Stocks Reversing Lower into Final Hour on Rising Long-Term Rates, European/Emerging Markets/US High-Yield Debt Angst, Global Growth Fears, Energy/Homebuilding Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: About Even
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 13.49 +4.90%

• Euro/Yen Carry Return Index 139.81 -.35%

• Emerging Markets Currency Volatility(VXY) 10.10 +.30%

• S&P 500 Implied Correlation 64.18 -.12%

• ISE Sentiment Index 69.0 -24.18%

• Total Put/Call .46 -45.88%

• NYSE Arms 1.05 +44.54% 

Credit Investor Angst:

• North American Investment Grade CDS Index 64.76 +2.73%

• America Energy Sector High-Yield CDS Index 1,073.0 -.19%

• European Financial Sector CDS Index 72.88 +1.50%

• Western Europe Sovereign Debt CDS Index 22.59 -1.29%

• Asia Pacific Sovereign Debt CDS Index 58.80 -.84%

• Emerging Market CDS Index 294.16 +.93%
  

• iBoxx Offshore RMB China Corporates High Yield Index 118.29 +.25%

• 2-Year Swap Spread 26.75 +.25 basis point

• TED Spread 27.5 +1.0 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -20.75 +.25 basis point

Economic Gauges:

• 3-Month T-Bill Yield .01% unch.

• Yield Curve 166.0 +9.0 basis points

• China Import Iron Ore Spot $63.02/Metric Tonne +2.64%

• Citi US Economic Surprise Index -61.0 +3.3 points

• Citi Eurozone Economic Surprise Index 10.5 -3.7 points

• Citi Emerging Markets Economic Surprise Index -15.8 +1.3 points

• 10-Year TIPS Spread 1.88 unch.

Overseas Futures:

• Nikkei Futures: Indicating -1 open in Japan

• DAX Futures: Indicating -53 open in Germany

Portfolio: 

• Slightly Higher: On gains in my biotech/retail sector longs and emerging market shorts

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

• Market Exposure: Moved to 25% Net Long

Today's Headlines

Bloomberg:

• EU Said to Welcome Greek Progress While Seeking More Work. Euro-area finance ministers welcomed the progress Greece has made on meeting the terms of its bailout program while demanding more work before funds can be released, according to two officials. Finance chiefs meeting in Brussels on Monday will issue a statement to endorse Greece’s work on a plan to fix up its economy, the officials said, asking not to be named because the talks were private. More time and effort will be required to bridge the differences between Greece and its creditors on some issues that remain unresolved, the officials added.

• Spanish Bonds Fall With Italy’s as Talks on Greece Rattle Market. Spanish and Italian government bonds fell for the first time in three days as concern Greece’s negotiations with its creditors will fail to prevent it running out of money prompted a flight out of euro-area debt markets. The region’s finance ministers met in Brussels Monday and welcomed the progress Greece has made while demanding more work before funds can be released, according to two officials who asked not to be named because the talks were private. On Tuesday, Greece must pay about 750 million euros ($836 million) to the International Monetary Fund. Italy is set to auction as much as 7 billion euros of debt due between 2018 and 2046 on May 13. Germany’s bonds declined. Spain’s 10-year bond yield rose eight basis points, or 0.08 percentage point, to 1.75 percent at 5 p.m. London time, after dropping 23 basis points over the previous two trading days. The 1.6 percent security due in April 2025 fell 0.75, or 7.50 euros per 1,000-euro face amount, to 98.66. Similar-maturity Italian bond yields increased nine basis points to 1.77 percent.

• Putin's Tanks Draw Cheers in Russian City Jammed Between NATO Nations. Tanks and ballistic missiles lumbered past thousands of spectators gathered in Kaliningrad on Saturday to mark the 70th anniversary of the Allied victory in Europe, an historic triumph for Russia that the Kremlin has used to whip up a new nationalist fervor. “We need to show our enemies, who deem us guilty just because we exist, that Russia is a very peculiar woman—she can knock you down without a second thought,” said Aleksandr Sapenko, a 64-year-old history teacher, citing the U.S. and European Union as Russia’s main enemies. “Soviet soldiers saved them from the Nazi gas chambers, but they are barking at Russia like a pack of stray dogs.”  

• China Rate Cut Misses the Mark With Global Markets. (video)

• China's Currency Trap. China can't join the currency war because it doesn’t want to devalue the yuan.

• Brazil Real Leads Global Drops as Greece Damps Emerging Markets. Brazil’s real fell the most among global currencies as concern European finance ministers will struggle to agree on aid for Greece damped demand for emerging-market assets. The currency tumbled 2.4 percent to 3.0491 per U.S. dollar at 3:16 p.m. in Sao Paulo, the biggest drop among 31 major currencies tracked by Bloomberg. One-month implied volatility on options for the real, reflecting projected shifts in the exchange rate, rose for the first time in four days.

• Europe Stocks Gain Third Day as Delhaize Jumps With Ahold on M&A. Gains in retailers and miners helped European stocks post their best three-day advance since January. Delhaize Group jumped 15 percent, the most since 2003, and Royal Ahold NV rallied 5.5 percent after reports that the companies are in early stages of merger talks. Commodity producers climbed after China’s central bank cut interest rates for the third time in six months. Airbus Group NV lost 2.1 percent following the crash of a military plane. Piraeus Bank SA and Eurobank Ergasias SA lost more than 10 percent as euro-area finance ministers met to discuss bailout aid. The Stoxx Europe 600 Index rose 0.3 percent to 401.34 at the close of trading in London, reversing a decline of as much as 0.2 percent and climbing as much as 0.5 percent.

• Ex-Treasury Chief Paulson Says Low Rates Fuel Asset-Bubble Risk. Central banks that hold borrowing costs low for a prolonged period raise the risk of asset-price bubbles, former U.S. Treasury Secretary Henry Paulson said. “Until we get back to a world where interest rates are determined by real economic forces and reflect economic reality, there are going to be asset bubbles,” Paulson said Monday in an interview with Bloomberg Television in London. “There’s going to be volatility and clearly, there are bubbles, so the question is, are they manageable and how big they are.”

• America's Future Got $7 Trillion Worse Since the Financial Crisis. America's ballooning entitlement bill could lead to a more painful tax day decades from now. Driven by higher interest costs, Social Security and Medicare for baby boomers, as well as tax cuts made permanent in 2012, the federal debt held by the public is expected to hit $40 trillion in 2035, according to calculations by the Committee for a Responsible Federal Budget based on Congressional Budget Office estimates. Back in 2009, soon after President Barack Obama took office, the forecast for the 2035 burden was at least $7 trillion lower.  

• Trend-Chasing Mutual Funds Work Well, Until They Don't.

Wall Street Journal:

• OPEC Sees Oil Price Below $100 a Barrel in the Next Decade. Pessimistic Assessment May Mean That the Oil Cartel Returns to Production Quotas.

• Next Up for China’s Central Bank: How to Get Loans to Small Firms. Despite easing, banks remain reluctant to lend in sectors deemed crucial to growth.

MarketWatch.com:

• IPO Calendar for Week of May 11th Includes 5 Biotechs.

ZeroHedge: 

• Chinese Stock Bubble Now Plumbing Depths Of Human Stupidity. (graph)

• This Is What Happened To Tinder's Predecessor. (graph)

• Greek Cleaners 1 - 0 Troika. (pic)

• "Huge Disconnect Between Physical & Futures" Suggests Commodity Rally Won't Last, Barclays Warns. (graph)

• Uber Is Now Valued Higher Than 80% Of The S&P: Closing In On General Motors And Ford.

• Clinton Foundation Broke Transparency Promise To Obama, "Strong Armed" Charity Watchdog.

• ETSY Crashes Over 40% From IPO Highs In 3 Weeks. (graph)

• 7 Days Before Holder's "90 Day Ultimatum" Expires, DOJ Declines To Prosecute Citigroup.

• Un-Goldilocks! Fed's Labor Market Conditions Index Tumbles Most Since 2012. (graph)

• Back By Popular Demand: Presenting The Blow-Off Top In Stock Buybacks. (graph)

• Germany Gives Greece Grexit Referendum Greenlight. 

• 30Y Treasury Yield Tops 3.00% For Only 2nd Time In Over 5 Months, Stocks Slide. (graph)

• No Deal: Eurogroup Concludes Meeting On Greece, No Further Fund Disbursement.

Business Insider:

• The internet is outraged about this 'racist' interview with Ted Cruz. 

• Samsung is imploding in China.

Reuters: 

• NATO - Russia has equipped Ukraine rebels to attack at short notice. NATO's chief said on Monday that Russia had built up forces on the border with Ukraine and sent more military hardware into eastern Ukraine, enabling pro-Russia separatists to launch attacks with little warning if they chose. 

• TREASURIES-Yields rise as German bond selloff continues.

Telegraph: 

• Germans push for Greek referendum as IMF default is avoided. Wolfgang Schaeuble says plebiscite on Greece's euro membership could prove "helpful" as Leftist government promises to stick by "red lines".

Welt:

• Troika Doesn't Expect Positive Outcomes of Greek Talks. Troika's plans on Greece during talks this week include one positive, three negative scenarios, citing a negotiator who's part of the group of ECB, European Commission, IMF.

Bear Radar

Style Underperformer:

• Large-Cap Value -.40%

Sector Underperformers:

• 1) Coal -2.41% 2) Energy -2.12% 3) Gaming -1.63%

Stocks Falling on Unusual Volume:

• NBL, AXTA, ROG, NXTM, KNDI, PARR, CALA, HUBS, YELP, POM, FISH, TM, PPO, TRV, ENV, VCIT, AOL, STMP, AER, TYG, NLS, UIHC, XENT, VRTS and ALDR

Stocks With Unusual Put Option Activity:

• 1) MBI 2) WHZ 3) IEF 4) KSS 5) DXJ
  

Stocks With Most Negative News Mentions:

• 1) etsy 2) MNKD 3) ENV 4) SBUX 5) NRG
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Value +.38%

Sector Outperformers:

• 1) Steel +1.45% 2) I-Banks +1.09% 3) Hospitals +1.07%
  

Stocks Rising on Unusual Volume:

• ZU, ROSE, ASGN, MNST, CALM, DF, CSIQ, JMEI, Z, UBNT, LC and JOY

Stocks With Unusual Call Option Activity:

• 1) WM 2) PLUG 3) MON 4) LLY 5) MTG
  

Stocks With Most Positive News Mentions:

• 1) Z 2) JOY 3) CAT 4) SFM 5) DF
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running 13.0% Below 100-day average
• 6 Sectors Rising, 4 Sectors Declining
• 48.2% of Issues Advancing, 49.0% Declining
• 47 New 52-Week Highs, 13 New Lows
• 54.9% of Issues Above 200-day Moving Average
• Average 14-Day RSI 43.4
• Vix 13.5
• Total Put/Call .85
• TRIN/Arms .95

Monday Watch

Today's Headlines 
Bloomberg: 

• Merkel Pressed to Give Up on Greece as Germans Urge Strong Euro. German Chancellor Angela Merkel is coming under growing pressure from within the ranks of her own party bloc to give up on Greece for the sake of the euro. Members of Merkel’s Christian Democratic bloc are openly challenging her stance of keeping Europe’s most-indebted country in the 19-nation currency region. Even some officials in the Finance Ministry are leaning toward the conclusion that the euro area would be better off without Greece, two people familiar with the matter said.  

• Greece Fights Default Risk While ECB Demands Progress for Funds. Warnings of an accidental default loom over debt-swamped Greece as Prime Minister Alexis Tsipras’ anti-austerity government heads for another confrontation with an increasingly testy German-led bloc of creditors. Greece needs at least a symbolic show of progress at Monday’s meeting of euro-area finance ministers in Brussels to persuade the European Central Bank to keep emergency funds flowing to Greek banks at the current pace. The next hurdle comes just a day later, when Greece has to pay about 750 million euros ($840 million) to the International Monetary Fund. 

• Euro Falls Before Finance Ministers Meet as Greek Deadline Looks. The euro fell to a one-week low against the dollar before European finance ministers resume talks on Greek aid on Monday. The shared currency slumped against most of its major peers as German Chancellor Angela Merkel comes under growing pressure from within the ranks of her own party bloc to give up on Greece for the sake of the euro area. The euro slid 0.3 percent to $1.1161 at 10:30 a.m. in Tokyo, after touching $1.1152, the lowest since May 5. It fell 0.3 percent to 133.73 yen.

• Ukraine Port Braces for War as Locals Learn Path to Bomb Shelter. Ukraine’s eastern port of Mariupol is bracing for attack. Army vehicles rumble down streets, windows are fortified to shield against shell damage and signs pasted to apartment blocks point people to their nearest bomb shelter. Locals fear pro-Russian separatists will unleash an assault on their city now that President Vladimir Putin has finished hosting world leaders to mark the Soviet triumph over Nazi Germany. 

• It’s Not Just Greece, China’s Retreat Threatens European Bonds. European policy makers will be focused on Greek aid talks in Brussels on Monday. Investors may need to look further afield to fully explain the sell-off in the continent’s sovereign debt market. China’s foreign currency reserves had their biggest quarterly drop on record in the first three months of the year and the yuan is trading at the closest to fair value since 2010, according Goldman Sachs Group Inc. That means less demand for assets in dollars and euros from the world’s biggest creditor.

• China’s Cut-Rate Credit Rankings Raise Alarms as Defaults Loom. Few were surprised when China’s Anhui province unveiled plans in April for a 25.8 billion yuan ($4.2 billion) debt sale, part of the ruling Communist Party’s widely publicized effort to jumpstart a municipal bond market. The deal was shocking, though, for market insiders because of what they found in the fine print: Anhui will pay just 50,000 yuan for a credit rating on the bonds. That fee, from Beijing-based Golden Credit Rating International Co., is a fraction of the 250,000-yuan price floor that rival China Lianhe Credit Rating Co. says was agreed by major ratings companies under the guidance of the central bank about eight years ago.

• PBOC Cites Downward Pressure on Economy in Q&A After Rate Cuts. The following is Bloomberg’s translation of a statement from the People’s Bank of China in question and answer format that accompanied its interest rate cut announcement.

• At 1:20 P.M., China’s Great Stock Rally Mysteriously Falls Apart. It’s the most dangerous hour in the Chinese stock market -- when the world’s biggest boom suddenly goes bust. The time is 1:20 to 2:20 p.m., and its losses stand out in a rally that added 545 points, or 15 percent, to the Shanghai Composite Index over the past 30 days. In that hour alone, the equity gauge dropped 359 points. It fell in 19 of 30 sessions, the most consistent declines among rolling one-hour periods when the Shanghai bourse was open for trading. So what’s behind the losses?  

• Bond Market Tantrum Cools as Headwinds Emerge From U.S. to China. The bond market tantrum is cooling off. After a selloff that lasted for most of the past two weeks, government securities are starting to recover, based on a Bank of America Corp. index. Signs of mixed economic growth from the U.S. to China to Germany revived demand for the haven of fixed-income assets.

• Toshiba Set to Drop by Limit on Extended Accounting Probe. Toshiba Corp. was set to drop by the daily limit in Tokyo trading after the industrial and electronics group withdrew its earnings forecast because of its own probe into improper accounting on infrastructure projects.

• Sharp Slumps by Limit as Panel Maker Considers Cutting Capital. Sharp Corp. plunged by the daily limit in Tokyo after the debt-saddled Japanese display maker said it’s considering reducing its capital and issuing preferred shares to shore up its balance sheet. The shares slumped as much as 31 percent to 178 yen. The stock was trading 28 percent lower as of 9:39 a.m.

• Asia Stocks Pare Gain After China Rate Cut; Euro Falls on Greece. Asian stocks pared gains as Chinese equities fluctuated after the central bank cut interest rates for the third time in six months. The euro weakened and bonds climbed as Greece struggles to secure more aid and investors digest a mixed U.S. employment report. The MSCI Asia Pacific Index rose 0.5 percent by 10:56 a.m. a.m. in Tokyo, trimming an advance of as much as 0.9 percent as stock gauges in Hong Kong and Shanghai swung between gains and losses.

Wall Street Journal: 

• IMF Works With Bank Regulators on Contingency Plans for Greek Default. Discussions with authorities in southeastern Europe aimed at girding for potential failure of bailout talks. The International Monetary Fund is working with national authorities in southeastern Europe on contingency plans for a Greek default, a senior fund official said—a rare public admission that regulators are preparing for the potential failure to agree on continued aid for Athens.

• Merkel Raps Putin Over Ukraine Conflict During Visit to Moscow. German, Russian leaders spar over history amid high-profile trip. German Chancellor Angela Merkel confronted Russian President Vladimir Putin at the Kremlin over the Ukraine crisis, balancing a tribute to Soviet losses in World War II with a rebuke of Russia’s policies today. Ms. Merkel flew to the Russian capital Sunday, a day after skipping Moscow’s vast military parade in honor of the 70th anniversary of the defeat of Nazi Germany. She joined Mr. Putin at a military wreath-laying..

• Arrests Made in Fatal Shooting of Two Mississippi Police Officers. Two suspects charged with capital murder following Hattiesburg traffic-stop shooting. Four suspects were arrested and charged in connection with the shooting deaths of two policemen after a traffic stop Saturday night in Hattiesburg, the Mississippi Bureau of Investigation said Sunday.

• China’s Smartphone Market Slows Down. With 90% of Chinese already owning a smartphone, handset makers look to win over ‘upgraders’. The world’s largest smartphone market doesn’t have much room left to grow. Smartphone shipments in China fell 4.3% in the first quarter compared with a year ago for the first time in six years, according to a new survey set to be released on Monday by International Data Corp. Rival surveys show continued growth during the quarter, but at...

• How the Clintons Worked the Angles in Haiti. Bill handled earthquake aid while Hillary was secretary of state. The nation deserved better.

Fox News:

• Saudi King Salman to miss Gulf nation summit in US. (video) Saudi Arabia's King Salman will not attend a Camp David summit of U.S. and allied Arab leaders, his foreign minister, Adel al-Jubeir, said Sunday. In a statement, al-Jubeir said the summit Thursday coincides with a humanitarian cease-fire in the conflict in Yemen, where a Saudi-led coalition is fighting Shiite rebels known as Houthis. He said Crown Prince Mohammed bin Nayef, who is also interior minister, would lead the Saudi delegation and the king's son, Deputy Crown Prince Mohammed bin Salman, who is defense minister, will also attend.

• 'Terrorism has gone viral': US officials, lawmakers warn of growing jihad-inspired attacks. (video) Top U.S. officials and lawmakers on Sunday intensified concerns about the growing threat of jihad-inspired terror attacks against the United States, after last week’s attempt in Texas and the dire FBI warning that followed. “I think there’s been an uptick in the stream of threats out there,” Texas GOP Rep. Mike McCaul, chairman of the House Committee on Homeland Security, told “Fox News Sunday.” “We’re seeing these directives on almost a daily basis. It’s very concerning. Terrorism has gone viral.”

CNBC:

• Uber-rich! Ride share phenom's valuation may top $50B with new funding: WSJ. Uber is planning to raise another large sum of money that could propel its value to $50 billion or higher, the Wall Street Journal reported Saturday, citing people familiar with the company's plans.

• Putin takes swipe at US during military parade speech. Russian president Vladimir Putin used the 70th anniversary of the end of world war two in Europe to call for a global non-bloc security system in a swipe against the US, which is boycotting the celebrations in Moscow.

Zero Hedge:

• Isolated? China & Russia Celebrate Victory Day Together, Obama Absent.

• Something Doesn't Add Up - Strong Jobs, Weak Spending, Sagging Sales. (graph)

• China Cuts Rates (Again) In Desperate Bid To Buoy Stocks, Rescue Economy. (graph)

• The Economics Of Tesla's(TSLA) PowerWall Don’t Make Sense For Most Customers In North America. (graph)

• EPS 'Beats' Lose All Meaning As Downward Revisions, Buybacks Mask Weakness.

• The 'Lumbering' US Economy. (graph)

• Chart Of The Day: Record Stock Buybacks Hit Escape Velocity. (graph)

• When Obama Talks About His "Massive Fight" With Wall Street, What Exactly Does He Refer To?

• China To Build Military Base In Africa Next To Critical Oil Transit Choke Point.

Business Insider:

• Janet Yellen is losing patience.

• Two police officers shot and killed in Mississippi.

• Central banks' plan to create market liquidity may now be having the opposite effect.

• EL-ERIAN: This is 'one of the most under-appreciated risk factors facing most investors today'.

• HERSH: The White House is lying about the killing of Osama bin Laden.

• The Senate majority leader is trying to extend the most controversial part of the Patriot Act.

Financial Times:

• US government warns hedge funds pose cyber risk. Hedge funds are a weak link in the US financial system’s defences against hackers and terrorists, the Obama administration has warned the industry. The Department of Justice has also told hedge fund investors that their data could be at risk or they could face losses if hackers breach trading systems, and it urged them to put pressure on managers to beef up cyber security.

• Fed faces limits on lending powers during crises. The Federal Reserve’s ability to give emergency loans to distressed institutions in a crisis would be restricted under legislation being prepared by lawmakers who want to stop “backdoor bailouts”. The proposed legislation — a striking challenge to the Fed from a bipartisan pair of senators — will reignite debate over whether the US succeeded in ending banks’ “too big to fail” status with its response to the financial crisis.

Telegraph:

• How the European Central Bank became the real villain of Greece's debt drama. Discretionary power exercised by the central bank has put it at the heart of Greece’s euro turmoil.

• Greece's 'war cabinet' prepares to battle EU creditors as anger mounts. The country's radical-Left leaders have concluded that there is little be gained from any further concessions to EMU creditors. 

• Why a second emerging market debt storm could be worse than the first. As the Federal Reserve moves to raise its rates, emerging markets are bracing for a second "Taper Tantrum"-style shock.

Weekend Recommendations
Barron's:

• Bullish on (HON) and (PSX).

• Bearish on (DDD).

Night Trading

• Asian indices are +.25% to +1.0% on average.

• Asia Ex-Japan Investment Grade CDS Index 105.0 -1.75 basis points.

• Asia Pacific Sovereign CDS Index 59.25 -1.0 basis point.

• S&P 500 futures -.03%.

• NASDAQ 100 futures unch.

Morning Preview Links

Earnings of Note
Company/Estimate

• (MBLY)/.07

• (DF)/.18

• (DISH)/.40

• (ICPT)/-1.78

• (NAT)/.29

• (BID)/.02

• (SSYS)/.03

• (HI)/.46

• (MTZ)/.18

• (MDR)/-.09

Economic Releases
10:00 am EST

• Labor Market Conditions Index for April.

Upcoming Splits

• None of note

Other Potential Market Movers

• The BoE rate decision, BofA Merrill Health Care Conference, Deutsche Bank Clean Tech/Utilities/Power Conference, (HCP) investor day and the (FEYE) analyst day could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by real estate 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.