Bull Radar

Style Outperformer:

• Small-Cap Growth -.01%

Sector Outperformers:

• 1) HMOs +3.69% 2) Disk Drives +.54% 3) REITs +.44%

Stocks Rising on Unusual Volume:

• MOH, CNC, MPWR, FRAN, ROSG, SYNC, FGP, NAV, TPX and FCN
  

Stocks With Unusual Call Option Activity:

• 1) ALTR 2) CIT 3) IMAX 4) FIO 5) BBBY
  

Stocks With Most Positive News Mentions:

• 1) ROK 2) NOC 3) GR 4) HGSI 5) MOH
  

Charts:

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

Friday Watch

Evening Headlines
Bloomberg:

• Rajoy Holds Bank Talks With EU Leaders as Fitch Downgrades Spain. Spanish Prime Minister Mariano Rajoy said he's talking to his European peers about how to shore up the country's banks as Fitch Ratings cut Spain's credit grade to within two steps of junk. Rajoy said he's spoken to colleagues in the European Union and that, once he has estimates from international consultants on banks' capital needs, the government will find "the formula for the financing of the capitalization of the banking sector." He will take the decision that "best defends the interests of Spaniards," the premier told reporters in Madrid yesterday. Rajoy spoke minutes before Fitch downgraded Spain by three levels to BBB, within two steps of non-investment grade. Fitch said the cost to the state of shoring up banks may amount to as much as 100 billion euros ($126 billion) in the worst case, compared with its previous estimate of 30 billion euros, as Spain will remain in recession next year. Spain is trying to overcome German opposition to allowing the euro region's bailout funds to sidestep governments and recapitalize lenders directly. The Treasury's access to capital markets is narrowing as it increasingly depends on domestic banks to buy its bonds, reducing the government's ability to backstop struggling lenders.
• Full-Force Bank Aid Is Spain’s Only Hope, Industry Warns. Spain’s banks need urgent aid plugged directly into their balance sheets and Europe can no longer allow itself to deploy half measures, according to the leaders of some of the world’s biggest banking and finance groups. “It must be done with full magnitude,” Christian Clausen, the president of the European Banking Federation and chief executive officer of Nordea Bank AB (NDA), said in an interview in Copenhagen yesterday. Recapitalizing Spain’s banks has become the key hurdle that European policy makers need to overcome, and fixing the turmoil in the nation’s financial system would calm markets, he said. Bankers are stepping up their pleas for action as Spain’s financial crisis risks engulfing the euro area’s fourth-largest economy and policy makers remain divided on how best to tackle the issue. The European Commission last month lent its support to proposals to provide a direct capital infusion to Spain’s banks, a model Germany opposes in favor of aid with fiscal austerity strings attached. Spain’s banks are buckling under the weight of 184 billion euros ($231 billion) in real estate loans that the Economy Ministry has characterized as “problematic.” The country’s lenders may need as much as 100 billion euros in support, Antonio Lopez Isturiz, a leader of the European People’s Party, said yesterday in an interview with broadcaster TVE.
• Euro Breakup Precedent Seen When 15 State-Ruble Zone Fell Apart. It was a currency union of 15 states in 1992. Two years later, as budget deficits spiraled out of control, hyperinflation reigned and economies shriveled, just two members of the Soviet Union’s ruble zone were left. As Greek politicians threaten to break terms of the country’s bailout with international lenders, Spain calls for financial help, and northern European nations balk at funding the south, historians are asking whether the euro region is about to face a similar exodus. They take a longer view of the European Union’s crisis than economists, and it’s much bleaker.
• Europe Crisis Key Risk to U.S. Lies in Emerging Markets Impact. Porcelli believes Europe’s troubles may hit U.S. exports in a more roundabout way. Emerging markets such as Brazil, Mexico, and China have accounted for the bulk of U.S. export growth over the last few years. Since the recession began in 2007, exports to Brazil have increased by more than 70 percent. Emerging market countries get the majority of their lending from European banks. So if Europe continues to deteriorate and its financial system tightens, some emerging markets could lose a key source of financing, which in turn could squeeze their ability to keep buying U.S. goods. “That’s a very important aspect that can’t be overlooked,” says Porcelli. Europe’s mess also poses significant supply-chain risk to U.S. manufacturers. According to Kris Bledowski, a senior economist at the Manufacturers Alliance for Productivity and Innovation, even if American companies are not shipping a lot of goods to Europe, it’s an important source of components, such as car engines and plastic parts, to many U.S. manufacturers.
• China Bank Shares Fall on Concern New Rate Rules May Cut Profit. China's interest-rate cut and the relaxation of lending and deposit rules will reduce 2012 profit at the country's four largest banks by about 4%, Nomura Holdings Inc. estimated.
  
• China’s Ship Yards Fail to Win Orders as Greek Owners Shun Loans. Chinese ship yards are failing to find new work 20 months after Premier Wen Jiabao sought to encourage ordering by pledging $5 billion of loans to Greek vessel owners, who control the world’s biggest merchant fleet. Almost 90 percent of China’s ship yards received no orders this year and about 28 percent have secured none since the end of 2009, Clarkson Plc (CKN), the world’s largest shipbroker, said May 16. Shares of China Rongsheng Heavy Industries Group (1101), China’s largest non-state builder, fell 55 percent in the past year, valuing the company at HK$13.6 billion ($1.8 billion). Owners are refraining from new orders after rates plunged and the combined capacity of oil tankers, container ships and commodity carriers reached a record. Earnings from the industry averaged the lowest since 1999 so far this year, according to the ClarkSea Index, a measure of freight rates for different vessel types published by Clarkson.
• China Near Recession Amid Rate-Cut 'Panic,' Asianomics Says. China's first interest rate cut since 2008 and loosed controls on lending and deposit rates are a "sign of panic" and will not do anything to boost the economy, Jim Walker, chief economist at Asianomics Ltd. said. "The timing is a surprise but I suspect it demonstrates just how weak the Chinese economy really is," Walker said today. "We believe that it is pretty close to recession." The central bank's move may backfire if it "further dissuades people from putting money into savings and time deposits," Walker said. "If anything, banks will need to raise their lending rates because their cost of funds is going up."
  
• Commodities Tumble Most in a Week as Slowdown to Reduce Demand. Commodities slumped the most in a week on concern a slowdown in China and the U.S., the world’s two biggest economies, will cut demand. The Standard & Poor’s GSCI Spot Index dropped as much as 1.7 percent to 581.73 and was at 584.19 by 11:34 a.m. Singapore time.
• Syria Could Unite Russia and China Against the U.S. The massacre of more than 100 men, women and children at Houla has buried the peace plan for Syria promoted by former United Nations Secretary General Kofi Annan. Soon, the regime and its opponents will get to fight out their civil war unobstructed. When that happens, Syria will present the U.S. and Russia with choices that have implications far beyond the fate of a single Middle Eastern dictator, including stronger Russia-China cooperation to counter U.S. foreign policies.

Wall Street Journal:

• Capital Rule Is One Size Fits All. The Federal Reserve shocked bankers Thursday by approving a proposal that would force even the smallest lenders to comply with the elaborate international bank-capital standards known as Basel III. The draft requirements would apply to all 7,307 U.S. banks, according to a proposal circulated by the Fed. Many bankers had expected regulators to exempt some small lenders from the new rules, which are aimed at shoring up the biggest global banks whose troubles fueled the financial crisis.
• Dish(DISH) Chief: TV Needs to Change. Dish Network Corp. Chairman Charlie Ergen said a new ad-skipping feature that has infuriated major broadcast TV networks is a "competitively necessary" response to the explosion of cheap Internet video.
• Backdoor Macau Deal Was Proposed to Sands(LVS). Toward the end of 2009, casino operator Las Vegas Sands Corp., struggling under $11 billion of debt and strapped for cash as the weak economy ravaged its business, received a surprising offer that could have relieved some of its woes. The offer came in emails from an outside legal adviser with political connections in China and Macau, the world's biggest gambling market, where the company's local unit was going public.
• Europe's vulnerable East Braces for Possible Greek Exit. Authorities in Europe's emerging economies are girding for the possibility of serious market turmoil in the event of a Greek exit from the euro zone, which could drive down currencies, tighten credit and slam the brakes on export-driven growth.
• Bernanke's Cliffhanger. The 2013 fiscal danger is a tax increase, not spending cuts.

Business Insider:

• It Is Clear Now That China Is Headed For A Hard Landing.
• Apple(AAPL) Just Got A Patent That Will Help It Crush The Ultrabook Competition.
• This Is The Worst Job Market For Law Grads In Two Decades.
• Your Complete Guide To The Crisis Going On In Spain.
• China Just Made A Massive Play For Afghanistan's Resources.

Zero Hedge:

• Europe's Banking Union 'Non-Solution'.

CNBC:

• China Faces Stimulus Dilemma. With growth slowing much more than expected and an array of indicators pointing south, Beijing has been forced to act to prop up activity in the world’s second-largest economy. But many economists and analysts from inside and outside the government are warning of the dangers involved in a fresh round of stimulus and easy credit that could reinflate a property bubble and exacerbate the stark structural imbalances already present in the Chinese economy.
• Zell: You Can't Make Business The Bad Guy. (video)
• China's Sovereign Wealth Fund Cuts Europe Exposure. China's $410 billion sovereign wealth fund China Investment Corp has cut its stock and bond investments in Europe as it sees rising risks of a euro zone breakup, the fund's chairman was quoted as saying in an interview published on Thursday.

IBD:

• SXC Health Solutions(SXCI) To Muscle Up With Merger Deal.

NY Times:

• Making Sense of Morgan Stanley's(MS) Derivatives Moves. As regulators and lawmakers take a closer look at derivatives, Morgan Stanley is trying to figure out what to do with $50 trillion of such financial instruments. Some of the biggest players in derivatives, including JPMorgan Chase and Citigroup, have long warehoused nearly all of their derivatives in bank subsidiaries that rely on federally insured deposits to fund themselves. Morgan Stanley does not — and it could weigh on profits in an already lackluster environment.
• Madrid Leans on Its Troubled Banks to Buy Its Bonds. While the Spanish government was able to sell all the bonds it wanted to on Thursday, it mostly sold to the usual buyers: Spain’s increasingly fragile banks.

LA Times:

• Netflix(NFLX) Joins Redbox to Defy Disney's(DIS) New DVD Policy. Netflix is joining Redbox in defying Walt Disney Studios' attempt to stop DVD rentals for four weeks after the discs go on sale. Disney recently decided not to provide its discs to the nation's largest rental companies until 28 days after they hit store shelves, adopting a policy similar to those of 20th Century Fox, Universal Pictures and Warner Bros. (Warner's so-called "window" is even longer: 56 days).

Washington Post:

• Ed Rendell: Obama ‘hurt by being a legislator only’ before presidency. Former Pennsylvania governor Ed Rendell, who has been on something of a tear when it comes to playing the role of the Obama administration’s chief Democratic antagonist, made his latest swipe at the president Thursday morning in an interview on CBS’s “This Morning.”

Reuters:

• JPMorgan(JPM) trading loss shows danger in bank size -Volcker. Former Federal Reserve Chairman Paul Volcker said JPMorgan Chase's recent multibillion-dollar trading loss may show that the nation's largest banks are too big to manage. JPMorgan revealed last month that its London office had executed a failed hedging strategy that has so far produced at least $2 billion in trading losses. The news has rattled Wall Street and Washington and raised questions about whether banks are still taking too many risks following the 2007-2009 financial crisis. "Maybe this JPMorgan thing is an illustration that these(banks) are really too big to manage," Volcker said on Thursday at an American Bar Association event at Columbia University in New York.
• Stock and bond funds see outflows -Lipper.
• China's Biggest Banks Raise Deposit Rates. China's top five banks said on Friday they have raised deposit rates to 3.5 percent, above the benchmark level, less than a day after China took a step towards liberalising its interest rate market. The websites of all five banks showed they were offering 3.5 percent deposit rates, higher than the benchmark 3.25 percent level. Under China's new banking rules that came into effect on Friday, banks can offer deposit rates of up to 110 percent of benchmark rates.

Financial Times:

• Is China embracing CDOs? Readers of The Big Short will recognise this once-fashionable trick of financial engineering: 1) Take some debt rated BBB, BB+, and A-. 2) Bundle it together. 3) Get it rated AAA 4) Flog it to investors. Recent reports from China suggest that this technique is beginning to catch on among the most cash-strapped of businesses: SMEs. The South China Morning Post reports:
• US banks face $60bn capital shortfall. The 19 largest US banks are at least $50bn short of meeting new capital requirements under the Basel III accords, according to rules proposed by the Federal Reserve. The biggest among them would probably need billions of dollars more by the 2019 deadline to comply fully with the rules. Smaller US lenders are about $10bn short of the requirements, the Fed said on Thursday.

Telegraph:

• Spain too big for EU rescue fund as China recoils. As Spain edges closer to a full sovereign rescue, economists have begun to doubt whether the EU bail-out machinery can raise such large sums funds at viable cost on global capital markets.
• British banks among the most unprofitable in the world. The British banking industry was the second most unprofitable in the world in 2011, according to an analysis of lenders in major economies.
• Debt crisis: Fitch downgrades Spain by three notches and blames European leaders for 'absence of a credible vision' for euro. A serious mishandling of the debt crisis by European leaders led Fitch to axe Spain’s credit rating by three notches and issue a warnings on the stability of country’s banks, debt levels and economy.
• Debt crisis webchat: put questions to Ambrose Evans-Pritchard.

The Independent:

• Don't Expect Any Help From Us, Bernanke Tells Eurozone Leaders. Ben Bernanke, the chairman of the Federal Reserve, sent a message of "you're on your own" to European leaders yesterday, telling them there were no policy tools or technical steps the US central bank could take to help ease the pressures in the eurozone. Instead, in testimony to domestic lawmakers on Capitol Hill, he said the Fed would monitor American banks to make sure any sudden worsening of the euro crisis did not infect the US financial system. And he promised the Fed stood ready to prop up demand in the US if Europe pushes the wider global economy into recession. "The risks have waxed and waned. The crisis has been going on for more than two years and there have been periods of greater and lesser intensity," he said. "Certainly it is at a point where it is important for European leaders to take additional steps to contain the problem."

BBC:

• Larry Summers: Europe Crisis Hit By 'realism failure'. "There are also very large psychological effects," he said, "and the sense that a large part of the world economy could encounter really grave financial problems is a source of uncertainty. "When people are uncertain, they wait, and that means they don't spend, and in a demand-short economy, that can be a serious problem. "Europe is a threat not only to itself but to the global economy." Mr Summers tells me he can understand that European leaders want to maintain confidence, but adds: "Sometimes there's nothing more demoralising than being told that the emperor's well-clothed when you can see for yourself that the emperor is naked. "They are errors that tended, in the name of maintaining confidence, to seek to perpetuate illusion."

NHK:

• Prime Minister Yoshihiko Noda will hold a press conference Friday evening to make a public appeal for the restart of nuclear reactors at a Kansai Electric plant in Fukui prefecture.

Evening Recommendations
Jefferies:

• Rated (JACK) Buy, target $31.

Night Trading

• Asian equity indices are -1.50% to -.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 194.5 +.5 basis point.
  
• Asia Pacific Sovereign CDS Index 157.25 -6.0 basis points.
  
• FTSE-100 futures -.60%.
  
• S&P 500 futures -.57%.
  
• NASDAQ 100 futures -.40%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (FGP)/.21

Economic Releases
8:30 am EST

• The Trade Deficit for April is estimated at -49.5B versus -$51.8B in March.
  

10:00 am EST

• Wholesale Inventories for April are estimated to rise +.4% versus a +.3% gain in March.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The ECB's Nowotny speaking and the (CHK) shareholder meeting could also impact trading today.
  

BOTTOM LINE: Asian indices are lower, weighed down by technology and commodity 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 Higher into Afternoon on Global Central Bank Stimulus Hopes, Short-Covering, Bargain-Hunting, Less Eurozone Debt Angst

Broad Market Tone:

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

Equity Investor Angst:

• VIX 21.69 -2.12%
  
• ISE Sentiment Index 66.0 -42.11%
  
• Total Put/Call 1.02 -13.56%
  
• NYSE Arms .96 +54.26%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 120.0 -1.40%
  
• European Financial Sector CDS Index 280.35 -3.41%
  
• Western Europe Sovereign Debt CDS Index 317.39 -2.62%
  
• Emerging Market CDS Index 299.78 -2.20%
  
• 2-Year Swap Spread 31.0 -2.5 basis points
  
• TED Spread 38.75 unch.
  
• 3-Month EUR/USD Cross-Currency Basis Swap -51.50 -1.25 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .08% unch.
  
• Yield Curve 138.0 -1 basis point
  
• China Import Iron Ore Spot $130.60/Metric Tonne -.31%
  
• Citi US Economic Surprise Index -48.90 +.3 point
  
• 10-Year TIPS Spread 2.15 -2 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating a +23 open in Japan
• DAX Futures: Indicating +9 open in Germany
  

Portfolio:

• Higher: On gains in my Medical and Tech sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short
  
• Market Exposure: Moved to 50% Net Long

Bear Radar

Style Underperformer:

• Mid-Cap Growth -.02%

Sector Underperformers:

• 1) HMOs -5.63% 2) Gold & Silver -2.03% 3) Retail -.55%

Stocks Falling on Unusual Volume:

• MW, BBY, KORS, COH, AIXG, SCG, LULU, TITN, BRLI, ALOG, VSAT, INFY, JAZZ, GOLD, SRCL, CSTR, JOSB, ATVI, UA, AGP, INVN, PLL, WCG, TPX, BAH, CNC, NAV and MOH
  

Stocks With Unusual Put Option Activity:

• 1) SPPI 2) CMI 3) IYT 4) NAV 5) LULU
  

Stocks With Most Negative News Mentions:

• 1) BBY 2) MOH 3) AMTD 4) JNPR 5) NAV
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value +.39%

Sector Outperformers:

• 1) Construction +1.31% 2) Coal +1.14% 3) Defense +1.09%

Stocks Rising on Unusual Volume:

• RIO, TPLM, IBN, HDB, CDE, DGIT, MAKO, MDR, CACI, URI, CJES, MFRM and PCYC
  

Stocks With Unusual Call Option Activity:

• 1) FTR 2) XRX 3) LULU 4) ATVI 5) MDT
  

Stocks With Most Positive News Mentions:

• 1) AGU 2) CACI 3) RF 4) KVHI 5) MDT
  

Charts:

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

Thursday Watch

Evening Headlines
Bloomberg:

• Draghi Stresses Limits of ECB Tools as Pressures Mount. The European Central Bank may be running out of options it can stomach. With the euro area assailed by spreading recession, financial-market instability and political impasse over the direction the single currency should take, ECB President Mario Draghi yesterday stressed the limitations of his current policy tools, from standard interest-rate cuts to bond-buying and liquidity injections. Moves such as quantitative easing or capping bond yields to calm markets remain taboo for the ECB, which says its main job is to ensure stable prices. “It’s clear that they are very low on, if not completely out of, ammunition,” said Nick Kounis, head of macro research at ABN Amro in Amsterdam. “There are options that would have a more significant effect, but they’re outside of the ECB’s comfort zone. There’s an element of helplessness.”
• Spain Selling Bonds as Deepening Debt Crisis Threatens Demand. Two days after a senior government official said Spain’s access to debt markets was closed, the country will try to sell as much as 2 billion euros ($2.5 billion) of bonds at interest rates that will probably be higher than at its last auction of similar maturities. Budget Minister Cristobal Montoro said June 5 that European institutions should help come up with funds to shore up the nation’s lenders as “the door of the markets isn’t open to Spain.” The Treasury is selling two-, four- and 10-year debt, with France auctioning as much as 8 billion euros of securities. “Comments along the lines of being locked out of the market are very worrying,” John Davies a fixed-income strategist at WestLB AG in London, said in an interview. “Normally, the approach is to try and sound optimistic and talk things up. That’s not how the Spanish rhetoric has sounded recently. It’s going to be painful if they issue 10-year bonds above 6 percent.”
• Meister Calls on Spain to Seek Aid Soon, Rheinische Post Says. Michael Meister, the deputy floor leader of German Chancellor Angela Merkel’s Christian Democratic Union party, urged Spain to seek aid from the European Financial Stability Facility as quickly as possible, Rheinische Post said. Every day that the Madrid government continues to wait “just makes the whole matter more expensive for all of us,” Meister said, according to an interview with the newspaper. If Spain doesn’t apply for aid soon, it will have to seek a bigger amount in a few weeks, Rheinische Post cited Meister as saying.
• My Self-Esteem a Mess Is Spain Refrain for 4 Million Unemployed. Four years ago, Wendy Atkinson Navarro, 36, had a job, a husband and a home. Now, she is divorced, out of work and living with her mother near Madrid, a casualty of Spain's recession that has driven unemployment above 24 percent and is unnerving young people. "My self-esteem is a mess," Atkinson said. "My nephew is 15 years old, and the only difference between him and me is I have kids. That's how I feel."
• Germany's five-year credit default swaps rose yesterday, exceeding Japan's for the first time in two years, according to CMA prices. Germany's CDS were at 104.94 bps yesterday, while Japan's were at 103.79. That's the first time Germany's were more expensive than Japan's since May 29, 2009.
• China Delays Bank Capital Rule Tightening as Economy Slows. China plans to start tightening bank capital rules at the beginning of next year, further delaying the requirements to ensure lending support to a slowing economy. The China Banking Regulatory Commission had said in August the standards would begin Jan. 1 this year. New draft rules seek to set "reasonable" schedules for banks to meet capital targets in a way that helps "maintain appropriate credit growth," the government said on its website yesterday, without giving a deadline for full compliance with the standards. "Chinese banks are under a lot of pressure," Chen Xingyu, an analyst at Phillip Securities in Shanghai, said by phone. The delay is "not a surprise," as the government is "helping banks ease the pressure to raise capital again," Chen said.
• Carmakers Aggravate China Glut as Dealers Struggle. China’s biggest auto-dealer association said carmakers need to scale back their sales targets or sweeten incentives because the worsening glut of vehicles across the nation’s dealerships is unsustainable. Average inventory carried at Chinese dealerships bloated to a level exceeding two months of sales by the end of May, compared with more than 45 days at the end of April, Luo Lei, deputy secretary general of the state-backed China Automobile Dealers Association, said in an interview yesterday. That’s forcing dealers to deepen discounts and sell cars at a loss to meet mandatory sales targets set by automakers, he said. “Dealers can’t shoulder the burden anymore,” said Luo, whose association is authorized by the central government and represents 2,100 dealership groups. “Their backs are broken.”
• Hiring Hiccup Sets Off Alarms in Lousy Recovery by Caroline Baum.
• Copper Buyers Balk as Europe Crisis Unfolds, Top Producer Says. Codelco, the world’s largest copper producer, said buyers are delaying metal purchases amid concern that Europe’s debt crisis will slow global growth. Declining prices, including a 12 percent slump last month, reflect global demand that is falling short of Codelco’s estimated 3 to 3.5 percent annual growth rate, said Thomas Keller, the state-owned company’s chief executive officer. “Everybody is more cautious about making decisions both on the demand and supply side,” Keller said in an interview in Santiago yesterday. “The somewhat lower copper price these days is a reflection of that situation.”
• JPMorgan(JPM), Wells Fargo(WFC), GE(GE) and MetLife(MET) to Fund Oklahoma Wind Farm. JPMorgan Chase & Co. (JPM), the largest U.S. bank, led a group of investors that agreed to provide $220 million in tax-equity financing for an Oklahoma wind farm. JPMorgan, Wells Fargo & Co. (WFC), Metropolitan Life Insurance Co. and General Electric Co. (GE)’s GE Capital unit will provide the funds in the fourth quarter, Enel SpA (ENEL), the project developer, said today in a statement.

Wall Street Journal:

• New Risk to Europe's Growth: Banks Cut Lending to Cities. For decades, when this medieval town wanted to borrow for a building project, officials just needed to walk into one of the many banks between city hall and the nearby 13th-century cathedral. This year, they have had to look farther afield. Unable to raise the money to keep city construction projects on track, Mayor Jean-Pierre Gorges has dispatched aides to Beijing in hopes of negotiating a loan from China Development Bank. As France's new president, François Hollande, tackles the many challenges posed by the deepening euro-zone crisis, from Spain's troubled banking system to Greece's potential exit from the currency union, here's the latest: Many municipalities can't fund their investment projects. This is no small matter because local governments in Europe carry out the majority of public infrastructure investments, from roads to sewage to hospitals, including more than 70% of those in France. So at a time when governments across Europe are searching for sources of growth and employment, localities' funding squeeze is making their job harder. "The impact on economic growth will be substantial," said Bernard Dreyfus, an academic who studies local-government finances.
  
• EU Lenders Plan Relies on Investors. The European Union proposed legislation for dealing with failing banks that aims to shift the cost of future bank collapses away from taxpayers and onto investors. The plan, drafted by the European Commission, the EU's executive arm, is the latest effort to ensure that the massive government-funded bank bailouts of recent years aren't repeated. It includes a controversial idea that delayed the proposal for months: forcing bank shareholders and even bank creditors to absorb losses if a firm runs into trouble.
• Probe Widens Into Mortgage Lenders. Federal officials are broadening their investigations of mortgage lenders that use a popular federally backed mortgage program, a move that could force more banks to pick up some of the rising tab for losses at the Federal Housing Administration.
• Children's CT Scans Pose Cancer Risk. A new study offers the most solid evidence to date that radiation from CT scans increases children's risk of developing leukemia and head and neck cancer.
• Beijing Dims the Lights on Data for Investors. Beijing has curtailed access to information often used by investors and short sellers to evaluate Chinese companies, which could further cloud an often murky market for foreign investors. A Chinese government agency that compiles extensive Chinese corporate records has begun to withhold information that includes financial reports, shareholder changes and assets transfers, according to lawyers, investors and research companies.
• Small Firms' Big Customers Are Slow to Pay. Many Large Companies Are Hoarding Cash, Squeezing Small Businesses That Have Fewer Resources and Less Access to Loans.
• Tax Evasion Eating Into Italian GDP. More than a quarter of the Italian economy eludes taxation, due to underground and criminal economic activities that push up borrowing costs and discourage investment in the country's most vulnerable regions, a senior Bank of Italy official said Wednesday. "Knowing an enemy's size and potential to create damage is essential in defining a winning strategy," Anna Tarantola, deputy director-general of the central bank, told the parliamentary anti-mafia committee in Rome.
• Facebook(FB) Early Buyers Burned Too.
• Labor Faces New Challenge. Organized labor, reeling from blows to government workers in Wisconsin and California elections, is grappling with the prospect of diminished political clout and fewer members in public-sector unions that have formed the core of the movement's power in recent years. Now, even in some Democratic pockets of the country, voters are signaling they are comfortable with shaving benefits and bargaining power from government-worker unions.

Business Insider:

• The JOBS Act Offers Huge Opportunities to Hedge Fund Managers.
• Here's Why Everyone's New LinkedIn Password Should Be In Chinese.
• There's Been Another Horrific Massacre Of Children In Syria.
• MicrosoftMSFT) is in Serious Danger of Flying Straight into a Mountain With Windows 8.
• We're Now Selling The Most Advanced Missile System To This Islamic State.

Zero Hedge:

• David Takes On The Porn-Addicted Goliath: Egan-Jones Countersues The SEC.
• Fed Vice Chair Yellen Says Scope Remains For Further Policy Accommodation Through Additional Balance Sheet Action.
• Morgan Stanley(MS) Sees QE3 Rally Lasting Hours Not Weeks.

CNBC:

• Ackman, Loeb, other hedge funds lose in May. May's stock market rout dealt a blow to many on Wall Street including several big hedge fund stars whose bets on prominent U.S. companies looked badly timed. Even William Ackman and Daniel Loeb, two of the $2 trillion industry's most respected players, failed to escape last month's sharp sell-off and finished May in the red. Ackman's Pershing Square Capital Management lost 7 percent, dropping more than the Standard & Poor's 500 index's 6 percent decline. Loeb's Third Point Partners dipped 2.6 percent, while the Third Point Ultra fund fell even more. Both managers are still in the black for the year, however.The news was much worse at some other hedge funds. Whitney Tilson, Ackman's college friend who has often invested in similar stocks, reported a 13.6 percent drop in his T2 Partners in May, acknowledging that most of his stock picks "got clobbered."
• New Rules on Jobs Data May Be Delayed Amid Outrage. New rules governing advance media access to the monthly jobs report from the Labor Department may not roll out all at once on July 6^th as planned, a department official said Wednesday, due to ongoing negotiations with media organizations.
• Australia's Coal Mining Boom Ends as Prices Tumble. Falling coal prices and soaring costs have forced Australia's producers to start trimming output and letting go of some workers, hurting miners, rail and port operators and potentially threatening plans for more than $30 billion of investment in new mines.
• India's Economy: How Bad Is It? A 52-year-old handyman who has lived in New Delhi for 30 years, Ram Samujh has seen bad times before. But these days, as India faces an economic slowdown amid double-digit inflation, the future looks especially bleak.

IBD:

• Cerner(CERN) A Rising Star In Electronic Health Records.

NY Times:

• Goldman Sachs(GS) Expected to Name Fewer Partners. As Goldman Sachs shrinks, its elite inner circle will also be getting smaller. The Wall Street firm is expected to name fewer than 100 new partners this fall, one of the smallest classes in recent years, according to people briefed on the matter but not authorized to speak on the record.

Reuters:

• Exclusive - Europe Set to Regulate for Greener Cars. The European Commission is set to propose tighter carbon emissions standards for new EU cars, according to a draft proposal that is likely to divide the auto industry.
• Bill Clinton Becomes Romney's Favorite Surrogate for Obama. One of the top unanswered questions of the 2008 presidential campaign has come roaring back: What's Bill Clinton thinking? The former president has increased his profile in recent days, speaking out on behalf of the re-election campaign of President Barack Obama, a fellow Democrat. But some of Clinton's candid remarks have undermined Obama's attacks on Republican challenger Mitt Romney, leaving Democrats fuming, Republicans cheering and observers on both sides scratching their heads.

Financial Times:

• Federal Reserve Set to Unveil Capital Proposals. US banking industry groups and lenders, including Citigroup and Wells Fargo, have been trying to persuade lawmakers that the measure, which is among a batch of proposals to implement the Basel III accords, will hurt them relative to overseas competitors. They also say that they may have to curtail purchases of long-term US Treasuries and municipal debt. They argue that the net effect of the change will force them to hold more capital over and above the stated requirements and that because of different accounting treatments, their foreign peers will have their capital levels protected from changes in the market value of some securities holdings.
• The euro and the “hope” trade. (graphs) One other thing from Wednesday’s SocGen Hedge Fund Watch that’s worth noting, especially given the ECB’s decision to hold rates steady earlier today:

Telegraph:

• The euro’s 'guilty men’ are now steering Europe to catastrophe. Remaining in the single currency is no longer a rational choice for many countries – but will its creators listen?
• French president Francois Hollande cuts retirement age. France's new socialist government cut the country’s retirement age in the face of the eurozone’s deepening crisis, citing “social justice” to explain a move that goes against austerity efforts across the region.
  

21st Century Business Herald:

• China Rate Cut Would Be 'Wrong Move'. China cutting interest rates would be a "wrong move," 21st Century Business Herald said today in an editorial. A rate cut would deepen inflation expectations and cause banks to lose deposits that could be lent to support economic growth, according to the editorial. A lending rate cut would reduce lenders' net interest margins, increasing risk exposure, the editorial said. A cut wouldn't likely improve domestic demand or ease pressure on production overcapacity, according to the editorial.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are +.25% to +1.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 194.0 -8.0 basis points.
  
• Asia Pacific Sovereign CDS Index 163.25 -6.5 basis points.
  
• FTSE-100 futures +.69%.
  
• S&P 500 futures +.17%.
  
• NASDAQ 100 futures +.11%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CMVT)/.08
• (NAV)/.67
• (SJM)/.99
• (COO)/1.20
• (TITN)/.38

Economic Releases
8:30 am EST

• Initial Jobless Claims are estimated to fall to 378K versus 383K the prior week.
• Continuing Claims are estimated to rise to 3250K versus 3242K prior.
  

3:00 pm EST

• Consumer Credit for April is estimated to fall to $11.0B versus $21.35B in March.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Bernanke testifying before JEC, Fed's Fisher speaking, Fed's Rosengren speaking, Fed's Lockhart speaking, Fed's Kocherlakota speaking, BoE rate decision, Spanish bond auction, France bond auction, ICSC Chain Store Sales report for May, weekly EIA natural gas inventory report, weekly Bloomberg Consumer Comfort Index, RBC Consumer Outlook Index for June, Sandler O'Neil Brokerage Conference, CSFB Construction Conference, Stifel Nicolaus Energy Conference, (ALTR) mid-quarter update, (PAAS) analyst day, (CRUS) investor day, (SHFL) analyst day, (EXC) analyst meeting, (BSFT) analyst day, (AZPN) investor day and the (FEIC) investor meeting could also impact trading today.
  

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