Today's Headlines

Bloomberg:

• Italy, Spain Bonds Slump as Crisis Puntures Demand; Bunds Jump. Italy’s bond yields surged to a four- month high as the nation missed its maximum target for sales of five- and 10-year securities, stoking concern that Europe’s financial woes are denting investor appetite for the debt. Germany’s two-year yield reached zero for the first time. Five-, 10- and 30-year German bond yields fell to records as economic confidence in the euro area declined more than analysts forecast in May to the lowest in 2 1/2 years. Spanish bonds slumped, driving five-year yields to more than 6 percent for the first time since November, after Bank of Spain Governor Miguel Angel Fernandez Ordonez quit before his term expired amid criticism over the nationalization of Bankia group.
• Greek Exit From Euro Seen Exposing Deposit-Guaranty Flaws. The threat of Greece exiting the euro is exposing flaws in how banks and governments protect European depositors’ cash in the event of a run. National deposit-insurance programs, strengthened by the European Union in 2009 to guarantee at least 100,000 euros ($125,000), leave savers at risk of losses if a country leaves the euro and its currency is redenominated. The funds in some nations also have been depleted after they were used to help bail out struggling lenders, leading policy makers to consider implementing an EU-wide protection plan. “These schemes were not designed to deal with a complete meltdown of a banking system,” said Andrew Campbell, professor of international banking and finance law at the University of Leeds in the U.K. and an adviser to the International Association of Deposit Insurers. “If there’s a systemic failure, there needs to be some form of intervention.” With European officials openly discussing a Greek exit from the euro for the first time, savers in Spain, Italy and Portugal may start to withdraw cash on concern that those countries will follow Greece and their funds will be devalued with a switch to a successor currency. None of those nations has the firepower to handle simultaneous runs on multiple banks.
• Spain Credit-Default Swaps Surge to Record on Bank Bailout Woes. The cost of insuring against default on Spanish sovereign bonds rose to a record as the nation's debt crisis deepened amid concern over bank bailouts. Credit-default swaps linked to the nation's debt climbed 23 basis points to 583 at 11:44 a.m. in London, according to data compiled by Bloomberg. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose seven basis points to 320.5. "The pressure remains on Spain," Elisabeth Afseth, an analyst at Investec Bank Plc in London, wrote in a note. "The focus remains on how the government is going to deal with the banking crisis." The cost of insuring bank debt also increased with the Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers rising eight basis points to 299 and the subordinated index jumping 12.5 to 497.5. Swaps on Banco Santander SA, the biggest Spanish lender, jumped 15.5 basis points to 421 while contracts on Banco Bilbao Vizcaya Argentaria SA added 15 to 461. Italy's bond yields surged to a four-month high as the nation missed its maximum target for sales of five- and 10-year securities, stoking concern that Europe's financial woes are crimping investor appetite for the debt. Swaps on the nation's debt jumped 20 basis points to 542, the highest since Dec. 16. The Markit iTraxx Crossover Index of swaps linked to 50 companies with mostly high-yield credit ratings increased 16 basis points to 716. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings advanced five basis points to 175.5 basis points.
• EU Weighs Direct Aid to Banks as Antidote to Crisis. The European Commission challenged Germany’s remedies for the financial crisis, calling for direct euro-area aid for troubled banks and insisting on a “roadmap” for common bond issuance. The commission, the European Union’s central regulator, sided with Spain in proposing that the planned permanent rescue fund, the European Stability Mechanism, inject cash to banks instead of channeling the money via national governments.
• Euro-Area Economic Confidence Falls to 2 1/2 Year Low: Economy. Economic confidence in the euro area declined more than economists forecast in May to the lowest in 2 1/2 years after inconclusive Greek elections raised the specter of a euro breakup and Spain struggled to shore up its banks. An index of executive and consumer sentiment in the 17- nation euro area fell to 90.6 from a revised 92.9 in April, the European Commission in Brussels said today. That’s the lowest since October 2009 and below the 91.9 forecast by economists, according to the median of 28 estimates in a Bloomberg survey.
• European Stocks Drop on Concern Debt Crisis is Deepening. European stocks dropped the most in a week as Italy failed to meet its maximum target at a debt sale, Spain struggled to bolster its banking system and a Greek poll showed increased support for parties opposed to spending cuts. The Stoxx Europe 600 Index declined 1.5 percent to 240.56 at the close in London. The benchmark measure has tumbled 12 percent from this year’s high on March 16 amid growing concern that Greece will be forced to leave the euro currency union.
• National Systemic Banks to Face Core Capital Rules in Basel Plan. Global regulators will seek a deal this year to strengthen capital requirements and supervision at banks whose failure would harm national economies. The Basel Committee on Banking Supervision is preparing to identify so-called domestically systemic lenders and discussing “possible policy tools” that regulators should use to handle their collapse, Teo Swee Lian, deputy managing director of the Monetary Authority of Singapore, said in an e-mail. Rules on the amount of core capital that the lenders should hold are expected to be “an important part of the policy framework,” said Teo, a member of the Basel group.
• Pending Home Sales Fall By Most In A Year. The number of Americans signing contracts to buy previously owned homes fell in April by the most in a year, indicating the U.S. housing recovery remains uneven. The index of pending home resales dropped 5.5 percent following a revised 3.8 percent gain the prior month, figures from the National Association of Realtors showed today in Washington. The median forecast of 42 economists surveyed by Bloomberg News called for no change in the measure. Mortgage rates at record lows failed to sustain the pace of demand as some buyers may have waited for home prices to decline further. Limited access to credit and persistent foreclosures still weigh on housing, adding to concern it will remain a source of weakness for the world’s largest economy. “The pattern of demand is sluggish and volatile,” said Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York, who projected a decline. “Until the supply issue is resolved, we could see further declines in prices and the housing market will continue to hover around the bottom. It’ll be a gradual improvement, we don’t expect anything stronger than that.”
• Treasury Yields Tumble to Records as Europe Spurs Bids. Treasury 10-year note yields fell to a record low as investors sought refuge from the deteriorating credit conditions of European sovereign borrowers. The benchmark yield reached 1.6254 percent, less than its previous all-time low of 1.6714 percent on Sept. 23, as Spain struggled to recapitalize its banks and Italian bonds fell as the country sold less than its target at a debt auction. The Federal Reserve announced Sept. 21 that it would buy $400 billion of longer-term Treasuries, funding the purchases with sales of shorter-term notes, in an effort to bolster the U.S. economy and spur jobs growth. “We could go a lot lower,” said Charles Comiskey, head of Treasury trading in New York at Bank of Nova Scotia, one of 21 firms that trade Treasuries with the Fed. “It’s fear about the solvency of the banking system in Europe and more money is pouring into dollars and into U.S. Treasuries. Yields don’t matter and prices don’t, it’s just being in the safe haven.”
• Copper Drops to 20-Week Low on Europe: Commodities at Close. The Standard & Poor’s GSCI gauge of 24 commodities fell 2.3 percent to 603.73 at 5 p.m. in London. The UBS Bloomberg CMCI index of 26 raw materials was down 1.8 percent at 1,445.638. Copper fell to a 20-week low in New York as a reduction of Spain’s credit rating fueled concern that Europe’s debt crisis will slow the economy and reduce demand for raw materials. Copper futures for July delivery declined 2.2 percent to $3.387 a pound on the Comex in New York, after touching $3.383, the lowest since Jan. 9. Before today, prices fell 9.6 percent in May.
• Verizon(VZ) Doubles FiOS Broadband Speeds In Race With Cable. Verizon Communications Inc. (VZ), the second-largest U.S. phone company, doubled the speed of its most expensive FiOS broadband Internet service, seeking an edge against cable providers. Verizon will begin offering five speeds of service next month, topping out at 300 megabits per second, according to a statement today. Pricing will be announced in June, the New York-based company said. The new top speed, up from a previous high of 150 megabits, is designed to let consumers handle multiple Internet devices and more bandwidth-hogging applications.
• Facebook(FB) Seen Dropping 20% to Gain Parity With Nasdaq Rivals. Facebook Inc. (FB)’s stock, which has already lost $25 billion in value since its public debut, would have to drop another 20 percent for its valuation to match other companies that do business over the Internet. Facebook, with a market capitalization of $79.1 billion, is trading at 29.5 times the company’s projected 2014 profit of $2.69 billion, data compiled by Bloomberg show. The stock would have to dive to $23.07 to match the average price-to-earnings ratio for the Nasdaq Internet Index based on estimated earnings in the next 12 months, according to the data.
• BofA(BAC) Chief Sees Europe's Crisis's Indirect Impact As Bigger Threat. Bank of America Corp. Chief Executive Officer Brian T. Moynihan said the main risk of Europe’s financial crisis will be the indirect effects on the rest of the global economy. Concern that European nations may not be able to pay their debts has already slowed the world’s economy, Moynihan said today at a Manhattan investor conference. His Charlotte, North Carolina-based company is ranked second by assets among lenders in the U.S., where Moynihan said consumer spending is being aided by lower gasoline prices and corporations keep finding ways to adjust their models to bolster profits.
• Monsanto(MON) Profit Forecast Tops Estimates as Seed Sales Climb. Profit will be $1.57 to $1.62 a share in the three months through May, excluding costs from a legacy tax matter, St. Louis-based Monsanto said today in a statement. The forecast topped the $1.29 average of 16 estimates compiled by Bloomberg. Monsanto said earnings in the year through August will be $3.65 to $3.70 a share, excluding the tax issue, settlement of pollution claims and discontinued operations. The company in April forecast $3.49 to $3.54, while the average of 17 estimates was $3.56. Earnings were $2.96 a share in fiscal 2011.
• Greenlight Added Investors After 6.8% First-Quarter Gain. Greenlight Capital Inc., the $7.8 billion hedge fund run by David Einhorn, opened to investors last quarter for the first time since 2008 after posting a 6.8 percent gain, according to a letter to investors. Greenlight increased assets by 6 percent last quarter and a “high percentage” of the capital raised was invested in the dollar-denominated class of the Greenlight Capital Gold funds, the firm said in the May 29 letter, which was obtained by Bloomberg News.
• U.S. Proposes Duties As High as 26% On China Wind-Tower Imports. The U.S. Commerce Department proposed duties of as much as 26 percent on wind-tower imports from China, siding with American manufacturers including Broadwind Energy Inc. (BWEN). The agency today released preliminary results of its investigation into a complaint from the Wind Tower Trade Coalition, which claims its members are being harmed by subsidies from the Asian nation. In addition to Broadwind of Naperville, Illinois, the group includes Otter Tail Corp. (OTTR)’s DMI Industries, Katana Summit LLC and a unit of Trinity Industries Inc. (TRN).
• Fed's Dudley Sees Economy Continuing to Grow at Moderate Pace. Federal Reserve Bank of New York President William C. Dudley said the U.S. expansion will probably continue at a “moderate” pace and that additional stimulus likely won’t be needed unless the economy falters. “As long as the U.S. economy continues to grow sufficiently fast to cut into the nation’s unused economic resources at a meaningful pace, I think the benefits from further action are unlikely to exceed the costs,” Dudley said today in the prepared text for a speech in New York.

Wall Street Journal:

• Delinquency Rate Hits All-Time High For CMBS. A surge in maturities for troubled loans has pushed the delinquency rate for commercial mortgage-backed securities to an all-time high of 10.04% for May, according to a loan-research service. That’s the first time the rate passed the 10% mark, fed largely by five-year loans that were made in 2007 — when standards were at their weakest — and are now coming due, according to Trepp LLC. Landlords have had difficulty paying these off given that standards and values are far more stringent now, with more properties falling into default. (Loans are delinquent when at least 30 days past due.) Tens of billions of commercial-property loans that were securitized have run into trouble in recent years, as a drop in rents and values during the downturn pushed many landlords into trouble, unable to pay off their debts. Even as the commercial-property market across the U.S. slowly recovers, more loans are falling into trouble because leases made during times when rents were higher are coming due, and because mortgages are reaching their maturity dates, with property owners unable to find new loans to replace them. The rate of delinquent loans, up from 9.8% in April and 9.68% in March, has remained relatively steady above 9% for well over a year, increasing recently due to the 2007-vintage maturities. Currently $59 billion in CMBS loans is past-due, according to Trepp.
• Networks Built on Milliseconds. Microwaves—Not Fiber Optics—Are Latest Thing for High-Frequency Traders.
• Morgan Stanley(MS) Chief Defends Facebook(FB) Handling. Morgan Stanley Chairman and Chief Executive James Gorman defended the securities firm's role in Facebook Inc.'s tumultuous initial public offering, telling employees internally that the firm worked "100% within the rules" and calling the steep decline in the social network's stock "disappointing."

MarketWatch:

• 6 Reasons Spain Will Leave the Euro First. The Spanish are a lot more likely to pull out of the euro than the Greeks, or indeed any of the peripheral countries. They are too big to rescue, they have no political hang-ups about rupturing their relations with the European Union, they are already fed up with austerity, and there is a bigger Spanish-speaking world for them to grow into. There are few good reasons for the country to stay in the euro — and little sign it has the will to endure the sacrifices the currency will demand of them.

CNBC.com:

• Auto Jobs: Sign of the Times. At the Hyundai plant in Montgomery, Alabama more than 20,000 people have applied for one of the 877 job openings. The surge of people applying may seem unusual, but it's not.
• India's Economy Slows, With Global Implications. While short-term growth has slowed but not ground to a halt, India’s problems have dampened hopes that it, along with China and other non-Western economies, might help revive the global economy, as happened after the 2008 financial crisis. Instead, India is now facing a political reckoning, as the country’s elected leaders must address difficult, politically unpopular decisions — or risk even deeper problems.

Business Insider:

• Companies That Can Be Hedged With CDS Are Way More Likely To Go Bankrupt. Stavros Peristani found firms exposed to credit default swaps fell to bankruptcy at 13 to 36 percent higher rates that similarly risky investments (the third column of the chart below). Peristani also found that the problem grew significantly around the time of the financial crisis.
• The Biggest 10-Year Trend In Currency Markets Has Come To An End.
• Epic Italian Retail Sales Collapse. (graph)
  

Zero Hedge:

• And The Hits Just Keep On Coming: Spain Sees €31 Billion Deposit Outflow In April. (graph)
• Einhorn Eviscerates Buffet: "If You Wrap Up All $100 Bills In Circulation, It Would Form A Cube 74 Feet Per Side".
• JPM(JPM) Max Pain At 6 Month Highs. (graph)
• European Bloodbath Continues. (graphs)
  

Heartland.org:

• FHA Subprime Defaults Hit 9% in California; Climbing Elsewhere. The American taxpayer is about to be saddled with another multi-billions bailout of subprime mortgage loan losses from the stealth Federal Housing Authority lending program that has been offering ultra-low 3.5 percent down payments since 2009. Delinquency rates are already at 9 percent in California and expanding rapidly across the United States.

Reuters:

• BoE's Fisher Says Can't Rule Out Euro Break Up: Paper. A break up of the euro zone cannot be ruled out, Bank of England policymaker Paul Fisher was quoted as saying on Wednesday, amid growing jitters about the stability of the single currency bloc. In an interview with the Leicester Mercury, Fisher, who sits on the BoE's Monetary Policy Committee and Financial Policy Committee for regulation of the wider financial system, was quoted as saying that the impact of a euro break up would depend on how it was handled by European authorities."No one is trying to anticipate a euro break-up, but you just can't rule it out," he said. His comments come after Prime Minister David Cameron and finance minister George Osborne met with BoE Governor Mervyn King and bank regulator Adair Turner to discuss contingency plans for a possible break-up of the euro zone.
• Anti-Bailout SYRIZA Party in the Lead: Greek Poll. The outcome of an election in Greece next month that may determine whether Athens can stay in the euro was thrown into doubt on Wednesday when a poll suggested the anti-bailout SYRIZA party would win, contradicting six previous forecasts. The poll, by VPRC for Epikaira magazine, showed SYRIZA, a radical leftist party which says it wants the debt-laden country to remain in the euro but to ditch austerity, would win 30 percent of the vote if elections were held now.The same poll put the pro-bailout conservative New Democracy party in second place with 26.5 percent of the vote. That was consistent with a previous VPRC forecast last week that also showed SYRIZA in the lead, with 28.5 percent, and New Democracy second with 26 percent. If Wednesday's result were repeated in a parliamentary election on June 17, it would be almost impossible to form a government without the participation of SYRIZA. SYRIZA's stated aim of jettisoning the international bailout deal and the tough austerity measures that went with it is a scenario that the country's international lenders have made clear is unacceptable, raising fears that Greece might be forced out of the single currency in chaotic fashion.
• Image Shows Buildings Gone at Iran Site: Diplomats. U.N. nuclear inspectors displayed new satellite imagery on Wednesday indicating that some small buildings had been dismantled and other possible clean-up work undertaken at an Iranian military site they want to visit. One image from May 25 showed signs that "ground-scraping activities" had taken place at the Parchin facility, as well as the presence of a bulldozer, according to diplomats who attended a closed-door briefing by U.N. nuclear agency officials. This will likely further strengthen Western suspicions that Iran is "sanitizing" the site of any incriminating evidence before allowing the International Atomic Energy Agency (IAEA) into the complex. "It is very clear," one Western envoy said.

Telegraph:

• Europe's Money Contracts Again. (graph) Very quickly, today's ECB data shows that Euroland's money supply is contracting again. M3 fell by €51bn in April. M1 fell by €55bn. Private credit fell €55bn. I don't yet have the country breakdown. My guess is that the Club Med implosion is grim.
• Dublin forecasts 60pc of voters will back EU fiskalpakt. Ireland’s government is confident of victory in Thursday's eurozone fiscal pact referendum as secret official polling forecasts that over 60pc of Irish voters will tick the Yes box.

Die Welt:

• Goldman Sachs Group Inc.(GS) chief economist Jan Hatzius warned against Greece exiting the euro as depositors in other countries might pull funds from banks on concern their nation could leave the common currency. Austerity measures in some European countries have stifled economic growth and Germany needs to accept a period of inflation to support other states, citing Hatzius in an interview.
  

El Economista:

• Spain's stock market regulator CNMV doesn't rule out another ban on short-selling of financial stocks, citing comments made by Julio Segura, head of the CNMV. The decision would only be taken along with the European Securities and Markets Authority, Segura said.
  

MoneyNews:

• Canada Seen Headed for US-Style Housing Collapse. Canadian home prices have been soaring thanks to loose credit and a solid economy, though excessive demand in the sector may send home prices eventually collapsing similar to the U.S. bust a few years ago, experts say. With mortgage loans under 3 percent, rising home prices suggest many Canadians are spending beyond their means, which serves as the building blocks for a collapse. "What we are seeing is the irrational exuberance that was present in the U.S.," says David Madani, a former Bank of Canada analyst now with the consultancy Capital Economics, the Christian Science Monitor reports.

Bear Radar

Style Underperformer:

• Mid-Cap Growth -2.02%

Sector Underperformers:

• 1) Oil Tankers -5.42% 2) Homebuliders -4.75% 3) Oil Service -4.35%

Stocks Falling on Unusual Volume:

• MBT, RIO, BAC, EGO, JOSB, BPOP, TSCO, RIMM, EBAY, PSSI, MFRM, LOGI, PRGS, SHLD, ROSG, CALL, CRZO, LOPE, ENDP, FINL, VRA, CRUS, MCRS, WWWW, IYE, UDR, KMX, TOL, SJT and TEA
  

Stocks With Unusual Put Option Activity:

• 1) CSC 2) FB 3) TOL 4) HBAN 5) BK
  

Stocks With Most Negative News Mentions:

• 1) OMC 2) PWRD 3) PCX 4) MHO 5) RIMM
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value -1.21%

Sector Outperformers:

• 1) Utilities -.11% 2) Drugs -.65% 3) Gold & Silver -.72%

Stocks Rising on Unusual Volume:

• TFM, VRTX, BAH, ENS and VHC
  

Stocks With Unusual Call Option Activity:

• 1) FB 2) AUXL 3) ONXX 4) DRI 5) M
  

Stocks With Most Positive News Mentions:

• 1) M 2) SAFM 3) AKAM 4) BA 5) WYNN
  

Charts:

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

Wednesday Watch

Evening Headlines
Bloomberg:

• Euro Slides Toward 2-Year Low Amid Spain Bank Concerns. The euro fell to an almost two-year low after Spain’s borrowing costs climbed as the nation struggles to rescue its troubled banks, fueling concern Europe’s debt crisis is spreading. The European currency was poised for the biggest monthly decline since September after Bank of Spain Governor Miguel Angel Fernandez Ordonez resigned a month early amid criticism over the May 9 nationalization of Bankia group, Spain’s third- biggest lender. The dollar gained versus peers before data this week forecast to show consumer confidence remained weak and the jobless rate rose across the 17 nations that share the euro. Australia’s dollar fell after retail sales decreased. “Spanish yields have risen to the extent that the nation can’t raise funds easily, and a further gain in the yields will increase the possibility” that the country will require a bailout, said Kengo Suzuki, a foreign-exchange strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. “Even from the perspective of its economic fundamentals, the euro is susceptible to selling.”
• Greek Opinion Poll Shows Majority Want to Revise Bailout Terms. Most Greeks want to see terms for an international financial rescue revised, according to an opinion poll conducted weeks before a second general election on June 17. Nearly eight in 10, or 77 percent, of the 1,600 Greeks surveyed by GPO for Athens-based Mega TV, said the terms of the bailout should be revised. The poll results were broadcast on Mega TV. Most Greeks, or 81 percent, said they wanted to remain in the single currency, the poll showed. More than half, or 52.4 percent, said they should stay in the euro if they were forced to accept the current austerity measures accompanying the bailout while 44.5 percent said they shouldn't. The poll showed Greeks divided on whether they would leave the euro area, with 48 percent saying there was a low possibility compared with 45 percent saying the possibility was high.
• EU Won't Treat Irish as Greeks If They Vote 'No". The eyes of the world are on elections in Greece next month that could determine whether it defaults and triggers contagion throughout the euro area. By contrast, Ireland’s referendum tomorrow on whether to ratify Europe’s new fiscal treaty is passing almost unnoticed. That’s odd, because although Ireland can’t veto the pact -- its full name is the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union -- the government is warning voters that the very same thing could happen here as in Greece.
• Greece Exit From Euro Seen Exposing Flaws of Deposit Guarantees. The threat of Greece exiting the euro is exposing flaws in how banks and governments protect European depositors' cash in the event of a run. National deposit-insurance programs, strengthened by the EU in 2009 to guarantee at least 100,000 euros, leave savers at risk of losses if a country leave the euro and its currency is redenominated. The funds in some nations also have been depleted after they were used to help bail out struggling lenders, leading policy makers to consider implementing an EU-wide protection plan. "These schemes were not designed to deal with a complete meltdown of a banking system," said Andrew Campbell, professor of international banking and finance law at the Univ. of Leeds in the U.K. and an adviser to the International Assoc. of Deposit Insurers. "If there's a systemic failure, there needs to be some form of intervention."
• Spain Ejects Clean-Power Industry With Europe Precedent: Energy. Spanish renewable-energy companies that once got Europe’s biggest subsidies are deserting the nation after the government shut off aid, pushing project developers and equipment-makers to work abroad or perish.
• Mercedes Laying Off 1,500 Workers in Brazil as Sales Fall. Daimler AG (DAI)’s Mercedes-Benz, Brazil’s second biggest truck and bus manufacturer by market share, said it’s laying off 1,500 workers in Brazil for five months to adjust output to a drop in sales. All affected employees work at Mercedes’ plant in Sao Bernardo do Campo, Brazil, the company said today in an e-mailed statement. The company employs about 14,000 workers in Brazil, where it has 25.5 percent of the truck and bus market, according to data from the country’s dealerships association, known as Fenabrave. The Sao Bernardo do Campo unit is Daimler’s biggest manufacturing facility outside Germany, according to the company’s website. Declines in truck and bus sales “created the need to reduce production” and a larger-than-needed workforce caused the layoffs, Mercedes said in the statement. Truck and bus sales fell 28 percent in the first two weeks of May from a year earlier, according to Fenabrave.
• RIM(RIMM) Shares Plunge After Company Reports Surprise Operating Loss. Research In Motion Ltd., reeling from sluggish BlackBerry sales, forecast a surprise operating loss for the first quarter and hired banks to advise on strategic options. The shares tumbled 15 percent in late trading. JPMorgan Chase & Co. and RBC Capital Markets have been hired to help RIM evaluate options, including forging partnerships, licensing its software and looking at "strategic business model alternatives," the Waterloo, Ontario-based company said today in a statement. RIM also is attempting to streamline operations by reducing spending and headcount.
• Syrian Diplomats Expelled as Houla Massacre Spurs Annan Mission. The U.S. joined its Western allies in expelling top Syrian diplomats, blaming the regime-backed Shabiha militia for the "vile, despicable" massacre of women and children in the town of Houla.
• Wells Fargo(WFC) Promises More Than $435 Million to End Memphis Suit. Wells Fargo & Co. (WFC), the largest U.S. home lender, pledged more than $435 million in mortgage credit and investments to end a discrimination lawsuit brought by Memphis, Tennessee.
• How Political Clout Made Banks Too Big to Fail. The U.S. has historically kept the financial sector in check through a combination of sound principles and serendipitous decisions. But as the financial system gained strength in recent years, it also gained political influence. In the last decade, it has become too concentrated and too powerful, which has damaged not only the economy but the financial sector itself. How did it happen?
• Japan’s Currency Chief Sees Threat From Very Rapid Gains in Yen. “Very rapid” gains in the yen are “counter-productive” and Japanese officials are closely monitoring the foreign-exchange market, the nation’s top currency official said. “The disorderly and speculative movement of any currency is not constructive” for economic growth, Vice Finance Minister Takehiko Nakao said in an interview yesterday in Hong Kong, where he’s attending a meeting of the Financial Stability Board. This is especially so for Japan as the nation recovers from last year’s earthquake and tsunami, he said.
• Rubber Inventory Rising in China as Slowdown Cuts Demand. Rubber stockpiles in China’s Qingdao port, the main shipment hub for the commodity used in tires, are starting to expand as demand slows in the world’s largest consumer, said the Qingdao International Rubber Exchange Market. “Demand from downstream tire makers seems to be weak at the current stage, so destocking has slowed down,” said exchange chairman Li Xiangou, who correctly forecast in March that high inventories may pressure prices. Futures have plunged 50 percent from a record in February 2011, cutting costs for tire makers such as Bridgestone Corp. (5108), Goodyear Tire & Rubber Co. (GT) and Michelin & Cie. Prices slumped as China, the biggest car market, expanded last quarter at its slowest pace in almost three years and Europe struggled to contain its debt crisis. Chinese vehicle sales dropped 1.3 percent in the first four months, the worst performance since 1998, says the China Association of Automobile Manufacturers. The market “has yet to come to terms with a scenario where Chinese demand is diminishing faster than anticipated,” said Wang Chen, head of research at commodity hedge-fund Hangzhou Dunhe Investment Co. “Weak auto sales in China, especially falling sales of trucks, coincide with a lackluster market in the U.S. and Europe, and may lead to a glut of the commodity that hasn’t yet been reflected in prices.”

Wall Street Journal:

• Confusion Surrounds Giant IPO. A $6 billion listing of a giant Chinese state-owned insurer is taking on new twists and turns as bankers gear up for an increasingly taxing deal. In addition to previous demands that already have raised eyebrows among bankers, People's Insurance Co. (Group) of China Ltd. is now asking banks that want to be on the deal to seek so-called cornerstone investors, according to people familiar with the matter.
• Romney Says Win Secures GOP Nod. Mitt Romney Tuesday night claimed his win in the Texas primary gives him the requisite number of delegates to clinch the Republican presidential nomination. "I am honored that Americans across the country have given their support to my candidacy and I am humbled to have won enough delegates" to be the GOP nominee, Mr. Romney said in a statement.

Business Insider:

• Tim Cook On Facebook, The iPad, And Just About Everything Else.
• A Controversial New Bill Could Force Hospitals To Provide Free Care In Illinois.
• Here Are The Most In-Demand Jobs Around The World Right Now.
• More And More People Think That The Next Debt Ceiling Fight Will Be A Catastrophe.
• The Arab Spring Created A Bunch Of Mini Irans.

Zero Hedge:

• On Europe: "A Willing Lender Of Last Resort May Not Be Enough".
• Housing Recovery - Hope and Reality. (graphs)
• ECB Calls Spain's Bluff... Or Does It? And Did Europe Just Check To The Fed?.

CNBC:

• Asia’s Message to Europe: Bite the Bullet and Implement Reforms. Europe should be “realistic,” devalue its currency and bear the pain of reforms so that it can emerge from the debt crisis stronger like Asia did in 1997, said Bank of Thailand’s Governor Prasarn Trairatvorakul.
• Sun to Set on Commodities Super-Cycle: Morgan Stanley(MS). The massive commodities boom of the past decade is at its tail end given the slowdown in one of the largest consumers, China, says Ruchir Sharma, Head of Emerging Markets at Morgan Stanley Investment Management. “China's growth is downshifting to a lower plain, its very commodity-intensive phase of growth is coming to an end. This to me marks a big decade of increase in commodity prices coming to an end,” Sharma told CNBC Asia’s “Squawk Box” on Wednesday. “I suspect that we're headed now for two decades down as far as commodity prices are concerned. This is the sunset of the big commodities super-cycle,” he said.

NY Times:

• Challenges Mount for Chinese Maker of Electric Cars. Four years ago, the BYD Company promoted the electric battery technology it was developing as a way to help China transform the automobile. No less an investor than Warren E. Buffett, one of the world’s richest men, boasted about the company’s prospects and bought a 10 percent stake.

Forbes

• Six Solyndras: Obamacare Blows $3 Billion on Faulty CO-OP Insurance Loans.

Reuters:

• Facebook(FB) faces extended U.S. review of Instagram deal. Facebook has received notice that U.S. antitrust regulators will give its proposed purchase of the popular photo-sharing app maker Instagram a lengthy investigation, an industry source told Reuters on Tuesday. Facebook has received a "second request" from the Federal Trade Commission, essentially a request for relatively large amounts of data that the regulators will sift through to ensure that the deal complies with antitrust law. A prolonged review adds another headache to the No. 1 social network, whose shares on Tuesday slid below $29 to a new low as nervous investors continued to show their concerns about Facebook's long-term business prospects and rich initial public offering price of $38.
• Apple(AAPL) CEO wants to make more products in U.S. Apple Inc Chief Executive Tim Cook said he would like to see more of the company's products assembled at home than in China and contain more U.S. components such as semiconductors.
• 'Corzine rule' proposed for futures brokers. Futures brokers would need to get approval from a top executive before making big withdrawals from customer accounts under a rule now pending and referred to in the industry as the "Corzine rule", after MF Global's former CEO Jon Corzine.

Financial Times:

• ECB Rejects Madrid Plan to Boost Bankia. A Spanish plan to recapitalise Bankia, the troubled lender, by indirectly tapping the European Central Bank for cash, was bluntly rejected as unacceptable by the ECB, European officials said. News of the rejection came as Spain faces elevated borrowing costs in the bond markets, tries to persuade investors it can contain problems in a banking sector weighed down by €180bn of bad property loans and, on Tuesday, saw its central bank governor stand down early.

Telegraph:

• Spanish data underscore dangerous economic slide. Spanish retail sales plunged a record 9.8pc last month underscoring a dangerous economic slide that could derail Madrid's efforts to shore-up its banks and struggling regions.
• Christine Lagarde attack on Greece backfires as she pays no tax. Christine Lagarde, the International Monetary Fund managing director who provoked an angry reaction from the Greek people after telling them to pay their taxes, does not pay tax on her own salary, it has emerged.

Capital.gr:

• EU May Extend To 2014 Deadline For Spain To Reach 3%-Of-GDP Deficit -Report. The European Commission will ask European Union finance ministers to grant an additional year to Spain to reach a deficit target of 3% of its gross domestic product, extending the deadline to 2014 from 2013, El Pais reported in its Wednesday Internet edition, citing an EU draft document. The broader flexibility to meet budgetary-deficit objectives, however, is conditioned on speeding up the increase in Spain's retirement age, increasing the taxable base of the value-added tax and ensuring regional governments comply with the country's stability program, among other things, the paper reported. Brussels will also demand that Spain create an independent fiscal institution--already in place in countries such as Sweden and the U.K.--to carry out analyses, give advice and control Spain's fiscal policy, the report said.

South China Morning Post:

• The European Union Chamber of Commerce interviewed 557 cos. and almost a quarter said they may move their operations from China to other developing countries because of rising labor costs and a change in regulations, citing Davide Cucino, the chamber's president. More than 40% of respondents said China's policies related to foreign-invested cos. were less fair than they were two years ago. Almost 60% expected the country's labor costs to rise in the next two years, it said.

Hunan Daily:

• Chinese Premier Wen Jiabao said the country faces increasing downward economic pressure, citing a speech by Wen.

Evening Recommendations
Citigroup Global Markets:

• Upgraded (LNKD) to Buy, target $125.

Night Trading

• Asian equity indices are -1.0% to -.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 193.0 -1.75 basis points.
  
• Asia Pacific Sovereign CDS Index 160.75 unch.
  
• FTSE-100 futures -.61%.
  
• S&P 500 futures -.46%.
  
• NASDAQ 100 futures -.43%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (TFM)/.36
• (BAH)/.40
• (LGF)/.21

Economic Releases
10:00 am EST

• Pending Home Sales for April are estimated unch. versus a +4.1% gain in March.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Rosengren speaking, Fed's Dudley speaking, Fed's Fisher speaking, Italy 10Y Bond auction, ECB's Draghi speaking, weekly MBA Mortgage Applications report, Sanford C. Bernstein Strategic Decisions Conference, Lazard Alt Energy Conference, Cowen Tech/Media/Telecom Conference and the (RDC) investor day could also impact trading today.
  

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

Stocks Rising into Final Hour on China Stimulus Hopes, Short-Covering, Bargain-Hunting

Broad Market Tone:

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

Equity Investor Angst:

• VIX 21.74 -.09%
  
• ISE Sentiment Index 102.0 unch.
  
• Total Put/Call 1.04 -4.59%
  
• NYSE Arms .59 -34.02%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 116.84 -.17%
  
• European Financial Sector CDS Index 289.95 -1.4%
  
• Western Europe Sovereign Debt CDS Index 314.0 -.49%
  
• Emerging Market CDS Index 321.65 +.40%
  
• 2-Year Swap Spread 34.25 +1.0 basis point
  
• TED Spread 39.0 +.5 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -47.25 -2.75 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .08% unch.
  
• Yield Curve 145.0 unch.
  
• China Import Iron Ore Spot $132.50/Metric Tonne +1.38%
  
• Citi US Economic Surprise Index -30.20 -4.6 points
  
• 10-Year TIPS Spread 2.12 -2 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating a -31 open in Japan
• DAX Futures: Indicating -3 open in Germany
  

Portfolio:

• Higher: On gains in my Retail and Tech sector longs
  
• Disclosed Trades: Added to my (IWM), (QQQ) hedges, added to my (EEM) short
  
• Market Exposure: Moved to 50% Net Long

BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades higher despite rising Eurozone debt angst, less US economic optimism, the ongoing decline in (FB) shares and rising global growth fears. On the positive side, Coal, Oil Service, Alt Energy, Steel, Semi, Networking, I-Banking and Construction shares are especially strong, rising more than +1.25%. Cyclical shares have traded well throughout the day. Copper is rising +.4%, Lumber is gaining +.76% and Gold is down -1.24%. Major Asian indices rose around +1.25% overnight, led by a +1.4% gain in South Korea. The France sovereign cds is down -2.0% to 202.32 bps, the Portugal sovereign cds is down -2.1% to 1,163.81 bps and the Saudi sovereign cds is down -1.9% to 131.42 bps. On the negative side, Computer Hardware, Medical, Biotech, Drug, HMO and Road&Rail shares are lower-to-slightly higher on the day. Major European indices are mixed, as a +1.1% gain in Germany is being offset by a -2.35% decline in Spain. Spain is now down -6.2% in 5 days and down -27.0% ytd, which remains a huge red flag. The Bloomberg European Bank/Financial Services Index is down -.35%. This index is down -3.3% in 5 days and down -24.1% since March 19th. The Italian/German 10Y Yld Spread is rising +.69% to 440.70 bps(+7.2% in 5 days). US Rail Traffic continues to soften. The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its late-December peak. Moreover, the Citi US Economic Surprise Index has fallen back to late-Sept. levels. Lumber is -1.0% since its Dec. 29th high despite improving sentiment towards homebuilders and the broad equity rally ytd. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite expectations for a strong spring home selling season. The Baltic Dry Index has plunged around -55.0% from its Oct. 14th high and is now down around -40.0% ytd. China Iron Ore Spot has plunged -26.8% since Sept. 7th of last year. Shanghai Copper Inventories have risen +239.0% ytd. The CRB Commodities Index is now technically in a bear market, having declined -24.0% since May 2nd of last year. Overall, recent credit gauge deterioration remains a big worry as most key sovereign cds remain technically strong despite today's mixed performance. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. US stocks are continuing to rebound after early-month losses, however the quality of the rally is lacking so far. There are few big-volume/gainers and the devastated commodity-related stocks are leading. The 10Y T-Note isn’t selling off at all, copper isn't participating in the equity advance and the euro can’t sustain even a bounce. While stocks were very oversold and may bounce further in the short-term, I still believe there is still too much uncertainty on the horizon to conclude a durable low is in place. Spain is rapidly approaching full-blown crisis. I still don’t hear any viable “solutions” to the European debt crisis and it is really beginning to bite emerging market economies now, which will further pressure exports from the region and further raise the odds of more sovereign/bank downgrades. I do not believe China will be able to provide the large stimulus package investors seem to crave given the extent of their real inflation/local govt debt issues. As well, the "US fiscal cliff "will become more and more of a focus for investors as the year progresses. For this year's equity advance to regain traction, I would expect to see a resumption in European credit gauge improvement, a subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices, a US "fiscal cliff" solution and higher-quality stock market leadership. I expect US stocks to trade mixed-to-lower into the close from current levels on rising Eurozone debt angst, rising global growth fears, less US economic optimism and more shorting.

Today's Headlines

Bloomberg:

• Spain Regional Rescue Risk Tipping Point on Yields: Euro Credit. Spain’s plan to help cash-strapped regions sell debt risks piling additional liabilities on the central government as borrowing costs approach the level that pushed other nations into bailouts. The government is under pressure to devise a way to help the nation’s 17 regions regain access to capital markets. Yields on 2013 debt issued by Catalonia, the biggest and most-indebted region, traded at 8.3 percent today, compared with 3.6 percent for equivalent Spanish securities and 4.3 percent for state- guaranteed bonds. Spain is weighing how to rescue the regions as the rate on its 10-year debt moves closer to the 7 percent level that led Greece, Ireland and Portugal to seek aid from the European Union and the International Monetary Fund. The regions, which owe a combined 140 billion euros ($175 billion), are adding to the burden as liabilities swell following the bailout of Bankia group, the country’s third-biggest lender. “Some kind of central-government funding that gets disbursed to the regions is probably the most cost-effective way to do it,” said Harvinder Sian, a London-based fixed-income strategist at Royal Bank of Scotland Group Plc. “The problem is loading up on extra issuance at this point where the market is fragile; it could be a tipping point to get you toward 7 percent.”
• Rajoy Seeks European Backing as Spain's Access Narrows. Spain backtracked on a plan to use government debt instead of cash to bail out Bankia, as Prime Minister Mariano Rajoy struggles to shore up the nation’s lenders without overburdening public finances. An Economy Ministry spokesman said yesterday that the government was considering using an injection of treasury debt instead of cash to recapitalize BFA-Bankia, as laid out in legislation approved in February. Spanish bond yields rose and investors criticized the idea, which the spokesman, speaking anonymously under ministry policy, said today had become a “marginal” option for the 19 billion-euro ($24 billion) rescue.
• Spain Delays and Prays That Zombies Repay Debt: Mortgages. Spanish banks are masking their full exposure to soured property loans while they continue to prop up zombie developers, leading to credit-rating downgrades and plummeting share prices. Spain is working to clean up its banks, requiring lenders set aside more for possible losses on loans deemed performing to developers like Metrovacesa SA (MVC), which hasn’t completed a project in more than a year and has none under way. While that represents about 30 billion euros ($38 billion) of increased provisions, it’s not enough because many loans said to be performing aren’t being repaid, according to Mikel Echavarren, chairman of Irea, a Madrid-based finance company specializing in real estate. “Spain has engaged in a policy of delay and pray,” Echavarren said in an interview. “The problem hasn’t been quantified by anyone because there is huge pressure not to tell the truth.”
• Greek Euro Exit Aftershocks Risk Reaching China. Greece, responsible for 0.4 percent of the world economy, now poses a threat to international prosperity as investors raise bets its days using the euro are numbered. A Greek departure from the currency would inflict “collateral damage,” says Pacific Investment Management Co.’s Richard Clarida, a view echoed by economists from Bank of America Merrill Lynch and JPMorgan Chase & Co. At worst, it could spur sovereign defaults in Europe as well as bank runs, credit crunches and recessions that may spark more euro exits. Global trade and financial ties mean the pain wouldn’t be confined to the euro area. JPMorgan Chase estimates a 1 percentage point slump in the euro countries’ economy drags down growth elsewhere by 0.7 percentage point. Exporting nations from the U.K. to China would suffer and commodity producer Russia would face falling oil prices. While the U.S. may fare better, even it would feel echoes similar to the financial infection following the bankruptcy of Lehman Brothers Holdings Inc.
• Spain Banks Are 'Done and Dusted,' Savoldelli Says. (video) Fabio Savoldelli, finance professor at Columbia University, talks about hedge-fund strategy for Europe and the region's debt crisis.
  
• China Has No Plan For Large-Scale Stimulus, Xinhua Says. China has no plan to introduce stimulus measures on the scale deployed during the global financial crisis to counter this year’s economic slowdown, the official Xinhua News Agency reported. “The Chinese government’s intention is very clear: It will not roll out another massive stimulus plan to seek high economic growth,” Xinhua said yesterday in the seventh paragraph of a Chinese-language article on economic policy, without attributing the information. “The current efforts for stabilizing growth will not repeat the old way of three years ago.” The Xinhua article made no mention of central bank tools including interest rates and the reserve-requirement ratio, previously used to bolster growth. It carried the byline of two reporters and wasn’t labeled as opinion or commentary. Pumping in government money to achieve growth targets is “not sustainable” and China will instead focus on encouraging private investments in railways, infrastructure, energy, telecommunications, health care and education, the story said.
• China Investment Appeal Waning Adds to Wen's Challenge. China’s rising labor costs and a deteriorating regulatory environment are prompting almost a quarter of European Union companies to consider shifting investments to other countries, a survey showed. Twenty-two percent of 557 respondents said they may move investment to developing economies including those in Southeast Asia and South America, where doing business is easier, according to a confidence survey conducted in February by the EU Chamber of Commerce in China and Roland Berger Strategy Consultants and released today in Beijing.
• FHFA Index release showed half of U.S. states' housing prices have yet to bottom out; housing will continue to pressure state/local govt budgets, writes RBC Capital Markets Municipal strategist Chris Mauro. Housing market strength has been concentrated in agricultural, resource rich states, he said.
• Consumer Confidence In U.S. Fell in May to Four-Month Low. Confidence among U.S. consumers unexpectedly fell in May to the lowest level in four months as optimism about employment prospects faded. The Conference Board’s index decreased to 64.9 this month from a revised 68.7 in April, figures from the New York-based private research group showed today. The share of Americans expecting fewer job opportunities in the next six months climbed to the highest level since November, raising the risk that consumers will limit spending. A 30-cent decline in gasoline prices since early April failed to brighten spirits, showing that more progress is needed in the job market. The Conference Board’s measure of present conditions decreased to 45.9, the weakest reading since January, from 51.2 a month earlier. The gauge of expectations for the next six months fell to 77.6 from 80.4. “Taken together, the retreat in the present situation index and softening in consumer expectations suggest that the pace of economic growth in the months ahead may moderate,” Lynn Franco, director of economic indicators at the Conference Board, said in a statement. The share of consumers who said jobs are currently plentiful decreased to 7.9 percent from 8.4 percent. Those who said jobs are hard to get climbed to 41 percent from 38.1 percent.
• Home Prices in U.S. Fall Again in March. The S&P/Case-Shiller index of property values fell 2.6 percent from a year earlier after a 3.5 percent drop in February, the group reported today in New York. The decline matched the median forecast of economists surveyed by Bloomberg News.
• Miami Hedge Fund Misled Clients About Managers' Stake, SEC Says. A Miami-based hedge fund and two of its executives agreed to pay almost $3 million to resolve U.S. regulatory claims that they deceived investors about their own stake in the fund and failed to disclose conflicts of interest. Quantek Asset Management LLC falsely represented that it had “skin in the game” along with investors in a $1 billion Latin America-focused hedge fund from 2006 to 2008, the U.S. Securities and Exchange Commission said today in an administrative order. Quantek, which made the claims in due diligence questionnaires and so-called side-letter agreements, also didn’t properly disclose loans to one of the executives and its former parent company, Bulltick Capital Markets Holdings LP, the SEC said.
• Facebook(FB) Shares Slump Below $30 As Options Trading Starts. Facebook Inc. (FB) shares fell to a new low, extending losses from the worst-performing large initial public offering during the past decade to more than 20 percent. The stock fell 7.4 percent to $29.55 as of 12:07 p.m. in New York, below the prior low of $30.94 on May 22. Facebook debuted on May 18 after underwriters sold shares at $38.

Wall Street Journal:

• Flat U.S. Wages Help Fuel Rebound in Manufacturing. The celebrated revival of U.S. manufacturing employment has been accompanied by a less-lauded fact: Wages for many manufacturing workers aren't keeping up with inflation. The wage lag is a key factor contributing to the rebounding competitiveness of U.S. industry. A recent uptick in factory employment and the return of some production to U.S. shores from abroad both added jobs that probably otherwise wouldn't exist. But sluggish wages also are squeezing workers' incomes and spending. That, in turn, hurts retailers who target middle-income earners and restrains the vigor of the economic recovery.
• BofA(BAC)-Merrill Analysts Slash Estimates On Investment Banks. Bank of America Merrill Lynch analysts this morning have slashed earnings estimates on J.P. Morgan, Goldman Sachs, Morgan Stanley and Citigroup, warning about weak investment banking revenues. The analysts, led by Guy Moszkowski, warn that the first-quarter revenue improvement “did not represent sustained industry inflection point,” and that several other larger fears have now contributed to concerns as well. Those include the ongoing European mess, the impact on regulations from J.P. Morgan’s trading losses and Moody’s looming threat of downgrades. All of that could keep bank shares “range-bound” for the summer months.
• Chinese Banks Back Away From Europe Lenders. Some of China's biggest banks have cut off a handful of their European counterparts from borrowing and derivatives trading as they seek to reduce their exposure to the simmering crisis on the Continent, people familiar with the matter said. Chinese state-owned banks including Industrial & Commercial Bank of China Ltd., Bank of China Ltd. and Bank of Communications Co. have scaled back their dealings with France's Société Générale SA, BNP Paribas SA and Crédit Agricole SA and at least in one case with Switzerland's UBS AG, people familiar with the matter said.
• Union Urges No Vote on Caterpillar(CAT) Offer. Union leaders at a Caterpillar Inc. plant here say they will urge striking workers to reject a slightly revised contract offer from the maker of construction and mining equipment. "It's still a terrible contract," Tim O'Brien, president of the local branch of the International Association of Machinists and Aerospace Workers, or IAM, said in an interview on Tuesday. The workers, who have been on strike for a month, are due to meet Wednesday morning to vote on the latest Caterpillar offer. Mr. O'Brien said about 780 workers are out on strike.

MarketWatch:

• Spain Pressured as Market Weighs Bankia Fallout. Bankia SA shares recovered some of a nearly 30% drop on Monday, but stayed significantly lower as markets got the first chance to react to news of a bigger-than-expected bailout need for the troubled lender and mulled the broader implications for the euro-zone crisis. Shares of Bankia (ES:BKIA), which had been suspended Friday ahead of that bailout news and took several minutes to begin trading on Monday, sank to an all-time low of €1.11 at one point, but ended off 13% to €1.36, according to FactSet Research.
• Are T-Bonds Sending Us a Warning?
  

CNBC.com:

• Big Shift in ECB Balance Sheet a Sign of Banking Stress?

Business Insider:

• 50 Brands That Are Changing Our World.
• The Governor Of The Bank Of Spain Will Leave His Post Early After Charges Of 'Grave Misconduct' Over Bankia.
• Chart: Here's Why Renewable Energy Has Miles To Go Before It Leaps Into Mainstream.
• This is the Report That Might Be Freaking Everyone Out About Europe Right Now.
• Dallas Fed Manufacturing Report Plunges to -5.1(analysts expected 3.0).
• Just Keep Refreshing This Page Every Day For The Rest Of The Week.
• Spanish Retail Sales Have Their Largest Collapse In History. (graph)
  

Zero Hedge:

• Is Germany's CDS Pricing a 6% EUR Devaluation? (graph)
• Egan Jones Cuts Spain Again: From BB- to B, Outlook Negative.

Fiscal Times:

• JPMorgan's(JPM) Loss: What Banks Still Haven't Learned by Knowledge@Wharton.

Reuters:

• Lower Rates Give No Respite To Brazil Stocks. In normal times, an aggressive central bank campaign to cut interest rates would provide fodder for stock market bulls. That’s not happening in Brazil. Its interest rate, the Selic, has fallen 350 basis points since last August and is likely to fall further at this week’s meeting to a record low of 8.5 percent. Yet the Sao Paulo stock market is among the world’s worst performers this year, with losses of around 4 percent. That’s better than fellow BRIC Russia but far worse than India and China.
• The Future of the Euro is at Stake: Spanish Deputy PM. Europe must move quickly with measures to pull Spain back from the brink of a debt crisis, with the future of the euro common currency at stake, Spanish Deputy Prime Minister Soraya Saenz de Santamaria said. Saenz, a long-time politician in the centre-right People's Party, spoke with Reuters Editor-at-Large Harold Evans during a critical week for Spain as it seeks to fund a 19-billion-euro rescue of one of its biggest banks and the country's autonomous regions face a liquidity crunch.
• Hedge Funds Take Bets Against Core Euro Zone Bonds. Hedge funds are piling into bets against the bonds of core euro zone countries like Germany and France, signaling a growing fear that nations once considered safe havens could be dragged down by the crisis in peripheral states like Greece and Spain. After a buoyant first quarter for markets, when fears over the euro zone debt crisis receded thanks to a 1-trillion-euro ($1.3 trillion) cash boost from the European Central Bank, hedge funds have been quick to make sure they don't miss out as concerns over the future of the single currency resurface. Rather than bet on the likes of Greece and Spain, whose problems are now well documented, funds are shorting the bonds of core countries as a so-called 'tail hedge' - the purchase of protection against extreme events such as the launch of eurobonds, which would drive up the cost of borrowing for Germany, or even a break up of the currency bloc.

Telegraph:

• Spain's Rajoy Fights Losing Battle to Stave Off EU Rescue. Spanish premier Mariano Rajoy has given a fateful hostage to fortune. He told the nation that there will no EU rescue of Spain's banking system, even as `Black Monday' brought a further crash in bank shares and the IBEX index dropped to nine-year lows.
• Debt Crisis: A $46 Trillion Problem Comes Sweeping In. Bad stuff, they say, comes in threes. We've already got the banking and the eurozone sovereign debt crises. Next comes the corporate funding crisis.

Capital.gr:

• Spain Debt Insurance Costs Near Record High. The cost of insuring Spanish debt against default was brushing its record highs Tuesday, as the troubles of its banking sector continue to concern investors. At around 0750 GMT, five-year credit default swaps on Spain were at 554 basis points, three basis points off the record high closing level of 557 basis points reached late Monday, according to data-provider Markit. On Monday, the yield on Spanish 10-year government bonds touched 6.5%. Italy's debt insurance costs rose two basis points to 521 basis points ahead of a sizeable, up to ER8.5 billion, six-month paper auction, while other European countries CDS spreads were more mixed. France was five basis points tighter at 200 basis points and Germany was stable at 99 basis points, just below the psychological threshold of 100 basis points. The iTraxx SovX Western Europe index of 15 European sovereigns was one basis point tighter at 315 basis points.

Valor Economico:

• Brazil's President Dilma Rousseff is concerned that the economic crisis in Spain may undermine investments in the Latin American country and will discuss the matter in a meeting with King Juan Carlos next week, citing a government official. In the first four months of the year, Spain invested $739 million in Brazil, down from $4.7 billion in the same period a year ago.
  

O Globo:

• The Brazilian government may revoke measures taken since 2010 to weaken the real and curb credit expansion if there are indications of a global collapse.