Tuesday Watch

Evening Headlines

Bloomberg:

• French Race Up for Grabs Days Before Voters Cast First Ballots. France’s presidential race enters its final stretch with no clear winner in sight as the main contenders scrap for votes in a flurry of campaign rallies. “Everyone is petrified,” said Edouard Lecerf, head of the political department at polling firm Kantar Sofres. “The challenge for each of the four candidates is to seek new votes without alienating their base. French voters are like fish, like eels -- very slippery.” With almost a third of the electorate still undecided, and the front-runners clustered around 20 percent in the polls for the first round on April 23, the race is the most unpredictable the country has seen in recent history. With two of the four candidates also hostile to the institutions of the European Union, the result of the runoff two weeks later will have far-reaching implications not just for France but for the region as a whole.

• Tech Stocks in Malaysia Hit 10-Year High, Buoyed by Chip Boom. As growth in semiconductor usage underpins a 38 percent surge in Malaysian technology stocks, companies like Vitrox Corp. are expanding. The manufacturer of inspection machines for the semiconductor industry is building a 120 million ringgit ($27.2 million) factory, quadrupling its output as Managing Director Chu Jenn Weng predicts another record year for earnings.

• Asian Stocks Climb While Yen Slips as Risks Fade. Asian equities gained after U.S. stocks rose the most in six weeks, while the yen weakened as geopolitical threats eased and American economic data damped the odds for a Federal Reserve rate hike in June. Japanese and South Korean stocks rose for a second day, while Australian shares slid as the market reopened after the Easter holiday. Bloomberg’s dollar index strengthened after Treasury Secretary Steven Mnuchin told the Financial Times the greenback’s strength is “a good thing.” The yield on 10-year Treasuries continued to edge higher from a November low. Gold declined for a third day. The yen declined 0.3 percent to 109.21 per dollar as of 9:16 a.m. in Tokyo. The Bloomberg Dollar Spot Index added less than 0.1 percent after falling 0.2 percent Monday to the lowest closing level since March 27. Japan’s Topix advanced 1 percent, after a 0.5 percent increase on Monday. South Korea’s Kospi also gained for a second day, adding 0.1 percent. Australia’s S&P/ASX 200 fell 0.5 percent and New Zealand’s benchmark climbed 0.2 percent.

• Your Evening Briefing.

• Exxon(XOM), Shell Join Ivanka Trump to Defend Paris Climate Pact. (video) As President Donald Trump contemplates whether to make good on his campaign promise to yank the United States out of the Paris climate accord, an unlikely lobbying force is hoping to talk him out of it: oil and coal producers. A pro-Paris bloc within the administration has recruited energy companies to lend their support ahead of a high-level White House meeting on the subject taking place as soon as Tuesday, according to two people familiar with the effort who asked not to be identified.

Wall Street Journal: 

• U.S. Turns Up Heat on North Korea. In visit to demilitarized zone, Pence calls U.S. alliance with South Korea ironclad.

• In Afghanistan, Battle With ISIS Grinds On After Big Bomb. U.S. dropped ‘Mother of All Bombs’ as part of offensive to dislodge militants from stronghold.

• 5 Things to Watch in Goldman Sachs's Results.

Fox News:

• North Korea tensions have Hawaii pols revisiting emergency attack plans. (video)

MarketWatch:

• Netflix(NFLX) stock swings as subscriber growth, earnings forecast come up short: Live blog recap.

CNBC:

• Netflix(NFLX) has committed to spend a whopping $15.3 billion on streaming content.

Zero Hedge: 

• Despite What They Say, GM's Inventory Build Is Anything But 'Normal'. (graph)

• Angst In America - Disappearing Pensions.

• Houston Commercial Rents Plunge As Vacancies Hit 22-Year High. (graph)

• Former 'Permabull' Strategist Sees More Warning Signs For Stocks.

• Traders Buy The Thermonuclear War Threat Dip. (graph)

Business Insider:

• Saudi Arabia warns Iran is trying to turn Yemen into a 'missile base'.

• Former White House official slams Obama: ‘I think he left a more dangerous world’.

• United Airlines(UAL) beats on earnings and sales.

• CREDIT SUISSE: Here's why Amazon's(AMZN) stock is going to soar.

Night Trading 

• Asian equity indices are -.25% to +.5% on average.

• Asia Ex-Japan Investment Grade CDS Index 101.25 unch. 

• Asia Pacific Sovereign CDS Index 23.75 +.25 basis point.

• Bloomberg Emerging Markets Currency Index 72.18 -.04%.

• S&P 500 futures unch. 

• NASDAQ 100 futures +.1%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (BAC)/.35

• (SCHW)/.36

• (CMA)/.97

• (GS)/5.19

• (HOG)/1.02

• (JNJ)/1.77

• (PGR)/.68

• (RF)/.22

• (UNH)/2.17

• (ADTN)/.15

• (IBM)/2.35

• (IBKR)/.39

• (ISRG)/4.97

• (LRCX)/2.55

• (YHOO)/.14

Economic Releases
8:30 am EST 

• Housing Starts for March are estimated to fall to 1250K versus 1288K in February.

• Building Permits for March are estimated to rise to 1250K versus 1213K in February  

9:15 am EST

• Industrial Production MoM for March is estimated to rise +.4% versus unch. in February.

• Capacity Utilization for March is estimated to rise to 76.2% versus 75.4% in February.

• Manufacturing Production for March is estimated unch. versus a +.5% gain in February. 
  

Upcoming Splits

• (HEI) 5-for-4

Other Potential Market Movers

• The Fed's George speaking, China March Property Price report and the US weekly retail sales report could also impact trading today.

BOTTOM LINE:  Asian indices are mostly higher, boosted by industrial and technology shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher.  The Portfolio is 100% net long heading into the day.

Stocks Rising into Final Hour on Diminished Geopolitical Tensions, Yen Weakness, Technical Buying, Financial/Tech Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Light

• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• Volatility(VIX) 14.76 -7.58%

• Euro/Yen Carry Return Index 120.90 +.44%

• Emerging Markets Currency Volatility(VXY) 9.24 -.43%

• S&P 500 Implied Correlation 46.27 -3.02%

• ISE Sentiment Index 105.0 +20.69%
  

• Total Put/Call .85 -12.37%

• NYSE Arms .97 -57.11%

Credit Investor Angst:

• North American Investment Grade CDS Index 68.27 +1.57%
  

• America Energy Sector High-Yield CDS Index 357.0 +.13%

• European Financial Sector CDS Index 93.74 +.22%

• Western Europe Sovereign Debt CDS Index 13.36 +.15%

• Asia Pacific Sovereign Debt CDS Index 23.66 +.60%

• Emerging Market CDS Index 211.50 -.27%
  

• iBoxx Offshore RMB China Corporate High Yield Index 136.72 +.06%

• 2-Year Swap Spread 32.75 -.5 basis point

• TED Spread 35.0 -.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -31.75 +1.0 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.25 +.13%
• 3-Month T-Bill Yield .80% unch.
  

• Yield Curve 105.0 +2.0 basis points
  

• China Import Iron Ore Spot $66.25/Metric Tonne -3.54%

• Citi US Economic Surprise Index 10.50 -17.7 points

• Citi Eurozone Economic Surprise Index 38.60 -.3 point

• Citi Emerging Markets Economic Surprise Index 39.3 +12.6 points

• 10-Year TIPS Spread 1.89 -3.0 basis points
  
• 50.2% chance of Fed rate hike at June 14 meeting, 55.3% chance at July 26 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +115 open in Japan 
• China A50 Futures: Indicating -48 open in China

• DAX Futures: Indicating +20 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 100% Net Long

Today's Headlines

Bloomberg: 

• U.S. Pressures China to Act on N. Korea as Pence Visits Area. (video) The U.S. kept up pressure on China to use its leverage on North Korea while also warning that a sudden military strike wasn’t out of the question to counter the Kim Jong Un regime’s nuclear weapons and missile programs. U.S. Vice President Mike Pence made clear the administration’s preference for relying on China’s influence to rein in North Korea as he met with U.S. troops in the demilitarized zone between North and South Korea a day after the Kim regime defied the Trump administration with another apparent ballistic missile test. Pence said he was “heartened” by early signs from China and hoped its leaders would “use the extraordinary levers they have” to prod Kim into giving up his nuclear weapons and ballistic missiles. But he also repeated President Donald Trump’s warning that the U.S. would act without China if necessary and offered the recent U.S. missile strike against Syria and deployment of powerful bombs in Afghanistan as evidence of willingness to attack.
• China’s Economy Accelerates as Retail, Investment Pick Up. (video) China’s economy accelerated for a second-straight quarter as investment picked up, retail sales rebounded and factory output strengthened amid robust credit growth and further strength in property markets. Gross domestic product increased 6.9 percent in the first quarter from a year earlier, compared with a 6.8 percent median estimate in a Bloomberg survey. It was the first back-to-back acceleration in seven years. Fixed-asset investment excluding rural areas expanded 9.2 percent for the first three months, accelerating from 8.1 percent growth last year. Retail sales increased 10.9 percent from a year earlier in March, compared with a median estimate of 9.7 percent in a Bloomberg survey. Industrial output rose 7.6 percent last month from a year earlier, compared with an estimated 6.3 percent rise.
• Carson Block Says China Is Massive Asset, Credit Bubble. (video)
• North Korea Snubbed Chinese Diplomats. (video) North Korea snubbed senior Chinese diplomats this month as tensions mounted with the U.S., according to people familiar with the situation, raising questions about the influence Beijing’s leaders have over Kim Jong Un. Pyongyang didn’t respond to requests from China Foreign Minister Wang Yi and Wu Dawei, the country’s top envoy for North Korean nuclear affairs, to meet with their North Korean counterparts, according to the people, who asked not to be identified because the discussions were private. The overtures came after Chinese President Xi Jinping met with his U.S. counterpart Donald Trump in Florida, the people said.
• Tokyo's Skyline Set to See 45 New Skyscrapers by 2020 Olympics. Tokyo’s skyline is set to welcome 45 new skyscrapers by the time city hosts the Olympics in 2020, as a surge of buildings planned in the early years of Abenomics near completion.
• Robots May Help Build Your Next Home and Fill the Labor Gap. (video)
• Wal-Mart(WMT) Close to Acquiring Bonobos for About $300 Million. 
• SEC Probes Hedge Fund That Promises Investors No Losses.

Wall Street Journal:

• Insurers Scramble to Price Plans on Health Exchanges as Policy Seesaws. Deadlines loom for filing proposed 2018 rates for Affordable Care Act marketplaces; scouring Twitter for hints on law’s fate.
• Behind China’s Pickup in Growth: the Strong Hand of the State. First-quarter 6.9% figure shows last year’s easy-money policies and infrastructure spending created momentum.
• China Looks to Build a Major City From Scratch. Government aims to turn Xiongan farmland into Beijing commuter hub, in attempt to replicate Shenzhen’s success, avoid Caofeidian’s failure.
• Neiman Marcus Finds Even Wealthy Shoppers Want Better Deals. Neiman Marcus and other high-end retailers regularly raised prices over the past decade and were long thought immune to the troubles of mass-market chains. That model has fallen out of fashion.

Fox News:

• Gorsuch breaks mold, asks numerous questions in Supreme Court debut. (video)

CNBC:

• Hedge funds haven't been this negative on retail stocks since the financial crisis.
• Monitors criticize Turkey referendum; Erdogan denounces 'crusader mentality'.

Zero Hedge: 

• US Deploys Two More Aircraft Carriers Toward Korean Peninsula: Yonhap.
• The Coming French Revolution. (graph)
• Global Financial Market Stress Soars To 2017 Highs. (graph)
• Dear Hedge Funds: This Is Who Is Responsible For Your Deplorable Returns.
• Provocation Guaranteed As North Korea Threatens Missile Tests "On A Weekly Basis".
• Homebuilder Confidence Dips In April. (graph)
• Median LBO Multiple Rises To 10.8x, Highest Since The Financial Crisis. (graph)
• Soft Data Slump Begins - Empire Fed Plunges Most In A Year. (graph)

Bear Radar

Style Underperformer:

• Small-Cap Value +.5%

Sector Underperformers:

• 1) Hospitals -4.1% 2) Biotech -.4% 3) Oil Service -.3%

Stocks Falling on Unusual Volume: 

• LNCE, TMST, PACW, INCY, THC, DISH and AKTX

Stocks With Unusual Put Option Activity:

• 1) ARNC 2) LLY 3) YELP 4) UNH 5) DISH

Stocks With Most Negative News Mentions:

• 1) PANW 2) LLY 3) AMMA 4) GNW 5) SNAP

Charts:

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