Today's Headlines

Bloomberg:

• Cosco Shipping Loss Triples in Latest Sign of Weak China Profits. Cosco Shipping Co. (600428), a listed unit of China’s biggest shipping group, said first-half net loss tripled, the latest sign that slowing growth in the world’s second-biggest economy is eroding corporate earnings. The shipping company’s loss in the first six months was 78 million yuan ($12.7 million), widening from 23.6 million yuan a year earlier, it said in a statement to Shanghai’s stock exchange yesterday. Gold miner Zijing Mining Group Co. (2899), sportswear maker Peak Sport Products Ltd. (1968) and winemaker Dynasty Fine Wines Group Ltd. (828) are among others to report sliding profits or losses this month.

• Ibovespa Rout to Worsen as EPS Estimates Sink: Corporate Brazil. Brazilian earnings estimates are falling faster than the Ibovespa benchmark gauge, signaling to HSBC Holdings Plc and Citigroup Inc. that the world's worst major stock market selloff isn't over. Analysts have cut the average earnings-per-share forecast on companies in the Ibovespa, led by retailer B2W Cia. Digital, by 33% over the past 12 months, outpacing the index's 15% plunge. That has lifted stock valuations, with the gauge trading at 11.2 times earnings estimates, up from 9.3 times a year ago, according to Bloomberg.

• Indonesia Fights Inflation With More-Than-Forecast Rate Rise. Bank Indonesia raised its key interest rate more than economists forecast to bolster a weakening currency and ease inflation pressures after the government increased fuel prices last month. The central bank boosted the reference rate by 50 basis points to 6.5 percent, Governor Agus Martowardojo said in Jakarta today. The outcome was predicted by three of 19 economists surveyed by Bloomberg News, with the majority expecting a 25 basis-point increase. It also raised the deposit facility rate to 4.75 percent from 4.25 percent.

• Rajoy Punishes Exporters Sustaining Spain’s Economy: Euro Credit. Aliberico SL survived Spain’s economic crisis by expanding sales of aluminum panels in the U.S., Brazil and Morocco. Prime Minister Mariano Rajoy’s plan to raise corporate taxes may undermine the company’s efforts. “The fiscal pressure is intense,” Clemente Gonzalez Soler, chief executive officer and founder of the Madrid-based manufacturer, said in a telephone interview. “The changes mean a loss of competitiveness for Spanish companies just at the moment when we need to export more.”

• Deutsche Bank(DB) Opaque Loans From Brazil to Italy Obscure Risk. Deutsche Bank AG (DBK), perennially among the top three in global credit markets, made billions of dollars of loans to banks worldwide since 2008 and accounted for them in a way that obscured their continuing risk to investors. Germany’s largest bank managed to lend to firms from Brazil to Italy while making the transactions disappear from its balance sheet, even though it still is owed the money, according to four people with knowledge of the practice and internal documents provided to Bloomberg News. Deals totaling 2.5 billion euros ($3.3 billion) involving Italy’s Banca Monte dei Paschi di Siena SpA and Banco do Brasil SA reveal a technique that obscured Deutsche Bank’s lending reach when it sent cash to the banks, the documents show. The company had talks about a similar loan to Dexia SA (DEXB) weeks before that firm was rescued, according to the documents, and it used the same accounting for other deals through 2011, two of the people with knowledge of the transactions said. “We should be very concerned about the opacity and complexity of these transactions,” said Joshua Rosner, an analyst at research firm Graham Fisher & Co. in New York who warned in early 2007 that securities linked to subprime loans posed risks to the economy. 

• European Stocks Gain Amid Continued Fed Stimulus Optimism. European stocks advanced to their highest level in more than five weeks after Federal Reserve Chairman Ben S. Bernanke said the U.S. economy will continue to need stimulus measures. Ashmore Group Plc (ASHM) jumped 7.1 percent after reporting fiscal fourth-quarter net inflows of $4.5 billion. BHP Billiton Ltd. and Rio Tinto Group, the world’s biggest mining companies, each gained 4.6 percent. Portuguese shares slid amid uncertainty over whether the country’s president will approve the new make-up of the government. The Stoxx 600 increased 0.6 percent to 296.54 at the close of trading.

• Treasury 10-Year Notes in Longest Rally Since February on Fed. Treasury 10-year notes rose for a fourth day, the longest rally since February, after Federal Reserve Chairman Ben S. Bernanke called for maintaining stimulus amid division among policy makers on when to slow bond buying. Treasury notes remained higher after the U.S. sold $13 billion in 30-year bonds at the highest yield in almost two years. Benchmark 10-year yields approached the biggest weekly drop in more than a year after Bernanke said yesterday “highly accommodative monetary policy” was needed for the foreseeable future to support the economy. The yield climbed to the highest level since August 2011 earlier this week on speculation the Fed will scale back purchases. “You had more evidence from the Fed that they are going to great lengths to make the market realize that they are very data dependent and are not talking about tightening,” said David Coard, head of fixed-income trading in New York at Williams Capital Group LP, a brokerage for institutional investors. The Fed “won’t do anything that will jeopardize a recovery that’s still somewhat fragile.”

• Gold Rises to Two-Week High as Bernanke Backs Sustained Stimulus. Gold futures rallied to a two-week high after Federal Reserve Chairman Ben S. Bernanke said yesterday that the U.S. needs “highly accommodative monetary policy for the foreseeable future.” Silver also gained. Gold futures for August delivery climbed 2.6 percent to settle at $1,279.90 an ounce at 1:46 p.m. on the Comex in New York, the biggest jump for a most-active contract since July 1. Earlier, the precious metal touched $1,297.20, the highest since June 24, the last time the price topped $1,300.

• IEA Sees 20-Year Supply Peak Outpacing Demand in 2014. Oil supply will outstrip an acceleration in demand growth next year as production outside of OPEC expands at the fastest pace in 20 years, the International Energy Agency predicted. World oil consumption will climb by 1.2 million barrels a day next year, up from 930,000 a day in 2013, the IEA said in its first monthly report with forecasts for 2014. Supplies from outside the Organization of Petroleum Exporting Countries will jump by 1.3 million barrels a day amid booming output in North America, shrinking the need for crude from the 12-member producer group, according to the report. The assessment should “give bulls some cause for alarm,” the Paris-based adviser to oil-consuming nations said. “While demand growth is also forecast to pick up momentum,” this “will still fall short of forecast non-OPEC supply growth.” 

• U.S. Mortgage Rates for 30-Year Loans Rise to 2-Year High. U.S. mortgage rates for 30-year loans rose to a two-year high, increasing borrowing costs amid signs of an improving job market. The average rate for a 30-year fixed mortgage climbed to 4.51 percent, the highest since July 2011, from 4.29 percent last week, McLean, Virginia-based Freddie Mac said in a statement today. The average 15-year rate increased to 3.53 percent from 3.39 percent.

• Fed’s Duke to Resign Aug. 31 After Five Years as Governor. Federal Reserve Governor Elizabeth Duke, a former community banker who focused on regulation, plans to resign her seat effective Aug. 31. Duke, who never dissented from a Federal Open Market Committee decision, submitted her letter of resignation to President Barack Obama and made no announcement about her future plans, the Fed said in a statement today in Washington.

MarketWatch:

• Bring back Glass-Steagall with modern twist, say senators.

• What to watch in J.P. Morgan(JPM), Wells Fargo(WFC) earnings. Capital markets, rates should help bank earnings this quarter.

Zero Hedge:

• Complete 2013 Year To Date Hedge Fund Performance. (table)

• Portuguese President Re-Ignites "Time-Bomb"; Threatens Early Elections.

• Initial Claims Spike To 360K: Highest In Two Months. (graphs)

• Third Largest Futures Broker Gets Record Fine For HFT Stock Market Manipulation.

• European Bonds And Stocks Slide From Bernanke Opening Exuberance. (graphs)

• What Every Student in America Needs To Know About The Federal Reserve. (graphs)

Business Insider: 

• CARSON BLOCK: We Don't Realize How Deep We're Stuck In Tanking Emerging Markets.

• We're In For A Long Fight Over The Debt Ceiling Before There's A Resolution On Immigration.

Reuters: 

• Chinese banks lend aggressively in early July, risking another crackdown. New local currency yuan loans extended by China's big four state-owned banks stood at an unusually large 170 billion yuan ($27.7 billion) in the first week of July, the official Shanghai Securities News said on Thursday, a move that may alarm regulators trying to strangle distorted credit growth. Traders said similarly aggressive lending by Chinese banks in early June caused the central bank to set off an acute liquidity squeeze in the country's interbank market.

• Lacklustre Italian auction weakens peripheral bonds. Italian bond yields rose on Thursday after a lacklustre debt auction that suggested choppy trading caused by the Federal Reserve's mixed messages on ending stimulus is hurting demand for lower-rated euro zone debt. 

• TABLE-US May ICSC retail sales rose 3.9 pct vs year ago.

• METALS-Copper climbs 3 pct to near one-month high on Fed signals. Three-month copper on the London Metal Exchange rose more than three percent to its highest since June 18 at $7,049.25 a tonne in intraday trade. It then closed at $7,000, from a last bid of $6,825 on Wednesday. 

• Dollar losses accelerate versus yen and euro. The U.S. dollar's losses versus the yen and euro accelerated in mid-morning New York trade on Thursday as investors continued to shed bullish dollar bets on the greenback in the wake of comments made by Federal Reserve Chairman Ben Bernanke.

Telegraph:

• A modest rise in interest rates could cause a million households to 'collapse'. New analysis shows alarming numbers of debt-laden households vulnerable to minor rate rises - even in a positive scenario of rising incomes.

O Estado de S. Paulo:

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

• Brazil Considers Postponing New Tax Cuts. Some tax cuts already announced for next yr may be delayed on need for further fiscal tightening, citing people in the govt's economic team.

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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China News Service:

• China 2H Trade Situation May Be More Serious. Rising costs caused by yuan appreciation and higher labor costs are "important factors" that make trade environment more serious, citing Commerce Ministry spokesman Yao Jian today in Beijing.

Bear Radar

Style Underperformer:

• Small-Cap Value +.58%

Sector Underperformers:

• 1) Banks -.55% 2) Oil Service -.29% 3) I-Banks -.19%

Stocks Falling on Unusual Volume:

• WGO, DECK, BCO, CNSL, GDP, PVTB, RF, KOG, NXST, FLY, TXI, REGI, NUS, DWA, JIVE, YUM, GMCR, DV, SCHW, ANGI, AMTD and CMA

Stocks With Unusual Put Option Activity:

• 1) PBI 2) LM 3) CELG 4) XLK 5) LOW
  

Stocks With Most Negative News Mentions:

• 1) HAS 2) RIG 3) UTX 4) GM 5) AMGN
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Growth +1.16%

Sector Outperformers:

• Homebuilders +5.77% 2) Gold & Silver +4.87% 3) Coal +3.89%
  

Stocks Rising on Unusual Volume:

• PBR, BPI, ALNY, AB, APOL, YY, CELG, ADTN, GOLD, FFIV, TOL, LEN, RIO, DHI, KBH, MAS, ACRX, ACAS, PANW and LPX

Stocks With Unusual Call Option Activity:

• 1) BPI 2) RMTI 3) GDP 4) CELG 5) NRG
  

Stocks With Most Positive News Mentions:

• 1) COP 2) ADTN 3) LLTC 4) ADI 5) NOC
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Thursday Watch

Evening Headlines 
Bloomberg: 

• BOJ Refrains From Adding to Stimulus as Recovery Signs Seen. The Bank of Japan refrained from adding to unprecedented monetary stimulus and raised its assessment of the economy, referring to a recovery for the first time since before a record 2011 earthquake. Governor Haruhiko Kuroda’s board stuck with an April pledge to expand the monetary base by 60 to 70 trillion yen ($709 billion) per year, a statement released in Tokyo today showed. The decision was in line with the forecasts of all 20 economists surveyed by Bloomberg News. The economy is starting to recover moderately, the central bank said. Economic gains increase the odds of Kuroda holding fire for the rest of this year, after a Bloomberg News survey this week showed analysts abandoning predictions for further easing in October.

• Australian Unemployment Rises to 2009 High in Challenge for Rudd. Australia’s unemployment rate rose to the highest since 2009, underscoring the challenge newly-installed Prime Minister Kevin Rudd faces as he crafts a re-election pitch centered on economic management. The jobless rate rose to 5.7 percent in June, the highest since September 2009 and up from a revised 5.6 percent a month earlier, the statistics bureau said in Sydney today.

• Stocks Rally on Bernanke as Metals Soar Amid Dollar Slump. Asian stocks, Treasuries and metals rose, while the dollar retreated after Federal Reserve Chairman Ben S. Bernanke said the world’s biggest economy will continue to need stimulus. The yen climbed against the greenback as the Bank of Japan kept its bond-buying program unchanged. The MSCI Asia Pacific Index advanced 1.7 percent to 134.65 at 12:18 p.m. in Tokyo.

• Rajoy Punishes Exporters Sustaining Spain's Economy: Euro Credit. Aliberico SL survived Spain's economic crisis by expanding sales of aluminum panels in the U.S., Brazil and Morocco. Prime Minister Mariano Rajoy's plan to raise corporate taxes may undermine the company's efforts. "The fiscal pressure is intense, Clemente Gonzalez Soler, CEO and founder of the Madrid-based manufacturer, said in a telephone interview. "The changes mean a loss of competitiveness for Spanish companies just at the moment when we need to export more." 

• Juncker Says His Luxembourg Government Will Resign Tomorrow. Luxembourg Prime Minister Jean-Claude Juncker, the European Union’s longest-serving head of government, said he’ll resign tomorrow after he was implicated in a probe into spying by his security service. Juncker, 58, who led the group of euro-area finance ministers until January, is stepping down after his socialist party coalition ally called for early elections. The move came after a July 5 report to Parliament that said Juncker is “politically responsible” for failing to inform lawmakers of “irregularities and supposed illegalities” by the State Intelligence Service. 

• Brazil Raises Rate to 8.5% as Inflation Undermines Growth. Brazil’s central bank raised borrowing costs by half a percentage point for a second straight meeting, as the fastest inflation in 20 months undermines economic growth and fuels social unrest. The bank’s board, led by President Alexandre Tombini, today voted unanimously to raise the benchmark Selic rate by 50 basis points to 8.50 percent, as forecast by all 51 economists surveyed by Bloomberg. “The committee considers that this decision will contribute to put inflation on a decline and assure that this trend will persist next year,” policy makers said, according to their statement posted on the central bank’s website. The statement was virtually identical to their May 29 communique. Rising prices helped spark the largest street protests in decades last month that also saw President Dilma Rousseff’s approval ratings plunge by almost half. Above-target inflation has undercut months of government stimulus by reducing consumer confidence and curbing retail sales and industrial output. After a quarter-point rate increase in April, policy makers doubled the pace in May and reiterated warnings that the outlook for inflation remains unfavorable. “The diffusion of inflation remains widespread,” Andre Perfeito, chief economist at Gradual Investimentos, said by phone from Sao Paulo before today’s decision. “A higher Selic also seeks to boost credibility after the government implemented a loose fiscal policy.” 

• Rubber Rebounds From Two-Week Low as Oil’s Rally Boosts Appeal. Rubber climbed from the lowest level in two weeks after oil in New York surged to a 15-month high, boosting the appeal of the commodity as an alternative to synthetic products used in tires. Rubber for delivery in December on the Tokyo Commodity Exchange advanced as much as 2.1 percent to 239.5 yen a kilogram ($2,408 a metric ton) and traded at 239.2 yen at 10:23 a.m. Futures reached the lowest settlement since June 27 yesterday. 

• Rebar Rises to Highest in Eight Weeks as China’s Stocks Rally. Steel reinforcement-bar futures in Shanghai advanced to the highest in more than eight weeks after a rally in the local stock market buoyed sentiment. Rebar for delivery in January on the Shanghai Futures Exchange rose as much as 0.7 percent to 3,663 yuan ($597) a metric ton. That’s the highest since May 14 for a most-active contract. Futures traded at 3,645 yuan at 10:05 a.m. local time.

• Crude-by-Rail Profits Fall as WTI-Brent Narrows: Energy Markets. Profits from shipping oil by rail are shrinking as U.S. and global benchmarks converge to the narrowest since 2010, making pipeline deliveries more attractive and slowing the demand for train cargoes like the one that derailed and exploded in Quebec.

Wall Street Journal: 

• Weak Trade Points to China Slowing. Premier Repeats Commitment to Avoid Fresh Stimulus Despite Falling Exports and Cooling Growth. Chinese Premier Li Keqiang has repeated his commitment to steer clear of stimulus for the world's second-largest economy, even as the government reported contracting exports, amid concern about a continuing general slowdown. Coming after a raft of disappointing data in April and May, June's weak trade results added to fear that economic growth in the second quarter continued to slow.

• Corporate Insiders Shift From 'Buy' to 'Sell' as Bankruptcy Nears. One day in September 2011, Wall Street analysts trundled into the spacious lobby at the Livonia, Mich., plant of a company called A123 Systems Inc. to view a slide presentation describing a rosy outlook for the maker of lithium batteries.

• Pig virus migrates to US, threatens pork prices. Pork prices may be on the rise in the next few months because of a new virus that has migrated to the U.S, killing piglets in 15 states at an alarming rate in facilities where it has been reported.

• Economists Dial Down Estimates for Growth. The nation's economic growth pace may have fallen below 1% in the second quarter, several economists said, after wholesalers' inventories declined in May.

• SEC Clears Way for Entrepreneurs to Tweet, Blog About Unregistered Shares. Business Owners Are Planning Marketing Blitzes After SEC Action on Unregistered Shares.

• Henninger: Big Government Implodes. ObamaCare's failures are not the only sign of a great public crack-up.

Fox News: 

• Did Justice Department support anti-Zimmerman protests after Martin shooting? A conservative watchdog group accused the Justice Department of helping manage the "pressure campaign" last year against George Zimmerman in the wake of the Trayvon Martin shooting, citing documents that show an obscure agency spent thousands assisting local demonstrations. The little-known agency, the Community Relations Service, is described by the Justice Department as their "peacemaker" for community conflicts over race. The protests last spring over Martin's death certainly qualified as such a conflict. But while the department claims its "peacemaker" agency does not "take sides" in such disputes, Judicial Watch said the documents and public accounts show otherwise.

MarketWatch.com: 

• P/Es high as earnings season begins.

CNBC:

• Sharp Jump in US Gasoline Seen Within Days. Gasoline is expected to jump 10 to 20 cents per gallon in the next several days, as rising oil prices and peak driving season create a perfect storm for higher prices.

• Yum(YUM) Earnings Slide as China Sales Take a Hit. Yum Brands, parent company of KFC, reported a 16-percent decline in quarterly earnings on Wednesday as sales in China fell sharply.

• Don't Rely on Business Investment to Spur Recovery. Capital expenditure across the world is expected to decline this year and next, according to a new report by rating agency Standard & Poor's (S&P), which warned that hopes of it driving an economic recovery were unfounded.

Zero Hedge: 

• What Bernanke Really Said, Or How The Chairman Just Lost Control Over Policy Again.

• Rick Santelli Asks The Only Question That Matters. (graphs)

• About Those Gold Shorts.... (graph)

• Senate Liberals Push Status Quo Student Loan Bubble Ever Bigger.

• Spain's Slush Fund Scandal.

• Currencies Go Berserk As Bernanke Kills King Dollar. (graphs)

• What Happens Next? (graph)

Business Insider:

• Illinois Governor Cuts Off Pay For Lawmakers Until They Can Solve State's Pension Crisis.

• Egypt Is Plagued By Infighting And Many Are Directing Their Anger At The US.

• Asiana 214 Pilot Claims He Saw A Blinding Flash Of Light During The Plane's Final Descent.

• White House Effectively Denies Coup In Egypt With Plan To Give Them 20 F-16 Fighter Jets.'

• THE PC INDUSTRY CONTINUES TO IMPLODE: Sales Are Down 11% This Quarter.

• Gold Is Surging Tonight, And One Analyst Says It's Now In The Sweet Spot.

New York Times:

• Diverging Debate at Fed on When to End Stimulus. The Federal Reserve Chairman, Ben S. Bernanke, said on Wednesday that the Fed was likely to extend the centerpiece of its campaign to bolster the economy — keeping short-term interest rates close to zero — even as it prepares to wind down another key stimulus program that faces mounting internal opposition.

Real Clear Markets: 

• The Astonishing Collapse of Work In America. (graphs)

Reuters: 

• Ackman may struggle to raise $1 billion in less than 10 days. Hedge fund manager William Ackman's strong returns have made him into one of Wall Street's biggest managers, but even he may struggle to raise $1 billion in the next week for a single stock fund whose target he won't identify, say investors. One of his clients, the Public Employees Retirement Association of New Mexico, which first invested with Ackman's Pershing Square Capital Management in 2010, has already said it will take a pass on the new special investment vehicle, unwilling to hand over so much cash for such a long time.

Financial Times: 

• US banks to shuffle assets over leverage rules. US banks believe they will be able to meet a new regulatory requirement on debt levels by shuffling assets between their subsidiaries and using other “optimisation” strategies to reduce the amount of leverage they report. “We’re going to be able to pull a lot of levers,” said an executive at a large US bank on Wednesday, a day after bank regulators proposed a new “leverage ratio” to limit the industry’s reliance on debt.

• Senator raises US food security fears in Smithfield(SFD) deal. The largest-ever Chinese takeover of a US company came under scrutiny in Washington after a group of bipartisan lawmakers said Shuanghui’s proposed $4.7bn purchase of Smithfield, the pork producer, raised unsettling questions about American food security and economic fairness. “Smithfield might be the first acquisition of a major food and agricultural company, but I doubt it will be the last,” Debbie Stabenow, the Democratic senator from Michigan who heads the powerful agriculture committee, said before the hearing.

Telegraph: 

• The wheels are coming off the whole of southern Europe. Europe’s debt-crisis strategy is near collapse. The long-awaited recovery has failed to take wing. Debt ratios across southern Europe are rising at an accelerating pace. Political consent for extreme austerity is breaking down in almost every EMU crisis state. And now the US Federal Reserve has inflicted a full-blown credit shock for good measure.

WantChinaTimes:

• Shopping malls glut in China might create real estate bubble. "Compared with the residential market, the commercial real-estate market is more likely to face bubbles," a vice chairman of a Hong Kong-listed real-estate firm told the China Business News. According to real-estate services company DTZ, the total floor area for new shopping malls slated to open in Shanghai during the second half of this year will reach 2.49 million square meters. In comparison, the total floor area of retail property transactions from the year 2000 to June 2013 was pegged at 10.9 million square meters. As of 2011, there were 2,812 shopping malls in China. By 2015, the number will grow to 4,000, according to the China Chain Store and Franchise Association.

Evening Recommendations 
Susquehanna:

• Rated (TRIP) Negative, target $50

• Rated (PCLN) Positive, target $1,080.

• Rated (GOOG) Positive, target $1,090.

• Rated (LNKD) Positive, target $232.

• Rated (P) Positive, target $25.

• Rated (AMZN) Positive, target $370.

Night Trading

• Asian equity indices are +.5% to +2.0% on average.

• Asia Ex-Japan Investment Grade CDS Index 156.50 +4.0 basis points.

• Asia Pacific Sovereign CDS Index 118.75 +4.75 basis points.

• FTSE-100 futures +1.74%.

• S&P 500 futures +.99%.

• NASDAQ 100 futures +.95%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (OZRK)/.57

• (PGR)/.41

• (CBSH)/.71 

Economic Releases
8:30 am EST

• The Import Price Index for June is estimated unch. versus a -.6% decline in May.

• Initial Jobless Claims are estimated to fall to 340K versus 343K the prior week.

• Continuing Claims are estimated to rise to 2955K versus 2933K prior.

2:00 pm EST

• The Monthly Budget Statement for June is estimated at $115.0B versus -$59.7B in May.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Tarullo speaking, BoJ decision/Kuroda press conference, USDA Crop report, weekly EIA natural gas inventory report, Bloomberg US Economic Survey for July and the weekly Bloomberg Consumer Comfort Index could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and real estate shares in the region. I expect US stocks to open higher and to maintain gains into the afternoon. The Portfolio is 50% net long heading into the day.

Stocks Slightly Lower into Final Hour on Rising Global Growth Fears, Rising Eurozone/Asian Debt Angst, Rising Energy Prices, Homebuilding/Financial Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Slightly Higher
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 14.39 +.28%
• Euro/Yen Carry Return Index 134.66 -.11%
• Emerging Markets Currency Volatility(VXY) 10.57 +.09%
• S&P 500 Implied Correlation 51.73 +1.85%

• ISE Sentiment Index 67.0 -32.32%

• Total Put/Call .97 -3.0%

• NYSE Arms 1.39 +88.19% 

Credit Investor Angst:

• North American Investment Grade CDS Index 82.15 +.52%

• European Financial Sector CDS Index 157.97 +2.69%

• Western Europe Sovereign Debt CDS Index 96.0 +1.05%

• Emerging Market CDS Index 337.67 +4.07%

• 2-Year Swap Spread 17.0 unch.

• TED Spread 23.75 +.5 bp

• 3-Month EUR/USD Cross-Currency Basis Swap -9.75 unch.

Economic Gauges:

• 3-Month T-Bill Yield .03% -1 bp

• Yield Curve 231.0 +5 bps

• China Import Iron Ore Spot $123.90/Metric Tonne +.16%

• Citi US Economic Surprise Index -10.20 +1.8 points
• Citi Emerging Markets Economic Surprise Index -33.70 -3.5 points

• 10-Year TIPS Spread 2.05 unch.

Overseas Futures:

• Nikkei Futures: Indicating -25 open in Japan

• DAX Futures: Indicating -10 open in Germany

Portfolio: 

• Slightly Higher: On gains in my tech and biotech sector longs
• Disclosed Trades: Added to my (IWM)/(QQQ) hedge
• Market Exposure: Moved to 25% Net Long

Today's Headlines

Bloomberg:

• Junk Sales Halt as Morgan Stanley(MS) Recommends Hedge: China Credit. The risk of a hard landing in China's economy has caused the longest drought in dollar-denominated junk bond sales in a year and encouraged Morgan Stanley to recommend buying credit-default protection. Amid the nation's worst cash crunch on record, no Chinese speculative-grade companies have marketed dollar notes since Central China Real Estate Ltd. raised $400 million selling five-year securities on May 22, according to Bloomberg. That is the longest stretch since the market went quiet for 95 days through July 24 last year amid economic concerns, according to Bloomberg. "The export data is another sign of a slowdown in domestic demand," Nishant Sood, a Hong-Kong-based credit strategist at Morgan Stanley said in a phone interview. Slowing orders and falling producer prices "increase the risk of a bear-case outcome in China and makes the case for a less optimistic view on Chinese credit." 

• China Seen Widening Car-Purchase Limit to Fight Pollution. China, the biggest emitter of greenhouse gases, plans to widen the number of cities curbing auto purchases to fight pollution and congestion, threatening vehicle sales, the government-backed car association said. Eight cities -- Chengdu, Chongqing, Hangzhou, Qingdao, Shenzhen, Shijiazhuang, Tianjin and Wuhan -- will probably introduce measures limiting auto purchases, Shi Jianhua, deputy secretary general of the China Association of Automobile Manufacturers, said in a briefing in Beijing today, without being more specific about the timing.

• Italy’s Industrial Output Rises Less Than Forecast in May. Italian industrial output rose less than expected in May, indicating the country is struggling to emerge from its longest recession in more than two decades. Production rose 0.1 percent from April, when it fell 0.3 percent, national statistics office Istat said in Rome today. Economists had forecast output to rise 0.3 percent, according to the median of 11 estimates in a Bloomberg News survey.

• Italian, Spanish Bonds Fall After S&P Cuts Italy’s Credit Rating. Italian government bonds declined for a second day after Standard & Poor’s cut the nation’s credit rating, citing a weakening of the country’s economic prospects. The nation’s 10-year yield climbed the most in a week as the New York-based rating company also referred to the nation’s impaired financial system in its assessment released late yesterday. Spanish 10-year bonds dropped for a fourth day, the longest run of declines in almost two months. Italy’s cost of borrowing for one year rose as it sold 9.5 billion euros ($12.2 billion) of bills due in 367 and 160 days. Germany auctioned two-year notes. “It’s quite normal that when you get news like that it puts immediate pressure on the market,” said Allan von Mehren, chief analyst at Danske Bank A/S (DANSKE) in Copenhagen. “The rating action reflects an overall picture, that things are still looking weak.” 

• Italy’s Baretta Says Budget Crunch May Require More From Rich. Italian Finance Undersecretary Pier Paolo Baretta said the government is considering shifting the tax burden to the wealthy in order to satisfy demands for broad-based fiscal easing and meet its 2013 deficit target. “The truth is we’ve got a real bottleneck of issues to deal with” this year, Baretta said yesterday in an interview in his office in Rome. In order to raise funds, Italy is seeking spending cuts and may limit the tax deductions higher-income households take on medical visits and other expenses, he said.

• OPEC Sees U.S. Shale Boom Eroding Demand for 2014 Crude. The Organization of Petroleum Exporting Countries forecast the world will need less of its crude next year, even as global oil demand growth rebounds to its strongest pace since 2010, amid competing supply sources. Demand for OPEC’s crude will slip by 300,000 barrels a day next year to 29.6 million a day next year, or about 2.6 percent less than the 12-member group is pumping now, the organization said in its first set of forecasts for 2014. The need for OPEC’s crude will diminish even as global oil demand growth recovers to 1 million barrels a day in 2014, from 800,000 a day this year, amid rising output in the U.S. (DOETCRUD) and Canada. “The strong growth trend seen in 2013 is expected to continue in 2014” for production from outside OPEC, the organization’s Vienna-based secretariat said in its monthly market report today.

• WTI Oil Surges to 15-Month High on U.S. Supply Decline. West Texas Intermediate crude rose to a 15-month high after U.S. supplies tumbled for a second week as refinery operating rates gained, boosting speculation that a glut in the central part of the country is dissipating. Futures climbed as much as 3 percent after the Energy Information Administration said inventories dropped 9.87 million barrels to 373.9 million, three times more than was forecast by analysts surveyed by Bloomberg. Stockpiles at Cushing, Oklahoma, the delivery point for WTI, fell the most since 2009 as refinery utilization increased to the highest level this year. WTI has moved into backwardation, with futures closest to expiration becoming more expensive than those for later delivery.

• Gold Heads for Longest Rally in Two Months on Physical Purchases. Gold climbed for the third session, heading for the longest rally since late April, as physical purchases rose and the dollar’s decline increased demand for the metal as an alternative investment. The dollar fell as much as 0.4 percent against a basket of six major currencies, after reaching the highest since July 2010 yesterday. 

• U.S. Banks Seen Freezing Payouts as Harsher Rules Loom. The biggest U.S. banks, after years of building equity, may continue hoarding profits instead of boosting dividends as they face stricter capital rules than foreign competitors. The eight largest firms, including JPMorgan Chase & Co. (JPM:US) and Morgan Stanley (MS:US), would need to retain capital equal to at least 5 percent of assets, while their banking units would have to hold a minimum of 6 percent, U.S. regulators proposed yesterday. The international equivalent, ignoring the riskiness of assets, is 3 percent. The banks have until 2018 to fully comply. The U.S. plan goes beyond rules approved by the Basel Committee on Banking Supervision to prevent a repeat of the 2008 crisis, which almost destroyed the financial system. The changes would make lenders fund more assets with capital that can absorb losses instead of using borrowed money. Bankers say this could trigger asset sales and hurt their ability to lend, hamstringing the nation’s economic recovery.

Wall Street Journal:

• Key Passages From Fed Minutes. A number of Fed officials wanted to end the central bank’s $85 billion per month bond-buying program late this year ….  

• China’s Very Real Slowdown, Out in the Open. China’s economy is slowing down. China reported that both exports and imports fell in June, something that hadn’t happened since October 2009 during the depths of the global recession.

Fox News:

• Egypt orders arrest of Muslim Brotherhood leader as group rejects cabinet offer. Egypt ordered the arrest of the Muslim Brotherhood's spiritual leader and nine others for allegedly instigating violent clashes with the military this week that left more than 50 Brotherhood supporters dead, hours after the group rejected a plan to be part of the government's new cabinet. The general prosecutor's office said in a statement Wednesday that it issued arrest warrants for the general guide of the Muslim Brotherhood, Mohammed Badie, as well as his deputy and strongman, Mahmoud Ezzat. Eight other leading Islamists also were ordered to be taken into custody. The prosecutor's office says the Islamist leaders are suspected of inciting the violence outside the Republican Guard building in Cairo on Monday that left 54 people dead.

CNBC: 

• Fed Minutes: Some Participants Felt Fed Will Need to Explain QE Exit Relatively Soon. Federal Reserve officials expressed concern about how well the central bank was conveying its policy intentions to a jittery investing public, according to minutes from the most recent meeting. The June FOMC session was significant in that Chairman Ben Bernanke followed it by telling the media that the Fed was prepared to start winding down its bond-buying program by the end of 2013. The minutes indicated a clear concern from committee members, who gave marching orders to Bernanke about what to say at the media gathering. "At the conclusion of the discussion, most participants thought that the Chairman, during his postmeeting press conference, should describe a likely path for asset purchases in coming quarters that was conditional on economic outcomes broadly in line with the Committee's expectations," the minutes said. "In addition, he would make clear that decisions about asset purchases and other policy tools would continue to be dependent on the Committee's ongoing assessment of the economic outlook." "A few stated their view that a prolonged period of low interest rates would encourage investors to take on excessive credit or interest rate risk and would distort some asset prices," the minutes said. "However, others suggested that the recent rise in rates might have reduced such incentives." 

• Dire Predictions For Housing Recovery. (video) The housing recovery is in for a major pause due to higher mortgage rates. It is not in the numbers now, and it won't be for a few months, but it is coming, according to one noted analyst. The market has seen rising rates before, but never so far so fast; there is no precedent for a 45 percent spike in just six weeks. The spike is causing a sense of urgency now, a rush to buy before rates go higher, but that will be short term. Home sales and home prices will both come down if rates don't return to their lows, and the expectation is that they will not. Where is the proof of this? We only need look to the $8,000 home buyer tax credit that expired in 2010. The falloff was dramatic.

Zero Hedge: 

• Monoderailed: Spain's Train-Station-To-Nowhere.

• The Housing Unrecovery: Mortgage Application Drought Continues. (graphs)

• Meanwhile, In A (European) Galaxy Far, Far Away...

• Here Comes Stall Speed: Barclays Cuts Q2 GDP Forecast To 0.6%.

• 11 Signs That Italy Is Descending Into A Full-Blown Economic Depression.

• US To Send Four F-16s To Egypt.

Business Insider:

• ANALYST: There's No Way Bill Ackman Is Targeting FedEx(FDX). 

• Egypt Is On The Brink Of Its Worst Government Yet.

• The State Of The Chinese Economy In One Chart Of Luxury Watch Sales.

• Turkey's Currency Is Plummeting And The Central Bank Is Blowing Through Tons Of Cash To Try To Save It.

• CREDIT SUISSE: 'All The Main Drivers Of Chinese Growth Are Sharply Diminished'.

• Edward Snowden's Leaks Have Caused A 'Massive Shift' In The Public's Views Of Government Surveillance.

New York Times:

• Currency Controls in Cyprus Increase Worry About Euro System.

• Greek Unions Call Strike to Protest Cuts. Greek unions stepped up their opposition Wednesday to a new round of austerity measures promised to the country’s foreign creditors, calling a 24-hour general strike for Tuesday while local government employees occupied city buildings to protest plans for wage cuts and layoffs.

@RonnieSpence:

• S&P vs. Inflation Expectations. (graph)

Reuters:

• China Export Growth vs. GDP Growth. (graph)

• Brazil's real hits weakest level since April 2009. The Brazilian real added to losses on Wednesday afternoon, hitting its weakest level in over four years, as investors feared the U.S. Federal Reserve could signal later in the day that it is about to cut back on its stimulus program. The real lost 0.7 percent to 2.2781 per dollar, its weakest level since the beginning of April, 2009. Investors fear that the withdrawal of U.S. stimulus may reduce the flow of dollars to emerging-market countries such as Brazil.

• U.S. wholesale inventories fall, likely drag on GDP growth. U.S. wholesale inventories fell in May by the most in a year and a half, the second straight monthly decline and a sign that restocking by businesses could weigh against economic growth in the second quarter. The Commerce Department said on Wednesday wholesale inventories dropped 0.5 percent during the month, confounding the expectations of analysts polled by Reuters, who expected an increase.

• Brazil set for another steep interest rate rise to tame prices. Brazil is expected to raise its benchmark interest rate by another 50 basis points on Wednesday, maintaining the pace of monetary tightening to prevent high inflation from hampering a slow-moving economic recovery. The Brazilian central bank, one of the first in the world to tighten monetary policy, has raised its Selic rate twice since April to 8 percent to battle high inflation that has curbed consumption and industrial output.

• Euro vulnerable as Asian FX reserve accumulation slows. Euro weakness could accelerate in coming months because Asian central banks, amongst the biggest buyers of the currency in recent years, will have smaller foreign exchange reserves with which to diversify.

The Tennessean:

• Car dealers no longer fear bruised credit. Lenders more willing to back subprime loans.

CNN:

• Hedge funds can now advertise. What it really means. The Securities and Exchange Commission today voted 4-1 to end a decades-old ban on "general solicitation" by many private issuers, including hedge funds, private equity funds and start-up companies. The recommendation to do so first appeared in the JOBS Act, a piece of bi-partisan capital markets legislation that became law in March 2012. In short, this means that all sorts of private issuers soon will be able to publicly discuss and advertise investment opportunities. They also can do things like publicize past performance, which previously had been prohibited.

Financial Times:

• Portugal’s political turmoil risks debt restructure. Portugal’s government almost disintegrated last week but has now managed to shore up its support, bringing some calm to the country’s bond market. But the political chaos could still have far-reaching implications. Its chances of regaining full market access now look much slimmer. That means the country will need more money from its troika of international lenders. But that could lead to a debt restructuring – potentially upsetting the tentative peace that the European Central Bank has brought to the continent’s bond markets.

Telegraph:

• Brussels faces off against Berlin with plan for failing banks. The European Commission has faced off against Germany by tabling proposals to give itself the power to overrule national financial supervisors and shut down failing banks in the eurozone.

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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China National Radio:

• China Premier Says 2H Economic Situation Complicated. China Premier Li Keqiang made comment on 2H economic situation after hearing feedback from small companies during visit to the southern Chinese province of Guangxi.

Xinhua:

• China Sets Timetable for Local Govt to Disclose Spending. China's State Council issued timetable today for local governments to disclose information on receptions, vehicles and overseas trips spending, citing a State Council plan. Provincial governments should disclose their spending on receptions, vehicles and overseas trips starting from 2013, citing the plan. The municipal- and county-level governments should strive to disclose similar information by 2015, according to the report. State Council also identified nine categories of information that should be disclosed to improve government transparency, including subsidized housing, food and drug safety, environmental protection, land appropriation and demolition, the report said.