Monday Watch

Weekend Headlines
Bloomberg:

- Crude oil fell to the lowest in five weeks on a stronger dollar and speculation U.S. fuel inventories will increase as the recession curbs demand in the world’s biggest energy-consuming country. Oil and commodities including gold fell as the dollar climbed against the euro, limiting investor appetite for assets to hedge against inflation. Eighteen of 37 analysts surveyed by Bloomberg News, or 49 percent, said oil futures will decline through July 10. “Oil is softer despite news of further disruptions to supply in Nigeria,” Moore said. U.S. gasoline stockpiles climbed 2.33 million barrels to 211.2 million last week, an Energy Department report on July 1 showed. Inventories of distillate fuel, a category that includes diesel and heating oil, climbed 2.9 million barrels to 155 million, the highest since 1987. Total daily fuel demand averaged over the four weeks ended June 26 was down 5.8 percent from a year earlier, the Energy Department said. Distillate-fuel demand over the period fell 9.4 percent to 3.4 million barrels a day.

- Crude oil may extend this week’s decline after falling below its 34-day average, according to technical analysis from PVM Oil Associates Ltd. “So long as we do not move and close back above here, the market is in bear mode,” Robin Bieber, a London-based director for PVM, said in a note to clients.

- Iranian authorities have charged an employee of the British Embassy in Tehran with threatening national security, his lawyer said, escalating tensions with the European Union. Hossein Rassam, a senior political adviser of the British Embassy “has been accused of endangering national security,” lawyer Abdolsamad Khorramshi said by phone today in Tehran. Rassam is in detention, and it’s not clear when his trial will start, Khorramshi said.

- China needs to promote domestic consumption to make up for weak global demand because its economic recovery isn’t firm, a government researcher said. “Global demand won’t recover to the pre-crisis levels within two to three years,” Xia Bin, head of the financial institute at the State Council Development and Research Center, said today at a forum in the southern Chinese city of Shenzhen. The central bank should send a signal for stable money supply in the second half or “early next year” to guard against the risks of asset-price inflation, Xia said. “Wealth effects from stock and property investments can help consumption in the short term but it won’t last,” Liang Futao, a research manager at Changjiang Pension Insurance Co. in Shanghai, said by phone. “Rising asset prices can form a bubble, which will hurt the economy when it bursts.” China’s central bank Governor Zhou Xiaochuan said yesterday that boosting the nation’s consumer spending to redress global imbalances is “easier said than done.”

- North Korea test fired seven short- range missiles, two days after launching four rockets, spurring condemnations from the U.S., South Korea and Japan. The launches took place between 8 a.m. and 5:40 p.m. today, from Kitdaeryong in Kangwon province, the South’s Joint Chiefs of Staff said in statements.

- Vice President Joseph Biden said Iraqi officials are concerned that Iraq isn’t one of President Barack Obama’s top priorities as his administration deals with other pressing foreign policy issues. An Iraqi leader, who Biden didn’t identify, expressed concern that with U.S. attention focused on Afghanistan, Pakistan and North Korea, Iraq was moved to “the bottom of the shelf,” the vice president said, according to a pool report released yesterday.

- Vice President Joseph Biden told Iraqi leaders that the path to a secure peace lies in uniting ethnic and sectarian groups and said the U.S. might disengage from their country if it reverts to sustained violence.

- Vice President Joe Biden said Israel has a “sovereign right” to take military action to prevent Iran from developing nuclear weapons. Admiral Mike Mullen, chairman of the Joint Chiefs of Staff, said separately that a military strike by any nation against Iran would be “destabilizing.” He also said a nuclear-armed Iran and military action against that country both “are really, really bad options.” Biden, in an interview with the ABC News program “This Week” taped in Iraq and broadcast today, said a U.S. offer to meet with Iran about its nuclear program remains “on the table” after protests there over disputed election results were subjected to a government crackdown.

- Vice President Joe Biden said the Obama administration “misread the economy” when it forecast unemployment would peak at 8 percent if Congress enacted a $787 billion fiscal stimulus.

- China doesn’t support the idea of creating a supranational reserve currency and expects the U.S. dollar to remain the main reserve currency for “many years to come,” Deputy Foreign Minister He Yafei told reporters in Rome. It was only “natural” that China has concerns about its U.S. dollar-denominated assets, he said. China appreciates the U.S. efforts to maintain the stability of the dollar, he said.

Wall Street Journal:

- When it was deciding where to build its new compact car, General Motors Corp. made a point of saying it would push politics aside and use strictly commercial criteria. So Tennessee's three top officials were astonished last month, in a meeting with GM, when they were told the first two criteria were "community impact" and "carbon footprint" -- or how the choice would affect unemployment rates and carbon-dioxide emissions. "Those didn't strike us as business criteria at all," said Tennessee Sen. Lamar Alexander, who was joined in the meeting by fellow Republican Sen. Bob Corker and the state's Democratic governor, Phil Bredesen. Those factors, Mr. Alexander said, "seemed odd for a company struggling to get back on its feet." On June 26, after a monthlong competition, GM tapped an existing factory in Orion, Mich., pushing aside competing plants in Spring Hill, Tenn., and Janesville, Wis. All the sites had merits, but the Michigan plant had additional attractions. It is embedded in a struggling state that is a Democratic stronghold. The Orion site, 35 miles from GM's Detroit headquarters, is also close to tens of thousands of current and former United Auto Workers union employees, whose pressure previously helped persuade GM to scrap plans to build the car overseas.

- The EPA Silences a Climate Skeptic. The professional penalty for offering a contrary view to elites like Al Gore is a smear campaign.

- Tilting at Windmill Jobs. The 'stimulus' promised a jobless peak of 8%; it's now 9.5%.

- The U.S., European Union and 12 of the world's largest nations plan to embrace "an aspirational goal" of reducing emissions of global-warming gases by 50% by 2050, according to a draft declaration by world leaders set for release next week in Italy. The draft, seen by The Wall Street Journal, sets up a framework for detailed negotiations on the issue ahead of a United Nations climate conference in December. But it leaves key areas in the climate-change debate in dispute.

- US Retailers Find New Ways To Fine-Tune Discounts.

- While debt markets are inching back to normal after last year’s credit crisis, they are far from there yet. And many companies’ bonds are trading at depressed prices due to worries they won’t be able to make their debt payments. To some professional investors, that spells bargains. Some new mutual funds are targeting opportunities in credit markets, particularly among higher-risk debt. Many established funds, meanwhile, are trying to do the same thing—although their strategies vary wildly.

- As speculation swirled about Gov. Sarah Palin's reasons for deciding to step down, some Republicans here said she was increasingly troubled by growing criticism in her home state since she returned from her run as vice-presidential nominee. Over recent months, her tenure has been marked by sparring with local bloggers and other citizen activists in the state, some of whom bombarded her office with public-records requests. In all, Gov. Palin has faced 16 ethics inquiries of one sort or another in Alaska since last year. All but one have since been resolved. Still, they appear to have weighed on the Republican governor in the days before her decision, announced Friday, to hand over the reins to Lt. Gov. Sean Parnell. Mr. Parnell said on "Fox News Sunday" that her decision was primarily prompted by her concern over $2 million a year the state has spent on records requests and the ethics inquiries.

- Ousted Honduran President Manuel Zelaya tried to fly to this Central American nation on Sunday to reclaim his post, accompanied by a small flotilla of other Latin leaders and journalists, in a move filled with political theater but also certain to raise tensions in Honduras's political crisis.

- Lawmakers return to the Capitol on Monday for a five-week blitz that will help determine the fate of President Barack Obama's agenda. The Senate will be occupied for much of the summer with confirmation hearings on Supreme Court nominee Sonia Sotomayor, beginning July 13, followed by a floor debate on her nomination. Democratic leaders also hope to push health plans through the House and Senate before their summer break begins Aug. 8.

- Best Buy Co., best known as a vendor of giant televisions, is veering in a new direction: selling green vehicles. America's largest consumer-electronics retailer by sales has quietly begun offering electric-powered scooters, bicycles and Segway Inc. transporters in 19 locations in California, Oregon and Washington.

CNBC.com:
- They have been reviled as the bad hats of Wall Street, nefarious traders who cashed in on the market collapse and, some insist, helped precipitate it. The Securities and Exchange Commission appears poised to reverse itself and reinstate rules that would make shorting stocks — that is, betting their prices will decline — somewhat more difficult. Whether the SEC will go far enough to satisfy the many critics of short-sellers is far from certain. Many banks, whose stocks came under attack last autumn, maintain that unfettered short-selling is dangerous. The shorts, their argument goes, helped bring down Bear Stearns and Lehman Brothers last year.

- Package delivery giant and U.S. economic bellwether FedEx(FDX) is seeing signs for a potential turnaround in the second half as production seemed to be picking up again, German magazine WirtschaftsWoche reported.

- The Washington Post's publisher apologized to readers Sunday for a plan to charge business leaders and lobbyists for intimate dinner discussions with government officials and the newspaper's journalists. A flier surfaced last week promoting a plan to charge $25,000 to sponsor one of a series of dinner parties that would include off-the-record conversations with Post journalists and access to Washington insiders. The series was canceled Thursday.

NY Times:

- The federal immigration agency sent American Apparel a written notice that it faced civil fines and would have to fire any workers confirmed to be unauthorized. The treatment of American Apparel, which has more than 5,600 factory employees in Los Angeles alone, is the most prominent demonstration of a new strategy by the Obama administration to curb the employment of illegal immigrants by focusing on employers who hire them.

- The extreme volatility that has gripped oil markets for the last 18 months has shown no signs of slowing down, with oil prices more than doubling since the beginning of the year despite an exceptionally weak economy. The instability of oil and gas prices is puzzling government officials and policy analysts, who fear it could jeopardize a global recovery. It is also hobbling businesses and consumers, who are already facing the effects of a stinging recession, as they try in vain to guess where prices will be a year from now — or even next month. These gyrations have rippled across the economy. The automakers General Motors and Chrysler have been forced into bankruptcy as customers shun their gas guzzlers. Airlines are on pace for another year of deep losses because of rising jet fuel costs. And households, already crimped by falling home prices, mounting job losses and credit pressures, are once more forced to monitor their discretionary spending as energy prices rise. While the movements in the oil markets have been similar to swings in most asset classes, including stocks and other commodities, the recent rise in oil prices is reprising the debate from last year over the role of investors — or speculators — in the commodity markets. Unlike last year, when the economy was still not in recession and demand for commodities was strong, the world today is mired in its worst slump in over half a century. The World Bank warned the recession would be deeper than previously thought and said any recovery next year would be subdued. The International Energy Agency held out the prospect that energy demand was unlikely to recover before 2014. Yet the indicators that would traditionally signal lower prices — like high oil inventories or OPEC’s large spare production capacity — do not seem to hold much weight today, analysts said.

- The memory chip business has destroyed many companies with its vicious price wars. But Micron Technology(MU), a veteran of previous battles, is hunkered down, betting that major cost-cutting and a new high-speed chip will help it survive this bloodbath.

- Landfills, coal beds and cattle feedlots all produce methane, which is often either flared — that is, burned off — or released into the atmosphere as a greenhouse gas. Prometheus Energy, a five-year-old company based in Redmond, Wash., has developed a technology to turn that waste methane into liquid natural gas. And the company this week raised $20 million from the Shell Technology Ventures Fund, a fund related to the petroleum company Royal Dutch Shell and Black River Asset Management, a subsidiary of the agriculture giant Cargill.

- An important group of religious leaders in Iran called the disputed presidential election and the new government illegitimate on Saturday, an act of defiance against the country’s supreme leader and the most public sign of a major split in the country’s clerical establishment. A statement by the group, the Association of Researchers and Teachers of Qum, represents a significant, if so far symbolic, setback for the government and especially the authority of the supreme leader, Ayatollah Ali Khamenei, whose word is supposed to be final. The government has tried to paint the opposition and its top presidential candidate, Mir Hussein Moussavi, as criminals and traitors, a strategy that now becomes more difficult.

- In the depths of the cold war, in 1983, a senior at Columbia University wrote in a campus newsmagazine, Sundial, about the vision of “a nuclear free world.” He railed against discussions of “first- versus second-strike capabilities” that “suit the military-industrial interests” with their “billion-dollar erector sets,” and agitated for the elimination of global arsenals holding tens of thousands of deadly warheads. The student was Barack Obama, and he was clearly trying to sort out his thoughts. In the conclusion, he denounced “the twisted logic of which we are a part today” and praised student efforts to realize “the possibility of a decent world.” But his article, “Breaking the War Mentality,” which only recently has been rediscovered, said little about how to achieve the utopian dream. Twenty-six years later, the author, in his new job as president of the United States, has begun pushing for new global rules, treaties and alliances that he insists can establish a nuclear-free world.

Washington Post:
- President Obama, strategizing yesterday with congressional leaders about health-care reform, complained that liberal advocacy groups ought to drop their attacks on Democratic lawmakers and devote their energy to promoting passage of comprehensive legislation. In a pre-holiday call with half a dozen top House and Senate Democrats, Obama expressed his concern over advertisements and online campaigns targeting moderate Democrats, whom they criticize for not being fully devoted to "true" health-care reform. For his part, the president vowed to use his strong approval rating with voters to continue making the case for sweeping reform, according to one congressional staffer with knowledge of the conversation. Obama also hinted that efforts are under way to discourage allies from future attacks on Democrats, according to the source, who did not have permission to speak on the record about the discussion. In recent weeks, liberal bloggers and grass-roots groups such as MoveOn.org, Democracy for America, Service Employees International Union and Progressive Change Campaign Committee have targeted Democratic Sens. Ben Nelson (Neb.), Mary Landrieu (La.), Arlen Specter (Pa.), Ron Wyden (Ore.) and Dianne Feinstein (Calif.). A fundraising video produced by Democracy for America suggests Landrieu is a "sellout" because she has received $1.6 million in campaign contributions from the health-care industry and has yet to endorse the concept of a government-run health insurance plan to compete against the private companies. The public-option concept, which Obama supports, has become a litmus test for many pro-reform activists who accuse the insurance industry of failing to deliver affordable, accessible care. Founded by former Vermont governor Howard Dean, Democracy for America argues that inclusion of a Medicare-style public option in health-care legislation is "non-negotiable." MoveOn, a Web-based political action committee that works to elect "progressive" leaders, intended to run commercials over the Fourth of July holiday criticizing Sen. Kay Hagan (D-N.C.) for her silence on the public option. But after she endorsed legislation crafted by Democratic colleagues on the Senate Committee on Health, Education, Labor and Pensions that includes that provision, the group dropped its plans. Health Care for American Now, a labor-based coalition of 1,000 groups, has organized a petition pressuring Feinstein to support legislation that includes a public option. Feinstein said in an interview last week that she does support health reform but has concerns about the cost of legislation and the impact on her home state.

CNNMoney.com:

- Survey: The iPhone is No. 1 in Japan.

Business Week:
- The iPhone was just the start. To offset slowing growth, AT&T(T) is seeking devices that will expand the way people use its wireless network.

Washington Times:

- Workers who lose their jobs if the pending climate change legislation becomes law could get a weekly paycheck for up to three years, subsidies to find new work and other generous benefits -- all courtesy of Uncle Sam -- under a little-noticed provision of the bill. Touted by its House Democratic authors as a jobs engine, the bill offers extraordinary compensation for those who would lose their paycheck as a consequence of its passage. Adversely affected employees in oil, coal and other fossil-fuel sector jobs would qualify for a weekly check worth 70 percent of their current salary for up to three years. In addition, they would get $1,500 for job-search assistance and $1,500 for moving expenses from the bill's "climate change worker adjustment assistance" program, which is expected to cost $4.2 billion from 2011 to 2019. The bill passed the House a week ago in a hotly contested 219-212 vote, with supporters arguing that a principal reason to support the bill is that it would create millions of new jobs. But analyses from the political left and right argue that potentially millions of jobs in industries tied to traditional fossil fuels would be lost and, at least initially, not enough "green" jobs would be created to replace them. Critics of the legislation seized on the unemployment compensation provision as proof that jobs would be lost.

The Detroit News:

- Volkswagen AG hopes to introduce its first electric cars on the market in 2013, the German automaker's chief executive said Friday.

Politico:

- With Sen. Chris Dodd (D-Conn.) facing an uphill battle to win reelection next year after a series of Washington scandals battered his popularity back home, President Obama and other national Democrats are sparing no effort to help him. Despite the scandals which left his ethics called into question, the three-decade Senate veteran is not trying to shake his Beltway image. Instead, Dodd is working furiously to show the impact of his long service by racking up big legislative accomplishments - including, potentially, a health care reform bill - before the midterm elections. And some of the national Democratic Party's biggest names are coming in to back him up.

- Former Secretary of State Colin Powell cautioned President Obama to slow down his ambitious agenda, out of concern for spiraling budget deficits. Obama is hoping to pass legislation that would overhaul the health care system and implement a cap-and-trade energy program -- in the face of a recession and significant budget deficits. "I think one of the cautions that has to be given to the president — and I've talked to some of his people about this — is that you can't have so many things on the table that you can't absorb it all. And we can't pay for it all," Powell said on CNN's "State of the Union." "I think the president, as he moves forward with his initiatives, has to start really taking a very, very hard look at what the cost of all this is," Powell said. "And how much additional bureaucracy and will it be effective bureaucracy be needed to make all of this happen." More Powell: "I never would have believed that we would have budgets that are running into the multi-trillions of dollars, and we are amassing a huge, huge national debt that, if we don't pay for in our lifetime, our kids and grandkids and great grandchildren will have to pay for it." Powell said he met with Obama "not too long ago" and said he holds a "very good" relationship with the president. Powell added that he hasn't decided whether he will be supporting Obama for re-election in 2012.

New York Post:

- Lee Ainslie of hedge fund Maverick Capital is joining the ranks of hedgies looking to soothe investors shaken by the recent spate of frauds by hiring an independent auditor to verify its funds' trading activities, The Post has learned. "In the post-Madoff world, investors are understandably seeking methods of independent verification of balances and pricing," the Dallas-based asset manager wrote in an investor letter that was obtained by The Post.

LA Times:

- A rare public protest in the northwestern Chinese city of Urumqi turned violent today as thousands of Uighurs took to the streets to vent grievances about discrimination. The official New China News Agency said rioters were "attacking passersby and setting fire to vehicles," but representatives for the Uighurs, a Muslim minority, described a peaceful demonstration that turned ugly because of government brutality. Witnesses reported that riot police arrived on the scene in armored personnel carriers, dispersing the crowd with water cannons and tear gas, and firing warning shots into the air. At least 300 people were reported to be arrested. There were unconfirmed reports of deaths and injuries.

World Health Organization:

- We are in phase 6 – that is, we are in the early days of the 2009 influenza pandemic. As we see today, with well over 100 countries reporting cases, once a fully fit pandemic virus emerges, its further international spread is unstoppable.

Reuters:

- Major countries should support the dollar as the key international currency, although emerging nations may discuss a new global reserve currency on the sidelines of the G8 summit next week, a Japanese official said on Friday. China has asked for debate on a new global reserve currency when leaders from the Group of Eight (G8) meet with the G5 emerging economies next week in Italy, G8 sources told Reuters. News of the Chinese request pushed the dollar down to a three-week low on Wednesday. But Japan thinks it would be difficult for another currency to replace the dollar as the world's reserve currency and it is against any move that would unnecessarily weaken the status of the dollar, said Yoichi Suzuki, director-general of the Japanese foreign ministry's economic affairs bureau. "It won't benefit any country to talk about ideas for a new global key currency, which would weaken the dollar," said Suzuki. An idea, which China's central bank has floated, that the International Monetary Fund's Special Drawing Right (SDR) could eventually displace the dollar as the principal reserve currency was unrealistic, he added.

- China’s central bank governor Zhou Xiaochuan said the country’s economic stimulus plan has led to some projects that are wasteful, raising the risk that investors face difficult repaying bank loans. Zhou's comments underscored government worry about risks from the torrent of spending helping to shore up economic growth. He said China should formally allow local governments to issue bonds to replace the current irregular practices. "As the front gate is still closed, many local governments had to launch fund-raising platforms, which makes it harder to control, and there may be big problems in future," he warned.

- Samsung Electronics Co Ltd, the world's top maker of memory chips and flat screen TVs, said on Monday it expected to post a consolidated operating profit of 2.2 trillion-2.6 trillion won ($1.74 billion-$2.05 billion) in the April-June quarter. Second-quarter consolidated sales are estimated at 31 trillion-33 trillion won, Samsung said in a filing to the Korea Exchange. Shares in Samsung Electronics were up 3.83 percent at 624,000 won as of 0014 GMT, outpacing the wider market's 0.15 percent rise.

- Did someone try to steal Goldman Sachs' secret sauce? While most in the United States were celebrating the Fourth of July holiday, a Russian immigrant living in New Jersey was being held on federal charges of stealing secret computer trading codes from a major New York-based financial institution. Authorities did not identify the firm, but sources say that institution is none other than Goldman Sachs(GS). The charges, if proven, are significant because the codes that the accused, Sergey Aleynikov, tried to steal are the secret sauce to Goldman's automated stock and commodities trading business. Federal authorities contend the computer codes and related-trading files that Aleynikov uploaded to a German-based website help this major financial institution generate millions of dollars in profits each year. The platform is one of the things that gives Goldman an advantage over the competition when it comes to the rapid-fire trading of stocks and commodities. The case against Aleynikov may explain why the New York Stock Exchange moved quickly last week to stop reporting program stock trading for its most active firms. Goldman was often at the top of the chart -- far ahead of its competitors. It's possible Goldman had asked the NYSE to stop reporting the number after it discovered that someone may have infiltrated the proprietary computer codes it uses. One question investors need to ask is whether this incident will have any impact on Goldman's second-quarter earnings. The alleged wrongdoing by Aleynikov took place at the beginning of June--although it's not clear if it had any material impact on automated trading.

Financial Times:

- Financially troubled shipowners could be facing a wave of ship seizures after two high-profile foreclosures suggested financiers’ and creditors’ patience was wearing thin. Seizures are expected to increase over the year as shipowners struggle to pay shipbuilders’ instalments due on new vessels. However, the extent of seizures might depend on whether a recovery in the rates earned by dry bulk ships, one of the most troubled sectors, is sustained.

- Beijing on Friday joined a growing clamor of complaint about US plans for a carbon tax on imports from countries without their own emission caps, warning it could set off a global trade war. The warning follows the passage of a cap-and-trade bill in the US House of Representatives last weekend, which contained tough provisions to impose carbon tariffs to ensure that American companies would not lose competitive advantage. A recent report by the World Trade Organization and the UN said such taxes could in theory be crafted to be compatible with WTO law, but it would be hard to prove they were not an illegal disguised restriction on international trade. “It has always been China’s position that the international society should fight climate change together, but the proposal of some developed countries to slap a carbon tariff on some imported products violates the WTO’s basic principles and is trade protectionism in the disguise of environmental protection,” said Yao Jian, spokesman for China’s ministry of commerce. Earlier this week, Jairam Ramesh, the Indian environment minister, described carbon tariffs as “pernicious” and flatly rejected the idea of negotiating climate change at the WTO. The bill now moves to the Senate, where it is likely to receive an even rougher ride from moderate Democrats concerned about imposing more costs on US businesses. Beijing’s comments reflect the tough initial negotiating stance China has taken for the Copenhagen talks in December aimed at working out a follow-up deal to Kyoto. China has rejected any emission caps for developing countries. It also wants developed nations to cut emissions to 40 per cent below 1990 levels by 2020 and pay for clean technology in developing countries.

- The boss of Steve Perkins, the broker at the heart of a rogue trading scandal that rocked oil markets this week, issued a bullish report suggesting prices could go higher only hours after Mr Perkins made the unauthorized trades that caused prices to spike. The disclosure raises further questions about internal controls at PVM Oil Associates, the world’s largest oil brokerage. The London-based firm, which revealed on Thursday it had lost $10m (€7.1m, £6.1m) as a result of trades by Mr Perkins, one of its senior brokers, said the trading report was sent to clients at 08.44 in London on Tuesday, and it did not discover the rogue trading until 10.10 that morning. In a widely read daily note, the brokerage told clients: “There’s some serious upside momentum building.” It added that “the upshot of all this is that higher numbers are likely, and we are already approaching recent highs on the crudes, which are the initial targets for this next leg higher”. Mr Perkins traded in the Brent futures market from his home using an internet-based access to the exchange at about 02.00 in the morning, one of the most illiquid times of the trading day. He amassed a huge position in Brent futures that pushed prices to $73.5 a barrel, the highest price so far this year.

- The strength of the euro is forcing European companies to step up cost-cutting to compete with rivals from the US and elsewhere amid fears that it could slow their recovery when demand picks up. Economists are concerned that, even when demand picks up, the strong currency will penalise European groups, many of them reliant on exports. “It is going to weigh on the recovery,” Julian Callow, chief European economist at Barclays Capital, said. “The aircraft industry is very much priced in dollars, so it hurts them – the motor industry, steel and chemicals as well. It is a problem.” Andrew Watt, senior researcher at the European Trade Union Institute, expressed concern for companies in Italy and Germany. “Where can they export to? What can they use to get out of the crisis? The real answer is that they can’t as the euro has risen against sterling and the dollar.”

- Bank of America(BAC) has overtaken UBS in the private banking league tables following its tie-up with Merrill Lynch. It is now the world’s largest wealth manager, overseeing $1,500bn in assets, according to a survey by Scorpio Partnership, a London-based market research group monitoring the wealth management sector.

- Gordon Brown will take a gloom-laden message to the G8 summit in Italy this week, saying there are “warning signs around the world” that the fledgling recovery is in peril. Among Mr Brown’s fears is a return of rising and volatile oil prices, a preoccupation shared by Nicolas Sarkozy, the French president, who will on Monday host a Franco-British summit in Evian. Mr Sarkozy has long argued for some form of international dialogue to reduce the volatility of oil prices. He intends to discuss French proposals for setting an agreed price guideline at the G8 summit. On a visit to Abu Dhabi in May, Mr Sarkozy called for agreement between producer and consumer countries on a “general price guideline to give to the market, I would say even a price range that would ensure the sustainability of investment but would not kill consumer economies”. The British prime minister is also worried about the poor state of some bank balance sheets, falling trade, protectionism and rising unemployment.

- The financial industry’s vaunted belief in trust and long-term relationships is being challenged by research showing that before the crisis US mortgage brokers fed loans of deteriorating quality to the banks they did most business with. By questioning the prevailing wisdom that dealing with well-known counterparties is more fruitful and less risky than venturing into new relationships, the academic study puts in doubt one of the banking sector’s most enduring beliefs. Whether in takeovers, capital markets deals or simple consumer loans, bankers often claim their guiding principle is “know your customer”, arguing that long-standing ties create a symbiotic relationship. But the study found that brokers – agents that connect borrowers with lenders for a fee – presented to banks mortgages of decreasing quality, partly because banks had grown to trust them and were less careful in monitoring performance. It also found that brokers produced lower-quality loans as their volume of loan origination for a bank grew and the loans worsened as the distance between the broker and a bank’s headquarters increased. The research, by Mark Garmaise, finance professor at UCLA Anderson management school, sheds light on one of the catalysts of the financial turmoil: the billions of dollars in broker-originated toxic loans on bank books.

TimesOnline:
- The head of Mossad, Israel’s overseas intelligence service, has assured Benjamin Netanyahu, its prime minister, that Saudi Arabia would turn a blind eye to Israeli jets flying over the kingdom during any future raid on Iran’s nuclear sites. “The Saudis have tacitly agreed to the Israeli air force flying through their airspace on a mission which is supposed to be in the common interests of both Israel and Saudi Arabia,” a diplomatic source said last week. Although the countries have no formal diplomatic relations, an Israeli defense source confirmed that Mossad maintained “working relations” with the Saudis.

- Health records could be transferred to Google(GOOG) or Microsoft(MSFT) under a Tory government, The Times has learnt.

Die Welt:

- More than two-thirds of Germans prefer the government cut subsidies and benefits rater than raise taxes to cope with the financial cost of the economic crisis, citing an Infratest Dimap survey. The poll found that 68% of those questioned said the government should reduce subsidy and benefit spending, while 18% said taxes should be increased. The preference for spending cuts over higher taxes stretched across supporters of all political parties.

NRC Handelsblad:

- Russia challenges some of NATO’s member states and that s a matter for the whole alliance, US ambassador to the North Atlantic Treaty Oraganization Ivo Daalder said. Russia’s action during the war in Georgia in August was “not acceptable” to any NATO state and the current situation in Georgia is “insufferable,” Daalder said.

Nikkei English News:
- Toyota Motor Corp. will start commercial production of plug-in hybrid cars in 2012, the first time such vehicles will be mass-produced.

Economic Daily News:

- Flat-panel display prices rose this month from late June as customers stocked up for the peak season in the third quarter, citing research by DisplaySearch LLC. Monitor prices climbed between $3 and $7 this month from late June, television-panel prices gained $5 to $15, and notebook-computer panel prices advanced $3 to $5.

Straits Times:

- SINGAPORE can expect unemployment to remain at current levels or to rise further, Manpower Minister Gan Kim Yong said on Friday. In remarks suggesting a turnaround is not imminent, he said that with the economic outlook still uncertain, the labor market 'will remain soft for next one to two quarters at least'.

Emirates Business 24/7:

- Arab states such as Saudi Arabia, Iraq and the UAE have 198 billion barrels of crude oil that have not been discovered or can’t be extracted with current technology, citing a report by the Organization of Arab Petroleum Exporting Countries. It put the total Arab extractable oil reserves at 672 billion barrels and gas at 54 tcm at the beginning of 2009 but said massive quantities are either undiscovered and untapped or inaccessible by present technology. The Persian Gulf and North African states also have 43 trillion cubic meters of untapped natural gas and 68.2 billion barrels of condensates still to be discovered or accessed. "Assuming an extraction rate of 35 per cent, the Arab oil deposits in place could reach 2,738 billion barrels. This means the oil quantities that cannot be extracted by present technology are around 1,809 billion barrels, which are nearly 645 billion barrels above the world's proven oil resources… these quantities, if they can be extracted, will meet the world needs for 60 years," it said.

Weekend Recommendations
Barron's:
- Made positive comments on (DNEX), (SCHW), (FL), (DBA), (PETM) and (MSFT).

- Made negative comments on (IMAX), (MIDD) and (CMP).

Citigroup:

- Reiterated Buy on (GLW), target $20.50.

Night Trading
Asian indices are -1.25% to +.25% on avg.

Asia Ex-Japan Inv Grade CDS Index +1.70%.
S&P 500 futures -.76%.
NASDAQ 100 futures -.85%.

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Earnings of Note
Company/Estimate
- None of note

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- None of note

Economic Releases

- The ISM Non-Manufacturing Index for June is estimated to rise to 46.0 versus 44.0 in May.

Other Potential Market Movers
- President Obama Visiting Russia could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and shipping stocks in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 75% net long heading into the week.

Weekly Outlook

Click here for Wall St. Week Ahead by Reuters.

Click here for US Equity Preview for Monday by Bloomberg.

There are some economic reports of note and just a few significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. – ISM Non-Manufacturing

Tues. – Weekly retail sales reports

Wed. – Weekly EIA energy inventory report, weekly MBA mortgage applications report, Consumer Credit

Thur. – Initial Jobless Claims, Wholesale Inventories, ICSC Chain Store Sales

Fri. – Trade Balance, Import Price Index, Univ. of Mich. Consumer Confidence

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. – None of note

Tues. – Ruby Tuesday(RT)

Wed. – Family Dollar(FDO), Pepsi Bottling(PBG), Alcoa(AA)

Thur. – Shaw Group(SGR)

Fri. – Progressive Corp.(PGR)

Other events that have market-moving potential this week include:

Mon. – President Obama Visiting Russia

Tue. – None of note

Wed. – G8 Annual Summit, the Fed’s Evans speaking, Morgan Stanley Deepwater Conference

Thur. – The Fed’s Duke speaking, (CTX) shareholders meeting, (CTX) shareholders meeting, (SMSC) analyst day

Fri. – (MRVL) shareholders meeting

BOTTOM LINE: I expect US stocks to finish the week modestly lower on rising financial sector pessimism, more shorting, profit-taking and increasing economic pessimism. My trading indicators are giving mixed signals and the Portfolio is 75% net long heading into the week.

Market Week in Review

S&P 500 896.42 -2.59%*

Click here for the Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices
S&P 500 896.42 -2.59%
DJIA 8,280.74 -2.26%
NASDAQ 1,796.52 -1.80%
Russell 2000 497.21 -2.35%
Wilshire 5000 9,118.50 -2.29%
Russell 1000 Growth 401.97 -2.13%
Russell 1000 Value 451.38 -2.75%
Morgan Stanley Consumer 547.74 -2.02%
Morgan Stanley Cyclical 543.49 -2.02%
Morgan Stanley Technology 443.44 -1.58%
Transports 3,158.74 -3.14%
Utilities 350.69 -2.07%
MSCI Emerging Markets 32.11 +.89%

Sentiment/Internals
NYSE Cumulative A/D Line 34,222 +1.11%
Bloomberg New Highs-Lows Index -82 -18.84%
Bloomberg Crude Oil % Bulls 27.0 +28.0%
CFTC Oil Large Speculative Longs 201,463 unch.
Total Put/Call 1.05 +17.98%
OEX Put/Call 1.52 +12.59%
ISE Sentiment 148.0 +54.17%
NYSE Arms 3.54 +331.71%
Volatility(VIX) 27.95 +6.03%
G7 Currency Volatility (VXY) 13.28 -7.65%
Smart Money Flow Index 8,030.34 -1.22%
AAII % Bulls 37.84 4+35.14%
AAII % Bears 44.59 -8.63%

Futures Spot Prices
Crude Oil 65.63 –5.49%
Reformulated Gasoline 175.37 -6.68%
Natural Gas 3.60 -12.60%
Heating Oil 166.89 -6.76%
Gold 932.50 -.71%
Base Metals 150.40 -1.96%
Copper 226.45 -1.26%
Agriculture 302.97 -4.37%

Economy
10-year US Treasury Yield 3.50% -4 basis points

U.S. Sovereign Debt Credit Default Swap 36.0 -14.29%

10-year TIPS Spread 1.66% -3 basis points
TED Spread 41.0 -2 basis points
N. Amer. Investment Grade Credit Default Swap Index 137.63 -2.53%
Emerging Markets Credit Default Swap Index 388.61 -5.14%
Citi US Economic Surprise Index +35.80 -29.80%
Fed Fund Futures imply 76.0% chance of no change, 24.0% chance of 25 basis point cut on 8/12
Iraqi 2028 Govt Bonds 64.19 -.53%
4-Wk MA of Jobless Claims 615,300 -.40%
Average 30-year Mortgage Rate 5.32% -10 basis points
Weekly Mortgage Applications 444,800 -18.86%
Weekly Retail Sales -4.40%
Nationwide Gas $2.63/gallon -.03/gallon
US Cooling Demand Next 7 Days 7.0% below normal
ECRI Weekly Leading Economic Index 117.60 unch.
US Dollar Index 80.44 +.66%
Baltic Dry Index 3,672 -.84%
CRB Index 245.86 -2.17%

Best Performing Style
Mid-cap Value -2.12%

Worst Performing Style
Large-cap Value -2.75%

Leading Sectors
Semis +1.61%
Computer Hardware +.98%
Disk Drives +.54%
Restaurants -.46%
Education -.57%

Lagging Sectors
Construction -4.67%
Road & Rail -4.73%
Insurance -4.74%
Oil Service -6.60%
Coal -6.91%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Finish Sharply Lower, Weighed Down by Commodity, Transportation, Construction, Healthcare and REIT Shares

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