Stocks Slightly Lower into Final Hour on Russia-Ukraine/Mideast Tensions, European/Emerging Markets Debt Angst, Global Growth Worries, Healthcare/Restaurant Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 12.75 +5.72%

• Euro/Yen Carry Return Index 143.11 +.02%

• Emerging Markets Currency Volatility(VXY) 5.94 -.34%

• S&P 500 Implied Correlation 51.76 +3.41%

• ISE Sentiment Index 94.0 unch.

• Total Put/Call .88 -2.22%

• NYSE Arms .86 -12.36% 

Credit Investor Angst:

• North American Investment Grade CDS Index 59.56 +1.91%

• European Financial Sector CDS Index 71.0 +2.73%

• Western Europe Sovereign Debt CDS Index 35.46 -2.56%

• Asia Pacific Sovereign Debt CDS Index 72.77 +1.58%

• Emerging Market CDS Index 245.11 +2.94%

• China Blended Corporate Spread Index 306.13 -.48%

• 2-Year Swap Spread 20.0 +.75 basis point

• TED Spread 21.75 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -10.0 unch.

Economic Gauges:

• 3-Month T-Bill Yield .02% +1.0 basis point

• Yield Curve 198.0 -2.0 basis points

• China Import Iron Ore Spot $96.0/Metric Tonne -.62%

• Citi US Economic Surprise Index -18.0 unch.

• Citi Emerging Markets Economic Surprise Index -4.80 unch.

• 10-Year TIPS Spread 2.22 unch.

Overseas Futures:

• Nikkei Futures: Indicating +73 open in Japan

• DAX Futures: Indicating +22 open in Germany

Portfolio: 

• Slightly Higher: On gains in my tech/biotech sector longs and index hedges

• Disclosed Trades: None

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:   

• Malaysia Says Accord Reached to Hand Over Bodies of MH17. Malaysian Prime Minister Najib Razak said rebels in eastern Ukraine agreed to hand over bodies of crash victims and grant access to the site where a passenger jetliner was brought down last week near the Russian border. The agreement to transfer the remains of 282 people to the Netherlands was reached with Alexander Borodai, prime minister of the self-proclaimed Donetsk People’s Republic, Najib said today at his official residence in the administrative capital of Putrajaya. The two black boxes will be handed over to a Malaysian team in Donetsk tonight, he said.
• Four Die in Gaza Hospital Shelling as Death Toll Tops 500. Israeli tank shells slammed into a Gaza Strip hospital, killing a patient and three relatives and wounding 50 other people, Gaza health officials said, as U.S. Secretary of State John Kerry headed to the Middle East on a mission to halt two weeks of violence. The Israeli military, which has been fighting to quell rocket fire from Hamas-controlled Gaza and destroy tunnels dug for cross-border raids, said it was looking into the report.
• Junk Sales Soaring 92% as Fed Pledge Spurs Deluge: Mexico Credit. Mexico’s riskiest companies have almost doubled their bond sales abroad this year as surging demand for junk debt sends borrowing costs to a record low. “With rates staying this low, reaching down for yield is the new sport,” Claudio Robertson, the head of fixed-income trading at Investment Placement Group, said by e-mail. “Comparable bonds are very hard to get.”
• Godot Seen Showing Up Sooner Than Stronger Global Growth. IMF could well stand for “It’s Moderating Forecasts” -- so often has the International Monetary Fund downgraded the outlook for world economic growth. The Washington-based lender is poised this week to cut its estimate for global expansion in 2014 from 3.6 percent in April. That was a reduction from the 3.7 percent it anticipated in January and the 4.1 percent in January 2013.
• McDonald’s(MCD), Yum(YUM) Cease Using Chinese Meat Supplier During Probe. McDonald’s Corp. (MCD) and Yum! Brands Inc. (YUM) halted buying meat products from a Shanghai supplier while authorities investigate allegations that the company sold chicken and beef past their expiration date. 
• Alan Krueger Says Europe at Risk of Bank Runs. (video)
• Russia Stocks, Bonds Slide as Putin Faces More Sanctions. Russian stocks fell the most since the nation’s incursion in Crimea, bonds slid and default risk climbed as global indignation over the downing of a Malaysian Air jet spurred speculation new sanctions will be imposed. The Micex Index (INDEXCF) dropped 2.7 percent to 1,384.50 by the close in Moscow, the most since March 3. About $47 billion was erased from the gauge’s market value last week, the most in four months, according to data compiled by Bloomberg. OAO Gazprom, the bourse’s biggest weighted company, dropped 2.3 percent. The yield on ruble debt due 2027 rose 19 basis points to 9.23 percent, a more than two-month high. The cost of insuring against losses on Russia’s sovereign debt rose to the highest level since May.
• European Stocks Drop as Russia Faces Tougher Sanctions. European stocks fell, after posting a weekly gain, as the U.S. and Europe threatened tougher sanctions on Russia over its suspected role in the shooting down of flight MH17 in Ukrainian airspace. Commerzbank AG dropped 1.9 percent after a report that Germany’s financial-markets regulator found high operational risks at the country’s second-biggest lender. Deutsche Post AG lost 1.6 percent after JPMorgan Chase & Co. lowered its earnings and stock-price estimate for Europe’s largest postal company. Julius Baer Group Ltd. jumped the most since at least October 2009 after saying first-half profit rose 56 percent. The Stoxx Europe 600 Index fell 0.5 percent to 337.95 at the close in London.
• Fed’s Junk Loan Bubble-Busting Faces Trouble as Sales Jump. One of the Federal Reserve’s first post-crisis tests of its ability to quash excessive risk-taking using regulatory tools is so far looking like a failure. The Fed’s Board of Governors told Congress last week that it’s engaged in “strong supervisory follow-up” to guidance given to banks in 2013 to improve their underwriting standards for high-yield loans. Despite those efforts, Chair Janet Yellen said she’s still seeing a “marked deterioration” in quality. For the first time, more than half of the junk-rated loans arranged in the U.S. this year lack typical lender protections like limits on the amount of debt borrowers can amass relative to earnings. Yellen’s own easy-money policies are boosting demand for such high-yielding products at the same time that she tests her doctrine that financial bubbles should be constrained by supervisory actions, not a general rise in interest rates.
• Ex-Jefferies Bond Trader Anticipates Junk Swoon. Fiera Quantum, one of the winners of the meltdown in Canada’s asset-backed commercial paper market, is looking for its next trade idea in junk bonds. The Toronto-based hedge fund manager owned by Fiera Capital Corp. (FSZ) started the FQ Income Opportunities Fund in May to take short positions, or bearish bets, balancing bullish investments in U.S. and Canadian high-yield bonds. Fiera Capital oversees C$82 billion ($76 billion) of assets. “If there’s ever a time to get more cautious, it’s now,” said Angus Rogers, who left his job as head of high-yield trading at Jefferies Group LLC in New York in March and moved to Toronto to start the fund with Greg Foss, who started betting on restructured commercial paper four years ago. “Most of the credit rally has happened. Over the next two years, defaults are definitely going higher.” 
• Carmelo Anthony Forms Fund to Invest in Technology Startups. New York Knicks All-Star Carmelo Anthony formed a fund to invest in technology startups.

Wall Street Journal:

• Israel Says Seven More Officers, Troops Killed in Gaza Ground Operation. Palestinian Death Toll in Two-Week-Old Offensive Reaches 550, Health Ministry Says.
• Why Putin Is Willing to Take Big Risks in Ukraine. A Look at Differing Fates of Poland, Ukraine Gives Clues.
• Rick Perry to Deploy National Guard at U.S.-Mexico Border. Governor Poised to Activate 1,000 Troops in South Texas.

MarketWatch.com:

• Yellen encourages ‘fully-fledged equity bubble,’ says Jeremy Grantham. Jeremy Grantham blasts Janet Yellen and her predecessors at the Federal Reserve in his latest quarterly letter. The Fed chairwoman is “sticking faithfully” to the “clearly wrong” policies of Alan Greenspan and Ben Bernanke, writes Grantham, who is the founder of Boston-based money manager GMO and has a reputation for sniffing out market bubbles early. He says: 
• A junk-bond warning: Investors exit as yields rise. Investors pull most money from high-yield bond funds since last summer. 
• China’s meaningless GDP figures. Opinion: Bloated Chinese economy needs austerity diet.

CNBC: 

• Obama 'timid' in response to plane crash, GOP says. (video) Republicans this weekend roasted President Barack Obama over what they called his "timid" and ineffectual reaction to the Malaysia Airlines flight that was shot down over eastern Ukraine last week, killing all 298 aboard.
• Pershing Square's Ackman: Why I think Herbalife(HLF) is going to collapse.
• China: Don’t rush to blame Russia for MH17. (video) While the West ramps up pressure on Russia and its President Vladimir Putin over the downing of a Malaysia Airlines jetliner over eastern Ukraine, Moscow is finding some support from the East.
• New college grads hit by slow wage growth: Fed study.

ZeroHedge: 

• Russian Sanctions Leading To Economic Contraction... In Germany?
• China Sends Surveillance Ship To Hawaii In Retaliation To US Navy Build Up In Its Back Yard.
• As Bearish Russell 2000 Bets Hit 3 Year High, Here Is How Hedge Funds Are Doing In 2014. (graph)
• They Call Them Junk Bonds For A Reason...(graph)
• Putin Makes First Official Statement; Russia To Cut IBM, Microsoft Dependence: Complete Ukraine Situation Summary.

ValueWalk: 

• What Family Offices Are After When Investing With Hedge Funds.

Business Insider: 

• 15 Astounding Technologies DARPA Is Creating Right Now.
• Everything We Know About The Huge Spy Base In Cuba That Russia Is Reopening.

Telegraph:

• Global industry stalls as Europe's slowdown threatens recovery. Europe's recovery "runs out of steam" as broker Macquarie warns that China alone can't support global industrial output. 
• Have central banks been breaking the law? Quantitative easing has had a reverse Robin Hood-type effect by robbing from the poor and giving to the rich.

Bear Radar

Style Underperformer:

• Small-Cap Value -1.02%

Sector Underperformers:

• 1) Coal -2.1% 2) Restaurants -1.31% 3) Hospitals -1.13%

Stocks Falling on Unusual Volume:

• SIX, DVA, WERN, HAS, ADMS, XRS, YUM, ABBV, SHPG, BBT, RKT, MAT, ITRI, CE, CSCD, BGS, NTI, CTRL, TCS, LO, MAN, CHE, PRSC, BTU and MTRN

Stocks With Unusual Put Option Activity:

• 1) UTX 2) LEN 3) GE 4) TXN 5) JNK
  

Stocks With Most Negative News Mentions:

• 1) DVA 2) AIG 3) RKT 4) ITRI 5) MNST
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Growth -.61%

Sector Outperformers:

• 1) Semis -.08% 2) Oil Service -.11% 3) Alt Energy -.21%
  

Stocks Rising on Unusual Volume:

• KNDI, STLD, ANAC and CBSO

Stocks With Unusual Call Option Activity:

• 1) OREX 2) FL 3) EMC 4) PLUG 5) RFMD
  

Stocks With Most Positive News Mentions:

• 1) STLD 2) HAL 3) EMC 4) HURC 5) AGN
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Monday Watch

Weekend Headlines 
Bloomberg:

• Malaysia Air Crash Killed 80 Children, Dutch Prime Minister Says. As many as 80 children died in the Malaysian Air jet crash in eastern Ukraine, according to Dutch Prime Minister Mark Rutte, who called the fatalities “too awful for words.” Twenty-three of those children were younger than 12 years old and three were infants, Rutte said at a press conference in The Hague yesterday. The Netherlands lost 193 citizens in the crash, the largest group by nationality among the 298 victims. Identification of bodies has been held up as investigators struggle to access the Ukrainian crash site, which is occupied by pro-Russia insurgents who have been blamed for shooting down the plane.

• EU Struggles to Turn Outrage Into Action After Plane Shootdown. European leaders vented their outrage at the shooting down of a passenger jet over territory held by Ukraine’s rebels and at Russian President Vladimir Putin for frustrating the investigation. Translating that anger into action is another matter. The killing of all 298 passengers and crew of Malaysia Air MH17, desecrated bodies strewn about grain fields with rebels hampering the work of international rescue workers, and denunciations of Putin for sowing Ukraine’s underlying chaos don’t alter the economic links and energy dependence that make the European Union more reluctant than the U.S. to punish Russia.

• Russian Billionaires ‘in Horror’ as Putin Risks Isolation. Russia’s richest businessmen are increasingly frantic that President Vladimir Putin’s policies in Ukraine will lead to crippling sanctions and are too scared of reprisal to say so publicly, billionaires and analysts said. “The economic and business elite is just in horror,” said Igor Bunin, who heads the Center for Political Technology in Moscow. Nobody will speak out because of the implicit threat of retribution, Bunin said by phone yesterday. “Any sign of rebellion and they’ll be brought to their knees.”  

• Gaza Sees Deadliest Day as Israel Expands Ground Attack. Israel’s ground offensive in Gaza entered its bloodiest phase yet as militants killed 13 soldiers and fighting in one neighborhood claimed the lives of at least sixty Palestinians. Gunmen ambushed the Israeli soldiers in a southern part of the coastal strip, shot them and took their weapons, Hamas’ military wing said in text messages sent to reporters. At least 60 Palestinians, including women and children, were killed In the Shuja’iya area of Gaza City today, where residents reported heavy artillery and tank fire.

• Capital Squeeze Forces China Brokers to IPOs Amid Slump. Chinese brokerages, undeterred by the worst performance among the world’s major stock markets, are seeking to raise more than $6.2 billion from initial public offerings as capital constraints squeeze their operations. Guotai Junan Securities Co., China’s third-largest brokerage by revenue, is among six securities firms awaiting approval to sell shares for the first time, according to filings posted on the regulator’s website. They’ll be competing with about 600 companies seeking capital in a market where equities are trading near record-low valuations.

• China's First Mortgage Debt Since Crisis Shows Li Concern. China will revive mortgage-backed debt sales this week after a six-year hiatus, as the government extends help to homebuyers in a flagging property market. Postal Savings Bank of China Co., which has 39,000 branches in the country, plans to sell 6.8 billion yuan ($1.1 billion) of the notes backed by residential mortgages tomorrow, according to a July 15 statement on the website of Chinabond. The last such security in the nation was sold by China Construction Bank Co. in 2007, Bloomberg-compiled data show. Premier Li Keqiang is seeking to avert a collapse of the real-estate market after data last week showed new home prices dropped in a record number of cities in the world’s second-largest economy. The central bank in May called on the nation’s biggest lenders to accelerate the granting of mortgages to first-home buyers, and cities including Nanning, Hohhot and Jinan eased property restrictions.

• Asian Stocks Advance With Rupiah; Corn at Four-Year Low. Asian stocks rose, joining a global rebound after the downing of a passenger jet in Ukraine and Israel’s invasion of Gaza roiled markets. Emerging-market currencies climbed while corn fell to the lowest since 2010. The MSCI Asia Pacific excluding Japan Index advanced 0.3 percent as of 10:50 a.m. in Hong Kong, with three stocks rising for every two that fell.

• Speculators Cutting Bullish Oil Bets. Net longs for WTI slipped by 45,107 to 259,259 futures and options, the lowest level since the seven days ended Jan. 21. Long positions fell 10 percent 304,462, the least since January. Shorts climbed 38 percent, to 45,203, the highest level since January.

• Fox Said to Mull Using Sky Sale to Boost Time Warner Bid. Rupert Murdoch’s 21st Century Fox Inc. (FOXA) is considering using proceeds from the sale of its Italian and German pay-TV assets to boost its offer for Time Warner Inc. (TWX), according to two people familiar with the matter.

Wall Street Journal:

• West Raises Pressure on Russia in Downing of Malaysia Airlines Flight 17. U.S. Charges Moscow With Supplying Rocket, Hiding Evidence.

• Gaza Battle Deadliest in Conflict. Fighting Over Tunnels Kills 13 Israelis, Dozens of Palestinians.

• Barclays Dark Pool Drew Early Alarms. Trading firms and employees raised concerns about high-speed traders at Barclays PLC's dark pool months before the New York attorney general alleged in June that the firm lied to clients about the extent of predatory trading activity on the electronic trading venue, according to people familiar with the firms. Some big trading outfits noticed their orders weren't getting the best treatment on the dark pool, said people familiar with... 

• Boko Haram Captures Nigerian Town. More Than 100 Residents of Damboa Believed to Have Been Killed.

• Four Years of Dodd-Frank Damage. The financial law has restricted credit and let regulators create even more too-big-to-fail companies.

Zero Hedge:

• 5 Things To Ponder: Yellen Talk.

• Chinese Commodity Contagion Leads To First Letter Of Credit Settlement Failure. (graph)

• This Is Not Your Grandma's Business Cycle. (graph)

• Russian Sanctions Retaliation Escalates: Dumps Intel/AMD And Now Foreign Cars.

• On Janet "Pump-And-Regulate, Baby" Yellen's Acting Skills.

• Where The Real Inflation Is. (graph)

• World GDP Hopes Are Collapsing. (graph)

• Goldman(GS) Slams Abenomics; Questions "Validity Of BoJ's Target".

• Listed At "Only" HK$1.94 Million, This Is What Hong Kong's Cheapest "Home" Looks Like.

• BRICS Plan To Become "Political Alliance" To Reform The International Financial System.

• First Detroit, Now Flint Warns Bankruptcy "Train Is Headed For The Cliff".

• 14 Reasons The White House's "The World Is More Stable & Less Violent Than Ever" Meme Is A Lie.

• What Recovery? US Macro Suffers Longest Streak Of Weakness Since Lehman. (graph)

• What Disposable Income Looks Like: With And Without Government Handouts. (graph)

• IMF's Christine Lagarde Joins The Chorus, Warns Market Is "Too Upbeat".

• The 2 Charts That Have BofA Worried About A "Greater Correction" In Stocks.

• A "Tone-Deaf" Obama Mocked By The NYT For Vacationing While The World Burns.

• Market Madness: Geopolitical Chaos Sparks Biggest "Dash-For-Trash" In 17 Months.

• Three Charts Of The Week: Money Printing Is Not Bringing Prosperity To Main Street. (graph)

• White House 'Quietly' Exempts 4.5 Million People In 5 "Territories" From Obamacare.

Business Insider:

• PENTAGON: Russia Likely Helped Whoever Shot Down The Plane.

• In Turkey, Anti-Semitism Is Spiking And Rapprochement With Israel Is Deader Than Its Ever Been.

• The More People Are Exposed To Socialism, The Worse They Behave.

• There's A Mountain Of Evidence Linking Russia To The Downing Of The Malaysia Airliner.

• Jury Says RJ Reynolds Has To Pay $23 Billion To Widow Of Longtime Smoker.

• LACY HUNT: Debt Is Too High And Savings Is Too Low And It's Showing Up In GDP.

• Turkish Prime Minister Accuses Israel Of Having 'Surpassed Hitler In Barbarism'.

• Anti-Israel Riots Break Out In Paris.

• Dubai Stocks Crash. (graph)

• Obama Is Now Boxed In By The Iranian Nuclear Negotiations.

• DEUTSCHE BANK: Here's The Worst-Case Scenario For The Russia-Ukraine Conflict.

• The Fed's Tapering Has Now Evolved Into Tightening.

• The Rebels Who Shot Down MH17 Are Tightly Controlled By Russia's Security Services.

• KERRY: 'Drunken' Separatists Are Piling Bodies At Ukraine Crash Site.

• Here Are The Countries That Would Be Most Affected By A Russia Gas Disruption.

NY Times:

• In a Subprime Bubble for Used Cars, Borrowers Pay Sky-High Rates. 

Reuters:

• Angry Australia PM says Ukraine crash probe resembles 'garden clean-up'. Australia's prime minister voiced deep concern on Monday that Russian-backed rebels remained in control of the crash site of a Malaysian airliner shot down over Ukraine, saying the site looked more like a "garden clean-up" than a forensic investigation. 

• UK fraud office to launch currency trading probe - Sunday Times. Britain's Serious Fraud Office is poised to begin its first criminal investigation of alleged rigging by traders in the foreign exchange market, the Sunday Times reported.

Financial Times:

• Hedge funds braced for some of their worst returns since 2008. Nearly two-thirds of hedge fund managers are anticipating full year returns of 6 per cent or less, according to Preqin, the data provider, which surveyed 150 hedge funds collectively managing $380bn of assets. Of these, 44 per cent expect a full-year return of 5 per cent or less. 

• Emerging market debt issuance hits record high. Emerging and frontier market countries have borrowed a record amount of money in capital markets in the first half of this year, even as central bankers warn that “debt market euphoria” could be storing up trouble for the future. International sovereign bond sales by emerging markets reached $69.47bn in the first six months of the year, a jump of 54 per cent on the same period in 2013.

National Post:

• Robert Fulford: As the world burns, America shrugs. The slow American withdrawal from world affairs has been apparent for a long time, but has never been so glaringly evident as this week in the Middle East. Hamas is at war with Israel, the brutal struggle in Syria frustrates the world, the terrorists of ISIS are making serious progress in Iraq — and now another attempt to deprive Iran of nuclear weapons has, so far, been thwarted. The United States has a position of sorts in each of these arenas, but it’s not powerful in any of them. American influence has faded.

Shanghai Securities News:

• China Growth May Stabilize at 6% as Investment Cools. China's economic growth may stabilize at about 6% in the future after investment growth falls to a normal level, citing Liu Shijin, vice head of Development Research Center of the State Council. High growth of property investment may fall in the next 1-2 years, Liu said. China home demand may peak this year at 12m-13m units, Liu said.

Al-Arabiya:

• ISIS burns 1,800-year-old church in Mosul. Militants from the radical jihadist group the Islamic State of Iraq and Syria have set fire to a 1,800-year-old church in Iraq’s second largest city of Mosul, a photo released Saturday shows. The burning of the church is the latest in a series of destruction of Christian property in Mosul, which was taken by the Islamist rebels last month, along with other swathes of Iraqi territory.

Night Trading

• Asian indices are unch. to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 105.50 +3.5 basis points.

• Asia Pacific Sovereign CDS Index 71.50 -1.0 basis point.

• FTSE-100 futures +.21%.

• S&P 500 futures -.04%.

• NASDAQ 100 futures -.04%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (BBT)/.75

• (STI)/.77

• (HAS)/.36

• (HAL)/.91

• (NVR)/14.96

• (WERN)/.35

• (GPC)/1.26

• (MAN)/1.33

• (AGN)/1.44

• (CMG)/3.10

• (NFLX)/1.15

• (TXN)/.59

• (STLD)/.30

• (CDNS)/.20

• (BXS)/.33

• (BRO)/.41

Economic Releases
8:30 am EST

• Chicago Fed Nat Activity Index for June is estimated to fall to .18 versus .21 in May.

Upcoming Splits

• None of note

Other Potential Market Movers

• The German PPI and (CPB) analyst meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the week.