Stocks Slightly Higher into Final Hour on Greece Debt Deal Optimism, Less Eurozone/Emerging Markets Debt Angst, Short-Covering, Retail/Energy Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Slightly Higher
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 12.19 -4.32%

• Euro/Yen Carry Return Index 144.65 -1.01%

• Emerging Markets Currency Volatility(VXY) 8.88 +.23%

• S&P 500 Implied Correlation 61.19 -2.63%

• ISE Sentiment Index 92.0 -36.99%

• Total Put/Call .95 +7.95%

• NYSE Arms .68 -8.27% 

Credit Investor Angst:

• North American Investment Grade CDS Index 65.48 +.35%

• America Energy Sector High-Yield CDS Index 1,534.0 +.79%

• European Financial Sector CDS Index 75.33 -3.61%

• Western Europe Sovereign Debt CDS Index 22.07 -11.46%

• Asia Pacific Sovereign Debt CDS Index 57.0 -.87%

• Emerging Market CDS Index 297.49 -1.97%
  

• iBoxx Offshore RMB China Corporates High Yield Index 120.74 +.06%

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

• TED Spread 28.0 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -18.25 unch.

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.

• Yield Curve 173.0 +2.0 basis points

• China Import Iron Ore Spot $61.34/Metric Tonne +2.2%

• Citi US Economic Surprise Index -36.80 +1.2 points

• Citi Eurozone Economic Surprise Index 13.5 +20.1 points

• Citi Emerging Markets Economic Surprise Index -15.70 +.5 point

• 10-Year TIPS Spread 1.94 +1.0 basis point

Overseas Futures:

• Nikkei 225 Futures: Indicating +116 open in Japan 
• China A50 Futures: Indicating -71 open in China

• DAX Futures: Indicating +16 open in Germany

Portfolio: 

• Slightly Lower: On losses in my medical sector longs and emerging markets shorts

• Disclosed Trades: None

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• Greece Inches Closer to a Deal. Euro-area finance ministers will meet for the third time in a week on Wednesday to try and secure an agreement to avert a default in Greece. With a week to go before the country’s bailout expires, a deal appeared within reach after Greek prime minister Alexis Tsipras signaled he was ready to end a bitter five-month standoff and reach agreement with creditors to unlock aid. While hurdles remain -- including votes in the German and Greek parliaments, and figuring out how to pay the International Monetary Fund -- analysts say a solution will be found.

• Tsipras Party Members Voice Reservations Over Funding. Greek Prime Minister Alexis Tsipras is facing the first signs of dissent within his own party over his latest plan to end a five-month standoff with creditors. Some of Syriza’s more radical and populist lawmakers expressed opposition Tuesday to the proposal as the deal’s backers called on members to see the bigger picture. “Personally, I cannot support such an agreement that is contrary to our election promises,” Dimitris Kodelas, a Syriza lawmaker associated with former Maoists, said in an interview. “I do not care about the consequences of my decision.”

• German Lawmakers Say IMF Stamp Is Key to Greek Deal Vote. Members of Chancellor Angela Merkel’s coalition said the International Monetary Fund’s backing for a financing plan for Greece is key to German parliamentary support for a deal.

• The World's Biggest Economies Are About to Feel the Impact of China's Slowdown.
  
  Commodity, reprocessing and developed country exporters should brace for the impact of weakening China demand this year. Emerging markets and commodity suppliers have grappled with reduced demand from China as a property downturn weighed on the world's second-largest economy. U.S., Japanese and German exporters did better, supplying capital goods like machines that China still demanded. That may soon change, according to a study of global exposure to China by UBS Group AG economists Donna Kwok, Wang Tao and Jennifer Zhong.

• Beware Bond-Liquidity Traps When Hunting Yield, Pimco Says. Investors risk falling into liquidity traps as they seek to boost yields depressed by the European Central Bank’s 1.1 trillion euro ($1.2 trillion) bond-buying program, according to Pacific Investment Management Co. The search for yield has caused investors to buy riskier and less frequently traded bonds, which may be hard to sell quickly, said Mike Amey, a London-based fund manager at Pimco, which oversees about $1.59 trillion of assets. Overall bond trading has slumped since the global financial crisis because banks have cut inventories to preserve capital in response to tighter regulations. 

• Europe Stocks Rise for 4th Day on Optimism Over Greece, Economy. European stocks posted their biggest four-day rally since January as the region’s leaders agreed Greece’s government was getting serious about reaching a deal. The Stoxx Europe 600 Index rose 1.2 percent to 398.83 at the close of trading. A report showed euro-area factory and services expanded more than forecast in June, signaling a pickup in the region’s economy amid quantitative-easing measures by the European Central Bank.

• Fed’s Powell Puts Odds of September Rate Increase Around 50%. The chances are about 50-50 that the U.S. economy will improve enough for the Federal Reserve to raise interest rates in September, said Fed Governor Jerome Powell, who also expects the central bank to move again in December. Speaking at a Wall Street Journal event in Washington Tuesday, Powell said he forecast stronger growth than in the first half of 2015, growth in the labor market and a “greater basis for confidence” in inflation returning to 2 percent. “If those things are realized, I feel that it is time, it will be time, potentially as soon as September,” he said. “I don’t think the odds are 100 percent. I think they’re probably in the 50-50 range that we will realize those conditions, but that’s my forecast.”

• Big Days Dying Off in Stocks With No 2% Move Since December. (video) Days of frantic buying or selling have been absent from the U.S. stock market this year. The Standard & Poor’s 500 Index hasn’t posted a gain or loss of 2 percent or more for 126 days, the longest streak since one ending in February 2007, according to data compiled by Bloomberg and Deutsche Bank AG.

• Google(GOOG) Reveals Health-Tracking Wristband. Google Inc.’s life sciences group has created a health-tracking wristband that could be used in clinical trials and drug tests, giving researchers or physicians minute-by-minute data on how patients are faring.

Fox News:

• White House to announce US won't prosecute hostages' families who pay ransom. In a softening of longstanding policy, the Obama administration will tell families of Americans held by terror groups that they can communicate with captors and even pay ransom without fear of prosecution -- part of a broad review of U.S. hostage guidelines that will be released Wednesday.

ZeroHedge: 

• The Unspoken Tragedy In The Upcoming Greek Bailout.

• Corporations Win Again: Senate Passes Obamatrade Fast-Track Bill.

• Economic Confidence Tumbles Back To 2015 Lows. (graph)

• White House Lies (Again): Jonathan "Stupidity Of The American People" Gruber Called "Our Hero".

• IMF Spoils The Party Again: Throws Up On Latest Greek Proposal.

• Facing "Full Blown Crisis", Bank Of Greece Enlists Security Firm To Ensure ATMs Stay Stocked.

• "The End Of The Road" - Debt-Funded Buyback Boosts Are Finite. (graph)

• Why New Home Sales Remain At Recession Levels, In One Chart. (graph)

• New Home Sales Surges To Highest Since Feb 2008 As Northeast Spikes 87%. (graph)

• US Manufacturing PMI Slumps To Weakest Since Oct 2013. (graph)

• Durable Goods Order Bounce Dead; Biggest Drop Since 2009. (graph)

• Economically Key Industrial Metals Complex Is Breaking Down.

Business Insider:

• Confederate flag sales are skyrocketing.

MNI: 

• Chinese Banks Review Exposure to Stock Market. At least one big state-owned Chinese bank told branches to step up risk controls over investment in the domestic stock market, citing an official at the bank.

Telegraph: 

• Embattled Alexis Tsipras faces domestic revolt over plans to implement 'harsh' austerity blitz. Leftist government is forced to defend its plans from left and right-wing critics amid prospect of a government collapse. 

Bear Radar

Style Underperformer:

• Mid-Cap Value -.31%

Sector Underperformers:

• 1) Utilities -1.54% 2) Semis -.96% 3) Networking -.66%

Stocks Falling on Unusual Volume:

• GLOP, WSR, SONC, SNR, YDLE, USLV, NNBR, NYLD, AMED, WMB, EPZM, LHCG, POZN, ADT, AET, WLDN, EGRX, AFAM, COUP, CUK, ANTM, IBP, TDC, TCON and CHH

Stocks With Unusual Put Option Activity:

• 1) AMAT 2) KBH 3) AET 4) TGT 5) MMM
  

Stocks With Most Negative News Mentions:

• 1) WDC 2) PM 3) CHH 4) WMT 5) ADT
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Value -.10%

Sector Outperformers:

• 1) Steel +.69% 2) Retail +.46% 3) Social Media +.45%
  

Stocks Rising on Unusual Volume:

• GDOT, EYES, AMBA, MOMO, NVAX, CEMP, KEYW and TTPH

Stocks With Unusual Call Option Activity:

• 1) CNX 2) GNW 3) NLY 4) XOMA 5) GDXJ
  

Stocks With Most Positive News Mentions:

• 1) T 2) DTV 3) GDOT 4) FB 5) ZUMZ
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running 7.2% Below 100-day average
• 4 Sectors Rising, 6 Sectors Declining
• 51.1% of Issues Advancing, 45.7% Declining
• 123 New 52-Week Highs, 37 New Lows
• 52.2% of Issues Above 200-day Moving Average
• Average 14-Day RSI 45.4
• Vix 12.4
• Total Put/Call .84
• TRIN/Arms .66

Tuesday Watch

Evening Headlines 

Bloomberg:  

• Greece’s Split With Creditors Said to Come Down to Catering VAT. Sales tax on catering may be the largest difference between Greece and its creditors as they negotiate rescue arrangements this week, according to two European Union officials. The rate of value-added tax is the main sticking point to getting a deal, with Greece’s proposed target for 2016 still some way short of creditor demands. Creditors want savings from VAT in 2016 of 1 percent of gross domestic product and this could be achieved by raising sales tax on catering to a rate of 23 percent from 13 percent, both officials said. Greece has proposed measures that would net 0.74 percent of GDP, the first diplomat said.
• Sticking Points & Progress Made in Greek Debt Talks: Fact Sheet.
• Euro Drops as Greece Deal Would Revive ECB-Fed Policy Divergence. The euro fell as Goldman Sachs Group Inc. said the European Central Bank’s quantitative easing program will send the currency toward parity against the greenback, even in the event of a debt deal for Greece. “We thus see Greece as a catalyst for EUR/$ to go near parity, via stepped up QE that moves rate differentials against the single currency,” Goldman strategists including Robin Brooks wrote in a report published June 22. The single currency fell 0.6 percent against the greenback to $1.1269 as of 12:09 p.m. in Tokyo. Bloomberg’s Dollar Spot Index, which tracks the U.S. currency against 10 peers, advanced 0.4 percent to 1,173.55.
• China’s Small-Cap Stocks That Led Rally Set to Enter Bear Market. The ChiNext index of smaller companies in Shenzhen was poised to enter a bear market amid concern investors were unwinding margin bets in China’s most expensive stocks. The 100-member gauge slid as much as 4.8 percent Tuesday, extending its loss from its June 3 peak to more than 20 percent. The index, which is dominated by technology shares, pared declines to 2.5 percent at the 11:30 a.m. local-time break. The ChiNext traded at a record 131 times reported earnings this month, five times the level of the Shanghai Composite Index, after the small-cap gauge tripled in just 12 months.
• China’s Stocks Plunge, Extending Steepest Slump in Seven Years. China’s stocks tumbled, extending their biggest weekly drop since the global financial crisis. The Shanghai Composite Index fell 3.5 percent to 4,323.34 at 11:14 a.m. local time. The gauge plunged 13 percent last week, the fastest pace among global equity gauges, amid concern valuations were unsustainable and initial public offerings were luring funds from existing equities. The ChiNext gauge of smaller companies plunged 3.5 percent, taking declines from its June 3 record to 19.9 percent, approaching a bear market.
• Asian Stocks Rise Fourth Day on Optimism About Greece Debt Talks. Asian stocks rose, following a rally in global shares, as Greece’s new measures to appease its creditors fueled optimism a deal will soon be reached. The MSCI Asia Pacific Index added 0.1 percent to 148.71 as of 9:00 a.m. in Tokyo after jumping the most in two months on Monday.
• Planet Fitness Files for Initial Public Offering of Gym Chain. Planet Fitness Inc., the $10-per-month gym chain, filed for an initial public offering in the U.S.

Wall Street Journal: 

• Governor: Time to Furl Flag. Lawmakers in South Carolina asked to take down Confederate symbol after shooting. South Carolina Gov. Nikki Haley called on Monday for the Confederate battle flag to be taken down from the Statehouse grounds, five days after the killing of nine African-Americans in a historic church. “We are not going to allow this symbol to divide us any longer,” Ms. Haley said, applause erupting as she spoke, flanked by more than 30 state political leaders in the lobby of the Statehouse.
• Trade Bill Faces Hour of Truth in Senate. Republican leader Mitch McConnell schedules Tuesday vote on fast-track bill, hopes to draw enough Democrats.
• Cheap Energy Poised to Shake Up Pipeline Industry. Williams(WMB) spurns $48 billion offer from rival, setting stage for others to bid. Low oil-and-gas prices are poised to shake up yet another part of the nation’s energy economy, spurring a merger battle among companies that own the key pipelines that move fuels around the country.
• Why the Recovery Still Limps Along. A state-by-state analysis shows that market-oriented policies work. Too bad more states aren’t using them.

Fox News: 

• National support pours in for Charleston, other AME churches in wake of attack. Support poured in from around the nation to the historically black church in Charleston, S.C., and other mainly African-American houses of worship in the wake of last week's shooting that left nine people dead during a Bible study meeting.
• New low: ISIS reportedly gives away sex slaves as 'prizes' in Koran contest. (video) ISIS has already committed countless unspeakable acts on Yazidi and Christian girls and women in Iraq, but the terrorist army may have reached a new low with a twisted new contest in which female slaves captured in war are given away as "prizes" to fighters who show the have mastered the Koran.

CNBC: 

• Latest on Greece: 48 hours to craft a deal.

Zero Hedge:

• Greece Capitulates: Tsipras Crosses "Red Line", Will Accept Bailout Extension.
• The NAR Sees "No Housing Bubble", So Here Is A Look At NAR's History Of Absolutely Disastrous Forecasts. (graph)
• Chinese Crash Continues After PBOC Cracks Down On Brokerage Liquidity. (graph)
• Wealthy Greeks Slam "Incompetent Communists Ruining The Country", Demand EU "Save" Greece.
• $140 Billion Bond Fund Goes To Cash As It "Braces For Bond-Market Collapse". (graph)
• The Fed Confirms It Is Above The Law: Yellen Tells Hensarling "No" On Leak Probe Documents.
• CEOs Now Make 300 Times More Than Their Employees (Again). (graph)
• The Euro "Young Adults Living With Their Parents" Zone.
• "Greece Is Rescued" Euphoria Fades After Europe's Close, Nasdaq Record Highs. (graph)

Business Insider:

• Think of it as housing bubble 2.0. (graph)
• Container shippers from China to Europe are experiencing the biggest 'rate collapse that this trade has experienced'. (graph)
• People in Greece are starting to say the words 'civil war' in a non-jokey way.
• Colleges are banning smartwatches to cut down on high-tech cheating.
• Corporate defaults are here.

Telegraph: 

• Greek bank run fears escalate as eurozone ministers openly discuss capital controls. Belgium's finance minister admits eurozone is considering draconian measures to stop banks from going bust as Tsipras swallows austerity.

Evening Recommendations 

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 106.0 -3.0 basis points.

• Asia Pacific Sovereign CDS Index 57.5 -3.75 basis points.

• S&P 500 futures +.26%.

• NASDAQ 100 futures +.25%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (BBRY)/-.04
• (CCL)/.16
• (DRI)/.93
• (IHS)/1.45

Economic Releases

8:30 am EST

• Durable Goods Orders for May are estimated to fall -1.0% versus a -.5% decline in April.
• Durrables Ex Transports for May are estimated to rise +.5% versus a +.5% gain in April.
• Capital Goods Orders Non-Defense Ex Air for May are estimated to rise +.5% versus a +1.0% gain in April.
  

9:00 am EST

• The FHFA House Price Index for April is estimated to rise +.5% versus a +.3% gain in March.

9:45 am EST

• Preliminary Markit US Manufacturing PMI for June is estimated to rise to 54.1 versus 54.0 in May.

10:00 am EST

• New Home Sales for May are estimated to rise to 523K versus 517K in April.
• The Richmond Fed Manufacturing Index for June is estimated to rise to 4.0 versus 1.0 in May.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Powell speaking, Eurozone PMI, $26B 2Y T-Note auction, weekly US retail sales reports, CSFB Ag/Chemicals conference, Oppenheimer Consumer conference, Global Hunter Energy conference, JMP Securities Life Sciences conference and the (MO) investor day could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity 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 day.