• Ukraine, Russia Fail to Reach Deal in Natural-Gas Talks (WSJ)
• Boko Haram Kidnaps More Girls in Nigeria (WSJ)
• Déjà vu: echoes of pre-crisis world mount (FT)
• Money market rates hit new low as ECB moves gain traction (Reuters)
• 'Dark Pools' Face New SEC Probe (WSJ)
• White House-Congress rift over Bergdahl deal deepens (Reuters)
• Buffett Ready to Double $15 Billion Solar, Wind Bet (BBG)
• Taxpayers Face Big Medicare Tab for Unusual Doctor Billings (WSJ)
• Lean Retirement Faces U.S. Generation X as Wealth Trails (BBG)
• Employers’ skills gap claim does not show up in US wage data (FT)
• He is holding out for the Zuckerberg overbid: Donald Sterling says LA Clippers not for sale (WSJ)
• Currency Carry Trades Rise in ECB’s Negative-Rate World (BBG)
• High Yields on Chinese Corporate Bonds Lure Investors, Concerns About Economic Growth Put Aside (WSJ)
• Two GM lawyers, quality control executive among those pushed out over switch (Reuters)
• Tyson Wins Bid Against Itself (WSJ)
• Greek deputy prime minister taken to hospital (Reuters)
• Betting on boring brings stock outperformance in 2014 (Reuters)

Overnight Media Digest

WSJ

* General Motors Co's directors and executives head to Tuesday's annual shareholder meeting under pressure to explain what they will do about admissions that employees mishandled a deadly safety defect, and what they estimate the total cost of that behavior will be. (http://r.reuters.com/ref99v)

* Tyson Foods Inc won the auction for Hillshire Brands Co, but it ended up paying hundreds of millions of dollars more than necessary to beat the next-best offer. Tyson's price of $63 a share for the Chicago-based maker of Jimmy Dean sausages and other meat products, turned out to be far more than Tyson needed to pay to beat out Pilgrims Pride Corp's bid. (http://r.reuters.com/fef99v)

* The Securities and Exchange Commission is investigating a number of big "dark pools" and exploring whether the trading systems are properly disclosing to clients how they operate, treating all investors fairly and protecting confidential client information, people familiar with the probes said. (http://r.reuters.com/hef99v)

* Merck agreed to acquire Idenix Pharmaceuticals Inc for $24.50 a share in cash, or $3.85 billion. Merck's offer is more than triple of the stock's Friday closing price of $7.23. The premium was fueled by a competitive bidding process, according to Merck. (http://r.reuters.com/kef99v)

* Internet company GoDaddy Inc filed for its initial public offering and said it plans to raise up to $100 million. The company said the amount is a placeholder amount used in deciding registration fees and will likely change. (http://r.reuters.com/pef99v)

* In the opening minutes of a trial that could upend American college sports, the National Collegiate Athletic Association on Monday said it settled a separate lawsuit over the use of college players' likenesses in videogames made by Electronic Arts Inc. The NCAA said it would pay $20 million to current and former Bowl Subdivision football players and Division I men's basketball players. The case had been set to go to trial in March. (http://r.reuters.com/tef99v)

* Some Spanish government bond yields dipped below U.S. Treasury yields, adding another twist to a year of surprises for the world's bond markets. Yields on the 10-year Spanish bond fell to 2.579 percent on Monday, according to Tradeweb, lower than the 2.615 percent yield on the 10-year Treasury note for the first time since April 2010, before the euro zone tumbled into its debt crisis. (http://r.reuters.com/vyd99v)

FT

Time Warner is finalising deal to buy New York-based Vice Media that would value the digital media and publishing group at more than $2 billion, according to people familiar with the matter.

The U.S. Supreme Court rejected a request from BP Plc to keep compensation payments for businesses affected by the 2010 Deepwater Horizon disaster suspended.

Talks brokered by the South African government to end the five-month platinum strike that is battering the country's economy collapsed on Monday with the world's top three producers in a deadlock with the Association of Mineworkers and Construction Union.

U.S. womenswear chain Chico's has been in talks over a potential sale to private equity bidders, according to sources, one of whom said the company would likely command a premium of about 30 per cent to its $2.36 billion market capitalisation.

Web hosting firm GoDaddy has filed for a U.S. initial public offering, saying it planned to raise up to $100 million as a place holder figure

NYT

* Just weeks after the Justice Department indicted five members of the Chinese army, accusing them of online attacks on United States corporations, a new report from CrowdStrike, released on Monday, offers more evidence of the breadth and ambition of China's campaign to steal trade and military secrets from foreign victims. The report ties a hacker group in Shanghai to attacks on governments, contractors and research companies. (http://r.reuters.com/zud99v)

* BP, Exxon Mobil Corp, Royal Dutch Shell Plc , Total SA and other big Western oil companies are striking deals and plowing money into Russia even as more sanctions loom. (http://r.reuters.com/byd99v)

* The latest video game consoles can play Internet radio, Netflix movies and YouTube video clips. But Sony and Microsoft, gearing up for a blistering battle in retail stores this holiday season, are reassuring consumers that their consoles are very much about games, too. (http://r.reuters.com/cyd99v)

* The consolidation of more than 80 lawsuits against General Motors into a single proceeding in Manhattan represents a small but meaningful victory for the automaker. (http://r.reuters.com/fyd99v)

* TransferWise, one of London's most prominent financial technology companies, said it had raised $25 million from a range of investors, including Peter Thiel, a co-founder of PayPal, and the British billionaire Richard Branson. TransferWise uses peer-to-peer technology that allows individuals around the world to swap currencies without incurring large bank transfer fees. (http://r.reuters.com/gyd99v)

* Facebook announced that it has hired David Marcus, the president of eBay's PayPal division and a former entrepreneur, to lead the expansion of its messaging products - and eventually, to figure out how to make money from them. (http://r.reuters.com/haf99v)

* Merck will buy the biotechnology company Idenix Pharmaceuticals for $3.85 billion in an effort to bolster its arsenal of potential drugs in the competitive arena of hepatitis C treatments, the companies announced on Monday. (http://r.reuters.com/maf99v)

* Landowners who say a North Carolina electronics plant poisoned their drinking water missed a filing deadline, the Supreme Court ruled on Monday. The decision, in a 7-to-2 vote, is likely to affect similar suits from the families of thousands of former Marines over what they say was toxic pollution at Camp Lejeune, also in North Carolina. (http://r.reuters.com/qaf99v)

* Environmental officials in North Carolina and Virginia signed an agreement with Duke Energy on Monday for the cleanup of toxic coal ash from the Dan River, which flows through the two states. (http://r.reuters.com/raf99v)

* Walmart announced two high-level changes to its e-commerce team on Monday, as it pushes to ramp up its online business and compete with its archrival Amazon. The company said Joel Anderson, who has been president of Walmart.com in the United States for the last three years, was resigning from the company. The other change was the promotion of Fernando Madeira, who has been the president of Walmart's Latin American e-commerce division. (http://r.reuters.com/saf99v)

* Time Warner is in talks to buy a large stake in Vice Media for as much as $1 billion, a deal that could include providing Vice with the television network HLN, people with knowledge of the negotiations said on Monday. Precise terms and valuations have not been agreed upon. (http://r.reuters.com/taf99v)

China

CHINA SECURITIES JOURNAL

- China will set a "ceiling" for coal consumption in regions that fail to fulfil the annual pollution reduction quota in a bid to reduce smog and improve air quality in seriously polluted provinces, the vice director of China's top economic planner National Development and Reform Commission (NDRC), Xie Zhenhua, said on Monday.

- China will create a national carbon emission trading exchange in three years, an official in charge of environmental protection at the NDRC said on Monday.

SECURITIES TIMES

- China's local governments will be under high debt repayment pressure in 2014 as 21.89 percent of China's local government debt is due this year, Wang Baoan, the vice minister of the Ministry of Finance, said at a conference.

- CITIC Securities has been probed by the Shenzhen branch of China Securities Regulatory Commission (CSRC) over suspected insider dealing by one of its pharmaceutical analysts, sources told the paper.

CHINA DAILY

- The Shanghai Cooperation Organisation, a China and Russia-led security group of Eurasia states, will set up a special unit to help fight terrorism at the end of 2013, one of the group's directors said, amid the growing threat of attacks in China and the region.

PEOPLE'S DAILY

- Party cadres should model after good examples to further improve their working attitude, the paper which acts as a party mouthpiece, said in an editorial. This comes in the wake of the ongoing "mass line education movement", a party campaign aimed to promote support for the party among the people.

Britain

The Telegraph

DIAGEO SWINGS JOBS AXE IN COST-CUTTING DRIVE

Diageo, the maker of Johnnie Walker scotch whisky, has cut around 200 head office and regional jobs as its new chief executive, Ivan Menezes, cracks down on costs. (http://link.reuters.com/cuc99v)

TIME WARNER CLOSES IN ON VICE DEAL

Time Warner is close to buying a large stake in Vice Media that would value the alternative media company at between $2 billion and $3 billion. (http://link.reuters.com/rad99v)

The Guardian

THREATS TO SUE OVER TALL STOREYS OF 100 MLN STG LONDON TOWER

Credit Suisse may face legal action over Irish investor Tom Ryan's failed development bid for a 1980s office block in Canary Wharf. (http://link.reuters.com/duc99v)

LLOYDS BANKING GROUP PUSHES TSB FLOAT WITH LOW SHARE PRICE

Lloyds Banking Group has underlined its determination to entice investors to back the stock market flotation of TSB by pricing shares in the new bank below its own valuation of the 631 branch network. (http://link.reuters.com/sad99v)

The Times

INVESTOR FURY OVER MIKE ASHLEY BONUS FUND

The board of Sports Direct has reignited a row with its minority investors over executive rewards by creating a 200 million pound ($335.82 million) bonus fund that conceals a likely payout for Mike Ashley, its billionaire founder. (http://link.reuters.com/tad99v)

TESCO BLOWS OUT THE BANKING INDUSTRY'S 'SMOKE AND MIRRORS'

Tesco has thrown down the gauntlet to the high street banks by launching its first current account, paying interest of 3 per cent and promising to eschew the industry's "smoke and mirrors" charging tactics. (http://link.reuters.com/guc99v)

FLOTATION STILL ON THE MENU FOR SSP DESPITE TURMOIL

The boss of SSP played down recent "blips" in the stock market yesterday as the airport catering specialist served up appetising profits in advance of a possible 2 billion pound flotation. (http://link.reuters.com/fuc99v)

The Independent

GODADDY FILES FOR IPO

Website domain company GoDaddy said late on Monday it has filed papers with regulators for an initial public offering of shares. (http://link.reuters.com/vad99v)

CAFFE RITAZZA OWNER EYES EMPTY TUBE TICKET OFFICES

The company behind coffee shops, food stores and restaurants at airports and train stations is hoping to cash in on Transport for London's plans to install retailers in soon- to-be empty ticket offices at Underground stations. (http://link.reuters.com/wad99v)

Fly On The Wall 7:00 AM Market Snapshot

ECONOMIC REPORTS
Domestic economic reports scheduled today include:
NFIB small business optimism for May at 7:30--consensus 95.8
Wholesale inventories for April at 10:00--consensus up 0.5%
JOLTs job openings for April at 10:00--consensus 4.05M

ANALYST RESEARCH

Upgrades

Alcatel-Lucent (ALU) upgraded to Neutral from Underweight at HSBC
Alexander & Baldwin (ALEX) upgraded to Market Perform from Underperform at Wells Fargo
Blount (BLT) upgraded to Buy from Hold at KeyBanc
Colgate-Palmolive (CL) upgraded to Outperform from Market Perform at BMO Capital
Entropic (ENTR) upgraded to Buy from Hold at Needham
First Quantum Minerals (FQVLF) upgraded to Overweight from Neutral at JPMorgan
HomeAway (AWAY) upgraded to Neutral from Underperform at BofA/Merrill
Netflix (NFLX) upgraded to Overweight from Equal Weight at Evercore
Republic Services (RSG) upgraded to Strong Buy from Market Perform at Raymond James
Sprint (S) upgraded to Outperform from Neutral at Macquarie
Twitter (TWTR) upgraded to Market Perform from Underperform at Wells Fargo
Union Pacific (UNP) upgraded to Outperform from Sector Perform at RBC Capital

Downgrades

Cognizant (CTSH) downgraded to Neutral from Positive at Susquehanna
Coupons.com (COUP) downgraded to Sell from Neutral at Goldman
eHealth (EHTH) downgraded to Hold from Buy at Jefferies
KB Financial Group (KB) downgraded to Neutral from Overweight at JPMorgan
Las Vegas Sands (LVS) downgraded to Neutral from Buy at UBS
Tesoro Logistics (TLLP) downgraded to Sector Perform from Outperform at RBC Capital

Initiations

AMD (AMD) initiated with an Outperform at Imperial Capital
Chevron (CVX) initiated with a Buy at Deutsche Bank
Coca-Cola Enterprises (CCE) initiated with a Hold at Jefferies
Coca-Cola (KO) initiated with a Hold at Jefferies
ConocoPhillips (COP) initiated with a Buy at Deutsche Bank
Cott Corp. (COT) initiated with a Hold at Jefferies
Dr Pepper Snapple (DPS) initiated with a Hold at Jefferies
Exxon Mobil (XOM) initiated with a Hold at Deutsche Bank
Hess Corp. (HES) initiated with a Buy at Deutsche Bank
Jumei (JMEI) initiated with a Buy at Goldman
Jumei (JMEI) initiated with a Neutral at Piper Jaffray
Marathon Oil (MRO) initiated with a Buy at Deutsche Bank
Monster Beverage (MNST) initiated with a Buy at Jefferies
Murphy Oil (MUR) initiated with a Hold at Deutsche Bank
Nimble Storage (NMBL) initiated with an Equal Weight at Barclays
Occidental Petroleum (OXY) initiated with a Hold at Deutsche Bank
PepsiCo (PEP) initiated with a Buy at Jefferies
TrueCar (TRUE) initiated with a Sector Perform at RBC Capital
TrueCar (TRUE) initiated with an Outperform at JMP Securities
TrueCar (TRUE) initiated with an Overweight at JPMorgan

COMPANY NEWS

eBay (EBAY) said PayPal President David Marcus leaving for Facebook (FB)
BE Aerospace (BEAV) announced plans to create two separate companies and raised FY14 EPS guidance to $4.35 from $4.30, consensus $4.39
Dendreon (DNDN) announced that CEO John Johnson will step down for personal reasons
Urban Outfitters (URBN) said Q2 comp sales to date 'approximately flat'
Receptos (RCPT) said that a Phase 2 study for RPC1063 in relapsing multiple sclerosis met its primary endpoint
ON Semiconductor (ONNN) announced it will acquire Aptina Imaging for about $400M in cash
PPL Corp (PPL), Riverstone to combine merchant power generation businesses to form Talen Energy. PPL, which named CFO Paul Farr as Talen's CEO, said it will focus on high-performing regulated activities following the spin-off. Effective June 10, Vincent Sorgi, currently VP and controller for PPL, is being named SVP of PPL and its CFO

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
SAIC (SAIC), HD Supply (HDS), Triangle Petroleum (TPLM), Enzo Biochem (ENZ), Limoneira (LMNR), Casey's General Stores (CASY)

Companies that missed consensus earnings expectations include:
Pep Boys (PBY), iKang Healthcare (KANG), Majesco (COOL)

Companies that matched consensus earnings expectations include:
Synergetics (SURG)

NEWSPAPERS/WEBSITES

Chico's FAS (CHS) considers going private, FT reports
International Game Technology (IGT) hires Morgan Stanley (MS) to explore sale, Reuters says
Time Warner (TWX) finalizing investment in Vice Media, FT reports
Wal-Mart.com (WMT) U.S. CEO Joel Anderson to step down, Dow Jones reports
Facebook (FB) accidentally launched, pulled Slingshot app, The Verge reports
Icahn says Family Dollar (FDO) poison pill may hinder friendly dialogue, Reuters reports
AT&T (T) resolves lawsuit regarding not carrying Al Jazeera, Bloomberg reports
Target (TGT) CEO Mulligan shaking up company strategy, WSJ reports
Merck (MRK), Gilead (GILD) both remain strong long-term investments, Barron's reports

SYNDICATE

Acadia Healthcare (ACHC) files to sell $340M of common stock
Basic Energy (BAS) files to sell 6M shares of common stock for holders
Magnum Hunter (MHR) files to sell 23.57M shares for holders
Pacific Coast Oil (ROYT) announces sale of 2.65M trust units for holders
QIWI (QIWI) files to sell 7.97M American Depositary Shares
Sealed Air (SEE) files to sell 5M shares for holders
Signature Bank (SBNY) files to sell 2.1M shares of common stock
Verint Systems (VRNT) files to sell 5M shares of common, $300M of convert senior notes

It was two short years ago that the Fed, in its relentless attempt to push everyone into the biggest equity bubble of all time, did something many thought was merely a backdoor ploy to forcibly reallocate capital out of the $2.7 trillion money market industry and into stocks when, as we wrote in July 2012, it contemplated imposing suspensions of fund redemptions to "allow for the orderly liquidation of funds assets." Or in other words "gate" money markets.

Since then various iterations of this proposal have been attempted, either by the Fed or the SEC, however due to stern industry push back (and the relatively modest amount of money at stake) the attempt to force investors to rotate their funds out of money markets (because it is quite clear that if the Fed is hinting at gating issues with a given asset class, it is only a matter of time before the hint becomes a reality) has failed, and as a result the total amount of notional capital held at money market funds has been largely unchanged in recent years.

Here comes attempt number two.

Only this time it is no longer aimed at money market funds, but that other most hated, by the Fed, asset class: bond funds, whose relentless inflows, we shouldn't have to remind readers are the main reason why the propaganda myth of a recovery, and the resulting con game, keep crashing and burning, as it is impossible to spin a 2.5% 10 Year yield as indicative of anything remotely resembling a recovery, and shows at best, a semi-deflationary world. Said inflows also are recurring evidence that whatever retail money remains unallocated, continues to go into the one asset class which is actively disparaged by the Fed at every opportunity.

In brief, if anything, the Fed would prefer that all retail investors pull their money out of bonds funds (and money markets of course), and invest them into 100x+ P/E biotech stocks. Because after all, today's stock market is nothing but the biggest Fed-propped Ponzi scheme in existence.

And in order to achieve that, according to the FT, "Federal Reserve officials have discussed imposing exit fees on bond funds to avert a potential run by investors, underlining regulators’ concern about the vulnerability of the $10tn corporate bond market."

FT justifies this latest unprecedented pseudo-capital control by sayng that "officials are concerned that bond-fund investors, as with bank depositors, can withdraw their money on demand even though the assets held by their funds are long-term debt and can be hard to sell in a crisis. The Fed discussions have taken place at a senior level but have not yet developed into formal policy, according to people familiar with the matter."

“So much activity in open-end corporate bond and loan funds is a little bit bank like,” Jeremy Stein, a Fed governor from 2012-2014 told the Financial Times last month, just before he stepped down. “It may be the essence of shadow banking is ... giving people a liquid claim on illiquid assets.”

The Fed's justification for this latest bazooka approach in forced capital reallocation:

Exit fees would seek to discourage retail investors from withdrawing funds, thereby making their claims less liquid and making a fire sale of the assets more unlikely.

"Oddly" there is nothing in the Fed's proposal about gating the most overvalued asset classes of all, equities, or say, biotechs and momo stocks, where the drawdowns, when they happen, are so fast and vicious, the bulk of hedge funds are still down for the year precisely because they were all led like obedient sheep into the Div/0 PE slaughter. Also, memory is a little fuzzy, but in the days after Lehman, it was equity hedge funds that promptly gated all their investors.... not bond hedge funds, which in fact were scrambling to deal with the influx of new funds.

Also, it goes without saying that "discouraging investors" from withdrawing funds is the last thing on the Fed's mind, which knows very well that when it comes to investor behavior all that matters is how the Fed's future intentions are discounted.

And with this unprecedented step, the Fed is sending a very clear message: it may be next year, or next month, or next week, but quite soon you, dear retail bond-fund investor, will be gated and will be unable to pull your money.

The only thing that was missing from the FT piece was a casual reference to Cyprus.

So what is the obvious desired outcome, at least by the Fed? Why a wholesale panic withdrawal from bond funds now, while the gates are still open, and since those trillions in bond funds have to be allocated somewhere, where will they go but... stock funds.

In other words, now that the Fed is pulling away from injecting tens of billions of liquidity into the market every month, it is hoping the investing population will pick up the torch. And since it has failed to incite the mass reallocation of funds from bonds to stocks, the Fed is willing to use every trick in the book to achieve its goal.

Sure enough, "introducing exit fees would require a rule change by the Securities and Exchange Commission, which some commissioners would be expected to resist, according to others familiar with the matter." However, those commissioners would be promptly silenced when a joint effort between the NSA and the Fed were to threaten the release of embarrassing photographs or conversations to the general public. And watch how all dissent promptly disappears, and the Fed once again demonstrates it is increasingly more helpless in not only preserving the biggest asset bubble in US history, but at modeling and nudging human behavior.

Sadly for the Fed, America is now on to its endless bullshit experiments. Because absent an executive order from Obama demanding that Americans invest every spare Dollar in a Ponzi scheme, this too attempt to forcibly reallocate capital from Point A to Point B will fail.

Which, however means one thing: since the Fed is so desperate it has to float trial balloons of this nature in the financial press, the untapering can't be far behind, and with it QE^ternity+1.

Finally, just like in Europe with its revolutionary NIRP experiment, it will also confirm that the real economy has never been worse than it is now.

The 'dumb' algos trading off the headlines have dragged Dean Foods stock down 7.5% as the WSJ reports that the company has in recent weeks received a subpoena from criminal authorities ordering the company to produce information, said a person familiar with the matter. Dean Foods stated it will offer "full support" and is also doing its own investigation of the matter. We suspect the stock move is a little much.

As WSJ reports,

Federal authorities have sought information from two companies in connection with an insider-trading investigation of activist investor Carl Icahn, sports bettor William T. Walters, and golfer Phil Mickelson, according to people familiar with the matter.

 

Dean Foods in recent weeks received a subpoena from criminal authorities ordering the company to produce information, said a person familiar with the matter.

 

Clorox received a request for information from the Securities and Exchange Commission in 2011 related to trading in the company's shares, according to a person familiar with the matter.

 

Neither of those developments has been previously reported.

 

In the case of Dean Foods, authorities are probing whether Mr. Walters provided stock tips to Mr. Mickelson, said people familiar with the matter.

 

...

 

Dean Foods is also doing its own investigation of the matter.

 

"We are reviewing this matter, and our practice is to offer our full support to any government investigation," the company said in a statement.

 

In the case of Dean Foods, authorities are examining trading in its shares in 2012 and 2013 related to the spin off of its WhiteWave Foods Co. division and its aftermath.

 

...

 

The investigation is being conducted by the Federal Bureau of Investigation and the Securities and Exchange Commission. Investigators routinely subpoena or request documents from companies when they are scrutinizing leaks of nonpublic information, including emails, phone records and other records to determine who had access to the information and may have improperly disclosed it. It is unclear what records they sought from Dean Foods and Clorox.

None of the men have been charged, and there is no indication charges will be filed. Messrs. Mr. Walters, Mr. Mickelson and Mr. Icahn have denied wrongdoing.

Ahead of tomorrow's make-or-break FIFA World Cup game against Portugal, the Ghana "Black Stars" are not happy. Amid controversy over match-fixing, the players have demanded that the World Cup appearance fees they are owed be paid; and as Bloomberg reports, "The players insisted that they will want physical cash." The Ghanaian government has chartered a plane and the dollars are on their way to Brazil. Perhaps the players want to invest it in the latest grand idea - Ghana's first hedge fund has just been launched (prepare for more emails).

As Bloomberg reports,

Ghana has sent a plane carrying more than $3 million in cash to Brazil to pay the World Cup appearance fees owed to the national soccer team, known as the Black Stars.

 

“The players insisted that they will want physical cash,” Deputy Sports Minister Joseph Yammin said in comments broadcast by Accra-based Citi FM. “Government had to mobilize the money and a chartered flight to Brazil. The money is in excess of $3 million.”

 

...

 

“President Mahama waded into the matter after agitation from the Black Stars players,” the association said. “President Mahama personally spoke to the players to assure them the money will be paid by Wednesday afternoon.”

 

...

 

“At the drop of a hat, to bring in $3 million in cash, it might get you into a spot of bother,” he said. “I don’t think the Brazilians will confiscate it but they just may not allow it to be released.”

And this comes after controversy over match fixing allegations...

The Ghanaian team has been dealing with issues off the field all week, as the football association asked police to investigate claims reported by the London-based Daily Telegraph that the association’s president had agreed to fix future international exhibition matches.

 

The GFA has denied the report and says that the two men mentioned in the story never made offers to bribe them or association President Kwesi Nyantakyi.

But perhaps more interesting (as an example of wealth creation and exuberance)...

Tikowrie Capital Ltd., a Ghanaian money manager started by a former regulator, plans to establish the West African country’s first hedge fund.

 

“The appetite of investors in the country has grown over the years,” Tikowrie Executive Director Maxwell Gidi said by phone from Accra yesterday. “They’re looking for more sophisticated avenues of investment.”

 

Gidi, 37, said he quit his job as assistant manager of the broker-dealer department at Ghana’s Securities and Exchange Commission, where he worked for seven years, to start Tikowrie six months ago.

 

...

 

The hedge fund will trade in U.S., Canadian and Australian dollars as well as the euro, British pound and yen, Gidi said. It will also buy and sell gold, copper and palladium and trade in sovereign debt through London-based CFH Clearing Ltd., its prime broker.

Funding? we suspect more spam emails will hit the US soon...

In what appears to be the first real action post-Flash Boys, NY AG Eric Schneiderman will announce at 4pm ET that Barclays will be sued over fraud allegations related to its Dark Pool's preferential treatment of high-frequency traders. As Bloomberg notes, Barclays runs one of the market's largest dark pools. This comes 2 months after the NY AG sent requests for information to various major HFT shops. It seems, just as we noted here, that a potential scapegoat is being primed 'just in case' this 'market' can't withstand the Fed's pullback.

Live Feed:

As Bloomberg reports,

Barclays Plc is being sued by New York’s attorney general over allegations that the bank’s dark pool gave high-frequency traders advantages over other customers, despite saying otherwise, a person familiar with the matter said.

Barclays falsified marketing materials to hide how much high-frequency traders were buying and selling, according to the person familiar with the matter, who asked to not be identified because the information hasn’t been made public.

Barclays runs one of Wall Street’s largest dark pools, a private trading venue where investors can trade stocks mostly anonymously. Mark Lane, a spokesman for London-based Barclays, declined to comment.

...

The Securities and Exchange Commission yesterday said it would test a program, called a trade-at rule, that would limit the amount of trading that takes place off public exchanges such as the New York Stock Exchange and Nasdaq Stock Market. Trading on dark pools and other off-exchange venues makes up roughly 40 percent of U.S. equity volume.

As we concluded previously,

when reality reasserts itself - a reality which Rick accurately points out has been suspended due to 5 years and counting of Fed central-planning - HFT will be "addressed." How? As the scapegoat of course. Because since virtually nobody really understands what HFT does, it can just as easily be flipped from innocent market bystander which "provides liquidity" to the root of all evil.

In other words: the high freaks are about to become the most convenient, and "misunderstood" scapegoat, for when the market finally does crash. Which means that those HFT-associated terms which very few recognize now, especially those on either side of the pro/anti-HFT debate who have very strong opinions but zero factual grasp of the matter, such as the following...

• Frontrunning: needs no explanation
• Subpennying: providing a "better" bid or offer in a fraction of penny to force the underlying order to move up or down.
• Quote Stuffing: the HFT trader sends huge numbers of orders and cancels
• Layering: multiple, large orders are placed passively with the goal of “pushing” the book away
• Order Book Fade: lightning-fast reactions to news and order book pressure lead to disappearing liquidity
• Momentum ignition: an HFT trader detects a large order targeting a percentage of volume, and front-runs it.

... will become part of the daily jargon as the anti-HFT wave sweeps through the land.

Why? Well to redirect anger from the real culprit for the manipulated market of course: the Federal Reserve. Because while what HFT does is or should be illegal, in performing its daily duties, it actively facilitates and assists the Fed's underlying purpose: to boost asset prices to ever greater record highs in hopes that some of this paper wealth will eventually trickle down, contrary to five years of evidence that the wealth is merely being concentrated making the wealthiest even richer.

Amusingly some get it, such as the former chairman of Morgan Stanley Asia, Stephen Roach, who in the clip below laid it out perfectly in an interview with Bloomberg TV earlier today (he begins 1:30 into the linked clip), and explains precisely why HFT will be the next big Lehman-type fall guy, just after the next market crash happens. To wit: "flash traders are bit players compared to the biggest rigger of all which is the Fed." Because after the next crash, which is only a matter of time, everything will be done to deflect attention from the "biggest rigger of all."

So, dear HFT firms, enjoy your one trading day loss in 1238. Those days are about to come to a very abrupt, and unhappy, end.

Remember when the DOJ's banker lackey, assistant attorney general Lanny Breuer admitted to PBS that the US department of justice (sic) does not prosecute big banks because they are too systematically important and thus, above the law? Breuer was promptly fired (only to rejoin Covington & Burling as vice chairman and head the firm's white collar defense practice) and with his departure the DOJ was said to have "fixed" its practice of giving banks, the more massive and insolvent the better, not only a "get out of jail" card but "do not even enter the courtroom" card. Ironically, all of the DOJ's subsequent wrath fell mostly on foreign banks (with domestic banks actually benefiting from the addback of "one-time, non-recurring" legal charges to their non-GAAP bottom line). It goes without saying, that not a single banker has still gone to jail since the infamous Too Big To Prosecute incident, suggesting it was all, once again, merely lip service to so-called justice.

But nowhere is it clearer that nothing at all has changed when it comes to crony capitalist behind the scenes muppetry, than in the latest Reuters exclusive of the white glove treatment "evil" BNP got in order to make sure the full wrath of US justice doesn't damage the criminal money launderer too severely.

An official at the U.S. Securities and Exchange Commission (SEC) broke ranks with other commissioners, and voted against granting BNP Paribas a critical waiver to continue operating several investment advisory units in the United States.

 

Kara Stein, a Democratic SEC commissioner who has recently demanded more accountability for big banks who break the law, was the sole dissenting vote on Monday on the temporary waiver, according to a document made public this week.

 

BNP's application was granted the same day that BNP, France's largest bank, pleaded guilty to criminal charges it violated U.S. sanctions.

 

The temporary waiver will become permanent, unless an "interested person" in the matter is granted a hearing. The deadline for requesting a hearing is July 25.

 

The SEC rarely denies such waivers because such a move risks destabilizing financial firms.

Which all leads us to this:

The New York state banking regulator on Monday separately decided not to pull BNP's banking license in the state, despite a criminal guilty plea, because of the risk it could put BNP out of business.

And as is well known, we can't risk a bank going out of business because of its criminal actions, now can we. As for actually sending someone to jail? Don't make us laugh.

It was back in April 2013, when the WSJ reported of a peculiar surge in various health insurance stocks that came moments after a report from Height Securities, a Washington-based investment-research firm that ferrets out policy news and analysis for investors, correctly predicted the Obama administration would reverse course on big spending cuts that would have hit health insurers. The note was released about 15 minutes before markets closed on Monday, April 1, leading to the following surge in the biggest Obamacare beneficiaries.

Needless to say, it is quite clear that non-public info was leaked by US legislators to a "expert network" consulting company, which in turn further propagated the information to its own clients, making them profits of up to 8.6% in milliseconds. As the WSJ summarized at the time, "The resulting stock surge is one of the most dramatic examples in recent years of how tips and insights from Washington's burgeoning political-intelligence business can drive trading on Wall Street, potentially leading to big profits for those in the know."

It took the SEC 14 months to finally figure out there may have been something illegal with this setup and as the WSJ followed up three weeks ago, "prosecutors are gathering evidence for a grand-jury probe into whether congressional staff helped tip Wall Street traders to a change in health-care policy, an indication the long-running investigation has entered a more serious phase."

Public documents show federal law-enforcement officials and the Securities and Exchange Commission are seeking records and other evidence from the House Ways and Means Committee and a top congressional health-care aide, Brian Sutter, staff director of the committee's health-care subpanel.

 

The SEC sent subpoenas to the House committee and Mr. Sutter seeking documents and testimony in the matter, according to documents made public by Rep. David Camp (R., Mich.), who is the committee chairman, and Mr. Sutter.

 

Separately, the Justice Department issued a subpoena to Mr. Sutter to compel him to testify before a federal grand jury at the U.S. District Court for the Southern District of New York, according to Mr. Sutter's public disclosure, which was included in the congressional record per House rules. Committee officials wouldn't say whether Mr. Sutter has testified. A spokesman for the Ways and Means Committee, speaking for Mr. Sutter, declined to comment.

Furthermore, the SEC went to court June 20 to enforce subpoenas it issued as it sought information related to a probe into whether Sutter leaked material nonpublic information about Medicare reimbursement rates to Mark Hayes, a lobbyist at Greenberg Traurig LLP.

As Reuters reported previously, the SEC said Hayes spoke with Sutter the same day that the Centers for Medicare and Medicaid Services announced reimbursement rates for the Medicare Advantage program. The regulator said Hayes then emailed the brokerage firm Height Securities, which shortly afterward sent its clients a "flash alert" suggesting the deal could help insurance companies such as Humana and Health Net, leading to the surge shown above.

In brief: what Sutter did is effecitvely leaking material non-public information which ultimately made its way to paying clients of Height, and nobody else, allowing them to generate quick, and substantial profits. The information had not been made public yet to the general public.

What is unknown is whether Sutter and other members of the House Ways and Means committee also traded concurrently on this non-public information, making some whopping profits in the process too. And it appears that is precisely how Sutter et al want to keep it.

According to Reuters, the Ways and Means panel said on Friday it should not have to comply with a federal regulator's demand for documents sought for an insider-trading probe involving the staff director of a subcommittee and a lobbyist.

The House Ways and Means Committee argued in a court filing that U.S. District Judge Paul Gardephe in New York should deny the Securities and Exchange Commission's attempt to subpoena documents from the committee and its healthcare subcommittee staff director Brian Sutter.

 

The SEC went to court June 20 to enforce subpoenas it issued as it sought information related to a probe into whether Sutter leaked material nonpublic information about Medicare reimbursement rates to Mark Hayes, a lobbyist at Greenberg Traurig LLP.

 

The committee's filing called the SEC subpoena "a remarkable fishing expedition for congressional records." It said the U.S. Constitution shields the panel and Sutter from being compelled to testify or produce documents.

Wait, the Constitution protects leakers of material, non-public inside information, disseminated to curry favor with various paying clients and lobbyists, and to further one's career, not to mention paycheck? Maybe the committee can point to just what page in the constitution they are looking at as we can't seem to find this particular section. We even checked the amendments - it's missing there too.

As Reuters concludes, "the dispute between the House committee and the regulator could test the boundary of the SEC's powers to compel the legislative branch of government to cooperate with its enforcement of the federal securities laws."

Spoiler alert - we are happy to reveal the answer already: the SEC's "powers to compel" will be found null and void, because while as we already noted recently while central bankers are clearly above the law, so are those who actually make it: because when it comes to insider trading, US Congress is happy to dole out fire and brimstone on all those who abuse their fiduciary responsibility or happen to prove the strong form of the EMT, but when it comes to Congress, it's look but don't touch, and certainly don't investigate.

After all corrupt Congressmen have only a few years in which to become rich, and if abuse of insider trading laws is what it takes, so be it.

• Xi Says China Conflict With U.S. Would Be Disaster (BBG)
• Short selling drops to lowest level since Lehman (FT)
• Scoping the new subprime as watchdogs cry 'bubble' (Reuters)
• Carlos Slim to break up América Móvil empire (FT)
• Jury Acquits Rengan Rajaratnam in Insider-Trading Case (WSJ)
• Hamas rockets land deep in Israel as it bombards Gaza Strip (Reuters)
• Hong Kong Buyers Queue for New Homes After Prices Plunge (BBG)
• Rebel Stronghold in Ukraine Braces for Its Showdown (WSJ)
• Tiny Houses Big With U.S. Owners Seeking Economic Freedom (BBG)
• Chinese Cash-Bearing Buyers Drive U.S. Foreign Sales Jump (BBG)
• Portugal Bonds Drop With Europe Stocks as Gold Advances (BBG)
• Why UBS Says Brazil’s 7-1 Trouncing Is Bearish for Stocks (BBG)
• Both candidates in Indonesia election claim victory (Reuters)
• Citigroup Nears Deal to Resolve Mortgage Probe (WSJ)

Overnight Media Digest

WSJ

* President Barack Obama is seeking $3.7 billion in funding and legal changes to stem the surge in children and families illegally entering the United States, creating new tensions within his party as he works to confront a crisis that is overwhelming the government's ability to hold young migrants. (http://on.wsj.com/1jnW60X)

* Israel stepped up its attacks in what it called the beginning of a prolonged assault on Palestinian militants and their infrastructure in the coastal enclave. (http://on.wsj.com/1xPSRlO)

* Medicare allowed $1.7 billion in 2010 payments to clinical laboratories for claims that raised red flags, according to a report to be released Wednesday, the latest example of how the federal insurance program for the elderly and disabled is susceptible to misspending and abuse. (http://on.wsj.com/1ncG2P0)

* The Justice Department and Citigroup are close to a deal for the bank to pay about $7 billion to settle allegations the bank sold shoddy mortgages in the run-up to the financial crisis. (http://on.wsj.com/TRFG4t)

* NorthStar Realty Finance Corp is in exclusive talks to buy Griffin-American Healthcare REIT II, a large owner of senior housing, skilled nursing facilities, hospitals and other properties, according to two people familiar with the negotiations. The cash-and-stock deal, which would value the real-estate investment trust at $3.5 billion to $3.7 billion, isn't final and could still fall apart. (http://on.wsj.com/1xPMbEq)

* Federal prosecutors suffered the first defeat in their half-decade-long crackdown on insider trading Tuesday with the acquittal of Raj Rajaratnam's younger brother, a bracing reversal after a string of 81 convictions. (http://on.wsj.com/VVXtcK)

* The SEC said a Utah accounting firm and two of its partners botched the audits of a chicken company based in China that faces allegations of defrauding investors. Child Van Wagoner & Bradshaw of Salt Lake City, Utah, along with partners Russell Anderson and Marty Van Wagoner, was deficient in its 2009 and 2010 audits of Yuhe International Inc, a Chinese provider of broiler chickens, the SEC said. (http://on.wsj.com/TRAy0d)

* Amazon, amid tense negotiations with Hachette, proposed letting the publisher's authors keep 100 percent of the revenue from their e-books until a contract is reached. Hachette rejected the proposal. (http://on.wsj.com/1zog0gP)

* The Financial Industry Regulatory Authority is pressing retail brokers for details about how they route customer orders amid mounting concerns some brokers might be sending orders to venues that provide the highest payments but not the best price for investors. (http://on.wsj.com/1r6P5Bu)

* A combative, at times emotional Donald Sterling said in court testimony Tuesday that he is fighting a $2 billion deal to sell the Clippers because he believes the basketball team will be worth more money once its television contracts are renegotiated. (http://on.wsj.com/1lSG0qt)

* Google Cloud Platform offered two terabytes of free storage for a year, through one of its partners, a startup called Panzura. The move highlights the battle among Google , Amazon and Microsoft to provide companies with remote storage, computing power and other technology services, which reduce companies' need to buy and run their own equipment. Some industry insiders predict storage will soon be free. (http://on.wsj.com/1qhLTSb)

* After another attempt to take over Newmont Mining Corp failed in April, many investors have lost patience. They are urging the miner to either rekindle this year's aborted deal with No. 1 Barrick Gold Corp, or break itself up. (http://on.wsj.com/1xQ5oFX)

FT

After delivering a fierce speech to foreign diplomats in Moscow last week where he accused the United States of using cold war tactics, Russian President Vladimir Putin has gone oddly silent following the Ukrainian army's swift advance against pro-Russian separatists.

Hedge funds have taken the decision to reduce their bearish bets that the value of stocks is about to fall, with the share of stocks identified for short selling at its lowest level since before the financial crisis of 2007.

Rengan Rajaratnam, the younger brother of convicted Galleon Group founder Raj Rajaratnam, was on Tuesday cleared of a charge that he conspired to engage in insider trading while working at the $8 billion hedge fund.

Danish oil and shipping group AP Moeller-Maersk revealed a $1.7 billion hit to its Brazilian oil assets, becoming the latest company to face issues trying to exploit the country's deepwater fields.

U.S. drugmaker AbbVie hiked its offer for Shire to 30 billion pounds, even as it urged its shareholders to encourage the UK-listed drugmaker to partake in a friendly deal.

The UK Serious Fraud Office has arrested and questioned four individuals at Airbus as part of a probe its long-standing investigation into alleged corruption in Saudi Arabia by a unit of the planemaker.

NYT

* Citigroup and the Justice Department are nearing a deal that could cost the bank roughly $7 billion to settle a civil investigation into the sale of mortgage investments, people briefed on the matter said on Tuesday. (http://nyti.ms/1me9QdR)

* After just under four hours of deliberation, a federal jury of eight women and four men found Rengan Rajaratnam, 43, not guilty of conspiracy to commit insider trading with his brother. (http://nyti.ms/U2tWfP)

* América Móvil said Tuesday that it would sell off parts of its Mexican unit, an unexpected capitulation by its controlling shareholder, Carlos Slim Helú, to strong new antimonopoly rules. (http://nyti.ms/1ozMWfg)

* A Canadian firm, 1832 Asset Management, disclosed in a filing with the Securities and Exchange Commission on Tuesday that it had sold about 11.5 million shares of American Apparel stock, or about 6.6 percent of the company's outstanding shares, liquidating its entire holding in the company. (http://nyti.ms/1rPNwud)

* New York's attorney general said on Tuesday that he had reached an agreement with Uber, the car-summoning start-up, that would limit the cost of using the company's service during emergencies. The new agreement, according to the attorney general's office, would cap Uber's surge prices during "abnormal disruptions of the market," typically citywide emergencies, in accordance with the City of New York's law against price gouging, passed in 1979. (http://nyti.ms/1kCd4mQ)

* Yelp, the online service increasingly popular on both sides of the Atlantic, has joined the critics formally opposing the European Union's proposed antitrust settlement with Google. Google officials declined to comment on the Yelp complaint. (http://nyti.ms/1jcTTVK)

* Amazon has proposed giving Hachette's authors all the revenue from their e-book sales on Amazon as the parties continue to negotiate a new contract. Hachette's response on Tuesday was to suggest that the retailer was trying to make it commit suicide. (http://nyti.ms/1zoeKdI)

Canada

THE GLOBE AND MAIL

** Toronto Mayor Rob Ford's staff called police after protesters disrupted a press conference on Tuesday, but an officer ended up accusing the mayor's sobriety coach of kicking a demonstrator. A handful of protesters, some of whom removed their shirts, loudly called on the mayor to resign as he spoke out against a proposal to redesign Eglinton Avenue West to make it more attractive to pedestrians and cyclists. (http://bit.ly/1k4MNxH)

** Toronto Councillor Doug Ford said a window on his SUV was smashed on Monday night, and he alleged that the incident may have been politically motivated. The outspoken councillor, who is running the re-election campaign for his brother, Mayor Rob Ford, told reporters at City Hall on Tuesday morning that the rear window on his car had been vandalized. (http://bit.ly/1r6gOT1)

Reports in the business section:

** General Electric Co chairman and chief executive officer Jeff Immelt said Canada's energy industry needs to make the crude wrung from the Alberta oil sands competitive with other sources around the world in terms of greenhouse gas emissions, and is positioning the industrial conglomerate to play a key role. (http://bit.ly/1meIswy)

NATIONAL POST

** A 31-year-old teacher is dead and two others are seriously injured after one or more people opened fire outside a public housing building in North York just after midnight on Tuesday. Abshir Hassan, 31, a supply teacher at Lawrence Heights Middle School, died at the scene, police said. The other two victims are a 22-year-old man and an 18-year-old woman. (http://bit.ly/1pZ1I4w)

** Alleged Anonymous hacker Matt DeHart has been put on suicide watch and his refugee hearing has been postponed. Instead of appearing before a Toronto refugee tribunal Tuesday he was confined in a suicide watch cell after returning to jail from hospital, where he was treated after another suicide attempt. (http://bit.ly/1lTn7DZ)

FINANCIAL POST

** Saskatchewan, and perhaps one or more Atlantic provinces, will join Ontario and British Columbia in Ottawa's proposed national securities watchdog, sources say. Finance Minister Joe Oliver will announce that Saskatchewan will sign onto the fledgling Co-operative Capital Markets Regulator, according to sources. (http://bit.ly/1qiD7mX)

** Canada's banking system isn't as solid as it was a year ago because of the federal government's plan to implement a bail-in regime for domestic, systemically important banks, but there remains little to worry about when it comes to the overall strength of the country's biggest lenders, says Moody's Investor Services Inc. (http://bit.ly/1qUEvQA)

China

CHINA SECURITIES JOURNAL

- A total of 122,727 investors opened A-share trading accounts last week, down 11.7 percent from the week before last.

SHANGHAI SECURITIES NEWS

- The city of Daqing in Heilongjiang province, known as the oil capital of China, has outlined plans to boost development of the photovoltaic industry as part of the city's efforts to move its economy away from traditional energy to new energy sources.

SECURITIES TIMES

- China's finance ministry said it plans to improve subsidies to rural financial institutions in order to direct social funds into the agriculture sector.

SHANGHAI DAILY

- Firms and individuals in the Sino-Singapore Tianjin Eco City on Tuesday received a 2-billion-yuan ($322 million) quota from China's central bank for cross-border yuan investment and borrowing as part of efforts to promote the international use of the yuan. The People's Bank of China has allowed companies in the zone to borrow yuan from banks in Singapore, use equity funds to invest overseas, and individuals to transact yuan under direct investment and current accounts.

CHINA DAILY

- The Chinese government will increase its input and encourage social capital to enter the industry to provide better healthcare services, Premier Li Keqiang said on Tuesday. These moves will help to minimize patients' out-of-pocket expenses and create more quality healthcare resources, he said.

Britain

The Times

FIRMS GET MORE POWER TO FIGHT ENERGY GIANTS

Small companies are to be given more help to challenge large energy suppliers as part of a drive to update or scrap red tape that acts as a "drag on jobs and growth".

The Guardian

LABOUR PLANS PUBLIC CONTRACTS SHAKEUP

Under a Labour government, only social enterprises with a public service mission will be allowed to bid for some government contracts in an effort to break the stranglehold of big corporate suppliers on public procurement, shadow minister Chi Onwurah will say on Wednesday.

The Telegraph

HMRC RAID ON BANK ACCOUNTS GOES AGAINST MAGNA CARTA, SAY MPS

British tax authorities have been accused of attempting to ride roughshod over Magna Carta in pursuit of new powers that will allow them to raid the bank accounts of those who fail to pay their dues.

VINCE CABLE 'CONFIDENT' IN FACE OF A FRESH PFIZER APPROACH

Pfizer would be required to make meaningful commitments to Britain's science base should it resume its takeover play for AstraZeneca in future, the Business Secretary has said.

THE MOST LOYAL SAVERS ARE PAID HALF BANK RATE, REGULATOR FINDS

Banks and building societies are exploiting their most loyal savers with rates that average a fraction of the Bank Rate, the city regulator has found.

Sky News

MOULTON IN TALKS OVER UNIPART RESCUE DEAL

City financier Jon Moulton is in talks to rescue Unipart Automotive, Britain's biggest independent car parts supplier, in a deal that could save more than 1,500 jobs.

GOODWIN HELPS RACK UP 400,000 STG RBS LEGAL BILL

Royal Bank of Scotland (RBS) has spent hundreds of thousands of pounds on law firms acting for Fred Goodwin and other former directors during the early stages of legal actions brought by thousands of its shareholders.

Fly On The Wall 7:00 AM Market Snapshot

ECONOMIC REPORTS

Domestic economic reports scheduled for today include:
FOMC minutes for June 17-18 meeting to be released at 14:00

ANALYST RESEARCH

Upgrades

American Express (AXP) upgraded to Buy from Neutral at Guggenheim
Apollo Investment (AINV) upgraded to Buy from Neutral at SunTrust
Broadcom (BRCM) upgraded to Outperform from Perform at Oppenheimer
CARBO Ceramics (CRR) upgraded to Neutral from Sell at Guggenheim
Deutsche Bank (DB) upgraded to Overweight from Neutral at JPMorgan
GOL Linhas (GOL) upgraded to Outperform from Market Perform at Raymond James
HollyFrontier (HFC) upgraded to Outperform from Market Perform at Wells Fargo
KKR (KKR) upgraded to Outperform from Neutral at Credit Suisse
Royal Dutch Shell (RDS.A) upgraded to Buy from Hold at Deutsche Bank
Schlumberger (SLB) upgraded to Overweight from Neutral at HSBC
Seattle Genetics (SGEN) upgraded to Buy from Neutral at UBS
Umpqua Holdings (UMPQ) upgraded to Equal Weight from Underweight at Barclays

Downgrades

Apollo Global (APO) downgraded to Neutral from Buy at Citigroup
Artisan Partners (APAM) downgraded to Neutral from Buy at Citigroup
BP (BP) downgraded to Hold from Buy at Deutsche Bank
Carlyle Group (CG) downgraded to Neutral from Buy at Citigroup
Garmin (GRMN) downgraded to Underperform from Sector Perform at Pacific Crest
Gigamon (GIMO) downgraded to Buy from Strong Buy at Needham
Gigamon (GIMO) downgraded to Market Perform from Outperform at William Blair
Gigamon (GIMO) downgraded to Neutral from Buy at Goldman
Gigamon (GIMO) downgraded to Underperform from Neutral at BofA/Merrill
International Paper (IP) downgraded to Sector Perform from Outperform at RBC Capital
Louisiana-Pacific (LPX) downgraded to Sector Perform from Outperform at RBC Capital
Marvell (MRVL) downgraded to Underperform from Perform at Oppenheimer
McGraw Hill Financial (MHFI) downgraded to Market Perform at Raymond James
Moody's (MCO) downgraded to Market Perform from Outperform at Raymond James
Plum Creek Timber (PCL) downgraded to Sector Perform from Outperform at RBC Capital
Potash (POT) downgraded to Neutral from Overweight at JPMorgan
RGS Energy (RGSE) downgraded to Market Perform from Outperform at Cowen
Taminco (TAM) downgraded to Neutral from Buy at Citigroup
Vectren (VVC) downgraded to Hold from Buy at KeyBanc

Initiations

21st Century Fox (FOXA) initiated with an Overweight at Barclays
Ardmore Shipping (ASC) initiated with a Buy at Canaccord
Brixmor (BRX) initiated with an Outperform at RW Baird
CBS (CBS) initiated with an Equal Weight at Barclays
CTPartners (CTP) initiated with a Buy at B. Riley
Cavium (CAVM) initiated with an Outperform at Imperial Capital
ConnectOne Bancorp (CNOB) initiated with a Buy at Guggenheim
DHT Holdings (DHT) initiated with a Buy at Canaccord
Discovery (DISCA) initiated with an Overweight at Barclays
Disney (DIS) initiated with an Equal Weight at Barclays
F5 Networks (FFIV) initiated with a Buy at DA Davidson
HomeAway (AWAY) initiated with a Neutral at Macquarie
ITT Corp. (ITT) initiated with a Perform at Oppenheimer
Infosys (INFY) initiated with a Hold at Stifel
KLA-Tencor (KLAC) assumed with an Overweight at Piper Jaffray
Kate Spade (KATE) initiated with an Outperform at BMO Capital
Lam Research (LRCX) assumed with an Overweight at Piper Jaffray
MEDNAX (MD) initiated with a Positive at Susquehanna
Navios Acquisition (NNA) initiated with a Hold at Canaccord
NetApp (NTAP) initiated with a Buy at DA Davidson
Nordic American Tankers (NAT) initiated with a Sell at Canaccord
Regency Energy Partners (RGP) reinstated with an Equal Weight at Barclays
SAIC (SAIC) initiated with a Hold at Stifel
SPX Corp. (SPW) initiated with a Hold at Jefferies
Scorpio Tankers (STNG) initiated with a Hold at Canaccord
TCP Capital (TCPC) initiated with a Neutral at Citigroup
Time Warner (TWX) initiated with an Equal Weight at Barclays
Trulia (TRLA) initiated with an Outperform at Macquarie
Tsakos Energy (TNP) initiated with a Buy at Canaccord
Vantiv (VNTV) coverage resumed with an Overweight at Morgan Stanley
Viacom (VIAB) initiated with an Underweight at Barclays
Winnebago (WGO) initiated with a Neutral at SunTrust
Zillow (Z) initiated with an Outperform at Macquarie

COMPANY NEWS

Boeing (BA), Emirates finalized an order for 777Xs valued at $56B
KKR (KKR) acquired majority interest in OEG Offshore, terms not disclosed
Alcoa (AA) expects Q3 EPS to 'continue to build on strong second quarter,' continues to see 2014 global aluminum demand growth of 7%
Salix (SLXP) said it will combine with Cosmo Technologies. The transaction is expected to be modestly accretive to Salix’s EPS in FY16 and increasingly accretive thereafter
Bob Evans (BOBE) sees 1Q15 SSS down 2.5%-down 3%; sees Q2 SSS flat to up low single digits; sees Q3, Q4 SSS up in high single-digit
Gaming Partners (GPIC) announced that Michael Mann resigned from position of CFO

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Alcoa (AA), AeroVironment (AVAV), Bob Evans (BOBE)

Companies that missed consensus earnings expectations include:
Synergy Resources (SYRG), Healthcare Services (HCSG), Container Store (TCS)

AeroVironment (AVAV) sees FY15 revenue $250M-$270M, consensus $256.2M
Silicon Image (SIMG) lowers Q2 revenue guidance to $58M-$60.5M from $71M-$76M
Bob Evans (BOBE) sees Q1 EPS 6c-12c, may not compare to consensus 54c
Container Store (TCS) now sees FY14 EPS 49c-54c, consensus 57c
Bob Evans (BOBE) sees FY14 EPS $1.90-$2.20, consensus $2.56

NEWSPAPERS/WEBSITES

Citigroup (C) near $7B settlement with U.S. over mortgage probe, NY Times reports
Allergan (AGN) plans broad restructuring plan, Bloomberg says
Amazon (AMZN) proposes e-book authors keep 100% of revenue, WSJ reports
AbbVie (ABBV) forced to retract CEO comments about in Shire (SHPG) takeover battle, Reuters reports
Pentagon says no decision has been made on whether grounded F-35s (LMT) will be ready for air show, Reuters reports
GM (GM) CEO, general counsel to testify before Senate subcommittee, WSJ reports
America Movil (AMX) to break up Mexico unit by divesting assets, Bloomberg reports
Delta Air Lines (DAL) shares look cheap, Barron's says

SYNDICATE

bluebird bio (BLUE) 3M share Secondary priced at $34.00
Remark Media (MARK) files to sell 2.07M shares for holders
Rentech (RTK) files to sell up to 45.05M shares for holders
Ultragenyx (RARE) 2.017M share Secondary priced at $40.00

• Espirito Santo Financial Suspends Shares, Bonds on ESI Exposure (BBG)
• Europe Stocks Drop for Fifth Day as Espirito Santo Sinks (BBG)
• Espirito Santo Creditors Doubt Containment on Missed Payment (BBG)
• French Stocks Seen Extending Losses on Economy Concern (BBG)
• Stocks Slide With Portugal Bonds as Yen Gains; Oil Drops (BBG)
• U.S. Probes Hacking of Government Computers at Personnel Agency (WSJ)... finds terabytes of porn 
• It's Congress' fault: Obama rejects criticism over border crisis (Reuters)
• Israel Mobilizes 20,000 Troops for Possible Gaza Invasion (BBG)
• Chinese hackers pursue key data on U.S. workers (NYT)
• Donetsk Primed for Siege as Ukraine Army Hems In Rebels (BBG)
• Regulators Ready Money-Fund Rules (WSJ)
• Are Investors Complacent About Risk? Concern Raised in June Fed Meeting (BBG)
• Gaza Rockets Threaten Nuclear Plant as Israel Vows Force (BBG)
• China June trade data misses forecasts, doubts over economy linger (Reuters)

Overnight Media Digest

WSJ

* Federal Reserve officials agreed at June's policy meeting to end their bond-buying program in October, putting an explicit end date on the experiment for the first time. Most officials at the June meeting also indicated that they expect an interest rate hike to come next year. (http://on.wsj.com/VLc1vo)

* IBM on Wednesday pledged to spend $3 billion over five years on semiconductor research. The money will be directed toward two major tasks: tackling technical obstacles to the miniaturization of circuitry on conventional silicon chips and developing alternative materials and technologies to keep boosting computing speed while consuming less energy. (http://on.wsj.com/1nffCfJ)

* The Education Department says it was unaware of the dire state of Corinthian Colleges Inc's finances before it moved June 12 to restrict access to federal student-aid dollars, which made up 80 percent of Corinthian's revenue. The aid freeze was designed to pressure the company to comply with an investigation into recruiting tactics, administration officials say, not to force its closure. (http://on.wsj.com/1szTnRZ)

* Chinese exports grew in June on the back of strengthening U.S. consumer demand, in a positive sign for China's crucial factory sector and for the global outlook. The pace of export growth disappointed some economists, though others blamed the lingering impact of distortions in last year's Chinese trade numbers used to make the comparison. (http://on.wsj.com/1ra3L2H)

* European Union antitrust officials have started questioning rival firms about Facebook Inc's proposed $19 billion acquisition of messaging service WhatsApp, ahead of a formal review that could be a test case for how to apply EU competition law to the new world of social media. (http://on.wsj.com/1n7ifLz)

* U.S. regulators are poised to complete long-awaited rules intended to prevent a repeat of the investor stampede out of money-market mutual funds that threatened to freeze corporate lending during the 2008 financial crisis. The Securities and Exchange Commission is expected to vote on a plan as early as this month that would require certain money funds catering to large, institutional investors to abandon their fixed $1 share price and float in value like other mutual funds, these people said. (http://on.wsj.com/1ol2KkG)

FT

AbbVie Chief Executive Richard Gonzalez was on Wednesday forced to retract comments made by him while discussing shareholder support for the U.S. drugmaker' s 30 billion pound ($51.1 billion) bid for Shire after being caught out by British takeover rules.

Citigroup Inc is close to shelling out more than $7 billion to resolve a long-running investigation by the U.S. government into its sale of mortgage-backed securities, according to people familiar with the matter.

Germany's Lufthansa may launch a no-frills long-haul airline as part of wider plans by the company to stave off competition from low-cost and Middle Eastern carriers.

European Union antitrust regulators fined have fined six drugmakers including France's Servier a whopping 428 million euros ($583.8 million) for blocking the entry of cheaper generic competition to an expensive branded drug.

Britain's financial watchdog is launching a review of competition in the wholesale securities market as it eyes the practices used by high-frequency traders to get ahead on other investors.

Germany's Aldi is the global leader among discount food retailers that offer limited assortment grocery. Schwarz, which owns Lidl, took second place, according to a study by research firm Planet Retail.

A cross-selection of peer-to-peer (P2P) loans has gotten a credit rating from Standard & Poor's, marking the first time that a major credit rating agency has agreed to formally evaluate a securitisation from the fast-growing P2P sector.

NYT

* With countries in the European Union obliged to reduce their debt as a percentage of their economies, the quantifying of vice is expected to make growth rates look rosier. (http://nyti.ms/1ol0Twa)

* Chinese hackers in March broke into the computer networks of the United States government agency that houses the personal information of all federal employees, according to senior American officials. They appeared to be targeting the files on tens of thousands of employees who have applied for top-secret security clearances. (http://nyti.ms/1mL8sRb)

* A growing category in health care promises an alternative to the hospital emergency room and perhaps the family practitioner, with low fees and extended hours. Once derided as "Doc in a Box" medicine, urgent care has mushroomed into an estimated $14.5 billion business. (http://nyti.ms/1mBdPAK)

* Europe's top antitrust enforcer said several drug makers, including Servier, kept more affordable forms of a popular heart treatment off the market. (http://nyti.ms/1mBehix)

* The Taxi and Limousine Commission declared Lyft, a car-summoning start-up, an "unauthorized service" in New York City on Wednesday, two days before its planned debut. The start-up, however, did not come to an operation agreement with New York City regulators beforehand, prompting the commission's action on Wednesday evening. (http://nyti.ms/1xVJoJD)

* In small trials, two drugs go far in soothing symptoms of Eczema and Psoriasis. An experimental drug for eczema relieved severity of symptoms in 85 percent of those who took it. A drug for psoriasis cut severity of symptoms in as many as 82 percent of those who took it. (http://nyti.ms/1mLqVgH)

* A merger of Comcast and Time Warner Cable and a joining of AT&T and DirecTV would both pose competitive threats, Dish said. (http://nyti.ms/1mLnQNn)

* Harley-Davidson is recalling 66,421 Touring and CVO Touring motorcycles from the 2014 model year because their front wheels can lock up without warning. The company said it knew of five crashes and two minor injuries related to the defect, which it discovered last fall through warranty claims.(http://nyti.ms/TU7QMr)

Canada

THE GLOBE AND MAIL

** Heavy rain is not the only reason the Assiniboine River is flooding in the height of summer and threatening a swath of communities across southern Manitoba this week, a new report suggests. The elimination of vast numbers of small ponds and wetlands across the Canadian prairie has removed a crucial buffer that can temporarily store water on the landscape during periods of excessive precipitation. (http://bit.ly/1rawNiP)

** Canada should "come off the sidelines" to take a more active role in South Sudan as that country's humanitarian crisis deepens, the head of Amnesty International's Canadian branch says. Alex Neve made the comments after a 10-day visit to South Sudan, where a violent conflict is causing widespread upheaval in the world's newest country. (http://bit.ly/1ngOQU2)

Reports in the business section:

** Multimillionaire geologist Charles "Chuck" Fipke has sold his remaining stake in Ekati, the first-ever Canadian diamond mine he discovered two decades ago in the Arctic tundra of the Northwest Territories. The native Albertan sold his 10 percent interest to Dominion Diamond Corp for a total of $67 million (http://bit.ly/1nad8KL)

NATIONAL POST

** A father opened fire at a suburban Houston home Wednesday, killing four of his children as well as two adults who were with them, and critically wounding his 15-year-old daughter, authorities said. The suspected gunman eventually surrendered after a three-hour standoff with deputies who had cornered him. (http://bit.ly/1rayexz)

** The Conservative government is examining a whole new business model to effectively buy, sell and use the time and skills of federal employees: Meet the BURO-crat. The government has been planning a pilot project at some federal agencies that would apply "market principles" to more efficiently use federal bureaucrats and help smooth out busy and slow work periods, according to government records. (http://bit.ly/W05QUP)

FINANCIAL POST

** The Canadian arm of China Petrochemical Corp may shelve work on its Northern Lights oil sands lease or sell the property entirely, as Chinese companies begin to rethink future investment prospects in the world's No. 3 crude reserve. Sinopec, as the company is known, could delay efforts to develop the property or seek to sell its interest in the lease entirely as it consolidates its North American assets, a person familiar with board-level discussions in Beijing said. (http://bit.ly/U5bLX7)

** CNOOC Ltd subsidiary Nexen Energy ULC is restructuring its operations and letting go staff despite pledges to Ottawa by China's largest offshore oil producer to keep all employees and senior management and turn the Calgary-based company into a platform for growth, industry sources say. (http://bit.ly/1tquxZ3)

China

CHINA SECURITIES JOURNAL

Qianhai, the special economic zone in China's southern city of Shenzhen, plans to publish new rules that will expedite investment by Hong Kong companies and accelerate financial cooperation between the two neighbouring cities.

SHANGHAI SECURITIES NEWS

China has vowed to improve insurance services to stimulate innovation in social governance, the State Council said in a statement on Wednesday. Competent insurers are encouraged to roll out commercial pension and health care plans, invest in the pension sector, participate in the integration of the health sector and develop new products. Insurance will be incorporated into the disaster prevention system and funds will be encouraged to invest in urbanization, infrastructure and residential renovations.

21st CENTURY BUSINESS HERALD

- A residential land parcel in downtown Shanghai was sold at a record price of nearly 60,000 yuan per square metre, making it the most expensive plot sold in the country so far this year. The 6.885-square metre plot was acquired by a subsidiary of Lai Fung Holdings Ltd, which is the property and investment arm of the Lai Sun Group.

SHANGHAI DAILY

- China's chief climate official, Xie Zhenhua, said the nation should not be subject to the same rules for greenhouse gas emissions as the U.S. and other developed countries, and that Beijing will oppose attempts to impose them on China at next year's world climate conference.

CHINA DAILY

- Bank of China on Wednesday denied helping to launder money for people planning to emigrate by ignoring the annual cap on foreign exchange for individuals. According to a report by broadcaster CCTV, the country's largest foreign exchange bank has frequently allowed wealthy customers to transfer as much money as they want overseas.

Britain

The Times

CABLE HIRES MYNERS TO DEFUSE FLOAT ANGER

Vince Cable has attempted to head off what will be an excoriating attack on him by MPs later this week over the sale of Royal Mail by calling in a former Labour City minister to head an inquiry into government privatisations.

APPLAUSE FILLS AISLES AS KING CHECKS OUT

In the end there was no valedictory, no finger pointing and no barracking from the floor. Justin King stood down as the chief executive of J Sainsbury after ten years and fifteen weeks yesterday with the sound of applause ringing in his ears.

INSURERS PROMISE TO BE MORE OPEN WITH CUSTOMERS ON COSTS

Motorists and householders renewing their annual insurance policies could be told at the same time what their cost of cover was the previous year under an industry drive to be more open with customers.

The Guardian

BANK OF ENGLAND'S NEMAT SHAFIK SIGNALS THAT INTEREST RATE RISE EDGES CLOSER

The Bank of England's new deputy governor has signalled that an interest rate rise is edging closer after telling MPs the amount of spare capacity in the economy is lower than the bank predicted in May.

MONTHLY HOUSE PRICES FOR JUNE DROP 0.6 PCT, HALIFAX REPORTS

House prices experienced a bigger monthly fall than analysts had expected in June, knocking 1,100 pounds ($1,900) off the average property value, according to a survey carried out by mortgage lender Halifax.

The Telegraph

UBS PREDICTS SAVINGS FLIGHT FROM SCOTLAND IN THE EVENT OF 'YES' VOTE

Savers may rapidly move their money south of the border if Scotland were to vote for independence, analysts at one of Europe's biggest banks have predicted.

QATAR CUTS HOLDING IN LONDON STOCK EXCHANGE BY A THIRD

Qatar Holding is to trim its 15 percent stake in the owner of the London Stock Exchange by a third ahead of a $1.6 billion rights issue by the British bourse to fund its acquisition of Russell Investments.

SHALE 'COULD MEET 41 PCT OF UK'S GAS NEEDS', SAYS NATIONAL GRID

Shale gas produced in the UK could provide more than a third of the nation's gas supplies within 20 years, a report has found.

Sky News

RAC OWNER CARLYLE HOLDS TALKS ABOUT 2 BLN STG SALE

The owners of the RAC roadside recovery service have been holding secret talks about a 2 billion pound sale in the wake of a modest stock market debut by the AA, its main rival.

SYRIA 'LIKELY' USED UK CHEMICALS TO MAKE SARIN

Chemicals exported by British firms to Syria in the 1980s are likely to have been used to make the nerve agent sarin, UK Foreign Secretary William Hague said.

Fly On The Wall 7:00 AM Market Snapshot

ECONOMIC REPORTS

Domestic economic reports scheduled for today include:
Jobless claims for week of July 5 at 8:30--consensus 315K
Wholesale trade inventories for May at 10:00--consensus up 0.6%

ANALYST RESEARCH

Upgrades

Alcoa (AA) upgraded to Overweight from Equal Weight at Morgan Stanley
Allscripts (MDRX) upgraded to Strong Buy from Buy at ISI Group
Autodesk (ADSK) assumed with an Overweight from Equal Weight at Barclays
CommonWealth REIT (CWH) upgraded to Buy from Hold at Stifel
MB Financial (MBFI) upgraded to Buy from Neutral at Sterne Agee
MRC Global (MRC) upgraded to Neutral from Underperform at BofA/Merrill
PrivateBancorp (PVTB) upgraded to Buy from Neutral at Sterne Agee
Starwood (HOT) upgraded to Buy from Hold at MLV & Co.
TCF Financial (TCB) upgraded to Buy from Neutral at Sterne Agee
Tractor Supply (TSCO) upgraded to Outperform from Neutral at Credit Suisse

Downgrades

Lumber Liquidators (LL) downgraded to Hold from Buy at Jefferies
Lumber Liquidators (LL) downgraded to Neutral from Outperform at Credit Suisse
T. Rowe Price (TROW) downgraded to Equal-Weight from Overweight at Evercore
UnitedHealth (UNH) downgraded to Hold from Buy at Jefferies
Waddell & Reed (WDR) downgraded to Neutral from Buy at Citigroup

Initiations

American Express (AXP) initiated with an Underperform at Macquarie
Aon plc (AON) initiated with an Overweight at Evercore
Associated Banc-Corp (ASBC) assumed with a Neutral at Sterne Agee
CIT Group (CIT) initiated with an Underperform at Macquarie
Cepheid (CPHD) initiated with an Outperform at Wells Fargo
Discover (DFS) initiated with an Outperform at Macquarie
EZCORP (EZPW) initiated with a Neutral at Macquarie
Envision Healthcare (EVHC) initiated with an Outperform at RW Baird
Exterran Partners (EXLP) initiated with a Neutral at Goldman
FirstMerit (FMER) initiated with a Neutral at Sterne Agee
Foresight Energy (FELP) initiated with an Outperform at Cowen
Freeport McMoRan (FCX) initiated with an Overweight at HSBC
MDU Resources (MDU) initiated with a Market Perform at Wells Fargo
Marsh & McLennan (MMC) initiated with an Overweight at Evercore
Model N (MODN) initiated with an Outperform at Northland
Nexstar (NXST) initiated with a Hold at Noble Financial
NorthStar Asset Management (NSAM) initiated with an Outperform at FBR Capital
QIAGEN (QGEN) initiated with a Market Perform at Wells Fargo
Quidel (QDEL) initiated with a Market Perform at Wells Fargo
Santander Consumer (SC) initiated with a Neutral at Macquarie
ServiceNow (NOW) initiated with a Neutral at BofA/Merrill
Springleaf (LEAF) initiated with a Neutral at Macquarie
TAL International (TAL) initiated with a Neutral at Macquarie
Team Health (TMH) initiated with an Outperform at RW Baird
Textainer (TGH) initiated with a Neutral at Macquarie
Trovagene (TROV) initiated with a Buy at Maxim
Willis Group (WSH) initiated with an Equal-Weight at Evercore
World Acceptance (WRLD) initiated with a Neutral at Macquarie

COMPANY NEWS

Boeing (BA) projected demand for 36,770 new airplanes over the next 20 years valued at $5.2T
IBM (IBM) announced a $3B cloud, big data systems research initiative
Harley-Davidson (HOG) recalled 66,421 motorcycles due to potential wheel lock-up
Google Ventures (GOOG) said it would launch a new venture fund in Europe with initial funding of $100M
Costco (COST) reported June SSS up 6%
Zynga (ZNGA) appointed Google (GOOG) executive Dr. Regina Dugan to the company's board
Regado Biosciences (RGDO) said the FDA placed a clinical hold on the company's ongoing Phase 3 REGULATE-PCI trial
Worldwide PC shipments totaled 75.8M units in Q2, a 0.1% increase from 2Q13. According to IDC's Worldwide Quarterly PC Tracker, worldwide PC shipments totaled 74.4M units in Q2 (HPQ, TOSBF, AAPL, MSFT, IBM)

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
DragonWave (DRWI), CHC Group (HELI)

Companies that missed consensus earnings expectations include:
Helen of Troy (HELE), WD-40 (WDFC)

Lumber Liquidators (LL) sees Q2 EPS 59c-61c, may not compare to consensus 90c
Lumber Liquidators (LL) lowers FY14 EPS view to $2.65-$3.00 from $3.25-$3.60
DragonWave (DRWI) sees Q2 revenue growth 25%-40% relative to Q1
Ventas (VTR) sees Q2 normalized FFO at least $1.09, consensus $1.09
Helen of Troy (HELE) backs 2015 adjusted EPS view $4.30-$4.40, consensus $4.38
Zumiez (ZUMZ) raises Q2 EPS, revenue outlook

NEWSPAPERS/WEBSITES

HP (HPQ) sources deny bid made for Rackspace (RAX), Re/code reports
Holder refuses meeting with BofA (BAC) CEO, Reuters says
News Corp's (NWSA) HarperCollins selling books directly to readers to bypass Amazon (AMZN), FT reports
Shareholders urge Allergan (AGN) to make large acquisition, FT reports
Bank of America (BAC) requests 5c dividend reapproval, WSJ reports
Commerzbank (CRZBD) could resolve U.S. probe by paying $600M-$800M, Reuters says
Investigation into ousted American Apparel (APP) CEO to end soon, Reuters reports
Schlumberger (SLB) can continue higher, Barron's says

SYNDICATE

Crestwood Equity (CEQP) files to sell 26.3M common units for holders
Eros International (EROS) 7M share Secondary priced at $14.50
Kosmos (KOS) files to sell 17M shares of common stock
Malibu Boats (MBUU) 4.8M share Secondary priced at $18.50
Memorial Production (MEMP) files to sell 8.6M common units for partners
Ocera Therapeutics (OCRX) files to sell common stock
Sotherly Hotels (SOHO) announces $23.4M 'at-the-market' equity offering

• Microsoft to announce biggest round of job cuts in 5 years (BBG)
• Palestinian rocket fire persists, Israel warns truce at risk (Reuters)
• China tells U.S. to stay out of South China Seas dispute (Reuters)
• Merkel Resists Sundering U.S. Ties Over Spying Affair (BBG)
• BES slide, tumbling German sentiment hit markets (Reuters)
• Top 1 Percent Is Even Richer Than Surveys Say, ECB Paper Finds (BBG)
• Puerto Rico Utility May Default on January Interest Payment (BBG)
• Can't Get a Job From an Algorithm, or So It Seems as Hot Resumes Go Nowhere Fast (BBG)
• Bank of China-CCTV drama may reveal power struggle in Beijing (SCMP)
• Quid pro quo: Qatar Air CEO Moves Toward Boeing 777X Sign-off, Slams A380 (BBG)
• Iraq army launches Tikrit offensive, politicians elect speaker (Reuters)
• Billionaire's breakup plan would chop California into six states (Reuters)

Overnight Media Digest

WSJ

* U.S. drugmaker AbbVie Inc is close to clinching a deal to buy Dublin-based Shire Plc for more than £31 billion ($53 billion), in what would be one of the largest so-called inversion deals through which U.S. companies are seeking a lower corporate tax burden. (http://on.wsj.com/1zDiEQ2)

* On Monday, the Citigroup Inc agreed to pay $7 billion, including a $4 billion civil penalty to the Justice Department, $500 million to the Federal Deposit Insurance Corp and several states, and $2.5 billion earmarked for "consumer relief," to settle the U.S. government's allegations it knowingly sold shoddy mortgages ahead of the financial crisis. (http://on.wsj.com/1sWCQb3)

* On Tuesday, Alibaba Group Holding Ltd <IPO-BABA.N> announced a deal with U.S. production studio Lions Gate Entertainment Corp to make available on Alibaba set-top boxes offerings such as the "Twilight" hit vampire movie series and the TV show "Mad Men." The partnership beefs up Alibaba's entertainment menu as China's Internet-savvy consumers are increasingly going online to watch TV shows, videos and movies. (http://on.wsj.com/1p0uo7T)

* Pilot Flying J, the nation's largest truck-stop chain, accepted responsibility for the criminal conduct of its employees and agreed to pay $92 million in penalties in a settlement with the federal government. (http://on.wsj.com/1n4XYw5)

* The National Basketball Association is seeking to double the TV-rights fees it receives from ESPN majority owner Walt Disney Co and Time Warner Inc's Turner Broadcasting, as the league looks to lock up deals for nationally televised games in the coming months, according to people familiar with the matter. (http://on.wsj.com/1rmQJzc)

* Lou Eccleston, who led the fast-growing S&P Capital IQ division at McGraw Hill Financial Inc departed Monday to pursue other opportunities, according to an internal company memo. (http://on.wsj.com/1nBcafn)

* The Justice Department is investigating possible pricing coordination among music publishing companies as it reviews the decades-old rules that govern the cost of licensing songs, according to people familiar with the matter. (http://on.wsj.com/Uaeo9W)

FT

AbbVie is close to clinching a 31 billion pound ($52.75 billion) takeover of Shire, which sells drugs for rare diseases, in what would be the latest example of a U.S. company buying a European rival motivated by tax benefits.

Citigroup Inc posted second-quarter earnings that beat analysts' estimates and agreed to pay $7 billion to settle a U.S. government probe into the sale of mortgage-backed securities.

U.S.-based generic drugmaker Mylan said it would pay $5.3 billion for Abbott Laboratories' generic drugs unit, giving Mylan access to more than 100 generic medicines in developed markets outside of the United States.

Airbus Group revealed plans on Monday for a new version of its popular A330 aircraft featuring more fuel-efficient engines, hoping to challenge Boeing Co's dominance in long-range passenger jets.

Change Capital Partners is buying Italian luxury linens maker Frette, hoping to revive the 150-year-old company that supplied the Titanic and the Orient Express, according to a person familiar with the deal.

NYT

* The $7 billion deal that Citigroup Inc agreed to strike with the Justice Department involves one of the largest cash penalties ever paid to settle a federal inquiry into a bank suspected of mortgage misdeeds. (http://nyti.ms/1qbJo8t)

* Audit firm Ernst and Young LLP agreed to pay more than $4 million to settle accusations by the Securities and Exchange Commission that it violated independence rules by lobbying on behalf of two of its audit clients. (http://nyti.ms/WebVgn)

* Yahoo Inc will live stream Dave Matthews Band's concert at The Jacksonville Veterans Memorial Arena in Jacksonville, Florida on Tuesday night, which will be the first in its ambitious partnership with Live Nation Entertainment Inc to supply free live video streams of a different concert each day for an entire year. (http://nyti.ms/1nqRQJ2)

* IAC/InterActiveCorp has acquired parts of HowAboutWe, a Brooklyn-based start-up. Representatives for the Match Group and HowAboutWe confirmed the deal but would not disclose the price. HowAboutWe hosts a handful of online romance sites; its marquee offerings are HowAboutWe Dating, a matchmaking and date-suggestion service for singles, and HowAboutWe Couples, a date-suggestion service. (http://nyti.ms/1n55Ttp)

* Twenty-First Century Fox Inc said that it was combining its broadcasting company and studio group into one business, reflecting the broader changes sweeping across the television landscape as global and digital outlets for programming proliferate. (http://nyti.ms/1zE01vq)

* Three former top executives at Dewey & LeBoeuf, charged by New York prosecutors with breaking the law in a failed bid to keep the struggling law firm afloat, contend they always intended to pay back the firm's lenders and bond investors. (http://nyti.ms/1mcXe26)

Canada

THE GLOBE AND MAIL

** The Ontario Liberals are promising to build more transit, dole out grants to businesses, create a new provincial pension plan and develop the Ring of Fire mineral deposit - all while balancing the budget in three years. (http://bit.ly/1ylcvX0)

** A new wave of court actions has been filed in relation to the Northern Gateway project, adding to the legal challenges dogging the C$7.9 billion ($7.36 billion) proposal and raising more questions about if and when it will proceed. (http://bit.ly/1qCDSri)

Starting near Edmonton, Alberta, Enbridge Inc's Northern Gateway would run 1,177 km (730 miles) - mostly through the wilderness of northern British Columbia - to Kitimat, a deepwater port on the Pacific Coast.

Reports in the business section:

** As mobile gaming becomes increasingly popular in China, Baidu Inc, China's biggest search engine company, is visiting Vancouver and Toronto to see if it can strike productive relationships with Canadian game developers. (http://bit.ly/1oD4828)

NATIONAL POST

** The New Democratic Party's appeal for the Federal Court of Canada to overturn a decision by the House of Commons' governing body has been blasted by a Conservative backbencher as an attempt to take away power from Parliament and turn it over to the judiciary. (http://bit.ly/WetOvJ)

** Calgary police have arrested a suspect who is facing murder charges in the disappearance of Nathan O'Brien and his grandparents Alvin and Kathryn Liknes, but one relative says the family still hopes they are alive. (http://bit.ly/Weu0ee)

FINANCIAL POST

** The dramatic rise of U.S. crude oil and natural gas production is disrupting even long-established trade flows inside Canada, as Alberta producers are increasingly finding themselves competing for - and losing - market share to American petroleum suppliers, even in their home province. (http://bit.ly/1r0LvtG)

** More than five years after the global recession kicked the legs out from under business jet demand, sales are gradually improving in the hardest-hit parts of the market, according to the head of Bombardier Inc's business aircraft division. (http://bit.ly/1zEqLfd)

Hong Kong

SOUTH CHINA MORNING POST

-- New World Development Co Ltd plans to open its K11 Art Malls in 11 mainland cities, including Beijing, Guangzhou, Shenyang and Tianjin. It expects the shopping malls could rake in annual sales of 20 billion yuan ($3.26 billion) when they become operational, said Executive Director Adrian Cheng. (link.reuters.com/byg69t)

-- Peach, Japan's first budget airline, will receive its tenth aircraft next month but continue to limit its network to a four-hour flying zone in order to maximise resources. The carrier would increase its fleet to 17 by 2015, said Chief Executive Shinichi Inoue. (link.reuters.com/cyg69t)

-- Sales at two new residential property projects in Yuen Long over the weekend exceeded expectations, showing that buyers are becoming active again after a standstill due to the government's measures to cool the property market. (link.reuters.com/dyg69t)

THE STANDARD

-- Wheelock and Co Ltd has become the biggest developer in Tseung Kwan O South with the clinching of its latest site adding four plots worth nearly HK$10 billion ($1.29 billion) into its land bank. The company would invest up to HK$8.5 billion in the latest plot it acquired, said Managing Director Ricky Wong. (link.reuters.com/fyg69t)

APPLE DAILY

-- China All Access (Holdings) Ltd would continue to focus on the smartphone market and is participating in pilot production with TCL Communication Technology Holdings Ltd , said Chief Executive Director Shao Kwok Keung.

-- Beijing Jingneng Clean Energy Co Ltd expects net profit for the first six months to increase by more than 35 percent from a year earlier, as gas-fired power and heat energy generation capacity grows.

Britain

The Times

WILLIAM HAGUE STANDS DOWN AMID BLOODY CABINET PURGE

William Hague is standing down as British foreign secretary it was announced last night as Prime Minister David Cameron carried out a bloody cabinet purge. (http://thetim.es/1qb5yrk)

SHIRE FINALLY TEMPTED BY 1 BLN STG MEGA-MERGER WITH U.S. RIVAL

The blockbuster merger between Shire and AbbVie took a big step closer after the British drugs company announced it is willing to recommend a sweetened 31.4 billion pound ($53.43 billion) bid. (http://thetim.es/1qb5DLB)

BRITISH BANK SUES TYCOON FOR 35 MLN STG AMID FRAUD CLAIMS

Standard Chartered has launched a legal attack on the Chinese tycoon at the centre of a "missing metals" fraud scandal that has hit commodities trading at one of the world's busiest ports. (http://thetim.es/U5nvZp)

The Guardian

CO-OP BANK CHAIRMAN JOINS ALLIED IRISH BANK

Veteran banker Richard Pym has been appointed chairman of Allied Irish Bank, the lender that received a 21 billion euro ($28.65 billion) bailout from the Irish taxpayer. (http://bit.ly/1npFEYN)

CHINA CHARGES GSK FOREIGN CONSULTANTS WITH ILLEGAL INVESTIGATION

Chinese prosecutors have formally indicted a British-U.S. couple on the charge of "illegally obtaining private information on Chinese citizens", one year after they were detained in connection with an increasingly murky bribery case against the British drugmaker GlaxoSmithKline. (http://bit.ly/1yj1qpA)

INTEREST RATE FEARS PUT BRAKES ON SALES

Shoppers put the brakes on spending last month amid concerns over the potential for higher interest rates, a retail industry report suggests. (http://bit.ly/1oW0OlE)

The Telegraph

CABLE BLOCKS 1 BLN STG SALE OF LAND REGISTRY IN WAKE OF BOTCHED ROYAL MAIL DEAL

Britain's government has scrapped plans to privatise the Land Registry after Vince Cable vetoed the deal in the wake of Royal Mail's controversial flotation. (http://bit.ly/1wmVlp7)

SCOTTISH INDEPENDENCE COULD SEE STERLING FALL 10 PCT, SAYS MORGAN STANLEY

Scottish independence could see the value of sterling drop by up to 10 percent, leave the rest of the UK more exposed to financial risks and delay a decision on increasing interest rates beyond the general election. (http://bit.ly/1qaOoKy)

KIDDICARE SOLD FOR 2 MLN STG TO ENDLESS PRIVATE EQUITY

Supermarket group Morrisons has sold its childrenswear business, Kiddicare, for 2 million pounds to private equity firm Endless after a brief, but disastrous ownership. Morrisons bought Kiddicare for 70 million pounds in 2011 but suffered a 163 million pound write down on its investment. (http://bit.ly/WdgYh6)

Sky News

CITY WATCHDOG TO UNVEIL PAYDAY LOAN CAP

Britain's financial regulator will unveil plans on Tuesday for a lower-than-expected cap on the cost of payday loans in a move that will create one of the world's most stringent regulatory regimes for the fast-credit industry. (http://bit.ly/1mbuaYI)

The Independent

BANK OF ENGLAND URGED TO RESOLVE JOBS 'CRISIS' BEFORE RAISING RATES BY TUC

The Trades Union Congress will today seek to send a shot across the bows of hawks on the Bank of England's Monetary Policy Committee by warning that unemployment is still too high to contemplate a rise in interest rates. (http://ind.pn/1knB4ud)

Fly On The Wall 7:00 AM Market Snapshot

"My 10-year-old knew it was a scam. It was a complete joke," rages Tom Laresca - a market-maker at Buckman Buckman & Reid - who sold "pure madness" stock CYNK Technology short at $6 last week. Laresca assumed (reasonably so) that the SEC would suspend trading, sending the price towards zero. Despite Zero Hedge's initial exposure of this farce to the world (and the rest of the mainstream media's attention following), the SEC was slow and CYNK soared to $16, squeezing Laresca and forcing his firm to cut off his ability to hold positions - he plans to resign today. "I wish people would just not trade the stupid things."

As Bloomberg reports, a Wall Street trader said Cynk Technology Corp.’s (CYNK) 36,000 percent stock surge cost him his job, and he blames a short squeeze and regulators who didn’t halt the shares before the company’s value shot past $6 billion.

“The stock looked worthless, if there’s even a company behind it,” Laresca said. “My 10-year-old knew it was a scam. It was a complete joke.”

 

He sold it short last week around $6 -- which means selling stock you don’t own with a plan to buy it cheaper soon, pocketing the difference. Laresca figured the Securities and Exchange Commission would suspend trading, sending the price toward zero.

Instead of falling, the share price more than doubled the next day, July 9, starting the squeeze. Market-makers who had sold the stock short got nervous and scrambled to buy stock to close their positions, driving it even higher, Laresca said.

“If you’re short, you have to buy it within five days,” Laresca said of market-making rules. “That’s what was driving the stock higher.”

The SEC stopped trading two days later, citing concerns about the accuracy of information in the marketplace and “potentially manipulative transactions.”

That was too late, Laresca said, and slammed the SEC...

“When it goes from 6 cents to $16 and you haven’t done anything about it, I’m sorry but you fell asleep at the wheel,” he said. “Everybody knew it. How come they didn’t know it?”

 

While Cynk’s $6 billion paper valuation was unusual, spikes and crashes are common in the over-the-counter markets where it traded. Regulators bust alleged pump-and-dump scams there regularly. Many involve defunct companies, or shells, with shares that still trade. The SEC has suspended trading in at least 255 shells this year.

 

“You lure other people into the marketplace, whether they believe it’s legit or they’re just along for the pump and believe they can get out before the dump,” Sporkin said. “It’s like a big game.”

The end result of this farce... more unemployment...

Laresca said that his firm cut off his ability to hold positions after the Cynk fiasco and that he plans to resign today. He declined to say what the trades cost.

OTC Markets Group Inc., which runs the trading venue once known as the pink sheets, marks questionable stocks on its website to warn investors. It branded Cynk with a skull and crossbones. Cromwell Coulson, the trading venue’s chief executive officer, who predicted the SEC suspension, said the agency will eventually figure out what happened with Cynk.

“I wish people would just not trade the stupid things,” he said.

It's not just Laresca who has a major problem, as we noted previously - cost of carry on the short is adding up all the time CYNK is halted...

Case in point, this sad individual who on that bulletin board of epic retail investor comedy, Yahoo Finance, has explained their problem: it appears some brokers actually did allow shorting of CYNK, at a cost. A rather high and recurring cost it would appear.

 

 

Oops.

*  *  *
But all the other momo stocks trading at triple-digit P/Es are not stupid...? Or are they - according to Yellen?

• BRICS set up bank to counter Western hold on global finances (Reuters)
• Fed's Yellen Hedges Her View on Rates (Hilsenrath)
• China GDP Grows 7.5% in Second Quarter (WSJ)
• Get More Acquainted With Your Knees as Boeing Reworks 737 (BBG)
• Israel Warns Gazans of New Attack After Hamas Rejects Truce (WSJ)
• Israel poised for Gaza incursions after truce collapses (Reuters)
• China Housing Sales Fall in First Half of 2014 (WSJ)
• IBM to offer iPads and iPhones for business users (Reuters)
• Fed's George says strengthening economy warrants quick rate rise (Reuters)
• European Leaders Expected to Expand Sanctions Against Russia (WSJ)
• Hedge Funds Turn to Raves, Madoff Claims on Distress Scarcity (BBG)
• Hedge Funds’ Crop Exodus Seen Extending Price Declines (BBG)

Overnight Media Digest

WSJ

* Israel threatened to broaden its offensive against Hamas after the Islamists rejected a truce and the army warned tens of thousands of Palestinians in northern Gaza to clear out by Wednesday. (http://on.wsj.com/1oGqFey)

* JP Morgan and Goldman Sachs posted better-than-expected quarterly results, driven by an unforeseen uptick in key trading businesses in June. (http://on.wsj.com/1mJlVId)

* Federal Reserve Chairwoman Janet Yellen defended keeping interest rates low before Congress, but opened the door a crack to earlier-than-planned rate hikes if the labor market continues its surprising improvement. (http://on.wsj.com/1wt29BQ)

* The Obama administration joined the growing debate over U.S. companies reincorporating overseas for tax purposes, urging lawmakers to pass legislation to limit the moves. (http://on.wsj.com/1nuE0VZ)

* Standard & Poor's Ratings Services, after more than a year of fighting a crisis-era lawsuit, is willing to reopen discussions with the Justice Department to settle the case. (http://on.wsj.com/1oGrhRl)

* Alibaba Group Holding Ltd <IPO-BABA.N> has been valued as high as about $150 billion in recent private trades of its stock, according to people familiar with the transactions, as the e-commerce company's perceived market value rises ahead of its initial public offering. (http://on.wsj.com/1mTa89V)

* Apple Inc and IBM struck an agreement to create simple-to-use business apps and sell iPhones and iPads to Big Blue's corporate customers. (http://on.wsj.com/1l1Nisu)

* The bankruptcy trustee for Bernard Madoff's investment firm filed an amended lawsuit against Madoff's two sons on Tuesday, adding detail to claims that the men were aware of the Ponzi scheme and actively worked to conceal it from the Securities and Exchange Commission by deleting, altering or hiding records during an audit. (http://on.wsj.com/1rpz0Ha)

* Former Ford Motor Co Chief Executive Alan Mulally, who flirted with Microsoft Corp's top job last winter, has joined the board of another tech giant: Google Inc . (http://on.wsj.com/1qFGEMs)

* In a bumpy year for commodities markets, some investors think they have hit on a winning strategy: Wait it out. Extreme weather and an uncertain economic outlook have sent prices for commodities ranging from coffee to natural gas to soybeans on a wild ride this year. In many of these markets, the cost for commodities delivered today is higher than months from now. That is opening up a number of ways for investors to profit. (http://on.wsj.com/1l1ZDNt)

FT

Tobacco company Reynolds American said it would buy smaller rival Lorillard for $27.4 billion in a complex four-way deal, creating formidable competition for Marlboro-maker Altria in the world's most profitable cigarette market.

Goldman Sachs and JPMorgan Chase both posted healthier-than-expected revenues from their fixed income desks that many investors feared were in rapid decline.

Yahoo Inc has struck a deal to keep a larger stake than expected in Chinese ecommerce group Alibaba Group Holding Ltd <IPO-BABA.N> when it goes public in what is expected to be the largest technology IPO this year.

International Business Machines Corp and Apple Inc have sealed an exclusive alliance to turn iPhones and iPads into fully business-friendly devices, marking how deeply "consumerisation" is reshaping corporate technology markets.

Chinese smartphone maker Xiaomi has begun an aggressive push into in India, the world's largest smartphone market, placing pressure on market leader Samsung Electronics Co Ltd .

NYT

* General Motors Co's response to the car crash that killed Gene Erickson, as well as its replies to queries in other crashes obtained by The New York Times from the National Highway Traffic Safety Administration, casts doubt on how forthright the automaker was with regulators over a defective ignition switch that GM has linked to at least 13 deaths over the last decade.(http://nyti.ms/W8X0DK)

* As part of its effort to improve working conditions for its youngest employees in its global corporate and investment banking unit, Bank of America Corp has hired more junior bankers, the latest sign of a shifting corporate culture on Wall Street. The incoming class of full-time analysts and associates, who start work later this month, will be almost 40 percent larger than last year's class. (http://nyti.ms/Wgv01u)

* News on Tuesday that Reynolds American had agreed to buy Lorillard Inc for $27.4 billion, uniting two of the nation's biggest tobacco companies, highlighted how important e-cigarettes have become to the declining tobacco industry. Both Reynolds and Lorillard have pushed hard into e-cigarettes, which offer a new way of delivering a puff of nicotine. (http://nyti.ms/1mfRFjw)

* Ralph Whitworth, a longtime activist investor with a large stake in Hewlett-Packard Co, has resigned as interim chairman of the computer company's board and will take a leave of absence from his investment firm, Relational Investors, HP announced on Tuesday. (http://nyti.ms/1tPEdfW)

* In a deal that could deepen Apple Inc's sales to corporations and strengthen International Business Machine's position in business software, the two companies announced a wide-ranging partnership intended to spread advanced mobile and data analysis technology in the corporate world. (http://nyti.ms/1p49C7B)

* As of Tuesday, there were about 780,000 comments on the Federal Communications Commission's proposed so-called net neutrality rules, which guide how Internet service providers (ISPs) manage web traffic on their networks, far more than for any previous rule-making proceeding before the regulator. The agency is fine-tuning its rules to secure an open Internet, after a federal-court decision in January said it had to rethink its approach. (http://nyti.ms/1oGHdmq)

Canada

THE GLOBE AND MAIL

** Toronto's mayoral candidates faced off for the first time since incumbent Rob Ford's return from rehab, with a raucous debate in Scarborough where they clashed repeatedly over the issue of transit. (http://bit.ly/WgXjNq)

** Canadian Foreign Affairs Minister John Baird is reaching out to a number of Middle Eastern countries in an effort to persuade the Egyptian government to release an imprisoned Canadian journalist. (http://bit.ly/1p6S2zR)

Reports in the business section:

** Apple Inc has struck an unlikely alliance with International Business Machines Corp to produce business-focused apps for iPhones and iPads, a threat to BlackBerry Ltd as it tries to refocus and target government and corporate clients. (http://bit.ly/W8SYeG)

NATIONAL POST

** New amendments to the Canadian government's prostitution bill will give it a better chance of withstanding a constitutional court challenge, says a leading Conservative on the House of Commons justice committee. (http://bit.ly/1nvy66X)

** A Tunisian arrested by the Royal Canadian Mounted Police last year over an alleged plot to derail a passenger train near Toronto spent six weeks training with a man "in direct contact" with the leader of Al-Qaeda, according to a newly released FBI document. (http://bit.ly/1l2Du1z)

FINANCIAL POST

** Escalating geopolitical tensions between Vladimir Putin and the West may be setting off tremors in Canada's mining sector, with Russian backers withdrawing from North American assets, creating both big opportunities and major headaches for Canadian firms. (http://bit.ly/1mTQBGh)

* Apple Inc and International Business Machines Corp are teaming up to provide business apps for the iPhone and iPad, taking aim at BlackBerry Ltd's core enterprise client base. After Tuesday's announcement of the partnership, BlackBerry's shares fell almost 4 percent in after-hours trading. (http://bit.ly/Uc8FRa)

China

SHANGHAI SECURITIES NEWS

- China International Capital Corp Ltd (CICC) is in touch with underwriters about a listing, but there is little potential for it to do so on the Hong Kong Stock Exchange this year, sources told the newspaper.

SHANGHAI DAILY

- Thirty percent of vehicles purchased by delivery companies in Shanghai will have to be environmentally friendly, a new regulation stipulates.

CHINA SECURITIES JOURNAL

- Ping An Bank said it would raise 20 billion yuan ($4.83 billion) via preferred shares and 10 billion yuan through a private placement.

Britain

The Times

REGULATOR PLANS 15 REFORMS TO STOP FOREX CHEATS

The Financial Stability Board has proposed 15 reforms in the wake of allegations of manipulation, and the launch of dozens of investigations around the world into banks. (http://thetim.es/1l117Y8)

CARNEY'S RATE-RISE REMARK WAS 'MEANT TO STOP BOND CRASH'

The governor of the Bank of England revealed that his surprise comment about interest rates last month was designed to puncture the complacency of markets and reduce the risk of a destabilising 1994-style bond market crash. (http://thetim.es/1mfsCwP)

BLINKX PLANS BUY-BACK TO 'BURN THE SHORTERS'

The management of Blinkx, the online video company hit by a bear raid earlier this year, is poised to launch a share buyback programme to shore up support for its stock after investors told the company to "burn the shorters". (http://thetim.es/Wg2soV)

The Guardian

UK INFLATION RISES IN JUNE ON FOOD AND CLOTHES PRICES

Food price rises and delayed summer clothes sales by high street retailers lifted Britain's inflation rate to a five-month high in June, well above forecasts. (http://bit.ly/1t0HAfO)

RICHARD BAKER TO TAKE OVER AS CHAIRMAN OF WHITBREAD

Richard Baker has taken his first prominent City role since the private equity-backed takeover of Alliance Boots in 2007, succeeding Anthony Habgood as chairman of Whitbread. (http://bit.ly/1jNxOhb)

TESCO CLASHES WITH FARMERS' UNION OVER NEW ZEALAND LAMB

Tesco is facing criticism from farmers for promoting New Zealand lamb at the height of the British season for the meat, despite its promises to back local producers. (http://bit.ly/1t0gWnb)

The Telegraph

MARK CARNEY BLASTS BIS FOR CALLING FOR RATE RISES IN A 'VACUUM'

The governor of the Bank of England has rejected the Bank of International Settlement's call to raise interest rates faster saying the recommendation was "outside political and economic reality". (http://bit.ly/1qcS2nc)

LLOYDS NEARS DEAL WITH REGULATORS ON LIBOR FINES

Lloyds Banking Group is believed to be nearing a settlement with regulators in the U.S. and UK over alleged Libor rigging, making the taxpayer-backed lender the latest in a long line of banks to face heavy fines. (http://bit.ly/1mSNrm1)

NEW UK ENERGY MINISTER FACES FRACKING BATTLE

Matt Hancock's first major task on stepping into Michael Fallon's shoes at Britain's Department of Energy and Climate Change will be to persuade world-scale oil and gas companies to bid in the biggest auction yet to develop shale resources. (http://bit.ly/1ymV2gT)

Sky News

BANKS SUMMONED OVER 'DOOMSDAY' STRESS TESTS

Britain's biggest lenders have been summoned to the Bank of England as the industry prepares to undergo a searching test of its ability to withstand a sterling and housing market crash. (http://bit.ly/1qcWuSI)

Fly On The Wall Market Snapshot

ECONOMIC REPORTS

Domestic economic reports scheduled for today include:
Producer price index for June at 8:30--consensus up 0.3%
Industrial production for June at 9:15--consensus up  0.4%
Capacity utilization rate for June at 9:15--consensus 79.2%
Housing market index for July at 10:00--consensus 51

ANALYST RESEARCH

Upgrades

FireEye (FEYE) assumed with a Buy from Neutral at Goldman
Intel (INTC) upgraded to Buy from Neutral at B. Riley
Intel (INTC) upgraded to Buy from Neutral at UBS
Mellanox (MLNX) upgraded to Buy from Hold at Jefferies
Rogers Communications (RCI) upgraded to Hold from Sell at Canaccord
SJW Corp. (SJW) upgraded to Outperform from Neutral at RW Baird
Syngenta (SYT) upgraded to Outperform from Neutral at Credit Suisse
Western Digital (WDC) upgraded to Outperform from Neutral at RW Baird

Downgrades

IMAX (IMAX) downgraded to Neutral from Overweight at Piper Jaffray
Michael Kors (KORS) downgraded to Market Perform from Outperform at William Blair
Nationstar (NSM) downgraded to Underperform from Market Perform at Wells Fargo
Ross Stores (ROST) downgraded to Neutral from Buy at Sterne Agee
Walter Investment (WAC) downgraded to Underperform from Market Perform at Wells Fargo
Yahoo (YHOO) downgraded to Fair Value from Buy at CRT Capital

Initiations

Apple (AAPL) initiated with a Buy at Citigroup
Basic Energy (BAS) initiated with a Neutral at RW Baird
Brookdale Senior Living (BKD) initiated with a Buy at Goldman
Dresser-Rand (DRC) initiated with a Neutral at RW Baird
Eclipse Resources (ECR) initiated with an Overweight at Morgan Stanley (yesterday)
Fortinet (FTNT) initiated with a Neutral at Goldman
Frank's International (FI) initiated with a Hold at Jefferies
Key Energy (KEG) initiated with an Outperform at RW Baird
Oil States (OIS) initiated with an Outperform at RW Baird
PBF Energy (PBF) initiated with an Equal Weight at Barclays
Palo Alto (PANW) assumed with a Conviction Buy at Goldman
Proofpoint (PFPT) initiated with a Buy at Goldman
Radius Health (RDUS) initiated with a Buy at Canaccord
Radius Health (RDUS) initiated with a Buy at Cantor
Radius Health (RDUS) initiated with a Buy at Jefferies
Radius Health (RDUS) initiated with an Outperform at Cowen
Seventy Seven Energy (SSE) initiated with a Hold at Jefferies
Superior Energy (SPN) initiated with an Outperform at RW Baird
Symantec (SYMC) assumed with a Neutral at Goldman
Trecora Resources (TREC) initiated with a Buy at B. Riley
Ultragenyx (RARE) initiated with an Outperform at RW Baird
United Natural Foods (UNFI) initiated with an Outperform at Oppenheimer
Viper Energy (VNOM) initiated with a Market Perform at Northland

COMPANY NEWS

Apple (AAPL), IBM (IBM) announced a partnership to “transform enterprise mobile,” bringing IBM’s big data and analytics capabilities to iPhone and iPad
Intel (INTC) announced an increase of $20B to its share repurchase plan. The company said consumer demand remains challenging, soft, although there is some evidence of renewed PC interest
Google (GOOG) appointed ex-Ford (F) CEO Alan Mulally to board
Hershey (HSY) announced an increase in wholesale prices across the majority of its U.S., Puerto Rico and export portfolio and forecast 2014 sales, EPS growth at lower end of long-term range
International Game (IGT) to be acquired by GTECH for $4.7B cash, stock
Boeing (BA), Qatar Airways finalize order for 50 777Xs
FedEx (FDX), TNT Express (TNTEY) received Statement of Objections from French Competition Authority with respect to alleged anti-competitive behavior in the French parcels delivery sector
Rio Tinto (RIO) reported Q2 global iron ore production up 11% to 73.1M tons, raised FY14 thermal coal production outlook to 17.5M tonnes
Sirius XM (SIRI) announced additional $2B common stock repurchase program

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Intel (INTC), BlackRock (BLK), iGATE (IGTE), Textron (TXT), ADTRAN (ADTN), Renasant (RNST), Cintas (CTAS), , CSX (CSX)

Companies that missed consensus earnings expectations include:
Yahoo (YHOO), Interactive Brokers (IBKR), Nord Anglia (NORD), Marten Transport (MRTN)

NEWSPAPERS/WEBSITES

Yahoo (YHOO) M&A chief says company not planning to buy AOL (AOL), Re/code reports
CBS (CBS) CEO says 'willing to talk' to Aereo, VentureBeat reports
F-35 (LMT, UTX) Farnborough debut cancelled due to engine fire, WSJ says
Paulson sees T-Mobile (TMUS) takeover in high $30s, low $40s 'reasonable,' WSJ says (S, SFTBF)
Documents show GM (GM) hid defect from regulators, NY Times reports
Microsoft (MSFT) aims to reduce 1K jobs in Finland, Reuters says
General Motors (GM) shares should climb 30%, Barron's says
Goldman Sachs (GS) looks undervalued, Barron's says

SYNDICATE

Ares Capital (ARCC) files to sell 11.85M shares of common stock
BioAmber (BIOA) files to sell 2.8M shares of common stock
Independence Realty Trust (IRT) 7M share Secondary priced at $9.50
Mavenir Systems (MVNR) files to sell 4.5M shares of common stock
TreeHouse Foods (THS) files to sell $325M of common stock
US Antimony (UAMY) files to sell $1.4M in common stock

Despite a full court press of PR to confirm HFT firms are friends of retail investors and do no wrong; the SEC, it appears, sees it differently. While Mary White has confidently explained the market is not rigged, her agency is now actively seeking tips, complaints, or referrals that show, as The Chicago Tribune reports, evidence of abuse of order types, as well as traditional forms of abusive trading like "layering" or "spoofing" and other issues relating to high-frequency trading that might be violations of the law. Here are the 10 firms (including poster child holy-grail trader Virtu Financial) that the SEC is probing... can you spot the oddly missing one...

Via The Chicago Tribune,

The U.S. Securities and Exchange Commission has been seeking information on 10 registered broker dealers as part of an ongoing investigation into high-frequency trading strategies, according to an internal SEC document reviewed by Reuters.

 

The firms listed are Allston Trading LLC; Hudson River Trading LLC; Jump Trading LLC; Latour Trading LLC, which is an affiliate of Tower Trading; Merrill Lynch, Pierce, Fenner & Smith, owned by Bank of America Group; Octeg LLC, which has been merged into a unit of KCG Holdings Inc; Tradebot Systems Inc; Two Sigma Investments LLC; Two Sigma Securities LLC; and Virtu Financial.

 

They are all some of the largest trading firms in the U.S. Allston and Jump are both based in Chicago. Hudson River, Latour, Merrill, Two Sigma, and Virtu are headquartered in New York. KCG is in Jersey City, New Jersey, and Tradebot is based in Kansas City, Missouri.

 

Jump, Latour, Bank of America, Hudson River, Tradebot and KCG declined to comment. The other firms did not immediately respond to a request for comment.

 

Their number and the open-ended quest for information shows that the SEC is casting a wide net as it looks to unearth wrongdoing in the marketplace.

 

...

 

A number of government agencies, including the SEC, New York State Attorney General Eric Schneiderman's office, the Commodity Futures Trading Commission and the Federal Bureau of Investigation have said they had active probes into high-speed and automated trading.

 

The SEC has been seeking evidence of abuse of order types, as well as traditional forms of abusive trading like "layering" or "spoofing"and other issues relating to high-frequency trading that might be violations of the law, SEC Director of Enforcement Andrew Ceresney told Reuters in May.

 

Spoofing and layering are tactics where traders places orders that they cancel before they are executed to create the false impression of demand, aiming to trick others into buying or selling a stock at the artificial price.

*  *  *
While this list is notable (and wide) as Reuters notes, there is one name missing that surprised us... arguably the ibggest of all - Citadel... (too busy enabling the NYFed's VIX-selling machinations we assume is not considered rigging)

Ten days ago Bloomberg reported that as a result of various tax dodges, one of the fastest-trading hedge funds in the US, Jim Simmons' Renaissance Technologies, had managed to avoid paying ordinary income tax on billions in profits, by classifying trades that often times had a holding period of minutes if not seconds, as a long-term capital gain. As part of this finding, it was reported that there would be a hearing chaired by none other than Carl "Shitty Deal" Levin scheduled for tomorrow morning when yet another tax loophole abused by not only RenTec but all of its high churn and HFT peers (because the "friends and family" Medallion is at its core the original HFT fund) would be exposed for all to see. Moments ago, in advance of tomorrow's 9:30 am hearing, the permanent subcommittee on investigations released a 93 page report on just how it was that RenTec engaged in the "improper use of this structured financial product, known as basket options."

As the preamble to the report notes:

The report outlines how Deutsche Bank AG and Barclays Bank PLC, over the course of more than a decade, sold financial products known as basket options to more than a dozen hedge funds. From 1998 to 2013, the banks sold 199 basket options to hedge funds which used them to conduct more than $100 billion in trades. The subcommittee focused on options involving two of the largest basket option users, Renaissance Technology Corp. LLC (“RenTec”) and George Weiss Associates.

 

The hedge funds often exercised the options shortly after the one-year mark and claimed the trading profits were eligible for the lower income tax rate that applies to long-term capital gains on assets held for at least a year. RenTec claimed it could treat the trading profits as long term gains, even though it executed an average of 26 to 39 million trades per year and held many positions for mere seconds.

 

Data provided by the participants indicates that basket options produced about $34 billion in trading profits for RenTec alone, and more than $1 billion in financing and trading fees for the two banks.

And considering the topic of tax-evasion and loophole abuse is a rather sensitive and politically-charged one nowadays, to say the least, one can be certain that tomorrow's hearing, full of sound and fury targeting America's wealthiest tax evaders, will be quite a spectacle.

The highlights from the report:

For the last decade, the U.S. Senate Permanent Subcommittee on Investigations has presented case histories showing how financial institutions, law firms,  accountants, and others have designed and implemented complex financial structures to take advantage of and, at times, abuse or violate U.S. tax statutes, securities regulations, and accounting rules. This investigation offers yet another detailed case study of how two financial institutions – Deutsche Bank AG and Barclays Bank PLC – developed structured financial products called MAPS and COLT, two types of basket options, and sold them to one or more hedge funds, including Renaissance Technologies LLC and George Weiss Associates, that used them to avoid federaltaxes and leverage limits on buying securities with borrowed funds. While that type of option product was identified as abusive in a public memorandum by the Internal Revenue Service (IRS) in 2010, taxes have yet to be collected on many of the basket option transactions and its use to circumvent federal leverage limits has yet to be analyzed or halted.

 

The basket option contracts examined by the Subcommittee investigation were used by at least 13 hedge funds to conduct over $100 billion in securities trades, most of which were short-term transactions and some of which lasted only seconds. Yet the resulting short-term profits were frequently cast as long-term capital gains subject to a 20% tax rate (previously 15%) rather than the ordinary income tax rate (currently as high as 39%) that would otherwise apply to investors in hedge funds engaged in daily trading. While the banks styled the trading arrangement as an “option” under which profits from short-term trades would be treated as long term capital gains, in essence, the banks loaned the hedge funds money to finance their trading and allowed them to trade for themselves in highly leveraged positions in the banks’ proprietary accounts and reap the resulting profits. The banks offering the “options” benefited from the financing, trading, and other fees charged to the hedge funds initiating the trades. In the end, the trading conducted by the hedge funds using the basket option accounts was virtually indistinguishable from the trading conducted by hedge funds using their own brokerage accounts, and provided no justification for treating the resulting short-term trading profits as long-term capital gains.

Note that the term "illegal" is not used once in the entire 93-page doc, for the simple reason that this latest tax-evading loophole wasn't. Instead hedge funds, having the sources to do so, merely scoured the tax code and sitting down with a couple of less than "moral" banks found yet another tax evasion maneuver, as well as a way to implement it, that was available to everyone who could afford to spend millions on the appropriate tax and legal advice. Call it "capital investment" for the New Normal.

Back to the filing, we find what will surely be Carl Levin's punchline to be used and abused tomorrow: "fictional derivatives."

The facts indicate that the basket option structures examined in this investigation were devised by sophisticated financial firms to allow clients to circumvent federal taxes and leverage limits. The structures rested on two fictions. The first was that the bank, rather than the hedge fund, owned the assets being traded in the designated option accounts, even though the hedge fund bought and sold the assets, was exposed to all significant risks and rewards, and profited from the trading, with little input from the bank serving as the nominal owner of the assets. In effect, the structure purported to enable the hedge fund to purchase an “option” on its own trading activity, an arrangement that makes no economic sense outside of an effort to bypass federal taxes and leverage limits. The second fiction was that the profits from the trades controlled by the hedge fund could be treated as long-term capital gains, even for trades lasting seconds. That fiction depended upon the hedge fund claiming that the profits came from exercising the “option” rather than from executing the underlying trades. In fact, the “option” functioned as little more than a fictional derivative, permitting the hedge fund to cast short-term capital gains as long-term gains and authorizing financing at levels otherwise legally barred for a customer’s U.S. brokerage account.

And, lo and behold, one of the two main enabling banks of this tax dodge is none other than Barclays, which somehow has managed to get itself involved in virtually every possible financial scandal in the past five years.

The basket options sold by Deutsche Bank AG starting in 1998, and by Barclays Bank PLC since 2002, produced a total of more than $35 billion in trading profits, of which at least $34 billion came from options exercised after more than one year. Most of those profits came from assets which were held for less than one year but which were treated by the hedge funds holding the options as having produced long-term capital gains taxable at the lower long-term capital gains rate. The options were also used by the participating hedge funds to trade on borrowed funds using a leverage ratio of as much as 20:1, versus the much lower federal leverage limit of 2:1 that normally applies to brokerage accounts held by U.S. broker-dealers for their clients. These financially engineered products – which relied on high volume trading, leveraged funds, and artificially lowered tax rates to produce their profits – warrant greater attention from federal tax, securities, and banking regulators to prevent their continued misuse.

Some details on the actual trading strategy, with pictures.

In the basket option contracts examined by the Subcommittee, the bank always appointed the general partner of the hedge fund client to act as the investment advisor for the trading account holding the referenced assets during the duration of the option. Once appointed, the investment adviser exercised complete control over the securities included in the option account, designing its own trading strategy and using the bank’s own facilities to execute the trades. In some cases reviewed by the Subcommittee, the investment advisor used algorithms to engage in a high volume of trading, executing more than a 100,000 transactions per day.

Oops, HFTs. Even assuming you can continue your spotless trading record now that your frontrunning gig has been shown to the entire world, there goes your tax-free lunch.

Many of those trading positions lasted minutes, and the overall composition of the securities basket changed on a second-to-second basis. One basket option account later reviewed by the Securities and Exchange Commission (SEC) was found to have experienced 129 million orders in a year. In other cases, the investment adviser purchased securities whose positions remained unchanged for weeks, but all of the basket option accounts reviewed by the Subcommittee were dominated by short-term trading involving assets held less than one year.

 

By acting as the investment adviser, the hedge fund – the option holder – became the party that actually controlled the trading strategy, the timing of trades, and what assets were selected for the referenced account. The hedge fund was also exposed to all significant rewards and risks associated with the trading. The banks claimed that the hedge funds did not bear 100% of the risk of loss, because the banks provided so-called “gap” protection in the event of a catastrophic market failure. That risk was so small, however, that despite, for example, hundreds of millions of trades that took place in the more than 60 basket options held by RenTec over a decade, including during the worst financial crisis in a generation, neither bank was ever required to satisfy a loss due to a market failure.

 

To further minimize the gap risk, the option contract contained several provisions designed to limit trading losses in the account to the 10% premium provided by the hedge fund. The key provision accomplished that objective by specifying a loss threshold – sometimes called a “barrier” or “knockout” amount – which if reached would cause the option to cease to exist, or “knockout,” and trigger the ability of the bank to liquidate the account assets.

 

During the period of the option, the securities transactions were executed in the name of the bank and the resulting securities were held in the bank’s proprietary trading account. The accompanying profits or losses also remained within the account until the option was exercised. The hedge fund chose when to exercise the option. Although the options reviewed by the Subcommittee often had three-year terms and the hedge funds claimed they wanted longer-term financing arrangements, the hedge funds often exercised the options shortly after 12 months. In all cases examined by the Subcommittee, the option accounts paid the profits to the hedge fund option holder.

 

Deutsche Bank developed its basket option product in 1998, naming it the Managed Account Product Structure (MAPS). Over the next 15 years, Deutsche Bank sold 156 MAPS options, of which 96 had terms greater than one year. At their peak, those 96 options had assets with a total initial notional value of about $60 billion. Deutsche Bank sold the MAPS options to 13 hedge funds, including 36 to RenTec. Of those 36 option contracts, the first 29 had terms greater than one year. The MAPS options sold to RenTec produced profits for that hedge fund totaling about $17 billion. The MAPS options sold to all 13 hedge funds produced revenues for Deutsche Bank totaling about $570 million.

 

 

The Barclays’ basket options product was developed in 2002, at the request of RenTec, and was named COLT. Barclays sold 43 COLT options to RenTec, of which 31 had terms greater than one year. At their peak, those 31 COLT options had assets with a total initial notional value of about $62 billion. The COLT options produced trading profits for RenTec totaling about $18.5 billion. They also produced revenues for Barclays totaling about $655 million.

And so on, with all the above complexity driven by a simple motive: to reclassify short-term capital gains into long-term profits, in the process saving about 25% of the absolute profit from any transaction.

What we hope to learn from tomorrow's hearing is whether it will explain why, even as actual stock trading volumes have plunged in recent years, trading in derivatives has literally exploded. Surely everyone engaging in comparable "basket option" strategies would explain at least a part of it.

If nothing else, however, we now know why some of the biggest HFT-related hedge funds in the world: Citadel, Millennium, Balysany and DE Shaw have such an epic regulatory-to-net asset leverage as we showed before: the reason, one as old as time itself: to avoid paying tax. From the report:

In addition to avoiding taxes, the structure was used by the banks
and hedge funds to evade federal leverage limits designed to protect
against the risk of trading securities with borrowed money. Leverage
limits were enacted into law after the stock market crash of 1929, when
stock losses led to the collapse of not only the stock speculators, but
also the banks that lent them money and were unable to collect.

 

Had the hedge funds made their trades in a normal brokerage account,
they would have been subject to a 2-to-1 leverage limit – that is, for
every $2 in total holdings in the account, $1 could be borrowed from the
broker. But because the option accounts were in the name of the bank,
the option structure created the fiction that the bank was transferring
its own money into its own proprietary trading accounts instead of
lending to its hedge-fund clients.

 

Using this structure, hedge funds piled on exponentially more debt than leverage limits allow, in one case permitting a leverage ratio of 20-to-1. The banks pretended that the money placed into the accounts were not loans to its customers, even though the hedge funds paid financing fees for use of the money. While the two banks have stopped selling basket options as a way for clients to claim long-term capital gains, they continue to use the structures to avoid federal leverage limits.

And as we showed previously:

And while we understand the Congressional the fascination with RenTec, created by Jim Simons, the 64th richest man in the world with a $15.5 billion net worth, we wonder why the NY Fed's (and the PPT's) very own favorite Spoo-buying counterparty, Citadel, which has a gross leverage of over 9x(!) is not mentioned even once.

Source: Permanent Subcommittee on Investigations

Following the overnight ramp in various JPY crosses (dragging equity futures higher, and the Nikkei up 0.8%) it is as if the market is desperate to put all of last week's geopolitical events in the rearview mirror, and while yesterday there were no economic events of note, today's CPI and existing home prints should provide at least some distraction from the relentless barrage of one-line updates on Ukraine and Gaza. Still, that is precisely where the biggest risk remains, with an emphasis on the possibility of more Russian sanctions, this time by Europe.

Today will likely see more headlines on the situation as EU foreign ministers meet as well as the Russian Security Council. Watch out for headlines from all angles. Perhaps the most market-friendly outcome is that EU leaders talk very tough but do not agree on intensifying sanctions against Russia. Reuters thinks that despite all the tough talk, the EU is unlikely to punish Russia beyond the speeding up of the imposition of already agreed individual sanctions. A summit of EU leaders on July 16, the day before the airliner was downed, agreed the EU would punish Russian companies that help to destabilize Ukraine. According to Reuters, diplomats said Tuesday's meeting in Brussels was still not expected to go much further than agreeing on the people and possibly companies to be hit with asset freezes under the framework agreed last week. Previously, they had only said they would decide on the list by the end of July. Citing unnamed diplomats, Reuters said moving towards more sweeping economic sanctions could only be decided by heads of government. The next scheduled summit of EU leaders is on August 30, though EU members could call for another emergency meeting.

An unknown element today will be the Dutch, who have previously advocated caution in imposing sanctions against Russia, but are likely going to be a large swing factor today. The Netherlands previous caution with respect to Russia was perhaps to due to its significant economic ties, but they will be forced into action given the loss of life they have experienced in the MH17 tragedy. In terms of the Russian Security Council meeting, not a lot has been reported on what to expect from this. Putin will chair the meeting to discuss "issues connected with safeguarding the sovereignty and territorial integrity of the Russian Federation," the Kremlin said in a statement on Monday.

Turning to Asia, we’re seeing a tentative but positive tone to trading ahead of today's events which include the EU foreign ministers meeting, US CPI and a number of important corporate earnings. There are solid gains being recorded across the Hang Seng (+1.15%), HSCEI (+1.5%) and Japan has return from holidays with a 0.8% gain in the Nikkei. There is an interesting article on Bloomberg today, suggesting that there is a rift within the Bank of Japan’s board with respect to the ability of the central bank to meet its inflation target. According to the article, a majority of the nine members disagree with Kuroda’s view that the BoJ’s QQE program is sufficient to get 2% inflation, and most conclude it cannot be done without government steps to raise Japan’s growth potential, citing unnamed sources. USDJPY is broadly unchanged today. Elsewhere Indonesia remains a focus with official election results to be announced later today. IDR continues to rally and is a further 0.3% stronger today while Indonesian USD sovereign paper is trading stronger.  MSCI Asia Pacific up 0.6% to 147.8; Nikkei 225 up 0.8%, Hang Seng up 1.7%, Kospi up 0.5%, Shanghai Composite up 1%, ASX up 0.1%, Sensex up 0.9%.

Equity markets in Europe shrugged off the lower close on Wall Street as the strong performance from Asia-Pacific equities prompted a gap higher at the open, with the energy and materials sectors outperforming on a recent rebound in commodities prices. Earnings in Europe have been received favourably, with ARM Holdings (ARM LN), IG Group (IGG LN) and Actelion (ATLN VX) outweighing a poor update from Credit Suisse (CSGN VX), who have been forced to close their commodities trading unit in order to offset losses prompted by US tax fines. 17 out of 19 Stoxx 600 sectors rise; basic resources, oil & gas outperform; retail, media underperform. 73.2% of Stoxx 600 members gain, 24.8% decline. Eurostoxx 50 +0.5%, FTSE 100 +0.6%, CAC 40 +0.3%, DAX +0.5%, IBEX +0.5%, FTSEMIB +0.6%, SMI +0.2%

Today’s calendar looks more interesting than that of the last 24 hours. The EU foreign ministers’ meeting starts at 8:30am London time this morning. Ahead of that we have some European corporate earnings with Credit Suisse (which were a bigger miss than expected) and Norsk Hydro’s results. Today’s US earnings calendar today features results from a number of megacaps including the likes of McDonalds, Coca-cola Co, Verizon (before the open) and Apple and Microsoft (after-market). A major focus today is on US CPI. Consensus is +2.1% YoY and +2.0% in headline and core respectively. There is also existing home sales today. Both pieces of data have the capacity to move treasury markets. Hungary’s central bank also holds its rate meeting today.

Market Wrap

• S&P 500 futures up 0.1% to 1967.7
• Stoxx 600 up 0.5% to 339.7
• US 10Yr yield up 1bps to 2.48%
• German 10Yr yield up 1bps to 1.16%
• MSCI Asia Pacific up 0.6% to 147.8
• Gold spot down 0.4% to $1307.5/oz

Bulletin Headline Summary from RanSquawk and Bloomberg

• EUR/USD approached YTD lows at 1.3477 this morning, after July’s support at 1.3491 was broken. Real money supply and strong demand for USD/CHF lifted the USD-index to six week highs as thin trade exacerbated price action
• All eyes on Brussels as the EU foreign affairs presser is expected to unveil further sanctions on the Russian arms and dual-use industrial goods sector
• US earnings calendar thick and fast today, with Apple, Microsoft, Verizon, Coca-Cola, McDonalds, Lockheed Martin and Altria all due today
• Treasuries decline, led by 7Y and 10Y notes as global stocks rally; 5/30 curve touches new 5-year tight in overnight trading.
• EU governments labored to identify more Russian businesspeople and companies to sanction and pressed Putin to speed a probe into the downing of Malaysian Air flight MH17 or face isolation
• 54% of jobs in the EU are at risk of advances in computerization, according to a study by economist Jeremy Bowles published by Bruegel, a Brussels-based research organization.
• U.S. Secretary of State Kerry put the onus on the Gaza Strip’s Hamas rulers to halt two weeks of fighting with Israel that has killed more than 600 people, the overwhelming majority of them Palestinians
• Credit Suisse said it will exit commodities trading as a $2.6b fine to settle a U.S. tax investigation pushed the Swiss bank to its biggest quarterly loss since 2008
• Texas Governor Rick Perry said he will send as many as 1,000 National Guard troops to help secure the border with Mexico; about 57,000 unaccompanied minors have arrived at the border since October, double the total from fiscal 2013
• U.S. Senator Ron Johnson’s lawsuit challenging an Obamacare provision subsidizing health insurance for members of Congress and their aides was dismissed by a judge who found the lawmaker failed to show he’d been harmed
• Sovereign yields mostly higher. Euro Stoxx Banks +1.54%. Asian and European stocks equities gain, U.S. stock futures rise. WTI crude and copper higher, gold declines

US Event Calendar

• 8:30am: CPI m/m, June, est. 0.3% (prior 0.4%)
  • CPI Ex Food and Energy m/m, June, est. 0.2% (prior 0.3%)
  • CPI y/y, June, est. 2.1% (prior 2.1%)
  • CPI Ex Food and Energy y/y, June, est. 2% (prior 2%)
  • CPI Core Index SA, June, est. 238.227 (prior 237.776)
  • CPI Index NSA, June, est. 238.535 (prior 237.9)
• 9:00am: FHFA House Price Index m/m, May, est. 0.2% (prior 0.0%)
• 10:00am: Richmond Fed Manufacturing Index, July, est. 5 (prior 3)
• 10:00am: Existing Home Sales, June, est. 4.99m (prior 4.89m)
  • Existing Home Sales m/m, June, est. 2% (prior 4.9%) Supply

ASIAN HEADLINES

The Nikkei 225 (+0.84%) managed to pull back the majority of Friday’s losses after yesterday’s market closure, with Chinese and Hong Kong markets (Shanghai Comp +1.02%, Hang Seng +1.69%) benefiting from the PBoC choosing not to drain liquidity overnight.

FIXED INCOME

Fixed income markets trade softer, with strong equity markets weighing, as Bund futures continue to retreat from contract highs at 148.49 printed on Friday. Furthermore, relatively poorly received (bid/cover 1.84 vs. prev. 2.04) Gilt supply (circa 30K Gilt futures contracts) has pressed prices lower. Italian and Spanish 10yr yield spreads trade slightly tighter, as markets take a favourable view on consolidation in the Italian banking sector, after Banca Carige unveiled plans to offload assets. Barclays Prelim Pan Euro Agg Month-end Extension +0.11y (Prev. month 0.09y, 12m ave. 0.08y), Prelim Treasury Month-end Extension +0.08y (Prev. month 0.08y, 12m ave. 0.09y)

EQUITIES

Equity markets in Europe shrugged off the lower close on Wall Street as the strong performance from Asia-Pacific equities prompted a gap higher at the open, with the energy and materials sectors outperforming on a recent rebound in commodities prices. Earnings in Europe have been received favourably, with ARM Holdings (ARM LN), IG Group (IGG LN) and Actelion (ATLN VX) outweighing a poor update from Credit Suisse (CSGN VX), who have been forced to close their commodities trading unit in order to offset losses prompted by US tax fines.

FX

EUR/USD tripped stops on the way through 1.35 to hit the lowest level since February at 1.3481, with real money supply weighing on the currency as USD/CHF buying lifted the USD-index by almost 0.2%. Traders now eye a base in EUR/USD at the yearly lows of 1.3477, with analysts at IFR noting talk of option barriers at 1.3475 and 1.3450.

COMMODITIES

Oil trades slightly higher ahead of the NYMEX open as continued instability in the Middle-east and eastern Europe keeps a floor under prices. Nonetheless, expectations of a resumption of shipping from Libya’s Brega oil port could keep a cap on Brent price action. Precious metals markets have fallen alongside fixed income, as EU sanctions on Russia are seen sparing the resources and commodities sectors. Near-term focus shifts to the API crude oil inventories due after market and the August WTI option expiries due at the pit close

* * *

DB's Jim Reid Concludes the Overnight Summary

Ever since news broke that Thursday's tragic plane crash may have been caused by a missile fired by pro-Russia separatists I've felt that this story was an incredibly dangerous one for global stability and also the global economy. However most of these major geopolitical events do eventually pass even if concerns heighten so maybe the market is correct to be relatively sanguine. Will this be another such occasion? In my mind the market is not assigning a high enough probability of this situation escalating to uncomfortable levels but the reality is the most likely outcome is that it doesn't. Therein lies the dilemma of investing. Do you position for the most likely outcome along with the crowd or do you stand more alone and position for the lower probability but higher impact outcome. Over a career you'll probably get higher overall returns with the latter strategy but you may have more uncomfortable moments explaining and surviving frequent small under-performance. Also trading liquidity is shallow enough at the moment, especially in assets like cash credit, that it doesn't necessary pay to try to capture short-term moves. So we're not changing our recommendations at the moment but it’s fair to say we feel uneasy at developments over the past few days.

Indeed the newsflow continues in this story with no signs of an imminent solution or escalation yet. However with Russia seemingly not keen on accepting the West's version of events, President Obama putting some pressure on them yesterday afternoon and EU foreign ministers meeting today there is a real possibility of a ratcheting up of sanctions on Russia later this week – including possibly more hard-hitting “level 3” sanctions. The US may find it economically easier to deal with this outcome than Europe though. On a client call yesterday (call replay details included at the end), DB’s Yaroslav Lissovolik, DB’s Head of Research (Russia) discussed Putin’s likely next actions and commented that opinion polls in Russia are suggesting war fatigue, with two thirds against continued support for the pro-Russian separatists. Given this there is a chance that Putin may wish to de-escalate the situation if possible, although Yaroslav noted that Putin may decide to escalate the situation further in the near-term in order to de-escalate at a later point. Also on the call was Frank Kelly, DB’s geopolitical go-to man, who gave his view on the US position. After watching Obama’s press conference yesterday he sees the White House’s position as giving Putin the opportunity to save face and help de-escalate the situation before the stepping up of sanctions. For example Frank thinks we need to see Putin call for a ceasefire and take actions to support it and/or help secure the MH17 crash site. If these actions aren’t forthcoming he believes the US will announce further sanctions on Russia.

As we mentioned earlier, today will likely see more headlines on the situation as EU foreign ministers meet as well as the Russian Security Council. So watch out for headlines from all angles. Perhaps the most market-friendly outcome is that EU leaders talk very tough but do not agree on intensifying sanctions against Russia. Reuters thinks that despite all the tough talk, the EU is unlikely to punish Russia beyond the speeding up of the imposition of already agreed individual sanctions. A summit of EU leaders on July 16, the day before the airliner was downed, agreed the EU would punish Russian companies that help to destabilize Ukraine. According to Reuters, diplomats said Tuesday's meeting in Brussels was still not expected to go much further than agreeing on the people and possibly companies to be hit with asset freezes under the framework agreed last week. Previously, they had only said they would decide on the list by the end of July. Citing unnamed diplomats, Reuters said moving towards more sweeping economic sanctions could only be decided by heads of government. The next scheduled summit of EU leaders is on August 30, though EU members could call for another emergency meeting.

An unknown element today will be the Dutch, who have previously advocated caution in imposing sanctions against Russia, but are likely going to be a large swing factor today. The Netherland’s previous caution with respect to Russia was perhaps to due to its significant economic ties, but they will be forced into action given the loss of life they have experienced in the MH17 tragedy. In terms of the Russian Security Council meeting, not a lot has been reported on what to expect from this. Putin will chair the meeting to discuss "issues connected with safeguarding the sovereignty and territorial integrity of the Russian Federation," the Kremlin said in a statement on Monday.

So we may get a short term relief rally if the EU foreign ministers meeting ends today with no concrete steps towards further sanctions – but this doesn’t take away from the fact that we still face a potentially dangerous threat to global stability. Following yesterday’s speech from Obama, we saw a small relief rally as the US president said he still preferred a diplomatic resolution for Ukraine and did not announce any level 3 sanctions. Some also highlighted that Obama chose to discuss the situation in the Middle East first, before the Ukraine/Russia crisis, and was perhaps trying to play the situation down a touch. Either way, US equities bottomed just before Obama’s comments, and from there the S&P500 recovered around 0.33% to close at -0.23% on the day. Rates closed marginally stronger (10yr yield at 2.47%, -1.5bp) although yields also bottomed shortly before Obama spoke and traded upwards towards the end of the NY session. However, this didn’t stop the US30yr yield (3.26%, -3bp) closing at its lowest level in more than a year.

Turning to Asia, we’re seeing a tentative but positive tone to trading ahead of today's events which include the EU foreign ministers meeting, US CPI and a number of important corporate earnings. There are solid gains being recorded across the Hang Seng (+1.15%), HSCEI (+1.5%) and Japan has return from holidays with a 0.96% gain in the Nikkei. There is an interesting article on Bloomberg today, suggesting that there is a rift within the Bank of Japan’s board with respect to the ability of the central bank to meet its inflation target. According to the article, a majority of the nine members disagree with Kuroda’s view that the BoJ’s QQE program is sufficient to get 2% inflation, and most conclude it cannot be done without government steps to raise Japan’s growth potential, citing unnamed sources. USDJPY is broadly unchanged today. Elsewhere Indonesia remains a focus with official election results to be announced later today. IDR continues to rally and is a further 0.3% stronger today while Indonesian USD sovereign paper is trading stronger.

As we noted in last Friday’s EMR, one corner of the fixed income market worth watching closely is US high yield. The Fedchair has warned repeatedly that she sees worrying signs in the HY market and last week’s flow data from Lipper suggested that perhaps US retail investors are beginning to take heed of those warnings. According to Lipper, retail-cash outflows from HY funds in the week ended July 16 were the single largest one-week redemption in 11 months. The latest EPFR data also confirmed the same, with their data showing that retail investors’ redemptions from US HY funds hit 57 week highs for the week ending July 16th. ETFs were the major contributing factor to that week’s outflows and yesterday we saw the major US high yield ETFs resume their downward moves in price. The iShares iBoxx High Yield ETF closed 0.17% lower (its 9th down day in the last 12 sessions). In addition, the ETF’s 10-day average premium to NAV is now in negative territory (i.e. trading at a discount to NAV), which last occurred last summer. So certainly some evidence of retail selling of the HY asset class. Something to watch over the next few weeks.

On a separate but somewhat related theme, the US Securities and Exchange Commission is expected to vote tomorrow on a plan that may require some money market funds to float the value of their fund’s shares, rather than sticking to the norm of a fixed $1 per share. If the five-member commission on July 23 votes for the plan, institutional money market funds would float the value of their fund’s share price, thus creating a potentially sensitive situation where these perceived low-risk funds could “break the buck”, i.e. trade lower than $1/share. The SEC is also considering the introduction of withdrawal restrictions and exit fees on these funds. Similar to the HY situation described above, in a world accustomed to central bank liquidity, it’s difficult to understand how markets will behave if flows go the other way and perhaps the SEC’s proposals to introduce “gates” on redemptions is a reflection of that unknown.

Today’s calendar looks more interesting than that of the last 24 hours. The EU foreign ministers’ meeting starts at 8:30am London time this morning. Ahead of that we have some European corporate earnings with Credit Suisse and Norsk Hydro’s results. CS is expected to report a negative headline earnings number following recent settlements with US regulators, but as is usually the case of late; markets will be more interested in the underlying earnings. Today’s US earnings calendar today features results from a number of megacaps including the likes of McDonalds, Coca-cola Co, Verizon (before the open) and Apple and Microsoft (after-market). A major focus today is on US CPI. Consensus is +2.1% YoY and +2.0% in headline and core respectively. There is also existing home sales today. Both pieces of data have the capacity to move treasury markets. Hungary’s central bank also holds its rate meeting today.

• EU Works to Punish Russia as MH17 Bodies Leave Rebel Area (BBG)
• Bodies From Malaysia Airlines Flight Begin Long Trip to Netherlands (WSJ)
• Israel pounds Gaza as Kerry arrives (Reuters)
• U.S. judge dismisses Republican lawsuit over Obamacare subsidy for Congress (Reuters)
• Israel Soldier Missing Amid Assault on Hamas in Gaza (WSJ)
• Detroit Retirees Vote in Favor of Pension Cuts (WSJ)
• Russia Axes 1st Bond Sale in 3 Months as Ukraine Drives Up Yield  (BBG)
• Wall Street Cut From Guest List for Jackson Hole Fed Meeting (BBG)
• Credit Suisse to Exit Commodities, Posts Big Quarter Loss (BBG)
• Draghi Cedes Euro Control to Yellen on Fed Rate Wagers (BBG)
• Turkish Businesses Boycotting Israeli Products Because of Gaza (INN)
• Soros Chart Shows Euro-Yen Reaching 2008 High (BBG)
• Next iPhone Will Offer Bigger Screens; Apple Tells Suppliers to Gear Up for 4.7-inch and 5.5-Inch Screen Sizes (WSJ)
• Sterling Trust Could Face Default on Loans if Clippers Aren't Sold, CFO Says (WSJ)
• Saudi to Open Up $531 Billion Stock Market to Foreigners (BBG)

Overnight Media Digest

WSJ

* Separatists in Ukraine released the bodies of victims in the downing of Malaysia Airlines Flight 17 and agreed to hand over the aircraft's data recorders, allowing the focus to tighten on establishing who brought the jetliner down. (http://on.wsj.com/Uoe1bR)

* Workers and retirees approved pension cuts in Detroit's bankruptcy, the city said Monday, a crucial step to emerging from the largest municipal insolvency in U.S. history. The city disclosed results from two months of balloting, which ended July 11. (http://on.wsj.com/1wTrViJ)

* European ministers are expected to approve sanctions that will target Russian oligarchs in response to the suspected downing of a Malaysian jetliner by Moscow-backed rebels in eastern Ukraine. (http://on.wsj.com/1nvUB1w)

* Apple Inc is preparing for its largest initial production run of iPhones this year, betting that larger-screen models will lure consumers now attracted to similar phones from Samsung Electronics Co. The company is asking suppliers to manufacture between 70 million and 80 million units, larger than the initial order last year of 50 million to 60 million versions of the iPhone 5S and 5C. (http://on.wsj.com/1qZBAm3)

* The U.S. owner of a meat supplier in Shanghai apologized and promised a swift response after McDonald's Corp and Yum Brands Inc suspended purchases in China in the wake of allegations it sold expired chicken and beef to restaurants. China's Food and Drug Administration halted on all business activities of Shanghai Husi and launched a nationwide investigation of the company. (http://on.wsj.com/1jSycdP)

* Washington's regulatory machine is altering Wall Street in fundamental ways, four years after the Dodd-Frank financial law became reality. Banks are selling off profitable business lines, pulling back from the short-term funding market, cutting ties with businesses that could attract extra regulatory scrutiny, and building up defenses to help weather future crises. (http://on.wsj.com/1ua2Eoi)

* Spending on mobile ads is expected to jump 83 percent this year, but given how much time Americans spend on their devices, mobile-ad spending could be much higher. (http://on.wsj.com/1loxQqs)

* The family trust that owns the Los Angeles Clippers is in danger of defaulting on loans if a planned sale of the NBA team doesn't go through, an executive testified Monday. (http://on.wsj.com/Wuj8sv)

* Allergan, which is trying to avoid being acquired by Valeant Pharmaceuticals International Inc, said it would cut 13 percent of its work force and reduce drug research, to boost its profits over the next six years. Valeant also had similar plans of restructuring, if it acquired Allergan. (http://on.wsj.com/WzRuuz)

* Netflix Inc said its second quarter earnings more than doubled as it added 1.7 million subscribers world-wide but cautioned that a more aggressive international expansion would hurt profits in third quarter. (http://on.wsj.com/1wTaZc1)

* Venezuela's auto industry, once the third largest in South America, is seizing up as manufacturers struggle to produce a few vehicles a day. Car makers like Ford Motor Co, Fiat Chrysler Automobiles, General Motors and Toyota Motor Corp, have cut output by more than 80 percent in the first six months of the year, due to lack of dollars to pay part suppliers. (http://on.wsj.com/1nv5BMM)

* Activist investor Jana Partners LLC has built a stake worth more than $1 billion in Apache Corp and is calling on the oil and gas producer to sell off its international holdings to drill exclusively on American soil. It also wants the company to exit some projects to free up cash flow. (http://on.wsj.com/UkTOUB)

* Crocs is trimming jobs and reducing the number of stores as the maker of colorful plastic clogs said it needs to get smaller to improve profitability. (http://on.wsj.com/1u9SQuJ)

FT

Time Warner Cable Inc, which owns cable networks TNT and CNN, scrapped a rule that allows investors to call a shareholder meeting in a bid to block a potential hostile takeover by Rupert Murdoch's Twenty-First Century Fox.

Portugal's largest-listed lender, Banco Espirito Santo is to appoint a special financial adviser to help improve its balance sheet days after one of its holding companies filed for creditor protection.

Barclays Plc U.S. dark pool slips from second to 12th place in terms of volumes traded as customers flee following a lawsuit that alleged the lender misled clients about frequency activity in its private trading venue.

China's MMG Ltd shareholders approve purchase of the Las Bambas copper project in Peru from Glencore Plc for $5.85 billion.

British engineering contractor Babcock International's order book for the coming year rose to 13.5 billion pounds ($23.1 billion), helped by recent contract wins and its acquisition of helicopter transport firm Avincis.

NYT

* Netflix Inc reported its business grew in the second quarter thanks to international customers and little adverse effect from an announced price increase. The company said it surpassed 50 million total members for its streaming service, including free trial memberships, in the second quarter of this year. Netflix has announced plans to introduce its service to a number of European markets in September, including Austria, Belgium, France, Germany, Luxembourg and Switzerland. (http://nyti.ms/1lodcae)

* In response to an article about the political connections of some of its shareholders, Alibaba Group Holding Ltd <IPO-BABA.N> discounted the notion that their backgrounds helped drive its business. In a strongly worded statement on Monday in Chinese on its account on Weibo, a Twitter-like social media network, Alibaba said The Times article "mistakenly described" Alibaba's relationship with the investors. (http://nyti.ms/1n7qLzq)

* Yahoo Inc announced Monday that it had agreed to acquire Flurry, a mobile ad and analytics company. Flurry's advertising expertise could help Yahoo as it tries to build a meaningful mobile ad business. Although more than half of Yahoo's monthly audience visits come on mobile devices, revenue from mobile ads is still so small that the company does not break it out. (http://nyti.ms/Ul2utY)

* Time Warner Inc on Monday amended its corporate bylaws and removed a provision that allowed shareholders to call a special board meeting. In a filing with the Securities and Exchange Commission, Time Warner said the change was effective immediately. Without the ability to call a special meeting, shareholders supportive of a Twenty-First Century Fox offer would not be able to replace Time Warner's board of directors before the company's next annual meeting, which would likely come next June. (http://nyti.ms/UodPcn)

* Malaysia Airlines' two crashes in less than five months are sending tremors through the aviation insurance market - not least because the carrier's $2.25 billion overall liability policy is mysteriously missing a standard clause that usually limits insurers' payments for search-and-rescue costs. (http://nyti.ms/1wTlbS7)

* A Senate investigation has found that hedge funds - in particular, James Simons' Renaissance Technologies - used complex financial structures to claim billions of dollars in tax savings. Between 1998 and 2013, more than a dozen hedge funds conducted hundreds of billions of dollars in trades using hundreds of structures, known as "basket options," created by Barclays Plc and Deutsche Bank AG, the Senate Permanent Subcommittee on Investigations said in a report on Monday. (http://nyti.ms/1n7EsOT)

* Goodwill Industries International, a nonprofit agency that operates thrift stores around the country, said on Monday that it was investigating a potential security breach that may have led to the theft of customers' credit card data. (http://nyti.ms/1qZZ5vl)

* Hedge funds are not new to farmland. For nearly a decade they have scoured the corners of the globe for cheap land as food prices have soared, positioning themselves to profit from the growing demand. Hedge funds now have $14 billion invested in farmland, according to the data provider Preqin. With its steady income stream, farmland is proving to be a ripe offering for sophisticated investors. (http://nyti.ms/1nPkbc0)

Canada

THE GLOBE AND MAIL

* A Chinese man accused of being the "directing mind" behind a corporate-espionage conspiracy to steal jet-fighter secrets from Pentagon contractors is a Canadian immigrant who is being stripped of his residency status. (http://bit.ly/1n8LvH3)

* The mysterious shooting death of a respected Florida law professor originally from Toronto took a sinister turn on Monday as investigators revealed that Dan Markel was the victim of a targeted attack. (http://bit.ly/1A0wwEi)

Reports in the business section:

* Mark Brock has been growing corn near London, Ontario, for decades but he has never seen a market quite like this with prices plummeting so fast he may not even try to sell some of his crop this year. Like many farmers, Brock has been trying to protect his profits by forward selling as much of his corn as possible. (http://bit.ly/1uaPR4Z)

NATIONAL POST

* The New Democratic Party is vigorously defending allegations it improperly put parliamentary staff in so-called satellite offices in Quebec before a meeting by the House of Commons panel that monitors spending by members of parliament. (http://bit.ly/WvqFqU)

* Senator Mike Duffy allegedly charged the Senate for personal travel to funerals, and disbursed money to three people for illegitimate expenses under the guise of a consulting contract. The allegations are contained in newly released court documents. The documents were made public on Monday, several days after the Royal Canadian Mounted Police announced that it was charging the suspended senator with 31 criminal counts. (http://bit.ly/1lppSgW)

FINANCIAL POST

* Rogers Publishing announced a small shakeup to its magazine mastheads on Tuesday, with three top editors cut loose, as part of an effort to streamline its editorial structure. According to an internal staff memo, the position of editor-at-large, held by Dianne de Fenoyl, would be eliminated, and de Fenoyl would be leaving after nearly a decade with the company. (http://bit.ly/1n8QZ4q)

* Fashion industry veteran Mario Grauso has been promoted to president of Loblaw Companies Ltd's in-house apparel brand Joe Fresh. The move comes as part of a major management shuffle at the country's biggest grocery chain last week, which saw Galen Weston named president of the retailer and the exit of president Vicente Trius. (http://bit.ly/1kONJqg)

China

SHANGHAI DAILY

- New residential property sales remained sluggish in Shanghai, staying below the 150,000-sq. m. threshold for the second straight week. In the nearby city of Hangzhou, home buyers remain reluctant to buy property even though housing prices have started to fall, as they expect prices to decline further.

CHINA DAILY

- China Mobile Ltd, the world's No. 1 telecom carrier by subscriber numbers, said on Monday it was removing its premium customer lounges at the nation's airports in a bid to cut back on operating expenses. The firms also plans to close down the majority of its customer clubs, a type of value-added service introduced a few years ago to lure new subscribers.

- China's railway track should total more than 200,000 km by 2030, in line with the nation's economic goals, and at least 10 percent of it will be for high-speed rail, the former chairman of China South Locomotive and Rolling Stock Co Ltd, and an adviser to the China Institute for Innovation and Development Strategy, said. China had 103,144 km of track, including 11,028 km for high-speed rail, the longest in the world.

CHINA SECURITIES JOURNAL

- China Financial Futures Exchange Board Chairman Zhang Shenfeng wrote an article advocating further reform and technical improvements to the market interest rate system.

Hong Kong

SOUTH CHINA MORNING POST

-- Hong Kong does not need a controversial HK$30 billion ($3.87 billion) upgrade of its centralised wastewater treatment system as the water in the harbour is clean enough, at least for now, the city's environment officials say. (bit.ly/1rlh3uf)

-- The chief executive of the Hong Kong Monetary Authority, Norman Chan Tak-lam, defended the city's strict banking rules as some of the best in the world, amid a flurry of recent international concern over the territory's banking system. (bit.ly/1jSmZKm)

THE STANDARD

-- Health and wellness products retailer OTO Holdings has been censured by the Hong Kong stock exchange for breaching the bourse's listing rules of twice failing to timely disclose its weaker results, along with its executive directors neglecting their undertaking to the bourse. (bit.ly/1rwQHHv)

-- Electronic books could soon turn a page to greater popularity in Hong Kong, says an e-book provider. Sino United Electronic Publishing content director Ivan Tsoi Yiu-ming said he is optimistic about e-books due to the popularity of tablet computers and smartphones. (bit.ly/UnUCHM)

-- Tissue paper firm Vinda International said net profit fell 21.8 percent in the first half to HK$222.18 ($28.66) million, from a year earlier, due to foreign exchange losses as the yuan weakened against the U.S. dollar. (bit.ly/1qZjEYT)

HONG KONG ECONOMIC JOURNAL

-- Morgan Stanley has raised its stake in Wing Hang Bank to 5.03 percent from 4.84 percent, according to data from the Hong Kong stock exchange.

HONG KONG ECONOMIC TIMES

-- HK Electric Investments Ltd posted a profit of HK$967 million ($124.75 million) for the first half of 2014 while distributable income amounted to HK$1.46 billion.

MING PAO DAILY NEWS

-- The average monthly rental of Hong Kong's 85 major residential developments stood at HK$23.2($2.99) per square foot in June, the highest monthly rental in 19 years, according to a report from property agent Centaline.

Britain

The Times

RBS PAYS 900,000 POUNDS FINE FOR AUSTRALIAN RATE-RIGGING

(http://thetim.es/1pxlC1F) Australian regulators have fined Royal Bank of Scotland nearly 900,000 pounds after the bank admitted its role in attempts to manipulate the country's equivalent of the Libor benchmark borrowing rate.

BANK OF ENGLAND'S COURT OPENS DOOR TO WOMEN CHIEFS

(http://thetim.es/1p3Lpgp)

The female chief executives of the telecoms company TalkTalk and the Yorkshire-based power plant Drax are among the new appointees to the board of the Bank of England, which was heavily criticised for having insufficient women in senior positions.

The Guardian

HEDGE FUNDS USED 'DUBIOUS' MEANS TO BYPASS TAX RULES, SENATORS SAY

(http://bit.ly/1sH5Wh8)

More than a dozen hedge funds, with assistance of Barclays and Deutsche Bank, used "dubious" financial products to claim billions in unjustified tax savings and circumvent rules meant to limit risky bets, a Senate subcommittee investigation has found.

COMPETITION REGULATOR MUST FORCE BANKS TO IMPROVE SERVICE, MPS SAY

(http://bit.ly/1ySroAs)

MPs have called on the competition watchdog to force high street banks to improve standards and the way they treat their customers after the Competition and Markets Authority signalled it would investigate the industry.

The Telegraph

ESPIRITO SANTO CRISIS COULD AFFECT PORTUGAL'S ECONOMY, WARNS PRESIDENT ANIBAL CAVACO SILVA

(http://bit.ly/Wt84vU)

The president of Portugal has warned that the financial crisis gripping the Espirito Santo family could affect the country's economy.

JUNCKER FACES POLITICAL TEST AS FINES LOOM ON ILLEGAL GERMAN TRADE SURPLUS

(http://bit.ly/UnMual)

Germany's current account surplus is the largest ever recorded in proportional terms and far above the threshold for EU sanctions, posing a major political test for the incoming commission of Jean-Claude Juncker.

Sky News

GLENFIDDICH EYES 100 MLN STG DRAMBUIE SCOTCH MERGER

(http://bit.ly/1p8mlrp)

The family-owned business behind Glenfiddich and Grant's is examining a 100 million pound takeover of Drambuie, the liqueur reputed to be made from a recipe concocted by Bonnie Prince Charlie.

BBA IN TALKS ABOUT PAYMENTS COUNCIL MERGER

(http://bit.ly/1wQFvUa)

The banking industry's main lobbying group, British Bankers' Association, is considering proposals to merge with at least two of its peers amid pressure from leading members to reduce costs levied by trade organisations.

Fly On The Wall Pre-Market Buzz

ANALYST RESEARCH

Upgrades

Allergan (AGN) upgraded to Buy from Neutral at UBS
American Axle (AXL) upgraded to Neutral from Underweight at JPMorgan
Diamondback Energy (FANG) upgraded to Buy from Neutral at Roth Capital
Digital Realty (DLR) upgraded to Buy from Hold at Deutsche Bank
Five Below (FIVE) upgraded to Outperform from Market Perform at Wells Fargo
Gas Natural (EGAS) upgraded to Buy from Hold at Wunderlich
Hasbro (HAS) upgraded to Overweight from Equal Weight at Barclays
Huntington Bancshares (HBAN) upgraded to Outperform at Keefe Bruyette
Realogy (RLGY) upgraded to Buy from Neutral at Citigroup
Sanmina (SANM) upgraded to Hold from Sell at Deutsche Bank
Trex Company (TREX) upgraded to Buy from Hold at Stifel
VCA Inc. (WOOF) upgraded to Hold from Sell at Stifel
Valspar (VAL) upgraded to Conviction Buy from Neutral at Goldman

Downgrades

Amazon.com (AMZN) downgraded to Neutral from Buy at Citigroup
Arcos Dorados (ARCO) downgraded to Underweight from Neutral at HSBC
Cadence Design (CDNS) downgraded to Neutral from Overweight at JPMorgan
Matador (MTDR) downgraded to Hold from Buy at Stifel
SunTrust (STI) downgraded to Equal-Weight from Overweight at Evercore

Initiations

Abengoa Yield (ABY) initiated with an Equal Weight at Morgan Stanley
Actinium Pharmaceuticals (ATNM) initiated with a Buy at Canaccord
Chambers Street Properties (CSG) initiated with a Neutral at SunTrust
Minerals Technologies (MTX) initiated with an Outperform at Wedbush
NextEra Energy Partners (NEP) initiated with a Buy at BofA/Merrill
NextEra Energy Partners (NEP) initiated with a Hold at Deutsche Bank
NextEra Energy Partners (NEP) initiated with a Hold at KeyBanc
NextEra Energy Partners (NEP) initiated with a Neutral at Goldman
NextEra Energy Partners (NEP) initiated with a Neutral at UBS
NextEra Energy Partners (NEP) initiated with an Equal Weight at Morgan Stanley
NextEra Energy Partners (NEP) initiated with an Outperform at BMO Capital
QIWI (QIWI) initiated with a Positive at Susquehanna
Quality Systems (QSII) initiated with a Buy at Topeka
Trinseo S.A. (TSE) initiated with a Buy at Deutsche Bank
Trinseo S.A. (TSE) initiated with a Buy at Goldman
Trinseo S.A. (TSE) initiated with a Buy at Jefferies
Trinseo S.A. (TSE) initiated with a Neutral at Citigroup
Trinseo S.A. (TSE) initiated with an Equal Weight at Morgan Stanley
Trinseo S.A. (TSE) initiated with an Outperform at Wells Fargo
Washington Prime Group (WPG) initiated with a Neutral at SunTrust

COMPANY NEWS

Johnson & Johnson (JNJ) announced a $5B share repurchase program
Credit Suisse (CS) said it will exit commodities trading business
CIT Group (CIT) to acquire OneWest Bank for $3.4B in cash and stock
Time Warner (TWX) amended by-laws to block holders ability to call special meeting (FOXA)
TG Therapeutics announced preliminary clinical results from its ongoing Phase I study of TG-1101, and said 100% of CLL/SLL patients had significant nodal reduction with either a normalization of or greater than or equal to 80% reduction in Blood Lymphocyte Count.
Kindred Healthcare (KND) offered to acquire Gentiva Health (GTIV) for $17.25 per share. Kindred said it is willing to consider further increasing its offer for Gentiva
Netflix reported Q2 total streaming net additions of 1.69M. Said policy goal is for DOJ/FCC to block Comcast (CMCSA), TWC (TWC) deal

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Verizon (VZ), Polaris Industries (PII), Signature Bank (SBNY), New Oriental Education (EDU), PLX Technology (PLXT), Crocs (CROX), First Interstate (FIBK), First Defiance Financial (FDEF), Helix Energy (HLX), Crown Holdings (CCK), Ultra Clean (UCTT), Texas Instruments (TXN), Artisan Partners (APAM), Zions Bancorp (ZION), PolyOne (POL), Waste Connections (WCN), Woodward (WWD), Rambus (RMBS), Cadence Design (CDNS), Sanmina (SANM), Trustco Bank (TRST), Chipotle (CMG), MainSource Financial (MSFG)

Companies that missed consensus earnings expectations include:
Carlisle (CSL), Del Frisco's (DFRG), Brown & Brown (BRO), BBCN Bancorp, Inc. (BBCN), Old Line Bancshares (OLBK), AptarGroup (ATR), EMC Insurance (EMCI), TG Therapeutics (TGTX), Wilshire Bancorp (WIBC), Washington Trust Bancorp (WASH), Netflix (NFLX)

Companies that matched consensus earnings expectations include:
Regions Financial (RF), DuPont (DD), BancorpSouth (BXS), Steel Dynamics (STLD), Consumer Portfolio (CPSS), Healthstream (HSTM), Rent-A-Center (RCII), Hexcel (HXL)

NEWSPAPERS/WEBSITES

Apple (AAPL) asking suppliers to produce 80M large-screen iPhones, WSJ reports
JANA investor letter discloses $1B position in Apache (APA), Bloomberg says
China food scandal spreads, drags in Starbucks (SBUX), Burger King (BKW) and McDonald's (MCD) products in Japan, Reuters reports
Yahoo (YHOO) paying over $200M for Flurry, TechCrunch reports
Viacom's (VIA) music group and Spotify form music streaming partnership, WSJ reports
Global notebook shipments to increase 4.3% in Q3, DigiTimes Research says
McDonald's (MCD) stock doesn't look ready for gains, Barron's says

SYNDICATE

Blue Hills Bank (BHBK) 27.8M share Secondary priced at $10.00
Diamondback Energy (FANG) 5M share Secondary priced at $87.00
FBR & Co. (FBRC) announces self-tender offer to purchase up to 1M shares
Pretium Resources (PVG) files to sell $60M in common stock
Regency Energy Partners (RGP) files to sell 8.3M units for limited partners
Tallgrass Energy (TEP) files to sell 7M units representing limited partners

• Here come the gates which we predicted in 2010: SEC Is Set to Approve Money-Fund Rules (WSJ)
• Dick's cuts 400 jobs as golf now less popular (MW)
• Kerry arrives in Israel, pushes for peace (Reuters)
• Pay Penalty Haunts Recession Grads as U.S. Economy Mends (BBG)
• Appeals Courts Issue Conflicting Rulings on Health-Law Subsidies (WSJ)
• Rebel Stronghold Donetsk Holds Breath as Shellfire Mounts (BBG)
• Business executive wins Georgia Republican runoff in U.S. Senate race (Reuters)
• Five held in China food scandal probe, including head of Shanghai Husi Food (Reuters)
• Jobs Hold Sway Over Yellen-Carney as Central Banks Splinter (BBG)
• With sales sputtering, Apple's iPad looks to IBM alliance (Reuters)
• Plane with first coffins of Malaysian airliner victims leaves Ukraine (Reuters)
• Saudi Stock Opening Shut to Some as Hot Money Unwanted (BBG)

Overnight Media Digest

WSJ

* Two U.S. appeals courts issued conflicting rulings on subsidies for health coverage purchased on federal insurance exchanges, clouding a major part of Obama's health law. (http://on.wsj.com/1pb81yo)

* The Federal Reserve Bank of New York found that Deutsche Bank AG's U.S. operations suffer from a litany of serious financial reporting problems that the lender has known about for years but not fixed. (http://on.wsj.com/1jUoOXe)

* The U.S. barred flights to Israel's main international airport outside Tel Aviv for at least 24 hours after a rocket from Gaza landed nearby, angering Israel, which said the ban was a boon to Hamas's efforts to isolate the country. (http://on.wsj.com/1mCogQJ)

* The new rules by Securities and Exchange Commission are likely aimed at avoiding a repeat of investor stampede out of the $2.6 trillion industry that threatened to freeze corporate lending during the 2008 financial crisis. According to the plan, "prime" money funds whose shares are held by corporations and large institutional investors will have to abandon a stable $1-a-share price and float in value like other mutual funds. The plan also would allow all funds to temporarily stop investors from redeeming shares in times of market tumult or impose fees on them to do so. (http://on.wsj.com/1udyPmN)

* A group of cosmetics and fragrances workers at a Macy's store in Massachusetts are a big enough lot to try to unionize, the National Labor Relations Board decided in a ruling that could advance organized labor's quest to unionize subsets of workers in varied industries. (http://on.wsj.com/WAEFQe)

* Apple Inc reported a 12 percent profit growth and strong sales of iPhone. It sold about 35.2 million iPhones in the quarter, up 12.7 percent. But Apple struggled for the second consecutive quarter to sell iPads, with unit sales falling 9.2 percent after a 16 percent drop three months earlier. (http://on.wsj.com/UrjgHL)

* CIT Group Inc agreed to buy OneWest Bank NA's parent company for $3.4 billion in the largest full-bank acquisition announced since 2012. The takeover of IMB Holdco LLC, which is OneWest's parent company, will bump CIT's assets up to $67 billion. (http://on.wsj.com/1na529W)

* Blackstone Group has agreed to buy a majority stake in auto-repair shop chain Service King Collision Repair Centers from Carlyle Group LP with a view to fund the company's future growth. The deal values Service King at about $650 million. (http://on.wsj.com/1rzPuPB)

* Dick's Sporting Goods Inc is cutting hundreds of jobs in its golf division as fewer Americans hit the links. A spokeswoman for the PGA of America said more than 400 of its members who were employed as golf instructors at Dick's were notified Tuesday that they would be laid off. (http://on.wsj.com/WCcYHb)

* J.P Morgan Chase & Co is nearing a deal to sell half its stake in the portfolio of its buyout arm, One Equity Partners. J.P. Morgan is in advanced discussions with investment firms Lexington Partners LP and Carlyle Group LP's AlpInvest Partners unit, to sell half of the roughly $4.5 billion in investments One Equity manages for the bank. (http://on.wsj.com/1jUt9K9)

* William Ackman had promised a "death blow" against Herbalife Ltd, Wall Street instead gave new life to the nutritional-supplement company's stock. Ackman on Tuesday sought to prove once and for all his longstanding allegation that Herbalife is a fraud and a pyramid scheme. In a presentation, Ackman unveiled what he described as new evidence supporting his argument that the company is a "criminal enterprise." (http://on.wsj.com/1qzaUwQ)

FT

Brussels is considering whether to reopen draft antitrust settlement with Google Inc, a move that could pose regulatory challenges to the Internet giant's European operations.

ARM Holdings reported a royalty revenue rise of just 2 percent from chips shipped in products such as Samsung's and Apple's smartphones, and said it expected royalty revenue growth to reaccelerate towards a more normal level in the second half.

Respondents to a UK Treasury review have warned of potential risk to the UK and other non-euro states of losing their influence over financial legislation as a report cited significant benefits from access to the single market in financial services and the free movement of capital.

The Blue Note Milano became the first jazz club to list its shares on a stock exchange, and raised 1.4 million pounds by listing 40 of its shares on the Milan AIM Small-Cap Index.

Secure Trust Bank, which was spun out of the Arbuthnot Banking Group in 2011 and is its retail banking arm, aims to launch an invoice financing business this quarter.

NYT

* President Obama, citing a "skills gap" that prevents many unemployed workers from qualifying for new jobs, signed legislation on Tuesday to strengthen federal job-training programs. The new law seeks to impose more accountability on the federal-state training partnerships by requiring a "job-driven checklist" to ensure that federal money is used effectively and by providing data-driven tools to give workers better information about career prospects. (http://nyti.ms/1sOqeFL)

* On Tuesday, U.S. small-business lender CIT Group Inc said it would acquire the bank that rose from IndyMac's ashes - OneWest Bank Group LLC - paying $3.4 billion in cash and stock to its hedge fund and private equity owners. The deal illustrates how casualties of the financial crisis have moved on, and even prospered. (http://nyti.ms/1udFCNx)

* Despite widespread anger over the Malaysia Airlines plane's downing, European nations have shied away from measures that would further isolate Russia. At a meeting in Brussels, foreign ministers of the European Union's 28 member states agreed to draw up a new, broader list of targets for sanctions, including Russian individuals and entities, said Catherine Ashton, the European Union's foreign affairs chief. (http://nyti.ms/1nSXB2c)

* State attorneys general must investigate, and consider taking legal action against, e-cigarette companies that appear to be using some of the same advertising tactics that once drew young adults into smoking, a Kentucky deputy attorney general told his law enforcement colleagues gathered in Park City, Utah for a retreat to discuss emerging legal issues in states nationwide. (http://nyti.ms/1ty37g8)

* Top properties in Hong Kong are resisting market forces. While cooling measures have affected most real estate, the very rich are holding onto the city's most expensive homes.(http://nyti.ms/1txRxBv)

* For Apple Inc, the iPhone continues to be the device that makes the company tick. While top rivals like Samsung Electronics are starting to show weakness in phone sales, Apple sold 35.2 million iPhones in the third fiscal quarter, up 13 percent from the period a year ago. (http://nyti.ms/1p8NIic)

* Microsoft Corp Chief Executive Satya Nadella said the two most important trends for the company's future are mobile and cloud computing. But it is much better in cloud computing than in mobile. (http://nyti.ms/1lsY4Iv)

* Chrysler Group LLC said on Tuesday that it was recalling an undisclosed number of older Jeep SUVs to correct an ignition-related stalling problem similar to the flaw that has consumed General Motors Co this year. The recall could potentially cover 792,300 Jeep Commanders and Grand Cherokees worldwide that were manufactured between 2005 and 2007. (http://nyti.ms/1nSQK8W)

* Deutsche Bank AG's primary regulator in the United States, the Federal Reserve Bank of New York, has found serious problems with the bank's financial reporting procedures and oversight. (http://nyti.ms/1yZyoLQ)

* LinkedIn Corp made its second acquisition in as many weeks, agreeing to buy the marketing firm Bizo for about $175 million. Last week, LinkedIn bought Newsle, a start-up that searches the Internet for relevant articles. (http://nyti.ms/1rqTEI5)

Canada

THE GLOBE AND MAIL

* U.S. ambassador to Canada Bruce Heyman had little to say on Tuesday about a possible decision on the controversial Keystone XL pipeline project, but that didn't stop Canada's ambassador to the United States from bluntly stating there's no proof that the pipeline shouldn't be built. (http://bit.ly/1A4JPDx)

* U.S. flights to Israel were grounded on Tuesday by the Obama administration, fearing missile strikes at Tel Aviv's airport could imperil U.S. airliners and passengers. Air Canada also canceled its Tuesday evening overnight flight. (http://bit.ly/1p7mrg8)

Reports in the business section:

* Target Corp is pushing its suppliers in Canada to give it a 2 percent cost break to help the U.S. discounter turn around its struggling Canadian operations and win an increasingly tough retail battle. (http://bit.ly/WCzaRw)

NATIONAL POST

* Canadian Prime Minister Stephen Harper does not intend to testify in the trial of suspended senator Mike Duffy because he doesn't have any useful information to offer, his office said on Tuesday. The Royal Canadian Mounted Police laid 31 criminal charges against Duffy last week, and experts say Harper could be called to testify, although he could invoke parliamentary privilege to avoid the witness box. (http://bit.ly/WCAh3y)

* The federal New Democratic Party (NDP) wants the House of Commons to pay for the party's legal costs in a lawsuit it filed against the House board that monitors spendings of members of Parliament. The NDP made the request on Tuesday during a closed-door meeting of the Board of Internal Economy. (http://bit.ly/1x02lIU)

FINANCIAL POST

* Ulyanovsk in Russia will be home to Bombardier Inc's newest factory if a planned joint venture comes to fruition. But the escalating crisis in Ukraine and the threat of additional sanctions against Moscow could halt progress on those talks just as Bombardier gets set to grab a piece of the growing Russian aviation market. (http://bit.ly/Us3VGM)

* Canadian negotiators will meet with their Japanese counterparts next week in Ottawa for another round of talks on a free-trade agreement between the two countries. (http://bit.ly/1ueqe3n)

China

CHINA SECURITIES JOURNAL

- The risk of credit default may increase significantly as the number of bonds due to mature rises, along with the pressure of high yields and a slowdown in economic growth, the newspaper said in a commentary.

SHANGHAI DAILY

- Chinese consumers in Shanghai will be entitled to a no-questions-asked refund for products bought online, according to a new local law approved by the Shanghai People's Congress. China's e-commerce sector has been booming, creating the need for greater consumer protection online.

CHINA DAILY

- In the wake of typhoon Rammasun, the strongest typhoon to hit southern China in four decades, 800,000 people have been resettled and 240,000 are in urgent need of basic necessities, local authorities told the paper.

Hong Kong

SOUTH CHINA MORNING POST

-- A radar station that is sitting on public land at the top of Tai Mo Shan in Hong Kong has been secretly handed to the People's Liberation Army, according to lawmaker Kenneth Chan Ka-lok, who is threatening to take the government to court for keeping the public in the dark. (bit.ly/1pCIKvL)

-- Twelve mainland airports will be hit by widespread delays until the middle of next month because of what are believed to be PLA military exercises. China's civil aviation regulator said that flights in and out of airports, including in Shanghai, Nanjing and Wuhan, would be affected. (bit.ly/Ur1sfT)

-- Confidence among Hong Kong's small and medium-sized enterprises is improving but investment sentiment has fallen for two consecutive quarters, a new survey for the Hong Kong Productivity Council shows. (bit.ly/1pbuQSq)

THE STANDARD

-- Next Media Ltd boss and strident Beijing critic Jimmy Lai Chee-ying said he did nothing wrong in donating some HK$40 million ($5.2 million) to pan-democrats, including five legislators, insisting it was his own personal money to hand out and not received from foreign governments. (bit.ly/1wY2jBc)

-- Retail rents at top-tier districts in Hong Kong may fall up to 8 percent this year amid a slowdown in sales and high rents. Cushman & Wakefield Executive Director Michelle Woo said cautious sentiment and high rents in Central, Causeway Bay and Tsim Sha Tsui are forcing retailers to leave. (bit.ly/1nSz5hP)

-- China Telecom launched its 4G service covering 16 mainland cities, offering monthly plans ranging from 59 yuan ($9.51) to 599 yuan. (bit.ly/1kb3Qnp)

HONG KONG ECONOMIC JOURNAL

-- Macau is expected to post another month of decline in gaming revenue, down 2 to 4 percent year on year in July to between 28.5 billion patacas ($3.57 billion) and 29 billion patacas, according to analyst estimates.

Britain

The Times

RBS IN THE DOCK OVER CLAIMS IT MISLED MPS

(http://thetim.es/1pCr8jw)

Royal Bank of Scotland has been heavily criticised for misleading MPs over its contentious division for struggling businesses.

WEIR'S NOT FINISHED WITH ITS PLANS FOR EXPANSION

(http://thetim.es/UqRKdb)

Weir Group, which tried and failed to tie up with Metso, has since been weighing whether to bid for Outotec , another Helsinki-listed company in much the same market of producing industrial pumps for the mining industry.

The Guardian

MEDIACITY LEADS TO SALFORD BECOMING THE UK'S PROPERTY HOT SPOT

(http://bit.ly/1o7GKgZ)

Property values in the Greater Manchester city of Salford have risen faster than in any other town in Britain since the start of 2014, as the area continues to benefit from the relocation of the BBC and other broadcasters to the waterfront MediaCity development.

EU REPORT FINDS NO EVIDENCE TO SUPPORT SWEEPING IMMIGRATION REFORMS

(http://bit.ly/1nkxfKx)

A government review looking into freedom of movement across the EU has not recommended any sweeping reforms to immigration rules in a report likely to disappoint Conservative Eurosceptics.

The Telegraph

EUROPE BRACED FOR ANY GAS CRISIS AS RUSSIA SANCTIONS ESCALATE

(http://bit.ly/UqRLOs)

Europe has enough spare capacity in liquefied natural gas to meet a large part of the region's needs if Russia retaliates against the latest EU sanctions by restricting gas supplies.

ESPIRITO SANTO HOLDING FIRM PLACED IN RECEIVERSHIP

(http://bit.ly/1rq7fz8)

The Espirito Santo family's holding company has been placed in receivership. Luxembourg's district court said it had agreed to a request from Espirito Santo International that it be placed under "controlled management".

Sky News

UK PREPARES FOR EU RULING ON ENERGY STATE AID

(http://bit.ly/1sMCfeK)

The European Commission is likely to announce its ruling after several months examining a form of subsidy guaranteeing long-term prices to companies for supplying renewable energy sources.

BANKS FACE 1.5 BLN STG HIT FROM PPI CLAIMS DELUGE

(http://bit.ly/1rn55At)

Britain's largest high street banks will announce next week that they are setting aside more than 1 billion pound ($1.71 billion)in additional provisions to compensate customers who were mis-sold payment protection insurance.

The Independent

PAUL FISHER: "THE BANK DELIVERED THE RECOVERY"

(http://ind.pn/1rIk4nK)

Paul Fisher, who has left the Bank of England's Monetary Policy Committee after five years, defends decisions made at the height of the crisis in an interview.

ROYAL MAIL FRETS OVER AMAZON THREAT TO PARCELS BUSINESS

(http://ind.pn/1rIk4nK)

Shares in Royal Mail today touched their lowest level since October's privatisation as it delivered the gloomy news that revenues at its crucial parcel division are being threatened by strong competition from Amazon.

Fly On The Wall Pre-Market Buzz

ECONOMIC REPORTS

Domestic economic reports scheduled for today include:
MBA mortgage applications for week of July 18 at 7:00

ANALYST RESEARCH

Upgrades

Allscripts (MDRX) upgraded to Buy from Hold at Jefferies
Intuitive Surgical (ISRG) upgraded to Buy from Hold at Stifel
Intuitive Surgical (ISRG) upgraded to Outperform from Market Perform at Raymond James
Kimberly Clark (KMB) upgraded to Equal Weight from Underweight at Barclays
Lennox (LII) upgraded to Buy from Neutral at Goldman
Microsoft (MSFT) upgraded to Neutral from Underperform at BofA/Merrill
Microsoft (MSFT) upgraded to Outperform from Sector Perform at Pacific Crest
Munich Re (MURGY) upgraded to Overweight from Neutral at JPMorgan
Prologis (PLD) upgraded to Hold from Sell at Stifel
Spansion (CODE) upgraded to Buy from Hold at Jefferies

Downgrades

21st Century Fox (FOXA) downgraded to Market Perform from Outperform at Cowen
Brinker (EAT) downgraded to Sector Perform from Outperform at RBC Capital
Cubist (CBST) downgraded to Market Perform from Outperform at JMP Securities
DuPont (DD) downgraded to Neutral from Overweight at JPMorgan
FirstMerit (FMER) downgraded to Neutral from Overweight at JPMorgan
Hexcel (HXL) downgraded to Hold from Buy at Canaccord
Juniper (JNPR) downgraded to Neutral from Buy at BofA/Merrill
King Digital (KING) downgraded to Neutral from Buy at BofA/Merrill
Lexmark (LXK) downgraded to Underperform from Market Perform at Raymond James
Liberty Property (LPT) downgraded to Market Perform from Outperform at Wells Fargo
Liberty Property (LPT) downgraded to Neutral from Buy at UBS
Lufthansa (DLAKY) downgraded to Neutral from Buy at Nomura
McDonald's (MCD) downgraded to Neutral from Outperform at RW Baird
McDonald's (MCD) downgraded to Neutral from Positive at Susquehanna
New Oriental Education (EDU) downgraded to Hold from Buy at Jefferies
New Oriental Education (EDU) downgraded to Perform from Outperform at Oppenheimer
Nintendo (NTDOY) downgraded to Hold from Buy at Jefferies
Time Warner (TWX) downgraded to Market Perform from Outperform at Cowen
Timmins Gold (TGD) downgraded to Market Perform from Outperform at Cowen
United Technologies (UTX) downgraded to Market Perform from Outperform at Wells Fargo
Viacom (VIAB) downgraded to Market Perform from Outperform at Cowen
Xilinx (XLNX) downgraded to Market Perform from Outperform at BMO Capital
Xilinx (XLNX) downgraded to Market Perform from Outperform at William Blair
Xilinx (XLNX) downgraded to Neutral from Buy at BofA/Merrill

Initiations

Actavis (ACT) initiated with a Buy at Deutsche Bank
Aimco (AIV) initiated with a Neutral at Mizuho
American Realty (ARCP) initiated with a Perform at Oppenheimer
AvalonBay (AVB) initiated with a Neutral at Mizuho
Brandywine Realty (BDN) initiated with a Neutral at Mizuho
Columbia Property Trust (CXP) initiated with a Perform at Oppenheimer
Douglas Emmett (DEI) initiated with a Buy at Mizuho
Endo (ENDP) initiated with a Buy at Deutsche Bank
Envision Healthcare (EVHC) initiated with a Market Perform at Wells Fargo
Equity Residential (EQR) initiated with a Neutral at Mizuho
Essex Property Trust (ESS) initiated with a Buy at Mizuho
Gentherm (THRM) initiated with an Overweight at JPMorgan
HCP Inc. (HCP) initiated with a Buy at Mizuho
Health Care REIT (HCN) initiated with a Neutral at Mizuho
Hospira (HSP) initiated with a Hold at Deutsche Bank
Jazz Pharmaceuticals (JAZZ) initiated with a Buy at Deutsche Bank
Mallinckrodt (MNK) initiated with a Buy at Deutsche Bank
Mellanox (MLNX) initiated with an Outperform at Imperial Capital
Mid-America Apartment (MAA) initiated with an Outperform at Oppenheimer
Mylan (MYL) initiated with a Buy at Deutsche Bank
Parkway Properties (PKY) initiated with a Neutral at Mizuho
Perrigo (PRGO) initiated with a Buy at Deutsche Bank
Retail Opportunity Investments (roic) initiated with a Neutral at Citigroup
Salix (SLXP) initiated with a Hold at Deutsche Bank
Teva (TEVA) initiated with a Buy at Deutsche Bank
Trinseo S.A. (TSE) initiated with an Equal Weight at Barclays
Valeant (VRX) initiated with a Hold at Deutsche Bank
Ventas (VTR) initiated with a Buy at Mizuho

COMPANY NEWS

Apple (AAPL) said it sold sold 35.2M iPhones in Q3
Safeway (SWY) received subpoena from U.S. DEA concerning the company’s record keeping, reporting and related practices associated with the loss or theft of controlled substances
Broadcom (BRCM) said it will wind down the cellular baseband chip business
Unwired Planet (UPIP) filed a lawsuit against Microsoft (MSFT) for breach of contract
Ballard Power Systems (BLDP) received a purchase order from New Flyer Industries for the delivery of Ballard's first next-generation FCvelocity-HD7 fuel cell power module to a North American bus manufacturer
Puma Biotechnology (PBYI) reported positive top line results from Phase III PB272 trial
Chrysler (FIATY) recalled older-model SUVs over ignition switch concerns

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Apple (AAPL), Thermo Fisher (TMO), Juniper (JNPR), Broadcom (BRCM), Customers Bancorp (CUBI), MarketAxess (MKTX), Air Products (APD), Evercore Partners (EVR), W.R. Grace (GRA), TE Connectivity (TEL), Check Point (CHKP), BE Aerospace (BEAV), STMicroelectronics (STM), Flagstar Bancorp (FBC), Linear Technology (LLTC), Merchant Bancshares (MBVT), Cathay General (CATY), Rush Enterprises (RUSHA), ViewPoint Financial (VPFG), Trustmark (TRMK), Xilinx (XLNX), FMC Technologies (FTI), ACE Limited (ACE), Vascular Solutions (VASC), Xoom (XOOM), Exponent (EXPO), Meridian Interstate Bancorp (EBSB), ZixCorp (ZIXI), IDEX Corp. (IEX), Discover (DFS), Manhattan Associates (MANH), Covanta (CVA), iRobot (IRBT), Electronic Arts (EA), Hawaiian Holdings (HA), VMware (VMW), Cubist (CBST)

Companies that missed consensus earnings expectations include:

Microsoft (MSFT), Potlatch (PCH), Praxair (PX), Whirlpool (WHR), JAKKS Pacific (JAKK), ClickSoftware (CKSW), Unisys (UIS), Fulton Financial (FULT), Eagle Materials (EXP), Forward Air (FWRD), Intuitive Surgical (ISRG), Bridge Capital Holdings (BBNK)

Companies that matched consensus earnings expectations include:

Pacific Premier (PPBI), First Midwest (FMBI), First Busey (BUSE), F.N.B. Corp. (FNB), UMB Financial (UMBF), Eagle Bancorp (EGBN), Ameris Bancorp (ABCB), Pzena Investment (PZN), Pzena Investment (PZN), Total System (TSS)

NEWSPAPERS/WEBSITES

DuPont (DD) to lay off 'low single digits' of employees, Bloomberg reports
Pepsi (PEP) called on by Calstrs to give Trian place on board, FT reports
GM (GM) for years changed auto ignitions over stalling, WSJ reports
StubHub (EBAY) accounts targeted by cyber thieves, AP reports
YouTube's (GOOG) Chris LaRosa quits as music head, WSJ reports
JPMorgan (JPM) in advanced talks to sell half its stake in buyout arm, WSJ says
Repsol (REPYY) exploring bid for Talisman Energy (TLM), Bloomberg reports
Google (GOOG), Spotify didn't talk about a deal, Re/code says

SYNDICATE

BofI Holding (BOFI) files to sell $50M in common stock
Farmland Partners (FPI) files to sell 3.72M shares of common stock
La Jolla (LJPC) files to sell common stock
Medical Transcription Billing (MTBC) 4.08M share IPO priced at $5.00
MeetMe (MEET) announces proposed public offering of common stock

• EU to weigh extensive sanctions on Russia (FT)
• U.S. lifts flight ban to Israel (Reuters)
• Russia says will cooperate with MH17 probe led by Netherlands (Reuters)
• Norway faces ‘concrete and credible’ terrorist threat (FT)
• Don’t Tell Anybody About This Story on HFT Power Jump Trading (BBG)
• But... but... PMI: Unilever Sales Growth Misses Estimates on Asian Slowdown (BBG)
• World’s Biggest Wealth Fund Reviews $8 Billion Russian Stake (BBG)
• Qualcomm latest US tech company to reverse in China (FT)
• Hamptons Home Sales Rise as Buyers Find More Inventory (BBG)
• Ex-Goldman Trader’s Bitcoin Exchange to Fill Mt. Gox Void (BBG)
• Mutiny at the BOJ: Bank of Japan Majority Won’t Be Swayed by Kuroda Ideology (BBG)
• Singapore Home Prices Set to Extend Drop, Keppel Land Says (BBG)

Overnight Media Digest

WSJ

* Two Ukrainian fighter jets were shot down Wednesday over separatist-held territory not far from the site of the Malaysia Airlines crash as international outrage over the tragedy has done little to slow fighting in eastern Ukraine. (http://on.wsj.com/1pc31qs)

* The Obama administration, Israel and other Middle East allies are refashioning an Egyptian cease-fire proposal to assure Hamas that Gaza's economic interests would be addressed if the Islamist group stops rocket attacks, senior U.S. and Arab officials said. (http://on.wsj.com/1sUzA2G)

* The largest public pension fund in the U.S., the California Public Employees' Retirement System, or Calpers is expected to cut its hedge-fund investments this year by 40 percent to $3 billion. Public pensions from California to Ohio are backing away from hedge funds because of concerns about high fees and lackluster returns. (http://on.wsj.com/1nWeo4p)

* A number of major banks are looking to simultaneously settle probes into allegations of foreign-exchange rate-rigging with the U.K.'s Financial Conduct Authority, according to people familiar with the matter. Banks like Barclays PLC and UBS AG are aiming to reach individual settlements with regulators that will be announced at the same time, these people say. (http://on.wsj.com/1oeuZ8p)

* The U.S. airline industry's newfound health is breeding something not seen in years: a flock of startups. Two fledging carriers already have taken off. One is a reincarnation of the old People Express Airlines. Others are still in various stages of incubation, hoping to raise sufficient funds and receive government clearance to take wing. (http://on.wsj.com/1jWkYwU)

* Gilead Sciences Inc's Hepatitis C pill, Sovaldi, notched $3.5 billion in second-quarter sales, catapulting Gilead into the ranks of the top-selling pharmaceutical companies.(http://on.wsj.com/1z5gIi5)

* The U.S. government has asked big banks whether it should issue bonds that mature in more than 30 years. The treasury department asked 22 primary dealer banks, which underwrite U.S. government debt sales, about possible demand for ultra-long-term sovereign bonds. (http://on.wsj.com/1tDbW8r)

* Cable magnate John Malone said in an interview that Twenty-First Century Fox has long been eyeing a takeover bid for Time Warner Inc and isn't likely to face competing bidders, pouring cold water on speculation that tech companies could emerge as rival suitors for the TV and movie company. (http://on.wsj.com/1z5upNS)

* J.P. Morgan Chase & Co has sharply pulled back from a popular mortgage-lending program this year, blaming Obama administration's zeal for litigation. (http://on.wsj.com/1pdsn7k)

* The Securities and Exchange Commission told Standard & Poor's Ratings Services that it could face an enforcement action for alleged securities fraud regarding six commercial real-estate deals in 2011, according to a Wednesday filing by S&P parent McGraw Hill Financial Inc (http://on.wsj.com/1lxLKXn)

FT

BSkyB is expected to announce its European expansion on Friday, by buying Rupert Murdoch's pay-TV assets in Italy and Germany, two people familiar with the deal said.

Standard Chartered Plc Chairman Sir John Peace is weighing a succession plan, and has been urged to conduct a search both internally and externally over the next 12 months, three people familiar with the matter said.

Britain's Department of Energy and Climate Change will appeal a High Court decision which overruled its plans to drop one of Drax Group's coal-to-biomass conversion projects from a new renewable energy subsidy scheme.

UK wealth managers are facing "considerable uncertainty" as lower trading commissions in the last quarter hurt managers including Brewin Dolphin and Charles Stanley.

The Bank of England is weighing up conflicting data on Britain's labour market as it prepares to start raising interest rates off their record low of the last five years, BoE Governor Mark Carney said.

NYT

* From factory inspections to product recalls, laboratory testing to prosecutions, China's emergent food-quality apparatus has turned into reform on the fly, with ever-changing threats and setbacks. (http://nyti.ms/1sVA3la)

* Facebook Inc posted higher revenue and profit for the second quarter, driven by revenue from apps on mobile devices and advertisements shown in the news feeds. Mobile devices accounted for nearly two-thirds of the company's revenue, which rose 61 percent over the same quarter last year. (http://nyti.ms/1x33wHJ)

* The White House Rural Council will announce plans on Thursday to start a $10 billion investment fund that will give pension funds and large investors the opportunity to invest in agricultural projects. Those include wastewater systems, energy projects and infrastructure development in rural America. (http://nyti.ms/1sVilhy)

* General Motors Co recall covers 800,000 more vehicles. The auto company announced six more recalls on Wednesday for various flaws, and its worldwide recall total for 2014 is 29 million.(http://nyti.ms/1ravFed)

* For years, the wind industry has been hampered by such a severe lack of transmission lines that when the wind is strong, a local power surplus forces some machines to be shut down. Now, Texas is out to change that by conducting a vast experiment that might hold lessons for the rest of the United States. Supporters say the experiment is essential if states want to reduce reliance on fossil fuels and meet new federal rules on carbon emissions. (http://nyti.ms/1rw5Mre)

* The new rules by the U.S. Transportation Department would include measures to enhance the safety of oil trains, some of which had already been adopted by railroads on a voluntary basis in recent months, like notifying state emergency responders about train traffic, reducing speed limits or picking the safest route. (http://nyti.ms/1kcXjst)

* The resignation of Prime Minister Plamen Oresharski and his cabinet comes as Bulgaria's worst banking crisis since the 1990s threatens to take an economic toll on local businesses and foreign investors. And there may be no quick resolution of a rescue plan for troubled Corporate Commercial Bank. (http://nyti.ms/1pdV0nN)

* Nearly six years since the panic after the collapse of Lehman Brothers Holdings Inc, the Securities and Exchange Commission's new rules are intended to prevent investors from dumping their shares in funds during times of stress. (http://nyti.ms/1rMIJHU)

* After a riveting corporate shake-up that began last month after the firing of its controversial founder and chief executive, Dov Charney, American Apparel named four new members to its board. (http://nyti.ms/1sVCLqT)

Canada

THE GLOBE AND MAIL

* Canada is facing criticism over provincial jails bursting with prisoners who are presumed innocent, creating in effect a system of punishment without trial. (http://bit.ly/1pewcvI)

* The Arctic may be a hot commodity, with remarkable resource and tourism opportunities, but a conference has heard that Canada and the United States are barely out of the ice age when it comes to harnessing its growth. (http://bit.ly/WF26IL)

Reports in the business section:

* Bombardier Inc is reorganizing its operations into four divisions in a move that will cause 1,800 job losses and the retirement of Bombardier Aerospace president Guy Hachey, who held overall responsibility for the struggling C Series airplane program. (http://bit.ly/1pKtDQQ)

NATIONAL POST

* An international alert accusing a man living north of Toronto of being a mob boss went ignored by Canadian police because Canada does not recognize the crime of Mafia association, the tool used by the Italian government to tackle powerful organized crime groups, an immigration hearing heard on Wednesday. (http://bit.ly/WIsUHN)

* A Canadian group is planning to bring about 1,000 litres of water from Windsor to Detroit to protest thousands of residential service shutoffs by Detroit's water department. (http://bit.ly/1kXgS2E)

FINANCIAL POST

* Calgary, Canada's oil capital, has surpassed Ottawa as the city with the nation's highest family incomes, new data show. The median family income in the southern Alberta city rose 5.2 percent to C$98,300 ($91,700) in 2012, the most-recent reporting period, to snag top spot in the nation, Statistics Canada said on Wednesday. (http://bit.ly/1rDi4zN)

* Bombardier Inc's chief operating officer and president of the aerospace division Guy Hachey is retiring as part of a sweeping restructuring, the company said late on Wednesday. The move comes amid multiple delays in development of the flagship CSeries jet. (http://bit.ly/1peDwVB)

Britain

The Times

ANGRY STANDARD CHARTERED INVESTORS HEAP PRESSURE ON SANDS

(http://thetim.es/1nWbkFu)

One top-ten shareholder of the Standard Chartered, speaking on condition of anonymity, voiced a growing frustration that the bank needed a hands-on manager rather than a high-level thinker.

BG GROUP PONDERS 1 BLN STG NORTH SEA SALE

(http://thetim.es/1x3xwmP)

BG Group is understood to have appointed Rothschild to advise on a restructuring in a move that could result in the sale of its Armada, Everest and Lomond platforms.

The Guardian

RYANAIR TOLD TO PAY BACK 10M IN ILLEGAL STATE AID FROM FRANCE

(http://bit.ly/Uu2Oq8)

Low-cost airline Ryanair must repay nearly 10 million euros ($13.46 million) in illegal state aid it received from France for operating at three small regional airports, European Union regulators said.

BANK OF ENGLAND HOLDS INTEREST RATES AMID CONCERN FOR WAGE GROWTH

(http://bit.ly/1mGqui2)

Bank of England policymakers are growing increasingly uneasy about the UK's record low interest rates - but signalled on Wednesday that the first rise will not come until real wages start to recover.

The Telegraph

ENERGY COMPETITION PROBE TURNS UP HEAT ON THE BIG SIX

(http://bit.ly/1kWahFO)

Britain's top competition watchdog will on Thursday set out a catalogue of concerns about the UK energy sector as it begins an 18-month investigation that could result in the Big Six suppliers being broken up.

SFO TO CHARGE ALSTOM OVER 'CORRUPTION' AND MOVES AGAINST UK ARM

(http://bit.ly/WDCOum)

The Serious Fraud Office has said it will file corruption charges against Alstom "imminently", after starting proceedings against two of the French engineering giant's companies in the UK.

Sky News

SCOTTISH REFERENDUM: BANKS WEIGH NEW WARNINGS

(http://bit.ly/1oepkPZ)

Britain's biggest banks are weighing up plans to outline further risks associated with Scottish independence when they unveil half-year results with less than 50 days to go before the crucial vote.

UKTI CEO HAILS 'OPEN' EXPORTS AMID RUSSIA ROW

(http://bit.ly/1rtiQO5)

The head of the Government's trade promotion agency has hailed Britain's "clear and transparent" export control regime amid a growing row over the number of UK licences allowing arms sales to Russia.

Fly On The Wall Pre-Market Buzz

ECONOMIC REPORTS

Domestic economic reports scheduled for today include:
Jobless claims for week of July 19 at 8:30--consensus 310K
Markit U.S. manufacturing PMI for July at 9:45--consensus 57.5
New home sales for June at 10:00--consensus down 5.8% to 475K rate

ANALYST RESEARCH

Upgrades

Carmike Cinemas (CKEC) upgraded to Buy from Hold at Topeka
Health Net (HNT) upgraded to Buy from Underperform at BofA/Merrill
MarketAxess (MKTX) upgraded to Outperform from Market Perform at Raymond James
PepsiCo (PEP) upgraded to Buy from Hold at Stifel
SEI upgraded to Outperform from Market Perform at Keefe Bruyette
Western Refining Logistics (WNRL) upgraded to Buy from Neutral at Goldman
Wilshire Bancorp (WIBC) upgraded to Strong Buy from Outperform at Raymond James

Downgrades

Angie's List (ANGI) downgraded to Equal Weight from Overweight at First Analysis
Angie's List (ANGI) downgraded to Neutral from Buy at BofA/Merrill
Angie's List (ANGI) downgraded to Neutral from Buy at Janney Capital
Angie's List (ANGI) downgraded to Neutral from Buy at MKM Partners
Angie's List (ANGI) downgraded to Perform from Outperform at Oppenheimer
Angie's List (ANGI) downgraded to Sector Perform from Outperform at RBC Capital
Boeing (BA) downgraded to Neutral from Buy at BofA/Merrill
Freeport McMoRan (FCX) downgraded to Neutral from Buy at BofA/Merrill
IDEX Corp. (IEX) downgraded to Neutral from Buy at Janney Capital
Magellan Midstream (MMP) downgraded to Neutral from Buy at Goldman
Owens Corning (OC) downgraded to Hold from Buy at Stifel
Pacific Coast Oil (ROYT) downgraded to Market Perform from Outperform at Wells Fargo
Praxair (PX) downgraded to Market Perform from Outperform at William Blair
Qualcomm (QCOM) downgraded to Equal-Weight from Overweight at Evercore
Qualcomm (QCOM) downgraded to Neutral from Positive at Susquehanna
Questar (STR) downgraded to Neutral from Buy at Citigroup
TAL International (TAL) downgraded to Underperform from Neutral at BofA/Merrill
Theravance (THRX) downgraded to Neutral from Buy at BofA/Merrill
Tractor Supply (TSCO) downgraded to Market Perform from Outperform at William Blair
TripAdvisor (TRIP) downgraded to Hold from Buy at Cantor

Initiations

CECO Environmental (CECE) initiated with a Buy at Canaccord
CyrusOne (CONE) initiated with an Equal Weight at Barclays
Equinix (EQIX) initiated with an Equal Weight at Barclays
Markit (MRKT) initiated with a Hold at Jefferies
Zafgen (ZFGN) initiated with an Outperform at Leerink

COMPANY NEWS

Facebook (FB) reported mobile daily active users up 31% year-over-year
Standard Chartered (SCBFF) board dismissed succession plan rumors
McGraw Hill Financial (MHFI) announced that on July 22, it received a "Wells Notice" from the SEC stating that the agency’s staff made a preliminary determination to recommend that the Commission institute an enforcement action against Standard & Poor's Ratings Services, alleging violations of federal securities laws with respect to S&P's ratings of six commercial mortgage backed securities transactions issued in 2011
Spectranetics (SPNC) received FDA clearance for atherectomy products, Turbo-Tandem and Turbo Elite
Engaged Capital reported a 7% stake in Jamba (JMBA) and announced that they had discussions with management
American Apparel (APP) named four new board members, including one woman
Cliffs Natural (CLF) lowered U.S. iron ore production view to low end of prior outlook

EARNINGS

Companies that beat consensus earnings expectations last night and today include:

Facebook (FB), Qualcomm (QCOM), Ford (F), Wyndham (WYN), Eli Lilly (LLY), Diamond Offshore (DO), Carter's (CRI), Patterson-UTI Energy (PTEN), Starwood (HOT), Proto Labs (PRLB), Potash (POT), Logitech (LOGI), Weatherford (WFT), CoStar Group (CSGP), O'Reilly Automotive (ORLY), PTC Inc. (PTC), CVB Financial (CVBF), Ethan Allen (ETH), Core Laboratories (CLB), Oceaneering (OII), Teradyne (TER), Horizon Bancorp (HBNC), IPC The Hospitalist Co. (IPCM), Graco (GGG), Cliffs Natural (CLF), Susquehanna (SUSQ), Astoria Financial (AF), Equifax (EFX), Berkshire Hills Bancorp (BHLB), Raymond James (RJF), Fortinet (FTNT), Tyler Technologies (TYL), WesBanco (WSBC), Quantum (QTM), Financial Institutions (FISI), Everest Re (RE), Allegiant Travel (ALGT), Assurant (AIZ), Polycom (PLCM), E-Trade (ETFC), Umpqua Holdings (UMPQ), Illumina (ILMN), Covenant Transportation (CVTI), Skechers (SKX), Citrix (CTXS), CA Technologies (CA), NeuStar (NSR), Sangamo (SGMO), F5 Networks (FFIV), TriQuint (TQNT), Healthways (HWAY), QCR Holdings (QCRH), AngioDynamics (ANGO), Hanesbrands (HBI), Gilead (GILD), Banner Corp. (BANR), Chemed (CHE), Cirrus Logic (CRUS)

Companies that missed consensus earnings expectations include:

AT&T (T), TripAdvisor (TRIP), Encana (ECA), NorthWestern (NWE), NorthWestern (NWE), WESCO (WCC), Cabot Microelectronics (CCMP), Quality Systems (QSII), Precision Castparts (PCP), The Bancorp (TBBK), MSA (MSA), Heritage-Crystal Clean (HCCI), Terex (TEX), TAL International (TAL), TriState Capital (TSC), Old Second Bancorp (OSBC), Morningstar (MORN), TESSCO (TESS), Interface (TILE), Horace Mann (HMN), Allied World (AWH), CoreLogic (CLGX), Cheesecake Factory (CAKE), InspireMD (NSPR), Flowserve (FLS), StanCorp (SFG), Torchmark (TMK), Angie's List (ANGI)

Companies that matched consensus earnings expectations include:

Sequans (SQNS), Dunkin' Brands (DNKN), Capital Bank (CBF), Radware (RDWR), United Community Banks (UCBI), Sallie Mae (SLM), Guaranty Bancorp (GBNK), United Financial (UBNK), OFG Bancorp  (OFG), United Stationers (USTR), Allison Transmission (ALSN), 8x8, Inc. (EGHT), Datawatch (DWCH), Tractor Supply (TSCO)

NEWSPAPERS/WEBSITES

Qualcomm (QCOM) confirmed in China as having monopoly, China Daily reports
Watchdog says Google (GOOG) evokes memories meant to be omitted, Bloomberg reports
Bombardier (BDRBF) to cut 1,800 aerospace jobs in revamp, Reuters reports
Carlyle (CG) to be last PE firm to face bid-rigging trial, NY Post reports
Deutsche Bank (DB) CFO faces internal criticism following financial reporting exposure, WSJ reports
Police arrest seven in connection to StubHub (EBAY) cyberfraud case, Re/code reports
Investors shouldn't wait too long to buy Apple (AAPL), Barron's says

SYNDICATE

Government Properties (GOV) 13.5M share Spot Secondary priced at $23.50
Immune Design (IMDZ) 5M share IPO priced at $12.00
Intersect ENT (XENT) 5M share IPO priced at $11.00
JMP Group (JMP) files $100M mixed securities shelf
NRG Yield (NYLD) 10.5M share Secondary priced at $54.00
Pfenex (PFNX) 8.33M share IPO priced at $6.00
Townsquare Media (TSQ) 8.3M share IPO priced at $11.00

File this one for the bizarro files.

After Barclays was caught lying to its "sophisticated" clients about how it handles their order following the lawsuit by NY AG Schneiderman, the bank, having suffered an epic 75% collapse of trading volume in its dark pool, has decided to fight back and earlier today filed a motion to dismiss the dark pool complaint against it. Its main argument, as reported by the WSJ, is that the attorney general's complaint "fails to identify any fraud, establishing no material misstatements, no identified victims and no actual harm." In other words, Barclays alleges the dark pool participants were smart enough to figure out Barclays was lying to them when it promised their order flow wouldn't be offered up to predatory algos.

More:

In its response, Barclays says the attorney general's office took a number of details out of context and didn't provide a full account of documents cited in its complaint, according to a copy of the motion filed with New York's Supreme Court early Thursday.

 

The bank says its clients were sophisticated investors who were well aware that its dark pool, an off-exchange trading venue that doesn't post investors' buy and sell orders, included trading by high-speed firms.

 

Barclays also argues the Martin Act, the New York state securities law it is alleged to have violated, doesn't apply to the case. The bank argues the act, which doesn't require prosecutors to prove a firm intended to defraud investors, is limited to actions related to the purchase and sale of securities and doesn't apply to claims made regarding the operation of a dark pool.

 

The bank said the New York attorney general's office is overstepping its mandate by attempting to regulate dark pools, which it says is primarily the responsibility of the Securities and Exchange Commission. The SEC oversees dark pools, which account for abut 14% of U.S. trading volume, under Regulation ATS, short for "alternative trading system."

 

"Barclays works closely with its regulators in all jurisdictions and will continue to cooperate with the New York attorney general," Barclays spokesman Mark Lane said in a statement. "However, we do not believe that this suit is justified, and we have a duty to our shareholders, clients and staff to defend our position.

It will be interesting if a judge finds merit in this angle which is, stated simply: we may have lied but our clients should have known we are lying.... something that the rating agencies claimed repeatedly in the years following the Lehman collapse.

So far, Schneiderman isn't buying it as confirmed by the release he just put out moments ago:

The following statement was issued today by Damien LaVera, Communications Director for Attorney General Eric T. Schneiderman:

“The complaint filed last month by Attorney General Schneiderman clearly details the allegations that Barclays engaged in a persistent pattern of fraud and deceit, lying to its investors in order to grow its own dark pool. The Attorney General is committed to ensuring there is one set of rules for everyone in the markets, and will crack down on abuses wherever he sees them. We are confident that a judge will reject this motion and allow us to prove these disturbing allegations in Court.”

Attorney General Schneiderman’s complaint, filed last month, alleges that Barclays falsified marketing material purporting to show the extent and type of high frequency trading in its dark pool. For example, Barclays removed from a marketing document intended for institutional investors references to the dark pool’s then-largest participant – a high frequency trading firm Barclays knew engaged in predatory behavior in the dark pool.  In response, one employee stated: “I had always liked the idea that we were being transparent, but happy to take liberties if we can all agree.”

Barclays heavily promoted a service called Liquidity Profiling, which the bank claimed was a “surveillance” system that tracked every trade in Barclays’ dark pool in order to identify predatory traders, rate them based on objective characteristics of their trading behavior, and hold them accountable for engaging in predatory practices.

Contrary to those promises, the complaint alleges that:

• Barclays has never prohibited any trader from participating in its dark pool, regardless of how predatory its activity was determined to be;
• Barclays did not regularly update the ratings of high-frequency trading firms monitored by Liquidity Profiling;
• Barclays “overrode” certain Liquidity Profiling ratings – including for some of its own internal trading desks that engaged in high-frequency trading – by assigning safe ratings to traders that were determined to be toxic.

The complaint further alleges that, contrary to Barclays’ representations that it protects clients from aggressive or predatory high-frequency trading in its dark pool, Barclays in fact operates its dark pool to favor high-frequency traders and has actively sought to attract them by giving them systemic advantages over others trading in the pool. As alleged in the complaint, this included:

• Falsely underrepresenting the concentration of aggressive high-frequency trading in its dark pool;
• Misrepresenting its Liquidity Profiling service – which Barclays claimed protected investors from predatory behavior – by failing to provide many of the benefits marketed with the service; and
• Claiming that Barclays does not favor its own dark pool when routing client orders to trading venues, while in fact doing just that. As alleged in our Complaint, Barclays falsified an analysis of how it routed a major client’s orders.

* * *

Sadly for Barclays the damage at this point has been done as the bulk of its buyside clients have already migrated to other dark pool platforms. And since without buyside order flow to frontrun the HFTs have zero use for Barclays LX, whatever happens from this point on is merely window dressing. As for Barclays it may want to seek out markets it can allegedly rig.

"Do as we say, not as we do," appears the modus operandi of the current administration's increasingly totalitarian regime. Today's edition of 'wait, what?' comes from The WSJ who report that The U.S. House of Representatives told a federal court Friday it should dismiss a lawsuit filed by the SEC (regarding the long-running insider-trading investigation) because Congress is lawfully allowed to ignore requests to turn over records and testimony to the executive branch agency. Arguing "sovereign immunity" and responding in a rather snarky (almost "do you know who we are?" manner), House attorneys blasted the SEC's "fool's errand."

As WSJ reports,

The U.S. House of Representatives told a federal court Friday it should dismiss a lawsuit filed by the Securities and Exchange Commission because Congress is lawfully allowed to ignore requests to turn over records and testimony to the executive branch agency.

 

"Rather than acknowledge the fool's errand on which it has embarked, the SEC instead invites this court to join it by disregarding fundamental limitations on judicial authority," wrote House attorneys in a new court filing.

 

The SEC filed a lawsuit last month in the U.S. District Court for the Southern District of New York seeking to force House lawyers to turn over documents sought by the agency in a long running insider-trading investigation.

 

...

 

House lawyers largely repeated arguments they made in an earlier motion asking the court to dismiss the SEC case.

 

They say neither Mr. Sutter nor the committee have done anything improper and argued they are not required to comply with the subpoenas under provisions in the Constitution that shield legislative activity from outside scrutiny.

 

They also argue "sovereign immunity," which protects the government from legal liability without an explicit waiver, also shields it from a suit filed by a government agency.

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And summing it all up

Source: Investors.com