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In Japan: Gravity. Isaac Newton paid Japan's equity markets a visit Thursday and it turns out that even Japanese stocks are subject to the law of gravity (who knew?). A confluence of factors sent the Nikkei (EWJ, DXJ) plunging 7.3% in a wild session where the swing from intraday high to low was ~9%. Yields on JGB 10s (NYSEARCA:JGBL) spiked above 1% at one point, as an already skittish and volatile market was further rattled by what have generally been perceived as hawkish comments out of Ben Bernanke and other Fed officials on Wednesday. Yields pulled back in late trading. Compounding the problem for Japanese stocks was the yen (NYSEARCA:FXY), which was strong against the dollar throughout (the USD/JPY pair traded down to 101.8 during the Asian session), and a weak read on Chinese manufacturing courtesy of the HSBC flash PMI, which printed in contraction territory for the first time in seven months.

Fed watchers claim hawk sightings. A market conditioned to exhibit hyper-sensitivity to Fed officials' every utterance had a rough go of it Wednesday after Congressional testimony by Fed Chairman Ben Bernanke and minutes from the FOMC's latest policy meeting seemed to send conflicting messages. The readily observable ideological chasm developing between regional Fed presidents regarding the proper path forward notwithstanding, observers had reason to be a bit flummoxed yesterday as the Chairman predictably cited "premature tightening" as a risk to the recovery before saying later that the Fed could begin to dial-down purchases at "one of the next few meetings." A few hours later, investors' mood soured markedly after the Fed minutes showed "a number of participants" are prepared to slow QE as soon as June.

Top Stock News
Absence of unexpected bad news lifts Hewlett-Packard. A top line miss was indeed in the cards for Hewlett-Packard (NYSE:HPQ) in FQ2, consistent with pre-earnings banter from some skeptics regarding the virtual impossibility of a revenue beat. The top line however, was where the bad news stopped and as one Synovus analyst told CNBC, "no new bad news is good news" when it comes to HPQ. The company posted EPS of $0.87, beating estimates by $0.05 and raised FY13 guidance to $3.50-3.60 versus consensus of $3.49. CEO Meg Whitman said she was "encouraged" by the company's performance. Shares rose 13% AH.

Lenovo tops estimates. Lenovo (OTCPK:LNVGY) bucked a weak global PC market in its FQ4, reporting a quarterly net profit of $127M, up 90% from a year earlier and beating analysts' estimates by $20M. Revenue was up 4% Y/Y to $7.83B, shy of forecasts. For the full year, net profit came in at $635.15M on revenue of $33.87B (+15% Y/Y). The PC maker, whose results were helped by cost controls, said that although margins on its smartphones in China are less than is generally desirable, the business is profitable and the company's smartphone market share in the country has nearly tripled since 2011.

GE Capital spinoff mulled. Jeff Immelt — speaking at a conference in Florida Wednesday — said General Electric (NYSE:GE) is considering spinning off parts of GE Capital through an IPO. "In financial services, putting things up for sale with the assumption that a bank would buy it has been a fool's journey," Immelt said, "(but) the capital markets are very receptive to IPOs." GE wants to pare down the assets of its finance arm by the end of the year and Immelt hinted that consumer finance operations (think credit cards) could be split off in a public offering. The proceeds from such a move would fund more buybacks as GE hopes to lower its share count to 9B-9.5B shares by 2015's end (from about 10.4B currently).

Ford ends production in Australia. After nearly 88 years of making cars down under, Ford (NYSE:F) said it will close its plants in Australia in 2016, as a strong aussie and high labor costs weigh heavily on the Australian manufacturing sector's ability to compete with cheap imports. The closures are expected to result in the loss of some 1,200 jobs.

Sears earnings on deck. Sears (NASDAQ:SHLD) is set to report Q1 earnings after the markets close with analysts expecting a loss of -$0.60 per share on revenue of $8.37B. Investors will be watching to see what, if any, effect the payroll tax increase had on the struggling retailer's quarter and will also be interested to know if J.C. Penney's (NYSE:JCP) return to discounting negatively affected sales. Wal-Mart (NYSE:WMT) recently blamed higher taxes and a delay in tax returns for tepid Q2 guidance and both Kohl's (NYSE:KSS) and Macy's (NYSE:M) cited tentative middle-income shoppers as a culprit for lower comps, trends which could affect SHLD.

Nissan recalls vehicles due to steering wheel "glitch." Nissan (OTCPK:NSANF) said it will recall 841K vehicles across the globe, citing a "steering wheel glitch." The recall reportedly affects certain models of the Micra compact car and the Cube, produced in Japan and Britain. The statement filed with the Japanese transport ministry indicates that "the bolt used in the steering wheel of these cars may not have been properly tightened and at worst the steering wheel may not function." No accidents, injuries, or deaths have been reported thus far.

Top Economic & Other News
Contraction: PMI dips below 50 in China. Manufacturing activity is shrinking in China as the HSBC flash PMI fell into contraction territory for the first time in seven months in May, dropping to 49.6 from 50.4 in April, missing expectations. HSBC didn't mince words in an appeal to Beijing: "The cooling manufacturing activities in May reflected slower domestic demand and ongoing external headwinds. A sequential slowdown is likely in the middle of Q2, casting downside risk to China's fragile growth recovery. Moreover, the further signs of labor market slackness call for more policy support. Beijing still has fiscal ammunition to do so."

Score one for Draghi: "Grexit" 2014 no longer base case at Citi. Citi's Willem Buiter has thrown in the towel on "Grexit" as a base case prediction for 2014, notable not only because Buiter has repeatedly predicted Greece will eventually bid the eurozone adieu (putting the odds at 90% within 12-18 months late last summer) but because he is credited with coining the term "Grexit" in the first place. Bears needn't despair too much though, as the term may not be relegated to the annals of market vernacular history anytime soon: "There is [still] a fairly high risk of Grexit at some stage in coming years," Buiter said.

Singapore Q1 GDP revision shows expansion. Singapore revised Q1 GDP up to show a 1.8% Q/Q expansion (seasonally adjusted, annualized) versus an advance estimate of a 1.4% decline. On a Y/Y basis the economy expanded 0.2%. The Ministry of Trade and Industry said "economic growth … is expected to improve gradually over the course of the year." The Singapore ETF (NYSEARCA:EWS) is up 19.8% Y/Y.

Eurozone composite PMI hits three-month high. The preliminary Markit composite PMI for the eurozone printed at 47.7 in May which, albeit still squarely in contraction territory, is still a three-month high. Both services and manufacturing "saw an easing in the rate of decline" but employment dropped for the seventeenth straight month. Ultimately, "the eurozone's second recession in five years looks set to drag into a seventh successive quarter," Markit's chief economist Chris Williamson said. Individually, Germany's flash PMI came in at 49.9, showing weakness across the currency bloc continues to weigh on the region's largest economy.

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Today's Markets:
In Asia, Japan -7.32% to 14483. Hong Kong -2.54% to 22669. China -1.16% to 2275. India -1.93% to 19674.
In Europe, at midday, London -1.88%. Paris -2.18%. Frankfurt -2.53%.
Futures at 7:00: Dow -0.72%. S&P -0.89%. Nasdaq -1.06%. Crude -0.67% to $93.63. Gold +1.81% to $1392.00.

Today's economic calendar:
8:30 Initial Jobless Claims
9:00 PMI Manufacturing Index Flash
9:00 FHFA House Price Index
9:45 Bloomberg Consumer Comfort Index
10:00 New Home Sales
10:30 EIA Natural Gas Inventory
11:00 Kansas City Fed Mfg Survey
4:30 PM Money Supply
4:30 PM Fed Balance Sheet

Notable earnings before today's open: AAP, AINV, ALKS, BKE, BONT, DLTR, GME, HRL, QSII, RL, SLF, TD

Notable earnings after today's close: ARO, BLOX, CRM, GPS, MENT, MRVL, P, ROST, SHLD, SVM, WSM, ZUMZ

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Source: Wall Street Breakfast: Must-Know News