Stocks Slightly Lower into Final Hour on Rising Global Growth Fears, Euro Currency Decline, Earnings Worries, Tech Sector Weakness

Broad Market Tone:

• Advance/Decline Line: About Even
  
• Sector Performance: Mixed
  
• Volume: Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 17.28 +1.17%
  
• ISE Sentiment Index 126.0 unch.
  
• Total Put/Call .98 +7.69%
  
• NYSE Arms 1.32 +48.34%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 109.87 -2.18%
  
• European Financial Sector CDS Index 253.65 -2.91%
  
• Western Europe Sovereign Debt CDS Index 274.71 -2.74%
  
• Emerging Market CDS Index 274.76 -3.82%
  
• 2-Year Swap Spread 25.0 +1.0 basis point
  
• TED Spread 39.0 +1.0 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -56.75 -3.25 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .07% -1 basis point
  
• Yield Curve 128.0 -6 basis points
  
• China Import Iron Ore Spot $133.50/Metric Tonne -.37%
  
• Citi US Economic Surprise Index -63.90 -3.6 points
  
• 10-Year TIPS Spread 2.08 -2 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating +33 open in Japan
• DAX Futures: Indicating +24 open in Germany
  

Portfolio:

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

BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 hugs the flatline despite a falling euro currency, Obamacare/US fiscal cliff worries, more weak US economic data, earnings concerns, tech sector weakness and rising global growth fears. On the positive side, Telecom, Biotech and Hospital shares are especially strong, rising more than +1.0%. Small-cap stocks are outperforming. Oil is falling -1.6%. Major Asian indices were mostly higher, boosted by a .9% gain in Australia. Major European indices are higher, lifted by a +1.3% gain in France. The Bloomberg European Bank/Financial Services Index is rising +1.68%. The Germany sovereign cds is falling -4.8% to 97.28 bps, the France sovereign cds is down -3.2% t o182.84 bps, the Spain sovereign cds is down -3.99% to 510.0 bps, the Italy sovereign cds is falling -3.96% to 468.46 bps, the Russia sovereign cds is down -4.0% to 221.33 bps and the Brazil sovereign cds is down -4.7% to 149.83 bps. Moreover, the European Investment Grade CDS Index is down -2.3% to 162.01 bps. On the negative side, HMO, Road & Rail, Gaming, Restaurant, Computer and Oil Tanker shares are under mild pressure, falling more than -.75%. The UBS-Bloomberg Ag Spot Index is rising another +1.7%, Lumber is falling -.74% and Copper is down -.82%. The Citi Latin America Economic Surprise Index is picking up downside steam, falling another -4.4 points today to -18.6, which is the weakest since mid-August of last year. The Spain 10y Yld is rising +.73% to 6.37%. US 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 -10.0% 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 -22.8% since May 2nd of last year. Overall, recent credit gauge improvement is meaningful, but gauges still remain at stressed levels. As well, Spanish yields are still in the danger zone. The euro currency, oil, copper and lumber remain in intermediate-term downtrends. As well, the 10Y continues to trade too well as the yield is falling -6 bps today to 1.59%. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. While Europe appears to have kicked-the-can again, I suspect investor euphoria will be fairly short-lived. The plans will do little to boost economic growth in the region. Massive tax hikes and spending cuts are still yet to hit in several key countries that are already in recession. Lack of competitiveness has not been addressed. It remains unclear whether or not Germany has really agreed to anything that changes the situation substantially. Moreover, the “solutions” for the European debt crisis I still hear being bandied about are only bigger kick-the-cans that if implemented will eventually lead to an even bigger catastrophe as Germany is engulfed, in my opinion. The European debt crisis is also really beginning to bite emerging market economies now, which will further pressure exports from the region and further raise the odds of more sovereign/bank downgrades. Uncertainty surrounding the effects on business of Obamacare, the "US fiscal cliff " and election outcome uncertainty 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 mixed-to-lower into the close from current levels on Obamacare/fiscal cliff concerns, profit-taking, rising global growth fears, more weak US economic data, tech sector weakness, earnings concerns and more shorting.

Today's Headlines

Bloomberg:

• Euro-Area Unemployment Climbs to Record on Spanish Cuts. Euro-area unemployment reached the highest on record as a deepening economic slump and budget cuts prompted companies from Spain to Italy to reduce their workforces. The jobless rate in the 17-nation euro area rose to 11.1 percent in May from 11 percent in April, the European Union’s statistics office in Luxembourg said today. That’s the highest since the data series started in 1995. Europe’s companies are under pressure to lower costs to protect earnings as the worsening fiscal crisis erodes exports and consumer spending. Companies including Deutsche Lufthansa AG, PSA Peugeot Citroen and Spanish news agency Efe are seeking to eliminate jobs to cope with flagging demand. “The overall picture is worrying, as problems in the real economy are being compounded by problems in financial markets,” said Mark Miller, an economist at Capital Economics Ltd. in London. “The tone of the business surveys has been pretty downbeat of late, suggesting that labor market conditions may deteriorates for some time yet. It’s very difficult to see an immediate end to this.” In the euro area, 17.561 million people were unemployed in May, an increase of 88,000 from the previous month, today’s report showed.
• German Adviser Sees Risk in ESM Bond Buying, Handelsblatt Says. Easing the conditions for the euro area’s rescue fund to buy Italian sovereign bonds risks swamping the financial backstop, Oxford University economist Clemens Fuest wrote in a commentary in Handelsblatt. Using the planned European Stability Mechanism in an attempt to lower the borrowing costs of highly indebted countries might lead bondholders to sell massively to the ESM, exhausting its finances and forcing governments to commit more resources, Fuest, a member of the German Finance Ministry’s group of academic advisers, said in the op-ed article published in the Dusseldorf, Germany-based newspaper today.
• Euro-Area Manufacturing Contracted for 11th Month in June. Euro-area manufacturing output contracted for an 11th straight month in June as Europe’s debt crisis sapped demand across the continent. A gauge of euro-region manufacturing held at 45.1 in May, London-based Markit Economics said today in a final estimate. That compares with an initial estimate of 44.8 on June 21.
• Hollande Needs EU43 Billion 2012-13 Savings, Auditor Says. France needs as much as 43 billion euros ($54 billion) in savings this year and next, the national auditor said, setting the stage for budget cuts by Socialist President Francois Hollande. The coming year is “a crucial one in which the budgetary calculation will be difficult -- more difficult than thought because of slower growth,” Didier Migaud, who heads the audit body, told journalists today in Paris. “It will require an unprecedented brake on spending and higher taxes.”
• Spain Overestimating Bank Profit Risks Seeking Too Little. Spain, which for years underestimated losses at its banks, is poised to overestimate how much they can earn in an economy mired in recession. One of two outside advisers hired by the Spanish government to conduct stress tests on the nation’s lenders estimated that losses could reach 274 billion euros ($347 billion) in the next three years.
• Peugeot May Lift Job Cuts Target to 10,000 Posts, Union Says. PSA Peugeot Citroen (UG) plans to eliminate more jobs in 2012 than previously announced, cutting as much as 10 percent of its French workforce, to reduce operational costs amid the region’s slumping auto market, a union official said. “They will raise the job cuts target in France alone to 8,000-10,000,” Christian Lafaye, the head of Peugeot’s second- biggest union FO, said in an interview, declining to say where he got the information. Europe’s second-largest automaker said in November it aimed to reduce headcount by 6,000 in the region.
• UN Plan’s Failure to Force Assad Exit Seen as Russian Win. A United Nations-brokered peace plan for Syria is a victory for Russia because it lacks clear wording excluding Syrian President Bashar al-Assad from taking part in a transition of power, analysts in London and Washington said.
• U.S. Manufacturing Contracts For First Time In Three Years. Manufacturing in the U.S. unexpectedly shrank in June for the first time in almost three years, indicating a mainstay of the expansion may be faltering. The Institute for Supply Management’s index fell to 49.7, worse than the most-pessimistic forecast in a Bloomberg News survey, from 53.5 in May, the Tempe, Arizona-based group’s report showed today. Figures less than 50 signal contraction. Measures of orders, production and export demand dropped to three-year lows. Assembly lines may be slowing as consumers temper purchases of vehicles and other goods and companies limit investments in new equipment. At the same time, export markets for manufacturers like DuPont Co. (DD) and Steelcase Inc. (SCS) are finding it more difficult as Europe struggles with a debt crisis and Asian economies including China weaken. The ISM’s U.S. production index decreased to 51, the lowest since May 2009, from 55.6. The new orders measure dropped to 47.8, the weakest since April 2009, from 60.1, and the gauge of export orders declined to 47.5 from 53.5. The slump in orders from the previous month was biggest since October 2001, after the September 11 terrorist attacks. The employment gauge decreased to 56.6 from 56.9 in the prior month. The measure of orders waiting to be filled fell to 44.5 from 47. The inventory index dropped to 44 from 46, while a gauge of customer stockpiles rose to 48.5 from 43.5. A figure less than 50 means manufacturers are reducing stockpiles. The index of prices paid decreased to 37 from 47.5.
• Oil Drops as U.S. Manufacturing Shrinks in June. Oil fell after manufacturing in the U.S. unexpectedly shrank for the first time in almost three years in June. Prices tumbled as much as 3.4 percent as the Institute for Supply Management’s U.S. factory index fell to 49.7 in June from 53.5 a month earlier. Euro-area unemployment reached the highest level on record in May, the European Union’s statistics office said today. Oil’s decline followed a 9.4 percent jump June 29. “The ISM number strongly suggests that we’ve got a long haul before we see improvement in the economy and oil demand,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “Economic data combined with the spike on Friday are going to convince people to get out of the market.”
• Berkshire’s(BRK/A) Pederson Says U.S. Businesses Scaling Back. Berkshire Hathaway Inc. (BRK/A)’s furniture- rental unit saw a slowing in demand from business clients in the second quarter, indicating that firms are curbing spending on projects amid less optimism about the U.S. economy. Demand is “simmering compared to where it was at the beginning of the year, when it looked like the recovery, at least from our perspective, would have been pretty robust,” said Jeff Pederson, the new chief executive officer of Berkshire’s CORT Business Services Corp., the world’s largest provider of rental furniture.
• Defense Cuts of $500 Billion Vex Officials as Ax Nears. With $500 billion in cuts to U.S. defense programs over 10 years set to begin on Jan. 2, industry contractors and analysts say the challenge isn’t only the amount of the cuts, it’s how they’ll be managed.

Wall Street Journal:

• Money Funds Buck Euro-Zone Retreat. At a time when many money-market mutual funds are piling out of Europe, some are looking for more of it in their quest for higher returns. Eight of the 20 money funds with the most exposure to Europe, as measured by total assets at the end of May, increased their euro-zone holdings between last August and May 31, according to iMoneyNet, a research firm in Westborough, Mass. Managers of the eight money-market mutual funds that ramped up their European holdings include BlackRock Inc.(BLK) and Goldman Sachs Group Inc(GS).
• Fresh Skirmishes Over ‘Obamacare’. The parties’ back-and-forth continued Monday following the Supreme Court’s health care decision.
• Get Ready for the New Investment Tax. It really is happening. Until this week, investors were waiting to see what the Supreme Court would do about the 3.8 percentage-point surtax on investment income, part of President Obama's health-care overhaul.
  

CNBC.com:

• Euro Zone Compared to 'Titanic' as Data Disappoint. The euro zone is lacking in “lifeboats” as the Titanic once was, a UK politician warned Monday as employment and manufacturing data painted a gloomy picture of the region’s prospects. Former Defense Secretary Liam Fox, from the UK’s ruling Conservative Party, said in a speech Monday: “Off the euro sailed, lauded as unsinkable as once the Titanic was, and still no one worried about the lifeboats.” Manufacturing shrank again in June and companies are preparing for more bad news to come, according to Markit's Eurozone Manufacturing Purchasing Managers' Index (PMI), which was unchanged at 45.1 in June — the lowest reading in two years. Euro zone jobs figures also made for difficult reading, with unemployment in the region hitting its highest ever level of 11.1 percent in May. There are continuing worries about youth unemployment, with the countries worst-affected by the crisis suffering badly.
• No Big Stimulus for China Even If Slowdown Worsens.
• Stung by Recession, Young Voters Shed Image as Obama Brigade. In the four years since President Barack Obama swept into office in large part with the support of a vast army of young people, a new corps of men and women have come of voting age with views shaped largely by the recession . And unlike their counterparts in the millennial generation who showed high levels of enthusiasm for Mr. Obama at this point in 2008, the nation’s first-time voters are less enthusiastic about him, are significantly more likely to identify as conservative and cite a growing lack of faith in government in general, according to interviews, experts and recent polls.
• Fed Will Take Away Punch Bowl When Time Comes: Williams. The Federal Reserve is prepared to take away the "punch bowl" of easy monetary policy when the time comes, although getting the timing right while keeping inflation low will be a tough job, a top Fed official said Monday.

Business Insider:

• The German Supreme Court Is Going To Make A Decision That Will Make The Obamacare Drama Look Like Child's Play.
• Chart of the Day: The Last Time ISM New Orders Collapsed Like This, It Was Right After the 9/11 Attacks.
  

Zero Hedge:

• There Aren't Enough Rich People To Tax.
• Euro Bailout Fatigue.
• Sorry, Bucko, Europe Is Still In A Death Spiral.
• China's Landing Getting Harder As Stimulus Fails To Prime Pump.

Insider Monkey:

• How Did Einhorn's, Ackman's and Paulson's Stock Picks Perform? Second quarter wasn’t very kind to most hedge fund managers‘ long positions. S&P 500 index ETF (SPY) lost 2.84% during the quarter. Most hedge funds’ large-cap stock picks performed even worse than this. In this article we will take a look at the performance of top hedge fund managers’ large-cap stock picks.

FINalternatives:

• FoFs Manage Historically Low Percentage of HF Assets. Funds of hedge funds managed a historically low percentage of overall hedge fund assets in Q1 2012 according to research from eVestment|HFN. Funds of funds accounted for only 36% of assets in hedge funds at the end of the first quarter, down from 38% at the same time last year and 49% three years ago. Funds of funds managed an estimated $909.8 billion as of March 2012, compared to total hedge fund AUM of an estimated at $2.554 trillion.

Reuters:

• World manufacturing downturn deepest in 3 yrs-PMI. Global manufacturing activity contracted in June at the fastest pace in three years, dragged down by the euro zone but also by weakness at U.S. and Chinese factories, a business survey showed on Monday. The JPMorgan Global Manufacturing PMI fell to 48.9 in June from 50.6 in May, dropping below the 50 mark that divides growth from contraction for the first time November, and its lowest reading since June 2009.
• US May construction spending hits 2-1/2 yr high. U.S. construction spending rose to its highest level in nearly 2-1/2 years in May as investment in residential and federal government projects surged, a rare dose of good news for the flagging economic recovery. Construction spending increased 0.9 percent to an annual rate of $830.0 billion, the highest level since December 2009, the Commerce Department said on Monday. That followed an upwardly revised 0.6 percent rise in April.

Telegraph:

• Debt crisis: Finland threat to plans to unleash ESM. Finland, one of the eurozone’s few remaining AAA-rated economies, has pledged to block Brussels’ celebrated plans to allow its new bail-out fund to buy sovereign bonds in the market.

Die Welt:

• The European Union can master the euro region's sovereign-debt crisis without resorting to jointly issued government bonds, EU Energy Commissioner Guenther Oettinger said. Chancellor Angela Merkel has made it clear that Germany won't support so-called euro bonds now or in the near future, Oettinger said.
  

Globe and Mail:

• The Heart of Euro Crisis Still Untouched. When the markets aren’t expecting anything beyond more empty promises, delay and denial, even modest progress can take on the appearance of a genuine breakthrough in tackling a two-year-old debt crisis that has turned radioactive and spread to the core of the monetary union. But is this really the time to be loading up on European equities, Spanish bonds or the euro itself? Not in the view of crisis watchers who have seen this movie too many times.

Xinhua:

• China Major Ports Face Coal Inventory Oversupply. Coal inventories at China's major ports of Qinhuangdao, Tangshan and Huanghua have reached record highs in recent days, citing official statistics. Coal supplies for the 3 ports were 18.3m tons on June 30.

Bear Radar

Style Underperformer:

• Large-Cap Value -.50%

Sector Underperformers:

• 1) HMOs -1.87% 2) Oil Tankers -1.83% 3) Road & Rail -1.11%

Stocks Falling on Unusual Volume:

• TTC, GNRC, FST, PVA, UNH, GE, OREX, ARNA, LQDT, VRA, DLTR, PMTC, PRAA, QCOR, LIFE, ICUI, SIAL, ULTA, UBNT, OPEN, LULU, GPOR, GRMN, LIVE, ZBRA, CREE, QLIK, ANDE and UCO
  

Stocks With Unusual Put Option Activity:

• 1) XLB 2) MMR 3) MU 4) DVN 5) IYT
  

Stocks With Most Negative News Mentions:

• 1) DLTR 2) FST 3) ADM 4) GMCR 5) HPQ
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth -.21%

Sector Outperformers:

• 1) Hospitals +1.87% 2) Telecom +1.07% 3) Education +1.06%

Stocks Rising on Unusual Volume:

• AMPE, AMLN, IM, LNCR, ALGN, SXCI, AYI, BBY, THRX, GDOT and GNC
  

Stocks With Unusual Call Option Activity:

• 1) WFR 2) LNCR 3) SWKS 4) AMLN 5) QCOR
  

Stocks With Most Positive News Mentions:

• 1) BA 2) LNCR 3) INTU 4) ITT 5) X
  

Charts:

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

Monday Watch

Weekend Headlines
Bloomberg:

• Euro Leaders Turn to Central Bankers for Help to Tackle Crisis. Europe’s political leaders turn to the European Central Bank this week, seeking assistance from monetary policy makers to reinforce gains following euro-area leaders’ moves to calm markets and accelerate the currency bloc’s integration. The Frankfurt-based ECB may offer help on July 5, with economists expecting an interest rate cut. The bank has a track record of action following political progress, including bond purchases that followed bailout programs and unlimited three- year loans on the heels of pledges supporting fiscal discipline. Economists expect the ECB to lower its benchmark interest rate by at least 25 basis points to a record low of 0.75 percent, according to the median of 57 estimates in a Bloomberg survey, as a worsening economic outlook dampens price pressures.
• Ifo’s Sinn Says EU Accord Threatens Germany, Handelsblatt Says. The outcome of last week’s European summit threatens Germany’s financial stability, Handelsblatt reported, citing Hans-Werner Sinn, the president of the Munich- based Ifo research institute. “The German state is being drawn ever deeper into the southern European crisis, while investors from all over the world, who have gambled and lost, can now get out of the vortex at the last minute,” Sinn was cited as saying. The fiscal pact, which Germany had pushed for, won’t be taken seriously outside the country, Sinn said, according to Handelsblatt.
• Spain Overestimating Bank Profit Risks Seeking Too Little Relief. Spain, which for years underestimated losses at its banks, is poised to overestimate how much they can earn in an economy mired in recession. One of two outside advisers hired by the Spanish government to conduct stress tests on the nation's lenders estimated that losses could reach $347 billion in the next three years. While Spain's two largest lenders earn most of their income outside the country, smaller banks depend on domestic business. Most are paying higher rates for deposits than they earn on mortgages. Their most profitable trade - borrowing at 1% from the ECB and lending to the Spanish government at 6% - risks bankrupting the country. "As the economy keeps going south, the second-tier banks can't generate earnings and their losses will rise more," said Alberto Gallo, head of European macro credit research at Royal Bank of Scotland Group Plc in London. "There's no end to plugging banks' losses. The banks will eventually provide the straw that breaks the camel's back."
  
• Bundesbank Sees No European Bank Safe From Crisis, Focus Says. Bundesbank Vice President Sabine Lautenschlaeger said “no European bank is safe from considerable losses” if the region’s sovereign-debt crisis worsens, Focus magazine reported, citing an interview. German banks are better prepared than three years ago, though they are still susceptible to the crisis, the publication cited Lautenschlaeger as saying. There are currently no signs that investors are moving capital out of Germany because the country continues to be seen as a “safe haven,” Lautenschlaeger was cited as saying.
• German Exporters See Worsening Relations With Markets, WiWo Says. German exporters are facing worsening relations with potential buyers in target markets and are being asked to justify their government’s austerity and reform policy, WirtschaftsWoche reported, citing Anton Boerner, the president of Germany’s BGA exporters group. The euro zone needs to clarify after summer recess whether countries in crisis are willing to carry out necessary reforms, as otherwise the market would force a decision before the end of the year, Boerner was cited as saying. If countries want to keep the euro but aren’t capable of enacting reforms, budget sovereignty needs to be transferred to European level, he said according to the report.
• Corporate Bonds Lose Haven Appeal as Crisis Deepens: Euro Credit. Corporate bonds are losing their appeal as a haven from the euro-region crisis as Europe's weakening economy undermines companies' ability to withstand the financial storm.
  
• European Banks Bolster Capital With Shunned Bonds: Mortgages. Spanish and Portuguese banks are leading European lenders in buying back their own mortgage- backed securities at distressed prices to bolster capital and stockpile eligible collateral for European Central Bank loans. Banco Bilbao Vizcaya Argentaria SA, Banco Comercial Portugues SA and other lenders this year repurchased 6.6 billion euros ($8.4 billion) of asset-backed bonds they issued, more than double the level for all of 2011, according to data compiled by Deutsche Bank AG. Banks buy the debt, packages of loans in which they kept subordinated portions, for less than face value, and book a capital gain similar to the discount.
• Pimco Sees German Bonds Losing Safe Haven Status, WiWo Reports. Pacific Investment Management Co. expects Germany to lose its status as a safe haven and has reduced the amount of the country’s sovereign debt it holds, WirtschaftsWoche reported, citing Andrew Bosomworth, who leads Pimco’s operations in the country. Germany will have to pay whether the euro zone survives the debt crisis or not, either in contributions to rescue funds and joint debt liability or to reduce the impact of an ensuing recession and to rescue lenders, the German publication cited Bosomworth as saying. Pimco has switched its focus to bonds from the US, the U.K. and Scandinavia, Bosomworth was cited as saying.
• Greenspan Says Europe Like a ‘Leaking Boat’ With Holes. Alan Greenspan, a former Federal Reserve chairman, today compared Europe to a “leaking boat” and said political consolidation is the only solution to the region’s financial crisis. “The problems in Europe are the fiscal deficits of all the various countries that are involved,” Greenspan said in an interview on CNBC television. “It’s like a leaking boat in which we keep bailing it out and we’re very pleased with ourselves that we’d be able to keep bailing it out. The problem is we haven’t fixed the holes yet.”
• Flossbach Sees Euro Union Down to 6 Countries, O Globo Says. Bert Flossbach, chief executive officer of German asset-management firm Flossbach von Storch AG, sees the euro monetary union reduced to six countries in Central Europe, O Globo newspaper reported, citing an interview. Greece, Portugal, Cyprus will be the first countries to leave the bloc, he said, adding that Italy’s and Spain’s economic situations also raise concerns. Greece won’t be able to pay back the amount of credit granted by the European Central Bank during the crisis and the market will see its exit out of the bloc with relief, Flossbach is quoted as saying. The European Union will have to financially help the Italian and Spanish banks, otherwise the effect of the crisis would contaminate other banks in an “unthinkable disaster,” Flossbach is quoted as telling O Globo.
• France Sees Public Investment Bank by Year-End, Parisien Says. Arnaud Montebourg, France’s minister for productive recovery, said a public investment bank will be created by the end of the year, Le Parisien reported in its Sunday edition, citing an interview. The law to create the bank will be ready after the summer holidays, Montebourg said, according to the newspaper. Private banks are not “sufficiently interested” in the real economy, preferring to be active in global markets, and the “confusion” between the role of savings banks and investment banks has “many adverse effects,” Montebourg said, according to Le Parisien. Montebourg said it’s “absurd” that banks post “indecent margins at the cost of crushing our industrial economy,” and setting profit margins at 15 percent enters the realm of “unscrupulousness and indecency,” the paper wrote.
• US Steel(X) Gets Warnings Shot On Ratings From S&P. Standard & Poor's lowered its outlook on U.S. Steel Friday, citing weaker prices and sagging demand for steel. S&P cut U.S. Steel to negative from stable but kept its rating on the company's debt at BB, two notches down from the lowest investment grade. S&P credit analyst Marie Shmaruk said in a statement that the firm changed its view because U.S. Steel Corp.'s performance could weaken over the next year. The main culprit is "deteriorating pricing as a result of excess domestic supply, increased imports, and lower scrap prices." Risks that S&P sees for Pittsburgh-based U.S. Steel include ties to markets that swing with economic cycles, high levels of debt and a "significant" underfunded obligation to its pension plan.
• Bristol-Myers(BMY) to Acquire Amylin(AMLN) for $5.3 Billion. Bristol-Myers Squibb Co., which failed to get U.S. approval for a new diabetes treatment in January, will pay $5.3 billion for Amylin Pharmaceuticals Inc., the maker of two drugs on the market for the disease. The purchase comes a month after Bristol’s top seller, the blood-thinner Plavix with $7.1 billion in sales last year, began facing generic competition. In 2013, the New York-based company loses patent protection on its $1.6 billion HIV drug, Sustiva. Under the agreement announced yesterday, Bristol-Myers will pay $31 a share in cash, a 10 percent premium to the June 29 closing price for San Diego-based Amylin. At the same time, AstraZeneca Plc (AZN), based in London, will pay Bristol $3.4 billion to help develop Amylin’s drug portfolio, the companies said.
• Stockton Threatens to Bbe First City to Stiff Bondholders. History may be against Stockton, California, which this week became the biggest city to file bankruptcy in the U.S., saying it may try to impose losses on lenders. Since at least 1981, and possibly as far back as the 1930s, no U.S. municipality has used bankruptcy to force bondholders to take less than the full principal due, according to experts and court records. Before the June 28 court filing, Stockton officials said they will try to impose cuts on all creditors, not just employees. “We’re trying to spread the pain, unfortunately, to others besides employees,” City Manager Bob Deis told City Council members at a June 26 hearing.
• Google(GOOG) Said to Face U.S. Probe Over Motorola Patents. A U.S. antitrust regulator has opened a formal probe into whether Google Inc. Motorola Mobility unit is honoring pledges it made to license industry- standard technology for mobile and other devices on fair terms, three people familiar with the situation said.
• Iran Oil Sanctions Starting Risks Biggest OPEC Loss Since Libya. European Union sanctions on Iran entered into full force today after exemptions on some contracts and insurance ended, boosting crude prices and pressure on the Persian Gulf nation to halt its nuclear-enrichment program. The reduction in Iranian exports may become the biggest supply disruption from a member of the Organization of Petroleum Exporting Countries since an armed rebellion all but halted pumping in Libya last year, according to the International Energy Agency. It also comes just as a strike by Norwegian workers is curbing flows from North Sea fields.
• Barclays(BCS) Chairman Said to Be Poised to Resign After Libor Fine. Barclays Plc (BARC) Chairman Marcus Agius plans to resign after the bank was fined a record 290 million pounds ($455 million) for trying to rig interest rates, sparking a political outcry, according to a person briefed on the matter. An announcement may come as soon as today, said the person, who asked not to be identified because the move hasn’t been made public. Agius, 65, has been chairman of Britain’s second-largest bank by assets since January 2007.
• China Auto Stocks Fall After Report Guangzhou to Limit Cars. SAIC Motor Corp. led shares of Chinese automakers lower in Shanghai and Shenzhen after media reports said Guangzhou city would start limiting the number of cars on its roads. SAIC shares fell as much as 5.5%, Great Wall Motor Co. fell 9% and Guangzhou Automobile Group Co. shares fell 5.7% in Shanghai. The one-year trial, which takes effect immediately will cap the number of new cars at 120,000, the paper said, citing a government notice.
• Mursi Vows to Support Palestinians, Respect Existing Treaties. Egypt’s new Islamist President Mohamed Mursi today vowed to support the Palestinians in their quest for a homeland, while also saying his government will respect its existing international agreements, an acknowledgment of its peace treaty with Israel. Mursi, in his first speech after he was sworn into office, also said that bloodshed in Syria must end and that Egypt won’t stand for any attempts to violate Arab regional security. The remarks underscored a push to reclaim for Egypt the mantle of Arab leadership following the ouster of Hosni Mubarak in February 2011. “I declare from here that Egypt -- the people, the nation, the government and the presidency -- stands by the Palestinian people until they get all their legitimate rights,” Mursi said, speaking in the same Cairo University hall where U.S. President Barack Obama had addressed Egyptians and the Muslim world in 2009. “We will work for the completion of the national Palestinian reconciliation so that the Palestinian people can unite their ranks to regain their land and sovereignty.”
• Linde Agrees to Acquire Lincare Holdings(LNCR) for $4.6 Billion. Linde AG (LIN) said it will buy Lincare Holdings Inc. (LNCR), a homecare health company, for $4.6 billion. Linde will pay $41.50 a share for each Lincare share, a 22 percent premium to the stock’s closing price on June 29. The deal is expected to close in the third quarter, and will be funded through a loan and available cash.
• China Home Prices Rise for First Time in 10 Months, SouFun Says. China’s new home prices rose for the first time in 10 months as the government eased its monetary policies to bolster the economy, according to SouFun Holdings Ltd. (SFUN), the nation’s biggest real estate website owner. Home prices increased 0.1 percent from May to 8,688 yuan ($1,367) per square meter (10.76 square feet), SouFun said in an e-mailed statement today, based on its survey of 100 cities. Beijing led gains among the nation’s 10 biggest cities, climbing 2.3 percent from May, followed by the southern business hub of Shenzhen, which added 0.8 percent.

Wall Street Journal:

• Merkel Faces More Domestic Criticism. German Chancellor Angela Merkel won parliamentary backing for Europe's permanent bailout fund and a sturdier fiscal pact, considered key for fortifying the euro-zone, but faces new hurdles at home after political adversaries followed through with previous threats and filed legal challenges before Germany's highest court.
  
• Afghan Phaseout of Security Firms Draws Concerns. The Afghan government's plan to phase out private security firms has "increased the uncertainty over security" for U.S.-funded aid projects and increased the cost of guarding them, an audit released Friday by a U.S. government watchdog agency said. The Special Inspector General for Afghanistan Reconstruction, or Sigar, said security costs for more than a dozen major development projects could increase by over $55 million over one year as contractors switch to the Afghan Public Protection Force, a state-owned security force that is replacing private firms.
• Syrian Transition Plan Falters. A plan by world powers for a Syrian political transition appeared doomed Sunday, with Bashar al-Assad's regime interpreting the outcome as a fresh lifeline from Russia—its principal international backer—while the lack of any reference in the plan to Mr. Assad's departure from office angered the Syrian opposition. With no sign of any commitment by Syria's warring sides to embrace the transition plan outlined in Geneva on Saturday, many warned that violence could worsen even beyond the levels seen in June, which is now believed to have been the bloodiest month in the Syrian conflict.
• Grinding Energy Shortage Takes Toll on India's Growth. India is facing an energy crisis that is slowing economic growth in the world's largest democracy. At stake is India's ability to bring electricity to 400 million rural residents—a third of the population—as well as keep the lights on at corporate office towers and provide enough fuel for 1.5 million new vehicles added to the roads each month. Shortages of coal, oil and natural gas will require India to import increasing amounts of high-cost fossil fuels, say energy experts, risking inflation and putting the country in stepped-up competition with China, Japan and South Korea.
• Profit Forecasts Feel Europe's Effect. Europe is a mess. China is disappointing. So investors will be watching nervously as U.S. companies report quarterly earnings over the next few weeks for any signs of collateral damage in the American economy.

Business Insider:

• The Half-Life Of The New Euro Bailout Will Be Measured In Weeks.
• LIVE: Thousands Of Companies Around The World Reveal The Truth About The Global Economy.
• POLL: The Supreme Court's Approval Rating Plunges After The Obamacare Decision.
• Why The Debt-Dependent Status Quo Is Doomed in One Chart.
• Barron's: Get Ready For A Chinese Hard Landing.
• CITI: 10 Reasons Why We're Worried About The US Consumer.

Zero Hedge:

• Why Germany's TARGET2-Based Eurozone Preservation Mechanism Is Merely A Ticking Inflationary Timebomb.
• Germany Cries: "Europe Is Coming For Our Money", Greece Promptly Obliges.
• Spain Reminds Us What The Main Problem With Blank Checks Is: Says Q2 GDP Will Be Worse Than Q1.
• Turkey Scrambles F-16s On Syria Border As US Intelligence Says Syrian Story Was Correct All Along.
• The Four Paths Forward For The Euro Area.

CNBC:

• China HSBC PMI Hits 7-Month Low of 48.2 in June. China's factory activity shrank in June at the fastest pace in seven months as new export orders tumbled to depths last seen in March 2009, a private sector survey showed, underlining the risk of a lurch lower for the Chinese economy. The HSBC Purchasing Managers' Index (PMI) fell to 48.2 after seasonal adjustments, its lowest since November 2011, and little changed from a flash, or preliminary, estimate of 48.1. The final reading in May was 48.4.
• Apple(AAPL) Settles China iPad Trademark Dispute for $60 Million.
• Is Merkel 'Biggest Loser' in Euro Zone Showdown? Angela Merkel was portrayed across Europe as the big loser of a euro zone showdown in Brussels after the German chancellor was forced to accept the crisis-fighting measures championed by countries struggling with their debts. Newspapers in Spain, Italy and France on Saturday toasted the triumph of their leaders - Mario Monti, Mariano Rajoy and Francois Hollande - in pushing Merkel into a U-turn that would long have been unthinkable.

Wall Street All-Stars:

• Indicator Update: Fireworks in the Forecast.

LA Times:

• Apple(AAPL) wins court order blocking U.S. sale of Samsung Galaxy Nexus. A U.S. District Court has handed Apple a victory against one of its biggest competitors in the smartphone market by blocking U.S. sales of the Samsung Galaxy Nexus. U.S. District Judge Lucy Koh granted Apple a preliminary injunction against the Galaxy Nexus phone, which went on sale in the United States in mid-December. This is the second Samsung Galaxy product blocked by Koh this week: On Tuesday, she granted Apple a preliminary injunction against U.S. sales of the Galaxy Tab 10.1 tablet computer.

NY Times:

• Doubts Greet Plan for a New Euro Zone Bank Regulator. “Creating a common supervisor is an important step in the right direction, but we still don’t know whether it will be a brand new agency or an existing one with minor changes,” said Antonio Garcia Pascual, chief economist for Southern Europe at Barclays in London. “What’s important is that this agency ends the inadequate examination of lenders, from national champions to small savings banks, due to factors like local resistance and political interference.”

CBS News:

• Roberts switched views to uphold health care law. Chief Justice John Roberts initially sided with the Supreme Court's four conservative justices to strike down the heart of President Obama's health care reform law, the Affordable Care Act, but later changed his position and formed an alliance with liberals to uphold the bulk of the law, according to two sources with specific knowledge of the deliberations. Roberts then withstood a month-long, desperate campaign to bring him back to his original position, the sources said. Ironically, Justice Anthony Kennedy - believed by many conservatives to be the justice most likely to defect and vote for the law - led the effort to try to bring Roberts back to the fold. "He was relentless," one source said of Kennedy's efforts. "He was very engaged in this." But this time, Roberts held firm. And so the conservatives handed him their own message which, as one justice put it, essentially translated into, "You're on your own." The conservatives refused to join any aspect of his opinion, including sections with which they agreed, such as his analysis imposing limits on Congress' power under the Commerce Clause, the sources said. Instead, the four joined forces and crafted a highly unusual, unsigned joint dissent. They deliberately ignored Roberts' decision, the sources said, as if they were no longer even willing to engage with him in debate.

Reuters:

• Fiat CEO: Italy June car sales in double-digit dip. Italian car sales posted a double-digit fall in June, Fiat chief executive Sergio Marchionne said on Sunday, a day before the release of the latest such figures.
• France to lower GDP forecasts for 2012, 2013 - finmin. French Finance Minister Pierre Moscovici said on Sunday the government would lower its economic growth forecasts for 2012 and 2013 given the worsening economic climate. In an interview with Le Figaro newspaper, Moscovici said the government would reduce its 2012 forecast to at least 0.4 percent from 0.7 percent when its revised budget was presented to the cabinet on Wednesday. "As for 2013, everybody knows that we won't reach 1.7 percent. (So) betting on a range between 1 percent to 1.3 percent ... seems more credible," he said.

Financial Times:

• Maturing European CMBS loans repayment unlikely. Investors are unlikely to be repaid on the majority of European loans due this month that form the basis of the type of commercial mortgage-backed securities deals which thrived until the 2007-08 subprime crisis. A total of €2.5bn worth of commercial mortgage loans that were packaged together as securities and then sold on to investors are due to mature in July – the biggest month to date for maturing loans connected to European CMBSs.
• Call for tougher rules on US hedge funds. Manny Roman, a leading light of the UK hedge fund industry, has called for tighter regulation of the sector in the US to help prevent future scandals.
• The real victor in Brussels was Merkel. If you look behind the curtain, you will find that, for Italy at least, nothing has changed at all. The European Stability Mechanism was already able to purchase Italian bonds in the open market. The instrument was there, but not used. The agreed changes are subtle. Italy must still sign a memorandum of understanding, and subject itself to the troika – the International Monetary Fund, the European Central Bank and the European Commission. The procedure will be less invasive, more face-saving. But there will still be a procedure.
• Republicans See Way to Repeal. Party says will use process of ‘reconciliation’ if Romney wins.

The Telegraph:

• Italy has won this euro battle, but not the war. Long-suffering investors, desperate for some good news, have seized on the headlines from the latest in a long series of “last-ditch” European summits.
• Libor rigging 'was institutionalised at major UK bank'. Interest rate rigging was institutionalised at one of Britain's biggest banks, an insider has claimed, with market manipulation openly discussed between managers, staff and customers.
• Europe’s bad debts 'will bite in 2013’. Bad debts in the eurozone are a “ticking time bomb” for the continent’s economy, with the worst effects expected to be felt next year, a report has warned.

Handelsblatt:

• Eurofer Sees Russia WTO Spot Hurting Steel. Russia's accession to the WTO in Sept. threatens 60% to 70% of Europe's steel production capacity over time as import quotas are eliminated, citing Wolfgang Eder, CEO of Voestalpine AG. European steelmakers need to cut their annual capacity of 210m tons by 30m to 50m tons, Eder was cited as saying.

Der Spiegel:

• Germany's planned financial transaction tax may yield as much as 11.2 billion euros in annual revenue for the government, citing a study by the DIW economic research institute.
  

Bild-Zeitung:

• Asmussen Says 'Not Out of Woods' on Debt Crisis. The ECB Executive Board member said European governments need to continue their reform push as the ESM alone can't resolve the crisis, citing an interview. Asmussen said budget consolidation in the countries whose debt load is viewed as unsustainable by markets, and structural reforms in those countries that lack "competitiveness".
  

Expansion:

• Spain is negotiating with European Union to allow direct aid for its banks to be given to lenders that have already been nationalized. Spain wants mechanism for directly recapitalizing banks to be applied retroactively. Bankia, NovaCaixa, CatalunyaCaixa and Banco de Valencia could get direct aid. Direct aid can only be given when there is a supranational mechanism of financial supervision in place which may take a year, citing unidentified sources in the European Union.
  

El Pais:

• Spain's government is studying which items that currently have a reduced value-added tax rate of 8% can be taxed at 18% as a way of increasing tax revenues for the state. Travel, hotel and catering, food and sanitary products, home building are currently taxed at the reduced rate. The government may also raise super reduced tax rate of 4% to reduced rate of 8% for some items. Super reduced tax rate items included bread, milk, cereal, fruit, books, magazines and social housing.

Mainichi:

• North Korea's former leaders, Kim Jong Il, ordered the development of nuclear weapons before his death, citing an internal Workers' Party of Korea document. The 19-page document, created by the party in February, said uranium enrichment was for military purposes, according to the report.
  

Xinhua:

• Chinese Vice Premier Li Keqiang urged continuing curbs on speculative home demand and called for more efforts to build affordable housing units, citing his comments.

Economic Information Daily:

• Jan. -May profits at large and medium-sized Chinese iron and steel companies fell 94% on the year to 2.53b yuan, citing a person from the China Iron and Steel Association. Lower steel product prices, rising costs, weak demand and overcapacity have hurt the profits, citing an official from the association.

Haaretz:

• U.S. sends message to Israel, Iran, schedules joint military exercise with IDF. Senate votes for greater military support of Israel including what could be seen as direct support for an Israeli attack on Iran's nuclear program.
  

Weekend Recommendations

Barron's:

• Made positive comments on (AET), (RCL) and (LAZ).

Night Trading

• Asian indices are unch. to +1.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 170.0 -13.0 basis points.
• Asia Pacific Sovereign CDS Index 145.50 -3.5 basis points.
• FTSE-100 futures +.39%.
  
• S&P 500 futures -.18%.
• NASDAQ 100 futures -.24%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AYI)/.79
• (SMSC)/.33
  

Economic Releases
10:00 am EST

• ISM Manufacturing for June is estimated to fall to 52.0 versus a reading of 53.5 in May.
• ISM Prices Paid for June is estimated to fall to 45.7 versus 47.5 in May.
• Construction Spending for May is estimated to rise +.2% versus a +.3% gain in April.
  

Upcoming Splits

• (AME) 3-for-2
• (TTC) 2-for-1
  

Other Potential Market Movers

• The Fed's Williams speaking and the Eurozone Manufacturing report could also impact trading today.
  

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

Weekly Outlook

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

BOTTOM LINE: I expect US stocks to finish the week mixed as less Eurozone debt angst, short-covering and global central bank stimulus hopes offset rising energy prices, rising global growth fears and earnings worries. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 75% net long heading into the week.