Wednesday Watch

Evening Headlines

Bloomberg:

• U.K.'s May Says She'd Rip Up Human Rights Law to Beat Terrorists. Prime Minister Theresa May said she’d be willing to tear up human rights legislation in the battle against terrorists, as security continued to dominate the final days of the U.K. election campaign. Speaking to supporters at a campaign event in Slough, west of London, the premier said she wanted to make it easier for the authorities to deport foreign terror suspects and to limit the freedoms of individuals who pose a threat but who can’t be prosecuted in court. 

• ECB Still Way Behind the Fed Even With Euro Area Outpacing U.S. The euro-area economy had a great start to the year, growing faster than the U.S. -- but that says more about the currency bloc’s late recovery than American weakness. The euro is trading at the strongest in more than six months against the dollar as prospects for the region’s expansion continue to improve. Yet the world’s two largest economies are also at very different stages.

• China Missiles Able to Send Nukes to Western Pacific, U.S. Says. China deployed new ballistic missiles last year capable of delivering nuclear warheads to ground targets in the Western Pacific, the Pentagon said. The intermediate-range Dongfeng-26 rockets could also be used for conventional strikes against ships in the region, the U.S. Department of Defense said in its annual report on China’s military. The deployment has been anticipated since at least September, when the missiles were displayed during a military parade hosted by President Xi Jinping.

• Australia First-Quarter GDP Expands 0.3 on Quarter. 

• Robot Ghost Ships to Extend Miner's Technology Drive to Seas. BHP Billiton Ltd., the world’s biggest mining company, is studying the introduction of giant, automated cargo ships to carry everything from iron ore to coal as part of a strategic shift that may disrupt the $334 billion global shipping industry.

• Investors Remain Cautious Ahead of ECB, U.K. Vote. Investors adopted a cautious stance ahead of a barrage of events due in the next 48 hours. There’s a reluctance to add to risk positions ahead of testimony Thursday from former FBI Director James Comey, the ECB’s policy decision and the U.K. election. Treasuries steadied after climbing on news that China is prepared to buy more of the notes. The Bloomberg Dollar Spot Index traded near an eight-month low. Stocks in Japan and South Korea retreated after the S&P 500 Index fell the most since mid-May. Gold remained near a seven-month high. Japan’s Topix index fell 0.2 percent. Australia’s S&P/ASX 200 Index retreated 0.2 percent and South Korea’s Kospi index lost 0.3 percent.

• Five Things You Need to Know to Start Your Day.

Wall Street Journal:

• GOP Senators’ Medicaid Clash Jeopardizes Health Deal. Phaseout of funding in House bill divides lawmakers in upper chamber.

• The Senate’s Medicaid Moment. The states are proving they can reform this program for the poor.

• Apple’s(AAPL) New Big Bet: Augmented Reality. ARKit platform puts it in a race with Facebook, Alphabet and Snap and fuels industry beliefs that it will eventually develop glasses.

Fox News:

• James Comey hearing: What you need to know. (video)

CNBC:

• Elon Musk just gave a whole bunch of information about the Tesla(TSLA) semi truck and Model Y.

• US oil output poised to hit 10 million barrels a day next year, breaking 1970 record, EIA says. (video)

• Anthem(ANTH) will drop out of Ohio's Obamacare market; 18 counties could be left with no ACA plan. (video)

• If investors treated Apple the same as the rest of the market, the shares would be a lot higher. (video)

Zero Hedge:

• Saudi Arabia Gives Qatar 24 Hour Ultimatum As Analysts Warn Of "Military Confrontation".

• The ECB Has Almost Run Out Of German Bonds To Buy. (graph)

• Comey Won't Accuse Trump Of Obstructing Justice: Report.

• Alabama Sees 85% Drop In Food Stamp Participation After Work Requirements Reinstated.

• Elderly Americans Are Taking Their Grandkids' Summer Jobs. (graph)

• WTI/RBOB Drop After Biggest Gasoline Build In 5 Months. (graph)

• Despite Near Certainty Of June Rate-Hike, Millions Of Eurodollar 'Bets' Are Set To Expire Worthless.

• FANG Flop Sparks D(own)-Day For Stocks As Dollar Dumps To 8-Month Lows. (graph)

Business Insider:

• Amazon's(AMZN) and Walmart's(WMT) latest moves confirm the death of the middle class as we know it.

• Sears(SHLD) is closing 72 stores — here's the full list.

• The robots are already here — and your job might be at risk.

Night Trading 

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

• Asia Ex-Japan Investment Grade CDS Index 88.0 +.25 basis point. 

• Asia Pacific Sovereign CDS Index 18.75 -.25 basis point.

• Bloomberg Emerging Markets Currency Index 73.45 -.04%.

• S&P 500 futures +.05%.

• NASDAQ 100 futures +.09%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (BF/B)/.40

• (NAV)/-.02

• (ABM)/.42

Economic Releases 
10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -3,085,710 barrels versus a -6,428,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -157,140 barrels versus a -2,858,000 barrel decline the prior week.
  

3:00 pm EST

• Consumer Credit for April is estimated to fall to $15.0B versus $16.431B in March.
  

Upcoming Splits

• (DST) 2-for-1

Other Potential Market Movers

• The Eurozone GDP report, Japan GDP report, German Factory Orders report, weekly MBA Mortgage Applications report, (RJF) Analyst Day, Deutsche Bank Industrials/Materials Summit and the (PSMT) monthly sales report could also impact trading today.

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

Stocks Slightly Lower into Final Hour on Eurozone Debt Angst, Earnings Outlook Concerns, Yen Strength, Retail/Insurance Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Lower
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 10.39 +3.2%

• Euro/Yen Carry Return Index 128.85 -.67%

• Emerging Markets Currency Volatility(VXY) 8.12 +1.25%

• S&P 500 Implied Correlation 40.84 +5.44%

• ISE Sentiment Index 85.0 +28.8%
  

• Total Put/Call .74 +1.37%

• NYSE Arms .82 -3.41%

Credit Investor Angst:

• North American Investment Grade CDS Index 60.42 +.44%
  

• America Energy Sector High-Yield CDS Index 388.0 +1.49%

• European Financial Sector CDS Index 88.15 +24.15%

• Western Europe Sovereign Debt CDS Index 8.35 +.60%

• Asia Pacific Sovereign Debt CDS Index 18.67 -2.05%

• Emerging Market CDS Index 191.18 +.38%
  

• iBoxx Offshore RMB China Corporate High Yield Index 138.71 unch.

• 2-Year Swap Spread 20.75 -.75 basis point

• TED Spread 25.25 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -31.5 +.25 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 73.46 +.05%
• 3-Month T-Bill Yield .97% unch.
  

• Yield Curve 85.0 -3.0 basis points
  

• China Import Iron Ore Spot $56.03/Metric Tonne +.23%

• Citi US Economic Surprise Index -41.80 +3.9 points

• Citi Eurozone Economic Surprise Index 42.80 -.7 point

• Citi Emerging Markets Economic Surprise Index 10.10 -1.4 points

• 10-Year TIPS Spread 1.80 -2.0 basis points
  
• 94.8% chance of Fed rate hike at July 26 meeting, 96.1% chance at Sept. 20 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -19 open in Japan 
• China A50 Futures: Indicating -24 open in China

• DAX Futures: Indicating -6 open in Germany

Portfolio: 

• Slightly Lower: On losses in my retail sector longs 

• Disclosed Trades: None

• Market Exposure: 75% Net Long

Today's Headlines

Bloomberg:

• Follow the Leader: Why the U.K. Election Really Is About Brexit. Security fears twice derailed the U.K. election campaign, and policy wobbles undermined Prime Minister Theresa May’s “strong and stable” message. But an analysis of the prime minister’s campaign stops shows the path to re-election still runs through the Brexit heartlands with the Conservatives gunning for traditional Labour seats where voters supported to leave the European Union.
• Biggest Middle East Ports Shun Qatar as Saudis Tighten Isolation. (video) The biggest Middle East oil and container ports banned all vessels sailing to and from Qatar from using their facilities amid a diplomatic crisis gripping the world’s main energy-exporting region.
• Santander Said to Weigh Stock Sale on Possible Popular Bid. Banco Santander SA is considering a capital increase of more than 5 billion euros ($5.8 billion) as part of a potential offer for its smaller rival, Banco Popular Espanol SA, according to people familiar with the matter.
• Your Evening Briefing.
• U.S. CEO Sentiment at Three-Year High Is Good Omen for Economy. (video) Chief executive officers of some of the largest U.S. companies are becoming even more sanguine about sales and spending, a good omen for the economy after a lackluster first-quarter expansion, according to a quarterly survey from the Business Roundtable released Tuesday.
• Home Contractor Employment Flourishes in the U.S.
• Five Questions About the Fed's $4.5 Trillion Balance Sheet. (video)

Wall Street Journal:

• Private Funding Is Key Challenge of Trump Infrastructure Plan. Effort reflects the difficulty of coming up with taxpayer dollars in era of constrained budgeting; administration has released few details.
• Four Risks Cloud the Outlook for the Global Economy. Politics and debt risk derailing global growth as it gains steam, the World Bank warns.
• Some Inconvenient Facts for the Fed. The central bank is poised to raise rates but a weaker economy might put more action on hold.

Fox News:

• London Mayor Khan suggests calling off Trump state visit to Britain. (video)

CNBC:

• Goldman Sachs(GS): The market is overvalued but tech stocks should stay strong with 1 caveat. (video)

Zero Hedge:

• "It's For Syria" - Algerian Man Shot After Attacking Police With Hammer, Knives At Paris' Notre Dame Cathedral.
• "Forget Terrorism": The Real Reason Behind The Qatar Crisis Is Natural Gas.
• With "Super Thursday" Fast Approaching, This Is What One Trader Plans To Do.
• Macy's(M) Tumbles After Issuing Profit Margin Warning. (graph)
• "Schizophrenic" JOLTS Report Reveals Record Job Openings As Hiring Crashes. (graph)
• White House Considers Sanctions Against Venezuela Oil Sector.
• "It's Pure Frenzy" - Bitcoin Extends Overnight Gains, Rises 200% Year-To-Date. (graph)
• One Bank Is Confused: The Fed's Rate Hikes Have Resulted In The Loosest Financial Conditions Since 2014.
• Bond Yields Tumble To 2017 Lows After China Said "Ready To Buy More US Treasuries".

Business Insider: 

• Uber fired more than 20 employees after receiving 215 claims in sexual harassment probe.
• An insurer just made Obamacare's nightmare scenario worse, and it could be 'the tip of the iceberg'.
• The 25-year-old accused of leaking top-secret NSA document talked of 'standing' with Iran in hypothetical war with US.
• A Wall Street bank used bitcoin to prove that NVIDIA is better than its competitors (NVDA).

Reuters:

• European stocks fall as investors flee risk, drugmaker Roche weighs. European shares extended their fall on Tuesday, with healthcare stocks particularly weak, as a diplomatic spat in the Middle East weakened appetite for risky assets across the board. The pan-European STOXX 600 benchmark dropped 0.7 percent, falling for a second session, while euro zone stocks .STOXXE and blue-chips .STOXX50E followed suit.

The Telegraph: 

• Brussels lays out plan to shore up euro and stop 'dangerous populism'.

Bear Radar

Style Underperformer:

• Mid Growth -.4%

Sector Underperformers:

• 1) Retail -2.2% 2) Insurance -.9% 3) Defense -.7%

Stocks Falling on Unusual Volume: 

• HDS, FRAN, CASY, SEMG, MIK, CONN, M, CBI, EPZM, ITT, KSS, FRED and COUP

Stocks With Unusual Put Option Activity:

• 1) FOXA 2) OHI 3) YHOO 4) ERX 5) FSLR

Stocks With Most Negative News Mentions:

• 1) CASY 2) IPG 3) ITT 4) X 5) DISH

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth -.1%

Sector Outperformers:

• 1) Gold & Silver -4.0% 2) Gaming +1.1% 3) HMOs +.7%

Stocks Rising on Unusual Volume:

• AMRI, GIII, ALR, THO, BLUE, CWH, SWNC, OCLR, PTCT, ACLS, NOVT, ATHM, PLAY, LITE, WGO, CVGW, MDSO, KEM, CEVA, NAV, SQ, JOBS, RH, AMD, JUNO and MULE

Stocks With Unusual Call Option Activity:

• 1) FAST 2) LITE 3) HDS 4) WYN 5) OCLR

Stocks With Most Positive News Mentions:

• 1) AMD 2) BLUE 3) PCAR 4) THO 5) BEL

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -10.8% Below 100-Day Average
• 5 Sectors Rising, 5 Sectors Declining
• 34.1% of Issues Advancing, 62.1% Declining
• 60 New 52-Week Highs, 40 New Lows
• 46.2% of Issues Above 200-day Moving Average
• Average 14-Day RSI 37.8%
• Vix 10.3 +2.5%
• Total Put/Call .62 -15.1%
• TRIN/Arms .95 +13.2%