Thursday Watch

Evening Headlines 

Bloomberg:  

• Greece Edges Closer to Default. Greece stumbled closer to default as another day of negotiations ended in the early hours without a deal to end the standoff over bailout aid. With the Greek government saying it held firm in the flurry of meetings in Brussels on Wednesday, European Union officials said the talks yielded little progress and no breakthrough was in sight. Prime Minister Alexis Tsipras and the heads of the three creditor institutions agreed to reconvene first thing on Thursday after a few hours’ sleep.

• Down to the Wire: No Deal in Late-Night Greek Debt Talks. (video)   

• Goldman Sees Ukraine in Solvency Crisis, Likely Default in July. Ukraine is facing a solvency and liquidity crisis and will likely miss a bond coupon payment next month and default on its debt, according to Goldman Sachs Group Inc. The government is unlikely to resolve a disagreement with its creditors on its debt repayment plan in the coming weeks and will likely issue a moratorium before skipping a July 24 coupon payment, analyst Andrew Matheny wrote in a research note on Wednesday. Ukraine has asked creditors to take a 40 percent writedown in principal and accept new bonds tied to its future economic performance under its repayment plan.

• China Moves Closer to ‘Riskiest’ Step by Removing Loans Cap. China took one of its biggest steps in banking reform, moving to end a two-decade-old rule that has capped lending relative to deposits as Premier Li Keqiang seeks to usher in market-based economics. An amendment to the banking law will remove the 75 percent limit, the State Council said on its website Wednesday. The Standing Committee of the National People’s Congress needs to give approval at its meeting in March. While the change has the potential to boost credit growth, a bigger constraint may be limited demand for funds in a faltering economy. Looming now is what the central bank has called one of the “riskiest” parts of financial reform: ditching a ceiling on the interest rates that lenders pay on deposits, a move that may come in the second half of this year.

• Momo’s No to U.S. Shows China Stock Exodus Gathering Speed. Momo Inc., the maker of a chat app used for casual dating, is taking China’s pullout from the U.S stock market to a new level. Just six months after raising $248 million in an initial public offering, the chief executive officer is buying out shareholders to take the company private. It’s the second-fastest take-private bid for a Chinese company in the U.S. in the past decade, according to data compiled by Bloomberg.  

• Ringgit Leads Drop in Asia on Bets Fitch Will Downgrade Malaysia. Malaysia’s ringgit dropped the most in Asia on speculation Fitch Ratings will downgrade the country as the U.S. moves toward raising interest rates.

• Macau Slump Spreading From Gambling Tables to Property Market. Macau’s six-year lucky streak has come to an end. That’s become evident not just at the baccarat tables but at real estate agencies, too. After more than quintupling over six years, residential prices are heading for their first year of declines since 2008, tracking a gambling revenue slump in the world’s largest casino hub. Home prices may drop 15 percent this year, real estate broker Jones Lang LaSalle Inc. forecasts. 

• China Tech Stock Boom Falters as Traders Shun Soaring Valuations. A rally in Chinese technology companies is reversing at the fastest pace in at least a year on concern valuations are too high relative to earnings growth. The CSI 300 Information Technology Index has slumped 14 percent from its June 2 record, almost three times the loss by the broader gauge. Even after the declines, the hi-tech measure trades at 78 times earnings, versus 31 times for the Nasdaq Composite Index in the U.S. The Chinese index declined 1 percent at the mid-morning break Thursday.

• Asian Stocks Track Global Retreat as Progress Stalls on Greece. Asian stocks fell, following global equities lower, as Greece and its creditors broke off talks for the night in Europe without reaching a deal. The MSCI Asia Pacific Index lost 0.1 percent to 149.58 as of 9:04 a.m. in Tokyo.

• OPEC's Oil Revenues Have Dropped Below $1 Trillion - Here's What That Looks Like. (video) OPEC nations' oil revenues dropped last year below the psychological $1 trillion mark for the first time since 2010, in the clearest sign yet of the economic impact of lower prices for oil-rich nations. The Organisation of the Petroleum Exporting Countries said on Wednesday in its annual statistical report that its 12-members earned $964.6 billion selling their petroleum, down 12.7 per cent from $1.1 trillion in 2013 and the lowest amount since 2010. Oil export revenues hit a nominal record of $1.2 trillion in 2012, according to OPEC data. 

• Goldman’s Cohn: You’re Wrong If You Think Markets Ready for Fed. Years of discussing when and how the Federal Reserve will raise interest rates probably isn’t going to prevent market participants from being caught off guard, Goldman Sachs Group Inc. President Gary Cohn said. “We’re probably less ready than people think,” Cohn said on a podcast posted Wednesday on the firm’s website. “It won’t at all be surprising to me if there are some interesting market reactions based on official change in rate policy by the Fed.”

Wall Street Journal: 

• Onetime Obama Advisers Warn White House on Iran Nuclear Talks. Foreign-policy strategists say they would oppose agreement if certain tough terms weren’t included. A group of influential U.S. foreign-policy strategists, including five former confidants of President Barack Obama, warned the White House Wednesday they would oppose a nuclear agreement with Iran if tough terms weren’t included in a final agreement.

• Fast-Track’s Passage Sets Up Round Two on Obama’s Trade Agenda. White House, Republicans notch win in Senate but face bigger battle to finalize Pacific trade pact.

• Call It a Comeback for Risky Home Buyers. Lenders seek out borrowers who recently went through a foreclosure or bankruptcy.

• The Next American Hostages. The U.S. won’t pay ransom but it will ‘assist’ those who do. President Obama on Wednesday announced a new U.S. government policy for dealing with Americans who are kidnapped abroad, and as always he stressed compassion for the hostages and their families. The danger of Mr. Obama’s good intentions is that he is giving terrorists even more incentive to snatch more Americans.

CNBC: 

• Exposed government logins found public on the Web. A CIA-backed technology company has found logins and passwords for 47 government agencies strewn across the Web—available for hackers, spies and thieves. 

• America's Top States for Business 2015.

Zero Hedge: 

• The Mystery Of The "Missing" Inflation Solved: Record Number Of US Renters Can't Afford Housing. (graph)

• "Nailed It". (graph)

• Auto Loans In "Untested" Territory Blackstone(BX) Warns As Subprime ABS Sales Accelerate.

• Nearly Half Of Americans Don't Trust Obama To "Do The Right Thing".

• Obamatrade Passes, The Corporations Win Again... And Now They Gloat.

• Top CEO Warns Of Global Reset: "It's In The Cards For Sure... It Could Happen This Year".

• We Are Reaching Peak Energy Demand, BP Data Suggests. (graph)

• In Historic Shift, Russia Overtakes Saudi Arabia As China's Number One Oil Supplier. 

• Icahn Frets, Fed Threats & Greek Regrets Send Stocks Sliding. (graph)

Business Insider: 

• Wal-Mart(WMT) has a massive plan that should terrify Whole Foods(WFM), Kroger(KR), and Trader Joe's.

• WeWork, which rents space to startups, is reportedly worth $10 billion — step inside and find out why.

• A fed rate hike will tighten conditions in these 5 big ways.

• People are freaking out about a new rule that would stop website owners from hiding their personal information.

• San Francisco real estate is so crazy that even a home where a mummified body was found is on the market for nearly $1 million.

• The Iran deal may put Iran much closer to a nuclear weapon than the Obama administration is claiming.

• ISIS is offering sex slaves to the winners of its Quran memorization contest.

Reuters:

• U.S.-based bond funds post biggest weekly outflows of year - ICI.

• Cree(CREE) to restructure LED business, cuts revenue forecast. Cree Inc, a light-emitting diode maker, said it would restructure its LED products business, hurt by a decline in selling price and under-utilization of its factory. Cree, which also lowered its revenue forecast for the fourth quarter, said on Wednesday it would buy back $500 million worth of stock for fiscal 2016.

Telegraph: 

• Last-ditch Greek rescue hopes dashed as Alexis Tsipras faces austerity ultimatum. Fundamental differences force finance ministers meeting to be aborted as creditors demand more cuts from the cash-strapped country. 

• Greek crisis: deal unravels as both sides reject proposals and Tsipras is summoned to late night talks. Finance ministers meeting is forced to end after only an hour and Prime Minister Tsipras will spend Wednesday night holed up with negotiators.

Evening Recommendations 

UBS:

• Cut (CHK) to Sell.

• Cut (MUR) to Sell.

Night Trading

• Asian equity indices are -.50% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 108.75 +2.75 basis points.

• Asia Pacific Sovereign CDS Index 58.0 +1.0 basis point.

• S&P 500 futures +.22%.

• NASDAQ 100 futures +.22%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (ACN)/1.23

• (BKS)/-.40

• (CMC)/.39

• (LNN)/.81

• (WGO)/.42

• (DRC)/.12

• (MU)/.57

• (NKE)/.83

Economic Releases

8:30 am EST

• Personal Income for May is estimated to rise +.5% versus a +.4% gain in April.

• Personal Spending for May is estimated to rise +.7% versus unch. in April.

• The PCE Core for May is estimated to rise +.1% versus a +.1% gain in April.

• Initial Jobless Claims are estimated to rise to 273K versus 267K the prior week. 

• Continuing Claims are estimated to fall to 2218K versus 2222K prior.
  

9:45 am EST

• Preliminary Markit US Services PMI for June is estimated to rise to 56.5 versus 56.2 in May.

11:00 am EST

• Kansas City Fed Manufacturing Activity for June is estimated to rise to -9 versus -13 in May.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Powell speaking, Fed's Taruillo speaking, Eurozone Leaders Summit, Japan CPI report, $29B 7Y T-Note auction, GFK Consumer Confidence report, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, (DYN) analyst meeting and the (GOGO) analyst day could also impact trading today.

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

Stocks Lower into Afternoon on Greece Debt Deal Worries, Rising Eurozone Debt Angst, Oil Decline, Healthcare/Transport Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 12.71 +4.95%

• Euro/Yen Carry Return Index 144.97 +.26%

• Emerging Markets Currency Volatility(VXY) 8.69 -1.36%

• S&P 500 Implied Correlation 60.82 -.91%

• ISE Sentiment Index 103.0 +7.29%

• Total Put/Call .85 -11.46%

• NYSE Arms 1.29 +36.84% 

Credit Investor Angst:

• North American Investment Grade CDS Index 65.93 +.93%

• America Energy Sector High-Yield CDS Index 1,035.0 -32.52%

• European Financial Sector CDS Index 77.94 +3.36%

• Western Europe Sovereign Debt CDS Index 22.77 +3.17%

• Asia Pacific Sovereign Debt CDS Index 57.31 +.54%

• Emerging Market CDS Index 300.33 +1.07%
  

• iBoxx Offshore RMB China Corporates High Yield Index 120.82 +.06%

• 2-Year Swap Spread 21.5 -2.75 basis points

• TED Spread 28.25 +.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -19.25 -1.0 basis point

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.

• Yield Curve 170.0 -3.0 basis points

• China Import Iron Ore Spot $62.53/Metric Tonne +1.94%

• Citi US Economic Surprise Index -35.90 +.9 point

• Citi Eurozone Economic Surprise Index 10.4 -3.1 points

• Citi Emerging Markets Economic Surprise Index -18.50 -2.8 points

• 10-Year TIPS Spread 1.93 -1.0 basis point

Overseas Futures:

• Nikkei 225 Futures: Indicating -78 open in Japan 
• China A50 Futures: Indicating +13 open in China

• DAX Futures: Indicating -10 open in Germany

Portfolio: 

• Slightly Lower: On losses in my medical/biotech/retail sector longs 

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 25% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Growth -.81%

Sector Underperformers:

• 1) Road & Rail -2.31% 2) Coal -2.07% 3) Hospitals -1.67%

Stocks Falling on Unusual Volume:

• AVID, DEG, GDOT, SEMI, MON, IPHI, DPLO, TERP, BLUE, AET, PRXL, CTL, FTNT, CHA, QLYS, WMB, NDRM, ALV, IPGP, NCW, HP, KNX, SAM, RAVN, PUK, SPLS, POZN, KNX and QLYS

Stocks With Unusual Put Option Activity:

• 1) AMD 2) LEN 3) MON 4) BBY 5) NFLX
  

Stocks With Most Negative News Mentions:

• 1) FEYE 2) ALV 3) HP 4) FIT 5) SPLS
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Growth -.28%

Sector Outperformers:

• 1) Homebuilders +1.98% 2) Airlines +.04% 3) Foods -.02%
  

Stocks Rising on Unusual Volume:

• NKTR, BOX, ALDR, VNDA, FCX and SRNE

Stocks With Unusual Call Option Activity:

• 1) CCL 2) SYY 3) NLY 4) LL 5) JCP
  

Stocks With Most Positive News Mentions:

• 1) IHS 2) CMA 3) LEN 4) F 5) FB
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running 11.4% Below 100-day average
• 1 Sector Rising, 9 Sectors Declining
• 39.2% of Issues Advancing, 57.0% Declining
• 77 New 52-Week Highs, 20 New Lows
• 52.3% of Issues Above 200-day Moving Average
• Average 14-Day RSI 45.2
• Vix 12.2
• Total Put/Call 1.06
• TRIN/Arms .90

Wednesday Watch

Evening Headlines 

Bloomberg:  

• Syriza Hardliners Balk at Tsipras’ Reforms. (video)

• Marine Le Pen: Just Call Mr Mrs Frexit. (video) Marine Le Pen is distancing herself from hard-liners - and aims to ride an anti-EU wave to the French presidency. Marine Le Pen, a frontrunner in France’s 2017 presidential election, says a Greek exit from the euro is inevitable. And if it’s up to her, France won’t be far behind. “We’ve won a few months’ respite but the problem will come back,” Le Pen said of Greece in an interview at her National Front party headquarters in Nanterre, near Paris, on Tuesday. “Today we’re talking about Grexit, tomorrow it will be Brexit, and the day after tomorrow it will be Frexit.” 

• Hollande Calls Emergency Meeting After U.S. Spying Reports. French President Francois Hollande has called a high-level emergency meeting for 9 a.m. on Wednesday after WikiLeaks reported that the U.S. had spied on him and two of his predecessors.

• China Developers: Are High Onshore Ratings Hiding Risks? (video)

• Will China's Manhattan Succeed, or Crash and Burn? “Yujiapu must keep building so that banks can create fictional collaterals with which to increase lines of credit to LGFV debtors,” said Victor Shih, a professor at the University of California at San Diego who studies China’s politics and finance. “China can prevent the bankruptcy of local LGFVs and developers by ordering banks to roll over loans. However, it would take a Stalinist relocation of businesses to Yujiapu to fully occupy the office towers there.” 

• China Steelmakers Defy Profit Squeeze as Shares Ride Market Wave. (graph) China’s steelmakers are defying the weakest profit margins in seven years to outpace even the world’s best-performing stock market. An index of 28 steel producers in China is up 76 percent this year compared with the 41 percent advance in the Shanghai Composite Index, the best performer among 92 major peers tracked by Bloomberg. That’s in contrast to a gauge of industry profitability that’s tumbled to an almost seven-year low amid rising iron ore and depressed steel prices, as the attached chart of Bloomberg Intelligence data shows. 

• Generation Without Recession Leaves Aussies Unprepared for Risks. Australia is set to enter its 25th year without recession next week. For the economy, one of the longest periods of growth on record in the developed-world has actually stored up trouble. The country is increasingly relying on past momentum, as the costs of political inertia mount and a generation untouched by economic shock breeds complacency. Having shunned major policy change since the turn of the century, Australia’s economy may need to weaken further before the nation will accept reforms from any government.

• Russia Stuck at Junk as S&P Joins Moody’s Crushing Upgrade Hopes. Russia will probably be saddled with a junk credit rating for two more years, Standard & Poor’s said, joining Moody’s Investors Service in dashing expectations by officials for a higher debt grade.

Wall Street Journal:

• Hedge Funds Score Big Gains. After several lackluster years, money managers are raking in profits, fueled in part by booming M&A.

• Foreign Reserves Slip in Emerging Markets, Raising Risks. While still relatively robust, diminishing currency hoards reduce capacity to ride out crises.

Fox News:

• Barbarism by the book: New ISIS video aims to show religious purity.

MarketWatch.com:

• Is China really so ... Japanese?

Zero Hedge:

• Why The IMF Will Reject The Latest Greek Proposal In Just Two Numbers.

• Keeping Government Bureaucrats Off the Backs Of The Citizenry: The Supreme Court Responds.

• Abe Ratings Crash To Record Lows, Japan Lowers Minimum Voting Age. (graph)

• The World's Exposure To China In 6 Easy Charts. (graph)

• Confusion Reigns At PBoC As Multi-Trillion Yuan Bailout Threatens To Undermine Rate Cuts. (graph)

• The "Smart Money" Just Sold The Most Stocks In History. (graph)

• The Instability Of The Global Game Of Central Bank Chicken.

• "September It Is": The Good (Greenback), The Bad (Bonds), & The Ugly (Buillion). (graph)

Business Insider:

• Palantir is reportedly raising $500 million at a $20 billion valuation, making it the third most valuable US startup.

• Democrats vow to come up with a legal solution if Supreme Court strikes down Obamacare.

• At least 18 Chinese are dead in China's western Xinjiang province after a Ramadan attack on police.

• Netflix(NFLX) is splitting its stock 7 ways.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are unch. to +.50% on average.

• Asia Ex-Japan Investment Grade CDS Index 106.0 unch.

• Asia Pacific Sovereign CDS Index 57.0 -.5 basis point.

• S&P 500 futures -.02%.

• NASDAQ 100 futures -.04%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (LEN)/.64

• (MON)/2.06

• (BBBY)/.94

• (HGR)/.45

• (SCS)/.15

• (WOR)/.43

Economic Releases

8:30 am EST

• 1Q GDP is estimated to fall -.2% versus a prior estimate of a -.7% decline.

• 1Q Personal Consumption is estimated to rise +1.9% versus a prior estimate of a +1.8% gain.

• 1Q GDP Price Index is estimated to fall -.1% versus a prior estimate of a -.1% decline.

• 1Q Core PCE is estimated to rise +.8% versus a prior estimate of a +.8% gain.
  

10:30 am EST

• Bloomberg consensus estimates call for a crude oil inventory decline of -1,677,780 barrels versus a -2,676,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -388,890 barrels versus a +460,000 barrel gain the prior week. Distillate inventories are estimated to rise by +583,330 barrels versus a +114,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise by +.46% versus a -1.5% decline prior.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Eurozone GDP report, BoJ Minutes, $35B 5Y T-Note auction, weekly MBA mortgage applications report, (MCK) investor day, (RHT) analyst day and the (JOE) annual meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by financial and consumer 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.