Stocks Surging into Final Hour on Central Bank Hopes, Less Eurozone/Emerging Markets/US High-Yield Debt Angst, Short-Covering, Biotech/Energy Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Higher
  

• Sector Performance: Almost Every Sector Rising
  

• Volume: Slightly Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 13.18 -12.89%

• Euro/Yen Carry Return Index 140.21 -.51%

• Emerging Markets Currency Volatility(VXY) 10.10 -3.72%

• S&P 500 Implied Correlation 64.32 -2.66%

• ISE Sentiment Index 92.0 -8.0%

• Total Put/Call .82 -11.83%

• NYSE Arms .84 -20.89% 

Credit Investor Angst:

• North American Investment Grade CDS Index 63.22 -4.04%

• America Energy Sector High-Yield CDS Index 1,075.0 +.63%

• European Financial Sector CDS Index 74.94 -4.18%

• Western Europe Sovereign Debt CDS Index 22.88 -3.74%

• Asia Pacific Sovereign Debt CDS Index 60.21 +.01%

• Emerging Market CDS Index 291.15 -2.59%
  

• iBoxx Offshore RMB China Corporates High Yield Index 118.0 -.02%

• 2-Year Swap Spread 26.5 +.25 basis point

• TED Spread 26.5 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -21.0 +1.0 basis point

Economic Gauges:

• 3-Month T-Bill Yield .01% unch.

• Yield Curve 157.0 +1.0 basis point

• China Import Iron Ore Spot $61.40/Metric Tonne +1.72%

• Citi US Economic Surprise Index -64.30 +.4 point

• Citi Eurozone Economic Surprise Index 14.2 -2.9 points

• Citi Emerging Markets Economic Surprise Index -17.1 -3.2 points

• 10-Year TIPS Spread 1.88 -1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating +336 open in Japan

• DAX Futures: Indicating +23 open in Germany

Portfolio: 

• Higher: On gains in my biotech/medical/tech/retail sector longs 

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

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg:

• Tsipras Asks for Courage as EU Plays Down Chances of Deal. Prime Minister Alexis Tsipras said Friday there are no more technical reasons to withhold aid from Greece. The country’s creditors are not convinced. Hours after the Greek leader told lawmakers in Athens that the euro area needed only political courage to unlock more financial aid, a European Union official in Brussels told reporters there’s still technical work to be done before Europe’s most-indebted state will get any more money.
• Ukraine’s Poroshenko Says Fighting Killed 7,000 as Truce Strains. Ukrainian President Petro Poroshenko said about 7,000 civilians have been killed during the conflict with pro-Russian separatists, as military casualties placed fresh strain on the fragile cease-fire. Two soldiers were killed and 26 wounded in clashes with rebels in the past 24 hours, Ukrainian military spokesman Andriy Lysenko told reporters in Kiev on Friday. Separatists shelled government positions using weapons that should have been withdrawn from the conflict zone under the truce agreement signed in Minsk, Belarus, in February, he said.
• PBOC Vows to Walk Fine Policy Line as Debt Endangers Growth. China’s central bank said it will walk a fine line in its policy operations to avoid excessive easing as rising debts endanger the nation’s economic expansion. “We will prevent excessive easing to avoid cementing economic distortion or pushing up debt and leverage levels; on the other hand, we will create a neutral and appropriate monetary environment” for growth, the People’s Bank of China said in its monetary policy report published on Friday. The bank also said that China’s exports won’t see big improvement, hours after data showed an unexpected fall in overseas shipments in April. “Economic growth is, to a large extent, still relying on government-led investment, and the room for further expansion is quite limited,” the central bank said. “In addition, the rising debt size is forcing China to use a lot of resources in repaying and rolling over debt, which leads to contraction effects for the macro economy.” China’s total debt has reached 282 percent of GDP, according to the McKinsey Global Institute.  
• The $364 Billion Real Estate Threat Inside China’s Biggest Banks. Fitch Ratings has called real estate the “biggest threat” to Chinese banks as surging loans tied to properties coincide with defaults and falling sales. Corporate loans backed by buildings have grown almost fivefold since 2008 and residential mortgages have more than tripled in the period among lenders rated by Fitch, the company said Friday. That’s seen property loans held by China’s four biggest lenders soar to a total 2.26 trillion yuan ($364 billion), according to their annual reports.
• Another Chinese Firm Defaults on Its Dollar Bond. China’s credit markets sent their latest sign of stress Friday as coal importer Winsway Enterprises Holdings Ltd. became the nation’s second company to default on a dollar-denominated bond this year. The Hong Kong-listed company isn’t able to pay $13.15 million of semi-annual interest due Friday on $309.3 million of notes that mature next year, according to a Hong Kong stock exchange filing on Friday. A 30-day grace period expired May 8 after it skipped the payment April 8 and hired advisers to restructure its debt. The failure sends a signal that prices of coking coal used in steelmaking are far from rebounding as China’s economic slowdown deepens and the government steps up efforts to curb pollution.
• China Auto Retail Sales Climb at Slowest Pace in Five Months. Passenger-vehicle sales in China rose at the slowest pace in five months as weaker economic expansion hurt demand for big-ticket purchases. Retail deliveries of cars, multipurpose and sport utility vehicles climbed 6.2 percent to 1.61 million units in April, the China Passenger Car Association said on its website today. It’s the slowest pace of growth since November.
• China Stock Picker Beating 90% of Peers Says Rout Isn’t Over Yet. The worst isn’t over for Chinese stocks after the biggest three-day rout since June 2013, according to HSBC Global Asset Management. China’s government will probably take further steps to curb the use of borrowed money for share investment after margin debt rose to a record, said Mandy Chan, whose $111 million HSBC China A-Share Fund topped 90 percent of peers tracked by Bloomberg in the past year with a 96 percent gain. Mid- and small-capitalization stocks are most vulnerable to declines, she said.
• German Industrial Production Falls as Economy Risks Grow. German industrial production unexpectedly declined in March in a sign that Europe’s largest economy remains vulnerable to global economic weakness. Output, adjusted for seasonal swings and inflation, fell 0.5 percent after stagnating in February, data from the Economy Ministry in Berlin showed on Friday. The typically volatile number compares with a median estimate of a 0.4 percent gain in a Bloomberg survey. Production rose 0.1 percent from a year earlier. 
• Europe Stocks Jump After Cameron’s Election Win, U.S. Jobs Data. European shares posted this year’s biggest advance, buoyed by a surprise election win for British Prime Minister David Cameron’s party and improving U.S. jobs data. The Stoxx Europe 600 Index surged 2.9 percent to 400.16 at the close of trading, up 1.4 percent for the week.
• Hard Money Comes Easy as Wall Street Funds Home Flippers. Real estate buyers seeking money to renovate and flip U.S. houses are getting help from some of the world’s biggest investment firms. Colony Capital Inc., Blackstone Group LP and Cerberus Capital Management are among the companies that have started making bridge loans to investors who buy homes to sell them quickly for a profit. Borrowing costs -- traditionally the highest in residential lending -- are tumbling as the firms compete for customers. The foray represents a deepening bet on the housing market by Wall Street-backed companies, many of which have built rental-home empires during the past three years and started specialty-lending businesses to finance smaller investors. Big firms with deep pockets and access to cheap capital may have an edge over local private lenders that have dominated flipper financing.
• Bill Gross: Central Banks Are Gaming Asset Prices. (video)

Fox News:

• Military posts put on elevated alert level amid recent ISIS warnings. (video)

CNBC:

• Interest rates are too low for this economy: Pimco CIO. (video)

ZeroHedge: 

• Americans Not In The Labor Force Rise To Record 93,194,000. (graph)
• The Reason Why There Is No Wage Growth For 83% Of US Workers. (graph)
• Crude Lifts As Pace Of Rig Count Decline Slows. (graph)
• Free Lunches, Fragile Fed Faith, & Minsky Moments.
• Goldman Crushes The American Manufacturing Recovery Dream - Auto Sales Expectations Are Unrealistic. (graph)
• Bursting Bund Bubble: 2 Charts And Some Lessons From History.
• Europe "Baffled" By Bizarre Varoufakis "Blueprint".
• Old Workers Hit New All Time High As All April Jobs Go To The "55 And Older". (graph)
• Wholesale Sales YoY Worst Since Lehman As Inventories Grow At Slowest Pace In 2 Years. (graph)
• April Payrolls Miss At 223K, March Revised Much Lower, Wage Growth Disappoints Again. (graph)

Business Insider: 

• 210 Zappos employees — 14% of the staff — take buyouts after CEO ultimatum to embrace self-management or leave.
• The disconnect in the US stock market just keeps getting bigger. (graph)
• Shake Shack(SHAK) has one huge problem that could undermine its expansion. Shake Shack is entering a market already packed with similar chains.
• Syria's government has been 'lying about what they did with sarin' nerve gas Assad promised to give up.
• Ukrainian rebels may take advantage of Victory Day celebrations to launch a new offensive.
• Russian-backed Ukrainian rebels are gearing up for a new offensive.
• The eurozone is refusing to change its position on Greek debt.
• Liberal Britain just got slaughtered.

Reuters:

• Austria's Schelling warns Greece of dangers of default. Austria's finance minister warned Greece on Thursday about the dangers of defaulting on its debt and said a sensible solution to the country's financial problems was nowhere near despite months of talks.

Bear Radar

Style Underperformer:

• Small-Cap Value +.67%

Sector Underperformers:

• 1) Steel +.04% 2) I-Banks +.29% 3) Telecom +.33%

Stocks Falling on Unusual Volume:

• FLDM, TU, MNST, ENV, SFM, PRO, ICFI, SWIR, CERN, HTGC, TRUE, GDOT, UEIC, LJPC, HII, CBI, SIRO, ABTL, SGMS, TNGO, SHAK, PRA, WFM, COTY, ECPG, NUS, AVID, LC, BR, SGMS, ABMD, ENPH, HMSY, CNCE, NVDA, CORE, MTRX and ENOC

Stocks With Unusual Put Option Activity:

• 1) MNST 2) KBH 3) MON 4) GPS 5) XME
  

Stocks With Most Negative News Mentions:

• 1) FLDM 2) MNST 3) CBS 4) CBI 5) HII
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Growth +1.24%

Sector Outperformers:

• 1) Biotech +2.47% 2) Drugs +1.77% 3) Agriculture +1.69%
  

Stocks Rising on Unusual Volume:

• CALA, SYT, RBA, DATA, KIP, YELP, OUTR, SSNI, NUAN, TOUR, IMPV, AOL, TGI, RBS, EBIX, OLED, TGI, MOH, AOL, POST, SGEN, RPTP, OUTR, KOP, RMTI, YELP, NRG, WWAV, CROX, CCOI and BLUE

Stocks With Unusual Call Option Activity:

• 1) MON 2) AWAY 3) MNST 4) DATA 5) SGMS
  

Stocks With Most Positive News Mentions:

• 1) DATA 2) MCHP 3) NUAN 4) MAR 5) MCD
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running 5.0% Above 100-day average
• 10 Sectors Rising, 0 Sectors Declining
• 79.3% of Issues Advancing, 18.7% Declining
• 64 New 52-Week Highs, 23 New Lows
• 51.8% of Issues Above 200-day Moving Average
• Average 14-Day RSI 41.0
• Vix 13.2
• Total Put/Call .83
• TRIN/Arms 1.55

Friday Watch

Evening Headlines 
Bloomberg:

• Varoufakis Says Greece Ready to Take EU Impasse Down to the Wire. Greek Finance Minister Yanis Varoufakis said his government is prepared to go “down to the wire” in talks with its creditors as policy makers signal they’re losing patience with the country after months of brinkmanship. Varoufakis, who denies he’s been sidelined by Greek Prime Minister Alexis Tsipras in the negotiations, said he expects an agreement in the next two weeks, though one is unlikely to be announced when euro-area finance chiefs meet on Monday.
• China's Very High Mountain of Debt. Total debt is at 282 percent of GDP, with the rapid pace of credit expansion worrying policy makers. China's debt mountain is casting a shadow over the world's second-largest economy. Total debt has reached 282 percent of GDP, according to the McKinsey Global Institute. While other big economies aren't far behind, it's the pace of China's credit expansion that's worrying policy makers, spurring targeted stimulus strikes while trying to avoid a debt sugar hit. 
• China Exports Drop in April, Compounding Pressure on Economy. China’s exports unexpectedly declined in April and imports slumped, adding downward pressure on an economy grappling with overcapacity and a property downturn. Overseas shipments fell 6.2 percent from a year earlier in yuan value, the customs administration said in Beijing on Friday. That compared with the median estimate for a 0.9 percent rise in a Bloomberg survey of analysts. Imports slid 16.1 percent -- the fourth straight double-digit decline -- leaving a trade surplus of 210.21 billion yuan ($33.9 billion). Stronger demand from a recovering U.S. economy is being offset by sluggishness in Europe and a slide in shipments to Japan, compounding challenges for an economy that last quarter expanded at the slowest pace since 2009. 
• The Hot Money Cools on China. Some $300 billion has been moved out in the past six months. While the world marvels at the rise of Chinese stock prices, money is quietly leaving the country at the fastest pace in at least a decade. Louis Kuijs, Royal Bank of Scotland’s chief China economist, estimates that China lost $300 billion in financial outflows in the six months through March. Deltec International, a Bahamas investment firm, puts the number even higher.
• Australian Banks May Just Be Getting Started on Raising Capital. Australia’s biggest banks this week announced the largest collective fundraising since the global financial crisis. They may just be getting started. National Australia Bank Ltd., Westpac Banking Corp. and Australian & New Zealand Banking Group Ltd. revealed proposals to raise a combined A$8 billion ($6.4 billion) in capital to bolster their reserves against potential mortgage losses at home and to meet tougher global standards.  
• Putin Stirs War Euphoria as Ex-Allies Skip WWII Victory Parade. The banners of war have been hung, the streets peppered with patriotic posters. State television is broadcasting hourly updates from the front lines and there’s even a free app, so there’s no excuse to miss out.
  President Vladimir Putin is preparing Russia for a collective military celebration that’ll be replete with state-of-the-art weaponry and thousands of goose-stepping troops. But the victory being glorified isn’t over Ukraine in the current conflict. It’s over Nazi Germany seven decades ago.
• Asian Stocks Climb From One-Month Low Before U.S. Jobs Report. Asian stocks rose, after the regional benchmark index closed Thursday at its lowest in a month, as investors awaited U.S. labor data. The MSCI Asia Pacific Index gained 0.1 percent to 150.49 as of 9:45 a.m. in Tokyo after ending yesterday at its lowest since April 7. The measure is poised for a 1.6 percent slide this week, its second straight weekly decline.  
• Iron Imports by China Shrink in April Amid Property Slowdown. Iron ore imports by China dropped in April compared with the same month a year earlier, adding to signs that demand in the world’s largest user may be slowing as the property market cools. Imports totaled 80.2 million metric tons in April, in line with 80.5 million tons in March, and 3.8 percent lower than a year earlier, according to customs data on Friday. Purchases from overseas in the first four months were 307.3 million tons compared with 305 million tons in the same period in 2014.
• Iron Ore Outlook Cut by ANZ as China Steel Downturn Will Persist. A prolonged downturn in steel consumption in China will hurt the outlook for iron ore, according to Australia & New Zealand Banking Group Ltd., which cut price forecasts through 2017. Iron ore will average $55 a metric ton next year, down from an earlier forecast of $60, and $60 in 2017, down from $63, ANZ said in an e-mailed report on Friday. The outlook for 2015 was pared by $1 to $56 a ton, with prices seen holding in a range of between $50 and $60 over the next 12 months.
• Tesla(TSLA) May Need to Raise Capital After Losses, Analysts Say. Analysts are voicing concerns about Tesla Motors Inc.’s cash, saying the maker of electric cars and energy-storage products may need to raise money. Tesla said it had $1.51 billion in cash and cash equivalents as of March 31, down from $1.91 billion three months earlier. Adam Jonas, an analyst with Morgan Stanley, called Tesla’s cash burn “eye watering” in a note early Thursday.

Wall Street Journal:

• Exit Polls Put David Cameron’s Conservatives Ahead in U.K. Election. Prime Minister David Cameron’s party projected to win 316 seats; 239 for Labour.
• Chinese Stocks Heading for Biggest Weekly Loss in 5 Years. The Shanghai Composite Index is down more than 6.0% for the week.
• What Bill and Hillary Could Tell Tom Brady. Good job refusing to turn over your texts and emails. Now delete them. 

MarketWatch.com: 

• Bojangles prices IPO at high end of expectations.

CNBC: 

• Is the honeymoon over for China stocks? (video) China stocks have surged by nearly 40 percent in just over a month, shrugging off signs of a slowing economy, but valuations look stretched and a violent correction may be on the way, analysts said.
• Uber offers up to $3B for Nokia mapping unit: NYT, citing sources.

Zero Hedge: 

• Introducing Hotel ISIS: Have Fun, But Don't 'Lose Your Head'.
• Why We Have An Oversupply Of Almost Everything. (graph)
• What The US Government Spends Its Money On, Besides Hookers And Gambling. (graph)
• Global Trade To Remain Subdued Until At Least 2020, Goldman(GS) Says. (graph)
• "Market 1 - 0 Yellen/Gartman" Bonds & Stocks Bid As Crude Crumbles. (graph)
• The Great Disconnect - Central-Bank-Driven "Markets" Have Nothing To Do With Economics. (graph)
• Contained? Dow "Range-Bound" Streak Reaches Longest Ever. (graph)

Business Insider:

• LIVE: The opinion polls were totally wrong - the Conservatives are wiping out Labour.
• REPORT: Microsoft(MSFT) has no plans to pursue Salesforce(CRM).
• The British pound is going wild! (graph)
• A quick look at all the rate-hike buzz going on at the hedge fund conference of the year.
• Jim Chanos just delivered a presentation slamming a $70 billion energy deal people have been swooning over.

Reuters: 

• Monsanto(MON), Syngenta hire US banks to advise on possible takeover -sources. 
• Weak PC sales, strong dollar hurt Nvidia's 2nd-qtr forecast. Nvidia Corp forecast lower-than-expected revenue for the second quarter, weighed down by lower demand for its graphic processor units due to a fall in personal computer sales and a strong dollar. The graphics chipmaker's shares fell as much as 4.4 percent in extended trading on Thursday after it also reported first-quarter revenue and profit below estimates.
• U.S.-based stock funds post $14.8 bln outflows in week -Lipper.

Evening Recommendations 

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 106.75 -1.25 basis points.

• Asia Pacific Sovereign CDS Index 60.25 +.25 basis point.

• S&P 500 futures +.12%.

• NASDAQ 100 futures +.18%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AOL)/.32
• (NILE)/.08
• (EBIX)/.43
• (HCN)/1.04
• (JD)/.00
• (WLH)/.18

Economic Releases 
8:30 am EST

• The Change in Non-Farm Payrolls for April is estimated at 230K versus 126K in March.
• The Unemployment Rate for April is estimated to fall to 5.4% versus 5.5% in March.
• Average Hourly Earnings for April are estimated to rise +.2% versus a +.3% gain in March.

10:00 am EST

• Wholesale Inventories for March are estimated to rise +.3% versus a +.3% gain in February. 
• Wholesale Sales for March are estimated to rise +.5% versus a -.2% decline in February.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Canadian Unemployment report and the (CSX) annual meeting could also impact trading today.

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