Bear Radar

Style Underperformer:

• Large-Cap Growth +.39%

Sector Underperformers:

• 1) Restaurants -1.72% 2) Retail -1.01% 3) Steel -.52%

Stocks Falling on Unusual Volume:

• ORLY, AZO, CMG, TSCO, ROST, JWN, PNRA, DLTR, HNR, WIN, PWE, OMER, MNRO, QSII, SHFL, HAS, TNGO, SHOO, AT and GPC
  

Stocks With Unusual Put Option Activity:

• 1) MAKO 2) CTXS 3) MON 4) HRB 5) RSH
  

Stocks With Most Negative News Mentions:

• 1) JWN 2) M 3) SKS 4) MCD 5) XOM
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value +.77%

Sector Outperformers:

• 1) Coal +2.90% 2) Homebuilding +2.79% 3) Oil Tankers +1.36%

Stocks Rising on Unusual Volume:

• BBG, EVEP, GEOY, LORL, AMRN, AVAV, LNCR, WPRT, UIS, SSYS, COG, LEN, NSM, RRC and TOL
  

Stocks With Unusual Call Option Activity:

• 1) ACAS 2) COG 3) AMRN 4) GIS 5) LNCR
  

Stocks With Most Positive News Mentions:

• 1) AVAV 2) UNH 3) BA 4) LMT 5) UIS
  

Charts:

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

Wednesday Watch

Evening Headlines
Bloomberg:

• Draghi May Enter Twilight Zone Where Bernanke Fears to Tread. European Central Bank President Mario Draghi is contemplating taking interest rates into a twilight zone shunned by the Federal Reserve. While cutting ECB rates may boost confidence, stimulate lending and foster growth, it could also involve reducing the bank’s deposit rate to zero or even lower. Once an obstacle for policy makers because it risks hurting the money markets they’re trying to revive, cutting the deposit rate from 0.25 percent is no longer a taboo, two euro-area central bank officials said on June 15. “The European recession is worsening, the ECB has to do more,” said Julian Callow, chief European economist at Barclays Capital in London, who forecasts rates will be cut at the ECB’s next policy meeting on July 5. “A negative deposit rate is something they need to consider but taking it to zero as a first step is more likely.” Should Draghi elect to cut the deposit rate to zero or lower, he’ll be entering territory few policy makers have dared to venture. Sweden’s Riksbank in July 2009 became the world’s first central bank to charge financial institutions for the money they deposited with it overnight. The Fed rejected cutting its deposit rate from 0.25 percent last year. With Europe’s debt crisis damping inflation pressures and curbing growth, the ECB may feel the benefits outweigh the negatives.
• German Parliament to Meet to Vote on Spain Bailout, Bild Reports. The German parliament will probably hold a special meeting on July 6, its first extraordinary session on the debt crisis, to vote on Spain’s request for a bailout, the Bild Zeitung newspaper reported, citing unidentified coalition lawmakers. Germany has to approve a so-called memorandum of understanding on Spain’s bailout petition, the newspaper said in a pre-release of an article to be published today. The parliament may meet again a week later to decide on Cyprus’s request for aid, the newspaper said.
• Mario Monti and the Limits of Technocracy. When Mario Monti was appointed -- not elected -- prime minister of Italy in November, most Italians saw him as a welcome respite from the flamboyant, bankrupt leadership of Silvio Berlusconi. With the economy headed for collapse, technocratic leadership and a break from politics as usual were exactly what they wanted. So they thought. Now, opinion polls put Monti’s approval rating at slightly more than 30 percent, down from more than 70 percent at the start of his tenure. The country’s media are disenchanted. Monti has failed to produce the miracle that Italy was hoping for, offering only painful remedies for years of misgovernment. It turns out that politics matter, and technocrats aren’t much good at politics.
• Monti Plays Italian Politics in Labor-Law Overhaul: Euro Credit. Italian Prime Minister Mario Monti, seeking to bridge European differences over how to end the region's debt crisis, is pushing a labor market overhaul at home that has divided his allies and sapped his support. The law, designed to revive Italy's economy by making it easier for distressed companies to fire workers, will pass parliament today ahead of tomorrow's European Union summit in Brussels. Italy's 10-year bond yield, at more than 6%, has jumped 30 basis points since June 9 when Spain became the fourth euro-region country to seek aid. "In the European scenario, Monti is doing very well said Tommaso Nannicini, a professor of political economy at Bocconi University in Milan. "However, on the domestic side he looks more and more incapable of keeping together his majority and gives the impression of a lack of political action."
  
• No Second-Half Rally for China’s Stocks, Top Fund Manager Says. China’s economy will probably stay in the “doldrums” in coming months, preventing a second-half rally for the nation’s equities, according to the country’s best-performing fund manager. The government will do just enough to prevent the world’s second-biggest economy from slowing further instead of taking more aggressive measures to boost growth, Yu Guang of Invesco Great Wall Fund Management Co. in Shenzhen, said in an e-mailed interview on June 21. Property, auto and household-appliance stocks may outperform even as the overall market stalls, said Yu, whose Core Competitiveness Fund has returned 25 percent this year, ranking it first among 714 China-based mutual funds, according to data compiled by Bloomberg as of June 25.
• SEC Said to Authorize Lawsuit Against Philip Falcone. Philip Falcone, the billionaire founder of Harbinger Capital Partners LLC, faces a lawsuit from U.S. regulators as soon as this week over claims he improperly borrowed client money from his hedge fund to pay his taxes, according to two people familiar with the matter.
• Russia Must Drop Assad Before Talks, U.S. Official Says. A meeting of world powers to discuss ending the conflict in Syria won’t happen unless Russia first agrees that Syrian President Bashar al-Assad must be replaced, a U.S. State Department official said. United Nations Special Envoy Kofi Annan is seeking to convene a June 30 gathering in Geneva to persuade major powers and neighboring states to support a political transition to end the Syrian conflict, which has claimed more than 10,000 lives, according to human rights groups.
• Coal Set for Worst Rout Since Post-Lehman Slump: Energy Markets. Coal for power stations is headed for its worst quarter in more than three years as China's slowing economy tempers demand for electricity amid brimming stockpiles and increased shipments into Asia. Thermal coal at the Australian port of Newcastle, the benchmark price for Asia, cost $83.1 a metric ton as of June 22, down 20% this quarter, according to IHS McCloskey, a coal-data provider.
  

Wall Street Journal:

• Expanded Oil Drilling Helps U.S.Wean Itself From Mideast. America will halve its reliance on Middle East oil by the end of this decade and could end it completely by 2035 due to declining demand and the rapid growth of new petroleum sources in the Western Hemisphere, energy analysts now anticipate. The shift, a result of technological advances that are unlocking new sources of oil in shale-rock formations, oil sands and deep beneath the ocean floor, carries profound consequences for the U.S. economy and energy security. A good portion of this surprising bounty comes from the widespread use of hydraulic fracturing.
• Has Peak Oil Peaked? Remember the days when a threatened hurricane and news of Syria downing a Turkish jet would send oil prices spiking? Peak oil, the Malthusian scenario whereby global oil-supply growth has reached its limit, appears to have, er, peaked. Oil prices aren't responding to the usual stimuli.
• Down and Out in Stockton. The latest city to confront bankruptcy and how it got there.

MarketWatch:

• Hong Kong housing projects host wealthy tenants. Fancy cars, rich lifestyles mark welfare system gone wild.

Business Insider:

• Some 18 Year Old Made A Site That's Going To Get People Fired For Using Facebook(FB).
• There's New Evidence That Pakistan's Intelligence Agencies Helped Plan The 2008 Mumbai Attacks.
• Everything You Need To Know About The European Bailout Mechanisms In One Huge Slide.

Zero Hedge:

• Ray Dalio: Don't Assume That Germany Will Bail Europe Out; Consider The "Fat Tail" A Significant Possibility.
• Momentarily Stepping Back From The Trees To Show These Two Charts Of The Forest. (graphs)
• Liquidation Is Vital.
• Turkey Mobilizing: Media Manipulation, Provocation Or Reality?

CNBC:

• Germany's Credit Rating Slashed by Egan-Jones. Credit ratings agency Egan-Jones on Tuesday downgraded its credit rating for Germany to "A+" with a negative outlook from "AA-," noting the need to watch for fallout should Greece exit the euro zone. Whether or not Greece or other euro-zone members exit the monetary union, Germany will be left with "massive" additional, uncollectible receivables, Egan-Jones said in a statement.
• Spain Considers Sweeping Tax Hikes to Please EU. Spain is considering raising consumer, energy and property taxes, the government said on Tuesday, as it struggles to reduce a public deficit that may have already exceeded one of its budgeted ceilings for the full year.
• US Judge Issues Injunction on Samsung Galaxy Tab Sales. A U.S. judge on Tuesday granted Apple's bid to stop Samsung Electronics from selling its Galaxy Tab 10.1 tablet in the United States, giving the iPhone maker a significant win in the global smartphone and tablet patent wars.

IBD:

• Verisk(VRSK) Tooled Big Data Before Big Data Was Popular.

NY Times:

• Spanish Officials Hailed Banks as Crisis Built. As Spain edged closer to a real estate and banking crisis that led to its recent bank bailout, Spanish financial leaders in influential positions mostly played down concerns that something might go terribly wrong.

Forbes:

• Brazil's 'Sub Prime' Defaults Rising. It doesn’t matter that Brazil’s benchmark interest rates are at historic lows, last year’s push by the government to extend debt payments for car loans brought in a rash of “subprime” borrowers. Now the banks, from Itau Unibanco (ITUB) to Bradesco (BBD) are paying the price for miscalculating the safety of those new car loans. The default rate on consumer and corporate loans over 90 days late rose 0.1 percentage points to a total of 6 percent, the Central Bank of Brazil said Tuesday, marking the highest ever default rate since the bank starting monitoring it in June 2000. While the default rate is not rising quickly, it is not falling either, as the Central Bank had hoped to see in their latest report. That’s the overall number. Car loans are the worst of the lot. Defaults on auto loans increased 0.2 percentage points to a total of 6.1 percent in May. Auto loan default rates are up 2.5 percent over the last 12 months, the highest out of all the consumer credit monitoring by the Central Bank.

Reuters:

• AeroVironment(AVAV) profit beats on higher unmanned drone sales. Drone maker AeroVironment Inc posted a better-than-expected fourth-quarter profit and forecast a strong 2013, helped by higher sales of its unmanned drones, sending shares up 9 percent after the bell.

Financial Times:

• Monti lashes out at Germany ahead of summit. Mario Monti has set the stage for a tough fight with Germany at the EU summit this week, insisting that he will continue to push Italy’s proposal to use eurozone bailout funds in an attempt to stabilise financial markets. Italy’s technocratic prime minister’s frustration with Germany surfaced in a combative speech to parliament, saying he would not go to Brussels to “rubber-stamp” pre-written documents and was ready to extend the two-day summit until Sunday night if needed to reach agreements before markets reopen on Monday.

Telegraph:

• Q&A: the Gang of Four's euro plan. It is billed as the master plan to save the euro and has been grandly entitled "Towards a genuine Economic and Monetary Union".

Sueddeutsche Zeitung:

• Weidmann Says Bids to Cheat Treaty Undermine Euro. "Crafty" attempts to "cheat" one's way past EU treaties by quick introduction of euro-area liability such as euro bonds, deposit insurance, joint debt fund undermine confidence in monetary union, Bundesbank President Jens Weidmann wrote. Attempts to first take what should be a final step of ever close integration threatens monetary union. It is "irritating" that some govts openly push for central banks to clean up fiscal problems and solve difficulties by printing money, he said. The central bank mandate is to maintain price stability; financing govt debt is forbidden.

Yonhap News Agency:

• Global PC Sales May Fall Up To 10% in Q3: Report. Global sales of personal computers (PCs) may drop as much as 10 percent in the third quarter from a year earlier due to weakening demand, according to a Forbes report known in Seoul on Wednesday. PC sales could fall around 5-10 percent in the July-September period from the previous year as PC giants such as Dell(DELL) and Hewlett-Packard(HPQ) continue to suffer softening demand, according to a recent Forbes report that cites Jefferies & Company Inc. analyst Peter Misek.

China Business News:

• Shanghai Bans Non-Local Singles From Buying Homes. Single residents without Shanghai registration, so-called hukou, are no longer allowed to buy property in the city, citing several district real estate trading centers. The ban has yet to spread to the whole city, but started 2 weeks ago in districts including Huangpu, Jingan, Yangpu and Baoshan. The ban was also confirmed by unidentified developers.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.25% to +.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 186.0 -1.5 basis points.
  
• Asia Pacific Sovereign CDS Index 151.25 +1.75 basis points.
  
• FTSE-100 futures +.37%.
  
• S&P 500 futures -.01%.
  
• NASDAQ 100 futures +.08%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CMC)/.37
• (GIS)/.59
• (LEN)/.16
• (MKC)/.60
• (MON)/1.58
• (PAYX)/.34

Economic Releases
8:30 am EST

• Durable Goods Orders for May are estimated to rise +.5% versus a +.2% gain in April.
• Durables Ex Transports for May are estimated to rise +.7% versus a -.6% decline in April.
• Cap Goods Orders Non-defense Ex Air for May are estimated to rise +1.9% versus a -1.9% decline in April.
  

10:00 am EST

• Pending Home Sales for May are estimated to rise +1.5% versus a -5.5% decline in April.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,300,000 barrels versus a +2,861,000 barrel gain the prior week. Distillate inventories are expected to rise by +1,225,000 barrels versus a +1,156,000 barrel gain the prior week. Gasoline supplies are estimated to rise by +1,000,000 barrels versus a +943,000 barrel gain the prior week. Finally, Refinery Utilization is estimated unch. versus a -.1% decline the prior week.
  

Upcoming Splits

• (DLTR) 2-for-1
  

Other Potential Market Movers

• The 5Y T-Note auction, weekly MBA mortgage applications report, CSFB Basic Materials Conference, (TDG) analyst day and the (BWS) investor day could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by real estate and consumer 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.

Stocks Bouncing into Final Hour on Quarter-End Window Dressing, Euro Bounce, 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 19.50 -4.32%
  
• ISE Sentiment Index 88.0 +15.79%
  
• Total Put/Call .97 -15.65%
  
• NYSE Arms .92 -62.12%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 119.22 -.25%
  
• European Financial Sector CDS Index 291.52 +.32%
  
• Western Europe Sovereign Debt CDS Index 299.33 +.53%
  
• Emerging Market CDS Index 297.97 -.81%
  
• 2-Year Swap Spread 23.25 -.25 basis point
  
• TED Spread 37.50 -1 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -58.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .09% +1 basis point
  
• Yield Curve 133.0 +2 basis points
  
• China Import Iron Ore Spot $135.40/Metric Tonne -1.24%
  
• Citi US Economic Surprise Index -62.20 -.6 point
  
• 10-Year TIPS Spread 2.08 +1 basis point
  

Overseas Futures:

• Nikkei Futures: Indicating +33 open in Japan
• DAX Futures: Indicating +34 open in Germany
  

Portfolio:

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

BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades near session highs despite rising Eurozone debt angst, diminished global central bank stimulus hopes and rising global growth fears. On the positive side, Education, Homebuilding, Ag, Retail and Steel shares are especially strong, rising more than +1.25%. Cyclical shares are mildly outperforming. Gold is falling -.8%. The Saudi sovereign cds is down -2.4% to 128.96 bps. On the negative side, Defense, Coal, Alt Energy, Computer Service, Gaming, Medical, Networking and Disk Drive shares are lower-to-flat on the day. The UBS-Bloomberg Ag Spot Index is rising another +1.2%. Major Asian indices were mostly lower, led down by a -.81% decline in Japan. Major European indices were lower, led down by a -1.4% decline in Spain. Spanish stocks are now down -2.5% in 5 days and down -23.8% ytd. The Bloomberg European Bank/Financial Services Index fell -1.0%. The Germany sovereign cds rose +.43% to 101.25 bps, the France sovereign cds gained +1.3% to 200.66 bps, the Spain sovereign cds rose +2.3% to 595.01 bps and the Italy sovereign cds is up +3.0% to 545.01 bps. The Spain 10Y Yld rose +3.5% to 6.87% and the Italian/German 10Y Yld Spread gained +2.9% to 467.69 bps. Weekly retail sales have decelerated to a sluggish rate at +2.3%, which is the slowest since the week of April 5th of last year. US Rail/Trucking 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 -12.0% since its March 1st 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 -55.0% from its Oct. 14th high and is now down around -45.0% ytd. China Iron Ore Spot has plunged -25.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +130.0% ytd. The CRB Commodities Index is now technically in a bear market, having declined -25.9% since May 2nd of last year. Overall, credit gauge deterioration remains a big worry as most key sovereign cds remain technically strong. The euro currency, oil, lumber and copper all continue to trade very poorly given global central bank stimulus hopes, eurozone debt crisis "solution" hopes and this year's equity rally. As well, the 10Y continues to trade too well as the yield is rising just +3 bps today to 1.63%. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. The Citi Eurozone Economic Surprise Index is plunging another -18.80 points today to -94.6 points, which is the lowest since early-Sept. of last year. 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. Moreover, investors are ignoring today's comments from Merkel, which seem to be very damaging for the hopes of another big kick-the-can. Some key economies in the region are likely accelerating their contractions right now based on recent data. 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. The "US fiscal cliff "will likely become more and more of a focus for investors as the year progresses. Finally, the upcoming earnings season could prove 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. 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 rising eurozone debt angst, diminished global central bank stimulus hopes, rising global growth fears and more shorting.

Today's Headlines

Bloomberg:

• Spain Poised for a Cut to Junk as Default Swaps Near Records. Spain is poised for a downgrade to junk by Moody’s Investors Service, according to investors who sent the cost of default insurance for the nation’s biggest banks and companies close to record highs. Credit-default swaps on Banco Santander SA, the country’s biggest bank, jumped 23 percent this quarter to 454 basis points, compared with an all-time high of 474 in November. Banco Bilbao Vizcaya Argentaria SA rose 26 percent to 477, approaching May’s record 516, while phone company Telefonica SA surged 70 percent to a record 540 basis points. Moody’s downgraded 28 Spanish banks yesterday including a two-step cut for Banco Santander and a three-level reduction for BBVA, a week after it lowered Spain’s rating to Baa3, on the cusp of junk. The country remains on review for another cut by New York-based Moody’s after it sought a 100 billion-euro ($125 billion) international bailout for its banks and on speculation losses from its real estate industry will worsen. “There’s more to come if Moody’s downgrades the sovereign as we expect in the next few weeks,” said Suki Mann, a credit analyst at Societe Generale SA in London. “A one-notch move to Ba1 will likely see all the country’s banking system in junk territory, with the possible exception of Santander.”
  
• Italian, Spanish Notes Slide on Debt Sales. Italian notes had the biggest two- day drop in seven months, and Spanish securities slid, after borrowing costs rose at debt sales. Spain’s bonds led losses in the euro area after Moody’s Investors Service downgraded 28 Spanish banks and Bundesbank President Jens Weidmann said there can be no pooling of issuance in Europe until governments agree to give up their fiscal sovereignty. German bunds slipped before European Union leaders meet in two days about the crisis. The European Central Bank said Cypriot bonds have become ineligible as collateral in refinancing operations. “Demand is subdued, even for shorter-dated paper,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. The EU summit will probably be “a bit disappointing and for that reason we’d expect lower bund yields,” he said. The yield on Italian two-year notes climbed 35 basis points, or 0.35 percentage point, to 4.68 percent at 4:41 p.m. London time. The 88 basis-point increase in yields in the past two days is the biggest jump since Nov. 9. The 3 percent security due April 2014 tumbled 0.57, or 5.70 euros per 1,000- euro ($1,247) face amount, to 97.28. Similar-maturity Spanish yields were 36 basis points higher at 5.21 percent, adding to yesterday’s 42-basis point increase.
• Hollande Reality Makes French Debt Less Attractive. During his first two weeks in office, President Francois Hollande saw French borrowing costs go in one direction, and that was down. Not anymore. The yield on the French benchmark 10-year bond advanced to 2.63 percent at 4:00 p.m. in Paris, up from a euro-era low of 2.071 percent on June 1. It was as high as 2.902 percent on May 15, when Hollande took office. The rate is at risk of rising further with French banks vulnerable to the region’s debt-ridden nations as economic growth stalls.
• King is Pessimistic on Euro Crisis as Global Economy Teeters. Bank of England Governor Mervyn King said his vote for more stimulus this month reflected his worries about a deteriorating global economic outlook at a time when he’s pessimistic that Europe’s debt crisis can be resolved. “What’s concerned me in the last several months, and why I voted for easing in policy, is the worsening in the position in Asia and other emerging markets,” King told lawmakers in London today. Another reason is that “my colleagues in the U.S. are more concerned than they were at the beginning of the year about what’s happening in the American economy. It’s not a comfortable position,” he said. “I’m very struck by how much has changed” since the bank published forecasts on May 16, King said. “I am pessimistic, and I am particularly concerned because for two years now we’ve seen the situation in the euro area get worse, the problems have been pushed down the road.”
• Chemicals Flash U.S. Economic Slump Warning: Chart of the Day. Slowing production of chemicals from caustic soda to polyvinyl chloride is signaling a drop in U.S. industrial output and greater risk that the economy may slip back into a recession, American Chemistry Council data show. The CHART OF THE DAY shows the Chemical Activity Barometer trailing behind the Federal Reserve’s Industrial Production index by the most since March 2009, when the U.S. was still in the longest and deepest recession since the Great Depression. The gauge tracks chemical production and prices, hours worked at producers, manufacturing output, building permits, and share prices for companies including Dow Chemical Co. (DOW) and DuPont Co.
• Oil Declines for Second Day, Erasing Earlier 0.6% Gain. Oil fell for a second day, heading for the biggest quarterly decline in more than three years, as concern increased that Europe won’t solve its debt crisis and U.S. consumer confidence declined to a five-month low. Prices traded below $80 for a fourth day as borrowing costs for Spain and Italy neared a three-month high after German Chancellor Angela Merkel was said to have criticized a European proposal to reshape the euro zone. The New York-based Conference Board reported consumer confidence slid for a fourth month. “There is a lot of uncertainty in the market not just on the economic side but also on the fundamental side,” said Jacob Correll, a Louisville, Kentucky-based analyst at Summit Energy Inc., which manages more than $20 billion in companies’ annual energy spending. “Nothing that’s been done so far in Europe is really giving the market a lot of confidence.” Oil for August delivery fell 61 cents, or 0.8 percent, to $78.60 a barrel at 11:30 a.m. on the New York Mercantile Exchange. Prices have fallen 24 percent this quarter, the biggest drop since the final three months of 2008. Brent crude for August settlement rose 49 cents, or 0.5 percent, to $91.50 a barrel on the London-based ICE Futures Europe exchange. Brent’s premium to West Texas Intermediate widened for the third straight day, rising to $12.90 from yesterday’s $11.80.
• Home Prices in U.S. Cities Fall at Slowest Pace Since ’10. Residential real estate prices fell in April at the slowest pace in more than a year, adding to signs the U.S. housing market was firming. The S&P/Case-Shiller index of property values in 20 cities dropped 1.9 percent in April from the same month in 2011, the smallest decline since November 2010, after decreasing 2.6 percent in the year ended March, the group said today in New York. The median forecast of 28 economists in a Bloomberg News survey projected a 2.5 percent drop.
• Consumer Confidence In U.S. Declines To A Five-Month Low. Confidence among U.S. consumers dropped in June for a fourth consecutive month as mounting concern over jobs and incomes dimmed the outlook for spending. The Conference Board’s sentiment index fell to 62, a five- month low, from a revised 64.4 in May, figures from the New York-based private research group showed today. Another report showed home prices were stabilizing. The slide in confidence raises the risk that the slowdown in hiring revealed by last month’s jobs report will cause households to retrench, restraining the spending that accounts for about 70 percent of the economy. The weak labor market is overshadowing the benefit of the lowest gasoline prices in five months, one reason why companies like Ford Motor Co. (F) are keeping an eye on attitudes. “The employment situation continues to weigh on consumer minds,” said Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York, who correctly forecast the confidence index. “Usually consumers react to falling gasoline prices by increasing their spending, but this time around it looks like they’re a little bit cautious.” The Conference Board’s confidence gauge reflected growing concern about the short-term outlook. The gauge of expectations for the next six months fell to 72.3, the lowest level since November, from 77.3 a month earlier. The share of respondents in the Conference Board’s survey that expected more jobs to become available in the next six months declined to 14.1, the lowest this year, from 15.4 the previous month. The proportion projecting an increase in incomes dropped to 14.8 percent from 15.7 percent.
• EPA Greenhouse-Gas Rules Upheld By U.S. Appeals Court. The U.S. Environmental Protection Agency’s limits on industrial emissions of greenhouse gases including carbon dioxide were upheld by a federal appeals court. A three-judge panel of the U.S. Court of Appeals in Washington ruled today that the EPA’s interpretation of the Clean Air Act was “unambiguously correct” and that the opponents don’t have the legal right to challenge the so-called timing and tailoring rules. The panel considered challenges to the agency’s finding that greenhouse gases are pollutants that endanger human health and to rules determining when states and industries must comply with regulations curtailing their use. Companies such as Massey Energy Co., business groups including the U.S. Chamber of Commerce and states led by Texas and Virginia sought to stop the agency through more than 60 lawsuits. Some argued that the EPA relied on biased data from outside scientists.
• Bond Traders Shunning Freddie Means Taxpayers Lose: Mortgages. The bond market is telling Freddie Mac it’s not wanted even as taxpayers support two similar mortgage-finance companies. Securities it guarantees are hovering near record low prices relative to the debt of its larger rival Fannie Mae. That’s forcing Freddie Mac to rebate lenders that package loans into its bonds to compensate them for investors paying less for the debt, according to its disclosures and people familiar with its Market-Adjusted Pricing program. Banks slice off part of homeowner payments to buy its insurance. Freddie Mac still competes with Fannie Mae even now that they’re both 80 percent owned by the government after their 2008 bailouts. Expenses from the program may reach about $750 million annually, according to JPMorgan Chase & Co. analysts.
• A surplus of the largest oil tankers competing to load crude at Persian Gulf ports reached a six-month high on slowing demand to charter ships, a Bloomberg News survey showed. There are 14% more VLCCs available for hire over the next 30 days than there are likely cargoes, according to a Bloomberg survey of seven shipbrokers and owners today. That's 4 percentage points more than the prior week. In terms of the monthly average, the surplus was the highest in June since December, according to a Bloomberg index.
• Biggest U.S. Banks Curb Loans as Regional Firms Fill Gap. The biggest U.S. banks are extending less credit amid a faltering economic recovery as regional lenders step in to fill the gap. Total loans at the four largest U.S. banks -- JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), Citigroup Inc. (C) and Wells Fargo & Co. (WFC) -- fell 4.9 percent to $3.04 trillion in the first quarter from the same period in 2010, according to data compiled by Bloomberg. Lending by the 17 smallest of the 24 firms in the KBW Bank Index (BKX) increased 9.8 percent to $1.27 trillion.

Wall Street Journal:

• Banks Preparing For The End. Some of the biggest banks are being asked to submit by July 1 road maps for how they can be quickly and cleanly liquidated, but a top regulator said he doesn't back using the so-called living-will process to break them up. Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corp., also doesn't think that the new regulatory process will end "too big to fail"—the expectation that the government will bail out faltering financial firms rather than risk the damage their failure would inflict on the system.
• Spain: Jan-May Government Budget Deficit Widens to 3.4% of GDP. Spain's central government budget deficit widened to 3.4% of gross domestic product in the first five months of the year, the country's budget ministry said Tuesday. The figure compares with a deficit of 2.4% of GDP in the January-April period, Deputy Budget Minister Marta Fernandez Curras said at a press conference, blaming the larger deficit on Spain's poor economic performance during the period, as well as earlier transfers of funds to regions than seen last year. Fernandez Curras said the government expects an improvement in the economy in coming months, which should have a positive impact on fiscal efforts. Last year, the budget deficit through May was at 2.6% of GDP. In the five-month period, Spain's central government revenue dropped by 0.1%, while expenses were up 12%, due to a lower contribution from the value-added tax, as well as the accelerated transfers to regions, respectively.
  

MarketWatch:

• EU's Fiscal Union Road Map Gets Cool Reception. A document outlining a path to tighter fiscal integration across the euro zone and a European banking union got a cool reception from Germany and economists on Tuesday as European leaders prepare for a summit meeting later this week.

CNBC.com:

• Cramer's Ultimate Growth Stocks for 2012.
• Poll: Economy, Not Tax Fears, Turns Wealthy Against Obama.

Business Insider:

• Map Shows Which States Are The 'Greeces' Of America.
• Morgan Stanley's Amazing Presentation On The State Of Everything That's Important In The World.
• WILLEM BUITER: Spain And Italy Will Need Sovereign Bailouts, And Quite Possibly Very Soon.
• Another Dangerous Side Of Shadow Banking In China: Trusts.
  

Zero Hedge:

• European 'Bail-In' Risk Rises To Near-Six-Month Highs. (graphs)
• Is France's 'Germany-Containment' Strategy At Risk?
• Italy's Unelected PM Mario Monti: "Eurobonds, Or I Resign".
• As The ECB's Balance Sheet Hits A New Record High, Fair EURUSD Value Is 900 Pips Lower.

New York Times:

• Turkey Warns It May Target Any Syrian Forces Nearing Border.

Market Folly:

• Summary of Hedge Fund Bearish China Thesis: Kynikos, Corriente, Pivot, Eclectica, Greenlight & More.

Reuters:

• German govt, states agree solar incentive cuts-MPs. Germany's government and federal states have agreed cuts to incentives for the solar power industry after a weeks-long dispute, under which incentives will be capped for installed capacity of 52 gigawatts (GW), parliamentary sources said.
• Merkel: no EU total debt liability in my life: sources. "I don't see total debt liability as long as I live," Merkel was quoted as telling members of parliament from the Free Democrats (FDP), junior partners in her centre-right coalition, by sources who took part in the meeting. German Chancellor Angela Merkel was quoted as telling a meeting of one of the parties in her coalition on Tuesday that she does not think Europe will have shared total debt liability in her lifetime. The chancellor also said there would be no shared liability of debt in Germany either, days after her government agreed plans with federal states to issue joint "Deutschland bonds". Merkel has warned against focusing on proposals for shared debt liability - such as the eurobonds favored by France's new Socialist leader Francois Hollande - and other "easy" solutions to the euro zone crisis at this week's European Union summit. She said in a speech on Monday that sharing debt liability within the 17-nation single currency area would be "economically wrong and counterproductive".
• US gasoline demand down on uncertain outlook-MasterCard(MA). U.S. gasoline demand fell last week as an uncertain economic outlook forced motorists to cut back on non-essential driving, MasterCard's SpendingPulse report showed on Tuesday. Demand fell by 3.5 percent in the week to June 22 compared with the same week a year ago, MasterCard data showed. Week-over-week gasoline consumption was flat over the last two weeks. Gasoline sold for $3.48 a gallon last week, down 10 cents from two weeks ago and 3.9 percent lower than during the comparable week last year. The four-week moving average for demand fell for the 66th consecutive week, down 3.2 percent from a year earlier.
• Romney Would Get Tough on China - Portman. Republican presidential candidate Mitt Romney would move aggressively to open up more foreign markets for U.S. exports, while getting tougher with China on its trade and currency practices, Senator Rob Portman said on Tuesday. The potential Romney vice presidential running mate said President Barack Obama has allowed the United States to fall "behind in a very significant way (on trade) because we are not engaging in opening up markets virtually anywhere.
• Brazil loan defaults hit record high as borrowing costs fall. Loan delinquencies at Brazilian banks rose to a record in May in a sign that a slowdown is hitting Latin America's largest economy despite its strong jobs market and aggressive cuts in borrowing costs. Loans in arrears for 90 days or more, the most widely followed gauge of bank defaults, rose to the equivalent of 6 percent of outstanding loans in May, compared with a revised 5.9 percent the prior month, the central bank said on Tuesday. The so-called default ratio had risen in April. The level is the highest for the default ratio since the central bank began keeping records of this gauge in June 2000. Despite efforts by consumers to refinance credit at lower interest rates, especially auto loans, the pace at which delinquency rates are increasing has continued to grow since last year.
• OECD Raises Red Flag on US Long-Term Unemployment. The lengthy spells many Americans are spending without work risk leaving a lasting scar of higher unemployment on the U.S. economy and training programs are needed to avert the damage, the OECD said on Tuesday. The warning from the Organization for Economic Cooperation and Development comes against the backdrop of stalled U.S. jobs growth and an uptick in the unemployment rate in May. In a report on the U.S. economy, the Paris-based OECD estimated the unemployment rate which the economy could sustain without generating inflation at 6. 1 percent, up from 5.7 percent in 2007. In May, the rate stood at 8.2 percent.
• Spain Considers Eliminating Property Tax Breaks. Spain is considering eliminating tax breaks on housing and raising petrol tax, the Treasury Secretary Marta Fernandez Curras said on Tuesday. "This is one of the options, one of the recommendations, by the European Union which is under consideration," she said.
• Solar Production Glut to Persist to 2015 - Study. Solar panel manufacturers face three more years of tough conditions until the market shuts down excess production capacity, according to a new report issued on Tuesday by renewable power consultancy GTM Research. Production capacity for photovoltaic solar panels this year stands at 59 gigawatts, about double the 30 gigawatts expected to be sold into the global market, according to GTM analyst Shyam Mehta. About 21 gigawatts of the current production is expected to be retired by 2015 as panel prices continue their steep declines, GTM said.

Telegraph:

• First seafood caught off Fukushima since Japan nuclear disaster sold.
• A hopelessly misconceived blue print for Europe. Ambitious plans to be put before this week's EU summit – yes indeed, yet another crisis summit – to turn the eurozone into something much closer to a fiscal union make for easy analysis. On almost any level you care to take, they won't work. Here's the plan.
• Debt Crisis: Live. New proposals for a “banking union” pose a threat to London, proposals prepared for Friday's EU summit show, while Angela Merkel says there won't be shared debt in Europe "as long as I live".
• UK Deficit Goal at Risk After Weak Borrowing. George Osborne is facing a “major battle” to meet his deficit reduction targets after government borrowing rocketed above expectations due to the double-dip recession.

MNI News:

• China may not ease controls on the property market until the next administration is in office, citing a person close to the National Development and Reform Commission. The economic conditions don't warrant easing, the person said.
  

Handelsblatt:

• German Family Businesses Don't Back Merkel on Euro. Angela Merkel's current strategy is leading into an "abyss," Brun-Hagen Hennerkes, a board member of Germany's Foundation for Family Businesses, said. It is endangering Germany's national wealth even more, Hennerkes said. Hans-Peter Keitel, who heads Germany's BDI industrial employers association, was wrong to back Merkel without consulting members, Family Businesses Association head Lutz Goebel said.
  

Efe:

• The Spanish government is studying a possible increase in sales tax following a recommendation from the European Commission. The standard sales tax rate is 18%. Competition Commissioner Joaquin Almunia said yesterday that complying with commission recommendations is obligatory for Spain.
  

Jyllands-Posten:

• Denmark remains in the grips of a credit crunch as the country's banking industry continues to be plagued by losses that erode earnings, Business Minister Ole Sohn said.
  

Xinhua:

• China's latest revision to the draft budget law removed amendments easing restrictions on local government issuing bonds. An article allowing local governments to sells bonds within an approved quota was removed in the second reading of the bill and a ban on local governments issuing bonds was reinstated.

Shanghai Securities News:

• The sales of road pavers and bulldozers in China fell 30% last month because demand weakened on decreasing infrastructure projects, citing industry website China Construction Machinery Business Online. Sales of loaders fell by 26% and excavators decreased by 24% in May from a year earlier.

Bear Radar

Style Underperformer:

• Small-Cap Value +.15%

Sector Underperformers:

• 1) Coal -3.34% 2) Gold & Silver -1.97% 3) Computer Services -.82%

Stocks Falling on Unusual Volume:

• SNTA, AEM, EXK, WFT, DXPE, VLTR, PCYC, MEOH, VCLK, TSLA, CSTR, APKT, CGNX, FARO, SAFM, GEVA, GOLD, NDSN, SINA, HOG and RBN
  

Stocks With Unusual Put Option Activity:

• 1) NWSA 2) EMR 3) KBH 4) NOK 5) HRB
  

Stocks With Most Negative News Mentions:

• 1) DOW 2) VCLK 3) CTSH 4) GS 5) WFC
  

Charts:

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