Stocks Falling into Final Hour on Rising Eurozone Debt Angst, Rising Global Growth Fears, Disappointing FB IPO, Technical Selling

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Almost Every Sector Declining
  
• Volume: Above Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 24.69 +.82%
  
• ISE Sentiment Index 100.0 +12.36%
  
• Total Put/Call 1.34 -6.29%
  
• NYSE Arms .82 -33.20%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 123.62 +.38%
  
• European Financial Sector CDS Index 308.41 +1.11%
  
• Western Europe Sovereign Debt CDS Index 310.64 +.51%
  
• Emerging Market CDS Index 314.04 -.87%
  
• 2-Year Swap Spread 36.75 +1.0 basis point
  
• TED Spread 39.0 +1.5 basis points
  
• 3-Month EUR/USD Cross-Currency Basis Swap -52.50 -3.25 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .08% -1 basis point
  
• Yield Curve 141.0 +1 basis point
  
• China Import Iron Ore Spot $131.30/Metric Tonne -1.72%
  
• Citi US Economic Surprise Index -25.10 unch.
  
• 10-Year TIPS Spread 2.13 +2 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating a -40 open in Japan
• DAX Futures: Indicating -32 open in Germany
  

Portfolio:

• Slightly Lower: On losses in my Biotech, Medical and Tech sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 reverses morning gains and trades near session lows as it moves rapidly towards its 200-day moving average on rising Eurozone debt angst, a "disappointing" (FB) debut, high energy prices, rising global growth fears, less financial/tech sector optimism, technical selling and more shorting. On the positive side, Retail, Utility, Drug and Tobacco shares are holding up relatively well. Oil is falling -1.6% and Lumber is up +.92%. On the negative side, Coal, Alt Energy, Oil Tanker, Internet, Software, Computer, Semi, Disk Drive, I-Banking, Biotech, Hospital, HMO, Homebuilding, Airline and Gaming shares are under significant pressure, falling more than -1.75%. Cyclical and small-cap shares are underperforming. Tech and financial shares have also been heavy throughout the day. Copper is down -1.2%, Gold is rising +1.0% and the UBS-Bloomberg Ag Spot Index is gaining +.3%. Major Asian indices fell around -2.0% overnight, led down by a -3.4% decline in South Korea. South Korea’s KOSPI is down about -13.0% in 6 weeks and is now down -2.4% ytd. Major European indices are mostly lower, led down by a -1.3% decline in the UK. Italy fell another -.3% and is down -23.8% in 2 months(-13.3% ytd). Russian shares are declining another -1.8% today and are down -24.6% in about 2 months. The Bloomberg European Bank/Financial Services Index is falling -1.2%(-8.5% for the week) and is down -24.8% in 2 months. The Portugal sovereign cds is gaining +3.8% to 1,204.96 bps(+12.1% in 5 days), the Ireland sovereign cds is rising +4.2% to 702.66 bps(+18.0% in 5 days), the Japan sovereign cds is rising +1.0% to 108.83 bps(+10.1% in 5 days), the US sovereign cds is gaining +3.5% to 44.5 bps, the Emerging Markets Sovereign CDS Index is jumping +5.2% to 335.24 bps(+13.7% in 5 days) and the China sovereign cds is gaining +2.2% to 136.09 bps(+14.7% in 5 days). Moreover, the European Investment Grade CDS Index is rising +.6% to 182.79 bps(+14.3% in 5 days). US Rail Traffic continues to soften. The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its late-December peak. Moreover, the Citi US Economic Surprise Index has fallen back to early-Oct. levels. Lumber is -3.5% since its Dec. 29th high despite improving sentiment towards homebuilders and the broad equity rally ytd. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite expectations for a strong spring home selling season. The Baltic Dry Index has plunged around -50.0% from its Oct. 14th high and is now down around -30.0% ytd. China Iron Ore Spot has plunged -27.5% since Sept. 7th of last year. Shanghai Copper Inventories have risen +442.0% ytd. Overall, recent credit gauge deterioration is a big worry as most key sovereign cds remain technically strong. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. Moreover, the 10Y T-Note continues to trade too well, with the yield only 4 bps from its record low of 1.67%. Copper continues to trade poorly. The CRB Commodities Index is now technically in a bear market, having declined -21.1% since May 2nd of last year. Moreover, the euro currency continues to trade poorly, notwithstanding today's bounce off its early Jan. low. I still don't expect this low to hold over the coming months and still see significant downside in the currency from current levels over the longer-term. I still don’t hear any viable “solutions” to the European debt crisis and it is really beginning to bite emerging markets now, which will further pressure exports from the region and raise the odds of more sovereign/bank downgrades. Vague talk of “growth” initiatives doesn’t mean that much given what that normally means in Europe. Some of the recent selling in market-leader Apple(AAPL) was likely related to the Facebook(FB) IPO and the stock is trading better today given tech sector weakness. However, I am not ready to add to my position again due to broad market concerns. Long AAPL. While Facebook(FB) may outperform in the short-run due to its muted opening price, I would still not be a buyer around current levels for the intermediate-term given its valuation, slowing growth metrics and too many questions surrounding the company’s ability to further monetize its business model. For this year's equity advance to regain traction, I would expect to see a resumption in European credit gauge improvement, a subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices, a US "fiscal cliff" solution and higher-quality stock market leadership. I expect US stocks to trade modestly lower into the close from current levels on rising Eurozone debt angst, rising global growth fears, a "disappointing" (FB) debut, more shorting, technical selling and less financial/tech sector optimism.

Today's Headlines

Bloomberg:

• Spanish Banks Bad Loans Worsen as Recession Bites: Economy. More Spanish loans soured in March, fueling concern that the government's focus on making banks clean up real estate was too narrow as the country's economy entered a recession. Bad loans as a proportion of total lending jumped to 8.37 percent in March, the highest since August 1994, from a restated 8.30 percent in February, according to data published today by the Bank of Spain. As much as 8.21 billion euros of loans soured in the first quarter, 90 percent more than in the same period of last year. The regulator said a further 4.15 billion euros ($5.3 billion) of loans went bad, in addition to its original 143.82 billion-euro total for February before the number was restated. Spain's government said on May 11 it would make banks take charges of about 30 billion euros to cover potential losses on real-estate loans that are still performing, adding to about 54 billion euros of provisions and capital ordered in February. With unemployment topping 24 percent and the economy set to shrink 1.8 percent this year, according to International Monetary Fund estimates, analysts say the state will need to impose more charges on banks as the slump damages assets beyond real estate. "As the economy keeps getting worse, the banks will keep on having to make provisions to account for the negative impact of the lower activity and the higher unemployment," Steen Jakobsen, chief economist at Saxo Bank A/S, said by telephone. "The first step in reaching a solution is recognizing the scale of the problem, and we're not there yet."
• Spanish Banks’ Bonds Slide After Moody’s Downgrades Ratings. Bonds of Spanish banks fell after Moody’s Investors Service downgraded 16 of the nation’s lenders and said it may cut seven of them again because of the state of the economy and the government’s deteriorating credit. The yield premium investors demand to hold the 1 billion euros ($1.23 billion) of senior unsecured 4 percent bonds due 2017 of Banco Santander SA (SAN), whose rating was cut three levels to A3 to match the sovereign, rose to 503 basis points more than similar-maturity German debt, according to Bloomberg Bond Trader. The spread demanded over the benchmark swap rate, 250 basis points when the notes were issued in March, rose to 392 basis points, the prices show.
• Schaeuble Sees Two Years of Turmoil as G-8 Leaders Meet. German Finance Minister Wolfgang Schaeuble said turmoil in the financial markets caused by Europe’s debt crisis may last another two years, as Group of Eight leaders prepared to discuss Greece and its impact on the global economy. More than 2 1/2 years after Greece revealed its bloated budget deficit, Europe has “known a lot of crisis,” Schaeuble said in a recorded interview broadcast today on France’s Europe 1 radio. “It’s practically normal.” Even so, “in 12 to 24 months we’ll see a calming of financial markets,” he said. At the same time, German Chancellor Angela Merkel’s government has a duty to voters to prepare for a potential Greek exit, Finance Ministry spokeswoman Silke Bruns said. “People have the right to expect the government to make preparations for all eventualities,” Bruns said at a regular government press briefing in Berlin today.
• European Stocks Drop On Signs of Slowing Chinese Economy. European stocks fell for a fifth day, posting their biggest weekly selloff since September, amid signs of slowing growth in China and continued concern that Greece will have to leave the euro area. Rio Tinto Group and Volkswagen AG (VOW) led mining companies and carmakers lower. Industrial goods companies retreated after Caterpillar Inc. reported slowing sales. London Stock Exchange Group Plc paced rising shares after reporting that second-half profit quadrupled. The Stoxx Europe 600 Index (SXXP) slid 1.1 percent to 238.88 at the close in London. The equity benchmark slumped 5.2 percent this week and 7.2 percent so far this month. That would be the largest monthly drop since last August. “On a medium-term view, there is certainly valuation support for equities, particularly relative to government bonds which have now hit quite remarkable levels,” said Bill Dinning, an investment strategist at Kames Capital in Edinburgh which oversees about $79 billion. “However, that doesn’t help much in terms of timing. Obviously, we are back in a situation where the euro area is having an existential crisis.”
• Emerging Market Stocks Head For Longest Streak Of Weekly Losses Since 1994. Emerging-market stocks fell, heading for the longest string of weekly losses since 1994, as Citigroup Inc. cut its estimate for the gauge and a drop in Chinese property prices dimmed the global growth outlook. The MSCI Emerging Markets Index (MXEF) sank 1.6 percent to 906.42 by 12:13 p.m. in New York, increasing its weekly loss to 6.7 percent, the most in eight months. The gauge erased its annual gain as Europe’s debt crisis worsened. The MSCI Bric Index fell for a ninth week as the ruble weakened 0.5 percent versus the dollar, dropping 11 days in the longest run of losses since January 2009. Russia’s Micex retreated to a seven-month low while Brazil’s Bovespa snapped an eight-day decline. Citigroup reduced its year-end estimate for the MSCI gauge of 21 developing nations to 1,100 from 1,225, citing concern Greece will exit the euro and China’s economy will slow further, Geoffrey Dennis, the brokerage’s global emerging-market strategist in New York, wrote in a report yesterday. China’s home prices fell in 46 of 70 cities in April, the National Bureau of Statistics reported today. “We’re seeing a huge dislocation globally with concerns about the euro zone, China slowdown and U.S. slowdown bubbling in the background,” Win Thin, global head of emerging market strategy at Brown Brothers Harriman & Co., said by phone today from New York. “The combination makes it hard to get positive on the risk assets in emerging markets. They’re getting pummeled along with everything else.”
• Facebook(FB) Advances In Public Debut After $16 Billion IPO. Facebook Inc. (FB) rose in its trading debut following a record initial public offering that made the social network more costly than almost every company in the Standard & Poor’s 500 Index. (SPX) The shares advanced 8 percent to $41.05 at 1:33 p.m. in New York after earlier trading at the IPO price of $38, which valued the company at $104.2 billion. Facebook sold 421.2 million shares to raise $16 billion yesterday. “They squeezed the lemon dry here,” said Dan Veru, chief investment officer at Palisade Capital Management, who didn’t participate in the IPO. “They didn’t leave enough on the table. You want to price these things a little lower, so that the shares have better support in the aftermarket.”
• Copper Open Interest Falls to Two-Year Low On Greece Worries. Copper open interest declined to the lowest level in almost two years on the London Metal Exchange, suggesting traders are closing out bets. Investors probably closed out bets on higher prices as market open interest in LME futures declined by 11,531 contracts to 414,375 lots in the week ended May 15, according to bourse figures. That’s the lowest level since June 23, 2010. The exchange’s benchmark contract for three-month delivery dropped 4.1 percent in the period.
• Oil Falls Again On Europe. Futures fell as much as 1.3 percent after German Finance Minister Wolfgang Schaeuble said that financial market turmoil caused by the euro-zone crisis may last two more years. Prices are heading for the third straight weekly decline as U.S. consumer confidence dipped and American crude supplies climbed to the highest level since 1990. “All of the macroeconomic news has been negative,” said Stephen Schork, president of the Schork Group in Villanova, Pennsylvania. “Oil is moving on what’s happening in Europe and what it will mean here. In February, people were afraid to sell oil and now they’re afraid to buy it.” Crude oil for June delivery fell $1.03, or 1.1 percent, to $91.53 a barrel at 2:11 p.m. on the New York Mercantile Exchange. The contract touched $91.40, the lowest level since Nov. 3. Prices have retreated 4.8 percent so far this week. Brent oil for July settlement slipped 19 cents to $107.30 a barrel on the London-based ICE Futures Europe exchange. The European benchmark dropped to $106.40, the lowest level since Dec. 21.
• Yahoo(YHOO) Said In Talks to Sell 20% of Alibaba for $7 Billion. Yahoo! Inc. (YHOO) is in talks to sell about 20 percent of Alibaba Group Holding Ltd. for about $7 billion, a deal that would cut by half its stake in China’s largest e- commerce provider, a person with knowledge of the matter said.

Wall Street Journal:

• Glitches Mar Facebook's(FB) First Day of Trading.
• GM(GM) Bows Out of Super Bowl Advertising.
  

CNBC.com:

• Forget Greece, China Biggest Risk to Global Economy: Faber.
• Euro Zone Crisis to Hit Eastern Europe: Region's Banks. The European Bank for Reconstruction and Development (EBRD) expects the economies of Eastern Europe and the former Soviet Union, as well as four countries in the Middle East and North Africa, to experience a "substantial" slowdown this year because of fallout from the euro zone crisis.

Business Insider:

• This Is Why Facebook(FB) Isn't Falling Below $38/Share.
• U2's Bono Will Make More On The Facebook(FB) IPO Than Throughout His 30-Year Music Career.
• The NDAA Amendment To Stop Indefinite Detention Of Americans Goes Down In Flames.

Zero Hedge:

• 3+3=2 As Big US Banks Amass Trillions of Dollars Of Risk With Only $50 Of Exposure?
• Will The European Union Destroy Itself Just To Save The Euro?
• Ireland and Portugal Resume Their Places Among Europe's Teetering Dominos.
• And Now Back to Europe, Which is More Unfixed Than Ever.
  

Reuters:

• Steel output in China reached a daily record of 2.045 million metric tons in the first 10 days of May, citing data from the China Iron & Steel Association.
• EU, ECB Working on Greece Exit Contingency: Trade Commissioner. The European Commission and the European Central Bank are working on scenarios in case Greece has to leave the euro zone, EU trade commissioner Karel De Gucht has said. Speculation about such planning has been rife, but the comments in a newspaper interview, confirmed by a person close to De Gucht, appear to be the first time an EU official has acknowledged the existence of contingency plans being drawn up in case Greece has to drop out of the currency bloc."A year and a half ago there maybe was a risk of a domino effect," De Gucht told Belgium's Dutch-language newspaper De Standaard, referring to the threat of Greece leaving the euro. "But today there are in the European Central Bank, as well as in the Commission, services working on emergency scenarios if Greece shouldn't make it." He added: "A Greek exit does not mean the end of the euro, as some claim."
• Troubled Brazil Economy Shrinks Again in March. Brazil's economic activity fell for the third straight month in March, a surprisingly weak performance that may lead the central bank to slash its benchmark interest rate to all-time lows and prompt further stimulus measures from President Dilma Rousseff. The central bank's IBC-Br economic activity index , a closely watched proxy for gross domestic product, fell 0.35 percent in March from February, the bank said on Friday. Most analysts expected activity to rise 0.5 percent. The weak reading means that the Brazil economy has remained stagnant since almost falling into recession in the second half of 2011. In the fourth quarter, the Brazil's gross domestic product expanded only 0.30 percent, a figure that could be easily revised down once fresh growth data is released on June 1.
• Weak Coal Shipments Weigh on U.S. Railroads. More cars, less coal. That sums up the shipping trends at the biggest U.S. railroads so far in the second quarter. Three of the biggest freight railroads -- Kansas City Southern, Norfolk Southern Corp and CSX Corp. -- reported strong growth in auto shipments but weakness in their key coal-hauling businesses, as they gave mid-quarter updates to a transportation conference on Friday.
• Wall Street Banks Facing 2nd-Qtr Slowdown: Analyst. Wall Street banks will report sharp declines in trading and investment banking revenues in the second quarter because of weaker client activity, JPMorgan analyst Kian Abouhossein said in a report on Friday.
• RMBS Market Frets at JPM(JPM) Losses. While many in the market were revelling in the discomfort caused to JP Morgan by the losses in its chief investment office last week, those working in European structured finance found it difficult to enjoy what has become known as "Dimonfreude". Rather, they were fretting whether the losses might alter the unit's buying strategy when it comes to European structured paper.

Telegraph:

• Euro Austerity Example Ireland 'may need second bailout'.
• Debt Crisis: Live. European Commissioner for Trade admits to emergency plan for Greek euro exit for first time, while David Cameron says the euro crisis could get 'a lot worse' as he travels to G8 summit.

Kathimerini:

• Greece's public revenue dropped 15% in the first 10 days of May compared with the same period of 2011. The finance ministry forecasts that with no improvement in collection revenue for the month will be down 50% compared with May 2011.
  

Bear Radar

Style Underperformer:

• Mid-Cap Growth -.90%

Sector Underperformers:

• 1) Coal -3.80% 2) Disk Drives -2.0% 3) Alternative Energy-2.0%

Stocks Falling on Unusual Volume:

• ZNGA, ADSK, IMOS, SPWR, MCP, ARQL, CLMT, ATPG, KEP, EFII, ELP, SVVC, GSVC, ZUMZ, HIBB, ARUN, SSYS, CPNO, LBTYA, VSAT, KIRK, ORCL, ECHO, ACOR, MPWR, GHDX, NTAP, DTG, MWE, HTGC, PHH, MAIN, GGC and SCHN
  

Stocks With Unusual Put Option Activity:

• 1) UUP 2) AGO 3) JDSU 4) MDR 5) ADSK
  

Stocks With Most Negative News Mentions:

• 1) SCHN 2) FFIV 3) GRPN 4) X 5) ANR
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value -.20%

Sector Outperformers:

• 1) Gold & Silver +1.29% 2) Utilities +.40% 3) Tobacco +.36%

Stocks Rising on Unusual Volume:

• CRM, VELT, SGEN, YHOO, FINL, INTU, WYNN, MPEL, BWS, FL, BAS and ARO
  

Stocks With Unusual Call Option Activity:

• 1) XLU 2) MDY 3) WYN 4) ADSK 5) OVTI
  

Stocks With Most Positive News Mentions:

• 1) CRM 2) RTN 3) CME 4) TDW 5) BTU
  

Charts:

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

Friday Watch

Evening Headlines
Bloomberg:

• Santander, BBVA Among Spanish Banks Downgraded by Moody’s. Banco Santander (SAN) SA and Banco Bilbao Vizcaya Argentaria SA, Spain’s biggest lenders, were cut three levels by Moody’s Investors Service, which cited a recession and mounting loan losses in downgrading 16 of the nation’s banks. Nine firms were cut three notches and seven were kept on review for further reductions, Moody’s said yesterday in a statement. Santander’s U.K.-based subsidiary also was cut. The moves followed Moody’s May 14 downgrade of 26 Italian banks and its Feb. 13 cut of Spain’s sovereign debt. The main drivers for the Spanish bank downgrades were a surge in soured loans, the recession, restricted funding access and the reduced ability of the government to support lenders as its own creditworthiness diminishes, Moody’s said. “Banks will continue to face highly adverse operating and market funding conditions that pose a threat to their creditworthiness,” the ratings firm said. “The Spanish economy has fallen back into recession in first-quarter 2012, and Moody’s does not expect conditions to improve” this year.
• Fitch Cuts Greece as Leaders Spar Over Euro Membership. Greece’s credit rating was downgraded one level by Fitch Ratings on concerns the country won’t be able to muster the political support needed to sustain its membership in the euro area as leaders began campaigning ahead of the second national vote in six weeks. Greece was cut to CCC from B-, according to an e-mailed statement late yesterday in London. The country’s ceiling was revised to B-, Fitch said in the statement.
• U.S. Banks Sold More Swaps on European Debt as Risks Rose. U.S. banks increased sales of protection against credit losses to holders of Greek, Portuguese, Irish, Spanish and Italian debt in the last quarter of 2011 as the European debt crisis escalated. Guarantees provided by U.S. lenders on government, bank and corporate debt in those countries rose 10 percent from the previous quarter to $567 billion, according to the most recent data from the Bank for International Settlements. Those guarantees refer to credit-default swaps written on bonds. JPMorgan Chase & Co. (JPM) and Goldman Sachs Group Inc.(GS), two of the top CDS underwriters in the U.S., say they have bought more protection than they sold, indicating they may benefit from defaults in the region. That outcome is called into question by JPMorgan’s $2 billion loss on similar derivatives, which shows that risks don’t vanish when offsetting bets are taken, said Craig Pirrong, a finance professor at the University of Houston. “All these hedges trade one risk for another,” said Pirrong, whose research focuses on derivatives markets. “The banks say they’re flat on European risk, but that’s based on aggregated positions. We don’t know how those will hold off if the European crisis blows up.” JPMorgan Chairman and Chief Executive Officer Jamie Dimon said last week that the bank was trying to reposition a portfolio of corporate credit derivatives and used a flawed trading strategy. The lender, the largest in the U.S. by assets, is believed to have sold protection on an index of corporate debt and bought protection on the same index to hedge its initial bet, according to market participants who asked not to be identified because their trading strategies aren’t public. The two bets moved in opposite directions this year, causing losses and proving that even hedges that look perfect can break down, Pirrong said.
• Japan Bond Risk Surges To Seven-Month High, Default Swaps Show. The cost of insuring Japanese corporate debt from default surged to the highest in more than seven months, according to traders of credit-default swaps. Asian and Australian bond risk gauges also climbed. The Markit iTraxx Japan index increased 7 basis points to 218.5 basis points as of 9:27 a.m. in Tokyo, according to Citigroup Inc. prices. The benchmark is on course for its highest since Oct. 5, according to data provider CMA. The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan climbed 8 basis points to 201.5 as of 8:04 a.m. in Hong Kong, Royal Bank of Scotland Group Plc prices show. The index is poised to close at its highest since Jan. 16, CMA prices show. The Markit iTraxx Australia index rose 7 basis points to 202 basis points as of 10:18 a.m. in Sydney, Westpac Banking Corp. prices show. The gauge is set for its highest since Nov. 29, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
• North Korea Seen Restarting Work On Nuclear Reactor. North Korea has restarted construction on a nuclear reactor that is an essential component in building nuclear weapons, according to a U.S. university monitoring project. Commercial satellite imagery from April 30 shows that the Pyongyang government is close to completing a containment building for a new experimental light water reactor, according to a website maintained by Johns Hopkins University’s School of Advanced International Studies based in Washington.
• U.S. Imposes Anti-Dumping Duties on Chinese Solar Imports. The U.S. Commerce Department imposed tariffs of 31 percent to 250 percent on Chinese solar-product imports, siding with companies including SolarWorld AG (SWV) in the U.S. that said the items were sold below the cost of production. The fees, announced today in an e-mailed statement, add to duties as high as 4.73 percent imposed earlier for getting unfair subsidies from China’s government. SolarWorld had asked for levies of more than 100 percent. Aaron Chew, a New York- based analyst at Maxim Group LLC, said before the decision that tariffs higher than 10 percent would be considered a victory for the U.S. companies.
• Facebook(FB) Poses Biggest Test Of Rule Curbing Market Orders. Facebook Inc. (FB)’s initial public offering will be the biggest test of a rule introduced in 2011 to protect investors and curb volatility on the first day a company trades. The Financial Industry Regulatory Authority reminded more than 4,400 member firms on May 15 that they shouldn’t accept buy requests known as market orders until trading begins. Such transactions are authorizations to purchase at the best available price, as opposed to limit orders that require investors to specify a minimum or maximum.
• Fed Said to Study How Banks Manage Cash After JPMorgan(JPM) Loss. JPMorgan Chase & Co.'s $2 billion trading loss has prompted the Federal Reserve Bank of New York to examine how banks in its district are managing cash after receiving a flood of deposits since the credit crisis, according to a person familiar with the matter.
• BRIC Bear Market Not Cheap Enough for de Vaulx Finding Zero Buys. The MSCI BRIC (MXBRIC) Index’s slide into a bear market has left equities in the biggest emerging economies trading at the lowest levels since 2009 versus global shares. That’s still not cheap enough for Charles de Vaulx to add a single stock from Brazil, Russia, India or China to his $9.7 billion IVA Worldwide Fund, which beat MSCI’s global gauge by 29 percentage points since its inception in 2008. He’s waiting for further declines of 10 percent to 20 percent before buying.
• High-Yield Debt ETFs Set Markets 'Abuzz' Following Record Trades. The largest trades on record in shares of two exchange-traded funds that invest in junk debt are attracting attention to the four-year-old market that allows anyone from banks to retirees fast and discreet access to speculative-grade bonds and loans. The transactions were completed hours before JPMorgan Chase & Co. disclosed $2 billion of trading losses tied to credit derivatives, an announcement that has heightened awareness of big trades in debt markets.
  
• China Home Prices Fall In More Than Half Cities Tracked. China’s home prices fell in a record 46 of 70 cities tracked by the government in April from a year earlier as officials pledged to keep restrictions on property purchases that have sapped buyer demand. The eastern city of Wenzhou led declines with a 12.3 percent slump in values from a year earlier, while Beijing dropped 1 percent and Shanghai prices declined 1.3 percent, according to data released by the statistics bureau today.
• Shoppers Skipping Pomegranates Show India Rate Dilemma: Economy. Surging food costs offer the most visible sign of India’s inability to contain price pressures, threatening spending in the world’s second-most populous nation. Even as the nation’s benchmark wholesale-price inflation has eased to below 9 percent after breaching that level most of last year, a recently introduced consumer-price gauge shows how little room the central bank has cut to cut interest rates and spur growth. India’s consumer-price index climbed 9.47 percent from a year earlier in March as the cost of egg, vegetables, fish and meat products rose, after an 8.83 percent advance in February. Wholesale-price inflation in April was 7.23 percent, with food prices jumping 10.5 percent.

Wall Street Journal:

• Defiant Message From Greece. The head of Greece's radical left party—throwing down a gauntlet that could increase tensions between Greece and its frustrated European creditors—said he sees little chance Europe will cut off funding to the country but that if it does, Athens will stop paying its debts. A financial collapse in Greece would drag down the rest of the euro zone, said Alexis Tsipras, the 37-year-old head of the Coalition of the Radical Left, known as Syriza, and potentially the country's next prime minister. Instead, he said, Europe must consider a more growth-oriented policy to arrest Greece's spiraling recession.
  
• Groupon(GRPN) Stock Spike Probed. A Wall Street regulator is examining trading in Groupon Inc. that sent its stock price soaring hours before a favorable earnings announcement Monday, according to a person familiar with the matter. The review by the Financial Industry Regulatory Authority, or Finra, is at an early stage, the person said. It follows unusually heavy trading in shares of the online-coupon company in the run-up to its release of strong financial results.
• Groups Sue Again Over Oil Drilling off Alaska. A coalition of environmental and tribal groups filed a challenge Wednesday to a federal air-emissions permit for a Royal Dutch Shell PLC drilling ship, the latest legal maneuver aimed at stopping the oil giant's exploration plan off Alaska's Arctic coast.
• Ross King Retires From Goldman Sachs(GS). Goldman Sachs managing director and chairman of its Financing Group Ross King has retired from the Wall Street bank.
• Key Void at Top for J.P. Morgan(JPM). J.P. Morgan Chase & Co. didn't have a treasurer in place during a five-month period when the bank's Chief Investment Office placed trades that led to more than $2 billion in losses. In addition, the executive put in charge of risk management for the Chief Investment Office in February had little experience in the subject at the time and is the brother-in-law of another top J.P. Morgan executive. Some current and former employees who were stunned by the losses say the staffing decisions may have made it easier for the bad positions to go unchecked.
• Inside JPMorgan;s(JPM) Blunder. J.P. Morgan Chase & Co. Chairman and Chief Executive Officer James Dimon had just committed the most expensive blunder of his 30-year career, failing to detect the risk of trades that had begun to generate huge losses at the bank. On April 30, associates who were gathered in a conference room handed Mr. Dimon summaries and analyses of the losses. But there were no details about the trades themselves. "I want to see the positions!" he barked, throwing down the papers, according to attendees. "Now! I want to see everything!"
• The Brains of Hedge-Fund Operations. Of all the elite financial circles, hedge-fund titans may be the most exclusive—and some of the most tight-lipped when it comes to talking to the press. Hedge-fund heavyweights may invest in companies going public more often than they actually go out in public themselves: Indeed, many hedge funders reportedly skipped their own gala in March, a Cipriani Wall Street affair benefiting Hedge Funds Care. So it was with some anticipation that this reporter headed to Tao where a handful of legendary investors gathered to talk up a new deal—that is, a book.

MarketWatch:

• Facebook(FB) IPO Coverage.
• Only Reforms Can Revive China's Growth: Andy Xie.
• Asia Stocks Tumble as Spain Joins List of Fears.
  

Business Insider:

• NEW: Photos From Trayvon Martin Killing Show Zimmerman Bloody And Injured.
• SocGen: This Chinese Indicator Will Predict A Hard Landing.
• BAML's Comprehensive Guide To A Greek Exit, And Its Likely Impact On Markets.
  

Zero Hedge:

• So How Are JPM's(JPM) Prop "Counterparties" Faring?
• One Epic Chinese Bubble - One Chart.
• Everything You Need To Know About Europe's Dilemma In 4 Minutes.
• It's Not Over Yet For JPM(JPM).
  

CNBC:

• Facebook(FB) Prices at $38 With Trading Set to Start Friday.
• A Permanent Precedent. The irritation of the eurozone with Greece is at extreme levels. After all, 80 percent of Greeks say they are in favour of staying in the euro, but then they fail to elect politicians prepared to implement the agreed programme. This drives creditors crazy. Increasingly, the latter are inclined to accept Greek exit, even welcome it.

ABC News:

• FDA Investigating Z-Pak Antibiotic Linked to Heart Risks. The U.S Food and Drug Administration is investigating the antibiotic azithromycin, commonly known as Z-Pak, after a study linked the drug to an increased risk of death. The study, published Wednesday in the New England Journal of Medicine, found patients prescribed Z-Pak were more likely to die than those prescribed amoxicillin, another antibiotic. The results were especially pronounced for those who died of heart attacks, strokes, sudden cardiac death and other cardiovascular causes. Last year, doctors wrote 55.3 million prescriptions for Z-Pak, according to IMS Health.

Reuters:

• Exclusive: U.N. Panel Probes Possible N. Korea Arms Trade With Syria, Myanmar. A U.N. panel of experts that monitors compliance with sanctions on North Korea is investigating reports of possible weapons-related shipments by Pyongyang to Syria and Myanmar, the panel said in a confidential report seen by Reuters on Thursday. "The DPRK (North Korea) continues actively to defy the measures in the (U.N. sanctions) resolutions," the panel said in the report, which it submitted to the U.N. Security Council's North Korea sanctions committee earlier this week.
• JPMorgan(JPM) Unit Has $100 Billion in Securitised Assets, Structured Debt - FT. The unit at the center of JPMorgan Chase & Co's recently revealed $2 billion trading loss has built up more than $100 billion in positions in asset-backed securities and structured products, the Financial Times said on Thursday. The newspaper said this portfolio comprises the "complex, risky bonds at the centre of the financial crisis in 2008", but did not say whether any of the holdings are in unhedged positions. It said the portfolio is separate from holdings in credit derivatives that led to the trading loss by JPMorgan's chief investment office, which has sparked much criticism of the largest U.S. bank and its chief executive, Jamie Dimon. The chief investment office has been the biggest buyer of European mortgage-backed bonds and other complex debt securities such as collateralized loan obligations in all markets for three years, the newspaper said, citing more than a dozen senior traders and credit experts. That office's "non-vanilla" portfolio has grown to more than $150 billion, the newspaper said, without citing sources or providing details of the holdings.
• Salesforce(CRM) Ups FY Outlook On Strong Q1, Pipeline. Web-based software maker Salesforce.com Inc raised its full-year outlook after reporting first-quarter results that beat Wall Street forecasts on strong growth across all regions, sending its shares up 7 percent in after-hours trade.
• Option Players Seek Shelter as Risk Gauge Rises. Option investors are seeking protection against a sharp decline in U.S. equities in the near term as uncertainty grows over the European debt crisis and the health of the global economy.
• Autodesk(ADSK) gives weak outlook on Europe worries. Design-software maker Autodesk Inc forecast second-quarter revenue below analysts' estimates citing weakness in Europe, sending its shares down 5 percent after market.
• Equity ETF Outflows Dominate, Bond Funds Gain - Lipper.
  

Financial Times:

• Two Tiers, One Crisis For Spanish Banks. Who is right – the International Monetary Fund or the market? Until a couple of weeks ago, nervous investors had ignored the IMF’s recent assessment that about 70 per cent of Spain’s banks looked essentially healthy and instead had sent all bank shares tumbling by about 40 per cent on the previous year.

Telegraph:

• Are The Germans Destined To Save The Euro? It is an article of faith in Berlin that the single currency must survive, whatever the cost.

The Financial Express:

• Half of corporate India’s forex exposure unhedged, says RBI. The Reserve Bank of India’s (RBI) central board is expected to discuss next week the elevated levels of unhedged foreign currency exposure at private and state-owned companies, which has made them increasingly vulnerable to the sharp depreciation of the rupee. According to data submitted by the Reserve Bank of India (RBI) to the finance ministry, approximately 60% of companies’ non-trade related exposure is unhedged, while the proportion of uncovered exposure for trade loans is lower at 40%. This was the situation at the end of March and since then, the rupee has slipped by more than 11%.

The Economic Times

• India Warns Banks to Avoid Risky Debt Restructuring. The Indian government's finance ministry issued a warning, citing a letter from the corporate restructuring unit. Indian companies facing large debts and cash shortages are looking to rearrange loans.
  

Ming Pao Daily:

• Sotheby's Hong Kong Sales See Fewer China Buyers. Sotheby's Hong Kong spring auction sales fell 30% to $317 million from a year earlier because there were fewer mainland Chinese buyers, citing Kevin Ching, chief executive officer of Sotheby's Asia.

Shanghai Securities News:

• Shanghai stock exchange started a series of measures to curb excessive speculation in new share issues, citing the exchange.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -2.50% to -1.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 201.50 +6.5 basis points.
  
• Asia Pacific Sovereign CDS Index 155.50 -2.75 basis points.
  
• FTSE-100 futures -1.30%.
  
• S&P 500 futures -.05%.
  
• NASDAQ 100 futures +.02%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (ANN)/.51
• (BWS)/.09
• (DCI)/.43
• (FL)/.74
• (HIBB)/.92

Economic Releases

• None of note

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The G-8 meeting and the (WIT) Analyst Day could also impact trading today.
  

BOTTOM LINE: Asian indices are sharply lower, weighed down by technology and financial 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.

Stocks Falling into Final Hour on Rising Eurozone Debt Angst, Rising Global Growth Fears, Less Financial/Tech Sector Optimism, Technical Selling

Broad Market Tone:

• Advance/Decline Line: Sharply Lower
  
• Sector Performance: Almost Every Sector Declining
  
• Volume: Slightly Below Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 23.33 +4.76%
  
• ISE Sentiment Index 92.0 +15.0%
  
• Total Put/Call 1.42 +14.52%
  
• NYSE Arms .91 -20.65%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 121.14 +1.86%
  
• European Financial Sector CDS Index 305.03 +4.79%
  
• Western Europe Sovereign Debt CDS Index 308.14 +1.87%
  
• Emerging Market CDS Index 313.28 +.97%
  
• 2-Year Swap Spread 35.75 -.75 basis point
  
• TED Spread 37.5 unch.
  
• 3-Month EUR/USD Cross-Currency Basis Swap -49.25 +2.0 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .09% unch.
  
• Yield Curve 140.0 -7 basis points
  
• China Import Iron Ore Spot $133.60/Metric Tonne -1.11%
  
• Citi US Economic Surprise Index -25.10 -5.7 points
  
• 10-Year TIPS Spread 2.11 unch.
  

Overseas Futures:

• Nikkei Futures: Indicating a -171 open in Japan
• DAX Futures: Indicating -22 open in Germany
  

Portfolio:

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