Morning Market Internals

NYSE Composite Index:

• Volume Running +20.4% Above 100-Day Average
• 8 Sectors Rising, 2 Sectors Declining
• 68.5% of Issues Advancing, 29.4% Declining
• 62 New 52-Week Highs, 3 New Lows
• 50.0% of Issues Above 200-day Moving Average
• Average 14-Day RSI 46.3%
• Vix 14.2 -4.1%
• Total Put/Call .60 -35.5%
• TRIN/Arms .74 +21.8%

Wednesday Watch

Evening Headlines
Bloomberg:

• Yen Intervention Futile for Sakakibara as Abenomics Nears Limits. The man whose ability to move Japan’s currency earned him the name ‘Mr. Yen’ advises against intervention to halt its appreciation as the effectiveness of Prime Minister Shinzo Abe’s policies fades. Even if Japan wants a weaker yen, any government action would be futile as “Abenomics is nearing its best-before date,” said Eisuke Sakakibara, in charge of intervention at the Ministry of Finance from 1997 to 1999. He said an expansion of Bank of Japan stimulus would only temporarily slow the yen’s gains to 100 by year-end. “In the current situation, Japan shouldn’t even think about intervention,” the 75-year-old said in an interview Monday in Tokyo. “There’s nothing more foolish than undertaking intervention when it won’t be effective. As likely as not, it’ll have the opposite of the desired effect.”
• Asian Stock Rally Fueled by Oil as Metals Climb; Yen Holds Drop. Asian stocks extended their longest climb since October as crude oil solidifying above $40 a barrel supported other commodities and burnished the global economic outlook. The yen nursed losses, while government bonds declined. The regional equity benchmark rose a sixth straight day, with the yen’s return to above 108 per dollar helping Japan’s Topix index toward its highest level since the end of March. Mining stocks drove gains in Asia as most base metals extended their advance before data on Chinese trade. U.S. crude pulled back below $42 a barrel after jumping to its highest settlement since November on prospects Russia and Saudi Arabia have forged a deal on freezing oil output. Australian to Japanese 10-year debt retreated following a slump in Treasuries. The MSCI Asia Pacific Index rose 0.9 percent as of 10:12 a.m. Tokyo time, set for its highest close since March 31. The Topix climbed 1.5 percent as banks and exporters drove a second consecutive day posting gains of more than 1 percent.
• Oil Drillers Feel the Pain as Banks Slash Their Credit Lines. Chesapeake Energy Corp., the deeply indebted shale producer, said this week that it can hang on to its $4 billion bank line as long as it posts just about everything it owns as collateral. Many of its competitors are faring far worse. Almost two years into the worst oil bust in a generation, lenders including JPMorgan Chase & Co., Wells Fargo & Co. and Bank of America Corp. are slashing credit lines for struggling energy companies. It’s a tacit acknowledgment that energy prices aren’t coming back, and represents an abrupt turnaround from last year when banks were lenient on struggling drillers in the hope that better times were coming. Since the start of 2016 lenders have yanked $5.6 billion of credit from 36 oil and gas producers, a reduction of 12 percent, making this the most severe retreat since crude began tumbling in mid-2014, according to data compiled by Bloomberg. 
• China's Swelling Junkyards Are Readying Iron-Ore's Next Threat. As China’s booming middle class junks aging cars and home appliances, the next threat to the world’s ailing iron-ore producers is materializing. In a country that uses more steel than any other, it’s now become about as profitable to make the alloy by melting down scrap metal as it is from iron-ore and coal in a traditional furnace, Bloomberg Intelligence calculates. China’s scrap supply will double in the next decade and then accelerate at an even faster rate, according to Morningstar Inc. Expanded use of recycled metal in China at a time of a global steel surplus means even less demand for the ore that’s the top earner for BHP Billiton Ltd. and Rio Tinto Group, who’ve already seen profits plunge with prices. The nation’s ore demand may contract 50 percent by 2040 as steel use dwindles and more recycled metal is used, according to Goldman Sachs Group Inc. “The scrap wave is coming,” said Oliver Ramsbottom, a Tokyo-based partner at McKinsey & Co., who sees a significant increase in China’s scrap from mid next-decade. “There’s no doubt that the iron-ore industry is going to be pretty challenged over the next decade at least because you’ve obviously got a lot of supply out there.”
• Internet-Connected Cars a Hacker Magnet, U.S. Official Says. Internet-connected and driverless cars could be targets for hackers -- potentially including terrorists and hostile nations -- so the automotive industry must ensure vehicles have built-in cybersecurity protection, a top U.S. Justice Department official said. “There is no Internet-connected system where you can build a wall that’s high enough or deep enough to keep a dedicated nation-state adversary or a sophisticated criminal group out of the system," John Carlin, U.S. assistant attorney general for national security, said Tuesday at an auto industry conference in Detroit.

Wall Street Journal:

• U.S. Readies ‘Plan B’ to Arm Syria Rebels. Moderate groups could get antiaircraft weapons if cease-fire collapses, officials say.
• Big Valeant(VRX) Bond Investor Calls for Default. Investor Centerbridge points to drugmaker’s delay in filing its annual report. A large holder of Valeant Pharmaceuticals International Inc.’s bonds called a default as a result of the Canadian drugmaker’s failure to file its annual report earlier this year, adding to the litany of woes it faces.
• History of a Climate Con. Al Gore had a revelation: Energy taxes would be a loser for Obama. How’s this for an irony? As state attorneys general gin up a fake securities-fraud case against oil companies over climate change, starting with Exxon Mobil Corp., the Securities and Exchange Commission has launched a real securities-fraud investigation of the nation’s biggest solar power company.

CNBC:

• Oil producers risk new crude price collapse. (video) Producing nations risk an oil bust if they don't reach a freeze agreement of some sort when they meet in Doha, Qatar, this weekend. Market expectations are high and rising for a deal, and crude futures have been climbing as a result, but an accord that would halt production growth will be difficult to reach and difficult to keep. Even if there is an agreement among OPEC and non-OPEC producers, capping production would still leave a glut of oil on the world market. 
• Brazil's economic free fall could bring wider fallout. 

Zero Hedge:

• Used-Car Inventories Surge To Record Highs As Goldman Fears "Spillovers From Demand Plateau". (graph)
• Dear Dallas Fed, Any Comment?
• SocGen: "Now We Know Why The Fed Desperately Wants To Avoid A Drop In Equity Markets". (graph) Aggressive central bank monetary policies have created artificial demand for corporate debt which we think companies are exploiting by issuing debt they do not actually need. The proceeds of this debt raising are then largely reinvested back into the equity market via M&A or share buybacks in an attempt to boost share prices in the absence of actual demand. The effect on US non-financial balance sheets is now starting to look devastating. We’re not the only ones to be worried. The Office of Financial Research (OFR), a body whose function is to assess financial stability for the US Treasury, highlights corporate debt issuance as their primary threat to financial stability going forward.
• Fed vs. Fed: New York Fed To Issue Its Own GDP Nowcast; Atlanta Fed Too Pessimistic? (graph) 
• The New Middle Kingdom Of Concrete And The Red Depression Ahead.
• Faltering Fundamentals Vs "The Fed Won't Let The Market Crash". (graph)
• What The Market Thinks Are The Biggest "Tail Risks" Right Now. (graph)
• April Retail Sales Plunge Most Since 2005. (graph)
• Oil Plunges After Surprisingly Large Inventory Build. (graph)
• Doha Deal "Hope" Sparks Biggest Stock Short-Squeeze In 2 Months. (graph)

Business Insider:

• The number of child suicide bombers used by Boko Haram has risen tenfold.
• Snapchat is stealing Instagram's teen users away.

Reuters:

• IMF's Furusawa warns of limits to further BOJ rate cuts. The Bank of Japan still has tools to further expand monetary stimulus but must bear in mind that there are limits to how far it can deepen negative interest rates, a senior International Monetary Fund official said on Tuesday. Mitsuhiro Furusawa, the IMF's deputy managing director, said he did not see recent yen rises as deviating sharply from the fund's existing assessment that yen moves were "broadly in line with fundamentals." When asked whether recent yen rises were sharp enough to justify unilateral yen-selling intervention by Japanese authorities, he told Reuters: "All I can say is that there's a consensus among nations that authorities can take necessary action against rapid and disorderly exchange-rate moves."

Telegraph:

• There's no room for mistakes if the global economy is in as much trouble as the IMF thinks.

Night Trading 

• Asian equity indices are +.5% to +2.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 142.0 -3.25 basis points. 
• Asia Pacific Sovereign CDS Index 57.5 -1.25 basis points. 
• Bloomberg Emerging Markets Currency Index 72.98 +.4%. 
• S&P 500 futures +.22%. 
• NASDAQ 100 futures +.30%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (CBSH)/.63
• (JPM)/1.26
• (PIR)/.21

Economic Releases  
8:30 am EST

• Retail Sales Advance MoM for March is estimated to rise +.1% versus a -.1% decline in Feburary.
• Retail Sales Ex Auto MoM for March is estimated to rise +.4% versus a -.1% decline in Feburary.
• Retail Sales Ex Auto and Gas MoM for March is estimated to rise +.3% versus a +.3% gain in February.
• PPI Final Demand MoM for March is estimated to rise +.2% versus a -.2% decline in February. 
• PPI Ex Food and Energy MoM for March is estimated to rise +.1% versus unch. in February. 
  

10:00 am EST

• Business Inventories for February is estimated to fall -.1% versus a +.1% gain in January.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +733,330 barrels versus a -4,937,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -1,422,220 barrels versus a +1,438,000 barrel build prior. Distillate inventories are estimated to rise by +233,330 barrels versus a +1,799,000 barrel build prior. Finally, Refinery Utilization is estimated to rise by +.16% versus a +1.0% gain prior.

2:00 pm EST

• Fed's Beige Book release.

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed's Lockhart speaking, Eurozone industrial production report, Bank of Canada rate decision, $20B 10Y T-Note auction, OPEC Monthly Update, weekly MBA mortgage applications report, (FLO) investor briefing, (ADBE) general meeting, (GME) investor day and the (DLPH) investor meeting could also impact trading today.

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

Stocks Surging into Final Hour on Central Bank Hopes, Oil Bounce, Yen Weakness, Commodity/Financial Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Slightly Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 15.09 -7.3%

• Euro/Yen Carry Return Index 129.25 +.4%

• Emerging Markets Currency Volatility(VXY) 11.5 -1.88%

• S&P 500 Implied Correlation 56.95 -4.9%

• ISE Sentiment Index 67.0 -30.21%

• Total Put/Call .93 +8.14%

• NYSE Arms .60 -35.92% 

Credit Investor Angst:

• North American Investment Grade CDS Index 80.11 -1.40%
  

• America Energy Sector High-Yield CDS Index 1,418.0 -2.41%

• European Financial Sector CDS Index 98.64 -1.33%

• Western Europe Sovereign Debt CDS Index 27.75 -1.51%

• Asia Pacific Sovereign Debt CDS Index 57.84 -1.52%

• Emerging Market CDS Index 295.0 -2.89%
  

• iBoxx Offshore RMB China Corporate High Yield Index 127.28 +.04%

• 2-Year Swap Spread 13.0 -1.75 basis points
  

• TED Spread 41.75 +1.0 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -23.5 -1.5 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.95 +.35%
• 3-Month T-Bill Yield .21% -1.0 basis point
  

• Yield Curve 105.0 +2.0 basis points
  

• China Import Iron Ore Spot $59.22/Metric Tonne +4.59%

• Citi US Economic Surprise Index -3.80 -.3 point

• Citi Eurozone Economic Surprise Index -26.60 +.9 point

• Citi Emerging Markets Economic Surprise Index 12.7 +3.6 points

• 10-Year TIPS Spread 1.57% -1.0 basis point
  
• 17.6% chance of Fed rate hike at June 15 meeting, 28.9% chance at July 27 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +227 open in Japan 
• China A50 Futures: Indicating +49 open in China

• DAX Futures: Indicating +59 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:  

• Rousseff Accuses Brazil's Vice President of Coup and Treason. Brazil’s President Dilma Rousseff accused her vice president of attempting to illegally overthrow the government, underscoring the depths of the bitterness that are convulsing the country days before an impeachment vote. Without naming him directly, Rousseff said in a speech on Tuesday that Vice President Michel Temer was guilty of a "betrayal of me and of democracy." The comments came a day after the media published a recording where the vice president discussed the outlines of a Temer administration in the event she loses the impeachment vote. "A statement was distributed in which one of the chiefs of the conspiracy pretends to be president of the republic," Rousseff said in reference to Temer. "There can no longer be any doubt of my claims that there is a coup under way." 
• Crisis-Hit Brazil Threatened by $89 Billion State Debt Time Bomb. Amid the worst political crisis in decades, Brazil’s federal government also faces a spiraling state debt crisis that could cost it as much as $89 billion in lost revenue. Brazilian states, hit by a two-year recession that has depressed tax revenues, are seeking to apply simple rather than compound interest on debt owed to the federal government. The change could cost the Treasury 313 billion reais, according to Finance Ministry calculations.
• Yen Connection Bruises Hong Kong's Retailers as Stocks Plunge. Times are tough for Hong Kong retailers. And even worse for those with links to Japan. Shares of CEC International Holdings Ltd. which runs the 759 chain of stores, have tumbled 32 percent this year, compared with a 1.7 percent retreat in the MSCI Hong Kong Index. International Housewares Retail Co. and Aeon Stores Hong Kong Co. -- both of which sell Japanese products -- have dropped at least 6 percent.
• Bill Gross Says China Growing 6% Is Among 'Investor Delusions'. Billionaire bond manager Bill Gross says estimates that China’s economy is growing at 6 percent a year are among the “investor delusions that one day will be exposed to fresh air.” Gross made the comment in a tweet after the International Monetary Fund raised its outlook for growth in China to 6.5 percent this year and 6.2 percent in 2017, an increase of 0.2 percentage points, according to a report Tuesday.
• LVMH Leads Luxury Share Slide as Terror Attacks Damp Tourism. LVMH dragged luxury stocks lower after the maker of Celine handbags reported weaker-than-expected revenue growth, dealing a fresh blow to industry sentiment. LVMH shares fell as much as 3.8 percent in Paris, the most since Feb. 11. Gucci-owner Kering SA declined 2.2 percent, while Burberry Group Plc dropped 2.9 percent in London.
• European Companies Have Cash But Won't Spend It. Analysts are growing skeptical of Mario Draghi’s efforts to prod companies to spend on growth. They’re cutting estimates for capital expenditures in Europe at the fastest rate since the financial crisis as chief executive officers shy away from reinvesting in their own businesses and instead bulk up balance sheets or tempt shareholders with acquisitions and stock buybacks. While analysts are still calling for a 2.6 percent increase in capex from last year, the 19 million euros ($22 million) they predict each Stoxx Europe 600 Index company will spend on average in 2016 is the most bearish forecast in six years.
• European Shares Climb as Miners Gain, Investors Assess Earnings. European stocks rose for a third day in volatile trading, with commodity and energy producers surging on rising prices, while investors looked to earnings for indications of the health of euro-area companies. Anglo American Plc jumped 9.2 percent, pushing miners to the best performance of the 19 industry groups on the Stoxx Europe 600 Index, after its De Beers unit forecast stronger diamond sales, and metals advanced. Energy companies gained as oil increased. LVMH Moet Hennessy Louis Vuitton SE added 1.5 percent, reversing earlier declines sparked by worse-than-forecast sales. The Stoxx 600 rose 0.5 percent to 334.64 at the close of trading, after swinging between gains of as much as 0.6 percent and losses of 0.7 percent.
• Grain Glut Gets Bigger With China Demand Falling, Rising Output. The world grain market has been awash in supplies for years now, , and it’s starting to feel like there’s going to be no end to the glut after the U.S. Department of Agriculture published its latest report Tuesday. The USDA estimated Tuesday that global corn and wheat stockpiles are going to be even bigger than analysts were predicting. Futures for both commodities pared gains after the report.
• Looking for Credit Bubbles in All Wrong Places. Living in a bubble is great. You’re safe and comfortable and able to ignore imminent danger. The problem is it never lasts. Eventually your protective shield pops and bad stuff comes flooding in.UBS analysts said Monday that there’s a bubble in the lowest-rated corporate bond values.

Wall Street Journal:

• China’s New Security Challenge: Angry Mom-and-Pop Investors. As small investors watch their nest eggs dwindle, some hit the streets in protest.
• Who Loses the Most From ‘Brexit’? Try Goldman Sachs(GS). The U.S. bank has made a big bet on London’s global financial clout.

Fox News:

• Fresh document trove sheds light on Clinton-Trump ties. (video) The release Tuesday by the National Archives of a fresh trove of documents detailing the Clinton administration's dealings with billionaire Donald Trump could become the latest fuel for flame-throwing in an already incendiary 2016 presidential race.

CNBC:

• Iraq Says Crude Output Capacity at 4.8m-4.9m B/D. Production capacity includes oil pumped from Kurdish region, citing Falah Al-Amri, chairman of Iraq's state Oil Marketing Organization, known as SOMO.
• Trump foe: Enough dirt on Donald to 'knock Trump Tower down'. (video) He's coming at Donald Trump like a wrecking ball. A top backer of Hillary Clinton's Democratic presidential campaign reportedly has said that he has dug up enough dirt on the Republican front-runner to "knock Trump Tower down to the sub-basement," according to a report in Politico.
• Hedge funds post worst stock picking in 7 years.
• The US faces a perfect economic storm. (graph)

Zero Hedge:

• A "Massive" New Headache For Banks Has Emerged.
• Bill Gross Unleashes Tweetstorm On Five "Investor Delusions" Soon To Be Exposed.
• Crude, Stocks Soar After "Unidentified Sources" Suggest Russia-Saudi "Production Freeze" Consensus. (graph)
• The Root Of Rising Inequality: The "Lawnmower" Economy (And You're The Lawn).
• "The Selling Just Won't Stop" - Smart Money Sells Stocks For Near Record 11th Consecutive Week. (graph)
• What Happens When The Market Goes Nowhere For One Year (Hint: Nothing Good).
• Schauble Throws Up All Over Mario Draghi: "The ECB Is Causing Extraordinary Problems".
• Manhattan's Real Estate Woes Get Worse: No Demand In Building Where Ackman Splurged $90 Million. (graph)
• IMF Again Cuts Global Growth Forecast As It Warns Of "Secular Stagnation".
• Size Matters: Analysts Mock Italy's Tiny "Atlas" Bailout Fund Meant To Support €360BN In Bad Debt. (graph)
• US Import Prices Tumble For 20th Month In A Row As China Exports Most Deflation Since 2009. (graph)

Business Insider:

• The US economy is facing an 'impossible trinity' that will be a nightmare for investors.
• Paul Ryan is giving a big speech to officially rule out a late bid for the presidency.
• Hillary Clinton and the mayor of New York performed an awkward skit some are calling racist.

The Telegraph:

• The dire state of the global economy in six charts. (graph) 
• Brexit threatens to cause 'severe global damage', warns IMF. A British exit from the EU risks causing "severe global damage" that would drag down UK growth for years to come, the International Monetary Fund has warned.

Nikkei:

• Nomura to Cut Up to 1,000 Jobs in Europe, U.S. Co. to mainly cut jobs in Europe, U.S. Job cut decision due to fear of widening losses from operations outside Japan on back of global stock price decline. Cuts will include analysts, traders and administrative staff. Co. has 2,500 workers in Americas and 3,400 in Europe as of end-Dec.

Bear Radar

Style Underperformer:

• Mid-Cap Growth +.2%

Sector Underperformers:

• 1) Networking -1.5% 2) Restaurants -1.0% 3) Disk Drives -.9%

Stocks Falling on Unusual Volume:

• HZNP, LB, JNPR, FAST, INSY, OZRK, UEPS, GDDY, AGN, FCAM, SBUX, FTNT, PFPT, MXL, FFIV, DIN, DEPO, EGRX, NPTN, CAVM, MNK, NDAQ, TREE, LCI, ALKS and SPWH

Stocks With Unusual Put Option Activity:

• 1) CHK 2) WTW 3) JNPR 4) FAST 5) LB

Stocks With Most Negative News Mentions:

• 1) LB 2) JNPR 3) POT 4) ANET 5) INSY

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume