Today's Headlines

Bloomberg:

• Merkel's Coalition Members Signal Acceptance of ECB Bond-Buying. Members of German Chancellor Angela Merkel’s coalition parties signaled they won’t stand in the way of European Central Bank chief Mario Draghi’s plan to buy government bonds. The envisaged move to purchase troubled euro states’ government bonds is “a wise middle way” to solve the region’s debt crisis, Elmar Brok, a European Parliament lawmaker and executive-committee member of Merkel’s Christian Democratic Union party, told Deutschlandfunk radio today. Norbert Barthle, CDU budget spokesman, said that German lawmakers will have veto rights over bond purchases by the euro- area’s rescue funds, which would operate in tandem with the ECB under Draghi’s proposal. The temporary fund “was created for a purpose and bond-buying is in the manual,” Barthle said yesterday by phone. With Merkel on vacation for another week and parliament in summer recess, there was no official government reaction to Draghi’s announcement yesterday of a blueprint to ease bond markets and lower borrowing costs for Italy and Spain in return for strict conditions. In her last statement on the crisis, on July 29, Merkel echoed Draghi’s language, saying that she will do everything to protect the euro. Economy Minister Philipp Roesler, whose Free Democratic Party is Merkel’s junior coalition partner and has been skeptical of bailouts, said the ECB should “focus on its core mandate” of safeguarding monetary stability, according to an interview in the Passauer Neue Presse newspaper.
• Rajoy Will Consider Bond Buying Request to Protect Spain. Spain’s Prime Minister Mariano Rajoy said he would consider asking Europe’s bailout funds to buy Spanish debt if it were for the best for the country, as he called for a crisis meeting of the region’s finance chiefs. “I will do what I always do, act in the best interest of Spaniards,” Rajoy said at a news conference in Madrid today, when asked whether he would consider making a request. He needs to see more details on what the European Central Bank is planning in terms of bond buying and non-conventional measures before taking any decision on seeking support, he said.
• German ESM Liabilities Have Fixed Ceiling, Kampeter Says. Germany’s financial liabilities toward the European Stability Mechanism, the euro-area’s permanent bailout fund, can’t surpass a fixed ceiling, Deputy Finance Minister Steffen Kampeter told Frankfurter Allgemeine Zeitung in a response to critics. Some economists have interpreted the ESM contract as foisting unlimited liabilities on Germany under certain scenarios, Kampeter said in a guest column. No ESM clauses can force Germany to raise its input to the ESM above the agreed amount of 190 billion euros ($232 billion), in line with the country’s economic weighting in the euro area, Kampeter said.
• U.K. to Miss Deficit Target as Economy Shrinks 0.5%, Niesr Says. The British economy will shrink by 0.5 percent this year, forcing Chancellor of the Exchequer George Osborne to miss his budget-deficit target, said the National Institute of Economic and Social Research. The economic deterioration has been “even more pronounced” than previously forecast as private-sector retrenchment is made worse by fiscal consolidation and a “dysfunctional” financial system, the London-based research group said a quarterly report published today. Osborne will borrow 12.5 billion pounds ($19.5 billion) more than planned in the year through March 2013, Niesr said.
• UN Passes Symbolic Syria Measure as Ban Evokes Genocides. United Nations Secretary-General Ban Ki-moon, calling the Syrian conflict a “catastrophe,” drew parallels between the genocides in Bosnia and Rwanda and possible war crimes in a “vicious” battle for control of Aleppo, Syria’s most populous city. “The acts of brutality that are being reported may constitute crimes against humanity,” Ban told the UN General Assembly. “What is especially tragic about Syria is that this catastrophe was avoidable,” and now all “dire predictions have come to pass.”
• Luxury Watch Sales Show China Failing to Secure Economic Rebound. (graph) China’s economy, the world’s second- biggest, is yet to rebound according to one gauge: sales of the luxury watches that business people give to clients and officials to build commercial relationships. Eleven of 13 shops and chains surveyed in Hong Kong by Bloomberg News reported no pick-up in July in purchases by mainland Chinese customers. Watch, clock and jewelry sales in the city gained 3.1 percent in June from a year earlier, down from a 59 percent increase in the same month in 2011, according to government data released yesterday.
• Jobs Gains Top Forecasts Even as Unemployment Rate Ticks Higher. The payrolls increase of 163,000 followed a revised 64,000 gain in June, Labor Department figures showed today in Washington. The median estimate of 89 economists surveyed by Bloomberg called for a gain of 100,000. The jobless rate, based on a separate survey of households, climbed to a five-month high of 8.3 percent. “Today’s numbers are better but not good enough,” said Brian Jones, a senior U.S. economist for Societe Generale SA in New York, who predicted payrolls would rise by 165,000. “We’re stuck in a channel of lackluster growth.” Construction companies cut payrolls by 1,000 workers, while retailers added 6,700. Factory payrolls rose by 25,000, more than twice the survey forecast of a 10,000 increase and boosted by a 12,800 pickup in employment at makers of motor vehicles and parts. The figures may have reflected fewer shutdowns at automakers for annual retooling related to the new model year, indicating the jump will be reversed this month. The number of people out of work for 27 weeks or more decreased as a percentage of all jobless, to 40.7 percent, from 41.9 percent. The unemployment rate was forecast to hold at 8.2 percent, according to the survey median. Estimates in the Bloomberg survey ranged from 8.1 percent to 8.3 percent. The report showed more people left the labor force. The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- increased to 15 percent from 14.9 percent.
• Service Industries in U.S. Expanded at Faster Pace in July. The Institute for Supply Management’s non-manufacturing index rose to 52.6, from 52.1 in June, the Tempe, Arizona-based group said today. The median forecast of 73 economists surveyed by Bloomberg called for no change from June. The measure is below the 54.2 average over the last six months, indicating services that make up almost 90 percent of the economy are hindered by slower global growth and concerns about the so-called U.S. fiscal cliff. The group’s gauge of employment fell to the lowest level since September, a sign households may also stay reluctant to step up purchases.
• Knight Capital(KCG) Shares Rally After Report of Credit Line. Knight Capital Group Inc. (KCG) shares rallied following a report the firm advised some clients it obtained a line of credit, easing concern the market maker will collapse following a $440 million loss from a software bug. Knight shares jumped 23 percent to $3.17 at 9:47 a.m. after the Wall Street Journal said the credit line will allow the company to operate for the day and Knight asked firms to resume routing trades as usual. The newspaper cited people familiar with the matter. Knight spokeswoman Kara Fitzsimmons didn’t immediately respond to requests for comment. The shares had plunged 75 percent in the previous two sessions.
• Lennar(LEN) Nears Chinese Loan for San Francisco Projects, Mayor Says. Lennar Corp. (LEN) is close to signing a term sheet with China Development Bank for a $1.7 billion loan package that would revive two stalled real estate projects in San Francisco, Mayor Edwin Lee said. “We’re a couple months away” from agreeing on financial terms, Lee said in an Aug. 1 interview at San Francisco City Hall, his first public comments on the loan. “This is very important to our city, and we’re not letting it go.”
• Oil Surges Most In A Month. Crude oil for September delivery rose $4.29, or 4.9 percent, to $91.42 a barrel at 1:23 p.m. on the New York Mercantile Exchange. Futures are headed for the biggest gain since June 29. Prices are up 1.4 percent this week, and have dropped 7.5 percent this year. Brent oil for September settlement advanced $2.75, or 2.6 percent, to $108.65 a barrel on the London-based ICE Futures Europe exchange.

CNBC.com:

• Spain Budget Drive Threatened by Rampant Tax Fraud. At the height of Spain's construction boom it was not uncommon for a briefcase of 500-euro bills to be offered as part payment for property by buyers striving to save on taxes.
• Global Manufacturers Feel Squeeze From China Slowdown. Investors hoping the corporate earnings season would signal a turning point in China's economic slowdown have been largely disappointed, with big manufacturers joining consumer companies to warn of flagging sales in the world's No.2 economy.
• European Firms Hit by Sharp Drop in New Orders. A sharp drop in new orders compounded the misery among euro zone companies during July, a business survey showed on Friday, forcing firms to lay off staff at the fastest pace since January 2010.

Business Insider:

• France To Raise Top Tax Rate To Shocking 75%.
• The Olympics Called A 'Complete And Utter Disaster' For London Businesses.
• America Is Missing 11 Million Workers.
• Here's The Part Of Facebook's(FB) Earnings Call That Caused The Stock To Crash.
• WATCH: Jon Stewart Slams Mayors For Rejecting Chick-Fil-A And The First Amendment.
• CHART OF THE DAY: The Scariest Jobs Chart EVER.

Zero Hedge:

• Full-Time Jobs -197,000; Part-Time Jobs +31,000. (graph)
• Russia Sends Three Warships To Syria Carrying Hundreds Of Marines.
• Promises Of More QE Are No Longer Sufficient: Desperate Banks Demand Reserves, Get First Fed Repo In 4 Years.
• Treasury Selling Another $4.5 Billion In AIG Stock, AIG To Buy $3 Billion Of Offering.

ABC News:

• White House Chief of Staff Daley Was Briefed on Solyndra Concerns, Email Says. Buried in the treasure trove of White House emails related to Solyndra released Thursday by the House Energy and Commerce Committee is one suggesting that concerns about Solyndra’s viability were shared all the way up to then-White House Chief of Staff Bill Daley a full six months before the company went bust.

Reuters:

• Germany's Weidmann draws on diplomatic skills in ECB fight. German central bank chief Jens Weidmann is locked in an increasingly tense and high-stakes struggle with European Central Bank President Mario Draghi over the ECB's policy response to the euro zone crisis. Draghi on Thursday indicated the ECB could intervene in debt markets again to reduce Spain and Italy's crippling debt costs but he held back from announcing concrete steps. He promised last week that the central bank would do "whatever it takes" to preserve the euro, raising expectations of action as soon as this week. But the powerful Bundesbank, the central bank of Europe's largest economy, is fiercely opposed to fresh ECB bond buying on the grounds that it amounts to monetary financing of governments, contravening European law.

Telegraph:

• Downturn 'entrenched' in Germany amid poor eurozone PMI. Eurozone private sector activity contracted for the 10th time in 11 months in July, with data now consistently showing the downturn becoming "entrenched" in Germany, a key survey has showed.
• Banks face 'wrenching times' warns RBS chief. RBS chief executive Stephen Hester has warned banks face "wrenching times" in the next few years.
• British Airways owner IAG plans for Spanish exit from eurozone. The parent company of British Airways and Iberia has drawn up advanced plans for what it would do in the event of a Spanish exit from the eurozone.

Business Spectator:

• Draghi's Challenge to End Euro Dysfunction by Stephen King, FT. The eurozone crisis may have started out as a fiscal crisis but it is now most definitely also a monetary crisis. The eurozone’s monetary system has begun to fragment. No longer is the European Central Bank able to set interest rates for the eurozone as a whole. Paranoia about an eventual eurozone break-up has persuaded financial institutions – with some encouragement from national regulators – to keep their money at home. So, the cross-border interbank market is more or less shut and peripheral nations are suffering.

Handelsblatt:

• Draghi and Weidmann Failed to Reach Compromise. Talks between ECB President Mario Draghi and Bundesbank President Jens Weidmann over central banks' roles in addressing the debt crisis failed over the last week, citing Frankfurt-based central bankers. ECB executive board member Joerg Asmussen tried to mediate between Draghi and Weidmann last weekend by phone, but positions were "too far apart". Weidmann "resorts to legal positions and rejects pragmatic crisis management," the central bankers said.
  

Ansa:

• Finance ministers from the euro area will meet on September 3 to discuss the economic situation in Greece and the possible action by the region's rescue fund to buy Spanish bonds, citing European officials.
  

Asahi Kasei:

• Asahi Kasei Shutters US Spandex Business on Weak Demand. The global spandex market has been extremely challenging in recent years, with oversupply putting downward pressure on sales prices even as feedstock costs remain persistently high. Particularly in the US, where market demand has been weak ever since the global financial crisis of 2008, satisfactory business performance has been difficult to achieve. In an effort to revitalize its US business, Asahi Kasei Spandex America, Inc. made every effort to reduce operating costs and achieve improved conditions. Having exhausted such efforts and with no foreseeable prospect for a major recovery in the US market, Asahi Kasei Fibers concluded that further investment in its US spandex business could no longer be justified. Therefore, it was decided that the manufacture of spandex at Asahi Kasei Spandex America, Inc., would be discontinued, effective October 2012.

Bear Radar

Style Underperformer:

• Large-Cap Growth +1.79%

Sector Underperformers:

• 1) HMOs -1.60% 2) Telecom +.14% 3) Alt Energy +.75%

Stocks Falling on Unusual Volume:

• ACTV, MCP, CVS, EROC, PKT, SWN, MTSI, SCOR, ICFI, OMPI, MNTA, NTLS, VSAT, INCY, SQI, CNQR, LPLA, IMGN, ATVI, SPTN, HCII, HAYN, PRAA, CAH, GVA, KYN, WCG, DLB and HNT
  

Stocks With Unusual Put Option Activity:

• 1) CNX 2) AGO 3) GT 4) MCP 5) UPL
  

Stocks With Most Negative News Mentions:

• 1) ZIP 2) ONNN 3) BDX 4) ATRC 5) HNT
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth +2.31%

Sector Outperformers:

• 1) I-Banks +3.39% 2) Steel +3.02% 3) Hospitals +2.98%

Stocks Rising on Unusual Volume:

• ITT, DWRE, DB, RP, E, SI, CKP, CHEF, NILE, MELI, SKUL, OPEN, SYNA, FEIC, SIRO, ROVI, ALXN, WCRX, LNKD, EOG, PBI, PKI, MTZ, LF, RCL and KFT
  

Stocks With Unusual Call Option Activity:

• 1) VOD 2) ALXN 3) KCG 4) LNKD 5) OPEN
  

Stocks With Most Positive News Mentions:

• 1) WFM 2) AOL 3) K 4) EOG 5) CCI
  

Charts:

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

Friday Watch

Evening Headlines
Bloomberg:

• Gloves Off in Draghi-Weidmann Clash Over Bond Purchases. When Mario Draghi took the helm of the European Central Bank nine months ago, he took care not to alienate Bundesbank President Jens Weidmann. Now the gloves are coming off. Draghi yesterday announced the ECB is working on a plan to re-enter bond markets and took the unusual step of naming Weidmann as the only policy maker to object to the proposal. While the move would ratchet up the ECB’s response to Europe’s debt crisis, it risks isolating the German central bank, potentially undermining the effectiveness of the new measures. “That’s why investors are disappointed,” said Alexander Krueger, chief economist at Bankhaus Lampe KG in Dusseldorf. “The ECB can’t just take random measures against the Bundesbank’s will. The country with the largest economy needs to be part of any package.” The euro dropped yesterday, with the standoff between Draghi and Weidmann adding to uncertainty around the latest effort to tame a debt crisis that’s threatening the survival of the single currency. Weidmann must now decide whether to acquiesce to a new bond program or dig his heels in. Two German policy makers have already quit the ECB’s Governing Council over bond buying.
• Luxury Watch Sales Show China Failing to Secure Economic Rebound. China's economy is yet to rebound according to one gauge: sales of the luxury watches that business people give to clients and officials to build commercial relationships. Eleven of 13 shops and chains surveyed in Hong Kong by Bloomberg News reported no pick-up in July in purchases by mainland Chinese customers. Watch, clock and jewelry sales in the city gained 3.1% in June from a year earlier, down from a 59% increase in the same month in 2011, according to government data released yesterday.
• Migrants Exit Guangdong as China Powerhouse Turns Growth Laggard. The region that drove China’s rise after market barriers started coming down in 1978 is among the nation’s slowest- growing as faltering demand cuts exports and workers exit for the central and western areas powering the nation’s expansion.
• Pimco’s El-Erian Says World in Serious Slowdown. Pacific Investment Management Co.’s Mohamed El-Erian called recent declines in purchasing manager indexes in Europe and Asia “frightening” and said the world economy is suffering its severest slowdown since the global recession ended in 2009. El-Erian, who is chief executive officer of the Newport Beach, California-based Pimco, predicted global growth of 2.25 percent over the next 12 months. That’s down from the 3.9 percent in 2011 and 5.3 percent in 2010 recorded by the International Monetary Fund. The world economy contracted 0.6 percent in 2009. “This is a serious, synchronized slowdown,” El-Erian said in an interview today. The global slowdown is weighing on the U.S. at a time when its economy is already struggling, El-Erian said. He sees U.S. growth of 1.5 percent over the next 12 months, dangerously close to what may be considered “stall speed,” and puts the odds of an American recession at roughly 25 to 33 percent. “While a recession is not my baseline forecast, it certainly is a serious risk,” said El-Erian, whose firm manages the world’s largest bond fund.
• Knight(KCG) Said to Open Books to Suitors as Pressure From Loss Grows. Knight Capital Group Inc. (KCG) opened its books to potential buyers, including private-equity firms and at least one securities-industry rival, as it seeks an investment or takeover to survive after a $440 million trading loss, said two people with knowledge of the matter.
• Knight(KCG) Errors Prompt Calls for Stronger SEC Trading Oversight. The trading losses at Knight Capital Group Inc. renewed pressure on Washington regulators to prove they are equipped to protect investors in markets that are increasingly computerized and fragmented. The software problem, which disrupted yesterday’s market opening, has cost Knight $440 million and left the company scrambling for a financial infusion. It comes on the heels of other high-profile technological lapses that botched the initial public offerings of Facebook Inc. and Bats Global Markets Inc.
• BofA(BAC) Says Libor Probe Draws U.S. Subpoenas on Submissions. Bank of America Corp., the second- biggest U.S. lender, received formal inquiries from investigators pressing their probe into the possible rigging of a key international lending benchmark. The bank received “subpoenas and information requests” from the U.S. Department of Justice, Commodity Futures Trading Commission and the United Kingdom Financial Services Authority “concerning submissions made by panel banks in connection with the setting of London interbank offered rates (Libor) and European and other interbank offered rates,” according to a quarterly securities filing today. Bank of America, based in Charlotte, North Carolina, said it’s cooperating.
• Corn’s 60% Surge Is More Dangerous Than Euro Mess. Rising food prices limit how much central bankers can cut interest rates to safeguard growth. More troubling would be the potential setback to poverty-reduction programs for decades to come.
• Bull Market in Crops Extends With Spreading Drought: Commodities. Corn and soybean traders are bullish for a 15th consecutive week on speculation that the drought spreading across fields in the U.S. will spur the government to make more cuts to its production forecasts. Fourteen analysts surveyed by Bloomberg predicted soybeans will climb next week and a further seven were bearish. Twelve expect gains in corn, six saw a decline and three anticipated little change. Hedge funds are holding the biggest bet on higher corn prices since September and almost the largest wager on costlier soybeans since at least 2006, U.S. Commodity Futures Trading Commission data show.
• UN’s Syria Envoy Kofi Annan Resigns as Fighting Escalates. Former United Nations Secretary- General Kofi Annan abandoned his effort to mediate a cease-fire in Syria, saying his task was thwarted by “finger-pointing and name-calling” in the UN’s most powerful body. Annan blamed both sides for the increasing militarization of the conflict, and said that a “clear lack of unity” in the UN’s decision-making body -- where Russia has used its veto three times to protect the Assad regime -- has “fundamentally changed” his ability to be effective.
• The Bad History Behind ’You Didn’t Build That’ by Virginia Postrel. Although his supporters pooh-pooh the controversy, claiming the statement has been taken out of context and that he was referring only to public infrastructure, the full video isn’t reassuring. Whatever the meaning of “that” was, the president on the whole was clearly trying to take business owners down a peg. He was dissing their accomplishments. As my Bloomberg View colleague Josh Barro has written, “You don’t have to make over $250,000 a year to be annoyed when the president mocks people for taking credit for their achievements.”

Wall Street Journal:

• Europe's Bank Rattles Investors. European Central Bank President Mario Draghi dashed hopes the central bank would take imminent action in troubled euro-zone debt markets, unleashing a global selloff. A week after promising to do "whatever it takes" to save the euro, Mr. Draghi, under pressure from Germany, softened his rhetoric. The ECB would only deploy the full force of its arsenal, he said, after the region's governments begin using their own rescue funds to stabilize the markets.
• Trade Gap Strains India-China Ties. India is pressing China to buy more of its goods—from pharmaceuticals to software—and taking steps to reduce Chinese imports as it grows increasingly worried about its widening trade gap with its Asian rival.
• J.P. Morgan(JPM) 'Whale' Was Prodded. Bank's Probe Concludes Trader's Boss Encouraged Boosting Values of Bets That Were Losing. A J.P. Morgan Chase & Co. executive encouraged the trader known as the "London whale" to boost valuations on some trades, said a person who reviewed communications emerging from the bank's internal probe of recent trading losses.
• The Dark of Knight. Wall Street trading glitches aren't caused by a lack of rules.

MarketWatch:

• China landlords push urban rents higher. Tenants are paying a heavy price for a missing element in policy.

Business Insider:

• The Global Economic 'Canary In The Coalmine' Is Gasping For Air.
• Exec Bullies Chick-Fil-A Worker, Then Promptly Gets Fired For It. (video)
• Here's The Fantastic Floor Routine That Won Gabby Douglas The Gold Medal. (video)
  

Zero Hedge:

• US Export Orders Are Collapsing. (graph)
• Of Beggars, Choosers, Unemployment, And Bailouts In Europe.
• Lacy Hunt On The Unintended Consequences Of Well-Intended Policies.
• Bank Of America(BAC) Has Lost Money Trading On Only Three Days In 2012.

CNBC:

• China Services PMI Falls as New Orders Growth Eases. China's official purchasing managers' index (PMI) for the services sector fell to 55.6 in July from 56.7 in June as growth in new orders eased, although a construction services sub-index strengthened, the National Bureau of Statistics said on Friday.
• Has Draghi Put the Euro in No-Man's Land? The European Central Bank (ECB) may have warned markets not to bet on a break-up of the euro zone, but it did little to back it up with action sending the already battered euro into further decline.

LA Times:

• What's in your vault? Uncle Sam audits its stash of gold at the New York Fed. The gold audit is a first for the institution and includes drilling into several hundred ingots. It could put the conspiracy theories to rest.

Breitbart.com:

• Obama Campaign Sues to Restrict Military Voting. On July 17th, the Obama for America Campaign, the Democratic National Committee and the Ohio Democratic Party filed suit in OH to strike down part of that state's law governing voting by members of the military. Their suit said that part of the law is "arbitrary" with "no discernible rational basis." Currently, Ohio allows the public to vote early in-person up until the Friday before the election. Members of the military are given three extra days to do so. While the Democrats may see this as "arbitrary" and having "no discernible rational basis," I think it is entirely reasonable given the demands on servicemen and women's time and their obligations to their sworn duty.
  

Washington Times:

• Dodd-Frank's Small-Business Lending Time Bomb. Under Section 1071, Subtitle G, labeled “Regulatory Improvements” (who says Congress doesn’t have a sense of humor?), the act establishes a system of small business loan data collection. The claimed purpose is to “facilitate enforcement of fair lending laws and enable communities, governmental entities and creditors to identify business and community development needs and opportunities of women-owned, minority-owned, and small business.” Translation: Push affirmative action in small-business lending. Recall that the same scheme of statutory social engineering contributed to the boom in subprime lending that eventually imploded the mortgage market. It appears Dodd-Frank is determined to drive small business lending down the same path.

Reuters:

• U.S. online job demand slips in July. A monthly gauge of online labor demand in the United States slid in July from June but still posted year-over-year growth, th e operator of a job search website said on Friday. Monster Worldwide Inc, an online careers and recruiting firm, said its employment index dipped 4 percent to 147 points from 153 points in June. The index was up 2 percent from 144 a year ago.
• IMF says not enough done to stop spread of euro zone crisis. The International Monetary Fund on Thursday called for a "policy game changer" in the euro zone to arrest the spread of the debt crisis it now says is clearly engulfing the entire currency bloc and its smaller neighbors.
• LinkedIn(LNKD) defies social media slump, raises outlook. Professional networking site LinkedIn Corp reported higher-than-expected revenue and raised its full-year outlook as it pocketed more money from subscribers, services aimed at businesses and advertising. Shares of the company rose about 6 percent in after-market trade after closing at $93.51 on the New York Stock Exchange on Thursday.
• Syrian forces kill 50 in Hama clashes - residents. Syrian forces killed at least 50 people, among them 21 members of three families, during clashes with rebels in the central city of Hama, activists and residents said on Thursday. "During the clashes the army entered the neighbourhood of Arbaeen and conducted raids, during which they killed members of three families," resident Abu Ammar told Reuters from the city.
• Big hedge funds seen unlikely to diet after Bacon slims down. Hedge fund titan Louis Bacon's surprise move to slim down his fund in order to boost returns has industry experts debating whether other big managers will follow suit. "This is the question that every investor who has money with a manager who oversees $10 billion or more is going to have to ask," said Charles Gradante, co-founder of the Hennessee Group, which invests with Bacon's $15 billion Moore Capital Management.

Financial Times:

• Hedge funds buffetted by volatility. Alternative asset managers were buffeted by volatile markets in the second quarter as hedge funds struggled to perform while weaker stock prices put private equity valuations under pressure for some and discouraged deal making. Hedge fund specialist Och Ziff Capital Management produced the best all round investment performance of the three listed asset managers to report on Thursday, with all four of its main hedge funds in positive territory for the year at the end of June.

21st Century Business Herald:

• China Big 4 Banks Lost About 1.5t Yuan Deposits in July. Industrial and Commercial Ban of China Ltd., China Construction Bank Corp., Bank of China Ltd. and Agricultural Bank of China Ltd. saw net deposits decline by about a combined 1.5t yuan last month, citing bank data.
• China's housing ministry is assessing and studying the timing to cancel policies allowing a pre-sale of homes and how this would impact the property market, citing a person close to the ministry. Eliminating the pre-sale of homes has been proposed by "experts" to the central government as a measure to tighten control over the property market.
  

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -1.0% to -.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 164.0 +6.0 basis points.
• Asia Pacific Sovereign CDS Index 130.75 +.75 basis point.
  
• FTSE-100 futures -.01%.
  
• S&P 500 futures unch.
  
• NASDAQ 100 futures +.02%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (FSS)/.11
• (ITT)/.37
• (NYX)/.51
• (PG)/.77
• (SUP)/.29
• (TDS)/.44
• (WCG)/1.20
  

Economic Releases
8:30 am EST

• The Change in Non-Farm Payrolls for July is estimated to rise to 100K versus 80K in June.
• The Unemployment Rate for July is estimated at 8.2% versus 8.2% in June.
• Average Hourly Earnings for July is estimated to rise +.2% versus a +.3% gain in June.
  

10:00 am EST

• ISM Non-Manufacturing for July is estimated to fall to 52.0 versus 52.1 in June.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Eurozone Services PMI data and ICSC Chain Store Sales for July could also impact trading today.
  

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

Stocks Falling into Final Hour on Soaring Eurozone Debt Angst, Rising Global Growth Fears, US "Fiscal Cliff" Concerns, Earnings Worries

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Most Sectors Declining
  
• Volume: Above Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 18.27 -3.64%
  
• ISE Sentiment Index 82.0 -28.70%
  
• Total Put/Call .94 unch.
  
• NYSE Arms 2.34 +108.20%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 109.39 bps +3.66%
  
• European Financial Sector CDS Index 278.22 bps +12.45%
  
• Western Europe Sovereign Debt CDS Index 262.09 +2.0%
  
• Emerging Market CDS Index 256.71 +3.61%
  
• 2-Year Swap Spread 21.25 +1.25 basis points
  
• TED Spread 35.50 +.5 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -46.25 -2.5 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .09% unch.
  
• Yield Curve 125.0 -4 basis points
  
• China Import Iron Ore Spot $117.10/Metric Tonne -.26%
  
• Citi US Economic Surprise Index -39.70 +.9 point
  
• 10-Year TIPS Spread 2.10 -3 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating -110 open in Japan
• DAX Futures: Indicating -17 open in Germany
  

Portfolio:

• Slightly Higher: On gains in my Retail sector longs, index hedges and emerging markets shorts
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short and then covered some of them
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades near session lows on soaring eurozone debt angst, high food prices, US "fiscal cliff" worries, earnings concerns and rising global growth fears. On the positive side, Alt Energy and Homebuilding shares are especially strong, rising more than +.75%. Oil is falling -1.8%, the UBS-Bloomberg Ag Spot Index is down -.8%, Lumber is rising +1.4% and Gold is down -.6%. On the negative side, Coal, Steel, Oil Service, I-Banking, Energy, Bank, Medical, Gaming and Education shares are especially weak, falling more than -1.5%. Financial shares have traded heavy throughout the day. Cyclicals are also underperforming. Copper is falling -2.3%. The 10Y Yld is falling -5 bps to 1.48%. Major Asian indices fell overnight, led down by a -.7% decline in Hong Kong. The Shanghai Property Stock Index fell -4.9% last night and is down -14.3% in less than a month. Major European indices fell sharply, led lower by a -5.2% plunge in Spanish shares. Spanish stocks are now down -25.6% ytd. The Bloomberg European Bank/Financial Services Index is falling -2.9% today. Brazilian equities are falling -1.4%. The German sovereign cds is gaining +1.1% to 71.44 bps, the France sovereign cds is gaining +4.1% to 165.28 bps, the Spain sovereign cds is jumping +7.4% to 572.85 bps, the Italy sovereign cds is jumping +6.8% to 519.78 bps, the UK sovereign cds is gaining +3.8% to 58.83 bps and the Russia sovereign cds is rising +4.0% to 179.0 bps. Moreover, the European Investment Grade CDS Index is gaining +8.5% to 168.50 bps, the Spain 10Y Yld is surging +6.4% to 7.17% and the Italian/German 10Y Yld Spread is soaring +11.8% to 509.95 bps. The UBS/Bloomberg Ag Spot Index is up +24.8% in about 2 months. The benchmark China Iron/Ore Spot Index is down -35.3% since 9/7/11. Moreover, the China Hot Rolled Steel Sheet Spot Index is also picking up downside steam. As well, despite their recent bounces off the lows, the euro, copper and lumber all continue to trade poorly given equity investor perceptions that global central bank stimuli will boost economic growth in the near future. US weekly retail sales have decelerated to a sluggish rate at +1.6%, which is the slowest since the week of Feb. 2, 2010. US Trucking Traffic continues to soften. Moreover, the Citi US Economic Surprise Index, while showing some improvement recently, is still around early-Sept. levels. Lumber is -3.0% since its March 1st 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 investor perceptions of a big improvement in the nationwide housing market. The Baltic Dry Index has plunged around -60.0% from its Oct. 14th high and is now down around -50.0% ytd. Shanghai Copper Inventories have risen +90.0% ytd. Oil tanker rates have plunged recently, with the benchmark Middle East-to-US voyage down to 25.0 industry-standard worldscale points, which is the lowest since Oct. 2009. The CRB Commodities Index is now down -17.3% since May 2nd of last year despite the recent surge in food prices. The 10Y T-Note continues to trade too well. The AAII % Bulls rose to 30.5 this week, while the % Bears fell to 34.9. There still appears to be a fairly high level of complacency among US investors regarding the deteriorating macro backdrop. It remains unclear to me whether or not Germany will put its own balance sheet on the line to save the euro even as investors have been pricing this outcome into stocks. The Citi Eurozone Economic Surprise Index is at -70.90 points, which is near the lowest since mid-Sept. of last year. Massive tax hikes and spending cuts are still yet to hit in several key eurozone countries that are already in recession. A lack of competitiveness remains unaddressed. The European debt crisis is also 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. Uncertainty surrounding the effects on business of Obamacare, the "US fiscal cliff" and the election outcome uncertainty will likely become more and more of a focus for investors as the year progresses. Little if anything being discussed by global central bankers will actually boost global economic growth in any meaningful way, in my opinion. Thus, recent market p/e multiple expansion is creating an unstable situation for equities, which could become a big problem this fall unless a significant macro catalyst materializes soon. 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. I expect US stocks to trade mixed-to-lower into the close from current levels on rising eurozone debt angst, profit-taking, high food prices, earnings worries, US "fiscal cliff" concerns and rising global growth fears.

Today's Headlines

Bloomberg:

• Draghi Says ECB Works on Bond Plan Amid German Concerns. European Central Bank President Mario Draghi said the ECB may wade forcefully into bond markets in tandem with Europe’s rescue fund, stepping up its crisis response despite the reservations of Germany’s Bundesbank. The euro declined and Spanish bond yields rose on disappointment that Draghi didn’t signal imminent ECB action. While Draghi said the Bundesbank has reservations about ECB bond purchases, and the details of the plan still need to be hammered out, the proposal nevertheless signals a new chapter in the battle against the debt crisis. Draghi left open the question of whether the ECB would print new money by refraining from sterilizing asset purchases
• Monti Warns Italy Risks Anti-Euro Shift Without Action on Spread. Italy risks a public backlash that could lead to an anti-euro government in the region’s third- biggest economy should European policy makers fail to bring down borrowing costs, said Prime Minister Mario Monti. Monti made the remarks in Finland during a three-nation tour aimed at challenging his European Union colleagues to back his fight to lower the extra yield investors are imposing on Italian and Spanish government debt. Spain and Italy are now in focus as they suffer contagion from the debt crisis that erupted in Greece almost three years ago. “If the spread in Italy remains at this level for some time, then you’re going to see a non-EU oriented, non-euro oriented, non-fiscal discipline oriented government in Italy,” Monti said in a speech in Helsinki.
• Credit-Default Swaps Rise in Europe as Draghi Plan Disappoints. The cost of insuring corporate and sovereign debt rose after ECB President Mario Draghi failed to flesh out plans to bring down borrowing costs for Italy and Spain and bolster the economy. The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield ratings rose as much as 20 basis points to 640 before being quoted at 632 at 3:20 pm in London. "At the end of the day, Draghi's comments were much to do about nothing," Adrian Miller, director of global markets strategy at GMP Securities LLC in New York, wrote in a note. "Bold statements of support from the ECB and EU policy makers in the past has historically been followed by disappointing results." The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers jumped 17.5 basi spoints to 264 and the subordinated index climbed 18 basis points to 430. Credit default swaps on Italy increased 24 basis points to 510 while Spain soared 30 to 566. The Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments rose 9 basis points to 264.
• The Shanghai Property Stock Index fell -4.86% overnight. (graph)
• Knight(KCG) Has 'All Hands On Deck' After $440 Million Bug. Knight Capital Group Inc. (KCG) has “all hands on deck” and is in close contact with creditors, clients and counterparties as it tries to weather trading errors that cost it $440 million, Chief Executive Officer Thomas Joyce said. Joyce said it’s “hard to comment” on discussions with creditors as Knight stock extended a two-day plunge to 70 percent and the firm explored strategic and financial alternatives following a loss almost four times its annual profit. The problems were triggered by what Joyce called “a bug, but a large bug” in software as the company, one of the largest U.S. market makers, prepared to trade with a New York Stock Exchange program catering to individual investors.
• Consumer Comfort in U.S. Falls on Concern Over Growth: Economy. Consumer confidence in the U.S. dropped last week to the lowest level in two months on mounting concern over the state of the economy. The Bloomberg Consumer Comfort Index fell to minus 39.7 in the week ended July 29 from minus 38.5 in the previous period. Americans’ views on the economy slumped to a five-month low. Other reports showed claims for jobless benefits increased and factory orders dropped. A rebound in gasoline prices and rising food costs caused by drought in parts of the Midwest may curb the household spending that accounts for about 70 percent of the economy.
• Orders to U.S. Factories Unexpectedly Declined 0.5% in June. Orders placed with U.S. factories unexpectedly declined in June, reflecting less demand for business equipment and the biggest decrease in bookings for non- durable goods in more than three years. The 0.5 percent drop in bookings followed a revised 0.5 percent increase in the prior month, the Commerce Department said today in Washington. The median forecast of economists in a Bloomberg News survey called for a 0.5 percent gain. June orders for durable goods climbed 1.3 percent, revised from the 1.6 percent surge reported last week. Demand for non-durable items, reported today for the first time, slumped 2 percent, the biggest drop since March 2009.
• Jobless Claims in U.S. Climbed. Jobless claims climbed by 8,000 to 365,000 in the week ended July 28, Labor Department figures showed today in Washington. The median forecast of 47 economists surveyed by Bloomberg News called for an increase to 370,000. Starting next week, the data should be clear of any influence from the annual auto plant retooling closures that make it difficult to adjust the data for seasonal variations, a Labor Department spokesman said as the report was released to the press.
• Intense Drought spreads, Midwest to Dry Through October. The most extreme forms of drought spread last week in the lower 48 states, and moderate or worse conditions are expected to persist in the Midwest through October, according to U.S. monitors. Extreme and exceptional drought, the two worst categories on a four-step scale, increased to 22.3 percent of the region in the week ended July 31, up from 20.6 percent, and expanded to 18.6 percent of the U.S. as a whole, up from 17.2 percent in the previous period, said the Drought Monitor in Lincoln, Nebraska.
• San Bernardino, California, Files Chapter 9 Bankruptcy. San Bernardino, California, filed for municipal bankruptcy after disclosing a $46 million shortfall in the city’s budget, the third California city to seek court protection from creditors since June 28. California cities from the Mexican border to San Francisco Bay are confronting rising pension costs as they contend with growing unemployment and declining property- and sales-tax revenue. The costs stem from decisions made when stock markets were soaring and retirement funds were running surpluses.
• Amtrak Food Service Lost $834 Million in 10 Years, Mica Says. Amtrak lost $84.5 million selling food and beverages last year and $833.8 million over 10 years, House Transportation and Infrastructure Chairman John Mica said, calling for a “better way” to run those operations. It costs taxpayers $3.40 for each can of soda the U.S. passenger railroad sells on its trains, and Amtrak charges $2.00, the Florida Republican said at a hearing today.
• Facebook(FB) Slump Continues After Two Senior Executives Exit. Facebook Inc. (FB) dropped as much as 4.7 percent to a record low, the fifth straight day of declines after the world’s largest social-networking service reported earnings that showed slowing growth.

Wall Street Journal:

• Spanish Markets Pummeled Over ECB Disappointment. Spanish stocks and bonds bore the brunt of investor disappointment with European Central Bank President Mario Draghi and the absence of fresh, concrete policy measures to fight the euro zone's debt crisis. Madrid's IBEX 35 stock index closed down 5.2% at 6373.40, while the yield on its benchmark 10-year government bond surged 0.44 percentage point to 7.13%, according to Tradeweb, putting it back above a level that economists say can't be sustained. The euro slid to $1.2152 in midday New York trading from the day's high of $1.2406. Italian markets also suffered, with the FTSE MIB stock benchmark falling 4.6% to 13282.55. Yields on 10-year Italian government bonds rose 0.39 percentage point to 6.30%,
  

CNBC.com:

• 'Knight-mare': Trading Glitches May Just Get Worse.
• Tax Scam: IRS Pays Out Billions in Fraudulent Refunds. The IRS is paying out billions of dollars in fraudulent tax refunds to identity thieves; a problem that the tax service’s inspector general told CNBC is a “growing problem” involving numbers that are increasing “exponentially.”

Business Insider:

• The 50 Stocks Hedge Funds Love The Most.
• GASPARINO: A $5 Billion Trade That Was Supposed To Happen Over 5 Weeks Is What Doomed Knight Capital(KCG).
• THE DEATH OF TV: It's Not Just Comcast; DirecTV and Time Warner Cable Lost Thousands Of Subscribers, Too.
• The 'Bread And Peace Model' Says Obama Is Toast In November.

Zero Hedge:

• European Bonds Give Up ALL Draghi "Believe" Gains In Worst Day In Over A Decade. (graphs)
• BNP Furious That Draghi "Jumped The Gun". Ken Wattret who is chief Euroarea economist for BNP is quite furious with Draghi: the reason? Precisely what we warned last week: that Draghi is posturing and attempting to bluff the Bundesbank into accepting his "conditions." End result, Buba called the bluff and the ECB blew it in a fashion so spectacular that Draghi actually had to defend himself from reporters who were mocking him and the ECB with questions if the ECB won't get its inflation call wrong "again."
• Investors are piling into income-generating stocks at the fastest pace seen in decades. (graph)
  

CNET:

• Facebook(FB): 8.7 percent are fake users.

LA Times:

• Chick-fil-A 'appreciation' sales make for a 'record-setting day'. Chick-fil-A appears to have set a company record in sales on Wednesday, a day on which Americans were encouraged to show their support for the fast-food restaurant whose leadership has drawn both criticism and praise in recent weeks for its opposition to same-sex marriage. The privately held company declined to give specific sales figures but released a statement to the Los Angeles Times confirming that frenzied sales of chicken sandwiches and cross-cut waffle fries had made for a record-setting day."We are very grateful and humbled by the incredible turnout of loyal Chick-fil-A customers on August 1 at Chick-fil-A restaurants around the country," said Steve Robinson, executive vice president of marketing, in the statement.

Gallup:

• U.S. Unadjusted Unemployment Rate Increases in July. Underemployment declines to 17.1%. (graph)
  

Reuters:

• Spain arrests al Qaeda suspects planning European attacks. Three people linked to al Qaeda have been arrested in the south of Spain, one in possession of explosives they planned to use in attacks in either the Iberian country or other European nations, Interior Minister Jorge Fernandez Diaz said on Thursday.
• Fears of new property curbs sink shares in China, Hong Kong. China shares resumed their downward spiral on Thursday, hurt by steep losses for property developers that dragged down on the Hong Kong market, after state-run media reported there could be fresh curbs, which would hit the sector. Poly Real Estate, one of the mainland's biggest developers, dived 9.2 percent in Shanghai -- its worst daily loss since April 19, 2010, right after Beijing announced a clampdown on the sector. Thursday's decline was onshore Chinese markets' third in four days. The CSI300 Index of the top Shanghai and Shenzhen listings shed 1 percent. The Shanghai Composite Index slipped 0.6 percent, hovering near 41-month lows.
• S&P cuts ArcelorMittal(MT) TO 'BB+'.
• Copper falls as dollar rises, ECB disappoints.
• Sony slashes profit outlook, Sharp cuts jobs first time in 60 years. Sony Corp (6758.T) slashed its forecast for 2012/13 operating profit and lowered its sales expectations for key products including its handheld PSP and PS Vita devices as new boss Kazuo Hirai battles to revive the fortunes of the electronics giant. Sony said April-June operating profit fell a much steeper-than-expected 77 percent to 6.28 billion yen ($80 million) compared with a year earlier, blaming a strong yen and weak economies. Analysts had penciled in a 36 percent fall. Rival Sharp Corp (6753.T) announced a 94 billion yen operating loss ($1.2 billion) for the June quarter and plans its first job cuts in more than 60 years as Japan's electronics industry scrambles to keep up with foreign competitors.
• European stocks slide after ECB disappoints. "Draghi put himself in such a difficult position that he had to deliver today and he has not. There has been a swift change in rhetoric from 'we will' last week to 'we may' today," Joshua Raymond, chief market strategist at City Index, said. Investors, who had pushed stocks higher before Draghi's comments on hopes of some concrete policy support, rushed to dump equities, with the FTSEurofirst 300 index closing 1.2 percent lower at 1,055.34 points, Spain's IBEX slumping 5.2 percent and Italy's FTSE MIB falling 4.6 percent, the biggest one-day decline in nearly four months. "And even though he hints towards bond purchases, all he has done is kick the can down the road. It would appear the ground continues to be laid for ECB action, but this action is not going to come this week and leaves a taste of disappointment." Euro zone banks, which are exposed to several highly-indebted countries in the region, suffered the most, with the index slipping 6.4 percent and Spain's Banco Santander falling 6.7 percent.
• U.S. retailers' July same-store sales review.
• Monster Worldwide(MWW) forecasts weak quarter, shares hit life low. Monster Worldwide Inc's second-quarter profit more than halved from a year earlier and the online recruitment firm forecast weak results for the current quarter due to soft demand in Europe, sending its shares down 20 percent to a record low. The company did not provide an update on the strategic review it announced five months ago except to say that it was proceeding as planned. "Over the second quarter, the situation (in Europe) did deteriorate further in that more countries slowed down," Chief Executive Sal Iannuzzi said on a call with analysts. "The issue and the slowdown or the caution has spread to the entire continent."
• Spain, Italy say any talk on seeking EU aid premature. Spain and Italy said on Thursday it was premature to say if they will seek the activation of EU mechanisms to buy their debt and bring down their borrowing costs. Such a request, which would entail negotiating a memorandum of understanding with other euro zone countries and would likely bear strong conditionality, is required to trigger a coordinated intervention of the European Central Bank, its president Mario Draghi said on Thursday. But asked at a joint news conference following a meeting in Madrid if they would consider taking this step, the Spanish and Italian Prime Ministers Mariano Rajoy and Mario Monti insisted it was not on their agenda at the moment.

Telegraph:

• Mario Draghi's speech: what the analysts say. Spanish borrowing costs rise and stock markets fall - with the Madrid bourse dropping sharply - after ECB president Mario Draghi said the bank may act independently in markets but announced no specific measures. Here is what some top analysts said.

ABC:

• Spain's Industry Ministry may cut subsidies for renewable energy, citing government officials.
  

Xinhua:

• Shanghai property curbs are in a crucial period, citing a special team from the State Council checking the implementation of property curb policies. Shanghai should "unswervingly" implement the control policies and prevent home prices from rebounding. Shanghai should increase supplies of normal housing especially small and medium-sized housing, the team said.