Monday Watch

Weekend Headlines 
Bloomberg:

• Merkel Says Euro Nations Must Follow Germany’s Lead on Growth. Chancellor Angela Merkel said euro nations must follow Germany’s lead in tightening budgets and reshaping labor markets to return to growth as she seeks to stave off any crisis eruptions before elections in September. As European leaders struggle to stanch recession and unemployment, Merkel lauded Germany’s efforts to keep its economy stable through the crisis and said the euro area’s 17 member states must stick to a recipe of budget discipline and improving competitiveness so that growth can take hold. 

• German Top Court Likely to Say ‘Yes, But’ to ECB Policy. Germany’s top court probably won’t intervene in the European Central Bank’s plan to buy bonds of crisis-torn countries, in line with previous cases involving the country’s integration with the European Union. The ECB’s Outright Monetary Transactions program and the European Stability Mechanism will be reviewed by the Federal Constitutional Court in Karlsruhe at hearings this week. While the judges may voice doubts about the central bank’s plans, the court won’t stop it, said Christoph Ohler, a law professor at Jena University.

• La Dolce Vita Eludes Italian Students Found Unemployable. Young college graduates in Italy have among the highest unemployment rates in Europe, and those with jobs make only 9 percent more on average than those with high-school diplomas, compared with 37 percent in other industrialized countries. Italians also spend more time earning degrees and drop out at greater rates than their international peers.

• Yen at 90 Seen by Options Losing Confidence in Abe: Currencies. Shinzo Abe is losing the confidence of the currency market, where traders are repudiating efforts by Japan's Prime Minister to end persistent deflation and revive the world's third-largest economy. Instead of continuing to push the yen lower in response to Abe's economic programs and the Bank of Japan's money-printing policies, traders have made it the best-performing major currency over the past month. Options show there's about an even chance it will gain to 90 per dollar by year-end, from as high as 95 last week and an almost five-year low of 103.74 on May 22. "We've been very skeptical of the rapid weakening in the yen," Robert Rennie, the Sydney-based chief currency strategist at Westpac Banking Corp., Australia's second-largest lender, said in a phone interview. "What Abenomics had done is it's changed expectations, I'm just not sure how quickly it can change reality," he said in reference to Abe's economic policies. 

• China Export Growth Plummets Amid Fake-Shipment Crackdown. China’s trade, inflation and lending data for May all trailed estimates, signaling weaker global and domestic demand that will test the nation’s leaders’ resolve to forgo short-term stimulus for slower, more-sustainable growth. While the figures boost the case for easing monetary policy or approving more spending, the government’s room is limited by rising home prices, financial risks and overcapacity. May exports rose 1 percent from a year earlier, down from 14.7 percent in April, while imports dropped 0.3 percent from a year earlier. The median estimates of analysts were for 7.4 percent export growth and 6.6 percent import gains. The $20.4 billion trade surplus compared with forecasts for $20 billion. “This shows the real state of the Chinese export situation,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. The data give a “pretty depressed” picture, with weak external demand and a yuan that has appreciated substantially against a trade-weighted basket of currencies, said Shen, who previously worked at the European Central Bank.

• Asian Stocks Rise on U.S. Jobs Data; Japan Shares Rally. Asian stocks rose, with the regional benchmark index rebounding from the biggest weekly drop in a year, after a report showed the U.S. added more workers than expected. Japanese shares surged after a three-week, $600 billion rout. The MSCI Asia Pacific Index added 1.2 percent to 131.92 as of 11:53 a.m. in Tokyo, the biggest gain since May 20.

• Rubber Declines to 7-Week Low as China’s Auto Sales Growth Slows. Rubber declined to a seven-week low as China’s passenger-vehicle sales rose at a slower pace in May, raising concern that demand may weaken from the world’s largest consumer of the commodity used in tires. The contract for delivery in November lost as much as 1.3 percent to 242.9 yen a kilogram ($2,479 a metric ton), the lowest level since April 18. Futures traded at 245.9 yen on the Tokyo Commodity Exchange at 12:01 p.m., extending this year’s losses to 19 percent. 

• Copper Declines for Third Day on Demand Concern in China, U.S. Copper slumped for a third day as China’s trade and industrial production in May trailed estimates and on prospects that the Federal Reserve will scale back stimulus. China and the U.S. are the top consumers of metals. The metal for delivery in three months on the London Metal Exchange fell as much as 1.1 percent to $7,151.25 a metric ton, the lowest price since May 16, and was at $7,157.25 at 10:24 a.m. in Tokyo. Prices lost 1.1 percent last week. Futures for delivery in July on the Comex slid 1.1 percent to $3.2325 per pound.

• Gold Bull Bets Reach Seven-Week High Before Retreat: Commodities. Hedge funds increased wagers on a gold rally to the highest in seven weeks before a report showing the U.S. added more jobs than forecast spurred the biggest retreat in prices since April. Speculators raised their net-long position by 19 percent to 57,113 futures and options by June 4, U.S. Commodity Futures Trading Commission data show. The holdings surged 60 percent in two weeks, the most since March, as short bets contracted. Net-bullish wagers across 18 U.S.-traded commodities slid 3.3 percent as investors became more bearish on sugar and coffee. 

• No Inflation as Yield Rise Belies Point of No Return View. For the first time since 2009, U.S. bond yields are rising at the same time inflation is slowing, providing a cushion for investors in Treasuries whether or not the Federal Reserve slows the pace of its debt purchases.

• Syrian Opposition Says ‘Door Shut’ on Peaceful Solution to War. The Syrian opposition ruled out “any peaceful solution” to end the two-year conflict in the nation after government forces backed by Lebanon’s Hezbollah ousted rebels from al-Qusair. “What is happening now in Syria has shut the door on any peaceful solution,” George Sabra, acting leader of the Syrian National Coalition, said today from Istanbul in a broadcast shown by Al Jazeera satellite television. “I call upon the Syrian people to resist invaders with all means.”

Wall Street Journal: 

• Afghan Militants Attack Near Coalition Base. Afghan insurgents Monday morning launched an attack in the vicinity of the U.S.-led coalition's base at the Kabul airport, officials said, waking the country's capital at dawn with the sound of blasts and gunfire, and halting air traffic. A number of suicide bombers took over a building under construction near the airport and were launching rocket-propelled grenades from it, Kabul police and coalition spokespeople said.

• Housing's Up, but Is Foundation Sound? The housing-market recovery is here but there's a growing debate among bulls and bears over how long it will last and how strong it will become, with both groups pointing to the same data to make their case: U.S. demographics.

• Energy Deal Maker Eyes Big Slice of Pie. Now that he is pitching Wall Street on his new energy company, Aubrey McClendon is asking for a lot of money, an unusually large slice of profits and a high degree of control over his business.

Marketwatch.com: 

• The sequester may start to show in data. Retail sales, industrial production data to be in focus. So far, signs that sequestration and higher tax rates have damaged the economy have been few and far between. 

• China’s economy slowing; government may not care. 

CNBC: 

• For Some Investors, Federal Reserve Can Start Tapering NOW. While the end of easy monetary policy has been cast as the great enemy of the stock market, for some investors tapering can't happen soon enough. 

• Japan Revises First Quarter Growth Figures Upwards. Japan has revised annualized gross domestic product growth (GDP) for January-to-March to 4.1 percent from a preliminary reading of 3.5 percent, official data showed on Monday.

Zero Hedge:

• NSA Whistleblower Reveals Himself.

• 94% Of April Consumer Credit Goes To Student And Car Loans. (graph)

• Japanese Birth Rate Plunges To Record Low As Death-Rate Hits Record High. (graph)

• Shoot The PRISM-Gate Messenger: Obama To Launch Criminal Probe Into NSA Leaks.

• Are Central Bankers Losing Control?

• Is This The Biggest Threat To The Market? (graphs)

• Meanwhile In China... (graph)

• Demand For Warren Buffett's Company Crashes By 71% As Charity Lunch Raises Least In 6 Years.

• Greek GDP Plunges To Year 2000 Levels. (pics)

• American Households On Foodstamps Climb To New Record. (graph)

• The Good, Bad, And Ugly "Taper" Scenarios.

• On The Wisdom Of Crowds (And Madness Of Mobs). (letter)

• Gas Prices, Consumption, And Why The Average American Is Being Left Behind. (graph)

• Richard Koo: "Honeymoon For Abenomics Is Over".

• The ECB's "Unlimited, Open-Ended" Bond Purchase Program Gets A €524 Billion Limit.

• Japan's Ruling LDP Party Joins JGBi Market In Fears that "Abenomics Could Fail".

Business Insider:

• Hedge Funds Haven't Owned This Much Of The Stock Market Since Right Before The Crash In 2008.

• And Now The Small Investors Have Come Pouring Into Stocks...

• Officials: NSA Has Mistakenly Intercepted Phone Calls And Emails Of Innocent Americans.

• No One Is Talking About The Insane Law That Lets Authorities Read Any Email Over 180 Days Old.

• A Lot Of People Are Freaking Out Because They Think Microsoft's(MSFT) New Xbox Is Going To Spy On Them. Microsoft's new gaming console, the Xbox One, will come with a motion sensor/camera accessory called the Kinect that will be used for video chats and controlling games with your body. But the device will always be on by default, and that has a lot of people concerned, especially after yesterday's report that Microsoft and other big tech companies are working with the NSA and providing user data to the government through the scary-sounding PRISM program. 

• All Signs Suggest This Is The End Of The Stock Market Rally. 

• Marine Gen. John Kelly Gave An Amazing D-Day Anniversary Speech.

• The Stock Market Is Broadly Expensive According To This Uncommon Measure. (graph)

• The May Jobs Report Contains Warning Signs That The Economy Is Stalling. 

• 29-Year Old NSA Whistleblower Makes Mindblowing Claims About What Kind Of Power He Had.

• Chinese Lending Slows As Concerns Of A Credit Crisis Loom.

• A Complete Look At China's Latest Disappointing Data In One Chart.

• MAULDIN: I'm So Sure Japan Is Screwed That I'm Converting My Mortgage Into Yen.

• BRIAN BELSKI: Big Investors Aren't Ready For What Could Be Coming Next.

Wall Street All-Stars:

• Indicator Update: A Tipping Point for Stocks?

Reuters: 

• Intel(INTC) offers to pay up for Internet TV programming deals. Intel Corp's talks to buy content from media companies for its new TV service are advancing, and the chipmaker is offering to pay as much as 75 percent more than traditional cable rates, people familiar with the talks said. 

• Google(GOOG) close to buying Israeli mapping start-up Waze -report. Google is close to buying Waze for $1.3 billion, an Israeli newspaper reported on Sunday, potentially trumping rival offers for the Israeli mapping start-up.

Financial Times: 

• New stamping ground for Nike(NKE) and Adidas as 3D shoes kick off. Nike and Adidas are embracing 3D printing to speed up the shoemaking process, using the technology to make multiple prototype versions at a previously impossible speed.

Euro am Sonntag:

• Rising Electricity Prices Jeopardize German Jobs. Germany risks losing more jobs than were created by renewable energy industry, citing an interview with EON CEO Johannes Teyssen. German electricity prices are "exploding" compared with China, U.S. If prices continue to rise, many jobs are in danger. Modern gas-fired power plants can't operate profitably due to distortion from subsidized renewables.

Der Spiegel: 

• IMF Wants to Get Next Greek Haircut Under Way. The IMF can only participate in further rescue programs for Greece if financing for the country has been secured for the next 12 months. New haircut necessary amid EU4.6 billion funding shortfall. Germany's exposure to Greek debt is EU15 billion in KfW loans, plus EU35 billion as the country's contribution to various stability mechanisms. Germany many not be keen on the discussion ahead of federal elections in September as it would indicate taxpayers' money is lots.

Le Figaro:

• Chad's Deby Says Libya Without Army Is Poised to Explode. Chad's President Idriss Deby said in an interview that Libya is increasingly controlled by brigades of jihadists and Islamist militants as the country has no army, no institutions, and no civil society. Jihadists chased out of Mali are building brigades and training camps in Tripoli and other parts of Libya, Deby said.

Weekend Recommendations

Barron's:

• Bearish commentary on (TSLA).

Night Trading

• Asian indices are unch. to +1.0% on average.

• Asia Ex-Japan Investment Grade CDS Index 126.0 -2.0 basis points.

• Asia Pacific Sovereign CDS Index 105.25 +.75 basis point.

• FTSE-100 futures -.27%.

• S&P 500 futures +.11%.

• NASDAQ 100 futures +.21%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (BNNY)/.28

• (NAV)/-1.20

• (PBY)/.09 

• (HNZ)/.82

Economic Releases

• None of note

Upcoming Splits

• (WAB) 2-for-1

Other Potential Market Movers

• The Fed's Bullard speaking, China Trade/Industrial Profits/Retail Sales/Yuan Loan data reports, Japan GDP report, Italy GDP report, (TXN) Mid-Quarter Update and the (MCD) May Same-Store-Sales report could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the week.

Weekly Outlook

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

BOTTOM LINE: I expect US stocks to finish the week modestly lower on rising global growth fears, Fed "taper" worries, more Mideast unrest, increasing Eurozone debt angst, profit-taking and more shorting. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 50% net long heading into the week.

Market Week in Review

S&P 500 1,643.38 +.78%*




The Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices

• S&P 500 1,643.38 +.78%

• DJIA 15,248.10 +.88%

• NASDAQ 3,469.21 +.39%

• Russell 2000 987.62 +.35%

• S&P 500 High Beta 25.57 +.28%

• Value Line Geometric(broad market) 426.04 +.25%

• Russell 1000 Growth 748.66 +.54%

• Russell 1000 Value 836.34 +.79%

• Morgan Stanley Consumer 1,006.46 +1.39%

• Morgan Stanley Cyclical 1,212.85 -.52%

• Morgan Stanley Technology 764.04 +.36%

• Transports 6,343.79 +.85%

• Utilities 486.89 +.98%

• Bloomberg European Bank/Financial Services 96.08 -2.25%

• MSCI Emerging Markets 40.74 -2.68%

• HFRX Equity Hedge 1,106.96 -1.32%

• HFRX Equity Market Neutral 946.39 +.17%

Sentiment/Internals

• NYSE Cumulative A/D Line 186,505 -1.81%

• Bloomberg New Highs-Lows Index -111 -227

• Bloomberg Crude Oil % Bulls 35.29 +48.2%

• CFTC Oil Net Speculative Position 255,834 -.51%

• CFTC Oil Total Open Interest 1,740,663 -.23%

• Total Put/Call 1.12 -5.08%

• OEX Put/Call .89 -56.59%

• ISE Sentiment 77.0 -20.62%

• NYSE Arms .78 -46.94%

• Volatility(VIX) 15.14 -7.11%

• S&P 500 Implied Correlation 52.67 -4.5%

• G7 Currency Volatility (VXY) 10.39 +1.8%
• Emerging Markets Currency Volatility (EM-VXY) 9.67 -.92%

• Smart Money Flow Index 11,779.63 -2.63%

• Money Mkt Mutual Fund Assets $2.613 Trillion unch.

• AAII % Bulls 29.5 -18.1%

• AAII % Bears 39.0 +31.4%

Futures Spot Prices

• CRB Index 287.67 +2.1%

• Crude Oil 96.03 +4.83%

• Reformulated Gasoline 287.15 +4.64%

• Natural Gas 3.83 -3.89%

• Heating Oil 289.31 +4.15%

• Gold 1,383.0 -.36%

• Bloomberg Base Metals Index 196.50 +1.32%

• Copper 326.85 -.11%

• US No. 1 Heavy Melt Scrap Steel 327.0 USD/Ton -6.4%

• China Iron Ore Spot 110.90 USD/Ton +.45%

• Lumber 308.90 +.39%

• UBS-Bloomberg Agriculture 1,509.32 +.23%

Economy

• ECRI Weekly Leading Economic Index Growth Rate 6.3% -30 basis points

• Philly Fed ADS Real-Time Business Conditions Index -.1595 +10.49%

• S&P 500 Blended Forward 12 Months Mean EPS Estimate 116.16 +.22%

• Citi US Economic Surprise Index -32.30 -17.9 points

• Citi Emerging Markets Economic Surprise Index -45.10 +2.0 points

• Fed Fund Futures imply 44.0% chance of no change, 56.0% chance of 25 basis point cut on 6/19

• US Dollar Index 81.69 -1.88%

• Euro/Yen Carry Return Index 134.33 -1.34%

• Yield Curve 187.0 +4 basis points

• 10-Year US Treasury Yield 2.17% +4 basis points

• Federal Reserve's Balance Sheet $3.357 Trillion +.46%

• U.S. Sovereign Debt Credit Default Swap 28.0 +.90%

• Illinois Municipal Debt Credit Default Swap 155.0 +26.01%

• Western Europe Sovereign Debt Credit Default Swap Index 87.0 +5.46%
  

• Emerging Markets Sovereign Debt CDS Index 220.03 +10.29%
  

• Israel Sovereign Debt Credit Default Swap 120.75 +.62%

• China Blended Corporate Spread Index 386.0 +20 basis points

• 10-Year TIPS Spread 2.15% -4 basis points

• TED Spread 23.50 -1.5 basis points

• 2-Year Swap Spread 17.25 +1.0 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -12.5 +1.75 basis points

• N. America Investment Grade Credit Default Swap Index 79.40 +2.52%
  

• European Financial Sector Credit Default Swap Index 152.30 +3.82%
  

• Emerging Markets Credit Default Swap Index 299.93 +7.45%
  

• CMBS AAA Super Senior 10-Year Treasury Spread  to Swaps 102.50 +2.5 basis points

• M1 Money Supply $2.533 Trillion +.34%

• Commercial Paper Outstanding 1,030.60 -1.6%

• 4-Week Moving Average of Jobless Claims 352,500 +5,200

• Continuing Claims Unemployment Rate 2.3% unch.

• Average 30-Year Mortgage Rate 3.91% +10 basis points

• Weekly Mortgage Applications 638.70 -11.46%

• Bloomberg Consumer Comfort -29.7 unch.

• Weekly Retail Sales +2.70% +10 basis points

• Nationwide Gas $3.63/gallon +.02/gallon

• Baltic Dry Index 806.0 -.62%

• China (Export) Containerized Freight Index 1,035.04 unch.

• Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 22.50 -10.0%

• Rail Freight Carloads 221,806 -10.64%

Best Performing Style

• Large-Cap Value +.79%

Worst Performing Style

• Mid-Cap Growth +.24%

Leading Sectors

• Networking +4.6%

• Restaurants +3.2%

• Oil Tankers +2.6%

• Education +2.5%

• Tobacco +2.0%

Lagging Sectors

• Steel -.7% 

• Alt Energy -1.5%

• Gold & Silver -1.6%

• Homebuilders -1.9%

• Coal -3.7%

Weekly High-Volume Stock Gainers (20)

• CLVS, ET, NRCIB, HSII, CIEN, MKTG, TSRO, GIII, JMBA, TTS, MFRM, AGYS, DFRG, CBRL, LGND, QDEL, NCS, FIX, CLP and THR

Weekly High-Volume Stock Losers (10)

• ADC, CYNO, RST, RHP, OLP, SHOS, VRA, UBNT, PAY and INFI

Weekly Charts
ETFs

• High-Volume Gainers

• High-Volume Losers

Stocks

• High-Volume Gainers

• High-Volume Losers

*5-Day Change

Stocks Surging into Final Hour on Central Bank Hopes, Nikkei Bounce, Short-Covering, Financial/Transport Sector Strength

Today's Market Take:

Broad Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Light

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• VIX 15.27 -8.18%

• ISE Sentiment Index 78.0 -21.21%

• Total Put/Call 1.16 -4.13%

• NYSE Arms .90 +39.83%

Credit Investor Angst:

• North American Investment Grade CDS Index 81.11 -3.31%

• European Financial Sector CDS Index 152.23 -7.51%

• Western Europe Sovereign Debt CDS Index 87.0 +3.0%

• Emerging Market CDS Index 299.99 -1.7%

• 2-Year Swap Spread 17.25 unch.

• TED Spread 23.5 +.75 bp

• 3-Month EUR/USD Cross-Currency Basis Swap -12.5 +.25 bp

Economic Gauges:

• 3-Month T-Bill Yield .04% -1 bp

• Yield Curve 186.0 +7 bps

• China Import Iron Ore Spot $110.90/Metric Tonne -2.63%

• Citi US Economic Surprise Index -32.30 -3.3 points

• 10-Year TIPS Spread 2.14 +1 bp

Overseas Futures:

• Nikkei Futures: Indicating +383 open in Japan

• DAX Futures: Indicating -8 open in Germany

Portfolio: 

• Higher: On gains in my biotech/medical/retail/tech sector longs and emerging markets shorts

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg: 

• Debt Risk Heads for Third Weekly Rise as Yields Surge in Europe. The cost of insuring European corporate bonds is heading for its third weekly increase as yields surge amid concern central banks will curb their efforts to boost economic growth. The Markit iTraxx Europe Index of credit-default swaps on 125 companies with investment-grade ratings rose eight basis points this week, and was at 111 basis points at 10:51 a.m. in London, the longest stretch of weekly gains since March. Average yields on the debt rose nine basis points to a two-month high of 1.99 percent, according to Bank of America Merrill Lynch’s Euro Corporate index. Average yields on junk-rated notes climbed 23 basis points this week to 5.46 percent, the highest in a month, Bank of America Merrill Lynch index data show. The spread over government debt widened 27 basis points to 511, the most since April 18. The Markit iTraxx Crossover Index of default swaps on 50 companies with high-yield credit ratings reached a two-month high of 471 basis points yesterday, after jumping 49 basis points this week. An increase signals deterioration in perceptions of credit quality. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers rose 16 basis points to 163 while the subordinated index climbed 22 basis points to 233. 
• EU Says Countries Must Shoulder Responsibility for Ailing Banks. Euro-area states should only be able to seek direct help for their banking systems from the currency zone’s firewall fund if their national solvency is at risk, the European Commission said in a draft report. Otherwise, the European Stability Mechanism should lend funds to the affected nation, which would then be responsible for channelling the money to overhaul its lenders as was the case for Spain, according to the document obtained by Bloomberg News. Direct ESM aid is part of the European Union’s strategy to shore up its banking system through common supervision and standards for dealing with failing banks.
• European Stocks Advance on U.S. Non-Farm Payroll Report. European stocks advanced, rebounding after the Stoxx Europe 600 Index fell to its lowest level in more than six weeks yesterday, as a U.S. report showed employers added more workers last month than forecast. The Stoxx 600 climbed 1.3 percent to 295.4 at the close of trading.
• China’s Stocks Drop for Seventh Day Before Data. China’s stocks fell, capping the benchmark gauge’s first weekly decline in six weeks, as money-market rates jumped and economists forecast a report tomorrow will show export growth slowed last month. China Petroleum & Chemical Corp. (386), the nation’s biggest refiner, slid 1.6 percent after the government said it will cut gasoline prices. Industrial Bank Co. dropped 1.7 percent, adding to an 8.1 percent slump this week. China Coal Energy Co. (601898) led declines among coal producers. China’s exports may have grown 7.4 percent, half of April’s 14.7 percent, based on the median estimate of 38 economists. The government will release industrial output, retail sales, and inflation data on June 9. The Shanghai Composite Index (SHCOMP) fell for a seventh day, losing 1.4 percent to 2,210.90 at the close. It slid 3.9 percent this week, the first decline since the week ended April 26, amid concerns about slowing economic growth and tighter liquidity.
• Brazil to Experience Tremors from Fed QE Program Tapering. End of quantitative easing program in the US could cause tremors for the world and Brazil, columnist Claudia Safatle reports, citing people from Brazil's economic team. Rising interest rates and depreciation of the real add important risk factors to the continuity of economic recovery, raising doubts about 2014 growth. GDP to grow about 2% in 2013; next year, growth will be similar or worse, depending on monetary tightening cycle and declines in currency. There may be some overshooting and overreaction, an official said.
• Brazilian Real’s Rout Deepens as S&P Cuts Credit Rating Outlook. Brazil’s real fell to a four-year low after Standard & Poor’s cut the government’s credit-rating outlook to negative amid an economic slump that’s threatening to drive up the country’s debt levels. The real sank 0.8 percent to 2.1467 per dollar at 10:23 a.m. in Sao Paulo after earlier reaching 2.1533, the lowest on a closing basis since May 2009. Swap rates due January 2016 rose 11 basis points, or 0.11 percentage point, to 9.79 percent. The Ibovespa benchmark stock gauge slumped 0.5 percent. 
• Commodity Investments Drop the Most in 11 Months as Gold Tumbles. Commodity investments fell $27 billion in April, the most in 11 months, on record sales of gold exchange-traded products, Barclays Plc (BARC) said. Assets under management dropped to $385 billion from $412 billion in March, the biggest decline since May 2012, London-based Barclays said in a report e-mailed today. Net redemptions in gold were a record 182 metric tons worth $8.7 billion in April followed by another 99 tons in May, it said. The Standard & Poor’s GSCI Total Return Index of 24 raw materials fell 4.7 percent in April, the biggest drop since May 2012. The gauge is down 3.1 percent this year.
• Gold, Silver Tumble Most in Three Weeks on Stimulus Bets. Gold tumbled the most since mid-April after employment in the U.S. increased more than forecast in May, boosting concern that the Federal Reserve may scale back monetary stimulus. Silver fell more than 4 percent.
• Greenspan Calls for Tapering of Federal Reserve Asset Purchases. Alan Greenspan, former chairman of the Federal Reserve, said the central bank needs to begin cutting back on its unprecedented asset purchases and move toward stopping them altogether. “The sooner we come to grips with this excessive level of assets on the balance sheet of the Federal Reserve, which everyone agrees is excessive, the better,” Greenspan said on CNBC television today. “The issue is not only a question of when we taper down, but when do we turn? And I think that the markets may not give us all of the leeway we would like to do that.” Greenspan, 87, said while slowing bond purchases must be an initial step, a lower rate of asset purchases will still add to the Fed’s balance sheet, which has reached a record $3.4 trillion. Asked if he thinks the economy is strong enough to drop the policy, known as quantitative easing, to zero, Greenspan said “we’ve got to do it even if we don’t think it’s strong enough.”
• Mortgage-Bond Yields Approach 14-Month High After Jobs Report. Yields on Fannie Mae and Freddie Mac mortgage bonds that guide U.S. home-loan rates approached a 14-month high as May employment data failed to allay concern that the Federal Reserve will pare back its unprecedented stimulus. Fannie Mae’s current-coupon 30-year securities rose 0.03 percentage point to 2.96 percent as of 11 a.m. in New York, according to data compiled by Bloomberg. Yields reached 3 percent on June 4, the highest level since April 2012, climbing from a record-low 1.68 percent in September when the Fed said it would start buying $40 billion of home-loan debt a month to begin its third round of bond purchases.
• Obama Surveillance Defies Campaign Civil Liberty Pledge. The news that Barack Obama continued the Bush administration’s domestic telephone surveillance program is sparking new doubts about a president who campaigned as a champion of civil liberties and greater transparency. “It’s remarkable that the man who rode his way to the presidency by suggesting George Bush’s anti-terrorism policies violated the Constitution is emulating those policies himself,” said Ari Fleischer, the former president’s press secretary. “It’s as if George Bush had gotten a fourth term.”

Wall Street Journal:

• Fed on Track to Ease Up on Bond Buying Later This Year by Jon Hilsenrath. Federal Reserve officials are likely to signal at their June policy meeting that they're on track to begin pulling back their $85-billion-a-month bond-buying program later this year, as long as the economy doesn't disappoint. A good-but-not-great jobs report Friday ensured officials wouldn't want to act right away and would instead want to see more data before taking a delicate step toward winding down the program. Fed Chairman Ben Bernanke signaled last month that the central bank could start pulling back the program "in the next few meetings," a view echoed by other officials in recent weeks. The Fed's next meeting is June 18-19, and after that at the end of July and in mid-September.
• Rehn Hits Back at IMF Over Greece. European Union Economics Chief Olli Rehn had harsh words for the International Monetary Fund Friday as he responded to a report by the IMF criticizing the European Commission over the Greek bailout. "I don't think it's fair and just that the IMF is trying to wash its hands and throwing the dirty water on European shoulders," Mr. Rehn said using unusually tough language.
• Rapid Increase in Brazil Credit Poses Concerns For Households-IMF. The rapid growth of credit in Brazil poses some concerns for households, but not so much for the financial sector, the International Monetary Fund said Thursday. Although the overall level of debt in Brazil remains relatively low by international standards, the IMF expressed concern about the levels of household debt, and high debt-service burdens in particular, given the high interest rates and short loan maturities. Mortgages continue to be only a small share of the total consumer-credit portfolio, it said. "With average debt service-to-income estimated above 20%, there are indications that some households are already under financial distress," the report said. Recent data on delinquency rates and bounced checks suggest at least some households may have reached or exceeded the limit of their debt-carrying capacity, the IMF said.

Fox News: 

• Obama: Phone, Internet data collection not 'Big Brother'. President Obama, speaking publicly for the first time about his administration's mass collection of phone and Internet data, said Friday that the programs have made a difference in tracking terrorists and are not tantamount to "Big Brother." Obama addressed the mounting controversy about the programs during remarks in California, ahead of a highly anticipated meeting with Chinese President Xi Jinping. As the administration moves to declassify some of the details about those programs, Obama assured that his administration is trying to strike the right "balance." "In the abstract, you can complain about Big Brother and how this is a potential program run amok, but when you actually look at the details, then I think we've struck the right balance," Obama said. Obama acknowledged that the U.S. government is collecting reams of phone records, including phone numbers and the duration of calls, but said this does not include listening to calls or gathering the names of callers.   
• Mark Levin On NSA Tracking: "We Have The Elements Of A Police State Here". (video)
• Misfired email tipped off DC officials to IRS scandal in 2010, earlier than previously known.

CNBC: 

• Expect Fed's Taper Announcement in December: Goldman. (video)

Zero Hedge:

• 175K May Non-Farm Payrolls Small Beat, April Revised Down; Unemployment Rate Of 7.6% Higher Than Expected. (graphs)
• Here Is Today's 482 Millisecond NFP Leak, The Subsequent Gold Slam And Trading Halts In Treasurys And ES. (graph)
• Time To Get Out? What The Cult Of Bernanke Is Telling Us.
• Quantitative Quicksand.
• Real Unemployment Rate: 11.3%. (graph)

Business Insider:

• GLENN GREENWALD: The US Wants To 'Destroy Privacy Around The World'.
• TV Nudity Is Increasingly Being Rated Acceptable For Kids.
• THE SCARIEST JOBS CHART EVER. (graph)
• A Brutal Poll For Obamacare Comes At The Worst Possible Time.

Reuters:

• Bundesbank dampens optimism over German economy. Germany's central bank said the economy would slow considerably after a strong second quarter, cutting its 2013 growth forecast by 0.1 percentage points to 0.3 percent and its estimate for 2014 growth to 1.5 percent from 1.9 percent. The Bundesbank's 2013 prediction brought it into line with the International Monetary Fund, which halved its forecast for Germany on Monday.
• TREASURIES-U.S. bonds slump on revived bets of less Fed buying.
• Tumble in key interest rate highlights bank finance woes. A key overnight interest rate went negative twice last week, in a rare stumble that renewed attention on the distortions created by the Federal Reserve's asset-buying stimulus program. The overnight general collateral repo rate, or GC rate, effectively determines the interest earned on overnight secured loans to banks. A negative rate means lenders pay for the privilege of loaning money - an unsustainable position that has highlighted severe dysfunction in the so-called repo market. The GC rate fell to negative three basis points (bp) last Wednesday, and dropped two more bp the following day - its first tumble into negative ground since the 2011 eurozone crisis. That drop has renewed concerns that the repo market is clogged, with a shortage of the collateral it needs to function smoothly.

Telegraph:

• What if Britain had joined the euro? 
• 'QE is socialism. It should be illegal'. Quantitative easing is akin to socialism because it robs savers to rescue undeserving borrowers, a highly regarded fund manager has said.  
• China fuels EU trade dispute with talk of luxury car tax. China may look into a complaint about luxury cars imported from the European Union, potentially escalating a trade dispute that started over solar panels and appears to be spreading to some of the most popular goods with wealthy Chinese. 

Foglio:

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

• Berlusconi Says Euro-Area Cohesion at Risk Over Growth. Former Italian PM says in interview with Il Foglio that Italy must confront German Chancellor Merkel and obtain EU growth policies. If response of Germany and EU allies is insufficient, nations must find own growth solutions "undoing the mechanisms of the euro area," Berlusconi said.

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.


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