Tuesday Watch

Evening Headlines

Bloomberg:

• Japanese Stocks Climb as Yen Weakens; Bonds Slip. Stocks in Japan climbed as the yen weakened for a fourth day, with most of Asia’s other major equity markets returning from holidays to kick off their trading week. Equities in Tokyo and Seoul led gains in Asia after U.S. shares advanced, pushing the Nasdaq Composite Index to an all-time high. The yield on 10-year Treasuries jumped as the U.S. Treasury secretary said his department is considering debt longer than 30 years. Oil traded near a one-month low. The Australian dollar extended gains ahead of the Reserve Bank of Australia’s decision on policy. The yen traded at 111.91 per dollar as of 9:28 a.m. in Tokyo, slightly lower following a 0.3 percent slide on Monday. The Topix index rose 0.5 percent, climbing for a second day to the highest since March. South Korea’s Kospi index advanced 0.6 percent, approaching its all-time high. Australia’s S&P/ASX 200 Index slipped 0.3 percent, breaking a seven-day rally. Markets in China, Hong Kong, Singapore, the U.K. and Germany are among those reopening after a holiday. 
• Pipeline Companies Push Back Against Trump's ‘Buy American’ Rule. A directive requiring U.S. pipeline companies to use American steel and iron in their projects is testing President Donald Trump’s ability to keep his promises to two industries on opposing sides of the issue. In comments to the U.S. Department of Commerce, which is crafting the so-called "Buy American" plan, pipeline companies and their trade groups argued the change would increase costs and disrupt operations. Steel companies, meanwhile, embraced the policy as an opportunity to take advantage of the country’s surging oil and gas production. And Trump has vowed to support both. 
• Trump's U.S. Looks Past Energy Independence to Global Dominance. The U.S. is in the position to be energy-dominant, not just independent, thanks to fracking and plans to loosen drilling regulations, Interior Secretary Ryan Zinke said Monday. Oil production across the U.S. may increase by 17 percent to a record 10.24 million barrels a day by the end of next year as companies cut costs and become more efficient in drilling, especially in areas such as West Texas and North Dakota. Domestic output hasn’t surpassed 10 million barrels a day since 1970. At a time when OPEC and other producers are cutting output, U.S. exports surged above 1 million barrels a day for the first time. 
• IAC(IAC) to Buy Angie's(ANGI) List in Deal Valued at Over $500 Million.

Wall Street Journal:

• Donald Trump Gambles on Big Health-Care Victory. White House makes concessions on spending bill to devote all its energy to rounding up House votes against Affordable Care Act.
• Goldman Sachs(GS) Embraces Banking’s Bland Side: Lending Money. The investment bank, seeking growth beyond its elite Wall Street turf, is moving to finance corporate takeovers, lend against mansions and make personal loans for things such as kitchen remodels.
• Trump Preparing To Replace Top Banking Regulator – Sources. Thomas Curry could be replaced this week.
• Apple’s(AAPL) Cash Hoard Set to Top $250 Billion. Tech giant’s unequaled stash draws calls for buybacks, acquisitions as corporate tax shift looms.

Fox News:

• Trump mum on North Korea red line, says: 'I act if I have to act'. (video)

CNBC:

• Economic model predicts Trump may get that GDP surge he wants this quarter.

Zero Hedge:

• "That's Enough" - Angry Trump Kicks CBS Reporter Out Of Oval Office.
• Elizabeth Warren Blasts Ignorant Obama For Abandoning Working Class That's "Getting Kicked In The Teeth".
• Trump Calls Bannon "Alt-Left", Says He "Isn't Going Anywhere".
• Melissa Zimdars Exposed: The Truth About The "Fake News" List From Its Creator.
• As Incentives Soar, Auto OEMs Argue That Sticker Prices Are Dragging Down Sales.
• Nasdaq Flies As Risk Dies And Traders Buy The Bank-Break-Up Dip. (graph)
• 51% Of Murders In The U.S. Come From Just 2% Of The Counties. (map)
• Trump Destroys Michelle O's Legacy; Makes School Lunches Great Again.

Night Trading 

• Asian equity indices are unch. to +.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 93.25 -1.25 basis points. 
• Asia Pacific Sovereign CDS Index 22.5 +.25 basis point.
• Bloomberg Emerging Markets Currency Index 72.38 +.1%.
• S&P 500 futures -.05%. 
• NASDAQ 100 futures +.03%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AET)/2.35
• (MO)/.74
• (ADM)/.62
• (BDX)/2.23
• (BP)/.07
• (COH)/.44
• (COP)/.03
• (CMI)/1.80
• (CVS)/1.10
• (ETN)/.88
• (EMR)/.58
• (HCA)/1.74
• (HCP)/.48
• (HLT)/.28
• (LL)/-.20
• (MA)/.95
• (MRK)/.83
• (MOS)/.20
• (PFE)/.67
• (SMG)/2.89
• (AKAM)/.67
• (APC)/-.25
• (AAPL)/2.02
• (FSLR)/-.15
• (GILD)/2.28
• (MDLZ)/.50
• (PZZA)/.74
• (WBMD)/.27

Economic Releases  
Afternoon

• Total Vehicle Sales for April are estimated to rise to 17.13M versus 16.53M in March.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Eurozone PMI report, weekly US retail sales reports, (F) April sales call, (DAL) April Traffic report, (MSFT) product event and the (XLNX) analyst meeting could also impact trading today.

BOTTOM LINE:  Asian indices are mostly higher, boosted by financial and technology shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed.  The Portfolio is 75% net long heading into the day.

Stocks Rising into Final Hour on Healthcare/Tax Reform Hopes, Earnings Optimism, Yen Weakness, Tech/Financial Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Below Average

• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• Volatility(VIX) 10.24 -5.36%

• Euro/Yen Carry Return Index 127.30 +.34%

• Emerging Markets Currency Volatility(VXY) 8.67 +.70%

• S&P 500 Implied Correlation 41.79 -3.15%

• ISE Sentiment Index 91.0 +26.39%
  

• Total Put/Call .83 -13.54%

• NYSE Arms 1.0 -15.18%

Credit Investor Angst:

• North American Investment Grade CDS Index 63.31 -.8%
  

• America Energy Sector High-Yield CDS Index 372.0 -.24%

• European Financial Sector CDS Index 74.05 -.20%

• Western Europe Sovereign Debt CDS Index 9.31 +1.53%

• Asia Pacific Sovereign Debt CDS Index 22.43 +.74%

• Emerging Market CDS Index 195.54 +.03%
  

• iBoxx Offshore RMB China Corporate High Yield Index 137.19 +.02%

• 2-Year Swap Spread 30.0 -1.25 basis points

• TED Spread 37.5 +.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -33.5 unch.

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.32 +.03%
• 3-Month T-Bill Yield .80% unch.
  

• Yield Curve 104.0 +2.0 basis points
  

• China Import Iron Ore Spot $68.80/Metric Tonne n/a

• Citi US Economic Surprise Index -20.60 -15.8 points

• Citi Eurozone Economic Surprise Index 68.50 -1.9 points

• Citi Emerging Markets Economic Surprise Index 39.3 -.2 point

• 10-Year TIPS Spread 1.93 -1.0 basis point
  
• 69.7% chance of Fed rate hike at June 14 meeting, 72.0% chance at July 26 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +65 open in Japan 
• China A50 Futures: Indicating -5 open in China

• DAX Futures: Indicating +29 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg:

• China's Markets and Economy Are Going in Different Directions. China’s run of solid economic indicators proved little consolation for its shaky financial markets in April. The dichotomy stems from a shift in the leadership’s focus toward reducing leverage -- one that’s set to determine whether growth joins asset prices in heading down. Economists are practically unanimous in saying that reduced debt loads would be good for China’s longer-term health. The big unknown is whether officials can manage that without a dose of short-term pain. As UBS Group AG analysts put it in a note last week: if authorities’ initiatives are "not managed well, it could lead to a rise in credit events, excessive liquidity tightening, faster-than-intended slowdown of credit growth, and greater market volatility."
• Wheat Futures Surge After U.S. Crop Pummeled by Storm. Wheat prices headed for record gains in Chicago on Monday as the U.S. winter crop faced substantial losses from snow and high winds that slammed into four Midwest states including Kansas, the top grower. More than 12 inches (30 centimeters) of snow fell on ripening wheat in parts of Kansas, Colorado, Oklahoma and Nebraska in the past 24 hours, David Streit, the senior lead forecaster at Bethesda, Maryland-based Commodity Weather Group LLC, said in a telephone interview. While it will take several days before the damage can be assessed accurately as the snow melts, early estimates suggest losses could exceed 50 million bushels, according to Pira Energy.
• Mnuchin Says Reaching 3% U.S. Economic Growth May Take Two Years. Treasury Secretary Steven Mnuchin said an overhaul of the tax system, regulatory reform and better trade deals will help produce 3 percent U.S. economic growth within two years. Returning health in the U.S. job market, a 12 percent rise in stock prices since Trump’s election and consumer sentiment at the highest in 16 years are painting an optimistic picture of the economy. Even so, the economy expanded at its slowest pace in three years at 0.7 percent in the first quarter-- underlining the challenges of an administration aiming for 3 percent or higher annual growth.
• EPA, Clean Energy Spared Trump's Ax in $1.1 Trillion Budget Deal. Environmental programs marked for death or deep cuts by President Donald Trump got a reprieve in the government funding deal revealed early Monday by congressional leaders -- at least for now. The Environmental Protection Agency, targeted for $247 million in cuts for this year’s funding, instead escaped with a budget trimmed by $81 million -- or 1 percent -- and no staff reductions. Research divisions within the Department of Energy received increases despite calls by Trump to slash or eliminate them. For example, its advanced research program, which would have been cut in half under Trump’s 2017 spending plan, instead will get a $15 million increase in funding this year.
  

Wall Street Journal:

• Hamas to Drop Call for Israel’s Destruction in Charter, Official Says. Palestinian Islamist movement, which rules Gaza, will also formally accept notion of a Palestinian state in territories Israel captured in 1967.
• One Move That Could Solve the GOP’s Tax-Cut Math Problem (Maybe). Some Republicans weigh 15-year, 20-year or 30-year budget window to let Congress pass longer temporary tax cut.
• Asian Leaders Are Drawn Into U.S. Push on North Korea. Donald Trump extends White House invites to Thailand, Singapore and Philippines in effort to build cooperation in Southeast Asia.

Fox News:

• Dallas paramedic shot, police hunting suspect. (video)

CNBC:

• Here’s why people keep buying Apple(AAPL) products.
• JPMorgan(JPM): Keep buying bank stocks because they are still cheap relative to market.
• Don't sell in May: Stock market's momentum may prove the old adage wrong this year. (video)
• Copper futures spike in freak move that Wall Street can't quite explain.
• Here's why earnings are so outstanding even though the US economy is barely growing. (video)

Zero Hedge:

• Trump Says "Would Be Honored" To Meet With Kim Jong-Un, Willing To Raise Gasoline Tax.
• VIX Crashes To 9-Handle For First Time In Over 10 Years. (graph)
• Baltimore Mayor Begs For FBI Help As 2017 Murders Soar To 20-Year High.
• Bank Stocks Tumble After Trump Says "Open To Breaking Up Big Banks".
• 30Y Treasury Yield Bursts Above 3.00% After Mnuchin Comments. (graph)
• After A Disastrous Quarter, Atlanta Fed Now Expects Q2 GDP To Hit 4.3%. (graph)
• Why Democrats Are Delighted With The Republican Spending Bill. "Dems basically got everything. It's like they control House, Senate, & WH rather than the other way around."
• Gold Tumbles Below Key Technical Level. (graph)
• With Paulson Down Nearly Double-Digits, Here Is How Other Hedge Funds Are Doing.
• Foreign Banks Subpoenaed Over Alleged Treasury Market Manipulation.
• Oil Tumbles To $48 Handle Again After Libyan Output Surge. (graph)
• Stagflation Strikes Again As Manufacturing Sector Slumps To Post-Trump Lows. (graph)
• Fed's Favorite Inflation Indicator Slumps Back Below Mandate - What Now Janet? (graph)
• Despite Trumphoria, US Personal Spending Growth Stagnates As Savings Rate Hits 7-Month Highs. (graph)

Reuters:

• Macau gambling revenue rises 16.3 percent in April. Revenue at the world's biggest casino hub of Macau rose 16.3 percent in April, as new resorts helped draw high rollers and casual gamblers to the country's only legal casino hub. Gambling revenue in the southern Chinese territory in April was 20.2 billion patacas ($2.52 billion), government data showed on Monday. Analysts were expecting 13-17 percent growth.

Yonhap News:

• S. Korea's exports soar 24.2 pct in April. South Korea's exports continued to rise in April, extending their winning streak to six months, on the back of brisk overseas sales of ships and chips, the trade ministry said Monday. Outbound shipments came to US$51 billion last month, up a nearly seven-year high of 24.2 percent from $41.1 billion tallied a year earlier, according to the Ministry of Trade, Industry and Energy. It marked the second-largest monthly volume since October 2014, when shipments reached $51.6 billion, while it posted double digit growth for four months in a row for the first time in nearly seven years. The country's exports have been on a steady rise since November led by an upturn in oil prices and recovering world trade. Imports jumped 16.6 percent on-year to $37.8 billion in April. Last month's trade surplus came to $13.3 billion, marking 63 straight months of surplus, the ministry said.

Bear Radar

Style Underperformer:

• Mid-Cap Value +.1%

Sector Underperformers:

• 1) Gold & Silver -2.9% 2) Oil Service -1.0% 3) Foods -.7%

Stocks Falling on Unusual Volume: 

• ITCI, TIS, BSFT, EGHT, RDUS, SNCR, AMG, LXU and TYPE

Stocks With Unusual Put Option Activity:

• 1) FTNT 2) NBR 3) FIT 4) K 5) SYF

Stocks With Most Negative News Mentions:

• 1) EGHT 2) ITCI 3) NWL 4) HP 5) AEGN

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth +.4%

Sector Outperformers:

• 1) Gaming +1.6% 2) Internet +1.4% 3) Banks +1.1%

Stocks Rising on Unusual Volume:

• ASPS, ENSG, ARLP, GGP, EHTH, TTWTR, LE, KMG, TRCO, ARCX, UCTT, KBR, TRVG, DDC, AHGP, WMAR, BLKB, MTCH, FORM, PICO, SIMO, DSLV, ZEUS, CNXC, RGNX, FLT, KBR, MTRX, PETS, RCL and W

Stocks With Unusual Call Option Activity:

• 1) AAOI 2) COH 3) CZR 4) UTX 5) MA

Stocks With Most Positive News Mentions:

• 1) CGNX 2) TWTR 3) RCL 4) ADSK 5) WAT

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -19.5% Below 100-Day Average
• 6 Sectors Rising, 4 Sectors Declining
• 54.2% of Issues Advancing, 41.1% Declining
• 117 New 52-Week Highs, 35 New Lows
• 54.8% of Issues Above 200-day Moving Average
• Average 14-Day RSI 40.1%
• Vix 10.6 -2.0%
• Total Put/Call .85 -11.5%
• TRIN/Arms 1.09 -8.1%