Bull Radar

Style Outperformer: 

• Small-Cap Value +1.1%

Sector Outperformers:

• 1) Oil Service +4.0% 2) Energy +2.6% 3) I-Banks +1.6% 

Stocks Rising on Unusual Volume: 

• INCR, GWB and WLL

Stocks With Unusual Call Option Activity: 

• 1) OAS 2) SWN 3) HZNP 4) MYL 5) LLY

Stocks With Most Positive News Mentions: 

• 1) MRO 2) TEP 3) VRX 4) UTX 5) GS

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running +8.7% Above 100-Day Average
• 7 Sectors Rising, 3 Sectors Declining
• 72.7% of Issues Advancing, 24.5% Declining
• 80 New 52-Week Highs, 11 New Lows
• 47.0% of Issues Above 200-day Moving Average
• Average 14-Day RSI 44.0%
• Vix 16.3 +.4%
• Total Put/Call .83 -3.5%
• TRIN/Arms .84 -10.7%

Tuesday Watch

Evening Headlines
Bloomberg:

• It's Never Been This Hard for Chinese Debtors to Pay Interest. Just as monetary easing is pushing Chinese bond yields to record lows, the ability of listed companies to service their debt has dropped to the weakest on record. Firms generated just enough operating profit to cover the interest expenses on their debt twice, down from almost six times in 2010, according to data compiled by Bloomberg going back to 1992 from non-financial companies traded in Shanghai and Shenzhen. Oil and gas corporates were the weakest at 0.24 times, followed by the metals and mining sector at 0.52. The People’s Bank of China has lowered benchmark interest rates six times since 2014, driving a record rally in the bond market and underpinning a jump in debt to 247 percent of gross domestic product. Yet economic growth has slumped to the slowest in a quarter century and profits for the listed companies grew only 3 percent in 2015, down from 11 percent in 2014. The mounting debt burden has caused at least seven firms to miss local bond payments this year, already reaching the tally for the whole of last year. "We will likely see a wave of bankruptcies and restructurings when the interest coverage ratio drops further,” said Xia Le, chief economist for Asia at Banco Bilbao Vizcaya Argentaria SA in Hong Kong. “Return on assets for Chinese companies has been declining due to rising debt. Profitability is also slowing due to overcapacity in many sectors, which has weakened the ability of companies to repay their debts."
• Strengthening Yen Leaves Kuroda Facing More Radical Options. The surging yen and slumping stocks are increasing pressure on the Bank of Japan to add to monetary stimulus, less than three months after Governor Haruhiko Kuroda bolstered his arsenal with a negative interest-rate. The currency is back where it was before Kuroda expanded his record asset-purchase program in October 2014 and Japanese shares are falling as foreign investors head for the exit. With a weak yen and buoyant stocks two of the most tangible results of Kuroda’s reflationary campaign, speculation is rising that he needs to take action at the next policy meeting on April 27-28. The stakes are rising, with data out Tuesday showing that Japanese loan growth slowed to the weakest in three years in March, and some experts predicting the yen has further to rally. Eisuke Sakakibara, the former finance ministry official dubbed Mr. Yen, said the currency may push all the way to 100 per dollar this year.
• Negative Rates Failed to Boost Japan Bank Lending in March. Japanese loan growth slowed to the weakest pace in three years in March, signaling the central bank’s introduction of negative interest rates has yet to spur credit in the world’s third-largest economy. Loans excluding trusts rose 2 percent from a year earlier, slowing from 2.2 percent in February, the Bank of Japan said Tuesday. Deposits increased 3 percent, easing from 3.1 percent in February. The figures are the first for a full month after the BOJ began charging lenders 0.1 percent interest on some of their reserves on Feb. 16.
• Brazil Lawmakers Push Rousseff a Step Closer to Impeachment. Brazilian lawmakers pushed President Dilma Rousseff a step closer to impeachment after a committee in the lower house voted for her ouster in the first formal test of sentiment in Congress. With a tally of 38 in favor and 27 against, a special lower house committee on Monday night recommended impeachment proceed on allegations that Rousseff bypassed Congress to illegally finance a budget deficit. The margin was wider than originally forecast, and sets the stage for a showdown when lawmakers vote on the floor of the lower house as early as Sunday, said political analyst Andre Cesar, founder of consulting company Hold Assessoria Legislativa in Brasilia who has followed Brazil’s Congress for 20 years. "The result is still open, but the opposition is gaining ground," Cesar said. "There is a strong anti-government sentiment."
• Weakest Deposit Growth Since 1963 Means Higher Rates for India. India’s bank deposits are growing at the slowest pace in half a century, frustrating attempts by policy makers to lower one of the highest borrowing costs among emerging markets. Savers parked about 94 trillion rupees ($1.4 trillion) with banks in the year through March 31, the smallest increase since 1963, according to ICRA Ltd., the local unit of Moody’s Investors Service. A continued slowdown may keep lenders from passing on policy rate cuts to customers, and could also compel them to sell holdings of government bonds to raise more cash. "The ability of banks to cut cost of funds and bring down interest rates will be limited,” said Madan Sabnavis, chief economist at Credit Analysis & Research Ltd. in Mumbai. Since India’s economy is driven by bank credit, the lack of cheap funding will constrain growth, he said.
• Chinese Stocks Decline as Telecom, Technology Shares Lead Drop. China’s equities declined, with telecom and technology stocks leading the retreat. The Shanghai Composite Index fell 0.5 percent after rising as much as 0.1 percent. The benchmark climbed 1.6 percent on Monday, the most this month. There is “relatively large” downward pressure on the economy, Premier Li Keqiang was cited as saying by China Central Television. He added that the real economy faces multiple difficulties. The nation’s producer prices increased 0.5 percent last month from February, the first gain since September 2013, official data showed Monday. The Shanghai Composite was trading at 3,019.12 as of 9:51 a.m. local time, while the CSI 300 Index dropped 0.6 percent.
• Asian Stocks Advance as Japan's Topix Gains With Retreat of Yen. Asian stocks rose, led by Japanese equities as the yen retreated after a seven-day rally amid the start of the U.S. earnings season. The MSCI Asia Pacific Index gained 0.3 percent to 127.07 as of 9:13 a.m. in Tokyo. Japan’s Topix index jumped 0.9 percent as the yen slipped.
• Juniper(JNPR) First-Quarter Sales Miss Forecast on Telecom Shortfall. Juniper Networks Inc. said sluggish demand for networking equipment from corporate customers and telecommunications providers caused first-quarter profit and revenue to fall short of forecasts. Sales came in at $1.09 billion to $1.1 billion, less than the company’s earlier projection for revenue of $1.15 billion to $1.19 billion, Sunnyvale, California-based Juniper said in a statement Monday, citing preliminary results. Profit excluding certain costs was 35 cents to 37 cents a share, compared with a prior forecast for 42 cents to 46 cents. Juniper blamed the shortfall on the delay of orders from some major telecommunications companies in Europe and the U.S. Demand from enterprise customers was “weaker than anticipated,” the company said.
• Global PC Shipments Fall to Lowest Level in Quarter Since 2007. Worldwide personal-computer shipments slid to their lowest quarterly total since 2007, signaling another challenging year ahead for an industry staggered by a sluggish economy and changing consumer tastes. Dell Inc. dethroned HP Inc. as the top PC seller in the U.S. for the first quarter -- something that hasn’t happened this decade, according to market researcher Gartner Inc. Dell’s focus on business customers and HP’s refusal to chase business with just low prices switched the top two players. Globally, shipments dropped 9.6 percent in the period, the sixth consecutive decline. IDC reported similar worldwide results.
• Alcoa(AA) Sees Slower Global Aluminum Demand as China Use Ebbs. Alcoa Inc., the largest U.S. aluminum producer, lowered its forecast for global demand of the metal in 2016 and decreased its market deficit projection as Chinese demand slows. Consumption of the metal used in everything from beer cans to aircraft is set to climb 5 percent in 2016, down from a previous 6 percent projection, the New York-based company said in its first-quarter earnings statement. In January, Alcoa said it estimated a market deficit of 1.2 million metric tons in 2016, which it lowered to a 1.1-million ton deficit in the latest earnings report.
  Alcoa forecast Chinese consumption growth at 6.5 percent, down from an 8 percent projection in the fourth quarter earnings report. In addition to a slowdown in China, Alcoa forecast demand growth in the rest of the world to slow to 3 percent from a prior 4 percent projection.

Wall Street Journal:

• Trump’s Delegate Whine. Scalia’s lesson for candidates who gripe about party nominating rules: Get over it. As the prospect of a contested Republican presidential convention increases, so does the brawling over delegates—and the whining from the losers. If someone decides to run for President, is it too much to ask that he or his campaign managers understand the nominating rules?
• Warning: Medicare May Be Bad for Your Heart. Aortic valve replacements are superior to open-heart surgery and less risky. So why are they hard to get? 

Zero Hedge:

• Bernanke's Former Advisor: "People Would Be Stunned To Know The Extent To Which The Fed Is Privately Owned".
• Former IMF Chief Economist Admits Japan's "Endgame" Scenario Is Now In Play. (graph)
• "Mr. Yen" Warns USDJPY May Hit 100 By Year-End.
•  "This Is Where The Good News Ends" - JPM Says All Margin Subcomponents Are Rolling Over.
•  Behold Accounting Magic 101: This Is How Alcoa(AA) Just "Beat" Consensus EPS. (graph)
• For 6th Year Running, Economists' Growth Expectations Collapse. (graph)
• BofA Warns "Europe Looks Frightening" - Trades Like 2001, 2008. (graph)
• Used Car Price Plunge "Could Bring The Whole House Of Cards Down". (graph)
• 19 Signs That American Families Are Being Economically Destroyed.
• Average German Bond Yield Crashes To Zero For First Time Ever. (graph)
• White House Issues Following Statement After Meeting Between Obama And Yellen.
• Silver Soars, Stocks Slump As Equity "Fear" Hits All-Time Record High.

Business Insider:

• Alarm bells are ringing for one of OPEC's strongest members.
• China is buying up US companies, and no one's doing much about it.
• Chicago's rising gun violence and racial tensions are driving out the wealthy.
• Stop calling this the 'most hated bull market in history'. (graph) All the sentiment studies I look at suggest this has been one of the most beloved stock markets in Wall Street history. The Investors’ Intelligence survey is just coming off its longest sustained period of extreme bullishness ever recorded.
• Hundreds of libraries in the US are getting complaints for carrying the Bible.
• San Francisco's epic condo boom is turning into a bust.

Dealbreaker:

• Layoffs Watch ’16: Macquarie Capital Said To Be Planning Investment Banking Cuts.

Newsmax:

• Bloomberg Poll: Married Women Hurt Trump in Coming Contests. Donald Trump is viewed negatively by almost three-quarters of married women in a potential general election and trails Hillary Clinton by double digits among those voters, highlighting his weakness in a key segment of the Republican base. Seventy percent of married women who are likely general-election voters have an unfavorable opinion of the Republican front-runner, according to the Purple Slice online poll conducted by Purple Strategies for Bloomberg Politics. Almost 60 percent said the way Trump talks about women is offensive and embarrassing and makes him unacceptable as a presidential candidate, and more than half said the billionaire is setting a new low in negativity. “The way Trump looks among married women puts Republicans in a deficit in a key group that they won before,” said Purple Strategies pollster Doug Usher. “Trump cannot win unless these numbers change.”

China Business News:

• China Securities Finance Repaid PBOC Debt With Stocks Transfer. Some stocks were transfered to Wutongshu and its subsidiaries after stock market stabilized following rout last summer, citing a person familiar with the matter. PBOC pledged to offer sufficient liquidity support for China Securities Finance to assist it in supporting stock market last year. Transferring some stocks is a practical option for China Securities Finance to repay PBOC debt after market stabilized, the person is cited as saying.

Night Trading 

• Asian equity indices are -.25% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 145.25 -1.75 basis points. 
• Asia Pacific Sovereign CDS Index 58.75 -.75 basis point. 
• Bloomberg Emerging Markets Currency Index 72.72 +.03%. 
• S&P 500 futures +.09%. 
• NASDAQ 100 futures +.02%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (FAST)/.44
• (PERY)/.35
• (ADTN)/.11
• (CSX)/.37
• (LAYN)/-.28
• (TISI)/.11 

Economic Releases 
6:00 am EST

• The NFIB Small Business Optimism Index for March is estimated to rise to 93.6 versus 92.9 in February.      

8:30 am EST

• The Import Price Index MoM for March is estimated to rise +1.0% versus a -.3% decline in February.
  

2:00 pm EST

• The Monthly Budget Deficit for March is estimated to widen to -$104.0B versus -$52.9B in February.

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed's Williams speaking, Fed's Harker speaking, Fed's Lacker speaking, UK CPI report, $24B 3Y T-Note auction, weekly US retail sales reports, BofA Merrill Oil/Gas conference, Jefferies Healthcare conference, Needham Healthcare conference and the (TIF) investor day could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by industrial 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 25% net long heading into the day.

Stocks Slightly Higher into Final Hour on Less European/Emerging Markets/US High-Yield Debt Angst, Oil Bounce, Emerging Market Currency Gains, Metals & Mining/Financial 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) 15.30 -.39%

• Euro/Yen Carry Return Index 128.73 -.01%

• Emerging Markets Currency Volatility(VXY) 11.64 -1.19%

• S&P 500 Implied Correlation 58.05 +.64%

• ISE Sentiment Index 95.0 +17.28%

• Total Put/Call .85 -12.37%

• NYSE Arms .83 -17.59% 

Credit Investor Angst:

• North American Investment Grade CDS Index 80.66 -1.75%
  

• America Energy Sector High-Yield CDS Index 1,496.0 -2.38%

• European Financial Sector CDS Index 99.96 -1.02%

• Western Europe Sovereign Debt CDS Index 28.18 +2.55%

• Asia Pacific Sovereign Debt CDS Index 58.84 -.96%

• Emerging Market CDS Index 302.44 -1.42%
  

• iBoxx Offshore RMB China Corporate High Yield Index 127.23 +.11%

• 2-Year Swap Spread 14.75 +.75 basis point
  

• TED Spread 40.75 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -22.0 -.5 basis point
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.70 +.75%
• 3-Month T-Bill Yield .22% unch.
  

• Yield Curve 103.0 +1.0 basis point
  

• China Import Iron Ore Spot $56.62/Metric Tonne +4.79%

• Citi US Economic Surprise Index -3.50 +2.5 points

• Citi Eurozone Economic Surprise Index -27.50 +2.0 points

• Citi Emerging Markets Economic Surprise Index 9.1 +3.1 points

• 10-Year TIPS Spread 1.58% -2.0 basis points
  
• 15.7% chance of Fed rate hike at June 15 meeting, 27.2% chance at July 27 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +79 open in Japan 
• China A50 Futures: Indicating +12 open in China

• DAX Futures: Indicating +45 open in Germany

Portfolio: 

• Slightly Lower: On losses in my biotech sector longs and emerging market shorts
  

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

• Market Exposure: Moved to 25% Net Long

Today's Headlines

Bloomberg: 

• UBS Says Junk-Debt Bubble Just an Economic Slowdown From Popping. Investors that lend to junk-rated companies aren’t being compensated for the looming credit shakeout that could push defaults to record highs, according to UBS Group AG credit strategists Matthew Mish and Stephen Caprio. "There is a bubble in speculative grade credit," Mish and Caprio wrote in an April 11 note. "Simply put, clients were not being compensated for the credit risk." A slowdown in U.S. growth could cause the bubble to pop, stressing the lower-quality companies that constitute almost half of the universe of speculative-grade bonds and loans. Investors that crowded into the debt could suffer massive losses, Caprio said in a phone interview. The strategists didn’t put a time frame for the bubble’s bursting. As the bubble bursts, speculative-grade companies could find it even more expensive to borrow. Investors have already grown concerned about weakening credit quality and have started to exercise caution: high-yield issuance is down 53 percent this year and bonds carrying some of the lowest grades, namely CCC ratings, are yielding 15.2 percent, according to UBS, even after a rally during the second half of last quarter. The recent junk-bond rally ignores what the strategists see as "material" risks in the universe of high-yield bonds and loans, which they say is more leveraged than it was in the late 1990s.
• German `Sideshow' Sniping at ECB Shows Euro Area Stuck in a Rut. German discontent toward the European Central Bank is rising -- and the feeling seems to be mutual. Days before Group of 20 and International Monetary Fund meetings in Washington, German Finance Minister Wolfgang Schaeuble has suggested that ECB President Mario Draghi shares the blame for the rise of populist parties. With mainstream representatives piling on the opprobrium, ECB officials are showing exasperation that they’re under attack from politicians who have failed to upgrade the euro area’s economic foundations. While a German government spokesman said on Monday that highlighting the dangers of ECB policy is “legitimate,” others are warning that it’s symptomatic of a dangerous lack of euro-area consensus. From discord over refugees to a standstill on economic policy management, German voters and the ECB are frustrated over what they see as the broken promises of others.
• Former Yellen Adviser Proposes Sweeping Reform of Fed System. A former aide to Federal Reserve Chair Janet Yellen has broken ranks with his former employer and issued a blueprint for a sweeping reform of the U.S. central bank, including regular government audits and shorter term limits for policy makers. Dartmouth College professor Andrew Levin targeted four areas of change for the Federal Reserve system: make the Fed a fully public institution; ensure the process of picking regional Fed presidents is transparent; set seven-year term limits for regional presidents and Board governors; and make the entire Fed subject to external review. 
• Goldman Has Three Reasons to Be Worried About Stocks This Earnings Season. (video)
• McDonald's(MCD) and Its 267% Rally Get No Respect From Wall Street.

CNBC: 

• Apple(AAPL) Watch shipments to fall by 25 percent: Report.

Zero Hedge:

• Chesapeake(CHK) Forced To Pledge Entire Company As Collateral To Preserve Existing Credit Facility. (graph)
• Silver Surges Most In 6 Months As Hedgers Cover. (graph)
• Earnings Implosion Looms Amid The Illusion Of "Permanent Liquidity". (graph)
• Supply Chain Slump "Worse Than The Great Recession". (graph)
• ECB Scrambles To Calm A Furious Germany: "Helicopter Money Was The Straw That Broke The Camel's Back".
• Putting Today's "European Banks Are Fixed" Bounce In Context.
• Deutsche Bank Says World "Past The Point Of No Return" In The Default Cycle.
• Iran Releases Video Showing Arrival Of First Russian S-300 Missile System.

Business Insider:

• The hottest investment product is going to make mutual funds extinct.
• Another huge bank heist in China is a warning that we're about to see its stock market get wild again.
• Tesla(TSLA) is voluntarily recalling about 2,700 Model X SUVs for a seat problem.
• The American consumer's optimism is fading. (graph)

FiveThirtyEight:

• Trump Is The Weakest GOP Front-Runner In The Modern Era. (graph) Trump’s 37 percent of the cumulative primary vote and 46 percent of delegates won so far may sound impressive, but his percentages make him the weakest Republican front-runner, at this point in the process, in decades.

Newsmax:

• AP-GfK Poll: Americans Trust Clinton Over Trump. In a stark warning for Donald Trump as he eyes a possible general election showdown with Hillary Clinton, Americans trust the Democratic front-runner more than the Republican businessman to handle a wide range of issues — from immigration to healthcare to nominating Supreme Court justices. Even when asked which of the two candidates would be best at "making American great" — the central promise of Trump's campaign — Americans are slightly more likely to side with Clinton, according to a new Associated Press-GfK poll. Some examples of voter preference when asked which of the two they would trust to do a better job on:

Financial Times:

• The old bets on defaulted bonds won’t work this cycle.

The Telegraph:

• Olivier Blanchard eyes ugly 'end game' for Japan on debt spiral. Japan is heading for a full-blown solvency crisis as the country runs out of local investors and may ultimately be forced to inflate away its debt in a desperate end-game, one of the world’s most influential economists has warned. Olivier Blanchard, former chief economist at the International Monetary Fund, said zero interest rates have disguised the underlying danger posed by Japan’s public debt, likely to reach 250pc of GDP this year and spiralling upwards on an unsustainable trajectory.
• AEP: Beijing 'must devalue yuan by 15pc' to avert crisis. A top adviser to the Chinese government has warned that Beijing risks a currency blow-up akin to Britain's traumatic ordeal in 1992, if it continues trying to defend its exchange rate peg amid a deepening deflation crisis.