Monday Watch

Weekend Headlines
Bloomberg:

• Congressional Leaders: Obama Approve Debt-Limit Increase. President Barack Obama said tonight that leaders of both parties in the U.S. House and Senate had approved an agreement to raise the nation’s debt ceiling by $2.1 trillion and cut the federal deficit by as much as $2.5 trillion over a decade, a deal that must now be sold to Congress. “The leaders of both parties in both chambers have reached an agreement that will reduce the deficit and avoid default,” Obama said at the White House. “This compromise does make a serious down payment on the deficit-reduction we need. Most importantly it will allow us to avoid default.” Congressional leaders reached a bipartisan agreement to raise the debt ceiling by at least $2.1 trillion, sufficient to serve the nation’s needs into 2013. They are preparing to sell to members the deal to cut $917 billion in spending over a decade, raising the debt limit initially by $900 billion, and to charge a special committee with finding another $1.5 trillion in deficit savings by the year’s end. They confront an Aug. 2 deadline for approval of the agreement.
• Spain Remains in 'Danger Zone' as European Debt Crisis Persists, IMF Says. Spain is still in “the danger zone” and must keep up momentum in restructuring its economy to stave off contagion from Europe’s sovereign-debt crisis, the International Monetary Fund said. “The outlook is difficult and the risks elevated,” the Washington-based IMF said in a report yesterday after a visit by staff to Spain. “The policy agenda remains challenging and urgent -- there can be no let up in the reform momentum.” The assessment coincided with Prime Minister Jose Luis Rodriguez Zapatero’s decision the same day to call early elections on Nov. 20 and Moody’s Investors Service’s warning that it may downgrade Spain. The euro-region’s fourth-biggest economy is trying to rein in surging borrowing costs that have pushed the yield on its 10-year bond above 6 percent, hindering efforts to stoke growth as unemployment stays above 20 percent. “Many of the imbalances and structural weaknesses accumulated during the boom remain to be fully addressed,” the fund said. “Spain is not out of the danger zone” and “scenarios of negative spillovers from Spain indicate a substantial impact on the rest of Europe and indeed globally, given the country’s systemic importance.”
• Chinese Social Unrest Leaves 14 Dead. Police in China’s northwest Xinjiang province shot and killed four people, bringing the death toll from two days of violence to at least 14, the state-run Xinhua News Agency said. The four were killed after three people were slain by rioters yesterday in the city of Kashgar, the news agency said. Xinhua had earlier reported that the three were killed in an explosion that was heard in the city in the afternoon. Police took four people into custody and were looking for four more. The shootings in Xinjiang, where the Beijing government has faced ethnic-related violence in the past, came after at least seven people were killed July 30 in Kashgar, Xinhua said. Two people hijacked a truck, stabbed the driver to death and rammed into pedestrians, the agency said. They then got out of the truck and started stabbing people, it said. Years of central government policies encouraging migration of majority Han Chinese to areas such as Tibet and Xinjiang have stoked ethnic tensions. On July 18, police in the Xinjiang city of Hotan shot 14 people who attacked a police station, Xinhua said. citing an unidentified Communist Party official in the city.
• BRIC Banks Signaling Credit Risks as Loans Sour. Banks in the biggest emerging markets are losing the confidence of investors as loans turn sour after a two-year credit binge. Brazil’s financial shares have lost more this year than counterparts in crisis-stricken Europe as consumer defaults hit a 12-month high in June and borrowing costs climbed to 46 percent. Bank stocks in China are trading at lower valuations than global emerging-market indexes for the first time since 2006. The country faces a financial crisis with bad debt that may jump to 30 percent of total loans, Fitch Ratings said. In India, the cost of insuring banks against default has climbed to the highest level in a year. Loan-loss provisions at State Bank of India (SBIN), the nation’s largest lender, rose 77 percent in the first three months of 2011, while net income fell 99 percent. “People are beginning to smell the credit cycle turning,” Michael Shaoul, chairman of Marketfield Asset Management and chief executive officer of New York-based brokerage Oscar Gruss & Son, said in an interview. “Credit cycles have tremendous momentum, and whenever they turn you want to pay attention,” said Shaoul, who recommends selling high-yield bonds in emerging markets and betting on further losses in bank shares. Loans to Brazilian shoppers, Chinese infrastructure projects and Indian developers have fueled the global economic recovery and turned emerging-market banks into some of the world’s biggest companies by market value. Now increased debt burdens threaten growth as central banks raise interest rates to fight inflation, U.S. hiring stalls and Europe deepens austerity measures. China and Brazil may see expansion cut by at least 50 percent in the next few years, according to economic consulting firms A. Gary Shilling & Co. and Capital Economics Ltd.
• Syria Kills at Least 150 in Hama on Ramadan Eve. At least 150 people were killed in Syria yesterday, al Jazeera reported, as soldiers sought to reassert control over a restive nation in one of the deadliest bouts of violence since the uprising against President Bashar al-Assad began more than four months ago. The army took action the day before the start of Ramadan, the Muslim month of fasting and prayer. Tanks shelled Hama, Syria’s fourth-largest city, where at least 113 people were killed, the Qatari-based television network said, citing the National Organization for Human Rights in Syria.
• Funds Increase Bullish Commodity Bets. Funds lifted bets on rising commodity prices to a six-week high after traders snapped up raw materials as alternative assets amid the escalating U.S. debt crisis. Speculators raised their net-long position in 18 commodities by 10,063 futures and options contracts to 1.27 million in the week ended July 26, government data compiled by Bloomberg show. That’s the highest since June 14. Silver holdings rose for a fourth straight week, and bullish sugar bets climbed to the highest since February 2010. Investors put $570 million into commodity funds in the week ended July 27, the fourth consecutive increase, and year-to-date inflows totaled $11.05 billion, Cameron Brandt, director of research at Cambridge, Massachusetts-based EPFR Global, said in a telephone interview.
• Bolton Calls for U.S. to Close Listings Loophole, FT Reports. Fidelity International Ltd. fund manager Anthony Bolton urged the U.S. to close a loophole that allows Chinese companies to list on its exchanges through reverse takeovers, the Financial Times reported. Chinese companies use the practice by merging with a U.S. shell company to avoid the scrutiny of an initial public offering, the newspaper cited Bolton as saying. He made his comments yesterday at the first general meeting of the Fidelity China Special Situations fund, the Financial Times said. U.S.-listed Chinese companies were among the lowest performers in Bolton’s portfolio at Fidelity, the FT said.
• Lansdowne Sells $850 Million Goldman(GS) Stake, Sunday Telegraph Reports. Lansdowne Partners Ltd., a London- based hedge fund, sold its $850 million stake in Goldman Sachs Group Inc. (GS), the Sunday Telegraph reported, without saying where it got the information. The decision was based partly on reduced proprietary trading at Goldman Sachs stemming from regulation in the U.S., the newspaper said. Lansdowne was among the top 20 investors in Goldman Sachs, and the stake made up almost 10 percent of the hedge fund’s $10 billion under management, according to the Sunday Telegraph. The last time Lansdowne sold shares of Goldman Sachs was before the collapse of Lehman Brothers Holdings Inc. in 2008, the paper said.
• India Shunning 'Big Bang' Economic Change Risk Singh's Legacy. Prime Minister Manmohan Singh’s push to deepen India’s welfare system may divert focus from the investment and regulatory changes needed to sustain an economic transformation that he unleashed two decades ago. The government is expanding education and rural jobs plans whose costs could swell by almost 2 percentage points of gross domestic product, International Monetary Fund estimates show. Singh also aims to submit a bill in the parliamentary session starting today securing low-cost food for more than 800 million people, more than the combined U.S. and euro-area population. While embracing such populist measures may help shore up support for a government roiled by corruption charges, it means proposals to boost investment and overhaul tax and land-use laws risk languishing, analysts said.
• Worst Europe Earnings Hitting Industrials as Stoxx 600 Falls 9%. Profits at European companies are trailing analyst estimates by the most in at least five years, dragged down by manufacturing shares that had been forecast to lead a rally in the second half of the year. About 53 percent of companies in the Stoxx Europe 600 Index that have reported earnings since July 11 missed analysts’ projections. That’s the most in data compiled by Bloomberg since 2006. The benchmark gauge lost 3.1 percent in the period, the largest decline to start an earnings season since April 2010.
• Dollar Bear Bets Rise to Highest Since May. Investors boosted bearish bets on the dollar to the highest level in more than two months on concern the political stalemate in Washington on raising the U.S. debt limit will erode the value of the world’s reserve currency. Aggregate wagers against the greenback rose for the fourth consecutive week, data from the Commodity Futures Trading Commission in Washington show. Futures traders added to bets the dollar will weaken against the euro, yen, Australian and Canadian dollars, British pound and Mexican peso. Hedge funds and other large speculators had reduced bets against the dollar to 147,684 contracts as of June 28, the lowest level in more than nine months, as European policy makers debated a debt restructuring for Greece. CFTC data as of July 26 show traders added 162,538 so-called net shorts as the focus shifted to the U.S. debt negotiations.
• China Says Restaurant Attack Was Terror. Violence in western China’s Xinjiang region in the past two days killed at least 18 people in the city of Kashgar, with police calling one of the incidents a “premeditated terrorist attack,” according to the official Xinhua News Agency and the city government. Yesterday a “group of terrorists” entered a restaurant in Kashgar, the westernmost city in China near the border with Tajikistan and Kyrgyzstan, killing the owner and a waiter and setting fire to the restaurant, the Kashgar government said on its website. The attackers then killed four people and injured another 12 in knife attacks outside the restaurant before five of them were killed by police, the report said. Another four suspects were arrested, Xinhua said. The attacks yesterday followed a July 30 late-night knife attack in Kashgar that left six bystanders and one suspect dead and injured another 28 people, according to the city government. In that incident, two people allegedly stabbed a truck driver to death at a traffic light before turning on the crowd, the report said. Less than two weeks earlier, a July 18 riot in the city of Hotan, also in Xinjiang, left at least four people dead.
• Investor confidence in Brazil's central bank and Finance Ministry is flagging. Local bonds posted the biggest weekly decline in six months after the central bank signaled it may be done raising interest rates to curb inflation and the government levied a new tax on currency trading. Yields on government notes due in 2021 surged 26 basis points last week to 12.84%.
• Gold Coins Selling Out in Lisbon as Biggest Wager Sees 10% Gain. Rui Lola says gold sales at his foreign exchange and coin store in downtown Lisbon almost doubled this year, draining inventories faster than he can replace them. What’s happening at the Mundial Agencia de Cambios in the historic center of the capital underscores the global rush from investors seeking refuge from debt and banking crises. Holdings in exchange-traded products backed by gold reached a record $113 billion July 29, data compiled by Bloomberg show.
• China's July Home Prices Rise at Slowest in 11 Months on Government Curbs. China’s home prices rose at the slowest pace in 11 months in July after the government expanded efforts to curb the risk of an asset bubble, according to SouFun Holdings Ltd. (SFUN) Home prices gained 0.2 percent in July from June, the slowest since August last year. Residential prices increased in 66 out of 100 cities tracked by the nation’s biggest real-estate website owner, with average home values nationwide climbing to 8,874 yuan ($1,378) a square meter (10.76 square feet), SouFun said on its website today. China’s cabinet said last month it will expand measures to rein in residential prices to smaller cities after limiting home purchases in metropolitan areas including Beijing and Shanghai. The government is intensifying real-estate restrictions nationwide after developers posted gains in first-half sales and housing transactions climbed 31 percent in June, even as down payments on some mortgages were increased this year.

Wall Street Journal:

• Leaders Agree on Debt Deal. Plan to Cut $2.4 Trillion in Spending, Avoid Default Fails to Resolve Fraught Issues. After weeks of partisan wrangling, President Barack Obama and congressional leaders reached a deal Sunday night to raise the government's debt ceiling while cutting spending by about $2.4 trillion, avoiding a government default but setting the stage for months more of stormy debates over how Washington taxes and spends.
• Live Blog: US Debt Battle.
  
• A Tear Party Triumph. The debt deal is a rare bipartisan victory for the forces of smaller government.
  

Marketwatch.com:

• China Manufacturing Activity Shrinks in July: HSBC. China’s manufacturing activity contracted slightly in July, signaling a deterioration in the operating environment at the nation’s factories, as tighter monetary conditions weighed further on the sector, according to data released Monday by HSBC. The monthly purchasing managers index fell to 49.3, its lowest reading since March 2009, compared with 50.1 in June, HSBC said in its monthly statement. The final outcome was better than the 48.9 print recorded in a preliminary reading that HSBC released a few days earlier. The data, based on the results of a survey compiled by Markit, confirmed a slowing growth momentum in the manufacturing sector “against the backdrop of sustained tightening and lackluster external demand,” Hongbin Qu, HSBC’s chief economist for China, said in a statement accompanying the data.

Business Insider:

• The Dodd Frank Bill Explains How Financial Reform Is A Sham. (video)
• THE REVOLVING DOOR: 29 People Who Went From Wall Street To Washington To Wall Street. The list is super-long and filled with people from Goldman Sachs(GS).
• 300 Middle Class Families Are Sleeping In An Albuquerque Gym After Losing Their Homes And Jobs.
• Pyrrhic Victories And The Debt Ceiling by Vitaliy Katsenelson.
• The Credibility Of Japan's Nuclear Regulator Is "Shot To Pieces" After Yet Another Corruption Scandal.
  

Zero Hedge:

• Key Macro Catalysts In The Upcoming Week.

NY Times:

• China Imposes Blackout on Train Wreck Coverage. After days of growing public fury over last month’s high-speed train crash and the government’s reaction, Chinese authorities have enacted a virtual news blackout on the disaster except for positive stories or information officially released by the government. The sudden order from the Communist Party’s publicity department, handed down late Friday, forced newspaper editors to frantically tear up pages of their Saturday editions, replacing investigative articles and commentaries about the accident that killed 40 people in eastern China with cartoons or unrelated features. Major Internet portals removed links to news reports or videos related to the crash near Wenzhou in Zhejiang Province, in which 192 people were also injured. The government’s decision to muzzle the media followed a remarkable week of outpouring of online criticism of the government over the July 23 accident. For many in China, the train wreck has crystallized concerns about whether the government is sacrificing people’s lives and safety in pursuit of breakneck development and is cloaking its failures in secrecy or propaganda. As it did in the last major scandal over health and safety, the tainted baby formula crisis of 2008, the government has moved aggressively to shut down an outcry that, if left unchecked, could spiral into social unrest beyond its control.
• HSBC to Announce 10,000 Job Cuts. HSBC, Europe’s biggest bank, plans to announce thousands of job cuts on Monday as part of a wide-ranging cost-reduction program that started in May, a person with direct knowledge of the decision said Sunday. HSBC plans to cut about 10,000 jobs, or 3 percent of its global work force, said the person, who declined to be identified before the figures are made public.
• Optimism on Wall Street Tempered by Hurdles Ahead. “The debt ceiling is out of the way, but the current picture is far from rosy,” said Ajay Rajadhyaksha, head of United States fixed-income and securitized strategy at Barclays Capital. “Economic growth is so much weaker than many people thought just six months ago, and we are heading into a period of austerity.” Analysts and investors warned that the markets could remain turbulent in the weeks ahead. Besides sluggish economic growth, the threat of a ratings downgrade on United States debt and Europe’s continuing financial troubles loom.

NY Post:

• Getting Tough - But Not On Soros. 'Millionaires and billionaires," President Obama says derisively, must make more "sacrifices" and live by the same rules the rest of America lives by. But there are seven little words that will never appear on the White House teleprompter: "And that means you, too, George Soros." For all his (and his wife's) bashing of greedy Wall Street hedge-fund managers, Obama has shown nothing but love to the world's most famous hedge-fund mogul. The feeling is mutual and deep(-pocketed). Soros and his family shelled out $250,000 for Obama's inauguration, $60,000 in direct campaign contributions and untold millions more to liberal activist groups pushing the White House agenda.

Forbes:

• China's Hypocrisy In Blasting U.S. Over Debt Crisis.

Gallup:

• Gallup Daily: Obama Job Approval. 52% Disapprove, 41% Approve. (graph)
  

Politico:

• John Boehner: 'It's All Spending Cuts'. Speaker John Boehner sent lawmakers a seven-page sideshow presentation in advance of their conference call which calls the debt deal a “two-step approach to hold President Obama accountable.” The blue PowerPoint slideshow says that the deal has “three main features:” it cuts government spending more than it raises the debt cap, puts in place spending cuts that “restrain(s) future spending,” and “advances the cause of a balanced budget amendment.”

Real Clear Politics:

• Senator Marco Rubio: "Save The Whole House Or It Will All Burn Down". (video)

The Blaze:

• Islamists Call For Shariah Law At Massive Egyptian Demonstration. (video) Ultraconservative Muslims turned out in force Friday as tens of thousands filled Cairo’s central Tahrir Square in a rally marked by a growing rift in the protest movement. In one of the largest crowds to fill the square since the popular uprising that ousted President Hosni Mubarak in February, Salafis chanted for the implementation of strict Islamic law – spurring accusations that they violated an agreement to keep the rally free from divisive issues.

Reuters:

• White House: Expiration of Bush Tax Cuts to Spur "Reform". White House officials said on Sunday the spending cuts laid out under a new deficit deal would not take effect until 2013 and the expiry of Bush-era tax cuts for the wealthiest Americans would spur broad tax reform. Speaking to reporters after President Barack Obama outlined the deal, White House officials said Obama would veto an extension of the cuts enacted under former President George W. Bush if tax reform were not implemented.
• Italy Under Pressure as Questions Over Tremonti Grow. Italy's divided centre-right government faces a testing week with Economy Minister Giulio Tremonti weakened by a graft scandal just as markets have turned on the euro zone's third largest economy. Tremonti, the budget hardliner credited with keeping Italy's huge public debt from sliding out of control, has looked more and more exposed, at odds with Prime Minister Silvio Berlusconi and undermined by a corruption probe against a former aide.

Financial Times:

• Texas Teachers Agree to Hedge Fund Move. Rick Perry, Governor of Texas, last month signed into law measures which allow the Teacher Retirement System of Texas to invest up to a tenth of its assets with hedge funds. For the teachers of Texas who had testified in favour of raising the cap, 4 per cent of their retirement savings in hedge funds just wasn’t enough.

Wirtschaftswoche:

• The German economy may suffer from decisions agreed last week by euro-area leaders to end the region's debt crisis, citing Linde AG CEO Wolfgang Reitzle. "What was agreed in Brussels will lead to a creeping equalization of interest rates," the magazine quoted Reitzle as saying in an interview to be published in Monday's edition. "This will drag down investment activity in Germany and other strong EU countries. We're putting our recovery at risk."

El Economista:

• Spain's Treasury delayed the fifth sale of about $2.9 billion of so-called tariff deficit bonds until September, citing people in the industry. Market instability spurred the Electricity Deficit Amortization Fund, known as FADE, to postpone the sale, which had been scheduled for July 26 or 27. The Treasury sells the bonds through FADE.

Folha de S. Paulo:

• Brazil exported 183.5 million liters of ethanol to the U.S. during the first half of the year, 52% more than during the same period in 2010.

Kyodo News:

• The Japanese government has ordered Iwate prefecture to stop shipping beef after detecting cesium levels higher than permitted.

Nikkei:

• Cesium may have dissolved into wastewater at the No. 1 reactor of Tokyo Electric Power Co.'s Fukushima Dai-Ichi nuclear power plant, raising concern contamination may spread.

Xinhua:

• China's inflation in the third-quarter this year will likely hit 5.8%, citing the State Information Center.

People's Daily:

• Inspections of more than 231,000 elevators and escalators in China discovered 11,900 of the machines that may malfunction. The operation of 4,091 elevators were ordered halted as a result of the inspections.

China Times:

• China won't remove a limit on home purchases this year, citing an official at the Ministry of Housing and Urban-Rural Development.

Weekend Recommendations
Barron's:

• Made positive comments on (AMZN) and (F).

Citigroup:

• Reiterated Buy on (ETN), target $67.

Night Trading

• Asian indices are +.50% to +1.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 113.50 -3.0 basis points.
• Asia Pacific Sovereign CDS Index 118.0 +.5 basis point.
  
• S&P 500 futures +1.28%.
• NASDAQ 100 futures +1.31%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (ALL)/1.58
• (HUM)/2.09
• (L)/.74
• (CNA)/.44
• (WRC)/.76
• (VNO)/1.13
• (PPS)/.42
• (BXP)/1.19

Economic Releases
10:00 am EST

• Construction Spending for June is estimated to rise +.1% versus a -.6% decline in May0
• ISM Manufacturing for July is estimated to fall to 54.5 versus 55.3 in June.
• ISM Prices Paid for July is estimated to fall to 64.0 versus 68.0 in June.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• None of note
  

BOTTOM LINE: Asian indices are higher, boosted by technology and commodity shares in the region. I expect US stocks to open higher and to maintain gains into the afternoon. The Portfolio is 75% 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 higher on diminished US debt ceiling worries, short-covering, less financial sector pessimism, bargain-hunting, buyout speculation and technical buying. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 75% net long heading into the week.

Market Week in Review

S&P 500 1,292.28 -3.92%*



The Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices

• S&P 500 1,292.28 -3.92%
  
• DJIA 12,143.20 -4.24%
  
• NASDAQ 2,756.38 -3.58%
  
• Russell 2000 797.03 -5.32%
  
• Wilshire 5000 13,518.10 -4.10%
  
• Russell 1000 Growth 603.08 -3.97%
  
• Russell 1000 Value 646.24 -4.07%
  
• Morgan Stanley Consumer 740.19 -3.67%
  
• Morgan Stanley Cyclical 1,011.45 -5.63%
• Morgan Stanley Technology 634.97 -4.18%
  
• Transports 5,194.45 -4.50%
  
• Utilities 431.17 -1.84%
  
• MSCI Emerging Markets 46.95 -1.33%
  
• Lyxor L/S Equity Long Bias Index 1,038.89 +.60%
  
• Lyxor L/S Equity Variable Bias Index 896.37 +.18%
  
• Lyxor L/S Equity Short Bias Index 593.30 +.17%
  

Sentiment/Internals

• NYSE Cumulative A/D Line 122,987 -5.48%
  
• Bloomberg New Highs-Lows Index -410 -496
  
• Bloomberg Crude Oil % Bulls 34.0 -17.07%
  
• CFTC Oil Net Speculative Position 158,767 +2.47%
  
• CFTC Oil Total Open Interest 1,506,662 +.86%
  
• Total Put/Call 1.21 +45.78%
  
• OEX Put/Call 1.50 -17.58%
  
• ISE Sentiment 117.0 -7.87%
  
• NYSE Arms 1.19 +25.26%
  
• Volatility(VIX) 25.25 +44.12%
• G7 Currency Volatility (VXY) 11.72 +8.22%
  
• Smart Money Flow Index 10,316.58 -1.81%
  
• Money Mkt Mutual Fund Assets $2.634 Trillion-1.40%
  
• AAII % Bulls 37.84 -5.07%
  
• AAII % Bears 31.42 +2.65%

Futures Spot Prices

• CRB Index 342.08 -1.68%
  
• Crude Oil 95.70 -4.12%
  
• Reformulated Gasoline 305.79 -1.24%
  
• Natural Gas 4.14 -5.04%
  
• Heating Oil 309.94 -1.25%
  
• Gold 1,631.20 +1.82%
  
• Bloomberg Base Metals 264.67 +.47%
  
• Copper 447.95 +1.76%
  
• US No. 1 Heavy Melt Scrap Steel 417.50 USD/Ton +.20%
  
• China Hot Rolled Domestic Steel Sheet 4,832 Yuan/Ton +.19%
  
• UBS-Bloomberg Agriculture 1,697.02 -2.64%
  

Economy

• ECRI Weekly Leading Economic Index Growth Rate 2.0% +30 basis points
  
• S&P 500 EPS Estimates 1 Year Mean 95.87 -.03%
  
• Citi US Economic Surprise Index -91.40 +1.4 points
  
• Fed Fund Futures imply 24.5% chance of no change, 75.5% chance of 25 basis point cut on 8/9
• US Dollar Index 73.74 -.67%
  
• Yield Curve 244.0 -13 basis points
  
• 10-Year US Treasury Yield 2.80% -16 basis points
  
• Federal Reserve's Balance Sheet $2.848 Trillion -.28%
  
• U.S. Sovereign Debt Credit Default Swap 62.06 +17.22%
• Illinois Municipal Debt Credit Default Swap 194.0 +1.54%
  
• Western Europe Sovereign Debt Credit Default Swap Index 284.50 -.23%
• Emerging Markets Sovereign Debt CDS Index 168.87 -5.96%
• Saudi Sovereign Debt Credit Default Swap 96.0 +4.39%
• Iraqi 2028 Government Bonds 91.03 +.01%
• 10-Year TIPS Spread 2.44% +7 basis points
  
• TED Spread 16.0 -6 basis points
  
• N. America Investment Grade Credit Default Swap Index 95.48 +2.58%
  
• Euro Financial Sector Credit Default Swap Index 150.81 +11.29%
  
• Emerging Markets Credit Default Swap Index 212.41 +.12%
  
• CMBS Super Senior AAA 10-Year Treasury Spread 199.0 +4 basis points
  
• M1 Money Supply $1.976 Trillion +.03%
  
• Business Loans 648.80 +.17%
  
• 4-Week Moving Average of Jobless Claims 413,800 -2.0%
  
• Continuing Claims Unemployment Rate 2.9% unch.
  
• Average 30-Year Mortgage Rate 4.55% +3 basis points
  
• Weekly Mortgage Applications 528.0 -5.04%
  
• Bloomberg Consumer Comfort -46.80 -3.5 points
  
• Weekly Retail Sales +4.2% -40 basis points
  
• Nationwide Gas $3.71/gallon +.02/gallon
  
• U.S. Cooling Demand Next 7 Days 33.0% above normal
• Baltic Dry Index 1,264 -4.46%
  
• Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 37.50 unch.
  
• Rail Freight Carloads 232,181 +.81%
  

Best Performing Style

• Large-Cap Growth -3.97%

Worst Performing Style

• Small-Cap Growth -5.90%

Leading Sectors

• Utilities -1.84%
• Gaming -2.11%
  
• Road & Rail -2.13%
• Tobacco -2.18%
• Drugs -2.41%

Lagging Sectors

• Steel -6.20%
• Airlines -7.52%
• HMOs -10.51%
  
• Networking -11.49%
  
• Disk Drives -12.29%

Weekly High-Volume Stock Gainers (19)

• ATHN, RGR, SANM, CPHD, EM, QCOR, SKX, CROX, VLTR, LXK, GEOY, ECYT, GPI, RNOW, KEYN, GLF, ININ, HLX and GRA
  

Weekly High-Volume Stock Losers (48)

• CR, KEM, WSO, SBRA, SSNC, USTR, GPN, ACW, OLN, LIFE, CHE, TUP, RBC, BGS, GTI, BAS, CSL, WAT, NUVA, SLAB, EW, SCOR, MOH, BCR, OMI, LII, NEOG, BMC, ACO, RCII, HGR, WIRE, PSSI, PVTB, BRKR, PFCB, MMSI, ILMN, UIS, AKAM, ALR, HCA, JNPR, HRC, AKS, IPHI, AVID and SSYS
  

Weekly Charts
ETFs

• High-Volume Gainers
• High-Volume Losers

Stocks

• High-Volume Gainers
• High-Volume Losers
  

*5-Day Change

Stocks Falling into Final Hour on Rising Eurozone Debt Angst, US Debt Ceiling Concerns, Global Growth Worries, Emerging Markets Inflation Fears

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Mixed
  
• Volume: Above Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 25.02 +5.39%
  
• ISE Sentiment Index 123.0 +28.13%
  
• Total Put/Call 1.23 +32.26%
  
• NYSE Arms .90 -18.70%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 95.48 +1.10%
  
• European Financial Sector CDS Index 150.50 +3.0%
  
• Western Europe Sovereign Debt CDS Index 284.50 -.47%
  
• Emerging Market CDS Index 213.43 +.96%
  
• 2-Year Swap Spread 23.0 +1 bp
  
• TED Spread 17.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .08% +1 bp
  
• Yield Curve 243.0 -10 bps
  
• China Import Iron Ore Spot $175.50/Metric Tonne +.06%
  
• Citi US Economic Surprise Index -91.40 -5.2 points
  
• 10-Year TIPS Spread 2.43% -2 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +7 open in Japan
• DAX Futures: Indicating -2 open in Germany

Portfolio:

• Higher: On gains in my Retail, Medical and Biotech sector longs
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 is hovering just above its 200-day moving average on rising eurozone debt angst, US debt ceiling concerns, more poor US economic data, emerging market inflation fears and global growth worries. On the positive side, Defense, Medical, Biotech, Hospital, Construction and Homebuilding shares are especially strong, rising .50%+. Oil is falling -1.29%, copper is rising +.29% and the UBS-Bloomberg Ag Spot Index is down -1.54%. On the negative side, Disk Drive, Semi, Computer, Utility, Energy, Agriculture, Internet, Networking, Gaming and Airline shares are under pressure, falling more than -.75%. Cyclicals are underperforming again. The industrials(ETF:XLI), after breaking down through their 200-day moving average on volume recently, remain unable to bounce. The Networking Sub-Index is down -23.1% from its April 27th high. Rice is falling -1.7% today, but is still near a multi-year high, soaring about +25.0% in less than 3 weeks. The US price for a gallon of gas is unch. today at $3.71/gallon. It is up .57/gallon in less than 5 months. The Italy sovereign cds is jumping +3.85% to 310.52 bps, the France sovereign cds is rising +3.01% to 122.12 bps, the Germany sovereign cds is gaining +2.03% to 64.17 bps, the Spain sovereign cds is surging +5.2% to 363.59 bps, the Belgium sovereign cds is rising +4.12% to 198.47 bps and the US sovereign cds is gaining +.8% to 64.18 bps. The Italy sovereign cds has soared +95 bps in 6 days. The German sovereign cds is hitting a multi-year high today. Spain, Italy and French sovereign cds are very near all-time highs. The Eurozone Financial Sector CDS Index is approaching record highs, as well. Australian stocks broke below technical support last night and are down -7.1% ytd. French stocks fell another -1.07% today and are back to their pre-Greek debt deal lows. Some US politicians efforts to spook the equity and bond markets continue to have some success, however I still suspect that a larger portion of recent stock losses are the result of ongoing European debt concerns, lowered forward earnings guidance and emerging market growth/inflation worries than most investors perceive. I expect stocks to see a large surge higher on any US debt deal resolution, however gains may prove unsustainable unless other still developing headwinds subside very soon. I expect US stocks to trade mixed-to-lower into the close from current levels on rising eurozone debt angst, global growth worries, US debt ceiling concerns, earnings jitters and emerging markets inflation fears.

Today's Headlines

Bloomberg:

• Economy in U.S. Grows Less Than Forecast. The U.S. economy grew less than forecast in the second quarter, after almost stalling at the start of the year, as consumers retrenched. Gross domestic product climbed at a 1.3 percent annual rate following a 0.4 percent gain in the prior quarter that was less than earlier estimated, Commerce Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg News called for a 1.8 percent increase. Household purchases, about 70 percent of the economy, rose 0.1 percent. “The second-half rebound is melting away,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, the only forecaster polled to correctly estimate the gain in GDP. “It’s a very, very difficult situation for policy makers. The Fed could give a pretty strong signal that they are not likely to move on interest rates for a very long time.” The yield on the benchmark 10-year note decreased to 2.85 percent at 11:12 a.m. in New York from 2.95 percent late yesterday. The Fed’s preferred price gauge, which is tied to consumer spending and strips out food and energy costs, climbed at a 2.1 percent pace, the most since the last three months of 2009, compared with 1.6 percent in the first quarter, as higher oil and food costs pushed up prices of other goods and services. “This is the worst of all worlds for investors, certainly the worst of all worlds for the Fed,” John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said in an interview on Bloomberg Television. “A little too much inflation, not enough growth, that is a tough scenario in the U.S.” Consumer spending from April through June showed the smallest gain since the second quarter of 2009, when the economy was in recession. The slump reflected a 4.4 percent plunge in purchases of durable goods like automobiles. Higher expenses for necessities like food and energy may have curtailed spending on less essential items. The cost of a gallon of regular gasoline climbed in May to about $4 a gallon, the highest in almost three years, according to AAA, the nation’s biggest auto group. The absence of faster job growth is also discouraging shoppers. The unemployment rate climbed to 9.2 percent in June while payrolls grew by 18,000, the fewest in nine months, Labor Department figures showed on July 8.
• Spain Faces Moody's Rating Reduction as Greek Bailout Increases Debt Risks. Spain faces a possible downgrade by Moody’s Investors Service as its regions struggle to cut budget deficits and last week’s Greek bailout increases the risk that bondholders will have to pay for further European rescues. Moody’s is reviewing the nation’s Aa2 classification, the ratings company said in a statement today. A cut would probably be “limited to one notch,” Moody’s said. The euro fell. Spain has the same credit rating as Italy, which is also on review for downgrade at Moody’s. “This news is a blow to Europe’s efforts to contain the debt crisis to smaller countries like Greece or Portugal,” said Kornelius Purps, a fixed-income strategist at UniCredit SpA in Munich. While European leaders on July 21 agreed to bulk up their rescue fund to set up a firewall around countries such as Spain, the yield on the country’s 10-year bond has again breached 6 percent after falling last week. Moody’s also said it’s concerned that it will take too long for European officials to empower the 440 billion euros ($629 billion) fund so that it can buy government debt. Spanish 10-year bonds fell for a third straight day, pushing the yield on the securities 4 basis points higher to 6.08 percent as of 10:13 a.m. in London. The additional yield investors demand to hold the securities instead of benchmark German bunds rose by eight basis points to 348 basis points. In its note, Moody’s said the last Greek rescue plan is likely to increase pressure on Spain as the package “has signaled a clear shift in risk for bondholders of countries with high debt burdens or large budget deficits” and because it is unclear when the bailout fund’s new powers will take effect. “Challenges to long-term budget balance remain due to Spain’s subdued economic growth and fiscal slippage within parts of its regional and local government sector,” Moody’s said. Moody’s also cut debt ratings of six Spanish regions by one level to reflect the “deterioration of their fiscal and debt positions.” Castilla-La Mancha, the central territory with Spain’s worst deficit, was cut to A3 from A2, while the northern region of Catalunya was lowered to Baa1 from A3. Five more regions were put under review, three of them for a downgrade. The debt and deposit ratings of five Spanish banks were also placed on review by Moody’s. Lenders facing a possible downgrade are Banco Santander SA (SAN), CaixaBank, Banco Bilbao Vizcaya Argentaria SA (BBVA), La Caixa and CECA.
• Michigan Consumer-Sentiment Index Fell to 63.7 in July From 71.5 in June. Confidence among U.S. consumers dropped more than forecast in July to the lowest level in two years, which may hold back the biggest part of the economy. The Thomson Reuters/University of Michigan final index of consumer sentiment fell to 63.7, the weakest since March 2009, from 71.5 in June. The gauge was projected to decline to 64, according to the median forecast of economists surveyed by Bloomberg News. The preliminary June reading was 63.8. “We have to see a pickup in job growth at the very least before the consumer shows a little more enthusiasm to spend,” Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, said before the report. “It doesn’t inspire much confidence in a consumer-led economic recovery, at best the consumer will lag the recovery.” 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 75.8 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 56 from 64.8.
• Crude Oil Tumbles, Heads for Weekly Decline, on U.S. GDP, Debt Stalemate. Oil fell, heading for the first weekly drop since June, as the U.S. economy grew less than estimated in the second quarter and a deadlock of U.S. lawmakers over raising the debt limit further threatened expansion. Futures tumbled as much as 2.6 percent after the Commerce Department reported that gross domestic product rose at a 1.3 percent annual rate, less than the 1.8 percent median estimate of economists surveyed by Bloomberg News. Crude for September delivery fell $1.33, or 1.4 percent, to $96.11 a barrel at 11:24 a.m. on the New York Mercantile Exchange. Earlier, it touched $94.95, the lowest price since July 18 on an intraday basis. Prices are down 3.8 percent this week and have risen 69 cents in July. Crude in New York is extending losses as prices slide below the 50-day moving average, according to data compiled by Bloomberg. Front-month futures have settled for more than a week above this indicator, at $97.33 today. A breach of technical support usually means prices will continue to fall.
• S&P Slammed by Wall Street Banks Over Pulled Commercial Mortgage Rating. Wall Street banks including Morgan Stanley and Deutsche Bank AG slammed Standard & Poor’s decision to suspend ratings on commercial-mortgage bonds after finding a flaw in the review process. S&P withdrew rankings it had assigned to a $1.5 billion offering from Goldman Sachs Group Inc. (GS) and Citigroup Inc., forcing the banks to scuttle the deal after it was placed with investors. It then yanked ratings on Freddie Mac’s $1.19 billion deal that JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC) sold earlier this month that has yet to be completed. “The manner in which S&P took its action has severely eroded investor and issuer confidence in its ratings,” Morgan Stanley analysts led by Richard Parkus in New York wrote in a note yesterday, referring to the Goldman Sachs and Citigroup transaction. “Such an event is unprecedented within the CMBS market.”
• Homeownership Falls to Lowest Since 1998. The U.S. homeownership rate fell to the lowest level since 1998 in the second quarter as stricter lending standards blocked purchases and foreclosures forced people out of their residences. The ownership rate through June was 65.9 percent, the lowest since the same rate 13 years ago, the U.S. Census Bureau said in a report today. The vacancy rate, the share of properties empty and for sale, was 2.5 percent, compared with 2.6 percent in the first quarter. The strictest mortgage standards in more than a decade are disqualifying potential buyers while owners are being evicted from homes after falling behind on loan payments, said Wayne Yamano, director of research at John Burns Real Estate Consulting in Irvine, California. Home purchases fell in June to a 4.77 million annual pace, the National Association of Realtors said July 20. If housing demand remains at that level, 2011 would have the fewest sales since 1997.
• Turkey's Top Four Generals Resign After Erdogan Tension. Turkey’s top four generals stepped down, the first such mass resignation in the country’s history, amid tensions with Prime Minister Recep Tayyip Erdogan over alleged military plots to undermine his government. Chief of General Staff Isik Kosaner asked to leave because he “deemed it necessary,” the state news agency Anatolia reported from Ankara, citing no one. The chiefs of the army, air force and navy announced their resignations soon after, the NTV news channel reported. Those three were due to retire at the end of August, NTV said. The lira fell 1.3 percent and credit- default swaps rose 10 basis points to 193, data provider CMA said.
• Denmark Debt Risk Soars on Concern Banking Crisis Is Deepening. The cost of insuring against default on Denmark’s sovereign debt soared to a record on concern the government will have to support the nation’s failing banks. Credit-default swaps on Denmark jumped 14 basis points today to 88, according to CMA. The contracts, which are up from 28 basis points on June 7, are the worst performing of any government in the past month. Denmark has allowed 11 banks to fail since 2008, putting pressure on the country’s remaining lenders to support a system- wide deposit insurance scheme. As many as 15 more of the nation’s lenders could default, Standard & Poor’s said yesterday. “Investors are concerned the contagion could spiral out of control,” said Suki Mann, head of credit strategy at Societe Generale SA in London. “Given the kind of concerns there are for the financial system in general, the S&P report wasn’t helpful. But it did highlight concerns the market does have.”
• Merck(MRK) to Cut Up to 13,000 Jobs. Merck & Co., the second-largest U.S. drugmaker, plans to eliminate an additional 12,000 to 13,000 jobs by 2015, expanding a restructuring program to save as much as $4.6 billion a year. As much as 14 percent of the company’s 91,000 employees will lose their jobs, based on the size of the workforce at the end of last month.

Wall Street Journal:

• House to Vote on Amended Deficit Plan. House Republican leaders plan to amend and bring to a vote Friday their stalled budget bill to require that Congress pass a constitutional amendment to balance the budget before lifting the $14.3 trillion cap on government borrowing, officials said.
  
• Live Blog: The U.S. Debt Battle.
  
• Currency Hedge Funds Down -1.12% In June - Parker FX Index.
• Soldier Accused in Fort Hood Plot Is Defiant in Court. An AWOL soldier accused of plotting an attack on Fort Hood was defiant during his first court appearance on Friday, yelling out the name of the Army psychiatrist blamed in the 2009 deadly shooting rampage at the same Texas military base.
  

MarketWatch:

• Gold Touches Record as GDP Disappoints. Gold futures touched a record Friday, thriving on bad news about the U.S. economy and after House leaders postponed a vote on the U.S. debt plan. Gold for December delivery GC1Z +0.70% added $10.80, or 0.7%, to trade at $1,627 an ounce on the Comex division of the New York Mercantile Exchange.
• Insiders Selling at Unusually Fast Pace.
  

CNBC.com:

• Washington Is Annoyed at Wall Street's Lack of Panic. I just got off the phone with a source on Capitol Hill who has spent the past few days trying to convince Republicans to vote for a debt ceiling hike. He told me that the biggest obstacle he faces has been "market complacency." "Frankly, a bit of panic would be very helpful right now," he said. As he explained it, lots of people in Washington, D.C., expected that this would be a week marked by panic in the markets. Stocks would tank. Bonds would get clobbered. The dollar would do something dramatic. And all of this would help convince reluctant lawmakers that they had to reach a compromise on the debt ceiling. "We were following the script from 2008. When the market collapsed after TARP failed, that spooked everyone enough to get them to fall in line. We thought the same thing would happen this week," he said.

Business Insider:

• Germany Accuses China of Causing 'Catastrophic' Starvation in Africa.
• Yahoo Hosts Hardcore Porn and Sells Ads Against It - Advertisers React With "Outrage".
• Hustler's Larry Flynt Offers Casey Anthony $500,000 For Nude Spread.
• Our 16 Favorite Jokes About Goldman Sachs(GS).
• Hell Is Re-Breaking Loose In Europe, As Bailout Fund Gets Closer To Blowing Up.
  

Zero Hedge:

• White House Would Consider "Couple of Days" Extension, Short-Term Deal.

NY Post:

• YouTube Finalizing Plans to Push Movie-Rental Business Into Mainstream. Walmart isn't the only one looking to push its streaming video movie service into the mainstream. Google's(GOOG) popular YouTube site is also finalizing plans to push its nascent paid movie rental business into the mainstream in the next few months, sources familiar with plans told The Post. One source said an announcement of such video-on-demand plans was expected before the end of the year.
  

New York Times:

• Grassley Questions Education Agency's Ties to Hedge Funds. Senator Charles E. Grassley is examining whether Education Department officials disclosed confidential government information to hedge fund managers, including the well-known stock picker Steve Eisman. The inquiry stems from the agency’s recent efforts to overhaul the for-profit college industry. Expecting tough new rules in the wake of the controversy, Mr. Eisman and other hedge fund traders placed huge bets against the industry. In a letter this week, Mr. Grassley questioned the education secretary, Arne Duncan, about the agency’s ties to the hedge fund world and the lack of policies restricting contact with Wall Street players. “If it is indeed the case that Department of Education employees were on familiar terms with hedge fund short-sellers, this raises serious questions regarding the internal controls,” Mr. Grassley, Republican of Iowa, said in the letter. “My concerns center on the possibility that senior Department of Education staffers may have provided information to short-sellers during the time leading up to the public release” of new regulations.
• Weak Earnings in Germany Raise Concerns of Slowing Growth.
  

Chicago Tribune:

• Emanuel Projects $635.7 Million Budget Shortfall Next Year. Chicago's budget shortfall next year is expected to be $635.7 million, according to Mayor Rahm Emanuel’s preliminary budget documents viewed this morning by the Tribune. Without significant changes in how the city operates, that gap would widen in coming years to $741.4 million in 2013 and $790.7 million in 2014, the documents state. Much of the budget imbalance results from long-term union contracts with locked-in raises, rising health care costs for workers and increased borrowing in recent years that brought higher interest payments. The budget figures do not include shortfalls in city pension systems, which could add costs of $500 million or more annually in coming years. Absent changes in the pension systems or new revenue sources, that could result in a doubling of the city property tax, according to The Civic Federation, a non-partisan budget watchdog group.

Seeking Alpha:

• General Electric(GE): It's Time to Break Up.

USDA Foreign Agricultural Service:

• Japanese Beef Prices Plummet Due to Radioactive Beef.

Gallup:

• Obama Approval Drops to New Low of 40%. (graph) President Obama's job approval rating is at a new low, averaging 40% in July 26-28 Gallup Daily tracking. His prior low rating of 41% occurred several times, the last of which was in April. As recently as June 7, Obama had 50% job approval. Obama's approval rating averaged 46% in June and was near that level for most of July; however, it has stumbled in the past few days, coinciding with intensification of the debt ceiling/budget battle in Washington.

The Hill:

• Boehner Plan Comes Out On Top In New CBO Analysis.

Reuters:

• Italy Economy Minister Admits "Mistakes", Won't Resign. Italian Economy Minister Giulio Tremonti on Friday dismissed speculation he would resign though he admitted making a mistake by using a luxury Rome apartment belonging to a former aide being investigated for corruption. "I have a job that is very difficult and involves a lot of effort, and I want to continue doing it, as best I can, in the interest of my country," Tremonti told Italian television, appearing both apologetic and defiant. "Yes, I have made mistakes, the only excuse is that I've worked a lot," he said. Widely seen as the guarantor of Italy's financial stability, Tremonti has faced growing pressure over the apartment, adding to market jitters that the country could be next in the firing line as the euro zone's debt crisis widens.
• Toothless CDS Blamed for Failing to Stop Sovereign Contagion. Fears that credit default swaps would not provide protection against a sovereign default as previously hoped could be one of the reasons behind some of the recent sell-off in Eurozone peripheral sovereign cash bonds, bond market participants said this week.
• Fed's Lockhart Says Bar High to Further Easing.

Vatan:

• Iranian forces have seized three bases in northern Iraq used by a Kurdish forces affiliated with the Kurdistan Workers' Party, or PKK. The Iranian assault on PJAK, the Party for a Free Life in Kurdistan, began July 16 and has taken some of the group's bases close to the Kandil Mountains in Iraq. The action may have support from Turkish intelligence and special forces.