Monday Watch

Weekend Headlines
Bloomberg:

• Boehner Pressing Ahead With Short-Term Debt Limit Increase. House Speaker John Boehner plans to press ahead with a shorter-term increase in the U.S. debt limit than President Barack Obama has requested, he told lawmakers today, defying a veto threat and signaling continued stalemate in the U.S. Congress as time runs short for a deal. Boehner told rank-and-file Republicans during a conference call this afternoon that they needed to pull together as a team to block Obama, who has asked for a $2.4 trillion borrowing boost in the $14.3 trillion debt ceiling, from obtaining the money all at once, without any guarantees of spending cuts. His remarks were described on condition of anonymity by a person familiar with the discussion. The speaker said that no one is willing to default on the full faith and credit of the U.S., according to the person. The comments indicated that Boehner plans to force action on his plan to provide only a temporary borrowing boost of about $1 trillion accompanied by spending cuts of at least as much, tying the remainder of the debt-ceiling increase Obama has requested to further cuts in the future. The White House says Obama would veto such a measure.
• Bunds Lose to Treasuries as Swaps Count Cost of Merkel's Rescue. For the first time, the U.S. is at risk of defaulting, and derivatives show that it's riskier to hold German bunds than Treasuries. Credit-default swaps tied to bunds jumped about 39% this month, pushing the cost of insuring against losses above that for U.S. debt. All 20 strategists and economists surveyed by Bloomberg say yields on 10-year German securities will rise by year end, after falling as investors sought a haven from the region's debt turmoil. While Germany's economy is growing faster than the U.S. and the rest of the euro zone, bond traders are concerned about the spiraling costs the nation will face as Chancellor Angela Merkel leads the bailout of cash-strapped partners among the 17 nations that share the currency. Germany has failed to receive enough bids for all the bonds offered at auctions three times this year. "The solution to the peripheral crisis is Germany pillaging its balance sheet by lending more and more money to troubled countries," Stuart Thomson, a money manager in Glasgow at Ignis Asset Management, which oversees $120 billion, said. "That view is reflected in the CDS prices, but not bond yields. The idea of fiscal union will eventually undermine German sovereign credibility. We are more positive about Treasuries than bunds."
• European Bank Stocks Avoid 'the Abyss' as Investors Remain Wary on Bailout. European bank stocks, which posted their best three-day rally in a year last week, may struggle to maintain those gains as investors expect more writedowns, capital raisings and more contagion from the debt crisis. The Stoxx 600 Banks Index jumped 5.7 percent last week after the European Union extended debt maturities for Greece and announced a plan to enhance a rescue fund to buy bonds and recapitalize lenders. The initiative didn’t spell out a way to avoid debt-crisis contagion outside of Greece, investors said. Making banks raise capital as governments cut spending will threaten economic growth, they said. “They made a huge patch, but it is still a patch,” Henrik Drusebjerg, a senior strategist at Nordea Investment Management in Copenhagen, which oversees $220 billion, said in a telephone interview. “We are not out of the woods yet.”
• Dexia May Lose $662 Million in Greek Rescue Plan, L'Echo Reports. Dexia SA (DEXB), the bank that took the most Federal Reserve discount-window help in October 2008, may face losses of as much as 461 million euros ($662 million) on its holdings of Greek bonds if it joins a euro-area bailout plan, L’Echo reported, citing its own calculations. Dexia holds a maximum of 2.2 billion euros of Greek debt that matures before the end of 2020 and would fall under the voluntary private-sector component of the 159 billion euro rescue, the Brussels-based newspaper reported today, citing its own estimate. Given that participating banks will agree to write down the value of their Greek securities by 21 percent as part of the bond exchange and debt buyback program, according to the Institute of International Finance, Dexia would face as much as 461 million euros of losses, L’Echo said. Europe’s 90 biggest banks hold about 98 billion euros of Greek debt, according to the European Banking Authority. They stand to lose 20.6 billion euros on their Greek government bonds after lenders in the region pledged to contribute to a new rescue package. Dexia hasn’t committed to participate in the support measures for Greece. The bank is waiting for the European Banking Authority to issue conclusions on the plan, L’Echo said, citing spokesman Benoit Gausseron.
• China Bullet-Train Crash May Show Problems With Fast Expansion. China’s rush to build the world’s biggest high-speed rail network in less than five years may be behind the crash two days ago that left at least 43 people dead, analysts including Beijing professor Zhao Jian said. A bullet train that broke down after it was struck by lightning was rear-ended by another locomotive two days ago near Wenzhou city, the state-run Xinhua News Agency said. The crash, which pushed four coaches off a viaduct, injured more than 200 people, Xinhua said, citing investigators. The collision is the latest setback for China’s fledgling bullet-train program. The $34 billion Beijing-Shanghai high- speed rail line, the world’s longest, has suffered major delays from storm-related electrical breakdowns at least three times since it opened on June 30. “China is building too quickly,” Zhao Jian, a professor of economics at Beijing Jiaotong University and long-time critic of China’s high-speed rail projects, said by telephone yesterday. “The result is this kind of accident.” The crash and other incidents expose the problems inherent in the scale of China’s infrastructure investments, Bill Barron, a visiting scholar at the Division of Environment at Hong Kong University of Science and Technology, said in an e-mail. “In so many areas, there is the lack of an adequately trained -- and perhaps more importantly, experienced -- workforce, along with tried-and-tested management oversight at the operational level,” he said. “Given the pace of expansion, how could there be?”
• Oil at $120 Becomes Biggest Energy Bet as Futures Leave Forecasters Behind. The biggest bet in the oil market has become a 20 percent increase to $120 by the end of the year as global growth drives demand for raw materials. The number of contracts held by traders in options to buy West Texas Intermediate crude at $120 a barrel in December totaled 45,502 lots on the New York Mercantile Exchange as of July 21, 4,226 lots more than the next-highest wager, which is for $125. Open interest in the two contracts jumped 29 percent in the past four weeks, according to data compiled by Bloomberg.
• Investors Raise Bullish Commodity Bets by Most in Year. Funds boosted bets on rising commodity prices by the most in almost a year on speculation that the global economic recovery will prove resilient. Speculators raised their net-long positions in 18 commodities by 16 percent to 1.26 million futures and options contracts in the week ended July 19, government data compiled by Bloomberg show. That’s the biggest gain since early August. Bullish silver holdings climbed to the highest since May 3. Hedge funds and other money managers lifted their net-long silver position by 19 percent to 24,740 futures and options contracts, the third straight gain, data from the U.S. Commodity Futures Trading Commissioned showed.
• Gold Surges to Record as U.S. Debt Impasse Threatens Default, AAA Rating. Gold surged to a record as U.S. lawmakers failed at the weekend to reach an agreement on raising the federal debt limit, boosting haven demand on concern that the government of world’s largest economy may default. Immediate-delivery gold gained for a second straight day, climbing as much as 1.4 percent to $1,624.07 an ounce. Spot gold, which has rallied 13 percent this year, was at $1,611.45 at 9:59 a.m. in Singapore. Gold for August delivery in New York climbed to $1,624.30, the highest ever.
• Apple(AAPL), Coke(KO) Defy Economy to Lead Earnings. Earnings per share jumped 19 percent from a year earlier for the 122 companies in the Standard & Poor’s 500 Index that reported second-quarter results as of July 22, according to data compiled by Bloomberg. That beat the 13 percent average growth estimate that analysts held at the start of the month, and about 82 percent of the companies reporting have exceeded forecasts.
• Iranian Nuclear Scientist Is Assassinated in Tehran, Mehr News Agency Says. An Iranian scientist working in the nation’s nuclear program was assassinated in Tehran today, the state-run Mehr news agency reported, citing local police. Dariush Rezaei was killed and his wife was injured when assailants riding motorcycles opened fire in front of his home in the capital, the agency said. Razaei, a university professor, had a degree in neutron physics and worked in Iran’s nuclear plant’s department, the Mehr agency reported.
• Netflix(NFLX) Said to Be in Talks on Streaming Rights With DreamWorks Animation(DWA). DreamWorks Animation SKG Inc. is in talks to offer Netflix Inc. exclusive streaming rights to its films, succeeding a pay-TV accord with HBO, a person with knowledge of the situation said. An agreement may be reached as soon as this week, said the person, who declined to be identified because the discussions are continuing. Both companies plan to report quarterly results this week and have scheduled conference calls with investors.
• Threat to Japanese Food Chain Multiplies as Cesium Contamination Spreads. Radiation threats to Japan’s food chain are multiplying as cesium emissions from the crippled Fukushima Dai-Ichi nuclear power plant spread more widely, moving from hay to cattle to beef. Hay contaminated with as much as 690,000 becquerels a kilogram, compared with a government safety standard of 300 becquerels, has been fed to cattle. Beef with unsafe levels of the radioactive element was detected in four prefectures, the health ministry said July 23. Agriculture Minister Michihiko Kano has said officials were unaware of the risk that rice farmers might ship tainted hay to cattle growers. That highlights the government’s inability to think ahead and to act, said Mariko Sano, secretary general for Shufuren, a housewives organization in Tokyo. “The government is so slow to move,” Sano said. “They’ve done little to ensure food safety.” Prolonged exposure to radiation in the air, ground and food can cause leukemia and other cancers, according to the London- based World Nuclear Association. A growing concern is that the release of radiation into waters near the Fukushima plant may multiply through the seafood chain. Levels of cesium-134 in seawater near the Fukushima plant’s No. 3 reactor rose to levels 30 times the allowed safety standards last week, according to tests performed by Tokyo Electric Power Co, national broadcaster NHK reported.
• Vietnam's Inflation Accelerates to 22%, Highest Among Economies in Asia. Vietnamese inflation accelerated for an 11th month in July after the central bank cut a key interest rate even as the nation faces the fastest price gains in Asia. Consumer prices rose 22.16 percent from a year earlier, compared with June’s 20.82 percent pace, data released by the General Statistics Office in Hanoi showed today. Prices climbed 1.17 percent from June. The central bank reduced its repurchase rate to 14 percent from 15 percent on July 4 after a spate of increases since November to fight inflation, leading the International Monetary Fund to say the cut may confuse investors. The benchmark VN Index of stocks is down 16 percent this year, on concern price gains will hurt the economy.
• S&P 500 Profit Pain Ends in Greece as Sales From Europe Decline. For all the anxiety about Europe's sovereign debt crisis, U.S. companies depend on the region for a shrinking portion of sales. Europe accounts for about 21 percent of Standard & Poor's 500 Index revenue, according to data compiled by Bloomberg from 185 companies that disclose results for the region. That's down from 23 percent in 2008. The companies posted a 10 percent drop in their European sales during that period, the data show.

Wall Street Journal:

• Norway Mourns Its Dead as Harsh Rhetoric Spreads. A Norwegian man confessed to killing nearly 100 people in a pair of attacks on Friday, calling his rampage "atrocious" but "necessary."
  
• Gridlock for Debt Talks. Republicans and Democrats on Capitol Hill moved along separate tracks Sunday toward a deal to increase the U.S. government's borrowing authority, setting America's gridlocked political system on a collision course with jittery financial markets around the world. The two camps remained split over how much to increase the debt limit—enough to get past the 2012 election or not—and how much to cut spending. A break in the impasse is needed to ensure the government won't run out of cash to pay its bills after Aug. 2.
• Live Blog: The US Debt Battle.
• UAW Focuses on VW's Tennessee Facility. Volkswagen AG's gleaming new auto plant in Tennessee is becoming a focal point in union efforts to gain a foothold among foreign auto makers' U.S. manufacturing operations. An unusual nexus of German labor rules and U.S. law has raised union officials' hopes in a region that has long resisted their overtures. The United Auto Workers union and labor officials at Volkswagen in Wolfsburg last week held talks about VW labor efforts to establish a German-style system of worker representation at the Tennessee plant.
• Crop Prices Erode Farm Subsidy Program. Business is humming in this typical Midwestern farm town, with its bronze statue of Lincoln overlooking the courthouse square. Land prices are way up and so are bank deposits, as high corn and soybean prices mean local farmers are making the most money in their lives. At Sloan Implement, which sells John Deere tractors, "This could be our best year ever," says chief executive Tom Sloan.
• Business Abroad Drives U.S. Profits. While the U.S. economy is struggling, U.S. corporations aren't. A third of the way through the second-quarter reporting season, earnings at companies in the Standard & Poor's 500-stock index are the highest in four years, according to S&P analyst Howard Silverblatt, who predicts the second half will be even stronger. Yet there is little indication that the strong results will jump-start the U.S. economy and get the millions of Americans idled by the recession back to work.
• Cairo Clashes Show Backlash. Residents Frustrated With Protests Fight Demonstrators; 'Revolution Is Over'. Weekend clashes between protesters and residents of a lower-class Cairo neighborhood that injured nearly 300 people illustrate the growing isolation of demonstrators whose continued activism is antagonizing both Egypt's military leaders and the public they claim to represent. Initial chatter by the protesters on social-networking sites such as Twitter blamed thugs they said were hired by the Ministry of the Interior. Many likened the incident to the "Day of Camels" clashes in Tahrir Square on Feb. 2, when allegedly paid "baltagiya," or thugs—some of whom rode horses and camels—marauded through an antiregime rally in a last-ditch effort to violently break up demonstrations without using official force. But interviews with residents of the Abbasiyah neighborhood reveal that Saturday's skirmishes were mostly the work of locals who resented intruding demonstrators, who many say they believe have taken the revolution too far.
• Copycat Apple(AAPL) Store Prompts China Investigation. Chinese authorities in the southwestern city of Kunming have launched a sweeping investigation of electronics stores after media reports said one retail outlet seemed to be copying Apple Inc.'s store format. The inspection will cover business licenses, authorized permits of brand use, and the purchasing channels of each store, said China's state-run Xinhua news agency, citing a worker with the city's industrial and commercial department.
• Toying With Default. The President isn't serious about real spending cuts. Barack Obama was in full-scold mode Friday night, summoning Congressional leaders to the White House to "explain to me how it is that we are going to avoid default." It's a terrific question, albeit one the President refuses to answer. He remains far more interested in maneuvering to blame a default or credit downgrade on Republicans than in making himself part of any plausible solution to a crisis he insists is imminent.

CNBC:

• FBI Says Hacking Attack on IMF Started in China. US authorities investigating a hacking attack on the International Monetary Fund have concluded it originated in China and was probably connected to the government.
• More Red Flags for Carlyle's China Portfolio. Two more companies in the Carlyle Group's China portfolio have had questions raised about potential weaknesses in their accounting practices or financial controls, bringing further scrutiny to the private equity firm's investments across the country.

Business Insider:

• Huge Loss For $32 Billion Hedge Fund Brevan Howard as Founder and COO Quits the Firm. One of the co-founders of the fourth biggest hedge fund in the world, $32.6 billion Brevan Howard Asset Management, is leaving the firm. James Vernon, who is the firm's COO, is leaving to pursue "other interests," Bloomberg reported. It's a huge loss for the giant macro fund. "As chief operating officer, Mr Vernon has been instrumental in Brevan Howard’s success, say people familiar with the firm," the FT reported.
• Get Ready: Dominique Strauss-Kahn's Accuser Will Tell All In An ABC Interview On Tuesday Night.
• Horrible Footage Of China's Deadly Bullet Train Disaster.
• John Mauldin: Kicking The Can One Last Time. A 21% haircut is a bad joke. If you assume that Greece can afford to spend 10% of their revenues just to pay the interest, which is what they will need to be able to do to get out of their crisis, then the haircuts look more like 75-80%. Sean Egan, the most credible credit analyst in the country, estimated this week that the eventual haircuts on the Greek debt will be 90%. Here is what it really says: We are going to keep throwing good money after bad and work as hard as we can to transfer the debt that is on the banks to the ECB and European taxpayers as long as the voters will let us.
• Chart of the Day: WAIT, Is August 10 The Real Debt Ceiling Deadline?
• Apple(AAPL) Signs Deal to Open Store In Grand Central Terminal.
  

Zero Hedge:

• Boulder Weekly Cover Story: "Adults Take Teen Jobs, Leaving Kids Unemployed".
• China And Iran to Bypass Dollar, Plan Oil Barter System, And A Deeper Dive Into The Iranian Oil Bourse.
• Merkel Facing German Revolt Over Greek Bailout.
  

IBD:

• Carpenter(CRS) Licks Chops At Aircraft Orders.

NY Times:

• How Wall Street Helps China in Back Door to U.S. Markets.
• In China, Apple(AAPL) Finds a Sweet Spot. A year after opening a flagship store here, Apple has a problem that any retailer would envy: the huge 16,000-square-foot space is already too small.

CNNMoney:

• Europe's Big Debt Deal Leaves Plenty of Room for Worry. The big challenge, economists say, is how to revive growth in troubled European economies so that debts and deficits can be resolved organically. Jonathan Loynes, an economist at Capital Economics, said the new measures include "some significant advances" in the policy response to the debt crisis."But once the dust settles, the markets will surely return to the question of whether the package really addresses the fundamental economic and fiscal challenges facing both Greece and the euro zone in general," he said. "They will probably conclude that the answer is no."
• Obama Cancels Fundraisers Amidst Debt Situation. A campaign official for President Barack Obama tells CNN the president has cancelled two political fundraising appearances Monday night because of the debt-ceiling situation.

Forbes:

• The World's Most Innovative Companies.

UPI.com:

• More Suspects in Norway? Police are looking into whether more than one person was involved in Friday's terror attacks that left at least 92 dead in Norway, officials said Saturday. Acting National Police Chief Sveinung Sponheim said, "We're not sure it's just one person ... based on statements from witnesses, we think there may be more," CNN reported. Only one suspect has been arrested so far. "It's very difficult at this point to say whether he was acting alone or whether he was acting as part of a larger network," Sponheim said.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 23% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-four percent (44%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -21 (see trends).
• Voters Give GOP 10-Point Edge Over Democrats on Economy.
  

Politico:

• David Wu's Job In Doubt Over Sex Reports. Embattled Rep. David Wu’s political career hangs in the balance as party leaders in Washington and Oregon consider ways to force the veteran Democratic lawmaker to step down. House Minority Leader Nancy Pelosi of California and other top Democrats are reviewing their options on Wu, which include outright calls for him to resign or to seek an Ethics Committee investigation into allegations that he had an “unwanted sexual encounter” last Thanksgiving with the teenage daughter of a longtime friend.

USA Today:

• John Deere(DE) Fights Against Cell Towers That Disrupt GPS.

Financial Times:

• French and Italian consumers are among the most pessimistic about their economies, citing an Ipsos-Mori poll of 24 countries. The U.K. ranked as sixth most pessimistic, with only one in eight rating the economy as "good," the newspaper said. Japan , Hungary and Spain also ranked among the most gloomy.
• Quant Methods Creep Into Fundamental Houses.
• Money Market Funds Cut Euro Bank Exposure. US money market funds have sharply cut their exposure to banks in the eurozone over the past few weeks and reduced the availability of credit, even in stronger countries such as France. The money market funds, historically crucial providers of short term financing to European banks, have withdrawn from all but extremely short-term lending as concerns about sovereign debt have mounted.

Morning Star:

• 'Indignant' Activists Get to Madrid. Tens of thousands of protesters thronged Madrid's central Sol square today to press the government to "make the rich pay for their crisis" and reverse welfare cuts. Many of the "indignant" activists had marched hundreds of miles from cities across Spain, some from as far away as Cadiz on the country's south coast. Marchers said their protest aims to show young people's anger at high unemployment and the government, which is widely seen as corrupt and beholden to big business. Austerity measures and two years of recession have left Spain with an official unemployment rate of 21 per cent - the highest in the 17-country eurozone. More than a third of people aged 16 to 29 are out of work. Earlier this month Mr Zapatero's administration attempted to calm public anger by imposing new limits on the amount of money that banks can reclaim from people who default on their mortgage. But protesters said today that this was a case of too little, too late and announced their intention to continue their march to the European Union headquarters in Brussels. Ms Puerta said: "We want to arrive there in early October, to keep our cause in the public eye."

Welt am Sonntag:

• European Central Bank Executive Board Member Lorenzo Bini Smaghi warned against provided a Greek-style debt-relief package to other euro-area countries. Bini Smaghi said he was "surprised" by former ECB chief economist Otmar Issing's comment that Greece should quit the euro area after a debt restructuring.
• Germans expect the euro-area debt crisis to have "serious consequences" for the currency, citing a survey by market research company GfK. Altogether, 71% of the 1,068 surveyed see "serious consequences" for the euro, while 47% expect the euro to lose value through inflation. 31% of those surveyed expect some countries to have to exit the euro zone, while 20% believe the euro zone will fall apart entirely, citing the survey.

Tagesspiegel am Sonntag:

• The European Union's latest aid package for Greece is "incomplete," according to Germany's opposition leader Frank-Walter Steinmeier. Steinmeier said the measures for reconstruction of the Greek economy and the "initiation of investments" are "at best vague," the newspaper said.

Bild am Sonntag:

• About 53% of Germans oppose debt relief for Greece, citing a survey carried out by Emnid on July 22. Bild am Sonntag said 39% of Germans are in favor of debt alleviation for Greece, the paper said in an e-mailed preview of the report. In addition, 72% of Germans don't believe the euro has been "saved" by the decisions made at the euro-zone leaders' summit in Brussels this week.

Ansa:

• Umberto Bossi, the leader of the Northern League party and a key ally of Italian Prime Minister Silvio Berlusconi, said the adoption of the euro was one of the two biggest "mistakes" in Italy's history, citing comments by the politician.

Weekend Recommendations
Barron's:

• Made positive comments on (WFT), (IBM) and (AAPL).

Citigroup:

• Reiterated Buy on (SLB), raised estimates, boosted target to $125.

Night Trading

• Asian indices are -1.50% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 116.0 +1.0 basis point.
• Asia Pacific Sovereign CDS Index 116.50 -2.75 basis points.
  
• S&P 500 futures -.93%.
• NASDAQ 100 futures -1.07%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (BEAV)/.51
• (BHI)/.91
• (ETN)/.95
• (LO)/2.01
• (KMB)/1.14
• (HCA)/.59
• (PCL)/.29
• (NFLX)/1.12
• (APC)/.94
• (TXN)/.53
• (MAS)/.07
• (OMI)/.49
• (BRCM)/.39
• (ADVS)/.12
• (BXS)/.04
• (SLAB)/.46
• (JEC)/.70
• (AAN)/.41
  

Economic Releases
8:30 am EST

• The Chicago Fed National Activity Index for June is estimated to fall to -.40 versus -.37 in May.

10:30 am EST

• The Dallas Fed Manufacturing Activity Index for July is estimated to rise to -5.2 versus -17.5 in June.

Upcoming Splits

• (CLH) 2-for-1
  

Other Potential Market Movers

• The 3 & 6-Month T-Bill Auctions could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by transportation and commodity shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 100% net long heading into the week.

Weekly Outlook

U.S. Week Ahead by MarketWatch (video).
Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on rising global growth fears, US "fiscal cliff" concerns, rising food/energy prices, rising Eurozone debt angst, profit-taking and technical selling. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 50% net long heading into the week.

Market Week in Review

S&P 500 1,345.02 +2.19%*



The Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices

• S&P 500 1,345.02 +2.19%
  
• DJIA 12,681.10 +1.61%
  
• NASDAQ 2,858.83 +2.47%
  
• Russell 2000 841.82 +1.57%
  
• Wilshire 5000 14,096.42 +2.1%
  
• Russell 1000 Growth 627.99 +2.2%
  
• Russell 1000 Value 673.69 +2.07%
  
• Morgan Stanley Consumer 768.37 -.02%
  
• Morgan Stanley Cyclical 1,071.84 +.15%
• Morgan Stanley Technology 662.65 +2.03%
  
• Transports 5,428.24 +1.60%
  
• Utilities 439.23 +1.67%
  
• MSCI Emerging Markets 47.59 +1.66%
  
• Lyxor L/S Equity Long Bias Index 1,027.58 +.07%
  
• Lyxor L/S Equity Variable Bias Index 895.04 +.25%
  
• Lyxor L/S Equity Short Bias Index 593.14 -1.91%
  

Sentiment/Internals

• NYSE Cumulative A/D Line 130,124 +1.29%
  
• Bloomberg New Highs-Lows Index 86 +219
  
• Bloomberg Crude Oil % Bulls 41.0 -4.6%
  
• CFTC Oil Net Speculative Position 154,947 +2.69%
  
• CFTC Oil Total Open Interest 1,493,882 -2.88%
  
• Total Put/Call .83 -23.15%
  
• OEX Put/Call 1.82 +85.71%
  
• ISE Sentiment 127.0 +108.20%
  
• NYSE Arms .95 -22.76%
  
• Volatility(VIX) 17.52 -10.29%
• G7 Currency Volatility (VXY) 10.83 -5.91%
  
• Smart Money Flow Index 10,506.51 +1.74%
  
• Money Mkt Mutual Fund Assets $2.672 Trillion-.90%
  
• AAII % Bulls 39.86 +1.40%
  
• AAII % Bears 30.61 +4.65%

Futures Spot Prices

• CRB Index 347.93 +.47%
  
• Crude Oil 99.87 +2.08%
  
• Reformulated Gasoline 313.01 -.39%
  
• Natural Gas 4.40 -3.28%
  
• Heating Oil 312.80 -.03%
  
• Gold 1,601.50 +.44%
  
• Bloomberg Base Metals 263.43 +2.09%
  
• Copper 441.0 -.18%
  
• US No. 1 Heavy Melt Scrap Steel 416.67 USD/Ton unch.
  
• China Hot Rolled Domestic Steel Sheet 4,823 Yuan/Ton +.69%
  
• UBS-Bloomberg Agriculture 1,743.02 +1.63%
  

Economy

• ECRI Weekly Leading Economic Index Growth Rate 1.7% unch.
  
• S&P 500 EPS Estimates 1 Year Mean 95.90 +.03%
  
• Citi US Economic Surprise Index -92.80 +7.1 points
  
• Fed Fund Futures imply 13.7% chance of no change, 86.3% chance of 25 basis point cut on 8/9
• US Dollar Index 74.24 -1.17%
  
• Yield Curve 257.0 +2 basis points
  
• 10-Year US Treasury Yield 2.96% +5 basis points
  
• Federal Reserve's Balance Sheet $2.855 Trillion -.23%
  
• U.S. Sovereign Debt Credit Default Swap 52.94 -5.12%
• Illinois Municipal Debt Credit Default Swap 191.0 +3.11%
  
• Western Europe Sovereign Debt Credit Default Swap Index 285.17 -2.06%
• Emerging Markets Sovereign Debt CDS Index 179.58 -5.27%
• Saudi Sovereign Debt Credit Default Swap 91.96 -4.58%
• Iraqi 2028 Government Bonds 91.01 +.20%
• 10-Year TIPS Spread 2.37% +8 basis points
  
• TED Spread 22.0 -2 basis points
  
• N. America Investment Grade Credit Default Swap Index 93.08 -4.12%
  
• Euro Financial Sector Credit Default Swap Index 135.52 -14.11%
  
• Emerging Markets Credit Default Swap Index 212.15 -4.52%
  
• CMBS Super Senior AAA 10-Year Treasury Spread 195.0 unch.
  
• M1 Money Supply $1.976 Trillion -1.05%
  
• Business Loans 647.50 -.34%
  
• 4-Week Moving Average of Jobless Claims 421,300 -.60%
  
• Continuing Claims Unemployment Rate 2.9% -10 basis points
  
• Average 30-Year Mortgage Rate 4.52% +1 basis point
  
• Weekly Mortgage Applications 556.0 +15.52%
  
• Bloomberg Consumer Comfort -43.30 +.6 point
  
• Weekly Retail Sales +4.6% -80 basis points
  
• Nationwide Gas $3.69/gallon +.02/gallon
  
• U.S. Cooling Demand Next 7 Days 28.0% above normal
• Baltic Dry Index 1,323 -2.22%
  
• Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 37.50 unch.
  
• Rail Freight Carloads 230,324 +19.57%
  

Best Performing Style

• Large-Cap Growth +2.21%

Worst Performing Style

• Small-Cap Value +1.47%

Leading Sectors

• I-Banking +6.55%
• Coal +6.10%
  
• Oil Services +5.18%
• Computer Services +4.16%
• Semis +3.73%

Lagging Sectors

• Telecom -.08%
• Hospitals -.15%
• HMOs -.31%
  
• Oil Tankers -1.76%
  
• Airlines -4.82%

Weekly High-Volume Stock Gainers (16)

• IDCC, HK, SXC, SFN, NLC, CNS, ETFC, PDC, MHS, RRC, PPDI, MANH, CLX, ANGO, AOS and ESRX
  

Weekly High-Volume Stock Losers (12)

• GHL, LNCR, INFA, FLIR, END, BRO, AVY, VIVO, AMAG, SKYW, FTNT and WBMD
  

Weekly Charts
ETFs

• High-Volume Gainers
• High-Volume Losers

Stocks

• High-Volume Gainers
• High-Volume Losers
  

*5-Day Change

Stocks Rising Slightly Into Final Hour on Tech Sector Strength, Buyout Speculation, Short-Covering, Technical Buying

Broad Market Tone:

• Advance/Decline Line: About Even
  
• Sector Performance: Most Sectors Rising
  
• Volume: Below Average
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 17.34 -1.14%
  
• ISE Sentiment Index 126.0 -4.55%
  
• Total Put/Call .90 +21.62%
  
• NYSE Arms .90 +15.35%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 93.08 +.38%
  
• European Financial Sector CDS Index 141.87 +2.23%
  
• Western Europe Sovereign Debt CDS Index 285.17 -1.95%
  
• Emerging Market CDS Index 212.15 -.27%
  
• 2-Year Swap Spread 24.0 -1 bp
  
• TED Spread 22.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .03% unch.
  
• Yield Curve 257.0 -3 bps
  
• China Import Iron Ore Spot $174.10/Metric Tonne unch.
  
• Citi US Economic Surprise Index -92.80 +1.0 point
  
• 10-Year TIPS Spread 2.37% -1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating +30 open in Japan
• DAX Futures: Indicating +20 open in Germany

Portfolio:

• Higher: On gains in my Tech, Biotech and Retail sector longs
  
• Disclosed Trades: None
  
• Market Exposure: 100% Net Long

BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades near session highs despite terrorism fears, recent stock gains, euro currency weakness, some earnings disappointments, US debt ceiling concerns, rising food/energy prices, emerging markets inflation fears and global growth worries. On the positive side, Coal, Oil Service, Internet, Software, Computer, Semi, Disk Drive, Networking, Restaurant and Education shares are especially strong, rising more than +1.0%. Tech sector shares have substantially outperformed throughout the day. Small-caps are also displaying relative strength. "Growth" stocks are also strongly outperforming "value" shares again. Copper is rising +.51%. The Ireland sovereign cds is falling -5.28% to 865.58 bps, the Portugal sovereign cds is falling -3.0% to 917.22 bps and the Greece sovereign cds is plunging -19.24% to 1,637.75 bps. Moreover, the Eurozone Investment Grade CDS Index is dropping another -2.37% to 92.11 bps. On the negative side, Airline, Tobacco, HMO, Medical Equipment, Paper and Defense shares are under pressure, falling more than -.75%. Cyclicals are relatively weak. (XLF) is underperforming after recent gains. Oil is rising +.44%, gold is jumping +.75%, lumber is falling -2.56% and the UBS-Bloomberg Ag Spot Index is jumping +1.52%. Rice is hovering near a multi-year high, and has soared almost +30.0% in about 2 weeks. The US price for a gallon of gas is unch. today at $3.69/gallon. It is up .55/gallon in less than 5 months. The 10-year yield is falling -5 bps today to 2.96%, despite US debt ceiling concerns. The Belgium sovereign cds is gaining +3.24% to 168.87 bps, the Germany sovereign cds is gaining +4.22% to 57.64 bps and the France sovereign cds is rising +2.78% to 102.78 bps. Chinese equities were just slightly higher overnight and have been unable to rally with the rest of the world over the past three days. The rise in German/French cds is a large red flag regarding the recent debt deal. Longer-term, this deal will be viewed very poorly by the citizens of core eurozone countries. I suspect US shares can continue to rally early week as long as the debt ceiling negotiations are perceived as heading in the right direction by investors. I expect US stocks to trade mixed-to-higher into the close from current levels on tech sector strength, short-covering, bargain-hunting, buyout speculation and technical buying.

Today's Headlines

Bloomberg:

• Oslo Bomb at Government Office Kills Seven; Shooting Deaths at Youth Camp May Be Linked. A bomb blast tore through central Oslo, shattering windows at the prime minister’s office and nearby buildings and killing at least two people. At least seven people are now being treated at Oslo University Hospital, spokesman Jo Heldaas said. Prime Minister Jens Stoltenberg wasn’t in the building at the time and is safe, spokesman Oeivind Oestang said by phone. The blast, which was reported to police at 3:26 p.m., was followed by a shooting at a Norwegian Labor Party youth gathering that left four dead and several injured, newspaper Varden reported. The attacks may be linked, Police Chief of Staff Einar Aas said. “The police can confirm that there are fatalities and injured people as a result of the explosion at the government offices,” the police said in a statement. “Large sections of the center of Oslo have been evacuated and the police are urging people to stay away from the center of the city and limit their use of mobile phones.” Three terrorist suspects with possible ties to al-Qaeda were arrested last year in Norway.
• Greece Leads Plunge in Sovereign Credit-Default Swaps After Rescue Package. Greece led a decline in the cost of insuring against a default on European government bonds after politicians agreed on an aid package to end the 21-month-old sovereign crisis and prevent contagion to Spain and Italy. Swaps on Greece plunged 500 basis points to a six-week low of 1,500 as of 12:15 p.m. in London, dropping the most on record. The Markit iTraxx SovX Western Europe Index of default swaps tied to 15 governments fell 20 basis points to 243. Contracts insuring Italian debt fell 29 basis points to 224, Spain was down 24 basis points to 284, Portugal declined 108 basis points to 836 and Ireland dropped 97.5 basis points to 810, CMA prices show. Swaps on Greece are down from an all-time high of 2,568 basis points on that same day, and still signal a 72 percent chance the nation will default within five years, according to CMA. The Markit iTraxx Crossover Index of 40 European companies with mostly high-yield credit ratings fell 11 basis points to 408, while the Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers dropped 5 basis points to 159, according to JPMorgan Chase & Co.
• Fitch Ratings Says Greece Faces 'Restricted Default' After New Debt Plan. Fitch Ratings said Greece faces "restricted default’' after euro-area leaders agreed on a new bailout for the nation that would involve contributions from bondholders. The private sector involvement in a new deal “in Fitch’s opinion, constitutes an event of ‘Restricted Default,’” the ratings company said in a statement today. “According to the Institute for International Finance, the proposed debt exchange implies a 20 percent net present value loss for banks and other holders of Greek government debt. An exchange that offers new securities with terms that are worse than the original contractual terms of the existing debt and where the sovereign is subject to financial distress constitutes a default event under Fitch’s ‘Coercive Debt Exchange Criteria.’”
  
• ISDA Says EU's Aid Package 'Shouldn't Trigger' Greece Credit-Default Swaps. The International Swaps & Derivatives Association said participation of private bondholders in the Greek rescue plan “should not trigger credit-default swaps” on the nation because it’s “expressly voluntary.”
• Rice to Rally as Global Demand, Thai Buying Stoke Increased Export Prices. Rice prices may advance as global demand increases and a new government in Thailand, the largest shipper, pays farmers above-market rates for supplies and pushes up export costs, the Thai Rice Exporters Association said. “Demand is still filtering into the market non-stop,” Korbsook Iamsuri, president of the group, said in an interview on Bloomberg Television today. The extent of the gains will be determined by the volume of grain that Thailand’s new government buys and the design of its plan, said Korbsook. Higher prices of rice, staple for half the world, would fuel global food costs that reached an all-time high in February, according to United Nations’ gauge. Rice is already this year’s best-performing grain after farmers in the U.S., the third- largest exporter, switched to other crops. Rice has “a massive food-inflation potential,” said Jonathan Barratt, managing director at Commodity Broking Services Pty., who correctly predicted a rally last week. “That’s something that needs to be widely watched.”
• Corporates 'Ripe' for Third-Quarter Buybacks, Meli Says. Corporations are facing “ripe” conditions for buying back shares, pursuing mergers and acquisitions and increasing debt after hoarding cash since 2009, said Barclays Capital’s Jeffrey Meli. “Conditions will be ripe once macro-volatility settles down in the third quarter for corporations to start getting more aggressive with their balance sheets,” Meli, head of credit strategy at the firm in New York, said today in an interview on Bloomberg Television’s “InBusiness with Margaret Brennan.” “Some of the lessons from 2009 in terms of needing to hoard cash, needing to run very conservative balance sheets, are starting to fade.”
• Gold Approaches Record High on Haven Demand Amid U.S., Europe Debt Anxiety. Gold approached a record high on demand for an investment haven amid persistent debt concerns in the U.S. and Europe. Greece faces a “restricted default,” Fitch Ratings said, after European leaders agreed yesterday to an additional bailout. U.S. lawmakers are still debating on raising the $14.3 trillion debt ceiling before the government runs out of cash on Aug. 2. Gold reached a record $1,610.70 an ounce on July 19. “There’s a clamor for gold as the printing presses go off around the world,” Adam Klopfenstein, a strategist at Lind- Waldock, a broker in Chicago, said in a telephone interview. “The U.S. and Europe have structural problems, and there’s a camp of investors that are willing to buy until these problems are fixed.” Gold futures for August delivery rose $17.20, or 1.1 percent, to $1,604.20 at 11:10 a.m. on the Comex in New York.
• New York Fed Fails to Amend Conflict Rules After Dudley Waiver. The Federal Reserve Bank of New York failed to revise conflict-of-interest rules to reflect its responsibility for a broader array of financial firms under the Dodd-Frank Act passed a year ago, the Government Accountability Office said yesterday. The New York Fed hasn’t changed its “policies and procedures to more fully reflect potential conflicts that could arise with this expanded role,” the GAO said in a report. It showed that a New York Fed official, separately identified as William C. Dudley, now the bank’s president, received a waiver in 2008 to keep shares of insurer American International Group Inc. after it was bailed out by the central bank. Fed staff will be involved in overseeing a wider range of companies after Dodd-Frank gave it authority over non-bank firms, such as insurers, whose failure could pose a risk to the financial system. That may give rise to potential conflicts like the one involving the ownership of AIG shares by Dudley, who was head of the New York Fed’s markets group in 2008. “They should simply say that staff -- at least senior staff -- must sell stock in all financial services firms,” said Richard Painter, former White House ethics lawyer for President George W. Bush. “If one waits until a crisis arises, insider- trading law may make it impossible to sell. And recusal may not be a good option for the most senior officials. Waiver of the conflict looks bad -- very bad.”
• Apple(AAPL) Surpasses Lenovo Revenue in China on Strength of iPhone, iPad Sales. Apple Inc. (AAPL) may have surpassed Lenovo Group Ltd. (992)’s revenue in China and surrounding region for the first time in at least a decade as the iPhone-maker’s surge in sales hurt growth at the biggest Chinese computer maker. Lenovo’s combined revenue in China, Hong Kong and Taiwan last quarter lagged behind the $3.8 billion for Apple, according to four analysts surveyed by Bloomberg News.

Wall Street Journal:

• Deadly Attacks Shake Norway. Norway's capital was shaken Friday by a powerful explosion at the government headquarters that left at least seven dead and several injured, an incident that was followed by an attack at a youth camp outside the capital. The bomb blast in central Oslo damaged a number of buildings, including the finance ministry and the government headquarters, but Prime Minister Jens Stoltenberg, was unhurt, according to his spokeswoman.
• Senate Rejects GOP Budget Plan. The Senate on Friday rejected a House Republican budget proposal, a symbolic vote that came as the White House and congressional leaders tried to seal a bipartisan agreement to raise the U.S. debt ceiling and avoid a financial crisis. The Senate voted 51-46 to set aside consideration of the Republican "Cut, Cap and Balance" plan.
  
• Will Congress Kill Your Favorite Tax Deductions? Some people call them "tax loopholes," while others prefer "tax breaks." In Congress, they are often called "tax expenditures." Whichever term of art you prefer, hundreds of tax deductions, credits and exclusions that taxpayers rely on every year are at risk of being cut. Here is a rundown of the Joint Tax Committee's top 10 tax expenditures, along with their 2010-14 revenue cost.
• U.N. Clears China Sea-Floor Plan. Beijing's First Manned Deep-Sea Craft, the Jiaolong, Will Explore the Ocean Floor for Minerals. As China's first manned deep-sea craft prepared for a landmark dive to 5,000 meters, or 16,400 feet, that surpasses current U.S. capabilities, a United Nations body approved Beijing's plan to explore a swath of ocean floor between Africa and Antarctica for metal deposits.
• McDonald's(MCD) Profit Gains 15% on McCafe Drinks. McDonald’s Corp. (MCD), the world’s largest restaurant chain, said second-quarter profit rose 15 percent, topping analysts’ estimates, as more consumers dined out and McCafe beverages boosted sales. McDonald’s rose $2.43, or 2.8 percent, to $88.97 at 10:28 a.m. in New York Stock Exchange composite trading.
• Caterpillar(CAT) Profit Misses Estimates on Japan. Caterpillar Inc. (CAT), the world’s largest construction and mining-equipment maker, posted lower- than-expected profit for the first time in 10 quarters after the Japanese earthquake and tsunami reduced sales, demand slowed in China and manufacturing costs rose. Caterpillar dropped $7.18, or 6.4 percent, to $104.42 as of 10:30 a.m. in New York Stock Exchange composite trading. Caterpillar saw “some softening of growth” in China, Oberhelman said in the statement.
• Ford(F) Irks Obama Administration, Rivals, With Conflicting Fuel Economy Stands. Ford Motor Co. managed to miff both the Obama administration and its Detroit counterparts this week during negotiations to toughen up federal fuel economy laws. The White House is rushing to strike a deal that both environmentalists and the U.S. auto industry can live with that would roughly double corporate average fuel economy. Ford, which didn’t take federal bailout money as did rivals General Motors Co. and Chrysler Group LLC, had been winning political points by positioning itself as the Detroit auto maker most willing to accept tough measures. Things became awkward this week when administration officials learned that Ford was a driving force behind a radio ad campaign critical of the standards, according to several people with knowledge of the situation.
• Politicians Put Pressure on Murdoch.
• Jobless Rate Rises in Most U.S. States. The unemployment rate increased in 28 states in June, reflecting the nationwide increase to 9.2% from 9.1% over the month, the Labor Department said. Some 14 states saw their unemployment rate hold steady while eight logged decreases.

Business Insider:

• LIVE COVERAGE: Tragedy In Norway As Gunman Shoots Wildly at Youth Camp After Bomb in Oslo.
• 39 Things That Are Driving Ordinary Americans Absolutely Crazy.
• The Biggest Lie In The Greek Relief Package.
  

Zero Hedge:

• EFSF and Sovereign CDS Pitchbook Updates. The conclusion: The reality is that Germany, France, and the Netherlands, or maybe just Germany, will have to guarantee a combined 100% of EFSF issuance. The original EFSF made a lot of effort to protect EFSF loans from losses. All that those protections are gone and any rational investor has to assume the EFSF will have large mark to market losses up front and potentially large realized losses over time. You would only lend to EFSF if it was fully backed by the AAA members, and ideally Germany as they are the strongest and biggest by far. It remains to be seen if the entire market sees it this way, and if they do, will Germany be willing to provide that much support? I remain highly skeptical that this plan will ever be implemented in a meaningful way because it will place too much pressure on the AAA nations.
• Norway Bomb Explosion Aftermath Video.
  

Drugs.com:

• Survey Suggests 'Sexting' Rampant in College. A survey of college students suggests that "sexting" is rampant: More than half said they have received sexual images on their phones, and almost eight in 10 said they've gotten suggestive text messages. Two-thirds of the students surveyed said they'd sent suggestive text messages. Of those, 10 percent passed them on without consent of the person who first sent them. "It is important to help everyone, especially students, understand the importance of setting boundaries around their use of technology," research co-leader Tiffani S. Kisler, an assistant professor at the University of Rhode Island, said in a news release from the university.

Apple Insider:

• China's Mobile, Telecom, Unicom to Sell Apple's iPhone 5 This Year - Report. Both China Unicom and China Telecom, two of the largest mobile carriers in the world, will sell Apple's fifth-generation iPhone as soon as this quarter, with the largest prize -- China Mobile -- to follow, according to a new report.

Politico:

• Dodd-Frank Does Nothing to Change Wall Street. It’s been a year since President Barack Obama signed the Dodd-Frank Wall Street bill, yet little has changed for the better in our financial markets — and much has changed for the worse. Dodd-Frank promised the American public an end to the notion of “too big to fail.” Though the act offers government the tools to resolve failing firms without cost to the taxpayer, it leaves regulators the option of not liquidating those firms or doing so while protecting bondholders and charging the red ink to the taxpayer or to the rest of the financial services industry. Not only has Dodd-Frank failed to end too big to fail; it has extended the federal safety net. The much-heralded derivatives provisions actually, for the first time, set up a process where clearinghouses can access the Federal Reserve’s discount window. Instead of reducing risk in the derivatives market, the act aggregates that risk into a few entities, then wraps an implicit guarantee around those same entities. In addition, the more than doubling of the ceiling for insured bank deposits grossly reduces market discipline, while putting the taxpayer further on the hook for any Federal Deposit Insurance Corp. losses.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Friday shows that 25% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty percent (40%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -15 (see trends).

Reuters:

• ECB Says Weber's Move to UBS Presents No Conflict. Former Bundesbank chief and European Central Bank policymaker Axel Weber's move to the board of Swiss bank UBS is in accord with the ECB's governance rules, it said on Friday. "The Governing Council assessed Axel Weber's future position as a member of the board of directors of UBS with effect from May 1, 2012 as being compatible with the Code of Conduct," the ECB said in a summary of decisions taken by the Governing Council.
• Customers Angry, Staff Defiant at China's Fake Apple(AAPL) Store. "When I heard the news I rushed here immediately to get the receipt, I am so upset," a customer surnamed Wang told Reuters, near tears. "With a store this big, it looks so believable who would have thought it was fake?" Customers at an apparent Apple Store in the Chinese city of Kunming berated staff and demanded refunds on Friday after the shop was revealed to be an elaborate fake, sparking a media and Internet frenzy. Long a target of counterfeiters and unauthorized resellers, Apple Inc was alerted to the near flawless fake shop by an American blogger living in the southwestern city, more than 1,000 miles from the nearest genuine Apple stores in Beijing and Shanghai. Staff were also angry at the unwanted attention after more than 1,000 media outlets picked up the story and pictures of the store from the BirdAbroad blog. "The media is painting us to be a fake store but we don't sell fakes, all our products are real, you can check it yourself," said one employee, who didn't want to give his name. "There is no Chinese law that says I can't decorate my shop the way I want to decorate it."
• Wall Street Still Gives Big Cash to Obama. Despite howls of protests from many on Wall Street over some of President Barack Obama's policies, financial sector employees are giving at a greater rate to his re-election bid than during his last campaign. One-third of the funds hauled in by Obama's big-money backers came from executives and others linked to the financial world, according to a report from the Center for Responsive Politics released on Friday. The financial sector accounted for about 20 percent of what Obama's top fundraisers raised during his 2008 bid.

Handelsblatt:

• The euro area's new aid to Greece reveals "negligence" toward taxpayers' interests and an unacceptable lack of accountability for indebted states, the vice president of Germany's taxpayers lobby said. "The EU decision that the bailout fund in the future can buy debt of states in crisis by itself seals the transformation into a liability union," he said.

Caixin:

• How China's Banks Risk Wealth Management Cash. Banks are rolling over wealth management investments to finance real estate and local government projects, raising red flag.

CCTV:

• China will continue its proactive fiscal policy and prudent monetary policy in the second half this year with stabilizing prices as a priority, citing President Hu Jintao.