Weekly Scoreboard*

Indices

• S&P 500 1,342.84 +1.3%
  
• DJIA 12,767.10 +1.7%
  
• NASDAQ 2,872.80 +.5%
  
• Russell 2000 771.32 +.28%
  
• Value Line Geometric(broad market) 336.26 -.02%
  
• Russell 1000 Growth 627.70 +.66%
  
• Russell 1000 Value 658.90 +1.50%
  
• Morgan Stanley Consumer 786.71 +1.22%
  
• Morgan Stanley Cyclical 907.65 -.03%
• Morgan Stanley Technology 634.42 +.11%
  
• Transports 5,091.24 +.58%
  
• Utilities 483.05 +.96%
• Bloomberg European Bank/Financial Services 71.81 +2.13%
  
• MSCI Emerging Markets 38.61 +1.99%
  
• Lyxor L/S Equity Long Bias 992.97 +1.28%
  
• Lyxor L/S Equity Variable Bias 800.02 +.10%
  
• Lyxor L/S Equity Short Bias 539.27 unch.
  

Sentiment/Internals

• NYSE Cumulative A/D Line 140,250 +.7%
  
• Bloomberg New Highs-Lows Index -202 -156
  
• Bloomberg Crude Oil % Bulls 38.0 +5.6%
  
• CFTC Oil Net Speculative Position 130,858 -10.88%
  
• CFTC Oil Total Open Interest 1,458,395 +.12%
  
• Total Put/Call 1.0 +5.26%
  
• OEX Put/Call .94 -23.58%
  
• ISE Sentiment 118.0 -11.28%
  
• NYSE Arms .58 -38.95%
  
• Volatility(VIX) 21.11 -.57%
• S&P 500 Implied Correlation 70.32 +2.73%
  
• G7 Currency Volatility (VXY) 10.97 -1.26%
  
• Smart Money Flow Index 11,071.23 +1.33%
  
• Money Mkt Mutual Fund Assets $2.554 Trillion -.4%
  
• AAII % Bulls 34.04 +24.0%
  
• AAII % Bears 35.79 -21.8%

Futures Spot Prices

• CRB Index 272.23 -.24%
  
• Crude Oil 84.03 -.36%
  
• Reformulated Gasoline 270.17 +34%
  
• Natural Gas 2.47 +7.03%
  
• Heating Oil 264.65 -1.22%
  
• Gold 1,628.10 +2.07%
  
• Bloomberg Base Metals Index 198.38 +1.92%
  
• Copper 339.05 +1.97%
  
• US No. 1 Heavy Melt Scrap Steel 399.0 USD/Ton unch.
  
• China Iron Ore Spot 135.0 USD/Ton +2.74%
  
• Lumber 268.10 -5.57%
  
• UBS-Bloomberg Agriculture 1,406.83 -2.35%
  

Economy

• ECRI Weekly Leading Economic Index Growth Rate -3.0% -100 basis points
  
• Philly Fed ADS Real-Time Business Conditions Index -.2160 +4.51%
  
• S&P 500 Blended Forward 12 Months Mean EPS Estimate 111.09 +.14%
  
• Citi US Economic Surprise Index -60.60 -10.5 points
  
• Fed Fund Futures imply 66.0% chance of no change, 34.0% chance of 25 basis point cut on 6/20
  
• US Dollar Index 81.63 -.98%
  
• Yield Curve 130.0 -7 basis points
  
• 10-Year US Treasury Yield 1.58% -6 basis points
  
• Federal Reserve's Balance Sheet $2.852 Trillion +.61%
  
• U.S. Sovereign Debt Credit Default Swap 48.40 +1.90%
  
• Illinois Municipal Debt Credit Default Swap 228.0 -4.22%
  
• Western Europe Sovereign Debt Credit Default Swap Index 316.11 -1.68%
  
• Emerging Markets Sovereign Debt CDS Index 306.75 -6.19%
  
• Saudi Sovereign Debt Credit Default Swap 130.35 -.97%
• Iraq Sovereign Debt Credit Default Swap 449.99 -3.94%
  
• China Blended Corporate Spread Index 560.0 -19 basis points
  
• 10-Year TIPS Spread 2.12% -2 basis points
  
• TED Spread 38.25 -1.0 basis point
  
• 2-Year Swap Spread 27.75 -3.5 basis points
  
• 3-Month EUR/USD Cross-Currency Basis Swap -50.25 +1.5 basis points
  
• N. America Investment Grade Credit Default Swap Index 119.61 -2.43%
  
• Euro Financial Sector Credit Default Swap Index 279.01 -.28%
  
• Emerging Markets Credit Default Swap Index 286.07 -5.98%
  
• CMBS Super Senior AAA 10-Year Treasury Spread 204.0 unch.
  
• M1 Money Supply $2.243 Trillion +.38%
  
• Commercial Paper Outstanding 1,007.1 -.70%
  
• 4-Week Moving Average of Jobless Claims 382,000 +4,200
  
• Continuing Claims Unemployment Rate 2.6% unch.
  
• Average 30-Year Mortgage Rate 3.71% +4 basis points
  
• Weekly Mortgage Applications 949.40 +17.97%
  
• Bloomberg Consumer Comfort -36.4 +1.2 points
  
• Weekly Retail Sales +2.5% -60 basis points
  
• Nationwide Gas $3.52/gallon -.04/gallon
  
• U.S. Cooling Demand Next 7 Days 14.0% above normal
• Baltic Dry Index 924.0 +5.36%
  
• Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 30.0 -7.69%
  
• Rail Freight Carloads 246,422 +15.2%
  

Best Performing Style

• Large-Cap Value +1.50%
  

Worst Performing Style

• Mid-Cap Value +.10%

Leading Sectors

• Road & Rail +3.76%
  
• Tobacco +3.58%
• Banks +2.54%
• Telecom +2.46%
• Alternative Energy +2.45%

Lagging Sectors

• Computer Hardware -1.13%
• Coal -1.86%
  
• HMOs -2.67%
• Oil Tankers -3.76%
• Education -5.02%

Weekly High-Volume Stock Gainers (6)

• FLDM, QSFT, PRGS, SKX, NAV and LMNX
  

Weekly High-Volume Stock Losers (9)

• CTCT, TFM, HAR, AEGR, SMG, STJ, CASY, FDS and CNC
  

Weekly Charts
ETFs

• High-Volume Gainers
• High-Volume Losers

Stocks

• High-Volume Gainers
• High-Volume Losers
  

*5-Day Change

Stocks Rising into Final Hour on Global Central Bank Stimulus Hopes, Short-Covering, Euro Bounce, Tech/Financial Sector Strength

Broad Market Tone:

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

Equity Investor Angst:

• VIX 22.14 +2.17%
  
• ISE Sentiment Index 117.0 -18.75%
  
• Total Put/Call 1.04 +.97%
  
• NYSE Arms .58 -2.12%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 118.27 -1.84%
  
• European Financial Sector CDS Index 278.94 -2.46%
  
• Western Europe Sovereign Debt CDS Index 317.37 -1.49%
  
• Emerging Market CDS Index 286.37 -.36%
  
• 2-Year Swap Spread 27.75 -2.25 basis points
  
• TED Spread 38.25 +1.25 basis points
  
• 3-Month EUR/USD Cross-Currency Basis Swap -50.25 +3.75 basis point
  

Economic Gauges:

• 3-Month T-Bill Yield .09% -1 basis point
  
• Yield Curve 131.0 -2 basis points
  
• China Import Iron Ore Spot $135.0/Metric Tonne +.22%
  
• Citi US Economic Surprise Index -60.60 -6.1 points
  
• 10-Year TIPS Spread 2.13 +3 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating a +59 open in Japan
• DAX Futures: Indicating +15 open in Germany
  

Portfolio:

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

BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades near session highs despite Eurozone debt angst, more disappointing US economic data and rising global growth fears. On the positive side, Coal, Alt Energy, Steel, Software, Disk Drives, Oil Service and Computer Service shares are especially strong, rising more than +1.25%. Small-cap and cycilcal shares have outperformed throughout the day. As well, tech and financial shares have been relatively strong. Oil is falling -.25% and Copper is gaining +1.5%. Major Asian indices were mostly higher, led by a +2.3% gain in Hong Kong. Major European indices are mostly higher, boosted by a +2.2% gain in Italian shares. The Bloomberg European Bank/Financial Services Index is rising +1.5%. The Germany sovereign cds is down -2.1% to 103.83 bps, the France sovereign cds is down -1.5% to 197.35 bps and the Italy sovereign cds is down -1.04% to 544.0 bps. Moreover, the European Investment Grade CDS is falling -3.2% to 174.83 bps. On the negative side, Oil Tanker, Gaming, Airline, REIT and Construction shares are lower-to-flat on the day. Lumber is falling -.85% and Gold is gaining +.12%. The Japan sovereign cds is gaining +1.3% to 91.47 bps and the Saudi sovereign cds is rising .8% to 130.35 bps. 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 late-Aug. levels. Lumber is -7.0% 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 +153.0% ytd. The CRB Commodities Index is now technically in a bear market, having declined -26.0% 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 as the yield fell another -6 bps to 1.58% today. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. Some key 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 stocks, but I still believe there is too much uncertainty on the horizon to conclude a durable stock market low is in place. The backdrop for equities ahead of the Greek election is not ideal. The market has worked off its technically oversold state and some gauges of investor sentiment are registering a significant increase in bullishness. I also suspect a fair amount of short-covering has occurred over the last 10 days. Moreover, some well-known pundits are warning of how scared the bears should be, which is also a bit concerning. I suspect the market will trade higher early next week, however any rally may prove short-lived as investors turn their focus away from central bank stimulus hopes and towards Spain/Italy, deteriorating economic data and the US fiscal cliff. The “solutions” for the European debt crisis I still hear being bandied about are only bigger kick-the-cans that will eventually lead to an even bigger catastrophe as Germany is engulfed, in my opinion. 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, Eurozone debt angst and more shorting.

Today's Headlines

Bloomberg:

• Monti's Backers Slide in Polls Signals Risk for Fiscal Rigor. The four main political parties backing Prime Minister Mario Monti’s unelected government fell below 50 percent for the first time in an opinion poll, with support surging for an anti-austerity bloc. The 5 Star Movement, whose leader, comic-turned-politician Beppe Grillo, says the nation may need to restructure debt and exit the euro, became Italy’s second-biggest party, a poll by the SWG Institute showed. Monti’s popularity fell to an all-time low of 33 percent, less than half the level when he was appointed in November, SWG said. Italy, the bearer of the euro’s second-largest public debt, must have “budget discipline as a travel mate” in the future, Monti said in Parliament on June 13. Monti passed a 20 billion- euro ($32 billion) austerity plan in January that aimed to bring the budget deficit within the European Union limit this year. The measures contributed to pushing the economy into its fourth recession since 2001, with unemployment now topping 10 percent. The Democratic Party, Silvio Berlusconi’s People of Liberty, the Union of Centrists, and the Future and Liberty Party, the main parties backing Monti, hold more than two thirds of the seats in Parliament and have faced a decline in support since the start of his government in November. SWG said the four are currently polling at 48.5 percent.
• Obama Heads to G-20 With Few Tools To Stem Euro Debt Crisis. Europe’s sovereign debt crisis, which Obama has called the “cloud” hanging over the U.S. economy, will be the central topic for the Group of 20 nations summit next week in Los Cabos, Mexico. Yet U.S. officials said they don’t expect the meeting to result in significant progress toward a resolution. The G-20 meets June 18-19, one day after Greek elections that may determine that country’s future in the euro region and as global markets look to Europe’s leaders for clearer signs of how they move forward.
  
• ECB Deposit Rate of 0% Said To Be No Bar To Lower Benchmark. European Central Bank policy makers have overcome a key concern about taking the benchmark interest rate below 1 percent, two euro-area central bank officials said. The likelihood that such a move would also involve cutting the rate the ECB pays banks on overnight deposits from 0.25 percent is no longer an obstacle for a majority of the Governing Council, said the officials, who spoke on condition of anonymity because the deliberations aren’t public. The deposit rate traditionally moves in tandem with the benchmark and policy makers have been reluctant to take it to zero out of concern it would discourage interbank lending. A rate cut isn’t certain, the officials said. An ECB spokeswoman declined to comment.
• Central Banks Warn Euro Debt Stress Threatens World. Central banks intensified warnings that Europe’s failure to tame its debt crisis threatens to roil the world’s financial markets and economy as Greece’s election in two days looms as the next flashpoint for investors. Monetary policy makers from the U.K. to Japan and Canada sounded the alert about potential fallout from the single currency bloc’s troubles.
• Greek Vote Outcomes Range From Coalition to Euro Exit: Scenarios. Below are some frequently asked- questions on Greece’s elections on June 17 and a list of some possible outcomes after the vote.
• ECB's Asset-Backed Bond Project Is Boycotted By Dutch Banks. A Dutch financial services lobby group said its members are boycotting a European Central Bank project to improve transparency in the 1.9 trillion-euro ($2.4 trillion) asset-backed securities market. Robin Fransman, a director at the Holland Financial Centre in Amsterdam, said a commercial company shouldn’t have been chosen to run the initiative. Dutch banks are the euro region’s biggest sellers of asset-backed securities, according to data compiled by JPMorgan Chase & Co.
• Payrolls Fall in 18 States, Climb in 27. Payrolls increased in 27 states in May, while the unemployment rate climbed in 18, indicating progress in the U.S. labor market remains uneven.
• Consumer Sentiment Gauge Declines to '12 Low. Confidence among U.S. consumers declined in June to the lowest level this year as the labor market showed few signs of improving. The Thomson Reuters/University of Michigan index of consumer sentiment fell in June to 74.1 from 79.3 the prior month, which was the highest since October 2007. The gauge was projected to fall to 77.5, according to a median forecast of 66 economists surveyed by Bloomberg News. A pace of job growth that’s slowed for four straight months and wage gains that are failing to keep pace with inflation are offsetting cheaper prices at the gas pump. At the same time, households may be feeling less wealthy as Europe’s debt crisis roils share prices, raising the risk that consumer spending will stagnate. The Michigan survey’s index of current conditions asks Americans whether they’re better off than they were a year ago and if they think it’s a good time to buy big-ticket items like cars. In June that measure eased to 82.1 from 87.2. The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, decreased to 68.9, also the lowest this year, from 74.3, which was the highest since July 2007. Over the next five years, the figures tracked by Fed policy makers, Americans expected a 2.9 percent rate of inflation this month compared with 2.7 percent in May.
• U.S. Industrial Production Unexpectedly Fell .1% in May. Industrial production in the U.S. unexpectedly fell in May for the second time in three months as factories turned out fewer vehicles and consumer goods. Output at factories, mines and utilities decreased 0.1 percent last month after a revised 1 percent gain in April, the Federal Reserve reported today in Washington. Economists forecast a 0.1 percent advance, according to the Bloomberg News survey median. Manufacturing, which makes up about 75 percent of total production, dropped 0.4 percent last month.
• Potash May ending inventory up ~113k mt M/m, back above 3m mt and 43% above 5-yr avg.; data released last night on Potash Corp. website via The Fertilizer Institute. Exposure to potash(as % of 2011 revenue): (IPI) 89%, (POT) 46%, K+S 41%, (MOS) 31%. (POT) and (CF) present at RBC Global Mining & Materials Conf. next week.
• Rajat Gupta Convicted of Insider Trading by U.S. Jury. Rajat Gupta, who reached the pinnacle of corporate America as managing partner of McKinsey & Co. and as a director at Goldman Sachs Group Inc. and Procter & Gamble Co. (PG), was convicted by a federal jury of leaking inside information to hedge-fund manager Raj Rajaratnam. Gupta, 63, was found guilty of securities fraud and conspiracy by a federal jury in Manhattan today in its second day of deliberations. Securities fraud carries a maximum prison sentence of 20 years, and conspiracy carries a five-year maximum. Gupta will remain free on bail until his sentencing on Oct. 18.
• Banks With High Derivatives Concentration May Be Too-Big-to-Fail. Regulators will probably view six banks with 75% of the U.S.'s derivatives assets and liabilities as too-big-to-fail, according to a Fitch Ratings analyst. A Fitch study released last week found that three-fourths of derivatives assets and liabilities among 100 big U.S. firms reside in six banks - Bank of America(BAC), Citigroup(C), Goldman Sachs(GS), JPMorgan(JPM), Morgan Stanley(MS) and Wells Fargo(WFC). The report is the first to quantify how derivatives are concentrated across all sectors.
• Oil Falls on Concern That Economy is Slowing. Oil fell on concern a slowing U.S. economy will reduce demand for oil. Futures dropped as much as 0.6 percent as data showed U.S. industrial production unexpectedly fell in May and confidence among U.S. consumers declined in June to the lowest level this year. Greek elections June 17 may determine whether the country remains in the euro bloc. The Federal Reserve starts a two-day meeting June 19. “On the economic front, the numbers are just bad and crude could get down even below the $80 mark,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “People are trying to position themselves for the Greek elections and the Fed meeting.” Crude for July delivery slid 30 cents, or 0.4 percent, to $83.61 a barrel at 12:37 p.m. on the New York Mercantile Exchange. The contract climbed to $84.80 earlier. Prices are down 0.6 percent this week and 15 percent this year. Brent oil for August settlement rose 8 cents to $97.25 a barrel on the London-based ICE Futures Europe exchange.
• Gold Traders Bullish as Hedge Funds Increase Wagers. Twenty-four analysts surveyed by Bloomberg said they expect gold to gain next week and six were bearish. A further three were neutral. Speculators boosted net-long positions by 27 percent in the week ended June 5, the latest Commodity Futures Trading Commission data show. ETP holdings rose 21.07 metric tons valued at $1.03 billion since the start of June, halting a three-month retreat, according to data compiled by Bloomberg.

Wall Street Journal:

• U.S. To Stop Deporting Some Illegal Immigrants. The Obama administration said it wouldn't deport many younger illegal immigrants who came to the U.S. as children, a major shift in the middle of an election season where the Hispanic vote could be pivotal. The new rules, sidestepping Congress after years of stalemate over an immigration overhaul, came in response to frequent pleas by Hispanic and other groups for more lenient treatment of people who came to the U.S. illegally as youngsters. The move quickly drew criticism from those who want a tougher stance on illegal immigration and oppose what they call amnesty. The new rules apply to people who came to the U.S. under the age of 16, haven't committed a major crime and are currently under 30. They will be eligible for a two-year period of "deferred action," where they could apply for work permits and wouldn't be deported.
• Risking Risks Threaten Recovery. The U.S. economy is losing momentum just as global events are threatening a create new shocks to the system. New data this week provided more evidence that the economic recovery is sputtering for the third year in a row. Layoffs are rising, factory output is falling and consumers are cutting spending amid rising uncertainty. Moreover, those warning signs mostly predate the worst of the recent turmoil in Europe, which has hit financial markets and hurt demand for American products overseas.
• Egypt's Muslim Brotherhood Pins Hopes on Vote. With security beefed up on the eve of Egypt's presidential runoff election, the Muslim Brotherhood tried to salvage its hopes for leadership urging voters to back its candidate instead of calling for mass protests.
  

Fox News:

• EPA Proposes Stricter Standards for Soot Pollution. The move by the Environmental Protection Agency won immediate support from environmental groups and public health advocates, who said the EPA was protecting millions of Americans at risk of soot-related asthma attacks, lung cancer, heart disease and premature death. But congressional Republicans and industry officials called the proposal overly strict and said it could hurt economic growth and cause job losses in areas where pollution levels are determined to be too high. "EPA's proposal could substantially increase costs to states, municipalities, businesses and ultimately consumers without justified benefits," said Howard Feldman, director of regulatory and scientific affairs for the American Petroleum Institute, the top lobbying group for the oil and gas industry. Feldman said the rule could discourage economic investment in counties that fail to meet new federal standards, including in political swing states such as Ohio and Pennsylvania, where a natural gas drilling boom has boosted the local economies. "Non-attainment means non-investment" by industry, Feldman said.

CNBC.com:

• Merkel Takes Swipe at France as Tensions Grow. Germany's Angela Merkel criticized France's economic performance on Friday in a growing war of words with its new Socialist President Francois Hollande over how to tackle Europe's deepening debt crisis. Describing her own country as Europe's "stabilizing anchor and growth engine", the center-right chancellor told German business leaders that Europe should talk about the growing gap between the bloc's two biggest economies and traditional allies. Tension has risen so much that French Prime Minister Jean-Marc Ayrault felt moved to deny that his country was trying to form a united front with Italy and Spain against Merkel and her drive for austerity in the single currency zone. But Merkel, possibly irritated by Hollande's meeting with German center-left opposition leaders earlier this week on euro zone policy, took what looked like a swipe at his expansive policy ideas such as a new decree partially lowering the pension age, which was part of his election campaign. "If you look for instance at the development of unit labor costs between Germany and France in the past 10 years, then you see that at the start of the millennium Germany looked rather worse or at best as good as our neighbor in a lot of factors, while the differences have now been growing a lot more strongly, also a topic that must be discussed in Europe, naturally," she said.
• Forthcoming Facebook(FB) Motion Said to Discuss Nasdaq's(NDAQ) Role in IPO.
  

Business Insider:

• Traders Are Betting That These 14 Banks Will Default.
• DOWNGRADE-MAGEDDON 2012: Here Are The Gigantic Banks On Moody's Chopping Block.
• JC Penney(JCP) Rebranding Is Driving Its Core Customers AWAY From The Store.
• This New Drone Will Radically Enhance Navy Surveillance Capabilities.

Zero Hedge:

• Spain Bond Drubbing Continues as Stocks Surge. (graph)
• On The Keynesian Lunacy of Targeting Outcomes.
• The Greek Decision Has Grown Spanish Branches.
  

FINalternatives:

• Q1 Hedge Fund Launches Total 304. The first quarter of 2012 saw the launch of 304 hedge funds as industry assets hit a record $2.13 trillion, according to Hedge Fund Research. On the flip side, hedge fund closures were also up in Q1, at 232; the highest liquidation rate since Q1 2010, when 240 funds closed. More funds of hedge funds closed than opened in Q1 2012, according to HFR, with 64 closing compared to 34 launching. The quarter was the fourth consecutive in which the number of funds of funds declined.

Gallup:

• Obama Job Approval: 49% Disapprove, 44% Approve. (graph)
  

Reuters:

• Bundesbanker says no more leeway for Spanish banks. The European Central Bank will not give Spanish banks more leeway to access its funding operations, a Bundesbank board member said, warning that Sunday's election in Greece may not herald the clarity some in the market are hoping for. The European debt crisis may reach new heights next week as Greek elections on Sunday could bring to power the SYRIZA party which rejects EU/IMF bailout program terms, while Spain is on the verge of requesting international aid for its teetering banks. "Regardless of the election outcome on Sunday, it will need to be decided quickly whether Greece's second bailout program is on track or whether the new government will get it back on track," Bundesbank board member Joachim Nagel told Reuters. "Uncertainty will continue as long as there is no reliable prospect for how things will progress in Greece," he said, adding that Greek risks would be manageable for German banks. Nagel chose a football analogy to get his point across: "The ball is now in the politicians' half and is getting closer to the goal line."
• NY Fed: Manufacturing Growth Slowest Since November 2011. A gauge of manufacturing in New York state fell sharply in June to its lowest level since November 2011 but still showed growth, the New York Federal Reserve said in a report on Friday. The New York Fed's "Empire State" general business conditions index fell to 2.3, a 15-point drop from the month before and the lowest level since November 2011, and far below economists' expectations of 13. Employment gauges also dropped, and indexes for the six-month outlook fell for the fifth consecutive month to 23.1, suggesting waning optimism about the medium-term. The shipments index dropped 19 points to 4.8, and the prices paid and new orders indexes also fell to their lowest levels since November 2011.
• S&P Against Rings Alarm Bells on US Refinancing Wall. Standard & Poor's again sounded the alarm bells about an impending wall of refinancing for US companies in the next four years, this time highlighting the potential stress for financial and speculative-grade companies. S&P said US corporate issuers had around $1.38 trillion of debt maturing through year-end 2013, and warned that the greatest refinancing risk was within the Single B and Triple C categories from 2013 through 2016.

Telegraph:

• Gordon Brown: France and Italy May Need a Bail-Out. Gordon Brown: France and Italy may need a bail-out. Gordon Brown has warned the euro is reaching its "day of reckoning" and suggested France and Italy would follow Spain in needing a bail-out as the eurozone crisis deepens.
• IMF Urges Europe to Help Refinance Irish Bank Bail-Out. The International Monetary Fund on Friday urged Europe to help Ireland refinance its crippling bank bailout and consider taking equity in state-owned banks to help Dublin return to bond markets and avoid a second bailout next year.

Radio Free Europe Radio Liberty:

• Egypt's Islamists Warn of 'Dangerous Days' After Parliament Dissolved. The Muslim Brotherhood has warned that Egypt faces "dangerous days" ahead, after the Supreme Constitutional Court dissolved the Islamist-dominated parliament. The court ruled on June 14 that last year's elections for the lower house of parliament, the country's first free elections in decades, were unconstitutional.

Caixin:

• The Beijing government recommended companies to raise base wages by 11.5%, citing 2012 salary guidelines published by the local government.

Bear Radar

Style Underperformer:

• Large-Cap Value +.43%

Sector Underperformers:

• 1) Airlines -.87% 2) Oil Tankers -.30% 3) Construction -.01%

Stocks Falling on Unusual Volume:

• IVN, GNC, LUV, RIC, NRG, CPN, TTWO, CHKP, NANO, ERF, IIVI, QCOM, FELE, SHOO, HAYN, ONXX, TRN, TGI, SDT and AIR
  

Stocks With Unusual Put Option Activity:

• 1) TC 2) GFI 3) FTR 4) MNST 5) NYX
  

Stocks With Most Negative News Mentions:

• 1) IIVI 2) TRN 3) LSCC 4) POT 5) GOOG
  

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Growth +.79%

Sector Outperformers:

• 1) Software +1.64% 2) Coal +1.36% 3) Alt Energy +1.33%

Stocks Rising on Unusual Volume:

• RP, YPF, OMPI, BVSN, ASIA, LNCR, QCOR, ENDP, NAV, LNG, ICE, RCL and DRI
  

Stocks With Unusual Call Option Activity:

• 1) SQNM 2) ITUB 3) ABV 4) FXY 5) KOG
  

Stocks With Most Positive News Mentions:

• 1) LMT 2) NUAN 3) COO 4) ICE 5) TDC
  

Charts:

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

Friday Watch

Evening Headlines
Bloomberg:

• Greeks Return to Ballot Box, Pivotal Moment. Greeks head to the ballot box in two days for a contest that may determine the fate of the world’s first democracy and the future of the newest reserve currency, while roiling markets from Wellington to Wall Street. Almost 10 million Greeks will vote for the second time in six weeks after a May 6 ballot failed to yield a government. The constitution permits a third election too. The final polls, published on June 1, showed no party set to win a majority. Exit polls will be released when voting ends at 7 p.m. in Athens, with a first official result estimate due around 9:30 p.m. The June 17 vote will turn on whether Greeks, in a fifth year of recession, accept open-ended austerity to stay in the euro or reject the conditions of a bailout and risk the turmoil of becoming the first to exit the 17-member currency.
• Spain Grazing Junk Status Fuels Contagion Risk: Euro Credit. Spain's slide down the credit-rating ladder has brought the nation within a hair of junk status and risks triggering contagion in Italy and beyond should investors completely shun the bonds of Europe's fourth-richest economy. Moody's said Spain's decision to seek as much as 100 billion euros of European funds to shore up its banks increased the risk the country would need a full bailout. Spain's aid request and the credit rating reduction have increased foreign investor flight from its bonds, leaving the Treasury increasingly reliant on the soon-to-be rescued domestic banking industry to buy its debt. "Junk status would be serious and would confirm it is locked out of the capital markets," said Marc Chandler, head of global currency strategy at Brown Brothers Harriman in New York. "It would mean the bank aid turns into a full-fledged aid package, redouble pressure on Italy and France while Portugal would take another hit."
• ING Bank Cut as Moody’s Downgrades Five Dutch Banking Groups. ING Bank NV, Rabobank Nederland and three other Dutch banking groups had their credit ratings cut by Moody’s Investors Service, which cited their reliance on wholesale funding amid a recession and Europe’s debt crisis. Long-term debt and deposit ratings at ING Bank, Rabobank Nederland, ABN AMRO Bank NV and LeasePlan Corporation NV were lowered by two grades, and SNS Bank NV received a one-level cut, Moody’s said in a statement in Frankfurt today. “Dutch banks will face difficult operating conditions throughout 2012 and possibly beyond,” Moody’s said in the statement. ING Bank’s ratings have a negative outlook and those of the other lenders are stable, it said. Separately, Moody’s also downgraded UniCredit Leasing S.p.A by two levels to Baa2 from A3.
• Draghi Fails to Find Clarity in ECB Communication. European Central Bank President Mario Draghi is struggling to find the right balance between saying too much and nothing at all. Draghi won praise for his candor when he took the helm of the ECB seven months ago. Since then, he has kept investors guessing on three key Greek initiatives and confused some of them on the outlook for ECB bond purchases, whipsawing the euro and Italian and Spanish bonds. Economists from Nomura International Plc to ING Group NV say Draghi’s communication is exacerbating market turmoil. “Since the first press conference when Draghi came in with a very confident style, it has basically been downhill on the communication front,” said Nick Kounis, head of macro research at ABN Amro in Amsterdam. “Clearly the communication has sometimes created the wrong impression, and that makes markets that bit more volatile.”
• Irish Tell Spain to Imagine the Worst and Burn Bank Bondholders. Ireland has this banking advice for Spain: imagine the worst and double it. Like Ireland, Spain sought a bank bailout after being felled by a real-estate crash. Now, just as the Irish did, the Spanish are awaiting the results of outside stress tests gauging the size of the hole in the banking system. "Think of the worst possible scenario on banking losses: then double it," said Eoin Fahy, an economist at Kleinwort Benson Investors in Dublin. "Adopt the most conservative assumptions." Nine hundred miles northwest of Madrid, Irish analysts wring three lessons from its own banking crisis, among the worst in history. First, quickly present an accurate estimate of the bad loans. Second, force banks to face up to losses, possibly through the creation of a so-called bad bank. Third, share as much of the loss as possible with bank bondholders. "Spain should face the economic reality, even if they have to value property loans at discounts of 40, 60 or even 80 percent," said Alan Ahearne, former economic adviser to Brian Lenihan, the finance minister who presided over Ireland's response to the near-collapse of its financial system. "If the real losses aren't faced up to, who's that going to fool?"
• France Plans Tax Changes to Raise 10 Billion Euros, Echos Says. The French government plans to propose revisions in tax laws to raise an additional 10 billion euros ($12.6 billion) in revenue to reduce the country’s budget deficit, Les Echos reported. Changes to the law will include higher inheritance taxes, an end to exemptions for payroll taxes on overtime the reestablishment of the wealth tax schedule and measures to reduce tax loopholes used by large companies, the newspaper said, without saying where it got the information. A proposed adjustment in capital taxes to the same level as salaries is planned for the fall, Figaro said.
• The EU Smiled While Spain’s Banks Cooked the Books. Only a few years ago, Spain’s banks were seen in some policy-making circles as a model for the rest of the world. This may be hard to fathom now, considering that Spain is seeking $125 billion to bail out its ailing lenders.
• Does China's Next Leader Want the Job? Anyone who thinks their job stinks should consider the one Xi Jinping is about to take on. Xi is expected to replace Chinese President Hu Jintao in the fall. He must have some serious misgivings. If the last 20 years were a golden age for the world’s most populous nation, today is one filled with growing doubts. The Bo Xilai scandal has shattered the veneer of political stability, cyber- dissidents are emboldened in their challenges of the Communist Party and diplomatic headaches abound -- many of them concerning the U.S., where China may figure in November’s presidential election. No issue looms larger than China’s suddenly shaky economy. The world is now bracing for a slowdown that pundits said was unlikely to happen. So are officials in Beijing, who worry that social unrest could boil over quickly if growth evaporates. All stimulus and no reform gives China some Frankenstein- like qualities -- a powerful economic creature born out of unorthodox experiments. Unproductive spending of the magnitude China already has unleashed, and what seems to be in the pipeline, may result in a Japan-like debt mess. When China’s reckoning does come, and every industrializing nation has one, it may be far worse than investors believe. Xi will have to do a much better job than his predecessor to keep that reckoning from becoming a monster all its own.
• Iron-Ore to Slump as China Slows, Eurofer Says. Iron-ore prices will tumble over two years as growth in Chinese demand stalls and new mines increase supply, according to Eurofer, a lobby for steelmakers including ArcelorMittal that are among the biggest buyers of the material. Chinese steel output growth is forecast to fall by 50% to less than 5% from 2013, compared with last year, as iron-ore production climbs to more than 1.4 billion metric tons by 2015, according to Macquarie Group Ltd. data. The trend may see ore prices drop to as low as $80 a ton, Eurofer said. In contrast, the lowest price among analyst estimates compiled by Bloomberg is $100 by 2015 from Toronto-Dominion Bank. The spot price was $134.70 yesterday.
• O'Neill's BRICs Risk Hitting Wall in Threat to G-20 Growth. Even Jim O'Neill is asking whether the BRICs need reinforcing 11 years after he coined the term to describe the world's future powerhouse economies. O'Neill, chairman of Goldman Sachs Asset Management, says his thesis that Brazil, Russia, India and China would together increasingly buoy the global economy faces "a more challenging test" as investors dump the countries' stocks. China pared its growth target to the lowest since 2004, Standard & Poor's may cut India's investment-grade credit rating, Brazil is on pace to expand less than 3 percent for a second straight year and falling oil prices may hurt Russia. A prolonged slowdown in the four countries poses a fresh threat to a world economy suffering its weakest spell since the end of the 2009 recession, which the BRICs helped shorten by contributing about half of the international expansion since 2007. Leaders attending next week's Group of 20 summit in Mexico are already expressing concern, with Brazilian President Dilma Rousseff warning June 4 that emerging markets can't carry the weight of the world on their shoulders. Rich-nation policy makers "are so wrapped up in their own problems they're praying some of this weakness is just temporary in the BRICs," London-based O'Neill, 55, said in a telephone interview. "If it's not, then it's pretty worrying."
• Oil Rout Has China Hoarding Most Since Olympics: Energy Markets. China is hoarding crude at the fastest rate since the Beijing Olympics four years ago as the slump in international prices prompts it to import unprecedented volumes even as refining slows. The world's second-biggest oil consumer built up a surplus of about 90 million barrels of crude in the first five months of the year, government data show. The excess, the most since the run-up to the 2008 games, is probably being kept at emergency and commercial storage centers, according to the IEA.
• Fannie Mae, Freddie Mac REO Costs Top $8.5 Billion, Auditor Says. Fannie Mae and Freddie Mac have spent $8.5 billion on foreclosed homes since 2007, the Federal Housing Finance Agency’s auditor said in a report urging the regulator to ensure taxpayer money isn’t being wasted. The FHFA, which has overseen the government-sponsored enterprises since they were seized during the credit crisis in 2008, must ensure Fannie Mae and Freddie Mac can cope with the surge of so-called real-estate owned properties on their books as a result of defaults on loans they guarantee, the agency’s Office of Inspector General said in the report released today.
• Ex-Soros Adviser Fujimaki Says Japan to Probably Default by 2017. Investors should buy assets in U.S. dollars and other currencies of strong developed nations because Japan may default within five years, said Takeshi Fujimaki, former adviser to billionaire investor George Soros. “Japan is likely to default before Europe does, which could be in the next five years,” the president of Fujimaki Japan, an investment advising company in Tokyo, said in an interview yesterday. Japanese should hold foreign-currency products, such as those denominated in the greenback, Swiss franc, sterling, Australian and Canadian dollars, Fujimaki said. Japan’s public borrowings, the world’s biggest, will balloon to 245.6 percent of its annual economic output in 2014, up from 67.3 percent in 1984, an estimate by the International Monetary Fund shows. Japanese Prime Minister Yoshihiko Noda is struggling to gather support for his plan to double the 5 percent sales tax by 2015 to help reduce debt. “The yen and the JGB market are in a bubble,” Fujimaki said. “With the gigantic debt Japan has accumulated, a thin needle, or even a gentle breeze may pop this. Events in Europe can possibly trigger this to blow up.”
• BOJ Holds Policy Ahead of Greek Vote With Eye on Global Markets. The Bank of Japan (8301) kept the size of its asset-purchase fund unchanged two days before a Greek election that may determine whether Europe’s crisis worsens, and said it will pay “particular” attention to global markets.

Wall Street Journal:

• Sour Mood of Greeks Makes Vote a Cliffhanger. On Sunday, Greece's future in the euro zone will be in the hands of voters like Kety Bakirtzoglu: longtime backers of the entrenched political establishment who feel burned and are ready to roll the dice on something new. For years, Ms. Bakirtzoglu was a stalwart socialist voter from the Pasok party's core, Greece's giant public sector. Then, as part of a bid to meet austerity goals mandated by its bailout, the socialist government pushed her out of her job at a state housing agency.
• Egypt's Elections in Turmoil After Rulings Boost Military. Egypt's 16-month transition toward democracy was thrust into turmoil just two days before the country's historic presidential election, as the country's highest court dissolved the Islamist-dominated parliament and its top generals took over legislative powers. Egypt's highest court stunned the country with two rulings Thursday. One effectively dissolves both houses of the country's parliament. A second overturned a law that would have barred a former regime loyalist from contesting the presidential runoff to be held Saturday and Sunday.
• Banks' Bad Debts Weigh on Vietnam. Vietnam's government is under pressure to find ways to reduce the country's spiraling bad debts, which have raised fears of loan problems cropping up elsewhere in Asia.

Business Insider:

• Now They've Invented Laser-Guided Bullets So Snipers Can Kill You From 2 Miles Away.
• Democratic Pollster: Obama's Negative Tone And Messaging Is Going To Lose Him Michigan.
• CHART OF THE DAY: This Chart Destroys The Idea Of Peak Oil.

Zero Hedge:

• S&P: "Spanish Home Prices To Drop Another 25%".

CNBC:

• Why Joint Central Bank Action Is Unlikely and Won’t Work. Speculation that major central banks are planning coordinated action heightened on Friday on a media report that Group of 20 nations are preparing to provide liquidity to financial markets.
• A Global Recession? The Warning Signs Are Everywhere.

IBD:

• EBay(EBAY) Goes Brick-And-Mortar, Tags Future To Mobile Too.

Forbes:

• U.S. Video Game Retail Sales Slump 28% in May Vs. Yr Ago.

Mediaite:

• Joe Klein Pans Obama Speech On MSNBC: ‘Failed Profoundly To Explain What He’s Done’. (video)
  

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows Mitt Romney attracting 48% of the vote, while President Obama earns 44%. Four percent (4%) prefer some other candidate, and another four percent (4%) are undecided.

Reuters:

• Credit hedge funds profit despite rocky markets. In a year of uneven returns for many U.S. hedge funds, managers who invest mainly in bonds have outshone stockpickers. Over the first five months of the year, credit-focused hedge fund portfolios were up 4.11 percent compared with a 2.4 percent gain for stock-focused ones, according to hedge fund tracking service eVestment|HFN.

Financial Times:

• Basel III will ‘damage developing countries’. Tough global bank reforms will be disproportionately difficult to implement in developing economies and will damage their growth, a global taskforce of bankers and businessmen from emerging markets is set to warn. The so-called Basel III rules will impose capital and liquidity requirements that were designed for US and Europe institutions but would be difficult to implement in emerging economies, according to a report set to be issued on Sunday by the B20 group of businesses, which advises the G20 group of nations.
• Post-crash malaise takes toll on CDS. Credit derivatives, where investors and speculators trade default risks of sovereigns and corporates, are a pale shadow of the boom market that was being aggressively touted by Wall Street just a few years ago.
• Egypt Bombshell Has Echoes of Algeria. For many Egyptians – not least the Muslim Brotherhood, which won the biggest share of seats in the legislature – the decision by a court packed with appointees from the ousted political order was seen as the most damaging move in a well-planned counter-revolution, engineered by the ruling military and remnants of the old regime. Across the Arab world, it will revive memories of Algeria in 1991, when the army cancelled a second round of elections to derail a victory by an Islamist party, plunging the country into a decade-long civil war.
• Central bankers brace for euro break-up. At least one country will leave the eurozone in the next five years, according to a survey of central bank reserve managers who collectively control more than $8,000bn.

Telegraph:

• Debt crisis: ECB last hope as dam breaks in Spain. Spain's borrowing costs have surged to record highs and are perilously close to the point of no return, threatening a full-blown sovereign crisis unless the European Central Bank comes to the rescue.
• Funding lifeline for the banks highlights how deep the crisis is. Last night's announcement of £140bn in cheap funding for banks is fundamentally an acknowledgment of the storm to come ahead of a deepening eurozone crisis. This is a lifeboat worth nearly 10pc of GDP. Things really are that bad.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.50% to +1.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 183.0 -7.0 basis points.
  
• Asia Pacific Sovereign CDS Index 150.50 -1.5 basis points.
  
• FTSE-100 futures +.23%.
  
• S&P 500 futures +.11%.
  
• NASDAQ 100 futures +.17%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note
  

Economic Releases
8:30 am EST

• Empire Manufacturing for June is estimated to fall to 13.0 versus 17.09 in May.

9:00 am EST

• Net Long-term TIC Flows for April are estimated to rise to $45.0B versus %36.2B in March.

9:15 am EST

• Industrial Production for May is estimated to rise +.1% versus a +1.1% gain in April.

• Capacity Utilization for May is estimated at 79.2% versus 79.2% in April.

9:55 am EST

• Preliminary Univ. of Mich. Consumer Confidence for June is estimated to fall to 77.5 versus 79.3 in May.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The ECB's Draghi speaking and BoJ interest rate decision could also impact trading today.
  

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