Wednesday Watch

Evening Headlines
Bloomberg:

• Japan 20-Year Yield Falls to Zero as Treasuries Rally to Record. Japan’s 20-year government bond yield dropped to zero for the first time Wednesday, with ultra-low yields worldwide failing to deter a rush by investors for the safest assets. Treasuries advanced for a fourth day, after yields renewed record lows Tuesday in the 10- and 30-year securities, with the fallout from the shock U.K. vote to leave the European Union clouding the outlook for global growth. Benchmark 10-year Australian and Japanese sovereign bond yields also dropped to a record. The 20-year JGB yielded 0.015 percent as of 9:19 a.m. in Tokyo, after dipping to zero. The 10-year note yield fell to a record minus 0.265 percent, while the 30-year yield reached an unprecedented 0.03 percent.
• North Korea Opens Floodgates at Dam Near Border With South. North Korea released water from a dam near its border with South Korea without warning, raising fears of flooding in the South amid torrential rain in recent days. North Korea appears to have gradually opened the floodgates at around 6 a.m. Wednesday, Yonhap News reported, citing an unidentified South Korea military official. The water level under a bridge on the Imjin river in South Korea rose suddenly, Yonhap said. South Korea has been closely monitoring the water level at the Hwanggang Dam, just north of the border. While the military has said it doesn’t believe North Korea would engage in a “flooding attack,” the Defense Ministry had been preparing to provide emergency assistance if North Korea suddenly opened the floodgates.
• It’s Dollar’s Time Now Post-Brexit, Top Currency Forecaster Says. For currency strategists, the past quarter was all about Brexit and calling the pound correctly. Now, the most-accurate forecaster is counting on a dollar resurgence to stay ahead of the pack.
• Yuan Trails Asian Peers as China Seen Favoring Weakness: Chart.
• Yen Gains for Second Day as Pound Touches 31-Year Low on Brexit. The yen rose, heading for its biggest two-day gain in more than a week, as Britain’s vote last month to leave the European Union sent investors seeking haven assets and pushed the pound to its weakest level in more than three decades. Japan’s currency climbed at least 0.5 percent against all 16 of its major counterparts, while the pound surpassed lows reached in the immediate aftermath of Britain’s June 23 referendum. M&G Investments suspended a 4.4 billion-pound ($5.7 billion) real-estate fund on Tuesday, following on the heels of Aviva Investors and Standard Life Investments after a flurry of redemption requests. “The yen is taking the brunt of the pound selling,” said Takuya Kawabata, an analyst at Gaitame.com in Tokyo. “It’s a risk-off market triggered by the pound. We need to continue to remain wary of risk aversion prompted by the U.K.” The yen rose 0.6 percent against the dollar to 101.18 as of 9:02 a.m. in Tokyo Wednesday, after gaining 0.8 percent Tuesday. The pound declined 0.4 percent to $1.2977 after hitting a 31-year low of $1.2950.
• Asian Stocks Sink With Pound as Investors Hunt Down Havens Again. Risk aversion took hold off markets once again, torpedoing Asian stocks, the pound and high-yielding currencies amid concern over the impact of a potential European slowdown. The yen jumped with gold as government bond yields slid. Japan led equity losses, with the Topix index headed for a one-week low and crude oil’s slump below $47 a barrel weighing on commodity producers in the region. The yen climbed to its strongest level this month, while the pound extended losses at a 31-year low after Bank of England chief Mark Carney said risks from the U.K.’s vote to leave the European Union had started to crystallize. The Korean won weakened with the Australian and New Zealand dollars. Australian 10-year yields sank to an all-time low as rates on 20-year Japanese debt hit zero for the first time. Gold climbed for a sixth session. The MSCI Asia Pacific Index fell 1 percent as of 9:10 a.m. Tokyo time, declining for a second session after ending a four-day rally on Tuesday. Materials producers and consumer-discretionary shares drove losses.
• Williams Says 2016 Fed Rate Hike Warranted If His Forecast Met. Federal Reserve Bank of San Francisco President John Williams said Britain’s vote to exit the European Union probably won’t derail the U.S. economy, leaving the Fed scope to raise interest rates this year if his growth and inflation expectations are met. “I would see the Brexit, as it’s played out so far, as being a relatively modest risk to the U.S. outlook,” Williams said in a telephone interview on Tuesday, explaining that the move may lower economic growth for the year by about a tenth of a percentage point to just under 2 percent. Williams, who next votes on policy in 2018, said he still expects unemployment to drop to 4.5 percent this year and for inflation to continue moving up. If that outlook comes to fruition, a rate hike would be appropriate this year, though he declined to “get into projections about when and what.”

Wall Street Journal:

• Thieves Go High-Tech to Steal Cars. Police say vehicle electronics co-opted to bypass ignition controls in late-model vehicles.
• Jim Comey’s Clinton Standard. He shows how she broke the law then rationalizes no indictment.

Zero Hedge:

• The Revolt Against Globalism... Is Going Global.
• She Said, He Said - Clinton Vs. Comey. (video)
• The Central Bank Credibility 'Death Cross'. (graph)
• Tesla(TSLA) Drops On Report Of Another "Autopilot" Crash And Rollover.
• Do Not Show This Chart To Your Stockbroker. (graph)
• Small Business Owner Explains Options: "Close, Hike Prices, Or Eliminate Jobs".
• The Poisonous Gap Between Paper Wealth And Real Wealth.
• Banks Battered As Bond Yields 'Comey-kaze' Dive To Record Lows. (graph)

Business Insider:

• Abenomics is facing its voters once again.
• AP FACT CHECK: Hillary Clinton's claims about her emails collapsed under the FBI investigation.
• ISIS' global suicide-bombing campaign is only just beginning.
• Ted Cruz says he has 'serious concerns' about FBI director's integrity.
• The UK is stronger than the EU, even after Brexit.
• ISIS is tightening its grip on Yazidi women and children forced to become sex slaves.

Telegraph:

• Property market turmoil has eerie echoes of start of financial crisis.

Night Trading 

• Asian equity indices are -1.50% to -.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 139.75 +1.75 basis points.
• Asia Pacific Sovereign CDS Index 53.5 +.25 basis point.
• Bloomberg Emerging Markets Currency Index 71.85 -.19%. 
• S&P 500 futures -.31%. 
• NASDAQ 100 futures -.36%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (GBX)/1.08
• (MSM)/1.00
• (WBA)/1.14

Economic Releases  
8:30 am EST

• The Trade Deficit for May is estimated at -$40.0B versus -$37.4B in April.

9:45 am EST:

• The Final Markit US Services PMI for June is estimated at 51.3 versus a prior estimate of 51.3.

10:00 am EST

• The ISM Non-Manufacturing Composite for June is estimated to rise to 53.3 versus 52.0 in May.

2:00 pm EST

• The FOMC June 14-15 Meeting Minutes.

Upcoming Splits 

• None of note

Other Potential Market Movers

• The ECB's Draghi speaking, Fed's Dudley speaking, Fed's Tarullo speaking, Germany Factory Orders, weekly MBA mortgage applications report and the (AV) investor day call could also impact trading today.

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