Stocks Higher into Final Hour on Global Central Bank Stimulus Hopes, Short-Covering, Bargain-Hunting

Broad Market Tone:

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

Equity Investor Angst:

• VIX 22.23 -8.12%
  
• ISE Sentiment Index 145.0 +66.67%
  
• Total Put/Call 1.08 -15.63%
  
• NYSE Arms .48 -59.75%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 122.24 -2.10%
  
• European Financial Sector CDS Index 285.98 -1.06%
  
• Western Europe Sovereign Debt CDS Index 321.33 +.34%
  
• Emerging Market CDS Index 289.81 -4.49%
  
• 2-Year Swap Spread 30.0 -.25 basis point
  
• TED Spread 37.0 -1.25 basis points
  
• 3-Month EUR/USD Cross-Currency Basis Swap -54.0 +.25 basis point
  

Economic Gauges:

• 3-Month T-Bill Yield .10% +1 basis point
  
• Yield Curve 133.0 +3 basis points
  
• China Import Iron Ore Spot $134.70/Metric Tonne +.75%
  
• Citi US Economic Surprise Index -54.50 -.9 point
  
• 10-Year TIPS Spread 2.10 unch.
  

Overseas Futures:

• Nikkei Futures: Indicating a +9 open in Japan
• DAX Futures: Indicating +3 open in Germany
  

Portfolio:

• Slightly Higher: On gains in my medial, retail and biotech sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them
  
• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• Spanish Yields Rise to Euro-Era Record After Moody's Cuts Rating. Spain's bonds slumped, with 10-year yields rising to a euro-era record, after Moody's Investors Service cut the nation's credit rating to one step above junk, citing its rising debt burden and weakening economy. Italy's 10-year yield reached the highest level in almost five months after its borrowing costs surged at a sale of 4.5 billion euros ($5.65 billion) of three-, seven- and eight-year notes. Spanish 10-year bonds have dropped all four days this week after the nation requested as much as 100 billion euros of aid for its banks last weekend. German bunds gained. The "markets are telling us that they're unconvinced by the bank bailout and that the next step is that the government will have to concede, capitulate, and go for a sovereign loan," James Stewart, head of macro research at AX Markets in London, said in an interview with Mark Barton on Bloomberg Television's "Countdown." "That seems to me quite likely, and even now I think it's moving on from Spain to Italy." Spain's 10-year yield climbed 20 basis points, or 0.2 percentage point, to 6.95 percent at 1:27 p.m. London time after rising to 6.998 percent, the highest since the euro was introduced in 1999. The 5.85 percent bond due in January 2022 fell 1.305, or 13.05 euros per 1,000-euro face amount, to 92.405. The yield has jumped 74 basis points this week.
• Merkel Rejects Quick Fix to European Debt Crisis. Chancellor Angela Merkel rejected quick solutions proposed to fix Europe’s financial crisis such as joint debt sharing, saying Germany can’t save the world economy alone and fellow Group of 20 countries must help. Merkel, in a speech to parliament in Berlin today, said the debt crisis and Germany’s role in stemming it will be the “central topic” at next week’s G-20 summit in Mexico. While Germany will use its strength “in the service of European unity,” the euro and the global economy, Merkel said she opposes “seemingly easy” solutions that risk backfiring. “All eyes are on Germany,” she said. “But we also know that Germany’s power is not infinite. So our responsibility as Europe’s largest economy is to deploy our strength credibly, so that we can be of full use to Europe.” Merkel signaled a showdown with global peers at the June 18-19 meetings over ending the crisis that has made Spain the fourth euro-area country to need a bailout and driven up Italy’s borrowing costs.
• European Stocks Fall A Second Day; BSkyB, BT Group Slide. European stocks dropped for a second day as Moody’s Investors Service downgraded Spain and Cyprus, while Switzerland’s central bank said that Credit Suisse Group AG (CSGN) must increase its capital this year. Credit Suisse slumped 10 percent to its lowest price since 1992. British Sky Broadcasting Group Plc (BSY) and BT Group Plc (BT/A) tumbled 3.5 percent each, after winning the rights to show live English Premier League soccer matches by paying an extra 70 percent. Nokia Oyj (NOK1V) plunged 18 percent after reducing its outlook for the second quarter.
• Germany’s Haven Status Fades as Crisis Bill Mounts: Euro Credit. The haven status that drove German yields to record lows is fading as the fourth bailout of a euro member stokes investor concern that the currency bloc’s biggest economy will be left picking up a mounting tab. “If the euro region continues, then there must come a time when there is a fiscal union and burden-sharing, and that would make the market think more deeply about the creditworthiness of Germany,” said Ralf Ahrens, who helps manage about $20 billion as head of fixed income at Frankfurt Trust. The discount Germany enjoys relative to the U.S. for 10- year borrowing has narrowed to the least in more than three months after Spain asked for a 100 billion-euro ($125 billion) lifeline for its banks on June 9. Traders of credit-default swaps also are buying protection against the risk of losses on German bonds, with the costs of insuring the nation’s debt surging to the most since January compared with similar contracts on U.S. debt. “There is a greater awareness now that the outcome of this crisis could well be quite painful for the German economy,” said Ciaran O’Hagan, a strategist at Societe Generale SA in Paris. “The contingent liability on Germany is rising. The losses we have seen have to be paid for by somebody and there is a sentiment that taxpayers in the rest of Europe are not going escape unscathed.”
• German Family-Owned Firms Doubt Euro, Merkel, Handelsblatt Says. Germany’s Foundation for Family Business said a growing number of entrepreneurs doubt that the euro will endure as a currency, Handelsblatt reported, citing Brun-Hagen Hennerkes, the foundation’s executive board chairman.
• Greek Stock Rally on Optimism New Democracy Will Win. Greek stocks rallied the most in more than nine months, while a gauge of banks jumped 21 percent, amid speculation that New Democracy, the party that backs an agreed bailout for the nation, may win the June 17 elections.
• Spanish Banks' Net ECB Loans Jump To Record 288 Billion Euros. Spanish lenders’ net borrowings from the ECB jumped to a record 287.8 billion euros ($361.4 billion) in May, highlighting the thirst of the financial system for funding before the country’s banking bailout. Net average ECB borrowings climbed from 263.5 billion euros in April, the Bank of Spain said on its website today. Gross borrowing was 324.6 billion euros in May, up from 316.9 billion euros in April. The increase in ECB borrowings “conveys the severity of the predicament some banks found themselves in ahead of last week’s bailout,” Martin van Vliet, an economist at ING Bank in Amsterdam, said in an e-mailed comment.
• Credit Suisse(CS) Urged by Central Bank to Boost Capital. Credit Suisse Group AG (CSGN) needs a “marked increase” in capital this year to prepare the bank for a possible worsening of Europe’s sovereign-debt crisis, the Swiss central bank said. The shares fell as much as 11 percent. “For Credit Suisse, given the low starting point and the risks in the environment, it is essential that it already substantially expand its loss-absorbing capital base during the current year,” the Swiss National Bank said in its annual financial stability report today. The central bank, which also recommended UBS AG (UBSN) boost capital, said improvements can be achieved by suspending dividend payments or selling new shares in addition to the banks’ plans for cutting assets.
• Jobless Claims in U.S. Unexpectedly Rose Last Week. Claims for unemployment insurance payments unexpectedly climbed by 6,000 to 386,000 in the week ended June 9, Labor Department figures showed today in Washington. Economists projected jobless claims would fall to 375,000 from a previously reported 377,000 the prior week, according to a Bloomberg survey of 49 economists. Estimates ranged from 370,000 to 385,000. The unemployment insurance report showed the four-week moving average of claims, a less-volatile measure, climbed to 382,000, the highest since April 28, from 378,500.
• Consumer Prices in U.S. Fall. The consumer-price index declined 0.3 percent, more than forecast and the biggest drop since December 2008, after no change the prior month, the Labor Department reported today in Washington. Economists projected a 0.2 percent decrease, according to the median estimate in a Bloomberg News survey. The so-called core measure, which excludes more volatile food and energy costs, increased 0.2 percent for a third month.
• California Hedge Fund Is Latest Euro Crisis Casualty. Hedge-fund manager Paul Sinclair is the latest casualty of Europe’s sovereign-debt turmoil, almost six thousand miles away from the epicenter of the crisis. Sinclair, who is based in Los Angeles, is liquidating his $458 million health-care equities fund, Expo Capital Management LLC, after more than five years, as political decisions made on the other side of the globe have undermined his stock picks and spurred losses for a second year.
• Ship Rates to Reach 22-Year Low as More Vessels Leave Yards.. Hire costs for Capesize ships, the largest carriers of iron ore and coal, are poised to reach the lowest level in at least 22 years after more vessels left yards. Daily charter rates will average less than $10,000 this year, Oslo-based investment bank Arctic Securities ASA said today in an e-mailed note. It lowered a prior estimate after shipyards delivered a larger-than-expected number of new vessels, outpacing demand and weighing on hire costs.
• Oil Climbs on Speculation About Fed Stimulus, OPEC Output. Crude gained on speculation the Federal Reserve will loosen monetary policy to spur growth and members of OPEC will leave their production ceiling unchanged. Oil advanced as much as 1 percent as a worse-than-expected jobless claims report fueled expectations that Fed policy makers will announce new stimulus measures after a meeting next week. OPEC oil ministers in Vienna are deciding whether to keep a 30 million-barrel-a-day limit.
• China Productivity Jolt Urged as Growth Forecasts Cut: Economy. Corporate profits are falling, deflation is looming and the nation faces years of “weak” growth, Credit Suisse economist Tao Dong said. To unleash productivity gains and restore the economy’s strength, the government should break monopolies in banking and utilities, open the services industry, and deregulate interest rates and the exchange rate, he said. “Investment is unlikely to see a meaningful rebound in the foreseeable future,” Hong Kong-based Tao said. “Government stimulus could moderate the downside risks to growth and perhaps cushion the down-cycle, but we do not see it providing sustainable upward growth momentum.”
• Bank Warns of Major Canada Shock If Europe Crisis Worsens. Canada faces a “major shock” to its financial system and economy if Europe’s crisis worsens, the country’s central bank said. While Canada’s financial system has fared well and conditions in the country remain “very stimulative,” deepening turmoil in Europe may boost funding costs for the nation’s banks and generate losses from assets linked to the euro zone, the Bank of Canada said today in its semi-annual Financial System Review. Non-performing loans at Canadian banks would also increase if growth slows.
• India's Inflation Exceeds Estimates as Rate Decision Looms. Indian inflation quickened more than estimated in May as food and fuel prices surged, an acceleration that may fail to prevent an interest-rate cut next week to shore up slowing growth. The benchmark wholesale-price index rose 7.55 percent from a year earlier, after climbing 7.23 percent in April, the commerce ministry said in New Delhi today.
• Nokia(NOK) to Eliminate Up to 10,000 Jobs to Halt Mounting Losses. Nokia Oyj reduced its earnings forecast for the second time this year and said it will cut as many as 10,000 more jobs and shut production and research sites in Chief Executive Officer Stephen Elop's biggest overhaul. The stock fell 18 percent to the lowest level since 1996, pushing Nokia's market value below $10 billion.
  

Wall Street Journal:

• Spanish Crisis Deepens. The financial crisis threatening the Spanish government deepened Thursday as Spain's borrowing costs surpassed their euro-zone record. The move followed yet another sovereign credit downgrade and coincided with fresh evidence Thursday of economic and financial stress as the decline of Spanish housing prices accelerated to a 12.6% annual rate in the first quarter and Spanish banks increased their reliance on European Central Bank funding.
  
• Trade Protectionism Rises as Economies Slow. As worries rise about an economic slowdown, major nations around the world are ramping up measures to protect their economies from trade threats.
  
• Stanford Sentenced to 110 Years in Prison for Ponzi Scheme. R. Allen Stanford, the once-highflying financier convicted of masterminding a $7 billion Ponzi scheme, was sentenced Thursday to 110 years in federal prison. The punishment amounts to an effective life sentence for Mr. Stanford, who is 62 years old and used to live extravagantly aboard yachts, jets and homes around the world.

CNBC.com:

• Fed Easing: What Market Wants vs What May Happen.

Business Insider:

• THIS USED TO BE THE 10TH RICHEST SHOPPING STREET IN THE WORLD—Now Look At IT.
• China Is Desperately Reinflating The Real Estate Bubble.
• Italy Trembles On The Brink Of The Impossible.
• These Are The Weapons Facing Any Country That Intervenes In Syria.
• A Brand New Troubling Sign For The Housing Market. Despite talk of a housing bottom, new data shows that foreclosure filings jumped 9 percent from April to 205,990 according RealtyTrac's latest foreclosure report.
• Europe's Contagion Spreads into China.
  

Zero Hedge:

• Egan Jones Cuts France To BBB+, Outlook Negative.
• With Egypt On The Verge Of A Military Coup And Martial Law, Art Cashin Issues A Warning.
• Why a European Banking Union is Far From Imminent.
• Just What Is Mario Draghi Hiding? ECB Declines To Respond To Bloomberg FOIA Request On Greek-Goldman Swaps.
• Peripheral Stocks Pump As Spanish Bonds Dump. (graph)
  

Reuters:

• Analysis: Zombie Borowers Threaten Bailed-Out Spanish Banks. Spanish banks are a little jauntier after a dose of European cash to purge them of their toxic real estate assets, but their refinancing of moribund companies in other sectors could put them back in the emergency room. Whether out of optimism or desperation, Spanish banks have refinanced billions of euros of debt owed by struggling companies large and small, including property-related firms, to prevent them going bust and avoid writing down the loans while they wait for economic recovery, financial sources said. But with rising unemployment, falling consumer spending and a return to recession, any recovery looks a long way off, even after the 100 billion euro ($125 billion) lifeline that Spain's euro zone partners stumped up for its banks on June 9. "Very often banks have rather continued supporting companies on pre-insolvency scenarios instead of facing losses head on and making write-offs and forcing the company into liquidation. This has been very common," said Alberto Manzanares, refinancing expert at the Clifford Chance law firm in Madrid. The bad loan ratio in the Spanish banking system has already hit an 18-year high of 8.37 percent of outstanding loans in March as Spain's borrowing costs soared, thrusting the country into the heart of the euro zone debt crisis. Defaults are expected to rise as recession pushes more families and companies under and if a sector audit as part of the European rescue flushes out refinancing of insolvent companies.
• United Tech(UTX) Europe's Downturn Worse Than Expected. Europe's downturn has gotten worse than United Technologies Corp executives expected coming into the year, and the company is concerned about Greece's troubles spreading, a top executive at the diversified U.S. manufacturer said. "Clearly, the situation in Europe has gotten a lot worse than we had expected," Greg Hayes, the company's chief financial officer said on Thursday. "Greece doesn't bother me except for the contagion impact."

Politico:

• Layoff Threats Put Congress On Notice. Facing economic uncertainty, defense contractors are plotting to spur Congress to nix the automatic budget cuts set to begin next year. The plan? Threaten to send out layoff notices — hundreds of thousands of them, right before Election Day.
  

Financial Times:

• Merkel Stands Firm on Tackling Crisis. Angela Merkel, the German chancellor, declared on Thursday that Europe was “in a race with the markets” to turn its monetary union into a fully fledged political union, even as she warned her partners not to overburden the German economy in the eurozone crisis.

Telegraph:

• Debt Crisis: Live. Spanish borrowing costs hit record high of 7pc, a level widely-believed to be unaffordable, while the ECB says it can do no more to help debt-laden eurozone nations.
• America Will Soon Need To Take Advice It Offers Europe. It should not have been a surprise that US Treasury Secretary Timothy Geithner veered between fits of laughter and a tone of chilling gravity when he spoke to the Council on Foreign Relations in Washington this week.
• Dutch Disease. (graph) Dutch retail sales collapsed by 11pc in April, even worse than the 9.7pc drop in Spain. (Royal holidays cannot explain this). As you can see from today’s chart by Lombard Street Research, it is a sight to behold.

Capital.gr:

• Slovakia: We Will Demand That Greece Leaves The Eurozone. Slovakia supports Greece remaining in the euro zone but it should quit if it fails to honor its commitments, Slovak Prime Minister Robert Fico said on Thursday. Fico according to Reuters said Europe should do all it can to keep Greece in because there were more benefits if it stayed than if it left, but the Greeks must stick to the agreed terms of aid. "If the Greeks do not meet the commitments they have made, do not meet their financial commitments, do not repay loans, Slovakia will demand that Greece leaves the euro zone," Fico told a news conference.
• Libyan Oil Minister Wants Oil Price above $100. Libya's oil minister Abdurahman Benyezza would like to see oil prices above $100 a barrel, he said Thursday at a scheduled meeting of the Organization of the Petroleum Exporting Countries in Vienna. "I think that price would be good for global economy" [although] the "main point is to stabilize the price," he said.

Bear Radar

Style Underperformer:

• Large-Cap Growth +.37%

Sector Underperformers:

• 1) Semis -.21% 2) Agriculture -.09% 3) Disk Drives -.04%

Stocks Falling on Unusual Volume:

• SAPE, APKT, YOKU, QCOM, NKE, DECK, EMC, SCLN, PBR, SNP, BT, CVLT, CTEL, GRMN, VSAT, WBMD, GMCR, DDD, AOL and SFD
  

Stocks With Unusual Put Option Activity:

• 1) IGT 2) WMB 3) TC 4) KBH 5) KBE
  

Stocks With Most Negative News Mentions:

• 1) ADBE 2) SAPE 3) JPM 4) PBR 5) AOL
  

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Growth +.92%

Sector Outperformers:

• 1) Homebuilding +2.39% 2) Oil Tankers +1.56% 3) Airlines +1.54%

Stocks Rising on Unusual Volume:

• DNDN, XNPT, UBNT, QSFT, JIVE, CTRP, IGT, EW, FDO, KR, PIR and CTCT
  

Stocks With Unusual Call Option Activity:

• 1) HCA 2) IGT 3) SVU 4) CIT 5) LUV
  

Stocks With Most Positive News Mentions:

• 1) BA 2) IGT 3) KR 4) FDO 5) DELL
  

Charts:

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

Thursday Watch

Evening Headlines
Bloomberg:

• Euro Crisis Deepens, Moody's Downgrades Spain, Cyprus. The European debt crisis deepened as the credit ratings of Spain and Cyprus were downgraded by Moody’s Investors Service. Moody’s yesterday cut Spain’s rating three steps to Baa3 from A3, citing the nation’s increased debt burden, weakening economy and limited access to capital markets. Moody’s also lowered Cyprus’s bond rating to Ba3 from Ba1, attributing the downgrade to the material increase in the likelihood of a Greek exit from the euro area, and the resulting increase in the probable amount of support that the government may have to extend to Cypriot banks. Moody’s is following the sentiment of financial markets that weren’t calmed by Europe’s 100 billion-euro ($126 billion) weekend bailout of Spanish banks, said Clay Lowery, a vice president at Washington-based Rock Creek Global Advisors LLC and former assistant Treasury secretary for international affairs. For Moody’s, “it’s not whether you’re going to make money off your investment, it’s what is the creditworthiness of the borrower,” Lowery said. “Spain’s debt load has gotten larger with much more senior debt, so at least the potential for them to default has now gone up.”
• Europe's Divisions Widen as Policy Makers Clash. Tensions among European leaders are breaking into the open as bond investors reject their fixes for a debt crisis that threatens to overwhelm the euro region’s financial firewalls. German Finance Minister Wolfgang Schaeuble sniped at Greek yacht owners in comments published yesterday while Spanish Prime Minister Mariano Rajoy declared “battle” on the European Central Bank. Austrian Finance Minister Maria Fekter retracted a forecast that Italy would need aid, and Spain pushed back against Finnish advice on how to use its 100 billion-euro ($126 billion) bank bailout. Rifts are deepening with Greek elections on June 17 risking the first exit from the single currency as voters buckle under the continent’s most severe austerity program. Spanish bond yields reached a record after the nation’s request for aid for its banks fueled speculation the world’s 12th biggest economy may need a full rescue. “What we’re seeing now says much about the deepening cracks in Europe’s political financial and economic edifice,” Nicholas Spiro, managing director at Spiro Sovereign Strategy in London, said in a telephone interview.
• Germany's Haven Status Fades as Crisis Bill Mounts: Euro Credit. The haven status that drove German yields to record lows is fading as the fourth bailout of a euro member stokes investor concern that the currency bloc's biggest economy will be left picking up a mounting tab. "If the euro-region continues, then there must come a time when there is a fiscal union and burden-sharing, and that would make the market think more deeply about the creditworthiness of Germany," said Ralf Ahrens, who helps manage about $20 billion as head of fixed income at Frankfurt Trust. The discount Germany enjoys relative to the US for 10-year borrowing has narrowed to the least in more than three months after Spain asked for a 100 billion-euro lifeline for its banks on June 9. Traders of credit-default swaps also are buying protection against the risk of losses on German bonds, with the costs of insuring the nation's debt surging to the most since January compared with similar contracts on U.S. debt.
• Italy Holds First Bond Sale After Spain Rescue. Italy holds its first bond auction since Spain’s 100 billion-euro ($126 billion) bank rescue request drove up yields, as the government seeks to convince investors the country won’t be the next to need aid. The Treasury sells as much as 4.5 billion euros of three-, seven- and eight-year bonds today, one day after it was forced to pay 3.972 percent to sell one-year bills, 1.63 percentage points more than at the previous sale a month ago. “The outright demand for this paper is still extremely scarce and it’s ultimately left to the domestic banks and any primary dealers who have obligations to the debt agency in Italy to step up and absorb the supply,” said John Wraith, a fixed- income strategist at Bank of America Merrill Lynch in London. The bailout for Spain aimed to shore up the nation’s banks and stop contagion from spreading to Italy and beyond. The rescue had the opposite effect, driving Spain’s 10-year yield to a euro-era high this week and pushing up Italian borrowing costs in the process. Prime Minister Mario Monti is now trying to convince investors that with a budget deficit and jobless rate less than half that of Spain, that Italy remains a safe bet.
• Credit Suisse Sees China ‘Weak’ for Years as Forecast Cut. “Investment is unlikely to see a meaningful rebound in the foreseeable future,” Tao Dong, the bank’s chief China economist said in a note today. “Government stimulus could moderate the downside risks to growth and perhaps cushion the down-cycle, but we do not see it providing sustainable upward growth momentum.” “We expect China to be in a weak growth cycle for the next several years featuring a weak credit cycle, weak export cycle and weak property cycle,” Tao said. An emerging “deflationary force” may lead to sharp declines in nominal gross domestic profit and corporate profits, he said, adding that the economy is quickly losing momentum.
• China's Stocks Drops As Credit Suisse Cuts GDP Growth Forecast. Chinese stocks fell after Credit Suisse Group AG cut its economic growth forecast for China and a Moody’s Investors Service downgrade of Spain’s sovereign rating hurt prospects for a resolution to Europe’s debt crisis.
• Ford(F) Sees Incentives, Inventories Rising in China. Ford Motor Co., playing catch up in China, said slower growth there is boosting incentives and inventories in the world’s largest vehicle market. “We have seen some increase in incentives and inventories rise in the last six months as a result of the slowing of growth,” Joe Hinrichs, chief of Ford’s Asian operations, said in a presentation yesterday at the Deutsche Bank Global Industrials and Basic Materials Conference in Chicago. “It has gotten more competitive.”
• Swaps Index Traded By Iksil Shrinks as Dimon Seeks to Stem Loss. Wagers in the credit derivatives index said to contribute to JPMorgan Chase & Co.'s $2 billion loss dropped last week to the lowest in three months in a sign that the biggest U.S. bank and hedge funds trading against it may be unwinding bets. The net amount of credit protection bought or sold through Series 9 of the Markit CDX North America Investment Grade Index fell 7.5 percent to $138.4 billion in the week ended June 8, the biggest drop since July, according to the Depository Trust & Clearing Corp. The so-called net notional outstanding surged an unprecedented 67 percent to $150 billion in the 17 weeks ended April 27 as JPMorgan trader Bruno Iksil was said to have amassed a position in the index so large it distorted the market.
• The Regional Feds Need More Independence. All the fuss about whether Jamie Dimon, the chief executive officer of JPMorgan Chase & Co., should remain on the New York Federal Reserve Bank board is missing a larger issue. The entire board is connected to the banking industry and needs reform. It is imperative that the board include some directors who are independent of the banking industry because it performs many vital public functions, including selecting the president of the New York Fed, who also serves as vice chairman of the policy- making Federal Open Market Committee. Yet none of the current directors is entirely independent, not even the six who by law should represent the public.
• Clinton Blames Russia of Fueling Syria's Spiral to Civil War. Syria is "spiraling toward civil war," with Russia supporting the violence by continuing to arm President Bashar al-Assad's regime, U.S. Secretary of State Hillary Clinton said. "We have repeatedly urged the Russian government to cut these military ties completely and to suspend all further support and deliveries," Clinton said yesterday at the State Department. "We know -- because they confirm -- that they continue to deliver."
• Microsoft(MSFT) Said to Be in Talks to Buy Yammer Social Network. Microsoft may pay more than $1 billion, and a deal may be reached as soon as June 15, said one person, who declined to be identified because the negotiations are private.

Wall Street Journal:

• Greece's Rural Voters 'on a Tightrope'. The talk among farmers in this small Greek village these days is about the pain inflicted by the strict terms of the European Union's bailout of their country, as well as the potential perils of rejecting the deal and, perhaps, facing a future outside the euro zone. How voters in Greece's countryside weigh these factors will play a large part in determining the outcome of what is expected to be a close race in critical national elections Sunday between the conservative New Democracy party and its antiausterity, left-wing rivals, Syriza.
• BHP Billiton(BHP) Lowers Outlook for Commodity Prices -Financial Times. BHP Billiton Ltd. has cut slightly its expectations for commodities prices over the next three to five years, the Financial Times reported Wednesday, citing people familiar with the matter. The mining company's cuts to its medium-term outlook don't affect its longer-term outlook for the market, the people told the newspaper.
• Italy's Reform Stall. Monti wants growth but can't pass policies to spur it. If last weekend's bailout of Spain was supposed to reduce the risk of euro-contagion ahead of Sunday's elections in Greece, it hasn't had the desired effect. Yields on Spanish government debt have since hit a high of 6.78% on 10-year bonds. Who would have thought that adding as much as $125 billion in sovereign liabilities would make Madrid more of a credit risk? Now markets are looking to Italy, where the economy is forecast to shrink by 1.9% this year, and where Mario Monti's reform agenda seems to be stalling.

Business Insider:

• The Drumbeat For An International War In Syria Is Building.
• Obama's Stunning Loss Of African-American Support Has Extended To Nevada.

Zero Hedge:

• Hannan: "The Euro Is The Problem, Not The Solution".
• These Three Spanish Banks Will Be Downgraded Tomorrow.
• Biderman & Santschi On "Why Germany Should Leave The Euro".

CNBC:

• Banks Are Ignoring New Bonus Rules: G20 Study. Banks are failing to comply with global rules requiring them to peg bonuses to long-term company performance, the regulatory task force of the Group of 20 leading economies said on Wednesday.

NY Times:

• Dread and Uncertainty Pervade Life in a Diminished Greece. Anyplace else, they might be signs of progress: Traffic moves faster on once clogged streets. Cigarette smoking has dropped sharply. Far less garbage heads for landfills each day. But this is Athens, and the statistics are grim reminders of a middle-class society in rapid decline. Many fear that elections, including voting scheduled for Sunday, offer no clear route out of a deepening political and economic crisis. From its wealthy northern suburbs to the concrete blocks of downtown, there is a sense of an endgame in Athens. “It’s the last days of Pompeii,” said Aris Chatzistefanou, a co-director of “Debtocracy,” a provocative 2011 documentary about the Greek crisis, as he stood, drink in hand, outside a cafe in Exarchia, a thrumming graffiti-filled neighborhood whose night life remains a rare pocket of defiant joy amid the unremitting gloom.
• ‘Proud’ JPMorgan Chief Apologizes. Jamie Dimon, the outspoken chief executive of JPMorgan Chase under scrutiny for a multibillion-dollar trading loss at his firm, apologized for the mishap on Wednesday even as he mounted a fierce defense of his bank. Testifying at a much-anticipated hearing before the Senate Banking Committee, Mr. Dimon said that he was “proud” of the bank, highlighting the firm’s “fortress” balance sheet and its performance during the financial crisis. “We’re doing what a bank is supposed to do,” he told a panel of lawmakers, few of whom posed combative questions during the roughly two-hour hearing.

CNN:

• Exodus resumes: Investors yank $3 billion out of stock mutual funds. Investors went back to bailing out of the stock market during the first week of June, as worries about sluggish U.S. job growth and ongoing debt problems in Europe kept investors on edge. U.S. stock mutual funds lost $3.1 billion in the week ended June 6, according to the Investment Company Institute. That marks the 15th out of 16 weeks that investors have yanked money out.

Twitter Blog:

• Experience More With Expanded Tweets. Starting today, you can discover more interactive experiences inside any Tweet on twitter.com and mobile.twitter.com. When you expand Tweets containing links to partner websites, you can now see content previews, view images, play videos and more.

Real Clear Politics:

• The Terrible End of Europe's Nanny State.

Reuters:

• France backs stronger ECB role in bank surveillance. France wants the European Central Bank to have a stronger role in overseeing banks in the single currency bloc as part of a package of urgent reforms to increase financial stability in Europe, sources said on Wednesday. Joint supervision of banks is one of the key issues to be discussed at a European Union leaders summit in late June that will focus on deepening financial and fiscal integration to bring the raging euro zone crisis under control. Officials in Brussels have suggested that a so-called European "banking union" could include strengthening the London-based European Banking Authority, the EU's fledgling supervisor. Paris, however, prefers supervision of euro zone banks to remain in the single currency area. "France is keen for the European Central Bank to play this role," said a high-level source. "There is no way that France is going to hand power over its banks to an organisation based in London."
• Moody's sees rising odds of default by Stockton, California. The city of Stockton, California, faces a growing likelihood of defaulting on some of its debt obligations as the conclusion of confidential talks with its creditors aimed at averting bankruptcy nears, Moody's Investors Service said on Wednesday. Stockton is in mediation with its creditors, trying to obtain concessions to help close a $26 million budget gap before the July 1 start of its new fiscal year.

Financial Times:

• Rise in US oil supplies haunts Opec talks. At a seminar in the Opec headquarters in Vienna on Wednesday, the rise in US oil supplies was the shadow that fell over every discussion. Over the past three years, the US has accounted for the entire net increase in global oil output, excluding Opec members and former Soviet republics.

Telegraph:

• Europe's sovereign funk denies solutions. It's hard to know whether to laugh or cry. Every week, seemingly, brings some new miracle cure, some further quack remedy, produced as if from the back of a lorry, which promises finally to fix the eurozone debt crisis once and for all.
• Moody's says Spain faces being cut to 'junk' within three months: full statement. Moody's has warned it could cut Spain to "junk" within three months, as it slashed the country's credit rating by three notches, citing the increased debt burden linked to its bank bail-out. Here is the rating agency's statement in full.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.75% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 190.0 unch.
  
• Asia Pacific Sovereign CDS Index 152.0 -4.0 basis points.
  
• FTSE-100 futures -.13%.
  
• S&P 500 futures +.44%.
  
• NASDAQ 100 futures +.52%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (PIR)/.16
• (SFD)/.53
• (KR)/.73

Economic Releases
8:30 am EST

• The 1Q Current Account Deficit is estimated to widen to -$131.9B versus -$124.1B in 4Q.
• The Consumer Price Index for May is estimated to fall -.2% versus unch. in April.
• The CPI Ex Food & Energy for May is estimated to rise +.2% versus a +.2% gain in April.
• Initial Jobless Claims are estimated to fall to 375K versus 377K the prior week.
• Continuing Claims are estimated to fall to 3270K versus 3293K prior.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Italian bond auction, ECB's Likanen speaking, ECB's Weidmann speaking, Eurogroup head Junker speaking, 30Y T-Bond auction, weekly EIA natural gas inventory report, weekly Bloomberg Consumer Comfort Index, (CNC) investor day, (CIT) investor day and the (APA) investor day could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly 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 Disappointing US Economic Data, Eurozone Debt Angst, Consumer Cyclicals Weakness, Technical Selling

Broad Market Tone:

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

Equity Investor Angst:

• VIX 23.89 +8.15%
  
• ISE Sentiment Index 92.0 +17.95%
  
• Total Put/Call 1.26 +10.53%
  
• NYSE Arms 1.02 +82.50%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 125.44 +1.72%
  
• European Financial Sector CDS Index 289.21 -1.25%
  
• Western Europe Sovereign Debt CDS Index 321.20 -.60%
  
• Emerging Market CDS Index 300.86 -.64%
  
• 2-Year Swap Spread 30.25 -.25 basis point
  
• TED Spread 38.25 +.5 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -54.75 +1.25 basis point
  

Economic Gauges:

• 3-Month T-Bill Yield .09% unch.
  
• Yield Curve 130.0 -7 basis points
  
• China Import Iron Ore Spot $133.70/Metric Tonne +.45%
  
• Citi US Economic Surprise Index -53.60 -5.2 points
  
• 10-Year TIPS Spread 2.10 -4 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating a -62 open in Japan
• DAX Futures: Indicating -26 open in Germany
  

Portfolio:

• Slightly Lower: On losses in my tech, retail and biotech sector longs
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, covered some of my (EEM) short, then added them back
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades near session lows on rising Eurozone debt angst, more disappointing US economic data, consumer cyclicals weakness and rising global growth fears. On the positive side, Drug, Airline and Tobacco shares are slightly higher on the day. The UBS-Bloomberg Ag Spot Index is falling -1.02% and Oil is down -1.1%. Major Asian indices were mostly higher overnight, led by a +1.3% gain in China. The Germany sovereign cds is down -1.9% to 107.58 bps, the France sovereign cds is down -2.3% to 211.67 bps, the Spain sovereign cds is down -1.3% to 599.33 bps and the Italy sovereign cds is down -2.3% to 551.33 bps. On the negative side, Alt Energy, Oil Tanker, Oil Service, Networking, Homebuilding, Retail, Education, HMO, Biotech and I-Banking shares are under meaningful pressure, falling more than -1.5%. Lumber is falling -.8%, Copper is falling -.6% and Gold is gaining +.3%. Major European indices are mostly lower, led down by a -.65% decline in Italy. Italian shares are now down -4.0% in 5 days and down -14.5% ytd as they approach their June 1 lows, which is a big red flag. The Bloomberg European Bank/Financial Services Index is down -.04%. This Nigel Farage video is making the rounds today. The Italy 10Y Yld is rising +.7% to 6.75% and the Spain 10Y Yld is gaining +.7% to 6.22%. Weekly retail sales have decelerated to a sluggish rate. 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 -6.0% 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 -25.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +154.0% ytd. The CRB Commodities Index is now technically in a bear market, having declined -26.9% 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 continues to trade poorly despite today's bounce higher. Oil, lumber and copper also trade poorly given global central bank stimulus hopes and recent stock gains. As well, the 10Y continues to trade too well. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. While European officials' kick-the-can smoke-n-mirrors short-sighted "solutions" to the debt crisis may temporarily placate investors, economies in the region are likely accelerating their contractions right now. As well, the European debt crisis is really beginning to bite emerging market economies now, which will also 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. The upcoming earnings season could proving more challenging than usual for big multi-nationals given US dollar strength and the precipitous declines in some key parts of the global economy during the quarter. Global central bank stimulus hopes have been propping up US stocks, but I still believe 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 more disappointing US economic data, rising global growth fears, rising Eurozone debt angst, more shorting, technical selling and consumer cyclical weakness.