Wednesday Watch

Evening Headlines 
Bloomberg:

• China Exports Unexpectedly Drop With Imports in Drag on Economy. China’s exports and imports both unexpectedly declined in June in a sign that weakness in global and domestic demand will intensify the slowdown in the world’s second-biggest economy. Overseas shipments fell 3.1 percent from a year earlier, the General Administration of Customs said in Beijing today, compared with the median estimate of a 3.7 percent gain in a Bloomberg News survey of 39 economists. Imports declined 0.7 percent after a 0.3 percent drop in May. The report follows May’s collapse in export gains after a crackdown on fake invoices that inflated data in the first four months of the year. “The story of China economic growth this year has changed -- it’s no longer a story about modest recovery but about where the government’s bottom line is,” Xu Gao, Beijing-based chief economist with Everbright Securities Co. who previously worked for the World Bank, said before the release. “Without government support, China’s growth will continue to slide.”

• Global GDP Weighted Manufacturing Index Points To More Weakness. (graph)

• Ruble to Real Roiled With No Brick in BRICs’ $13.9 Billion Lost. Capital flight from the BRICs, Brazil, Russia, India and China, is sending their stocks, bonds and currencies down in tandem for the first time since 2006 as the 10-year love affair with the largest emerging markets ends. “Every decade, there’s a theme that captures investors’ imagination -- the 1970s was about gold, 1980s was all about Japan and 1990s was about technology companies,” Ruchir Sharma, the New York-based head of emerging markets at Morgan Stanley Investment Management, which oversees $341 billion, said in a phone interview on July 8. “Last decade it was about the BRICs. That theme has basically run its course.” Investors withdrew $13.9 billion from equity mutual funds invested in the four countries this year, or 27 percent of the inflows since 2005, according to EPFR Global. The MSCI BRIC Index fell 12 percent last quarter while the nations’ currencies sank 4.1 percent against the dollar and government bonds lost an average 0.6 percent, the only such correlation in data compiled by Bloomberg going back seven years. 

• BOJ Easing Forecasts Cut as Japan Gains on Kuroda Salvo: Economy. Economists are ditching forecasts for the Bank of Japan to further expand its record easing this year amid signs that a recovering economy may spur inflation.

• Asian Stocks Pare Gains as Aussie Declines With Metals. Asian stocks trimmed gains, and commodity currencies declined with metals as China’s imports and exports unexpectedly fell. The Dollar Index rose after touching a three-year high as investors awaited minutes from the U.S. Federal Reserve’s meeting last month. The MSCI Asia Pacific Index increased 0.5 percent by 12:41 p.m. in Tokyo, paring a 0.8 percent gain.

• Rebar Falls on Higher Output, Unexpected Drop in China’s Exports. Steel reinforcement-bar futures in Shanghai fell for the third day amid increased output from mills and after an unexpected drop in China’s exports. Rebar for delivery in January on the Shanghai Futures Exchange fell as much as 0.5 percent to 3,579 yuan ($584) a metric ton before trading at 3,588 yuan at 10:45 a.m. local time. 

• Rubber Declines as China’s Cash Crunch Spreads to Auto Dealers. Rubber declined to a one-week low as a cash crunch in China, the biggest consumer, is spreading to the nation’s auto dealerships. Rubber for delivery in December on the Tokyo Commodity Exchange fell as much as 3 percent to 234.3 yen a kilogram ($2,316 a metric ton), the lowest level for a most-active contract since July 1. Futures traded at 236.8 yen at 10:37 a.m. local time and have lost 22 percent this year.

• Copper Triangle Break Means Further 10% Drop: Technical Analysis. Copper futures, down 16 percent this year, may fall by next month to the lowest since mid-2010, based on technical analysis by Matt Zeman at Kingsview Financial LLC. The attached chart of monthly prices shows that copper on the Comex in New York broke out of a triangle pattern formed by a high in February 2011 of $4.6575 a pound and a low of $2.994 in October that year. Declines beneath the lower line of the triangle in the past three months signal a 10 percent drop to $2.75 by early August, Zeman said in a telephone interview. “The charts look bearish,” said Zeman, a strategist at Kingsview in Chicago. “The inability to maintain any meaningful rally is also a bearish factor. We could see a pretty quick slide lower.”   

• EU Unveils Bank-Failure Plan in Face of German Opposition. The European Union’s executive arm is heading for a showdown with Germany over its blueprint for shuttering or restructuring failing banks, a plan intended to complement the European Central Bank’s oversight of lenders. Michel Barnier, the EU’s financial-services chief, will unveil the European Commission’s proposal for a single bank resolution mechanism today in Brussels, a day after German Finance Minister Wolfgang Schaeuble urged restraint if the bloc is to avoid conflicts with its basic laws. “I would strongly ask the commission in its proposal for an SRM to be very careful, and to stick to the limited interpretation of the given treaty,” Schaeuble said yesterday. “We have to stick to the given legal basis, as otherwise we risk major turbulence.”  

• Lloyd’s Says Taxes, Regulation Burden European Firms. High taxation and new regulation are among the most pressing concerns for senior European company executives, according to a survey by Lloyd’s of London. The Lloyd’s Risk Index survey also found executives were worried about losing customers and the availability of credit, the world’s oldest insurance market said in a statement today. “With business tax in the spotlight and rising up the political agenda, executives are understandably concerned,” Lloyd’s Chief Executive Officer Richard Ward said in the statement. “The danger is that an emphasis on near-term, operational issues comes at the expense of significant, strategic decisions.”

• SEC Set to Lift 80-Year-Old Ban on Advertising by Hedge Funds. Hedge funds and other companies seeking private investments would be freed to advertise publicly for funding under a rule set for a vote tomorrow by the U.S. Securities and Exchange Commission. The rule is the first of those required by last year’s Jumpstart Our Business Startups Act to be approved by the SEC, the vote coming more than a year after a deadline set by Congress. The rule would lift an 80-year-old regulatory practice that has restricted advertising outside of a public offering in an effort to protect small investors from inappropriate risks. Under the new rule, startups and other small companies would also be able to use advertising to raise unlimited amounts of money. 

• Six Inconvenient Truths About Obamacare. The White House’s decision last week to delay part of its health-care overhaul illustrates six truths about the law that its supporters can’t easily acknowledge. First, important parts of it are badly designed.

Wall Street Journal: 

• Plan Reins In Biggest Banks. Proposal Requiring Extra Capital Would Force Firms to Be More Conservative or Shrink. U.S. regulators took their first big swing at addressing fears that Wall Street's largest firms remain too risky five years after the financial crisis, unveiling plans to require them to set aside far more capital as protection against future disaster. The Federal Reserve, Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. are effectively trying to force big banks to become more conservative or to shrink. The first step, proposed Tuesday, would require banks to double the amount of capital they hold as protection against every loan, investment, building, security and other asset on their books—not just the risky ones.

• U.S. Struggles to Meet Health-Law Deadline. Delay in Big-Employer Requirement Raises Questions About Administration's Ability to Implement Overall Policy. The delay in the requirement that big employers offer health insurance to workers has raised questions about the administration's ability to implement the biggest domestic policy initiative in a generation.

• Egypt Names New Premier Amid Disarray. Ex-Finance Minister Is Chosen to Lead Interim Government as Arab Nations Pledge Billions, While Divisions Widen. A former finance minister was chosen as Egypt's interim premier under a six-month timetable for elections, as the country's emerging post-coup government drew pledges of $8 billion in assistance from Arab supporters, in new attempts to bolster a democratic transition marked so far by divisions and violence.

• Emerging Markets Hit by IMF Forecast. Lower Growth Prospects Further Rattle Developing Nations. Investor fears that the end of easy money is at hand are ricocheting around the globe. In the latest fallout, the International Monetary Fund on Tuesday trimmed its global-growth forecast.

• Slowdown in China Dents Nickel. Metal's Price Reaches Four-Year Low as Demand Wanes and Output Increases. Nickel prices fell to a four-year low, in the latest fallout from slowing economic growth in China, the metal's biggest user. China's growing pains have translated into less demand for nickel, which is mixed with iron ore to give stainless steel its rustproof property in everything from table forks to kitchen sinks to skyscrapers.

• Alaska Unveils New Plan to Explore for Oil in Wilderness Area. Alaska officials unveiled a new oil exploration proposal Tuesday for the Alaska National Wildlife Refuge, an area estimated to hold significant oil reserves that is also home to polar bears, caribou and other wildlife. Alaska officials and some federal lawmakers have periodically pursued federal approval to explore and drill for oil and natural gas in the wildlife area, arguing that if the area has rich oil reserves, the nation should consider producing hydrocarbons there. Democratic lawmakers and environmental groups have opposed such efforts, arguing that the area is a crucial habitat for wildlife that could be harmed if oil drilling were allowed. Now, the state of Alaska is proposing to pay for underground seismic surveys that would provide a clearer picture of how much oil is underneath the ground in the wildlife refuge. 

• Fukushima Watch: Tritium Levels Soar on Coast at Fukushima Plant. More than two years after the devastating accident at Japan’s Fukushima Daiichi nuclear plant, operator Tokyo Electric Power Co. 9501.TO -0.45% is seeing levels soar of a radioactive element called tritium. The problem spot is on the coastal side of the plant’s heavily damaged No. 2 reactor, one of the areas where Tepco regularly monitors groundwater to check for radioactive elements that may have leeched from the plant’s partly melted fuel cores and into the environment. In May, Tepco found that tritium levels in the groundwater there had suddenly risen to 17 times their December levels. Since then, Tepco has drilled more monitoring holes and stepped up measurements. They’ve found tritium levels are continuing to rise, with the latest readings, taken on July 5, some 20% higher than they were in May.

• Phil Gramm: A GOP Game Plan for Tax Reform. If the special deals that create crony capitalism are allowed to survive, Republican efforts will have failed.

Fox News:

• FOIAed again: ‘Gun map’ newspaper seeks more info on firearms owners. The suburban New York newspaper that created a firestorm earlier this year when it published the names and addresses of gun permit holders has requested more data regarding legal owners of firearms, apparently to determine if handgun ownership patterns have changed in the last six months.

• House Republicans push to slash IRS budget by 24 percent, cite abuses and sequestration. House Republicans want the IRS to pay for targeting political groups and are pushing legislation that would cut the tax collecting agency’s budget by $3 billion -- nearly a quarter of what it received last fiscal year. The House Appropriations Committee is scheduled to start “marking up” the spending bill Wednesday.

MarketWatch.com: 

• Oil prices top $104 on sharp inventory decline. U.S. benchmark crude-oil futures leapt above $104 a barrel on Wednesday after weekly U.S. crude-oil supplies fell by more than twice the amount anticipated by analysts. Crude oil for August delivery CLQ3 +0.74%   rose 85 cents, or 0.8%, to $104.38 a barrel in electronic trade.

CNBC:

• How the Mortgage Interest Deduction Could Change. Congressional action on the U.S. tax code could dramatically alter one of its sacred cows: the mortgage interest deduction. And the change could come in 2013.

Zero Hedge:

• Chinese Exports Slump Most Since 2009. (graphs)

• The Dead Weight Of Sluggish Global Growth.

• DoubleLine Webcast On "The End Of QE As We Know It" With Bond Rout Update.

• Three Funny Charts. (graphs)

• Charles Gave: So Here We Are...

• The NSA Has Inserted Its Code Into Android OS, Or Three Quarters Of All Smartphones.

Business Insider: 

• The Chart That Has Everyone Freaked Out About A Chinese Credit Crisis.

• An Oil Well Is Leaking Into The Gulf Of Mexico.

• The 10-Year Yield Is A Whopping 4 Standard Deviations From Its Long-Average. (graph)

• Air Pollution In Northern China Steals 5 Years Of Life From The Average Person.

• MITCH MCCONNELL: The Obama Administration Is Indifferent To The Rule Of Law.

Federal Reserve Bank of San Francisco:

• A Defense of Moderation in Monetary Policy by John C. Williams.

Reuters: 

• Dismal China trade data points to weaker Q2 GDP growth. China's exports to the United States - the country's biggest export market, fell 5.4 percent in June from a year earlier, while export to the European Unison dropped 8.3 percent, according to the customs. "The surprisingly weak June exports show China's economy is facing increasing downward pressure on lacklustre external demand," said Li Huiyong, an economist at Shenyin & Wanguo Securities in Shanghai. "Exports are facing challenges in the second half of this year. The appreciation of U.S. dollar and the Chinese government's recent crackdown on speculative trade activities also put pressure on exports."

• U.S. Senate to scrutinize Chinese purchase of pork producer Smithfield(SFD). Chinese plans to buy America's Smithfield Foods - the world's biggest pork producer - will face intense scrutiny on Wednesday when U.S. senators question Smithfield's chief executive about food safety and foreign ownership. The proposed $4.7 billion purchase by Shuanghui International would be the largest acquisition ever of a U.S. company by a Chinese concern. Experts on the U.S. review process expect the deal to be approved despite opposition from farmers, food-safety groups and rural communities.

• U.S. risk council designates AIG, GE Capital for tougher oversight. The U.S. financial risk council on Tuesday said it has designated American International Group and GE Capital as systemically risky, bringing them under stricter regulatory oversight. The Financial Stability Oversight Council's decision to name its first set of "systemically important" non-bank firms had been long expected by the financial services industry.

Financial Times: 

• Quantitative easing and the curious case of the leaky bucket. The one certain outcome of QE is that those with assets benefit relative to those without. 

• How credit derivatives desensitised the banking industry to risk. The CDS tail was vigorously wagging the funded credit market dog.

Telegraph:

• Europe’s rich 'could face uprising similar to Peasants' Revolt'. Europe’s rich Baby Boomers are behaving like the nobility in the Peasants’ Revolt, and could face an uprising by the younger generation if the situation doesn’t change, HSBC’s chief economist has warned. 

• Minority Report moves step closer as Lord Sugar launches face recognition adverts. Minority Report-style adverts have moved a step closer to reality after Lord Sugar's Amscreen launched an innovative face detection system in thousands of its advertising screens that can tell how many people are looking at an advert, as well as their age and sex.  

• France bans new Mercedes cars over 'greenhouse gases'. The latest models of Mercedes cars cannot be sold in France as they still use an air conditioning refrigerant the EU says emits excessive greenhouse gases and should be replaced, the German auto company said. 

Liquidity crunch a catalyst for big China slowdown – analysts The mini liquidity crunch is the early warning sign of a substantial economic correction long overdue, amid rising leverage and a broken growth model, say bearish analysts.


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/3222433/Liquidity-crunch-a-catalyst-for-big-China-slowdownanalysts.html?copyrightInfo=true

AsianInvestor: 

• EM Hedgies, Asian Quants Struggle Through June. The Eurkeahedge Greater China Hedge Fund Index is down -5.19% for June, based on strategies that reported last month's returns as of early this week, while the data provider's emerging markets index was down -2.94%.

Jiji:

• OECD Chief Says Japan Should Raise Consumption Tax to 10%. Japan should immediately raise consumption tax to 10% to achieve early fiscal reconstruction, Angel Gurria, Secretary-General of OECD, says in an interview.

China Securities Journal:

• China Can't Rule Out Inflation Risks. China can't rule out inflation risks in the coming half-year period or longer because increasing home prices may push up consumer prices, according to a front-page commentary written by reporters Wang Donglin and Ni Mingya. Actual inflation level is higher than reported CPI data because property prices are not included when calculating CPI, the commentary said. Prices for furniture, building materials, home appliances and rent will rise as a result of increasing property prices, according to the commentary. China should regulate shadow banking and take differentiated policies to curb some overheated industries and overcapacity, the commentary says.

Securities Daily:

• China Cash Crunch Hitting Auto Loan Approvals. Banks have become more stringent in approving car loans after the cash crunch, citing interviews with auto dealers. Loan approvals are now taking twice as long, citing dealers. Mid-priced car sales hit the hardest, according to the report.

Evening Recommendations 
Citigroup:

• Rated (GOOG) Buy, target $1,100.

• Rated (AMZN) Buy, target $340.

• Rated (YHOO) Buy, target $30.

• Rated (EBAY) Buy, target $65.

• Rated (AOL) Buy, target $43.

Night Trading

• Asian equity indices are unch. to +.50% on average.

• Asia Ex-Japan Investment Grade CDS Index 152.50 -5.5 basis points.

• Asia Pacific Sovereign CDS Index 114.0 -3.25 basis points.

• FTSE-100 futures -.28%.

• S&P 500 futures -.09%.

• NASDAQ 100 futures unch.

Morning Preview Links

Earnings of Note
Company/Estimate

• (FAST)/.40

• (FDO)/1.03

• (TXI)/.20

• (PSMT)/.64

• (YUM)/.54

• (ADTN)/.19

Economic Releases
10:00 am EST

• Wholesale Inventories for May are estimated to rise +.3% versus a +.2% gain in April.

• Wholesale Sales for May are estimated to rise +.3% versus a +.5% gain in April.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -3,200,000 barrels versus a -10,347,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +1,000,000 barrels versus a -1,719,000 barrel decline the prior week. Distillate inventories are estimated to rise by +1,000,0000 barrels versus a -2,418,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.2% versus a +2.0% gain the prior week.

2:00 pm EST

• Fed releases minutes from June 18-19 FOMC meeting.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Bernanke speaking, Italian 10Y bond auction, China New Loan/Trade data, Germany CPI, Brazil rate decision, 10Y T-Note auction, weekly MBA mortgage applications report and the (CVX) quarterly update could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and consumer staple 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 Higher into Final Hour on Less Eurozone/Asian Debt Angst, Central Bank Hopes, Short-Covering, Homebuilding/Transport Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Almost Every Sector Rising
  

• Volume: Below Average

• Market Leading Stocks: Outperforming

Equity Investor Angst:

• Volatility(VIX) 14.37 -2.77%

• Euro/Yen Carry Return Index 134.63 -.64%

• Emerging Markets Currency Volatility(VXY) 10.58 -1.76%

• S&P 500 Implied Correlation 50.31 -2.99%

• ISE Sentiment Index 94.0 -5.05%

• Total Put/Call .97 -5.83%

• NYSE Arms .64 -40.57% 

Credit Investor Angst:

• North American Investment Grade CDS Index 81.43 -2.24%

• European Financial Sector CDS Index 153.83 -4.13%

• Western Europe Sovereign Debt CDS Index 95.0 -1.04%

• Emerging Market CDS Index 325.07 -4.24%

• 2-Year Swap Spread 17.0 -.25 bp

• TED Spread 23.25 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -9.75 +.75 bp

Economic Gauges:

• 3-Month T-Bill Yield .04% unch.

• Yield Curve 226.0 -2 bps

• China Import Iron Ore Spot $123.70/Metric Tonne +1.48%

• Citi US Economic Surprise Index -12.0 +.1 point

• Citi Emerging Markets Economic Surprise Index -30.20 +1.2 points

• 10-Year TIPS Spread 2.05 -3 bps

Overseas Futures:

• Nikkei Futures: Indicating +80 open in Japan

• DAX Futures: Indicating +13 open in Germany

Portfolio: 

• Higher: On gains in my tech, biotech and retail sector longs

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

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg:

• IMF Reduces Global Growth Outlook as U.S. Expansion Weakens. World economic growth will struggle to accelerate this year as a U.S. expansion weakens, China’s economy levels off and Europe’s recession deepens, the International Monetary Fund said. Global growth will be 3.1 percent this year, unchanged from the 2012 rate, and less than the 3.3 percent forecast in April, the Washington-based fund said today, trimming its prediction for this year a fifth consecutive time. The IMF reduced its 2013 projection for the U.S. to 1.7 percent growth from 1.9 percent in April, while next year’s outlook was trimmed to 2.7 percent from 3 percent initially reported in April. “Downside risks to global growth prospects still dominate,” the IMF said in an update to its World Economic Outlook. It cited “the possibility of a longer growth slowdown in emerging market economies, especially given risks of lower potential growth, slowing credit, and possibly tighter financial conditions if the anticipated unwinding of monetary policy stimulus in the U.S. leads to sustained capital flow reversals.”

• Chinese Cash Squeeze Causes Auto Dealer Panic, Group Says. China’s money-market squeeze, which sent interbank borrowing costs soaring last month, may prompt auto dealers to cut vehicle orders and slow expansion plans to conserve cash, according to an industry group. “The cash crunch has led to psychological panic among dealers over access to financing,” Luo Lei, deputy secretary-general of the China Automobile Dealers Association, said in a telephone interview from Beijing today. “So far, it hasn’t caused any real damage to the industry, but if the cash crunch continues, the impact will spread to auto dealers.” About 28 percent of dealers surveyed said they felt “anxious” about their funds last month, up from 11 percent in May, the trade body said in a statement today. Only 21 percent of respondents said they had ease of access to financing in June, down 27 percentage points from a month earlier, the survey showed. The survey’s findings add to signs that the cash squeeze has spread beyond non-financial companies.

• China Central Bank Tightens Rules on Interbank Bond Trading. China’s central bank is tightening rules on interbank bond market trading by ordering all transactions to be conducted through the National Interbank Funding Center as it seeks to boost transparency. Transactions including forward deals and repurchases can’t be reversed or changed once agreed between the two parties, the People’s Bank of China said in a statement posted on its website today. Clearing agencies should not engage in settling trades outside the interbank market, according to the statement. Alterations to bond ownership, such as inheritance that are not related to trading, must be supported by legal documents explaining the nature of the transaction, it said.

• Italy’s Credit Rating Cut to BBB by S&P; Outlook Is Negative. Italy’s credit rating was lowered to BBB, or two levels above junk, by Standard & Poor’s because of expectations for a further weakening of economic prospects and the nation’s impaired financial system. The outlook on the rating, reduced from BBB+, remains negative, the New York-based ratings company said in a statement today. Italy’s economic output in the first quarter of 2013 was 8 percent lower than in the last quarter of 2007 and continues to fall, S&P said. The company lowered its growth forecast for 2013 to minus 1.9 percent, from minus 1.4 percent, in part because of the rigidities in the labor and product markets.

• British Manufacturing Decline Casts Doubt on Recovery: Economy. U.K. manufacturing unexpectedly shrank in May amid a drop in pharmaceuticals and metals output, casting doubts on the strength of the economic recovery in the second quarter. Factory output fell 0.8 percent from April, when it declined 0.2 percent, the Office for National Statistics said today in London. The median forecast of 25 economists in a Bloomberg News survey was a 0.4 percent increase.

• European Stocks Advance as Alcoa Boosts Earnings Optimism. European stocks rose to the highest level in almost a month as Alcoa Inc. started the U.S. earnings-reporting season with results that beat analysts’ estimates. Mining companies led gains after Alcoa said China will lead an increase in global aluminum demand. Electricite de France SA jumped the most since October 2008 after a report that the utility will increase its tariff. LVMH Moet Hennessy Louis Vuitton SA added 2.1 percent after it agreed to acquire 80 percent of Italian clothier Loro Piana SpA. The Stoxx Europe 600 Index gained 0.8 percent to 294.58, its highest level since June 10.

• Tepco’s ‘Fukushima Fifty’ Leader Yoshida Dies of Cancer. Masao Yoshida, the plant manager who led the fight to bring Japan’s Fukushima atomic station under control during the 2011 nuclear disaster, has died. He was 58. He died on July 9 at a hospital in Tokyo, according to a statement from Tokyo Electric Power Co (9501)., the operator of the Fukushima Dai-Ichi nuclear plant. The cause was esophageal cancer, the statement said. The illness was unrelated to the radiation exposure after the nuclear accident, according to Tepco, as Tokyo Electric is known.

• Yen Tumbling 9% Splits Top Forecasters From Futures: Currencies. The most accurate foreign-exchange forecasters expect the yen to fall about 9 percent this year to levels not seen since 2008, putting them in opposition to futures traders who are paring bets on a decline.

• Egypt Sets Poll Timetable as Killings Threaten Transition. Egypt named former Finance Minister Hazem El-Beblawi to serve as interim premier, leading a government that will have to oversee elections and revive a crumbling economy to end a deepening crisis following the ouster of Islamist leader Mohamed Mursi.

• FedEx(FDX) Rises on Speculation Bill Ackman May Acquire Stake. FedEx Corp. (FDX) rose the most in 19 months on speculation that it may be an investment target for William Ackman’s Pershing Square Capital Management LP, an Edward Jones analyst said. The stock increased 6.2 percent to $105 at 11:21 a.m. in New York trading, after jumping 7.3 percent for the largest intraday increase since December 2011.

Wall Street Journal: 

• `Abenomics’ Brings an IPO Flood.

Fox News:

• GOP to White House: ObamaCare delay for businesses unfair to everyone else. House Republican leaders on Tuesday urged the Obama administration to grant everybody a reprieve from the ObamaCare insurance mandate, suggesting the recent decision to delay only the requirement on businesses would be unfair to everyone else. "We agree with you that the burden was overwhelming for employers, but we also believe American families need the same relief," House Speaker John Boehner and several other top Republicans wrote in a letter to President Obama. 

MarketWatch:

• NYSE Euronext(NYX) to take over Libor; terms unknown.

CNBC: 

• Hold That 'Pig': GOP's Corker Says of Obamacare. (video) The catastrophic crash of an oil-laden freight train in a small Quebec town last weekend will bring more scrutiny to the railroad industry's transport of oil and may boost the case for pipeline development.

• Fatal Oil Train Disaster Brings Scrutiny to Oil-by-Rail Boom. The catastrophic crash of an oil-laden freight train in a small Quebec town last weekend will bring more scrutiny to the railroad industry's transport of oil and may boost the case for pipeline development.

Zero Hedge: 

• Presenting China's First Too Big To Fail "Lack Of Liquidity" Casualty.

• Egypt: 6 Charts And 2 Scenarios.

• Meet America's Second Largest Employer: A Temp Agency.

• Exposing The Lie Behind The Nonfarm Payroll Numbers. (graphs)

• Kermit Krushed By Latest Stolpering As Asmussen Sends EURUSD Under 1.2800.

Business Insider: 

• A Complete Analysis Of Egypt's Textbook Coup.

• The New York Times Eviscerates Eliot Spitzer And Anthony Weiner.

New York Times:

• Crisis-Struck Europeans Losing Faith in Governments. Less than 10 percent of people in the European countries hardest hit by the sovereign debt crisis believe that their leaders are doing a good job at fighting corruption, reflecting a crisis of faith in government since the crisis crippled much of the euro zone in 2008, an anti-corruption group has found. A global survey of people’s views on corruption by Transparency International, released on Tuesday, revealed a deep disconnect between elected leaders and the people they govern. Roughly half of the 114,000 people surveyed viewed political parties as the most corrupt institutions, and more than half think their governments are run by special interest groups, the survey showed.

NYPost: 

• IRS mistakenly posted 100,000 Social Security numbers to gov't website: group. The IRS mistakenly posted the Social Security numbers of tens of thousands of Americans on a government website, the agency confirmed Monday night. One estimate put the figure as high as 100,000 names. The numbers were posted to an IRS database for tax-exempt political groups known as 527s and first discovered by the group Public.Resource.org.

Reuters:

• Kroger(KR) to buy Harris Teeter(HTSI) for $2.5 billion, shares rise. Kroger Co said on Tuesday it would buy regional grocer Harris Teeter Supermarkets Inc in a $2.5 billion deal, the latest in a string of grocery industry consolidations. 

• METALS-Copper falls on strong dollar, China growth worries. Copper fell on Tuesday as the dollar rose and Chinese inflation data reinforced worries about slowing growth in the world's top copper consumer, though risk appetite in the wider markets and oversold conditions kept losses in check. Copper, down nearly 15 percent this year, fell on Friday after strong U.S. jobs data bolstered concerns that the Federal Reserve could start winding down its stimulus programme as early as September.

• U.S. venture capital funding in Q2 down 54 pct on previous year. U.S. venture capital firms raised $2.9 billion in the second quarter of 2013, down 54 percent on the same period last year, Thomson Reuters and National Venture Capital Association data showed on Tuesday. This is the lowest quarterly figure for U.S. venture capital fundraising since the third quarter of 2011. During the second quarter of 2013, the top five U.S. venture capital funds accounted for 55 percent of total fundraising. 

• IMF says Brazil should beware inflation, not ease monetary policy. Brazil's central bank ought not ease monetary policy any further because inflation is already too high, the International Monetary Fund said on Tuesday. "(Brazil's) inflation is currently above the bend. At this point, to use additional monetary stimulus would in our view be wrong," Thomas Helbling, the IMF's chief for its World Economic Studies division, told a news conference.

Bear Radar

Style Underperformer:

• Large-Cap Growth +.59%

Sector Underperformers:

• 1) Medical Equipment -1.44% 2) Computer Services -1.38% 3) Hospitals -.37%

Stocks Falling on Unusual Volume:

• ISRG, MAKO, RYAAY, EROC, CVC, BBVA, APU, XXIA, SNCR, DGX, CSIQ, SODA, VAR, LH, MU, SSYS, JKS, MPEL, ANGI, NLSN and VHC

Stocks With Unusual Put Option Activity:

• 1) JDSU 2) ISRG 3) TGT 4) XLF 5) KRE
  

Stocks With Most Negative News Mentions:

• 1) DGX 2) ZION 3) P 4) JDSU 5) XXIA
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Value +.67%

Sector Outperformers:

• Homebuilders +3.90% 2) Road & Rail +2.07% 3) Oil Tankers +1.98%
  

Stocks Rising on Unusual Volume:

• GTN, BBEP, ALK, TV, VSTM, FDX, YY, AWAY, AMAT, ETE, TCK, LINE, BKS, DHI, FSL, PBH, FDX, ZOLT, KBH, IRF, LEN, NFLX, XONE and QCOR

Stocks With Unusual Call Option Activity:

• 1) FDX 2) XLNX 3) ISRG 4) SVU 5) RPRX
  

Stocks With Most Positive News Mentions:

• 1) KLAC 2) PG 3) ED 4) HTSI 5) IP
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Tuesday Watch

Evening Headlines 
Bloomberg: 

• Best-Ranked Bank OCBC Cautions on China Crunch: Southeast Asia. Oversea-Chinese Banking Corp. (OCBC), Southeast Asia’s second-largest lender, says banks doing business in China will have to be more prudent with liquidity to weather any future crises. The credit crunch that started in mid-June is temporary and caught some lenders by surprise, OCBC Chief Executive Officer Samuel N. Tsien, 58, said in a Bloomberg Television interview with Haslinda Amin in Singapore yesterday. A money-market liquidity squeeze in China will probably cut the country’s credit growth by about 750 billion yuan ($122 billion) as its central bank continues to crack down on excessive lending, a Bloomberg survey shows. Tsien has focused on expansion in China, Taiwan and Hong Kong to offset waning profitability in the lender’s home market of Singapore. In China, “liquidity is something that cannot be counted on for certain,” said Tsien, who heads Asia’s strongest bank, according to rankings compiled by Bloomberg Markets in May. “You have to be prepared to have adequate liquidity to fund your assets.” 

• Morgan Stanley Favors Credit-Default Swaps to Hedge China Slump. Investors concerned about a sudden slowdown in China should buy sovereign credit-default swaps and currency options, according to Morgan Stanley. The U.S. investment bank prefers default swaps and puts, particularly on the yuan and Taiwanese dollar, to protect against a scenario in which growth in the world's second-biggest economy slumps to 5.5% as the central bank tightens lending to local governments and property developers, it said in a research note dated yesterday. Markets are pricing in a 10% chance of this happening in the next 12 months, the lender wrote. The cost of insuring China's debt from non-payment soared 56.2 basis points this year to 122.5 yesterday, the second-biggest gain in a CMA gauge of 40 investment-grade issuers in Asia outside Japan, as policy makers instigated the worst cash crunch in a decade in an attempt  to control lending.

• Japan Says China Trying to Change Status Quo in Region by Force. China is trying to change the regional status quo by force, based on claims that contradict international law, Japan said in the first defense white paper to be published under Prime Minister Shinzo Abe’s government. “In cases where China’s interests conflict with those of neighboring countries, including Japan, it has taken measures that have been called high-handed, including trying to change the status quo by force,” the Defense Ministry said in its annual report released today on Japan’s security situation.  

• Rupee Plunge Spurs State Bank to Increase Rates: Corporate India. State Bank of India, the nation’s largest lender, will raise interest rates for overseas credit to protect its profit as the rupee’s plunge to a record raises the risk of borrowers defaulting on their loans. The state-owned bank will increase lending rates to cover the probability of rising bad loans from unhedged currency exposure and higher foreign-currency yields, said Managing Director Hemant Contractor, who heads the lender’s international operations. Overseas loans accounted for more than 16 percent of State Bank’s 10.8 trillion-rupee ($177 billion) loan book as of March 31, exchange filings show.

• Tanker Demolitions Slumping as Rupee Reaches Record Low: Freight. The Indian rupee’s slump to a record low is curbing tanker demolitions, prolonging a capacity glut and the most unprofitable freight rates in at least 16 years.

• China Stocks Swing Between Gains and Losses After Inflation Data. China’s stocks swung between gains and losses after the release of June inflation data. Property and consumer-staples companies fell, while cement companies advanced. Poly Real Estate Group Co., the nation’s second-biggest developer, slumped for the first time in four days. Kweichow Moutai Co., China’s biggest liquor maker by market value, slid 0.9 percent after Credit Suisse Group AG cut its rating on the nation’s consumer-staples producers. Jiangxi Wannianqing Cement Co. jumped the most this year after estimating first-half profit probably more than doubled from a year earlier. The Shanghai Composite Index slipped 0.2 percent to 1,954.03 at 10:48 a.m. local time, after plunging 2.4 percent yesterday.

• Asian Stocks Advance on Earnings Outlook as Gas Declines. Asian stocks rebounded from the biggest slump in the regional benchmark in two weeks, and regional credit risk declined after Alcoa Inc. started the U.S. earnings season with results that beat analysts’ estimates. The Dollar Index rose with gold, while industrial metals fell. The MSCI Asia Pacific Index climbed 1.1 percent by 11:05 a.m. in Tokyo. Standard & Poor’s 500 Index futures increased 0.3 percent.

• What’s Good for U.S.-China-Japan Leaves Emerging Markets Losers. What’s good for the global economy’s superpowers risks creating losers in other parts of the world. Signs that the Federal Reserve is preparing to curtail its stimulus are boosting interest rates abroad as well as in the U.S. The strictest credit squeeze in China in at least a decade threatens to erode a pillar of international growth. Japan’s reflation push is lifting the exchange rates of trade rivals and luring capital. While the transitions could mean slower growth in the U.S. and China, they ultimately prime the three biggest economies for less volatile and longer-lasting expansions. Losers for now include the emerging markets and commodity producers previously buoyed by easy U.S. monetary policy and Chinese demand. Economies that still need cheap cash or weaker currencies, including the euro area, also could suffer.

• Pimco Shuns Korea to Turkey Covered Debt on Liquidity. Bankers attempting to sell covered bonds around the world are hitting a roadblock as investors including Pacific Investment Management Co. say difficulty trading debt from fledgling markets is driving them away.

• Rubber Recovers From One-Week Low as Weak Yen Boosts Appeal. Rubber rebounded from the lowest level in a week as Japan’s currency weakened below 101 per dollar, raising the appeal of yen-denominated futures. Rubber for delivery in December added as much as 0.4 percent to 241 yen a kilogram ($2,383 a metric ton) and was at 240.3 yen on the Tokyo Commodity Exchange at 12:11 p.m. Futures slid to 237 yen earlier, the lowest level for a most-active contract since July 1.

• Citigroup(C) to BTG at Risk of Losses on Batista, Moody’s Says. Citigroup Inc.’s Brazil unit and Grupo BTG Pactual (BBTG11) are among banks that may face “sizable” losses if companies controlled by Brazilian billionaire Eike Batista default, Moody’s Investors Service said. Citigroup’s loans and other risks linked to Batista’s faltering commodities companies total 206 million reais ($91 million), or 42 percent of the profit generated by the New York-based bank’s Brazil unit for last year, Moody’s said today in a report. At Sao Paulo-based BTG, the exposure is 649 million reais, or 32 percent of profit.

• U.S. Said to Mull Two Separate Leverage Ratios for Banking Firms. U.S. regulators may set two separate capital standards for the largest banks, one for parent companies and another for their government-backed lending units, said a person with knowledge of the matter. One leverage ratio would set capital at 6 percent of assets and the other would be 5 percent under the joint proposal scheduled to be published tomorrow by the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, the person said.

Wall Street Journal: 

• Central Bankers Hone Tools to Pop Bubbles. Central bankers around the world are searching for ways to halt borrowing binges before they morph into bubbles, and to push lenders to shore up their defenses before the next crisis arrives. In Seoul’s upscale Gangnam neighborhood, made famous by pop star Psy’s viral music video, government curbs on real-estate lending froze a market in which home prices had been rising as fast as 25% a year. In Toronto, housing prices reversed their rapid rise and fell for five months after the government changed rules to effectively increase monthly payments on new loans. But in Tel Aviv, home prices kept right on climbing—up 11% over the past year for a three-bedroom apartment—even after the central bank boosted minimum down payments and made mortgage lending less attractive to banks. Central bankers everywhere else are watching these experiments closely, among them Ben Bernanke, chairman of the U.S. Federal Reserve.

• Peeks Are Still Available for Some Key Economic Data. One provider has ended early looks at some market-moving figures, but other opportunities remain. 

• Michael McConnell: Obama Suspends the Law. Like King James II, the president decides not to enforce laws he doesn't like. That's an abuse of power. President Obama's decision last week to suspend the employer mandate of the Affordable Care Act may be welcome relief to businesses affected by this provision, but it raises grave concerns about his understanding of the role of the executive in our system of government.

Fox News: 

• The cost of subsidies for those seeking government aid through ObamaCare has increased dramatically, critics say. The cost of subsidies for those seeking government aid through ObamaCare has increased dramatically, critics say – even before a single dollar has been collected. Republican Sen. Orrin Hatch of Utah wrote a letter to the administration asking why the president is already requesting 107 percent more than three years ago to pay for subsidies. "They low-balled everything, and they knew they were not asking for enough money to actually do this," John Goodman of the National Center for Policy Analysis said. "And so now they are coming along saying: 'Oh, we've just discovered we don't have enough money'.  They should’ve known that from day one." "I don’t think most of America will be shocked that a government project is coming in over budget," Jim Capretta of the American Enterprise Institute said. "It’s the typical story and so yeah it's probably happening in this case as well."

CNBC:

• Companies Set to Beat Lowered Bar for Earnings Season.

Zero Hedge: 

• Average Cost Per 'Official' Wiretap In The US: $50,452.

• The Remarkable Goldman Extrapolation Engine Strikes Again.

• A Historic Inversion: Gold GOFO Rates Turn Negative For The First Time Since Lehman. (graph)

• Rainman Economics.

• Ken Rogoff: "Policymakers Should Be Cautious Seeing Gold's Drop As A Vote Of Confidence".

Business Insider: 

• Gallup Poll Shows How Badly MSNBC Is Lagging In The Cable News Wars. 

• Experts Destroy Obama's Argument That Americans Must Sacrifice Privacy For Security.

New York Times:

• U.S. Considers Faster Pullout In Afghanistan. Increasingly frustrated by his dealings with President Hamid Karzai, President Obama is giving serious consideration to speeding up the withdrawal of United States forces from Afghanistan and to a “zero option” that would leave no American troops there after next year, according to American and European officials.

Reuters:

• Tesla Motors(TSLA) to replace Oracle Corp(ORCL) on Nasdaq 100 Index.

• China inflation picks up, limits room for policy easing. China's annual consumer inflation accelerated more than expected in June as food costs soared, data showed on Tuesday, limiting room for the People's Bank of China to loosen policy to underpin the slowing economy. The central bank is seen keeping policy largely neutral in the near term to balance the need to keep the world's second-largest economy on an even keel while warding off consumer inflation as well as possible property bubbles, analysts say. "The price pressure for food items came back a little bit. It will be more difficult for them to ease policy, especially to cut interest rates," said Kevin Lai, an economist at Daiwa in Hong Kong. "It reduces the likelihood of interest rate cuts this year and that is not a good policy background to have. But I think inflation will ease by the end of the year as demand won't be strong."

• Intuitive Surgical(ISRG) sees Q2 revenue below views, shares dive 12 pct. Intuitive Surgical Inc, maker of the da Vinci surgical robot, said on Monday it expects second-quarter revenue below analysts' expectations, and its shares fell 12 percent in after-hours trading. The company said it expects revenue for the quarter of about $575 million, up 7 percent from a year ago but well below the average analyst forecast of $629.6 million reported by Thomson Reuters I/B/E/S.

• Alcoa(AA) posts quarterly profit; sees aluminum demand growth. Alcoa Inc remains optimistic that global demand for aluminum will grow 7 percent this year, driven largely by demand from the aerospace and commercial transportation sectors, the largest aluminum producer in the United States said on Monday. 

• U.S. hospitals speed transition to digital records -study. U.S. hospitals are making major strides in switching to electronic health records from paper, driven by an infusion of federal funding for the nationwide effort, according to a report by the Robert Wood Johnson Foundation. The number of hospitals with a basic electronic health records system in place jumped to 44 percent in 2012, up 17 percentage points from 2011. Hospitals that have gone digital have tripled since 2010, when healthcare providers began receiving federal funds to finance the change, the report found.

• Hedge funds in June post first decline of the year. Hedge funds recorded their first monthly loss in eight months in June, as they battled volatile stock and bond markets, according to data published on Monday by industry tracker Hedge Fund Research. On average, hedge funds lost 1.3 percent last month, while the broader S&P 500 stock index fell about 1.7 percent. The decline came after seven months of gains, which had been the longest run of positive performance since 2011 for the $2.25 trillion hedge fund industry. Hedge funds have gained 3.6 percent for the year, trailing the Standard & Poor's 500, which rose 12.6 percent during the first half of 2013.

Telegraph:

• Unbalanced and unsustainable - this is the wrong kind of growth.

The Standard:

• Beijing seen ready to bear debt. Beijing is likely to shoulder local government debt if there is any default, according to an official at one of China's most influential think-tanks. Gao Peiyong, a senior official at the Chinese Academy of Social Science, was speaking to a forum in Beijing on Sunday. Gao estimated local government debt is likely to have exceeded 10 trillion yuan (HK$12.6 trillion). The International Monetary Fund has warned China's local government debt has doubled from 2010 and may now reach 20 trillion yuan - which is more than 50 percent of its gross domestic product.

Economic Information Daily:

• China to Use Financial Policies to Curb Overcapacity. China will implement "strict" financial policies to curb overcapacity. People's Bank of China and China Banking Regulatory Commission will "strictly" check applications for financing by companies that are high energy consumers or heavy polluters, citing a person from PBOC's monetary policy dept. as saying. National Development and Reform Commission and the Ministry of Industry and Information Technology will also coordinate to speed up the process of phasing out outdated capacity.

Evening Recommendations 
Piper Jaffray:

• Rated (WDC) Overweight, target $77.

Night Trading

• Asian equity indices are +.25% to +1.0% on average.

• Asia Ex-Japan Investment Grade CDS Index 158.0 +1.0 basis point.

• Asia Pacific Sovereign CDS Index 117.25 +3.25 basis points.

• FTSE-100 futures +.39%.

• S&P 500 futures +.36%.

• NASDAQ 100 futures +.32%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (WWW)/.34

Economic Releases
7:30 am EST

• The NFIB Small Business Optimism Index for June is estimated to rise to 94.9 versus 94.4 in May.

10:00 am EST

• JOLTs Job Opening for May are estimated to rise to 3800 versus 3757 in April.

Upcoming Splits

• None of note

Other Potential Market Movers

• The BoJ Minutes, Germany PPI data, UK gdp report, Greece T-Bill auction, 3Y T-Note auction, weekly retail sales reports, Semicon West Conference, (BBRY) shareholder meeting, (GIS) Investor Day, (DHR) analyst meeting, (KLAC) analyst briefing and the (LRCX) analyst briefing 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 day.