Monday Watch

Today's Headlines 

Bloomberg: 

• Greece’s Endgame Nears as Tsipras Warns Bell May Toll for Europe. Greece faces a week of tough decisions as negotiations over a financial lifeline edged closer toward endgame with creditors showing no signs of budging over what it will take for them to release more money. As another of the government’s self-imposed deadlines for securing a deal on its finances slipped away, disagreements between the two sides on budget targets persisted, a person familiar with the matter said. Greece must make four payments totaling almost 1.6 billion euros ($1.78 billion) to the International Monetary Fund this month and its bailout package backed by the euro region expires at the end of June.
• Greece Pins Hopes on Merkel as Talks Yield Little Progress. Greece’s hopes of sealing an accord with its creditors by the end of May dimmed on Sunday, as disagreements between the two sides on budget targets persisted, a person familiar with the matter said. With technical talks yielding no breakthrough, Greek Prime Minister Alexis Tsipras is seeking the intervention of German Chancellor Angela Merkel and French President Francois Hollande. The three leaders held a “constructive” call on Sunday on the next steps, a German government official said.
• China Stock Rout Grips Market With Deja Vu of 5/30 Catastrophe. The rout wiped out about $350 billion of market value in a week on the Shanghai and Shenzhen exchanges. It so traumatized traders who eight years later they still refer to it by the date it began: the 5/30 catastrophe. The milestone for the modern Chinese stock market, which began in 1990, started on midnight, May 30, 2007, with Hu Jintao’s government unexpectedly announcing it would triple a tax on stock trading. The plunge sparked by the pronouncement had followed a breathless rally, making it eerily similar to last week’s events.  
• Bad Debts Prompt China’s Banks to Balk at Loan-Backed Bond Call. Just as Premier Li Keqiang steps up efforts to revive China’s loan-backed bond market to spur the economy, banks are balking. Chinese lenders have cut offerings of asset-backed securities 45 percent to 43.4 billion yuan ($7 billion) this year, after a 15-fold jump in 2014, Bloomberg-compiled data show. They have reduced loans for four straight months, even as policy makers expanded the securitization quota by 500 billion yuan to free up space on their balance sheets for fresh lending.
• Australia’s Treasury Says Sydney is 'Unequivocally' In a Housing Bubble. Sydney is in the grip of a housing bubble, Australia’s most-senior economic bureaucrat said in one of the strongest warnings yet by a government official. “When you look at the housing price bubble evidence, it’s unequivocally the case in Sydney -- unequivocally,” Treasury Secretary John Fraser said in testimony before a parliamentary committee in Canberra Monday. “Frankly, whatever the data says, just casual observation would tell you that’s the case.” 
• South Korea’s Exports Slump by the Most in Almost Six Years. South Korea’s exports fell the most in almost six years in May, underscoring concern that the slump in overseas sales is harming a recovery in Asia’s fourth-biggest economy. Shipments slid 10.9 percent from a year earlier, the fifth straight monthly decline, the Ministry of Trade, Industry and Energy said on Monday. Imports fell 15.3 percent and the trade surplus was $6.32 billion.
• Asian Stocks Fall as Investors Weigh U.S. Economy, Await Data. Asian stocks fell amid concern about the strength of U.S. economic growth and as investors awaited manufacturing data from China. The MSCI Asia Pacific Index lost 0.4 percent to 150.75 as of 9:01 a.m. in Tokyo.

Wall Street Journal: 

• U.S. Drug Shortages Frustrate Doctors, Patients. Drugs in short supply include cancer treatments and antibiotics; manufacturing snafus.
• OPEC’s Pricing Leverage Is Weakening. OPEC expected to leave crude oil output unchanged, showing how cartel’s power to sway prices has ebbed.
• For Fed, Dollar’s Strength Complicates Rate-Hike Calculus. Currency’s movement, among other factors, could prompt Federal Reserve officials to lower growth forecasts and hold off even longer on raising rates. 
• The Shale Boom Shifts Into Higher Gear. Oil production is becoming a modern manufacturing process, with frackers using the ‘just-in-time’ approach. 

MarketWatch.com: 

• Brennan warns Islamic State threatens U.S. CIA Director John Brennan warned Sunday the threat of Islamic State that is destabilizing the Middle East has “great potential” to reach the United States.
• Why the American Dream is unraveling, in 4 charts. (graph) 

CNBC:

• Market's next concern may float in South China Sea. Although recent price action suggests otherwise, a slow-burning geopolitical situation in the South China Sea may yet become a flashpoint for market volatility.
• Intel(INTC) close to $17B Altera tie-up: Reports.

Zero Hedge:

• Mapping An ISIS Advance: Syria On The Brink.
• When The "Sharing" Economy Goes Too Far: Syphillis Cases Soar 79% In A Year. Sexually transmitted diseases are on the rise in the US, with health officials pointing the finger at casual sex arranged through social media as "the perfect storm." With gonorrhea up 30%, HIV infections up by 33%, and syphilis soaring a shocking 79% in the last year alone, perhaps they have a point.
• This Is How Little It Cost Goldman(GS) To Bribe America's Senators To Fast Track Obama's TPP Bill. 
• "The Fed Has Been Horribly Wrong" Deutsche Bank Admits, Dares To Ask If Yellen Is Planning A Housing Market Crash.
• Defiant Tsipras Warns European Leaders They Are "Making A Grave Mistake".
• How Much More Extreme Can Markets Get? (graph)
• The Pressure Just Shifted From Greece To The US & EU.
• John Kerry Goes Biking In France, Hits Curb, Breaks Leg; Will Fly Back To US In "Specially Outfitted Aircraft".
• China Will Establish No-Fly Zone Over Islands If "Threatened"
• The 10 Most Important Themes To Watch This Summer.
• A First-Hand Account Of The Greek Bank Run.

Business Insider:

• The Iraqi campaign to retake Ramadi from ISIS is a looming disaster.
• ROBERT SHILLER: 'There is a bubble element to what we're seeing.'
• Iran is looking for ways to dodge a key component of the nuclear deal.
• China's slowdown and a Fed rate hike might be the top threats to the world economy this year.
• Margin debt (red in the chart above) hit a new high in April. (graph)
• A new drug could double the life expectancy of lung cancer patients.
• This May has been the deadliest month in Baltimore in nearly 45 years.

Financial Times:

• Shadow banks grab record US loans share. Non-bank lenders have overtaken US banks to grab a record slice of government-backed mortgages, after regulatory curbs on risk-taking and billions of dollars in fines forced mainstream providers to retreat from the $9.8tn home loan market.

Weekend Recommendations

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 107.0 unch.

• Asia Pacific Sovereign CDS Index 59.75 +1.75 basis points.

• S&P 500 futures +.19%.

• NASDAQ 100 futures +.24%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (PVH)/1.38

Economic Releases

8:30 am EST

• Personal Income for April is estimated to rise by +.3% versus unch. in March.
• Personal Spending for April is estimated to rise by +.2% versus a +.4% gain in March.
• The PCE Core for April is estimated to rise by +.2% versus a +.1% gain in March. 

9:45 am EST

• Final Markit US Manufacturing PMI for May is estimated at 53.8 versus a prior estimate of 53.8.

10:00 am EST

• Construction Spending for April is estimated to rise +.7% versus a -.6% decline in March. 
• ISM Manufacturing for May is estimated to rise to 52.0 versus 51.5 in April.
• ISM Prices Paid for May is estimated to rise to 43.0 versus 40.5 in April.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Rosengren speaking, Eurozone PMI data, Eurozone CPI report, Bank of Australia rate decision, Jefferies Healthcare Conference, Goldman Lodging/Gaming/Restaurant/Leisure Conference, (ZTS) annual meeting and the (BLOX) analyst day could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down 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 week.