Today's Headlines

Bloomberg:       

• Tsipras Vows to Reject Unfair Deal as EU Braces for Collapse. (video) Greek Prime Minister Alexis Tsipras said he’s ready to assume responsibility for the consequences of rejecting an unfair deal with creditors. In a sign that he’s being taken at his word, officials from the Netherlands, Portugal and Germany said they were bracing for a breakdown in talks that could roil the currency bloc. With a viable solution “the Greek government recently elected by the Greek people will bear the cost of carrying through,” Tsipras told reporters in Athens on Wednesday. Without one, “we will assume the responsibility to say ‘the great no’ to a continuation of the catastrophic policies.”
• German Govt. Making Greece Contingency Plans: Schaeuble. (video) 
• EU Said to Extend Russia Sanctions as Ukraine Peace Elusive. European Union governments struck a preliminary accord to extend sanctions against Russia by six months to the end of January, to keep up the pressure on the Kremlin to bring peace to eastern Ukraine. Representatives of the 28 governments agreed on Wednesday in Brussels to prolong the trade and investment curbs, two EU officials said on condition of anonymity under EU media rules. Final confirmation of the move is due June 22, they said. The behind-the-scenes decision marks a victory for EU President Donald Tusk, a leader of the hardline camp since his time as Poland’s prime minister, and avoids a showdown over Russia policy at an EU summit next week.
• When Will China's Stock Market Bubble Burst? (video)
• China Liquidity Pushes Stock Market Bubble: David Woo. (graph)
• European Stocks Decline as Investors Watch Greek Crisis, Fed. European stocks declined, amid continued debate over Greece’s fate, and speculation the Federal Reserve will signal a slow pace of monetary tightening. The Stoxx Europe 600 Index slid 0.5 percent to 383.74 at the close of trading. Shares earlier fell as much as 0.8 percent after Finance Minister Wolfgang Schaeuble was said to have told lawmakers in Berlin that the German government is making contingency plans for failure to reach an aid deal with Greece by June 30.
• Iron in China Sags Most Since April as Steel Demand Slows. Iron ore in China slumped the most in seven weeks amid concern that steel consumption in the world’s largest user was faltering, curbing demand for the raw material. Futures on the Dalian Commodity Exchange sank 2.9 percent to 425 yuan ($68.46) a metric ton on Wednesday, the most since April 29. Ore with 62 percent content delivered to Qingdao fell 2.2 percent to $61.51 a dry metric ton on Wednesday, the lowest level in more than three weeks, according to Metal Bulletin Ltd. 
• You’ve Been Warned: Central Bankers Turning Less Market-Friendly. Some things seem permanent. Greece is fighting for a bailout. A Bush and a Clinton are running for the White House. FIFA is plagued by scandal. But for those who track the world’s central banks, change is afoot.

CNBC: 

• Fed leaves interest rates unchanged. (video)
• Are junk bonds sending an early warning to markets?

ZeroHedge: 

• Greek Debt Committee Just Declared All Debt To The Troika "Illegal, Illegitimate, And Odious".
• "Lift-Off" Lies And The Fed's Reputational Risk.
• Hensarling Slams Fed's "Willful Obstruction" In Leak Probe, Demands "Immediate Compliance".
• With The Spread Between CPI And PCE Blowing Out The Most Since 2009, Is The Fed Making A Big Mistake. (graph)
• Another Fed "Insider" Quits, Tells The Truth.
• Why Greece Matters (To Even The Most Small-Minded US Equity Manager). (graph)
• Crude Tumbles On Cushing, Gasoline Inventory Build, Lower 48 Production Rise. (graph)
• Excluding All That Is Bad, Things Are Good. (graph)
• Some Troubling Numbers From The CBO. (graph)
• Biggest Glut In Recorded Crude-Oil History Taking Shape. (graph)
• Bank Of Greece Pleads For Deal, Says "Uncontrollable Crisis", "Soaring Inflation" Coming.

Bear Radar

Style Underperformer:

• Mid-Cap Value -.40%

Sector Underperformers:

• 1) Steel -1.42% 2) Homebuilding -1.02% 3) HMOs -.97%

Stocks Falling on Unusual Volume:

• AZUR, EGN, HCHC, RRMS, GGAL, NCR, ALGN, JUNO, YPF, RMTI, LZB, CRESY, ADBE, WLB, ATU, FDX, AHGP, PPG, NVIV, ALKS, GBX, BFR, SNY, GLP and LBIO

Stocks With Unusual Put Option Activity:

• 1) FOXA 2) TSO 3) CNX 4) GBX 5) FDX
  

Stocks With Most Negative News Mentions:

• 1) CF 2) DVN 3) LZB 4) SNDK 5) PUMA
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +.04%

Sector Outperformers:

• 1) Gaming +.99% 2) Disk Drives +.47% 3) Utilities +.36%
  

Stocks Rising on Unusual Volume:

• KYTH, HRC, QIHU, POZN, MOMO, DANG, NI, XNET, MBLY, TILE, TEDU, TSU, YY and EYES

Stocks With Unusual Call Option Activity:

• 1) AMD 2) SWN 3) ALLY 4) RAI 5) ADBE
  

Stocks With Most Positive News Mentions:

• 1) CELG 2) SBUX 3) CRM 4) FDS 5) CVS
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running 15.3% Below 100-day average
• 5 Sectors Rising, 5 Sectors Declining
• 50.2% of Issues Advancing, 45.9% Declining
• 79 New 52-Week Highs, 42 New Lows
• 49.3% of Issues Above 200-day Moving Average
• Average 14-Day RSI 41.9
• Vix 14.6
• Total Put/Call .84
• TRIN/Arms 1.03

Wednesday Watch

Evening Headlines 

Bloomberg:

• Contagion Is Back as Greece Risks Trump QE on Europe’s Periphery. Europe’s peripheral nations are facing the highest borrowing costs in at least six months as investors shun the issuers that may be most at risk if Greece defaults. Even with the European Central Bank rolling out 1.1 trillion euros ($1.2 trillion) of government-bond purchases, Spain’s 10-year yields touched 2.54 percent on Tuesday, the highest since August. Italy’s were the highest since October while Ireland and Portugal are also seeing the steepest borrowing costs this year. Investors are cutting their exposure to peripheral debt as Greece and its creditors square off over the terms of another aid payment. As that dispute fuels concern that Greece could default on the International Monetary Fund as early as this month, the fallout is reviving memories of the budget angst and financial turmoil that threatened to tear the euro apart three years ago. “We are seeing contagion from Greece for the first time since 2012,” said Mauricio Vargas, a Frankfurt-based economist at Union Investment, which manages more than 200 billion euros of assets, including bonds from Spain and Italy. “That’s a matter of big concern to me because it’s a sign of systemic risk that markets have been ignoring.” 

• Warped Rates Fuel Demand for Safeguards in Europe’s Loan Markets. Negative interest rates have so warped Europe’s structured credit markets that top-ranking creditors are demanding safeguards to protect their income. 

• Europe Stock Strategists 100% Bullish in Face of Greece Impasse. Greece isn’t budging, and neither are Europe’s stock strategists.

• China Stocks Slump for Third Day on Concern Valuations Excessive. China’s stocks headed for their biggest three-day loss in a month on concern a world-beating rally has gone too far, too fast. The Shanghai Composite Index slumped 2.3 percent to 4,777.28 at 10:46 a.m. local time, extending a two-day, 5.4 percent decline. Consumer, industrial and technology companies led losses Wednesday. Shanghai Electric Group Co. tumbled 7.5 percent, the biggest contributor to declines and paring its gain this year to 132 percent. “Shares have risen to pretty expensive levels and some investors are choosing to sell,” said Dai Ming, a Shanghai-based fund manager at Hengsheng Asset Management Co. “The speed of new share sales is fast and accelerating now. The market needs a correction at this level.” A growing number of analysts are predicting the stock market is a bubble that will burst as valuations reached levels that by some measures exceed the peak of China’s last equity mania in 2007. Equities also declined on concern investors were pulling funds to partake in new share sales. Guotai Junan Securities Co. plans to raise as much as $4.85 billion this week in the mainland’s biggest initial share sale since 2010. The CSI 300 Index declined 2.2 percent. 

• Asian Stocks Rise First Time in Three Days Before Fed Decision. Asian stocks rose for the first time in three days, following U.S. shares higher, as investors awaited a Federal Reserve decision on U.S. monetary policy. The MSCI Asia Pacific Index gained 0.2 percent to 146.63 as of 9:02 a.m. in Tokyo.

• Banks Balk at China Commodities Deals. Once bitten, twice shy. Banks are wary of commodities deals in China a year after officials started investigating alleged fraud that led to a $193 million writedown for Standard Chartered Plc and $147 million at Standard Bank Group Ltd. Traders in the world’s biggest consumer of metals are finding it harder to get credit from lenders after the probe at the eastern ports of Qingdao and Penglai, according to Guotai & Junan Futures Co. and Everbright Futures Co., Chinese commodity brokers whose clients include trading companies and financial institutions.

Wall Street Journal:

• Fitbit IPO Is Tracking a $3.7 Billion Valuation. Excitement about the wearable fitness-tracking company’s success is driving strong demand for the shares.

• Hedge-Fund Bet Hits Pensions. Firms moved portfolios away from stock market to reduce risk, but missed out on rally.

• Hulu Steps Up Its Fight Against Netflix(NFLX). Much smaller Web-video service secures shows with marketing promises as well as money.

• Obama Wants to Pick the Clintons’ Neighbors. The administration is forcing low-income housing into wealthy enclaves, whether or not anyone wants it.

CNBC: 

• Experts: What to expect from the Fed meeting.

Zero Hedge: 

• JPM's Walk Through What Greek Capital Controls Would Look Like.

• Chinese Corporations Become Stock Speculators, Joining Housewives, Banana Vendors. (graph)

• We Might As Well Face It – America Is Addicted To Debt.

• What Happened The Last Time The Fed's Balance Sheet Hit 25% Of GDP. (graph)

• "Horrified" Syriza Hardliners Back "Immediate" Greek Bank Nationalization, Euro Exit. (graph)

• Chinese Iron Ore, Steel Prices Collapse Despite Government Stimulus. (graph)

• The Warren Buffett Economy, Part 5: Why Its Days Are Numbered.

• China Completes Island Construction, Will Now Build Military Facilities.

• Well That Was Not Supposed To Happen.

• The Audacity Of Hope Meets The Veracity Of Data. (graph)

• Forget The 3:30pm Ramp, Stock Gains Are All About The Night Shift. (graph)

• Stocks Up, Bonds Up, VIX Up, Dollar Up, & Oil Up; Time's Up, Fed's Up. (graph)

Business Insider:

• Japanese trade data just missed big. Exports grew by 2.4% from a year earlier, below April’s 8.0% increase and forecasts for growth of 3.0%. Exports to the US grew by 7.4%, down on 21.4% seen in April, while those to China increased by 1.1% from 2.4% rate reported previously. On the other side of the ledger imports slid by 8.7%, far below April’s 4.2% contraction and expectations for a decline of 7.5%.

• The stage is set for a 'full blown' currency war in Asia.

• Obama is getting dangerously close to lame duck status.

• It's not just the oil bust that's crushing Canadian manufacturing.

• Hot shot startup investor Bill Gurley just wrote a cryptic tweet about the looming tech bubble — once you understand it, you'll be a little freaked out. (graph)

• China's stock market bubble is destined to pop.

Telegraph:

• Are overvalued stock markets heading for another crash? The possibility of Greece defaulting and a rebound in the price of oil are putting pressure on global markets.

Valor: 

• Brazil Govt Sees Downgrade From Moody's Inevitable. Economic team sees downgrade as its base scenario and now working to avoid rating being kept on negative outlook after that, citing a govt official. Slow economic growth and doubts that the fiscal target will be met make it hard to avoid a negative outlook following a downgrade.

Liquidity crunch a catalyst for big China slowdown – analysts The mini liquidity crunch is the early warning sign of a substantial economic correction long overdue, amid rising leverage and a broken growth model, say bearish analysts.


While we want you to share, we ask you use the functions on-site rather than copy/paste. See T's & C's for details. http://www.euromoney.com/Article/3222433/Liquidity-crunch-a-catalyst-for-big-China-slowdownanalysts.html?copyrightInfo=true

Sydney Morning Herald:

• Irrational exuberance in Australian household debt: PIMCO. Australians are being "irrationally exuberant" and borrowing too much to invest in housing, exposing the economy to financial shocks, global bond fund giant PIMCO says. In a detailed statistical study that compares Australian borrowers to those in other countries, PIMCO researchers found that Australians' decision to borrow is driven by falling interest rates and rising house prices – not economic fundamentals that reflect the health of the economy like employment.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.5% to +.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 112.0 unch.

• Asia Pacific Sovereign CDS Index 63.25 -.25 basis point.

• S&P 500 futures +.03%.

• NASDAQ 100 futures -.03%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (ATU)/.52

• (FDX)2.70

• (DRC)/.12

• (HGR)/.45

• (JBL)/.49

• (ORCL)/.87

• (PIR)/.08

Economic Releases

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,500,000 barrels versus a -6,812,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -790,000 barrels versus a -2,939,000 barrel decline the prior week. Distillate inventories are estimated to rise by +810,000 barrels versus a +865,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise by +.31% versus a +1.4% gain prior.

2:00 pm EST

• The FOMC is expected to leave the benchmark Fed Funds rate at .25%.
  

Upcoming Splits

• (CF) 5-for-1

Other Potential Market Movers

• The Fed's Yellen speaking, Eurozone CPI report, weekly MBA mortgage applications report and the (PRU) investor day could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and consumer 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 Rising into Final Hour on Lower Long-Term Rates, Central Bank Hopes, Oil Bounce, Food/HMO 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) 15.02 -2.40%

• Euro/Yen Carry Return Index 144.78 -.42%

• Emerging Markets Currency Volatility(VXY) 9.35 -1.27%

• S&P 500 Implied Correlation 61.86 -.74%

• ISE Sentiment Index 79.0 +1.28%

• Total Put/Call .73 -17.98%

• NYSE Arms .92 -48.17% 

Credit Investor Angst:

• North American Investment Grade CDS Index 69.08 -.45%

• America Energy Sector High-Yield CDS Index 1,643.0 +1.21%

• European Financial Sector CDS Index 86.10 +2.92%

• Western Europe Sovereign Debt CDS Index 28.68 +2.50%

• Asia Pacific Sovereign Debt CDS Index 64.14 +.93%

• Emerging Market CDS Index 320.99 +.02%
  

• iBoxx Offshore RMB China Corporates High Yield Index 120.43 +.01%

• 2-Year Swap Spread 26.0 -1.0 basis point

• TED Spread 28.0 +.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -19.25 +.5 basis point

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.

• Yield Curve 163.0 -3.0 basis points

• China Import Iron Ore Spot $62.91/Metric Tonne -2.09%

• Citi US Economic Surprise Index -32.90 -2.5 points

• Citi Eurozone Economic Surprise Index -.6 -3.9 points

• Citi Emerging Markets Economic Surprise Index -17.80 -1.5 points

• 10-Year TIPS Spread 1.91 +4.0 basis points

Overseas Futures:

• Nikkei 225 Futures: Indicating +42 open in Japan 
• China A50 Futures: Indicating -251 open in China

• DAX Futures: Indicating +17 open in Germany

Portfolio: 

• Slightly Higher: On gains in my tech/biotech/retail/medical sector longs

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

• Market Exposure: Moved to 50% Net Long