Friday Watch

Evening Headlines 

Bloomberg: 

• Greece Creditors Say No Deal Near as Frustration Vented at G-7. Greece’s creditors said a deal to unlock rescue aid isn’t imminent as they demanded the debt-ravaged nation make stronger commitments to overhaul its economy and strengthen public finances. The Greek government saw its optimism over an agreement scoffed at as European officials gathered in Germany for a Group of Seven meeting and said much more effort is needed. Greece had claimed a solution could be reached by Sunday. The two sides are “certainly not the three quarters of the way” there, European Economic Commissioner Pierre Moscovici told reporters in Dresden on Thursday where finance ministers and central bankers from the world’s largest economies discussed the global economy. “We need to work day and night.”

• The U.S. Suddenly Sounds an Alarm on Greece. In the world’s most pressing financial crisis, Greece’s potential default on its debt, the U.S. has adopted a quiet, behind-the-scenes role. That’s changing. Until recently, President Barack Obama and his top financial advisers have made few public statements on Greece’s debt crisis, which threatens to drive the country out of the euro zone. Yet this week U.S. Treasury Secretary Jacob J. Lew voiced frustration over a stalemate in the talks between Greece and its European creditors.

• China Reforms Head Down Path Littered With Crisis Casualties. “History shows that if China prematurely opens the capital account before properly sequencing in other reforms the results could be disastrous for financial stability and longer-run growth prospects,” said Kevin Gallagher, an associate professor of international relations at Boston University who co-wrote a paper on China’s cross-border capital deregulation. “I worry that they are forgetting the past.”   

• China's Asset Bubble Is Scary: Sanibel Captiva's Dorsey. (video)

• Evergrande Stock Sinks After Developer Sells Shares Below Range. Evergrande Real Estate Group Ltd., among China’s most indebted developers, plunged the most in five-and-a-half years after it was forced to cut the price of a share offering in order to successfully raise capital. The company raised HK$4.6 billion ($593 million) net proceeds from a sale of 820 million shares at HK$5.67 each, according to a statement to the Hong Kong stock exchange Friday. The price represents an 18 percent discount to Evergrande’s last close. 

• Abenomics Heads Toward Debt Meltdown, Reflation Enemies Warn. Two years after unleashing record monetary stimulus, Bank of Japan Governor Haruhiko Kuroda and his allies are confronting increasingly vocal opposition from the opponents of reflation who once dominated the policy debate. Hundreds of economists filed in to a Saturday symposium on BOJ policy at a Japan Society of Monetary Economics semiannual gathering in Tokyo May 16. Backers of Kuroda’s 2 percent inflation target squared off against advocates of monetary restraint, who say the BOJ’s bond purchases are delaying a crucial overhaul of public finances to deal with record debt.

• Macquarie Sees Ticking Bomb for India as Restructured Loans Fail. India’s state-run banks’ restructured loans are souring at a record pace, threatening their appetite for new lending with profitability already at a seven-year low. Reworked assets that turned bad almost doubled to 570 billion rupees ($8.9 billion) in the year ended March 31, industry data show. There’s another 2.9 trillion rupees in the category, which must be reclassified as delinquent or healthy within two years. Macquarie Group Ltd. has called this debt a ticking time bomb. Standard & Poor’s predicts a record portion will fail in the year ending March 2016 as Fitch Ratings Ltd. sees lenders’ return on equity falling to the least since 2006.

• Asian Stocks Pare Monthly Loss as Yen Rises; China Extends Drop. Asian stocks rallied, trimming their first monthly drop this year, as the yen rebounded from a 12-year low and oil gained. Chinese shares declined after plunging on record turnover on Thursday. The MSCI Asia Pacific Index climbed for the first time in four days, adding 0.2 percent by 9:49 a.m. in Hong Kong. The Shanghai Composite index dropped 2.4 percent, after a 6.5 percent slump the previous day.

• Wall Street’s Young Guns Brace for First Big Test. Magdy El Mihdawy remembers exactly where he was when the stock market tanked in 2009. He was on Spring Break in Florida -- as a 22-year-old undergrad. Today, El Mihdawy is part of a Wall Street demographic whose own trial by fire awaits: traders who’ve never known anything but a post-crisis world of rock-bottom interest rates and ever-rising markets.

• Bullard Warns Delaying Fed Rate Rise Boosts Asset-Bubble Threats. Federal Reserve Bank of St. Louis President James Bullard warned that keeping interest rates near zero risks inflating asset-price bubbles, saying officials should raise borrowing costs this year as the economy improves. A prolonged accommodative stance is a “recipe for asset-price bubbles and a lot of mischief to happen,” Bullard said Thursday in a Bloomberg Radio interview from St. Louis. “Asset price bubbles have been a devastating feature for the U.S. economy in the last 15 years.”

Wall Street Journal:

• NYSE Looks to Ease Late-Day Pileup. Exchange plans midday auction for thinly traded shares. The New York Stock Exchange is preparing a new plan to make it easier to buy or sell the shares of thousands of listed companies, an effort to counter the slow midday trading and uneven liquidity plaguing U.S. stock markets. Officials at the NYSE, a unit of Intercontinental Exchange Inc., plan to launch a midday auction for thinly traded shares after winning the blessing of the Securities and Exchange Commission last week. Already, the NYSE and its chief rival, the Nasdaq Stock Market, operated by Nasdaq OMX Group Inc.,...

• Wipeout in Europe Bond Funds Tests Investors’ Resolve. Recent rout in government debt pummels funds’ strong start to the year. A strong start to the year for many of Europe’s biggest bond funds was all but wiped out by an abrupt selloff in the region’s credit market, testing the mettle of investors who rely on the asset class for its steady returns. Europe has been at the center of the global bond-market turmoil that began in mid-April. About €344 billion ($375 billion) was wiped off the value of eurozone-government bonds when prices fell abruptly after rising for several months to record levels, according to...

Fox News:

• Feds indict ex-House Speaker Hastert for allegedly hiding payments to apparent blackmailer. Federal prosecutors indicted former U.S. House Speaker Dennis Hastert Thursday on charges he allegedly hid payments he made to an apparent blackmailer in order to compensate for and conceal “prior misconduct.” 

• 'Sales are next to nothing': Merchants worry crime crisis could cast pall over Baltimore downtown. (video) An epidemic of murder that has gripped Baltimore in the month following the Freddie Gray riots is threatening to undo decades of rebirth in the city's popular downtown -- and in the process, wipe away tens of millions of tourist dollars.

Zero Hedge:

• In Shocking Move, Goldman Slashes America's Long-Run "Potential GDP" From 2.25% To 1.75%.

• Putting The 'Great' In Great Depression, Stephen Roach Warns On TPP's Currency Rules.

• States Turn To Pension Ponzi Scheme To Close Funding Gaps.

• Martin Armstrong Warns "This Time Is Very Different".

• Dead Markets Drifting As Dollar Drops. (graph)

• Chinese Housewives Displeased After Biggest Stock Market Drop In 2 Years. (graph)

• Emergency Powers Give Barack Obama Authority Over Just About Everything During A Major National Crisis.

• Paul Craig Roberts Rages "Free Financial Markets Are A Hoax".

• Elizabeth Warren Needs You To Help Her "Blow Debt Free College Wide Open".

• The Clinton Foundation Paid Sidney Blumenthal $10K/Month As He Gave Horrible Libya Advice To State Dept.

Business Insider:

• One of Putin's leading critics was just poisoned.

• Social media apps are tracking your location in shocking detail.

• Putin just made troop deaths during peacetime a 'state secret' and now people are worried.

• 3 uber-bearish studies predict doom for this bull market. (graph)

• GameStop(GME) is surging after earnings beat expectations.

• 570 hedge funds are members of the $1 billion club.

• The US is spending $100 million to get more ethanol to gas stations.

• South Korean industrial production just posted a big miss for April.

NY Post:

• Intel(INTC) Nears $15B Deal to Purchase Altera(ALTR).

Reuters:

• Unexpectedly weak household spending casts doubt on BOJ's optimism. Japan's household spending unexpectedly slumped in April and consumer inflation was roughly flat, casting doubt on the central bank's view that a steady economic recovery will help accelerate inflation toward its 2 percent target. Households spent less on leisure, travel and dining out even as real income rose for the first time in 19 months and the jobless rate fell to a 18-year low, underscoring the challenges of eradicating the sticky "deflationary mindset" that has beset Japan for nearly two decades.

• Google(GOOG) shows off virtual reality collaboration with GoPro(GPRO). Action camera maker GoPro Inc and Google Inc introduced a virtual reality system using 16 cameras and Google software, sending GoPro shares up nearly 7 percent on Thursday.

Financial Times:

• Greek exit from euro is ‘a potential’, says Lagarde. The head of the International Monetary Fund has acknowledged that Greece could leave the euro, while insisting that this would not mark the end of the single currency.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.25% to +1.0% on average.

• Asia Ex-Japan Investment Grade CDS Index 107.0 +1.0 basis point.

• Asia Pacific Sovereign CDS Index 58.25 -.25 basis point.

• S&P 500 futures -.03%.

• NASDAQ 100 futures -.01%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (BIG)/.59

• (FRO)/.12

• (GCO)/.68 

Economic Releases 

8:30 am EST

• 1Q GDP is estimated to fall -.9% versus a prior estimate of a +.2% gain.

• 1Q Personal Consumption is estimated to rise +2.0% versus a prior estimate of a +1.9% gain.

• 1Q GDP Price Index is estimated to fall -.1% versus a prior estimate of a -.1% decline.

• 1Q Core PCE is estimated to rise +.9% versus a prior estimate of a +.9% gain.

9:00 am EST

• ISM Milwaukee for May is estimated to rise to 50.0 versus a reading of 48.08 in April.
  

9:45 am EST

• Chicago Purchasing Manager for May is estimated to rise to 53.0 versus a reading of 52.3 in April.

10:00 am EST

• Final Univ. of Mich. Consumer Sentiment for May is estimated to rise to 89.5 versus 88.6 in April.

Upcoming Splits

• None of note

Other Potential Market Movers

• The UK GDP report, ASCO annual meeting and the (TOT) annual meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and technology 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.