Wednesday Watch

Evening Headlines
Bloomberg:

• China Home Price Gains Spread to More Cities, Defying Curbs. Home-price increases spread to more Chinese cities last month, as buyers shrugged off recent curbs designed to rein in surging values in some of the largest cities. New-home prices excluding affordable homes climbed in 65 cities, compared with 62 in March, among the 70 cities tracked by the government, the National Bureau of Statistics said Wednesday. They dropped in five cities, compared with eight a month earlier. Some Chinese cities, from the finance hub of Shanghai to Suzhou, a manufacturing city west of Shanghai, unveiled tightening measures starting in late March, to rein in rapid gains in home prices and a buying frenzy that followed government stimulus measures. Despite curbs in some top cities, new home sales soared 63.5 percent to 793.7 billion yuan ($122 billion) in April from a year earlier, driving a rebound in real estate investments from the lowest level in 14 years.
• Taiwan Bonds Show Risk Aversion as New Leader Tests China Ties. Taiwan’s government has seen bond yields fall to record lows as investors seek the safety of sovereign debt amid concern of increased tensions with China and bets that the central bank will cut interest rates to revive economic growth. The finance ministry auctioned NT$30 billion ($920 million) of the notes maturing in May 2046 at 1.65 percent yesterday, below the 1.705 percent fetched in November 2012. That followed an April sale in which 20-year bonds were auctioned for a record low yield of 1.36 percent, while 10-year bonds are also trading near their low of 0.767 percent.
• Won Slides With Stocks as Fed Officials Reignite June Rate Talk. South Korea’s won led losses in Asian currencies and stocks slid after two more Federal Reserve officials reiterated that U.S. interest rates could rise as soon as next month. Higher U.S. rates could damp demand for South Korean assets such as bonds, with three-year government yields already showing investors are anticipating another cut in borrowing costs from a record low. Overseas funds have turned net sellers of the nation’s stocks this week. Atlanta Fed President Dennis Lockhart and his San Francisco colleague John Williams both said Tuesday that markets are underestimating the possibility of a June rate hike. The won fell 0.6 percent to 1,180.30 per dollar as of 10:43 a.m. in Seoul after U.S. inflation and housing data reinforced the outlook for another U.S. rate increase. 
• Asian Stocks Retreat Amid U.S. Rate Hike Bets, Japan GDP Data. Asian stocks fell for the first time this week as investors weighed data showing Japan’s economy grew more than expected while U.S. reports bolstered the case for higher interest rates. The MSCI Asia Pacific Index slipped 0.2 percent to 127.25 as of 10:39 a.m. in Tokyo. Global equities have struggled to extend gains since reaching a four-month high on April 20 as investors scrutinize U.S. data for clues to the timing of the Fed’s next policy move. In Japan, data Wednesday showed gross domestic product expanded by an annualized 1.7 percent in the first quarter, beating economists’ estimates for 0.3 percent growth.
• Fed’s Williams, Lockhart See at Least Two Rate Hikes in 2016. (video) Two regional Federal Reserve bank presidents said at least two interest-rate increases may be warranted this year because the economy continues to expand and inflation is picking up, pushing back against expectations the central bank will delay action next month. “Currently my assumption is two, possibly three,” Atlanta Fed President Dennis Lockhart said Tuesday in Washington. He was joined at the Politico-hosted event by his San Francisco Fed colleague John Williams, who said “gradual means two to three rate increases this year.”
• Goldman’s(GS) Hatzius Says Flattest Yields Since 2007 Misprice Fed. Jan Hatzius, the chief economist at Goldman Sachs Group Inc., warned bond investors aren’t prepared for the Federal Reserve to raise interest rates. Fed Bank of Atlanta President Dennis Lockhart and his San Francisco counterpart John Williams both said Tuesday at least two rate increases may be warranted this year as the economy picks up. The views contrast with the Treasury market, where the range of maturities comprising the yield curve show investors are preparing for slowing inflation rather than higher borrowing costs. “The market’s underestimating their willingness to follow through on what they say,” Hatzius said Tuesday in an interview on Bloomberg Television. “If you look at where the yield curve is priced -- how little normalization of monetary policy is discounted -- that’s very striking.”
• Bonuses for Traders, Hedge Fund Managers Seen Falling in ‘16. Bonus pools could decline by as much as 20 percent for some Wall Street workers this year, with incentive pay falling at almost every type of financial-services firm, according to compensation consultant Johnson Associates Inc. The sharpest drop probably will be in fixed-income sales and trading, as well as investment-bank underwriting, which may tumble 15 percent to 20 percent from a year earlier, Johnson Associates said Tuesday in a report. Those in investment-banking advisory services and management positions at banks could see declines of 10 percent to 15 percent, the consultant said. 
• Trump Claims Income of More Than $557 Million on Disclosure. Donald Trump claimed income of more than $557 million over the last year, though the campaign provided few details on the sources of the money. The presumptive Republican presidential nominee made the assertion on his income in a news release on Tuesday to announce that he had filed his required annual financial disclosure with the Federal Election Commission. But the campaign didn’t release the document.

Wall Street Journal:

• Election Coverage: 2016.
• Investors’ Flight From Negative Rates Flattens Yield Curve. Brighter economic data raises specter of Fed rate increase; yield curve is flattest since 2007.
• Obama Administration Extends Overtime Pay to Millions. Overtime salary threshold doubled to $47,476 a year.
• Highmark Sues U.S. Over Affordable Care Act. Insurer says it didn’t get nearly $223 million owed under ‘risk corridors’ program.
• His and Her Clintonomics. Hillary says she’ll use Bill on the economy, but her policies are to the left of Obama’s.

CNBC:

• The 'black swan' that could sink oil markets. 
• 'This is a tough market': Homebuilder Lennar CEO. (video)
• Indicator flashes warning on China economy, copper.
• Trump bashes Dodd-Frank, says he'd speak to N. Korea's Kim. (video)

Zero Hedge:

• Goldman(GS) Downgrades Stocks Over Next 12 Months Due To Risk Of Sharp Market Drop.
• Middle Class Destitution – A Devastating Tale From America's Heartland.
• China's Debt Bomb: No One Really Knows The Payload.
• Someone Really Wants This Market To Crash. (graph)
• BofA: "If You Go Down To The Woods Today It Will Be Full Of Bears". (graph)
• Crude Slides After Oil Inventories Drawdown Less Than Expected. (graph)
• Maybe You Should "Sell In May".
• China Is Now Conducting "Security Reviews" On Foreign Tech Products.
• 'Transitory' Excuses Destroyed As Mainstream Wakes Up To Crashing Yield Curve.(graph)
• Mark Cuban Is Voting For "The Devil He Knows" Hillary, Warns Trump Presidency Will Crash Stocks. (video)
• Stocks Give Up "Volumeless, No Good Reason" Gains On Hawkish FedSpeak. (graph)

Business Insider:

• Bernie Sanders releases defiant statement after complete chaos at state convention.
• Here's why Jim Chanos is shorting big oil.
• The iPhone 7 is going to be boring and you'll have to wait until 2017 for something special.

Night Trading 

• Asian equity indices are -.75% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 143.0 -.25 basis point. 
• Asia Pacific Sovereign CDS Index 53.25 unch.
• Bloomberg Emerging Markets Currency Index 71.51 -.17%. 
• S&P 500 futures +.10%. 
• NASDAQ 100 futures +.16%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (ADI)/.62
• (TGT)/1.20
• (SPLS)/.16
• (STE)/1.04
• (LOW)/.85
• (DSX)/-.35
• (AEO)/.18
• (CSCO)/.55
• (CRM)/.23
• (SNPS)/.77
• (TTWO)
• (URBN)/.25

Economic Releases 
10:30 am EST

• Bloomberg consesus estimates call for a weekly crude oil inventory decline of -3,012,500 barrels versus a -3,410,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -762,500 barrels versus a -1,231,000 barrel decline the prior week. Distillate inventories are estimated to fall by -787,380 barrels versus a -1,647,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +1.33% versus a -.6% decline prior.  

2:00 pm EST

• FOMC Meeting Minutes. 

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Eurozone CPI report, Australian Employment change, weekly MBA mortgage applications report, CIBC Industrials Conference, Needham Tech Conference, (PYPL) Analyst Day, (LUV) annual meeting and the (TMO) analyst meeting could also impact trading today.

BOTTOM LINE:  Asian indices are mostly lower, weighed down by financial and industrial 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.