Wednesday Watch

Evening Headlines

Bloomberg:

• U.K.'s May Warns Further Terrorist Attacks Could Be Imminent. The British military will guard music and sports events in an unprecedented security operation as police hunt for potential accomplices of the suicide bomber who killed 22 people at a Manchester pop concert. After meeting with her top security officials, Prime Minister Theresa May announced intelligence analysts had raised the U.K. terrorism threat level from “severe” to “critical” -- the highest level -- for the first time in a decade. “This means that their assessment is not only that an attack remains highly likely but that a further attack may be imminent,” the premier said in a statement to media inside her official residence in London. Police asked for back up from the army, she said.

• China Downgraded to A1 by Moody's on Worsening Debt Outlook. Moody’s Investors Service cut its rating on China’s debt, saying that the outlook for the country’s financial strength will worsen as debt rises and economic growth slows. Moody’s reduced the rating to A1 from Aa3 and changed the outlook to stable from negative, the company said in a statement on Wednesday. The offshore yuan extended losses after Moody’s downgrade, weakening 0.12 percent to 6.8889 per dollar as of 8:24 a.m. in Shanghai. President Xi Jinping and other top leaders are seeking to rein in credit risks in the financial system, while ensuring there’s enough lending to keep the economy humming above their target for economic growth of at least 6.5 percent this year. Total outstanding credit climbed to about 260 percent of GDP by the end of 2016, up from 160 percent in 2008, according to Bloomberg Intelligence.

• China's Roaring Old Economy Spurs Sales Boom For Diggers, Steel. China’s economy may be slowing but construction is still booming. Sales of diggers at a five year high. The price of rebar, a steel product used to reinforce concrete, back at 2012 levels. Crude steel output surging to a record. China’s economy may be slowing down but the nation’s old economy is still booming.

• Asia Stocks Gain, Yen Erases Loss on China Rating. Asian stocks climbed as data lent support to the argument that global economic growth remains intact, while the yen erased losses after Moody’s cut its rating on China. Equities in Tokyo and Seoul climbed after the S&P 500 Index’s fourth straight gain took it back toward 2,400. The yen erased losses and the Aussie fell as Moody’s cut the rating it gives to China’s debt, saying that the outlook for the country’s financial strength will worsen. British assets remain in focus after Tuesday’s suicide bombing, as Prime Minister Theresa May warned that further attacks could be imminent. 

• HSBC Discovers Consumers Trust Robots for Surgery Over Savings. Andy Maguire faces a challenge: tasked with upgrading HSBC Holdings Plc’s digital-banking systems, he has discovered that customers are twice as likely to trust a robot for heart surgery than for picking a savings account.

• Three Charts Showing Bullish Sentiment May Be Fading. (video)

Wall Street Journal:

• Bipartisan Pushback Greets Trump’s Proposed Budget. White House’s $4.1 trillion spending blueprint relies on economic growth of 3% by 2021.

• S&P Adds to Brazil’s Woes, Warning of a Possible Credit Downgrade. The credit rating firm says political chaos created by fresh corruption allegations could delay fiscal and economic reforms.

Fox News: 

• Manchester attack: UK terror threat level raised to 'critical,' another attack may be imminent. (video)

CNBC:

• Nobel winner Robert Shiller: Stay in the market because it ‘could go up 50 percent from here’.

• The Fed is about to reveal how it could wind down its biggest policy experiment ever. (video)

• Silicon Valley VCs are tripping over themselves to hire biotech experts.

• Fed's Harker: Rate hike in June 'a distinct possibility'.

Zero Hedge: 

• UK Deploys Army As Terror Threat Raised To Critical, May Warns "More Attacks Imminent".

• Yuan Tumbles As Moody's Downgrades China To A1, Warns On Worsening Debt Outlook. (graph)

• Congressional Aides Fear Suspects In IT Breach Are Blackmailing Members With Their Own Data.

• Illinois Democrats In Senate Pass 33% Hike Of Personal And Corporate Income Taxes.

• BBC Anchor Admits "Europe Has To Get Used To Bombings". (video)

• "This Is Probably Just The Beginning" - Chinese Banks Are In Big Trouble.

•  WTI/RBOB Pop-n-Drop After Mixed Inventory Data. (graph)

•  Stocks Near Record Highs As US Economic Data Crashes To 15-Month Lows. (graph)

Business Insider:

• What a 'nail bomb' is and why they are terrifying improvised weapons.

Telegraph:

• Greek creditors seek to thrash out new deal as economists warn fourth bail-out looms.

Night Trading 

• Asian equity indices are -.25% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 90.5 +.75 basis point. 

• Asia Pacific Sovereign CDS Index 20.0 unch.

• Bloomberg Emerging Markets Currency Index 72.79 -.08%.

• S&P 500 futures -.07%.

• NASDAQ 100 futures -.06%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AAP)/2.14

• (CHS)/.29

• (DY)/1.19

• (EV)/.59

• (LOW)/1.06

• (TIF)/.70

• (CPRT)/.36

• (GES)/-.32

• (HPQ)/.39

• (NTAP)/.82

• (PVH)/1.60

• (SCVL)/.48

• (WSM)/.49

Economic Releases 
9:00 am 

• The FHFA House Price Index MoM for March is estimated to rise +.5% versus a +.8% gain in February.

10:00 am EST

• Existing Home Sales for April are estimated to fall to 5.65M versus 5.71M in March.
  

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,250,000 barrels versus a -1,753,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -594,710 barrels versus a -413,000 barrel decline the prior week. Distillate inventories are estimated to fall by -369,290 barrels versus a -1,944,000 barrel decline the prior week.
  

2:00 pm EST

• FOMC Meeting Minutes.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Kashkari speaking, Eurozone Manufacturing PMI report, $35B 5Y T-Note auction, weekly MBA Mortgage Applications report and the (DV) investor day could also impact trading today.

BOTTOM LINE:  Asian indices are mostly higher, boosted by technology and financial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed.  The Portfolio is 75% net long heading into the day.