Friday Watch

Evening Headlines
Bloomberg:

• JPMorgan(JPM) Loses $2 Billion in Chief Investment Office. JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon said the firm lost about $2 billion on synthetic credit securities after an “egregious’” failure in its chief investment office, which the bank says focuses on hedging. “This portfolio has proven to be riskier, more volatile and less effective as an economic hedge than the firm previously believed,” the New York-based company said today in a quarterly securities filing. JPMorgan declined 5.5 percent to $38.50 in extended trading at 5:55 p.m. in New York. The chief investment office has been transformed in recent years under Dimon into a unit that makes bigger and riskier speculative bets with the bank’s money, according to five former employees, Bloomberg News reported April 13. Some bets were so big that JPMorgan probably couldn’t unwind them without losing money or roiling financial markets, the former executives said.
• Spending Cuts Plunge Spanish Highways Into Darkness. Cars went barreling along the highway in darkness, ferrying families from Madrid to the beaches of Catalonia during the Easter holiday season, the black stalks of unlit streetlamps flicking past their windows. Truck drivers honked angrily as motorists switched on their full beams to pick out curves in the road, momentarily dazzling oncoming traffic. Motorists traveling along the main highway linking the Spanish capital to Seville and the rest of the south face similar challenges. “In some stretches it looks like they’ve been switching off the lights, in others they are missing the bulbs or the cables,” says Pascual Cabello, 32, who runs a fleet of eight trucks. “It’s only going to get worse,” he adds. The most draconian spending cuts on record are plunging Spain’s cities and highways into darkness as ministries and mayors struggle to pay for basic services. To appease European officials and bond investors, Prime Minister Mariano Rajoy is trying to pare the country’s deficit by 27 billion euros ($35 billion), an amount equivalent to almost a third of central government spending in 2011. At the same time, Rajoy is battling Spain’s second recession since 2009. Unemployment has edged up to 24 percent, pushing up social security payments and damping tax revenue.
• Germany Examines Bank Use of ECB Loans on Bubble Fear. German lenders’ use of cheap loans from the European Central Bank is under examination by the country’s top banking supervisor amid concerns the influx of funding may eventually create “a new bubble.” Banks that took “implausibly high” amounts have to explain how they plan to use the money, said Raimund Roeseler, head of banking supervision at the country’s financial regulator Bafin. The exercise is part of a strategy change focusing more on what banks plan for the future than looking at what they did in the past, he said.
• Spain Stakes Credibility on Fourth Bank Cleanup in Three Years. Spain will make a fourth attempt to convince investors its banking system is solid after failing to do so with three prior tries in as many years. “All the previous efforts have been announced with a drumroll and a big clash of cymbals but they weren’t credible in the end,” said Javier Diaz-Gimenez, an economics professor at the University of Navarra’s IESE business school in Madrid. “They must get it right this time.”
• Greece Strives for Government After Election Raises Euro Doubts. Greece's political leaders go into a fifth day of talks today to carve out a government with Evangelos Venizelos, the socialist Pasok leader, set to press counterparts on a proposal for a unity government that would avert a new election. Venizelos, who received the mandate to form a government yesterday, said there was a first "good omen" since the inconclusive May 6 election, after Democratic Left leader Fotis Kouvelis outlined a proposal designed to keep the country in the euro area. "Our views are very close," Venizelos said to reporters in Athens after meeting with Kouvelis. "I will continue the effort, preparing the ground for the phase of negotiation that will be coordinated by the president of the republic."
• Bundesbank’s Weidmann Hits Back at FT Report, Sueddeutsche Says. Bundesbank President Jens Weidmann hit back at a Financial Times report that the bank is prepared to accept higher inflation rates, the Sueddeutsche Zeitung said, citing an interview. Such reports are an “absurd discussion,” Weidmann is quoted as saying. Weidmann said that while German inflation may be higher than in the past, there is no danger as long as the European Central Bank keeps the euro-area average at just below 2 percent, according to Sueddeutsche.
• Weidmann Tells Bild Inflation Contained If ECB Sticks to Mandate. European Central Bank council member Jens Weidmann said if policy makers stick to the bank’s core principles, inflation will remain contained, Germany’s Bild newspaper reported, citing an interview. “The ECB council decides on monetary policy,” Weidmann, who also heads Germany’s Bundesbank, is quoted as saying. “I stand for monetary stability in the euro area. At the moment, it is decisive that the guardians of the currency don’t let their cart get hitched to the carriage of fiscal policy. If we hold to our principles, then there is no danger that inflation will get out of control.” Weidmann also said that Germany, which for many years enjoyed inflation below the euro-area average, may now see above-average inflation rates due to its strong economy and low unemployment, Bild reported.
• Germans Increase Their Foreign Bank Deposits by 47%, FTD Says. German savers increased the amount they have deposited in foreign-based banks by almost half in the past year, Financial Times Deutschland reported in a preview of an article to be published tomorrow, citing its own calculations. In the 12 months from April last year, Germans increased their deposits in non-German banks by 21.6 billion euros ($28 billion) to 67 billion euros, FTD said. German savings banks, or Sparkassen, meanwhile, took in 17.8 billion euros, according to the newspaper. More than 5 billion euros was deposited with Bank of Scotland Plc, close to 2 billion with ABN Amro Bank NV, and just since last autumn, Russia’s VTB Direktbank has received close to 1 billion euros, FTD said.
• Bernanke Tells Senators About Risk From End of Pro-Growth Plans. Federal Reserve Chairman Ben S. Bernanke spoke to a group of senators today about the potential harm to the economy from the expiration of several pro-growth policies, according to senators who attended the meeting. Bernanke discussed the scheduled end of programs including the Bush tax cuts, the payroll tax holiday and extended unemployment benefits, as well as budget cuts that are set to take effect in January of 2013, said Kent Conrad, a North Dakota Democrat. "It's clear to all of us and he stressed that if all of these things occur it could drive us back into a worse recession," said Richard Durbin of Illinois, the chamber's No. 2 Democrat, after the meeting. "The sooner we can resolve these issues, the more likely we are to give confidence to consumers and investors across America."
• JPMorgan(JPM) Default Swaps Climb After $2 Billion Trading Loss. The cost of protecting debt of JPMorgan Chase & Co. from default rose to the highest level in a month after the bank said it lost about $2 billion with positions taken by its chief investment office. Credit-default swaps on New York-based JPMorgan climbed to 118.5 basis points as of 5:42 p.m. in New York, according to prices from data provider CMA, which is owned by CME Group Inc. The contracts were at about 111 basis points before the announcement.
• U.S. Postal Service Cash Projected at Zero in October. The U.S. Postal Service said it lost $3.2 billion in the quarter ended March 31 and will temporarily run out of cash in October, adding urgency to its pleas for Congress to let it make changes including ending Saturday delivery. The service forecast a $9.1 billion loss for the 12 months ending Sept. 30, not counting a required $5.5 billion payment for future retirees' health benefits, Chief Financial Officer Joe Corbett said today on a conference call with reporters.
• Facebook(FB) IPO Overvalued at $96 Billion in Global Poll. Facebook Inc. (FB), seeking as much as $96 billion in its initial public offering next week, is overvalued at that price, according to a Bloomberg investor poll.
• Gilead’s(GILD) Pill Wins U.S. Panel Backing to Prevent HIV. Gilead Sciences Inc. won the backing of an advisory panel for the first approval of a drug to prevent HIV infections in healthy people. The panel of doctors, researchers and patients voted that Truvada, currently marketed to treat those infected with HIV, is safe and effective as a form of prevention in high-risk individuals, including gay men whose partners have the disease. The Food and Drug Administration is expected to decide by June 15 and doesn’t have to follow the panel’s recommendation.
• China's Big Banks Look More Like Paper Tigers. After spending time combing through the financial reports of China’s biggest publicly traded, state- owned banks, I now understand what Jim Chanos, the famous short- seller, means when he keeps saying they are “built on quicksand.” He’s definitely on to something.
• Sony(SNE) Falls to 31-Year Low as Forecast Misses Estimates. Sony Corp. (6758) fell to the lowest level in Tokyo trading since 1980, when the Walkman was new and before it introduced the first compact-disc player, after forecasting profit that lagged behind analyst estimates. Sony tumbled as much as 5.8 percent to 1,142 yen, the lowest intraday price since Aug. 14, 1980, and traded at 1,144 yen as of the 12:37 p.m. on the Tokyo Stock Exchange.

Wall Street Journal:

• J.P. Morgan's $2 Billion Blunder. A massive trading bet boomeranged on J.P. Morgan Chase JPM +0.25% & Co., leaving the bank with at least $2 billion in trading losses and its chief executive, James Dimon, with a rare black eye following a long run as what some called the "King of Wall Street." The losses stemmed from wagers gone wrong in the bank's Chief Investment Office, which manages risk for the New York company. The Wall Street Journal reported early last month that large positions taken in that office by a trader nicknamed "the London whale" had roiled a sector of the debt markets.
• J.P. Morgan’s(JPM) London Whale Drowns Bank Stocks.
• Costly Liabilities Lurk for Gas Giant. Embattled Chesapeake Energy Corp. has saddled itself with about $1.4 billion of previously unreported liabilities over the next decade through off-balance-sheet financial deals. Most of these costs will hit this year and next, at a time when the company needs to raise substantial cash to cover operating expenses and its move into the more lucrative oil business.
• Dish Network(DISH) Offers DVR That Removes Ads. Dish Network Corp. released a feature on its digital video recorder Thursday that automatically removes commercials from shows aired by major broadcast networks, threatening to seriously undercut billions of dollars in broadcast television advertising.
• With French Election Over, Unions Fear Layoffs. As presidential rivals debated the roots of unemployment during the recent campaign, many companies held off on announcing job cuts to avoid inflaming an already fraught political issue. But now that voters have chosen Socialist François Hollande over center-right President Nicolas Sarkozy to be their next president starting on Tuesday, labor unions say many large French companies are preparing to announce large layoffs in the weeks and months ahead.
• Google(GOOG) Preps for Possible FTC Fight. Amid signs the Federal Trade Commission is ratcheting up its investigation of Google Inc., the search giant is returning fire by stepping up a public relations campaign to make the case that its activities don't violate antitrust law.
• Chesapeake(CHK) Flies in Front of Fractional-Jet Set. Chesapeake Energy Corp., which came under fire this week in a shareholder lawsuit over the cost of personal travel aboard company jets by executives, is by far the largest single owner of fractional aircraft shares in the U.S., according to industry consultants and databases.
• NY Fed: ECB Taps $532M From Dollar Swap Facility In May 9 Week. The European Central Bank borrowed new dollars from the Federal Reserve during the week ended May 9, but also allowed a greater amount of prior loans to roll off, the Federal Reserve Bank of New York reported Thursday.
• Strassel: Trolling for Dirt on the President's List. First a Romney supporter was named on an Obama campaign website. That was followed by the slimy trolling into a citizen's private life. Here's what happens when the president of the United States publicly targets a private citizen for the crime of supporting his opponent.

Business Insider:

• Now India Is Getting Involved In The China-Philippines Territorial Conflict.
• UH OH: Facebook IPO Seeing "Weak Demand".
• FUKUYAMA: The Chinese Elite Ousted Bo Xilai As They Were Genuinely Scared He Would Become The Next Mao.

Zero Hedge:

• Is JPMorgan(JPM) Staring at Another $3 Billion Loss? (graphs)
• The "World's Largest Prop Trading Desk" Just Went Bust.

CNBC:

• Japan Will Follow Europe With a Debt Crisis: Kyle Bass. Japan is about to join Europe in the debt crisis ranks, with the two regions offering the best opportunities for investors to bet against, hedge fund manager Kyle Bass said. While the world's attention has been focused on sovereign debt issues in Greece and elsewhere, Japan will emerge as a problem area as well as the European developments accelerate, Bass told attendees at the Skybridge Alternatives, or SALT, conference. "Greece will circle the drain and be ungovernable in the next 30 to 60 days," said Bass, founder of Heyman Capital and famous for presciently shorting subprime mortgage bonds before the industry collapsed. "Japan is in the crosshairs of the market...I've never seen more mispriced optionality in my entire life." The Bank of Japan, the nation's equivalent of the U.S. Federal Reserve, is effectively monetizing the national debt by buying up 50 trillion yen-worth of Japanese Government Bonds, commonly referred to as JGBs in the marketplace, Bass said.
• Daniel Stern: Volcker Rule Driving Talent to Hedge Funds. The Volcker Rule is driving talented traders to leave large, well-known Wall Street investment banks for hedge funds, Reservoir Capital founder Daniel Stern said at the Skybridge Alternatives (aka SALT) investor summit Wednesday. "I get a call a day from head hunters looking to place talent," he said.
• China Inflation Eases in April, Uptick in Output Seen.
  

LA Times:

• Video Game Sales Plunge 42% in April. Video game sales took a nose dive in April, plunging a stomach-churning 42% compared with a year earlier as companies cranked out fewer releases than in April 2011. Retailers rang up just $292.1 million in game sales last month, down from $503.2 million a year earlier, according to the NPD Group, a market research firm.

Washington Post:

• ObamaCare Is Taxing Jobs Out of Existence.

CNN:

• Oil Rig Workers Make Nearly $100,000 A Year.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows Mitt Romney earning 49% of the vote and President Obama attracting 45% support. Three percent (3%) would vote for a third party candidate, while another two percent (2%) are undecided.

USA Today:

• FDA advisers recommend approving Arena weight-loss drug.

Reuters:

• Broker LPL venturing into little-loved mass market. LPL Investment Holdings , the largest U.S. independent brokerage, said it will launch an investment advisory business it hopes will capture some of wealth spread out among millions of middle class Americans. LPL's new venture is in the early stages of development, but the Boston-based company says it will hire and train a network of self-employed advisers to offer investment advice to mass market consumers, defined by Cerulli Associates as those with less than $100,000 to invest.
• India Drugs Inquiry Could Prompt New U.S. Scrutiny. Global drugmakers could face new U.S. scrutiny after a report from lawmakers in India alleged abuses in that country's drug approval process, lawyers familiar with such investigations said.
• Nuance(NUAN) quarterly profit beats estimates. Speech recognition software maker Nuance Communications Inc's second-quarter profit beat analysts' estimates on higher demand for its products across all segments.
• Nordstrom(JWN) takes hit on e-commerce expenses. Retailer Nordstrom Inc reported a quarterly profit below Wall Street's expectations after pouring tens of millions of dollars into its e-commerce business, and said it would spend more on that during the rest of the year than previously estimated.

Financial Times:

• Moody's Issues Capital Warning to Global Banks. Moody’s has warned that the tendency of global banks to avoid new capital requirement rules and load up on debt will continue to put pressure on their creditworthiness. The credit rating agency announced it was placing 17 banks on review for a downgrade earlier this year, citing “vulnerabilities” in the companies’ vast and volatile capital markets businesses.
• Warnings of Civil Unrest in Venezuela. Politicians across the spectrum in Venezuela are trading dire predictions of impending violence in the vacuum left by uncertainty about the health of President Hugo Chávez. The opposition has warned of plans to postpone or even cancel elections due in October because of speculation that the socialist leader’s cancer will prevent him from running.

Telegraph:

• It's Too Late for Germany to Save the Euro. Despite belated gestures from Berlin, the single currency cannot survive if and when Greece leaves it.
  

Shanghai Securities News:

• China Investment Growth Faces Slowdown. China's manufacturing investment growth in the future may not maintain a 24% rate recorded in the first quarter because of uncertainties in exports, citing Zhang Liqun, a researcher at the Development Research Center of the State Council.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -1.25% to -.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 181.0 +1.5 basis points.
  
• Asia Pacific Sovereign CDS Index 145.50 +1.75 basis points.
  
• FTSE-100 futures -.70%.
  
• S&P 500 futures -.80%.
  
• NASDAQ 100 futures -.56%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (NVDA)/.15
  

Economic Releases
8:30 am EST

• The Producer Price Index for April is estimated unch. versus unch. in March.
• The PPI Ex Food & Energy for April is estimated to rise +.2% versus a +.3% gain in March.
  

9:55 am EST

• Preliminary Univ. of Mich. Consumer Confidence for May is estimated to fall to 76.0 versus 76.4 in April.
  

Upcoming Splits

• (CIG) 5-for-4
  

Other Potential Market Movers

• The Fed's Fisher speaking and the (ADVS) Investor Day could also impact trading today.
  

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

Stocks Slightly Higher into Final Hour on Less Eurozone Debt Angst, Short-Covering, More Financial Sector Optimism, Bargain-Hunting

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Most Sectors Rising
  
• Volume: Slightly Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 18.89 -5.98%
  
• ISE Sentiment Index 139.0 +39.0%
  
• Total Put/Call .97 -2.02%
  
• NYSE Arms .87 -15.06%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 102.48 -1.0%
  
• European Financial Sector CDS Index 263.95 +1.98%
  
• Western Europe Sovereign Debt CDS Index 283.06 -1.45%
  
• Emerging Market CDS Index 258.99 -1.04%
  
• 2-Year Swap Spread 31.75 -1.25 basis points
  
• TED Spread 37.50 -.5 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -44.0 +4.25 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .09% unch.
  
• Yield Curve 162.0 +5 basis points
  
• China Import Iron Ore Spot $139.30/Metric Tonne -1.42%
  
• Citi US Economic Surprise Index -25.60 -4.0 points
  
• 10-Year TIPS Spread 2.17 +1 basis point
  

Overseas Futures:

• Nikkei Futures: Indicating a +45 open in Japan
• DAX Futures: Indicating -3 open in Germany
  

Portfolio:

• Slightly Lower: On losses in my Tech sector longs and index hedges
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, added to my (EEM) short
  
• Market Exposure: Moved to 25% Net Long

Today's Headlines

Bloomberg:

• Greeks May Hold $510 Billion Trump Card in Renegotiation. Greece’s next government may hold a trump card worth more than $510 billion if it heeds voters’ demands to renegotiate its bailout with the European Union. The nation owes about 400 billion euros ($517 billion) to private bondholders, public bodies such as the International Monetary Fund and European Central Bank, and other creditors, according to data compiled by Bloomberg. About 252 billion euros of that’s due to official organizations that used their status to avoid the losses suffered by ordinary bondholders when Greece restructured its debt two months ago. “Greece has got some strong cards to persuade them to go easy on austerity,” said John Whittaker, an economist at Lancaster University Management School in England. “Everyone fears a Greek departure from the euro because they’ll lose money and lose political capital.”
• Italy Can't Recover, Euro Exit Isn't 'Taboo,' Grillo Says. Italians should consider exiting the euro amid rising public debt and no signs of economic recovery, said Beppe Grillo, a comedian-turned-politician opposed to Prime Minister Mario Monti's austerity measures. "Let's face the issue, it can't be a taboo," Grillo, 63, said in an interview yesterday after his Internet-based political movement emerged as the third-biggest party in local elections this week. "As debt rises, spending isn't under control, businesses close down, labor cost is up, salaries are down and we don't even have the power of bargaining our debt." His 5 Star Movement, founded in October 2009, is the latest grouping to profit from rising anger in Europe over tax increases, budget cuts and joblessness amid the sovereign debt crisis. The National Front, which seeks a euro exit, won record support in the first-round of French voting last month, while the second-place party in Greek polls this week wants to tear up the nation's European Union-led bailout agreement.
• Merkel’s Euro Policies Have No Alternative, Kohl Tells Bild. Europe is “a matter of war and peace” and Germany must work for its integration, former German Chancellor Helmut Kohl told Bild-Zeitung. “I’m looking with great sympathy at the course Angela Merkel is plotting for Europe and her commitment to necessary structural changes -- including necessary savings measures,” the German newspaper quoted Kohl as saying. “There isn’t any real alternative to that.”
• Rio Tinto Group(RIO), the third-biggest mining company, said any exit by Greece from the European Union currency bloc would significantly destabilize the region's economy and negatively affect global confidence. "Looking at Greece, it is not looking good at all and clearly if Greece would leave the euro it would destabilize the European economy to a significant extent," Jan du Plessis, chairman of London-based Rio Tinto, told reporters. "So it will have an impact on our business, and it's one of the things we keep an eye out on all the time."
  
• Sovereign, Corporate Bond Risk Rises, Credit-Default Swaps Show. The cost of insuring against default on European sovereign and corporate debt rose, reversing an earlier decline, according to BNP Paribas SA. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments climbed 1.5 basis points to 285.5 at 11:40 a.m. in London. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings rose 4.5 basis points to 696.5. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings increased two basis points to 158 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers was three basis points higher at 268 and the subordinated index was up five at 433.
• Trade Gap in U.S. Widens More Than Forecast as Imports Jump. The trade deficit widened more than forecast in March as American demand for crude oil, computers, automobiles and televisions propelled imports to a record. The gap grew 14 percent to $51.8 billion, the Commerce Department reported in Washington today. The median estimate of economists surveyed by Bloomberg News called for an increase to $50 billion. A 5.2 percent jump in imports, the biggest in more than a year, swamped the 2.9 percent gain in exports, which also reached a record.
• Jobless Claims Fall Slightly: Economy. First-time claims dropped by 1,000 to 367,000 in the period ended May 5, the Labor Department said today in Washington. Other reports showed that a gauge of consumer confidence declined to a three-month low, and the trade deficit widened on rising demand for imports from oil to autos.
• Goldman(GS) Lifts 'Reasonably Possible' Legal-Loss Estimate. Goldman Sachs Group Inc. (GS), the fifth- biggest U.S. bank by assets, raised estimates of potential losses from legal claims by 13 percent and said a probe into its handling of Greek finances includes trading and research. The forecast of “reasonably possible” legal costs rose to $2.7 billion as of March 31 from $2.4 billion three months earlier, according to a regulatory filing today. The New York- based firm didn’t give specific reasons for the increase. An investigation of the firm’s financing and swap transactions with the Greek government, which started about two years ago, also includes “trading and research activities with respect to Greek sovereign debt,” according to today’s filing. “Goldman Sachs has cooperated with the investigations and reviews,” the company said.
• Goldman Sachs(GS) May Owe $2.21 Billion If Rating Falls Two Levels. Goldman Sachs Group Inc. (GS), one of the five U.S. banks with the biggest positions in over-the-counter derivatives, may owe counterparties $2.21 billion if its credit rating falls two levels. Counterparties could demand the money in collateral and termination payments, the New York-based bank said in a quarterly filing today. A one-level reduction would require $1.33 billion in payments, according to the filing.
• Salesforce(CRM) Falls on Corporate IT Spending Cuts. Salesforce.com Inc. (CRM), the biggest provider of online customer-management software, fell the most in five months after computer-networking leader Cisco Systems Inc. (CSCO) said some corporate customers are reluctant to spend. Salesforce declined 8.7 percent to $136 at 12:52 p.m. in New York, and earlier touched $134.88 for the biggest decline since Dec. 21.

Wall Street Journal:

• Cautious Cisco(CSCO) Rattles Corporate IT Market. Analyst: ‘Canary in coal mine again?’ Other corp. IT stocks also fall. Cisco Systems Inc.’s warning of “cautious” spending in information technology sent its shares falling on Thursday, weighing down the stocks of other firms that sell IT products and services to businesses. Cisco shares retreated by more than 8% to $17.17, a day after the company reported in-line results, but issued an outlook that was below expectations.
• Google(GOOG) Joins Gripes About Microsoft(MSFT) Shutting Out Rival Web Browsers. Google Inc. is echoing concerns that Microsoft Corp. is hindering rival Web browsers on some computing devices being designed for the next version of the Windows operating system.
• Blasts Rock Damascus. Twin car bombs that exploded near a state intelligence compound in the Syrian capital on Thursday killed 55 people and injured nearly 400 more, offering a gruesome new setback to a United Nations-brokered plan meant to temper the violence in Syria.

MarketWatch:

• Fiscal Cliff Poses a Greek Moment for the US. The U.S. is not like Greece in most respects but we may be facing a Greek moment with the “fiscal cliff” looming at the end of the year.

CNBC.com:

• European Central Bank Leveraged Like Lehman: Author. The European Central Bank is indebted to the hilt and is beginning to look like one of the banks it has done so much to save, according to author Satyajit Das. Having subsidized the European banking industry with its 1 trillion euro ($1.29 trillion) long-term refinancing operation (LTRO), funds that were distributed at well below market prices, the central bank is leveraged to levels Bear Stearns and Lehman Brothers might have felt comfortable with in early 2007. “If the European Financial Stability Fund was a collateralized debt obligation, the ECB increasingly resembles a highly leveraged bank. The ECB balance sheet is now around euro 3 trillion, an increase of about 30 percent just since Mario Draghi took office in November 2012,” said Das in notes sent to CNBC before an interview on “Squawk Box Europe” on Thursday. “It is supported by it own capital (scheduled to increase to 10 billion euros) and the capital of euro zone central banks (80 billion euros). This equates to a leverage of around 38 times,” he said.
• Fed Worries US 'Fiscal Cliff' Is as Big a Threat as Europe. Federal Reserve officials are increasingly concerned about the coming “fiscal cliff,” putting it on par with the European financial crisis and the housing market as among the biggest potential threats for the U.S. economy.
• UK Bookie Suspends Bets on Greek Euro Exit.
• Slump Worsens in Ailing Greek Property Market.
  

Business Insider:

• Chart of the Day: How Stocks Have Tumbled Around the World.
• These Two Pictures Show Just How Political Obama's Endorsement of Gay Marriage Was.
• These Two Paragraphs Explain Why You Should Be Watching This China-Philippines Territorial Dispute.
  

Zero Hedge:

• As New Greek Bonds Tumble To All Time Lows, Is Greece About To Re-Default In 5 Days?
• On Greece's Systemic Risk Impact.
• Italian Economic Deterioration Accelerates: Q2 GDP Forecast To Drop More Than 1%. (graph)
• Consumer Comfort Index Plummets Most Since Feb 2008 As Personal Finance Component Crashes. (graph)
• Anti-Bailout Coalition Soars in Popularity Ahead of Second Greek Election.
  

New York Times:

• Data Indicate Economic Trouble in China.

Washington Post:

• Greek Left Party Head Tells EU Leaders Austerity Lacks Legitimacy, Must Be Re-Examined. The head of Greece’s second-placed Radical Left Coalition has written to top European officials urging them to re-examine the country’s strict austerity program. In a letter Thursday, Alexis Tsipras said the strong anti-austerity vote in Sunday’s election, which produced a hung parliament, stripped Greece’s bailout commitments of “political legitimacy.”

ForexLive:

• Spanish CDS Point to a Growing Crisis. (graph) The bond market may be understating the risk of a Spanish restructuring/bailout. Yields have been trending higher since March but remain well-below the November highs. Meanwhile, credit-default swaps are trading at record highs. 5-year CDS vs 5-year yields:

Reuters:

• Merkel Resists Calls to Put Growth Before Reforms. Chancellor Angela Merkel rejected calls from her centre-left opponents in Germany and Europe for economic stimulus policies that rely on new debt, warning parliament on Thursday that "growth on credit" would just tip Europe deeper into crisis. Since the election of Socialist Francois Hollande as French president on Sunday, Merkel has come under pressure to relax the austerity measures that, as leader of Europe's biggest economy, she has prescribed as the remedy for the euro zone debt crisis. But Germany's centre-right leader, standing her ground, told the Bundestag (lower house of parliament) that reducing debt and encouraging growth were "twin pillars" of European policy, rather than alternative paths. "Growth through structural reforms is sensible, important and necessary. Growth on credit would just push us right back to the beginning of the crisis, and that is why we should not and will not do it," said Merkel, who is expected to get a visit from Hollande next week on his first foreign trip as president.
• Fortress Commodities Fund to Close After Losses. The Fortress Commodities Fund will close later this month and distribute funds to investors after poor performance and heavy withdrawals. U.S.-based Fortress Investment Group LLC said the hedge fund will cease operations around May 23 and "will commence procedures to distribute capital to its investors," according to a regulatory filing. The fund, run in London by William Callanan, fell 12.6 percent during the first four months of the year and 4.23 percent in April alone, the filing said.
• Apple(AAPL), Supplier Foxconn to Share Costs on Improving Factories. Apple Inc and its key supplier Foxconn Technology Group will share the initial costs of improving labour conditions at the Chinese factories that assemble iPhones and iPads, Foxconn's top executive said on Thursday. Foxconn chief Terry Gou did not give a figure for the costs, but the group has been spending heavily to fight a perception its vast plants in China are sweatshops with poor conditions for its million-strong labor force.
• NY Fed Sells Assets From AIG(AIG) Bailout to Merrill Lynch. The New York Federal Reserve said on Thursday it sold all its TRIAXX collateralized debt obligations from a portfolio of assets that was used in the government bailout of insurer AIG to Merrill Lynch, following a competitive bid process with eight other Wall Street firms.

Financial Times:

• US Bank Bears Await Summer of Downgrades. Shares in large US banks have fallen sharply since the sector peaked in late March, with the likes of Morgan Stanley, Bank of America and Citigroup entering “bear market” territory after their stock prices have dropped some 20 per cent.
• S&P Warns of $46 Trillion Refinancing Challenge. European companies could face serious challenges refinancing a wall of maturing debt over the next few years as the region’s banks deal with the impact of regulation and fallout from the eurozone debt crisis, according to a new report from Standard & Poor’s. The rating agency predicted that companies round the world would need new funding or to refinance existing debt totalling as much as $46tn over the next five years. And while global banks and debt capital markets should largely be able to provide the majority of funding for companies, S&P raised concerns about the ability of European lenders in particular to meet all corporate funding needs as they deal with the impact of sluggish economic growth and tough regulatory requirements.

Telegraph:

• Europe's Nuclear Brinksmanship With Greece Is A Lethal Game. Fresh from the Hellenic Statistical Authority: Youth unemployment up to the age of 24 reached a fresh record of 53.8pc in February. The rate for those aged 25-34 rose to 29.1pc. The total rate hit 21.7pc but will soon be much higher as 150,000 public sector workers are chopped – with pro-cyclical effects, in the middle of a depression – to comply with the EU-IMF Memorandum. Polls show that 70pc or even 80pc of Greeks still wish to stay in the euro, while at the same voting in large numbers for hard-Left and hard-Right parties committed to tearing up the Memorandum – a course of action that will take them straight out of the euro.
• The Chinese Save While Their Government Spends. The Chinese have always been a nation of savers, and now they have more reason than ever to hoard their hard-earned pay.

La Presse:

• Former Federal Reserve Chairman Alan Greenspan said his biggest concern is a possible breakup of the euro, according to an interview.
  

Bear Radar

Style Underperformer:

• Small-Cap Growth +.25%

Sector Underperformers:

• 1) Networking -2.50% 2) Software -1.42% 3) Homebuilding -1.21%

Stocks Falling on Unusual Volume:

• CSCO, CRM, UBNT, QLIK, NTAP, EMC, FFIV, BTE, ECA, AMAG, CPNO, WIN, PSSI, MYRG, QSII, BECN, PANL, CAVM, JOBS, ALTE, INTL, PCLN, MAKO, EZCH, ARUN, Z, KSS, AMED, RYL, RNF, MD, CTXS, FLT, FTK and SF
  

Stocks With Unusual Put Option Activity:

• 1) CSCO 2) XLU 3) CTL 4) STLD 5) PANL
  

Stocks With Most Negative News Mentions:

• 1) WYNN 2) SGI 3) QSII 4) BRK/A 5) JCP
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value +.64%

Sector Outperformers:

• 1) Banks +1.21% 2) Utilities +.81% 3) Airlines +.75%

Stocks Rising on Unusual Volume:

• NRG, EWBC, CPA, TSLA, INSP, MNST, AMCX, ARMH, NWSA, SYNC, EWBC, QUAD, BWC, TPX and TSO
  

Stocks With Unusual Call Option Activity:

• 1) PCS 2) PANL 3) LIZ 4) CSCO 5) AVP
  

Stocks With Most Positive News Mentions:

• 1) SGMS 2) SAPE 3) PRU 4) ABC 5) NWL
  

Charts:

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

Thursday Watch

Evening Headlines
Bloomberg:

• Spain Underplaying Bank Losses Faces Fate Ireland Couldn’t Avoid. Spain is underestimating potential losses by its banks, ignoring the cost of souring residential mortgages, as it seeks to avoid an international rescue like the one Ireland needed to shore up its financial system. The government has asked lenders to increase provisions for bad debt by 54 billion euros ($70 billion) to 166 billion euros. That’s enough to cover losses of about 50 percent on loans to property developers and construction firms, according to the Bank of Spain. There wouldn’t be anything left for defaults on more than 1.4 trillion euros of home loans and corporate debt. Taking those into account, banks would need to increase provisions by as much as five times what the government says, or 270 billion euros, according to estimates by the Centre for European Policy Studies, a Brussels-based research group. Plugging that hole would increase Spain’s public debt by almost 50 percent or force it to seek a bailout, following in the footsteps of Ireland, Greece and Portugal. “How can you only talk about one type of real estate lending when more and more loans are going bad everywhere in the economy?” said Patrick Lee, a London-based analyst covering Spanish banks for Royal Bank of Canada. “Ireland managed to turn its situation around after recognizing losses much more aggressively and thus needed a bailout. I don’t see how Spain can do it without outside support.”
• Spanish Banks Erode Creditors With ECB Loans: Mortgages. Spain’s lenders are pledging some of their best assets to raise record levels of secured funding, including from the European Central Bank, eroding creditor safeguards at the same time the government is planning the country’s largest bank bailout. Borrowing from the ECB rose 50 percent in March from the prior month to 227.6 billion euros ($294.3 billion). Bankia Group is among lenders that increased mortgage-backed debt issuance by 35 percent since December 2007 to 535.1 billion euros, or 53 percent of their real-estate loans, according to Spanish Mortgage Association data at the end of 2011. Rodrigo Rato, its chairman, stepped down this week as part of a plan in which the government is willing to inject public funds. Spanish Lenders are increasingly depending on the central bank and secured debt sales to lower funding costs after their return on equity in 2011 was the lowest in more than four decades following the country’s real-estate crash. The ECB provides loans at rates of 1 percent against collateral such as covered bonds and mortgage-backed securities, which would be used to repay the debt in an event of a default, leaving fewer assets available to unsecured creditors, including depositors. “Banks strongly relying on ECB funding and secured bonds are actually subordinating other creditors in the event of a bank insolvency, so recovery levels would be lower” said Helene Heberlein, managing director for covered bonds at Fitch Ratings. “The asset encumbrance is especially worrying from the point of view of banking authorities,” when the “issuers are also deposit-taking institutions.”
• Spain Takes Over Bankia, Readies Second Bailout. Spain said it would take over Bankia (BKIA) SA and prepared to inject public funds into the banking group with the most Spanish real estate as part of government efforts to bolster confidence in the country’s lenders. Spain’s bank bailout fund will convert its 4.5 billion euros ($5.8 billion) of preferred shares in Bankia’s parent company Banco Financiero y de Ahorros, or BFA, into voting shares, the Economy Ministry said in a statement yesterday. The action will give it a controlling stake of 45 percent in Bankia, the ministry said, adding the government will provide the capital that’s “strictly necessary” to clean up the lender.
• China's Latest Reforms Not a Sign of Economic Strength. This year, China has announced a flurry of financial liberalization measures that were perceived by many in the U.S. and Europe as a sign of confidence among Chinese leaders about their economy’s growth prospects. They are defensive steps intended to protect the economy from a coming slowdown and possibly to boost domestic asset prices.
• Iran May Be Erasing Nuclear Work Evidence, Analysts Say. Iran may be erasing evidence of nuclear weapons work at its Parchin military complex southeast of Tehran, according to an analysis of satellite imagery by a Washington-based research institute. Commercial satellite imagery of the Parchin site taken on April 9, compared with a previous image obtained on March 4, shows unidentified items lined up outside a rectangular building and what appears to be water flowing out of the same structure, Paul Brannan, an analyst at the Institute for Science and International Security, said today in a phone interview.
• ICBC Gets Fed Nod as Chinese Banks Seek U.S. Growth. Industrial & Commercial Bank of China (601398) Ltd., the world’s most profitable lender, was approved to operate as a U.S. bank holding company with the purchase of a controlling stake in Bank of East Asia Ltd. (23)’s U.S. unit. The Federal Reserve also granted bank holding company status for ICBC’s government shareholder Central Huijin Investment Ltd. and that company’s parent, sovereign fund China Investment Corp., and applications by Bank of China Ltd. and Agricultural Bank of China Ltd. to open U.S. branches, according to statements posted yesterday on the regulator’s website.
• Euro Diminished in Poll Showing More Than 50% Predicting an Exit. The 17-nation euro area is on the verge of losing one of its members, with more than 50 percent of investors predicting an exit this year as Greece’s election impasse threatens to push the debt crisis to new depths, according to the Bloomberg Global Poll. As Greece faces political paralysis and voters balk at austerity, 57 percent of the 1,253 investors, analysts and traders who are Bloomberg subscribers said at least one country will abandon the euro by year-end and 80 percent expected more pain for Europe’s bond markets. With a majority identifying a deterioration in Europe as a large threat to the world economy, respondents to the May 8 survey were increasingly worried Spain will default and less willing to buy French debt as Francois Hollande takes power.
• Pimco's Gross Cuts Emerging Debt as IMF Sees Slowdown. Bill Gross, who runs the world’s biggest bond fund, cut his holdings of emerging-market debt to a two-year low, selling assets from an area where the International Monetary Fund says growth will slow. Gross reduced the securities to 7 percent of assets in Pacific Investment Management Co.’s Total Return Fund (PTTRX) in April from 10 percent in March, according to Newport Beach, California-based Pimco’s website.
  

Wall Street Journal:

• IMF Drafting New Safeguards For Its Cash, May Limit Euro Lending - Sources. The International Monetary Fund is drafting plans to protect it from potential lending losses, including proposals that could limit the size of loans to euro-zone countries, according to people familiar with the situation. The proposals are being developed as political turnover in troubled countries has renewed concern about a fresh flare-up in Europe's debt crisis. More than a dozen of the world's largest economies joined Europe last month in pledging to boost the IMF's resource base by around $430 billion.
• Spain to Get Room on Deficit Rules. Euro-zone governments are expected to give Spain more leeway to meet its budget-deficit target next year, according to officials involved in the discussions, in a sign they intend to shift away from rigid enforcement of the currency bloc's budget rules. Austerity will still be the guiding principle of European fiscal policies. But the likely Spanish move suggests the rules will be adjusted in some cases to account for the fact that when economies go into recession, their budget deficits usually grow. Officials said the flexibility is unlikely to stop with Spain's politically sensitive deficit target.
• FDIC to Lay Out New Plan for Big Bank Failures. When the next crisis brings a major financial firm to its knees, U.S. regulators will seize the parent company but allow its units around the globe to keep operating while the mess is cleaned up, according to a planned announcement Thursday from the Federal Deposit Insurance Corp. The equity stakeholders of the large bank or other financial firm will be wiped out, and bondholders will face losses as their holdings are swapped for equity in a new entity, as a part of the FDIC's plan. Nearly four years after the massive government bailouts of the financial crisis, regulators are looking to chip away at the tacit understanding that the government will step in to save top financial institutions seen as vital to the economy or banking system.
• How a Radical Greek Rescue Plan Fell Short. Two years after Europe bailed Greece out to protect the euro, the rescue has become a debacle that threatens to unravel the common currency. After Greece's May 6 elections left pro-bailout parties too weakened to govern the country, more elections are likely in June, with no guarantee a stable government will emerge. By next month, Athens must identify €11.5 billion, or $15 billion, in fresh spending cuts or face suspension of the international loans it needs to pay pensions and run schools. If it doesn't get the money, it would eventually have to print its own.
• NYSE Euronext(NYX) Scrutinizing Portfolio In Bid To Cut Costs - COO. NYSE Euronext (NYX) is reviewing a list of about 25 investments and ventures, weighing the sale or closure of several efforts as the transatlantic exchange operator works to cut $250 million in annual costs by 2014.
• MasterCard(MA) Exec: High-End Spending Slowdown A Concern. Growth of consumer spending on luxury items dipped in March and April, a potential "cause for concern" about future economic growth, a MasterCard Inc. (MA) executive said Wednesday. The dip is likely due to rising gasoline prices in the first quarter, a slowdown in travel to the U.S. by European consumers and other factors, Tim Murphy, chief product officer for MasterCard, said during a presentation. "The luxury sector in the last two months has really experienced some down-drafts relative to the overall economy," Murphy said. The luxury category includes things like high-end apparel and travel, though it excludes jewelry. Specifically, spending in the category increased 1.8% and 5.5% year-over-year in April and March, respectively, down from 11.7% in February.
• French Start-Ups Worry About Hollande's. New administrations are times of both optimism and uncertainty, and France's new breed of digital entrepreneurs are watching closely how President-elect François Hollande is going to help them; many are skeptical.
• Clooney Event Taps Big, Small Donors. A dinner at the home of actor George Clooney on Thursday night is expected to raise as much as $15 million for President Barack Obama's re-election, surpassing anything he has raised in a single campaign event since he became a candidate for the office in 2007, according to people familiar with the event. The Obama campaign heavily promoted the Clooney dinner, with Hollywood executive Jeffrey Katzenberg soliciting contributions at $40,000 a head.
• Robert Barro: Stimulus Spending Keeps Failing. The weak economic recovery in the U.S. and the even weaker performance in much of Europe have renewed calls for ending budget austerity and returning to larger fiscal deficits.

Barron's:

• (PANL) Drops 18%: Q1 Misses, Samsung Rev Deferred.

MarketWatch:

• China Trade Data Show Surprising Weakness. Chinese trade data showed a sharp drop in activity in April, with both export and import growth falling well short of expectations, raising fresh concerns about the resilience of the Chinese economy amid softening global demand. Exports rose 4.9% in April from a year earlier, while imports rose just 0.3%, official data showed. The results were far below economists’ expectations. A Reuters survey had tipped 11% growth for imports, while a Dow Jones Newswires survey had predicted a 10% rise. For exports, both news services’ surveys had projected an 8.5% gain. China’s trade surplus for April widened to $18.4 billion, up from $5.4 billion in March, but well short of expectations of $10.4 billion in the two surveys.

Business Insider:

• A Wave Of Star Traders Are Dumping Banks For Hedge Funds Over New Cash Bonus Rules.
• The Economic Surprise Index Continues to Fall. (graph)

Zero Hedge:

• 11th Consecutive Outflow From US Equity Mutual Funds Pulls Cash Levels To Record Lows. (graph)
• Europe's Most Parabolic Chart Goes Parabolic-er. (graph)
• "Europe Has Started The Endgame" And Biderman Says "The US Is Next".

CNBC:

• Philip Falcone Voices Concern Over China. Harbinger Capital hedge fund manager Phil Falcone says his view of Europe isn’t entirely dire. “They’re going to have problems,” Falcone said Wednesday at a SALT panel, “but I’m more concerned about how that ripple ... effects, especially China.” China’s recent political dislocations — the most severe since the Tiananmen Square uprising in 1989 — and the fact that the country is dealing with slowing growth and inflation might prove fair bigger issues, he said. You can’t “put Europe in a box,” Falcone said, adding that it’s not a binary scenario in which the continent’s economy either works or it doesn’t.
• Euro Will Have to Be Devalued to Save EU: Siegel. Faced with a stubborn sovereign debt crisis that just won't go away, the European Central Bank will be forced into currency devaluation, Wharton finance professor Jeremy Siegel said.
• Priceline(PCLN) Beats on Earnings; Outlook Falls Short. Online travel agency Priceline reported a big jump in earnings on an increase in travel bookings, but the company predicted a slower pace of bookings growth in the second quarter.
• Cisco(CSCO) Shares Skid as Outlook Disappoints. Cisco Systems shares skidded after the company's outlook fell short of expectations. The networking-gear maker said it expects fiscal fourth-quarter earnings of between 44 and 46 cents a share and revenue growth of 2.5 percent; analysts currently expect earnings of 49 cents a share on revenue growth of 7 percent, according to Thomson Reuters.
• Mobile Growth May Negatively Affect Facebook(FB) Revenue.
• Beyond Greece: EU Banks May Be Next Focus of Markets. So far, Europe’s latest sovereign ills have not spread, but traders are watching the euro zone banks since they would be the first to carry the germs of financial contagion. Following several days of rumors, Spain late Wednesday moved to take state control of its fourth-largest bank, Bankia. The Bank of Spain would hold a 45 percent stake in BFA, the parent of Bankia, which it says is still solvent. The move requires clearance from the EU. This comes as efforts to form a government in Greece among fractured political groups continue to flounder. The developments in Greece, since Sunday’s election, have set global markets on edge and amplified concerns that Greece could leave the euro zone. Greece, it is feared, would be a catalyst for other weak sovereigns to follow.

IBD:

• Dollar General(DG) Woos New Customers With Bargains.

Absolute Return:

• Eton Park Increases Liquidity, Pulls Back on Emerging Markets.

Futures Magazine:

• ISDA to Begin Biggest Revisions to Credit Swaps Since 2009. Credit-default swaps market leaders will meet this week in New York and London to discuss changes to the contracts in what may be the biggest revisions since 2009. The International Swaps and Derivatives Association’s credit steering committee will meet May 11 to discuss changes, said Steven Kennedy, an ISDA spokesman. Possible amendments to standard contracts, which are governed by ISDA, include how debt-for-equity exchanges would be treated after a bankruptcy, specifying that credit swaps only cover losses from defaults that occur after their purchase, and clarifying how the date of a so-called credit event is determined, according to people familiar with the situation.

Dealbreaker:

• Greek CDS Will Be Fixed Soon, In Case You Were Waiting On That. As Greece prepares to default on its new bonds, now seems as good a time as ever to fix the problems that occurred when it defaulted on its old bonds. Remember that?

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows Mitt Romney earning 49% of the vote and President Obama attracting 44% support. Four percent (4%) would vote for a third party candidate, while another three percent (3%) are undecided.

Reuters:

• Zoe Cruz's Voras Capital Hedge Fund Shutting Down - Source. Zoe Cruz, the former Morgan Stanley co-president, is closing her Voras Capital Management hedge fund and returning investor money, a source familiar with the fund said. Cruz is said to have been struggling to raise anything beyond the initial $200 million she obtained from investors, the source said.
• Special Report - Chesapeake's(CHK) Deepest Well: Wall Street.
• China restructures local operations of "Big Four" auditors. China released new rules for the world's top four auditing firms on Thursday that include a requirement for their local operations to be led by Chinese citizens within three years. The rules released by the Finance Ministry said that Chinese operations of the Big Four global audit firms must be "localised" to comply with laws that will set requirements on the ages, experience and training of executives. China said the four auditors - Deloitte Touche Tohmatsu, Pricewaterhousecoopers, Ernst & Young and KPMG - must comply with the new rules by the end of 2017.
• Florida Foreclosure Case Could Slam Banks. The Florida Supreme Court is set to hear oral arguments Thursday in a lawsuit that could undo hundreds of thousands of foreclosures and open up U.S. banks to severe financial liabilities in the state where they face the bulk of their foreclosure-fraud litigation. The court is deciding whether banks who used fraudulent documents to file foreclosure lawsuits can dismiss the cases and refile them later with different paperwork. The decision, which may take up to eight months to render, could affect hundreds of thousands of homeowners in Florida, and could also influence judges in the other 26 states that require lawsuits in foreclosures.
• News Corp(NWSA) profit beats forecasts on cable, movies. Rupert Murdoch's News Corp on Wednesday posted a stronger-than-expected quarterly profit, aided by its cable networks and movie studio business, and its shares rose 2.7 percent in post-market trade.

Telegraph:

• Europe's Delusional Search for Growth.
• Germany warns Greece it will halt aid unless it commits to bailout agreements. Germany has threatened to halt vital financial aid to Greece unless a new government commits to the terms of the country’s bail-out agreements.

Sueddeutsche Zeitung:

• A European financial transaction tax wouldn't harm growth and may even strengthen growth, citing a European Commission study.

The Standard:

• China Warships Steam to Stormy Seas. China has sent five warships to the disputed Scarborough Shoal off the west coast of the Philippines with the warning that Beijing is ready for "any escalation" of the conflict. That comes as the outgunned Philippines looks to the United States for naval support in South China Sea territory that may be rich in energy sources. The five warships are said to be among the most advanced vessels in the Chinese fleet. They include ships with state-of-the- art systems against attack from the sky, while one is an assault ship that carries 20 amphibious tanks and specialized fighting teams among 800 personnel. Japanese surveillance aircraft saw the flotilla west of Okinawa and sailing south on Sunday.

Shanghai Securities News:

• China's State Council plans to expand a property tax trial to other cities this year, citing Qin Hong, head of policy research at the country's Ministry of Housing and Urban-Rural Development. The government is determined to curb speculative housing demand, citing Qin. Home purchase restrictions will continue, citing Qin.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -1.0% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 179.50 +6.5 basis points.
  
• Asia Pacific Sovereign CDS Index 143.75 +4.75 basis points.
  
• FTSE-100 futures -.17%.
  
• S&P 500 futures +.13%.
  
• NASDAQ 100 futures -.21%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (KSS)/.60
• (CA)/.52
• (MCP)/.14
• (CECO)/.25
• (MDR)/.15
• (ESRX)/.77
• (NUAN)/.40
• (JWN)/.75
• (BID)/-.15
• (MHS)/.99
• (DYN)/-.62

Economic Releases
8:30 am EST

• The Import Price Index for April is estimated to fall -.2% versus a +1.3% gain in March.
• The Trade Deficit for March is estimated to widen to -$50.0B versus -$46.0B in February.
• Initial Jobless Claims are estimated to rise to 368K versus 365K the prior week.
• Continuing Claims are estimated to fall to 3275K versus 3276K prior.
  

2:00 pm EST

• The Monthly Budget Statement for April is estimated at $30.5B versus -$40.4B in March.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Bernanke speaking, Fed's Kocherlakota speaking, weekly EIA natural gas inventory report, 30Y T-Bond auction, USDA crop report, weekly Bloomberg Consumer Comfort Index, BoE rate decision, China trade balance, China inflation data, France govt budget, Goldman Sachs Consumer Products Symposium, (NDAQ) investor day, (WY) analyst meeting, (TLM) investor day and the (HAE) analyst day could also impact trading today.
  

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