Stocks Higher into Final Hour on Central Bank Hopes, Euro Bounce, Short-Covering, Metals&Mining/Drug Sector Strength

Broad Market Tone:

• Advance/Decline Line: About Even
  

• Sector Performance: Mixed
  

• Volume: Slightly Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• VIX 16.63 +1.84%

• ISE Sentiment Index 75.0 -22.68%

• Total Put/Call .89 -24.58%

• NYSE Arms .61 -58.30%

Credit Investor Angst:

• North American Investment Grade CDS Index 79.79 +.87%

• European Financial Sector CDS Index 155.61 +6.1%

• Western Europe Sovereign Debt CDS Index 83.41 +1.1%

• Emerging Market CDS Index 283.45 +1.55%

• 2-Year Swap Spread 16.75 +.5 bp

• TED Spread 24.25 -.25 bp

• 3-Month EUR/USD Cross-Currency Basis Swap -13.75 +.5 bp

Economic Gauges:

• 3-Month T-Bill Yield .03% unch.

• Yield Curve 181.0 -1 bp

• China Import Iron Ore Spot $111.90/Metric Tonne +1.36%

• Citi US Economic Surprise Index -22.60 -8.2 points

• 10-Year TIPS Spread 2.19 unch.

Overseas Futures:

• Nikkei Futures: Indicating -131 open in Japan

• DAX Futures: Indicating +35 open in Germany

Portfolio: 

• Slightly Higher: On gains in my retail sector longs and emerging markets shorts

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:

• Spanish Deficit Reprieve Raises Risks Bonds Ignore: Euro Credit. Spanish Prime Minister Mariano Rajoy's reprieve in how long he has to tackle the biggest budget gap in the European Union is bad news for bondholders. "To return to sustainable growth, the government should promote investments and hiring," said Georg Grodzki, who helps oversee $515 billion as head of credit research at Legal & General Investment Management in London. "The danger is that in the name of reducing the pain, a bloated civil service and rigid work and pension rules are preserved." 

• European Stocks Drop for Second Day to One-Month Low. European stocks declined for a second day, extending a one-month low, amid speculation the Federal Reserve will scale back its debt-buying program. Roche Holding AG (ROG) sank the most since 2011 after a study showed that its Avastin drug failed to extend the lives of patients with a type of brain cancer. Munich Re and Hannover Re slipped more than 2.5 percent, leading reinsurers lower, as storms across central Europe caused rivers to swell, flooding Prague. Polymetal International Plc (POLY) added 1.9 percent after JPMorgan Chase & Co. raised its rating on the shares. The Stoxx Europe 600 Index dropped 0.8 percent to 298.59 at the close of trading, the lowest level since May 2.

• Japan Fails to Plow Weak Yen Profits Back Into Capital Spending. The Abenomics euphoria that’s boosted the Japanese stock market 28 percent this year has yet to convince chief executives to invest more in factories and equipment in the world’s third-largest economy. In the first full quarter of Prime Minister Shinzo Abe’s tenure, capital spending excluding software fell 5.2 percent from a year earlier, according to a survey from the Ministry of Finance released yesterday. Spending by Japan’s biggest companies dropped 4.9 percent in January-March, the biggest decline since the quarter after the March 2011 earthquake.

• China Growth Limited by Struggling Small Manufacturers. Chinese manufacturing indexes showed small businesses struggling, sapping momentum in the economy and underscoring the need for the government to shift support away from larger, state-backed companies. The official Purchasing Managers’ Index for smaller companies fell to 47.3 in May from 47.6 the previous month, even as the broader gauge rose to 50.8 from 50.6, the government said June 1. A private manufacturing index today that includes small enterprises fell more than forecast to 49.2, an eight-month low, from 50.4. Levels below 50 signal contraction.

• U.S. Farmland Values Seen Declining as World Grain Output Rises. Rising global production of wheat, soybeans and corn will decrease the U.S. share of world agriculture trade and may reduce the value of farmland, according to a study by Ohio State University. “A declining competitive advantage for U.S. crops will ultimately reduce the relative advantage of U.S. farmland and thus the price it can command,” Carl Zulauf and Nick Rettig, economists at Ohio State, said in a report May 31. Revenue per acre may drop amid falling prices and because of “relative yield declines. In short, the U.S. crop sector may be as vulnerable as it was in the late 1970s.” 

• Freight Trader Offers Subsidized Coal Shipping Amid Biggest Glut. A freight trader operating more than 40 vessels offered to subsidize the cost of delivering coal to Europe as the biggest glut of Panamax-class ships for at least two decades drives down rates for the carriers globally. GMI Resources UK LLC will contribute $2,000 a day to take about 74,000 metric tons of Australian or Indonesian coal to buyers in the Atlantic region, Steve Rodley, the company’s London-based co-chairman, said by phone today. The supply of Panamaxes expanded more than 50 percent since 2008, when record rates spurred unprecedented vessel ordering, according to data from Clarkson Plc, the world’s largest shipbroker. “It’s a result of chronic over-ordering of ships three or four years ago,” Rodley said by phone today, adding that the vessel surplus is “comfortably” the biggest since he joined the industry in 1994. “All the ships are delivering in the market and demand has not kept pace.Gold Advances as Manufacturing Unexpectedly Contracts in U.S.

• Gold Advances as Manufacturing Unexpectedly Contracts in U.S. Gold rallied in New York as an unexpected contraction in U.S. manufacturing boosted speculation that the Federal Reserve will maintain the pace of its stimulus to sustain the economic recovery. 

• Assad’s Hezbollah Ally Prepares Northern Attack, Opposition Says. Thousands of troops loyal to Syrian President Bashar al-Assad and allied Hezbollah militiamen are preparing to enter the province of Aleppo, a rebel stronghold close to the Turkish border, activists said. Assad’s forces will seek to enter the province’s northern region, Al-Jazeera television said, citing unidentified rebels.

• Fed’s Williams Says Sees Potential QE Taper This ‘Summer’. Federal Reserve Bank of San Francisco President John Williams said policy makers may start reducing the pace of bond purchases over the next three months and potentially end quantitative easing by year-end.

• Illinois Awaits Further Credit Cut After Latest Pension Flop. With handshakes, hugs and a few kisses, Illinois lawmakers left the capitol May 31 without repairing a leaking pension system that they have been saying for years must be fixed. Now they wait to discover the consequences of inaction; Illinois, already the lowest-graded state in the nation, faces yet another credit-rating cut. 

• CEOs Group Calls Too-Big-to-Fail Bill Threat to U.S.-EU Accord. Prospects for a new trade agreement with the European Union are being threatened by measures that would boost capital requirements for the biggest banks, a group representing U.S. chief executive officers said in a letter.

Wall Street Journal: 

• SUVs, Pickups Push U.S. Auto Sales Higher.

Fox News:

• Wife of former IRS chief a top adviser to left-leaning DC group.

MarketWatch:

• New air-travel taxes in the works. White House budget proposals could mean consumers pay more.

CNBC:

• Hacker Claims Airplanes Vulnerable at 30,000 Feet. Cyber hackers have already shown what damage they can do, but this may be the scariest hacking story yet, if it came true.

• Two-Thirds of Americans Don't Know If They Will Insure Under Obamacare. There's no assurance folks will be buying insurance under Obamacare, and that could spell trouble for the Affordable Care Act.

• Turkey Violence: More Complex Than Arab Spring. (video)

• Look Out, S&P Companies Warn About Q2 Earnings. If earnings guidance is any guide, the S&P could be in trouble. The second quarter earnings picture that we can piece together from S&P 500 guidance is a negative one indeed.

Zero Hedge: 

• Huge Manufacturing ISM Miss And Lowest Print Since June 2009. (graph)

• Visualizing The European Monetary (Dis)Union. (graph)

• Abenomics On Hold As USDJPY Slides Back Under 100. (graph)

• Turkish Stocks Collapse Most In 10 Years, Bond Yields Surge Most On Record. BIST-100 Closes -10.47% - Biggest drop since March 2003. (graph)

• Thank You CTRL-P: Deposits Rise To Record $2.1 Trillion Over Bank Loans.

• Merkel To Brussels On Fiscal Union: "Nein".

• The Full List Of 2013's Bilderberg Attendees.

Business Insider: 

• Three Of Wall Street's Hottest Trades Are Getting Shredded.

• Justice Scalia Writes A Scathing Dissent Opposing Forced DNA Collection.

• Global Manufacturing Is Barely Above Stagnation. (table)

• The Saudis Do NOT Want To Talk About America's Shale Revolution.

New York Times: 

• China Is Reaping Biggest Benefits of Iraq Oil Boom. Since the American-led liberation of 2003, Iraq has become one of the world’s top oil producers, and China is now its biggest customer.

Reuters: 

• Fed can soon "seriously consider" stimulus pullback - Lockhart. The Federal Reserve will soon be able to consider reducing the pace of its bond-buying stimulus, a top Federal Reserve official told Fox Business on Monday.

• European car sales show little sign of upturn. French, Italian and Spanish car sales fell in May, bringing the crisis-hit European market closer to a two-decade low and dampening the hopes of manufacturers for any recovery in 2013. Automakers suffering from weak economies and excess plant capacity had taken heart when demand picked up a little in April, suggesting a slide of almost 10 percent in Europe's first-quarter car sales would not play out in the full year. But the decline in French sales deepened last month, with a slide of 10.3 percent after a 5.2 percent fall in April. In Italy, Europe's fourth-largest market, car sales fell 7.9 percent in May, although the drop was less steep than a 10.8 percent fall in April. In Spain, they fell 2.6 percent in May, a month after recording their first year-on-year gain since last August, the Spanish car industry association said on Monday.

Telegraph: 

• IMF halves German 2013 growth forecast. Germany's 2013 growth prospects have been cut in half by the International Monetary Fund, as it warned that the outlook for Europe's strongest economy could worsen if a eurozone recovery fails to materialise. 

• ILO warns 'more than 200m jobless by 2015'. More than 200m people across the world are predicted to be jobless in 2015, a report has claimed, with employment rates not expected to return to pre-crisis levels for another four years.  

Handelsblatt:

• German Family-Led Companies Say Economy Worsens. Germany's family-led companies are turning more pessimistic on economy's prospects, citing "spring survey" for Deutsche Bank, BDI Industry Association. Some 54% deem situation good or very good, down from 73% in study a year earlier.

Euromoney:

Restructuring: Flowers slams Europe over inaction


While we want you to share, we ask you use the functions on-site rather than copy/paste. See T's & C's for details. http://www.euromoney.com/Article/3211790/CurrentIssue/88924/Restructuring-Flowers-slams-Europe-over-inaction.html?copyrightInfo=true

• Restructuring: Flowers Slams Europe Over Inaction. Danger of 'Lehman-Type Event'; Advocates US Model of Receivership. In a shot across the bows of market bulls, who cite the return of capital flows to weaker eurozone states, Flowers issued a stark warning: "There is a scenario where we have a Lehman-type event: we wake up some Thursday and a big country is in trouble.

Echoing fears that European policymakers remain in a state of cognitive dissonance – recognizing the need for root-and-branch overhaul of peripheral banks, but backtracking on joint liability plans – Christopher Flowers, the legendary FIG investor who now runs the £2.3 billion ($3.5 billion) private equity group JC Flowers, sounded the alarm over the negative sovereign-bank feedback loop. In a shot across the bows of market bulls, who cite the return of capital flows to weaker eurozone states, Flowers issued a stark warning: "There is a scenario where we have a Lehman-type event: we wake up some Thursday and a big country is in trouble. "And the ECB will have to decide to support banks x, y, z. And then the ECB will, in fact, decide to own bank x, y, z.


While we want you to share, we ask you use the functions on-site rather than copy/paste. See T's & C's for details. http://www.euromoney.com/Article/3211790/CurrentIssue/88924/Restructuring-Flowers-slams-Europe-over-inaction.html?copyrightInfo=true

Bear Radar

Style Underperformer:

• Mid-Cap Growth -1.12%

Sector Underperformers:

• 1) Biotech -2.34% 2) I-Banking -2.21% 3) Homebuilding -2.03%

Stocks Falling on Unusual Volume:

• INFI, P, BMRN, AWAY, TSLA, OSK, BPOP, SIVB, TKC, ACHN, WNR, SZYM, SNSS, CLMT, BIP, LGCY, ENOC, MAA, ESD, AWF, HQH, HPS, CPHD, UTG, HQL, HITK, WWAV, PKO, EFC, MAIN, IBB, AFOP, GOF, ETG, OCN, SSYS, JRO, XBI, JFR, MAA, CSQ, EFC, MITT, BIIB, PANW, LPX, YELP, IMMR, AMBA, ONXX, BGG, IMGN, SCTY and XONE

Stocks With Unusual Put Option Activity:

• 1) MDY 2) IYT 3) EEM 4) KRE 5) WYNN
  

Stocks With Most Negative News Mentions:

• 1) FFIV 2) TRIP 3) EV 4) F 5) MS
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Value -.03%

Sector Outperformers:

• Gold & Silver +2.1% 2) Tobacco +1.06% 3) Drugs +.79%
  

Stocks Rising on Unusual Volume:

• BMY, MRK, CLVS, MNKD, CLP, OVTI, TEAR, CLDX, SODA, INTC and INFY

Stocks With Unusual Call Option Activity:

• 1) EXPD 2) OVTI 3) HBAN 4) DFS 5) HMA
  

Stocks With Most Positive News Mentions:

• 1) DNKN 2) HWAY 3) SODA 4) CBRL 5) WIN
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Monday Watch

Weekend Headlines 
Bloomberg:

• ZEW’s Fuest Sees Japan-Style Stagnation as ECB Tools Exhausted. Europe faces Japan-style stagnation as governments delay reforms and the European Central Bank comes close to exhausting its options, said Clemens Fuest, president of the ZEW Center for European Economic Research. “I would expect the politicians to really take the problems in hand and face the need to restructure the banking system,” Fuest said in an interview in Mannheim, Germany. “But I see the risk that what’s concentrated on now is shunting the problems down the road and going the Japanese way, into stagnation. The ECB has done its part to solve the crisis. The central bank has used up most of its ammunition.”

• Japan Opposition’s Hosono Says Abenomics Ignores Risks. Goshi Hosono, secretary general of Japan’s biggest opposition party, challenged the government to better protect the elderly and small companies, charging Prime Minister Shinzo Abe’s policies with ignoring the risks of monetary easing and a weakened currency. “It’s a fact that monetary easing and a weaker yen improved the mood, but there are also side effects and risks,” Hosono said yesterday on public broadcaster NHK’s Sunday Debate program. “The government hasn’t taken sufficient care regarding the increased burden on pensioners and small business from rising import prices.” 

• China Defies U.S. and Japan in Asserting Rights to Disputed Seas. China dismissed calls for arbitration to resolve disputes in Asian waters vital to world trade after the U.S. and Japan vowed to resist attempts to seize contested territory by force. Qi Jianguo, deputy chief of the General Staff of the People’s Liberation Army, told a forum in Singapore yesterday that Chinese patrols in disputed waters off its coasts were “totally legitimate.” He spoke a day after Defense Secretary Chuck Hagel said the U.S. “stands firmly against any coercive attempts to alter the status quo” in the seas.

• China Nuclear Weapons Stock Grows as India Matches Pakistan Rise. China, which has the world’s second-largest military budget behind the U.S., expanded its nuclear-weapons arsenal last year, with India and Pakistan also bolstering their stockpiles, a research institute said. The three added an estimated 10 warheads each to their inventories, with China’s arsenal now reaching 250 devices, the Stockholm International Peace Research Institute said today in releasing a new yearbook. Pakistan holds 100 to 120 units and India 90 to 110, while North Korea may have as many as eight warheads with an uncertain operational status, it said.

• Changing China Food Safety Key to Shuanghui on Smithfield(SFD). Wan Long, who helped turn a single hog processing plant into China’s largest producer, explains the reasons for his $4.7 billion swoop on Smithfield Food Inc. (SFD) as he adjusts six miniature porcelain pigs on his desk. 

• Asian Stocks Fall as U.S. Data Stokes Fed Exit Concern. Nissan Motor Co. (7201), a Japanese carmaker that gets 34 percent of its sales in North America, slid 2.8 percent. Cochlear Ltd. (COH) slumped 14 percent in Sydney after the maker of implant systems for the hearing impaired said sales were weaker in the second half. China Foods Ltd., a maker of products including beverages, snacks and instant food, slumped 10 percent in Hong Kong after saying it expects its operating profit will fall. Nomura Holdings Inc. dropped 6.6 percent, pacing losses among Japanese brokerages. The MSCI Asia Pacific Index fell 0.5 percent to 134.13 as of 12:38 p.m. in Tokyo. All but one of the 10 industry groups on the gauge dropped. The measure declined 5.1 percent in May month, the first monthly loss since October. 

• Emerging market dominoes to fall. The worst month in a year for emerging-market currencies will prove to be more than a momentary bout of weakness to strategists at firms from UBS AG to Societe Generale SA that see the Federal Reserve weaning investors off its extraordinary stimulus.

• Rubber Declines to One-Month Low as Oil’s Drop Reduces Appeal. Rubber declined to a one-month low as a drop in oil reduced the appeal of the commodity as an alternative to synthetic products used in tires. Rubber for delivery in November fell as much as 2.8 percent to 251.1 yen a kilogram ($2,498 a metric ton) on the Tokyo Commodity Exchange, the lowest level since May 2. The most-active contract traded at 256 yen at 10:47 a.m., extending losses for this year to 15 percent.

• Hedge Funds Boost Gold Bull Bets Most in Two Months: Commodities. Hedge funds raised bets on a gold rally by the most in two months as the U.S. economy expanded less than previously estimated, boosting speculation the Federal Reserve will maintain the pace of stimulus. Speculators raised their net-long position by 35 percent to 48,096 futures and options by May 28, the biggest gain since March 19, U.S. Commodity Futures Trading Commission data show. Most of the gain came from a drop in short bets, which reached a record a week earlier. Net-bullish wagers across 18 U.S.-traded commodities climbed 13 percent to a nine-week high of 652,708 contracts, led by gains in corn and natural gas.  

• IRS Spent $50 Million on Conferences Drawing Congress’s Scrutiny. The U.S. Internal Revenue Service spent about $50 million on 220 conferences for employees from 2010 to 2012, according to the House Oversight and Government Reform Committee. The cost of the agency’s conferences was released today by the committee, which is holding a hearing on the subject June 6. In one case, the IRS spent $4 million for an Anaheim, California, conference in 2010, where some stayed in rooms costing $1,500 to $3,500 a night and $135,000 was paid to outside speakers, including $17,000 for a lecture on “leadership through art.”

Wall Street Journal:

• Wave of Unrest Spreads Across Turkey. Crackdown on Protest in Istanbul Park Sparks Nationwide Demonstrations Against Government Policies. An unexpected eruption of often-violent civil unrest swept across Turkey over the weekend, the culmination of a simmering clash over social policy between Prime Minister Recep Tayyip Erdogan and a broadening coalition of Turks that threatens the political stability of a key U.S. ally. The demonstrations mushroomed after a police attack Friday on a small protest against government plans to replace a park in central Istanbul with a housing complex and shopping mall. After two days of clashes around the park and the adjacent Taksim Square, police withdrew Saturday afternoon, leaving protesters to occupy the area. 

• Mortgage Investors Get Blindsided. Bonds Backed by Subprime Loans Had $1 Billion of Previously Undisclosed Losses. Some mortgage investors got an unexpected refresher course on the risks of subprime debt when they received notice of $1 billion of previously undisclosed losses.

• Short Seller Seeks Valley 'Pretenders'. Creative hairstyles, fake names and shoe-leather sleuthing transformed Carson Block from a no-name expatriate in China into a celebrity short seller. But will such gambits translate elsewhere? It has "a lot of truly innovative companies, but there are also a number of companies in the Valley that are more pretenders," he says, adding that tech companies won't be Muddy Waters's exclusive focus.

• Under Armour(UA) Arrives on Global Stage. Can niche athletic-apparel maker Under Armour Inc. garner the same global recognition as Nike Inc. and Adidas ADS?

• Deficit Deal Even Less Likely. Improving U.S. Fiscal Health Eases Pressure for a 'Grand Bargain' Amid Gridlock.

Marketwatch.com:

• China developer buys stake in GM Building: report.

• Taiwan manufacturing swings to contraction. The HSBC Taiwan manufacturing Purchasing Managers' Index dropped to 47.1 from April's 50.7, falling below the 50 mark which divides expansion from contraction. The drop was the first since November, with the sub-index for new orders showing the first decrease in five months and new export orders falling for the first time in six months. HSBC economist Donna Kwok said: "Taiwan manufacturers' descent into contraction mirrors what took place last summer, although client demand is deteriorating at a faster pace this time, both at home and abroad."

Fox News:

• Interviews with IRS agent suggest Tea Party targeting came from Washington. Interviews with an IRS field agent involved in the agency targeting Tea Party groups for additional vetting appear to contradict the White House assertion that rogue agents, not the administration, were behind the effort, according to partial transcripts released Sunday by the House Oversight and Government Reform Committee.

• Top House Republican: Holder being investigated for Hill testimony. The chairman of the House Judiciary Committee said Sunday his panel is investigating remarks Attorney General Eric Holder made under oath regarding the Justice Department accessing a Fox News reporter’s phone logs and emails. "It’s fair to say we're investigating the conflict in his remarks, those remarks were made under oath,” Chairman Rep. Bob Goodlatte, R-Va., told “Fox News Sunday.”

CNBC:

• Wells(WFC) Chief Warns Fed Over Debt Proposal. Wells Fargo's chief executive has warned the Federal Reserve against forcing banks to hold more long-term debt, a measure that central bank officials believe will help end the phenomenon of institutions judged "too big to fail." John Stumpf said the Fed was giving mixed messages on debt and his bank should not be punished for the fact that it is largely funded by deposits. "Sometimes they say 'We want more debt,' sometimes they say, 'Geez, too much debt's not great either'," he told the Financial Times.  

• Merck(MRK) Melanoma Drug Shrinks Tumors in 38% of Patients. A Merck drug designed to unmask tumor cells and mobilize the immune system into fighting cancer helped shrink tumors in 38 percent of patients with advanced melanoma in an early-stage study, U.S. researchers said on Sunday.

Zero Hedge:

• Ben Bernanke Capital May P&L: ($115) Billion.

• In "Secret" Meeting, Eric Holder Tells Media He Will Stop Spying On It.

• Stephen Roach: "The American Consumer Is Not Okay".

• Italy Labor Union Predicts Return To Pre-Crisis Employment By 2076.

• From Reinhart-Rogoff Witch Hunts To Krugman’s Contradictions.

• Central Bankers Still Don't Get It.

• South Korea Demands "International Action" Against "Negative Impact" Of Abenomics.

• Show Me The Money Flow: Global Free Cash Flow And Capital Spending Contract To 2010 Levels. (graph)

• SchrodinChina Expanding And Contracting At Same Time. (graph)

Business Insider:

• Google(GOOG) Is Ordered To Give Private Customer Data To The FBI. 

• Greece's Neo Nazi Party Now Has Thousands Of Members Who Believe They Are At War.

• Real Wages Decline Again — Literally No One Notices.

• Now Jesse Ventura Is Going After The Widow Of The Slain 'American Sniper'.

• THE HINDENBURG OMEN HAS APPEARED.

• There Are Economic Storm Clouds Ahead.

• Government Cracks Down On Angry Protesters In Turkey, Injuring ~1,000.

• There's Trouble Piling Up In The Junk Bond Market.

• You Have To Believe This Chart Makes Mark Zuckerberg Slightly Anxious.

• Is This Really The End For The Great Emerging Markets Bull Run?

• LIVE: Thousands Of Companies Around The World Are Revealing The Truth About The Global Economy.

• What's The Matter With India?

• South Korea's Manufacturing Sector Slows. (graph)

• Here Are A Bunch Of Horrific Australian Economic Numbers.

• REPORT: SAC Capital Clients Are Planning On Yanking Billions This Quarter.

• The World's Central Bankers Have Gone Insane — Especially Japan's.

• Europe Faces A Decision On Wednesday That Could Trigger A Trade War With China.

Wall Street All-Stars:

• Indicator Update: A Further Spike in Interest Rates?

New York Times:

• In China, Concern of a Chill on Foreign Investments.

Reuters:

• Nikkei hits 6-week low; securities, real estate sectors in bear market.

• Fed's Yellen: big banks may need more capital than Basel requires. Tougher borrowing limits may be needed for too-big-to-fail banks, the No. 2 official at the Federal Reserve said on Monday, adding her voice to a growing chorus of U.S. regulators looking to go beyond internationally agreed standards in the wake of the 2007-2009 financial crisis.

• Merkel reins in plan to transfer powers to Brussels. German Chancellor Angela Merkel has come out against handing the European Commission more powers, in the clearest sign yet that she is reining in her ambitions to create a "fiscal union" in which euro members cede control of their budgets to Brussels.

The Economist:

• China’s shadow banks. The credit kulaks. The growth in wealth-management products reflects deeper financial distortions.

Financial Times:

• Chinese navy begins US economic zone patrols. The Chinese military has started operating within the US’s exclusive economic zone, a move that could transform the dynamic between the dominant Pacific naval power and its main challenger. Admiral Samuel Locklear, commander of US forces in the Pacific, on Sunday confirmed the revelation from a Chinese military delegate at the Shangri-La Dialogue, a high-level defence forum in Singapore, that the People’s Liberation Army navy had started “reciprocating” the US navy’s habit of sending ships and aircraft into the 200-nautical-mile zone off China’s coast.

• BIS warns of dangers of cheap money driving up stock prices. Markets are “under the spell” of the world’s central bankers, with cheap money driving stock prices to record highs despite a lack of good economic news, the Bank for International Settlements has said.

Telegraph:

• France worse off than UK in the 1970s: Axa chief. France is in a worse state than Britain was at the time of its 1976 bail-out by the International Monetary Fund, one of the nation’s best-known businessmen has declared. 

• BIS records startling collapse of eurozone interbank loans. Cross-border lending is falling drastically across the western world as banks slash exposure to Europe and bend to tougher capital rules, according to data from the Bank for International Settlements. 

Der Spiegel: 

• ECB to Hire 800 Bank Supervisors for New Agency. European Central Bank will also hire hundreds of technical and support staff to assist additional supervisors at new banking regulator.

Le Figaro:

• France May Apply 75% Tax on 2013 Pay Over EU 1Mln. France's Finance Ministry has proposed applying a 75% surcharge on compensation above EU1m to monies paid out this year rather than waiting until 2014.

AFR:

• Australia needs $A at US70¢, says economist. Prominent economist Ross Garnaut believes Australia will need a US dollar exchange rate around the US70¢ mark, and maybe even lower, for non-resource sectors of the economy to regain competitiveness.

Weekend Recommendations

Barron's:

• Bullish commentary on (INTC).

Night Trading

• Asian indices are -1.50% to unch. on average.

• Asia Ex-Japan Investment Grade CDS Index 116.25 +5.25 basis points.

• Asia Pacific Sovereign CDS Index 100.25 +4.25 basis points.

• FTSE-100 futures -.66%.

• S&P 500 futures +.22%.

• NASDAQ 100 futures +.22%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CBRL)/.94

• (SAI)/.25

• (GIII)/-.05

Economic Releases
10:00 am EST

• Construction Spending for April is estimated to rise +.9% versus a -1.7% decline in March.

• ISM Manufacturing for May is estimated at 50.7 versus 50.7 in April.

• ISM Prices Paid for May is estimated to fall to 49.5 versus 50.0 in April.

Afternoon

• Total Vehicle Sales for May are estimated to rise to 15.1M versus 14.88M in April. 

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Williams speaking, Eurozone PMI report, Japan 10Y bond auction, Final Markit US PMI for May, Jefferies Healthcare Conference, RBC Energy Conference, Goldman Lodging/Gaming/Restaurant/Leisure Conference and the (BCR) investor conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly 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 25% net long heading into the week.

Weekly Outlook

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

BOTTOM LINE: I expect US stocks to finish the week modestly lower on rising global growth fears, Fed "taper" worries, more Mideast unrest, increasing Eurozone debt angst, profit-taking, more shorting and technical selling. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 25% net long heading into the week.