Stocks Rising into Final Hour on Plunging Eurozone Debt Angst, Buyout Speculation, Short-Covering, Financial/Biotech Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 12.63 -9.53%

• Euro/Yen Carry Return Index 146.11 +.51%

• Emerging Markets Currency Volatility(VXY) 8.95 -.44%

• S&P 500 Implied Correlation 62.63 -1.21%

• ISE Sentiment Index 163.0 +94.05%

• Total Put/Call .89 -2.20%

• NYSE Arms .65 -63.76% 

Credit Investor Angst:

• North American Investment Grade CDS Index 65.05 -4.44%

• America Energy Sector High-Yield CDS Index 1,520.0 -2.22%

• European Financial Sector CDS Index 78.46 -12.69%

• Western Europe Sovereign Debt CDS Index 24.92 -13.70%

• Asia Pacific Sovereign Debt CDS Index 57.70 -5.75%

• Emerging Market CDS Index 303.33 -2.33%
  

• iBoxx Offshore RMB China Corporates High Yield Index 120.66 +.06%

• 2-Year Swap Spread 24.75 -.5 basis point

• TED Spread 27.5 -1.0 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -18.25 +1.0 basis point

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.

• Yield Curve 171.0 +6.0 basis points

• China Import Iron Ore Spot $60.02/Metric Tonne -2.18%

• Citi US Economic Surprise Index -38.0 -2.0 points

• Citi Eurozone Economic Surprise Index -6.60 -3.8 points

• Citi Emerging Markets Economic Surprise Index -16.30 +.6 point

• 10-Year TIPS Spread 1.93 +4.0 basis points

Overseas Futures:

• Nikkei 225 Futures: Indicating +172 open in Japan 
• China A50 Futures: Indicating n/a open in China

• DAX Futures: Indicating -3 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg:

• Greek Optimism Tempered by Finance Chiefs. (video) Euro-area finance chiefs tempered optimism that a deal on Greece was in the offing, saying expectations of a breakthrough were inflated amid confusion over new proposals intended to unlock aid. With markets surging on speculation an accord was near, ministers closed ranks to douse hopes of an imminent deal as they arrived for a meeting in Brussels on Monday. Dutch Finance Minister Jeroen Dijsselbloem said it was “impossible to have a final assessment” of the Greek proposals since they had arrived so late, while his Irish counterpart, Michael Noonan, said he expected ministers to have to meet again on Thursday.

• Greek Parliament Vote Is Indispensable to Aid Deal, Germany Says. Germany outlined its terms for parliament to approve any aid deal for Greece, including a demand that Greek lawmakers take the first step by passing economic policy changes. Time is too short for a “normal parliamentary procedure” in Germany in the “last days” before Greece’s aid program expires on June 30, the Finance Ministry said in a document prepared for euro-area officials. While German lawmakers can invoke a fast-track procedure, that is likely to depend on the “quality and persuasive power” of an agreement with Greece, according to the document obtained by Bloomberg.

• Greek Headline Fatigue Numbs Investors to Mask Euro’s Downside. Headline fatigue may be the biggest risk to investors from the Greek debt saga. Money managers lulled into a sense of complacency amid dragged out negotiations to avert a default will be shaken from their malaise by euro losses, should the heavily indebted nation exit the 19-member currency union, according to Guillermo Felices, head of asset allocation in Europe at Barclays Plc. “Maybe we’re all being a bit too over-optimistic,” said Chris Gaffney, president at EverBank World Markets in St. Louis. While most believe a solution will be found, “the worry is the contagion effect.” Of 899 hedge funds, money managers and other trading desks surveyed by Barclays this month, more than half forecast only “a small negative” from Greece leaving the common currency, thanks to its minor contribution to regional growth and buffers to limit contagion. A further 28 percent see contagion limited to peripheral economies.

• Greece ‘Certain’ to Stay in Euro Region This Year, Odds Signal. Worried about a Greek exit from the euro region ruining your summer vacation plans? Fret no more, it isn’t going to happen. At least that’s what bookmakers say. Betfair Group Plc puts the odds of Greece not leaving the euro zone this year at 1/5, meaning a successful 5 pound bet wins 1 pound. William Hill Plc is offering 1/4 Greece will stay in the euro area in 2015.

• China Margin Trades Buckle Leaving $364 Billion at Risk. The biggest tumble in Chinese shares since 2008 is proving especially painful for margin traders as their favorite stocks sink faster than the benchmark index, raising the risk of forced liquidations. The 30 equities in Shanghai with the highest levels of margin debt relative to tradable shares have dropped 17 percent on average since the market peaked on June 12, versus a 13 percent decline for the Shanghai Composite Index. Margin positions on the city’s bourse fell for the first time in a month on Friday, a sign that leveraged investors are unwinding bets after they grew more than five-fold in the past year. With at least $364 billion of borrowed money riding on stocks in Shanghai and Shenzhen, losses on those positions threaten to magnify market declines as traders sell shares to meet margin calls. 

• Greek Stocks Lead a Europe-Wide Rally. European stocks rose, with equities from France to Germany and Spain rallying the most since 2012, on optimism that a deal between Greece and its creditors is close, and as deals activity intensified. Greek banks jumped the most since May 2013. The Stoxx Europe 600 Index rallied 2.3 percent to 394.25 at the close of trading in London, with all its industry groups up. Greece’s ASE Index surged 9 percent, and a gauge tracking its banks soared 21 percent as Alpha Bank AE, National Bank of Greece SA and Piraeus Bank SA all jumped. Benchmark indexes of Germany, France and Spain climbed more than 3.8 percent.

• TCW Braces for Bond-Market Collapse by Piling the Cash Up High. TCW Group Inc. is taking the possibility of a bond-market selloff seriously. So seriously that the Los Angeles-based money manager, which oversees almost $140 billion of U.S. debt, has been accumulating more and more cash in its credit funds, with the proportion rising to the highest since the 2008 crisis. “We never realize what the tipping point is until after it happens,” said Jerry Cudzil, TCW Group’s head of U.S. credit trading. “We’re as defensive as we’ve been since pre-crisis.” TCW isn’t alone: Bond funds are holding about 8 percent of their assets as cash-like securities, the highest proportion since at least 1999, according to FTN Financial, citing Investment Company Institute data. Cudzil’s reasoning is that the Federal Reserve is moving toward its first interest-rate increase since 2006, and the end of record monetary stimulus will rattle the herds of investors who poured cash into risky debt to try and get some yield.

• California Climate Plan Has Inland Condemning Coastal Elitism. The way inland California lawmakers see it, the only benefit to their constituents from Governor Jerry Brown’s expansion of carbon pollution laws will be cleaner air to breathe as they wait at the unemployment office. “Families losing their jobs cannot afford solar panels on their homes when they can no longer afford their homes because they have no job,” state Senator Jeff Stone, a Republican from Riverside County, told colleagues during a debate on Senate Bill 350 this month. He called it “coastal elitism at the worst, an act that will cut jobs in Central Valley communities and benefit rich urban areas that already have more jobs and economic diversity.” Opponents such as Stone praise the goals of climate-change regulations but say private-sector innovation should drive clean technology, not government mandates. They warn that tightening California’s rules, already the nation’s toughest, will increase gas and electricity costs for companies, farmers and the poor, eliminating jobs and driving business to less-expensive states. Rural residents traveling long distances to work, school and medical care will be disproportionately hurt, they say. 

• U.S. Stock Strategists Haven't Been This Bullish Since 2011.

Wall Street Journal:

• Hedge Fund Citadel Prepares to Launch New Stock-Picking Unit. Hedge-fund Citadel LLC is preparing to roll out a new stand-alone stock-picking division, the latest sign of the Chicago firm’s postcrisis resurgence.

• Taliban Attack Afghan Parliament in Kabul. Police kill seven attackers; Assault leaves two dead and dozens of civilians wounded.

Fox News: 

• Controversial MIT economist Jonathan Gruber reportedly played key role in ObamaCare law. (video) MIT economist Jonathan Gruber, who claimed the authors of ObamaCare took advantage of what he called the "stupidity of the American voter," played a much bigger role in the law's drafting than previously acknowledged, according to a published report.

CNBC:

• Forget Greece—it's time to worry about China.

ZeroHedge: 

• Goldman's "Conspiracy Theory" Stunner: A Greek Default Is Precisely What The ECB Wants.

• Germany, Ireland Demand ELA Curbs If No Greek Capital Controls As Greek "Proposal" Revealed.

• Earnings Growth To Collapse Most Since 2009 In Q2. (graph) 

• Collapse, Part 1: Greece.

• Obama's "Single-Payer" Monopoly Looms As Healthcare Merger-Mania Heats Up.

• European Bonds, Stocks Explode Higher As "Optimism" Trade Gets Second Wind. (graph)

• Existing Home Sales Spike To Highest Since Nov 2009 As Prices Soar For Expensive Homes. (graph)

• For The First Time Ever, Total ECB Claims On Greek Banks Surpass Total Greek Deposits.

Business Insider:

• Under Armour(UA) hit the jackpot on its Jordan Spieth bet.

@DividendMaster:

• Steel prices in China continue plummeting. (graph)

Telegraph: 

• Greece deal in doubt as ministers discuss prospect of capital controls ahead of emergency EU summit. Finance ministers discuss prospect of capital controls on Greek banks as they write off a prospect for a deal tonight.

• Greece debt crisis: anti-austerity protesters rally in Athens. (video) As Greece and its creditors meet for eurozone crunch talks, thousands of Greeks are taking a defiant stand against austerity.

Bear Radar

Style Underperformer:

• Mid-Cap Value +.27%

Sector Underperformers:

• 1) Papers -1.71% 2) Gold & Silver -1.37% 3) Gaming -1.21%

Stocks Falling on Unusual Volume:

• AMBA, ETE, WPZ, PLCM, HUM, SYNA, KMX, PKG, SEDG, KS, CAPL, IP, RKT, IPCM, FNSR, TROV, MWV, HASI, FNHC, USPH, GLP, TCX, PRSC, FELE, FEYE and PBPB

Stocks With Unusual Put Option Activity:

• 1) OIL 2) F 3) APC 4) TXN 5) CF
  

Stocks With Most Negative News Mentions:

• 1) AA 2) FEYE 3) PCLN 4) SYNA 5) SYMC
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Growth +.55%

Sector Outperformers:

• 1) HMOs +3.28% 2) Airlines +1.84% 3) Drugs +1.28%
  

Stocks Rising on Unusual Volume:

• WMB, EPZM, E, SRNE, ORAN, MDXG, POZN, FGEN, HQY, CI, OKE and AET

Stocks With Unusual Call Option Activity:

• 1) AOL 2) XOMA 3) RHT 4) SGMS 5) ETP
  

Stocks With Most Positive News Mentions:

• 1) ZUMZ 2) EPZM 3) CCL 4) CONE 5) KBH
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running 5.0% Below 100-day average
• 10 Sectors Rising, 0 Sectors Declining
• 68.3% of Issues Advancing, 29.0% Declining
• 148 New 52-Week Highs, 24 New Lows
• 51.0% of Issues Above 200-day Moving Average
• Average 14-Day RSI 43.9
• Vix 12.5
• Total Put/Call 1.04
• TRIN/Arms .73

Monday Watch

Today's Headlines 

Bloomberg: 

• Tsipras Said to Risk Miscalculating Merkel on Greek Aid. Greek Prime Minister Alexis Tsipras is testing Angela Merkel’s patience, risking the best hope for keeping his country in the euro area. While the German chancellor says she wants to keep the euro intact, Tsipras is probably overestimating her willingness to compromise at an emergency summit called to break the deadlock on Greek aid, according to a person familiar with the government’s thinking. Her stance is backed by a chancellery estimate that the financial impact on Germany of a Greek default would be limited to 1 billion euros ($1.1 billion) a year, said the person, who asked not to be identified discussing government deliberations. As Merkel hardens her tone, she’ll take those calculations into the special summit with Tsipras and 17 other euro-area leaders in Brussels on Monday. 

• Crunch Time for Greece as More Talks Loom. (video)

• Euro Risk Concealed as Greece Lurches Toward Currency Union Exit. To look at the euro right now, you’d never guess its very existence is being threatened. As Greece edges closer to crashing out of the monetary union, Europe’s single currency is headed for only its second monthly gain versus the dollar in a year. Strategists give a variety of reasons for its resilience, from money managers canceling euro hedges as they dump bonds and stocks to optimism Greece and its creditors will come to an 11th-hour bailout deal, possibly after an emergency summit in Brussels on Monday.

• U.S.’s Carter Calls Putin ‘Malign Influence’ in Eastern Europe. Defense Secretary Ashton Carter termed Russian President Vladimir Putin a “malign influence” in Eastern Europe and said the Russian leader’s vow to expand Moscow’s cache of nuclear missiles was “loose rhetoric.” Amid continuing tensions over the conflict in Ukraine, the U.S. will “keep the door open” for Russia to choose better relations, Carter said, something he indicated was a long shot in remarks to reporters aboard his Pentagon jet on Sunday. “Russia might not change under Vladimir Putin or even thereafter,” Carter said.  

• Former SAC Manager’s Hedge Fund Bets Against Euro on Greek Woes. Yip Ka-hay, a former SAC Capital Advisors manager now running his own macro hedge fund, is shorting the euro against the Japanese currency. The euro may slide below $1.08 in the next few months -- from above $1.13 now -- amid a potential Greek default and exit from the European currency, he said. Even with a last-minute deal, the currency shared by 19 nations could weaken as policy makers shift their attention back to boosting growth and inflation in Europe through government easing, he added.

• China Margin Debt Shrinks First Time in a Month Amid Stock Rout. Chinese stock investors reduced leveraged positions in Shanghai for the first time in a month as the benchmark equity index plunged. The outstanding amount of margin debt on the Shanghai Stock Exchange fell to 1.479 trillion yuan ($238 billion) on Friday from a record 1.483 trillion yuan the previous day, the first decline since May 22. Shares sank 6.4 percent Friday to cap their worst week since the global financial crisis in 2008.

• Asian Stocks Rise Before Emergency Summit on Greece Debt Crisis. Asian stocks rose ahead of Monday’s European emergency summit on Greece’s debt crisis. The MSCI Asia Pacific Index added 0.3 percent to 147.66 as of 9:06 a.m. in Tokyo after sliding 0.7 percent last week.

• With An Oversupply of Oil, Expect Lower Prices: Gordon. (video)

• Biggest Health Insurers to Get Even Bigger Under Obamacare. America’s biggest health insurers are about to get even bigger, driven into a wave of consolidation by Obamacare’s new regulations and markets. Anthem’s disclosure Saturday that it’s offered about $47 billion for Cigna Corp. is the first public confirmation the deal-making is in full swing. Cigna rejected the offer on Sunday, despite Anthem’s attempt to pressure Cigna’s board by taking the offer public. Anthem, Aetna Inc. and UnitedHealth Group Inc. all are poised to emerge as buyers or sellers when the dust settles. Driving the consolidation is the 2010 health law that put tougher rules on the industry, demanding more covered services, better care and a ceiling on profits. It funded coverage for the uninsured, and companies are racing to capture the more than 20 million customers who will buy coverage through Obamacare’s markets.

Wall Street Journal: 

• How Chinese Billionaire Li Hejun’s Solar Bet Soured. Hanergy founder, once China’s richest man, now faces company investigation after stock implosion.

• MIT Economist Jonathan Gruber Had Bigger Role in Health Law, Emails Show. Adviser whose comments on Affordable Care Act touched off a furor worked more closely than previously known with White House.

• Health Mergers Could Cut Consumer Options. Potential deals among large U.S. health insurers could have market overlaps that hinder competition, Journal analysis finds.

• Global Revenue Grab. The U.S. seems ready to join Europe’s tax harmonization scheme. 

• How the U.S. Can Return to 4% Growth. Short-term policy gimmicks need to be set aside in favor of longer-term tax and regulatory reforms.  

MarketWatch.com:

• China’s stock debuts will show if bubble has already burst. 

• Brazil president's approval rating hits record low.

CNBC:

• Taylor Swift criticizes Apple’s streaming music service. (video) Taylor Swift spoke out last year about the economics behind Spotify. Now, she has taken aim at Apple over its decision not to pay musicians during a trial period for its new music service.

Zero Hedge:

• Greece Told To Have A Deal Ready Before Monday Meeting; Tsipras Submits Revised Plan With No Pension Cuts.

• "It's Time To Hold Physical Cash", Fidelity Manager Warns Ahead Of "Systemic Event".

• Credit Market Warning. (graph)

• Is This Complacency, Idiocy, Or Both?

• Geopolitics Will Trump Economics In Greece.

• Greek GDP: The Shocking Reality Vs IMF Forecasts; And Who Is To Blame For The Greek Implosion. (graph)

• The Euro Does Not Have A Problem... It Is The Problem.

• Jim Rogers: Turmoil Is Coming.

• "Investing" Simplified.

• Bond Trading Revenues Are Plunging On Wall Street, And Why It Is Going To Get Worse.

• Goldman And SocGen Unleash The "C"-Word: ECB Alone Can't Contain Grexit Risks. (graph)

Business Insider:

• The crippling contradiction in Obama's ISIS strategy is growing.

• Greece is confirming that Margaret Thatcher was right about socialist governments.

• Greece will hurt Europe no matter what.

• How Hillary Clinton will raise gobs of cash from Wall Street while trashing the industry in public.

• Senior administration official: The latest China hack was classic espionage 'on a scale we’ve never seen before'.

• China's stock market dream could bring about its worst nightmare.

Reuters:

• Williams Co(WMB) rejects $48 bln unsolicited offer. Natural gas pipeline company Williams Companies Inc said on Sunday it is exploring strategic options after it received an unsolicited takeover proposal for $64 per share or $48 billion. Williams did not name the party who made the offer but it said its board determined the proposal "significantly undervalues" the company. Energy Transfer Equity LP, a portfolio company that owns energy assets, is the bidder referred to in Williams' announcement on Sunday, according to a person familiar with the matter.

Financial Times:

• Spectre of Grexit sparks fears for central and eastern Europe. As Greece teeters on the brink of a eurozone exit, jittery investors have been trying to second-guess the consequences for other peripheral members of the single currency. They might do better looking closer to the source of the problem.

Telegraph:

• Why the state of Greek hospitals tell us the drachma could be coming. Athens was forced to issue a form of ‘quasi-drachmas’ to suppliers at the height of its cash crisis five years ago. They may be perilously close to doing the same today. 

• Eurozone doomed whether Greece leaves or stays, study shows. The single currency is forcing its members further apart and cannot survive in its current form, new analysis shows.

FAS:

• Greek Budget Shortage May Be EU2b to EU3.6b at End of June. Greece creditors estimate country's budget gap of EU2b to EU3.6b this month, citing creditors' internal calculations. Shortage won't allow Greek government to repay IMF; it has to cut pensions, salaries as expense amount to EU2.2b by end of June.

MDR Television: 

• Schaeuble Says Hard Line on Greece Best for Europe. German Finance Minister Wolfgang Schaeuble said he is perceived in Greece as "stubborn" but his hard line isn't aimed at harming the country, and is in the best interests of Europe, citing a speech by Schaeuble after receiving the Point-Alpha Prize. Need to stick to reforms, speak up against softening of rules.

Weekend Recommendations

• None of note

Night Trading

• Asian indices are unch. to +.75% on average.

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

• Asia Pacific Sovereign CDS Index 61.25 unch.

• S&P 500 futures +.44%.

• NASDAQ 100 futures +.38%.

Morning Preview Links

Earnings of Note

Company/Estimate 

• (SONC)/.36

Economic Releases

8:30 am EST

• The Chicago Fed National Activity Index for May is estimated at .16 versus -.15 in April.
  

10:00 am EST

• Existing Home Sales for May are estimated to rise to 5.28M versus 5.04M in April.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Eurozone Summit, HSBC China Manufacturing PMI, Australia Housing Price Index, Jefferies Consumer conference, (SNE) shareholders meeting and the (GCI) investor meeting could also impact trading today.

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