Tuesday Watch

Evening Headlines

Bloomberg:

• House Passes $2.1 Trillion U.S. Debt Ceiling Plan. The House of Representatives approved legislation to raise the U.S. debt limit by at least $2.1 trillion and cut federal spending by $2.4 trillion or more, one day before a threatened default. The House voted 269-161 for the plan negotiated by leaders and President Barack Obama over the weekend. Ninety-five Democrats voted in favor and 66 Republicans in opposition. The measure goes to the Senate for a final vote planned tomorrow. “We’re coming up to a deadline we all must recognize: default,” said Representative Paul Ryan, a Wisconsin Republican and chairman of the Budget Committee. “Both parties got us in this mess; both parties are going to have to work together to get us out.” Ryan called the spending cuts connected to the debt-ceiling increase “a huge cultural change” for Congress.
• Italy, Spain Stuck in No-Go Debt Zone for Merrill, DWS Funds: Euro Credit. Merrill Lynch Global Wealth Management, unconvinced that the second Greek bailout has stemmed the debt crisis, won’t put any of its $1.5 trillion of assets into Italian or Spanish bonds.The unit of Bank of America Corp. (BAC) has spurned bonds from Greece, Portugal, Ireland, Spain and Italy since deciding to avoid them in April of last year, according to Johannes Jooste, a senior Merrill portfolio strategist in London. Merrill isn’t alone: Frankfurt-based DWS Investment, which oversees $390 billion for clients, and Legal & Investment Management say they are “underweight” Spanish debt. The lack of enthusiasm from bond buyers threatens the latest rescue deal for Greece, which was struck two weeks ago to reassure investors as contagion from the debt crisis sent Italian and Spanish bond yields soaring. “We are not convinced that this is the finality of the haircuts,” Jooste said in an interview, referring to losses absorbed by those private investors through the debt-exchange program. “There is still a question mark of whether there will be haircuts for countries apart from Greece.” The extra yield investors demand to hold 10-year Italian bonds instead of benchmark German bunds rose to 355 basis points yesterday, a euro-era record. Spanish 10-year yields have jumped almost 50 basis points to 6.2 percent since the summit. “The recent solution for Greece has not changed our perception about the peripheral market, and we are not quite sure if the problem is contained,” said Ralf Schreyer, head of European fixed income at DWS. The additional yield investors demand to hold 10-year Spanish debt over bunds reached 375 basis points yesterday, compared with the average of 44 basis points in the past decade. Yields on 10-year Spanish and Italian bonds are only about a percentage point away from the 7 percent mark that prompted Greece, Portugal and Ireland to seek bailouts. Rising borrowing costs and a poor growth outlook are two reasons Jonathan Cloke, a portfolio manager at Legal & General, cited for holding off on purchasing of Italian and Spanish government securities. In addition to being underweight Spanish bonds, Legal & General no longer owns Greek, Irish and Portuguese debt. “I don’t think Italy and Spain can carry on financing at the current yield levels,” said Cloke. “There will have to be some ways of reducing their interest rates, although I’m not quite sure how. And with the European Central bank expected to keep raising interest rates, I’m worried these countries are not going to get growth they need to reduce debt.”
• Democrats Renew Push for Business Tax Increases After Deal. The private equity managers, oil companies and high-income earners that have been the Obama administration’s prime targets for tax increases will be in Democrats’ crosshairs again in the next phase of deficit- reduction efforts. The debt-limit bill being considered in Congress today would empower a 12-member joint committee of lawmakers to seek $1.5 trillion in deficit cuts, with a Dec. 23 deadline for the House and Senate to act. Democrats, who didn’t get any specific revenue increases in the debt ceiling compromise Congress is considering today, are likely to return to their previous proposals, said Representative Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee. “The joint committee would be tasked to look at ways to reduce the deficit, and it has to be done in a balanced fashion,” Van Hollen told reporters. “It has to include closing these corporate tax loopholes for special interests and looking at other revenue sources from the very top income earners.” President Barack Obama in his budget recommended taxing the profit share -- or carried interest -- earned by private equity managers, venture capitalists and others at ordinary income tax rates and not the more lightly taxed capital gains rate. He called for ending tax benefits for oil and gas companies and for capping the itemized deductions of upper-income Americans.
• China's Stocks Decline to 6-Week Low on Manufacturing Slowdown, Inflation. China’s stocks fell, driving down the benchmark index to a six-week low, after manufacturing growth slowed in the world’s two largest economies and an official Chinese newspaper said inflation pressure is still high. Industrial & Commercial Bank of China Ltd. led declines for lenders on concern the government will intensify measures to curb inflation. Jiangxi Copper Co., China’s biggest producer of the metal, lost 2.4 percent on speculation a slowing global economy will curb demand for metals. “Economic data from around the world seem to suggest that global growth is slowing and that’ll sour sentiment especially when there’s still uncertainty over the debt crisis in Europe,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “Inflation is still the biggest domestic problem for China and no one knows how soon it will peak.” The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, lost 34.17 points, or 1.3 percent, to 2,669.61 as of 9:46 a.m. local time, the lowest since June 22.
• Auto Sales Stall as Unemployment Curbs Chance of Return to U.S. Peak: Cars. U.S. auto sales have stalled, casting doubt on a rebound this year as persistent unemployment and tighter lending deter buyers. Light-vehicle deliveries in July, to be released tomorrow, may have run at an 11.8 million seasonally adjusted annual rate, the average estimate of 12 analysts surveyed by Bloomberg. That would trail the 12.5 million rate in the first half. The auto industry may lose 1.5 million in projected sales in 2011, according to consultant AlixPartners LLP. The economy isn’t picking up as fast as anticipated, and the drag may continue beyond this year, AlixPartners said. That may put a return to average annual sales of 16.8 million vehicles from 2000 to 2007 out of reach. Unemployment reached the highest level this year in June. “This curve of unemployment looks like it’s got a lot of legs,” Mark Wakefield, an AlixPartners director in Southfield, Michigan, said in a telephone interview. “This is one of the first recent cycles where demand is not going to go back above its prior peak, because there are just so many structural things that are different this time around.”
• Minnesota Has Outlook Revised to Negative by Moody's. Minnesota had the outlook on its debt revised to negative from stable by Moody's Investors Service, which cited "political intractability" resulting in one-time budget moves to end a 20-day government shutdown last month. "Sooner or later, we need to fix the state's budget so that it does not rely on one-time solutions," said Jim Schowalter, the state's Management & Budget commissioner, in a statement.
• Tanker Demolitions Slowing Creates Worst Glut in 29 Years: Freight Markets. Demolitions of supertankers, which carry about 20 percent of the world’s oil, are slowing as ship owners accept unprofitable rates rather than write off assets, creating the industry’s biggest glut in 29 years. Scrapping vessels, each the size of the Chrysler Building, will drop 19 percent to 2.8 million deadweight tons of carrying capacity this year, according to London-based Clarkson Plc, the world’s largest shipbroker. The fleet will expand 7.5 percent to 176.7 million deadweight tons, the most since 1982, as demand for seaborne crude advances 2.8 percent, the broker estimates. Owners are effectively paying clients $1,037 a day to charter vessels on the industry’s benchmark route in the single- voyage market, the first negative rate since at least 2008. Frontline Ltd., the biggest operator of the ships, needs $29,700 to break even. Unprofitable voyages may still be preferable to the $22.5 million that BW Maritime Pte Ltd. estimates owners would lose by scrapping tankers five years earlier than the standard lifetime of about 25 years. “Hope springs eternal,” said Andreas Sohmen-Pao, chief executive officer of Singapore-based BW Maritime, which has 15 supertankers in its fleet of 105 ships. “Faced with a choice of crystallizing a loss which could have knock-on consequences for financing arrangements and bank loans and so on, people say, well, better to sweat it out and see if something changes.”
• China's Expanding Naval Reach Worries Japan Over Routine Warship Presence. Japan expressed mounting concern over China’s expanding naval reach, saying in the government’s annual defense report that it expects the rising maritime power’s ships to become commonplace near its waters. “China plans to expand its sphere of maritime activities, carrying out operations and training as an ordinary routine practice in waters surrounding Japan,” said the report, which was released today in Tokyo. The areas Japan believes it will encounter China’s navy include the “East China Sea and the Pacific Ocean, as well as the South China Sea.”
• European Stocks Slide 10% From 2011 High as Debt Crisis Spreads. European stocks dropped 10 percent from this year’s high, becoming the first major region to enter a so-called correction, as falling Spanish and Italian bonds showed the debt crisis is spreading and U.S. manufacturing trailed forecasts. Banks, insurers and technology companies led the decline in the benchmark Stoxx Europe 600 Index from a 2 1/2-year high on Feb. 17, driving the measure to a 2011 loss of 5 percent. Every industry decreased more than 17 percent, according to data compiled by Bloomberg. UniCredit SpA, Italy’s largest bank, plunged 40 percent in the period and Commerzbank AG, Germany’s second-largest lender, tumbled 47 percent.

Wall Street Journal:

• Uneasy House OK's Debt Deal. Both Parties Find Fault With Bill; Senate to Vote Tuesday. The House passed a $2.4 trillion debt-ceiling increase Monday night with the Senate planning to follow on Tuesday, after one of the most ferocious fights ever over government spending.
• Giffords Returns to House to Cast a ''Yes' Vote. In a surprise, Rep. Gabrielle Giffords (D., Ariz.) on Monday returned to Congress for the first time since being shot in the head nearly seven months ago, putting aside the effects of a grave injury to vote in favor of the debt package.
• Live Blog: The U.S. Debt Battle.
• Left for Extinct, a Steel Plant Rises in Ohio. On the edge of the Mahoning River, where once stood dozens of blast furnaces, more than 400 workers are constructing what long has been considered unthinkable: a new $650 million steel plant. When complete, it will stand 10 stories tall, occupy one million square feet and make a half million tons of seamless steel tubes used in "fracking" or drilling for natural gas in shale basins.
• Egyptians Turn Against Liberal Protesters. Mobs of ordinary Egyptians joined with soldiers to drive pro-democracy protesters from their encampment in Tahrir Square here Monday, showing how far the uprising's early heroes have fallen in the eyes of the public. Six months after young, liberal activists helped lead the popular movement that ousted President Hosni Mubarak, the hard core of these protesters was forcibly dispersed by the troops. Some Egyptians lined the street to applaud the army. Others ganged up on the activists as they retreated from the square that has come to symbolize the Arab Spring. Squeezed between an assertive military and the country's resurgent Islamist movement, many Internet-savvy, pro-democracy activists are finding it increasingly hard to remain relevant in a post-revolutionary Egypt that is struggling to overcome an economic crisis and restore law and order.

MarketWatch:

• China Must Psych Out Inflation by Andy Xie. A cost-price spiral psychology has become a powerful multiplier influencing China’s inflation dynamic. Will it spiral out of control? This cost-price spiral could be broken with an interest rate overshoot. But since policy makers are currently reluctant to raise rates, inflation psychology is strengthening its grip on the economy. Some analysts and government officials point to price trends for one or two consumer items, and then use these patterns to reach conclusions about inflation. This is erroneous and dangerous.

CNBC:

• Signs of a Double-Dip Have Emerged: Meredith Whitney.

Business Insider:

• Will Cyprus Be The Straw That Breaks The EU? I’m always amazed when relatively minor events somehow conspire to change the course of history. In this example a lousy brush fire may be the catalyst for an unwinding of the EU.
• China Also Fakes These Stores: Disney, Nike, D&G, McDonald's, Starbucks and More.
  

IBD:

• From Gas to Fiber Optic, MasTec(MTZ) Builds Cables.

NY Times:

• India's Widening Iron Ore Scandal Hurts Stocks. India’s wave of corruption scandals has hit yet another industry, iron ore mining, implicating companies that include the flagship of one of this nation’s richest men.

Washington Post:

• Chinese Police Shoot Dead 2 Suspects in Attack Blamed on Militants Trained in Pakistan. Police in far western China shot dead two suspects sought for their alleged involvement in a deadly attack blamed on Muslim extremists trained in Pakistan, the government said. The pair, identified as 29-year-old Memtieli Tiliwaldi and 34-year-old Turson Hasan, were discovered late Monday hiding in corn fields in a suburb of the Silk Road city of Kashgar, where a pair of weekend attacks killed a total of 20 people, according to a notice posted on the Xinjiang regional government website.

Nature.com:

• The Impact of Mergers on Pharmaceutical R&D. Mergers and acquisitions in the pharmaceutical industry have substantially reduced the number of major companies over the past 15 years. The short-term business rationale for this extensive consolidation might have been reasonable, but at what cost to research and development productivity?

The Blaze:

• Horrific Video Captures The Reported 'Ramadan Massacre' In Syria.

Politico:

• Sources: Joe Biden Likens Tea Partiers to Terrorists. Vice President Joe Biden joined House Democrats in lashing tea party Republicans Monday.

Reuters:

• Putin Says U.S. Is a "Parasite" on Global Economy. Russian Prime Minister Vladimir Putin accused the United States Monday of living beyond its means "like a parasite" on the global economy and said dollar dominance was a threat to the financial markets. "They are living beyond their means and shifting a part of the weight of their problems to the world economy," Putin told a Kremlin youth group while touring its summer camp north of Moscow. "They are living like parasites off the global economy and their monopoly of the dollar." "Countries like Russia and China hold a significant part of their reserves in American securities ... There should be other reserve currencies." U.S.-Russian relations soured during Vladimir Putin's 2000-2008 presidency but have warmed significantly under President Barack Obama, who took office in 2009 promising a "reset" in bilateral ties.

Financial Times:

• Euro Area 'Fiscal Federalism' Won't Happen, Buiter Writes. Recent developments in the euro area sovereign debt and banking sector crises have shown that "fiscal federalism is not going to happen," Citigroup Inc. Chief Economist Willem Buiter wrote. The euro area is left with two alternatives, he said. "The first is to disband" and the second is for the bloc to move to a "you break it you own it" policy, where insolvency of a nation is settled between its taxpayers and its creditors, without any permanent financial support from any other members' taxpayers. Before the end of the Greek bailout program, there will be "deep coercive debt restructurings for Greece and other periphery sovereigns," Buiter wrote.

Telegraph:

• Italy in Eye of the Storm as Cash Runs Low. Fears of a double-dip downturn on both sides of the Atlantic have set off fresh mayhem in Southern European bond markets, dashing hopes that Europe's summit deal in late July would contain the escalating crisis. "The markets know that the EU's bail-out find (EFSF) won't be able to buy Italian and Spanish bonds on the secondary market for another three or four months because the deal has to be ratified by national parliaments," said David Owen from Jefferies Fixed Income. The summit accord did not increase the EFSF's firepower above €440bn (£380bn), leaving it unclear how EU leaders expect to cope as contagion engulfs the eurozone's bigger players. "The longer this paralysis goes on, the more investors fear a break-up scenario where the core countries pull out and leave the rest with the euro," Mr Owen said. JP Morgan warned clients that Italy has a thin margin of safety and risks running out of cash to cover spending as soon as September. "Italy and Spain will run out of cash in September and February respectively, if they lose access to funding markets," said the bank's fixed income team of Pavan Wadhwa and Gianluca Salford. Worries about Italy's immediate cash level risks leading to "a self-fulfilling negative spiral." While Italy has low private debt and avoided much of the credit bubble, it suffers from economic stagnation and a steady loss of competitiveness. Monetary tightening by the European Central Bank has compounded the problem, triggering a collapse of all key measures of the Italian money supply. The warning came as the eurozone's PMI manufacturing data for July dropped to a 21-month low, with clear signs of a slowdown spreading to Germany, Austria and Holland. "It makes pretty dismal reading," said Howard Archer from IHS Global Insight. "It points to a marked loss of momentum in the previously healthily expanding core northern eurozone economies, as well as deepening growth problems in the struggling southern periphery."

Xinhua:

• China may raise interest rates around Aug. 10, Xinhua08.com, Xinhua News Agency's financial serives website, said yesterday, citing its own research. China's consumer price index growth in July may hit 6.3%, according to the report.

21st Century Business Herald:

• China Minmetals Non-Ferrous Metals Co. has proposed that all domestic producers of rare earths voluntarily halt output from early August because the national output quotas for 2011 have been reached, citing the company. Halting output of the minerals would also help ensure the stability of the rare earths market, citing a company official.
  

Financial News:

• China's inflation pressure is still high and the rising prices are the most prominent problem facing its economy, the Financial News said in a front-page commentary today. China's economic growth faces a complex environment as the world economy continues to recover slowly with many uncertainties still existing, according to the commentary. The nation needs to study the possible impact the persistent sovereign debt crisis in Europe, the U.S. debt issues and the rising fiscal deficit in Japan may have on the country.

Evening Recommendations
Citigroup:

• Rated (TA) Buy, target $8.

Night Trading

• Asian equity indices are -1.75% to -.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 116.50 +3.0 basis points.
  
• Asia Pacific Sovereign CDS Index 117.0 -1.0 basis point.
  
• S&P 500 futures -.35%.
  
• NASDAQ 100 futures -.30%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (NYX)/.59
• (PH)/1.80
• (VSH)/.51
• (IT)/.31
• (BDX)/1.43
• (MRO)/1.16
• (EXPD)/.46
• (MLM)/1.07
• (PFE)/.58
• (OSG)/-1.39
• (EMR)/.90
• (OMX)/.00
• (ADM)/.85
• (DUK)/.31
• (COH)/.65
• (AMT)/.23
• (H)/.15
• (THC)/.08
• (WBMD)/.22
• (CEPH)/2.07
• (VMC)/-.05
• (MDRX)/.22
• (SFSF)/.00
• (CBS)/.46
• (OPEN)/.27
• (IPGP)/.55
• (MSTR)/.59
  

Economic Releases
8:30 am EST

• Personal Income for June is estimated to rise +.2% versus a +.3% gain in May.
• Personal Spending for June is estimated to rise +.1% versus unch. in May.
• The PCE Core for June is estimated to rise +.2% versus a +.3% gain in May.
  

Afternoon

• Total Vehicle Sales for July are estimated to rise to 11.8M versus 11.41M in June.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The weekly retail sales reports, Keefe Bruyette Woods Community Bank Conference, Goldman Sachs Small-cap Healthcare Day and the Deutsche Bank Small Cap Value Conference could also impact trading today.
  

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

Stocks Lower into Final Hour on Rising Eurozone Debt Angst, Global Growth Worries, Healthcare Sector Pessimism, Emerging Market Inflation Fears

Broad Market Tone:

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

Equity Investor Angst:

• VIX 23.68 -6.22%
  
• ISE Sentiment Index 90.0 -23.08%
  
• Total Put/Call 1.09 -9.92%
  
• NYSE Arms 2.01 +68.82
  

Credit Investor Angst:

• North American Investment Grade CDS Index 95.53 +.05%
  
• European Financial Sector CDS Index 162.36 +7.65%
  
• Western Europe Sovereign Debt CDS Index 286.83 +.82%
  
• Emerging Market CDS Index 212.87 -.02%
  
• 2-Year Swap Spread 22.0 -1 bp
  
• TED Spread 19.0 +1 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .07% -1 bp
  
• Yield Curve 237.0 -6 bps
  
• China Import Iron Ore Spot $176.10/Metric Tonne +.34%
  
• Citi US Economic Surprise Index -92.60 -1.2 points
  
• 10-Year TIPS Spread 2.42% -1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating -150 open in Japan
• DAX Futures: Indicating +27 open in Germany

Portfolio:

• Slightly Lower: On losses in my Technology, Medical and Biotech sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and then covered some of them
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is slightly bearish as the S&P 500 is still 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, Utility, Ag, Telecom and Gaming shares are slightly higher on the day. Oil is falling -.77%. (XLF) has held up well throughout the day. Cyclicals are also relatively firm, despite poor economic data. The US sovereign cds is plunging -15.94% to 53.95 bps, which is a big positive. On the negative side, HMO, Hospital, Education, Biotech, Medical, Networking, Steel, Oil Tankers, Coal, Drug, Software and Defense shares are under significant pressure, falling more than -1.50%. Healthcare-related shares are substantially underperforming. The HMO and Hospital Indices are both falling -17% from their 52-week highs. The Networking Sub-Index is down -25.0% from its April 27th high. The UBS-Bloomberg Ag Spot Index is rising +.45%, Lumber is dropping -4.02% and Copper is down -1.6%. Lumber is now back near its June 16th 52-week low. Rice is rising +.8% today and is still near a multi-year high, soaring about +26.0% in less than 1 month. 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 +5.73% to 328.0 bps, the France sovereign cds is rising +2.28% to 124.83 bps, the Spain sovereign cds is surging +5.47% to 382.85 bps, the Belgium sovereign cds is rising +2.54% to 204.33 bps and the Ireland sovereign cds is rising +3.09% to 814.20 bps. The Italy sovereign cds has soared +114 bps in 7 days. The Spain and France sovereign cds are making new record highs today. Italy is right near an all-time high. The Eurozone Financial Sector CDS Index is very close to record highs, as well. The Shanghai Composite rose just slightly last night despite sharp gain in other Asian indices. French(-2.3%), Italian(-3.87%), Spanish(-3.24%) and German(-2.86%) stocks put in key reversals lower today on volume and finished at session lows. Italian stocks are now down -12.1% ytd. I still suspect that a larger portion of recent US 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 still expect stocks to see a surge higher on any US debt deal resolution, however gains may prove unsustainable unless other still developing headwinds subside very soon. The action in European equities and cds today is a huge concern. US stocks held up much better today than I would have expected as a result of US debt deal optimism. I expect US stocks to trade mixed-to-higher into the close from current levels on US debt deal optimism, short-covering, bargain-hunting and technical buying.

Today's Headlines

Bloomberg:

• Manufacturing Index Falls to Two-Year Low. Manufacturing in the U.S. almost stalled in July, threatening to deprive the two-year recovery of one of its main drivers. The Institute for Supply Management’s factory index slumped to 50.9, the lowest since July 2009, from 55.3 a month earlier, the Tempe, Arizona-based group said today. Figures less than 50 signal contraction, and the July index was lower than the most pessimistic forecast in a Bloomberg News survey. “Businesses have cut back on orders and employment because they are just not seeing the demand that they expected,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “The economy is just not picking up momentum in the second half.” The median forecast in the Bloomberg survey of 80 economists called for a decline to 54.5. Estimates ranged from 51 to 56. The U.S. ISM report showed the new orders measure dropped to 49.2 in July from 51.6, while orders waiting to be filled fell to the lowest since April 2009. The measure of production in July decreased to the lowest level since June 2009, while inventories contracted. A gauge of factory employment declined to the lowest since December 2009, while a measure of exports increased.
  
• Debt-Limit Agreement Likely to Pass, Republicans Say. Republican leaders, with no extra time before a default threatened for tomorrow, voiced optimism that Congress will pass a compromise with President Barack Obama to raise the U.S. debt limit by at least $2.1 trillion and slash federal spending by $2.4 trillion or more. The House plans to vote today on the agreement reached during a weekend of negotiations that capped a months-long struggle between Obama and Republicans over raising the $14.3 trillion debt ceiling. Senate Majority Leader Harry Reid said he expects a vote “hopefully during” today’s session. “We’re very optimistic we’re going to do well,” said Senate Republican leader Mitch McConnell, of Kentucky, emerging from a meeting where he briefed Senate Republicans on the plan. In the House, Budget Committee Chairman Paul Ryan said, “It’s a good agreement, it’s going to pass.” Both parties worked to sell the deal to their rank and file -- meeting resistance from some Democrats who fault it for failing to increase taxes and from a faction of Republicans who say it’s insufficient to rein in the debt.
• Manufacturing Weakens From China to U.K. Manufacturing indexes from Asia to the U.S. to Europe fell in July as demand weakened and the global recovery from recession lost momentum. U.K., Russian and Australian manufacturing shrank last month, while the pace of factory growth slowed in Europe and China, according to surveys today. An index of U.S. manufacturing dropped more than economists forecast to a two- year low, even after the dollar’s 7 percent drop against the euro this year. “Manufacturing is slowing and some of these readings are in recessionary territory,” said David Owen, chief European economist at Jefferies International Ltd. in London. In the U.K., a factory gauge by Markit Economics fell to 49.1, the lowest since June 2009, from 51.4, and a measure for Russia slipped to 49.8 from 50.6. Australia’s index slid to a two-year low of 43.4 from 52.9. Readings below 50 indicate contraction. Europe’s index of manufacturing growth cooled to 50.4, the slowest pace in 22 months, from 52 in June. China’s purchasing manufacturing index moderated to 50.7 from 50.9, the China Federation of Logistics and Purchasing said, as the faltering recovery in the U.S. and Europe limited demand for goods from the world’s second-largest economy.
  
• Asia's Economic 'Soft Patch' Jars With Inflation, Posing Dilemma on Rates. Asian manufacturing is cooling even as accelerating inflation puts pressure on officials to keep tightening monetary policy, adding to headwinds for the global economy after recoveries faltered in the U.S. and Europe. Manufacturing in China, Australia and Taiwan weakened in July, purchasing managers’ indexes released today showed. South Korea’s inflation quickened to the fastest pace since March, Thailand’s held above 4 percent for a fourth month and a gauge of Australian prices exceeded the central bank’s target ceiling.
• China Blames Terrorists Trained in Pakistan After Xinjiang Clashes Kill 20. Violence in western China’s Xinjiang region in the past two days left at least 20 people dead in the city of Kashgar, with police calling one of the incidents a “premeditated terrorist attack” led by militants trained in Pakistan, according to official Chinese reports. 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 building, the Kashgar government said on its website. The attackers then killed four people and injured 12 in knife attacks outside the restaurant before five of them were killed by police, the report said. Another four suspects were arrested, the official Xinhua News Agency said. An “initial police probe” showed that the leaders of the “religious extremists” involved in the attack trained in bomb- making and firearms in Pakistan at camps run by the East Turkestan Islamic Movement, Xinhua said today. “Because China has been playing the terrorism card for so long now, fewer and fewer people believe them,” Gladney said in an interview. “There is a total lack of credibility.”
• 'Gossip Girl' Couture Is Back-To-School Boon. Angela Ricci is shopping for lacy tops, ruffled skirts and floral dresses to wear when she begins her senior year of high school in Pittsburgh. One thing she won’t be buying: jeans. “I want to show a new kind of style and make a better impression,” said Ricci, 17. “I think that my generation is inspired to dress up a little more.” Teens like Ricci are following the example of television shows such as “Gossip Girl” -- in which actress Blake Lively prances to class in couture -- as they head to stores to stock up for the new school year. Retailers, stung by slowing sales growth and record cotton costs, are obliging with blouses and dresses that sell for higher prices. Spending on clothing and shoes in the back-to-school season, the second-largest sales period of the year for retailers, may rise to $28.8 billion in the U.S., up 3.6 percent from $27.8 billion a year earlier, according to the New York- based International Council of Shopping Centers. Dressy clothes would be a bright spot in a slower-growing back-to-school season. Total back-to-school purchases, including books and electronics, may increase 2.9 percent, decelerating from 5 percent growth a year earlier, the council said.
• Tepco Says Highest Radiation Yet Detected at Fukushima Dai-Ichi. Tokyo Electric Power Co., operator of Japan's crippled Fukushima Dai-Ichi nuclear plant, said it detected the highest radiation to date at the site. Geiger counters, used to detect radioactivity, registered more than 10 sieverts an hour, the highest reading the devices are able to record, Junichi Matsumoto, a general manager at the utility, said today. The measurements were taken at the base of the main ventilation stack for reactors No. 1 and No. 2.

Wall Street Journal:

• Live Blog: The U.S. Debt Battle.
  
• Skilled-Nursing Stocks Plunge On Medicare Rate Change. Nursing-home operators Sun Healthcare Group Inc. (SUNH), Skilled Healthcare Group Inc. (SKH) and Kindred Healthcare Inc. (KND) lost more than a quarter of their market value Monday after Medicare said it would reduce reimbursement rates to those facilities by 11.1% over the next fiscal year. The Centers for Medicare & Medicaid Services said the cuts, which take effect in October, are in response to unexpected increases in nursing-home payments this fiscal year after the agency tweaked coverage rates last year. The skilled-nursing industry had lobbied hard since the government released its initial proposal for an 11.3% rate cut in April. The agency's final decision--announced late Friday--will have "a devastating impact" on the companies, according to one analyst, and the industry is now looking to Congress for help. The Alliance for Quality Nursing Home Care, a lobbying group for the industry, said in a statement late Friday that the change in reimbursement rates "will dangerously destabilize the nation's second-largest health facility employer, place patients and their care at deep risk, and put tens of thousands of health jobs in immediate jeopardy." The group's president, Alan Rosenbloom, said the move "crossed the line from over-correction into real Medicare cuts." Investors had expected more modest cuts, perhaps in the range of 5% to 7%, Wells Fargo said; however, given the current budget constraints in Washington, the firm warned that Congress likely won't be rushing in to offer meaningful relief.
• Base Metals: Weak U.S. Manufacturing Cuts Into Copper Prices. Copper grazed one-week lows after downbeat U.S. manufacturing data soured trader optimism over U.S. debt deal. The most actively traded contract, for September delivery, was recently down 8.40 cents, or 1.9%, at $4.3955 a pound on the Comex division of the New York Mercantile Exchange. The contract had touched a low of $4.3795. Thinly traded August-delivery copper was down 9.40 cents, or 2.1%, at $4.3800 a pound.
• Chip Sales Fell -1.5% in June. Global chip sales fell 1.5% in June from a month earlier as weak consumer demand offset growth in corporate-replacement purchases, smartphone demand and increased spending on information-technology infrastructure.

Fox Business:

• Dems Preparing to Renew Push for Revenue Increases on Proposed Deficit Panel. Democratic officials indicated Sunday that they would revive their push for revenue increases later this year, presuming Congress can first clear away the immediate crisis over the debt ceiling.
  

CNBC.com:

• 'Band Aid' Deal May Pressure S&P to Slash US Rating. Sunday night's deal that will see the US debt ceiling raised if it passes a vote in the House is merely a "band aid" and certainly not a game changer, according to an assessment from Barclays Capital. The deal “is certainly not a game-changing breakthrough, and will keep the possibility of a near-term rating downgrade alive; it represents, in our view, just a band-aid approach on the way to more sustainable public finances,” said Julian Callow, the chief European economist at Barclays Capital in a research note on Monday. The big problem for Callow is the slowdown in the US economy, which could mean any savings are offset by significantly lower revenue. “All of the putative fiscal savings could effectively be wiped out if US GDP outturns continue to be significantly weaker than is assumed in government fiscal baseline projections,” Callow said. Like Callow, Danske Bank chief analyst Allan von Mehren believes a downgrade of US debt is now in the cards. “Lower growth will also weigh on the budget and – all else equal -- requires even higher discretionary budget cuts to reduce the deficit and get debt under control,” said Mehren in a research note. “It is not an easy decision to downgrade sovereign debt of the world’s leading reserve currency and it will require some courage to do this.” “We believe, though, that S&P’s credibility is at stake here – and given the signals it has sent we believe it will prove hard not to follow through and downgrade US debt,” Mehren said.
• Japan Readying Intervention to Reverse Yen: Nikkei.
• Debt Deal Will Add to 'New Normal' Slowness: El-Erian. The emergence of a potential debt ceiling deal in Washington might forestall default and a credit downgrade, but won't fix what ails the U.S. economy, Pimco's Mohamed El-Erian said.

Business Insider:

• Live Coverage: Democratic Press Conference Canceled, Boehner Appearance Postponed, As Vote-Counting Continues.
  
• More and More People Are Betting On An Italian Default. Credit default swaps for Italy are surging, Der Spiegel reports. Citing figures from the Depository Trust and Clearing Corp, the German publication notes that the country has the highest gross CDS volume at $306 billion, ahead of Brazil ($179 billion) and Spain ($176 billion).
• JPMorgan(JPM) Warns of an Even More Disappointing Employment Index Number This Friday.
• Central Falls Files For Bankruptcy After Union Fails to Agree to Pension Cuts.
• And Now There Is A Fake Ikea Store In China.
  

Zero Hedge:

• CBO Scores "Bipartisan" Plan at Half of S&P Required Savings; Only 2% of Total Cuts to Take Place Before Obama Reelection.

NY Post:

• Foursquare Sets Revenue Plan. Foursquare is looking to cash in on all those check-ins. The social network, which has been known for having a fast-growing footprint -- more than 10 million members have checked in more than 750 million times to about 15 million venues worldwide, and a healthy valuation, $600 million after its recent $50 million round of financing -- but very little revenue, is now ready to pump up its top line, The Post has learned.

TheStreet.com:

• Oil's Relief Rally Loses Steam. The relief rally of crude oil prices came to a halt Monday as poor manufacturing data overshadowed a debt deal by lawmakers in Washington. Brent crude futures for September delivery were shedding 70 cents to $116.04, hitting a five-day low of $114.78 earlier. They hit a month-high of $120.40 earlier Monday. West Texas Intermediate light sweet crude oil for September delivery was tumbling $1.38 to $94.32, earlier reaching to a one-month low of $93.42.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Monday shows that 23% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-two percent (42%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -19 (see trends ).

Reuters:

• United States Approves "Free" Birth Control for Women. U.S. health insurance companies must offer women free birth control and other preventive health care services under Obama administration rules released on Monday.
• Syrian Tanks Shell Hama, Heaviest Barrage of Assault-Witnesses. Syrian tanks shelled residential neighbourhoods all over Hama on Monday in the heaviest barrage of a two-day attack on the city to crush street demonstrations against President Bashar al-Assad, witnesses said. Intense shelling began after Ramadan evening prayers, concentrating on districts near the al-Bilal roundabout in the northwest of the city, the Jarajmeh district in the east and northern neighborhoods near the Omar bin al-Khattab mosque, they said. "The shells are falling once every ten seconds," one of the witnesses told Reuters by phone, and the thump of artillery and explosions could be heard in the background.

Telegraph:

• Spain Will Need a Bailout. (video)

AFP:

• Italian Stocks Plunge -3.87%. Italian stocks closed down 3.87 percent on Monday with shares in Italy's top banks leading the losses as the long-term borrowing rate on government bonds rose sharply, reflecting investor nerves. The main FTSE Mib index dropped to 17,720 points with shares in insurance company Fondiaria-SAI plummeting 9.19 percent, UBI Banca plunging 7.93 percent and Intesa Sanpaolo lost 7.86 percent. UniCredit, Italy's largest bank, dropped 4.32 percent. Business daily Il Sole 24 Ore said there had been "a new wave of sales in Milan" while financial website firstonline.info said: "The Obama effect has run out" -- referring to a debt deal in the United States. The difference between the rate on Italian and German 10-year government bonds -- a key indicator of investment risk -- rose sharply to over 350 basis points.

China Business News:

• China's banking regulator issued a notice to banks warning them of associated risks when cooperating with financing and guarantee agencies.

Grain News:

• China may impose price caps on seeds produced by foreign-owned companies to reduce their influence in the domestic market, citing a person close to the government. A joint investigation by several ministries found overseas companies are expanding into the grain seed market after dominating the flower and vegetable seed industries.

Bear Radar

Style Underperformer:

• Small-Cap Growth (-1.71%)

Sector Underperformers:

• 1) Hospitals -7.02% 2) HMOs -4.61% 3) Medical Equipment -3.10%

Stocks Falling on Unusual Volume:

• DTE, THRX, HGSI, TXT, SI, IGTE, E, MRK, TOT, ABT, SBRA, ENSG, AUXL, CYOU, TEVA, ABAX, IPCM, BRLI, OFIX, PSSI, HTHT, SOHU, MANT, LPNT, VOLC, BMC, NTGR, ZOLL, AAWW, HAE, IXJ, TMW, KND, HGR, XPH, HCN, IEV, HUM, TEF, WIN, FNFG, EWG, SCOR, BABY, BGS, HCSG, VTR, UNH, WLP, DVA, BKD, MD, AWI, BRLI, CACI, WCG, HS, HLS, OCR, HRC, CYH, UHS, HCA, AGP and OHI
  

Stocks With Unusual Put Option Activity:

• 1) OVTI 2) DHI 3) DNDN 4) UUP 5) LMT
  

Stocks With Most Negative News Mentions:

• 1) IRF 2) OII 3) KND 4) SUNH 5) GES
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value (+.39%)

Sector Outperformers:

• 1) Gold & Silver +1.29% 2) Telecom +.49% 3) Gaming +.09%

Stocks Rising on Unusual Volume:

• MPEL, DTLK, VPRT, JAZZ, AGNC, SODA, ONB, HPY, CYS, NLY and CMO
  

Stocks With Unusual Call Option Activity:

• 1) LYB 2) MSI 3) TQNT 4) LLEN 5) TEVA
  

Stocks With Most Positive News Mentions:

• 1) PETS 2) AMZN 3) RTN 4) GOOG 5) HUM
  

Charts:

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

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.