Wednesday Watch

Night Trading

• Asian equity indices are -1.25% to -.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 125.25 -1.25 basis points.

• Asia Pacific Sovereign CDS Index 87.25 -.5 basis point.

• FTSE-100 futures -.18%.

• S&P 500 futures -.08%.

• NASDAQ 100 futures  -.07%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (TAP)/.35

• (AGN)/1.13

• (STRA)/1.30

• (BID)/-.17

• (HTZ)/.09

• (HUM)/1.96

• (AOL)/.45

• (MDLZ)/.35

• (DUK)/1.12

• (CHK)/.48

• (PRU)/2.25

• (CF)/4.52

• (TSLA)/.07

• (CAR)/.08

• (DYN)/-.15

• (SCTY)/-.74

• (Z)/-.08

Economic Releases
8:30 am EST

• Preliminary 1Q Non-Farm Productivity is estimated to fall -1.2% versus a +1.8% gain in 4Q.

• Preliminary 1Q Unit Labor Costs are estimated to rise +2.8% versus a -.1% decline in 4Q. 

10:30 am EST

• Bloomberg Consensus estimates call for a weekly crude oil inventory gain of +1,150,000 barrels versus a +1,698,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -40,000 barrels versus a +1,564,000 barrel gain the prior week. Distillate supplies are estimated to rise by +880,000 barrels versus a +1,936,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise by +.37% versus unch. the prior week.

3:00 pm EST

• Consumer Credit for March is estimated at $15.5B versus $16.489B in February.

Upcoming Splits

• (TREX) 2-for-1

Other Potential Market Movers

• The Fed's Yellen speaking, German Factory Orders, Australia Unemployment Report, $24B 10Y T-Note auction, weekly MBA mortgage applications report, Wells Fargo Industrial/Construction Conference, Deutsche Bank Health Care Conference, BofA Merrill Transport Conference, (IRBT) analyst day, (WOR) investor day and the (SNDK) analyst day could impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by technology 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.

Stocks Falling into Final Hour on Russia/Ukraine Tensions, Yen Strength, Technical Selling, Homebuilding/Financial Sector Weakenss

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 13.78 +3.69%

• Euro/Yen Carry Return Index 147.70 -.10%

• Emerging Markets Currency Volatility(VXY) 7.57 -2.20%

• S&P 500 Implied Correlation 58.05 +1.06%

• ISE Sentiment Index 91.0 -19.47%

• Total Put/Call .89 +3.49% 

• NYSE Arms 1.17 -9.18% 

Credit Investor Angst:

• North American Investment Grade CDS Index 65.55 +1.67%

• European Financial Sector CDS Index 78.71 +.69%

• Western Europe Sovereign Debt CDS Index 33.60 -1.57%
• Asia Pacific Sovereign Debt CDS Index 87.37 -.58%

• Emerging Market CDS Index 281.21 -.16%

• China Blended Corporate Spread Index 352.88 +.45%
• 2-Year Swap Spread 13.75 -.25 basis point

• TED Spread 20.5 -.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -2.75 +1.0 basis point

Economic Gauges:

• 3-Month T-Bill Yield .02% unch.

• Yield Curve 217.0 -2.0 basis points

• China Import Iron Ore Spot $106.0/Metric Tonne +.09%

• Citi US Economic Surprise Index -12.0 +.6 point

• Citi Emerging Markets Economic Surprise Index -29.10 +.1 point

• 10-Year TIPS Spread 2.16 -2.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating -230 open in Japan

• DAX Futures: Indicating -16 open in Germany

Portfolio: 

• Slightly Lower: On losses in my biotech/tech/retail sector longs and emerging markets shorts

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 25% Net Long

Today's Headlines

Bloomberg:

• Ukraine Names New Ground Forces Head as Eastern Death Toll Rises. Ukraine should postpone a May 25 presidential election until it changes its constitution, Russia said, as the government in Kiev continued a deadly military push to stamp out separatists in the country’s east and south. Ukraine’s acting President Oleksandr Turchynov named a new commander of ground forces following fighting that killed four government servicemen and more than 30 rebels. In Vienna, Russian Foreign Minister Sergei Lavrov and European Union officials discussed a new meeting following the unraveling of a deal aimed at solving the crisis agreed to in Geneva last month. In their worst standoff with Russia since the Cold War, the U.S. and EU have slapped sanctions on people and companies close to President Vladimir Putin and say he’s supporting separatism in Ukraine ahead of the presidential ballot. French President Francois Hollande warned Putin that Europe would continue to pressure him to allow the vote happen, because thwarting it would produce “chaos and a risk of war.”  

• China Property Slump Adds Danger to Local Finances. China’s weakening property market poses an increasing danger to local governments, threatening to strain their finances and intensify an economic slowdown. Land sales in 20 major cities fell 5 percent in March from a year earlier, the biggest drop in at least a year, according to China Real Estate Information Corp. data compiled by Bloomberg. The value of land sales in third-tier cities declined 27 percent last month, according to SouFun Holdings Ltd., the nation’s biggest real-estate website owner. Failure to find other revenue sources increases the risk of defaults and financial turmoil that curb economic expansion already projected this year at the slowest pace since 1990. 

• China’s PBOC to Boost Property, LGFV Credit Supervision. China will strengthen monitoring of credit extended to local government financing vehicles, real estate developers and industries facing overcapacity, the nation’s central bank said. The People’s Bank of China is taking steps to minimize potential contagion to the entire financial system from risks in those areas, according to a quarterly monetary-policy report posted on its website yesterday. China will also strictly control lending to high-emission industries and those with overcapacity,the PBOC said in yesterday’s report.

• OECD Trims Global Growth Forecast as Emerging Markets Cool. The Organization for Economic Cooperation and Development cut its global growth forecast as expansions in China and other emerging markets slow. The world economy will expand 3.4 percent this year instead of the 3.6 percent predicted in November, the Paris-based organization said in a semi-annual report today. China will grow 7.4 percent, down from a previous projection of 8.2 percent.

• European Stocks Drop for Third Day as Barclays Retreats. European stocks fell for a third day, the longest streak since March, with Barclays Plc (BARC) helping push shares lower, while tension in Ukraine escalated. Barclays fell the most since July after reporting that pretax profit dropped. Balfour Beatty Plc sank 20 percent after its chief executive officer quit and the company cut its earnings forecast. Deutsche Lufthansa AG rose 3 percent after saying its first-quarter loss narrowed. PostNL NV rallied the most since October. The Stoxx Europe 600 Index lost 0.3 percent to 336.04 at the close of trading, after earlier gaining as much as 0.3 percent.

• Junk Bonds Pricier Than Stocks Mean High-Yield Getting Expensive. Get ready to pay more to earn less relative to stocks if you’re looking to jump into the high-yield debt market. Junk-bond investors are accepting yields that are 0.74 percentage point lower than the earnings yield on the Standard & Poor’s 500 index, a measure of profit as a percentage of equity prices. Historically, debt rated below investment grade has yielded an average 4.2 percentage points more than stocks since March 1995. That relationship has been turned on its head. Does this mean stocks are cheap or bonds too expensive? Junk debt may be the loser here.

• Addicted to Your Phone? Watch This Video. (video)

Wall Street Journal:

• Deadly Ukraine Fire Likely Sparked by Rebels, Government Says. Rebels Accidentally Dropped Molotov Cocktails on Roof, According to Preliminary Investigation. A horrific fire that killed dozens in a hulking Odessa building where pro-Russian protesters had taken cover was likely sparked by rebels on the roof who accidentally dropped Molotov cocktails, according to a preliminary investigation by the government. 

• Crisis in Ukraine. Streaming Coverage:

• China’s Property Bubble Has Already Popped, Report Says. China’s great real-estate bust has begun, says Nomura. A combination of a huge oversupply of housing and a shortage of developer financing is producing a housing market downturn that could drive China’s GDP to less than 6% this year.

MarketWatch:

• Einhorn on quizzing Bernanke: Answers weren’t any better than I thought they would be. (video) On Bloomberg Television, he regaled what went down in a recent dinner he had with the former Federal Reserve chairman — and the hedge-fund manager didn’t come away impressed. “The answers weren’t any better than I thought they would be,” Einhorn said. First, he was unsettled by Bernanke’s conviction that there would not be hyperinflation as a result of quantitative easing.

CNBC: 

• Twitter(TWTR) shares tumble 14% as lock-up period expires.

ZeroHedge: 

• Russia Accuses Kiev Of Committing Genocide Of Russian, Ukrainian People.

• Tumbling Tuesday: Stocks Slide As "Fundamental" Pattern Buying Fails To Materialize. (graph)

• Consumer Spending In April Identical To February And March, Gallup Finds. (graph)

• Q1 GDP Cut To -0.6% At Goldman, -0.8% At JPMorgan(JPM).

Business Insider:

• The 10 Highest Paid Hedge Fund Managers Made $21.5 Billion Last Year.

• Monica Lewinsky Is Breaking Her Silence About Her Affair With Bill Clinton.

• Students Banned From Thanking God In Graduation Speeches.

• The Distorted Stock Market In One Chart.

• Ukraine Is Sliding Further Toward War.

• Dubai Could Be Headed For Another Property Bubble.

Washington Post:

• U.S. officials say Syria is using remaining chemical weapons stockpile as leverage. The months-long effort to dismantle Syria’s chemical weapons program has ground to a halt because Syria is holding on to 27 tons of sarin precursor chemicals as leverage in a dispute with the international community over the future of facilities used to store the deadly agents, according to U.S. officials.

CBS:

• Nigeria schoolgirl explains how Boko Haram terrorists walked into her school, kidnapped hundreds.

BBC:

• More Nigerian girls abducted by suspected Boko Haram militants.

@MiddleEast_BRK:

• #BREAKING Russian terrorist confirms arrival of 300 #Chechen fighters and 450 from #Crimea to #Donetsk and #Luhansk!

Bear Radar

Style Underperformer:

• Small-Cap Growth -1.20%

Sector Underperformers:

• 1) Social Media -3.41% 2) Homebuilders -2.51% 3) Biotech -1.55%

Stocks Falling on Unusual Volume:

• KODK, ININ, TWTR, AEIS, FN, ATHN, RWT, DISCK, HGR, TREX, SUSS, FLDM, ECOM, SALE, SGY, EXLP, SZYM, RLGY, DISCA, YY, MED, FMS, VECO, AIG, TGT, DISCA, RLGY, ROSE, AIG, AXLL, VECO, TW, MNTA, SGY and ECOM

Stocks With Unusual Put Option Activity:

• 1) APA 2) AIG 3) TGT 4) EWW 5) TOL
  

Stocks With Most Negative News Mentions:

• 1) TWTR 2) GM 3) MOS 4) BK 5) KBR
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Mid-Cap Value -.34%

Sector Outperformers:

• 1) Energy +.49% 2) HMOs +.41% 3) Steel +.25%
  

Stocks Rising on Unusual Volume:

• TNET, DATA, SFY, TXRH, EXH, AER, BBG, WCG, IDTI, EOG, KNDI, TNET, DATA, EXH, TXRH, WCG, PES, HSH and CREE

Stocks With Unusual Call Option Activity:

• 1) ATHN 2) OLED 3) ODP 4) HTZ 5) EA

Stocks With Most Positive News Mentions:

• 1) AAPL 2) EOG 3) DAL 4) ODP 5) DATA
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Tuesday Watch

Evening Headlines 
Bloomberg: 

• Ukraine Unrest Intensifies as Toll Rises From Offensive. Surging casualties are threatening to undermine Ukraine’s campaign to regain ground from pro-Russian militants in its easternmost cities, where insurgents killed four government troops and downed a military helicopter. Government forces yesterday killed 20 rebels and dozens of civilians were wounded in fighting in the city of Slovyansk, Interfax reported, citing an unidentified representative of the separatists. Ukraine also sent specialized security units to the southern city of Odessa while neighboring Moldova put its borders on alert. “The slow pace of the anti-terrorist operation is due to the fact that we are trying to ensure the safety of citizens and prevent civilian casualties,” acting President Oleksandr Turchynov told German Chancellor Angela Merkel during a telephone conversation yesterday, according to a statement posted on the Ukrainian parliament’s website.
• Ruble Plunge Hitting Russians Speeds Slide to Recession. As Russia’s central bank struggles to shield the ruble from the standoff over Ukraine, Vasily Isaev it may already be too little, too late to save his plans for a vacation in Italy. “If you get your salary in rubles, a trip to the beach in Europe is going to be difficult this year,” said the 37-year-old sales manager, looking up from his English homework in the park near Tverskoy Boulevard in central Moscow. “We’re going to Bulgaria instead of Italy this year and we’re renting an apartment a little further away from the sea.” Consumers like Isaev, spending more than a few months ago to fill a shopping cart with everyday items, may be squeezed most by the currency’s decline as inflation quickens. Wobbling consumption threatens to knock out another pillar of the economy reeling from sanctions that stoked capital flight. 
• Nickel Gains With Wheat on Ukraine Violence; Aussie Pares. Nickel gained and wheat extended its advance as the conflict in Ukraine’s east intensified. Australian stocks rose while the country’s currency pared gains as the central bank held rates. Nickel for three-month delivery on the London Metal Exchange jumped 1.3 percent by 12:51 p.m. in Hong Kong, while gold traded near the highest since April 14. Wheat climbed as much as 0.7 percent after reaching a 13-month high last session. Australia’s S&P/ASX 200 Index (AS51) advanced 0.3 percent and the so-called Aussie was little changed versus the dollar. Standard & Poor’s 500 Index futures added 0.2 percent. Markets in Japan, South Korea and Hong Kong are closed.
• Credit Suisse Put Business Probed by U.S. Into Separate Unit. Credit Suisse Group AG (CSGN), facing the prospect of U.S. criminal charges for aiding Americans’ tax evasion, created a separate legal entity late last year to house the businesses involved.

Wall Street Journal:

• Ukraine Crisis: Heavy Fighting in Pro-Russian Separatist Stronghold. Deaths Reported on Both Sides From Sustained Fighting in Slovyansk. Heavy fighting erupted Monday around a pro-Russian separatist stronghold in eastern Ukraine, with dozens of casualties reported as the standoff between insurgents and the government entered a more dangerous phase. The fighting was the most sustained since acting President Oleksandr Turchynov first sent troops to eastern Ukraine about three weeks ago, in what he called an antiterrorist operation. Accounts from both sides suggested the military was pushing further into the volatile, heavily defended city of Slovyansk, following days of intermittent clashes focused there.
• Crisis in Ukraine: Streaming Coverage.

Fox News: 

• Discrepancies between Benghazi emails released to Congress, watchdog group. Documents reviewed by Fox News show there are differences between Benghazi emails released through the federal courts to the conservative watchdog group Judicial Watch and emails released to the House oversight committee as part of its investigation into the attacks.

CNBC:

• David Einhorn tells investors to short Athenahealth(ATHN). Hedge fund manager David Einhorn unveiled his latest short investment thesis on Monday evening: To bet on the fall of Athenahealth, which he called a "bubble" stock.
• AIG(AIG) revenue misses expectations, shares drop. American International Group on Monday delivered quarterly revenue that missed analysts' expectations as the number of net premiums earned from its property casualty unit fell during the quarter. After the earnings announcement, the company's shares fell more than 2 percent in after-hours trading. 
• The bond market is giving the stock market angst. The yield on the 10-year note has become a barometer for stocks as it hovers near the bottom of this year's range. At the same time, the yield curve has been flattening, meaning yields on shorter-duration securities are getting closer to longer-term rates; this is usually a bad sign for stocks.

Zero Hedge:

• The Cruelest Month: April Was A Bloodbath For Most Hedge Funds. (table)
• The Latest Flight MH-370 Shocker: A Two-Ton Cargo Mystery.
• US F-15 Intercepts Russian Strategic Bomber Near Guam.
• The Complete Ira Sohn Conference Post-Mortem.
• Martin Armstrong Exposes The Saddest Side Of The Ukrainian Revolution.
• The Eight Characteristics Of Stock Market Manias.

ValueWalk: 

• Paul Tudor Jones Presentation – Ira Sohn 2014 Investment Conference.

Business Insider: 

• The US Will Unleash The IRS On Russian Banks In July.

Telegraph:

• France to break eurozone spending cuts promise, shows EU forecast. President Hollande's failure to cut spending puts France on collision course with the eurozone.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.25% to +.50% on average.

• Asia Ex-Japan Investment Grade CDS Index 126.50 -1.0 basis point.

• Asia Pacific Sovereign CDS Index 87.75 +.25 basis point.

• FTSE-100 futures +.38%.

• S&P 500 futures +.15%.

• NASDAQ 100 futures  +.14%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (EMR)/.81
• (COCO)/.05
• (VMC)/-.33
• (CBOE)/.56
• (ZTS)/.37
• (HCP)/.74
• (DTV)/1.48
• (ODP)/.03
• (RDC)/.20
• (MOS)/.59
• (DISCA)/.71
• (ALL)/1.20
• (DIS)/.95
• (PZZA)/.46
• (EA)/.11
• (MCHP)/.62
• (MYGN)/.45
• (ATVI)/.10
• (FEYE)/-.53
• (WFM)/.41
• (FSLR)/.52

Economic Releases
8:30 am EST

• The Trade Deficit for March is estimated at -$40.0B versus -$42.3B in February. 

10:00 am EST

• The IBD/TIPP Economic Optimism Index for May is estimated to fall to 47.9 versus 48.0 in April.

Upcoming Splits

• (TREX) 2-for-1

Other Potential Market Movers

• The Fed's Stein speaking, BoJ Minutes, Eurozone Services PMI, Eurozone Retail Sales, weekly retail sales reports, $29B 3Y T-Note auction, Jefferies Tech/Media/Telecom Conference, Robert W. Baird Growth Stock Conference, (PBI) analyst day and the (KBH) investor conference could impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and industrial 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 day.