Thursday Watch

Evening Headlines 

Bloomberg:

• Greek Groundhog Day Continues With Talks Failing to Break Impasse. Another round of top-level talks failed to resolve the standoff between Greece and its creditors as Prime Minister Alexis Tsipras rejected proposals that would facilitate the disbursement of bailout funds necessary to avert a default. After a meeting in Brussels with European Commission President Jean-Claude Juncker and Dutch Finance Minister Jeroen Dijsselbloem, who also heads the group of his euro-area counterparts, Tsipras said the basis for any agreement must be a Greek proposal meant to avoid more spending cuts and tax rises rather than a plan drafted in recent days by creditors.

• Ukraine Offensive Rekindles Sanctions Threat as Ruble Stumbles. A sudden military build-up by pro-Russian rebels in eastern Ukraine has investors taking another look at the sanctions risk for Russian assets. The ruble fell the most in more than six weeks and yields on five-year government bonds climbed to one-month highs after Ukraine’s military said Wednesday that separatists attacked the Donetsk-region town of Maryinka. The rising tensions jeopardize a three-month truce between rebels and the government in Kiev and escalates risks before a European Union meeting later this month to review penalties imposed on Russia for its role in the conflict.  

• European Dream Just a Fairy Tale to New Breed of Eastern Leaders.

• China’s Hot IPO Market Lures $273 Billion to $2 Billion Offering. China’s initial public offerings are such hot commodities that a company seeking to raise $2 billion attracted total bids for an amount almost equaling the entire annual economic output of Hong Kong. China National Nuclear Power Co., the country’s second-biggest atomic power operator, locked up 1.69 trillion yuan ($273 billion) in bids for its IPO, according to a company statement posted on the Shanghai Stock Exchange’s website. Investors have been drawn to newly issued stocks traded in mainland China as they typically surge in initial trading, partly because regulators discourage companies from selling shares at high valuations. The 144 firms that went public this year jumped by an average 539 percent so far, including a 44 percent increase on the first day of trading, according to data compiled by Bloomberg. China National Nuclear’s $2 billion offering would be the biggest since August 2010. 

• Chinese Tech Magnate Sees Bubble in Industry That Made Him Rich. Share prices for China’s listed chipmakers have almost tripled over the past year amid a world-beating rally in mainland equities that added $6.4 trillion to the country’s market capitalization. About 80 percent of Chinese semiconductor companies earned less than $50 million in their last financial year, while almost half trade at more than 100 times profit.

• Bond Rout Not Enough for Gross as China Stocks Seen Next to Drop. One of the world’s most famous bond investors can’t take his eyes off Shenzhen’s stock market. Bill Gross, busy building his new Janus Global Unconstrained Bond Fund amid a global rout in debt markets, took to Twitter on Wednesday to declare that shares in the southern Chinese city are the next big trade for short sellers. So what’s going on in Shenzhen -- the former fishing village opposite Hong Kong -- to grab the attention of the erstwhile Pacific Investment Management Co. bond king 7,300 miles away in California?

• Brazil Signals Worst Recession in 25 Years Won’t Stop Rate Boost. Brazil’s central bank signaled the deepest recession in a quarter century won’t stop it from extending the only interest-rate increase among major world economies. Policy makers raised benchmark-borrowing costs by 0.50 percentage point for a fifth-straight meeting Wednesday to 13.75 percent, matching the estimates of 55 of 56 analysts surveyed by Bloomberg. Language from the board’s statement matched that of the previous three communiques. Economists and traders forecast central bank President Alexandre Tombini will fail to fulfill his pledge of bringing the fastest inflation in 11 years to the 4.5 percent target next year. Policy makers are trying to persuade investors that they will do what it takes to rein in consumer prices as unemployment surges and the economy contracts.

• Iran Military Prowess Advances Amid Nuclear Talks, Pentagon Says. Iran continues to develop technologies that “could be applicable to nuclear weapons,” including ballistic missiles, at the same time it’s working to complete a deal to curb its nuclear program, the U.S. Defense Department said. Iran has “fulfilled its obligations” under the Joint Plan of Action reached with the U.S. and five other world powers and has “paused progress” in parts of its nuclear program, according to an unclassified summary from a Pentagon assessment of Iran’s military capability.

• China Stocks Slump as Technology Firms Sink on Valuation Concern. China’s stocks fell as a gauge of technology shares sank on concern recent gains have been too far, too fast. The Shanghai Composite Index slid 1.8 percent to 4,822.42 at the 11:30 a.m. local-time break after changing direction about seven times. A gauge of hi-tech companies sank 3.6 percent, paring its gain this year to 124 percent. Shares also declined amid concern a flood of new equity sales will lure liquidity from existing stocks.

• Asian Stock Indexes Advance Amid Optimism on Greece Debt Talks. Asian stock indexes rose after a rebound in U.S. shares as investors speculated Greece will reach a deal with its creditors. Japan’s benchmark gauge climbed as the yen declined against the dollar. The MSCI Asia Pacific Index traded little changed at 150.23 as of 9:10 a.m. in Tokyo.

• OPEC Braces for More Oil as Iran, Iraq Declare Plans to Grow. Never mind cutting output to staunch a global glut, the talk so far at this week’s OPEC summit is mostly about pumping more oil. Iraq will increase exports this month as fighting with Islamic State militants spares its biggest-producing regions, the country’s oil minister said Wednesday. His counterpart from Iran urged the group to make room for more output when global sanctions recede. The prospect of more supply led BP Plc’s chief executive officer to predict price “softness” will persist.   

• Iron Ore Shipments From Port Hedland Surge to Record in May. Iron ore exports from Australia’s Port Hedland expanded to an all-time high in May on increased low-cost supply from the world’s largest shipper. Cargoes from the biggest bulk-export terminal climbed 7.4 percent to 38 million metric tons last month from April, according to data from the Pilbara Ports Authority. That compares with 36.05 million tons the same month a year earlier, the figures showed.

• IEA Cuts Gas Growth Outlook a Third Year as Asian Demand Falters. Global natural gas use will rise at a slower pace than previously forecast amid lower-than-expected growth in Asian demand, said the International Energy Agency, cutting its outlook for a third consecutive year.

• Who Needs Fed as Bond Market Already Lifting Rates Far and Wide. After almost seven years of low borrowing costs engineered by central bankers, consumers and companies are getting a preview of what’s next. A global bond selloff is translating into a real world impact, with yields on U.S. mortgage bonds that guide home-loan rates reaching the highest level since October and corporate borrowing costs climbing to the most this year. For all the speculation about when the Federal Reserve will raise short-term interest rates, the bond market is the ultimate driver of most borrowing costs. And it’s now showing its power, as a two-month jump in yields threatens to wipe out all of 2015 returns in bonds globally.

Wall Street Journal:

• SEC Bickering Stalls Mary Jo White’s Agenda. Pledge to ‘expeditiously’ finalize postcrisis rules thwarted by quarrelling among members.

• Barack Obama, Re-Founding Father. It isn’t just “Obama’s power grabs.” It’s a revision of the Founders’ original vision. To the list of questions Hillary Clinton will never answer, add one more: Would a second Clinton presidency continue and expand Barack Obama’s revision of the American system of government that existed from 1789 until 2009?

Fox News:

• 'Deceptive assault': Obama NLRB seeks to gut right-to-work laws, say critics. Opponents of Big Labor complained to lawmakers Wednesday that the Obama administration's National Labor Relations Board is poised to gut right-to-work laws with a seemingly simple tweak they claim could leave independent workers at the mercy of the unions they rejected.

CNBC:

• Dish(DISH) in talks to merge with T-Mobile(TMUS): Report.

Zero Hedge:

• Tspiras Says "Don't Worry" About IMF Payment After Latest Failure To Clinch Deal.

• Presenting The Next Great Source Of Middle Class Prosperity. With PNC's "cash out auto loan," you can put your vehicle "to work" by pledging it as collateral for a cash loan. Welcome to the Great American auto bubble, now at PNC soon at every bank near you.

• A Member Of The Middle Class Responds To Jon Hilsenrath.

• America's Discouraged, Underpaid Workforce Turns To Drugs. (graph)

• Bond Crash Continues - Aussie & Japan Yields Burst Higher. (graph)

• The Definition Of An Unfree Market. Maybe the FOMC is worried that the ‘no free lunch’ concept makes them suspicious of the possibility of a meaningfully deleterious market reaction which could have a negative impact on the broader economy.  However, under this logic, delaying a hike would only exacerbate such a response. 

• Why Did These Former Fed Members Admit Mathematically, Logically, & In Reality: "It's Over"?

• How To Spot A Bubble. (graph)

• Bonds Down, Dollar Down, Crude Down, Service Economy Down... Stocks Up. (graph)

Business Insider:

• Australia just posted a horrible trade deficit, the worst since the GFC.

• The OECD just gave the global economy a B-Minus for growth, says business can do better.

• The IPO market is getting bubbly.

• OPEC is losing its ability to set global oil prices.

• Meet some of the big winners of the Wall Street-Washington revolving door policy.

• Europe's bond markets are spiraling out of control.

• The Aussie dollar got smoked on weak data.

Telegraph:

• Greek PM heads for showdown in Brussels as deadlock continues. Alexis Tsipras, Greece's prime minister, heads to Brussels for talks as Mario Draghi calls for "strong agreement" between Athens and its creditors.

Economic Information Daily:

• China May Announce VAT Plan for Finance Industry in July. China may announce value-added tax reform plan for the real estate, finance and consumer-oriented services industries in end-June or early-July, citing people familiar with the matter. VAT rate for real estate sector may be set at 11% and consumer-oriented services industry at 6%.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -1.5% to unch. on average.

• Asia Ex-Japan Investment Grade CDS Index 107.5 +1.0 basis point.

• Asia Pacific Sovereign CDS Index 59.75 +.25 basis point.

• S&P 500 futures -.14%.

• NASDAQ 100 futures -.17%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (CIEN)/.23

• (SJM)/.99

• (JOY)/.56

• (MIK)/.33

• (NAV)/-.17

• (COO)/1.75

• (PAY)/.42

• (VNCE)/.05

• (ZOES)/-.02

• (ZUMZ)/.12

Economic Releases

8:30 am EST

• Final 1Q Non-Farm Productivity is estimated to fall -3.0% versus a prior estimate of a -1.9% decline.

• Final 1Q Unit Labor Costs are estimated to rise +6.1% versus a prior estimate of a 5.0% gain.

• Initial Jobless Claims for last week are estimated to fall to 278K versus 2821K the prior week.

• Continuing Claims are estimated to fall to 2207K versus 2222K prior.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Tarullo speaking, Challenger Job Cuts for May, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, CSFB Construction Conference, (LSTR) mid-quarter update and the (AEO) annual meeting  could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and real estate 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 Modestly Higher into Final Hour on Greece Deal Optimism, Diminished Global Growth Fears, Short-Covering, Gaming/Financial Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Below Average

• Market Leading Stocks: Outperforming

Equity Investor Angst:

• Volatility(VIX) 13.67 -4.0%

• Euro/Yen Carry Return Index 146.22 +1.13%

• Emerging Markets Currency Volatility(VXY) 9.47 -.11%

• S&P 500 Implied Correlation 62.38 +.79%

• ISE Sentiment Index 134.0 unch.

• Total Put/Call .92 +1.10%

• NYSE Arms .90 +18.77% 

Credit Investor Angst:

• North American Investment Grade CDS Index 64.89 +1.46%

• America Energy Sector High-Yield CDS Index 1,151.0 +.57%

• European Financial Sector CDS Index 74.30 -.73%

• Western Europe Sovereign Debt CDS Index 23.38 -3.71%

• Asia Pacific Sovereign Debt CDS Index 59.72 +.35%

• Emerging Market CDS Index 297.06 +1.75%
  

• iBoxx Offshore RMB China Corporates High Yield Index 120.02 +.03%

• 2-Year Swap Spread 24.25 +.5 basis point

• TED Spread 27.75 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -18.5 +.5 basis point

Economic Gauges:

• 3-Month T-Bill Yield .01% +1.0 basis point

• Yield Curve 169.0 +8.0 basis points

• China Import Iron Ore Spot $63.33/Metric Tonne +.49%

• Citi US Economic Surprise Index -51.50 +1.6 points

• Citi Eurozone Economic Surprise Index 4.60 +10.1 points

• Citi Emerging Markets Economic Surprise Index -19.0 +.9 point

• 10-Year TIPS Spread 1.85 unch.

Overseas Futures:

• Nikkei 225 Futures: Indicating +121 open in Japan 

• China A50 Futures: Indicating -179 open in China

• DAX Futures: Indicating -9 open in Germany

Portfolio: 

• Higher: On gains in my biotech/retail/tech sector longs and emerging markets shorts

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

• Market Exposure: 50% Net Long

Bear Radar

Style Underperformer:

• Mid-Cap Value -.16%

Sector Underperformers:

• 1) Coal -3.15% 2) Utilities -1.85% 3) REITs -1.35%

Stocks Falling on Unusual Volume:

• FGP, INXN, VRA, SABR, TVPT, RAVE, BFR, LBRDA, PAM, USLV, AFAM, RGLS, INDY, LHCG, MOH, NGLS, IFF, NVIV, QTS, SXE, XEL, KTWO, NGG, BOOT and ETE

Stocks With Unusual Put Option Activity:

• 1) FOXA 2) XBI 3) PSX 4) AKS 5) MS
  

Stocks With Most Negative News Mentions:

• 1) DF 2) AAL 3) VRA 4) KEG 5) ETSY
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +.59%

Sector Outperformers:

• 1) Gaming +1.83% 2) Steel +1.48% 3) Banks +1.27%
  

Stocks Rising on Unusual Volume:

• SNCR, WEN, HRTX, GIII, AMBA, CUZ, VDSI, ASNA, HALO and NUAN

Stocks With Unusual Call Option Activity:

• 1) GES 2) TWX 3) FTR 4) OC 5) INVN
  

Stocks With Most Positive News Mentions:

• 1) GIII 2) NUAN 3) AMBA 4) DG 5) FB
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running 11.1% Below 100-day average
• 8 Sectors Rising, 2 Sectors Declining
• 54.1% of Issues Advancing, 42.8% Declining
• 50 New 52-Week Highs, 25 New Lows
• 52.6% of Issues Above 200-day Moving Average
• Average 14-Day RSI 42.9
• Vix 13.79
• Total Put/Call .88
• TRIN/Arms .83

Wednesday Watch

Evening Headlines 

Bloomberg: 

• Greek Stalemate Leaves Tsipras Facing Final Offer From Creditors. Greek Prime Minister Alexis Tsipras heads to Brussels for talks after finding himself boxed into a corner as creditors prepare to deliver a final proposal to end the stalemate over a financial lifeline. After European leaders and the head of the International Monetary Fund held talks in Berlin on Monday night, creditors agreed on a document designed to avert a default that will be presented to Greece. Tsipras, who said the only plan on the table was one his government submitted, will meet European Commission President Jean-Claude Juncker on Wednesday.
• Hong Kong PMI Gauge Slumps to Lowest Since 2011 on China Drag. A gauge of Hong Kong’s economic health worsened to the weakest level since September 2011 last month as the drag from a slowdown in mainland China intensified. The Hong Kong Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics fell to 47.6 in May, from 48.6 a month earlier. Weaker client demand in mainland China was a key factor driving new business lower, with new order intakes from the mainland falling at the sharpest rate since December 2008, according to the report. Numbers below 50 signal contraction. Hong Kong’s high-end stores have been weighed by slower economic growth in China and a campaign against corruption. Retail sales in the city fell 2.2 percent from a year earlier in April, data Tuesday showed. 
• Who Cares About China’s Economy When Stocks Are Rising This Much. (graph)
• China Stocks Drop for First Time in Three Days in Volatile Trade. Chinese stocks fell for the first time this week amid rising volatility. Utilities and consumer companies led losses as all 10 industry groups in the CSI 300 Index dropped. Huadian Power International Corp. and dairy producer Inner Mongolia Yili Industrial Group Co. lost more than 3 percent. China Construction Bank Corp. dropped 1.4 percent and Shanghai Pudong Development Bank Co. declined 1 percent after the government said it will allow them to issue certificates of deposits, raising concern the cost of attracting deposits will increase. The Shanghai Composite Index dropped 1 percent to 4,860.58 at the 11:30 a.m. break after changing directions about nine times.
• Most Asia Stocks Fall Amid Greece Standoff as Japan Drops on Yen. Most Asian stocks fell as Japanese shares slid on a stronger yen and investors awaited the outcome of talks between Greece and its creditors. About three shares dropped for every two that advanced on the MSCI Asia Pacific Index, which slipped less than 0.1 percent to 150.41 as of 9:02 a.m. in Tokyo. Japan’s Topix index sank 0.3 percent after the yen gained 0.5 percent against the dollar on Tuesday.
• Goldman Sachs(GS) to Companies: Stop Buying Back Your Stock.

Wall Street Journal:

• The Least Transparent Administration. How Team Obama stymies freedom of information requests.

Fox News:

• HRC EMAILS: Federal officials voiced growing alarm over Clinton’s compliance with records laws, documents show. (video) Over a five-year span, senior officials at the National Archives and Records Administrations (NARA) voiced growing alarm about Hillary Clinton’s record-keeping practices as secretary of state, according to internal documents obtained by Fox News.
• ISIS' frightening arsenal: Remote-controlled sniper rifles, steel plated suicide trucks. (video) Captured ISIS weapons show the black-clad militants are developing an arsenal of sophisticated arms, and Kurdish fighters told FoxNews.com they fear the terrorist force's expanding manufacturing capability is making it more formidable by the day.

Zero Hedge:

• Fed Mouthpiece Jon Hilsenrath Furious "Stingy" US Consumers Refuse To Buy The "Recovery" Propaganda.
• Sounding The Alarm On The Country's Vulnerability To An EMP.
• The Defaults Continue In China As Duck Producer Sinks. (graph)
• Greece Faces Moment Of Truth: Troika To Present Final Offer On Wednesday.
• Caught On Tape: Hillary Puts "Everyday American" In Her Proper Place. (video)
• This Is What Market Mania Looks Like. (graph)
• From Whence Cometh Our Wealth - The People's Labor Or The Fed’s Printing Press?
• Auto Sales Reach 10 Year Highs On Record Credit, Record Loan Terms, & Record Ignorance. (graph)
• Blood On The Street In The Big Boys' Markets: Bonds & Dollar "Blatter"-ed.
• Crude Slides After API Shows Another Inventory Build. (graph)
• Chinese Stocks Stumble As Hanergy Debt Debacle Looms Over All The 500%-Club. (graph)

Business Insider:

• Stocks crashed the last two times this happened.
• Denial has become the most crowded trade on Wall Street.
• WikiLeaks offers $100,000 bounty for the secret chapters of Obama's landmark Pacific trade deal.

Evening Recommendations 

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 106.5 -1.0 basis point.

• Asia Pacific Sovereign CDS Index 59.5 -.25 basis point.

• S&P 500 futures +.04%.

• NASDAQ 100 futures +.01%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (BF/B)/.66
• (NX)/.00
• (VRA)/.02
• (DRC)/.12

Economic Releases

8:15 am EST

• The ADP Employment Change for May is estimated at 200K versus 169K in April.
  

8:30 am EST

• The Trade Deficit for April is estimated at -$44.0B versus -$51.4B in March.

9:45 am EST

• The Final Markit US Services PMI for May is estimated at 56.4 versus a prior reading of 56.4.

10:00 am EST

• The ISM Non-Manufacturing Composite for May is estimated to fall to 57.0 versus 57.8 in April.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,077,780 barrels versus a -2,802,000 barrel decline the prior week. Gasoline supplies are estimated to rise by 11,110 barrels versus a -3,309,000 barrel decline the prior week. Distillate inventories are estimated to rise by 1,277,780 barrels versus a +1,115,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise by +.69% versus a +1.2% gain the prior week.

2:00 pm EST

• US Fed Beige Book release.

Upcoming Splits

• None of note

Other Potential Market Movers

• The ECB's Draghi speaking, Fed's Evans speaking, ECB rate decision, Eurozone retail sales reports, Eurozone Services PMI report, weekly MBA mortgage applications report, Deutsche Bank Industrials/Basic Materials conference, Sandler O'Neill Brokerage conference and the (FAST) May sales release could also impact trading today.

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