Thursday Watch

Evening Headlines

Bloomberg:

• Stocks Fall in Asia After Fed Balance-Sheet Signal. Stocks retreated from Sydney to Seoul after a record of last month’s Federal Reserve meeting showed that officials favor shrinking the U.S. central bank’s balance sheet this year and that some judged equity prices to be "quite high." Shares in Japan, South Korea and Australia all fell after the S&P 500 Index declined. Treasury yields stayed lower amid speculation that balance-sheet reduction could reduce the need for interest-rate hikes, while the dollar headed for a fifth day of losses versus the yen. The yen rose 0.3 percent to 110.37 per dollar as of 9:17 a.m. in Tokyo, on course for a fifth day of gains. The Topix index slid 0.8 percent and Australia’s S&P/ASX 200 Index lost 0.3 percent. The South Korean Kospi index slid 0.5 percent. New Zealand’s S&P/NZX 50 Index fell 0.1 percent.
• Your Evening Briefing.
• Traders Bet the Fed Will Slow Rate Hikes to Shrink Balance Sheet. Most Federal Reserve officials agree that they will begin shrinking their super-sized balance sheet later this year. What they don’t want to discuss in detail yet is how that will shape their plans to continue raising the short-term interest rate in 2018. The minutes of the March meeting employed some key words to outline plans to trim the balance sheet, which ballooned to $4.5 trillion following three rounds of bond purchases. Reductions need to be “gradual and predictable,” and should be accomplished by “phasing out” of reinvestments, meaning the central bank wouldn’t abruptly stop repurchasing all debt instruments when they mature. Finally, policy makers indicated reductions would start “later this year,” although they didn’t provide details on amounts.
• Report: Las Vegas Draws More Millennial, First-time Visitors.

Wall Street Journal:

• Fed Officials Expect to Whittle Down Portfolio Later This Year: Minutes. Officials were undecided over phasing out portfolio reinvestments or ending them all at once.
• White House Takes Lead Role on Tax Plan. No consensus has emerged on shape of legislation, but administration is courting Democrats.
• Trump Signals Change in Syria Policy. President’s comments come days after administration signaled U.S. wouldn’t demand Assad leave power.
• U.S.-China Trade Tensions Loom Over Trump-Xi Summit. Trade between the world’s two largest economies is expected to bring sharp divisions to meeting of leaders in Florida.

Fox News:

• Pro-ISIS hackers release 'kill list' with 8,786 targets in US, UK.

CNBC:

• Cardinal Health(CAH) nears $6 billion deal for Medtronic unit: Sources.
• Trump doesn't have to get tax reform perfect for these 9 stocks to see a rally, Jefferies says.

Zero Hedge:

• Suddenly, Both Obamacare Repeal And Trump Tax Reform Are Dead.
• Julian Robertson Yanks Money From One-Time Hedge Fund Whiz-Kid.
• Toronto House Price Bubble Goes Nuts. (graph)
• The Fortune 500's Fastest Growing (And Shrinking) Companies.
• Trump Continues to Ignore Monetary Policy — And It Will Cost Him.
• "Assad Crossed Many, Many Lines": Trump Signals Imminent Change In Syria Policy.
• VIX Term Structure Inverts Amid French Election Uncertainty. (graph)
• Stocks Tumble: Fed Spooks Traders With Bubble Warning. (graph)

Business Insider:

• The deadly chemical attack is the latest to hit Syria in 6 years of brutal civil war — here's what happened.
• The Resistance didn't turn out many votes in LA's first post-Trump primary.
• Oil tanker traffic is down — and that means crude's price could go higher.

Telegraph:

• France is now a Eurosceptic nation, whoever wins the election.

Night Trading 

• Asian equity indices are -.25% to -.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 95.0 +.75 basis point. 
• Asia Pacific Sovereign CDS Index 21.0 unch.
• Bloomberg Emerging Markets Currency Index 71.81 -.03%.
• S&P 500 futures -.18%. 
• NASDAQ 100 futures -.21%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (KMX)/.79
• (STZ)/1.36
• (FRED)/-.16
• (SCHN)/.37
• (PSMT)/.89
• (WDFC)/.90

Economic Releases
7:30 am EST 

• Challenger Job Cuts YoY for March. 

8:30 am EST

• Initial Jobless Claims for last week are estimated to fall to 250K versus 258K the prior week.
• Continuing Claims are estimated to fall to 2030K versus 2052K prior.   

Upcoming Splits

• None of note

Other Potential Market Movers

• The President Trump/President Xi meeting, China Services PMI report, weekly Bloomberg Consumer Comfort Index, (SKYW) monthly traffic report, (LB)/(BKE)/(CATO)/(FRED) month sales reports and the (ANGO) investor day could also impact trading today.

BOTTOM LINE:  Asian indices are lower, weighed down by technology 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 50% net long heading into the day.

Stocks Reversing Lower into Final Hour on Hawkish FOMC Commentary, Diminished Tax Reform Hopes, Profit-Taking, Biotech/Retail Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Lower
  

• Sector Performance: Mixed
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 11.47 -2.71%

• Euro/Yen Carry Return Index 123.47 +.06%

• Emerging Markets Currency Volatility(VXY) 9.10 +.66%

• S&P 500 Implied Correlation 42.44 -2.91%

• ISE Sentiment Index 68.0 -21.84%
  

• Total Put/Call .88 -22.81%

• NYSE Arms 1.11 -28.16%

Credit Investor Angst:

• North American Investment Grade CDS Index 66.25 -.88%
  

• America Energy Sector High-Yield CDS Index 350.0 -1.67%

• European Financial Sector CDS Index 89.97 -2.20%

• Western Europe Sovereign Debt CDS Index 12.83 +2.97%

• Asia Pacific Sovereign Debt CDS Index 20.89 -.17%

• Emerging Market CDS Index 210.48 -.86%
  

• iBoxx Offshore RMB China Corporate High Yield Index 136.40 -.13%

• 2-Year Swap Spread 33.5 -3..25 basis points

• TED Spread 35.25 -1.5 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -22.25 +2.0 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 71.88 -.14%
• 3-Month T-Bill Yield .80% +2.0 basis points
  

• Yield Curve 110.0 -1.0 basis point
  

• China Import Iron Ore Spot $81.54/Metric Tonne +2.63%

• Citi US Economic Surprise Index 45.70 +2.0 points

• Citi Eurozone Economic Surprise Index 37.60 -2.4 points

• Citi Emerging Markets Economic Surprise Index 37.60 +2.3 points

• 10-Year TIPS Spread 1.97 +1.0 basis point
  
• 60.0% chance of Fed rate hike at June 14 meeting, 63.5% chance at July 26 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +18 open in Japan 
• China A50 Futures: Indicating +47 open in China

• DAX Futures: Indicating -3 open in Germany

Portfolio: 

• Slightly Lower: On losses in my biotech/retail sector longs

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

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:

• China Stocks Climb Most Since August as Materials Firms Advance. Chinese stocks jumped the most in more than seven months as materials and industrial companies led gains on optimism plans for a new economic zone near Beijing will boost earnings. The Shanghai Composite Index climbed 1.5 percent at the close after a two-day holiday. Hesteel Co. and Beijing Orient Landscape & Environment Co. both surged by the daily limit. The Shenzhen Composite Index added 1.9 percent for its biggest jump since Oct. 10. Foreign investors bought a net 1.07 billion yuan ($155.2 million) of shares through the trading link with Hong Kong.
• Europe Stocks Little Changed as Energy Shares Rally, Autos Fall. (video) The Stoxx Europe 600 Index rose less than 0.1 percent at the close. Stocks advanced as much as 0.4 percent earlier in the day after a private report on hiring showed a surge in U.S. payrolls last month. The benchmark is still up for the sixth time in seven trading days, having completed its third straight quarterly gain last week. Miners on Wednesday advanced for a second day as copper prices climbed, while energy shares tracked an advance in oil.
• Fed Favors Plan to Start Shrinking Balance Sheet Later in 2017. Most Federal Reserve officials said they backed a policy change that would begin shrinking the central bank’s $4.5 trillion balance sheet later this year, as they reiterated their outlook for gradual interest-rate increases. “Most participants anticipated that gradual increases in the federal funds rate would continue and judged that a change to the committee’s reinvestment policy would likely be appropriate later this year,” according to minutes of the Federal Open Market Committee’s March 14-15 meeting released Wednesday in Washington. “Many participants emphasized that reducing the size of the balance sheet should be conducted in a passive and predictable manner,” the minutes showed.
• Cooperman Sees Stocks Gradually Rising on Solid Economic Data. Hedge fund billionaire Leon Cooperman, who has been ordered to face an insider-trading lawsuit, expects a gradual increase in stocks even after a market rally following the U.S. presidential election in November. “I think the market is not over valued, it’s reasonably fully valued,” Cooperman, founder of Omega Advisors, told CNBC Wednesday. “There are plenty of risks out there. Corporate debt levels and political uncertainty. Are we going to get a tax package through Congress?” Cooperman forecast that the market will be modestly higher by year’s end. The S&P 500 Index has risen about 11 percent since the election of President Donald Trump.
• White House Tallies $10 Billion Saved by Repeal of Regulations. (video) The White House estimates it will save $10 billion over 20 years by having rescinded 11 Obama-era regulations under a relatively obscure 1996 law that lets Congress fast-track repeal legislation with a simple majority. The window to invoke the Congressional Review Act is April 28 and the Trump administration is hopeful that several other measures will pass both houses of Congress and reach the president’s desk before that date, Marc Short, White House director of legislative affairs, told reporters Wednesday.

Wall Street Journal:

• Why the Refinancing Slowdown Matters for the Fed. Traders and analysts say monetary policy is already tightening on its own and the Fed could see it as a step toward shrinking its $4.5 trillion balance sheet.

Fox News:

• Trump says 'heinous' chemical weapons strike in Syria 'cannot be tolerated'. (video)
• Susan Rice's alleged unmasking requests not so routine, ex-officials say. (video)

CNBC:

• This chart shows why the bulls are getting excited about earnings. (video)
• Cooperman on Trump: The market is acting like it's being run by capitalists. (video)
• Trump tells NYT that Susan Rice is 'going to be the biggest story'.

Zero Hedge:

• Steve Bannon Removed From Trump's National Security Council.
• Germans Concerned After 270,000 Syrian Refugees Granted Permission To Bring Family Members.
• Trump Meets Xi: Goldman Previews This Week's Main Event.
• Productivity Myths Shattered: Is Productivity Rising Or Falling? Why?
• Are Mexico’s Oil Reserves Almost Depleted?
• WSJ: Susan Rice Was Not Alone In "Unmasking" Team Trump.
• WTI/RBOB Tumble After Surprise Inventory Build Sends Crude Glut Back To Record High. (graph)
• The "Soft Data" Euphoria Is Over: Non-Manufacturing ISM Slides To Pre-Election Lows. (graph)
• 2 Charts Show How Close The U.S. Is To Healthcare Collapse.
• Trump Effect: ADP Employment Surges To Highest Since 2014 As Manufacturing Hiring Spree Continues. (graph)
• For Gundlach, These Are The Three Key Charts To Watch.
• Shorts Crushed After JAB Acquires Panera In Largest Ever US Restaurant Deal.

Business Insider:

• YouTube's $35-a-month TV streaming service just launched — here's what it's like.

The Telegraph:

• Food prices rise at fastest pace in three years as inflation returns.

Bear Radar

Style Underperformer:

• Small-Cap Value +.3%

Sector Underperformers:

• 1) Gold & Silver -.9% 2) Steel -.8% 3) I-Banks +.1%

Stocks Falling on Unusual Volume: 

• NLNK, AFSI, AAOI and ITCI

Stocks With Unusual Put Option Activity:

• 1) LYB 2) YUM 3) PNRA 4) S 5) CLR

Stocks With Most Negative News Mentions:

• 1) VRX 2) GNRC 3) CGI 4) MSGN 5) USNA

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Growth +.8%

Sector Outperformers:

• 1) Hospitals +2.4% 2) Alt Energy +2.1% 3) Oil Service +1.8%

Stocks Rising on Unusual Volume:

• PNRA, CRVS, NORD, GBX, GNCMA, ALR, LNDC, LVNTA, AVD, KWR, CONN, NEWR, TISI, WIX, FLT, MON, PRTK, KMX, ACHC, LABL, TWOU, CRM, SHLM, BOX, HDP, OMER, LOCO, AMCX, VRTX, TER and PRTK

Stocks With Unusual Call Option Activity:

• 1) DD 2) ETP 3) RCII 4) BBBY 5) IBM

Stocks With Most Positive News Mentions:

• 1) PLUG 2) UA 3) AMD 4) NBR 5) SRPT

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +1.2% Below 100-Day Average
• 10 Sectors Rising, 0 Sectors Declining
• 62.2% of Issues Advancing, 34.3% Declining
• 76 New 52-Week Highs, 15 New Lows
• 55.4% of Issues Above 200-day Moving Average
• Average 14-Day RSI 38.1%
• Vix 11.2 -5.3%
• Total Put/Call .80 -29.8%
• TRIN/Arms .73 -15.8%