Today's Headlines

Bloomberg:

• Berlusconi Says ECB Must Print Euros or Italy May Say 'Ciao'. Former Premier Silvio Berlusconi said Italy should say “ciao, euro” if the European Central Bank doesn’t start printing money to tackle the debt crisis and Germany should quit the single currency if it won’t back a bolder role for ECB. “The economic crisis can’t be solved” in Italy, Berlusconi said in comments posted on his party’s website today. He called on Prime Minister Mario Monti to “change his political line” and lobby European leaders to back a money- printing campaign by the Frankfurt-based ECB. If the central bank doesn’t become a “lender of last resort,” Italy should say “ciao, euro,” the former premier said. The media tycoon-turned-politician became the latest European leaders to step up pressure on German Chancellor Angela Merkel and the ECB to permit a more aggressive response to the region’s debt crisis. Monti yesterday called on Merkel to drop her opposition to allowing the euro region’s rescue mechanism to lend directly to banks.
• Deutsche Bank(DB) Borrowed $11.1 Billion From ECB for Spain, Italy. Deutsche Bank AG borrowed 9 billion euros from the European Centra Bank through its Spanish and Italian units after saying it took only "a small amount" in a second round of emergency funding. Deutsche Bank SA Espanola, the lender's Spanish unit, took 5.5 billion euros and Deutsche Bank SpA, the Italian arm, borrowed 3.5 billion euros in the ECB's second longer-term refinancing operation in February, according to annual reports filed by the 2 divisions.
  
• Euro-Area Unemployment Reaches Record 11%, Led by Spain. Euro-area unemployment reached the highest on record as a deepening economic slump and budget cuts prompted companies from Spain to Italy to reduce their workforces. The jobless rate in the 17-nation euro zone was at 11 percent in April and March, the European Union's statistics office in Luxembourg said today. That's the highest since the data series started in 1995. The March figure was revised higher to 11 percent from 10.9 percent estimated earlier. Europe's companies are under pressure to lower costs to protect earnings as the worsening fiscal crisis erodes exports and consumer spending. Euro-area economic confidence dropped more than economists forecast last month and manufacturing output contracted. Deutsche Lufthansa AG said on May 30 that it may cut as many as 1,000 jobs at LSG Sky Chefs, the world's largest inflight caterer, in a bid to lower costs through 2014. "The labor-market recession in the euro zone continues to spread and deepen," said Martin van Vliet, an economist at ING Bank in Amsterdam.
  
• Euro Bank Downgrades Threaten Swap Deals. European bank downgrades have increased the risk that termination clauses or renegotiation payments on billions of dollars of swaps may be triggered by counterparties. Technically called additional termination events, the downgrade clauses have become a common addition to the standard International Swaps and Derivatives Association master agreement as a way to manage counterparty risk on over-the-counter derivatives traded bilaterally.
• Euro Area Has Significant Risk of Breakup: Rehn. The 17-nation euro area is in real danger of disintegrating unless policy makers revamp the bloc’s fiscal and economic ties, Economic and Monetary Commissioner Olli Rehn said. “The way things are going and under the current structures, the euro area has a significant risk of breaking up,” Rehn said in a speech at a European Commission event in Helsinki. “We’re either headed for a deterioration of the euro area or a gradual strengthening of the European Union.” A divergence in the sovereign yields of euro countries shows bets against the integrity of the 17-member currency bloc are growing. German two-year yields fell below zero for the first time this week while the yield on similar-maturity Spanish notes rose 11.8 basis points to 5.11 percent today.
• BMW Says Germany's Auto Market Won't Grow Following Jump in 2011. The BMW brand's deliveries in its home market in the five months through May were at about 2011's level.
• Global Growth Heads for Lull as Europe Output Shrinks. The world economy is heading for its third straight mid-year lull after manufacturing output shrank in Europe and slowed in China, leaving the U.S. under pressure to drive global growth. A gauge of manufacturing in the 17-nation euro zone fell to a three-year low of 45.1 in May, indicating a 10th month of contraction, while unemployment reached 11 percent, the highest on record. China’s Purchasing Managers’ Index dropped to 50.4 from 53.3, the weakest production growth since December. Signs of a renewed international slowdown are mounting as Europe’s two-year debt crisis threatens to engulf Spain and spread abroad by undermining demand and investor confidence. With China’s economy also decelerating, economists are looking to the U.S. for growth. Data today is forecast to show hiring picked up in May. “Things are turning down again and the underlying state of every economy is pretty ropey,” said Rob Carnell, chief international economist at ING Bank NV in London. “The world may avoid recession, but large chunks of it will remain in it.”
• U.S. Employers Add 69,000 Jobs, Fewer Than Forecast. The American jobs engine sputtered in May as employers added the fewest workers in a year and the unemployment rate rose, dealing a blow to President Barack Obama’s re-election prospects and raising the odds the Federal Reserve will step in to boost growth. Payrolls climbed by 69,000 last month, less than the most- pessimistic forecast in a Bloomberg News survey, after a revised 77,000 gain in April that was smaller than initially estimated, Labor Department figures showed today in Washington. The median projection called for a 150,000 May advance. The jobless rate rose to 8.2 percent from 8.1 percent. “The picture is getting more worrisome,” Bruce Kasman, chief economist for JPMorgan Chase & Co. in New York, said on a conference call with clients. “The U.S. economy is going to be somewhat softer over the next couple of quarters.”
• Manufacturing in U.S. Expanded at a Slower Pace in May. Manufacturing in the U.S. grew at a slower pace in May as factories tempered production and pared inventories in response to weakness in the global economy. The Institute for Supply Management’s factory index fell to 53.5 after reaching a 10-month high of 54.8 in April, the Tempe, Arizona-based group reported today. Readings greater than 50 signal growth. The median projection of economists surveyed by Bloomberg News called for a decrease to 53.8 in May.
• Treasuries Surge as Dow Gives Back All of 2012 Gain. Treasuries rose, driving 10-year yields below 1.50 percent for the first time, while the Dow Jones Industrial Average erased its 2012 gain after U.S. employers created the fewest jobs in a year and Chinese manufacturing slowed. Commodities slumped. Yields on 10-year Treasuries dropped nine basis points to 1.47 percent at 11:49 a.m. New York time and reached 1.4387 percent earlier. The Standard & Poor’s 500 Index (SPX) sank 2 percent, its biggest drop of the year, after completing its worst monthly slide since September. The Stoxx Europe 600 Index slumped 1.9 percent. The S&P GSCI gauge of 24 commodities slipped to the lowest level since October as crude oil plunged 3.7 percent to $83.36 a barrel. The yield on Germany’s two-year note dropped as low as minus 0.012 percent. Gold futures rallied 3.2 percent to $1,614.40 an ounce.
• S&P 1500 Homebuilding Index down as much as 6.7%, most intraday since Aug. 2011. All 11 index members down 2.6% or more. May's jobs report "step backward for housing in every way," with contruction employment falling, job growth especially slow in hard-hit housing markets, job picture slipping for 25-34 year-olds: Jed Kolko, Trulia chief economist.
• GM Joins Toyota Missing U.S. Sales Estimates as Jobs Falter. General Motors Co., Toyota Motor Corp., Chrysler Group LLC and Nissan Motor Co. reported U.S. sales gains in May that trailed estimates as incentive offers failed to draw enough buyers amid slumping job growth.
• JPMorgan's(JPM) Iksil Said to Take Big Risks Long Before Loss. (video) Iksil’s value-at-risk, a measure of how much a trader might lose in one day, was typically $30 million to $40 million even before this year’s buildup, said the person, who wasn’t authorized to discuss the trades. Sometimes the figure, known as VaR, could surpass $60 million, the person said. That’s about as high as the level for the firm’s entire investment bank, which employs 26,000 people.
• Mittal(MT) Price Squeeze in $960 Billion Steelmaking Industry. Lakshmi Mittal, whose $46 billion takeover in 2006 created ArcelorMittal as the world’s largest steelmaker, is getting pushed around. The U.K.’s richest person can’t stop his iron-ore suppliers from raising prices and can’t pass on higher costs to customers share like Volkswagen AG (VOW), after the Luxembourg-based company’s market fell to its lowest since 2009. The company’s stock slid to a record today, and yields on debt issued this year are close to their highest relative to benchmark bonds. Even after years of consolidation, today’s five biggest steelmakers including ArcelorMittal and South Korea’s Posco (005490) control no more than 19 percent of the $960 billion global market, too little to defend their prices.
• Commodity Index Extends Slide to Lowest Since October. Commodities extended their decline, touching the lowest level in almost eight months, after U.S. employers created fewer jobs than economists estimated and Chinese manufacturing slowed. The Standard & Poor’s GSCI Spot Index fell 2.1 percent to 583.53 at 10:27 a.m. in New York, after touching 578.35, the lowest level since Oct. 4. The index has dropped 6 percent this week, heading for a fifth straight decline and the biggest since September.
• Commodity Revenues at Banks Decline as Volatility Drops. Revenues generated by the 10 largest banks’ commodity units slumped 33 percent in the first quarter as volatility declined, clients reduced trading and gas supplies climbed, according to Coalition, a London research company. Revenues fell to a combined $2 billion from $3 billion a year earlier, Coalition said in a report. Overall revenues at the banks, including from equities, origination and advisory, declined to $51 billion from $53 billion, Coalition said. The drop in commodity revenues reflects the challenge banks face driving income from energy and metals.
• Weaker Brazil Economy Raises Doubts About Credit-Led Growth. Brazil’s economy grew less than analysts expected in the first quarter, reinforcing signs that its consumer-led growth model, a magnet for investment over the past decade, is running out of steam. Gross domestic product expanded 0.2 percent in the first quarter and 0.8 percent from the same period a year ago, the national statistics agency said in a report today. Growth in the first three months of the year was lower than expected by all but one of 50 analysts surveyed by Bloomberg, whose median forecast was for a 0.5 percent expansion.

Fox News:

• Italy, Spain Default Insurance Costs Hit Record. The cost of insuring Spanish and Italian government debt against default via instruments known as credit default swaps, or CDS, hit new records on Friday, according to data provider Markit. The spread on five-year Spanish CDS widened to 610 basis points from 596 basis points on Thursday. That means it would now cost $610,000 annually to insure $10 million of Spanish debt against default for five years, up $14,000 from the previous day. The spread on Italian CDS widened by 22 basis points to 579. Core euro-zone countries also saw a rise, with the French CDS spread widening by 8 basis points to 225 and Germany widening by 4 basis points to 106, Markit said.

CNBC.com:

• Small Biz Lending Shrinks as Owners Grow Cautious.
• More Fed Easing Might Not Help Much Now: Pros.
• Jobs Report Signals More Trouble for Housing.
  

Business Insider:

• Romney Just Thrashed Obama on the Jobs Report on CNBC.
• Watch: Jon Stewart Unloads on Michael Bloomberg's Soda Ban.
• Chart of the Day: The Scariest Jobs Chart Ever.
  

Zero Hedge:

• Sophisticated Ignorance Part 2: Pressuring Germany To Do The Wrong Thing Is A Short Seller's Dream. Today's lead story on Bloomberg and the primary theme throughout the financial MSM is Merkel’s Isolation Deepens As Draghi Criticizes Strategy. This is general pressure to force Merkel to succumb to extreme short term thinking that will most assuredely bring the EU to its knees and potentially end the hegemony of what use to be the European empire - that is unless... You know.... This time is different!
• Santelli And Kaminsky On Broken Rules, Unpredictability, and Deleveraging.
• 2012 Just Woke Up in 2011 All Over Again.
  

New York Times:

• Greek Leftist Challenges Europe on Austerity.

Washington Post:

• Bill Clinton sticks another fork in Obama’s Bain strategy, says Romney had ‘sterling’ business career. The shelf life of President Obama’s Bain Capital strategy appears to be rapidly shrinking. Less than two weeks after Newark Mayor Cory Booker caused the Obama campaign plenty of heartburn by calling on it to “stop attacking private equity,” the biggest name in Democratic politics (outside of Obama) has lodged his own torpedo. Bill Clinton, in an appearance on CNN last night, said that Mitt Romney has a “sterling business career” and that the campaign shouldn’t be about what kind of work Romney did.
  

denverpost.com:

• Housing Market Still Suffers Mortgage Hangover. I recently wrote that quarterly data from the Federal Deposit Insurance Corp. reveal more signs of stress in the banking system. One of stressful line items in the FDIC's Quarterly Banking Profile for the first quarter of 2012 was "Other Real Estate Owned." In that article I stated that OREO peaked at $53.2 billion in the third quarter of 2010 and was still seriously elevated at $44.8 billion at the end of the first quarter of this year. On Thursday we learned from RealtyTrac that 26% of all existing-home sales in the first quarter were distressed properties, including bank-owned homes from OREO. This was up from 22% in the fourth quarter of 2011.

Real Clear Markets:

• Will Markets Wake Up to the Folly of Monetary Intervention?
  

Reuters:

• Exclusive: China Arrests Security Official on Suspicion of Spying for U.S. A Chinese state security official has been arrested on suspicion of spying for the United States, sources said, a case both countries have kept quiet for several months as they strive to prevent a fresh crisis in relations. The official, an aide to a vice minister in China's security ministry, was arrested and detained early this year on allegations that he had passed information to the United States for several years on China's overseas espionage activities, said three sources, who all have direct knowledge of the matter. The aide had been recruited by the U.S. Central Intelligence Agency and provided "political, economic and strategic intelligence", one source said, though it was unclear what level of information he had access to, or whether overseas Chinese spies were compromised by the intelligence he handed over. The case could represent China's worst known breach of state intelligence in two decades and its revelation follows two other major public embarrassments for Chinese security, both involving U.S. diplomatic missions at a tense time for bilateral ties.
• Greek companies seek Balkan refuge from debt storm. Iosif Komninakidis smokes nervously behind his desk in the sleepy Bulgarian town of Rakovski and contemplates plunging sales of his Greek company's trendy jeans. Business in Komninakidis's main market Greece was already in freefall when an election left Bulgaria's neighbour rudderless and further threatened its solvency and euro membership. "Sales to Greece went down 30-35 percent. After the vote, they completely stopped. People just stand and wait," said the energetic 57-year-old manager of Staff Jeans & Co's sewing factory. But his business can't wait.
• EXCLUSIVE - Egypt Islamist says he is choice for revolutionaries. The Islamist aiming to be Egypt's president vowed to keep Hosni Mubarak in jail forever and forecast his liberal rivals would back him in an election runoff against a former general he sees as heir to the deposed leader. In his first international media interview since he won the first round ballot, the Muslim Brotherhood's Mohamed Mursi professed confidence the liberal rivals would swallow their fears of religious rule and vote him to victory.
• Copper Sinks to 2012 Low on Economic Slowdown Fears.

Financial Times:

• Defiant Spain to Test the Bond Market. A defiant Spain has said it will tap the sovereign bond markets for funds next week, although the high cost of its borrowing has reinforced analysts’ predictions that the country can no longer avoid an international bailout like those of Greece, Ireland and Portugal. If Spain does become the fourth eurozone country forced into a bailout, it would send tremors through the global economy and could spell disaster for the five-month-old government of Mariano Rajoy, prime minister.

Telegraph:

• Debt Crisis: Live.
  

Bear Radar

Style Underperformer:

• Small-Cap Growth -3.35%

Sector Underperformers:

• 1) Homebuilders -7.5% 2) Banks -4.71% 3) Gaming -4.41%

Stocks Falling on Unusual Volume:

• OVTI, IMOS, DWRE, HBAN, DB, SIVB, WFC, SAVE, LCC, BHLB, VRA, USMO, LBTYK, VPRT, BPOP, NVLS, WPPGY, FCFS, LRCX, SYNC, MOLXA, AWAY, ORIG, RDEN, CIEN, MELI, VTR, GET, TUP, BWS, PH, RATE, RDEN, BEN, KMI, FCN, ROK, PXD, EOG, BKD, BWA, MOV, UCO, OAS, YUM, LEN and URI
  

Stocks With Unusual Put Option Activity:

• 1) KEY 2) YUM 3) IBB 4) KBH 5) OVTI
  

Stocks With Most Negative News Mentions:

• 1) HPQ 2) AIG 3) BEN 4) CF 5) GRPN
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value -1.72%

Sector Outperformers:

• 1) Gold & Silver +5.34% 2) Utilities -.64% 3) Education -.83%

Stocks Rising on Unusual Volume:

• IAG, GG, NGD, RGLD, GOLD, NEM, GDX, IAU and GLD
  

Stocks With Unusual Call Option Activity:

• 1) IGT 2) HUM 3) FNP 4) WCRX 5) SKF
  

Stocks With Most Positive News Mentions:

• 1) LOW 2) CLX 3) JPM 4) BLK 5) GM
  

Charts:

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

Friday Watch

Evening Headlines
Bloomberg:

• Spain's Guindos: Future of Euro at Stake. Spanish Economy Minister Luis de Guindos said the future of the euro is at stake in Italy and Spain, as data showed a net 66 billion euros ($82 billion) of capital left the country in March. “The future of the euro is going to be at play in the next weeks in Spain and Italy,” he told a conference in Sitges, Spain yesterday. “I don’t know if we’re on the edge of the precipice, but we’re in a very, very, very difficult situation.” The euro region needs to integrate further in order to overcome the crisis and de Guindos said he expected “signals” in the coming days and weeks on integrating deposit-guarantee funds and banking supervision. “We all agree” on the need to move toward a “banking union,” he said. Spanish borrowing costs compared with Germany’s rose to the highest in the euro’s history this week and the nation’s 10-year bond yields approached the 7 percent level that pushed Greece, Ireland and Portugal into bailouts. As the International Monetary Fund denied it was preparing financial aid for Spain, data showed that a record 66.2 billion euros of net capital flows left the country in March.
• Merkel’s Isolation Deepens as Draghi Criticzes Strategy. German Chancellor Angela Merkel was besieged by critics for letting the euro crisis smolder, with the leaders of Italy and the European Central Bank demanding bolder steps to stabilize the 17-nation economy. Italian Prime Minister Mario Monti and ECB President Mario Draghi pushed Germany to give up its opposition to direct euro- area aid for struggling banks. Monti further antagonized Germany by urging a roadmap to common borrowing.
• U.K. Economy Will Barely Grow This Year on Euro Crisis, BCC Says. The U.K. economy will almost stagnate this year and the government needs to support the recovery with fiscal-stimulus measures, the British Chambers of Commerce said. Gross domestic product will probably rise 0.1 percent this year as the renewed turmoil from the euro-area debt crisis crimps demand, the London-based group said in an e-mailed statement today. It previously forecast growth of 0.6 percent.
• EU Questions French Plan for Municipal Lending Amid Dexia Probe. European Union regulators questioned French plans for a takeover of the Dexia SA (DEXB) unit that finances public-sector loans as last year’s collapse of the banking group threatens to affect municipal lending in the country. Dexia’s resolution plan, which requires regulatory approval under EU state-aid rules, includes a takeover of the French covered-bond unit Dexia Municipal Agency by a new lender that will be controlled by the French state, government-owned Caisse des Depots & Consignations and La Banque Postale SA. “The aid received should not be used to allow the perpetuation of the failed business model at the level of DMA,” the European Commission, the EU’s Brussels-based antitrust agency, said in a statement yesterday.
• Greek Exit Contagion Impossible to Predict, Zoellick Says in FT. A Greek exit from the euro region would hurt confidence in other sovereign euro assets, World Bank President Robert Zoellick wrote in the Financial Times. Different views among ECB board members “raise doubts about its ability to respond fast, fully and forcefully,” Zoellick said. Euro-area leaders must be prepared to recapitalize banks, he wrote. “Massive” ECB liquidity injections may not be enough, Zoellick wrote.
• Euro Swap Curve Flattest Since Lehman Collapse: Chart of the Day. The gap between short- and long-term euro-denominated interest-rate swaps is the narrowest since the months following the collapse of Lehman Brothers Holdings as Europe's debt and banking system crisis worsens. The difference between rates on two- and 10-year euro-denominated interest rate swaps fell last month to the least since December 2008. "The euro yield curve has found itself between a rock and a hard place," said Julien Turc, head of cross-asset quantitative strategy at SocGen in Paris. "Short-term rates have gone up because of funding concerns while long term rates are being driven down by the flight-to-quality of German bunds. There is risk of more sovereign and bank stress."
  
• Copper Bears Rise to Eight-Month High as Hedge Funds Bet on Drop. Copper traders are the most bearish since September and hedge funds are betting on price declines as concern that Europe’s debt crisis is deepening drove the metal to the lowest this year. Eighteen of 33 analysts surveyed by Bloomberg expect the metal to drop next week and six were neutral, the highest proportion since Sept. 23. Fund managers and other speculators held a net short position of 2,808 U.S. futures and options in the week ended May 22, from net-long holdings of 4,833 a week earlier, Commodity Futures Trading Commission data show. That’s the first bearish bet since January.
• Swaps Index Linked to JPMorgan Loss Surges Versus Current Gauge. The vintage credit-default swaps index said to have contributed to JPMorgan Chase & Co.’s $2 billion trading loss is surging relative to the current index. The 10-year Markit CDX North America Investment Grade Index Series 9, created in 2007, increased to 168.6 basis points at 4:30 p.m. in New York, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. The difference with the current version of the five-year index, the Series 18 expiring in June 2017, widened to 45.2 basis points, the biggest gap since August 23. Traders are pushing the older gauge wider as they wager it’s one of the bank’s positions contributing to the loss after its chief investment office took flawed positions in credit derivatives, wagers that were “poorly monitored,” according to JPMorgan Chief Executive Officer Jamie Dimon. The index expiring in December 2017 jumped 13 basis points to 139.75 on May 11, the day after Dimon disclosed a $2 billion trading loss in synthetic credit. It’s climbed from 111.7 on March 30.
• Facebook(FB) Fiasco Coupled With European Crunch Freezes IPO Plans. Facebook Inc. led U.S. initial public offerings to their worst monthly performance since Lehman Brothers Holdings Inc. collapsed, as Europe’s debt crisis scuttled IPO plans from New York to Hong Kong. The Bloomberg IPO Index (BIPO), which tracks U.S. equities in the first year after their IPOs, sank 15 percent last month, with Facebook posting the worst one-week performance among the 30 largest U.S. IPOs since 2011. The IPO index’s decline is in line with the drop in October 2008, the month after Lehman’s bankruptcy triggered the worst financial crisis since the Great Depression.
• Obama Tells Donors Health-Care Fight May Loom After Court Rules. President Barack Obama is confiding to Democratic donors that he may have to revisit the health-care issue in a second term, a position at odds with his publicly expressed confidence that the U.S. Supreme Court will uphold the Affordable Care Act, according to three Democratic activists. As he previewed his agenda for donors at a May 14 fundraiser, Obama said he may be forced to try to revise parts of his health-care plan, depending on how the court rules later this month, said one activist, who requested anonymity to discuss the president’s comments. Guests at the $35,800-a-plate dinner in the Manhattan apartment of Blackstone Group LP (BX) President Tony James were asked to check their smart phones and BlackBerries at the door.
• China's home prices fell to a 16-month low in May as officials pledged to keep property curbs that have sapped buyer demand, according to SouFun Holdings Ltd., the nation's biggest real estate website owner. Home prices declined .3% from April to $1,364 per square meter, SouFun said. That's the lowest since January 2011 and the ninth month-on-month drop, the longest stretch since it started compiling data in July 2010.
• China's Economic Slowdown Ripples Through Hong Kong Retail. China's economic slowdown is rippling through Hong Kong, with the city's retail sales rising at the slowest pace since 2009 as shoppers visiting from the mainland trim their spending.
• Facebook(FB) Buyers Expecting Surge Were Naive, Gorman Says. Investors who bought Facebook Inc. (FB) shares expecting a large short-term increase in the stock price were “naive,” Morgan Stanley (MS) Chief Executive Officer James Gorman said.

Wall Street Journal:

• U.S. Probe of JPMorgan(JPM) Widens. Federal regulators are using powers they gained in the Dodd-Frank financial overhaul law to ramp up an inquiry into the recent trading blunders at J.P. Morgan Chase & Co., people close to the investigation said. Investigators in the enforcement division of the Commodity Futures Trading Commission are issuing subpoenas requesting emails and other internal J.P. Morgan documents, the people said. The probe focuses on what J.P. Morgan traders told their supervisors and internal risk-management staff as their wrong-way bets started to sour, the people said.
• Subprime Auto Debt Revs Up The Asset-Backed Securities Market. The subprime corner of the auto asset-backed securities market is showing signs of its boom-time self. This year's subprime auto-ABS issuance of more than $7 billion is on pace to exceed last year's issuance by about 25%, according to Standard & Poor's. Subprime now accounts for one-quarter of all volume in the expanding auto-ABS market, marking a rapid recovery from its single-digit share in 2008.
• Mutual Funds Push To Restrict Hedge Funds Ads. The mutual fund industry wants the Securities and Exchange Commission to impose restrictions on advertising by hedge funds and private equity funds now that such private funds will be allowed to engage in mass marketing. Hedge funds will soon be able to advertise broadly to the public thanks to a measure in the recently-passed JOBS Act that directed the SEC to repeal a longstanding ban on publicizing private securities offerings.
• U.S. Argues to Preserve GPS Tracking. The U.S. government told a federal appeals court Thursday that it still has the right to place Global Positioning System tracking devices on cars without obtaining a search warrant—despite a January Supreme Court ruling that the warrantless installation of such a device violated the Constitution.
• Google(GOOG) to Require Retailers to Pay. Google Inc., in a move to squeeze more cash out of its lucrative Web-search engine, is converting its free product-search service into a paid one. Online retailers will now have to bid to display their products on Google's Shopping site. Currently, retailers include their products for free by providing Google with certain data about the products. Google then ranks those products, such as cameras, by popularity and price.
• Property Taxes And State Aid Drop, Pinching Local Governments -Pew. While states are beginning to slowly recover from the recession, a nonpartisan policy group said Thursday that local governments are getting "hit with a one-two punch," with two major revenue sources--property taxes and state aid--declining together for the first time since 1980.
• Acquittal, Mistrial in Edwards Case. The campaign-finance trial of former presidential candidate John Edwards ended in a mistrial Thursday, disintegrating under the weight of sometimes contradictory evidence as the jury failed to reach a verdict on almost all of the charges.
• Business Braces for Europe's Worst. As European officials race to quell fears that Greece may exit the euro, many companies doing business in the troubled country are preparing for the worst.
• Debt Strains Hit Big Greek Lenders. Greece's deepening crisis has dealt a further blow to the country's four largest lenders, as bad debts ballooned and they struggled to hold onto nervous savers worried over the country's future inside the euro zone.
• Asia Strains Under Euro Crisis. The economies of Asia, both the emerging markets and the more developed countries, are being hit by a double whammy of slowing domestic growth and the impact of the European debt crisis on Asian exports and finance. Signs of distress are proliferating.
• John Taylor: Rules for America's Road to Recovery. As Hayek taught us, predictable policies will help restore economic prosperity and preserve freedom.

MarketWatch:

• Click here for May’s biggest ETF losers.

Business Insider:

• LIVE: THOUSANDS OF COMPANIES AROUND THE WORLD REVEAL THE TRUTH ABOUT THE GLOBAL ECONOMY.
• The Other Slowdown Is Here. CHINESE STATE NEWSPAPER: Corruption Is Here To Stay And The Public Should Get Used To It.
• WEAK AGAIN: China's HSBC PMI Falls To 48.4, 'Employment Down At Fastest Rate In 38 Months'. (graph)
  

Zero Hedge:

• Busting The "Core" European Myth.
• Be Afraid Europe, Be Very Afraid - Tim Geithner Is Now "Helping" You.

CNBC:

• Optimism Among Wealthy Americans Is Down, Economy Worries Are Up. (graph) After two consecutive months of positive improvement, optimism of America’s wealthiest has dipped due to continued concerns about the economy and the job market.
• ECB, EU Officials Warn Euro's Survival at Risk. The European Central Bank stepped up pressure on Thursday for a joint guarantee on bank deposits across the euro zone, saying Europe needed new tools to fight bank runs as the bloc's debt crisis drives investors to flee risk.

Reuters:

• Wal-Mart(WMT) Launching "Goodies" Food Service. Wal-Mart Stores Inc will soon launch a paid monthly mail subscription called "Goodies" that will allow customers to test new food and other products, Global eCommerce Chief Executive Neil Ashe said on Thursday.
• China has not decided to quicken lending: report. China has not told banks to speed up lending and will set credit policy in line with economic conditions, a vice chairman of the country's banking regulator said in remarks published on Friday, as fresh data raised fears that business activity may be cooling faster than expected.
• Nikkei heads for worst weekly losing run in 20 years.

Financial Times:

• Hedge Funds Cut Back On Equity Research. Hedge funds are sharply reducing spending on equity research from brokerage firms, in a sign that volatile markets are hurting demand for brokers’ lucrative client services. Institutional investors cut spending on research services, such as analyst notes and trading ideas, to $6.2bn in the twelve months to March 31, down 9 per cent from the prior year, according to a survey by Greenwich Associates.

Telegraph:

• Only ECB Can Save The Euro Now.
• Eurozone is 'unsustainable' warns Mario Draghi. The head of the European Central Bank hit out at the political paralysis gripping the region as he warned the eurozone's set-up was "unsustainable".

Evening Recommendations
Piper Jaffray:

• Rated (MFRM) Overweight, target $45.

Night Trading

• Asian equity indices are -1.25% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 200.0 -3.0 basis points.
  
• Asia Pacific Sovereign CDS Index 162.50 +2.0 basis points.
  
• FTSE-100 futures +.31%.
  
• S&P 500 futures -.52%.
  
• NASDAQ 100 futures -.42%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CHRS)/.18

Economic Releases
8:30 am EST

• The Change in Non-farm Payrolls for May is estimated at 150K versus 115K in April.
• The Unemployment Rate for May is estimated at 8.1% versus 8.1% in April.
• Average Hourly Earnings for May is estimated +.2% versus unch. in April.
• Personal Income for April is estimated to rise +.3% versus a +.4% gain in March.
• Personal Spending for April is estimated to rise +.3% versus a +.3% gain in March.
• The PCE Core for April is estimated to rise +.2% versus a +.2% gain in March.
  

10:00 am EST

• ISM Manufacturing for May is estimated to fall to 53.8 versus 54.8 in April.
• ISM Prices Paid for May is estimated to fall to 57.0 versus 61.0 in April.
• Construction Spending for April is estimated to rise +.4% versus a +.1% gain in March.
  

Afternoon

• Total Vehicle Sales for May are estimated to rise to 14.5M versus 14.38M in April.
  

Upcoming Splits

• (OKE) 2-for-1
  

Other Potential Market Movers

• The Supreme Court's decision on Obamacare, (MDT) analyst meeting, (WMT) shareholder meeting, (GRPN) lock-up expiration, public comments on the Volcker rule and the ASCO meeting could also impact trading today.
  

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

Stocks Reversing Higher into Final Hour on Financial Sector Strength, Euro Bounce, Short-Covering, Bargain-Hunting

Broad Market Tone:

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

Equity Investor Angst:

• VIX 23.78 -1.49%
  
• ISE Sentiment Index 97.0 +11.49%
  
• Total Put/Call 1.05 -15.32%
  
• NYSE Arms .98 -49.08%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 122.53 +.21%
  
• European Financial Sector CDS Index 297.38 -.49%
  
• Western Europe Sovereign Debt CDS Index 326.26 +1.51%
  
• Emerging Market CDS Index 333.19 +1.11%
  
• 2-Year Swap Spread 35.75 +.75 basis point
  
• TED Spread 40.50 +.5 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -50.25 +.5 basis point
  

Economic Gauges:

• 3-Month T-Bill Yield .07% unch.
  
• Yield Curve 131.0 -4 basis points
  
• China Import Iron Ore Spot $134.80/Metric Tonne unch.
  
• Citi US Economic Surprise Index -35.90 -5.9 points
  
• 10-Year TIPS Spread 2.09 +2 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating a -39 open in Japan
• DAX Futures: Indicating +13 open in Germany
  

Portfolio:

• Higher: On gains in my Retail and Tech sector longs
  
• Disclosed Trades: Covered all of my (IWM), (QQQ) hedges, covered some of my (EEM) short, added (QCOM) long
  
• Market Exposure: Moved to 100% Net Long

Today's Headlines

Bloomberg:

• S&P 500 Pares Drop on Greek Poll. U.S. stocks reversed losses as a Greek opinion poll showed support for the largest pro-bailout party and a report indicated the International Monetary Fund has started discussing contingency plans for a rescue of Spain. The Standard & Poor’s 500 Index slipped 0.3 percent to 1,309.66 at 12:49 p.m. in New York, trimming an earlier drop of 1.1 percent. The index is down 6.3 percent in May, poised for its worst month since September. The Dow Jones Industrial Average erased a decline of as much as 103 points. A Greek opinion poll before June 17 elections showed New Democracy, the largest pro-bailout party, leading Syriza, which calls for the cancellation of the country’s bailout terms. Of 1,128 people surveyed by Marc SA for Athens-based Alpha TV, 26 percent said they’d vote for New Democracy, 24.3 percent for Syriza and 12.5 percent for the Pasok party, which also supports the bailout program.
• Italian Leaders Press for German Action to Fight Crisis. Italy’s prime minister and central bank chief pressed Germany to back more aggressive efforts to snuff out the escalating debt crisis, setting up a south-north showdown over how to stabilize the 17-nation euro economy. Warning that six decades of European integration are at stake, Italian Prime Minister Mario Monti called on German Chancellor Angela Merkel to take steps to halt the financial rot before a backlash builds against budget cuts. Monti and Bank of Italy Governor Ignazio Visco pushed Germany to give up its opposition to direct euro-area aid for hard-hit banks. “Countries that are at the core of the system and which have had the huge merit of instilling the culture of stability to the European Union in the first place, most notably Germany, should really reflect deeply but quickly,” Monti said by video link to an European Union conference in Brussels today. “Europe should really accelerate the efforts, as the European Commission is doing, in order to limit the contagion.”
• ECB's Paramo Says Spain Has Room On Bank Recapitalization. European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo said Spain has room for maneuver in recapitalizing its banks through its Fund for Orderly Bank Restructuring. “The government has front-loaded the issuance program this year so there is some room in case of need for public funds through the FROB,” Gonzalez-Paramo, 53, said in an interview in Frankfurt today, his final day at the ECB. “There is now progress on the external evaluation of the banking-sector needs and these will be known in one month’s time.”
• Euro Break-Up Firewalls Difficult to Build in East, Capital Says. Eastern European policy makers would struggle to build firewalls against contagion from a disorderly break-up of the euro because of short-term debt owed to western parent banks in foreign currencies, Capital Economics Ltd. said. In a worst-case scenario following a potential Greek exit from the euro, eastern European nations may need to resort to International Monetary Fund aid, Neil Shearing, chief emerging- markets economist at London-based Capital, wrote in an e-mailed note today. Strategies such as the Vienna Initiative and swaps with the European Central Bank have “significant barriers” as western lenders are “in the eye of the storm,” he wrote.
• Announced U.S. Job Cuts Jump 67% From Year Ago, Challenger Says. Job cuts announced in the U.S. jumped in May by the most in eight months, led by computer companies. Planned firings surged 67 percent from May 2011 to 61,887, according to figures released today by Chicago-based Challenger, Gray & Christmas Inc. It marked the fourth year-over-year increase so far in 2012. Employers have announced 245,540 reductions since Jan. 1, 20 percent more than a year earlier, the report said.
• U.S. Labor Market Cools As Jobless Claims Rise: Economy. The number of Americans applying for unemployment benefits rose to a one-month high and companies hired fewer workers than forecast, casting doubt on the vigor of the labor market. First-time claims for unemployment insurance payments increased by 10,000 to 383,000 in the week ended May 26, Labor Department data showed today. Private employment climbed by 133,000 in May, Roseland, New Jersey-based ADP Employer Services said. The median estimate of 39 economists surveyed by Bloomberg News called for an advance of 150,000.
• Economy In U.S. Expanded Less Than Previously Estimated. Gross domestic product climbed at a 1.9 percent annual rate from January through March, down from a 2.2 percent prior estimate, revised Commerce Department figures showed today in Washington. The report also showed corporate profits rose at the slowest pace in more than three years and smaller wage gains at the end of 2011.
• Business Activity in U.S. Unexpectedly Grew at Slower Pace. Business activity in the U.S. expanded in May at the slowest pace in more than two years as orders and production cooled. The Institute for Supply Management-Chicago Inc. said today its barometer decreased to 52.7, the lowest since September 2009, from 56.2 in April. Readings greater than 50 signal growth. Economists projected the purchasing managers’ gauge would rise to 56.8, according to the median of 55 estimates in a Bloomberg News survey. While demand for automobiles continues to fuel factory output, the debt crisis in Europe and a slowdown in China may cause some businesses to cut back on spending and hiring.
• Goldman's(GS) Blankfein To Testify as Gupta Trial, US Says. Goldman Sachs Group Inc. (GS) Chief Executive Officer Lloyd Blankfein will testify at the insider- trading trial of the bank’s former director Rajat Gupta, a prosecutor said.
• India Growth Slows to 9-Year Low as Rupee Drops to Record. India’s economic growth weakened to a nine-year low last quarter, hurt by an investment slowdown that has undermined the rupee and jeopardized Prime Minister Manmohan Singh’s development agenda. Bonds climbed and stocks fell. Gross domestic product rose 5.3 percent in the three months ended March from a year earlier, compared with 6.1 percent in the previous quarter, the Central Statistical Office said in a statement in New Delhi today. The median of 31 estimates in a Bloomberg News survey was for a 6.1 percent gain.
• Romney Calls Solyndra A 'Symbol of Failure' for Obama. Presumptive Republican presidential nominee Mitt Romney visited the closed facilities of Solyndra LLC, the solar-panel manufacturer that went bankrupt after receiving a $535 million loan guarantee, and called the company a “symbol of failure” for the Obama administration. Romney, 65, spoke today outside the factory Solyndra constructed with government funds at its headquarters in Fremont, California, terming it “the Taj Mahal of corporate headquarters.” The campaign didn’t disclose the speech location until Romney arrived. “This building, this half-a-billion dollar taxpayer investment, represents a serious conflict of interest on the part of the president and his team,” Romney said. The former Massachusetts governor has repeatedly criticized the Obama administration’s decision to extend a $535 million loan guarantee to Solyndra, saying it was part of a pattern of rewarding companies and people that supported him with taxpayer dollars. The family foundation of Obama fundraiser George Kaiser was Solyndra’s biggest investor.

Wall Street Journal:

• IMF Begins Talk On Spain Contingency Plans - Sources. The European department of the International Monetary Fund has started discussing contingency plans for a rescue loan to Spain in the event that the country fails to find the funds needed to bailout its third-largest bank by assets, Bankia SA, people involved in the handling of the Spanish crisis said Thursday. Both the EU and IMF want to avoid having to bailout Spain at all costs, the people said, but initial planning is under way given that the country is struggling to raise a EUR10 billion shortfall in funds to bail out Bankia.

CNBC.com:

• Most Retailers Top Sales Estimates for May. Most retailers posted solid sales gains in May, with chains such as Target, TJX, and Limited topping analysts' estimates for the month. "Retailers rebounded from a soft April turning in solid May same-store sales results this morning fueled by decent weather conditions, robust Mother's Day selling and enticing Memorial Day weekend promotions," said Ken Perkins of Retail Metrics, in a research report.
• Teamsters Invest Heavily in Private Equity. Hoffa made this blistering criticism of GOP presidential nominee Mitt Romney and his career in private equity at Bain Capital on May 7th: “He represents everything that is wrong with our financial system. He made his money as CEO of Bain Capital by destroying U.S. businesses, sending good-paying American jobs overseas and filling his pockets with millions while putting workers out on the street.” But it turns out that the Teamsters themselves make plenty of money from private equity through investments made by their regional pension funds, which are independently administered.
• Worried Spaniards Sending Billions of Euros Abroad.
  

Business Insider:

• Presenting the Most Unemployed City in Every State.
• Epic Retail Sales Plunge in Greece.
  

Zero Hedge:

• The Monster Has Awakened.
• The 4 Greek Election Scenarios.
• Equities Underperform as Credit Roundtrips Ending Miserable May for Europe.
  

Le Monde:

• The French government is preparing a bill that will restrict companies' ability to cut jobs for purely financial reasons, Arnaud Montebourg, the minister for Productive Recovery, said in an interview. "If certain companies accepted less spectacular profitability levels, these jobs could be saved," Montebourg said.
  

De Tijd:

• The European Commission has "serious doubts" over the breakup plan of Dexia SA. One sticking point for the commission is the structure of the deal around Dexia's French unit, Dexma. A possible stalemate looms between France and Belgium over temporary guarantees.