Stocks Rising into Final Hour on Falling Eurozone Debt Angst, Less Financial Sector Pessimism, Short-Covering, Seasonality

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Most Rising
  
• Volume: Light
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 27.76 +.87%
  
• ISE Sentiment Index 99.0 +25.32%
  
• Total Put/Call 1.0 +2.04%
  
• NYSE Arms .57 -47.49%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 120.69 -2.85%
  
• European Financial Sector CDS Index 250.68 -7.30%
  
• Western Europe Sovereign Debt CDS Index 325.17 -4.22%
  
• Emerging Market CDS Index 288.60 -3.17%
  
• 2-Year Swap Spread 43.0 -2 bps
  
• TED Spread 54.0 +1 bp
  
• 3-Month EUR/USD Cross-Currency Basis Swap -122.0 +4 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 177.0 -2 bps
  
• China Import Iron Ore Spot $139.80/Metric Tonne +.72%
  
• Citi US Economic Surprise Index 77.20 -8.5 points
  
• 10-Year TIPS Spread 2.07 +2 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -55 open in Japan
• DAX Futures: Indicating -40 open in Germany

Portfolio:

• Higher: On gains in my tech, retail and medical sector longs
  
• Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges, then added them back
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is just mildly bullish, as the S&P 500 reverses sharp morning gains near its 200-day moving average again and moves near session lows on Eurozone debt angst, rising global growth fears, technical selling, profit-taking, more shorting and high energy prices. On the positive side, Oil Service, Steel, Software, Bank, I-Banking, Hospital, Homebuilding and Airline shares are especially strong, rising more than +1.75%. Small-caps and cyclicals are outperforming. (XLF) has outperformed throughout the day. Lumber is gaining +1.5% and Gold is falling -1.4%. The France sovereign cds is falling -7.2% to 179.67 bps, the Spain sovereign cds is falling -8.58% to 351.17 bps, the Belgium sovereign cds is falling -7.8% to 270.0 bps and the Italy sovereign cds is falling -5.75% to 429.83 bps. On the negative side, Ag, Biotech, Drug, HMO and Education shares are lower on the day. Copper is falling -.96%. The 10-year yield is flat on the day at 2.02%, despite today's equity advance. The TED spread continues to trend higher and is at the highest since June 2009. The 2Y Euro Swap Spread is near the highest since Nov. 2008. The 3M Euribor-OIS spread is very near the highest since March 2009. The 3M EUR/USD Cross-Currency Basis Swap is still near the worst since November 2008. The Libor-OIS spread is the widest since June 2009, which is also noteworthy considering the equity surge off the recent lows. China Iron Ore Spot has plunged -27.1% since February 16th and -22.8% since Sept. 7th. The Shanghai Composite fell another -1.2% overnight and is down -17.0% ytd. As well, India and Russia shares fell -.25% and -.4% today, respectively. Volume remains poor and leadership is of fairly low-quality again. Breadth is decent. The S&P 500 is right near its 200-day moving average and near the high-end of its recent range. The market is coming under pressure this afternoon for the 2nd consecutive day mainly on more negative headlines out of Europe. I still believe investors will need to see some concrete evidence that the “kick-the-can” Euro crisis solution that is currently being priced into equities has more support from key Eurozone officials before any further meaningful stock surge into year-end. I expect US stocks to trade mixed-to-lower into the close from current levels on Eurozone debt angst, global growth fears, profit-taking, technical selling and more shorting.

Today's Headlines

Bloomberg:

• Euro Erases Gain Against Dollar on Reports of S&P Moves on Credit Ratings. The euro erased gains against the dollar after a report that Standard & Poor’s plans to put Germany, France and other European nations on “creditwatch negative.” The 17-nation currency rose earlier after France and Germany said they want a rewrite of the European Union’s governing treaties to tighten economic cooperation in the region. The Financial Times reported the credit ratings company would release a statement later today. “The S&P warning is having an impact,” said Boris Schlossberg, director of research at online currency trader GFT Forex in New York. “This all speaks to the ultimate truth that the European policy makers are unwilling to recognize that the only way to solve this crisis is federal euro-bonds.”
• Monti's Austerity Debut Risks Rousing Italian Wrath: Euro Credit. Prime Minister Mario Monti is asking Italians to swallow 30 billion euros ($40 billion) in additional emergency economic measures even as the nation’s fifth recession in the last decade looms next year. Monti, whose Cabinet approved the package yesterday, is due to present the plan to the legislature at 4 p.m. in Rome, with Parliament voting on it in the coming weeks. The premier has vowed “shared sacrifices” to cut the euro area’s second- biggest debt and regain investor confidence after Italian borrowing costs topped the 7 percent that led Greece, Ireland and Portugal to seek aid. Italy’s 10-year yield declined 52 basis points to 6.16 percent, its biggest drop in four months. “The huge public debt of Italy isn’t the fault of Europe, it’s the fault of Italians,” Monti, who took over last month after former Premier Silvio Berlusconi resigned, told a news conference as he detailed the package yesterday. “Together, we will make it.” Italian bonds have snapped a seven-week decline amid optimism that European policy makers may take steps to ease the crisis summits this week, with the 10-year yield difference to German bunds down by a percentage point in the past week to 3.94 points. Italy is still paying the highest rates in more than a decade on its debt, and offered more than 7 percent on new bonds for the third time in a week on Nov. 29. Monti’s plan ties pensions to contributions rather than a worker’s last salary, resurrects property taxes and includes a levy on luxury goods. Monti’s task in pushing through Italy’s third austerity package since July may be complicated by a recession next year and road bumps in Parliament and in the streets as protesters rally over a perceived lack of fairness.
• Euro Bonds Are 'In No Case' a Crisis Solution, Sarkozy Says. Bonds issued jointly by all members of the euro zone are “in no case” a solution to the euro zone’s crisis, French President Nicolas Sarkozy said. “Germany and France are not going to pay the debts of other without being able to control the debt issues of others,” Sarkozy said at a joint press conference with German Chancellor Angela Merkel.
• Sovereign, Financial Bond Risk Falls on Crisis Resolution Bets. The cost of insuring European sovereign and financial debt fell to the lowest levels in a month, extending the biggest-ever weekly decline, on speculation leaders are closer to resolving the region’s crisis. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments declined eight basis points to 318 at 2:30 p.m. in London. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers dropped for a sixth day, falling 31.5 basis points to 255, according to JPMorgan Chase & Co. A measure of subordinated financial debt risk tumbled 45 basis points to 460, JPMorgan prices show. Swaps on Belgium dropped 18 basis points to 272, according to CMA. The country will get a full-time government as soon as today, ending 540 days of post-election brinksmanship between the Dutch-speaking north and French south. France fell 12 basis points to 184, Germany was five lower at 92, Italy tumbled 20 to 428 and Spain fell 34 to 348. The cost of insuring corporate debt also dropped to the lowest in a month. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings declined for an eighth day, dropping 12.25 basis points to 166.75, JPMorgan prices show. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings decreased 36.5 basis points to 708.5.
• Bank of Canada Governor Carney Says ECB Shouldn't Use 'Magical Printing Press'. Carney said European politicians must fix the region's debt crisis themselves, and the European Central Bank can't be used as a "magical printing press" at the expense of its inflation mandate. "It's absolutely guided in our opinion by that mandate, not some magical printing press that the ECB should just run and solve this issue because it's too inconvenient for the political class to solve it," Carney said in a Maclean's magazine interview published online today. "No, the political class has to make these decisions."
• Short Sellers Place Record Place Record Molycorp(MCP) Bet as Rare Earths Sink. Investors’ bets against Molycorp Inc. stock are at their highest since the rare-earth producer’s July 2010 initial public offering on speculation prices for the minerals will keep falling.
• Commodities Signaling Economic 'Trouble Ahead': Chart of the Day. Diverging commodity indexes may signal "more trouble ahead" for the world economy as they repeat a pattern seen in the slump of 2008, Commerzbank AG said. The Commodity Research Bureau/Reuters U.S. Spot Raw Materials index fell 1.5% in the past two months, as the S&P GSCI index of 24 exchange-traded items rose 11%. The CRB index covers 13 goods from steel scrap to burlap and wool that aren't exchange traded and so less likely to be affected by financial investors.
• India Fertilizer Demand May Drop on High Prices, Cutting Imports. Fertilizer consumption in India, the world's third-largest potash importer, may tumble for a second year as rising prices of the soil nutrients deter farmers, cutting overseas purchases. Consumption of di-ammonium phosphate and potash may drop as much as 35% in the year starting April 1, compared with normal use of about 15 million metric tons, said U.S. Awasthi, managing director of the Indian Farmers Fertiliser Cooperative Ltd., which represents 55 million farmers. Demand this year is seen falling as much as 25%, he said.
  

Wall Street Journal:

• Italy Union Says Dec 16 Strike Is Against Budget Measures. Italian metalworkers' union Fiom-CGIL will ask to extend a strike planned for December 16 to eight hours from four, in protest of Italy's latest round of austerity measures, Fiom-CGIL leader Maurizio Landini said Monday.
• MF Global Workers Sue Jon Corzine. Two former employees of MF Global have filed a class-action lawsuit against the firm’s former CEO Jon Corzine, other senior executives and directors. Fins.com’s Julie Steinberg reports the employee are suing on behalf of themselves and other MF Global employees, in part because they say they were forced to take compensation in company shares that are now worthless.
• SEC Delays Call on Accounting Rules. A recommendation on whether U.S. companies should switch to international accounting rules will take a few more months, the Securities and Exchange Commission's chief accountant said Monday. The SEC's staff had been expected to make a recommendation by year-end on whether U.S. companies should adopt the global rules, known as International Financial Reporting Standards.
• Greece's Samaras Sees Deep Recession Lingering. The head of Greece's opposition New Democracy party—the man most likely the country's next prime minister—expects Greece's economy to shrink by more than 6% this year and the recession to linger through 2013. In an interview, Antonis Samaras said that the country was also unlikely to meet its upwardly revised deficit target in 2011, underscoring Greece's difficulty in meeting the fiscal goals the country has promised its international creditors. "This year again you will have a 10% deficit... and the recession will be greater than 6%," he said. "We are entering into a fifth year of recession and very possibly it will extend to a sixth year, that is a European record." Despite almost two years of austerity measures and tough oversight from a troika of international inspectors from the European Commission, the International Monetary Fund and the European Central Bank, Greece has already admitted it won't meet its original deficit targets this year. Those targets were for a budget deficit of around 8.5% of GDP, or about €17.1 billion in 2011, but which the government now sees settling closer to 9% of GDP and €19.68 billion—a forecast shared by the troika. Some government officials have warned that the deficit could exceed even the new target. But all agree that those austerity measures have also pushed Greece deep into recession and many private sector economists fear that the economy will contract by more than an officially forecast 6% this year. A deeper recession will also mean a bigger deficit because of weaker revenue collections and greater social spending.

MarketWatch:

• How Goldman(GS) Played a Key Role in Solyndra's Rise. While government officials and venture investors who supported Solyndra LLC are being put through the wringer by House Republicans, a powerful force on Wall Street that brought these players together has largely stayed out of the spotlight. Goldman Sachs Group Inc., which Solyndra hired in 2008, helped propel the solar panel maker from Silicon Valley start-up to White House showcase. It solicited investors for the company with rosy valuation projections and helped Solyndra win a $535 million Department of Energy loan guarantee. And it positioned itself to earn underwriting fees if the company held an initial public offering.

CNBC.com:

• ISM Non-Manufacturing Index, Factory Orders Fall Slightly. The Institute for Supply Management said that its index of service sector activity dropped to 52 from 52.9 in October, as employment fell sharply. Any reading above 50 indicates expansion. The trade group of purchasing managers surveys a range of businesses from restaurants to hotels to financial services firms. Business activity and orders rose. But measure of employment dropped.
• Why the ECB Is Not Going to Ride to Europe's Rescue. Markets appear to have high hopes for this week’s summit meeting in Europe to begin putting an end to the financial crisis.
• Online Sales Reach $6 Billion in Week After Thanksgiving.
  

Business Insider:

• 15 Brilliant Insights From Hedge Fund Superstar Kyle Bass.
• India's Economic Decline Is One Of The Most Under-Reported Stories This Year.
• Ex-Countrywide Exec Blows The Lid Off The Systemic Fraud At The Company.
• Washington Doesn't Seem To Find Anything Wrong With Crony Capitalism.
  

Zero Hedge:

• Nomura Presents The Fair-Value Of European Currencies In A Euro Breakup Scenario.
• Over 46 Million Americans On Foodstamps For The First Time Ever. (graph)
• Euro Tumbles: S&P About To Put Europe's AAA Club(Including Germany, France and Austria) On "Creditwatch Negative".
  

Reuters:

• Prepare For A Different Financial Landscape by Mohamed El-Erian. Look for western banks to be less complex, less global, somewhat less inter-connected and, therefore, less systemic. With some banks teetering on the edge, certain European governments (e.g., Greece) will have no choice but to nationalize part of their financial system.

Financial Times:

• BNP Predicts 25% Fall in Commodities Financing. Lending to the commodities trading industry is set to drop by more than a quarter, according to the sector’s most senior banker, as the European banks that dominate the market rein in their activities. The comments by Jacques-Olivier Thomann, head of commodity trade finance at BNP Paribas and president of Geneva’s commodities industry association, underscore a potential credit crunch that some fear could exacerbate the economic downturn by hobbling trade in raw materials.

Telegraph:

• Debt Crisis: Live. German Chancellor and French President want new treaty, seek involvement of all EU nations, want monthly meetings of leaders, but continue to rule out eurobonds and use of central bank as lender of last resort.
• Zilch Again from Merkozy. No fiscal union, no Eurobonds, no ECB as lender of last resort – yet. Just the usual blather and a revamped Stability Pact (Fiskalunion). Yawn. Merkel seems to have backed off on demands that budget breaches will be justiciable before the European Court, so the Treaty chatter is mostly Quatsch, bêtises, and eyewash. This Merkel climb-down makes it less likely that she will give in on real rescue measures, so why the market exuberance in Italy? Beats me. Private investors will not have to face further haircuts after Greece (if you believe anything they say on this subject) but that was already the case. Nothing further to add at this stage.

Handelsblatt:

• Greece, Portugal, Italy and Spain will struggle to return to sustainable public debt, citing calculations by the Freiburg, Germany-based Centre for European Policy. CEP's default indexes for Greece, Portugal and Italy, which measure debt sustainability, fell in the first half while Spain's stagnated.

Kyodo News:

• Japan's government ordered a halt of rice shipments from Fukushima city's Watari district after detecting above-limit levels of radioactive cesium from grain produced in the region.

Bear Radar

Style Underperformer:

• Large-Cap Growth (+.98%)

Sector Underperformers:

• 1) Drugs -.29% 2) HMOs -.10% 3) Agriculture +.09%

Stocks Falling on Unusual Volume:

• HITK, LBTYA, SAP, YRCWD, PCH, REGN, LULU, SFLY, ANDE, STMP, AMGN, SPRD, FUN, SXL and GTY
  

Stocks With Unusual Put Option Activity:

• 1) HRB 2) YUM 3) ACN 4) BBT 5) LEN
  

Stocks With Most Negative News Mentions:

• 1) PCH 2) VLO 3) AA 4) NKE 5) ADSK
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth (+2.30%)

Sector Outperformers:

• 1) Oil Service +2.99% 2) Banks +2.98% 3) Homebuilders +2.97%

Stocks Rising on Unusual Volume:

• TLEO, CNQR, C, JPM, CSOD, ARBA, DISH, SPPI, QLIK, GCI, TIE, ETR, SFSF, ULTI, FTK, CRM, N, LOGM, STJ, PSS and MDT
  

Stocks With Unusual Call Option Activity:

• 1) SFSF 2) AEO 3) BBD 4) FSIN 5) TIBX
  

Stocks With Most Positive News Mentions:

• 1) AEO 2) HMA 3) WAG 4) LMT 5) RIG
  

Charts:

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

Monday Watch

Weekend Headlines
Bloomberg:

• Europe Leaders Take Another Run at Fixing Crisis. European leaders will take another run at fixing the debt crisis this week after the failure of their fourth rescue blueprint sparked intensified concern the 17-nation euro area was on the brink of unraveling. With a European Union summit in Brussels looming Dec. 9, U.S. Treasury Secretary Timothy Geithner arrives in Frankfurt tomorrow to prod political leaders and the European Central Bank holds a policy meeting Dec. 8. Today, Chancellor Angela Merkel and French President Nicolas Sarkozy will hold talks in Paris in an attempt to bridge differences on a crisis resolution. Safeguarding banks, limiting the damage to Italy and Spain and finding additional rescue funds may hinge on the response to Franco-German demands for closer economic integration and tougher policing of fiscal rules. Markets climbed last week as investors looked toward the latest plan to rescue to the 17- nation euro, betting that a new regime of budget rules at the summit may clear the way for more intervention from the ECB. “The door should swing open for the ECB to become more aggressive,” Erik Nielsen, global chief economist at UniCredit SpA, wrote in a note to clients yesterday. Stepped-up bond purchases by the ECB will “restore a degree of sanity.”
• US, Euro Governments Consider Special IMF Fund, Welt Says. The governments of the 17-nation euro zone are considering giving hundreds of billions of euros to the International Monetary Fund in order to end the sovereign-debt crisis, Die Welt reported, citing sources close to the negotiations. “Triple-digit billions” will be paid into the fund which would then finance rescue programs for some countries, according to Welt. Other central banks such as the U.S. Federal Reserve are also said to be willing to contribute and Secretary of the Treasury Tim Geithner will fly to Europe this week to meet with politicians and bankers, Welt said.
• Sarkozy, Merkel May Not Reach Agreement Tomorrow, JDD Reports. French President Nicolas Sarkozy and German Chancellor Angela Merkel may not reach an agreement on proposals to overhaul European institutions tomorrow, Le Journal du Dimanche reported, without saying where it got the information. Sarkozy said last week he would meet Merkel to make “French-German propositions” that will help “guarantee the future of Europe.” The two heads of state are due to meet in Paris at 1:30 p.m. tomorrow for a “work lunch,” according to the Elysee presidential palace’s website. Sarkozy and Merkel have different opinions on several matters including the role of the European Central Bank and the closer monitoring of euro countries’ budgets with potential sanctions against persistent offenders, Le Journal du Dimanche reported.
• Monti to Lobby Parliament to Back Budget Plan. Prime Minister Mario Monti will lobby parliament to support a 30 billion-euro ($40 billion) package of austerity and growth measures to trim the euro-region’s second- biggest debt and prevent Italy from sparking the euro’s breakup. Monti presents the plan to the Chamber of Deputies in Rome at 4 p.m. and to the Senate at 6 p.m. after his Cabinet approved the package yesterday, a day ahead of schedule. The package, which includes more than 12 billion euros in spending cuts, will force workers to delay retirement, resurrect a tax on first homes, crackdown on tax evasion and open up closed professions.
• U.K. Economic Growth Forecasts Cut by EEF as Manufacturers See Stagnation. The EEF sees gross domestic product rising 1 percent in 2012 instead of the 2 percent forecast in September, with factory output growing 0.9 percent rather than 2.2 percent, Chief Economist Lee Hopley told reporters at a briefing in London on Dec. 2. A manufacturing survey published today showed companies predict flat output and a “modest contraction” in orders in the first quarter, Hopley said.
• China's Stocks Decline, Extending Fourth Weekly Loss, on Property Concerns. China’s stocks (SHCOMP) fell, with the benchmark index extending a fourth straight weekly loss, after non-manufacturing industries contracted as the government’s curbs on property and lending damped demand. Anhui Conch Cement Co. (600585), China’s biggest maker of the building material, and Hebei Iron & Steel Co. dropped at least 1.1 percent after a purchasing managers’ index shrank for the first time since February. China Vanke Co. (000002) and Financial Street Holding Co. retreated among property companies after the central bank said developers are facing tighter credit conditions. The Shanghai Composite Index lost 14.89 points, or 0.6 percent, to 2,345.78 at the 11:30 a.m. break, a second day of declines. The Shanghai Composite slid 0.8 percent last week, a third weekly loss, after manufacturing contracted for the first time since February 2009 in November. The index has tumbled 16 percent this year, extending last year’s 14 percent loss, after the central bank raised interest rates and lenders’ reserve-requirement ratios to curb inflation.
• Pakistan, Iran Fund Afghanistan Insurgent Training, Bild Reports. Pakistan and Iran are together supporting insurgents in Afghanistan, Germany’s Bild reported today, citing a classified NATO document. The document stated evidence from July showed Pakistan’s Inter-Services Intelligence was leading a joint initiative to provide funds and training to Taliban insurgents in northern Afghanistan, where 5,000 German soldiers are based, Bild said. The ISI is also sponsoring production of automatic weapons in Peshawar, Pakistan, for use in Afghanistan, Bild said.
• Builders Shrink 'Great Australian Dream' as Housing Falters.
• Tepco Reports More Radioactive Water Leaks. As much as 45 tons of radioactive water leaked from Japan’s crippled Fukushima nuclear station at the weekend and some may have reached the sea, Tokyo Electric Power Co. (9501) said. The leakage shows the company known as Tepco is still struggling to control the disaster nine months after an earthquake and tsunami wrecked the plant. The water contained 1.8 millisieverts per hour of gamma radiation and 110 millisieverts of beta radiation, Tepco said in an e-mailed statement yesterday. “The source of the beta radiation in the water is likely to include strontium 90, which if absorbed in the body through eating tainted seaweed or fish, accumulates in bone and can cause cancer,” said Tetsuo Ito, the head of Kinki University’s Atomic Energy Research Institute. Since the March 11 disaster, the utility has reported several leaks of radiated water into the sea, though its estimates of their size has been disputed. In October, a French nuclear research institute said the Fukushima plant was responsible for the biggest discharge of radioactive material into the ocean in history.
• China Rejects U.S. Solar Imports Ruling. China rejected a preliminary ruling by a U.S. trade panel that imports of Chinese solar panels are harming the domestic industry, saying the decision shows the country’s “inclination to trade protectionism.” The U.S. International Trade Commission on Dec. 2 took the first step toward imposing added tariffs on Chinese solar imports, voting unanimously in Washington on a petition by Bonn- based SolarWorld AG (SWV) that called for antidumping and countervailing duties. The commission will now hold a full investigation.
• Failure to Cut Record Debt Pushes Developer Yields Above 20%: India Credit. India’s biggest developers are failing to rein in record debt as borrowing costs above 20 percent and the worst economic slump since 2009 erode earnings.
• China Can't Use Reserves to 'Rescue' European Countries, Minister Fu Says. China can’t use its $3.2 trillion in foreign exchange reserves to “rescue” European nations and the country “has done its part” to help the region deal with its financial crisis, Vice Foreign Minister Fu Ying said.
• Global Warming Fight Threatened by Debt Crisis as Kyoto Aim Starts to Fade. Global warming concerns are being pushed down the political agenda by the European debt crisis and U.S. economic slump, reducing the chance for an accord limiting climate change this week.
• Iranian Forces Shot Down U.S. Spy Aircraft, PressTV Reports. Iran’s military shot down a U.S. reconnaissance drone in the country’s east, PressTV reported, citing an unidentified military official. The unmanned RQ-170 Sentinel aircraft suffered minimal damage in the attack, the state-run Iranian television station said. The Lockheed Martin Corp. RQ-170 is a stealth drone.
• Oil Rises on Iran Tension. Oil rose for a second day in New York on concern that tension in the Middle East will curb supplies and speculation that Europe will take steps to tame a debt crisis that threatens economic growth. West Texas Intermediate oil gained as much as 0.8 percent, after posting the first weekly increase in three.
• SAP(SAP) to Buy SuccessFactors(SFSF) for $3.4 Billion to Match Oracle(ORCL). SAP AG, the largest maker of business-management software, agreed to buy SuccessFactors Inc. for $3.4 billion in cash to keep pace with archrival Oracle Corp. in the cloud-computing market. SAP will purchase San Mateo, California-based SuccessFactors, which makes software used to manage employee performance, for $40 per share, 52 percent more than the closing price in New York trading on Dec. 2, Walldorf, Germany-based SAP said in an e-mailed statement today.

Wall Street Journal:

• Plan Prompts German Bashing From France. A Franco-German plan aimed at solving the euro-debt crisis by a partial loss of sovereignty and deeper fiscal integration sparked bellicose anti-German comments from French opposition politicians. Leaders of far-left and far-right groups, and representatives of mainstream parties, accused Paris of bending to German diktats after President Nicolas Sarkozy said Thursday that he was in favor of increasing European supervision over national fiscal and budget policies. Far-left leader and presidential candidate Jean-Luc Mélenchon said in a blog post Friday that Mr. Sarkozy had "capitulated" in the face of German Chancellor Angela Merkel.
• An 'Arab Winter' Chills Christians.
• Obama Laments Pakistan Killings. President Barack Obama called his Pakistani counterpart to personally express his condolences for the deaths of 24 Pakistani soldiers in a recent NATO airstrike along Afghanistan's border, a sign the White House was stepping up efforts to ease tensions. The White House said Mr. Obama told Pakistani President Asif Ali Zardari during the call that "this regrettable incident was not a deliberate attack on Pakistan and reiterated the United States' strong commitment to a full investigation." Mr. Obama called the loss of life "tragic."

CNBC:

• HSBC China Services PMI Falls, Slowdown Spreads. The HSBC Purchasing Managers' Index for China's services sector fell to 52.5 from 54.1 in November, signaling its slowest rate of growth in three months and the latest in a series of data points portraying a quickly cooling economy.

Business Insider:

• The Fed's New Communication Strategy Is Taking Shape.
• Germany's Deal For Europe: EVERYONE Has To Be Miserable.
• It's Suddenly Cheaper To Eat Out. Supermarket prices soaring.
• Germany Doesn't Understand Why Everyone In Europe Is So Ungrateful.
  

Zero Hedge:

• Germany Planning For Commerzbank Nationalization.
• Putin Loses Majority In Russian Elections As Communist Party Soars.
• The Latest Rumor: Fed To Fund IMF, Bypassing Congressional Refusal Of European Bailout.
  

NY Times:

• Italian Prime Minister Is Set to Unveil New Austerity Plans. Prime Minister Mario Monti enjoys broad popular support as he takes on the daunting mandate of turning around the moribund Italian economy. But the honeymoon may end as soon as Monday, when he is scheduled to announce austerity measures aimed at saving up to $25 billion to balance the budget by 2013. While the details are not yet known, he is expected to ask for higher taxes on the super-rich and luxury items like yachts, an increase in the retirement age and the reintroduction of property taxes — political third rails that are expected to meet fierce opposition with the public and Parliament. Mr. Monti, an economist who is also acting as finance minister, has told Italians that such changes are essential for Italy to boost its anemic growth, stave off a recession and pay down its staggering public debt, which is $2.5 trillion, or 120 percent of gross domestic product, in order to stabilize the Italian economy and protect the euro. It is a tricky balancing act, and already labor unions are objecting to pension reforms, to say nothing of changes to Italy’s labor market, which Mr. Monti has also said are on his agenda, though not immediately. “The road will be very rocky, very bumpy,” said Roberto D’Alimonte, a political science professor at Luiss Guido Carli University in Rome. “This is a government that doesn’t have friends in Parliament,” he added. Members of Parliament “aren’t convinced of the gravity of the crisis, because it’s a mediocre political class, not to say anything worse,” Mr. D’Alimonte said. It will also be a test for Italy’s technocracy: the cabinet of specialists widely seen as towering figures in their fields but lacking grass-roots political support.
• U.S. Agents Launder Mexican Profits of Drug Cartels. Undercover American narcotics agents have laundered or smuggled millions of dollars in drug proceeds as part of Washington’s expanding role in Mexico’s fight against drug cartels, according to current and former federal law enforcement officials. The agents, primarily with the Drug Enforcement Administration, have handled shipments of hundreds of thousands of dollars in illegal cash across borders, those officials said, to identify how criminal organizations move their money, where they keep their assets and, most important, who their leaders are.

NY Post:

• NYC Pensions 'Hedge' Bets. The city’s $109 billion pension funds are expected to make their first-ever direct investments in hedge funds early next year, a spokesman for Comptroller John Liu revealed yesterday. “We are beginning to build a direct hedge-fund portfolio, which will be approximately 4 percent to 5 percent of each participating NYC pension fund and should ultimately approach $4 billion,” the spokesman said.
  

Seeking Alpha:

• 20 Small Cap Stocks That Hedge Funds Are Buying.

Wall Street All-Stars:

• Unlucky 13. In many ways we look like Mexico in the critical years of 1976, 82’ and 94’. In the year preceding an election the country has taken a number of steps to kick the can down the road. Promises have been made that all of those emergency steps will be reversed starting in January 2013. Some of the big issues that have been tabled:

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 21% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty percent (40%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -19 (see trends).

Reuters:

• Wall St. Sues CFTC Over Commodity Trading Crackdown. Wall Street's top trade groups launched on Friday a second major legal assault on the biggest overhaul of U.S. financial regulations in decades, suing to block new rules on commodity speculation. In the suit, which had been widely expected given fierce objections from big investment banks and traders, the groups said the Commodity Futures Trading Commission's rule to prevent excessive speculation in markets like oil and gold was procedurally flawed and "lacked a reasoned basis."

Financial Times:

• Political Turmoil Takes Hedge Funds Out Of Comfort Zone. Fundamental commodity hedge funds have had a difficult year, not least because of the increased correlation between energy and equity markets, but investors are still backing them for the information edge they provide. Several big names in the sector, which usually benefit from previous experience in commodity trading, have returned double digit losses so far this year. Investors in London-based Clive Capital, BlueGold, and the Merchant Commodity Fund have said they all had difficulties, notably during August.

Telegraph:

• Euro Doomed Form Start, Says Jacques Delors. In an interview with The Daily Telegraph, Jacques Delors, the former president of the European Commission, claims that errors made when the euro was created had effectively doomed the single currency to the current debt crisis. He also accuses today’s leaders of doing “too little, too late,” to support the single currency.
• Germany: A Reason Why Fiscal Union and ECB Funny Money Won't Happen. Angela Merkel "vows to build fiscal union," we were told on Friday, after the German Chancellor's speech to the Bundestag. I just don't buy it.
• Fiskalunion Is Worst Of All Worlds For Europe. Be careful of the German term 'Fiskalunion', the next phase of Europe’s misadventure. What Chancellor Angela Merkel means is increased powers to police the budgets of EMU sinner states.

Times:

• U.K. retailers are coming under greater financial pressure than in the months following the collapse of Lehman Brothers Holdings Inc. in 2008, citing a report by Ernst & Young LLP.

Welt am Sonntag:

• Eurobonds would turn Germans against Europe, former European Central Bank Chief Economist Otmar Issing said in an interview. Joint bonds would increase the cost of German borrowing, leaving the country's taxpayers with the bill for a process which would get "out of control" and increase their antipathy toward Europe, Issing said.

FTD:

• Most chief economist at the world's leading international banks think that a breakup of the euro zone is possible, citing its own survey. Invesco LTD.'s Chief Economist John Greenwood saw the greatest chance of a breakup at 70%.

Focus:

• German Chancellor Angela Merkel and French President Nicolas Sarkozy are willing to risk a division among countries that share the euro, should some member states object to their stability proposals, citing government officials. If all countries using the currency don't accept the proposals, then Germany and France will seek to reach an agreement with countries such as Austria, the Netherlands and Finaland. The German government plans to strengthen European treaties while returning some powers to national governments. Such a move would reduce the influence that eurosceptic nations such as the U.K. and Czech Republic have in budgetary decisions.
• The introduction of the euro was a bad idea, 60% of Germans said in a poll published today by Focus. The poll, carried out by TNS Emnid for Focus, found that 74% of Germans agreed that the deutschmark was more stable than other currencies when compared with the euro, and that 85% said prices had increased significantly since the euro's introduction.
  

Le Journal du Dimanche:

• Europe needs "immediate actions," not a new treaty, Francois Hollande, the Socialist Party candidate for France's 2012 presidential elections, said. Negotiations for a new EU treaty would take "months," citing Hollande.

ANP:

• The problems related to the European debt crisis won't be resolved after the heads of state meet Dec. 9 in Brussels, citing Finance Minister Jan Kees de Jager in an interview. The storm will continue for a while, he said.

BCBusiness:

• Housing Has Become Vancouver's Toxic Asset. The rapidly inflating housing market in the Vancouver area is turning into a system of toxic financial assets that threatens the entire region's economy.

China Business News:

• China should suspend the introduction of new policies to internationalize the yuan, former central bank adviser Yu Yongding writes in a commentary. Pressure for yuan appreciation will weaken because investment capital inflows have fallen, he wrote. The yuan may depreciate in the short term which should be seen as an early warning sign to Chinese economic development, Yu writes. The country should strengthen capital controls to avoid being hit by a turbulent international financial market, he said.

CRIEnglish:

• China Wants Housing Curbs Extended. China's central government has ordered local governments to extend restrictions on the property market, some of which are set to expire within coming months. The announcement partly dispelled uncertainties of whether China would continue the tight controls on the property market after the central government pledged to "fine-tune" macroeconomic policies to sustain growth and on concerns that falling home prices may hurt the economy. But Premier Wen Jiabao said last month that the government will not waver on tightening measures and pledged to bring house prices down to a "reasonable level."

Weekend Recommendations
Barron's:

• Made positive comments on (GY), (SPLS), (NFLX), (GD), (MSFT), (HPQ), (BBT), (GES), (JNJ), (MRK) and (HAS).
• Made negative comments on (SFLY).
  

Night Trading

• Asian indices are -.75% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 195.0 -7.0 basis points.
• Asia Pacific Sovereign CDS Index 158.25 -2.0 basis points.
• FTSE-100 futures n/a.
  
• S&P 500 futures +.76%.
• NASDAQ 100 futures +.59%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (DG)/.47

Economic Releases
10:00 am EST

• ISM Non-Manufacturing for November is estimated at 53.8 versus 52.9 in October.
• Factory Orders for October are estimated to fall -.3% versus a +.3% gain in September.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Evans speaking, UBS Media/Communications Conference, (NVLS) Mid-Quarter Update, (SLG) Investor Conference and the (DOV) Investor Meeting could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the week.

Weekly Outlook

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

BOTTOM LINE: I expect US stocks to finish the week mixed as rising global growth worries, Eurozone debt angst and technical selling offsets seasonality, investor performance angst and lower food/energy prices. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 75% net long heading into the week.