Thursday Watch

Evening Headlines
Bloomberg: 

• China's $1 Trillion Bond Leverage Unwinds as Pimco Senses Panic. China’s bond traders are getting a painful lesson on the dangers of leverage. After years of racking up profits by borrowing cheaply and plowing the proceeds into higher-yielding debt, investors are now rushing to unwind those wagers amid the deepest selloff in 13 months. The bets are getting squeezed from both sides as bond prices sink and borrowing costs rise to one-year highs in the 8 trillion yuan ($1.2 trillion) market for repurchase agreements, used by traders to amplify their buying power.
• China Factory Deflation Seen Turning on Commodities, Stimulus. China’s producer-price deflation, now in its fifth year, looks like it has turned a corner. Prices for products leaving the factory will improve in each of the next four quarters and turn positive in 2018, according to economists surveyed by Bloomberg. Producer prices rose in March on a month-on-month basis for the first time since September 2013. The comeback is being driven by rising home and commodity prices, an avalanche of credit and a steep slowdown in manufacturing investment. That’s good news for companies because recovering factory prices boost revenues and help reduce real interest rates, easing the burden of repayment on corporate debt that’s equivalent to about 165 percent of gross domestic product.
• BOJ Stimulus Never Less Effective as Cash Idles, Indicator Shows. A benchmark gauge shows the Bank of Japan’s stimulus has never been less effective and some bankers say negative interest rates have only made it harder to put cash to work in the economy. Consider the money multiplier. The measure of how much financial activity is spurred by an addition of cash by the central bank sank to the lowest on record last month, in data back to 2003. That’s even as BOJ Governor Haruhiko Kuroda’s bond buying has swelled the monetary base by around 170 percent since March 2013. Much of the injected funds are sitting idle, with bank deposits exceeding loans by close to an all-time high.
• Asian Stocks Rally Before BOJ as Oil Holds Above $45; Yen Falls. Asian stocks rose for the first time in a week after the Federal Reserve’s interest-rate signals calmed markets before a forecast expansion of monetary stimulus in Japan. New Zealand’s dollar strengthened and crude oil held above $45 a barrel. All 10 industry groups advanced on the MSCI Asia Pacific Index, led by raw-materials producers. The MSCI Asia Pacific Index rose 0.7 percent as of 11:08 a.m. Tokyo time, with the Topix halting a three-day drop to advance 1.1 percent. The Nikkei 225 Stock Average climbed 1.3 percent.
• Bill Gross: Smart Investors Know There's Something Wrong. (video)
• Be Afraid, Be Very Afraid If You're Investing for the Long Run. Turning 30 just got a lot scarier. A coming collapse in investment returns means that people that age today will have to work seven years longer or save almost twice as much to end up with the same nest egg as those of roughly a generation ago. So says the research arm of McKinsey & Co. in a new report that argues that investors of all ages need to resign themselves to diminished gains. The consulting company maintains that the last 30 years have been a “golden era” of exceptional inflation-adjusted returns thanks to a confluence of factors that won’t be repeated.

Wall Street Journal:

• Fed Signals No Rush to Raise Rates. Low inflation and possible ‘Brexit’ among concerns clouding a move at June meeting. Federal Reserve officials left interest rates unchanged and remained ambiguous about raising rates in June as mixed global economic signals and low inflation at home weighed on policy makers struggling to spark robust growth seven years after the recession’s end. 
• Valeant Pharmaceuticals(VRX) to Make Sweeping Changes to Board. Four new directors and incoming CEO Papa are lined up to join the board of the drugmaker.
• America’s Coming Tax Increase. With the deficit projected to hit 5% of GDP in only a decade, the choice is either spending cuts or tax hikes. In this bizarre election year, the leading candidates have failed to engage in a serious discussion of one of the top economic issues on voters’ minds—federal deficits and the national debt. Yes, Donald Trump suggested he’d wipe out the $14 trillion public debt in eight years. But even with the economic growth from his tax plan, this is highly unrealistic, and he now says he’d “rather not be so aggressive.” Still, he has proposed an enormous tax cut and promised not to tamper with Social Security or Medicare, all of which points... 

Fox News:

• Cruz announces Fiorina as choice for running mate. (video) Ted Cruz, looking for a shake-up in the 2016 race as Donald Trump moves steadily closer to the Republican nomination, on Wednesday announced former GOP primary rival Carly Fiorina as his choice for running mate should he win the party nod.

CNBC:

• Stinky first-quarter growth and lots of earnings. (video) With the Fed meeting out of the way, market focus shifts to the U.S. economy and Thursday's GDP report should show it barely grew in the first quarter. First-quarter growth was tracking at 0.7 percent, according to the latest CNBC/Moody's Analytics Rapid Update of economists' forecasts. The report is expected at 8:30 a.m. EDT, the same time as the release of weekly jobless claims.

Zero Hedge:

• Chinese Commodity Trading Volume Crashes: "Most Don't Even Know What They Are Trading". (graph)
• China Industrial Profits Soar Most In 18 Months But Overcapacity Looms. (graph)
• Debt Is Growing Faster Than Cash Flow By The Most On Record. (graph)
• Central Bankers To The Masses: "Let Them Eat Rate".
• "We All Work As A Team" - Millennials Explain How It's Going Living 'Rent-Free' At Home.
• Someone Is Pouring Record Amounts Of Money Into Bets On Soaring Volatility. (graph)
• What $499,000 Buys You In Brooklyn: A 20-by-97 Foot Lot With A "House".
• It's That Time Again For Stocks. (graph)
• Facebook(FB) Soars After Beating Sales, EPS As Tax Rate Tumbles: Reports 1.09 Billion Daily Users.
• Fed-nado Trumps AAPLocalypse: Panic-Buying Spree Pushes S&P Back Over 2,100 (And Fails). (graph)

Business Insider:

• China's army of investors haven't learned their lesson, and it looks like history is going to repeat itself.
• Chesapeake(CHK) is hanging on for dear life.
• Trump's use of the 'woman card' against Clinton will backfire.
• These three numbers from Tuesday's primaries should worry Donald Trump.

Telegraph:

• Europe doesn't work for Germany either, as Schauble's faux pas demonstrates. Such are the perils of speaking the truth. “Ultra low interest rate policies are 50pc responsible for the rise of the Alternative for Germany party”, Wolfgang Schäuble said recently in a characteristically blunt assessment of growing support for Germany’s far right. There followed a predictable flurry of condemnation, including chastisement from the president of Germany’s own Bundesbank, Jens Weidmann, who saw it as a challenge to the independence of the European Central Bank. Thereby reprimanded, Mr Schäuble has since rowed back somewhat on his remarks.
• The European Union always was a CIA project, as Brexiteers discover.

Night Trading 

• Asian equity indices are unch. to +1.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 138.75 -1.25 basis points. 
• Asia Pacific Sovereign CDS Index 57.75 -. basis point. 
• Bloomberg Emerging Markets Currency Index 72.91 -.05%. 
• S&P 500 futures +.11%. 
• NASDAQ 100 futures +.31%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (AET)/2.23
• (APD)/1.81
• (ALXN)1.13
• (MO)/.68
• (ADP)/1.18
• (BZH)/.02
• (BMY)/.65
• (CAH)/1.33
• (CELG)/1.27
• (CLF)/-.29
• (CL)/.63
• (COP)/-1.04
• (DBD)/.16
• (DPZ)/.98
• (DOW)/.83
• (F)/.47
• (MA)/.85
• (POT)/.15
• (RTN)/1.38
• (SEE)/.47
• (UPS)/1.21
• (VRX)/1.38
• (VIA/B)/.72
• (AMZN)/.59
• (BIDU)/1.05
• (EXPE)/-.73
• (GILD)/3.13
• (JNPR)/.38
• (LNKD)/.60
• (WYNN)/.82
• (YRCW)/-.39
• (WDC)/1.29 

Economic Releases 
8:30 am EST

• Initial Jobless Claims for last week are estimated to rise to 259K versus 247K the prior week.
• Continuing Claims are estimated at 2137K versus 2137K prior.
• Advance 1Q GDP is estimated to rise +.7% versus a prior estimate of a +1.4% gain.
• Advance 1Q Personal Consumption is estimated to rise +1.7% versus a prior estimate of +2.4% gain.
• Advance 1Q GDP Price Index is estimated to rise +.6% versus a prior estimate of a +.9% gain.    

11:00 am EST

• Kansas City Fed Manufacturing Activity for April is estimated unch. versus -6.0 in March.

Upcoming Splits 

• None of note

Other Potential Market Movers

• The weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, (UA) general meeting, (ARMH) general meeting and the (NXPI) investor day could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and commodity 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 Reversing Slightly Higher into Final Hour on Central Bank Hopes, Oil Gain, Short-Covering, Commodity/Medical Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Mixed
  

• Volume: Slightly Below Average

• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• Volatility(VIX) 14.25 +2.08%

• Euro/Yen Carry Return Index 131.70 +.23%

• Emerging Markets Currency Volatility(VXY) 10.61 -.09%

• S&P 500 Implied Correlation 55.73 +4.64%

• ISE Sentiment Index 125.0 +12.61%

• Total Put/Call .86 +7.5%

• NYSE Arms .67 -31.53% 

Credit Investor Angst:

• North American Investment Grade CDS Index 74.32 -.25%
  

• America Energy Sector High-Yield CDS Index 1,062.0 -1.98%

• European Financial Sector CDS Index 87.27 -.12%

• Western Europe Sovereign Debt CDS Index 26.18 -1.11%

• Asia Pacific Sovereign Debt CDS Index 57.72 +.14%

• Emerging Market CDS Index 276.88 -1.73%
  

• iBoxx Offshore RMB China Corporate High Yield Index 127.23 +.06%

• 2-Year Swap Spread 11.75 +1.0 basis point

• TED Spread 39.0 -.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -22.0 +1.75 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.93 +.11%
• 3-Month T-Bill Yield .24% unch.
  

• Yield Curve 103.0 -4.0 basis points
  

• China Import Iron Ore Spot $61.09/Metric Tonne -2.69%

• Citi US Economic Surprise Index -27.80 +.2 point

• Citi Eurozone Economic Surprise Index -13.80 +.5 point

• Citi Emerging Markets Economic Surprise Index 16.50 +.1 point

• 10-Year TIPS Spread 1.68% unch.
  
• 33.2% chance of Fed rate hike at July 27 meeting, 49.9% chance at September 21 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +175 open in Japan 
• China A50 Futures: Indicating +22 open in China

• DAX Futures: Indicating +49 open in Germany

Portfolio: 

• Slightly Lower: On losses in my tech/biotech sector longs and emerging markets shorts
  

• 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:    

• Deutsche Bank Struggles to Shake Winter Blues in Credit Markets. For all of John Cryan’s efforts to reassure investors that Deutsche Bank AG is “rock solid,” credit markets are still signaling plenty of concern. The cost of insuring against losses on Deutsche Bank’s debt is 69 percent higher than the average for 12 of its biggest peers. While that’s less than it was in February, the gap shows investors are still singling out the bank after worries emerged earlier in the year that declining profitability will erode its ability to keep paying coupons on its riskiest bonds. It’s also showing the difficulty of reversing the effects of a derivatives market where a rapid rise in credit-default swap prices can fuel even more hedging by the firms that trade with the bank.
• Europe Stocks Rise as Total, Statoil Lead Oil Companies Higher. (video) Energy companies pushed European equities up for a second day amid better-than-estimated earnings reports and as oil reached $45 a barrel. Statoil ASA jumped 6.1 percent after Norway’s biggest oil company unexpectedly posted a profit, and Total SA gained 2.8 percent as its earnings beat estimates. Adidas AG climbed 6 percent after raising its annual profit forecast as consumers spend more before this year’s Euro soccer tournament. Munich Re fell 3.8 percent, dragging insurers lower, after forecasting lower profit than previously expected. The Stoxx Europe 600 Index rose 0.3 percent at the close of trading, reversing losses of as much as 0.4 percent.
• U.S. Crude Stockpiles Could See Return to 1929 Levels: Chart. If analysts are right, crude oil supplies in the U.S. may have surpassed the 540-million-barrel mark for the first time since 1929. An Energy Information Administration report set to be released Wednesday at 10:30 a.m. ET will tell us for sure. Analysts surveyed by Bloomberg say U.S. crude supplies probably expanded by 1.75 million barrels in the week ended April 22.
• China Trades Enough Cotton in One Day to Make Jeans for Everyone. It’s not just metals caught up in China’s commodity fever. The equivalent of 41 million bales of cotton traded in a single day on the Zhengzhou Commodity Exchange last week, the most in more than five years and enough to make almost 9 billion pairs of jeans, or at least one for every person on the planet. Prices that had slumped to the lowest on record in February surged almost 19 percent in the four days leading up to the trading spike on Friday.
• Loeb's Third Point Says Hedge Funds in 'Catastrophic' Period. Third Point, founded by Dan Loeb, said hedge funds are in the first stage of a “washout” after “catastrophic” performance this year. “There is no doubt that we are in the first innings of a washout in hedge funds and certain strategies,” the New York-based firm said in a quarterly letter posted late Tuesday on its website. The $2.9 trillion hedge fund industry had the worst start to a year in returns and outflows in at least seven years. Alan Howard’s Brevan Howard Asset Management and Paul Tudor Jones’ Tudor Investment Corp. are among the firms that clients are pulling billions of dollars from, while managers including Bill Ackman and John Paulson have posted steep losses. Hedge funds lost 1.9 percent in the first quarter, according to Hedge Fund Research’s global index, the poorest performance since 2008. The industry had net outflows of $16.6 billion in the last two quarters, the most since 2009, according to HFR. In 2015, 979 funds closed, more than any year since 2009, according to the research firm.

Wall Street Journal:

• Fed Stands Pat, Signals No Hurry to Raise Rates in Weeks Ahead. Statement cites mixed economic backdrop and lingering concerns about low inflation and global developments. Federal Reserve officials left short-term interest rates unchanged Wednesday and signaled they plan to move cautiously, citing a mixed economic backdrop and lingering concerns about low inflation and global economic developments.

CNBC:

• Here's what changed in the new Fed statement. (video)

Zero Hedge: 

• FOMC Statement Key Take Aways: "Fed Leaves Door Open For June Rate Hike".
• Fed Removes "Global Risk" Alert But Keeps Monitoring "Global Economic And Financial Developments" - Full Statement Redline.
• Business "Subsidies" Plummet 70% As Government Support Evaporates.
• A Major Warning From Tom McClellan : "Can This Possibly End Well?" (graph)
• The "World's Biggest Short Squeeze" Has Spread From ETFs To Stocks. (graph)
• "Hold Onto Your Hats": A Chinese Commodity Is Now The Most Traded In The World, Surpassing Oil. (graph)
• Pending Home Sales Tumble In The West As "Demand Is Starting To Weaken". (graph)

Business Insider: 

• The manufacturing recession is still a big deal.

Caixin:

• PBOC Adviser Says Capacity Cut Plan Smaller Than Expected. Chinese central bank adviser Huang Yiping said nationwide capacity reduction plan that has been announced is "way smaller" than market expectations and won't help much with current structural problems, citing an interview. Financial support to real economy is weakening because lots of money was used to keep "zombie cos." running instead of creating new value, Huang said.

Bear Radar

Style Underperformer:

• Large-Cap Growth -.7%

Sector Underperformers:

• 1) Social Media -1.9% 2) HMOs -1.1% 3) Biotech -1.0%

Stocks Falling on Unusual Volume:

• BWLD, PHI, QIWI, HRB, DVAX, HAWK, ANTX, TWTR, JBT, GT, JBSS, XON, RHI, AAPL, OC, ASGN, ARA, FI, CMG, LOCO, WUBA, BYD, CHRW, TGNA, TEN, RMD, MKTO and IIVI

Stocks With Unusual Put Option Activity:

• 1) DISH 2) BWLD 3) EWJ 4) DXJ 5) XLB

Stocks With Most Negative News Mentions:

• 1) HRB 2) LOCO 3) CMG 4) CHRW 5) RHI

Charts:

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

Bull Radar

Style Outperformer: 

• Mid-Cap Value +.2%

Sector Outperformers:

• 1) Oil Service +2.5% 2) Steel +1.8% 3) Gold & Silver +1.0% 

Stocks Rising on Unusual Volume: 

• DWA, EXAM, IRBT, CUDA, CRUS, BSX, SAIA, NUVA, BEAT, NANO, FTNT, GPI, ELGX and HLS

Stocks With Unusual Call Option Activity: 

• 1) SO 2) DVAX 3) CMCSA 4) FE 5) EA

Stocks With Most Positive News Mentions: 

• 1) FTNT 2) BSX 3) NOV 4) CRUS 5) NBR

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +.6% Above 100-Day Average
• 5 Sectors Rising, 5 Sectors Declining
• 58.8% of Issues Advancing, 37.9% Declining
• 78 New 52-Week Highs, 4 New Lows
• 57.2% of Issues Above 200-day Moving Average
• Average 14-Day RSI 47.5%
• Vix 14.5 +3.9%
• Total Put/Call .85 +6.3%
• TRIN/Arms .68 -30.3%