Tuesday Watch

Evening Headlines
Bloomberg:  

• Markets in Revolt Demand Action From Johnson’s Brexiteer Crew. If investors were disgruntled by Britain’s vote to quit the European Union, the ensuing leadership vacuum is only adding to their malaise. A second day of financial-market tumult is ramping up pressure on U.K. lawmakers to say when and how they’ll leave the world’s biggest trading bloc -- and who it is that will lead the negotiations. By 10 p.m. London time the pound was down another 3.3 percent after Friday’s record 8.1 percent plunge, while shares in banks and homebuilders tumbled and credit weakened. Britain’s credibility with money managers, won through the Conservative Party’s austerity measures and reforms, is rapidly dissipating. And that’s not being helped by comments from Boris Johnson, the leading “Leave” campaigner, that the downside of a Brexit has been “wildly overdone.” The risk is that -- just as in the financial crisis of 2008 or the ensuing euro-area debt crisis -- market volatility becomes so intense officials are rushed into action. “Politicians underestimate the importance of a plan,” said Guillermo Hernandez Sampere, the head of trading at MPPM EK in Eppstein, Germany. His firm manages about 250 million euros ($275 million). “It doesn’t matter whether from the Brexiteers or the government. They need to make clear how and as of when new arrangements with the EU will shape up.”
• World’s Top Fortunes Fall $196.2 Billion Since Brexit Bombshell. Global markets erased another $69.2 billion from the combined net worth of the world’s 400 richest people Monday, bringing the total since the U.K. shocked investors with a vote to leave the European Union to $196.2 billion in the last two trading days.
• Asia Stocks Fall as Brexit-Fueled Turmoil Offsets Stimulus Hopes. Asian stocks retreated after Monday’s rally as uncertainty surrounding the path of Britain’s exit from the European Union overshadowed optimism that central banks will move to shore up confidence. The MSCI Asia Pacific Index slid 0.9 percent to 124.66 as of 9:05 a.m. in Tokyo. Japan’s Topix index fell 1.6 percent as the yen traded at 101.71 per dollar. The U.K. was stripped of its top credit grade by S&P Global Ratings, and Fitch Ratings also lowered the country’s rank, the latest verdicts on the country’s decision to leave the European Union that has left it in political and economic paralysis.
• Gross Says U.S. Recession Odds May Be 30% to 50% Post-Brexit. The odds of a U.S. recession may be as high as 50 percent following last week’s vote in the U.K. to exit the European Union, according to Bill Gross, manager of the Janus Global Unconstrained Bond Fund. The yield on 10-year U.S. Treasury bonds may fall to 1.25 percent from about 1.45 percent on Monday, Gross said during an appearance on Fox Business Network. The lower yield would still be attractive to investors compared with negative interest rates in Japan or Germany. That spread could drive up the value of the dollar and increase the odds of a recession to the 30 percent to 50 percent range, according to Gross. While Britain represents a small part of the global economy, Friday’s vote will slow trade, immigration and growth around the world, which have driven economic expansion for years, he said. “This is the end of globalization as we know it,” Gross said.
• Abortion Access Expected to Grow Across U.S. After Court Ruling. By rejecting a Texas abortion law Monday, the U.S. Supreme Court has set in motion a reshaping of the legal landscape across dozens of states where similar attempts to impose debatable medical requirements on clinics and providers are now in jeopardy. The demands of those laws -- that clinics meet hospital standards and doctors obtain admitting privileges at nearby hospitals -- had been among the most potent tools of abortion opponents in recent years, shuttering providers and reducing access in the name of improved health. The majority of justices said those requirements overstepped the state’s interest in protecting women’s health, instead imposing undue burdens on their constitutional rights. 
• Worst of Brexit Pain Yet to Be Felt in U.S. Credit, Banks Warn. (video) Morgan Stanley and UBS Group AG are telling their clients to brace for deeper losses in U.S. credit as a result of the U.K. vote to leave the European Union. While the "leave" camp’s win in the U.K. referendum has already rattled markets and caused U.S. corporate bond spreads to surge the most since the European sovereign debt crisis, credit strategists at the two banks say the worst is yet to come. Bonds aren’t cheap enough to warrant taking the risk that the market volatility isn’t temporary. "Despite the urge to step in and buy U.S. credit at modestly wider levels than a few days ago, we recommend patience," Morgan Stanley strategists led by Adam Richmond wrote in a note to clients Monday. "While the full impact of the U.K. leave may not be known for some time, the U.S. economy is not in a position to withstand a large shock."

Wall Street Journal:

• Strengthening Currencies Bedevil Central Banks. Upward pressure on Japanese yen, Swiss franc and U.S. dollar complicates efforts by policy makers to spur growth. Britain’s vote to leave the European Union has set off a fresh round of currency pressures in the world’s largest economies, further complicating efforts by central banks to spur growth.
• The Fed’s Market Mover Keeps Changing His Mind. James Bullard has developed an unrivaled reputation for shifting his stance on whether the Federal Reserve should raise interest rates.
• Poll Finds Opening for Third-Party Candidates as Clinton, Trump Remain Unpopular. Deep dislike for the two leading candidates could scramble the race as some voters seek alternatives. Deep dislike for the two leading presidential candidates is creating an opening for third-party hopefuls, potentially scrambling the race as voters cast about for alternatives, a new Wall Street Journal/NBC News poll shows.

Fox News:

• DOJ to institute mandatory bias training. (video)

MarketWatch:

• How China’s yuan could be the currency whipping boy of Brexit. Bank of America cuts China’s 2016 GDP view given shifting trade outlook.

Zero Hedge:

• Greenspan Warns A Crisis Is Imminent, Urges A Return To The Gold Standard. 
• The End Game Of Bubble Finance - Political Revolt.
• The Brexit Reaction Is The Reason Brexit Happened.
• Some Bad And Some Worse News For Stock Buybacks. (graph)
• The First Casualty Of Brexit: Italy Prepares €40 Billion Bank Bailout.
• Another Red Flag: Growth In Fast Food Visits Has Hit A Wall.
• Something Just Snapped In VIX. (graph)
• Behold Corporate Incest.
• Jim Rogers: Brexit Blowback "Worse Than Any Bear Market You've Ever Seen".
• "Death To All Zombies!"
• Chicago Is Pushing For A Massive Bailout Of Its Public School System.
• The Last Time Bonds Were Here, The Recession Started. (graph)
• Bonds & Bullion Bid But Brexit Blowback Batters Banks. (graph)

Business Insider:

• States are taking gun control laws into their own hands.
• Bernie Sanders is setting the stage for a convention fight over the Democratic platform.
• The UK just got hit with 2 downgrades.
• One of these 8 countries could be the next domino to fall.
• Even more internet censorship could be coming to China very soon.

Night Trading 

• Asian equity indices are -.75% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 150.25 -.5 basis point.
• Asia Pacific Sovereign CDS Index 56.0 +1.0 basis point.
• Bloomberg Emerging Markets Currency Index 71.06 +.27%. 
• S&P 500 futures +.58%. 
• NASDAQ 100 futures +.59%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (CCL)/.38
• (FDS)/1.63
• (AVAV)/-.10
• (NKE)/.48

Economic Releases  
8:30 am EST

• 1Q GDP (QoQ)is estimated to rise +1.0% versus a prior estimate of a +.8% 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 rise +.6% versus a prior estimate of a +.6% gain.
• 1Q Core PCE (QoQ)is estimated to rise +2.1% versus a prior estimate of a +2.1% gain.  

9:00 am EST

• The S&P/CS 20 City MoM SA for April is estimated to rise +.6% versus a +.85% gain in March.

10:00 am EST

• Consumer Confidence for June is estimated to rise to 93.5 versus 92.6 in May.
• The Richmond Fed Manufacturing Index for June is estimated to rise to 3.0 versus -1.0 in May.
  

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Japan Retail Trade report and the (MA) general meeting could also impact trading today.

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