Stocks Slightly Lower into Final Hour on Earnings Worries, Rising Global Growth Fears, Weak US Housing Data, Consumer Discretionary Weakness

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Mixed
  
• Volume: Around Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 19.23 -6.06%
  
• ISE Sentiment Index 120.0 +42.86%
  
• Total Put/Call .92 +1.10%
  
• NYSE Arms 1.12 -13.16%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 115.37 bps -1.0%
  
• European Financial Sector CDS Index 293.88 bps -2.36%
  
• Western Europe Sovereign Debt CDS Index 280.91 -1.35%
  
• Emerging Market CDS Index 274.49 -2.98%
  
• 2-Year Swap Spread 21.75 -1.0 basis point
  
• TED Spread 35.25 unch.
  
• 3-Month EUR/USD Cross-Currency Basis Swap -43.75 +2.75 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .10% unch.
  
• Yield Curve 118.0 -1 basis point
  
• China Import Iron Ore Spot $118.60/Metric Tonne -3.5%
  
• Citi US Economic Surprise Index -59.60 unch.
  
• 10-Year TIPS Spread 2.0 -1 basis point
  

Overseas Futures:

• Nikkei Futures: Indicating +42 open in Japan
• DAX Futures: Indicating -6 open in Germany
  

Portfolio:

• Slightly Higher: On gains in my Tech, Medical and Biotech sector longs.
  
• Disclosed Trades: None
  
• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• Merkel Ally Says Greece May Need Debt Cut To Stay In Euro. Greece may need a second debt restructuring to stay in the euro, a leading political ally of Chancellor Angela Merkel said. The comments by Norbert Barthle, the Christian Democratic Union’s parliamentary budget spokesman, are the first indication by a senior German official that additional help for Greece may be forthcoming to avert the market turmoil that would be triggered by its exit from the 17-nation currency region. “We should try to keep Greece in the euro zone,” Barthle said by phone today. If action is needed to do so, “not just taxpayers but also private creditors would again be involved in helping Greece, but under strict conditionality,” as under the first restructuring, he said. “Greece must fulfil the terms of its bailout and terms of privatisation.”
• German Business Confidence Fell More Than Forecast in July. German business confidence fell more than economists forecast in July to the lowest in more than two years as the worsening sovereign debt crisis damped the outlook for economic growth and company earnings. The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, dropped to 103.3 from 105.2 in June. That’s the third straight decline and the lowest reading since March 2010. Economists predicted a retreat to 104.5, according to the median of 35 forecasts in a Bloomberg News survey.
• Soros-Backed Group Urges ECB Action, Bank Union to End Crisis. Ending the euro-zone debt crisis requires greater political union and European-level banking insurance as well as more aggressive action by the European Central Bank, a band of economists said. The report by the Institute for New Economic Thinking, a research institute founded by billionaire investor George Soros, rejected calls for permanent joint debt issuance, nor did it endorse fiscal transfers between the 17 members of the currency zone.
• China May Boost Tax On Existing Homes, Securities Says. China may increase the transaction tax on existing homes as the country sends out inspection teams to check on the implementation of property policies, China Securities Journal reported, without saying where it got the information. If China’s home prices continue to rise in coming months and inspection teams find problems, the possibility of new curbs can’t be ruled out, the newspaper reported, citing an unidentified person. Raising transaction taxes for existing homes may come first, according to the report, which didn’t provide additional details. “Prices and sales for existing homes certainly rebounded stronger than first homes,” said Zhao Zhenyi, a Shanghai-based property analyst at Industrial Securities Co. “Sentiment of those landlords played a big role in the market. The government will closely monitor the home and land market before they issue new tightening policies.”
• US New Home Sales Fall to 350K, 5-Month Low. Americans bought fewer new homes in June after sales jumped to a two-year high in May. The steep decline suggests a weaker job market and slower growth could make the housing recovery uneven. The Commerce Department said Wednesday that sales of new homes fell 8.4 percent last month from May to a seasonally adjusted annual rate of 350,000. That's the biggest drop since February 2011. Sales in the Northeast plunged 60 percent in June to the lowest level since November.' sales remain well below the 700,000 annual rate that economists equate with healthy markets.
• China May Refrain From More Easing, IMF Official Says. China may refrain from stepping up its monetary stimulus or increasing spending because measures now in place are sufficient to support growth, the International Monetary Fund’s top official in the nation said. Authorities will probably maintain the “status quo” after already shifting their monetary stance to a “more neutral or accommodating one” and may forgo expanding this year’s budget, Il Houng Lee, 54, the IMF’s senior resident representative in China, said in an interview yesterday in the fund’s Beijing office.
• China’s Stocks Fall to 2009 Low on Property Curbs, IMF Comments. Chinese stocks fell to their lowest level since 2009 as the International Monetary Fund said the country’s economy faces significant downside risks and investors speculated the government won’t loosen property curbs. A gauge of real estate companies slumped 1.9 percent, led by Poly Real Estate Group Co. (600048), as the government said it will send teams across the nation to check that housing curbs are being implemented and the China Securities Journal said transaction charges on the sales of homes may increase. Kweichow Moutai Co. (600519), China’s biggest producer of baijiu liquor by market value, paced gains by consumer-staples producers on earnings optimism. “Property stocks are facing increasing policy risks,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co., which manages about $120 million. “If there are new measures to curb the property market, that’ll limit room for macro policy easing.”
• China’s CIC Has Worst Overseas Performance in 2011 on Growth. China’s sovereign wealth fund said it will invest with a longer-term focus after it posted a 4.3 percent loss on its overseas holdings last year because of declines in global commodity prices. Net income at the $482.2 billion fund, with a resources- heavy portfolio, fell to $48.4 billion in the year ended Dec. 31, Beijing-based China Investment Corp. said in its annual report released yesterday on its website. The overseas investment performance was the worst since the fund was set up in 2007.
• Caterpillar(CAT) Raises Forecast as Construction Demand Climbs. Caterpillar Inc. (CAT), the largest maker of construction and mining equipment, raised its full-year earnings forecast as increasing demand from North American builders and overseas miners bucks an economic slowdown.
  
• Singapore Says Growth May Fall Below 1%; MAS Boosts Reserves. Singapore’s growth may fall below 1 percent should the U.S. and Chinese economies slump and the European crisis worsen significantly, the central bank said as it bolstered reserves to counter market turmoil. The island’s current gross domestic product growth forecast of 1 percent to 3 percent is based on assumptions that there is no recession in the U.S., no significant escalation of the euro zone crisis and no hard landing in China, Monetary Authority of Singapore Managing Director Ravi Menon said today. “If one or more of these assumptions do not pan out, Singapore’s GDP growth could dip below 1 percent this year,” Menon said in a briefing in the city state as the central bank released its annual report. “Growth momentum is clearly slowing.”
• Former Citigroup(C) CEO Weill Says Banks Should Be Broken Up. Sanford “Sandy” Weill, whose creation of Citigroup Inc. (C) ushered in the era of U.S. banking conglomerates a decade before the financial crisis, said it’s time to dismantle the nation’s largest lenders. “What we should probably do is go and split up investment banking from banking,” Weill, 79, said today in an interview on CNBC. “Have banks do something that’s not going to risk the taxpayer dollars, that’s not going to be too big to fail.”

Wall Street Journal:

• Stock Research, For a Select Few. A growing group of Wall Street salespeople and brokers has created a shadow stock-research business that caters to big, fast-money traders but isn't available to retail investors.
• China Shifts Course, Lets Yuan Drop. China's central bank is starting to guide the yuan downward against the dollar after two years of trying to boost its value, reflecting concern in Beijing over China's slowing economy and risking a political fight with the U.S.
• U.K. Quarterly Growth Contracts Sharply. The U.K.'s economy suffered a much larger contraction than expected in the second quarter, heightening questions about the pace and effectiveness of the government's austerity program and fueling the broader debate across Europe about how to tackle the Continent's economic woes.
• For Cities, Default May Not Be Last Resort. Some cash-strapped U.S. cities are walking away from their financial obligations, exposing potential risks in the municipal-bond market.
• Drought Will Raise Food Prices Next Year, USDA Says.
• Lies, Damned Lies, and China's Economic Statistics. China's statisticians get a tough press. After all, it was Europe, not China, whose fudged public finance data helped usher in the latest round of global financial turmoil. The biggest corporate fraud in recent memory isn't China's Sino-Forest, but America's Enron. But a secretive single-party state claiming rapid growth as the rest of the world hovers on the brink of recession naturally arouses suspicion.
  

CNBC.com:

• US Mortgage Applications Rose Last Week: MBA. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, rose 0 .9 percent in the week end ed Jul y 20. The MBA's seasonally adjusted index of refinancing applications rose 1.8 percent, while the gauge of loan requests for home purchases, a leading indicator of home sales, fell 2.8 percent.
• Cash-Strapped French Socialists Face Reality of Austerity. His cash-strapped Socialist government is considering scrapping all but the most needed projects as it is forced to weigh questionable economic benefits in an era of belt-tightening.
• ‘Red Alert’ From Safe-Haven Bond Markets: Barclays.
• European Bank Profits to Fall, Spain Worst Hit.

Business Insider:

• FELDSTEIN: The Best Solution For The Eurozone Is A Super Cheap Euro.
• CBO: Obamacare Is An Expensive Half Loaf.
• REPORT: Colorado Shooting Suspect Sent Details Of Planned Attack To Psychiatrist.
• All Of The Major Risks To China's Economy In One Huge Chart.

Zero Hedge:

• Gary Gensler Explains How CFTC Allowed PFG To Steal $200 MM In Client Funds 8 Months After MF Global.
• RBS Says To Expect A Spanish Sovereign Bailout Request "Within Days".
• Stephen Roach Smokes Crack-Addicted Market "QE3 Is Not Going To Work".
• Egan Jones Triple Hooks Italy: Boots The Boot To CCC+ From B+, Watch Negative.
• Here's Why Earnings Revisions Should Worry You More. (graph)
  

Washington Post:

• Geithner quiet on Barclays’ admission of rigging Libor. Treasury Secretary Timothy F. Geithner has said that he sounded the alarm four years ago to regulators about problems with the benchmark interest rate known as Libor. But Geithner, who was then head of the Federal Reserve Bank of New York, did not communicate in key meetings with top regulators that British bank Barclays had admitted to Fed staffers that it was rigging Libor, according to people familiar with the matter. Instead, regulators at the Commodity Futures Trading Commission and the Justice Department worked largely without the Fed’s help to build a case against Barclays. That work has culminated in a massive scandal rocking the banking industry on both sides of the Atlantic.

Rasmussen Reports:

• Long-Term Optimism About U.S. Economy Falls to New Low. Confidence that the U.S. economy will recover in the next five years has fallen to its lowest level since early 2009. Short-term confidence isn't much better. A new Rasmussen Reports national telephone survey of American Adults shows that just 31% believe the U.S. economy will be stronger in one year. Thirty-five percent (35%) predict a weaker economy by next year, and 18% more say it will be about the same. Seventeen percent (17%) are not sure.

Reuters:

• Gold Jumps Over 1% On Hopes of More Money Stimulus.
• EFSF has 236 bln euros left of 440-bln fund-German FinMin report. The European Financial Stability Facility (EFSF) still has 236.7 billion euros left in its 440-billion euro rescue fund, according to a German Finance Ministry document obtained by Reuters on Wednesday.
• French jobless total close to 13-year high. The number of jobseekers in France rose for the 14th month in a row in June to hit its highest level in nearly 13 years, adding pressure on the new Socialist government, which has made fighting unemployment a top priority.

Financial Times:

• Pork and Chicken Set to Join List of Luxuries. Pork and chicken will join beef on the menu of expensive meats as drought and US ethanol policy combine in a corn “disaster”, the head of the world’s largest pork producer has said. The cost of the main ingredients in animal feed, corn and soyameal, have set records this month as the worst drought in half a century and extreme heat damages crops in the US, the world’s main surplus producer.

Telegraph:

• Weimar solution beckons as manufacturing crashes in US Fifth District? (graphs) The Richmond Fed's twin indices of manufacturing and services – a very good indicator at the onset of the Great Recession – collapsed this month. They are now falling at a steeper pace than in early 2008. Current activity in manufacturing fell 16 points from -1 to -17. That is a major shock.
• Greece's bondholders could face more losses, says Berlin. One of Angela Merkel's close allies has raised the prospect of another round of write-offs on Greece's debt obligations.

Frankfurter Rundschau:

• German Finance Minister Wolfgang Schaeuble may limit private investors' access to hedge funds, citing draft legislation. Owning stakes in hedge funds would be allowed only for professional investors, adding that private investors would still be able to hold shares in funds of hedge funds.
  

Kathimerini:

• Greek Economy to Shrink 6.2% This Year. Greece's government expects the economy to contract 6.2% this year compared with an initial forecast of 4.8%. The economy will shrink .9% next year and expand 2% in 2015, the report said.
  

Bear Radar

Style Underperformer:

• Large-Cap Growth -.21%

Sector Underperformers:

• 1) Coal -4.24% 2) HMOs -3.77% 3) Gaming -3.01%

Stocks Falling on Unusual Volume:

• WLP, HNT, CAJ, AAPL, HA, AES, JBLU, LVLT, NIHD, ACTG, DB, IMOS, BWLD, RDWR, NFLX, TRIP, CHRW, WBSN, EZPN, QCOR, SLGN, MWIV, CTRP, BEAV, MGLN, CTXS, BECN, CSTR, TSLA, PCLN, BYI, CI, CRI, URI, PVR, LO, UNH, RKT, EZPW, BTU, EXP, GLW, WLP, WSO, USG and IGT
  

Stocks With Unusual Put Option Activity:

• 1) CHRW 2) IGT 3) GLW 4) BRCM 5) CBS
  

Stocks With Most Negative News Mentions:

• 1) CHRW 2) DECK 3) NFLX 4) KBH 5) F
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth +.19%

Sector Outperformers:

• 1) Semis +2.36% 2) Gold & Silver +1.42% 3) Medical Equipment +1.03%

Stocks Rising on Unusual Volume:

• INVN, ALTR, MDCO, HITK, SSRI, BAX, SSH, PNRA, RVBD, IRBT, SYMC, QGEN, ACOM, IACI, BRCM, ARMH, UIS, SWI, VHC, TPX, JNPR, SLAB, NLSN, GRA, TMO, RES, AOL, MSI, APKT, EW and FTI
  

Stocks With Unusual Call Option Activity:

• 1) SYMC 2) ALTR 3) SWN 4) RVBD 5) PNRA
  

Stocks With Most Positive News Mentions:

• 1) BAX 2) RVBD 3) ALTR 4) ILMN 5) NSC
  

Charts:

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

Wednesday Watch

Evening Headlines
Bloomberg:

• EU Rushes to Make ECB Single Bank Watchdog in Race to Save Spain. Europe’s quest to sever the link between Spain’s fiscal fate and its failing banks hinges on an obstacle-strewn race to hand greater powers to the European Central Bank. Until euro-area leaders overcome German doubts, ECB concerns, and turf battles everywhere, Spain will remain on the hook for a bailout of its banks of as much as 100 billion euros ($121 billion). Policy makers want to protect taxpayers from losses so potentially big they risk bankrupting governments, as happened in Ireland and Iceland. “We have got to cut the fatal loop between sovereigns and banks, which will otherwise bring the euro-zone project as it exists now down,” Adair Turner, chairman of the U.K. Financial Services Authority, said in a London speech yesterday.
  
• France 1st-Half Mortgage Lending Slumps 33%, Les Echos Reports. French mortgage lending declined 33 percent in the first half compared to the same period in 2011, Les Echos reported, citing a study by l’Observatoire Crédit Logement/CSA. The decline can be attributed to a collapse in demand, a lack of government aid, and a reduction in lending as a result of refinancing difficulties at banks, the newspaper said. Mortgage lending by banks in France this year will fall 25 percent to 30 percent to 110 billion euros ($133 billion) to 120 billion euros from 160 billion euros in 2011, the newspaper said.
• Orban’s Tax Binge Repels Investors as Recession Menaces Hungary. Hungarian snack maker Chio Magyarorszag Kft. was slated to receive funds last year from its Cologne-based parent, Intersnack Knabbergebaek GmbH, for two expansion projects. Then came the potato-chip tax. The special duty imposed by Prime Minister Viktor Orban’s government meant Gyor, Hungary-based Chio Magyarorszag missed out on getting the cash as Intersnack diverted the money to another one of its non-German subsidiaries. “We’ve been erased from the map,” said Gabor Agyai Szabo, the head of Chio Magyarorszag’s corporate relations and marketing, in a phone interview. “Hungary won’t be considered as long as regulations don’t change.”
• IMF Says China Downside Risks Significant. The International Monetary Fund said China’s slowing economy faces significant downside risks and relies too much on investment, urging leaders to boost consumption and channel citizens’ savings away from housing. While the economy “seems to be undergoing a soft landing,” achieving it is a key challenge, the Washington-based IMF said in a statement today. “China is well placed to respond forcefully, if needed, to a deterioration of the external environment, in particular through fiscal policy,” the IMF said. It repeated an assessment that the yuan is “moderately” undervalued, which China disputed.
• China to Flood Steel Market Hurting ArcelorMittal(MT): Commodities. China, the world’s biggest steel producer, is exporting at the highest level in two years, exacerbating a global glut that may hurt competitors from ArcelorMittal (MT) to U.S. Steel (X) Corp. Monthly shipments abroad rose to 8.7 percent of domestic output last month, the highest proportion since July 2010. Chinese steel mills, set for a record production in 2012, are ramping up overseas sales to avoid a softer domestic market, where prices for the commodity have dropped to a two-year low.
• Apple(AAPL) Falls Short of Analysts' Predictions Amid IPhone Slump. Apple Inc. (AAPL)’s profit and sales fell short of analysts’ projections for only the second time since 2003 as customers held off on iPhone purchases while waiting for a new model to be introduced later in the year. Net income climbed 21 percent to $8.82 billion, or $9.32 a share, in the period that ended June 30, Cupertino, California- based Apple said today in a statement. Sales rose 23 percent to $35 billion. Analysts had predicted profit of $10.37 a share on revenue of $37.2 billion, the average of estimates compiled by Bloomberg. Shares fell 6 percent in late trading.
• New South China Sea City Angers Neighbors. (video)
• Aflac(AFL) Drops as Insurer Reports Losses on Spanish Holdings. Aflac Inc., the world’s biggest seller of supplemental health insurance, dropped in extended trading yesterday after reporting losses on Spanish holdings. Aflac fell 1.7 percent to $41.30 after the close of regular trading in New York. The Columbus, Georgia-based insurer reported after-tax realized investment losses from impairments of $223 million in the second quarter, primarily from investments in Bankia SA (BKIA) and the government of Catalonia.

Wall Street Journal:

• Currency Hedge Funds Lose on Euro Bets in June. Hedge funds that invest in currencies posted their biggest loss in three months in June as erratic moves in the euro thwarted bets that the common currency would extend its decline against the dollar, according to a survey released Tuesday.
• U.K. to Add 1,200 Troops for Games. The U.K. government said Tuesday it must deploy 1,200 extra military personnel to guard venues at the Olympic Games—with the opening ceremony set for Friday in London—following the failure of private contractor G4S GFS.LN +1.20% PLC to provide enough security guards.
• European Crisis Seen Spreading to Russia. Russia's economy is more vulnerable to the effects of the euro zone's fiscal and banking crises as commodity prices fall, the European Bank for Reconstruction and Development said Wednesday. Starting in October, the EBRD slashed growth forecasts for eight economies in Central Europe, or CEB, and the Baltics and seven economies in Southeastern Europe, or SEE, citing their close trade and financial links to the euro zone.
• Fed Under Pressure Over Libor. Pressure is growing on the Federal Reserve to explain whether its bank supervisors did anything to stop individual firms from attempting to manipulate a key interest rate after a team of its market analysts discovered signs of such activity in 2007. The issue is likely to come up this week when Treasury Secretary Timothy Geithner goes to Capitol Hill for hearings on Wednesday and Thursday. Mr. Geithner was head of the Federal Reserve Bank of New York in 2007 and 2008 and led an effort to push British officials to change how the London interbank offered rate was set.
• Lewis Hay: The Tax Cliff Endangers Seniors. Now is not the time to raise tax rates on investment income. Most people know that the U.S. government is rapidly approaching the edge of a fiscal cliff that will raise taxes for millions of Americans—at every income level and age. What is less known is that seniors, many of whom depend on investment income to fund their retirement, will be hurt the most.

MarketWatch:

• J.P. Morgan(JPM): Democrat tax proposal would hit stocks up to 15%. The tax debate that’s percolating on Capitol Hill could have a big impact on stock market returns, one analyst says. Hikes to the marginal high-income tax rate and capital gains tax rate by 5% and of the dividend tax rate by 24.5% — an idea bandied around by Democratic Party lawmakers — would hit the stock markets by 7% to 15%, according to a research note published by J.P. Morgan analyst Marko Kolanovic. Conversely, a Republican idea to cut the corporate tax rate by up to 10% would boost stocks by between 7% and 14%, he estimates.

Business Insider:

• Two Events Will Shape The Next Tragic Act In Europe.
• NETFLIX(NFLX) SHARES COLLAPSE AFTER SUBSCRIBER FIGURES COME IN LIGHT.

Zero Hedge:

• GM(GM) Stock Slides To Fresh Post-Bankruptcy Lows.
• The Li(e)bor Rigging Scandal Infographic For Dummies.
• David Stockman: "The Capital Markets Are Simply A Branch Casino Of The Central Bank".

CNBC:

• Broadcom(BRCM) Revenue Lifted By Strong Demand. Broadcom posted second-quarter revenue that was slightly ahead of Wall Street expectations and forecast a revenue increase in the current quarter, sending its shares up in after-hours trading.
• Japanese Exports Fall in June as Europe, China Slow. The 2.3 percent annual decline in exports was slightly less than economists' median forecast of a 3.0 percent annual drop, in a troubling sign for Japan's recovery from a devastating earthquake, tsunami and nuclear disaster last year.
• Moody's Cuts Outlook on EU Stability Facility to Negative. Moody's Investors Service has changed the outlook on the provisional (P)Aaa long-term rating of the European Financial Stability Facility (EFSF) to negative from stable, a blow to a fund that was supposed to backstop struggling EU members. The ratings agency said the move followed on from its decision earlier in the week to change the outlooks for Germany, the Netherlands and Luxembourg to negative. All three are guarantors for the EFSF, with Germany holding the largest share at just over 29 percent. "The change in the outlook of the EFSF reflects the now negative rating outlooks on all but one of its Aaa guarantors - namely Finland," Moody's said in a statement. Moody's said risks that could lead to a downgrade of the EFSF's rating, would include a deterioration in the creditworthiness of euro area member states, particularly Germany, France and the Netherlands. Any weakening of the commitment among euro area member states to the EFSF could also have negative rating implications, it added.
• Apple's(AAPL) Miss Could Undermine Already Wobbly Stock Market. “Obviously, it’s big for the Nasdaq. It’s 20 percent of the index. Overall, it’s an important indicator with respect to the economy and sentiment in general,” said Dan Greenhaus, chief global strategist at BTIG.

Reuters:

• Syria sends armored column to Aleppo, strikes from air. Syria sent thousands of troops surging towards Aleppo in the early hours of Wednesday, where its forces have been pounding rebel fighters from the air, engulfing the country's largest city in total warfare to put down a revolt.
• Medical marijuana hub Los Angeles moves to ban dispensaries. The Los Angeles City Council decided unanimously on Tuesday to ban all storefront medical marijuana shops, in a blow to a industry that operates in violation of federal law but has become the largest collection of pot dispensaries in California. The 14-0 vote by the council comes after conflicting court decisions on how far local jurisdictions in California can go in cracking down on the cannabis shops. Some observers say the issue could end up before the state's Supreme Court.
• Toshiba falls 7 pct on Apple results, NAND production cuts. Shares in Japan's Toshiba Corp fell 7 percent to a more than three-year low early on Wednesday after Apple Inc posted worse-than-expected results and the company said it would cut memory chip production by 30 percent.
• Higher costs hurt Buffalo Wild Wings(BWLD) 2nd qtr. U.S. casual dining chain Buffalo Wild Wings Inc's second-quarter results fell short of Wall Street estimates as menu-price increases failed to offset rising costs of chicken wings. The company's shares were down 15 percent in after-market trading.
• Panera(PNRA) sales up more than expected, shares jump. Panera Bread Co reported better-than-expected second quarter earnings on Tuesday after sales growth at its established bakery-cafes exceeded analysts' estimates, and shares rose almost 6 percent.

Telegraph:

• Europe is sleepwalking towards imminent disaster, warn top economists. The euro has completely broken down as a workable system and faces collapse with “incalculable economic losses and human suffering” unless there is a drastic change of course, according to a group of leading economists.

Les Echos:

• France to Lift Bonus for Buying Electric Cars. Maximum bonus will rise to 7,000 euros from 5,000 euroas as part of a package of measures to support France's auto industry. State will make EU600m available for auto-industry liquidity needs and investment. State orders will have to include a minimum 25% of electric or hybrid vehicles.

China Daily:

• China will probably take countermeasures if the European Commission begins an investigation of Chinese solar makers based on an anti-dumping complaint from Germany's SolarWorld AG, citing a commerce ministry official.

China Securities Journal:

• China may raise transaction taxes and fees on the sales of existing homes as port of new measures to curb speculation, citing a person familiar with the situation. The government may also impose a property tax on existing homes that are vacant. The government will likely extend a property tax trial to cities in addition to Chongqing and Shanghai in the second half of the year, citing Yang Hongxu, deputy head of E-House China R&D Institute.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.75% to -.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 179.0 +5.0 basis points.
  
• Asia Pacific Sovereign CDS Index 141.5 +1.25 basis points.
  
• FTSE-100 futures -.50%.
  
• S&P 500 futures -.16%.
  
• NASDAQ 100 futures -.82%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CRI)/.30
• (NOC)/1.61
• (GLW)/.31
• (GD)/1.74
• (LLY)/.77
• (LCC)/1.55
• (WYN)/.84
• (PX)/1.42
• (ARG)/1.15
• (DAL)/.68
• (GRA)/1.08
• (TMO)/1.16
• (WLP)/2.08
• (ALXN)/.36
• (PEP)/1.09
• (ROK)/1.31
• (F)/.28
• (CAT)/2.28
• (IACI)/.71
• (BA)/1.13
• (BMY)/.48
• (HES)/1.38
• (COP)/1.19
• (AKAM)/.37
• (V)/1.45
• (CAKE)/.49
• (EQR)/.68
• (CCI)/.21
• (OI)/.76
• (CLF)/1.77
• (RYL)/.15
• (SYMC)/.37
• (WFM)/.61
• (LRCX)/.65
• (WDC)/2.45
• (LVS)/.60
• (TSCO)/1.39

Economic Releases
10:00 am EST

• New Home Sales for June are estimated to rise to 371K versus 369K in May.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,000,000 barrels versus a -809,000 barrel decline the prior week. Distillate supplies are estimated to rise by +1,400,000 barrels versus a +2,619,000 barrel gain the prior week. Gasoline inventories are estimated to fall by -1,000,000 barrels versus a -1,815,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall by -.1% versus a -.7% decline the prior week.
  

Upcoming Splits

• (RAVN) 2-for-1
• (TROX) 5-for-1
  

Other Potential Market Movers

• The 5Y T-Note auction, weekly MBA mortgage applications report, UK GDP and the Germany 30Y Bund auction could also impact trading today.
  

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

Stocks Falling into Final Hour on Surging Eurozone Debt Angst, Rising Global Growth Fears, Earnings Worries, Tech/Consumer Discretionary Weakness

Broad Market Tone:

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

Equity Investor Angst:

• VIX 19.85 +6.61%
  
• ISE Sentiment Index 80.0 +8.11%
  
• Total Put/Call .91 +7.06%
  
• NYSE Arms 1.47 +72.96%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 116.15 +2.44%
  
• European Financial Sector CDS Index 301.10 bps +2.52%
  
• Western Europe Sovereign Debt CDS Index 284.66 +1.39%
  
• Emerging Market CDS Index 283.43 +2.71%
  
• 2-Year Swap Spread 22.75 -.75 basis point
  
• TED Spread 35.25 -1.25 basis points
  
• 3-Month EUR/USD Cross-Currency Basis Swap -46.50 +1.5 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .10% +1 basis point
  
• Yield Curve 119.0 -3 basis points
  
• China Import Iron Ore Spot $125.0/Metric Tonne -.57%
  
• Citi US Economic Surprise Index -59.60 +1.2 points
  
• 10-Year TIPS Spread 2.01 -3 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating -118 open in Japan
• DAX Futures: Indicating -70 open in Germany
  

Portfolio:

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

BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 trades near session lows as it tests its 50-day moving average on surging eurozone debt angst, tech/consumer discretionary sector weakness, high food prices, US "fiscal cliff" worries, earnings concerns, more shorting, profit-taking and rising global growth fears. On the positive side, HMO shares are just slightly lower on the day. The UBS-Bloomberg Ag Spot Index is down -2.8%. On the negative side, Coal, Alt Energy, Energy, Oil Service, Steel, Paper, Internet, Computer, Networking, Hospital, Construction, Homebuilding, Gaming, Education and Airline shares are under meaningful pressure, falling more than -2.0%. Consumer discretionary and tech shares have traded heavy throughout the day again. Copper is falling -.65%, Oil is rising +.3% and Lumber is down -.54%. The UBS-Bloomerg Ag Spot Index is still up +23.7% in about 7 weeks. The 10Y T-Note Yld is falling another -2 bps to 1.41%. The China benchmark Iron/Ore Spot Price Index has broken down again technically, falling -17.7% since April 13th and -32.1% since Sept. 7 of last year. As well, the China Hot Rolled Steel Sheet Spot Index is also picking up downside steam. Major Asian indices were slightly lower overnight, led down by a -.8% decline in Hong Kong. The Shanghai Composite rose +.24%, but is down -24.5% since April 18th of last year despite investor hopes for another massive stimulus package and perceptions of an economic soft-landing. Major European indices are falling again today, led lower by a -3.6% decline in Spain. Italian equities are falling another -2.7% and have plunged -8.7% in 5 days. Italian shares are down -18.1% ytd and are testing their March 9th 2009 low today. Spanish equities hit the lowest since March 2003 today and are down -30.5% ytd, which remains another large red flag. The Bloomberg European Bank/Financial Services Index is falling another -1.3% and is down -4.9% in 5 days. Brazilian shares are falling -1.0% to the low-end of the range they have been in since May. The Germany sovereign cds is rising +3.7% to 85.50 bps, the France sovereign cds is rising +1.6% to 185.51 bps, the Italian sovereign cds is gaining +3.6% to 569.08 bps and the Spain sovereign cds is up 1.8% to 640.91 bps, the Russia sovereign cds is up +2.6% to 212.35 bps and the Brazil sovereign cds is up +4.0% to 154.88 bps. Moreover, the European Investment Grade CDS Index is jumping +2.6% to 179.80 bps, the Italian/German 10Y Yld Spread is gaining +3.8% to 536.02 bps and the Spain 10Y Yld is jumping +4.1% to 6.60%. US weekly retail sales have decelerated to a sluggish rate at +1.7%, which is the slowest since the week of Feb. 2, 2010. US Trucking Traffic continues to soften. The ASA Staffing Index just took a large weekly tumble. Moreover, the Citi US Economic Surprise Index has fallen back to late-Aug. levels. Lumber is -1.0% since its March 1st high despite improving sentiment towards homebuilders and the broad equity rally ytd. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite investor perceptions of a strong spring home selling season. The Baltic Dry Index has plunged around -50.0% from its Oct. 14th high and is now down around -40.0% ytd. Shanghai Copper Inventories have risen +109.0% ytd. Oil tanker rates have plunged recently, with the benchmark Middle East-to-US voyage down to 25.0 industry-standard worldscale points, which is the lowest since Oct. 2009. The CRB Commodities Index is now down -17.6% since May 2nd of last year despite the recent surge in food prices. I cautioned recently over the precipitous fall in the German cds versus the Spain/Italy cds. Recent comments by German officials only increase my skepticism regarding investor perceptions that Germany will destroy its own balance sheet to save the euro. The Spain sovereign cds and Spanish 10Y Yld are making all-time highs again today. The Italy sovereign cds is only 33 bps away from its Nov. 15th all-time high and the Italian 10Y Yld has broken out technically. The European Investment Grade CDS Index and Financial Sector Index are close to breaking out technically, as well. This is extremely concerning given the perceived recent can-kicking. Copper and the euro currency remain in intermediate-term downtrends and trade poorly. The 10Y T-Note continues to trade too well as it makes new record highs, which remains a big red flag. There still appears to be a fairly high level of complacency among US investors regarding the still-deteriorating macro backdrop. The Citi Eurozone Economic Surprise Index is at -67.60 points, which is near the lowest since mid-Sept. of last year. Massive tax hikes and spending cuts are still yet to hit in several key eurozone countries that are already in recession. A lack of competitiveness remains unaddressed. The European debt crisis is also really beginning to bite emerging market economies now, which will further pressure exports from the region and further raise the odds of more sovereign/bank downgrades. The odds for QE3 are likely meaningfully lower than investors currently perceive as food prices soar and energy prices rebound. If the Fed embarks on another misguided round of QE, the Ag Spot Index should push through its Aug. 31, 2011 all-time high. This would likely also lead to another surge in energy prices as it would spur another bout of rioting in the Middle-East and other emerging markets. As well, it would greatly curtail any emerging markets stimulus plans, in my opinion. It is unlikely the Fed would take this risk ahead of an election, in my opinion. Uncertainty surrounding the effects on business of Obamacare, the "US fiscal cliff " and the election outcome uncertainty will likely become more and more of a focus for investors as the year progresses. Three of the main reasons US stocks had been rallying were the beliefs that QE3 was imminent, China would embark on another massive easing campaign and Europe had successfully kicked the can once again. However, as I stated above, soaring food prices/rising energy costs make QE3 much less likely, in my opinion. Recent comments by Chinese officials suggest a more subdued approach to easing and an unwillingness to let their real estate bubble begin re-inflating. Soaring food prices also put a large dent in emerging markets easing plans. Finally, the surge in Spanish yields to records, soaring Italian yields and breakouts in other European debt angst gauges suggests the recent European debt crisis can-kicking may have already run its course. There had been a growing disconnect between US equity action and the deteriorating macro environment that was eerily similar to last July, in my opinion. The macro likely must begin improving very soon for equities to avoid a similar fate into the fall. 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 surging eurozone debt angst, earnings worries, high food prices, rising global growth fears, more shorting, consumer discretionary/tech sector weakness, profit-taking and US "fiscal cliff" concerns.