Friday Watch

Evening Headlines 

Bloomberg: 

• Greece Ordered to Stop Gambling With its Future as Endgame Nears. Greece was told to stop fighting creditors’ demands and sign a deal that will avert a default and exit from the euro. Diplomatic niceties evaporated in Brussels as European Union President Donald Tusk rebuked Greek Prime Minister Alexis Tsipras for dragging his feet on a debt agreement and the International Monetary Fund’s team walked out of negotiations. One official said after a four-hour meeting of EU government staffers that Greece was given less than 24 hours to come back with firm proposals to end the impasse. “There is no more time for gambling,” Tusk told reporters in Brussels on Thursday. “The day is coming, I am afraid, that someone says the game is over.”  
• Keeping Greece in the Euro May Have Nothing to Do With Finances. A bronze statue of Harry S. Truman stands unguarded in the side of a busy Athens road, a reminder of Greece’s post-World War II position as a strategic bulwark for the U.S. and Europe. If euro-area policy makers overcome their frustration over Greek financial brinkmanship and cough up more aid, it will be in no small part because of that role.
• There They Go Again: Asia Central Bank Policies Spur Bubbles. Recent years have seen reams of research on the role of central banks in inflating asset-price bubbles. The latest developments in Asia suggest that more may be coming. With interest-rate cuts in New Zealand and South Korea, and the potential for more easing in Australia and China, policy makers are fanning the risk of bubbles a decade after their U.S. counterparts oversaw a record mortgage boom. The central bank of New Zealand Thursday lowered interest rates even in the face of a booming property market in the nation’s largest city. South Korea followed suit, potentially encouraging gains in household debt levels that are already at a record. The Reserve Bank of Australia governor Wednesday said he may lower rates again, even as he wrung his hands over what he dubbed as “crazy” Sydney house prices.
• Only in China Can Riskiest Provincial Debt Get Best Yield. Ranking provinces by their fiscal and economic strengths puts Jilin at the bottom and Tianjin at the top. In China’s bond market, that’s a waste of time. Jilin is the riskiest among the nation’s 31 provinces, autonomous regions and municipalities, according to a Bloomberg analysis of their debt and the potential to repay using taxes and land sales. It issued three-year notes Thursday at 2.87 percent, matching the similar-maturity sovereign yield. Tianjin also sold at a zero premium three days earlier.  
• War-Weary Ukraine Shutters Cash-Starved Banks as Trust Plummets. As if fighting a year-long war against pro-Russian separatists wasn’t enough, Ukraine is also scrambling to shore up a banking system that’s bleeding assets amid skyrocketing inflation, a tumbling economy and wavering talks with creditors about overdue debt. A run of liquidations has shaken consumers’ confidence in the often mismanaged financial institutions they once trusted to protect their money.
• Asian Currencies Drop This Week Amid Stock Outflows, MERS Risk. Asian currencies dropped, led by the Philippine peso, as funds pulled money from emerging markets on signs the U.S. is moving closer to raising interest rates. Overseas investors sold a net $1.5 billion of stocks in Taiwan, South Korea and India since June 5, exchange data show. The Federal Reserve reviews borrowing costs next week as data suggests the world’s largest economy is emerging from a first-quarter slowdown. The Bank of Korea said the spread of Middle East respiratory syndrome posed a threat to consumption as it cut its benchmark rate to a record low on Thursday.
• Asian Stocks Rise Third Day on U.S. Economy Optimism, Weaker Yen. Asian stocks rose for a third day after data on retail sales bolstered confidence in the strength of the U.S. economy and a weaker yen sent Japanese shares higher. The MSCI Asia Pacific Index gained 0.2 percent to 147.81 as of 9:01 a.m. in Tokyo, headed for a 0.1 percent decline this week. Japan’s Topix index added 0.2 percent after the yen slid 0.6 percent against the dollar Thursday.

Wall Street Journal:

• Iran Backs Taliban With Cash and Arms. Shiite Tehran has quietly boosted ties with the Sunni militant group and is now recruiting and training its fighters. 
• As Minimum Wages Rise, Smaller Firms Get Squeezed. An Indianapolis hot-dog business cites staffing costs in decision to revise expansion plans.

MarketWatch.com: 

• The world’s worst investment bubble will burst soon.

CNBC:

• Biggest biotech IPO ever—and the CEO is 29! (video)
• Bubbly, anyone? The Sydney property debate.

Zero Hedge: 

• Europe Gives Greece 24 Hours To Comply; Germany Draws Up Capital Control Plans.
• The End Of Buybacks? Goldman Warns Political Pressure On Share Repurchases Is Rising. (graph)
• Iceland Imprisoned Its Bankers And Let Banks Go Bust: What Happened Next In 3 Charts. (graph)
• How Obama Will Centrally-Plan Your Neighborhood: Here Comes The "Affirmatively Furthering Fair Housing" Rule.
• For Millennials, The Homeownership Dream Is Dying. 
• Trapped In A Bubble. (graph)
• "Buy Low, Sell High" - How China's Senior Citizens Are Learning To Trade Stocks. (graph)
• Something Doesn't Add Up: JOLTed Optimism. (graph)
• 3 Things: Oversold Bounce, Relative Risk, More Downside Potential. (graph)
• The Warren Buffet Economy, Part 2: Why Its Days Are Numbered.
• Bonds Soar, Stocks Snore After "Good" News Sparks Hindenburg Omen Uncertainty. (graph)

Business Insider:

• I just interviewed Twitter's(TWTR) Jack Dorsey and Dick Costolo — here's what they had to say.
• Mercedes is taking on Tesla(TSLA) in the race to build home batteries.
• Union: The massive federal employee data hack was much worse than Obama let on.

Telegraph:

• Britain faces fiscal crunch from demographic timebomb. Office for Budget Responsibility (OBR) casts doubt over George Osborne's plans to run a budget surplus in times of economic growth. 
• EU issues final warning to Greece as last-ditch talks achieve nothing. The Greek interior ministry has ordered governors and mayors to transfer all cash reserves to the central bank as bankruptcy closes in.

Evening Recommendations 

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 109.0 unch.

• Asia Pacific Sovereign CDS Index 61.0 -.75 basis point.

• S&P 500 futures -.20%.

• NASDAQ 100 futures -.16%.

Morning Preview Links

Earnings of Note

Company/Estimate

• None of note

Economic Releases

8:30 am EST

• PPI Final Demand for May is estimated to rise +.4% versus a -.4% decline in April.
• PPI Ex Food and Energy for May is estimated to rise +.1% versus a -.2% decline in April.

10:00 am EST

• Preliminary Univ. of Michigan Consumer Sentiment for June is estimated to rise to 91.2 versus 90.7 in May.

Upcoming Splits

• (ROST) 2-for-1

Other Potential Market Movers

• The German CPI report, Russell preliminary rebalancing list and the (CNC) 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 Afternoon on Lower Long-Term Rates, Less Emerging Markets Debt Angst, Technical Buying, Transport/Gaming Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Slightly Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 12.62 -4.64%

• Euro/Yen Carry Return Index 145.08 -.05%

• Emerging Markets Currency Volatility(VXY) 9.57 +.74%

• S&P 500 Implied Correlation 60.67 +.33%

• ISE Sentiment Index 52.0 -52.59%

• Total Put/Call .84 +37.70%

• NYSE Arms 1.14 +133.69% 

Credit Investor Angst:

• North American Investment Grade CDS Index 65.46 -1.12%

• America Energy Sector High-Yield CDS Index 1,526.0 +.02%

• European Financial Sector CDS Index 76.54 -.81%

• Western Europe Sovereign Debt CDS Index 23.08 -.92%

• Asia Pacific Sovereign Debt CDS Index 61.82 +.06%

• Emerging Market CDS Index 310.94 -1.93%
  

• iBoxx Offshore RMB China Corporates High Yield Index 120.26 +.07%

• 2-Year Swap Spread 26.0 +.25 basis point

• TED Spread 28.0 +.75 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -20.75 -3.75 basis points

Economic Gauges:

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

• Yield Curve 167.0 -8.0 basis points

• China Import Iron Ore Spot $65.61/Metric Tonne +.34%

• Citi US Economic Surprise Index -37.70 +3.5 points

• Citi Eurozone Economic Surprise Index 5.1 +1.1 points

• Citi Emerging Markets Economic Surprise Index -20.80 -3.2 points

• 10-Year TIPS Spread 1.86 -3.0 basis points

Overseas Futures:

• Nikkei 225 Futures: Indicating +126 open in Japan 
• China A50 Futures: Indicating -103 open in China

• DAX Futures: Indicating -5 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 75% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Value -.06%

Sector Underperformers:

• 1) Coal -4.12% 2) Gold & Silver -2.17% 3) Oil Service -1.62%

Stocks Falling on Unusual Volume:

• GLP, TUBE, COMM, CRTO, RXDX, SHLD, NWE, CYBR, AMBA, ARLP, INDY, CCIH, GWR, AER, LULU, RH, MRTX, CVT, CMT, QIWI, ESPR, RBA, MRNS, FI, NFLX and CHK

Stocks With Unusual Put Option Activity:

• 1) S 2) EWG 3) XHB 4) XLF 5) MET
  

Stocks With Most Negative News Mentions:

• 1) ADSK 2) CHK 3) MO 4) LULU 5) HOG
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Mid-Cap Value +.22%

Sector Outperformers:

• 1) Road & Rail +1.32% 2) Medical Equipment +.76% 3) REITs +.63%
  

Stocks Rising on Unusual Volume:

• KKD, BOX, HTHT, MW, ISLE, TEDU, DANG, CTXS, VIMC, HLS, AVG, NPTN, TOUR, AXLL, HES, ISSI and RCPT

Stocks With Unusual Call Option Activity:

• 1) RMBS 2) SVXY 3) ISIS 4) AXLL 5) BAX
  

Stocks With Most Positive News Mentions:

• 1) KKD 2) TOL 3) QCOM 4) HES 5) NKE
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running 8.7% Below 100-day average
• 9 Sectors Rising, 1 Sector Declining
• 59.3% of Issues Advancing, 38.3% Declining
• 87 New 52-Week Highs, 67 New Lows
• 50.2% of Issues Above 200-day Moving Average
• Average 14-Day RSI 42.8
• Vix 13.0
• Total Put/Call .86
• TRIN/Arms 1.16

Thursday Watch

Evening Headlines 

Bloomberg: 

• Greek Pension Mess Shows There’s No Easy Way Out of Impasse. To find out why Greece’s pension system is tying negotiators up in knots, look no further than Maria Kounani, 59, a mother of two, single parent and early retiree. The maker of sewing patterns applied for a reduced pension last year, when the business where she’d worked for 20 years struggled with unpaid orders. To qualify for a full pension she needed to work another 10 years. She opted for early retirement, the only real choice she says she had, and one Greece’s creditors say is undermining the pension system. “I did it because no one is hiring me,” Kounani said. “They’re not even hiring my daughter who’s 39.” As Greek pensions become a key sticking point in talks with creditors, cases like Kounani show why there are no simple ways out. For creditors, the pension system is still too generous. For the Greek government, it’s a system struggling to cope after five years of recession and dwindling contributions in a nation with the European Union’s highest unemployment.
• Greece Cut to CCC From CCC+ by S&P. (video)
• Is the Next Detroit in China? Wenzhou is among the Chinese cities most heavily indebted and at risk of defaulting on its loans, according to Nomura Holdings Inc. Wenzhou is among the cities most heavily indebted and at risk of defaulting on its loans, according to Nomura Holdings Inc. In a new analysis described as one of the first of its kind, Nomura has dug into China's lending trail to see which cities and provinces are creaking under debt. They examined credit risks covering 30 provincial authorities and 265 cities. 
• South Korea Cuts Key Rate to Record Low While MERS Spreads. The Bank of Korea lowered its key interest rate to an unprecedented low as the spread of Middle East respiratory syndrome risks derailing an economic recovery. The central bank cut the seven-day repurchase rate to 1.5 percent on Thursday, the fourth reduction since August 2014. The decision was forecast by 11 out of 18 analysts surveyed by Bloomberg. The rest had expected no change.  
• Asian Stocks Follow U.S. Shares Higher Amid Optimism on Greece. Asian stocks rose for a second day, following U.S. shares higher amid optimism progress is being made in Greece’s debt talks. The MSCI Asia Pacific Index gained 0.4 percent to 147.54 as of 9:07 a.m. in Tokyo.
• Leveraged Loans Tumble as Buyers Feel Impact of Shrinking Yields. Investors are getting tired of yields being squeezed on risky U.S. corporate loans this year. Leveraged loans dropped to their lowest level in four months amid a pullback by buyers stung by borrowers such as Dollar Tree Inc. and Goodyear Tire & Rubber Co., who have taken advantage of a paucity of new deals by seeking to lower payments on existing debt. Barclays Plc last week cut its 2015 forecast for U.S. leveraged-loan issuance to as little as $250 billion as regulatory scrutiny slows the pace of buyout financings.
• Meredith Whitney Says She’s Done With Hedge Funds After Struggle. Meredith Whitney, who turned fame as a banking analyst into a stint running her own hedge fund, is through with managing other people’s money. “I think that chapter of my life is over,” she said in an interview with Fox Business on Wednesday. “This whole experience has been highly unfortunate and I’m putting it behind me.”

Wall Street Journal:

• Bye, Bye, American History. Professors and historians urged opposition to the College Board’s new curriculum for teaching AP U.S. History.

Fox News: 

• Bill Clinton contradicts Hillary on email claims. (video) Bill Clinton appeared Wednesday to contradict his wife's claims about their personal email use, saying he's only sent two emails in his life -- despite Hillary Clinton saying some of the private messages on her personal server were from her and her husband.

CNBC:

• World Bank pares global growth forecast. The World Bank trimmed its global economic growth outlook on Wednesday, warning that developing markets faced a raft of headwinds ranging from lower commodity prices to the prospect of higher borrowing costs. The Washington-based lender now expects the world economy to expand 2.8 percent in 2015, down from its January projection of 3 percent, according to its bi-annual Global Economic Prospects (GEP) report. It maintained its growth forecasts for 2016 and 2017 at 3.3 percent and 3.2 percent, respectively.

Zero Hedge: 

• Biotech Bubble; China Crash; Rate Rumble: How Goldman Is Hedging The "What Ifs". (graph)
• China's Global Ambitions Take Shape As AIIB Structure Revealed, Germany Pledges Full Support.
• Why EIA, IEA, And BP Oil Forecasts Are Too High.
• Only 1 In 20 "Skilled" Traders Profit From VIX ETFs.
• Taxpayers To Lose Billions On Student Loan Refinancing. 
• No Steve Schwarzman, That's Not How "The Next Financial Crisis Will Happen".
• "Denied" Greek Rumor Sparks Stock Buying Panic As Bonds Near Death Cross. (graph)
• Oops! Fed Admits QE Widens Inequality.
• Rigging Markets? How To Determine If You Will Go To Jail In A Simple Flow Chart.
• The Upside Of Soaring Obamacare Premiums?
• China Officially Doubles Down On Multi-Trillion Yuan Debt Swap Program. (graph)
• Aussie Central Bank Admits, Property Prices "Have Gone Crazy". (graph)

Business Insider:

• Former DIA director: Obama's Middle East policy is one of 'willful ignorance'.
• And now the World Bank is asking the Fed to put off rate hikes until 2016.
• S&P DOWNGRADES GREECE, WARNS IT'LL LIKELY DEFAULT WITHIN 12 MONTHS.
• Box(BOX) stock skyrockets after second-ever earnings report.
• China is done with 'microphone diplomacy' over its moves in the South China Sea.

Telegraph:

• Bond crash across the world as deflation trade goes horribly wrong. Markets ignored clear warnings in Europe and America that the money supply is catching fire, signalling a surge of inflation later this year.
• Brexit referendum will trigger another Scotland independence vote, warns JP Morgan.

Evening Recommendations 

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 109.0 -2.0 basis points.

• Asia Pacific Sovereign CDS Index 61.75 -1.25 basis points.

• S&P 500 futures -.15%.

• NASDAQ 100 futures -.13%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (BOJA)/.15
• (XONE)/-.33
• (KFY)/.47
• (RH)/.20

Economic Releases

8:30 am EST

• Retail Sales Advance for May are estimated to rise +1.2% versus unch. in April.
• Retail Sales Ex Autos for May are estimated to rise +.8% versus a +.1% gain in April.
• Retail Sales Ex Autos and Gas for May are estimated to rise +.5% versus a +.2% gain in April.
• The Import Price Index for May is estimated to rise +.8% versus a -.3% decline in April.
• Initial Jobless Claims are estimated to fall to 275K versus 276K the prior week.
• Continuing Claims are estimated to fall to 2190K versus 2196K prior.

10:00 am EST

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

12:00 pm EST

• Household Change in Net Worth for 1Q.

Upcoming Splits

• (MPC) 2-for-1
• (ROST) 2-for-1

Other Potential Market Movers

• The China Industrial Production report, Bloomberg US Economic Survey for June, weekly EIA natural gas inventory report, weekly Bloomberg Consumer Comfort Index, (HRL) investor day and the (DHR) analyst event could also impact trading today.

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