Thursday Watch

Evening Headlines 
Bloomberg:

• EU Powers Move Russia and Ukraine Closer on Truce Talks. Ukraine and Russia moved closer to a sustainable truce in talks brokered by Germany and France after President Petro Poroshenko resumed his offensive against pro-Russian rebels inspired by Crimea’s secession. The bloodshed in eastern Ukraine has reached a “dramatic climax” in the past few days, prompting the four countries to pledge to work for a comprehensive cease-fire in another round of talks by July 5, German Foreign Minister Frank-Walter Steinmeier said after meeting his counterparts in Berlin late yesterday. “It is a first and important step toward a mutual cease-fire,” Steinmeier told reporters. 

• Putin’s Economic Push Revives Former Soviet Ties in East Europe. A quarter of a century ago, when the communist regimes in central and eastern Europe tumbled one after another, the economically devastated Soviet Union could do nothing but watch. The USSR fell apart, and eastern Europeans rushed to join the North Atlantic Treaty Organization and the European Union. In its former sphere of influence, instead of sending troops like it once did, Russia is now building a web of economic ties with its old satellites. Whether it’s bankrolling a Hungarian nuclear power plant or the South Stream pipeline in Bulgaria, Russian money is buying leverage in eastern Europe, Bloomberg Businessweek reports in its July 7 edition.

• Israel Warns of Expanded Military Response After Killings. The killing of a Palestinian teenager raised fears of a cycle of revenge attacks for the death of three Israeli youths, and the U.S. urged both sides to avoid escalating tensions. Police said they were checking several possible leads for the Palestinian’s death, including criminal motives, and investigating the possibility that the victim was forced into a vehicle yesterday. Israeli Prime Minister Benjamin Netanyahu instructed police and security officers “to act as quickly as possible” to find who was behind the murder, and called on “both sides not to take the law into their own hands.”  

• Hong Kong Protesters Say More To Come If China Won’t Bend. Johannie Tong, detained for seven hours by the Hong Kong (HSI) police for an illegal democracy protest, says more people will take to obstructing the streets if China doesn’t agree to give up control over the city’s election.

• Aussie Slides as Asian Stocks Retreat Before U.S. Data. Australia’s currency fell for a second day as the country’s central bank governor said it was overvalued. Asian stocks traded near a six-year high, while the U.S. dollar maintained gains versus major peers, before jobs reports and a euro-area monetary-policy decision. Australia’s dollar slid 0.7 percent by 11:36 a.m. in Tokyo, trading at 93.8 U.S. cents after Reserve Bank of Australia Governor Glenn Stevens said investors are underestimating the chance of currency losses. The MSCI Asia Pacific Index was little changed at 147.25.

• Iron Ore Slide May See Atlas to Cliffs Rating Cuts, S&P Says. A sustained slump in iron ore prices through next year would pressure ratings for producers including Atlas Iron Ltd. (AGO) and Cliffs Natural Resources Inc. (CLF) and may trigger downgrades, Standard & Poor’s said. The steelmaking ingredient has slumped 29 percent this year as the largest producers in Australia and Brazil expand output amid waning demand in China, the biggest consumer. 

• Corn Nears Bear Market on Outlook for Biggest Ever U.S. Harvest. Corn traded on the cusp of a bear market near the lowest level in almost six months as investors weighed the outlook for the development of a record crop in the U.S., the world’s largest producer and exporter. The contract for December delivery was at $4.1825 a bushel on the Chicago Board of Trade at 11:06 a.m. in Singapore from $4.18 yesterday, when prices dropped to $4.1625, the lowest level for a most-active contract since Jan. 10.

Wall Street Journal: 

• Facebook(FB) Experiments Had Few Limits. Data Science Lab Conducted Tests on Users With Little Oversight.'

• Obama Says Further Changes to Banking Industry Are Needed. The President Said Some Changes Could Include 'Restructuring the Banks Themselves'.

• The Failure of Macroeconomics. When models don't yield the spending policies they want, some Keynesians abandon models—but not the spending.

Fox News: 

• Hurricane warning issued as Tropical Storm Arthur threatens July 4th plans along East Coast.

• US increases airport security worldwide, following report of increased terror threat.

CNBC:

• Poll: Obama worst president since WWII. According to a plurality of respondents in a new national poll, President Barack Obama is living history—in a bad way. Obama topped a new Quinnipiac University national poll that asked respondents who they thought has been the worst president since World War II. He topped the poll with 33 percent of the vote.

• Is a less pacifist-Japan on collision with China? (video)

Zero Hedge:

• The Emerging German-Russian Axis.

• The BRICs Are Morphing Into An Anti-Dollar Alliance.

• China In The Golden Age Of Central Bankers - "Whatever It Takes". (graph)

• China, Japan, And Aussie Services PMIs Drop (but Markit/HSBC Baffles...). (graph)

• Japanese Real Wages Tumble Most Since Lehman. (graph)

• Aussie Dollar Tumbles As Stevens Says "Overvalued"; Claims "Not Jawboning". (graph)

• 17 Facts That Prove That The Quality Of Jobs In America Is Going Down The Drain.

• BofE's Haldane Sees Greater Volatility Ahead; Warns Of Too-Big-Too-Fail "Problem From Hell".

• Bubble Finance At Work: How Buyback-Mania Is Gutting Growth & Leaving Financial Wrecks In Its Wake.

Business Insider: 

• Ousted American Apparel CEO Dov Charney Hands Over His Entire Stake To A Hedge Fund.

• DISASTROUS Retail Sales Number In Australia.

• Undocumented Children Are Now Being Housed At 4 Different Military Bases.

• This Chart Of Stock Market Inflection Points Is Starting To Get Pretty Scary. (graph)

• People Are Furious Over Burger King's Gay Pride Whopper.

Telegraph: 

• Juncker is galling for Britain, but life-threatening for France and Italy. The Cromwellian method by which Jean-Claude Juncker was foisted upon the nation states is a breach of the Treaties.

Liquidity crunch a catalyst for big China slowdown – analysts The mini liquidity crunch is the early warning sign of a substantial economic correction long overdue, amid rising leverage and a broken growth model, say bearish analysts.


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Wen Wei Po:

• China May See 63b Yuan of Maturing Trusts Default. Defaults may hit property, machinery, trade, nonferrous metals industries and may also involve new online financial products, paper sites UBS Wealth Management's Asia-Pac CIO Pu Yonghao as saying. Defaults to hit in 2H and some may be delayed to next year.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.25% to +.50% on average.

• Asia Ex-Japan Investment Grade CDS Index 101.25 -2.25 basis points.

• Asia Pacific Sovereign CDS Index 71.5 -1.25 basis points.

• FTSE-100 futures +.07%.

• S&P 500 futures -.07%.

• NASDAQ 100 futures  -.03%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (ISCA)/.48

• (ESI)/.71

Economic Releases
8:30 am EST

• The Trade Deficit for June is estimated at -$45.0B versus -$47.2B in April.

• The Change in Non-Farm Payrolls for June is estimated at 215K versus 216K in May.

• The Unemployment Rate for June is estimated at 6.3% versus 6.3% in May.

• Average Hourly Earnings for June are estimated to rise +.2% versus a +2% gain in May.

• Initial Jobless Claims are estimated to fall to 2560K versus 2571K the prior week.

• Continuing Claims are estimated to fall to 2560K versus 2571K prior.

9:45 am EST

• Final Markit US Services PMI for June is estimated to fall to 61.0 versus 61.2 prior.

• The ISM Non-Manufacturing Composite for June is estimated at 56.3 versus 56.3 in May.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Eurozone Services PMI, ECB Rate Decision, ECB's Draghi speaking, weekly Bloomberg Consumer Comfort Index and the Challenger Job Cuts report for June could impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and consumer shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.