Today's Headlines

Bloomberg:     

• New Greek Budget Plan Falls Short of Last Week’s Pledge. (video) Greece pulled back on budget concessions to its creditors in new proposals Tuesday, as German Finance Minister Wolfgang Schaeuble said it would be “daft” to accept blame for Prime Minister Alexis Tsipras’s predicament. The latest plan falls short of the budget targets that Tsipras agreed on in a June 3 meeting with European Commission President Jean-Claude Juncker, a European Union official said. Greece didn’t dispute those objectives in any of its subsequent meetings with creditor institutions last week, according to the official.
• Greece Pretends to Negotiate.
• China Said to Weigh Margin Finance Rule Change Amid Stock Boom. China’s securities regulator is considering a change to its margin finance rules in a move that could quell volatility should the country’s world-beating stock-market rally falter. The China Securities Regulatory Commission may allow brokerages to roll over margin trading and short-selling contracts with clients one or two times for six months each, people with knowledge of the matter said. They asked not to be identified as the plans haven’t been finalized or made public. Record trading with borrowed money has pushed Chinese stocks to a seven-year high even as economic growth slows, sparking concerns that the market may overheat. Letting investors extend their contracts may help to limit the risk that margin calls would trigger a sharp selloff. “By allowing rollover, the CSRC may want to curb short-term speculation and ease volatility as investors don’t have to sell their holdings when the market is not in their favor,” said Zhang Jian, a Beijing-based strategist at BOC International Holdings Ltd.  
• Obama Musings Aside, Emerging Markets Suffering Strong Greenback. Whether or not President Barack Obama expressed concern about the strength of the dollar in private conversations at the Group of Seven summit, emerging markets are suffering the brunt of its strength in a trend that shows little sign of reversing. Rising bond yields in the U.S. and Germany are making dollar- and euro-denominated assets more attractive to international investors. A measure of developing-nation currencies fell against both the greenback and Europe’s common currency over the past two weeks for the first time since December.
• Europe Stocks Extend Longest Losing Streak of ’15 Amid DAX Rout. A slump in German equities helped send European stocks down for a sixth day. The Stoxx Europe 600 Index fell 0.4 percent to 383.87 at the close of trading in London, earlier losing as much as 1.4 percent. Germany’s DAX Index declined 0.6 percent after entering a correction on Monday. It’s dropped 11 percent from its April peak.
• Bond Market’s Storm Finally Hits Junk Debt as Buyers Flee ETFs. Suddenly, junk bonds have lost their luster. After providing a haven from the global bond-market selloff, speculative-grade securities have now joined the rout, tumbling almost 1 percent since the end of May. Investors are starting to flee, yanking $1.5 billion from the two biggest high-yield bond exchange-traded funds over the past week, according to data compiled by Bloomberg. This is a reversal in fate for bonds that had gained 4.8 percent in the first five months of 2015 and suggests that junk-bond investors will only tolerate rising benchmark yields for so long before they, too, bail.
• S&P 500 Rally Thins and It's Worrying Market Analysts. (graph) Trouble is brewing in an indicator measuring how many companies are keeping the stock market aloft in the U.S., just as the Standard & Poor’s 500 Index threatens to give up gains for the year. About 59 percent of stocks closed above their 200-day moving averages at the end of last week, the lowest percentage in eight months, according to data compiled by Bloomberg. Waning breadth is holding back a version of the equity gauge that strips out market-value biases, the S&P 500 Equal Weight Index, which is down 0.4 percent since March.

CNBC:

• White House press briefing room evacuated.

ZeroHedge:

• If Your BS Detector Is Not Screaming, It's Broken. That China's credit machine is now dependent on a stock market bubble for its very survival speaks volumes about the true health of China's economy.
• Meet China's New 'Investor' Class: "It's A Lot Easier To Make Money From Stocks Than Farmwork".
• "Reduce Risk, Boost Cash, Go Underweight Stocks" SocGen Warns.
•  European Stocks Plunge To 4 Month Lows, Suffers Worst Losing Streak Since 2014. (graph)
• Homebuilder Plunges 12% After CEO Admits They Were Over-Optimistic. (graph)
• Wholesale Inventory Ratio, Sales Stabilize At Recessionary Levels. (graph)
• The Warren Buffet Economy, Part 1: Why Its Days Are Numbered. (graph)
• "Not Credible" Is Europe's Response To Latest Greek 3-Page Proposals As Greek Islanders Threaten Referendum.

Business Insider:

• Top US military officer: Iran would likely use some sanctions relief to fuel wars.
• Crude oil is spiking. (graph)
• Record corporate profits? Actually, those are 'made-up, phony numbers'.
• The CEO of a $1 billion 'unicorn' startup admits we're in a bubble.

Bear Radar

Style Underperformer:

• Small-Cap Growth -.42%

Sector Underperformers:

• 1) Airlines -1.52% 2) Alt Energy -1.14% 3) Biotech -.74%

Stocks Falling on Unusual Volume:

• PSO, BURL, CBPO, LC, UNFI, MOMO, RCPT, FGEN, SHLD, LUV, EHIC, AVID, ALK, SABR, DAL, NBIX, VCLT, IRWD, SAVE, SAIC, MU, KANG, P, SWKS, NORD, SNH, BRLI and ADXS

Stocks With Unusual Put Option Activity:

• 1) VC 2) DHI 3) JBLU 4) XBI 5) STX
  

Stocks With Most Negative News Mentions:

• 1) MU 2) AKAM 3) LUV 4) P 5) VA
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Value +.14%

Sector Outperformers:

• 1) Tobacco +3.92% 2) Banks +.97% 3) Oil Service +.90%
  

Stocks Rising on Unusual Volume:

• MXL, LULU, CMGE, SAGE, CASY, PBY, HDS, WBAI, HRB and MXL

Stocks With Unusual Call Option Activity:

• 1) CL 2) GREK 3) ABT 4) KR 5) WFM
  

Stocks With Most Positive News Mentions:

• 1) AMED 2) JEC 3) RAI 4) LULU 5) CPB
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running 6.6% Below 100-day average
• 6 Sectors Rising, 4 Sectors Declining
• 34.8% of Issues Advancing, 62.4% Declining
• 23 New 52-Week Highs, 124 New Lows
• 47.5% of Issues Above 200-day Moving Average
• Average 14-Day RSI 39.1
• Vix 15.4
• Total Put/Call .95
• TRIN/Arms .40

Tuesday Watch

Evening Headlines 

Bloomberg: 

• The $6.5 Trillion China Rally That’s Making Stock-Market History. It’s enough money to buy Apple Inc. eight times over, or circle the Earth 250 times with $100 bills. The figure, $6.5 trillion, sums up the value created in just 12 months of trading on Chinese stock exchanges -- and why some see a rally that’s gone too far, too fast. As China’s boom surpasses the headiest days of the U.S. Internet bubble, signs of excess are everywhere. Mainland speculators have borrowed a record $348 billion to bet on further gains, novice investors are piling into shares at an unprecedented pace and price-to-earnings ratios have climbed to the highest levels in five years. The economy, meanwhile, is mired in its weakest expansion since 1990. “We have a wonderful bubble on our hands,” said Michael Every, the head of financial markets research at Rabobank International in Hong Kong. “Of course, there’s short-term money to be made. But I fear it will not end well.” Chinese shares face their next big test on Tuesday, when MSCI Inc. decides whether mainland securities are eligible for indexes used by $9.5 trillion of funds worldwide.

• China Deflation Risks Linger, Underscoring Weak Domestic Demand. China’s consumer prices rose at a slower pace in May and factory-gate deflation extended a record stretch of declines, underscoring tepid demand at home and abroad. The consumer-price index increased 1.2 percent last month from a year earlier, according to China’s National Bureau of Statistics. That compared with the 1.3 percent median estimate in a Bloomberg survey of analysts and the 1.5 percent increase in April. The producer-price index fell 4.6 percent, extending a record stretch of declines.  

• Macau Casino Stocks Tumble as Analysts Slash Gambling Forecasts. Macau’s casino stocks tumbled after several analysts slashed their forecasts for June gambling revenue in the world’s largest gambling hub. Analysts said overnight that June’s casino revenue will be below their initial estimates because of weaker-than-expected figures in the first week of the month.

• Indonesia Default Risk Jumps Most in Asia on Fund Outflow Fears. The cost to insure Indonesia’s sovereign bonds against default rose to a five-month high as the falling rupiah and accelerating inflation heighten outflow risk. Five-year credit default-swaps on the country’s debt advanced 17 basis points to 175 in the two weeks through Friday, the most in Asia. Central bank Governor Agus Martowardojo said Monday that the authority sees opportunities to buy government notes when yields, already at a 15-month high, increase as the U.S. prepares to raise borrowing costs. 

• Most Asian Stocks Retreat as Yen Gain Weighs on Japanese Shares. Most Asian stocks fell as a rebound in the yen hurt Japanese shares and investors weighed the outlook for U.S. interest rates and Greece’s debt talks. About three shares dropped for each that gained on the MSCI Asia Pacific Index, which traded little changed at 147.44 as of 9:01 a.m. in Tokyo. Japan’s Topix index slid 0.8 percent after the yen gained 0.9 percent against the dollar on Monday, when the Standard & Poor’s 500 Index fell to a two-month low.

• U.S. Stocks on Wrong Side of History With Rate Rise in Sight. Never before has a rally in the U.S. stock market gone on this long without a Federal Reserve interest-rate increase. Expecting valuations to keep rising once one comes is asking too much, if history is any guide. While Standard & Poor’s 500 Index price-earnings ratios are far from records, they’ve shown no ability to expand after the U.S. central bank starts raising rates, according to data compiled by Goldman Sachs Group Inc. and Bloomberg. In the quarter after the last 12 tightening cycles began, P/Es contracted by an average of 7.2 percent.

• Terror Links Found to 73 Workers in Secure U.S. Airport Jobs. Investigators found 73 people were cleared by the Transportation Security Administration to work in sensitive jobs at U.S. airports despite possible links to terrorism in their backgrounds, according to a government report made public on Monday. The lapse was partly due to the TSA not having access to all names on the federal government’s terrorist watchlists, the Department of Homeland Security inspector general said. In addition, local criminal background checks on employees at 467 airports were even “less effective,” the report concluded.

Wall Street Journal: 

• Home-Equity Lines of Credit See Jump in Delinquencies. Banks face another post-crisis hangover as bills come due on lines of credit extended during property boom.

• Chrysler Boss Recruits Activists to Prod GM(GM) Into a Merger. Sergio Marchionne believes hedge funds can sway rival’s board to accept his entreaties.

• Return of the Speech Police. In 2012 it was the IRS. This election watch the Justice Department.

Fox News:

• Obama under fire for saying no ‘complete strategy’ yet for training Iraqis. (video) President Obama took heat Monday for admitting he doesn't yet have a "complete strategy" in hand for training Iraqis to fight the Islamic State -- months into the coordinated campaign to defeat the deadly terrorist network. "When a finalized plan is presented to me by the Pentagon, then I will share it with the American people," Obama said, adding, "We don't yet have a complete strategy."

  MarketWatch.com:

• Clintons donated to New York Times fund the year newspaper endorsed Hillary, report says.

CNBC:

• US will erase student debt for Corinthian students. The federal government will erase much of the debt of students who attended the now-defunct Corinthian Colleges, officials announced Monday, as part of a new plan that could cost taxpayers as much as $3.6 billion.

Zero Hedge:

• Markets, Not Janet Yellen, Should Set Interest Rates.

• America's Housing Problem: Buying And Renting Are Both Unaffordable. (graph)

• What Keeps A Billionaire Awake At Night: "Envy, Hatred, Social Warfare" And The "Destruction Of The Middle Class".

• First Fed Rate Hike Timing Expectations Plunge To Lowest In 5 Years. (graph)

• Why Stocks Are Not "Cheap Relative To Bonds".

• The US Recovery Is Strong... In "Loan Shark" Terms. (graph)

• Dow Red In 2015 As S&P Takes Out Key Support: Trannies Tank, Crude Clipped, Dollar Dumped. (graph)

• Major Medical Journal Retracts Numerous Scientific Papers After Fake Peer-Review Scandal.

• China's Deficient Deflator Math Is One More Reason To Distrust Data.

• "One Belt, One Road" May Be China's 'One Chance' To Save Collapsing Economy.

• Saudi Ambassador Warns West On Iran Deal: "All Options On Table..." Including Nukes.

• When It Rains It Pours: Shares Of Chinese Umbrella Manufacturer Rise 2,700%. (graph)

Business Insider:

• Apple(AAPL) finally found a way to boost iPad sales — and it's going to make a lot of people angry.

• The MERS outbreak could have a big impact on Korea's economy. (graph)

• HSBC is getting ready to cut thousands of jobs.

• The US government paid millions of dollars in Medicaid benefits to dead people. 

• 4 charts of the 'largest housing bubble on record'. (graph)

• Putin just made more revealing comments about his opinions of NATO.

• There isn't much Chinese authorities can do to crank up this troubling economic indicator.

• Retiring Cisco(CSCO) CEO delivers dire prediction: 40% of companies will be dead in 10 years.

• OPEC is going to play the waiting game.

Financial Times:

• Paul Volcker warns on health of US state finances. Paul Volcker, former chairman of the Federal Reserve, has warned that US states rely on faulty practices to balance their budgets, masking the true nature of their finances and leading to poor policy making.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -1.5% to -.5% on average.

• Asia Ex-Japan Investment Grade CDS Index 110.5 -.5 basis point.

• Asia Pacific Sovereign CDS Index 63.0 +3.25 basis points.

• S&P 500 futures +.08%.

• NASDAQ 100 futures +.08%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (BURL)/.41

• (HDS)/.29

• (HOV)/-.06

• (LULU)/.33

• (ZQK)/-.12

• (OXM)/1.21

Economic Releases

6:00 am EST

• The NFIB Small Business Optimism Index for May is estimated to rise to 97.2 versus 96.9 in April.

10:00 am EST

• Wholesale Inventories for April are estimated to rise +.2% versus a +.1% gain in March.

• Wholesale Sales for April are estimated to rise +.6% versus a -.2% decline in March.

• JOLTS Job Openings for April are estimated to rise to 5044 versus 4994 in March.

Upcoming Splits

• (MPC) 2-for-1

• (ROST) 2-for-1

Other Potential Market Movers

• The Japan GDP report, weekly US retail sales reports, Deutsche Bank Consumer conference, Piper Jaffray Consumer conference, Goldman Sachs Healthcare conference, William Blair Growth Stocks conference, Morgan Stanley Financials conference, (TSLA) shareholder meeting, (CSCO) investor day and the (BBY) annual meeting  could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by technology and industrial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

Stocks Declining into Final Hour on Greek Debt Deal Worries, Rising Eurozone/Emerging Markets Debt Angst, Oil Drop, Tranport/Tech Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 15.41 +8.44%

• Euro/Yen Carry Return Index 146.77 +.65%

• Emerging Markets Currency Volatility(VXY) 9.70 +.83%

• S&P 500 Implied Correlation 64.99 +2.33%

• ISE Sentiment Index 98.0 +1.03%

• Total Put/Call .98 -4.85%

• NYSE Arms 1.11 +37.17% 

Credit Investor Angst:

• North American Investment Grade CDS Index 68.14 +1.91%

• America Energy Sector High-Yield CDS Index 1,170.0 +.66%

• European Financial Sector CDS Index 79.06 +2.46%

• Western Europe Sovereign Debt CDS Index 23.39 +.88%

• Asia Pacific Sovereign Debt CDS Index 62.84 +1.81%

• Emerging Market CDS Index 315.52 +2.75%
  

• iBoxx Offshore RMB China Corporates High Yield Index 120.21 +.08%

• 2-Year Swap Spread 25.5 +.75 basis point

• TED Spread 26.50 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -17.75 +1.5 basis point

Economic Gauges:

• 3-Month T-Bill Yield .01% unch.

• Yield Curve 170.0 +2.0 basis points

• China Import Iron Ore Spot $64.34/Metric Tonne -.17%

• Citi US Economic Surprise Index -44.60 +3.3 points

• Citi Eurozone Economic Surprise Index 6.20 +.2 point

• Citi Emerging Markets Economic Surprise Index -17.60 +3.9 points

• 10-Year TIPS Spread 1.88 unch.

Overseas Futures:

• Nikkei 225 Futures: Indicating -22 open in Japan 

• China A50 Futures: Indicating -225 open in China

• DAX Futures: Indicating -45 open in Germany

Portfolio: 

• Slightly Higher: On gains in my index hedges and emerging markets shorts

• Disclosed Trades: None

• Market Exposure: 25% Net Long