Stocks Falling into Final Hour on Surging Eurozone Debt Angst, Rising Global Growth Fears, Yen Strength, Financial/Energy Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 13.14 +7.97%

• Euro/Yen Carry Return Index 145.29 -.37%

• Emerging Markets Currency Volatility(VXY) 7.45 +3.33%

• S&P 500 Implied Correlation 58.40 +3.27%

• ISE Sentiment Index 89.0 +1.14%

• Total Put/Call .99 -8.33%

• NYSE Arms 1.79 +44.93% 

Credit Investor Angst:

• North American Investment Grade CDS Index 65.0 +2.43%

• European Financial Sector CDS Index 79.28 +8.90%

• Western Europe Sovereign Debt CDS Index 36.13 +13.1%
• Asia Pacific Sovereign Debt CDS Index 84.35 +3.1%

• Emerging Market CDS Index 269.78 +1.84%

• China Blended Corporate Spread Index 357.39 +.75%
• 2-Year Swap Spread 13.75 unch.

• TED Spread 21.0 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -7.75 -.75 basis point

Economic Gauges:

• 3-Month T-Bill Yield .02% unch.

• Yield Curve 214.0 -3.0 basis points

• China Import Iron Ore Spot $102.80/Metric Tonne -.68%

• Citi US Economic Surprise Index -7.40 +4.0 points

• Citi Emerging Markets Economic Surprise Index -25.30 +1.8 points

• 10-Year TIPS Spread 2.18 +1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating -213 open in Japan

• DAX Futures: Indicating +16 open in Germany

Portfolio: 

• Slightly Higher: On gains in my index hedges and emerging markets shorts

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:

• Ukraine Pushes On With Offensive as Russia Warns on Vote. Ukraine pushed on with an operation to flush separatists from their eastern holdouts a day after Russia warned the violence jeopardizes this month’s elections. Government troops eliminated two rebel bases near the towns of Slovyansk and Kramatorsk, acting President Oleksandr Turchynov said today in parliament in Kiev. Militants vowed to expel the military from the region. Russian Foreign Minister Sergei Lavrov said yesterday that Ukraine is sliding into a civil war, making legitimate voting impossible. “The anti-terrorist operation can stop after weapons are surrendered and hostages released,” Turchynov said. “We’re conducting dialogue with those who’re prepared for conversation and cooperation. We’re working on changes to the constitution to expand powers to local self-government. At the same time, those who conduct war will receive an adequate answer.” 
• Putin Emboldened on Instability Arc by EU Defense Divide. Confronted by the prospect of a new Iron Curtain in Russia’s borderlands, the European Union’s largest countries are turning the other way. Germany, France, Italy and Spain are all cutting back on defense just as a swath of countries on the EU’s eastern flank from the Baltic Sea to Romania ramp up arms spending. Estonia, which borders Russia, spent a greater share of its national output on defense than France in 2013 for the second year running, NATO figures show.
• French Recovery Stalls as Taxes Dent Consumer Spending. France’s economic recovery stalled in the first quarter as tax increases used by President Francois Hollande to cut the budget deficit squeezed consumers. Gross domestic product was unchanged in the period, compared with a revised 0.2 percent gain in the previous three months, national statistics office Insee said in an e-mailed statement. That’s below the median estimate of 28 economists in a Bloomberg survey for a 0.1 percent increase. “The biggest factor right now is consumer spending,” said Dominique Barbet, an economist at BNP Paribas SA in Paris. “What’s worrying beyond the first quarter is that the level of growth is weak. There’s no acceleration. We don’t have the recovery that other countries are seeing.”
• Italian GDP Unexpectedly Falls Threatening Recession Exit. Italy’s economy unexpectedly contracted last quarter, signaling the country’s failure to sustain a pullout from its longest recession on record. Gross domestic product in the three months through March decreased 0.1 percent from the fourth quarter, when it rose 0.1 percent, the national statistics institute Istat said in a preliminary report in Rome today. The decrease contrasts with the median forecast of a 0.2 percent expansion in a Bloomberg survey of 21 economists. From a year earlier, output shrank 0.5 percent. “Italy GDP surprised on the downside,” said Annalisa Piazza, a fixed-income strategist at Newedge Group in London. “Italian activity continues to contract and the already ample output gap keeps widening."
• European Stocks Fall as Euro-Area Growth Misses Estimates. European stocks fell the most in a month as first-quarter euro-area economic growth missed forecasts, while companies including Deutsche Post AG and Thomas Cook Group Plc (TCG) slid after posting results. Deutsche Post lost the most in two years after first-quarter earnings before interest and taxes missed projections. Thomas Cook sank the most in more than two years after saying sales in the first-half retreated 6.6 percent. Cie. Financiere Richemont (CFR) SA gained the most in a year after the maker of Cartier jewelry said it will raise its dividend. Hennes & Mauritz AB climbed the most since September after reporting higher-than-forecast sales for April. The Stoxx Europe 600 Index dropped 0.9 percent to 338.5 at the close of trading.
• Consumer Comfort in U.S. Shows Biggest Weekly Drop Since October. Consumer confidence last week suffered its biggest one-week drop since the federal government shutdown in October as attitudes toward the buying climate and personal finances soured. The Bloomberg Consumer Comfort (COMFCOMF) Index declined by 2.2 points, the most since Oct. 13, to 34.9 for the period ended May 11. The gauge has declined since reaching 37.9 during the week ended April 27, the second-highest level since January 2008. Limited wage gains, costlier food and elevated gasoline prices may help explain the deterioration in sentiment among all age and income groups last week.
• Stubborn Bond Bears Double Down on Money-Losing Wager. These bond bears just won’t go away. Some even appear to be doubling down as their losses mount. Exhibit A: As the ProShares UltraShort 20+ Year Treasury (TBT) fund plunged 21.6 percent this year, investors have responded by plowing $525.3 million into the exchange-traded fund, which uses leverage and derivatives. Exhibit B: Investors have boosted short wagers on Treasuries using futures contracts trading on the Chicago Board of Trade to 56 percent more than their five-year average. A few weeks ago, there were the most since March 2008.
• Wal-Mart(WMT) Forecast Misses Estimates as Sales Slump Lingers. Wal-Mart Stores Inc. (WMT), the world’s largest retailer, forecast second-quarter profit that missed analysts’ estimates as the company copes with slow sales in the U.S., especially at its Sam’s Club warehouse stores. 
• GM’s(GM) Latest Recalls Bring Automaker’s 2014 Total to 11.1 Million. General Motors Co. (GM:US) is recalling an additional 2.7 million vehicles, including models with faulty brake lights that have led to hundreds of complaints, pushing the automaker’s total number of cars and trucks called back for fixes in the U.S. this year to 11.1 million.

CNBC:

• Carlyle's Rubenstein says 'markets are not cheap'.
• Watch Art Cashin: Why stocks are getting slammed. (video)

ZeroHedge: 

• Russia Dumps 20% Of Its Treasury Holdings As Mystery "Belgium" Buyer Adds Another Whopping $40 Billion. (graph)
• Subprime 2.0: 125% LTV Loans Are Coming Back.
• How Malinvestment Poisons The Entire Economy.
• Meat Prices Surge Most In 11 Years. (graph)
• European Bonds Tumble Most In 15 Months, Stocks Slammed. (graph)
• S&P 500 Breaks Below "Key" Technical Level. (graph)
• Russia Will Hold Massive Air Drill Along Ukraine Border On Ukraine Presidential Election Day.
• Philly Fed Declines Led By Drops In New Orders, Shipments, And Employee Workweek. (graph)
• Homebuilder Confidence Plunges To 12-Month Lows. (graph)
• Industrial Production Plunges By Most In 5 Years (Biggest Miss In 3 Years). (graph)
• Initial Claims Plunge To Lowest Since May 2007. (graph)
• Europe's "Very Disappointing" Q1 GDP In Charts. (graph)

Business Insider: 

• The FCC Just Approved A Proposal That Will Completely Change The Internet As We Know It.
• Philippines Releases Photos Of China Building Something On Disputed Reef.
• Anti-Chinese Protests Have Broken Out In Vietnam — Here's Why It Could Be The Start Of Something Bad.
• France's Sale Of Warships to Russia Shows Why The West Can't Stop Putin.

Reuters: 

• TREASURIES-10-year yields fall to 6-month low after weak industry data.

Financial Times:

• US banks aim to cut pay of financial advisers. After cutting the pay of traders, bank executives in the US are manoeuvring to reduce their payroll for a 50,000-strong army of brokers who sell stocks and bonds to retail customers.

Frankfurter Allgemeine Zeitung:

• Merkel Says Euro Crisis Not Over, Warns of 'Deceptive Calm'. German Chancellor Angela Merkel in interview says she shares the assessment of IMF Managing Director Christine Lagarde, who has warned of a "deceptive calm" in financial markets and flagging zeal for reforms in Europe.

Bear Radar

Style Underperformer:

• Small-Cap Value -1.60%

Sector Underperformers:

• 1) I-Banks -2.70% 2) Alt Energy -2.60% 3) Oil Service -2.35%

Stocks Falling on Unusual Volume:

• DQ, SIR, LDRH, DK, ACAT, EMES, ACXM, LXFT, FONR, STO, XONE, CXP, WX, BMY, LNC, SIVB, RDEN, XRS, INSY, AAP, A, SIG, ATK, LPLA, SQM, MET, TTS, GHL, LNC, NTI and CLDX

Stocks With Unusual Put Option Activity:

• 1) JWN 2) KSS 3) JOY 4) LEN 5) CNX
  

Stocks With Most Negative News Mentions:

• 1) BMY 2) NQ 3) GM 4) PSX 5) URBN
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Value -1.22%

Sector Outperformers:

• 1) Utilities -.18% 2) Networking -.20% 3) Telecom -.24%
  

Stocks Rising on Unusual Volume:

• GTIV, VIPS, CSCO, CLVS, BIS, KND, MNTA, AMED and TXTR

Stocks With Unusual Call Option Activity:

• 1) ADSK 2) AEO 3) TPX 4) RDN 5) CSCO

Stocks With Most Positive News Mentions:

• 1) D 2) WMT 3) A 4) T 5) GM
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Thursday Watch

Evening Headlines 
Bloomberg:

• Ukraine Slides Deeper Toward War as Russia Warns on Vote. Russia’s foreign minister said Ukraine is sliding into a civil war that will make it impossible to hold legitimate elections, as Ukrainian leaders and their international allies blamed Russia for the violence. “When Ukrainians kill Ukrainians, I believe it’s as close to civil war as you can get,” Sergei Lavrov told Bloomberg Television in an interview in Moscow yesterday. “In the east and south of Ukraine, there is a war, a real war, with heavy weaponry used, and if this is something that is conducive to free and fair elections, then I don’t understand something about freedom.” 

• UBS Sees 20% Drop for Biggest China Stocks on Profit Drop. UBS AG says it’s time to start cutting Chinese profit forecasts again. Chen Li, the chief China equity strategist at UBS, estimates companies in the nation’s CSI 300 Index (SHSZ300) will post a 3 percent drop in earnings this year, versus consensus forecasts for a 14 percent gain. As analysts downgrade projections to account for a weak property market and depreciating yuan, China’s biggest non-bank stocks may extend this year’s drop to 20 percent, Chen says. The Shanghai-based strategist sees parallels with 2012, when the nation’s slowing economy spurred analysts to reduce profit estimates and the CSI 300 index fell more than 20 percent from its May high through the December low.

• Japan Defense Academy Recruitment Jumps as China Tensions Rise. A 6:00 a.m. bugle call summons 22-year-old student Mutsumi Iida to begin a day organized by the minute between study, sports and training until lights out at 10:30 p.m. She picked the National Defense Academy over the freedom of an ordinary university as the best route to her dream of becoming an officer in Japan’s Marine Self-Defense Forces. The largest number of young people in 26 years followed in Iida’s footsteps to the college this year, as Prime Minister Shinzo Abe pushes a more active defense posture. Abe today will announce plans to reinterpret Japan’s pacifist constitution to expand the role of the military.

• Asian Stocks Fall as Yen Holds Gain; Nickel, Crude Slip. Asian stocks dropped, pushing the regional index down from a four-month high, as Japanese shares slid after U.S. gauges retreated from record highs. The yen maintained gains while crude oil fell with industrial metals. The MSCI Asia Pacific Index lost 0.5 percent by 10:02 a.m. in Tokyo, after closing at the highest level since Jan. 13 yesterday.

• Nickel Plunges More Than 9%, Biggest Slump Since 2011. Nickel slumped the most in 31 months as investors deemed the metal’s rally this year as overdone. Contracts for delivery in three months on the London metal Exchange dropped as much as 9.7 percent, the largest intraday drop since September 2011, to $18,090. The metal, which touched $21,625 on May 13 and is the still the best performer on LME this year, traded at $18,460 at 10:13 a.m. Shanghai time.

• Obama Said to Put Personal Push Behind EPA’s Emissions Rules. U.S. President Barack Obama plans to personally unveil proposed carbon-emissions rules for power plants, elevating climate change policy as a top tier issue for his final two years in office, according to two people familiar with White House strategy. Obama is preparing to make the announcement with Environmental Protection Agency Administrator Gina McCarthy, who said yesterday the rules are on track to be proposed by June 2, according to the people, who spoke on the condition of anonymity because the schedule is still being planned. 

• Cisco(CSCO) Revenue Forecast Tops Estimate on Pickup in U.S. Cisco Systems Inc. (CSCO) gave a forecast for fourth-quarter revenue that topped analysts’ estimates as orders in the U.S. climb on demand for networking machines to handle data traffic, making up for weaker emerging-market sales. Cisco’s revenue in the current period through July will be $12 billion to $12.3 billion, based on the company’s forecast for a decline of 1 percent to 3 percent from a year earlier. Analysts were projecting, on average, sales of $11.8 billion.

Wall Street Journal:

• Ukraine 'Close to Civil War,' Says Russian Foreign Minister. Talks Open in Kiev Without Separatists as Moscow Calls for Considering 'Needs of All the Country's Regions'.

• Crisis in Ukraine: Streaming Coverage.

• Interest Rates Sink Globally in Expectation of Stimulus. Nervous Investors Pile Into Bonds. Global bond rates dropped to their lowest levels of the year Wednesday, as central bankers signaled their determination to jolt the world's largest economies out of their malaise. Investors piled into U.S., German and British government bonds—used to price everything from mortgages to car loans—driving down their yields. The yield on the 10-year U.S. Treasury dropped to as low as 2.523%, its lowest level in more than six months. In...

CNBC:

• Obamacare 'won't have a happy ending': Ken Langone. Burdensome levels of regulation are stunting growth, and nowhere is that more prevalent than with the Affordable Care Act, businessman Ken Langone said Wednesday. 

• CNBC charts the top 100 fee-only wealth management firms. The CNBC Digital editorial team presents our inaugural list of the Top 100 Fee-Only Wealth Management Firms. Click here for the full firm financial and contact details.

Zero Hedge:

• IceCap Asset Management: "The Only Thing Booming In Europe Is Separatist Movements".

• Here's Why The Baltic Dry Index Is Collapsing (In 1 Image).

• Moar QE Hopes Dashed As Japanese GDP Rebounds To Best Since Q3 2011.

• The Max Pain Trade. (graph)

• How The Debt Trap Swallowed Asia In Three Charts. (chart)

• Geithner Confirms Mafia-Linked Berlusconi's Forced Ouster, But Says US Did Not "Have Blood On Our Hands".

• Vietnamese Mob Burns Foreign Factories In Anti-China Riots (21 Dead, 90 Injured).

ValueWalk:

• David Tepper Turns More Bearish: SALT Conference 2014. 

• David Einhorn, Seth Klarman Warn Of Tech Bubble, But Like MU.

Business Insider:

• Bill Clinton Just Gave A Grave Warning About Putin's Plan For Ukraine.

• Forget Sanctions Over Ukraine: Russia Scores Massive Gas Pipeline Deal With China.

• If You Think Kidnapping Those Girls Was Bad, Look What Else Boko Haram Has Done Recently.

 Telegraph:

• Modi's Thatcherite talk cannot restore India's flagging fortunes. India's superpower dreams are giving way to the same old reality of poverty.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.75% to unch. on average.

• Asia Ex-Japan Investment Grade CDS Index 115.75 -1.75 basis points.

• Asia Pacific Sovereign CDS Index 81.75 -1.25 basis points.

• FTSE-100 futures -.17%.

• S&P 500 futures -.01%.

• NASDAQ 100 futures  +.07%.

Morning Preview Links

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and financial 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, Global Growth Fears, Yen Strength, Homebuilding/Financial Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 12.25 +.99%

• Euro/Yen Carry Return Index 145.63 -.40%

• Emerging Markets Currency Volatility(VXY) 7.19 +.14%

• S&P 500 Implied Correlation 56.59 +2.43%

• ISE Sentiment Index 87.0 -26.27%

• Total Put/Call 1.07 +21.59%

• NYSE Arms 1.09 +26.20% 

Credit Investor Angst:

• North American Investment Grade CDS Index 63.02 +.97%

• European Financial Sector CDS Index 72.80 +.76%

• Western Europe Sovereign Debt CDS Index 31.94 +.69%
• Asia Pacific Sovereign Debt CDS Index 82.03 -1.09%

• Emerging Market CDS Index 264.64 -1.34%

• China Blended Corporate Spread Index 354.73 -.59%
• 2-Year Swap Spread 13.75 +.25 basis point

• TED Spread 20.5 +.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -7.0 -.75 basis point

Economic Gauges:

• 3-Month T-Bill Yield .02% unch.

• Yield Curve 217.0 -6.0 basis points

• China Import Iron Ore Spot $103.50/Metric Tonne +.49%

• Citi US Economic Surprise Index -11.40 +1.3 points

• Citi Emerging Markets Economic Surprise Index -27.10 -.4 point

• 10-Year TIPS Spread 2.17 +2.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating -145 open in Japan

• DAX Futures: Indicating -12 open in Germany

Portfolio: 

• Slightly Lower: On losses in my biotech/tech/retail sector longs

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

• Market Exposure: Moved to 25% Net Long