Today's Headlines

Bloomberg:      

• Spain’s Debt Jumps Most in Century, Topping 100% of GDP: Chart. Spain’s debt pile topped 100 percent of gross domestic product in the January-March period, according to Bloomberg calculations, marking the first time in more than a century that debt has outweighed total output. The nation’s debt has nearly tripled since 2007 as a decade-long housing bubble came to an abrupt end, putting pressure on Spain’s public finances in the worst economic crisis in modern history. The country owed 1.1 trillion euros ($1.24 trillion) as of March.
• Europe Stock Investors Are Paying Up for Earnings Growth: Chart.
• Europe Shares Rise With Banks as Investors Speculate on Fed Hike. Banks propelled a rebound in European stocks, while investors weighed the possibility of the Federal Reserve increasing interest rates sooner than had been expected. The Stoxx Europe 600 Index climbed 0.9 percent to 337.58 at the close of trading, after earlier sliding as much as 0.5 percent.
• Saudi Arabia Considers Paying Contractors With IOUs. Saudi Arabia has told banks in the country that it is considering giving contractors IOUs to settle some outstanding bills, according to people with knowledge of the discussions. A projected budget deficit this year is prompting the government to weigh alternatives to limit spending. Contractors would receive bond-like instruments to cover the amount they are owed by the state which they could hold until maturity or sell on to banks, the people said, asking not to be identified because the information is private. Contractors have received some payments from the government in cash and the rest could come in "I-owe-you" notes, the people said.
• Most Fed Officials Saw June Hike Likely If Economy Warrants. (video) Most Federal Reserve policy makers in April said an interest-rate increase would be appropriate in June if the economy continued to improve, but were divided over whether those conditions were likely to be met in time. “Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen and inflation making progress toward the committee’s 2 percent objective, then it likely would be appropriate for the committee to increase the target range for the federal funds rate in June,” according to minutes of the Federal Open Market Committee’s April 26-27 meeting released Wednesday in Washington. “Participants expressed a range of views about the likelihood that incoming information would make it appropriate to adjust the stance of policy at the time of the next meeting,” the minutes stated.
• S&P 500 Technicals Reveal Ominous Reminders of 2001, 2008: Chart. The S&P 500 Index’s 50-week moving average just fell below its longer-term mean, repeating a pattern seen in 2001 and 2008. While daily moving averages aren’t in a bearish zone, pessimism has been growing among investors amid lackluster corporate earnings, concern over the health of the global economy and uncertainty about the timing of Federal Reserve rate increases. The U.S. equity gauge tumbled as much as 11 percent this year before erasing losses.
• Clinton, Democrats Confronting Dangerous Divisions Within Party. Hillary Clinton’s claim of a narrow victory in Kentucky and Bernie Sanders’ win in Oregon illustrated a deepening rift among Democrats with the potential to hobble the party heading into the general election. The split outcome in Tuesday’s primaries gives Clinton little leverage to push Sanders to unify his supporters behind her in preparation for an expected campaign against presumptive Republican nominee Donald Trump, who is using the extended primary contest to attack Clinton’s standing with her own party. Sanders showed no intention of dialing back his fight against Clinton or urging his supporters to fall in line. His spokesman said Sanders is considering seeking a recount in Kentucky, where Clinton was clinging to a lead of a half percentage point.
• Trump’s Disclosure Shows Role in New Companies During Campaign. (video) During his campaign for president, Donald Trump found time to do something else: take positions in 49 new companies, partnerships or corporations since July, according to his latest financial disclosure. Trump’s filing to the Federal Election Commission emerged Wednesday, adding new details about the presumptive Republican nominee’s financial portfolio. Even so, it may not shed much light on his income, or net worth. Trump, the presumptive Republican nominee, listed positions as president, chairman, member or trustee in 564 entities, up from 515 that he listed in an earlier filing.

Wall Street Journal:

• Target(TGT) Gives Weak Forecast as Sales Decline. Retailer cites ‘increasingly volatile consumer environment’ and sees a weaker quarter than analysts expect. Target Corp. on Wednesday warned that weaker consumer spending will continue to weigh on its performance after hitting sales growth in the recent quarter. Chief Executive Brian Cornell blamed “an increasingly volatile consumer environment” and said Target’s view of second-quarter results “has been tempered by the recent slowdown in consumer trends.” Shares fell 9.4% to $66.67 in recent trading.
• Iran’s Government and Revolutionary Guards Battle for Control of Economy. President Hassan Rouhani wants to make way for foreign deals and investment by limiting the business role taken on by the Revolutionary Guards when sanctions isolated Iran.

Zero Hedge: 

• Shocking Images Of Record Long Lines At US Airports. (video)
• Why One Trader Sees The S&P Plunging 500 Points. (video)
• The Clintons Earned $6.7 Million From Speeches In 2015; $55 Million Since 2013.
• Chart Of The Day: 'Broken Markets' Edition. (graph)
• Are Property Taxes A "Wealth Tax" On The (Mostly) Non-Wealthy?
• Crude Dumps, Pumps, & Slumps As Unexpected Inventory Build Offsets Production Cut.
• More Obama Job Distortions Loom: Overtime Pay Threshold Doubled.
• Citi Warns "Something Seems To Be Going On Here" As Rate Hike Fears Storm Back. (graph)
• More Obama Job Distortions Loom: Overtime Pay Threshold Doubled.
• The Interests Of A Government In Debt Are Not Aligned With The People.
• 16 Months & Counting... (graph)
• China's Housing Bubble Is So Big, Goldman Will "Need A Bigger Chart". (graph)
• Target(TGT) Crashes To 2016 Lows After Missing Top Line, Slashing Guidance.

Business Insider:

• June is on the table.
• Here are the 11 people Donald Trump is considering for the US Supreme Court.
• A huge wave of sovereign defaults might be coming.

Handelsblatt:

• German Govt Readying Measures to Prevent Real Estate Bubble. German govt is preparing draft law to give financial regulator BaFin powers to take steps to restrict mortgage lending if it sees a threat to financial stability.

Bear Radar

Style Underperformer:

• Mid-Cap Growth +.1%

Sector Underperformers:

• 1) Gold & Silver -2.3% 2) Oil Service -1.6% 3) Hospitals -1.3%

Stocks Falling on Unusual Volume:

• SHLX, TGT, ACXM, SONC, HOLI, RRGB, VIPS, HRL, ATI, ANAC, COKE, STE, COST, CTRN, DLR, PSXP, DLTR, LILAK, SWNC, KHC, HZO, WMT, SHLD, SNI, BSTC, HZO and SHLD

Stocks With Unusual Put Option Activity:

• 1) EMR 2) BBY 3) LB 4) LOW 5) WMT

Stocks With Most Negative News Mentions:

• 1) VIPS 2) DISCA 3) WMT 4) X 5) COST

Charts:

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

Bull Radar

Style Outperformer: 

• Small-Cap Growth +.7%

Sector Outperformers:

• 1) I-Banks +2.9% 2) Banks +2.9% 3) Disk Drives +2.2% 

Stocks Rising on Unusual Volume: 

• SAAS, ANDE and MGNX

Stocks With Unusual Call Option Activity: 

• 1) ULTA 2) TIF 3) DLTR 4) DG 5) ANAC

Stocks With Most Positive News Mentions: 

• 1) PLCE 2) LOW 3) TSLA 4) HFC 5) UFCS

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -11.3% Below 100-Day Average
• 3 Sectors Rising, 7 Sectors Declining
• 49.3% of Issues Advancing, 47.1% Declining
• 38 New 52-Week Highs, 28 New Lows
• 49.3% of Issues Above 200-day Moving Average
• Average 14-Day RSI 38.8%
• Vix 15.4 -1.2%
• Total Put/Call 1.25 +7.8%
• TRIN/Arms 1.12 +14.6%

Wednesday Watch

Evening Headlines
Bloomberg:

• China Home Price Gains Spread to More Cities, Defying Curbs. Home-price increases spread to more Chinese cities last month, as buyers shrugged off recent curbs designed to rein in surging values in some of the largest cities. New-home prices excluding affordable homes climbed in 65 cities, compared with 62 in March, among the 70 cities tracked by the government, the National Bureau of Statistics said Wednesday. They dropped in five cities, compared with eight a month earlier. Some Chinese cities, from the finance hub of Shanghai to Suzhou, a manufacturing city west of Shanghai, unveiled tightening measures starting in late March, to rein in rapid gains in home prices and a buying frenzy that followed government stimulus measures. Despite curbs in some top cities, new home sales soared 63.5 percent to 793.7 billion yuan ($122 billion) in April from a year earlier, driving a rebound in real estate investments from the lowest level in 14 years.
• Taiwan Bonds Show Risk Aversion as New Leader Tests China Ties. Taiwan’s government has seen bond yields fall to record lows as investors seek the safety of sovereign debt amid concern of increased tensions with China and bets that the central bank will cut interest rates to revive economic growth. The finance ministry auctioned NT$30 billion ($920 million) of the notes maturing in May 2046 at 1.65 percent yesterday, below the 1.705 percent fetched in November 2012. That followed an April sale in which 20-year bonds were auctioned for a record low yield of 1.36 percent, while 10-year bonds are also trading near their low of 0.767 percent.
• Won Slides With Stocks as Fed Officials Reignite June Rate Talk. South Korea’s won led losses in Asian currencies and stocks slid after two more Federal Reserve officials reiterated that U.S. interest rates could rise as soon as next month. Higher U.S. rates could damp demand for South Korean assets such as bonds, with three-year government yields already showing investors are anticipating another cut in borrowing costs from a record low. Overseas funds have turned net sellers of the nation’s stocks this week. Atlanta Fed President Dennis Lockhart and his San Francisco colleague John Williams both said Tuesday that markets are underestimating the possibility of a June rate hike. The won fell 0.6 percent to 1,180.30 per dollar as of 10:43 a.m. in Seoul after U.S. inflation and housing data reinforced the outlook for another U.S. rate increase. 
• Asian Stocks Retreat Amid U.S. Rate Hike Bets, Japan GDP Data. Asian stocks fell for the first time this week as investors weighed data showing Japan’s economy grew more than expected while U.S. reports bolstered the case for higher interest rates. The MSCI Asia Pacific Index slipped 0.2 percent to 127.25 as of 10:39 a.m. in Tokyo. Global equities have struggled to extend gains since reaching a four-month high on April 20 as investors scrutinize U.S. data for clues to the timing of the Fed’s next policy move. In Japan, data Wednesday showed gross domestic product expanded by an annualized 1.7 percent in the first quarter, beating economists’ estimates for 0.3 percent growth.
• Fed’s Williams, Lockhart See at Least Two Rate Hikes in 2016. (video) Two regional Federal Reserve bank presidents said at least two interest-rate increases may be warranted this year because the economy continues to expand and inflation is picking up, pushing back against expectations the central bank will delay action next month. “Currently my assumption is two, possibly three,” Atlanta Fed President Dennis Lockhart said Tuesday in Washington. He was joined at the Politico-hosted event by his San Francisco Fed colleague John Williams, who said “gradual means two to three rate increases this year.”
• Goldman’s(GS) Hatzius Says Flattest Yields Since 2007 Misprice Fed. Jan Hatzius, the chief economist at Goldman Sachs Group Inc., warned bond investors aren’t prepared for the Federal Reserve to raise interest rates. Fed Bank of Atlanta President Dennis Lockhart and his San Francisco counterpart John Williams both said Tuesday at least two rate increases may be warranted this year as the economy picks up. The views contrast with the Treasury market, where the range of maturities comprising the yield curve show investors are preparing for slowing inflation rather than higher borrowing costs. “The market’s underestimating their willingness to follow through on what they say,” Hatzius said Tuesday in an interview on Bloomberg Television. “If you look at where the yield curve is priced -- how little normalization of monetary policy is discounted -- that’s very striking.”
• Bonuses for Traders, Hedge Fund Managers Seen Falling in ‘16. Bonus pools could decline by as much as 20 percent for some Wall Street workers this year, with incentive pay falling at almost every type of financial-services firm, according to compensation consultant Johnson Associates Inc. The sharpest drop probably will be in fixed-income sales and trading, as well as investment-bank underwriting, which may tumble 15 percent to 20 percent from a year earlier, Johnson Associates said Tuesday in a report. Those in investment-banking advisory services and management positions at banks could see declines of 10 percent to 15 percent, the consultant said. 
• Trump Claims Income of More Than $557 Million on Disclosure. Donald Trump claimed income of more than $557 million over the last year, though the campaign provided few details on the sources of the money. The presumptive Republican presidential nominee made the assertion on his income in a news release on Tuesday to announce that he had filed his required annual financial disclosure with the Federal Election Commission. But the campaign didn’t release the document.

Wall Street Journal:

• Election Coverage: 2016.
• Investors’ Flight From Negative Rates Flattens Yield Curve. Brighter economic data raises specter of Fed rate increase; yield curve is flattest since 2007.
• Obama Administration Extends Overtime Pay to Millions. Overtime salary threshold doubled to $47,476 a year.
• Highmark Sues U.S. Over Affordable Care Act. Insurer says it didn’t get nearly $223 million owed under ‘risk corridors’ program.
• His and Her Clintonomics. Hillary says she’ll use Bill on the economy, but her policies are to the left of Obama’s.

CNBC:

• The 'black swan' that could sink oil markets. 
• 'This is a tough market': Homebuilder Lennar CEO. (video)
• Indicator flashes warning on China economy, copper.
• Trump bashes Dodd-Frank, says he'd speak to N. Korea's Kim. (video)

Zero Hedge:

• Goldman(GS) Downgrades Stocks Over Next 12 Months Due To Risk Of Sharp Market Drop.
• Middle Class Destitution – A Devastating Tale From America's Heartland.
• China's Debt Bomb: No One Really Knows The Payload.
• Someone Really Wants This Market To Crash. (graph)
• BofA: "If You Go Down To The Woods Today It Will Be Full Of Bears". (graph)
• Crude Slides After Oil Inventories Drawdown Less Than Expected. (graph)
• Maybe You Should "Sell In May".
• China Is Now Conducting "Security Reviews" On Foreign Tech Products.
• 'Transitory' Excuses Destroyed As Mainstream Wakes Up To Crashing Yield Curve.(graph)
• Mark Cuban Is Voting For "The Devil He Knows" Hillary, Warns Trump Presidency Will Crash Stocks. (video)
• Stocks Give Up "Volumeless, No Good Reason" Gains On Hawkish FedSpeak. (graph)

Business Insider:

• Bernie Sanders releases defiant statement after complete chaos at state convention.
• Here's why Jim Chanos is shorting big oil.
• The iPhone 7 is going to be boring and you'll have to wait until 2017 for something special.

Night Trading 

• Asian equity indices are -.75% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 143.0 -.25 basis point. 
• Asia Pacific Sovereign CDS Index 53.25 unch.
• Bloomberg Emerging Markets Currency Index 71.51 -.17%. 
• S&P 500 futures +.10%. 
• NASDAQ 100 futures +.16%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (ADI)/.62
• (TGT)/1.20
• (SPLS)/.16
• (STE)/1.04
• (LOW)/.85
• (DSX)/-.35
• (AEO)/.18
• (CSCO)/.55
• (CRM)/.23
• (SNPS)/.77
• (TTWO)
• (URBN)/.25

Economic Releases 
10:30 am EST

• Bloomberg consesus estimates call for a weekly crude oil inventory decline of -3,012,500 barrels versus a -3,410,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -762,500 barrels versus a -1,231,000 barrel decline the prior week. Distillate inventories are estimated to fall by -787,380 barrels versus a -1,647,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +1.33% versus a -.6% decline prior.  

2:00 pm EST

• FOMC Meeting Minutes. 

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Eurozone CPI report, Australian Employment change, weekly MBA mortgage applications report, CIBC Industrials Conference, Needham Tech Conference, (PYPL) Analyst Day, (LUV) annual meeting and the (TMO) analyst meeting could also impact trading today.

BOTTOM LINE:  Asian indices are mostly lower, weighed down by financial and industrial 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 Falling into Afternoon on Fed Rate Hike Fears, Global Growth Worries, Emerging Markets Debt Angst, Retail/REIT Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Slightly Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 15.44 +5.18%

• Euro/Yen Carry Return Index 129.0 +.03%

• Emerging Markets Currency Volatility(VXY) 10.80 -1.10%

• S&P 500 Implied Correlation 55.39 +3.75%

• ISE Sentiment Index 57.0 -13.64%

• Total Put/Call .92 +19.48%

• NYSE Arms .69 +6.34% 

Credit Investor Angst:

• North American Investment Grade CDS Index 82.02 +.58%
  

• America Energy Sector High-Yield CDS Index 935.0 +3.62%

• European Financial Sector CDS Index 99.0 unch.

• Western Europe Sovereign Debt CDS Index 25.58 -.41%

• Asia Pacific Sovereign Debt CDS Index 52.82 -1.06%

• Emerging Market CDS Index 296.43 +1.98%
  

• iBoxx Offshore RMB China Corporate High Yield Index 127.98 +.07%

• 2-Year Swap Spread 13.0 +.25 basis point
  

• TED Spread 36.25 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -23.25 -.5 basis point
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 71.61 +.20%
• 3-Month T-Bill Yield .27% unch.

• Yield Curve 94.0 -3.0 basis points
  

• China Import Iron Ore Spot $55.78/Metric Tonne +2.65%

• Citi US Economic Surprise Index -30.60 -5.6 points

• Citi Eurozone Economic Surprise Index -4.2 +1.0 points

• Citi Emerging Markets Economic Surprise Index -2.9 -.5 point

• 10-Year TIPS Spread 1.65% +2.0 basis points
  
• 31.1% chance of Fed rate hike at July 27 meeting, 47.7% chance at September 21 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +9 open in Japan 
• China A50 Futures: Indicating -77 open in China

• DAX Futures: Indicating -51 open in Germany

Portfolio: 

• Slightly Higher: On gains in my index hedges and emerging markets shorts
  

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

• Market Exposure: Moved to 25% Net Long