Stocks Reversing Higher into Final Hour on Financial Sector Strength, Euro Bounce, Short-Covering, Bargain-Hunting

Broad Market Tone:

• Advance/Decline Line: Slightly Lower
  
• Sector Performance: Mixed
  
• Volume: Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 23.78 -1.49%
  
• ISE Sentiment Index 97.0 +11.49%
  
• Total Put/Call 1.05 -15.32%
  
• NYSE Arms .98 -49.08%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 122.53 +.21%
  
• European Financial Sector CDS Index 297.38 -.49%
  
• Western Europe Sovereign Debt CDS Index 326.26 +1.51%
  
• Emerging Market CDS Index 333.19 +1.11%
  
• 2-Year Swap Spread 35.75 +.75 basis point
  
• TED Spread 40.50 +.5 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -50.25 +.5 basis point
  

Economic Gauges:

• 3-Month T-Bill Yield .07% unch.
  
• Yield Curve 131.0 -4 basis points
  
• China Import Iron Ore Spot $134.80/Metric Tonne unch.
  
• Citi US Economic Surprise Index -35.90 -5.9 points
  
• 10-Year TIPS Spread 2.09 +2 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating a -39 open in Japan
• DAX Futures: Indicating +13 open in Germany
  

Portfolio:

• Higher: On gains in my Retail and Tech sector longs
  
• Disclosed Trades: Covered all of my (IWM), (QQQ) hedges, covered some of my (EEM) short, added (QCOM) long
  
• Market Exposure: Moved to 100% Net Long

Today's Headlines

Bloomberg:

• S&P 500 Pares Drop on Greek Poll. U.S. stocks reversed losses as a Greek opinion poll showed support for the largest pro-bailout party and a report indicated the International Monetary Fund has started discussing contingency plans for a rescue of Spain. The Standard & Poor’s 500 Index slipped 0.3 percent to 1,309.66 at 12:49 p.m. in New York, trimming an earlier drop of 1.1 percent. The index is down 6.3 percent in May, poised for its worst month since September. The Dow Jones Industrial Average erased a decline of as much as 103 points. A Greek opinion poll before June 17 elections showed New Democracy, the largest pro-bailout party, leading Syriza, which calls for the cancellation of the country’s bailout terms. Of 1,128 people surveyed by Marc SA for Athens-based Alpha TV, 26 percent said they’d vote for New Democracy, 24.3 percent for Syriza and 12.5 percent for the Pasok party, which also supports the bailout program.
• Italian Leaders Press for German Action to Fight Crisis. Italy’s prime minister and central bank chief pressed Germany to back more aggressive efforts to snuff out the escalating debt crisis, setting up a south-north showdown over how to stabilize the 17-nation euro economy. Warning that six decades of European integration are at stake, Italian Prime Minister Mario Monti called on German Chancellor Angela Merkel to take steps to halt the financial rot before a backlash builds against budget cuts. Monti and Bank of Italy Governor Ignazio Visco pushed Germany to give up its opposition to direct euro-area aid for hard-hit banks. “Countries that are at the core of the system and which have had the huge merit of instilling the culture of stability to the European Union in the first place, most notably Germany, should really reflect deeply but quickly,” Monti said by video link to an European Union conference in Brussels today. “Europe should really accelerate the efforts, as the European Commission is doing, in order to limit the contagion.”
• ECB's Paramo Says Spain Has Room On Bank Recapitalization. European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo said Spain has room for maneuver in recapitalizing its banks through its Fund for Orderly Bank Restructuring. “The government has front-loaded the issuance program this year so there is some room in case of need for public funds through the FROB,” Gonzalez-Paramo, 53, said in an interview in Frankfurt today, his final day at the ECB. “There is now progress on the external evaluation of the banking-sector needs and these will be known in one month’s time.”
• Euro Break-Up Firewalls Difficult to Build in East, Capital Says. Eastern European policy makers would struggle to build firewalls against contagion from a disorderly break-up of the euro because of short-term debt owed to western parent banks in foreign currencies, Capital Economics Ltd. said. In a worst-case scenario following a potential Greek exit from the euro, eastern European nations may need to resort to International Monetary Fund aid, Neil Shearing, chief emerging- markets economist at London-based Capital, wrote in an e-mailed note today. Strategies such as the Vienna Initiative and swaps with the European Central Bank have “significant barriers” as western lenders are “in the eye of the storm,” he wrote.
• Announced U.S. Job Cuts Jump 67% From Year Ago, Challenger Says. Job cuts announced in the U.S. jumped in May by the most in eight months, led by computer companies. Planned firings surged 67 percent from May 2011 to 61,887, according to figures released today by Chicago-based Challenger, Gray & Christmas Inc. It marked the fourth year-over-year increase so far in 2012. Employers have announced 245,540 reductions since Jan. 1, 20 percent more than a year earlier, the report said.
• U.S. Labor Market Cools As Jobless Claims Rise: Economy. The number of Americans applying for unemployment benefits rose to a one-month high and companies hired fewer workers than forecast, casting doubt on the vigor of the labor market. First-time claims for unemployment insurance payments increased by 10,000 to 383,000 in the week ended May 26, Labor Department data showed today. Private employment climbed by 133,000 in May, Roseland, New Jersey-based ADP Employer Services said. The median estimate of 39 economists surveyed by Bloomberg News called for an advance of 150,000.
• Economy In U.S. Expanded Less Than Previously Estimated. Gross domestic product climbed at a 1.9 percent annual rate from January through March, down from a 2.2 percent prior estimate, revised Commerce Department figures showed today in Washington. The report also showed corporate profits rose at the slowest pace in more than three years and smaller wage gains at the end of 2011.
• Business Activity in U.S. Unexpectedly Grew at Slower Pace. Business activity in the U.S. expanded in May at the slowest pace in more than two years as orders and production cooled. The Institute for Supply Management-Chicago Inc. said today its barometer decreased to 52.7, the lowest since September 2009, from 56.2 in April. Readings greater than 50 signal growth. Economists projected the purchasing managers’ gauge would rise to 56.8, according to the median of 55 estimates in a Bloomberg News survey. While demand for automobiles continues to fuel factory output, the debt crisis in Europe and a slowdown in China may cause some businesses to cut back on spending and hiring.
• Goldman's(GS) Blankfein To Testify as Gupta Trial, US Says. Goldman Sachs Group Inc. (GS) Chief Executive Officer Lloyd Blankfein will testify at the insider- trading trial of the bank’s former director Rajat Gupta, a prosecutor said.
• India Growth Slows to 9-Year Low as Rupee Drops to Record. India’s economic growth weakened to a nine-year low last quarter, hurt by an investment slowdown that has undermined the rupee and jeopardized Prime Minister Manmohan Singh’s development agenda. Bonds climbed and stocks fell. Gross domestic product rose 5.3 percent in the three months ended March from a year earlier, compared with 6.1 percent in the previous quarter, the Central Statistical Office said in a statement in New Delhi today. The median of 31 estimates in a Bloomberg News survey was for a 6.1 percent gain.
• Romney Calls Solyndra A 'Symbol of Failure' for Obama. Presumptive Republican presidential nominee Mitt Romney visited the closed facilities of Solyndra LLC, the solar-panel manufacturer that went bankrupt after receiving a $535 million loan guarantee, and called the company a “symbol of failure” for the Obama administration. Romney, 65, spoke today outside the factory Solyndra constructed with government funds at its headquarters in Fremont, California, terming it “the Taj Mahal of corporate headquarters.” The campaign didn’t disclose the speech location until Romney arrived. “This building, this half-a-billion dollar taxpayer investment, represents a serious conflict of interest on the part of the president and his team,” Romney said. The former Massachusetts governor has repeatedly criticized the Obama administration’s decision to extend a $535 million loan guarantee to Solyndra, saying it was part of a pattern of rewarding companies and people that supported him with taxpayer dollars. The family foundation of Obama fundraiser George Kaiser was Solyndra’s biggest investor.

Wall Street Journal:

• IMF Begins Talk On Spain Contingency Plans - Sources. The European department of the International Monetary Fund has started discussing contingency plans for a rescue loan to Spain in the event that the country fails to find the funds needed to bailout its third-largest bank by assets, Bankia SA, people involved in the handling of the Spanish crisis said Thursday. Both the EU and IMF want to avoid having to bailout Spain at all costs, the people said, but initial planning is under way given that the country is struggling to raise a EUR10 billion shortfall in funds to bail out Bankia.

CNBC.com:

• Most Retailers Top Sales Estimates for May. Most retailers posted solid sales gains in May, with chains such as Target, TJX, and Limited topping analysts' estimates for the month. "Retailers rebounded from a soft April turning in solid May same-store sales results this morning fueled by decent weather conditions, robust Mother's Day selling and enticing Memorial Day weekend promotions," said Ken Perkins of Retail Metrics, in a research report.
• Teamsters Invest Heavily in Private Equity. Hoffa made this blistering criticism of GOP presidential nominee Mitt Romney and his career in private equity at Bain Capital on May 7th: “He represents everything that is wrong with our financial system. He made his money as CEO of Bain Capital by destroying U.S. businesses, sending good-paying American jobs overseas and filling his pockets with millions while putting workers out on the street.” But it turns out that the Teamsters themselves make plenty of money from private equity through investments made by their regional pension funds, which are independently administered.
• Worried Spaniards Sending Billions of Euros Abroad.
  

Business Insider:

• Presenting the Most Unemployed City in Every State.
• Epic Retail Sales Plunge in Greece.
  

Zero Hedge:

• The Monster Has Awakened.
• The 4 Greek Election Scenarios.
• Equities Underperform as Credit Roundtrips Ending Miserable May for Europe.
  

Le Monde:

• The French government is preparing a bill that will restrict companies' ability to cut jobs for purely financial reasons, Arnaud Montebourg, the minister for Productive Recovery, said in an interview. "If certain companies accepted less spectacular profitability levels, these jobs could be saved," Montebourg said.
  

De Tijd:

• The European Commission has "serious doubts" over the breakup plan of Dexia SA. One sticking point for the commission is the structure of the deal around Dexia's French unit, Dexma. A possible stalemate looms between France and Belgium over temporary guarantees.
  

Bear Radar

Style Underperformer:

• Mid-Cap Growth -1.36%

Sector Underperformers:

• 1) Coal -3.07% 2) Oil Service -2.22% 3) Gold & Silver -1.91%

Stocks Falling on Unusual Volume:

• SWC, CLF, TSO, FSLR, LNKD, NE, CRZO, APL, KSS, SHLD, CLMT, HES, BMA, BMRN, FFIV, MELI, ATHN, SCSC, STX, IPGP, PWRD, VPRT, NFLX, OPEN, HFC, LUK, LVS, TDC, JWN, FFIV, BRS, BAH, JOY, PIR, SJT and BKE
  

Stocks With Unusual Put Option Activity:

• 1) EWT 2) FB 3) RIO 4) BHP 5) DRYS
  

Stocks With Most Negative News Mentions:

• 1) CLF 2) NFLX 3) JOY 4) FB 5) JCP
  

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume
  

Bull Radar

Style Outperformer:

• Large-Cap Value -.76%

Sector Outperformers:

• 1) Airlines +.39% 2) Utilities -.33% 3) Retail -.37%

Stocks Rising on Unusual Volume:

• OVTI, CIEN, ZUMZ, FLO and GET
  

Stocks With Unusual Call Option Activity:

• 1) TIVO 2) FB 3) AUXL 4) TLB 5) WU
  

Stocks With Most Positive News Mentions:

• 1) SKS 2) FITB 3) TJX 4) MDR 5) GPS
  

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume

Thursday Watch

Evening Headlines
Bloomberg:

• Greece Risks Trade Constraints as Insurers Cut Export Coverage. Euler Hermes SA (ELE), the world’s biggest credit insurer, said it will no longer cover new shipments of goods to Greece because of the risks of the nation leaving the euro currency and customers defaulting on payments. The insurer, a unit of Allianz SE (ALV), took the decision because exporting to Greece has become “significantly more risky,” Paris-based Euler Hermes said in an e-mailed statement yesterday. The insurer is still working under the assumption Greece will remain in the euro zone, it said. “We will still cover those shipments under way and internal commercial transactions,” spokeswoman Bettina Sattler said by telephone today. Future shipments to the country won’t be covered, she said. The lack of export insurance, which pays companies if a client defaults, raises the prospect that certain goods will no longer reach Greek companies and stores.
• Moody’s Downgrades Danske Bank, Eight Other Danish Lenders. Moody’s Investors Service downgraded the ratings of nine Danish financial institutions, including the country’s biggest bank, Danske Bank A/S, saying loan books have deteriorated and debt refinancing has become harder. Danish banks suffer from “a weak operating environment, pressurized asset quality and poor profitability,” the rating company said late yesterday in a statement published out of London. Danske Bank’s deposit rating was cut two steps to Baa1 from A2, after Standard & Poor’s earlier yesterday cut the Copenhagen-based bank’s long-term rating to A- from A. The bank said in a separate statement that it “does not understand Moody’s very negative view” of the Danish banking industry. It had also questioned the reasoning for S&P’s downgrade. “We have had a close dialog with Moody’s in recent months,” Henrik Ramlau-Hansen, Danske’s chief financial officer, said. “We are certain that Moody’s has heard our arguments, but we do not think they are reflected in the rating the bank has received.”
• Euro Approaches Two-Year Low on Spanish Banks Concern. The euro fell to the lowest level in almost two years against the dollar as Spain struggled to rescue its troubled banks, adding to signs the European debt crisis is spreading to the region’s larger economies. The 17-nation currency slid for a seventh day versus the yen, the longest losing streak in four months, after Italy sold less than its maximum target at a debt auction. The yen and dollar strengthened as investors sought safer assets after a European report showed economic confidence dropped more than economists estimated in May. Asian currencies weakened, pushing the Bloomberg-JPMorgan Asia Dollar Index to the lowest level since September 2010.
• JPMorgan(JPM) CIO Swaps Pricing Said to Differ From Bank. The JPMorgan Chase & Co. (JPM) unit responsible for at least $2 billion in losses on credit derivatives was valuing some of its trades at prices that differed from those of its investment bank, according to people familiar with the matter. The discrepancy between prices used by the chief investment office and JPMorgan’s credit-swaps dealer, the biggest in the U.S., may have obscured by hundreds of millions of dollars the magnitude of the loss before it was disclosed May 10, said one of the people, who asked not to be identified because they aren’t authorized to discuss the matter.
• Oil Enters Bear Market on Europe Debt Crisis, Slow U.S. Economy. Oil entered a bear market in New York as it headed for the biggest monthly drop in more than three years on speculation Europe’s worsening debt crisis and a slowing U.S. economy will reduce fuel demand. Futures today are 20 percent lower than their highest settlement this year, a definition of a bear market. New York futures slumped 3.2 percent yesterday. Prices slipped as economic confidence in the euro area fell more than forecast in May to the lowest since October 2009 and costs to protect Spanish government debt with default swaps climbed to a record. A report yesterday showed pending U.S. home sales in April slid the most in a year. Oil gained earlier in 2012 on concern that tension with Iran will disrupt global supplies. “We’re seeing demand destruction across the board,” said Jonathan Barratt, chief executive officer of Barratt’s Bulletin, a commodity-markets newsletter in Sydney. “I was looking for a Middle Eastern premium to be built in, but Spain’s concern seems to be overriding that and filtering through the whole commodity complex. People are scared to spend.”
• India Policy Freeze Saps Funds as Greek Fallout Threatens Growth. Posco, the world’s third-largest steelmaker, took seven years to gain permission to build a mill in India, only to have the environmental approval suspended by a tribunal in March. Bahrain Telecommunications Co. (BATELCO) may sympathize after selling its share of mobile-phone operator STel Pvt. following the Indian Supreme Court’s revocation of 122 licenses in a corruption probe. Star India Pvt. Ltd., a unit of New York-based News Corp., waited even longer than Posco, finally exiting an eight-year television channel venture after the government failed to relax rules on news media ownership. The reversals reflect policy paralysis in Prime Minister Manmohan Singh’s administration that leaves India risking deeper damage from any global crisis now than it experienced during the 2008-09 turmoil.
• Korean Washer Exporters to Pay U.S. Duties as High as 71%. The U.S. Commerce Department proposed duties of as much as 71 percent on large, residential washing machines made in South Korea, concluding that government subsidies for the goods undercut U.S. producers. The agency announced a preliminary finding yesterday after Whirlpool Corp. (WHR) of Benton Harbor, Michigan, said in a Dec. 30 complaint that LG Electronics Inc. (066570) and Daewoo Electronics Corp., both based in Seoul, and Samsung Electronics Co. (005930) of Suwon, South Korea, sell washers in the U.S. for less than production costs.
• Fed’s Fisher Says Europe Drives U.S. Interest Rates Down. Federal Reserve Bank of Dallas President Richard Fisher said Europe’s debt crisis has done more to lower U.S. interest rates than the Fed’s maturity-extension program, known as Operation Twist.

Wall Street Journal:

• Facebook(FB) IPO Review Finds No Listing Violations. Regulators probing Facebook Inc.'s listing on the Nasdaq Stock Market haven't found any evidence of industry rule violations and view the botched offering as a technical failure, according to a person familiar with the matter. Members of Congress, regulators and state officials are looking for foul play nearly two weeks after one of the largest initial public offerings fizzled during its first day on Nasdaq, leading to an estimated $100 million in initial trading losses. Yet so far, federal regulators have found no clear-cut signs that securities laws or industry rules were broken.
• U.S. Firms Challenge Web-Oversight Proposals. Few issues unite AT&T Inc., Google Inc., Microsoft Corp. and Intel Corp., but the idea of new international regulation of the Internet has managed to do so. Those companies and many others are backing a U.S. effort to block a United Nations agency from extending its powers to the Internet. They say new regulation could increase costs for U.S. corporations offering online services abroad.
• Exchanges Aim New Flash-Crash Fixes For February Launch. U.S. stock-exchange operators aim to roll out a new system designed to shield investors from massive price swings next February as part of an expanded plan that would give brokers a greater say in administering the plan.
• Turmoil Frays Ties Across Continent. Amid Europe's intensifying debt crisis, a spat between banking authorities in Germany and Italy shows how Europe's carefully nourished financial ties are fraying. The row kicked up last fall when German banking regulators ordered Italian bank UniCredit SpA to stop borrowing billions of euros from its German subsidiary. They wanted to protect their banking system from being infected by the weaker one to the south. The move angered Italy's central bankers and sent relations between financial authorities into a nose dive.
• Henninger: Church Is Still Not State. Catholics are being told to substitute state belief for their religious belief.
• Citi's(C) Emerging Markets Risk Underestimated. Investors are underestimating the risks posed by Citigroup Inc.'s push into faster-growing emerging markets, according to a research report to be published Thursday. Gimme Credit, a fixed-income research company based in New York, said it expects debt issued by the third-biggest U.S. bank by assets to perform less well over the next six months than bonds issued by the company's peers. The report comes amid investor fears that once-thriving developing economies such as China and Brazil are facing a slowdown. About two-thirds of Citigroup's revenue comes from outside the U.S., primarily Latin America and Asia.

Business Insider:

• SODA BAN IS COMING: Mike Bloomberg Is Going To Take Away Your Big Gulp.
• This Chart Shows How Insanely Fast Chinese Censors Can Take Something Off The Internet.
• Wisconsin Democrats Are Totally Desperate In Scott Walker's Recall Election.
  

Zero Hedge:

• A few more questions on JP Morgan and the London Whale.
• Spain: Bankia Down, Who Is Next?
• Spain Is The Most 'Over-Banked' Nation In Europe.
• Biderman & Santschi On Europe's Delusions And Money-Printing Illusions.

CNBC:

• Brazil Cuts Rates to Record Low as Economy Stalls. Brazil's central bank cut interest rates on Wednesday for the seventh straight time to a record low 8.50 percent, moving into uncharted territory in a bid to shield a fragile recovery from a gloomy global outlook. President Dilma Rousseff has made lower interest rates one of the top priorities of her government which is struggling to steer the economy back to the 4 percent-plus growth rates that made Brazil one of the world's most attractive emerging markets in the last decade. The central bank's monetary policy committee, known as Copom, voted unanimously to lower the benchmark Selic rate 50 basis points from 9 percent, in line with market expectations.
• Europe Fears Bailout of Spain Would Strain Its Resources. As Spain’s deepening financial problems make a European bailout a more distinct possibility, a looming question is where the money will come from. Spain is the euro zone’s fourth-largest economy, after Germany, France and Italy, and the cost of a rescue would strain the resources of Europe’s new 700 billion euros ($867 billion) bailout fund that is to become available this summer. That would leave little margin for any additional bailouts. Spanish and European officials hope a bailout will not be needed. But each day, financial turmoil mounts over the government takeover of the giant Spanish mortgage lender Bankia, the flight of money to safer borders and a worsening recession. Compounding Spain’s problems has been an outflow of foreign capital from the country, meaning the Spanish banks in recent months have been the only major buyers of its government bonds needed to finance the nation’s budget deficits. With those bonds now plummeting in value, the fate of Spain’s banks and government are intertwined in a financial tailspin.

NY Times:

• European Officials Caution France and Warn of Challenging in Spain. The European Commission urged euro zone countries on Wednesday to move toward greater fiscal integration, even as it prodded national governments to live up to their existing budget promises.

AppleInsider:

• Apple(AAPL) Stores Busy With Secretive Activity Ahead Of WWDC Keynote. Some Apple retail employees will be working late nights ahead of the upcoming Worldwide Developers Conference, while a handful of stores recently had surprise visits from workers out of Apple's corporate headquarters, AppleInsider has learned.
  

ABC News:

• Fisker May Never Build Electric Cars in U.S. The luxury carmaker Fisker Automotive continues to signal it could ditch plans to build its next generation hybrid electric vehicle in the United States, despite the nearly $200 million in Obama administration loan money it has already received. Fisker received federal funds in part to help purchase a shuttered General Motors plant in Delaware, where it predicted it would one day employ 2,000 auto workers to assemble the clean-burning gas-electric family car, known as the Atlantic.

Reuters:

• States Crack Down on Prescription-Drug "doctor shopping".
• Euro Collapse Could Halve Luxury London Home Prices. Prices of the best central London homes could halve if the euro zone breaks up, as the safe-haven appeal of sterling disappears and weaker European currencies give rise to bargains elsewhere, research showed. An ensuing collapse in global equity prices would also force buyers to seek cheaper alternatives, the report from British developer Development Securities said. Luxury London house prices have rocketed in recent years as economic turmoil in Europe and political uprisings across north Africa and the Middle East prompted investors to shield their wealth by buying property in the UK capital.
• US Q1 pre-foreclosure sales at 3-year high -report. Sales of U.S. homes in default jumped in the first quarter to the highest level in three years as steeper price discounts were offered, a report from RealtyTrac said on Thursday. Known as pre-foreclosure or short sales, the first three months of the year saw such sales jump 16 percent to 109,521 homes compared to the fourth quarter of 2011. That was an increase of 25 percent compared to the year before and the highest level since the first quarter of 2009.
• Japan industrial output gains slow, stirring recovery doubts.
• Stock funds see big outflows in latest week -ICI.

Telegraph:

• Spain faces 'total emergency' as fear grips markets. Spain is facing the gravest danger since the end of the Franco dictatorship as the country is frozen out of global capital markets and slides towards an epic showdown with Europe. “We’re in a situation of total emergency, the worst crisis we have ever lived through” said ex-premier Felipe Gonzalez, the country’s elder statesman. The warning came as the yields on Spanish 10-year bonds spiked to 6.7pc, pushing the “risk premium” over German Bunds to a post-euro high of 540 basis points. The IBEX index of stocks in Madrid fell 2.6pc, the lowest since the dotcom bust in 2003.

Hong Kong Economic Times:

• China Overseas Says Worst Not Over for China Home Market. Funding for developers may continue to be "tight" in the second half of this year, citing Chairman Kong Qingping. The government's policy fine-tuning for the property market isn't enough to stimulate the industry, Kong said.

China Daily:

• Foreign direct investment in China will be "unpredictable" in the months ahead, citing Liu Yajun, director of the Ministry of Commerce's foreign investment administration. China FDI fell for a sixth consecutive month in April. The drop in FDI has been mainly because of a "sluggish" global economy, Liu said.
• A survey of 4,000 people in eight Chinese cities finds that more than 73% believe the nation's food is unsafe. Of those respondents who said they believed food was unsafe, about 27.8% said they believed food was "extremely unsafe."
  

Economic Information Daily:

• China's Hunan Says It Didn't Study Relaxing Property Curbs. The Development and Reform Commission of Hunan province has never studied measures to rescue the property market, citing Tian Yongjun, deputy director at the information center of the provincial agency.

Shanghai Securities News:

• China Big 3 Banks Lend 86B Yuan in First 28 Days of May. The Bank of China extended least net loans among 3 biggest lenders excluding AgriBank, citing a person familiar with the matter. The Central government didn't order banks to increase lending, citing Bank of China President Li Lihui.

Evening Recommendations
Morgan Stanley:

• Upgraded (ALTR) to Overweight, target $40.
• Rated (SNDK) Overweight, target $45.
  

Night Trading

• Asian equity indices are -1.50% to -.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 203.0 +10.0 basis points.
  
• Asia Pacific Sovereign CDS Index 160.50 -.25 basis point.
  
• FTSE-100 futures -.31%.
  
• S&P 500 futures -.03%.
  
• NASDAQ 100 futures -.10%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CIEN)/-.04
• (JOY)/1.96
• (ESL)/1.29
• (OVTI)/.22
• (SAI)/.33
• (JCG)/.68

Economic Releases
8:15 am EST

• ADP Employment Change for May is estimated at 150K versus 119K in April.

8:30 am EST

• 1Q GDP is estimated at +1.9% versus a prior estimate of a +2.2% increase.
• 1Q Personal Consumption is estimated at +2.9% versus a prior estimate of a +2.9% gain.
• 1Q GDP Price Index is estimated to rise +1.5% versus a prior estimate of a +1.5% gain.
• 1Q Core PCE is estimated to rise +2.1% versus a prior estimate of a +2.1% gain.
• Initial Jobless Claims are estimated at 370K versus 370K the prior week.
• Continuing Claims are estimated to fall to 3250K versus 3260K prior.

9:45 am EST

• Chicago Purchasing Manager for May is estimated at 56.8 versus 56.2 in April.
  

11:00 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,000,000 barrels versus an +883,000 barrel gain the prior week. Distillate supplies are estimated unch. versus a -309,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -1,000,000 barrels versus a -3,299,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.35% versus a -.2% decline the prior week.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Pianalto speaking, Ireland Fiscal Treaty referendum, China PMI, ICSC Chain Store Sales for May, Challenger Job Cuts report for May, weekly Bloomberg Consumer Comfort Index, NAPM-Milwaukee for May, RBC Consumer Outlook Index for June, All Things Digital Conference, (FLEX) analyst day, (PRXL) investor day and the (CLX) analyst day could also impact trading today.
  

BOTTOM LINE: Asian indices are lower, weighed down by technology and financial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

Stocks Falling into Final Hour on Rising Eurozone Debt Angst, Less US Economic Optimism, Financial/Homebuilder Sector Weakness, More Shorting

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Every Sector Declining
  
• Volume: Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 23.32 +10.89%
  
• ISE Sentiment Index 83.0 -8.79%
  
• Total Put/Call 1.34 +38.14%
  
• NYSE Arms 1.91 +314.51%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 122.33 +4.84%
  
• European Financial Sector CDS Index 298.90 +3.07%
  
• Western Europe Sovereign Debt CDS Index 321.34 +2.33%
  
• Emerging Market CDS Index 328.13 +3.07%
  
• 2-Year Swap Spread 35.0 +.75 basis point
  
• TED Spread 40.0 +1.0 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -50.75 -3.5 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .07% -1 basis point
  
• Yield Curve 135.0 -10 basis points
  
• China Import Iron Ore Spot $134.80/Metric Tonne +1.74%
  
• Citi US Economic Surprise Index -30.0 +.2 point
  
• 10-Year TIPS Spread 2.07 -5 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating a -140 open in Japan
• DAX Futures: Indicating -3 open in Germany
  

Portfolio:

• Slightly Lower: On losses in my Biotech and Tech sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, added to my (EEM) short, then covered some of them
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 gives back much of its recent gain on rising Eurozone debt angst, financial/homebuilder sector weakness, less US economic optimism, the ongoing decline in (FB) shares and rising global growth fears. On the positive side, Defense shares are holding up relatively well, falling less than -.5%. Oil is falling -3.6%. On the negative side, Coal, Alt Energy, Oil Tanker, Energy, Oil Service, Steel, Internet, Disk Drive, Networking, Bank, I-Banking, Hospital, Construction, Homebuilding, REIT, Retail, Education and Road&Rail shares are under significant pressure, falling more than -2.0%. Cyclical and Small-cap shares have traded poorly throughout the day. The financial/homebuilding sectors have also underperformed. Lumber is falling -2.6%, Copper is dropping another -2.4% and Gold is gaining +.6%. Major Asian indices fell around -.75% overnight, led lower by a -1.92% decline in Hong Kong. Major European indices fell around -2.0%, led lower by a -2.6% decline in Spain. Spain is now down -5.4% in 5 days and down -28.9% ytd, which remains a huge red flag. The Bloomberg European Bank/Financial Services Index is down -1.6%. This index is down -3.3% in 5 days and down -25.1% since March 19th. The France sovereign cds is jumping +6.3% to 214.33 bps, the Spain sovereign cds is jumping +5.1% to 588.83 bps, the Italy sovereign cds is gaining +5.3% to 549.51 bps, the Germany sovereign cds is gaining +3.0% to 102.16 bps, the UK sovereign cds is gaining +3.0% to 74.82 bps and the Brazil sovereign cds is gaining +3.6% to 165.65 bps. The Italian/German 10Y Yld Spread is rising +5.9% to 466.52 bps(+8.4% in 5 days). Moreover, the European Investment Grade CDS Index is gaining +4.2% to 177.36 bps. US Rail Traffic continues to soften. The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its late-December peak. Moreover, the Citi US Economic Surprise Index has fallen back to late-Sept. levels. Lumber is -3.0% since its Dec. 29th high despite improving sentiment towards homebuilders and the broad equity rally ytd. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite expectations for a strong spring home selling season. The Baltic Dry Index has plunged around -55.0% from its Oct. 14th high and is now down around -40.0% ytd. China Iron Ore Spot has plunged -25.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +238.0% ytd. The CRB Commodities Index is now technically in a bear market, having declined -25.3% since May 2nd of last year. Overall, recent credit gauge deterioration remains a big worry as most key sovereign cds remain technically strong. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is still fairly high. The Italian/Spanish economies appear to be in freefall, which will further intensify sovereign pressures. The 10Y T-Note continues to soar, copper trades very poorly and the euro can’t even sustain a bounce. I still believe there is still too much uncertainty on the horizon to conclude a durable stock market low is in place after the recent pullback. Spain is rapidly approaching full-blown crisis. I still don’t hear any viable “solutions” to the European debt crisis and it is really beginning to bite emerging market economies now, which will further pressure exports from the region and further raise the odds of more sovereign/bank downgrades. As well, the "US fiscal cliff "will become more and more of a focus for investors as the year progresses. For this year's equity advance to regain traction, I would expect to see a resumption in European credit gauge improvement, a subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices, a US "fiscal cliff" solution and higher-quality stock market leadership. One of my longs, (TFM), made a new record high today on an excellent earnings report. I still see substantial outperformance for the shares over the intermediate-term. I expect US stocks to trade mixed-to-lower into the close from current levels on rising Eurozone debt angst, rising global growth fears, less US economic optimism, financial sector weakness and more shorting.