Friday Watch

Evening Headlines
Bloomberg: 

• China Decides Debt Can Be Dangerous. The Chinese Communist Party is now officially worried about mounting debt. “A tree cannot grow up to the sky—high leverage will definitely lead to high risks,” said a front-page commentary in the People’s Daily on May 9. The author of the commentary was identified as “an authoritative person,” usually code for the top leadership. “Any mishandling will lead to systemic financial risks, negative economic growth, or even have households’ savings evaporate. That’s deadly.” Liberal lending has been a part of the economy for years. The concerns arise now because the expansion of debt is approaching critical levels. In the years since China unleashed billions in loans to weather the global financial crisis of 2008, overall debt has grown from 164 percent of gross domestic product to 247 percent last year, Bloomberg Intelligence estimates. Household and central government debt are still manageable at 41 percent and 22 percent of the economy, respectively, but corporate debt, at 165 percent, is much higher than in most developing countries.
• China Inc. Misses Best Shot to Repay $430 Billion as Yuan Drops. The best time for China Inc. to repay its dollar debt may be coming to an end. The greenback is rallying after its worst quarter since 2010, threatening to drive up costs for companies seeking to either repay U.S. currency borrowings or hedge exposure. The yuan declined 1 percent since March 31, following a 2 percent rally between February and March. Royal Bank of Canada and Credit Suisse Group AG see more depreciation. “If corporates haven’t taken advantage of this period of yuan gains, they really only have themselves to blame," said Sue Trinh, Hong Kong-based head of Asian foreign-exchange strategy at RBC. "The government won’t hold down the exchange rate forever.”
• Abe Lurches to Economic Left to Broaden Appeal Before Poll. Japanese Prime Minister Shinzo Abe is shifting his economic policies to the left in a bid to broaden his appeal ahead of a key election this summer. In stark contrast to his opening Abenomics salvo three years ago that weakened the yen and boosted corporate profits and stock prices, the premier is now poised to unveil policies more attractive to poorer voters than big business. He’ll unveil this package, called “a plan to promote dynamic engagement of all citizens,” later this month. Likely to be included is a proposal to mandate wage increases for part-time and temporary workers, scholarships for less wealthy students and improvements to child care and conditions for nursery-school teachers. The policies initially were part of the platform of the main opposition Democratic Party, whose leader Katsuya Okada told reporters Wednesday that Abe opposed these policies until about a year ago.
• Negative Rates Seen Pushing Japan Bank Profits to Four-Year Low. Japan’s biggest banks may forecast the lowest profit in four years as negative interest rates squeeze lending margins and the commodity slump risks souring energy loans. Combined net income at Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. is expected to fall 6.9 percent to 2.25 trillion yen ($21 billion) in the year ending March from a projected 2.42 trillion yen last year, according to the average estimate of nine analysts surveyed by Bloomberg. 
• China Stocks Head for Longest Weekly Losing Streak in Two Years. Chinese stocks stocks headed for a fourth week of declines, the longest string of losses in two years, as metal prices dropped and the yuan weakened amid concern the government will hold off from new stimulus even as growth falters. The Shanghai Composite Index slid 0.2 percent, extending a retreat this week to 2.9 percent. Data on new loans and money supply will be released as early as Friday, while reports on industrial production and retail sales are scheduled for Saturday. The Hang Seng China Enterprises Index has fallen for the ninth time in 10 days in Hong Kong. China’s benchmark stock gauge has slumped 21 percent this year, making it the worst performer among 95 global benchmark indexes tracked by Bloomberg. 
• Asian Stocks Retreat Amid Earnings as Technology Shares Decline. Asian stocks dropped as crude oil retreated and technology shares declined after Apple Inc. sank to the lowest since June 2014. The MSCI Asia Pacific Index slipped 0.2 percent to 127.26 as of 9:06 a.m. in Tokyo.
• Oil at $45 a Barrel Proving No Savior as Bankruptcies Add Up. Three bankruptcies this week shows that $45 a barrel oil isn’t enough to rescue energy companies on the verge of collapse. Since the start of 2015, 130 North American oil and gas producers and service companies have filed for bankruptcy owing almost $44 billion, according to law firm Haynes & Boone. The tally doesn’t include Chaparral Energy Inc., Penn Virginia Corp. and Linn Energy LLC, which filed for bankruptcy this week owing more than $11 billion combined. At least four more oil and gas companies owing more than $8 billion are nearing default, including Breitburn Energy Partners LP and SandRidge Energy Inc. Bankruptcies have accelerated as cash-starved companies find it almost impossible to raise capital. Energy companies have been virtually shut out of the high-yield bond markets, banks are cutting credit lines and asset sales have slowed.
• U.S. Steel(X) Sinks as Another Wave of Cheap Imports Predicted. Just when it looked as though U.S. steelmakers had repelled a tide of cheap imports, more attractive prices risk inviting another wave of shipments. The most iconic U.S. producer is bearing the brunt of concern. U.S. Steel Corp. shares fell as much as 10 percent in New York Thursday, the biggest loss among large iron and steel stocks tracked by Bloomberg. That’s as surging U.S. steel prices and falling Chinese prices boost the appeal of targeting the U.S. market even after import tariffs were introduced in recent months for some products. AK Steel Holding Corp., another domestic producer, fell 4.6 percent. Nucor Corp. was little changed.
• Trump Foreign Policy Spurned by Veteran Republican Baker. While Donald Trump met with Republican lawmakers on Capitol Hill Thursday, a Senate hearing provided a forum for critics in his party to take aim at his foreign policy proposals. At the prompting of Republican Senator Marco Rubio, who dropped out of the presidential race in March, former Secretary of State James Baker said that the world “would be far less stable” if the U.S. left the North Atlantic Treaty Organization or let South Korea and Japan obtain nuclear weapons, proposals floated by Trump during the campaign that made him the presumptive Republican presidential nominee. “We’ve got a lot of problems today, but you’d have a hell of a lot more if that were the case,” Baker, who was secretary of state in President George H.W. Bush’s administration, said without mentioning Trump by name. “NATO has been the foundation of peace and stability in Europe. The more countries that obtain nuclear weapons the more instability there will be in the world.”
• Facebook(FB) Guidelines Show Trending News Relies on Human Judgment. Facebook Inc.’s methods for determining trending news topics rely heavily on human input and company rules, according to documents released by the social network, contradicting some of its earlier statements that the system is mostly machine-based. Tom Stocky, Facebook’s executive in charge of the team, on Monday said the company doesn’t “insert stories artificially” into the trending topics feature, while the documents say that news topics can be inserted by human editors. Stocky also said the guidelines don’t permit the prioritization of one news outlet over another; the documents show Facebook checks its news against 10 news organizations to measure if a trending topic is legitimate.

Wall Street Journal:

• Clinton Charity Aided Clinton Friends. A $2 million commitment arranged by the nonprofit Clinton Global Initiative in 2010 went to a for-profit company part-owned by friends of the Clintons. 
• Hedge Fund Star: We Are ‘Under Assault’. Leon Cooperman of Omega Advisors sums up the mood at the annual SALT conference in Las Vegas. Some of the most famous minds in investing convened here this week for an annual celebration of the hedge-fund industry. But, feeling the weight of years of underperformance and an uptick in client defections, the mood was anything but festive.
• Vindicating Congress’s Power of the Purse. Obama said ‘so sue me.’ The House did, and Obama just lost.

Fox News:

• New email release shows Clinton chose not to use secure phone line, acknowledged Blackberry risk. (video)

MarketWatch:

• Deutsche Bank(DB) thinks this is the biggest threat to the economy. “Many clients I meet worry that the biggest macro risk on the horizon is another financial crisis,” said Torsten Slok, Deutsche Bank’s chief international economist. But the bigger threat, according to Slok, is accelerating inflation.

CNBC:

• Trader bets $2M against China. (video)
• Gundlach sees 'some rebellion' from Fed hawks. (video)
• Apple(AAPL) just sent up another red flag for stocks. (video)

Zero Hedge:

• Is Glencore Manipulating The Price Of Oil: Swiss Trader Holds Over 30% Of June Brent Supply.
• Raw Venezuela: Looter Burned Alive, While "Streets Filled With People Killing Animals For Food".
• "Screw The Next Generation" Anonymous Congressman Admits To "Blithely Mortgaging The Future With A Wink & A Nod".
• The Biggest Source Of Global Growth In 2016 Is About To Hit A Brick Wall. (graph)
• Fed Nemesis & Mysterious Treasury Bond Buyer Exposed. (graph)
• Milton Berg: "We Are On The Cusp Of A 30 Year Bear Market".
• Socialism Is An Immoral System.
• Nordstrom(JWN) Plummets After Reporting Terrible Earnings, Slashing Guidance.
• Stop Blaming Consumers, They Can't Help It!
• World's Most Bearish Hedge Fund Manager: "I Think Something Has Changed". (graph)
• Leaked Facebook(FB) Training Manual Confirms Allegations Of Conservative News Suppression.
• June 2003 - The Fed's Brief Moment Of Clarity.
• Crude Chaos Sparks Stock Schizophrenia, Trannies Trounced. (graph)

Business Insider:

• JANET YELLEN: I won't completely rule out negative interest rates.
• Jim Chanos just presented a short idea that will probably upset Carl Icahn.
• 4 top investors just presented their stock ideas at the hedge fund conference of the year — here they are.
• ISIS has released a new Android app aimed at children.
• The tech bust will be different this time around.
• Osama bin Laden's young son is reportedly being groomed to take over Al Qaeda.
• Shake Shack(SHAK) smashes earnings expectations, shares surge 8%.

Reuters:

• U.S.-based junk, emerging-markets funds post worst outflow since Jan: Lipper.
• Strong demand for graphics chips to boost Nvidia's(NVDA) revenue. Nvidia Corp forecast better-than-expected revenue for the current quarter as it sees robust demand for its chips that power complex computer graphics. Shares of the company, which also reported profit and revenue above analysts' estimates, were up 7.5 percent in extended trading.
• Apple(AAPL) invests $1 bln in Chinese ride-hailing service Didi Chuxing.

MNI:

• China 4 Big Banks' April New Loans More Than Halved M/m. Combined new loans in April by the big 4 state-owned banks were more than halved from March, citing people familiar with the matter. Big 4 banks' new loans were 402b yuan in March.

Night Trading 

• Asian equity indices are -1.0% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 143.75 unch. 
• Asia Pacific Sovereign CDS Index 53.0 -.25 basis point.
• Bloomberg Emerging Markets Currency Index 72.0 -.09%. 
• S&P 500 futures -.26%. 
• NASDAQ 100 futures -.29%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (JCP)/-.37
• (HMC)/61.54
• (BAM)/.43

Economic Releases 
8:30 am EST

• Retail Sales Advance MoM for April are estimated to rise +.8% versus a -.3% decline in March.
• Retail Sales Ex Autos MoM for April are estimated to rise +.5% versus a +.2% gain in March.
• Retail Sales Ex Auto and Gas for April are estimated to rise +.3% versus a +.1% gain in March.
• PPI Final Demand MoM for April is estimated to rise +.3% versus a -.1% decline in March.       
• PPI Ex Food & Energy MoM for April is estimated to rise +.1% versus a -.1% decline in March. 

10:00 am EST

• Business Inventories for March are estimated to rise +.2% versus a -.1% decline in February.
• Preliminary Univ. of Mich. Consumer Sentiment for May is estimated to rise to 89.5 versus 89.0 in April. 

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed's Williams speaking, Eurozone GDP report, OPEC Monthly Update, (NUE) annual meeting, (PGR) annual meeting and the (TEX) annual meeting could also impact trading today.

BOTTOM LINE:  Asian indices are mostly lower, weighed down by industrial and technology shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.