Stocks Falling into Final Hour on Weak US Jobs Report, Rising Eurozone Debt Angst, Tech Sector Weakness, Earnings Concerns

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Almost Every Sector Declining
  
• Volume: Light
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 17.75 +1.43%
  
• ISE Sentiment Index 101.0 +18.82%
  
• Total Put/Call 1.10 +23.60%
  
• NYSE Arms 2.15 +21.47%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 108.62 +3.96%
  
• European Financial Sector CDS Index 282.92 +5.41%
  
• Western Europe Sovereign Debt CDS Index 283.57 +1.2%
  
• Emerging Market CDS Index 279.09 +4.47%
  
• 2-Year Swap Spread 25.25 +1.0 basis point
  
• TED Spread 38.75 unch.
  
• 3-Month EUR/USD Cross-Currency Basis Swap -59.0 +10.25 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .07% unch.
  
• Yield Curve 127.0 -3 basis points
  
• China Import Iron Ore Spot $135.10/Metric Tonne +.22%
  
• Citi US Economic Surprise Index -62.50 -2.3 points
  
• 10-Year TIPS Spread 2.07 -3 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating -55 open in Japan
• DAX Futures: Indicating +7 open in Germany
  

Portfolio:

• Slightly Lower: On losses in my tech, medical and biotech 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 bearish as the S&P 500 trades lower on surging eurozone debt angst, a plunging euro currency, tech sector weakness, Obamacare/US fiscal cliff worries, weak US economic data, earnings concerns and rising global growth fears. On the positive side, REIT, Education and Airline shares are flat-to-slightly higher on the day. Oil is falling -3.2%, the UBS-Bloomberg Ag Spot Index is -1.1%, Lumber is gaining +1.4% and Gold is down -1.4%. On the negative side, Coal, Alt Energy, Steel, Software, Computer, Semi, Networking, Computer Service, Defense, Internet, Disk Drive and Construction shares are under meaningful pressure, falling more than -1.75%. Cyclicals are underperforming. Tech shares are especially heavy. Copper is down -2.3%. The 10Y Yld is falling -5 bps to 1.55%. The Citi US Economic Surprise Index is falling to -62.5, which is right near the lowest since late-Aug. of last year. The Citi Latin America Economic Surprise Index is picking up downside steam, falling another -.7 point today to -17.9, which is near the weakest since mid-Oct. of last year. Major Asian indices were mostly lower overnight, led down by a -.92% loss in South Korea. Major European indices are falling around -1.75%, led lower by a -3.1% decline in Spain(-5.2% in 5 days and down -21.4% ytd). The Bloomberg European Bank/Financial Services Index is falling -2.3%. Brazil is falling -1.75% today. The Germany sovereign cds is rising +1.6% to 99.05 bps, the France sovereign cds is gaining +.65% to 184.97 bps, the Italy sovereign cds is gaining +3.95% to 515.16 bps, the Spain sovereign cds is jumping +4.7% to 578.20 bps(+8.1% in 5 days), the Portugal sovereign cds is up +4.95% to 850.28 bps, the Russia sovereign cds is up +3.1% to 221.35 bps and the Brazil sovereign cds is gaining +3.8% to 153.08 bps. The The Spain 10y Yld is rising +2.6% to 6.95%(+9.8% in 5 days) and the Italian/German 10Y Yld Spread is rising +2.2% to 469.94 bps(+10.6% in 5 days). Moreover, the European Investment Grade CDS Index is gaining +4.1% to 171.79 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 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 -4.0% 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 +135.0% ytd. Oil tanker rates are plunging this week, with the benchmark Middle East-to-US voyage falling -16.7% to 25.0 industry-standard worldscale points, which is the lowest since Oct. 2009. The CRB Commodities Index is now technically in a bear market, having declined -22.1% since May 2nd of last year. Spanish and Italian yields are back in the danger zone. The euro currency continues to trade very poorly and is testing its June 1st low. I expect the currency to break meaningfully below this level over the coming weeks and head substantially lower over the intermediate-term. Oil(turned away at downward-sloping 50-day moving average) and Copper(turned away at downward-sloping 200-day moving average) also continue to trade poorly, despite recent bounces. As well, the 10Y continues to trade too well, which remains a red flag. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. Key gauges of credit angst are breaking out technically again. The Citi Eurozone Economic Surprise Index is at -74.40 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. A lack of competitiveness remains unaddressed. 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. While today’s labor report was disappointing, it was probably not bad enough to prompt QE3. The bar for additional QE is likely higher than the Fed is letting on. I continue to believe QE was a huge mistake as it played a large role in the current global slowdown by helping to jack up commodity prices, thus creating significant inflation problems in key emerging market economies. Officials in these economies slammed on the brakes, which cut demand for goods and services from the Eurozone right when they needed that demand the most. 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. Stocks that miss earnings estimates are being severely punished despite the obvious headwinds. 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-higher into the close from current levels on short-covering, global central bank stimulus hopes, bargain-hunting and lower energy prices.

Today's Headlines

Bloomberg:

• Spain’s Bonds Drop as German Note Yield Falls Below Zero. Spanish bonds slumped, pushing 10- year yields above 7 percent for only the fifth day since the euro was created, amid concern politicians and central banks aren’t doing enough to prevent the region’s woes from deepening. German two-year notes rose, sending yields to less than zero, as investors sought the highest-rated securities after the European Central Bank refrained from announcing extra measures to stem the crisis yesterday. Austrian, Dutch, Belgian and French note yields fell to records on demand for greater returns than those from German securities. A negative rate means investors who hold the debt to maturity will receive less than they paid to buy them. “There are still a lot of questions that remain unanswered about the debt crisis, and we are cautious about peripheral bonds,” said John Stopford, head of fixed income at Investec Asset Management in London, which oversees $98 billion. “The market was disappointed that the ECB didn’t do more. Investors are also nervous about the macro picture. The risk is that they will continue to reduce exposure to peripheral bonds.” Spain’s 10-year yield rose 17 basis points, or 0.17 percentage point, to 6.95 percent at 4:40 p.m. London time, after climbing to 7.04 percent, the highest since June 20. The 5.85 percent bond due in January 2022 fell 1.105, or 11.05 euros per 1,000-euro ($1,230) face amount, to 92.485. The yield jumped 62 basis points this week, the most since the five days through June 15.
• Monti Cabinet Backs Spending-Cut Package to Replace Tax Increase. Italian Prime Minister Mario Monti replaced a looming sales-tax increase with a package of spending cuts, seeking to counter rising anger over the government’s demand for revenue. Monti’s Cabinet approved 26 billion euros ($32 billion) of spending cuts over the next three years to delay for at least a year an increase in the value-added tax rate to 23 from 21, the prime minister’s office said in an e-mailed statement after a seven-hour meeting in Rome that ended at 1 a.m. “This is the typical ’Italian-style’ reform that offloads the biggest chunk of the planned cuts onto the next government,” said Alberto Mingardi, head of the pro-free market Bruno Leoni research center in Turin. “The VAT increase is put back to July next year when this government won’t be in power anymore”
• Greek Six-Month Public Revenue Drops 1.5%, Kathimerini Says. Greece’s public revenue in the first six months of the year was about 1 billion euros ($1.2 billion) less than its budget target for the period after it dropped 1.5 percent compared with the year earlier, Kathimerini reported, without saying how it got the information. Net revenue increased 1 percent in June compared with the same month in 2011, while total revenue for the month, which is before tax refunds, declined 0.5 percent from June 2011, the Athens-based newspaper said.
• Lagarde Says IMF to Cut Growth Outlook as Global Economy Weakens. The International Monetary Fund will reduce its estimate for global growth this year on weakness in investment, jobs and manufacturing in Europe, the U.S., Brazil, India and China, Managing Director Christine Lagarde said. “The global growth outlook will be somewhat less than we anticipated just three months ago,” Lagarde said in a speech in Tokyo today. “And even that lower projection will depend on the right policy actions being taken.” The new outlook will be announced in 10 days, after an April estimate of 3.5 percent, she said.
• Spain Bank Aid To Be Channeled Through Government, EU Aide Says. Europe won’t obtain the powers to recapitalize banks directly in time for the injection of as much as 100 billion euros ($123 billion) into Spain’s financial system by mid-2013, a European official said. Spain’s bank-aid program, to be endorsed by European finance ministers next week, will channel the money via a Spanish state agency, the official told reporters in Brussels today on condition of anonymity. No formal decisions will come at the July 9 meeting, which will also offer a first glimpse of Greece’s plea for a relaxation of its bailout terms and take up Cyprus’s call for banking aid, the official said.
• JPMorgan(JPM), Goldman(GS) Shut Europe Money Funds After ECB Cut. JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS) and BlackRock Inc. (BLK) closed European money market funds to new investments after the European Central Bank lowered deposit rates to zero. JPMorgan, the world’s biggest provider of money-market funds, won’t accept new cash in five euro-denominated money- market and liquidity funds because the rate cut may result in losses for investors, the company said in a notice to shareholders. Goldman Sachs won’t accept new money in its GS Euro Government Liquid Reserves Fund, and BlackRock, the world’s largest asset manager, is restricting deposits in two European funds.
• U.S. Payroll Growth Trails Forecasts as Labor-Market Outlook Dims: Economy. American employers added fewer workers to payrolls than forecast in June and the jobless rate stayed at 8.2 percent as the economic outlook dimmed. The 80,000 gain in employment followed a 77,000 increase in May, Labor Department figures showed today in Washington. Economists projected a 100,000 rise, according to the median estimate in a Bloomberg News survey. Growth in private payrolls was the weakest in 10 months. Stocks fell on concern hiring has shifted into a lower gear, restricting consumer spending and leaving the economy more vulnerable to a global slowdown. The figures underscore concern among some Federal Reserve policy makers that growth isn’t fast enough to lower unemployment stuck above 8 percent since February 2009. “The job market is soft,” said David Resler, chief economic adviser at Nomura Securities International Inc., who correctly forecast the payrolls gain. “I’d characterize our reaction as much the same way the Fed will react -- not surprised but disappointed. It’s just not the kind of growth we need to see at this stage in the business cycle.” Private payrolls increased 84,000 in June after a revised gain of 105,000 that was larger than initially reported. They were projected to advance by 106,000 in June, the survey showed. The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- increased to 14.9 percent from 14.8 percent. Joblessness has exceeded 8 percent since February 2009, the longest such stretch since monthly records began in 1948. Employment at service providers increased 67,000 in June after a 98,000 gain, today’s report showed. Construction companies added 2,000 workers, while retailers cut 5,400 jobs. Uncertainty about the U.S. government’s fiscal outlook may still be hampering hiring plans. Congress has yet to resolve the so-called fiscal cliff, which represents more than $600 billion in higher taxes and reductions in defense and other government programs in 2013 that will take place without action. In a bright spot for workers, average hourly earnings rose to $23.50 from $23.44 in the prior month, today’s report showed. The average work week climbed six minutes to 34.5 hours. The number of temporary workers increased 25,200 in June after an 18,600 rise.
• Commodities Fall Most in Two Weeks on U.S., Europe Economic Woes. Commodities fell the most in two weeks as signs of a faltering U.S. economy and escalating debt woes in Europe signaled less demand for energy and metals. The Standard & Poor’s GSCI Spot Index (MXWD) of 24 raw materials declined 2.2 percent to 606.48 at 11:52 a.m. in New York. A close at that level would mark the biggest decline since June 21. Crude oil and gold dropped the most in a week, and industrial metals including lead, aluminum and copper slumped. Through yesterday, the GSCI index dropped 3.8 percent this year, led by declines in cotton, coffee and oil.
• Credit Swaps in U.S. Climb as Payrolls Rise Less Than Forecast. A gauge of U.S. corporate debt risk rose for a second day after U.S. employment increased less than forecast, fueling concerns that labor-market growth is cooling. The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark used to hedge against losses on corporate debt or to speculate on creditworthiness, increased 2.8 basis points to a mid-price of 111.7 basis points at 9:12 a.m. in New York, according to prices compiled by Bloomberg.

MarketWatch:

• Software sell-off hits techs; Seagate(STX) slips. Informatica(INFA) warning hits Teradata(TDC), VMWare(VMW), Citrix(CTXS) and Red Hat(RHT).

CNBC.com:

• Exclusive: Germany pushes Libor probe of Deutsche Bank(DB) - sources. German markets regulator BaFin is conducting a special probe of Deutsche Bank as part of a wider investigation into possible manipulation of the London Inter Bank Offered Rate (Libor), two people familiar with the matter said on Friday. The German regulator declined to comment specifically on whether it was probing Deutsche Bank, but said it was in looking into suspected manipulation of Libor rates by banks. "We are making use of our entire spectrum of regulatory instruments, so far as this is necessary," a spokesman said. Deutsche Bank shares extended losses after the news and traded 4.3 percent lower at 1523 GMT.
• Berkshire(BRK/A) Buys GM(GM) Before Plunge. Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) acquired its largest stake in General Motors Co. (GM) before the automaker slumped 16 percent, as the billionaire chairman hands more responsibility to deputy stock pickers. Berkshire accumulated about 8.47 million shares of GM through Feb. 3 at an average price of $24.35, according to National Association of Insurance Commissioners data compiled by Bloomberg. The automaker closed at $20.54 yesterday in New York. Omaha, Nebraska-based Berkshire’s full stake was reported in a separate regulatory filing in May that didn’t disclose the purchase price or date.
• Banks' Debt Lifeline for Spain Starts to Fray. Domestic banks that have backed Spain's debt auctions with heavy buying could be reaching a limit for absorbing sovereign bonds, say financial analysts and two market makers, undermining the country's efforts to stave off a full-blown bailout.
• Is Italy Living on Borrowed Time and Money? Italy is back in the spotlight as the focus for market concerns once again, with bond yields higher than Ireland’s and increasing concern about the political situation in the euro zone’s third-largest economy.

Business Insider:

• TOP OHIO DONOR: 'It Wasn't Like This Under Clinton'.
• Reports Of 'VIP' Subway Carriages Have China Freaking Out About A Growing Wealth Gap.
• The Real-World Middle Class Tax Rate: 75%.
• NOMURA: Italy Is Quietly Getting A Whole Lot Worse.
• Here's What The World's Biggest Companies Are Telling Us About The Economy.
• CHART OF THE DAY: THE SCARIEST JOBS CHART EVER.
• A Growing Number Of Americans Hate Their Job [Charts].
• The Black Teen Unemployment Rate Is Staggering.
• 10 Signs Of Economic Trouble That China's Official Data Won't Show.
• SOCGEN: The News Cycle Is Screaming Trouble Ahead. (graph)
  

Zero Hedge:

• EURUSD Slides To 2 Year Low As Reality Supercedes Hope.
  
• FX Market Sees NEW QE Probability At 25%, Down 50% From Week Ago.
• GM(GM) Finds Creative New Ways To "Stuff Channels", Get Backdoor Taxpayer Bailouts.
• 4 Scary Charts.
  

Washington Post:

• Are Auto Loans the Next Subprime Market to Worry About? Across the country, banks and other lenders are still being stingy in providing credit to ordinary consumers. Only the most financially stable of Americans can secure mortgages. Small businesses are having trouble getting loans. Credit card access is restricted. But there’s one notable exception, an area where lending has been surging: Autos. Millions of Americans have found that it’s becoming surprisingly easy to borrow money to buy a car. New bank loans for autos totaled $47.5 billion in the first quarter of 2012, higher than at any point in the past seven years, according to Equifax. Interest rates are getting cheaper by the month. And even Americans with relatively poor finances can get auto loans: The average person financing a new car purchase had a credit score of 760, down six points from the previous quarter, according to new data from Experian. For a used car, the average credit score was down to 659. “The spigots are being opened,” said Peter McNally, an analyst at Moody’s. “The finance companies are really stepping in to fill a need.”

Platts Oil:

• Video: Warnings Signs For China's Economy as Oil Demand Grows Just 2.6% in First 5 Months of Year.

Rasmussen Reports:

• 31% Give Obama Positive Marks on Handling Economic Issues. The economy has been the most important issue to voters for years, but ratings for the president’s performance in that area are at their lowest level since last November. A new Rasmussen Reports national telephone survey shows just 31% of Likely Voters believe President Obama is doing a good or excellent job handling economic issues, including 12% who say he is doing an excellent job. Forty-eight percent (48%) believe Obama is doing a poor job in this area.

Reuters:

• EURO DEBT SUPPLY-Little respite seen for Italy's funding costs. Italy is unlikely to have difficulty raising funds next week but can't expect much of a respite from high borrowing costs given the swift fading of euphoria over euro zone leaders' efforts to stem the bloc's debt crisis. Italian and Spanish bond yields have marched higher again this week, closing in on levels seen before officials agreed last Friday to help these two major economies by allowing the bloc's bailout funds to buy bonds from the market and to directly recapitalise Spain's ailing banks. Scant detail on how the plans will be implemented and opposition from Finland have dampened initial bullishness and investors are again demanding at least four times more in returns to hold 10-year Italian and Spanish bonds rather than benchmark German Bunds.
• Copper Extends Losses After Weak U.S. Job Data. Copper extended losses on Friday under the weight of a stronger dollar after data from the United States showed the job market in the world's biggest economy was not recovering quickly enough, which added to worries about a severe slowdown in China. Benchmark copper on the London Metal Exchange, untraded at the close, was last bid at $7,530 per tonne versus $7,695 at Thursday's close. It fell 2 percent this week.
• ECB's Coeure dashes bond buying expectations. European Central Bank executive board member Benoit Coeure on Friday dashed the prospect of the ECB buying government bonds to calm financial markets, saying it was up to the euro zone's ESM rescue fund to do so if needed. He was speaking as Spanish government bond yields returned to levels seen before a European Union summit last week which provided brief relief to Spain. "The governments set up a mechanism which is the European Stability Mechanism and last week they confirmed that the ESM could intervene on the secondary market," Coeure told a financial conference in Aix-en-Provence, southern France. "It would be a paradox if the central bank intervened in the place of the governments," he added.
• Canada's Ivey PMI index unexpectedly falls in June. The pace of purchasing activity in the Canadian economy fell to its lowest level in almost a year in June, according to Ivey Purchasing Managers Index data released on Friday. The data showed the seasonally adjusted index fell to 49.0 in June from 60.5 in May. Analysts polled by Reuters had forecast a reading of 55.8. The index was last below the 50 level in July 2011, when it was 46.8.
• Peugeot sales drop 13 pct on European slump. Sales at struggling PSA Peugeot Citroen slumped in the first half of the year, hit by "crisis" in its austerity-stricken core European markets and a misfiring tilt at upmarket rivals. The French car maker was forced to deny a press report it was seeking an emergency government loan as it posted a 15-percent drop in European sales versus the same period last year. Deliveries of cars and vans in Latin America slid 21 percent while it failed to match the pace of expansion in China of other western manufacturers.

Telegraph:

• Lord please save us from the coming tsunami of libor litigation.
• Bank of England warns UK banks need more capital. Britain's banks do not have enough capital to withstand an escalation in the eurozone crisis, the Bank of England has warned.
• Spain back in the dangerzone as politicians wrangle. Spanish and Italian borrowing costs soared back into the danger zone as traders bet that the policy action by central banks was inadequate defence against the continued political and financial chaos in the eurozone.
• Finland could leave the eurozone rather than pay other nations' debts, says Jutta Urpilainen. Finland would consider leaving the eurozone rather than paying the debts of other countries in the currency bloc, Finnish Finance Minister Jutta Urpilainen has said.
• Portuguese court blocks key part of austerity plan. The Portuguese government might extend a pay cut for civil servants to others after a court blocked a key part of its deficit-cutting programme by saying it was unconstitutional.

Cinco Dias:

• Spain Domestic Tourism Bookings Down 30%. Bookings by Spaniards to take holidays in the country are down 30% from a year ago, citing Juan Molas, president of Spanish tourism group CEHAT. Tourism represents 11% of gdp. The sector employs 2.5 million people.
  

Mega TV:

• Greece's main opposition Syriza party is against the country's state asset sales and will take legal action if the government moves ahead with the plans, Syriza lawmaker Dimitris Stratoulis said today. "We are against this and consider it the biggest economic and political scandal in the country after the signing of the bailouts," Stratoulis said, according to a video of his comments. Stratoulis said if Syriza becomes Greece's next government it will "even send to jail those who sell off the country's assets for peanuts" and that all state companies and infrastructure are of strategic importance to Greece.
  

ANA:

• Greek Prime Minister Antonis Samaras will announce a cut in sales tax for cafes, bars and restaurants and an increase in the threshold for paying income tax to 8,000 euros from 5,000 euros in his legislative program today, citing comments by Nikos Tsoukalis, parliamentary spokesman for the Democratic Left, one of the parties in the coalition government.
  

Bear Radar

Style Underperformer:

• Small-Cap Growth -2.01%

Sector Underperformers:

• 1) Coal -4.02% 2) Networking -3.91% 3) Steel -3.34%

Stocks Falling on Unusual Volume:

• INFA, MSTR, UNG, LSI, NIHD, TEF, SU, STO, HSTM, PSMT, APKT, QLIK, CTXS, ANSS, PFBC, LRCX, TIBX, ADSK, MSCC, FFIV, RVBD, KLAC, CVLT, STX, VRSN, PEGA, MPWR, LF, SIL, WLT, TDC and NAV
  

Stocks With Unusual Put Option Activity:

• 1) EWW 2) SU 3) AMAT 4) TC 5) EMC
  

Stocks With Most Negative News Mentions:

• 1) INFA 2) PFBC 3) ADP 4) APKT 5) STX
  

Charts:

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

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.