Bull Radar

Style Outperformer:

• Small-Cap Value -1.10%

Sector Outperformers:

• 1) Airlines +.17% 2) Education +.11% 3) Hospitals -.13%

Stocks Rising on Unusual Volume:

• XRTX, SYNC and GMCR
  

Stocks With Unusual Call Option Activity:

• 1) WCG 2) TIBX 3) XOP 4) PCX 5) NFLX
  

Stocks With Most Positive News Mentions:

• 1) SBH 2) NFLX 3) MWW 4) GOOG 5) NOC
  

Charts:

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

Friday Watch

Evening Headlines
Bloomberg:

• Euro Set for Weekly Loss Before Spanish, German Factory Output. The euro headed for its biggest weekly decline in more than six months amid signs the region’s debt crisis is weighing on economic growth. The 17-nation currency held a two-day decline against the yen before data today forecast to show industrial production in Germany and Spain declined. The European Central Bank and the People’s Bank of China cut their benchmark borrowing costs yesterday, while the Bank of England expanded the size of its asset-purchase program. “The economic fundamentals surrounding the euro area look dire,” said Takuya Kawabata, researcher at Gaitame.com Research Institute Ltd. in Tokyo, a unit of Japan’s largest currency- margin company. “We can’t expect any economic indicators that can bolster the euro.” The euro was little changed at $1.2394 as of 8:38 a.m. in Tokyo from $1.2392 yesterday, when it touched $1.2364, the lowest since June 1. The shared currency is poised for a 2.2 percent drop this week, the sharpest decline since the five-days ended Dec. 16. Europe’s currency was at 99.05 yen from 99.03, set for a 2 percent weekly drop. The greenback bought 79.92 yen from 79.92 yen. Japan’s currency fetched 82.20 per Australian dollar from 82.22 yesterday when it reached 82.36, the weakest since May 4. German industrial output probably declined 1.2 percent in May from a year ago, according to economists surveyed by Bloomberg News before the Economy Ministry in Berlin releases its figures. A separate survey indicated Spanish production at factories, refineries and mines adjusted for the number of working days fell 8.1 percent from a year earlier. The National Statistics Institute is due to issue the data in Madrid.
• Fire Drills for a Euro Meltdown. It’s 9 a.m. on a Friday in June, and for an emergency response drill at Legg Mason’s Baltimore headquarters, Greece has just abandoned the euro. Gathered around a conference room table, with team members from offices in London, New York, and elsewhere joining by video, 15 employees are given eight hours before markets open in Asia to assess issues such as whether they can execute trades, the status of the firm’s investments, and how workers in European offices will be paid. Almost four years after the bankruptcy of Lehman Brothers Holdings froze the financial markets, asset managers Legg Mason, State Street (STT), Vanguard Group, and others are drawing lessons from that crisis to prepare for a worst-case scenario in Europe. They’re assembling special teams and testing information technology systems to avoid being blindsided by the disintegration of the euro, however remote—or imminent—that possibility might appear.
• Spain Rescue Seen Worse Than Cure as Hospitals Make Cuts. Patients and hospitals across Spain are wrestling with the same dilemma. Even as old debts get paid off -- the country’s 17 regions ran up some 12 billion euros in unpaid health bills through last year -- new ones are piling up. As a result, the need to break the cycle with spending cuts threatens to redefine the very notion of Europe’s tradition of socialized medicine: how best to treat patients, not how to make ends meet. “As long as it is state-funded, the health system will always run a deficit,” said Miguel Llorens, financial director for Hospital Provincial de Castellon.
• Made-in-London Scandals Risk City’s Reputation as Finance Center. London risks losing its status as the world’s top financial center as the $360 trillion interest-rate fixing probe follows a series of market abuses by banks that eroded trust in a city already shrinking faster than rivals. JPMorgan Chase & Co. (JPM)’s trading loss of at least $2 billion, the alleged $2.3 billion fraud at UBS AG (UBSN) and the investigation of at least a dozen banks including Barclays Plc (BARC) for rigging global interest rates all happened in London in the last year. The effect is taking a toll on the capital of a country enduring its first double-dip recession since the 1970s, which fired more financial-services workers than any other country in 2011 and again this year.
• Barclays Corrupts Libor and Maybe a Lot More. If Barclays Plc (BARC) would lie about its borrowing costs, what else would it lie about? That question gets to the heart of the damage Barclays did to itself by submitting false numbers for years to the British Bankers’ Association as part of the surveys used to set the London interbank offered rate, the benchmark for $360 trillion of financial instruments globally. The most important asset any bank has is trust -- especially when it comes to the figures on its own financial statements. Whatever credibility Barclays had, it’s been poured down the drain like last night’s suds.
• Top Won Forecaster Sees 5% Loss as Europe Crisis Damps Exports. South Korea’s won will post its worst quarter in a year as Europe’s financial crisis saps demand for exports, according to Credit Suisse Group AG, the top forecaster. The currency will fall 5.4 percent to 1,200 per dollar in three months, the weakest level since October, Ray Farris, the Singapore-based head of Asia Pacific fixed-income strategy, said in a July 4 interview. The second-largest Swiss bank had the closest estimates in the last six quarters as measured by Bloomberg Rankings. The projection is more bearish than the 1,170 median estimate in a Bloomberg survey of 27 analysts.
• Seagate(STX) Fourth-Quarter Sales, Gross Margin Miss Forecasts. Seagate Technology Plc (STX) said fiscal fourth-quarter sales and profit margin would miss the company’s previous forecast, citing reduced hard-drive shipments and a “supplier quality issue” that affected some products. Shares of Dublin-based Seagate fell as much as 6.6 percent to $23.43 in late trading, after being little changed at $25.08 at the close in New York. Seagate, the world’s largest maker (STX) of computer disk drives, expects to report fiscal fourth-quarter sales of $4.5 billion and gross margin, excluding certain items, of 33.6 percent -- lower than its previous forecast for sales of at least $5 billion and gross margin of 34.5 percent. The average estimate (STX) of analysts surveyed by Bloomberg was for $4.88 billion in sales and 34.7 percent gross margin.
• Amazon(AMZN) Said to Plan Smartphone to Vie With Apple(AAPL). Amazon.com Inc. (AMZN) is developing a smartphone that would vie with Apple Inc. (AAPL)’s iPhone and handheld devices that run Google Inc. (GOOG)’s Android operating system, two people with knowledge of the matter said.
• Pentagon Freeing $1.1 Billion Withheld From Pakistan. The Pentagon is preparing to release about $1.1 billion withheld from Pakistan’s military after that nation agreed this week to reopen supply routes into Afghanistan. The withheld dollars are part of the U.S. Coalition Support Fund to reimburse Pakistan for its support of U.S. counter- insurgency operations, Pentagon spokesman Navy Captain John Kirby told reporters today. Payments were suspended last year amid increased U.S.- Pakistan tensions even before Pakistan closed the land routes into Afghanistan in November as a result of an accidental U.S. attack that killed 24 Pakistani soldiers. Pakistan, which had demanded a U.S. apology for the deaths, agreed to reopen the lines after Secretary of State Hillary Clinton said “we are sorry” in a statement on June 3.
• China Busts Traffickers After Babies Auctioned Off for $7,800. Chinese police broke up child- trafficking rings in 15 provinces and arrested more than 800 people after babies were auctioned off to the highest bidder for up to 50,000 yuan ($7,800). Footage aired on Chinese television today showed a police officer involved in the raids wresting a child away from a woman who had allegedly bought it. Suspects and other rescued children were also shown being taken away by police. The July 2 raids involved 10,000 police and resulted in 181 children being freed and 802 arrests, the Ministry of Public Security said in a statement on its website yesterday. China’s one-child policy and a tradition of favoring boys have been cited as contributing to the nation’s trafficking problems.
• Quants Post Worst Month Since October as Winton Slumps 3.2%. Hedge funds that use quantitative strategies executed by computers suffered their biggest losses last month since October after being whipsawed by Europe’s sovereign debt crisis. The Newedge CTA Index, which tracks some of the largest systematic funds, lost 3.1 percent in June, erasing this year’s gains. David Harding’s $10.2 billion Winton Futures Fund Ltd. slumped 3.2 percent, extending this year’s loss to 4.1 percent, according to a person familiar with the performance. Man Group Plc (EMG)’s AHL Diversified fund lost 3.4 percent, while the Bluecrest BlueTrend Fund dropped 5.4 percent in June, an investor said.

Wall Street Journal:

• Traders' Messages Provide Grist for Investigators. Regulators probing the manipulation of key interest rates are zeroing in on a pile of potentially incriminating messages from traders at banks under investigation, according to people familiar with the investigation.
• Delay Seen (Again) For New Rules on Accounting. A long-awaited U.S. decision on whether to switch to global accounting standards—a holy grail for many companies with overseas operations—is likely to be delayed until next year. After weighing the issue for nearly 2½ years, the Securities and Exchange Commission's staff expects to issue a final report within weeks on International Financial Reporting Standards, the accounting rules adopted by most other countries.
• China's New Man in Hong Kong. Deng's promise of 'one country, two systems' may be in jeopardy.

Zero Hedge:

• The Next Imminent Bailout: Eminent Domain.
• Barclays(BCS) Wins Euromoney's Best Global Debt, Best Investment Bank, And Best Global Flow House Of The Year Awards.
• 80% of the World's Industrial Activity is Now Contracting.
  

CNBC:

• China’s Surprise Rate Cut Signals More Trouble Ahead. China’s unexpected cut in interest rates – the second in less than a month – suggests that the world’s second-biggest economy is in worse shape than it appears and the government is getting worried about growth prospects ahead of the release of key economic data next week.
• Anxiety Mounts as US Economy Limps Into 2nd Half. A slew of weak U.S. economic data is casting doubts over expectations of a pick-up in growth in the second half of the year. From manufacturing to job growth to consumer spending, the numbers have been grim, and economists are wondering whether they need to dial down forecasts for the remainder of the year. "Our sense was that of a gradual improvement. Now the sense is of muddling along at a low level of activity," said Adolfo Laurenti, deputy chief economist at Mesirow Financial in Chicago. "We went from seeing progress, though gradual and very uneven, to not seeing progress at all."
• Italy to Cut Spending, Jobs Despite Union Threats. Italy's cabinet met on Thursday to approve emergency legislation to reduce state spending and cut public sector jobs, setting up a showdown with unions who have threatened a nationwide general strike.

IBD:

• Equinix(EQIX) Rising On Digital Growth, REIT Conversion Talk.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows Mitt Romney attracting 47% of the vote, while President Obama earns 44%. Four percent (4%) prefer some other candidate, and five percent (5%) are undecided.

Reuters:

• Hedge funds fail to wow in first half. Hedge funds have little to brag about halfway through 2012, with some of the biggest names reporting only small returns and trailing the benchmark U.S. stock index. Paul Tudor Jones' flagship fund is up 1.59 percent through the third week in June, David Einhorn's biggest portfolio is up 3.7 percent in the first half, while Daniel Loeb told investors that his largest fund rose 3.9 percent during the first six months of 2012, investors in their funds said. Compared with a year ago when many hedge funds were losing money, these returns might sound like something to cheer, especially since they beat the benchmark HFRX Global Index's 1.22 percent gain. But they pale measured against the 8 percent rise in the Standard & Poor's 500 stock index during the first half, with the $2.1 trillion industry failing to wow at a time that public pension funds are increasingly turning to hedge funds to shore up ailing returns.
• Japan's Azumi: govt could run out of cash by Oct. Japan's government could run out of money to fund this fiscal year's budget by the end of October, the finance minister said, as a standoff in parliament over a deficit financing bill threatens to wreak havoc with the country's finances.
• California high-speed rail plan faces tough vote in Senate. The California state Assembly on Thursday approved an $8 billion high-speed rail financing plan that likely will face a tougher vote in the Senate over the system's projected $68 billion cost and concerns about its management.
• Judge orders JPMorgan(JPM) to explain withholding emails. A U.S. judge has ordered JPMorgan Chase & Co to explain why the court should not force the bank to turn over 25 internal emails demanded as part of an investigation into whether it manipulated electricity markets in California and the Midwest. The Federal Energy Regulatory Commission (FERC) filed a petition in federal court in Washington on Monday asking the court to order the bank to show cause as to why it would not comply with a subpoena issued by the commission as part of its investigation into the bank's power trading. On Thursday, U.S. District Judge Colleen Kollar-Kotelly gave the bank until July 13 to submit an explanation as to why the court should not enforce FERC's subpoenas. JPMorgan has asserted the emails are protected by the attorney-client privilege.
• Informatica(INFA) estimates weak quarter, shares slump. Data-integration software maker Informatica Corp estimated second-quarter results below analysts' expectations, a s customers delayed contracts and deal sizes shrank on challenging business conditions in Europe, sending its shares down more than 26 percent after the bell. Uncertainty in Europe, the company's second-largest market that brought in a quarter of its revenue last year, has hurt two of his top segments - financial services and public sector. Revenue for 2011 was $784 million. "Clearly, we did not adapt as rapidly as we should have to the changing macroeconomic environment, especially in Europe," Chief Executive Sohaib Abbasi said. The company expects adjusted earnings of 27 cents to 28 cents per share on revenue of $188 million to $190 million. Analysts on average were expecting earnings of 37 cents on revenue of $217.2 million, according to Thomson Reuters I/B/E/S. Informatica shares, which closed at $43.37 on the Nasdaq, were trading at $31.80 after the bell.
• Institutional investors rush to equity funds-Lipper.

Financial Times:

• Setback for GE’s(GE) solar power strategy. General Electric has suffered a significant setback to its ambitions to develop a multibillion-dollar solar power business, delaying for at least 18 months the panel manufacturing plant the US industrial group had planned to build in Colorado. Construction has been halted at the factory, which was announced in a highly publicised launch less than nine months ago.
• Iraq warns over al-Qaeda flux to Syria. Al-Qaeda fighters are crossing from Iraq to Syria to carry out attacks there, Iraq’s foreign minister said on Thursday, as Syrian activists accused regime loyalists of committing atrocities in an opposition stronghold just outside Damascus.
• Slowing emerging markets face debt hangover. China’s latest interest rate cut shows Beijing’s willingness to contribute to global efforts to ease credit in response to the slowdown induced by the eurozone crisis – just as it did four years ago after Lehman Brothers collapsed. Unfortunately, its results are unlikely to have the same impact as in 2008-9.

Telegraph:

• China heads for a hard landing.
  

Bild:

• Germany has halted a plan to send as many as 165 tax officials to Greece to bolster tax collection, citing people in the Finance Ministry and government. Greek officials weren't interested in help from Germany and saw it as meddling.

China Daily:

• The Chinese banking system is facing growing pressure from rising non-performing loans and expected profit declines in 1H caused by the economic slowdown and narrowing net interest margins, citing Xiao Gang, chairman of Bank of China Ltd.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.75% to -.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 167.0 +2.5 basis points.
  
• Asia Pacific Sovereign CDS Index 135.50 +.75 basis piont.
  
• FTSE-100 futures -.35%.
  
• S&P 500 futures -.15%.
  
• NASDAQ 100 futures -.21%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note

Economic Releases
8:30 am EST

• The Change in Non-Farm Payrolls for June is estimated to rise to 100K versus 69K in May.
• The Unemployment Rate for June is estimated at 8.2% versus 8.2% in May.
• Avg Hourly Earnings for June are estimated to rise +.2% versus a +.1% gain in May
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Bank of Italy Balance Sheet report could also impact trading today.
  

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

Stocks Slightly Lower into Final Hour on Surging Eurozone Debt Angst, Rising Global Growth Fears, Financial Sector Weakness, Earnings Worries

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Most Sectors Declining
  
• Volume: Light
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 17.20 +3.24%
  
• ISE Sentiment Index 89.0 +3.49%
  
• Total Put/Call .86 -5.49%
  
• NYSE Arms 1.28 +10.66%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 108.62 +1.95%
  
• European Financial Sector CDS Index 268.37 +5.2%
  
• Western Europe Sovereign Debt CDS Index 279.25 +3.32%
  
• Emerging Market CDS Index 267.62 +2.04%
  
• 2-Year Swap Spread 24.25 +.5 basis point
  
• TED Spread 38.75 +.75 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -69.25 -7.5 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .07% -1 basis point
  
• Yield Curve 130.0 -2 basis points
  
• China Import Iron Ore Spot $134.80/Metric Tonne -.22%
  
• Citi US Economic Surprise Index -60.20 +3.0 points
  
• 10-Year TIPS Spread 2.10 unch.
  

Overseas Futures:

• Nikkei Futures: Indicating +7 open in Japan
• DAX Futures: Indicating +6 open in Germany
  

Portfolio:

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

BOTTOM LINE: Today's overall market action is just mildly bearish as the S&P 500 rebounds from morning lows despite surging eurozone debt angst, financial sector weakness, a plunging euro currency, Obamacare/US "fiscal cliff" worries, mixed US economic data, earnings concerns and rising global growth fears. On the positive side, Steel, Homebuilding, Retail and Restaurant shares are especially strong, rising more than +.75%. Cyclicals are outperforming. "Growth" stocks are meaningfully outperforming "value" shares, as well. Oil is falling -.9%, Lumber is jumping +3.7% and Gold is down -.9%. Major Asian indices were mixed as a +.5% gain in Hong Kong was offset by a -1.2% loss in Shanghai. Chinese stocks are flat over the last week despite the global equity rally and stimulus optimism. The large surge in food prices over the last couple of months makes aggressive easing action less likely. On the negative side, Energy, Oil Service, Semi, Bank, I-Banking and Education shares are under pressure, falling more than -1.0%. The UBS-Bloomberg Ag Spot Index is rising another +2.7% and Copper is down -1.3%. The 10Y Yld is falling -4 bps to 1.49%. Major European indices fell today, led lower by a -3.0% decline in Spanish shares. Italian equities also fell -2.0%. The Bloomberg European Bank/Financial Sector Index is falling -1.25%. The Citi Latin America Economic Surprise Index is picking up downside steam, falling another -1.3 points today to -17.2, which is the weakest since mid-August of last year. The Germany sovereign cds is rising +1.9% to 97.53 bps, the France sovereign cds is gaining +4.5% to 183.83 bps, the Italy sovereign cds is gaining +6.7% to 495.71 bps, the Spain sovereign cds is jumping +7.3% to 552.28 bps, the UK sovereign cds is gaining +3.5% to 72.14 bps and the Portugal sovereign cds is up +4.3% to 810.18 bps. The The Spain 10y Yld is rising +5.7% to 6.78% and the Italian/German 10Y Yld Spread is jumping +6.5% to 459.65 bps. Moreover, the 3M Euribor/OIS Spread is jumping +18.4% to 50.6 bps and the European Investment Grade CDS Index is gaining +3.9% to 164.99 bps. US weekly retail sales have decelerated to a sluggish rate at +2.2%, 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 -5.0% 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 -50.0% from its Oct. 14th high and is now down around -35.0% ytd. China Iron Ore Spot has plunged -25.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +133.0% ytd. The CRB Commodities Index is now technically in a bear market, having declined -20.3% since May 2nd of last year. Spanish and Italian yields are back 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. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. The AAII % Bulls jumped to 32.6 this week, while the % Bears fell to 33.3. I said last week that while Europe appeared to have kicked-the-can again, investor euphoria would likely be fairly short-lived. The breakdown in the 3M EUR/USD Cross-Currency Basis Swap is a large red flag. As well, other key gauges of credit angst are breaking out technically again. The Citi Eurozone Economic Surprise Index is at -79.0 points, which is the lowest since mid-Sept. of last year. Massive tax hikes and spending cuts are still yet to hit in several key eurozone countries that are already in recession. Lack of competitiveness remains unaddressed. I still believe it is very 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. A handful of market-leading growth stocks are leading the major averages off their morning lows today, however breadth and volume are poor. 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 rising eurozone debt angst, Obamacare/US "fiscal cliff" concerns, profit-taking, rising global growth fears, mixed US economic data, financial sector weakness, earnings concerns and more shorting.

Today's Headlines

Bloomberg:

• Draghi Says Rate Cuts May Have 'Muted' Impact On Economy. European Central Bank President Mario Draghi said today’s cut in interest rates to a record low may have only a limited impact on the euro-area economy as it slides toward recession. “It’s clear that when demand is weak the transmission of price signals to the aggregated economy is muted,” Draghi said at a press conference in Frankfurt after lowering the benchmark and deposit rates by 25 basis points to 0.75 percent and zero respectively. The cuts will reduce the cost of central bank loans for struggling banks, Draghi said. China also lowered rates today and the Bank of England restarted its asset purchases, adding to a new round of global monetary stimulus. With Europe’s debt crisis curbing growth across the continent and damping the outlook for the world economy, the ECB was under pressure to ease monetary conditions, even though Draghi last month voiced misgivings about the effectiveness of a rate reduction. “The impact of today’s decision on the euro area will not be large” and “there is now little left for the ECB to do in terms of lowering interest rates,” said Julian Callow, chief European economist at Barclay’s Capital in London. “If the economy does not turn around during the second half, the Governing Council will have to address the case for outright large-scale asset purchases.”
• Spanish, Italian Bonds Slump as ECB Refrains From Extra Measures. Spanish and Italian bonds tumbled as the European Central Bank refrained from announcing any additional steps to cap debt yields in the two nations after cutting its benchmark interest rate to a record low. Spain’s 10-year yields climbed the most in the euro era after the nation’s borrowing costs increased at an auction amid concern the debt crisis is worsening. German two-year notes rose as the ECB also cut its deposit rate to zero to revive the region’s economy. Speaking in Frankfurt after the decision, ECB President Mario Draghi said the council didn’t discuss other non-standard tools. Spanish and Italian bonds jumped last week after euro-area leaders expanded steps to combat the turmoil. “The market was slightly disappointed as it hoped for the ECB to announce further steps to address the crisis,” said Lyn Graham-Taylor, a fixed-income strategist at Rabobank International in London. “The ECB may want to keep pressure on politicians to do their jobs. Our preference remains on core bonds as we expect the situation in the peripheral markets to deteriorate in the next few months.” The Spanish 10-year yield climbed 37 basis points, or 0.37 percentage point, to 6.78 percent at 5 p.m. in London after rising 43 basis points, the biggest increase since August 1994. The 5.85 percent bond due in January 2022 dropped 2.45, or 24.50 euros per 1,000-euro ($1,240) face amount, to 93.59. Italy’s 10-year bond yield increased 21 basis points to 5.98 percent. It earlier climbed to 6.04 percent, the first time it has breached the 6 percent level since June 29.
• European Bond Risk Rises as Central Bank Lowers Interest Rates. The cost of insuring against default on sovereign and corporate debt rose after the European Central Bank cut interest rates to a record low, while refraining from announcing additional steps to boost the economy . The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments rose 10 basis points to 279.5 at 3:40 p.m. in London. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings rose 22 basis points to 665. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings increased six basis points to 165. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers climbed 13 basis points to 268 basis points and the subordinated index increased 16 to 437.
• Euro Money Market to Get Little Stress Relief From ECB Rate Cuts. Estimates of future interbank euro borrowing costs fell to a record after today’s European Central Bank rate cuts, heightening concerns that ultra-low returns will further dissuade banks from lending to their peers. Three-month swaps linked to the euro overnight index average, or Eonia, fell to as low as 12.6 basis points after the ECB lowered its deposit rate by 25 basis points to zero percent. The measure of overnight unsecured lending transactions, the so- called Eonia-OIS swap, has fallen from 39 basis points at the start of the year. “The Eonia-OIS is likely to fall lower, and that may kill the interbank market because you’re taking such a large credit risk relative to the revenue you’re getting,” said Robin Belec, chief operating officer at In Touch Capital Markets Ltd. in London. “Banks that are short of liquidity may become more dependent on the ECB despite the zero deposit rate.” The cost for European banks to borrow in dollars rose to the highest in four months. The three-month cross-currency basis swap, the rate banks pay to convert euro interest payments into dollars, was 69 basis points below the euro interbank offered rate, the highest cost since March 5, from 58 yesterday. The one-year basis swap was 55 basis points below Euribor from minus 52 yesterday. Prices in the forward market for three-month Euribor relative to overnight indexed swaps -- known as the FRA/OIS spread -- rose to 30 basis points from 28. An increase signals banks are less willing to lend.
• German Companies Face Increased Loan Costs, Handelsblatt Says. Banking regulation will increase financing costs for German companies by about 5 billion euros ($6.3 billion) as banks pass on increased expenses to clients, Handelsblatt reported citing a study by the Technical University of Munich and the Association of Bavarian Business. Germany’s small- and medium-sized companies, are more reliant on bank loans than publicly trading companies that can tap the markets for funds, Handelsblatt said.
• Euro to Fall to $1.15 by Year End, UBS's Yu Says. (video)
  
• Focus Media(FMCN) Leads Most Chinese ADRs Lower After PBOC. Most Chinese stocks traded in the U.S. fell after the nation cut the benchmark interest rates for a second time in a month as economists forecast the slowest economic growth in three years. “They often act preemptively when data is weak,” Erik Lam, the director of Asian equity sales at Auerbach Grayson & Co. in New York, said by phone today. “Beijing is set to publish lots of data next week.”
• China's New Rules May Curb Credit Growth, CBRC Official Says. China plans to retain a cap on loans at 75 percent of deposits and may add further requirements that constrain credit growth under draft rules, a senior official at the banking regulator said. The liquidity-risk management regulations may be more stringent than the loan-to-deposit ratio set by the nation’s commercial bank laws, the China Banking Regulatory Commission official said, asking not to be named because the discussions aren’t public. The comments refute a report in the Economic Information Daily, which said today that the ratio won’t be included in the new rules and may be scrapped.
• China Policy ‘Misinterpretation’ Fueled Home Prices, Yi Says. China’s home price increase was the result of a “misinterpretation” of the nation’s economic policies, a government think tank researcher wrote today. China’s new home prices rose for the first time in 10 months as the government eased its monetary policies to bolster the economy, SouFun Holdings Ltd., the nation’s biggest real estate website owner, said this week. “The current rise in house prices has to a large extent been a result of misinterpretation of the government’s policies to stimulate the economy, an increase in real estate speculation and excessive concerns among ordinary homebuyers that prices will continue to rise,” Yi Xianrong, a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences, wrote in a commentary in the China Daily today.
• Default Risk of CMBS Tenants Rises for 2nd Month, S&P Says. Weighted avg default risk of top 70 tenants in conduit/fusion CMBS rose slightly to end June at 20.4, up from 20.3 in May, 19.6 in April, S&P analyst James Manzi wrote in a note. A higher value of the CTI Index indicates more credit risk.
• ADP Says U.S. Companies Added 176,000 Workers In June. The 176,000 increase followed a revised 136,000 gain the prior month that was higher than initially estimated, according to figures released today by Roseland, New Jersey-based ADP Employer Services. The median forecast of economists surveyed by Bloomberg News called for a 100,000 advance.
• Budget Impasse May Cost 300,000 U.S. Non-Defense Jobs. At least 300,000 jobs in industries including computer services, tourism, package delivery and meat processing may be lost if Congress fails to avert $1.2 trillion in automatic federal spending cuts starting next year. Across-the-board reductions in non-defense spending will have a ripple effect over the next two years on companies that aren’t government contractors, according to the Bipartisan Policy Center in Washington, which made the forecast. Hundreds of thousands more jobs are at risk from additional Defense Department reductions, amid an 8.2 percent jobless rate in May. “You are going to see reductions, frankly, in every area of the American economy,” Dov Zakheim, a former Defense Department comptroller who worked with the policy center, said in an interview.
• Service Industries in U.S. Grew Less Than Forecast in June. Service industries in the U.S. expanded in June at the slowest pace since January 2010, a sign the biggest part of the economy is struggling to gain momentum. The Institute for Supply Management’s non-manufacturing index dropped to 52.1, less than projected, from 53.7 in May, the Tempe, Arizona-based group said today. The median forecast of 70 economists surveyed by Bloomberg News called for 53. Readings above 50 signal expansion. The ISM non-manufacturing survey’s measure of business activity dropped to 51.7, the lowest since November 2009, from 55.6. The gauge of new orders decreased to an eight-month low of 53.3 from 55.5. An index of prices paid decreased to 48.9, the weakest since July 2009, from 49.8. The employment gauge climbed to 52.3 from 50.8 in the prior month.
• Banks Pad Profits As U.S. Prolongs Refinancing Boom: Mortgages. The biggest U.S. mortgage lenders, whose first-quarter earnings were buoyed by gains on home-loan refinancings, are raking in more profits as record-low interest rates and government efforts prolong the boom. Revised federal programs making it easier for homeowners to lock in lower rates helped push the Mortgage Bankers Association refinancing index to a three-year high last month. That signals a windfall for banks including Wells Fargo (WFC) & Co. that renewed about 5 million loans in 2011 amid the Federal Reserve’s drive to keep borrowing costs near zero. Wells Fargo is the nation’s largest home lender.
• Wall Street Bank Investors in Dark on Libor Liability. Barclays Plc (BARC) investors, blindsided by the bank’s $451.4 million regulatory fine for trying to rig benchmark rates, saw the stock drop 16 percent a day later. Other bank shareholders may be just as surprised. Bank of America Corp., Citigroup Inc. (C), Royal Bank of Scotland Group Plc and UBS AG (UBSN) are among the lenders whose participation in setting the London and Europe interbank offered rates, known as Libor and Euribor, are under investigation. None of the banks would say if they set aside reserves to cope with potential liabilities and, if so, how much.
• Bye Bye Big Apple: Bank Jobs Leave New York. (video)
• Dimon Faces Image ‘Nightmare’ With Energy Probe at JPM(JPM). JPMorgan Chase & Co. (JPM) refusal to turn over e-mails in a federal probe of potential energy-market manipulation is the latest challenge for Chief Executive Officer Jamie Dimon as the bank faces multiple investigations. The U.S. Federal Energy Regulatory Commission sued JPMorgan July 2 to release 25 e-mails in an investigation of possible manipulation of power markets in California and the Midwest by J.P. Morgan Ventures Energy Corp., according to court filings by the Washington-based agency. FERC opened the probe in August after complaints from California and Midwest grid operators that JPMorgan’s bidding practices were abusive, the documents show. “He’s got a PR nightmare in front of him,” said Paul Miller, a former examiner for the Federal Reserve Bank of Philadelphia and analyst at FBR Capital Markets in Arlington, Virginia. “It’s another headline risk, which means more regulators, which means over-regulation, which will eventually hit their bottom line.”

Wall Street Journal:

• Euro Risks More Losses After ECB Move. The euro plunged after the European Central Bank cut interest rates to a record low to prop up the ailing euro-zone economy, and analysts said the depreciation was likely to continue now that the interest-rate incentive to hold the common currency had become negligible. The euro slumped to a one-month low against the dollar and extended its losses against a range of other currencies after the ECB cut its deposit rate to zero and its main policy rate to 0.75% in an effort to thaw lending markets and stimulate economic activity.
• Rate Scandal Set to Spread. Former Barclays CEO Lambasted in Parliament as Other Banks Brace for Fallout. A day after abruptly resigning amid a mushrooming scandal over interest-rate manipulation, former Barclays PLC chief Robert Diamond on Wednesday was assailed by British lawmakers for the bank's actions, in a preview of the scrutiny likely to lie ahead for other big lenders that are under investigation. Barclays last week agreed to pay $453 million to settle U.S. and British authorities' allegations that the British bank tried to manipulate the London interbank offered rate, or Libor, which is the benchmark for interest rates on trillions of dollars of loans to individuals and businesses around the world.
  

MarketWatch:

• Apple(AAPL) Said to Plan Smaller iPad for This Year. Apple Inc.'s AAPL +2.36% component suppliers in Asia are preparing for mass production in September of a new tablet computer with a smaller screen, people familiar with the situation said, suggesting that the Cupertino, Calif., company is close to launching a smaller tablet. Two of the people said that the new tablet will likely come with a screen smaller than 8 inches, compared with the 9.7-inch screen of Apple's latest version of the iPad, which was released in March. The iPad's screen size has remained the same since the first model was released in 2010.

Fox News:

• Countrywide made discount loans to buy influence with members of Congress, House report says. The former Countrywide Financial Corp., whose subprime loans helped start the nation's foreclosure crisis, made hundreds of discount loans to buy influence with members of Congress, congressional staff, top government officials and executives of troubled mortgage giant Fannie Mae, according to a House report. The report, obtained by The Associated Press, said that the discounts -- from January 1996 to June 2008, were not only aimed at gaining influence for the company but to help mortgage giant Fannie Mae. Countrywide's business depended largely on Fannie, which at the time was trying to fend off more government regulation but eventually had to come under government control.

CNBC.com:

• Greece Admits Veering From Bailout Obligations. Greece conceded on Thursday it had slipped "in some respects" in implementing the cuts and reforms demanded by lenders in exchange for saving Athens from bankruptcy, and tried to persuade them to cut the country some slack.
• Merkel Makes New Enemies, This Time at Home. With her insistence on deeply unpopular austerity measures, German Chancellor Angela Merkel has won few friends in debt-laden southern European counties. Many saw in her tough stance and refusal to make concessions an unwavering commitment to the interests of her own electorate. But suggestions that she bowed to pressure from other euro zone leaders at a key summit last week have left her with new enemies, this time closer to home.
• China's Fleet of 'Ghost' Ships Signals Worsening Slowdown. China's huge fleet of coastal ships, usually confined to plying the Chinese seaboard, has sailed out of the shadows to seek international business in yet another sign that China's economy is slowing. The fleet, previously unnoticed by the global market, is suffering from a slowdown in China's coastal trade amid weaker domestic demand from utilities and steel mills and a growing glut in Chinese coal and iron ore stockpiles. The vessels are now being forced to seek new business such as in the Indonesian coal trade, dealing a further blow to the depressed global dry bulk shipping market. "There are many more ships lying idle at Chinese ports now - the environment for making money is not so good," said a source at one of the big five coastal shippers, who asked not to be identified.
• Spanish Banks’ Tale of Woe to Drag On. There is still more agony to come for Spanish banks.

Business Insider:

• Obama Gloats On The Supreme Court Decision: 'The Law I Passed Is Here To Stay'.
• Iran Says It's Time For The US And Israel To 'Disappear From The World'.

Zero Hedge:

• The Socialization Of America Is Economically Impossible.
• ECB Margin Calls Surge And Basis-Swaps Plunge. (graphs)
  

Mish's Global Economic Trend Analysis:

• Record Number of Homes for Sale in Melbourne; Sub-Prime Collapse; "No End in Sight" for Arrears on Low-Doc Loans. Given the alleged housing shortage in Australia, it is interesting to note a Record number of houses for sale in Melbourne.

Reuters:

• US to file WTO complaint against China on auto duties. The United States will file a complaint against China on Thursday with the World Trade Organization for imposing duties on more than $3 billion worth of U.S.-made autos, a senior U.S. official said. The complaint comes as President Barack Obama campaigns in Ohio, an important election battleground state where auto plants have been affected by the duties.
• U.S. crop worry to fuel world food prices in July: U.N. Searing heat in the U.S. Midwest is expected to see global food prices snap three months of declines in July, the UN said on Thursday, as some international grain prices surged to highs last seen during the 2007-08 food crisis.
• Copper dips on strong dollar; shrugs off rate cuts. Copper dipped on Thursday on a stronger dollar, retreating from gains after a surprise rate cut by China and a similar move by the European Central Bank that had been widely expected. Three-month copper on the London Metal Exchange fell 0.89 percent to $7,656 a tonne by 10.34 a.m EDT after earlier rising as much as 0.8 percent to a session high of $7,790 after the Chinese rate cut. Aluminium fell 0.61 percent to $1,944 a tonne.
• "Stagnant" Economy Takes Toll On U.S. Retailers' June Sales. Costco Wholesale Corp (COST), Macy's Inc (M), Kohl's Corp (KSS) and Target Corp (TGT) all reported disappointing June sales at stores open at least a year. Stubbornly high unemployment and anxiety about the economy took a toll on top U.S. retailers' sales in June, raising concerns that shoppers are penny-pinching ahead of the back-to-school season. "In part, this was a function of a macroeconomic environment that is stagnant at best," Macy's Chief Executive Terry Lundgren said in statement. A steady stream of weak economic reports, stubbornly high unemployment and a volatile stock market hurt shoppers' morale last month, underscored by a tumbling Thomson Reuters/University of Michigan's consumer sentiment index. Lower-priced retailers, like TJX Cos Inc (TJX), which runs the T.J. Maxx chain, and Ross Stores Inc (ROST), reported some of the largest gains as shoppers looked for deals on designer-brand clothes and home goods.
• UN urges countries to impose global taxes to boost aid. The United Nations on Thursday urged countries to impose international taxes to raise more than $400 billion a year, such as a carbon tax, a currency transaction tax and a billionaires tax, to offset cutbacks in aid by many countries amid global economic turmoil. The U.N. World Economic and Social Survey found the needs of developing countries were not being met, more money was needed to fight challenges like climate change and new taxes would help "donor countries overcome their record of broken promises."
• Portugal Risks Missing Fiscal Goal: Monitor. Bailed-out Portugal is likely to miss the 2012 budget deficit target set by international lenders unless the recession-hit nation sees improved indirect tax revenues, a parliament body that monitors budget execution warned. The debt-laden country slid into its worst recession since the 1970s after imposing tough tax hikes and spending cuts to put its public finances in order. Unemployment is at record highs of over 15 percent, undermining tax revenues.
• U.S. Ethanol Output Falls to 10-Month Low.
  

Telegraph:

• Quantitative easing misery for pensioners and savers. The Bank of England is expected to pump billions of pounds more into the economy today. A decision to resume "quantitative easing" (QE) could also send inflation rising again – more bad news for pensioners and savers, who would struggle to make a "real" return on their cash.
• China 'uses state funds to stockpile rare earths'. China is using state funds to stockpile rare earths, metals which are key to making mobile phones and other modern items, according to reports from Beijing.

AFP:

• Greece default likely: Sweden's Borg. Attempts to help Greece avoid bankruptcy appear doomed to fail, Swedish Finance Minister Anders Borg said Thursday, adding however that Athens might still manage to cling to the euro.

Ansa:

• Prime Minister Mario Monti's government may postpone a 2 percentage points increase of the value-added tax planned for October to July 2013, citing a draft of a decree law that is being discussed at a cabinet meeting today.
  

Folha de S. Paulo:

• Brazil President Dilma Rousseff's aides are considering the possibility of the economy growing 2% this year, below the official estimate by the central bank of 2.5%, citing government officials.
  

Xinhua:

• Xinjiang Top Official Oversees Counter-Terrorism Drill. A top official of northwest China's Xinjiang Uygur autonomous region oversaw a counter-terrorism drill staged by special forces in Urumqi ahead of the anniversary of the July 2009 riots. Zhang Chunxian, secretary of the Xinjiang committee of the Communist Party of China, on Wednesday asked the soldiers to keep vigilant against all sorts of hostile forces and to strike "three forces" -- a term for separatists, extremists, and terrorists -- with "iron fists."

Bear Radar

Style Underperformer:

• Large-Cap Value -.77%

Sector Underperformers:

• 1) Education -3.03% 2) Banks -1.33% 3) Energy -1.13%

Stocks Falling on Unusual Volume:

• LFL, CATO, STO, PRLB, SHPGY, MAPP, CPSI, SZYM, VVUS, BCOV, ZUMZ, LIFE and FMCN
  

Stocks With Unusual Put Option Activity:

• 1) CTSH 2) WFT 3) M 4) KSS 5) RIO
  

Stocks With Most Negative News Mentions:

• 1) AMD 2) CMS 3) RATE 4) ANH 5) SFD
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth +.19%

Sector Outperformers:

• 1) Retail +1.49% 2) Restaurants +1.38% 3) Homebuilders +.82%

Stocks Rising on Unusual Volume:

• ROST, KSS, LTD, DLTR, CHU, MLNX, OSUR, NFLX, LQDT, LF, YELP, TJX and VC
  

Stocks With Unusual Call Option Activity:

• 1) PCX 2) MNKD 3) ALXN 4) SYY 5) FXY
  

Stocks With Most Positive News Mentions:

• 1) LCC 2) JWN 3) ROST 4) TJX 5) APC
  

Charts:

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