Morning Market Internals

NYSE Composite Index:

• Volume Running 9.4% Below 100-day average
• 3 Sectors Rising, 7 Sectors Declining
• 48.5% of Issues Advancing, 48.4% Declining
• 22 New 52-Week Highs, 21 New Lows
• 52.5% of Issues Above 200-day Moving Average
• Average 14-Day RSI 41.7
• Vix 14.16
• Total Put/Call 1.03
• TRIN/Arms .59

Tuesday Watch

Evening Headlines 

Bloomberg: 

• European Leaders, IMF Meet Secretly in Berlin. (video) 

• China Debt Markets Show Stress Amid Duck Maker Loan Default. China’s debt markets signaled more stress as a duck processor cited increasing difficulty getting credit as it defaulted on bank loans ahead of a bond deadline next week. Zhong’ao Holdings Group Co., a closely held maker of smoked duck leg and other foods, owes banks 295.96 million yuan ($47.7 million) in loan principal and interest, according to a statement dated June 1 on Chinamoney. The company, based in the eastern province of Shandong, must repay 200 million yuan of 7.39 percent notes on June 12.  

• Cancer Epidemic Sweeping Through China. (video)

• China Stocks in Hong Kong Decline as Insurance Companies Drop. China’s stocks trading in Hong Kong fell, led by insurers, after the index rose the most in a week on Monday. The Shanghai Composite Index swung between gains and losses. Ping An Insurance (Group) Co. and Air China Ltd. fell more than 1 percent in Hong Kong. Zoomlion Heavy Industry Science and Technology Co. jumped 10 percent on a plan to buy Italian renewables company Ladurner Ambiente. Hong Kong’s Hang Seng China Enterprises Index dropped 0.9 percent to 14,172.88 at 9:46 a.m. local time. The Hang Seng Index lost 0.5 percent.

• Asian Stocks Retreat as Copper Slips With Oil; Aussie Rebounds. Most Asian stocks fell, led by consumer and raw materials companies, as copper drove a retreat among industrial metals and crude oil slipped a second day. Australia’s dollar rallied before an interest-rate review. The MSCI Asia Pacific Index slipped a second day, down 0.4 percent by 11:06 a.m. in Tokyo as benchmarks in Australia and South Korea dropped at least 0.5 percent.

• Euro’s Growing Ties to Oil Only Encourage Bears Seeing Parity. If you want to know which way the euro’s headed, ask an oil trader. The euro-dollar rate is tracking crude prices more closely than at any time in the past two years. The European Central Bank gives more weight to the impact of energy prices on inflation than the Federal Reserve, so when oil started falling in the middle of last year it was one more reason for Europe to step up monetary stimulus to boost price growth.

• Bank of America: U.S. Home Prices Set for a Fall in 2017. Americans will face falling home prices in a matter of years as personal income gains fail to keep pace with the recovery from the financial crisis, according to a Bank of America Corp. analyst. Chris Flanagan predicted in a report Monday that starting in 2017 the U.S. housing market will experience three straight years of “modest” declines in property values.

Wall Street Journal:

• More Health-Care Insurers Seek Big Premium Increases. The Obama administration published more information about hefty 2016 proposals. The Obama administration published more information Monday about hefty premium increases for 2016 sought by large insurers selling plans under the health law. Major carriers from around the country are proposing big increases in the premium rates paid by consumers who buy insurance policies on their own.

• The FIFA-Clinton Method. Nothing embarrasses them, so nobody stops them. Ubiquitous but opaque. Powerful but unaccountable. Ostensibly public spirited but relentlessly mercenary. Often shamed but unshakably shameless. Let us count the ways in which the Clinton Foundation resembles the Fédération Internationale de Football Association, better known as FIFA.

Zero Hedge:

• A Hurt Ben Bernanke Explains That He Is Not Responsible For Record Inequality, Epic Hilarity Ensues.

• From The Keynesian Archives: Who Said In 2010 That "Europe Is An Economic Success".

• Carl Icahn Is "Extremely Worried" About Stocks, Warns "It's Not If, But When It Will Happen". (video)

• Inside Q1's Punk GDP Numbers - Why Bubble Vision Doesn't Get It. (graph)

• Chart Of The Day: It's Worse Than 2000! (graph)

• The Caitlyn Jenner Rally Clipped - Now You See It, Now You Don't. (graph)

• May Consumer Spending Has Biggest Annual Drop Since Great Financial Crisis, Gallup Survey Finds. 

• Hacked Emails Expose George Soros As Ukraine Puppet-Master.

• Here's What Happens When Your City Is Cut To Junk. (graph)

• China May Double Down On Debt Swap As ABS Issuance Stumbles.

Business Insider:

• A perfect ACT score couldn't get this student into Yale, Princeton, or Stanford, and he says it's because he's Asian-American.

• A national egg shortage is threatening fast food breakfast.

• REPORT: HSBC is getting ready to cut up to 20,000 jobs.

• Russia is about to start construction on new Iranian nuke plant.

• The Fed's 'liquidity regime' has has made the market far more dangerous for investors.

• A yacht carrying more than 450 people sank during a cyclone in China.

Financial Times:

• China duck producer defaults after banks toughen credit stance. A profitable Chinese duck processing company has defaulted on its debts after banks refused to roll over its loans — in a sign of lenders’ wariness over refinancings as China’s economy slows.

Telegraph:

• Greece must stop hoping for a miracle - it needs to leave the euro. The best way for Greece to relearn the importance of economic orthodoxy is for it to test to destruction its own monetary policy, its own tax system and its own-self imposed rules.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -1.25% to unch. on average.

• Asia Ex-Japan Investment Grade CDS Index 107.5 +.5 basis point.

• Asia Pacific Sovereign CDS Index 59.75 unch.

• S&P 500 futures -.03%.

• NASDAQ 100 futures -.03%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (AMWD)/.56

• (CONN)/.41

• (CBRL)/1.37

• (DG)/.81

• (MDT)/1.08

• (ABM)/.35

• (GIII)/.07

• (GES)/-.05 

Economic Releases 

9:45 am EST

• ISM New York for May is estimated to fall to 58.0 versus 58.1 in April.

10:00 am EST

• Factor Orders for April are estimated to fall by -.1% versus a +2.1% gain in March.

• IBD/TIPP Economic Optimism for June is estimated to rise to 49.8 versus 49.7 in May.
  

Afternoon:

• Total Vehicle Sales are estimated to rise to 13.2M versus 12.88M in April.

Upcoming Splits

• None of note

Other Potential Market Movers

• The China Services PMI report, German Unemployment report, US weekly retail sales reports, Deutsche Bank Financial Services Conference, Stephens Investment Conference, CSFB Energy Conference, CSFB Homebuilding Conference, BofA Tech Conference, (URBN) annual meeting, (VNCE) annual meeting and the (IFF) investor day could also impact trading today.

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

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