Stocks Higher into Final Hour on Buyout Speculation, US Economic Data, Technical Buying, REIT/Transport Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 13.69 -1.0%

• Euro/Yen Carry Return Index 142.47 -.05%

• Emerging Markets Currency Volatility(VXY50 0 +1.3%

• S&P 500 Implied Correlation 60.66 -1.80%

• ISE Sentiment Index 103.0 +10.75%

• Total Put/Call .85 -25.44%

• NYSE Arms .97 -9.89% 

Credit Investor Angst:

• North American Investment Grade CDS Index 63.47 -.44%

• America Energy Sector High-Yield CDS Index 1,119.0 +.31%

• European Financial Sector CDS Index 77.84 +2.33%

• Western Europe Sovereign Debt CDS Index 24.39 +4.32%

• Asia Pacific Sovereign Debt CDS Index 59.62 -.19%

• Emerging Market CDS Index 295.61 +1.94%
  

• iBoxx Offshore RMB China Corporates High Yield Index 119.99 -.08%

• 2-Year Swap Spread 24.0 -.5 basis point

• TED Spread 28.0 -.75 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -20.75 +.75 basis point

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.

• Yield Curve 155.0 +6.0 basis points

• China Import Iron Ore Spot $61.85/Metric Tonne unch.

• Citi US Economic Surprise Index -52.50 +1.7 points

• Citi Eurozone Economic Surprise Index -13.90 unch.

• Citi Emerging Markets Economic Surprise Index -21.3 -.9 point

• 10-Year TIPS Spread 1.83 unch.

Overseas Futures:

• Nikkei 225 Futures: Indicating +70 open in Japan 
• China A50 Futures: Indicating -84 open in China

• DAX Futures: Indicating +39 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg:   

• Greece, Creditors Blame Each Other for Lack of Progress. (video)
• Greece’s Creditors to Meet in Berlin to Discuss Plans. Top level talks were said to be taking place in Berlin on Monday evening to hammer out a proposal that would be presented to Greece as its only realistic chance of avoiding default and safeguarding its membership of the euro. German Chancellor Angela Merkel met with French President Francois Hollande and European Commission President Jean-Claude Juncker in the German capital. Representatives of creditor institutions are said to be preparing to convene with them this evening to discuss a plan to resolve the deadlock over Greece, according to people familiar with the plan. They asked not to be named because the negotiations are private.
• ECB Has Limited Power to Help the Asset-Backed Securities Market. Investors are demanding the highest yield premium in four months to hold asset-backed securities in euros as stimulus measures fail to revive the region’s $253 billion market. The European Central Bank has bought 6.2 billion euros ($6.8 billion) of notes since November as part of a 1.1 trillion-euro quantitative-easing program that also includes covered bonds and government debt. The purchases of securities backed by business loans, mortgages and credit card debt, which are meant to encourage lenders to offer more credit, are short of expectations, according to Dipesh Mehta, a director of securitization research at Barclays Plc in London. “The recent widening of ABS bonds have made it clearer than ever in investors’ eyes that the ECB has only limited powers to rejuvenate the eurozone ABS market,” Mehta said. “The ongoing uncertainty around Greece isn’t helping either.” 
• European Stocks Rise Amid Greek Deal Optimism, U.S. Factory Data. European shares were little changed as investors watched developments in Greek debt talks. Health-care shares rose, while commodity producers fell. The Stoxx Europe 600 Index climbed 0.2 percent to 400.57 at the close of trading, having risen as much as 0.9 percent.
• Everyone's Been Worried About Liquidity in the Wrong Bond Market. Trouble is lurking in the biggest market there is. For all the talk of slumping liquidity in the corporate bond market, it's the boring old U.S. Treasury market where the trend has been most pronounced.
• Fischer Says Bankers Should Be Punished for Financial Crimes. Federal Reserve Vice Chairman Stanley Fischer said bankers who have engaged in wrongdoing should be punished, and he chided the industry for pushing back against financial regulations adopted to prevent another conflagration. “Individuals should be punished for any misconduct they personally engaged in,” Fischer said in a speech to bankers Monday in Toronto. While massive fines are being imposed on banks, “one does not see the individuals who were responsible for some of the worst aspects of bank behavior, for example in the Libor and foreign-exchange scandals, being punished severely.”
• Bay Area Broker Becomes Billionaire on Sub $10 Million Listings. The company’s collection of retail shops, offices and apartments has made it the country’s leader in private client transactions, which generally are below $10 million and make up the bulk of U.S. commercial real estate sales. It’s also made the brokerage’s founder, George Marcus, a billionaire. The low-profile billionaire gave more than $3 million along with his wife to the Democratic party in 2014, making him the eighth-largest donor, according to Politico. In July, Marcus hosted a fundraiser at his home in the Los Altos Hills attended by President Barack Obama.

CNBC:

• Cashin says: Watch Greek banks. (video) 
• Oil chart shows bear market set to resume.

ZeroHedge:

• Spot What's Wrong With This Headline.
• How Wall Street Helps US Oil Producers Extend-And-Pretend.
• Another 'Break' Adds To The Equity Bear Case. (graph)
• French Unemployment Surges By Most In 7 Months To New Record High. (graph)
• "By Almost Every Measure Stocks Are Overvalued" Warns Goldman After Slamming Corporate Buybacks. (graph)
• One Of These Two Is Not "Seasonally-Adjusted" Enough. (graph)
• The ECB Did Just As It Leaked To Its Hedge Fund Friends: European QE Activity Jumped By Over 8% In May. (graph)
• US Manufacturing PMI Weakest Since Jan, ISM Beats, Construction Spending Spikes Most In 3 Years. (graph)
• Is Our Economy's Cinderella Carriage About To Turn Into A Pumpkin? (graph)
• US Savings Rate Jumps As Americans Again Spend Less, PCE Tumbles. (graph)

Business Insider:

• The global economic 'canary in the coal mine' hasn't looked this sick since the Great Recession.
• BLACKROCK(BLK): The stock market buyback boom is an 'economic distortion' created by the Fed.
• The ISIS economy just got a huge boost.

LA Times:

• Elon Musk's growing empire is fueled by $4.9 billion in government subsidies. Los Angeles entrepreneur Elon Musk has built a multibillion-dollar fortune running companies that make electric cars, sell solar panels and launch rockets into space. And he's built those companies with the help of billions in government subsidies. Tesla Motors Inc., SolarCity Corp. and Space Exploration Technologies Corp., known as SpaceX, together have benefited from an estimated $4.9 billion in government support, according to data compiled by The Times. The figure underscores a common theme running through his emerging empire: a public-private financing model underpinning long-shot start-ups.

Bear Radar

Style Underperformer:

• Large-Cap Value +.22%

Sector Underperformers:

• 1) Gaming -2.02% 2) Coal -1.22% 3) Oil Service -.75%

Stocks Falling on Unusual Volume:

• MRTX, IMDZ, CLVS, PBYI, KONA, XPO, RAX, AVGO, BRCM, JMEI, ENBL, FUN, CNW, PIR, STRP, SNCR, GCO, VNCE, NGG, VEEV, SSP, KNX, DKL, FPRX and INFI

Stocks With Unusual Put Option Activity:

• 1) ADSK 2) EWA 3) CZR 4) VLO 5) EWG
  

Stocks With Most Negative News Mentions:

• 1) ESRX 2) PIR 3) JNPR 4) BBRY 5) MRTX
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Value +.02%

Sector Outperformers:

• 1) REITs +.98% 2) Medical Equipment +.81% 3) Homebuilders +.79%
  

Stocks Rising on Unusual Volume:

• OMG, RXDX, IMGN, ALTR, SINA, HRTX, KANG, WB, HUM, HALO, MNTA, AWAY and REGI

Stocks With Unusual Call Option Activity:

• 1) SWFT 2) ALTR 3) AWAY 4) LPI 5) ONTY
  

Stocks With Most Positive News Mentions:

• 1) IMGN 2) LMT 3) DUK 4) ALTR 5) OMG
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running 10.7% Below 100-day average
• 4 Sectors Rising, 6 Sectors Declining
• 47.1% of Issues Advancing, 49.5% Declining
• 44 New 52-Week Highs, 50 New Lows
• 51.2% of Issues Above 200-day Moving Average
• Average 14-Day RSI 41.0
• Vix 14.31
• Total Put/Call .92
• TRIN/Arms 1.26

Monday Watch

Today's Headlines 

Bloomberg: 

• Greece’s Endgame Nears as Tsipras Warns Bell May Toll for Europe. Greece faces a week of tough decisions as negotiations over a financial lifeline edged closer toward endgame with creditors showing no signs of budging over what it will take for them to release more money. As another of the government’s self-imposed deadlines for securing a deal on its finances slipped away, disagreements between the two sides on budget targets persisted, a person familiar with the matter said. Greece must make four payments totaling almost 1.6 billion euros ($1.78 billion) to the International Monetary Fund this month and its bailout package backed by the euro region expires at the end of June.
• Greece Pins Hopes on Merkel as Talks Yield Little Progress. Greece’s hopes of sealing an accord with its creditors by the end of May dimmed on Sunday, as disagreements between the two sides on budget targets persisted, a person familiar with the matter said. With technical talks yielding no breakthrough, Greek Prime Minister Alexis Tsipras is seeking the intervention of German Chancellor Angela Merkel and French President Francois Hollande. The three leaders held a “constructive” call on Sunday on the next steps, a German government official said.
• China Stock Rout Grips Market With Deja Vu of 5/30 Catastrophe. The rout wiped out about $350 billion of market value in a week on the Shanghai and Shenzhen exchanges. It so traumatized traders who eight years later they still refer to it by the date it began: the 5/30 catastrophe. The milestone for the modern Chinese stock market, which began in 1990, started on midnight, May 30, 2007, with Hu Jintao’s government unexpectedly announcing it would triple a tax on stock trading. The plunge sparked by the pronouncement had followed a breathless rally, making it eerily similar to last week’s events.  
• Bad Debts Prompt China’s Banks to Balk at Loan-Backed Bond Call. Just as Premier Li Keqiang steps up efforts to revive China’s loan-backed bond market to spur the economy, banks are balking. Chinese lenders have cut offerings of asset-backed securities 45 percent to 43.4 billion yuan ($7 billion) this year, after a 15-fold jump in 2014, Bloomberg-compiled data show. They have reduced loans for four straight months, even as policy makers expanded the securitization quota by 500 billion yuan to free up space on their balance sheets for fresh lending.
• Australia’s Treasury Says Sydney is 'Unequivocally' In a Housing Bubble. Sydney is in the grip of a housing bubble, Australia’s most-senior economic bureaucrat said in one of the strongest warnings yet by a government official. “When you look at the housing price bubble evidence, it’s unequivocally the case in Sydney -- unequivocally,” Treasury Secretary John Fraser said in testimony before a parliamentary committee in Canberra Monday. “Frankly, whatever the data says, just casual observation would tell you that’s the case.” 
• South Korea’s Exports Slump by the Most in Almost Six Years. South Korea’s exports fell the most in almost six years in May, underscoring concern that the slump in overseas sales is harming a recovery in Asia’s fourth-biggest economy. Shipments slid 10.9 percent from a year earlier, the fifth straight monthly decline, the Ministry of Trade, Industry and Energy said on Monday. Imports fell 15.3 percent and the trade surplus was $6.32 billion.
• Asian Stocks Fall as Investors Weigh U.S. Economy, Await Data. Asian stocks fell amid concern about the strength of U.S. economic growth and as investors awaited manufacturing data from China. The MSCI Asia Pacific Index lost 0.4 percent to 150.75 as of 9:01 a.m. in Tokyo.

Wall Street Journal: 

• U.S. Drug Shortages Frustrate Doctors, Patients. Drugs in short supply include cancer treatments and antibiotics; manufacturing snafus.
• OPEC’s Pricing Leverage Is Weakening. OPEC expected to leave crude oil output unchanged, showing how cartel’s power to sway prices has ebbed.
• For Fed, Dollar’s Strength Complicates Rate-Hike Calculus. Currency’s movement, among other factors, could prompt Federal Reserve officials to lower growth forecasts and hold off even longer on raising rates. 
• The Shale Boom Shifts Into Higher Gear. Oil production is becoming a modern manufacturing process, with frackers using the ‘just-in-time’ approach. 

MarketWatch.com: 

• Brennan warns Islamic State threatens U.S. CIA Director John Brennan warned Sunday the threat of Islamic State that is destabilizing the Middle East has “great potential” to reach the United States.
• Why the American Dream is unraveling, in 4 charts. (graph) 

CNBC:

• Market's next concern may float in South China Sea. Although recent price action suggests otherwise, a slow-burning geopolitical situation in the South China Sea may yet become a flashpoint for market volatility.
• Intel(INTC) close to $17B Altera tie-up: Reports.

Zero Hedge:

• Mapping An ISIS Advance: Syria On The Brink.
• When The "Sharing" Economy Goes Too Far: Syphillis Cases Soar 79% In A Year. Sexually transmitted diseases are on the rise in the US, with health officials pointing the finger at casual sex arranged through social media as "the perfect storm." With gonorrhea up 30%, HIV infections up by 33%, and syphilis soaring a shocking 79% in the last year alone, perhaps they have a point.
• This Is How Little It Cost Goldman(GS) To Bribe America's Senators To Fast Track Obama's TPP Bill. 
• "The Fed Has Been Horribly Wrong" Deutsche Bank Admits, Dares To Ask If Yellen Is Planning A Housing Market Crash.
• Defiant Tsipras Warns European Leaders They Are "Making A Grave Mistake".
• How Much More Extreme Can Markets Get? (graph)
• The Pressure Just Shifted From Greece To The US & EU.
• John Kerry Goes Biking In France, Hits Curb, Breaks Leg; Will Fly Back To US In "Specially Outfitted Aircraft".
• China Will Establish No-Fly Zone Over Islands If "Threatened"
• The 10 Most Important Themes To Watch This Summer.
• A First-Hand Account Of The Greek Bank Run.

Business Insider:

• The Iraqi campaign to retake Ramadi from ISIS is a looming disaster.
• ROBERT SHILLER: 'There is a bubble element to what we're seeing.'
• Iran is looking for ways to dodge a key component of the nuclear deal.
• China's slowdown and a Fed rate hike might be the top threats to the world economy this year.
• Margin debt (red in the chart above) hit a new high in April. (graph)
• A new drug could double the life expectancy of lung cancer patients.
• This May has been the deadliest month in Baltimore in nearly 45 years.

Financial Times:

• Shadow banks grab record US loans share. Non-bank lenders have overtaken US banks to grab a record slice of government-backed mortgages, after regulatory curbs on risk-taking and billions of dollars in fines forced mainstream providers to retreat from the $9.8tn home loan market.

Weekend Recommendations

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 107.0 unch.

• Asia Pacific Sovereign CDS Index 59.75 +1.75 basis points.

• S&P 500 futures +.19%.

• NASDAQ 100 futures +.24%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (PVH)/1.38

Economic Releases

8:30 am EST

• Personal Income for April is estimated to rise by +.3% versus unch. in March.
• Personal Spending for April is estimated to rise by +.2% versus a +.4% gain in March.
• The PCE Core for April is estimated to rise by +.2% versus a +.1% gain in March. 

9:45 am EST

• Final Markit US Manufacturing PMI for May is estimated at 53.8 versus a prior estimate of 53.8.

10:00 am EST

• Construction Spending for April is estimated to rise +.7% versus a -.6% decline in March. 
• ISM Manufacturing for May is estimated to rise to 52.0 versus 51.5 in April.
• ISM Prices Paid for May is estimated to rise to 43.0 versus 40.5 in April.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Rosengren speaking, Eurozone PMI data, Eurozone CPI report, Bank of Australia rate decision, Jefferies Healthcare Conference, Goldman Lodging/Gaming/Restaurant/Leisure Conference, (ZTS) annual meeting and the (BLOX) analyst day could also impact trading today.

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