Tuesday Watch

Evening Headlines 
Bloomberg:

• East Ukraine Clashes Persist as Gas Talks Progress. Clashes in Ukraine’s eastern Luhansk province between separatists and the army left at least a dozen people dead, while the Ukrainian and Russian governments made progress in talks over their gas dispute. A blast in central Luhansk killed seven people, the local health service said. Rebels initially said it was an air strike, which the government denied. Earlier yesterday, about 500 insurgents attacked the border guard headquarters in Luhansk, and the guard service said five of its personnel were killed as they fought back.
• D-Day Beach Warmth Belies Tensions in U.S.-France Ties. France is selling weapons to Russia in defiance of American efforts to isolate President Vladimir Putin. The U.S. is preparing to slap France’s largest bank with a fine that could top $10 billion. French government ministers have sought to derail General Electric Co. (GE)’s bid for France’s top energy-equipment maker. 
• Vietnamese and Chinese Ships Clash Again. (video)
• Asian Stocks Extend Six-Month High on China Manufacturing. Asian stocks rose, extending a six-month high, after a gauge for China’s services industry increased amid optimism a separate report on manufacturing will add to signs the world’s second-largest economy is rebounding. Rio Tinto Group (RIO), the world’s second-biggest miner that gets 31 percent of sales from China, added 1.3 percent in Sydney. KCC Corp. jumped 10 percent in Seoul after unit Samsung Everland Inc. announced plans for an initial public offering. Daio Paper Corp. slumped 5.9 percent in Tokyo as the maker of packaging materials said it will raise as much as 22.4 billion yen in a share sale. The MSCI Asia Pacific Index gained 0.3 percent to 142.83 as of 9:19 a.m. in Tokyo, before markets open in Hong Kong and China.
• Europe’s Power Supply at Risk From Investment Dearth, IEA Says. Europe is in jeopardy of running short of power because wholesale electricity prices are too low to encourage spending on new thermal plants, according to the International Energy Agency. The region needs more than $2 trillion in power-industry investment by 2035 and about 100 gigawatts of new thermal capacity in the decade to 2025, the Paris-based IEA said today in its World Energy Investment Outlook. Electricity prices are more than 20 percent below the level necessary to spur investment, according to the adviser to 29 nations. One gigawatt is enough to power about 2 million European homes.

Wall Street Journal: 

• Hedge-Fund World's One-Man Cash Machine. David Abrams Built His Fortune Effectively Going It Alone. In the Back Bay neighborhood of Boston, one man is building a moneymaking machine that rivals some of the hedge-fund industry's biggest names. Calls to his office go unreturned even from those eager to fork over eight-figure sums, potential investors say. One industry veteran referred to him as "a unicorn," as few people have ever seen him. The hedge-fund manager, David Abrams, has personally become a billionaire, and... 
• Secondary Sales Squeeze Investors. Slide in Technology, Health-Care Stocks Has Cooled Demand for Follow-On Sales. A gold rush in public-company stock offerings has failed to pan out for many investors. The recent collapse of highflying technology and health-care stocks has stung buyers who paid steep prices for shares sold by the companies earlier this year in a surge of deals known as follow-on offerings. That has cooled demand for the sales,... 
• Hospitals' Prices for Common Services on the Rise. Vascular and Chest-Pain Treatments Show Some of Biggest Upticks. Federal data released Monday show an increase in the average price hospitals charge to treat common conditions, with vascular procedures and chest-pain treatment showing some of biggest upticks. The numbers from the Centers for Medicare and Medicaid Services include 2012 prices at 3,376 hospitals for the 100 most-common inpatient stays by Medicare patients. It is the second year the agency has released such data, and it...

Fox News: 

• Lawmakers raise eyebrows at Carney claim notifying Congress about Bergdahl swap 'not an option'. White House Press Secretary Jay Carney on Monday defended the president's decision to green-light the controversial trade of five Guantanamo prisoners for Army Sgt. Bowe Bergdahl without giving Congress a heads-up, as lawmakers voiced concern the president broke the law. Lawmakers have claimed the administration ignored the law by failing to give a 30-day notice to Congress about moving detainees.
• Coal-state lawmakers rally against power plant emissions crackdown. Coal-state lawmakers, accusing President Obama of using a back door to impose strict emissions limits on power plants, are rallying to slam that door shut -- claiming the plan would cost jobs and jack up electric bills. In Kentucky, West Virginia, and other states that rely on coal to fuel their own economies -- and that help generate power for everybody else -- officials vowed Monday to introduce legislation halting the newly announced EPA plan.

Zero Hedge: 

• Steen Jakobsen: Expect A 30% Stock Market Correction in 2014.
• The Most Worrying Chart For Europe's Stability. (graph)
• McMansions Are Back And Are Bigger Than Ever. (graph)
• Bring Your Own Guillotine: Anti-Monarchy Protests Break Out Across Spain.
• For 20 Minutes Today, HFTs Got Data & You Didn't! (graph)
• Draghi Is "Desperate To Avoid A Japan-Style Lost Decade".
• China HSBC PMI Misses; Economy Contracts For 5th Month In A Row. (graph)
• Death Toll From GM(GM) Faulty Switches May Be A Lot Higher Than 13.
• Why Do China's Reforms All Fail?
• Coasting Towards Zero.

Business Insider: 

• Here's Everything Apple(AAPL) Announced At WWDC. 
• Seattle Raises Its Minimum Wage To $15 An Hour. 
• A Third Of America's 18- To 34-Years-Olds Live With Their Parents.

Reuters: 

• Obama creates task force on children who enter U.S. illegally. President Barack Obama established an interagency group on Monday to handle the growing influx of children coming to the United States illegally without parents or relatives accompanying them. In a memo that describes an "urgent humanitarian situation," Obama has put the Federal Emergency Management Agency in charge of coordinating humanitarian relief to the children, including housing, care, medical treatment and transportation. The Obama administration estimates that about 60,000 "unaccompanied minors" - children under 18 - will enter the United States illegally this year. It projects that number to grow to nearly 130,000 next year.
• U.S. commodity ETPs see net $4 bln outflow through May -Lipper data.

Obama takes on coal with first-ever carbon limits
Read more at http://www.philly.com/philly/news/politics/20130919_ap_0f857b20e0c144a5a1e1b9dddc9f9d72.html#YRThyDOhArykUeYy.99

marketscuttlebut:

• China iron ore inventories +0.27% last week to a fresh all-time high of 113.6m/t. (graph)

Telegraph:

• Global watchdogs rattled by lack of fear in the markets. A storm alert today from Simon Derrick at the Bank of New York Mellon. He cites three warnings from leading central bankers, all alarmed by the remarkable disregard for risk in the equity, credit, and currency markets.
• Europe needs a 'Big Bazooka', but the ECB is preparing a peashooter. Europe’s high command has convinced itself the worst is over, and with a little fine tuning by the ECB, decent growth will return.
• EU orders France to 'step up' austerity cuts. Policymakers order France to bring spending into line as Francois Hollande reels from defeat at the hands of Marine Le Pen in European elections.

FAZ:

• ECB Rate Cut Would Be 'Rather Cosmetic,' Stark Writes. Possible interest rate cut by .1-.15 ppts would have little impact as rate tool has been exhausted, former ECB chief economist Juergen Stark writes. No investment decision would depend on such a small rate change, making the step "rather cosmetic in nature." Euro exchange rate is "certainly not" a reason to further loosen monetary policy as FX rate is only relevant to monetary policy if it has significant impact on price developments. Euro-zone inflation of .7% "means price stability," all other interpretations are misleading. Monetary policy focused on medium term should ride out the current trough in inflation rather than stoke expectations of quantitative easing.

Hong Kong Oriental Daily:

• Carson Block Says Chinese Internet Stocks High Risks. Block is most concerned with Chinese internet stocks among may industries, citing an interview with the founder of Muddy Waters. Block says even if the financials of Chinese internet stocks are accurate, the industry's corporations do have bubbles and the VIE system contains potential risks.

Evening Recommendations
Jefferies:

• Rated (AMAT) Buy, target $28.
• Rated (LRCX) Buy, target $75.

Night Trading

• Asian equity indices are -.25% to +.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 105.50 -1.0 basis point.

• Asia Pacific Sovereign CDS Index 79.0 +.25 basis point.

• FTSE-100 futures -.26%.

• S&P 500 futures -.05%.

• NASDAQ 100 futures  -.02%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (DG)/.73
• (GIII)/-.15
• (ABM)/.40
• (MFRM)/.35
• (AMWD)/.40

Economic Releases
10:00 am EST

• Factory Orders for April are estimated to rise +.5% versus a +1.1% gain in March.
• IBD/TIPP Economic Optimism for June is estimated to rise to 46.8 from 45.8 in May.
  

Afternoon

• Total Vehicle Sales for May are estimated to rise to 16.1M versus 15.98M in April.
  

Upcoming Splits

• (FFIN) 2-for-1
• (AAPL) 7-for-1

Other Potential Market Movers

• The Fed's George speaking, Australia gdp report, RBA rate decision, weekly US retail sales reports, ISM New York, Stephens Investment Conference, BofA Tech Conference and the Keefe Bruyette Mortgage Finance Conference could impact trading today.

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

Stocks Slightly Lower into Final Hour on Emerging Markets Debt Angst, Technical Selling, Profit-Taking, Tech/Alt Energy Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 11.74 +2.98%

• Euro/Yen Carry Return Index 145.40 +.41%

• Emerging Markets Currency Volatility(VXY) 7.09 +3.05%

• S&P 500 Implied Correlation 55.38 +.20%

• ISE Sentiment Index 98.0 -2.0%

• Total Put/Call .67 -25.26%

• NYSE Arms .82 -8.83% 

Credit Investor Angst:

• North American Investment Grade CDS Index 62.27 +.39%

• European Financial Sector CDS Index 72.05 -1.01%

• Western Europe Sovereign Debt CDS Index 35.15 +.86%
• Asia Pacific Sovereign Debt CDS Index 78.50 -.38%

• Emerging Market CDS Index 250.76 +1.52%

• China Blended Corporate Spread Index 326.27 -.83%
• 2-Year Swap Spread 13.50 -.5 basis point

• TED Spread 20.25 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -9.25 -.5 basis point

Economic Gauges:

• 3-Month T-Bill Yield .03% unch.

• Yield Curve 214.0 +4.0 basis points

• China Import Iron Ore Spot $92.10/Metric Tonne +.33%

• Citi US Economic Surprise Index-3.20 +1.6 points

• Citi Emerging Markets Economic Surprise Index -22.10 -1.7 points

• 10-Year TIPS Spread 2.20 -1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating +122 open in Japan

• DAX Futures: Indicating +2 open in Germany

Portfolio: 

• Slightly Lower: On losses in my emerging markets shorts

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them

• Market Exposure: 50% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Growth -.70%

Sector Underperformers:

• 1) Networking -1.22% 2) Alt Energy -1.01% 3) Social Media -1.0%

Stocks Falling on Unusual Volume:

• MTZ, ACAT, PBYI, RCAP, FNHC, IHG, VTR, AFSI, MPAA, COMM, NRP, CLVS, DLX, NGVC, DY, RNA, BLOX, IEP, BBOX, UEIC, AVD, BNNY, IPAR, MHLD, SN and OIS

Stocks With Unusual Put Option Activity:

• 1) EWJ 2) DGX 3) FIO 4) KBR 5) DXJ
  

Stocks With Most Negative News Mentions:

• 1) CVX 2) IEP 3) Z 4) UEIC 5) ACAT
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Mid-Cap Value -.04%

Sector Outperformers:

• 1) Restaurants +.54% 2) Gaming +.37% 3) Steel +.35%
  

Stocks Rising on Unusual Volume:

• PL, BRCM, NPSP, CONN, AGN, NDZ, MWV, GLOG and HCT

Stocks With Unusual Call Option Activity:

• 1) GCI 2) BRCM 3) DGX 4) ARIA 5) LNG

Stocks With Most Positive News Mentions:

• 1) AKAM 2) CMG 3) INTC 4) BRCM 5) NOC
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Monday Watch

Weekend Headlines 
Bloomberg: 

• Putin Pausing as Russia Volatility Kills Trade-to-Invest. Vladimir Putin’s territorial ambitions are bumping up against financial markets. As the Russian president plots his next move on Ukraine, investors are giving his inner circle pause for thought. Since Putin annexed Crimea in March in the teeth of international outrage, Russian stocks have become the most volatile since 2009. Swings in the ruble against the euro are now the most extreme on record while expectations for fluctuations in the currency against its emerging-market peers are at the highest in two years.

• Hagel Says China’s Actions in South China Sea Are Destabilizing. U.S. Defense Secretary Chuck Hagel today spelled out a series of Chinese actions in parts of the disputed South China Sea and said they were destabilizing the region. While China has said it wants a “sea of peace, friendship and cooperation,” in recent months it “has undertaken destabilizing, unilateral actions asserting its claims in the South China Sea,” Hagel said in prepared remarks at an annual security conference in Singapore. 

• Asian Stocks Advance. Asian stocks rose after a gauge of China’s manufacturing expanded at the fastest pace in five months and the nation’s policymakers said they will cut the reserve requirement ratio for some banks. Karoon Gas Australia Ltd. (KAR) surged 51 percent in Sydney after saying it will sell energy permits for the Browse Basin, off Australia’s west coast, to Origin Energy Ltd. Makita Corp. led industrial shares higher, rising 4.9 percent in Tokyo. Dai-ichi Life Insurance Co. sank 4 percent, leading losses on the regional benchmark index, after the Nikkei reported the Japanese firm is preparing to buy Protective Life Corp. for more than 500 billion yen ($4.9 billion) to expand in the U.S. The MSCI Asia Pacific Index gained 0.3 percent to 142.16 as of 9:26 a.m. in Tokyo, on course for the highest close in six months.

• Gas Speculators Least Bullish of ’14 as Prices Retreat. Natural-gas stockpiles are recovering faster than estimated from a winter battering in the U.S., with prices now 30 percent below a peak in February. Hedge funds reduced their bets on a rally for a fifth week and to the lowest level since December, U.S. Commodity Futures Trading Commission data show.

• Fresh Records Getting Stale With S&P 500 Volume at Six-Year Low. Lately, the higher the Standard & Poor’s 500 Index goes, the less investors care. About 1.8 billion shares traded each day in S&P 500 companies last month, the fewest since 2008, according to data compiled by Bloomberg. When the gauge hit an all-time high on May 23, only about 20 of its 500 companies reached 52-week highs, the data show. That’s the lowest number in a year. When volume and breadth wane even as stocks surge, it’s a warning sign that has preceded losses in the past, according to Sundial Capital Research Inc. in Blaine, Minnesota. Hayes Miller, who helps oversee $57 billion at Baring Asset Management Inc., says the skepticism shows investors distrust a rally built on Federal Reserve stimulus. “Breadth is suggesting that the market is topping,” Miller, the Boston-based head of multi-asset allocation for Baring, said in a May 28 telephone interview. “This is not a good starting point for buying equities at this price. We all know that investors are induced into risk assets by central bank policies, which keep your safer options very unattractive.”

• Subprime lending makes comeback.

• Medicare Ordered to Consider Covering Sex-Change Surgery. The U.S. Medicare program should cover the cost of sex reassignment surgery in some cases, an appeals board ruled today, overturning a long-held agency policy. 

Wall Street Journal:

• Google(GOOG) Invests in Satellites to Spread Internet Access. Company Projects Spending More Than $1 Billion to Connect Unwired Reaches of the Globe.

• EPA to Seek 30% Cut in Emissions at Power Plants. Plan Sets in Motion Main Piece of President's Climate-Change Agenda. The Environmental Protection Agency will propose mandating power plants cut U.S. carbon-dioxide emissions 30% by 2030 from levels of 25 years earlier, according to people briefed on the rule, an ambitious target that marks the first-ever attempt at limiting such pollution. The rule-making proposal, to be unveiled Monday, sets in motion the main piece of President Barack Obama's climate-change agenda and is designed to give states and power companies flexibility in reaching the target. But it also will face...

• What to Expect at Apple’s WWDC Keynote. 

Fox News:

• Obama to announce controversial emissions limit on power plants. The Obama administration is set to announce a rule Monday to limit carbon emissions in thousands of fossil-fuel burning plants across the country, a cornerstone of President Obama’s climate-change agenda and his first-term promise to reduce such emissions by 17 percent by 2020. 

Zero Hedge:

• Get Ready For "No POMO Fridays" June.

• Behold! The Epic Treasury Short Covering This Week. (graph)

• 5 Things To Ponder: Yogi-Isms.

• How China Hides Its Tumbling Housing Market: It Simply Ignores It.

• Even The Fed Admits The "Natural" Rate Of Interest Is Lower Than Markets Are Pricing. (graph)

• The 8 Biggest Myths Of Obamacare.

• Insider Trading Bombshell: FBI/SEC Investigating Carl Icahn & Phil Mickelson.

• The Global Death Cross Just Got Deathier. (graph)

• U.S. Gasoline Consumption Plummets By Nearly 75%.

• Has The Next Recession Already Begun For America's Middle Class?

• Groupthink 101: What All Goldman Sachs(GS) Clients Believe Will Happen.

• The Linoleum Economy.

• Here Comes QE In Financial Drag: Draghi's New ABCP Monetization Ploy.

• Is A Russia-Japan Natural Gas Pipeline Next?

• China Manufacturing PMI Jumps To Highest In 2014; What's Wrong With This Chart?

• Whatever The ECB Does This Week, It Won't "Deliver A Significant Impulse To The Real Economy".

• New Massive Federal Database To Hold Financial Information of 100s Of Millions of Americans.

• The Bilderberg Agenda - Nukes, Nationalism, & Barack Obama.

• The 'Bad Boys Of Finance' Are Going Mainstream — And The Average Investor Is Not Ready.

• China Has The Potential To Become A Real Economic Problem.

• Does The US Negotiate With Terrorists?

• "MOVE Over" Warns BofAML; Treasury Yields Set To Move Higher.

• Are China And Russia Moving Toward A Formal Alliance?

Business Insider:

• Around Half Of All American Adults Were Hacked In The Last Year.

• Here's How Obama Is Going To Make His Pitch For Sweeping New Carbon Dioxide Rules.

• Marijuana Is More Addictive These Days — Here's Why.

• NSA Intercepts Millions Of Photos For Massive Facial Recognition Database.

• Snubs And Harsh Words Define Asia Security Meet As US And Japan Rile China.

• Experts Are Lining Up To Warn About The Leveraged ETFs That Could 'Blow Up' The Whole Financial System.

Telegraph:

• A new French revolution is about to rip apart the EU. France is close to one of those periodic explosions that have shaped French history. When this happens the EU will never be the same again.

Der Spiegel:

• U.K. Could Leave EU If Juncker Chosen, Cameron Cited by Spiegel. Prime Minister David Cameron warned German Chancellor Angela Merkel at European Union summit that choosing Jean-Claude Juncker as next European Commission president could set U.K. on path to EU exit, citing participants it doesn't identify. Cameron said on sidelines of May 27-28 summit in Brussels that Juncker victory could destabilize his govt to the point that proposed U.K. referendum on EU membership might have to be brought forward and would probably result in vote in favor of leaving.

• Merkel Threatened to Vote Against Juncker at Summit. German Chancellor Angela Merkel and British Prime Minister David Cameron both want to block election of Jean-Claude Juncker as president of the European Commission.

Xinhua:

• China to React if Provoked Over Regional Disputes. Current situation in South China Sea stable but signs deserving attention have emerged, citing President Xi Jinping. China's stance on the issue is clear and consistent. "We will never stir up trouble, but will react in the necessary way to the provocations of countries involved," he said.

Night Trading

• Asian indices are unch. to +.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 106.50 -3.5 basis points.

• Asia Pacific Sovereign CDS Index 78.75 -1.5 basis points.

• FTSE-100 futures +.48%.

• S&P 500 futures +.08%.

• NASDAQ 100 futures +.04%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CONN)/.73

• (ZQK)/-.02

• (KKD)/.23

Economic Releases
9:45 am EST

• Final Markit US Manufacturing PMI for May is estimated at 56.2 versus a prior estimate of 56.2 in April.

10:00 am EST

• ISM Manufacturing for May is estimated to rise to 55.5 versus 54.9 in April.

• ISM Prices Paid for May is estimated to rise to 57.0 versus 56.5 in April.

• Construction Spending for April is estimated to rise +.6% versus a +.2% gain in March.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Evans speaking, Eurozone PMI, HSBC China PMI, (AAPL) Worldwide Developers Conference, ASCO 2014, RBC Energy Conference, Goldman Lodging/Gaming/Restaurant Conference, Jefferies Healthcare Conference, (QSII) analyst day and the (BCR) investor conference could also impact trading today.

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

Weekly Outlook

Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on rising global growth fears, rising emerging markets debt angst, yen strength, technical selling and profit-taking. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 50% net long heading into the week.