Thursday Watch

Evening Headlines
Bloomberg:

• Americans in 73% Majority Oppose Deepwater Drilling Ban. Most Americans oppose President Barack Obama’s ban on deepwater oil drilling in response to BP Plc’s Gulf of Mexico spill, even as they hold the company primarily responsible for the incident. Almost three-fourths, or 73 percent, say a ban is unnecessary, calling the worst oil spill in U.S. history a “freak accident,” according to a Bloomberg National Poll. Barely more than a third say they support drilling less than they did a few months ago. The BP rig sank in April. The administration issued a new moratorium this week after a court rejected a six-month one imposed in May. “A ban will destroy the economy in that area over nothing,” said poll respondent Ron Smallcomb, 64, a used-car dealer in Mountaintop, Pennsylvania. “This is crazy. If there’s a plane crash you don’t ground all the airlines and stop flying completely.” While public objections to a drilling ban echo the views of Republican leaders such as Louisiana Governor Bobby Jindal, the sentiment is strong regardless of political leaning: 85 percent of Republicans, 73 percent of independents and 65 percent of Democrats oppose a ban, according to the poll. Jindal, whose state has been hardest hit by the spill, says a prohibition on drilling is an overreaction that will turn an “environmental disaster into an economic catastrophe,” costing as many as 20,000 jobs in Louisiana alone. “We need the federal government to do their jobs to ensure drilling is done safely without killing thousands of jobs for our people,” Jindal said in a statement July 13. Eight in 10 of those questioned say BP shouldn’t be assessed penalties beyond payment for damages, such as being banned from future drilling in the U.S. The House Natural Resources Committee yesterday approved an amendment that would bar the company from new offshore leases in the U.S. “I totally expect them to pay for the damages done, but to ban BP or other companies from future drilling is ridiculous,” said John P. Sennet, 65, a retired manager from AK Steel Corp. in Middletown, Ohio. “I just don’t understand the logic in that -- accidents happen,” he said.
• BP Plc's(BP) oil spill in the Gulf of Mexico hasn't deterred the appetite for drilling in Asia Pacific, with rig use reaching an 18-year high in the region last month. 271 rigs are deployed on land and sea in Asia, the most since December 1991. "Oil companies are wary about the Gulf of Mexico after the drilling ban, and the Atlantic basin doesn't look good because of lower gas prices," said Tony Regan, a consultant in Singapore with Tri-Zen International Ltd. Explorers deployed 14% more rigs in Asia in June, compared with January of last year, as China, India, Australia and Indonesia opened up areas. The number of rigs in the Gulf of Mexico plunged to the lowest level in 16 years last week, Baker Hughes said.
  
• PC Shipments Grew 22% in Second Quarter, IDC Says. Global personal-computer shipments rose 22 percent in the second quarter, a sign consumer demand is picking up even amid lingering concerns about the pace of economic recovery, according to research firm IDC. Growth is being driven by the replacement of aging systems, the introduction of lower-cost machines and the fact that much of the world doesn’t own a computer, said Jay Chou, an analyst at IDC. The results allayed concerns that a rebound in technology spending might slow, partly because of the debt crisis in Europe.
• Americans Disapproving Obama Poised to Enable Republican Gains. Americans disapprove of U.S. President Barack Obama’s handling of almost every major issue and are deeply pessimistic about the nation’s direction, offering a bullish environment for Republicans in the November congressional elections. A majority or plurality disapproves of Obama’s management of the economy, health care, the budget deficit, the overhaul of financial market regulations and the oil spill in the Gulf of Mexico, according to a Bloomberg National Poll conducted July 9- 12. In addition, almost 6 in 10 respondents say the war in Afghanistan is a lost cause. Almost two-thirds say they feel the nation is headed in the wrong direction, an even more sour assessment than in March when 58 percent felt that way. Two-thirds of independent voters are pessimistic, while just 56 percent of Democrats offer a vote of confidence. “They don’t see any solutions in sight,” said J. Ann Selzer, president of Selzer & Co., a Des Moines, Iowa-based firm that conducted the nationwide survey. “They have been hammered by the economy and there is a disconnect between the lives Americans are living and Washington. They seem to have lost hope.”
• Oil Falls After Federal Reserve's Outlook on Economy, Decline in Equities. Crude oil declined after the Federal Reserve’s assessment that the economic outlook has “softened” added to concerns a recovery in fuel demand may falter in the U.S., the biggest energy-consuming nation. “There are a growing number of indicators that point to a slowing U.S. economy,” said David Land, chief market analyst at CMC Markets Ltd. in Sydney. “The Federal Reserve’s revised assessment of the economy and weaker-than-expected retail sales figures put a dampener on things.” Crude oil for August delivery dropped as much as 48 cents, or 0.6 percent, to $76.56 a barrel in electronic trading on the New York Mercantile Exchange and was at $76.62 at 9:57 a.m. Sydney time. Fuel demand tumbled 4 percent to 18.8 million barrels a day, the lowest level since April 23, the Energy Department report showed. It was the biggest one-week decline since March. Refineries operated at 90.5 percent of capacity, the highest level since January 2008.
• IMF Says Japanese Fiscal Plans Need Specifics to be Credible. The International Monetary Fund said Japan’s plan to balance its budget in 10 years would be more credible if the government gave specifics on how it will boost revenue, including details on a sales tax increase. Prime Minister Naoto Kan’s fiscal strategy outlined last month “will only become fully credible once details of the necessary revenue measures are agreed on including the timing and scale of a consumption tax increase,” the IMF staff wrote in a supplement to its annual review of Japan’s economy.
• HIV Death Risk Reduced 75% With Early Antiretroviral Treatment, Study Says. Early treatment for HIV cuts patients’ risk of death by about 75 percent, according to a study in the New England Journal of Medicine.
• New York Fed Suggests Taxing the Rich to Counter State Deficits. Federal Reserve Bank of New York researchers said states facing budget deficits should consider temporarily raising income taxes on their wealthiest residents and relying more on sales taxes to make up the shortfalls. In a report issued today focusing on the recession’s impact on the budgets of New York and New Jersey, the Fed branch also recommended the states create “rainy day” funds to protect against future revenue gaps, plan in advance for spending cuts and reduce reliance on personal income taxes, which are affected by changes in the economy. “One approach to smoothing revenue streams is to reduce reliance on cyclically sensitive tax bases and raise revenues from less-volatile sources, notably sales taxes,” wrote Richard Deitz, Andrew Haughwout and Charles Steindel, the co-authors of the report. “Temporarily raising income taxes on high-income households during a downturn” would have the advantage of placing “a larger burden on households that are less liquidity- constrained,” they said.
• Florida, Texas Support Arizona's Immigration Law. Florida, Texas and seven other states filed a brief supporting Arizona’s immigration law aimed at cracking down on illegal migrants after the U.S. government sued to block enforcement of the law. Arizona’s statute doesn’t establish an immigration policy that would interfere with federal law, countering the U.S. argument, the states said in the filing today in federal court in Phoenix. The law isn’t an “obstacle” to Congress’ objectives, the states wrote. “The federal government seeks to negate this pre-existing power of the states to verify a person’s immigration status and similarly seeks to reject the assistance that the states can lawfully provide to the federal government,” the states wrote in the filing. Alabama, Michigan, Nebraska, Pennsylvania, South Carolina, South Dakota and Virginia, plus the territory of the Mariana Islands, also joined in today’s brief supporting Arizona.
• Obama Must Define Afghan War Goals, Senators Tell Holbrooke. Senators concerned about the direction of American efforts in Afghanistan said President Barack Obama and his officials need to define U.S. objectives there before a planned 2011 drawdown of troops. Republican and Democratic senators told Obama’s special envoy to Afghanistan and Pakistan, Richard Holbrooke, at a hearing yesterday that they don’t understand how progress on civilian projects is being measured or how they would back military aims. “We need a better definition of exactly what success is in Afghanistan,” said the Senate Foreign Relations Committee’s chairman, Senator John Kerry, a Democrat from Massachusetts. “We absolutely need to understand what the political situation is and how we get there.”
• North Korean Health System "Dire," Amnesty International Says. North Korea’s health care system is in a “dire state” where amputations are carried out without anesthesia, Amnesty International said in a report released today. “The Crumbling State of Health Care in North Korea” is based on interviews with North Koreans living abroad and health care workers who described the use of unsterilized needles. Problems of malnutrition exacerbate challenges for the state-run system in the face of epidemics, the report said.

Wall Street Journal:

• Harvey Golub Resigns as AIG(AIG) Chairman. Harvey Golub resigned Wednesday as chairman of American International Group Inc., citing tensions with the giant insurer's chief executive Robert Benmosche. The company said Robert "Steve" Miller, another board member, would replace him.
• Google(GOOG) Wins Omnicom(OMC) as Ally. Internet Firm Will Help New Partner Tap Ad Exchange in Return for Buying Commitment. Google Inc. plans to announce Thursday it has landed advertising company Omnicom Media Group as a partner in online display advertising, an area the Internet giant is seeking to bolster as it tries to expand its revenue beyond search ads. Under the deal, Omnicom, part of New York-based Omnicom Group Inc., is expected to spend hundreds of millions of dollars to buy display ads for its clients through Google over the next two years, said a person familiar with the situation. In return, Google will work with Omnicom to build a global "trading desk" that allows the company to buy display ads more easily on Google's ad exchange, an auction-like system that matches ad buyers and sellers to advertising space across large groups of websites.
• BP(BP) Moves to Test New Cap on Gulf Well. Procedure Is Cleared by Obama Administration Following Delay to Resolve Concerns It Could Lead to a Bigger Oil Leak
• Goldman(GS), SEC Discuss Catch-All Settlement. Goldman Sachs Group Inc. and the Securities and Exchange Commission recently held discussions about a possible settlement to simultaneously resolve the fraud lawsuit against Goldman and some of the agency's lower-profile probes of the Wall Street firm's mortgage department, according to people familiar with the situation. The settlement idea was floated by Goldman, which is eager to end the bad publicity swirling around the New York company ever since the SEC sued it in April over a collateralized debt obligation called Abacus 2007-AC1, these people said. Combining a settlement of the Abacus lawsuit with a resolution of related SEC probes could soothe Goldman clients and investors, while shielding the firm from the release of information that could be used against Goldman in private litigation. Goldman remains steadfast in the settlement talks that it wants to avoid ending the case with a civil-fraud charge, according to people familiar with the matter. Even if the SEC and Goldman agree to a deal, the company faces numerous civil lawsuits related to its activities during the mortgage bubble. In addition, criminal prosecutors are looking into whether Goldman or its employees committed securities fraud in connection with its mortgage trading, according to people familiar with the matter.
  
• Berwick: Bigger Than Kagan. If the American people want the health-care world Dr. Berwick wishes to give them, that's their choice. But they must be given that choice. Barack Obama's incredible "recess appointment" of Dr. Donald Berwick to head the Centers for Medicare and Medicaid Services (CMS) is probably the most significant domestic-policy personnel decision in a generation. It is more important to the direction of the country than Elena Kagan's nomination to the Supreme Court.
• Banks Gain in Rules Debate. The world's banks appear to be winning a reprieve from tough new capital requirements and curbs on risk-taking, as regulators and central bankers are moving toward less stringent rules than initially proposed.
• Lawmakers Consider Taxing Airlines' Fees. U.S. House Democrats criticized airlines Wednesday for increasingly charging for checked baggage, seat selection and other services, and indicated they are considering legislation to tax the revenue collected from the fees. Airlines are increasingly relying on ticket surcharges to offset spikes in fuel prices and overcome weak demand.
• Gadget Appetite Strains Suppliers. Manufacturers across Asia are scrambling to ramp up production of key components for electronics, as shortages have frustrated consumers and disrupted business for companies from Apple Inc. to Nissan Motor Co. Unexpectedly strong consumer appetite for gadgets like Apple's iPad and new smartphones from HTC Corp. has stretched the capabilities of some companies that make the memory chips, touch displays and other parts found in those devices. Auto sales, too, have snapped back, straining supplies of custom chips used in cars.
• Speaking Up for American Capitalism. Business has taken a pounding on Capitol Hill and at the White House and for the most part has remained silent. It's time to make our case.

Bloomberg Businessweek:

• China's Growth Eases to 10.3% in Second Quarter on Credit Curbs. China’s economic growth eased to 10.3 percent in the second quarter after the government succeeded in tempering credit expansion, investment spending and property speculation. The pace compares with an 11.9 percent gain in January- March from a year earlier. Inflation cooled to 2.9 percent in June, the statistics bureau also reported in Beijing today. Industrial output rose a less-than-estimated 13.7 percent. The Shanghai Composite Index, down 24 percent this year, rose 0.4 percent as of 10:15 a.m. local time. A leading economic index for China rose 0.8 percent to 145.8 in May, The Conference Board said today. The indicator signals “solid but less robust growth in the second half,” said Bill Adams, a Beijing-based economist for the research organization. China’s export gains may have prevented a deeper slowdown in GDP in the second quarter, a support that may wane as the nation’s currency strengthens, European policy makers implement budget cuts and America’s unemployment rate hovers above 9 percent. Urban fixed-asset investment gained 25.5 percent in the first six months of 2010 from a year earlier, the statistics bureau said in today’s statement. The pace compares with a 33.6 percent increase in the first half of 2009, when a 4 trillion yuan fiscal stimulus program was kicking in. The nation’s expansion will keep slowing, partly because comparisons will be with levels that rose steadily in 2009 as the economy recovered from the effects of the global financial crisis, analysts’ forecasts show. Fourth-quarter growth may be 8.5 percent, UBS AG says.

MarketWatch:

• Chinese Steel Mills Suffer Slumping Demand. Quarterly losses 'highly likely' for some, with steel prices to stay low: analysts. Chinese steel producers have a demand problem, and some analysts say they see little relief in sight, even if prices for iron ore ease. Falling demand, particularly in China, has cast a shadow over the sector, and Goldman Sachs has a tipped the problems to continue at least until the fourth quarter.

NY Times:

• Report Warns of Risks to China's Bank System. A week after the Agricultural Bank of China raised nearly $20 billion from global investors in one of the biggest stock offerings in history, analysts are warning about growing risks to China’s banking system. A report released on Wednesday by Fitch, the credit ratings agency, said Chinese banks were increasingly engaging in complex deals that hid the size and nature of their lending, obscuring hundreds of billions of dollars in loans and possibly even masking a coming wave of bad real estate and infrastructure loans. The report also said that Chinese regulators understated loan growth in the first half of the year, by 28 percent, or about $190 billion, and that many banks continued to secretly shift loans off the books, creating a “pervasive understatement of credit growth and credit exposure.” “The growing amount of credit moving out of the banking system through these channels is one of the most disconcerting trends we’ve seen in China in recent years,” Charlene Chu, a Beijing-based banking analyst at Fitch, said of the practice of repackaging loans and moving them off bank balance sheets. While China’s economy remains robust, the report is troubling because the country’s recovery has been fueled by aggressive lending and soaring property prices. Lending by state-run banks was one of China’s most aggressive forms of stimulus last year, but analysts constantly warned that banks could face the risk from overbuilding and nonperforming loans. Much of the lending through off-balance-sheet channels is fueled by trust companies, mostly privately owned, that are partnering with banks and engaging in complex deals that involve repackaging loans into investment products — akin to an informal type of securitization. The deals are essentially disguised loans, analysts say. Beijing has tried repeatedly to stop the practice, but analysts say that banks and trust companies have come up with innovative ways around the rules.

Business Insider:

• Here's Why Gaming Could Be Apple's(AAPL) Winning Ticket Into The Living Room.

Forbes:

• Consumer Stocks Poised to Bounce. As earnings roll in, analysts say improving consumer sentiment should help the sector brave the headwinds of high unemployment and a sluggish recovery.

The New Republic:

• The Senate Is Now in Play. Let’s look at the numbers. To retain control, Democrats need at least 50 seats. They start with 45 seats that are safe or not up for election this year, and there are three more races (NY, CT, and OR) that they are likely to win, for a total of 48. (The comparable number for Republicans is 41.) That leaves 11 seats in play. Here they are, along with the most recent survey results:

Crain's Chicago Business:

• Asian Carp Czar Will Fulfill Lawmakers' Wish to Monitor Fish. The Obama administration plans to name an Asian carp czar within a month to oversee state and federal efforts to keep the voracious fish from invading the Great Lakes ecosystem. U.S. Sen. Richard Durbin, D-Ill., announced the plan Wednesday after meeting with Nancy Sutley, who chairs the White House Council on Environmental Quality. “The appointment of a coordinated response commander will signal that the effort to prevent the Asian carp from entering Lake Michigan and establishing itself in the Great Lakes is a national priority,” said the senator, who called for the move in a letter to President Barack Obama last month. The announcement came hours before a Senate hearing on the federal response to the Asian carp threat, which has sparked calls from other Great Lakes politicians and environmentalists to shut the Chicago waterway system, whose man-made canals link the lake to the Mississippi River. While Mr. Durbin and others have called for an accelerated study of separating the two watersheds (Crain’s, July 5), companies that ship or depend on shipments of bulk goods through the canals would be tremendously disrupted by such a move. "There is no place for knee-jerk reactions, unfounded fear of implausible migrations or demonization of regulators who appropriately take a common-sense approach to a complex issue," Mark Biel, executive director of the Chemical Industry Council of Illinois, said in a statement. "I commend both the Illinois and Indiana Departments of Natural Resources for their scientific, calm reactions to these recent discoveries. Lawmakers in Washington would be well-served to follow this response and use science, not scare tactics, moving forward."

Politico:

• NBC, CBS Refuse Ground Zero Mosque Ad. CBS and NBC have refused to air a provocative ad that calls on Americans to oppose the building of a mosque two blocks from the World Trade Center site. The ad — which has about 100,000 views on YouTube — intersperses some of the most horrifying images from the Sept. 11 attacks with the sounds of Muslim prayer and images of Muslim militants. It focuses on what's become a divisive — and partisan — issue in New York state, the erection of a Muslim cultural center on Park Place, in the neighborhood near the fallen towers. "On Sept. 11, they declared war against us," the ad's narrator says. "And to celebrate that murder of 3,000 Americans, they want to build a monstrous 13-story mosque at ground zero."
  

Reuters:

• Lehman's Big JPMorgan(JPM) Case Set for Trial - In 2012. No one ever said the Lehman Brothers bankruptcy case would be easy, or quick. Lehman Brothers Holdings Inc's (LEHMQ.PK) lawsuit accusing JPMorgan Chase & Co (JPM.N) of siphoning billions of dollars and hastening its record bankruptcy is unlikely to be ready for trial before April 30, 2012, under a timetable approved Wednesday by U.S. Bankruptcy Judge James Peck in Manhattan. The May 26 lawsuit accused JPMorgan of using its "unparalleled" knowledge of Lehman's distress, as the main "clearing" bank for Lehman transactions with other parties, to extract $8.6 billion of collateral in the four business days ahead of Lehman's Sept. 15, 2008 bankruptcy. It said officials including JPMorgan Chief Executive Jamie Dimon took the collateral after learning from Federal Reserve Chairman Ben Bernanke and then-U.S. Treasury Secretary Henry Paulson the government would not bail Lehman out. Lehman said the bankruptcy estate and creditors deserve the collateral.
• Apple(AAPL) to Hold iPhone Press Conference Friday. Apple spokesman Steve Dowling said late on Wednesday the company would hold the event at 10 a.m. on Friday at its headquarters in Cupertino, California.

Financial Times:

• Banks' Mortgage Desks in Hiring Spree. Investment banks are once again hiring bankers to sell and trade mortgage-backed securities, the packages of loans that were at the heart of the financial crisis, reflecting a belief that the worst is over in the US housing market. Foreign banks have been particularly aggressive in hiring salesmen and traders of mortgage-backed securities to better compete with American rivals. UBS and Nomura, two banks that pulled out of the mortgage-backed securities market after suffering losses during the financial meltdown, have started to reassemble their US-based mortgage desks. Royal Bank of Scotland and BNP Paribas also are adding a significant number of employees to their mortgage teams. Carsten Kengeter, co-head of UBS’s investment bank, said the bank could not afford to ignore the US mortgage market but acknowledged the need to better manage risks.

The Australian:

• US Lenders Regain Their Appetite for Risky Business. AS US lenders struggle to recover from the financial crisis, signs of a dangerous new infatuation with risky borrowers is emerging. Take the case of Shirley Davis. The retired phone-company administrator who lives in Brooklyn, New York, is more than $US33,000 ($37,300) in debt, earns just $US2414 a month and filed for bankruptcy in June. Yet, just before that, she ripped open an envelope from Capital One Financial Corporation(COF), which pitched her a credit card even though it sued her in 2006 to recover $US4470 she owed on a different card from the bank. "At some point we lost you as a customer and we'd like to have you back," the letter said. Ms Davis, 66, said she was stunned. "Even I wouldn't give me a credit card at this point," she said. From credit cards to car loans to mortgages, the hunger for new business as the crisis ebbs is causing some financial institutions to weaken lending standards and woo borrowers who might not be able to pay.

China Securities Journal:

• Chinese central bank adviser Xia Bin said the nation's economic growth may slow by two to three percentage points in the second half from the first quarter.

Evening Recommendations
Piper Jaffray:

• Rated (RBCN) Overweight, target $39.

Susquehanna:

• Rated (JNS) Positive, target $13.
• Rated (TROW) Positive, target $59.
• Rated (BEN) Positive, target $116.
  

Night Trading

• Asian equity indices are -.50% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 125.0 +2.5 basis points.
• Asia Pacific Sovereign CDS Index 120.5 -.5 basis point.
  
• S&P 500 futures +.17%.
  
• NASDAQ 100 futures +.22%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (WWW)/.33
• (JPM)/.71
• (FCS)/.31
• (PPG)/1.47
• (GOOG)/6.52
• (AMD)/.06
• (VMI)/1.04
• (JBHT)/.35

Economic Releases
8:30 am EST

• The Producer Price Index for June is estimated to fall -.1% versus a -.3% decline in May.
• The PPI Ex Food & Energy for June is estimated to rise +.1% versus a +.2% gain in May.
• Initial Jobless Claims for last week are estimated to fall to 445K versus 454K the prior week.
• Continuing Claims are estimated to rise to 4447K versus 4413K prior.
• Empire Manufacturing for July is estimated to fall to 18.0 versus a reading of 19.57 in June.

9:15 am EST

• Industrial Production for June is estimated to fall -.1% versus a +1.3% gain in May.
• Capacity Utilization for June is estimated at 74.1% versus 74.1% in May.
  

10:00 am EST

• Philly Fed for July is estimated to rise to 10.0 versus a reading of 8.0 in June.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Senate's hearing on nominations of Yellen/Raskin/Diamond, Fed's Duke speaking, Fed's Lacker speaking, weekly EIA natural gas inventory report, (PETD) analyst day and the (LYV) analyst meeting could also impact trading.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and automaker shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.