• Job cuts, $1.3B charge at American Air. American Airlines (AMR) is cutting almost 7,000 jobs (8% of its workforce) and will take a $70M charge to cover severance costs and a $1.2B non-cash charge to reduce the value of its parked aircraft. Analysts say similar charge-offs are likely at peer carriers. American will reduce its U.S. capacity by 12%.
• Nvidia warning sends shares diving. Nvidia (NVDA) lowered its Q2 revenue and margin outlook due to delays, end-market weakness and price competition. It now sees revenue of $875-900M vs. a $1.1B consensus. Nvidia will also take a $150-200M warranty charge arising from a material defect in certain notebook chips. Shares -21.9% to $14.08.
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• Jockeying for position on the transatlantic runway. American Airlines (AMR), British Airways (BAIRY.PK) and Spain's Iberia are in late-stage talks to create a profit sharing pact, inside sources say. American's current deal with BA excludes overseas routes, which is where the two stand to gain the most. Adding Iberia to the mix gives the two a critical link to continental Europe and Latin America. Regulators have hassled BA and American in previous attempts at a pact; they are expected to argue that the Open Skies accord has changed the competitive landscape. Delta (DAL) and Northwest (NWA) received antitrust approval for a JV with Air France-KLM earlier this year. Continental (CAL) recently left the Delta team to join forces with United (UAUA) and Lufthansa.
• Same old same old. Sources say Yahoo (YHOO) and Time Warner (TWX) are once again talking about Time Warner folding AOL into Yahoo, and taking a minority stake in the combo. News Corp. (NWS) is also keeping an eye on what's doing. Microsoft has spoken to News Corp. in a deal which could see Microsoft buy Yahoo's search business, and News Corp. fold MySpace into what remains of Yahoo.
• Watching the watchers. A judge has ordered Google (GOOG) to turn over records of every video watched by YouTube users, including user names and IP addresses, to Viacom (VIA) - which is looking to prove the overwhelming popularity of copyrighted materials vs. user-created and increase Google's liability if it is found guilty of contributory infringement. Privacy advocates are already kicking up a fuss.
• Vodafone takes control of Ghana Telecom. Vodafone (VOD) is buying 70% of Ghana Telecom for $900M, as it continues to push into emerging markets. Ghana's government will retain the remaining 30%. The move was widely expected.
• Two birds... IBM (IBM) agreed to buy Platform Solutions Inc., a move that both eliminates Platform's outstanding litigation against IBM, and removes competitor for its lucrative mainframe business.
• This ain't over yet - Paulson. The current economic downturn has further to go, but U.S. growth should pick up by the end of 2008, U.S. Treasury Secretary Henry Paulson said Thursday in a BBC interview. Spiking oil prices, the credit crunch and a slumping housing market are all contributing factors. Paulson conceded the impact of the global credit crunch could have been minimized by better regulation of U.S. banks.
• Commercial rentals send mixed messages. The national vacancy rate for U.S. office space rose to 13% in Q2, from 12.8% in Q1. Rents rose 0.7% to $25.16/square foot.
• The bottom line. In an effort to reduce the risk counterparty failures pose to the $62T credit-default swap market, 13 major players will initiate a new process at the end of July that cancels out offsetting CDSs to arrive at actual risk exposure.
• Overdue debt inches up. Delinquent accounts for auto loans rose 2 BP to 1.92% in Q2; RV loans by 3 BP to 1.11%; boat loans by 18 BP to 1.75%; and personal loans by 7 BP to 2.55%.
• Deutsche Bank pays Fortis $1.1B for commercial lending business. Deutsche Bank (DB) said it is buying two commercial lending units that Fortis inherited from ABN Amro for $1.13B. At this point, it's probably safe to believe Deutsche that it doesn't need to raise capital.
• The ADP said private-sector jobs fell by 79,000 (vs. -20,000 consensus) in June. The service sector's 3,000 decline was its first since Nov. 2002. Assuming an average monthly addition of 20,000 government jobs, ADP's number suggests today's payroll number will be about -60,000 - 10-20K more than the Street consensus.
• Layoff announcements jumped 21% in the first half of 2008 vs. a year ago. June's announced layoffs of 81,755, 19,000 of which were financial firms, were 47% more than June 2007. Reasons for the layoffs: market conditions (37,363), cost-cutting (21,213), M&A (7,811), restructuring (3,896) and closures (3,414).
• May Factory Orders climbed 0.6%, better than the +0.5% consensus. At almost $450B, orders are at their highest level since at least 1992. Shipments also set new records.
• Crude inventories fell by 1.98M vs. +0.5M consensus. Gasoline +2.1M vs. +0.5M. Distillate +1.26M vs. +1.5M. Refinery utilization 89.2% vs 87.2%.

Today's Markets

• Asian markets were largely in the red Thursday: Nikkei -0.16% to 13,265. Hang Seng -2.13% to 21,243. BSE -4.18% to 13,094. Shanghai +1.95% to 2,704.
• Europe at midday: London -0.6%. Paris -0.65% Frankfurt -0.8%. Stockholm -2.15% after its central bank hiked rates 25 BP to 4.5%.
• U.S. futures: Dow -0.04%. S&P +0.04%. Nasdaq -0.37%.
• Oil breached $145 for the first time in overnight trading, boosted by concerns about Iran, yesterday's inventory data, and a possible ECB rate hike which could weaken the dollar. Futures +1.24% to $145.35. Gold -0.25% to $944.
• Thursday's economic calendar:
  7:45 ECB Announcement
  8:30 Payrolls and Jobless Claims
  9:00 RCB Cash Index
  10:00 ISM Non-Manufacturing
  10:30 EIA Natural Gas

Earnings: After Close

• WD-40 Company (WDFC): FQ3 EPS of $0.49 beats by $0.02. Revenue of $82.1M (+5.8%) in line. Sees full-year EPS of $1.78-1.85 vs. $1.86 consensus. Shares -5.7%. [PR]

• Microsoft's new run at Yahoo. Sources say Microsoft (MSFT) has talked with both Time Warner (TWX) and News Corp. (NWS) about joining it in a deal that would see Microsoft buy Yahoo's (YHOO) search business, while one of them would combine forces with what remained of Yahoo. Talks are thought to be preliminary and somewhat of a long-shot. Meanwhile sources also say Yahoo offered to sell itself to Microsoft in mid-May for about $33/share - a price it had earlier rejected. Microsoft dropped its official pursuit of Yahoo two weeks prior. In early pre-market trading, Yahoo is up 5.9% on heavy volume.
• Google/Yahoo probe may be serious. The Justice Department opened a formal antitrust investigation into a search-ad deal between Google (GOOG) and Yahoo (YHOO). Yahoo said the probe was not unexpected, given that Google and it are numbers one (60%+) and two (16.6%) in U.S. web search. But lawyers said that the kind of legal requests being issued by the Justice Department in this case - "civil investigative demands" - are not routine.
• UnitedHealth guides down, to pay almost $1B. UnitedHealth (UNH) now sees Q2 EPS of $0.64-0.66, short of the $0.81 Street consensus, and 2008 EPS of $2.95-3.05 vs. $3.52 consensus. It is suffering from gross margin pressures. UnitedHealth also said it agreed to pay $912M to settle two class-action lawsuits related to stock-options backdating. Shares are down 2.4% in pre-market trading.
• Las Vegas Sands seeks $7B for Macau. Sources say Las Vegas Sands (LVS) will borrow $7B to expand and refinance debt for projects in Macau. The money will help it fund $12B in spending on a 20,000-room complex. "Demand for gaming in Macau is still growing fairly well but... the growth of supply is just outrageous," Credit Suisse analyst Gabriel Chan said. "This, together with rising labor costs and inflation, will put further pressure on every casino operator in the next couple of years."
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• Deutsche Bank soothes Street. Deutsche Bank (DB) said it will report a profit for Q2 and won't need to raise capital, sending shares up 3.7% in Frankfurt. It says its Tier 1 ratio, a measure of balance-sheet strength, remains at 9%. The announcement contradicts recent rumors of a profit warning and capital crunch.
• AstraZeneca bolstered by patent victory. Shares of AstraZeneca (AZN) jumped more than 6% in overseas trading after they won a key patent battle against Teva (TEVA) and Novartis (NVS). The court ruling makes it highly unlikely generic copies of its $4B/year blockbuster schizophrenia and bipolar-disorder drug Seroquel will be launched any time soon.
• Massive downsizing at Starbucks. Starbucks (SBUX) said it will close 600 'underperforming' stores - 500 more than its previous forecast. It will also reduce its workforce by 12,000 full and part timers - about 7% of its total.
• Blockbuster deal not to be. Blockbuster (BBI) officially withdrew its offer to buy Circuit City Stores (CC), citing market conditions. BBI is up 11.4%; CC is down 7.8% after losing 11.8% Tuesday.
• Tough Q2 ahead for small banks. Small and regional banks will "fess up to large losses from their mounting volume of soured construction loans made primarily to home builders" when they report Q2 earnings in the coming weeks. $45.4B of $631.8B in outstanding construction loans is already delinquent, and banks trying to sell off their troubled loans are finding fewer buyers and price discounts far more severe than they expected.
• Labor demand steady. Monster's online employment index edged down to 163 from 166 in May - suggesting no significant change in underlying demand for labor. "While online hiring activity is clearly less robust than a year ago, an encouraging take-away and potential sign of stability is the fact that the index’s year-over-year growth rate in June remained unchanged from May," Monster VP Jesse Harriott said. Demand for retail workers jumped sharply, which correlates with other reports showing continued growth in retail sales, and may indicate growing optimism among retailers that consumers will spend at least a portion of their stimulus checks on purchases over the coming months.
• Car sales shrink. June U.S. auto sales fell to 13.6M annualized - the lowest since 1993. Domestic car sales of 9.9M were short of the 10.1M vehicle consensus. GM (GM) sales fell an adjusted 8% - far better than the Street consensus of -21% - lifting the auto group and the broader markets. Other firms didn't fare as well: Ford's (F) June sales fell 28.1%, vs. -19% Street consensus. Ford said June sales were limited due to tight supplies of small cars. Toyota's (TM) June sales fell 11.5% to 193K vehicles. Lexus sales fell a steeper 21.1%. Honda's (HMC) June sales rose 13.8% to 142.5K units. Nissan's (NSANY) June sales fell 7.5%. Truck sales fell 30.1%.
• Middle east concerns keep oil prices up. Senior Pentagon officials say there is an increasing likelihood Israel will attack Iran, a move that could lead to the closure of the key Strait of Hormuz, and draw the U.S. into the fray. Crude is flat at $141.20 in overnight trading. Recent Israeli threats to Iran are seen by many pundits as saber-rattling - for now. Media reports said Israel PM Olmert visited Israel's main nuclear reactor Tuesday.
• LBO debt gets cheaper. Sources say Citigroup (C) and Deutsche Bank (DB) are trying to sell $3B of the LBO debt they took on in the Clear Channel (CCU) buyout - for 'mid-80s' on the dollar, down from $0.90–0.91 last week.
• Retail sales shine - dimly. Chain store sales increased a slight 0.1% according to the ICSC. Demand continues to be driven by basics and staples. Yearly sales growth remains at 2.2%. Redbook said same-store sales grew 2.9% vs. a year ago, which it depicts as firm but below retailers' goals.
• Construction spending fell 0.4% in May, slightly better than the -0.6% Street consensus.
• The ISM's Manufacturing Index edged into 'expansive' territory at 50.2%, up from 49.6 last month - and well ahead of the 48.7% Street consensus.

Today's Markets

• Asia: Nikkei -1.3%. Hang Seng -1.8%. BSE Sensex +5.4%. Shanghai +0.1%. The Nikkei is in the midst of its longest losing streak in 43 years.
• Europe: FTSE +1.4%, German DAX +1.2%, French CAC +0.5%.
• U.S. futures are up in overnight trading. Dow +0.33%. S&P +0.52%. Nasdaq +0.88%. Crude +0.13% to $141.15. Gold -0.65% to $938.40.

• Tough day for Europe banks. UBS (UBS) is down 4.65% in pre-market trading to a new 10 year low after it failed to address concerns about further writedowns, despite unveiling major changes to its board. There is also talk UBS may propose another capital raise. Merrill Lynch also removed UBS from its Europe One list. Deutsche Bank (DB) is off 3.4% in the pre-market amid rumors of a profit warning.
• Feds target UBS. To add to UBS's woes, the Justice Department is seeking an unprecedented federal court order to force UBS (UBS) to divulge the names of U.S. clients whom it helped avoid taxes. UBS finds itself between a rock and a hard place, because Swiss law forbids banks to disclose confidential information without client approval.
• Bearish beginnings. At 11,350, the Dow closed out Q2 just inches from bear market territory of 20% below October highs. With futures down 140 points (-0.9%), it appears the bear will ring the Q3 bell. Other benchmarks didn't fare as poorly: S&P 500 -2.9%. Nasdaq +1.1%. Russell 2000 +1.7%. S&P Midcap +5.4%.
• InBev stands firm. InBev said it will forge ahead with its $65/share offer for Anheuser-Busch (BUD) despite strong opposition from the Busch family and various political entities. It says it would rather remain friendly, but plans to pursue "all available avenues that would allow Anheuser-Busch shareholders a direct voice in the process," should friendly talks prove unfruitful.
• No relief in sight for oil shortfall - IEA. The IEA (International Energy Agency) says global oil supplies will shrink more than previously expected through 2013, even as high prices and economic weakness trim demand. "There is no clear sign of a recovery in crude oil capacity over the medium term," it said in its annual medium-term outlook. Crude futures added 1.84% to $142.60 in overnight trading.
• Cuts at Chrysler. Chrysler is laying off 2,400 blue-collar workers and closing a plant amid a demand slump for its minivans and small trucks. Workers say they weren't surprised by the cutbacks. Daimler, which still owns 19.9% of Chrysler, is down 3.4% in the pre-market.
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• Warner signs on to Nokia Music. Nokia (NOK), in its continued effort to challenge Apple's (AAPL) iTunes and iPod, added Warner Music (WMG) to its music service. Warner joins Universal and Sony BMG (SNE). "It's the first global initiative to fundamentally align the interests of music companies with telecommunications companies," Warner CEO Edgar Bronfman Jr. said, calling Nokia's music service "a significant step forward in the evolution of digital music."
• BP staffers to lose Russian visas. Russian authorities refused to renew the work visas of 75 or more TNK-BP (BP) staffers, putting BP at risk of losing control of the joint venture in which it owns a 50% stake; the remainder is owned by four Russian billionaires.
• GE Real Estate (GE) bought $1B of European property loans from Credit Suisse (CS) on the cheap.
• Fortune warns. Fortune Brands (FO) lowered its Q2 and full-year EPS guidance due in part to "weakening consumer sentiment in the U.S., the ongoing correction in the U.S. housing market, and a large and unexpected Australian tax increase on ready-to-drink spirits products." It sees Q2 EPS dropping "at a high-teens-to-mid-20s percentage rate" from last year's $1.51 (vs. a previous drop of "high-single-digit-to-mid-teens"). For the full-year, it sees EPS lower by "high-single-digit-to-high-teens percentage rate" compared to last year's $5.06. Shares fell 3.8% AH.
• CIT exits home lending, makes $1.8B cash. CIT Group (CIT) agreed to sell its Home Lending business, consisting of $9.3B in assets and servicing operations, to Lone Star Funds - for $1.5B in cash and the assumption of $4.4B of outstanding debt. CIT also agreed to sell its $470M manufactured housing portfolio to Vanderbilt Mortgage and Finance for $300M.
• Thinner profits seen at Dollar Thrifty. Car rental company Dollar Thrifty (DTG) warned it will not achieve its previous 2008 EPS guidance of $1.00-1.50. "Our second quarter was below our expectations... In addition, the balance of the year looks less robust than we had forecasted, given overall economic trends," CEO Gray Paxton said.
• Yahoo lobbies shareholders. Yahoo (YHOO) sent a letter to its shareholders in the hopes of rallying them to back its defense against activist shareholder Carl Icahn's dissident slate. Yahoo said it doubts Microsoft (MSFT) "was ever committed to a whole company acquisition"; that its Google (GOOG) tie-up puts it on the fast-track to creating value, more so than Microsoft's proposal; and said Icahn's plan is 'ill-defined' and could put the company in jeopardy.
• Morgan comes to Lehman's rescue. Shares of Lehman (LEH) fell 11% Monday to $19.81 on further speculation it may have to sell itself for as little as $15/share. After the bell, Morgan Stanley analysts initiated coverage of Lehman at Overweight, sending shares up 4.2% to $20.49. "We think near-term risk of incremental write-downs is balanced by solid liquidity and capital footing. The firm's ability to weather near-term market headwinds and return to respectable return on equity generation should help the shares trade closer to book value."
• Chunky share repurchase boosts Campbell. Campbell Soup (CPB) gained 4% Monday after its board approved a $1.2B share buyback, and said it sees 2008 EPS at the high-end of previous forecasts.
• Chip sales climbed a surprising 12.3% from a year ago in May, and gained 2.5% over April - excluding memory chips. Total sales were up 5.3% from last year and 2.8% sequentially. May is an historically strong month for semiconductor sales. Emerging markets are becoming increasingly important to the industry, SIA president George Scalise says. U.S. PC unit sales now account for just 21% of the global total, down from a recent 31%. U.S. cell phone sales are just 13% of global sales, down from 21%.
• Thinning ABS. U.S. asset-backed securities issued during the first half of 2008 were worth just $124B, down from $652B sold a year ago. It's little wonder banks' earnings have plunged.
• Flood fallout less than expected. The USDA said farmers will harvest 9% fewer acres of corn than last year due in part to heavy Midwest flooding. The less-pessimistic-than-expected outlook sent corn futures limit-down.
• The Chicago PMI (Purchasing Managers Index) was 49.6%, just below the 50% expansion/contraction breakeven line - and well ahead of the 48% consensus.
• The Dallas Fed said manufacturing activity weakened in June. General business activity sentiment remains pessimistic; manufacturing expectations remain positive.
• Manufacturer pessimism in Japan. The Bank of Japan's Tankan index of manufacturer sentiment slid to 5 points in June from 11 in March, its third quarterly decline to a four-year low in confidence among Japan's largest manufacturers. Consensus was for an even-worse 3. Profits are expected to drop 7% in the year, vs. a rise of 0.3% predicted 3 months ago.
• UK inflation expectations soar. UK public expectations for inflation over the coming year hit a record high of 4.6% in June, up 50 BP from May's 4.1%. The Bank of England is concerned about the possible effects of the inflationary mindset, and says it is monitoring price expectations closely.

Today's Markets

• Asia markets slipped Tuesday: Nikkei -0.13% to 13,463. Shanghai -3.09% to 2,652. BSE Sensex -3.71% to 12,962.
• In Europe, markets are down sharply at midday. London -2.54%. Paris -2.73%. Frankfurt -2.17%.
• U.S. futures are all down more than 1% in overnight trading. Dow -1.02%. S&P -1.11%. Nasdaq -1.56%.
• Oil is up 1.49% to $142.08. Gold is up 0.41% to $932.10.

• UBS downsizing? Shares of Swiss bank UBS (UBS) fell more than 4% after sources "with direct knowledge" told Reuters it is mulling a sale of its U.S. wealth management business Paine Webber, which it bought eight years ago for about $10B. "Two years ago, it was almost unthinkable that they would sell it," analyst Peter Thorne said. "It is not exactly the family silver but almost. In my mind, it has been slated for disposal ever since the crisis broke."
• France Telecom, TeliaSonera part ways. France Telecom (FTE) abandoned its $42B bid for Nordic telecom carrier TeliaSonera. The two boards were unable to see eye-to-eye. France Telecom opened up 8.8% in Paris this morning; Telia opened down 14% in Stockholm. FTE was reluctant to substantially raise its bid after shareholders sold its shares down 20% since it announced the offer on June 5.
• ArcelorMittal mulls joining the iron ore skirmish. Global steel producer ArcelorMittal (MT) is thinking about taking a stake in Rio Tinto (RTP) in order to secure more iron ore, possibly by purchasing shares on the open market. A more prudent course might be to wait things out until antitrust authorities weigh in on BHP Billiton's (BHP) $160B bid for Rio Tinto, and possible buy some of Rio's iron ore assets that regulators will likely force it to sell.
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• Rhapsody goes DRM-free. Yet another company hopes to dethrone Apple's (AAPL) iTunes store. Like Amazon.com's (AMZN) online music store, RealNetworks' (RNWK) Rhapsody is doing away with DRM (digital rights management), which limits what buyers can do with the tunes they buy - a move that will enable users to play their music on their iPods. "We're no longer competing with the iPod," VP Neil Smith says. "We're embracing it." It is also partnering with Yahoo (YHOO), MTV (VIA), Verizon (VZ) and others to distribute its music. Rhapsody's MP3 store will allow buyers to preview an entire track (vs. 30 seconds) before paying. Prices will be about $0.99/song and $9.99/album. The first 100,000 to sign up get $10 in credits.
• Forced teamwork. Sources say Citigroup (C) is changing its management bonus system to incentivize department managers to work together to win business. If senior managers see their compensation tied to the performance of other parts of the bank, they may do a better job of risk management, CreditSights' David Hendler says. "People will give more thought to the impact of their actions not just on their group, but on the whole company."
• Google recreates mass media. Google (GOOG) is partnering with Family Guy creator Seth MacFarlane to launch an innovative internet syndication initiative. Google will use its AdSense network to broadcast 50 two-minute internet-only episodes of "Seth MacFarlane’s Cavalcade of Cartoon Comedy" to thousands of targeted websites. Ad clips will include prerolls, banners, or simple 'brought to you by' notices. The initiative, which it calls Google Content Network, "will surely send shock waves through the entertainment business" if successful.
• Stormy future for property insurers. U.S. bad weather has already cost property insurers more than $5B this quarter - equal to about 3/4 of 2007's total catastrophe claims. A lull in insurance pricing continues to reduce the companies premiums, which could leave them in an even worse situation by the time the storm season subsides. 40% of insurers reported losses and expenses ate up virtually all their premium in Q1. (ALL, AIG, BRK.A, TRV)
• Delek goes bargain hunting. Israel-based Delek U.S. Holdings (DK) is in negotiations with a yet-unknown partner to buy a $1B U.S. refinery which produces 75,000-100,000 barrels/day.
• Paulson: Don't blame the speculators. Supply and demand, not speculators, are behind high oil prices, U.S. Treasury Secretary Henry Paulson said again Monday in Russia. There are no quick solutions to burdensome oil prices, he said.
• Eurozone inflation hit a record 4% in June, outdoing May's 3.7%, which was also a record. ECB officials have signalled they may bump interest rates to 4.25% from 4% to try and cool prices.

Today's Markets

• Asia markets were mainly lower Monday. Nikkei -0.46% to 13,481. Hang Seng +0.27% to 22,102. Shanghai -0.45% to 2,736. BSE Sensex -2.68% to 13,432.
• Europe: London +0.82%. Paris +0.13%. Frankfurt -0.82%.
• Futures at 7:15 AM: Dow -0.17%. S&P +0.04%. Nasdaq -0.25%. Crude +1.73% to $142.60. Gold +0.14% to $932.60.

Earnings: Before Open

• H&R Block (HRB): FQ4 EPS of $2.11 beats by $0.08. Revenue of $2.62B vs. $2.5B. Sees full-year EPS of $1.60–1.70, better than consensus of $1.58. Announces $2B, four-year share buyback. [PR]
• Mesa Air (MESA): Q2 EPS of -%0.15 misses by $0.10. Revenue of $320M (+8.1%) vs. $325M consensus. [PR]

• Bears take control. Stocks plunged Thursday, with the S&P and Dow falling to levels not seen since 2006. Traders latched on to a bearish outlook from Goldman on its fellow brokerage houses (it sees a $9B Q2 writedown at Citigroup (C)) and GM (GM). Crude's rise of more than $5 to an all-time high of $140.39 increased the tension. Market watchers may derive some small measure of comfort from the day's surprisingly low trading volume. The Dow opens Friday just 120 points from bear market territory - a 20% drop from its highs. The VIX, a measure of volatility, remains 25% shy of its mid-March peak. The gory details: Dow -3.01% to 11,460. S&P -2.9% to 1,284. Nasdaq -3.33% to 2,321.
• Gold, black gold surge ahead. Oil climbed 3.9% to new record highs after OPEC chief Chakib Khelil said he doesn't see $200/barrel oil by year end - just $170, which he blames on speculators and a weak dollar. Libya also threatened to cut back its output. Gold gained 4.18% to $919. Two top Saudi oil officials are polarized as to whether the world indeed faces a major lack in oil supply, or whether the only thing lacking is ingenuity and investment.
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• Opening banks to private-equity. Sources say the Fed is planning moves to make it easier for private-equity firms to take large stakes in ailing banks. A private entity not registered as a bank holding company can own up to 24.9% of a bank, but with 10% ownership it must prove it isn't controlling or influencing the bank's operations. Therein lies the wiggle room. "If we don't facilitate private equity's role in that, that's one less pool of capital to stand between these losses and the taxpayer," Carlyle's Randall Quarles says.
• Bud bucks bid; InBev flexes muscles. Anheuser-Busch (BUD) formally rejected InBev's $65/share $46.4B takeover proposal, calling the offer "financially inadequate." InBev threatened to overthrow A-B's board if the company continues to spurn its offer, but some think it's unlikely to go hostile in a hurry at the risk of alienating "employees, distributors and consumers at a company that is a potent symbol of Americana." Anheuser played up a restructuring effort it calls Blue Seas, but analysts doubted the company could win shareholder support with long-term cost-savings that might take years to realize.
• BofA wields axe on Countrywide. Bank of America (BAC) said it will dismiss 7,500 Countrywide (CFC) employees (2.9% of the workforce) once it completes the buyout, slated for July 1. The all-stock deal, originally worth $4B, now values Countrywide at just $2.8B, but BofA may face up to $10B in losses and writedowns - not to mention Wednesday's trifecta of lawsuits.
• News Corp. looks at Spain, Germany. Sources say News Corp. (NWS) is looking to dealmake in the European pay-TV market, and is studying bidding for Germany's Premiere AG and Spain's Digital+, which together could cost more than $6.3B. Besides increased reach, the deals would also give News Corp. greater leverage in buying satellite space and negotiating with Hollywood studios. Premiere says it is unaware of any News Corp. plans.
• IAC sees $300M writedown for catalog business. IAC/InterActiveCorp (IACI) will take a $300M writedown on the goodwill of its Cornerstone Brands catalog business, due to the "significant deterioration in the macro economic environment for retailers." Cornerstone is part of IAC's retail unit, HSN, which is being spun off later this summer with three other units as CEO Barry Diller moves to slim and refocus the company - whose shares are down 27.3% YTD and 43% over the past 12 months.
• Strategic dealmaking takes over. U.S. merger activity was down 29% in Q2 vs. a year ago, better than the 40% global drop. More interesting, merger activity jumped by 172% vs. Q1. Strategic buyers are stepping in to snap up some of the better deals left untouched by financial buyers, analysts say. Private equity dealmaking fell 85% in the States and 76% elsewhere as tight credit conditions made it all but impossible to secure reasonably-priced funding. Goldman (GS) is the year's top advisory firm, followed by (surprise!) Citigroup (C) - up from #4 a year ago. JPMorgan (JPM) remained at #3. BofA's Stefan Selig notes hostile activity is up sharply, and will continue to dominate.
• Auto stocks crash. Goldman downgraded GM (GM) to Sell, put it on its Americas Sell list, and said it would likely need to raise capital by next year - sending its shares to a 34-year low. Fitch chimed in saying GM and Chrysler may face a cash crunch next year, and that Chrysler's liquidity position could reach "minimal required levels in late 2009." This lead to rumors of Chrysler filing for Chapter 11, which it denied. Moody's and S&P also dropped their outlooks for U.S. carmakers Friday. And auto research firm Edmunds.com dropped its outlook for the sector. All in all a pretty rough day: GM -10.8%. F -3.2%. DAI -3.3%. AXL -14.7%. HMC -4.9%. TM -2.7%. PCAR -6.7%. LEA -16.4%.
• Yahoo moves ahead - alone? Yahoo (YHOO) unveiled its reorganization plan, which president Sue Decker said will speed new-product development by cutting back on red tape. New units include Audience Products, Cloud Computing & Data Infrastructure, and Insights Strategy. The last, tasked with unifying Yahoo's game plan, sounds like it might be a good idea. Meanwhile TechCrunch insists MSFT/YHOO talks continue, and says mass denials on both sides are only meant to repress share prices. It notes Microsoft can buy up to 35% of YHOO without triggering Google's (GOOG) $250M penalty - a stake it could use to control the company, with the cooperation of a few major stakeholders. Carl Icahn disclosed an almost 5% stake in Yahoo, up from a previous 3.7% in May.
• Almost cheap. The NY Fed said JP Morgan's (JPM) Bear Stearns loan was only $28.82B, lower than initially anticipated, after an extensive review of the portfolio.
• The (not so) little caboose that could. Dissident shareholder TCI said that based on preliminary vote tallies, its group secured four of the five seats it was battling for on CSX's (CSX) 12-member board.
• Existing Home Sales for May were up 2% to 4.99M, just ahead of the 4.95M consensus - the year's second highest number, and just 1.4% lower than seven months ago. Bottoming housing prices may set the stage for a modest rebound later this year, some analysts said. Realtors said a full one-third of the 5M annualized home sales are distressed properties, and that strong condo sales artificially inflated the number.
• Final GDP for Q1: +1%, in line with consensus. It was revised up from 0.9%.
• Initial jobless claims for the week came in at 384,000, 9,000 worse than expected. Continuing jobless claims jumped by almost 3% to 3.14M. The four-week initial claims average of 378,250 is the highest since Oct. 2005.
• The Conference Board's Help Wanted index fell one point to 17, down 10 points from a year ago. Help-wanted ads declined in all nine U.S. regions. "There's no sign that improvement is just around the corner," it said.

Earnings: Thursday After Close

• Accenture (ACN): FQ3 EPS of $0.74 beats by $0.05. Q3 Revenue of $6.1B vs. consensus of $5.91B. Raisesfull-year EPS to $2.63-2.65, better than consensus of $2.59.
• Andersons (ANDE): Raised full-year EPS guidance to $4.40-4.80 from $3.65-4.00, vs. consensus of $3.79.
• Christopher & Banks (CBK): FQ1 EPS of $0.32 beats by $0.06. Revenue of $160M vs. consensus of $153M. SSS were flat.
• Finish Line (FINL): FQ1 EPS of $0.02 beats by $0.07. Revenue of $288M vs. consensus of $2814M.
• Intuit (INTU): Sees FQ4 EPS of -$0.09 to -$0.07, short of consensus of $0.05. Sees full-year EPS of $1.57-1.59, short of consensus of $1.63.
• Micron (MU): FQ3 EPS of -$0.30 misses by $0.02. Q3 Revenue of $1.5B in line.
• Palm (PALM): FQ4 EPS of -$0.22 beats by $0.04. Q4 revenue of $296M vs. consensus of $301M.
• Paychex (PAYX): FQ4 EPS of $0.38 in line. Q4 revenue of $519M vs. consensus of $529M.
• Tibco (TIBX): Q2 EPS of $0.07 beats by $0.01. Q2 Revenue of $150M vs. consensus of $148M.

Today's Markets

• Asia markets Friday mirrored Thursday's U.S. drop. Nikkei -2% to 13,544. Hang Seng -1.5% to 22,107. Shanghai -5.29% to 2,748. BSE Sensex -3% to 13,989.
• Europe indexes are largely down in early trading. London +0.09%. Paris -1.2%. Frankfurt -0.92%.
• U.S. futures at 5:00 AM. Dow +0.11%. S&P +0.25%. Nasdaq +0.25%.
• Oil futures hit an overnight high of $141.71, and are up 1.21% to $141.30. Gold is +1.08% to $925.

• Bud prepares for brawl. Sources say Anheuser-Busch (BUD) is preparing itself to fight InBev's unsolicited $46.5B bid. Management will argue the bid undervalues the company, and will present shareholders with its strategic outlook, including selling some non-core assets such as its theme parks, and added cost savings of $500M over the next four years. InBev is likely to take its offer directly to shareholders.
• Fed focused on inflation. The Fed left its target rate unchanged at 2%, as expected. It said economic activity continues to expand, but labor is weaker and financial markets remain under stress. Analysts said its statement was skewed more to inflation than to lack of growth: "Uncertainty about the inflation outlook remains high," making a rate hike by September more likely now than before. Analysts said the Fed's statement is moderately bullish for the stock market: there is nothing that suggests an imminent rate hike, and no evident panic over inflation. The decision wasn't unanimous: Dallas Fed president Richard Fisher dissented for a fourth straight time, favoring a rate hike to 2.25%.
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• Goldman says Citi crisis not over. Goldman says Citigroup (C) will likely take an additional $8.9B writedown in Q2. "The turnaround in business trends that we had been expecting in the second half of 2008 may not occur as quickly as we should have thought. We see multiple headwinds for Citigroup," including writedowns, the need for more capital, and dividend cuts or asset sales. These would add to Citi's $42.9B in credit-related losses so far. Goldman cut its share price target to $16, and put Citi on its Conviction Sell list.
• Oracle beats; shaky outlook scares Street. FQ4 profits at Oracle (ORCL) jumped 27% to $2.4B, ahead of analyst expectations. Shares initially climbed in extended trading, but dropped when CFO Safra Catz said the current economic environment continues to challenge, and hinted revenue from corporate customers may slow. Catz said Oracle's strong results owed a lot to its aggressive acquistions.
• BlackBerry maker drops 9% after outlook falls short. Research In Motion (RIMM) doubled its revenue and EPS, but investors punished the company in AH trading after its outlook failed to satisfy them. Looking ahead, RIM sees FQ2 EPS of $0.84-0.89, well short of the Street consensus of $0.90. On RIM's conference call, CEO Jim Balsillie said he's unphased by the iPhone 3G's (AAPL) pending debut, and discounted any overlap between the two companies' products.
• Keep vigilant watch on core inflation - Fed's Kohn. For now, Fed vice chairman Donald Kohn says, headline inflation (which includes food and energy costs) has barely embedded itself into core inflation and long-term inflation expectations. "However, policymakers around the world must monitor the situation carefully for signs that the increases in relative prices globally do not generate persistently higher inflation," he said this morning in Frankfurt. Kohn says emerging market growth was likely due to stronger earnings for commodity exporters.
• Sony talks up big future. Sony (SNE) says it will pump $17B into key businesses and technologies over the next three years, as it aims to lift return on equity to 10% from about 6%. Sony wants its TV business to turn profitable by year-end, and is looking to unseat Samsung as the number-one global LCD TV seller.
• Lehman and LSE join hands. The London Stock Exchange and Lehman (LEH) are planning to launch a pan-European trading platform, dubbed Baikal after the world's deepest lake, that will give clients access to securities in 14 European countries. A rival exchange for soon-to-launch Project Turquoise, backed by nine investment banks including C, GS, MER and UBS.
• Tri-state trouble. Officials from California, Illinois and the Washington State Department of Financial Institutions filed legal actions against Countrywide (CFC) Wednesday. Allegations include misleading marketing, steering buyers into costly loans, and discriminatory lending. Also yesterday, Countrywide (CFC) shareholders overwhelmingly approved Bank of America's (BAC) $4B (now $2.8B) buyout of the firm.
• SEC sets stage for change. The SEC proposed numerous regulatory changes, including weaning investors' reliance on credit ratings by lifting a requirement that money-market funds hold high-rated securities, and easing limitations on U.S. retail customers trading directly with overseas brokerage houses. Chairman Christopher Cox plans to leave in Feb. 2009; the broad moves are his attempt to make his mark on the body as it moves towards globalizing U.S. securities law.
• Oil inventories came in higher than expected: Crude +800K vs. -1.1M consensus. Gasoline -150K vs. unchanged. Distillate +2.82M vs +2M consensus. Crude futures are down 2.18% to $134. Crude futures were all over the board yesterday, but finished down 1.78% to $134.56.
• Valdez award slashed. The U.S. Supreme Court reduced the $2.5B Valdez award against ExxonMobil (XOM +0.8%) to just $507.5M, and said damages should be compensatory, not punitive.
• May New Home Sales were down 2.5% to 512K, after jumping 4.6% a month ago - in line with analyst consensus. Inventory jumped to 10.9 months supply, up from 10.7 last month. New homes sales are down 40% from a year ago. After 501K in March, and 525K in April - sales appear to be leveling. Thursday's existing home sales number will be a clearer indication.
• UK inflation to fall, but not free of charge. BofE governor Mervyn King says he's confident inflation will drop back to the government's target of 2% within the next year - but said it will do so on the heels of a severe economic slowdown. UK inflation recently hit 3.3%, surprising economists.

Earnings: Wednesday After Close

• Autodesk (ADSK): sees Q2 EPS of $0.50-$0.52 vs. consensus of $0.53.
• Bed Bath & Beyond (BBBY): FQ1 EPS of $0.30 beats by $0.03. Revenue of $1.65B (+6.1%) in line. [PR]
• CKE Restaurants (CKR): Q1 EPS of $0.31 beats by $0.04. Revenue of $466M in line.
• Herman Miller (MLHR): FQ4 EPS of $0.71 beats by $0.14. FQ4 Revenue of $519M vs. consensus of $488.39M. Sees Q1 EPS of $0.49-$0.56, short of consensus of $0.55, and revenue of $470-$495M vs. consensus of $491M.
• Nike (NKE): FQ4 EPS of $0.98 beats by $0.02. Revenue of $5.09B