Tuesday Watch

Evening Headlines
Bloomberg:

• Spain Loan Prompts Bond Selling as Bailout Binds State to Banks. Spanish bond yields surged the most in four months in the first trading after the government in Madrid sought a bailout for its banks. Investors speculated the 100 billion euros ($125 billion) may not be enough. The lifeline from the euro area, aimed at loosening the connection between banks and the state, risks doing the opposite as foreign investors continue to shun the nation’s bonds and Prime Minister Mariano Rajoy’s government grows increasingly dependent on domestic lenders. “This 100 billion will be added to the public finances of Spain so it just reinforces the link between banks and the sovereign,” Olly Burrows, credit analyst at Rabobank International, said in a phone interview from London. “Spain is receiving funds to bail out its banks, which have been buying Spanish debt while everyone else has been getting out.” Spain agreed to take the aid in loans to be added to the public debt burden that rose to 69 percent of gross domestic product last year. The loans, which Economy Minister Luis de Guindos said will carry an interest that’s more favorable than market rates, will be channeled through the country’s bank- rescue fund.
• Pulling Plug on Greece Sells in German Town Opposing Merkel Plan. In the German town of Hassloch, sandwiched between vineyards and farms growing lettuce and asparagus, people have had enough of the debt crisis. “We can’t go on funding the Greeks, they’re beyond help,” Angelika Hoerner, 50, said as she served customers from behind a glass counter of her family’s butcher shop in the town of 21,000 in western Rhineland-Palatinate state. “It’s better to have an end with horror than horror without an end.” While nationwide polls show Germans are swinging against helping their poorer southern euro partner, opinions in Hassloch underscore a warning for Chancellor Angela Merkel as Greeks prepare for a second shot at electing a government on June 17. The town has been used since 1985 by market-research company GfK SE as a miniature Germany to test products ranging from Unilever NV (UNA)’s Dove soap to Ferrero Spa Rondnoir chocolates before they are rolled out across the country.
• Spanish Bailout Shows Europe Still Doesn’t Get It. The challenge of bailing out Spain’s banks is compelling Europe’s leaders to confront a question they had hoped never to contemplate: How to prevent financial and economic malaise from overwhelming the euro area’s fourth- largest economy. So far, their actions suggest they’re sticking with the strategy they pursued in Greece and expecting different results. They’d better think again.
• Goirigolzarri's Aid Demand Helped Push Spain To Bailout. Jose Ignacio Goirigolzarri, the man charged with cleaning up Bankia group, helped set Spain on its course to a banking bailout by asking for 19 billion euros ($23.8 billion) in state aid two weeks after becoming chairman. The demand for aid, made in consultation with the government and the Bank of Spain, revealed the deepening hole in the balance sheet of Bankia, the country’s third-biggest lender, and by extension other parts of the nation’s financial system. “He was the one who has thrown back the curtain in Spain itself and said ‘yes it really is this bad,’” said Simon Maughan, a financial industry strategist at Olivetree Securities Ltd. in London. “It wasn’t his intention to trigger a bailout but it may have been an unintended consequence.”
• Brazil Losing China Lifeline as Exports Slow: Chart of the Day. Brazilian exports to China are on course to have their worst performance in a decade, jeopardizing growth in Latin America's biggest economy, which has become increasingly commodities-dependent. Brazilian shipments to China rose 7.6% in the first four months of 2012 compared with the same period a year ago to $11.9 billion, leaving them on pace to fall short of a 43% increase in 2011. Since 2001, exports to China have grown an average 40% a year. The worst may be yet to come. Exports this year will contract from $44 billion in 2011 as China likely grows at its slowest pace in a decade, sapping demand for South America's raw materials, said Jose Augusto de Castro, vp of Brazil's Foreign Trade Assoc. "If the crisis takes down China, it'll be complete chaos for Brazil," said Castro, adding that he expects iron ore prices to drop further this year.
• S&P Says India May Lose Investment Rating. (video) Slowing economic growth and political roadblocks to policy making are just some of the risk factors to India’s BBB- long-term sovereign credit rating, S&P said in a statement.
• Fed's Lockhart Says Lower Yields Bolster Case for No New Action. Federal Reserve Bank of Atlanta President Dennis Lockhart said falling Treasury yields take pressure off the central bank for further action as policy makers prepare for a meeting next week. Lockhart, in a speech in Chicago, said recent U.S. economic data indicate the recovery may be losing steam, and that policy makers will need to take more steps to stimulate the economy if it becomes clear growth is slowing. "I don't think any of the options should be taken off the table under the current circumstances," Lockhart told reporters after the speech. "But I am not convinced at this moment that the circumstances quite yet call for additional action."
• GM(GM) Directors Undaunted by 33% Stock Slump Praise CEO Akerson. General Motors Co. directors praised Dan Akerson's performance as chief executive officer while saying he must now fix the automaker's European operations and begin grooming a successor.
• Beck Said to Renew Clear Channel Radio Deal for $100 Million. Radio talk-show host Glenn Beck renewed his contract with Clear Channel Communications Inc. in a deal that doubles his pay to $100 million over five years, according to a person with knowledge of the situation.
• Facebook(FB) Audience, Engagement Growth Slowing, ComScore Says. Facebook Inc.'s audience growth in the U.S., along with time spent on the site, is slowing as the world's biggest social network saturates its home market, according to ComScore Inc. The number of visitors rose 5 percent in April from a year earlier, down from a 24 percent surge in the same month of 2011, market researcher ComScore Inc. said in an e-mailed statement today. The average time spent on the site by each vistor climbed 16 percent, less than the 23 percent increase a year earlier.
• U.S. Exempts India, Korea From Iran Oil Sanctions, Not China. The U.S. added seven economies to the list of nations qualifying for an exemption from financial sanctions on Iranian oil imports, penalties intended to pressure Iran's leaders to abandon any nuclear weapons ambitions. India, South Korea, Turkey, South Africa, Malaysia, Sri Lanka and Taiwan will not be penalized by the U.S. for continuing to import oil from Iran over the next six months because they have proven they "have all significantly reduced" the volume of the oil they buy from Iran, Secretary of State Hillary Clinton said in a statement yesterday.
• Citadel, CQS Hire Asia Managers as Small Hedge Funds Buckle. Citadel LLC and CQS (U.K.) LLP are among global hedge funds providing refuge to managers in Asia as smaller firms struggle to raise money.

Wall Street Journal:

• JPMorgan(JPM) Knew of Risks. Some top J.P. Morgan Chase & Co. executives and directors were alerted to risky practices by a team of London-based traders two years before that group's botched bets cost the bank more than $2 billion, according to people familiar with the situation.
  
• Loophole at MF Global Is Headache for Regulators. Most of the senior executives at MF Global Holdings Ltd. weren't registered with commodities regulators, meaning the executives can't be charged with supervision failures related to the firm's collapse. The situation is a headache for regulators as they press ahead with their 7½-month investigation of MF Global. "Failure to supervise" sanctions generally are much easier to prove than allegations of deliberate wrongdoing, according to legal experts uninvolved in the case. In addition, the probe hasn't yet produced smoking guns that show anyone at MF Global knowingly raided the customer funds that went missing in the firm's final days.
• Ethanol's Long Boom Stalls. Fuel-Additive Plants Close as Gasoline Demand Falls, Federal Mandates Are Met.
• Hedges' Assets: $5 Trillion. Funds May Triple Over Five Years, Survey Says; New Offerings to Stoke Growth. The hedge-fund industry may more than double in size during the next five years, to more than $5 trillion in assets, as private fund firms broaden their offerings to compete with traditional money managers, according to a recent Citigroup Inc. survey. The poll of investors, consultants and money managers predicted that hedge funds could lure $2 trillion in new money to investment vehicles long associated with mutual-fund companies and other institutional managers, including "long-only" funds that buy and hold stocks.
• Emails Reveal How the White House Bought Big Pharma. The following emails are among those released by the House Energy and Commerce Committee as part of its investigation into the health-care deal-making between the White House and industry groups. Some of the names were redacted by the committee for privacy reasons. A related editorial is nearby.

MarketWatch:

• SEC probes hit a wall in uncooperative China. Regulators refusing to help U.S. counterparts probe fraud charges. It appears to be dawning on officials at the U.S. Securities and Exchange Commission (SEC) that cooperative, cross-border financial investigations are completely foreign to China.

Business Insider:

• Watch: Apple's(AAPL) Huge WWDC Keynote In 60 Seconds.

Zero Hedge:

• Credit Suisse Explains "The Real Issue", And Why There Is Two Months Tops Until France Is In The Bulls Eye.
• Charting The Simple Reason Why Every 'Bailout' In Europe Will Be Faded.
• At The End Of May NYSE Short Interest Soared To November 2011 Levels, Leading To Epic Short Squeeze. (graph)
  

CNBC:

• US Headed for Europe-Style Fiscal Crisis: Max Baucus. The United States is on a "dangerous path" that could lead to a European-style fiscal crisis, the Senate's top tax legislator warned on Monday, while calling for more tax revenue and ending corporate incentives to shift profits and jobs overseas.
• Why Markets No Longer Rally on European Bailouts.
• El-Erian: Time Running Out for European Credibility. Monday’s disappointing market reception to the bailout package for Spanish banks is a reminder to European policymakers of something that is more than familiar to veteran sovereign crisis managers in emerging countries: The greater the erosion of policymaking credibility, the harder it is to get the private sector to buy into your plans.

NY Times:

• Regulator Releases 'Road Map' on Swaps Overhaul. The Securities and Exchange Commission detailed a plan on Monday to phase in dozens of new rules governing over-the-counter swaps.
• Worry for Italy Quickly Replaces Relief for Spain. Concerns grew on Monday that Italy could be the next victim of Europe’s financial infection, leading nervous investors to sell Italian stocks and bonds and damping euphoria over a weekend deal to bail out Spain’s banks.

LA Times:

• Commerce Secretary John Bryson taking medical leave after crashes. U.S. Commerce Secretary John Bryson will take a medical leave after being involved in two San Gabriel Valley hit-and-run crashes, the White House announced Monday night. “Secretary Bryson informed the White House tonight that he will be taking a medical leave of absence from his position as Commerce secretary as he undergoes tests and evaluations.

Washington Times:

• Obama Donors Get Deal; Depositors Get 'stiffed again'. A billionaire Chicago family that has donated and raised hundreds of thousands of dollars for President Obama got a deal from the federal government to avoid paying all of a $460 million settlement it agreed to in the 2001 failure of a Chicago-area bank it owned, while 1,400 former depositors are still owed more than $10 million in lost savings. And now, 11 years later, the prospect that any of the depositors will get their money back is bleak.

CNN:

• Long-term unemployment crisis rolls on. The national unemployment rate has fallen from its recession highs, but Americans who have been out of work for six months or more are still having trouble finding work. The numbers are staggering. The ranks of the long-term unemployed swelled last month from 5.1 million to 5.4 million, and those individuals now account for 42.8% of the unemployed.

Reuters:

• U.S. money funds still vulnerable-NY Fed blog. U.S. money market mutual funds are still vulnerable to heavy redemptions in times of financial turmoil, which could destabilize the broader banking system, Federal Reserve staff members said in blog post on Monday.
• Texas Instruments(TXN) narrows Q2 financial forecast. Texas Instruments Inc (TXN.O) on Monday narrowed its forecasts for second-quarter earnings and revenue, but kept the midpoints of its target ranges intact as demand for its chips held up, despite global economic uncertainties. The maker of chips for a wide variety of products, including cellphones and industrial equipment, forecast revenue in a range of $3.28 billion to $3.42 billion. It previously estimated revenue of $3.22 billion to $3.48 billion. It now expects earnings per share in a range of 32 cents to 36 cents. Its previous target was 30 cents to 38 cents.

Financial Times:

• Banks eye intangible assets as collateral. Several US banks want to tap the value of the intellectual property holdings of their borrowers as a way of trimming their capital requirements, which are to be made tougher under Basel III rules.

Telegraph:

• This latest euro fix will come apart in less than a month. Another day, another sticking plaster solution from beleaguered eurozone policymakers.
• Spain deal poses more questions than answers. After the fiesta, comes the hangover. Still, the inevitable headaches and handwringing over Spain surprised with the speed of their arrival.
• European airlines could go out of business, warns economist Brian Pearce. European airlines could go out of business because of the continent's economic weakness, the aviation industry's leading economist has warned.

FAZ:

• Financial aid must be restricted to existing mechanisms, has to be precisely limited and must only be granted based on credible obligations by recipient countries, former ECB Chief Economist Otmar Issing wrote. Asking for aid based on "solidarity" ridicules democratic principles and economic reason and would mean some countries could make others pay for permanently living above their means. There is no room in the euro area for countries that demand ever more aid and won't stick to agreed obligations. Germany is right to adhere to EU treaties and should demand the same from others, he said.

ORF TV THEK:

• Austrian Finance Minister Maria Fekter said Italy may require European Union assistance because of the high interest payments on its debt. "Italy has to get itself out of the dilemma of very high deficits and debt, but it could be that because of the high interest that Italy already has to pay in the market for refinancing that it also could come to help payments," Fekter said in an interview. "The size that Italy would need as a state is in a dimension which probably couldn't be managed by the rescue umbrella alone," Fekter said.

couriermail:

• Fitch Ratings gives 'strong indications' it plans to revise Queensland's AA+ rating down to AA within weeks. QUEENSLAND'S battered credit rating looks set to take another hit with ratings agency Fitch preparing to downgrade the state's outlook yet again. The Courier-Mail can reveal Fitch Ratings last week met with Queensland Treasury and gave "strong indications" it planned to revise its AA+ rating down to AA within weeks.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.75% to -.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 196.0 +9.0 basis points.
  
• Asia Pacific Sovereign CDS Index 153.50 -7.25 basis points.
  
• FTSE-100 futures +.10%.
  
• S&P 500 futures +.45%.
  
• NASDAQ 100 futures +.45%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (FDS)/1.16
• (CASY)/.67

Economic Releases
7:30 am EST

• The NFIB Small Business Optimism Index for May is estimated to fall to 94.0 versus 94.5 in April.

8:30 am EST

• The Import Price Index for May is estimated to fall -1.0% versus a -.5% decline in April.

2:00 pm EST

• The Monthly Budget Deficit for May is estimated to widen to -$125.0B versus -$57.6B in April.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Tarullo speaking, 3Y T-Note auction, Greek Bill Auction, weekly retail sales reports, IBD/TIPP Economic Optimism for June, William Blair Growth Stock Conference, Morgan Stanley Financials Conference, (BIIB) analyst day and the (JNPR) analyst meeting could also impact trading today.
  

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

Stocks Reversing Lower into Final Hour on Rising Eurozone Debt Angst, Global Growth Fears, Financial/Tech Sector Weakness, Technical Selling

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Almost Every Sector Declining
  
• Volume: Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 22.14 +4.29%
  
• ISE Sentiment Index 74.0 -44.36%
  
• Total Put/Call .83 -12.63%
  
• NYSE Arms 1.50 +59.43%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 123.96 +2.79%
  
• European Financial Sector CDS Index 286.99 +2.57%
  
• Western Europe Sovereign Debt CDS Index 321.40 -.03%
  
• Emerging Market CDS Index 310.42 +2.03%
  
• 2-Year Swap Spread 30.0 -1.25 basis points
  
• TED Spread 39.25 +.5 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -52.25 -.5 basis point
  

Economic Gauges:

• 3-Month T-Bill Yield .08% unch.
  
• Yield Curve 131.0 -4 basis points
  
• China Import Iron Ore Spot $132.30/Metric Tonne +.68%
  
• Citi US Economic Surprise Index -49.40 +.7 point
  
• 10-Year TIPS Spread 2.12 -2 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating a -120 open in Japan
• DAX Futures: Indicating -7 open in Germany
  

Portfolio:

• Slightly Higher: On gains in my index hedges
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges
  
• Market Exposure: Moved to 25% Net Long

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 reverses a morning gap higher on rising Eurozone debt angst, large stock reversals lower in Spain/Italy, financial/tech sector weakness, less US economic optimism and rising global growth fears. On the positive side, Road & Rail, Utility, Telecom, Drug and Tobacco shares are flat-to-higher on the day. Copper is gaining +1.3% and Oil is falling -2.2%. Major Asian indices rose around +1.5% overnight, led by a +2.4% gain in Hong Kong. India was a notable underperformer, falling -.3%. On the negative side, Coal, Oil Tanker, Steel, Computer, Disk Drive, Networking, HMO, Homebuilding and Airline shares are under significant pressure, falling more than -2.0%. Cyclical and Small-cap shares have traded poorly throughout the day. The financial/tech sectors have also underperformed. Lumber is falling -.6% and Gold is gaining +.3%. Major European indices are falling around -.5%, led lower by a -2.8% decline in Italy. Spanish and Italian equities gapped substantially higher this morning and fell throughout the day, finishing lower and at session lows. The Bloomberg European Bank Financial Services Index is also falling -.6% after an initial gap higher. The Germany sovereign cds is rising +.6% to 108.42 bps(+6.02% in 5 days to the highest since early Jan.). The France sovereign cds is gaining +.75% to 213.76 bps, the Spain sovereign cds is rising 1.3% to 594.67 bps, the Italy sovereign cds is gaining +1.8% to 553.0 bps and the Brazil sovereign cds is gaining +1.0% to 164.06 bps. The Italian/German 10Y Yld Spread is rising +6.4% to 472.67 bps. Moreover, the European Investment Grade CDS Index is gaining +1.7% to 179.30 bps. 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-Sept. levels. Lumber is -4.0% 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 -60.0% from its Oct. 14th high and is now down around -50.0% ytd. China Iron Ore Spot has plunged -27.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +157.0% ytd. The CRB Commodities Index is now technically in a bear market, having declined -26.5% since May 2nd of last year. Overall, recent credit gauge deterioration remains a big worry as most key sovereign cds remain technically strong. The euro currency is reversing morning gains and continues to trade poorly. Oil is oversold, but trades very heavy despite China stimulus hopes and recent stock gains. As well, the 10Y continues to trade very well with the yield falling -4 bps to 1.59% despite the Eurozone news. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. Europe’s kick-the-can smoke-n-mirrors “solutions” are resulting in less and less positive impact and it appears to me that investors are just beginning to sense that these solutions will eventually lead to an even greater escalation in the debt crisis. The facts remain that a country can't solve a debt crisis with more debt and Europe is not making the necessary reforms to become more competitive and grow(France actually moving backwards), in my opinion. As well, the European debt crisis is really beginning to bite emerging market economies now, which will further pressure exports from the region and further raise the odds of more sovereign/bank downgrades. As well, the "US fiscal cliff "will become more and more of a focus for investors as the year progresses. There is too much uncertainty on the horizon to conclude a durable stock market low is in place. 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, less US economic optimism, large reversals lower in Spanish/Italian equities, financial/tech sector weakness, technical selling and more shorting.

Bear Radar

Style Underperformer:

• Small-Cap Growth -.83%

Sector Underperformers:

• 1) HMOs -3.70% 2) Coal -2.54% 3) Oil Tankers -2.21%

Stocks Falling on Unusual Volume:

• BEE, C, BAC, PBR, GRMN, TFM, DMND, KVHI, FFIN, GMCR, CMTL, CTRP, LHCG, IMGN, INWK, WYNN, SGEN, CWEI, WPRT, RYAAY, VPRT, FRX, GWW, TPX, AGP, OCR, WCG, SAVE and CNC
  

Stocks With Unusual Put Option Activity:

• 1) PHM 2) HOT 3) FMCN 4) PBI 5) KORS
  

Stocks With Most Negative News Mentions:

• 1) AKS 2) ITW 3) X 4) WLT 5) GS
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value -.05%

Sector Outperformers:

• 1) Tobacco +.83% 2) Telecom +.32% 3) Utilities +.21%

Stocks Rising on Unusual Volume:

• JIVE, VOXX, CHU, CYH, PGN, MLNX and PCYC
  

Stocks With Unusual Call Option Activity:

• 1) FMCN 2) HCA 3) TLB 4) SKX 5) TQQQ
  

Stocks With Most Positive News Mentions:

• 1) NVDA 2) NTAP 3) NOC 4) COO 5) AMGN
  

Charts:

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

Monday Watch

Weekend Headlines
Bloomberg:

• Spain's Bailout Defeat Weakens Rajoy's Deficit Goal. Prime Minister Mariano Rajoy’s surrender to European officials on taking a bailout for Spain’s banks may weaken his political authority and his credibility in financial markets. Rajoy’s June 9 request for as much as 100 billion euros ($126 billion) after stating two weeks ago that Spain wouldn’t need a rescue marks a swift reversal for the premier who won the biggest majority in 30 years in November. It may fuel skepticism he can meet his deficit-cutting promises. “The emperor’s clothes are tattered,” Simon Maughan, financial strategist at Olivetree Securities Ltd., said in a telephone interview yesterday. “Unless he uses this money to attack the regions and control the failed cajas what threads he has left will be stripped off him.”
• Italy Moves Into Debt-Crisis Crosshairs After Spain. The 100 billion-euro ($125 billion) rescue for Spain’s banks moves Italy to the frontline of Europe’s debt crisis, putting pressure on Mario Monti’s unelected government to avoid succumbing to a market rout. “The scrutiny of Italy is high and certainly will not dissipate after the deal with Spain,” Nicola Marinelli, who oversees $153 million at Glendevon King Asset Management in London, said in an interview. “This bailout does not mean that Italy will be under attack, but it means that investors will pay attention to every bit of information before deciding to buy or to sell Italian bonds.” Italy has more than 2 trillion euros of debt, more as a share of its economy than any advanced economy after Greece and Japan. The Treasury has to sell more than 35 billion of bonds and bills per month -- more than the annual GDP of each of the three smallest euro members, Cyprus, Estonia and Malta. Spanish Economy Minister Luis de Guindos said on June 9 that he would request as much as 100 billion euros in emergency loans from the euro area to shore up a banking system hobbled by more than 180 billion euros of bad assets. Mounting concern about the state of Spain’s banks and public finances drove the country’s borrowing costs to near euro-era records last month, dragging up Italian rates in the process. “The problem for Italy is that where Spain goes, there’s always the perception that Italy could follow,” Nicholas Spiro, managing director at Spiro Sovereign Strategy in London said in an interview. ’’There is insufficient differentiation within the financial markets. It is clear as the light of day and has been that Spain’s fundamentals are a lot direr than Italy’s. That hasn’t stopped Italy suffering from Spanish contagion.’’
• Spanish Bondholders May Rank Behind Official Loans After Bailout. Investors holding bonds issued by Spain and its banks will probably rank behind official creditors in the queue for payment after the nation asked for a bailout of as much as 100 billion euros ($125 billion). The funds will be channeled through the state-run FROB bank-rescue fund and Spain will “retain the full responsibility of the financial assistance and will sign” the agreement with the other partners, according to the statement issued June 9. The document did not make clear whether the European Stability Mechanism, the region’s permanent support fund, which is likely to start operating in July, or the temporary European Financial Stability Facility, will make the loan. “This is state financing, and the risks of an equity injection into the banks will stay with Spain,” said Alberto Gallo, head of European macro credit research at Royal Bank of Scotland Group Plc in London. “Spain needs a systematic restructuring of its banking system, which could entail haircuts to subordinated bank debt. Official lenders on the other hand are likely to demand seniority.”
• Euro Bloc Faces Greek Vote Giving First Test of Spanish Firewall. The future of the euro may be determined in the coming weeks, as Greek voters decide whether to honor the country’s international bailout and create a first test for Spain’s newly built 100 billion-euro ($125 billion) banking firewall. With Greece going to the polls in six days, the last surveys of elector intentions showed the main party opposing the terms of its bailout vying for first place. The government in Athens has “a few weeks” before exhausting its funds, making this is “a make-or-break period,” former Greek Prime Minister George Papandreou told Bloomberg Television in a June 8 interview. The European debt crisis, now in its third year, reached a new milestone after Spain abandoned unilateral attempts to rescue its banks and became the fourth country in the 17-member currency union to seek an emergency bailout. The aid blueprint hammered out in an emergency conference call among euro finance chiefs two days ago is designed to create a line of defense if the Greek voting unleashes a new bout of market turmoil.
• Merkel Ally Kauder Rejects Debt-Sharing Fund, Allgemeine Says. Volker Kauder, parliamentary leader of German Chancellor Angela Merkel’s ruling Christian Democrats, rejected setting up a debt-sharing fund for euro-area nations, the Frankfurter Allgemeine Sonntagszeitung reported. “We cannot agree with” proposals for a debt redemption fund that would pool part of the debt on the books of individual governments, Kauder said in an interview, according to the newspaper. That would amount precisely to the debt sharing “that we don’t want,” he was quoted as saying.
• Ireland Seeks Debt Gain From Spain's Banking Pain: Euro Credit. Ireland, locked out of the bond market since 2010, says its may use any leeway won by Spain to seek partial restitution for the $79 billion it spend shoring up its financial system during the past three years. Ireland is "perversely hoping for a further worsening of the situation in other countries in a bid to progress its own cause," said Dermot O'Leary, an economist at Dublin-based Goodbody Stockbrokers. With Spain becoming the fourth euro member to need aid, "Ireland will be directly in the queue behind it to get the same concessions," O'Leary said.
  
• Weidmann Says Euro Area Need Changes, Welt am Sonntag Reports. Changes need to be made to the euro area if it is to become sustainable, European Central Bank council member Jens Weidmann was quoted by Germany’s Welt am Sonntag as saying. “The currency union can’t function sustainably the way it is at the moment,” Weidmann, who’s also Bundesbank president, was cited by the Berlin-based paper as saying. “We need more clarity if we want to go down the route to a fiscal union, or if we want to keep relying on self-responsible national budget policies. In the latter case, the common liabilities need to be narrowly limited.” Germany should stay in the single-currency zone because of the high costs and risks linked to leaving, Weidmann was quoted as saying. “A disintegration of the currency union would be linked to extremely high costs and risks,” he said. “That’s why such a scenario can’t be the goal of politicians.” This “should not mean that Germany becomes open to blackmail and promises guarantees without control,” Weidmann was quoted as saying. “That would erode the stability basis of the currency union.”
• Italy Extends Deadline for Tax Payments to July 9 From June 18. Italy’s government extended the deadline for the payment of taxes to July 9 from June 18, according to the Ministry of Finance. Payment of the new property tax known as IMU must still be made by June 18, the ministry said in a statement yesterday. Italy expects to raise about 21 billion euros ($26.3 billion) from the new levy that was passed in December, Prime Minister Mario Monti’soffice said on May 18.
• Socialists Set to Take Largest Number of French Parliament Seats. French President Francois Hollande’s Socialist Party is set to win the largest number of seats in parliament, exit polls for the first round of the country’s legislative elections yesterday showed. Hollande will have to wait until the June 17 second round to know if he has an absolute majority or will need allies in parliament.
• Developers Face Cash Crunch as Dollar Bonds Drop: China Credit. Chinese property companies are facing a cash crunch, with record payments on short-term debt looming just as real-estate prices slide and funding costs rise. Moody's Investors Service estimates the 29 developers on its rating list need to repay $25 billion of such debt this year, the most in data going back to 2008, according to a May 23 report. Eleven of the companies face "weak forecasted liquidity," up from four at the end of December, Moody's said.
• McDonald’s(MCD) Sales Drop in Asia Signals Fast-Food Slowdown. On June 8, McDonald’s Corp. (MCD) reported that same-store sales fell 1.7 percent in Asia Pacific, the Middle East and Africa in May, the biggest decline since at least 2004.
• China Auto Glut Builds as Plant Shipments Outstrip Sales. Carmakers are giving Chinese dealers no relief in their effort to reduce a glut of unsold automobiles in a slowing economy, as factories pump passenger vehicles into showrooms faster than distributors can sell them. Wholesale deliveries, including multipurpose and sport- utility vehicles, climbed 23 percent from a year earlier to 1.28 million units in May, the China Association of Automobile Manufacturers said June 9 in Beijing. That exceeded the 1.2 million average estimate of seven analysts in a Bloomberg survey, the third straight month that deliveries beat forecasts.
• Moral Advice Can’t ‘Tame’ Jobless Iranians, Shargh Cites Cleric. Iran’s youth needs prospects and jobs amid high unemployment and poverty fed by the government’s “weak management,” the Shargh newspaper reported senior religious leader Ayatollah Abdollah Javadi-Amoli as saying. The country is rich in assets while suffering extensive poverty, Javadi-Amoli said, according to the Tehran-based newspaper. “We will one day be punished for it,” Shargh quoted him as saying. Unemployment and poverty shouldn’t be underestimated, and moral and religious advice can’t be expected to “tame” poor and unemployed young people, Shargh reported Javadi-Amoli as saying at a meeting with politicians. Javadi-Amoli also criticized infighting and the existence of cliques within the government, according to the report.
• Ryan Predicts No Break in Fiscal Impasse Until Election. U.S. House Budget Committee Chairman Paul Ryan said November’s election may determine whether Congress is able to break a partisan stalemate over taxes and spending. “We have an impasse on economics, and it seems to me that it might take the election to break this impasse,” the Wisconsin Republican said in an interview on Bloomberg Television’s “Political Capital With Al Hunt” airing this weekend. Lawmakers are facing a fiscal collision at the end of this year when tax cuts enacted under President George W. Bush expire and $1.2 trillion in automatic spending cuts triggered by last year’s debt ceiling agreement will begin to take effect. “A lot of this will depend on who wins the election,” Ryan said. “The president is dead set against, you know, letting these taxes stay where they are.”

Wall Street Journal:

• GE(GE) Weighs Cuts to Lending Unit. General Electric Co. is considering breaking off big chunks of its lending business, heeding the wishes of investors who are uncomfortable that the conglomerate owns what amounts to one of the country's largest banks.
• Nasdaq(NDAQ) CEO Lost Touch Amid Facebook(FB) Chaos. At the end of Facebook Inc.'s disastrous first day of trading May 18, the phone in Robert Greifeld's New York office rang. It was Mary Schapiro, head of the Securities and Exchange Commission, wanting an explanation from the chief executive of Nasdaq OMX Group Inc. for the epidemic of glitches and delays in one of the most anticipated initial public offerings ever.
• Foreign Revenue Could Be Lost in Translation.
• Bailout for Banks Figures Into Campaigns in Greece. Greece's two main party leaders used the Spanish bank-bailout deal Sunday to support their opposing messages to the Greek electorate ahead of next week's national vote. New Democracy leader Antonis Samaras said the deal showed how important it is for the country to remain inside the European Union, negotiate with its partners over the country's problems and not isolate itself, while the radical leftist Syriza party said it showed that the only prosperous route for Greece is to reject the terms of the country's own massive bailouts.

Marketwatch.com:

• ICE(ICE) reportedly bids $2 billion for LME.

Business Insider:

• Every New Product Apple Is Going To Announce At Its Big Event This Week.
• BofA(BAC): The Spanish Bailout Won't Work Without Strict Conditions.
• Dylan Ratigan Is Leaving MSNBC.
• BARCLAYS: After Spain, Europe Still Faces A Gigantic Problem.
• Brand-New Pictures Of Apple's(AAPL) Amazing Spaceship Campus.
• Goldman(GS) On The Spanish Bailout: 'Not Enough'.
• Here Are 15 Reasons Why Everyone's Suddenly Freaking Out About China.

Zero Hedge:

• Farage On The Spanish Bailout: "A Reinforcement Of Failure".
• The Spanish Bank Bailout: A Complete Walk Thru From Deutsche Bank.
• German Opposition Threatens to Scuttle ESM, And Spanish Bailout, Ratification.
• Here They Come: Ireland Demands Renegotiation Of Its Bailout Terms To Match Spain.

CNBC:

• Osborne: Euro Zone Crisis 'Killing' UK Recovery: Paper.
• Dimon Faces Washington Grilling Over Trading Debacle. Jamie Dimon will be playing a new role in Washington this Wednesday, called to explain JPMorgan Chase's recent trading debacle after years of being known as the Wall Street banker who got it right during the financial crisis.

Wall Street All-Stars:

• Indicator Update: Looking for Leadership.
  

IBD:

• 3D Printer Maker Stratasys(SSYS) Helps Design Cool Stuff.

NY Times:

• South Carolina’s Pension Push Into High-Octane Investments. Like other pension funds across the country, South Carolina’s faces a shortfall — in its case, an estimated $14.4 billion. But, as in other states, the scary thing is that no one really knows how bad this could get. A firestorm over pensions and other benefits for public workers is raging nationwide.

Forbes:

• China Tries to Rescue the Economy, Depositors May Say "No".

Washington Post:

• Obama Aides Helped Plan Ads to Back Health Bill, GOP Says. President Barack Obama’s aides helped plan a $150 million advertising campaign paid for by drug companies to support passage of the 2010 U.S. health-care system overhaul, according to memos provided by Republican lawmakers. The drugmakers, along with lobbying groups for seniors and consumers, helped fund independent political groups to run the television ads while health-care legislation was being debated in Congress. The groups coordinated with Democratic strategists who worked with Obama’s staff on the effort, according to memos and e-mails among those involved that were released today by Republican members of the House Energy and Commerce Committee.

Chicago Tribune:

• Ulta(ULTA) to Jump on Kardashian Bandwagon with Cosmetics Line. Bolingbrook-based Ulta Salon, Cosmetics and Fragrances will introduce a makeup line by the famous Kardashian sisters -- Kim, Kourtney and Khloe next year -- the company confirmed Friday.

The Boston Globe:

• Young adults put buying a home on backburner. With many struggling, market rebound at risk. Interest rates have hit historic lows and home prices have fallen, making real estate a buyers’ market. But one important segment of potential buyers is not ready to sign on the dotted line: young adults.

Reuters:

• German opposition fumes before fiscal pact talks. A media report that German Chancellor Angela Merkel is not serious about implementing a European financial transaction tax threatens to undermine an initial deal struck last week with the opposition over the EU's planned fiscal pact. Der Spiegel weekly reported on Sunday that Merkel's Chief of Staff, Ronald Pofalla, had said such a tax would not get passed in the current legislative period so the centre-right coalition could support the idea in principle knowing it would not have to act on it any time soon.
• Indian retailers retrench as reform hopes dashed. India's largest supermarket operator, Future Group, is having a clearance sale: its financial service business and flagship clothing brand are gone, and more deals are in the pipeline. Six months after the government backtracked on plans to allow foreign retail giants such as Wal-Mart Stores and Carrefour to form joint ventures, cash-starved domestic chains are selling assets, shutting stores, and scaling back expansion plans. It seems improbable that retailers could be in such trouble in India. They have the world's second-largest population, increasingly affluent consumers, and limited competition. But things are tough for supermarkets, a relatively new business sector in India, with every major chain losing money. The economy has lost momentum, compounding problems of high food inflation and low retail prices, and expensive real estate.
• Sceptical Spaniards pour scorn on Rajoy over rescue. Confused and anxious Spaniards heaped scorn on Prime Minister Mariano Rajoy on Sunday for portraying a 100 billion euro European rescue of the country's zombie lenders as a triumph, expressing scepticism about whether the plan will work. With the economy contracting, one in four workers out of a job, and Greek elections next weekend overshadowing the entire euro zone, Spaniards accepted that Saturday's announcement of the bank rescue was necessary but many doubted it would solve the problems of Spain or the euro.
• IMF: UAE May Face Risks From Deepening Euro Debt Crisis. The United Arab Emirates and other Gulf countries could face major financial repercussions if the euro zone debt crisis spreads from the bloc's peripheral states to its core and infects global markets, the International Monetary Fund said. Risks are particularly serious for economies that depend on foreign financing and have financial links to Europe, the IMF said.
• China's growth flags in May, more policy support seen. China's inflation, industrial output and retail sales all flagged in May for a second straight month of sluggish growth that galvanised policymakers last week into taking their boldest action yet to combat a sharpening slowdown. A flurry of data over the weekend explained China's surprise cut in interest rates on Thursday - its first since the global financial crisis - by showing the extent of the domestic economy's weakness.
• Spain bank deal may not work, bolder reforms needed: Stiglitz. Europe's plan to lend money to Spain to heal some of its banks may not work because the government and the country's lenders will in effect be propping each other up, Nobel Prize-winning economist Joseph Stiglitz said. "The system ... is the Spanish government bails out Spanish banks, and Spanish banks bail out the Spanish government," Stiglitz said in an interview.
• UnitedHealth(UNH) to keep reform provisions, regardless of Court ruling. UnitedHealth Group Inc , the largest U.S. health insurer by market value, said it would maintain the health coverage protections included in President Barack Obama's healthcare law regardless of how the Supreme Court rules on the legislation.
• Vestas CEO sees US market down 80 pct in 2013. The head of the world's biggest wind turbine maker, Vestas, said on Sunday that the U.S. wind turbine market is likely to fall by 80 percent next year because of the expected expiry of an important tax credit.

Financial Times:

• Goldman Sachs(GS) Near Sale of Hedge-Fund Administration Unit. Goldman is close to reaching agreement with State Street(STT) that would create the world's largest hedge-fund administrative-service provider. The combined business would have almost $700B in funds under administration, passing current market leader Citco.

The Telegraph:

• Bank bail-out won't end Spain's property nightmare. With Spain's property bust far from bottoming out, any capital injection being discussed by European leaders for Spain’s banks is merely a sticking plaster.
• Europe's democracies must not subcontract their destiny to the Bundebank. Europe has lit the fuse on an economic and financial bomb. The rescue package for Spain cannot plausibly be contained to €100bn once it begins, given the subordination of private creditors and collapse of global confidence in the governing structure of monetary union.
• Debt crisis: €100bn bailout could backfire on Spain. Spain's €100bn bank bailout could backfire on Madrid by destabilising public finances and hampering the country’s access to capital markets, experts have warned.

Welt am Sonntag:

• German Firms Preparing for Greek Euro Exit. German companies are preparing for a possible Greek exit from the euro by removing money from nations most affected by the region's debt crisis, citing law firm Linklaters LLP. "Advice for a Greek euro exit or other intensification of the crisis are extremely in demand at the moment," citing Andreas Steck, a partner at Linklaters in Frankfurt. "Some companies are trying to remove as far as possible their liquid assets out of crisis countries to avoid the danger that they're converted to Greek drachma, for example," he said. German companies are also looking to minimize their risks in countries including Italy and Spain, Daniel Stelter, a senior partner at Boston Consulting Group in Berlin, was quoted by the newspaper as saying.
  

Neue Zuercher Zeitung:

• Josef Ackermann, the former Deutsche Bank AG chief, said compensation for investment bankers is likely to decline further. An oversupply of eligible bankers due to standardization of the industry and pressure from regulators, politicians and investors will reduce their pay, Ackermann said in an interview. Cutting costs will be "a very important lever" for the companies to increase their profitability, said Ackermann, who is currently chairman of Zurich Insurance Group AG.
  

Kathimerini:

• Greek bank deposit outflows reached 5 billion euros to 6 billion euros in May, citing Greek banking officials.
  

Sunday Telegraph:

• I'll make the loudmouth miners pay, Prime Minister Julia Gillard tells Clive Palmer and Gina Rinehart. LOUDMOUTH mining magnates shouldn't dominate public debate more than a nurse or a childcare worker, said Prime Minister Julia Gillard. In a revealing interview with The Sunday Telegraph to mark her second anniversary as the nation's leader, Ms Gillard has outlined her new childcare agenda for families, her fears about "cruel" social media attacks on kids and her hopes for the future.
  

Weekend Recommendations

Barron's:

• Made positive comments on (UNH), (WLP), (BDX), (ESRX) and (TWX).
• Made negative comments on (Z).
  

Night Trading

• Asian indices are +.50% to +1.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 187.0 -7.5 basis points.
• Asia Pacific Sovereign CDS Index 160.75 +3.5 basis points.
• FTSE-100 futures +1.94%.
  
• S&P 500 futures +1.04%.
• NASDAQ 100 futures +1.09%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (FNSR)/.21

Economic Releases

• None of note

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Pianalto speaking, Fed's Lockhart speaking, Fed's Williams speaking, China M2/Loan Growth, Italian GDP, CSFB Software/Internet Conference, (TXN) mid-quarter update, (CBST) investor day and the (CIEN) analyst day could also impact trading today.
  

BOTTOM LINE: Asian indices are higher, boosted by commodity and financial shares in the region. I expect US stocks to open higher and to maintain gains into the afternoon. The Portfolio is 50% net long heading into the week.

Weekly Outlook

U.S. Week Ahead by MarketWatch (video).
Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week mixed as rising global growth fears, less US economic optimism and more shorting offsets less Eurozone debt angst, lower energy prices and bargain-hunting. My intermediate-term trading indicators are giving mostly bearish signals and the Portfolio is 50% net long heading into the week.