Stocks Slightly Lower into Final Hour on Rising Long-Term Rates, Fed Rate Hikes Fears, Profit-Taking, Healthcare/Utility Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Higher
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 14.24 +1.93%

• Euro/Yen Carry Return Index 144.64 +1.59%

• Emerging Markets Currency Volatility(VXY) 9.51 unch.

• S&P 500 Implied Correlation 60.66 -1.80%

• ISE Sentiment Index 135.0 +35.0%

• Total Put/Call .88 +2.33%

• NYSE Arms .60 -43.65% 

Credit Investor Angst:

• North American Investment Grade CDS Index 63.91 +.32%

• America Energy Sector High-Yield CDS Index 1,146.0 +2.34%

• European Financial Sector CDS Index 74.75 -3.76%

• Western Europe Sovereign Debt CDS Index 24.28 -.45%

• Asia Pacific Sovereign Debt CDS Index 59.61 -.18%

• Emerging Market CDS Index 293.06 -.16%
  

• iBoxx Offshore RMB China Corporates High Yield Index 119.99 -.01%

• 2-Year Swap Spread 23.75 -.25 basis point

• TED Spread 28.25 +.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -19.0 +1.75 basis points

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.

• Yield Curve 161.0 +6.0 basis points

• China Import Iron Ore Spot $63.02/Metric Tonne +1.89%

• Citi US Economic Surprise Index -53.10 -.6 point

• Citi Eurozone Economic Surprise Index -5.5 +8.4 points

• Citi Emerging Markets Economic Surprise Index -19.90 +1.4 points

• 10-Year TIPS Spread 1.85 +2.0 basis points

Overseas Futures:

• Nikkei 225 Futures: Indicating -107 open in Japan 
• China A50 Futures: Indicating -123 open in China

• DAX Futures: Indicating +9 open in Germany

Portfolio: 

• Slightly Lower: On losses in my biotech/tech sector longs

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:    

• Greek Standoff Takes Another Twist as Dueling Plans Are Drafted. The impasse over Greece’s future lingered as both sides worked on rival proposals for the conditions of a financial lifeline with debt payments looming. Greek Prime Minister Alexis Tsipras said his government submitted a new plan, while officials from the country’s creditors were said to be finalizing what would be a final offer to avoid the country defaulting. While the euro rallied on optimism over a deal, Dutch Finance Minister Jeroen Dijsselbloem, who leads the euro-area finance ministers’ group, said institutions are still far from any agreement.  
• European Stocks Fall to Two-Week Low Amid Greece Debt Standoff. (video) European stocks fell for the third time in four days as investors speculated whether Greece will reach an agreement with creditors before it runs out of time and money. The Stoxx Europe 600 Index declined 1 percent to 396.45 at the close of trading, after losing as much as 1.3 percent. The ASE Index dropped 2.5 percent to the lowest level in almost a month, as Greek markets reopened after a holiday.
• Treasuries Fall by Most in Two Weeks as European Bonds Sell Off. Treasuries fell by the most in two weeks as a European bond-market selloff intensified and stronger U.S. economic data added to speculation the Federal Reserve may raise interest rates this year. Yields are climbing along with those on German bunds as European leaders aim to avert a default by Greece, damping demand for a refuge. The shift from haven assets comes as reports such as one Monday showing an improvement in manufacturing add to expectations of U.S. growth before the release of the May employment report at the end of the week.
• Russia Oil Output Near Record Swells Global Glut Before OPEC. Russian oil output neared a record in May, damping speculation before OPEC meets this week that major producers may cooperate to curb a global supply glut. Production of oil and natural-gas condensate climbed 1.6 percent from a year earlier to 10.708 million barrels a day, close to January’s post-Soviet high of 10.713 million barrels a day, according to preliminary data from the Energy Ministry’s CDU-TEK unit.
• Amazon(AMZN) Debuts Free Shipping on Small Goods Without Minimum Order.

MarketWatch.com:

• More find Hillary Clinton untrustworthy in new poll.

ZeroHedge: 

• It's Official: The "Helicopter Money" Calls Have Begun.
• EURUSD Up 300 Pips In Last 24 Hours, Dollar's 2nd Biggest Drop In 6 Years. (graph)
• Who's On The Other Side Of The Trade?
• German Bund Carnage Ends With Worst Day In 3 Years. (graph)
• China Goes Full BTFD-tard: Record New Trading Account Openings Send Stocks Up 16% In 2 Days. (graph)
• Expect The Recent Oil Rally To End Badly If OPEC Doesn’t Cut. (graph)
• Albert Edwards: Yen Collapse Will Lead To "New Round Of Currency Turmoil", Deflation In US And Eurozone.
• A Bubble On Thin Ice. (graph)
• Recovery 2015: Use Of Non-Bank Credit (e.g. Payday Loans) Continues To Soar. (graph)
• TSA Agents Failed To Catch 95% Of Mock Bombs And Weapons.

Business Insider: 

• FIFA PRESIDENT SEPP BLATTER TO RESIGN.
• Iraqi prime minister: 'We lost 2,300 Humvees' to ISIS in Mosul alone.
• ISIS could win if these 4 things happen.

Telegraph:

• Greece and creditors still at odds as country slides towards abyss. Jeroen Dijsselbloem, head of the Eurogroup of finance ministers, says deal unlikely this week as creditors will not meet Greece "half way" while Syriza vows never to "succumb to blackmail".

Bear Radar

Style Underperformer:

• Mid-Cap Value -.06%

Sector Underperformers:

• 1) Utilities -1.77% 2) HMOs -1.63% 3) Semis -.94%

Stocks Falling on Unusual Volume:

• BXMT, PBYI, RGLS, SIAL, FGP, CG, IMGN, BTI, CTRP, CMT, AMBA, HUBS, TOUR, VCLT, ACOR, TUBE, IRM, LNT, IHS, CTLT, DAL, CI, USCR, AAWW, KANG and PPL

Stocks With Unusual Put Option Activity:

• 1) ETFC 2) EWC 3) CZR 4) BRCM 5) EWY
  

Stocks With Most Negative News Mentions:

• 1) CTRP 2) IRM 3) ITC 4) MO 5) GLF
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Value +.09%

Sector Outperformers:

• 1) Steel +3.78% 2) Oil Service +2.72% 3) Gold & Silver +1.85%
  

Stocks Rising on Unusual Volume:

• RXDX, ZION, CONN, JUNO, VNDA, PVH, YOKU and KITE

Stocks With Unusual Call Option Activity:

• 1) CTXS 2) FFIV 3) ETFC 4) KKR 5) FTR
  

Stocks With Most Positive News Mentions:

• 1) ZION 2) PVH 3) CBRL 4) TRN 5) JEC
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

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.