told Margelov the regime is ready to implement a “suicidal plan” if insurgents overrun Tripoli, the envoy said in an interview with the Moscow-based newspaper. “Qaddafi has plenty of missiles and explosives.” His comments were confirmed by his spokeswoman, Varvara Paal.
• India's Inflation Accelerates to 9.44%, Adding to Interest-Rate Pressure. India’s inflation accelerated, sustaining pressure on the central bank to tighten monetary policy this month, even as price gains that were less than economists estimated boosted optimism the longest stretch of interest-rate increases in a decade is nearing an end. The benchmark wholesale-price index rose 9.44 percent in June from a year earlier after a 9.06 percent jump in May, according to the commerce ministry. Food-price inflation quickened to a three-week high of 8.31 percent in the week ended July 2, the ministry said in a separate statement today.
• Euro Crisis in 'Uncharted Territory' Menaces Eastern States. The European debt crisis has entered “uncharted territory,” rekindling concern it will spread eastward through banking and trade links, according to the European Bank for Reconstruction and Development. Italy’s Unicredit SpA (UCG) and Intesa Sanpaolo SpA (ISP), two of eastern Europe’s biggest lenders, fell to the lowest in more than two years July 11 as political infighting threatened to delay efforts to cut the budget deficit in the country with Europe’s largest debt burden. European leaders this week failed to agree on a new aid package for Greece. “We are in uncharted territory,” Erik Berglof, chief economist at the London-based EBRD, which invests in eastern Europe and Central Asia, said in a July 12 interview. “The source of the contagion seems to be in worse shape.”
• JPMorgan(JPM) Shares Rise as Profit Beats Estimates. JPMorgan Chase & Co. (JPM) rose the most in eight months in New York trading after earnings beat analysts’ estimates and revenue unexpectedly climbed on gains from underwriting stocks and bonds. JPMorgan shares jumped as much as 4.1 percent after the New York-based bank reported its highest half-year profit ever, at almost $11 billion. Second-quarter net income increased 13 percent from a year earlier, to $5.43 billion, or $1.27 a share, six cents higher than the average estimate of analysts surveyed by Bloomberg.
• Crude Oil Futures Decline After Bernanke's Comments on More Fed Stimulus. Crude oil fell after Federal Reserve Chairman Ben S. Bernanke said the Fed isn’t planning more bond- buying to stimulate economic growth. Futures dropped as much as 2.1 percent after Bernanke testified to Congress that the central bank would be cautious about initiating a third round of quantitative easing because of higher inflation this year

Wall Street Journal:

• Reid Criticizes Cantor as Debt Talks Stall. House Majority Leader Eric Cantor "has shown that he shouldn't even be at the table" in negotiations over raising the U.S. borrowing limit, Senate Majority Leader Harry Reid said Thursday, reflecting Democratic frustration with House Republican conservatives in the continuing battle over raising the debt ceiling and cutting the deficit.
  
• Asia Quietly Frets Over U.S. Debt. Officials and analysts in some of the nations with huge holdings of U.S. Treasury bonds voiced concern about Washington's handling of its debt but said they have few alternatives for parking their cash. The announcement by Moody's Investors Service that it is considering an unprecedented downgrade of the U.S. government's top Aaa bond rating highlighted a big potential problem for China, Japan and other countries that have turned their trade surpluses into trillions of dollars in American debt instruments. U.S. debt looks less safe than it has long been considered, but there's a lack of alternatives that are both more attractive and liquid enough to absorb such sums. Asian government officials were largely circumspect on Thursday, reflecting in part concerns that being too critical risks further hurting the value of their holdings.‬
• Credit Suisse To Ax 1,500 Jobs, Including at Private Bank - Source. Credit Suisse Group (CS) is preparing to ax roughly 3% of its total workforce, or at least 1,500 jobs, including staff cuts at its private banking unit which is struggling with a costly surge in the Swiss franc, a person familiar with the situation told Dow Jones Newswires.
• FBI Opens News Corp.(NWSA) Hacking Probe.
  

Business Insider:

• Boehner Has "No Idea" If Last Ditch Debt Limit Plan Can Pass House.
• ORSZAG: This Economy is MUCH Weaker Than It Appears. In a column for Bloomberg, former White House budget man Peter Orszag argues that nobody has even yet begun to understand how frail the American economy is, and how long it will take to get back on solid footing.
• China is Building a Giant Stadium in the Middle of Nowhere, Finance by Insanely Optimistic Borrowing. (video)
  

Zero Hedge:

• Some Perspective On Italian Bonds. It seems like the market is enjoying the "success" of the Italian bond auctions. Given the extreme intraday volatility we have had this week, it is hard to argue that we won't see a spike higher in stocks on this news, but the reality is that:
• It Begins: JPMorgan(JPM) Lowers Q3 GDP.
  

New York Times:

• ConocoPhillips(COP) to Split Into Two.

Safehaven:

• Europe's Default Crisis: It's the CDS, Stupid. Greek bonds have lost half to three-quarters of their face value. Six national strikes have all ended in violence already this year. In the three months to April, public investment spending fell 42% from the start of 2010, but total spending still rose - and tax revenues sank - forcing the budget deficit still wider as the economy shrank 5.5% year-on-year. What to do? Greece's debt cannot be serviced, much less repaid. Everything says default - stop paying, write it down or write it off, with or without the lenders' consent. Default is certain, and history (that old balls-ache) says it would be better for creditors if the "restructuring" came before Greece misses a payment. Yet incredibly, most everyone outside Greece - everyone who thinks they have a vested interest, at least - wants restructuring delayed and delayed again. Why? Because of the banks, stupid.

Gallup:

• Generic "Republican Candidate" Extends Lead vs. Obama to 47% to 39%.

Reuters:

• Ireland Needs Quick Solution to Euro Crisis - IMF. Ireland's debt burden is manageable but it needs European leaders to quickly agree on a solution to the bloc's debt crisis if its sky-high borrowing costs are to fall, a senior IMF official said on Thursday.

Financial Times:

• Subprime Selling Off, Again. Securitised subprime — it’s still not doing well. It’s worth asking the obvious question — why? Here’s Goodman: In other words, Goodman reckons subprime has now over-sold. But there’s another reason Goodman mentions to explain the sell-off — fear in the market regarding Greek-exposed European banks selling their assets. It’s a not-so-nice example of how interconnected the financial system remains.

Telegraph:

• Italy Pays High Price in Debt Sale as Senate Clears Cuts. Italy's Senate has approved a crucial austerity package and got a key bond auction away as it moved to persuade investors that the debt-laden country will not become the next victim of the eurozone crisis.

Napi Gazdasag:

• The number of Hungarians with loans overdue more than 90 days rose to a record 806,000 in June, an 18% increase from a year earlier, citing BISZ Zrt. that manages the central loan information database.

El Mundo:

• Four Spanish savings banks, or cajas, and one bank will fail the stress tests, citing people in the financial markets.

Imerisia:

• Greek Prime Minister George Papandreou yesterday held a meeting with this finance minister and the chairman and chief executive of the country's biggest bank to discuss the implications of a "selective default" on Greek debt.

China Securities Journal:

• Some commercial banks in Chinese cities of Chongqing and Nanchang have suspended loans to individuals for home purchases, citing bank officials in the cities.

AsiaOne:

• China Expands Home Purchase Caps. China's cabinet on Thursday extended home purchase restrictions to more cities and reminded local governments to keep in place measures to tighten the property market, in its latest move to curb housing inflation. It also ordered local governments to step up efforts in building more affordable homes and curbing rental prices. Rising home and rental prices are fuelling broader inflation in China. Beijing has made it a top priority to check soaring prices which have in the past led to social unrest, threatening the rule of the Communist Party. "Right now, the property tightening campaign is at a critical point and we must stick to the same direction and maintain the same force of tightening measures," the cabinet said in a statement published on its website, www.gov.cn. Average annual home price rises across the nation slowed to 4.2 per cent in May, a touch down from April's rise of 4.3 per cent. The National Bureau of Statistics is set to announce the June data next Monday. "That means the central government will not relax its tightening policy anytime soon and that's within market expectations," said Li Shaoming, an analyst with China Jianyin Investment Securities in Beijing.