Stocks Reversing Slightly Higher into Afternoon on Central Bank Hopes, Less Emerging Markets Debt Angst, Oil Gain, Metals & Mining/Gaming Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Mixed
  

• Volume: Slightly Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 15.43 -3.02%

• Euro/Yen Carry Return Index 127.41 -.32%

• Emerging Markets Currency Volatility(VXY) 11.01 +.27%

• S&P 500 Implied Correlation 54.50 -3.66%

• ISE Sentiment Index 70.0 +16.67%

• Total Put/Call 1.21 +2.54%

• NYSE Arms .81 -36.2% 

Credit Investor Angst:

• North American Investment Grade CDS Index 84.86 +.47%
  

• America Energy Sector High-Yield CDS Index 993.0 +7.49%

• European Financial Sector CDS Index 100.12 +2.19%

• Western Europe Sovereign Debt CDS Index 26.19 -.10%

• Asia Pacific Sovereign Debt CDS Index 55.18 +1.16%

• Emerging Market CDS Index 293.76 -.66%
  

• iBoxx Offshore RMB China Corporate High Yield Index 127.06 -.11%

• 2-Year Swap Spread 14.25 +.25 basis point
  

• TED Spread 44.5 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -24.0 -.25 basis point
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.22 +.11%
• 3-Month T-Bill Yield .19% unch.
  

• Yield Curve 105.0 +1.0 basis point
  

• China Import Iron Ore Spot $58.29/Metric Tonne -3.25%

• Citi US Economic Surprise Index -36.70 -6.0 points

• Citi Eurozone Economic Surprise Index -11.0 +.7 point

• Citi Emerging Markets Economic Surprise Index 9.80 -1.9 point

• 10-Year TIPS Spread 1.62% -1.0 basis point
  
• 19.2% chance of Fed rate hike at July 27 meeting, 32.1% chance at September 21 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -52 open in Japan 
• China A50 Futures: Indicating -84 open in China

• DAX Futures: Indicating +23 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 50% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Growth -.5%

Sector Underperformers:

• 1) Airlines -2.5% 2) Biotech -2.0% 3) Drugs -1.5%

Stocks Falling on Unusual Volume:

• XENT, IMPV, BANC, PCTY, SSNC, ENDP, SQ, CPA, SO, SGRY, FEYE, YY, WLTW, DATA, TEVA, MSI, LOCO, NSTG, BNFT, HDP, WEB, IEP, AAWW, ABTL, TARO, ABC, WBA, CERN, PII, AGN, BLDR, BKE, AAWW, PDCE, MYL, GRPO, FLR, XLRN, IPXL, PPC, BETR, TDS, HRTX and DATA

Stocks With Unusual Put Option Activity:

• 1) NBR 2) EWC 3) CI 4) M 5) JCP

Stocks With Most Negative News Mentions:

• 1) ENDP 2) JCP 3) ZTS 4) M 5) HON

Charts:

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

Bull Radar

Style Outperformer: 

• Small-Cap Growth +.1%

Sector Outperformers:

• 1) Gold & Silver +4.3% 2) Steel +1.6% 3) Oil Service +1.4% 

Stocks Rising on Unusual Volume: 

• SWIR, YELP, POST, TDC, DV, SNCR, LXU, UBNT, QLGC, HLF, ATW, FOE, ATVI, DK, ABCO, EVHC, AXL, PKI, POST, CENTA and CAA

Stocks With Unusual Call Option Activity: 

• 1) YELP 2) ASNA 3) CERN 4) LC 5) HLF

Stocks With Most Positive News Mentions: 

• 1) AXL 2) ATVI 3) ATW 4) UBNT 5) CTSH

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +4.0% Above 100-Day Average
• 1 Sector Rising, 9 Sectors Declining
• 45.8% of Issues Advancing, 50.8% Declining
• 70 New 52-Week Highs, 30 New Lows
• 51.9% of Issues Above 200-day Moving Average
• Average 14-Day RSI 41.1%
• Vix 15.6 -1.7%
• Total Put/Call 1.22 +3.4%
• TRIN/Arms .5 -60.8%

Friday Watch

Evening Headlines
Bloomberg: 

• Chinese Business Feels the Sting of the Party. Entrepreneurs get help from the state—and more threats. China’s entrepreneurs shouldn’t simply make money. They must “love the motherland, love the people, love the Communist Party, and actively practice socialist core values,” President Xi Jinping told businessmen in March. The latest to discover this is Ren Zhiqiang, a retired real estate tycoon who must serve a one-year probation for publishing “erroneous views” that “seriously violate the Party’s political discipline,” according to a May 2 statement by a Beijing party committee. A party member, he got in hot water after questioning the president’s call for tighter controls over the media.
• Brazil Cut by Fitch, Outlook Negative on Political Gridlock. Brazil was downgraded by Fitch Ratings, which kept a negative outlook on the nation’s debt citing a deeper-than-anticipated recession and political instability. Fitch cut the rating by one level to BB, in line with grades from S&P Global Ratings and Moody’s Investors Service. Fitch had last downgraded Brazil in December. The rating is in line with those of Croatia, Bolivia, Paraguay and Guatemala.
• Asian Equities Drop as Japan Returns Amid Countdown to Payrolls. Stock losses deepened in Asia, with Japanese markets returning from a three-day holiday to ongoing pessimism over the global economy. Base metals extended declines, while the dollar maintained gains ahead of key American jobs data. Finance and energy stocks drove the regional benchmark lower, with Japanese shares retreating on their first day of trading since Monday. Copper dropped a fourth day amid the worst week for industrial metals since 2013, while U.S. crude oil snapped a two-day recovery, set for its first weekly drop since the start of April. The yen nursed its three-day decline, with the dollar solidifying gains at a one-week high versus major currencies. The MSCI Asia Pacific Index dropped 0.3 percent as of 9:57 a.m. Tokyo time, set for a weekly decline of 3.1 percent. Japan’s Topix index lost 0.2 percent, after initially climbing as much as 0.7 percent. The Nikkei 225 Stock Average was down 0.3 percent.
• Oil Market at Crossroads as Big Rally Masks Risks Lurking Ahead. If the oil market needed a theme song for now, it might turn to the one where Taylor Swift nervously sings: “Are we out of the woods yet?” A slump in U.S. production, unexpected cuts in output from Nigeria to Colombia and rising gasoline demand have helped drive a major rally since mid-February. As investors boost their bullish bets, analysts from UBS Group AG to Morgan Stanley and Goldman Sachs Group Inc. see pitfalls ahead. The global crude glut has spread to diesel and will threaten gasoline after the peak summer driving season. Unplanned outages may be resolved in coming months, boosting supplies as Iran seeks to regain market share and Saudi Arabia defends its turf. Demand is “underwhelming” in emerging markets, says Morgan Stanley. Goldman Sachs warns U.S. output may rebound if prices rally too quickly. “Oil fundamentals are improving but the market is still apprehensive,” said Ehsan Ul-Haq, a senior consultant at KBC Advanced Technologies in London. “Only when refiners start complaining about the lack of supply will we see a sustainable recovery.”
• Copper Drops to Two-Week Low on China Demand Woes. (video)
• Goldman Sachs(GS) Raises Iron Ore Forecasts While Warning on Outlook. Goldman Sachs Group Inc. has raised its iron ore forecasts for the remainder of the year after the commodity’s surprise rally at the start of 2016, while warning that the revival in prices may store up problems as supplies are still set to increase. The outlook for this quarter was increased 47 percent to $55 a metric ton, the July-to-September view was boosted 20 percent to $45 and the call for the final three months rose 14 percent to $40, the bank said in a report received on Friday. That lifted Goldman’s full-year 2016 estimate 19 percent to $47 a ton, while its forecasts for 2017 and 2018 were left unchanged at $35.
• Fed Officials Leave Door Open to June Hike If Justified by Data. Four regional Federal Reserve presidents said they were open to considering an interest-rate increase in June, speaking on the eve of a monthly U.S. jobs report that could indicate whether the economy can handle a hike. St. Louis Fed chief James Bullard, San Francisco’s John Williams, Robert Kaplan of Dallas and Atlanta’s Dennis Lockhart all stressed in separate remarks Thursday that policy would be data dependent and the June 14-15 meeting of the Federal Open Market Committee was on the table. All four take part in a panel debate at Stanford University later in the day. “My attitude about June is that it’s a live meeting, in which we will have plenty of new data compared to March,” Bullard, a FOMC voter this year, told reporters in Santa Barbara. “Our options are open at this point.”
• Biggest Junk-Bond ETF Jolted by Massive Outflows Amid Rally. The largest exchange-traded fund that buys junk bonds is flashing a potential warning sign that a three-month rally in the $1.4 trillion market is losing steam. BlackRock Inc.’s iShares iBoxx High Yield Corporate Bond ETF has seen 27.8 million shares redeemed, or about $2.6 billion, in the last four days, according to data compiled by Bloomberg. Short interest in the fund climbed more than 80 percent since mid-April, according to financial analytics firm S3 Partners.
• Paul Ryan Spoils Trump's Victory by Withholding Endorsement. House Speaker Paul Ryan took the extraordinary step of saying he isn’t ready to back Donald Trump, and Trump fired right back, igniting a spat that pits one of the most popular and prominent Republicans in the nation against his party’s presumptive nominee. Putting the brakes on Trump’s coronation, Ryan said on CNN that Trump needed to stop the bullying and demonstrate his conservative credentials in order to win the speaker’s support. "I hope to support our nominee," Ryan said. "At this point, I’m just not there right now." Trump quickly retorted: "I am not ready to support Speaker Ryan’s agenda."

Wall Street Journal:

• Push for $15 Raises Pay—And Tensions. As higher minimum wages go into effect, some veteran employees are unhappy about earning same wage as less experienced hires. The growing push to raise the minimum wage to as much as $15 per hour is creating new issues in the workplace: While some of America’s lowest-paid workers will get fatter paychecks, their veteran colleagues may feel underpaid.

Fox News: 

• A message for my fellow Republicans: If you back Trump you will not be trusted again.

CNBC:

• GoPro(GPRO) swings after results; sales fall 50%. (video)

Zero Hedge:

• Churn, Baby, Churn - The China Commodity Bubble Exposed In 1 Simple Chart.
• Trump Picks Former Goldman(GS) Partner And Soros Employee As Finance Chairman.
• Jim Grant Asks When The World Will Realize "That Central Bankers Have Lost Their Marbles".
• FBI Interviews Clinton's Top Personal Aide As Email Investigation Heats Up.
• Trump Says If Economy Crashes "Can Make A Deal", "Will Renegotiate Debt". (video)
• Stunning Dash Cam Footage From Inside Alberta's "Apocalyptic" Inferno.
• Haunting Pictures Of A Transportation Recession As Freight Rail Traffic Plunges.
• Warning Signs. (graph)
• Sinko Day Stocko - Crude Pump'n'Dump Leads Trannie Slump. (graph)

Business Insider:

• Goldman Sachs(GS) is firing traders again.
• CNN: FBI has already interviewed some of Hillary Clinton's aides — and Clinton may be next.
• Here’s how China managed to lose $500 billion in reserves in one year.
• This VC thinks Apple(AAPL) CEO Tim Cook is like 'human Ambien'.
• Here's some bad news for Japan. (graph)
• This is oil's biggest 'red herring'. (graph)
• 4 of the most influential Republicans alive are skipping Donald Trump's coronation.
• These 9 charts explain the global slowdown and why central banks are powerless.
• Iran just threatened US shipping again — here's why.

Reuters:

• Exclusive: Shift in Saudi oil thinking deepens OPEC split. As OPEC officials gathered this week to formulate a long-term strategy, few in the room expected the discussions would end without a clash. But even the most jaded delegates got more than they had bargained with. "OPEC is dead," declared one frustrated official, according to two sources who were present or briefed about the Vienna meeting. This was far from the first time that OPEC's demise has been proclaimed in its 56-year history, and the oil exporters' group itself may yet enjoy a long life in the era of cheap crude.
• BRIEF-United Parcel Service announces new $8 bln share buyback program.

Telegraph:

• Is Greece just weeks away from another debt crisis? 
• UK economy 'near stalling' as growth engine stutters.

21st Century Business Herald:

• China Brokers Tighten Underwriting for Private Co. Bonds. Brokerages have raised requirements for underwriting bonds issued by private cos., including demanding potential issuers to have credit rating higher than AA, after multiple bond default cases occurred in April, citing people familiar with the matter. Some securities cos. even refused to sponsor private co. bonds on high default risk concerns.

Night Trading 

• Asian equity indices are -.50% to -.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 144.75 +1.0 basis point. 
• Asia Pacific Sovereign CDS Index 54.50 -1.0 basis point. 
• Bloomberg Emerging Markets Currency Index 72.11 -.03%. 
• S&P 500 futures -.01%. 
• NASDAQ 100 futures -.08%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (AXL)/.71
• (MT)/-.20
• (CI)/2.15
• (CTSH)/.79
• (WY)/.20
• (BRK/B)/2274.0

Economic Releases 
8:30 am EST

• The Change in Non-Farm Payrolls for April is estimated to fall to 200K versus 215K in March.
• The Unemployment Rate for April is estimated to fall to 4.9% versus 5.0% in March.
• Average Hourly Earnings MoM for April are estimated to rise +.3% versus a +.3% gain in March.    

3:00 pm EST

• Consumer Credit for March is estimated at $16.0B versus $17.217B in February. 

Upcoming Splits 

• None of note

Other Potential Market Movers

• The UK car registration report, (RAI) annual meeting, (BID) annual meeting and the (AA) annual meeting could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by industrial and technology 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 Reversing Slightly Lower into Afternoon on Global Growth Fears, Earnings Outlook Worries, Technical Selling, Retail/Agriculture Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Slightly Lower
  

• Sector Performance: Mixed
  

• Volume: Slightly Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 15.75 -1.87%

• Euro/Yen Carry Return Index 127.93 -.39%

• Emerging Markets Currency Volatility(VXY) 10.89 unch.

• S&P 500 Implied Correlation 56.28 -.35%

• ISE Sentiment Index 79.0 +23.44%

• Total Put/Call 1.04 -3.7%

• NYSE Arms 1.46 -10.54% 

Credit Investor Angst:

• North American Investment Grade CDS Index 84.51 +1.16%
  

• America Energy Sector High-Yield CDS Index 915.0 -18.65%

• European Financial Sector CDS Index 98.75 -.31%

• Western Europe Sovereign Debt CDS Index 26.20 +1.93%

• Asia Pacific Sovereign Debt CDS Index 54.27 -2.17%

• Emerging Market CDS Index 295.50 +.43%
  

• iBoxx Offshore RMB China Corporate High Yield Index 127.20 +.04%

• 2-Year Swap Spread 14.0 unch.
  

• TED Spread 44.5 +1.25 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -23.75 +.75 basis point
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.20 +.07%
• 3-Month T-Bill Yield .19% unch.
  

• Yield Curve 104.0 -1.0 basis point
  

• China Import Iron Ore Spot $60.25/Metric Tonne +.27%

• Citi US Economic Surprise Index -30.70 -2.3 points

• Citi Eurozone Economic Surprise Index -11.70 +.7 point

• Citi Emerging Markets Economic Surprise Index 11.70 +.4 point

• 10-Year TIPS Spread 1.63% -1.0 basis point
  
• 22.6% chance of Fed rate hike at July 27 meeting, 33.4% chance at September 21 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -52 open in Japan 
• China A50 Futures: Indicating -52 open in China

• DAX Futures: Indicating +5 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 25% Net Long