Stocks Slightly Higher into Final Hour on Less Eurozone/Asian Debt Angst, Central Bank Hopes, Short-Covering, Financial/Gaming Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 13.51 -2.38%
• Euro/Yen Carry Return Index 136.02 +.64%
• Emerging Markets Currency Volatility(VXY) 9.94 -3.12%
• S&P 500 Implied Correlation 51.53 -2.33%

• ISE Sentiment Index 112.0 +55.56%

• Total Put/Call .81 -8.99%

• NYSE Arms .80 +1.01% 

Credit Investor Angst:

• North American Investment Grade CDS Index 76.85 -1.39%

• European Financial Sector CDS Index 157.90 -.49%

• Western Europe Sovereign Debt CDS Index 96.0 unch.

• Emerging Market CDS Index 299.0 -6.41%

• 2-Year Swap Spread 18.25 +1.0 bp

• TED Spread 24.75 +1.5 bps

• 3-Month EUR/USD Cross-Currency Basis Swap -10.75 +.25 bp

Economic Gauges:

• 3-Month T-Bill Yield .02% -2 bps

• Yield Curve 222.0 -2 bps

• China Import Iron Ore Spot $126.90/Metric Tonne +.08%

• Citi US Economic Surprise Index -15.0 -3.3 points
• Citi Emerging Markets Economic Surprise Index -36.20 +1.5 points

• 10-Year TIPS Spread 2.08 +3 bps

Overseas Futures:

• Nikkei Futures: Indicating +304 open in Japan

• DAX Futures: Indicating +11 open in Germany

Portfolio: 

• Slightly Higher: On gains in my tech/medical sector longs
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short
• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg: 

• EFSF Cut to AA+ by Fitch in Wake of France’s Loss of Top Rating. Europe’s temporary rescue facility lost its AAA rating in a move by Fitch Ratings to match it to the level of France after the country lost its own top grade last week. The European Financial Stability Facility was downgraded by one level to AA+, Fitch said in a statement in London today. The company attributed the decision as a consequence to its July 12 cut to the rating of Europe’s second-largest economy. “EFSF’s ratings rely on the irrevocable and unconditional guarantees and over-guarantees provided by euro-area member states,” Fitch said. After France’s downgrade, “the EFSF’s long-term debt issues are not fully covered by AAA guarantees and over-guarantees and, for debt issued before October 2011, by the cash reserve.”
• Yuan Touches 2-Week Low as Economic Growth, Factory Output Slow. China’s yuan touched a two-week low after data showed growth and factory output slowed, adding to signs Asia’s biggest economy is cooling. “Yuan appreciation has come to an end as the export growth outlook remains grim,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. “The window for depreciation from current levels has been opened given the U.S.-China talks are over. It’s time to shift focus back to fundamentals.”
• UBS’s Weber Sees Fed Tapering at Awkward Time for Euro Area. UBS Chairman and former European Central Bank Governing Council member Axel Weber says the Federal Reserve’s plan to reduce stimulus will have a negative effect on the European economy. “The Fed is doing the right thing for the United States,” Weber, who headed the German Bundesbank until 2011, said in an interview with Bloomberg Television’s Mike McKee on July 12 at the Rocky Mountain Economic Summit in Jackson Hole, Wyoming. “That’s their mandate, but it’s undisputed that through transaction and arbitrage it has spillover effects to other constituencies. It’s coming for Europe at an awkward point in time.”
• India Inflation Reaches Three-Month High as Rupee Fans Costs. Indian inflation accelerated to a three-month high in June, threatening to curb scope for a further interest-rate cut as rupee weakness stokes import costs. The wholesale-price index rose 4.86 percent from a year earlier, exceeding May’s 4.7 percent climb, a Commerce Ministry statement showed in New Delhi today. The median estimate in a Bloomberg News survey of 30 analysts was 4.94 percent. The Reserve Bank of India’s threshold level is about 5 percent. 
• WTI Gains as Empire State Manufacturing Index Advances. West Texas Intermediate crude advanced as manufacturing in the New York region expanded at the fastest pace in five months. Prices gained for the fourth time in five days as the Federal Reserve Bank of New York’s general economic index for July climbed to 9.5, the highest level since February. WTI for August delivery gained 33 cents to $106.28 a barrel at 2:23 p.m. on the New York Mercantile Exchange. The volume of all futures traded was 13 percent below the 100-day average for the time of day. The contract climbed $1.04 on July 12, capping a 13 percent rally over three weeks.
• Copper Futures Decline as China’s GDP Expansion Eases. Copper futures fell for the second straight session on concern that demand will ebb after economic growth slowed for the ninth time in 10 quarters in China, the world’s biggest user of industrial metals. Gross domestic product expanded 7.5 percent in the second quarter from a year earlier, down from 7.7 percent in the prior three months, the government said today. That matched the median estimate in a Bloomberg survey of analysts. Industrial production (CHVAIOY) slowed in June for the third time in four months. “The base metals have started the week with a softer tone, coming under pressure after a choppy start on the back of a weakening Chinese economic data and a stronger dollar,” Leon Westgate, a London-based analyst at Standard Bank Plc, said in a report today. “Concerns over the trajectory of China’s economy continue to mount.” Copper futures for September delivery declined 0.8 percent to $3.13 a pound at 11:03 a.m. on the Comex in New York. On July 12, the price fell 0.7 percent. 
• Bets on VIX Decline Reach 2-Year High. (video)

Fox News:

• Justice Department faces evidence hurdles in proving Zimmerman bias after verdict. The Justice Department was running into immediate hurdles Monday in its investigation of possible civil rights violations by George Zimmerman in the shooting death of Trayvon Martin -- namely, that after examining the case for more than a year, the evidence has not changed. 

MarketWatch:

• Ever imagined China growth of 4%? SocGen has.
• Economy skids dangerously close to contraction.

Zero Hedge: 

• Retail Sales Slide, Miss: Biggest Drop And Miss In 12 Months. (graphs)
• Goldman Joins JPM In Cutting Q2 GDP To 1% Stall Speed; A "Funny Chart" Becomes Funnier. (graph)
• The One Chart Explanation Behind Ben Bernanke's "Open Mouth Operation" Scramble.
• EFSF Downgraded To AA+, Or French Fitch Flunks EFSF Following France Flub.

Business Insider: 

• Wall Street's Biggest Institutions Are Testing Software That Will End The Era Of The Quants.
• Google(GOOG) Has Discovered A Massive New Revenue Driver — And It's A Huge Threat To Amazon(AMZN).

Washington Post:

• Zimmerman lawyer to move ‘asap’ against NBC News. Last night’s not-guilty verdict in the George Zimmerman trial will enable the neighborhood-watch volunteer to resume his case against NBC News for the mis-editing of his widely distributed call to police. Back in December, Zimmerman sued NBC Universal Media for defamation over the botched editing, which depicted him as a hardened racial profiler.

Reuters:

• Citigroup(C) profit jumps 41 percent, possible potholes ahead. Citigroup Inc posted a 41 percent increase in quarterly profit, as stronger home prices reduced mortgage losses and bond trading revenue jumped, underscoring the bank's recovery since the financial crisis. Still, storm clouds lie ahead for the third-largest U.S. bank by assets as rising bond yields in the United States are expected to cut into debt underwriting volume, and slowing growth in emerging markets may cut into profit from overseas. About 58 percent of its revenue last year came from outside of North America.

HedgeCo.Net:

• Hedge Funds, Super-Wealthy Leaving France. Following President Francois Hollande’s pledge to raise a top income tax rate of 75% last year, a number of ultra wealthy individuals have already reportedly exited the country to more liberal tax regimes, according to a new whitepaper by ultra-high net-worth tracking firm Wealth-X.

Gallup:

• More Americans Disapprove of the Affordable Care Act. (video) Gallup Editor-in-Chief Frank Newport shares that 52% of Americans disapprove of the Affordable Care Act, up from 45% in November 2012.

Reuters:

• Deepening Spanish credit crunch could hit banks, economy, says IMF. Spain's economic problems could tempt its banks to cut lending further, but they need to resist this and boost their capital ratios by cutting cash dividends or issuing new shares instead, The International Monetary Fund said. The IMF, which is monitoring Spain's banking reforms after a European bailout last year, said in a report on Monday the lenders' solvency had improved. But economic problems including record unemployment had left the sector mired in a deepening credit crunch. That pressure could push banks, whose profitswill likely suffer, to further cut lending as they shore up capital, hitting growth and potentially forcing the government to rethink its plans for restructuring the sector.

Financial Times:

• US outstrips Europe in crisis-era securities deals. The US has widened its lead over Europe in the market for “slicing and dicing” loans, raising questions over whether European banks and businesses will miss out on a potentially important post-crisis source of finance. In the year before the 2008 financial crisis US issuance of asset-backed securities – financial instruments blamed by many for sparking the crisis – totalled $1.5tn in the US and $440bn in Europe. That gap has since widened to become a chasm.

BBC:

• Spain Barcenas scandal: Rajoy rejects resignation calls. Spain's prime minister says he will not give in to "blackmail", amid calls for him to resign over alleged links to a suspect in a payments scandal. Mariano Rajoy said he would fulfil the mandate given by the Spanish people. The calls came after a newspaper published text messages he allegedly sent to the suspect, Luis Barcenas, ex-treasurer of his Popular Party (PP). Meanwhile Mr Barcenas repeated in court allegations that Mr Rajoy received payments from a slush fund.

China Securities Journal:

• China Hangzhou May Levy Property Tax on 2nd Homes. The eastern Chinese city of Hangzhou may be the third city after Shanghai and Chongqing to start property tax trial in China, citing people familiar with the matter. Luxury homes may be taxed at 8%.

Bear Radar

Style Underperformer:

• Large-Cap Growth -.13%

Sector Underperformers:

• 1) Homebuilders -1.73% 2) Gold & Silver -.47% 3) Oil Service -.30%

Stocks Falling on Unusual Volume:

• ALXN, CHT, AMT, MBFI, INGR, BPT, ALNY, WBMD, FET, XONE, CAP, CROX, IBKR, MR and MELI

Stocks With Unusual Put Option Activity:

• 1) MMM 2) SKS 3) AKS 4) VZ 5) UTX
  

Stocks With Most Negative News Mentions:

• 1) DIS 2) CY 3) QLGC 4) UPS 5) HOG
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Value +.45%

Sector Outperformers:

• Alt Energy +2.40% 2) Steel +1.97% 3) Gaming +1.65%
  

Stocks Rising on Unusual Volume:

• TAYC, LEAP, IQNT, FLY, POWI, NTLS, AMCC, XPO, TDS, TSRX, JKS, ADVS and WNC

Stocks With Unusual Call Option Activity:

• 1) DECK 2) LEAP 3) MSI 4) ESRX 5) NTAP
  

Stocks With Most Positive News Mentions:

• 1) NATP 2) TIF 3) DECK 4) ARUN 5) POWI
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Monday Watch

Weekend Headlines 
Bloomberg: 

• China Protest Forcing Nuclear Retreat Shows People Power. Protests in a southern Chinese city last week that forced local authorities to abandon plans for a uranium-processing facility highlight the growing willingness of ordinary people to challenge the state on environmental issues. The proposed Longwan Industrial Park project won’t be approved “in order to fully respect the opinion of the masses,” the government of Heshan, Guangdong province, said in a statement on its website on July 13. A “social-stability risk assessment” of the proposal that was released for public awareness generated “much opposition,” it said. 

• China Wealth Eluding Foreigners as Equities Earn 1% for 20 Years. China’s 20-year economic boom has boosted the wealth of its 1.3 billion citizens at the fastest pace worldwide and spawned some of the biggest companies in history. Foreigners earned less than 1 percent a year investing in Chinese stocks, a sixth of what they would have made owning U.S. Treasury bills. The MSCI China Index has gained about 14 percent, including dividends, since Tsingtao Brewery Co. (168) became the first mainland company to sell H shares to international investors in Hong Kong in July 1993. That compares with a 452 percent return in the Standard & Poor’s 500 Index, 322 percent in the MSCI Emerging Markets Index and 86 percent from Treasuries. Only the MSCI Japan Index had a weaker performance among the 10 largest markets, losing about 1 percent. 

• China June Home Sales Rise 24% as Buyers Defy Government Curbs. China’s home sales transaction value rose 24 percent in June from the previous month, the biggest monthly gain this year, signaling that the government’s latest property measures are failing to deter buyers. The value of homes sold climbed to 624.4 billion yuan ($102 billion) last month from 503 billion yuan in May, based on the difference between the National Statistics Bureau’s data for the first half of the year and the first five months. The June value was almost the same value of the sales in the first two months of the year combined. Housing sales in the first six months rose 46 percent to 2.82 trillion yuan from a year earlier, according to the data.

• Asian Stocks Gain After China Growth Data Matches Forecasts. Asian stocks rose, with a regional equities gauge heading for the highest close in a month, after a report showed China’s economy grew 7.5 percent in the second quarter, matching economists’ estimates. The MSCI Asia Pacific excluding Japan Index rose 0.4 percent to 440.68 as of 11:17 a.m. in Hong Kong as about three shares gained for every two that fell.

• Merkel Rebuffs Putting-Off-Crisis Accusation as Election Looms. Chancellor Angela Merkel dismissed suggestions that her government is waiting to disclose the cost of resolving the debt crisis until after the German election as fresh turmoil emerged in some indebted euro states. Merkel, who is seeking a third term, was asked on ARD television whether Germany would “get the bill” for crisis resolution only after the election. Spain, Portugal and probably Greece need credit programs, she said. “We’re not leaving anybody in the dark on what has to be done, and we’ll keep doing it along these lines,” Merkel said yesterday in an annual summer interview with the broadcaster. Even with political turbulence in Spain and Portugal and risk of further unrest in Greece over planned firings of government workers, the German election still looms over decision-making in the euro region.

• Greeks Waiting Tables With 27% Unemployment See Elusive Recovery. For Prime Minister Antonis Samaras, the tangible signs of Greece’s recovery are the tourists pouring into Athens from cruise ships and airplanes. Olympia Angeli says she’s lucky those tourists keep her employed. The 28-year-old is clinging to the security of working as a waitress even as her wages have fallen by half in three years. Nor does she know when she can return to her studies in tourism management: She can’t afford to lose her 500-euro ($652) monthly take-home salary, needed to support her aging parents. “A lot of people moved back home because of the crisis so their parents could support them,” she said in the historical neighborhood of Plaka at the foot of the Acropolis. “But I’m an only child and I never moved out. I support my parents, help pay the rent, help look after them.”

• Egypt’s Prosecutor Investigates Mursi as Cairo Protests Persist. The Egyptian public prosecutor’s office started investigating complaints against Muslim Brotherhood members as protesters maintained their rallies to oppose the army’s removal of Islamist President Mohamed Mursi. Mursi and seven other Muslim Brotherhood members are accused of “collaborating with foreign parties in order to harm national interests,” killing protesters and damaging the economy, the prosecutor’s office said today in a faxed statement. The probe will also include Mohammed Badie, the group’s top official, and Essam el-Erian, vice chairman of the Brotherhood’s Freedom and Justice Party.

• Hedge Funds Bought Gold in Biggest Rally Since 2011: Commodities. Hedge funds raised bets on higher gold prices for a second week as comments from Federal Reserve Chairman Ben S. Bernanke damped expectations for an imminent tapering of stimulus. Futures rose the most since 2011. Speculators increased their net-long position by 4.1 percent to 35,691 futures and options, U.S. Commodity Futures Trading Commission data for July 9 show. Net holdings expanded even as speculators increased short bets to a record. Net-bullish wagers across 18 U.S.-traded commodities retreated 3.4 percent as investors became the most bearish ever on corn. They were more bullish on silver and palladium.

• U.S. Gasoline Rises to $3.5908 a Gallon in Lundberg Survey. The average price for regular gasoline at U.S. pumps rose 0.61 cents in the past three weeks to $3.5908 a gallon, according to Lundberg Survey Inc. The survey covers the period ended July 12 and is based on information obtained at about 2,500 filling stations by the Camarillo, California-based company, President Trilby Lundberg said in a telephone interview today. The average, which reached a year-to-date peak of $3.795 in the period ended Feb. 22, is about 18.05 cents above the year-earlier price of $3.4103 a gallon. 

• Microsoft(MSFT) Cuts Surface Tablet Prices Amid Weak Demand. Microsoft Corp. (MSFT) is cutting the price of its Surface RT tablet by as much as 30 percent as the device struggles to lure customers amid competition from machines such as Apple Inc. (AAPL)’s iPad.

• Holder Falls Short on Obama Openness Pledge He Enforces. In her four years as the top U.S. diplomat, Hillary Clinton kept a running total of countries visited, miles traveled and hours spent in transit on the State Department website. Still untallied: The bill to taxpayers for her globe-trotting. Bloomberg News last year asked for the details of out-of-town trips for the heads of 57 major departments in fiscal 2011, a test of President Barack Obama’s pledge to run the most open government in history. As of July 12, about one-fifth of those surveyed hadn’t responded. The State Department is one of five Cabinet offices that have yet to fully comply with requests under the Freedom of Information Act to disclose the details and expenses of official travel more than a year after they were filed.

Wall Street Journal: 

• China Slump Ripples Globally. Slowed Growth Realigns Industries and Economies as Beijing Switches Strategies. As the numbers pile up showing China's sizzling growth cooling down, industries world-wide—from German paper-cutter makers to Indonesian palm-oil exporters—are confronting an altered landscape of winners and losers. The ones that benefited the most from China's rise are now being hurt.

• Restaurant Shift: Sorry, Just Part-Time. More Restaurants Replace Full-Timers, Concerned About Insurance. Ken Adams has been turning to more part-time workers at his 10 Subway sandwich shops in Michigan to avoid possibly incurring higher health-care costs under the new federal insurance law. He added approximately 25 part-time workers in May and June as he reduced some employees' hours and replaced other workers who left. The move showed how efforts by some restaurant owners and other businesses to remake their workforces because of the Affordable Care Act may be turning the country's labor market into a more part-time workforce.

• New Spitzer Book Shows Corporations in His Sights. Hints How Former Governor Would Act if Elected New York City Comptroller. A new book by Eliot Spitzer provides the clearest window yet into how, if elected, the former governor would use the office of city comptroller to fight for changes to corporate governance. The book, titled "Protecting Capitalism Case By Case," suggests that Mr. Spitzer would use the city's $140 billion in pension funds, which the comptroller runs along with independent trustees, to try to force changes at companies on issues ranging from executive pay and the makeup of corporate boards to bank lending practices. 

• Government Action Stokes Fears of New U.K. Housing Market Bubble. Average Price of U.K. Property at an All-Time High But Government Still Wants to Boost Demand. The average asking price for residential property in the U.K. rose to a fresh all-time high in the early weeks of July, with further price increases expected in the coming year, fueling concerns that the government's Help to Buy program could be creating a fresh housing market bubble.

• AT&T(T) to Acquire Leap Wireless for $1.2 Billion in Cash. Wireless Giant Says It Will Retain Cricket Brand; Leap Shares Soar in After-Hours Trading. 

• Business Confidence Declines in Survey. Businesses around the world became more gloomy about their prospects in June, an indication that they are unlikely to increase their investment spending and hiring, hindering a so-far tepid and patchy economic recovery. Of 11,000 manufacturers and services providers in 17 countries surveyed between June 12 and 26, the proportion expecting an increase in activity over the coming 12 months exceeded the proportion expecting a decline by 30 percentage points—down from 39 percentage points in February, data-analysis firm Markit said.

• The Zimmerman Verdict. New federal civil-rights charges would smack of double jeopardy.

• Why the President's ObamaCare Maneuver May Backfire. By postponing the employer mandate, Obama has given millions of Americans the legal standing to sue.

Marketwatch.com:

• ‘Abenomics’ isn’t doing enough to fix Japan. Commentary: Government, bankers get ‘D’ for debt and demographics.

Fox News: 

• Justice Department weighing civil rights case after Zimmerman cleared of all charges. The Justice Department said Sunday that it will review the George Zimmerman case for possible civil rights violations, after a jury acquitted the Florida neighborhood watch volunteer in the fatal shooting of 17-year-old Trayvon Martin. As Zimmerman's attorney cautioned that his client's safety is at risk, the Justice Department responded to appeals from NAACP President Benjamin Todd Jealous and several lawmakers to keep investigating the defendant. 

CNBC: 

• How Dangerous Is Singapore's Soaring Household Debt? The wealthy Southeast Asian nation Singapore has seen soaring household debt levels in recent years as low interest rates have led to a borrowing spree, prompting the government to step in to curb demand. This island state, which is an important financial hub, has among the highest level of household borrowing relative to gross domestic product (GDP) in Asia at 77 percent, rising from around 64 percent in 2007. Home loans, which account for around three quarters of household debt, have grown rapidly in recent years together with a booming property market. Now with bond yields beginning to climb – the 10-year Singapore government bond yield has risen to 2.5 percent from 1.4 percent in May – concerns are growing over whether there is a debt bubble in the making.

Zero Hedge: 

• Why Tonight's China GDP Number Is Meaningless: "The Economy Is Already In A Financial Crisis".

• China's Goal(seek)dilocks: GDP "Just Right". (graphs)

• Inflation Is Too Low? Are You Kidding Us Bernanke?

• Ethopian Airlines Releases Statement On Smoldering Dreamliner; UTX Climate System Implicated In Fire.

• Latin American Countries Recall Ambassadors From Spain, France, Italy And Portugal Over Snowden "Neo-Colonial" Flap.

• As US Ships Approach, US Embassy In Egypt Denies Move Presages "Imminent US Invasion".

• Greenwald: "The US Government Should Be On Its Knees Every Day Praying That Nothing Happens To Snowden".

• Israeli Subs Destroy Russian Missiles In Syria; Russia Holds Largest Post-Soviet Military Drill.

• The Bottom-Up "Miracle". (graphs)

• Presenting The All-Time Top 100 Political Donors.

Business Insider:

• It's Incredible How Much Money America Gives To Egypt.

• BYRON WIEN: I Just Visited China, And The Limitless Optimism Of Recent Years Is Gone.

• Has The Arab Spring Failed?

• Democrats' Chances Of Keeping Senate Control Just Took A Brutal Blow.

• If Gas Prices Go Any Higher, They're Going To Start Eating Away At Growth.

• Famed Lawyer: Zimmerman's Trial Never Should Have Happened.

• Spiking Gas Prices Have Joined Spiking Interest Rates As The Newest Threat To The Recovery.

Wall Street All-Stars:

• Indicator Update: Have stock investors dodged the correction bullet?

New York Times: 

• Egyptian Leaders Freeze Assets of Morsi Backers. Egypt’s new military-led government said Sunday that it was freezing the assets of 14 Islamist allies of the ousted president, Mohamed Morsi, stepping up its pressure on his supporters to back down from their continuing public protests demanding his release and reinstatement.

Crain's Chicago Business:

• Insurance exchange scramble. Hopes that the Obama administration's health care overhaul would usher in a new era of competition among insurers in Illinois are fizzling. UnitedHealth Group Inc., the largest insurer in the nation and second-largest in Illinois, is not going to sell policies on the state's insurance exchange when it opens for business on Oct. 1, Crain's has confirmed.

The Blaze: 

• Watch Live: Pro-Trayvon Martin Protesters Clash With Police in NYC, L.A.

Reuters: 

• Analysis: Sting in dragon's tail for foreign companies in China. China's vast market for foreign goods and services, once seen by global companies as a modern-day El Dorado, is becoming a weight around their necks as its growth slows. The rise of the Chinese economic "dragon" over the last two decades has transformed international business. But now the country is in the grip of a slowdown due to a slump in exports and banking sector excesses, as recent data has shown. That has led fund managers worldwide to re-assess their investments in companies with a focus on the world's No.2 economy. "Anything China-sensitive is performing poorly and the trend will not go away because there is no sign of growth recovery," said Maarten-Jan Bakkum, investment strategist at ING Investment Management, which has cut its holdings of China-exposed stocks.

• China police say GlaxoSmithKline(GSK) broke law to boost sales prices. British drugmaker GlaxoSmithKline used travel agencies and consultancies as vehicles to bribe officials and doctors and illegally boosted the sales prices of its drugs sold in China, police said on Monday. 

• Rajoy's risky bet on Spanish economic recovery. Spain's Mariano Rajoy is making a risky political bet in claiming recovery is close at hand as a recent economic upturn is fragile and even if it persists an austerity-weary public may not feel much benefit, analysts and sources say. For weeks, the government has tried to move away from the gloomy picture it presented in April when it updated its economic strategy, pointing at encouraging trade, labour cost and deficit numbers instead. Ministers and officials have hammered home the message that the worst of the crisis has passed, the adjustment after a 2008 property crash is close to ending and structural reforms implemented last year will soon deliver growth and jobs. More recently prime minister Rajoy and his top aides have talked up the prospect of a quicker than expected recovery with growth expected in the third quarter instead of the fourth. 

• Two-for-one tactics threaten European car rebound. Elie Chauvin did not plan to buy a new car when he stopped by his local Hyundai showroom, but the retired builder came away with two for the price of one. 

• Indonesia rupiah weakens past 10,000/dlr, first time since Sept 2009.

MNI:

• China Economy Already in Financial Crisis, Citing Xia Bin. China economy is already in a financial crisis and the government needs to focus on solving its debt problem, citing Xia Bin, an economist with the State Council's Development Research Center. China needs to find ways to let the bubble burst and write off the existing losses as soon as possible to avoid a bigger crisis, citing Xia. Interest from debt in China is almost 6 trillion yuan a year, he said.

AP:

• Spain opposition demands prime minister resign. Spanish opposition leaders on Sunday urged Prime Minister Mariano Rajoy to resign after a newspaper published what it said were text messages Rajoy sent to his party's former treasurer after the treasurer was accused of making slush fund payoffs to politicians including Rajoy. The ongoing scandal of alleged secret payments has shaken Rajoy's governing Popular Party and damaged its popularity ratings. The publication of the text messages by the El Mundo newspaper placed even more pressure on Rajoy, whose resignation was demanded by leaders of two key opposition groups.

Financial Times:

• CMBS defaults more than double. Defaults among financial instruments backed by European commercial mortgage payments have more than doubled, highlighting the widespread problems facing the region’s moribund commercial property market. Twenty-nine commercial mortgage-backed securities defaulted in the first six months of the year as cash-strapped borrowers missed interest and principal payments, according to figures from Standard & Poor’s. That compares with 12 defaults during the same period in 2012 on CMBS instruments, which package together bundles of commercial mortgage revenues for fixed income investors.

• US hedge fund ads worry rivals. Hedge funds could steal market share from the US mutual fund industry after the Securities and Exchange Commission scrapped a ban on hedge fund advertising last week. 

• Chinese warships sail past northern Japan. Chinese warships have passed for the first time through the narrow strait that divides northern Japan and Russia, Japan’s defence ministry said on Sunday. The five ships, including a guided-missile destroyer, travelled in international waters through the La Pérouse Strait early on Sunday morning, the ministry said.

• BP(BP) says US law firms reaping a ‘bonanza’. US law firms in the Gulf of Mexico area have won some of the biggest compensation awards for themselves under BP’s settlement for the Deepwater Horizon disaster, reaping a “bonanza” caused by a misinterpretation of the deal, according to the oil company.

Telegraph:

• Constitutional crisis pushes Portugal closer to the brink. Portugal's borrowing costs have spiked dramatically after key political parties failed to agree on a national salvation front, raising the risk of a snap election and an anti-austerity revolt.

• Ageing Britain 'faces up to five more decades of austerity’. The cost of health care and supporting Britain’s ageing population will mean the country facing more years of austerity measures, the Government’s official forecaster will warn this week. Another £50bn of efficiency measures will be needed over the next 50 years, on top of the current £153bn, to cope with the increasing costs.

Sunday Times:

• Vodafone Sees Slump in Southern Europe. Co. may report declines of more than 10% in Spanish, Italian and Greek revenue between April and June. Vodafone is scheduled to announce 1Q revenue July 19.

Welt:

• Schaeuble Sees Risks of EU Bank Liquidation Plans. German Finance Minister Wolfgang Schaeuble warns against "significant risks" of European Union plans on bank liquidation, quoting Schaeuble letter to EU Commissioner Michel Barnier it obtained.

Japan Times:

• Don’t rush into tax hike, Abe adviser Hamada says. In what appeared to be a veiled warning, one of Prime Minister Shinzo Abe’s most influential economic advisers has said he “doesn’t have to rush” into the first stage of the sales tax hike unless the economy and the labor market have recovered.

AFR:

• Banks vulnerable to housing collapse. Australia's banks have the highest exposure to the residential mortgage market than banks in other major economies, making a US-style banking collapse likely should house prices plummet.

Shanghai Securities News: 

• NDRC Researcher Says China Faces Pressure in 2H. China faces relatively big downward pressure on economy in 2H, citing Wang Yiming, deputy director of the macroeconomic research institute at the National Development and Reform Commission. Growth may continue to slow for fixed-asset investment, salary and consumer consumption because of overcapacity in manufacturing sector, Wang said.

Economic Information Daily:

• China to Study Long-Term Policies to Curb Property. China will speed up studying mid- and long-term land, finance and tax measures to curb property market, citing an "internal meeting."

China National Radio:

• China Subway Construction Thwarted by Funding Crunch. China local govts' difficulties in raising capital have thwarted their plans to build more subway lines. Local govts have had to pay obligations of previous debts, causing shortages of funding for infrastructure projects. Only 3 planned lines have started construction this year, after a total of 21 were announced, it said.

Night Trading

• Asian indices are -.25% to +.50% on average.

• Asia Ex-Japan Investment Grade CDS Index 147.0 +1.0 basis point.

• Asia Pacific Sovereign CDS Index 110.75 +.75 basis point.

• FTSE-100 futures +.31%.

• S&P 500 futures +.20%.

• NASDAQ 100 futures +.30%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (C)/1.18

• (JBHT)/.74

• (CTAS)/.70

• (BRO)/.35

Economic Releases
 8:30 am EST

• Empire Manufacturing for July is estimated to fall to 5.0 versus 7.84 in June. 

• Advance Retail Sales for June are estimated to rise +.8% versus a +.6% gain in May.

• Retail Sales Less Autos for June are estimated to rise +.5% versus a +.3% gain in May.

• Retail Sales Ex Auto & Gas for June are estimated to rise +.4% versus a +.3% gain in May.

10:00 am EST

• Business Inventories are May are estimated unch. versus a +.3% gain in April.

Upcoming Splits

• (ELS) 2-for-1

Other Potential Market Movers

• The Fed's Taruillo speaking, China Fixed Asset/Industrial Production/GDP data and the RBA minutes 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 modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the week.

Weekly Outlook

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

BOTTOM LINE: I expect US stocks to finish the week modestly lower on rising global growth fears, more emerging markets unrest, increasing Eurozone/Asian debt angst, earnings outlook concerns, profit-taking and technical selling. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 50% net long heading into the week.