Stocks Falling into Final Hour on Trade War Fears, US High-Yield/European/Emerging Markets Debt Angst, Yen Strength, Tech/Financial Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Around Average

• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• Volatility(VIX) 23.11 -.99%

• Euro/Yen Carry Return Index 135.08 +.15%

• Emerging Markets Currency Volatility(VXY) 7.80 +.13%

• S&P 500 Implied Correlation 46.57 +1.73%

• ISE Sentiment Index 66.0 -24.1%
  

• Total Put/Call 1.53 +24.4%

• NYSE Arms .81 -60.94%

Credit Investor Angst:

• North American Investment Grade CDS Index 66.38 +3.01%
  

• America Energy Sector High-Yield CDS Index 440.0 +1.49%

• European Financial Sector CDS Index 67.94 +3.62%

• Italian/German 10Y Yld Spread 135.75 +1.75 basis points
  

• Asia Pacific Sovereign Debt CDS Index 13.52 +3.88%

• Emerging Market CDS Index 146.02 +1.59%
  

• iBoxx Offshore RMB China Corporate High Yield Index 148.56 +.01%

• 2-Year Swap Spread 33.25 +1.25 basis points

• TED Spread 56.5 +1.5 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -10.0 -.75 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 75.09 +.16%
• 3-Month T-Bill Yield 1.72% +1.0 basis point
  

• Yield Curve 56.5 +2.0 basis points

• China Iron Ore Spot 64.40 USD/Metric Tonne +1.0%

• Citi US Economic Surprise Index 46.3 +6.9 points

• Citi Eurozone Economic Surprise Index -57.90 unch.

• Citi Emerging Markets Economic Surprise Index 35.40 -.4 point

• 10-Year TIPS Spread 2.08 unch.
  
• 80.9% chance of Fed rate hike at June 13 meeting, 81.7% chance at August 1 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -187 open in Japan 
• China A50 Futures: Indicating -139 open in China

• DAX Futures: Indicating -16 open in Germany

Portfolio: 

• Slightly Higher: On gains in my industrial/retail sector longs, index hedges and emerging markets shorts

• Disclosed Trades: None

• Market Exposure: 25% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Growth -.5%

Sector Underperformers:

• 1) Disk Drives -2.3% 2) Computer Hardware -2.1% 3) Semis -1.9%

Stocks Falling on Unusual Volume: 

• GSM, AKBA, GKOS, MU, OMER, WDC, BOX, CARS and BDC

Stocks With Unusual Put Option Activity:

• 1) TNTR 2) K 3) GME 4) SPWR 5) GIS

Stocks With Most Negative News Mentions:

• 1) GSM 2) OMER 3) ATEN 4) ACIU 5) NM

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value -.2%

Sector Outperformers:

• 1) Gold & Silver +3.3% 2) Oil Service +1.3% 3) Energy +1.3%

Stocks Rising on Unusual Volume:

• HOME, SGH, AOI, GES, IRS, LFIN, INNT, KBH, MFGP, CTAS, GSK, PTGX, ABBV, ARNA, MNTX, UGLD, NKE, GIII, DOVA, BTI, FIVE, SFIX, WRD, CRC and MDGL

Stocks With Unusual Call Option Activity:

• 1) CY 2) IBB 3) BOX 4) COP 5) LMT

Stocks With Most Positive News Mentions:

• 1) SGH 2) OXY 3) ACMR 4) KBH 5) NKE

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +1.9% Above 100-Day Average
• 9 Sectors Rising, 1 Sector Declining
• 53.1% of Issues Advancing, 42.7% Declining
• 14 New 52-Week Highs, 98 New Lows
• 40.2% of Issues Above 200-day Moving Average
• Average 14-Day RSI 42.5%
• Vix 22.1 -5.5%
• Total Put/Call 1.40 +13.8%
• TRIN/Arms .77 -63.1%

Friday Watch

Evening Headlines

Bloomberg:

• China Hits Back at Trump Tariffs as Trade War Finally Arrives. (video) China announced plans for reciprocal tariffs on $3 billion of imports from the U.S., including products from steel to pork, after President Donald Trump’s move to order levies on a range of Chinese goods sent markets plunging. In a statement Friday, hours after Trump instructed U.S. Trade Representative Robert Lighthizer to slap tariffs on at least $50 billion in Chinese imports, China’s Commerce Ministry said it plans a 25 percent tariff on U.S. pork imports and recycled aluminum, and 15 percent tariffs on American steel pipes, fruit and wine. China will also pursue legal action against the U.S. at the World Trade Organization, the statement said, and called for dialogue to resolve the dispute.

• Japan’s Central Bank Is Halfway to Its Inflation Target. (video)

• Asia Stocks Slump, Bonds Rise; Yen Climbs Past 105. Japan’s Topix index slumped 2.5 percent and shares in Australia and South Korea also dropped. U.S. stock futures traded lower after the S&P 500 Index sank 2.5 percent, the biggest drop in six weeks. As investors dumped stocks, they rushed to the safety of Treasuries, where yields fell back toward 2.8 percent, and the yen, which jumped past 105 per dollar for the first time since November 2016. Follow live coverage of reaction here. The MSCI Asia Pacific Index sank 1.3 percent as of 9:09 a.m. Tokyo time. Topix index sank 2.4 percent. Kospi index sank 1.9 percent. Australia’s S&P/ASX 200 Index decreased 1.6 percent. Futures on the S&P 500 Index fell 0.4 percent.

• Five Things You Need to Know to Start Your Day. (video)

• Bloomberg’s Week in Pictures. (pics)

• Bitcoin Falls on Fears of Regulatory Trouble for Big Crypto Exchange.

• Micron's(MU) Sales Forecast Disappoints After Big Stock Surge.

• Nike(NKE) Jumps After Product Revamp Helps North America to Rebound. (video)

Wall Street Journal:

• Russia, the NRA and Fake News. Journalists propagate another wild tale from Fusion GPS’s Glenn Simpson.

• The University of Denial. Aggressive suppression of the truth is a central feature of American higher education. 

• Next Worry for Facebook: Disenchanted Users. Rising number of users claim to be abandoning social media giant, prompting a warning from some analysts that its growth could slow.

• House Passes Mammoth Spending Bill. Senate has little time to approve $1.3 trillion budget bill before government funding expires Saturday. 

• Trump Taps John Bolton for NSA Post as McMaster Departs. President had discussed Lt. Gen. H.R. McMaster’s departure for ‘some time,’ White House says. 

• Biggest Three Banks Gobble Up $2.4 Trillion in New Deposits Since Crisis. Now that many transactions are done online or through smartphones, customers are increasingly choosing national banks. 

• Crypto-Focused Hedge Funds on SEC’s Radar. Regulator to examine up to 100 hedge funds starting in the next few months.

Fox News:

• John Bolton to replace H.R. McMaster as White House national security adviser, Trump says.

CNBC:

• China responds to Trump tariffs with proposed list of 128 US products to target.

• Facebook(FB) COO Sheryl Sandberg: 'It's not a question of if regulation, it's a question of what type'.

• JP Morgan: 'Goldilocks' stock conditions ahead after Fed decision. (video)

• Stocks making the biggest moves after hours: Nike, Micron, KB Homes & more.

Zero Hedge:   

• "Sea Of Red" - China Stocks, Commodities Crash As Trade Wars Escalate.

• Trump Replaces McMaster With John Bolton As Security Advisor.

• "Now I’m F---ing Doing It My Way": Trump Prepares For War With Mueller.

• Krieger: The Only Reason We're Examining Facebook's Sleazy Behavior Is Because Trump Won.

• CCTV Footage From Las Vegas Reveals Stephen Paddock's Last Hours Before Massacre.

• Trump Admin Approves $1BN Arms Deal With Saudi Arabia, Including 6,700 Missiles.

• Congress Looks To Curb Chinese Inflitration Of America's Higher Education.

• China Responds: "Not Afraid Of Trade War", Vows To "Fight To The End".

• 6 Things That Will Make Conservatives Livid In The Spending Bill.

• Stocks Plunge As Trade Turmoil, Credit Crisis, & Tech Wreck Loom. (graph)

Business Insider: 

• Facebook's(FB) nightmare is about to get a lot worse.

• Dropbox has priced its public offering at $21 — above the range it set on Wednesday.

Night Trading 

• Asian equity indices are -3.0% to -1.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 79.25 +3.5 basis points. 

• Asia Pacific Sovereign CDS Index 13.0 unch.

• Bloomberg Emerging Markets Currency Index 74.92 -.07%.

• FTSE 100 futures -1.03%.

• S&P 500 futures -.46%.

• NASDAQ 100 futures -1.0%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note

Economic Releases
8:30 am EST

• Preliminary Durable Goods Orders for February are estimated to rise +1.6% versus a -3.6% decline in January.

• Preliminary Durables Ex Transports for February are estimated to rise +.5% versus a -.3% decline in January.

• Preliminary Cap Goods Orders Non-Defense Ex-Air for February is estimated to rise +.9% versus a -.3% decline in January.

10:00 am EST

• New Home Sales for February are estimated to rise to 622K versus 593K in January.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Kashkari speaking, government funding deadline and the BoJ Bond purchases could also impact trading today.

BOTTOM LINE:  Asian indices are sharply lower, weighed down by financial and industrial shares in the region. I expect US stocks to open lower and to maintain losses into the afternoon.  The Portfolio is 25% net long heading into the day.

Stocks Falling Substantially into Final Hour on Trade War Fears, Mueller Probe Worries, US/European/Emerging Markets Debt Angst, Financial/Commodity Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Below Average

• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• Volatility(VIX) 20.3 +13.9%

• Euro/Yen Carry Return Index 135.40 -.67%

• Emerging Markets Currency Volatility(VXY) 7.85 +.90%

• S&P 500 Implied Correlation 43.96 +1.31%

• ISE Sentiment Index 100.0 +13.64%
  

• Total Put/Call 1.26 +8.6%

• NYSE Arms 1.76 +93.9%

Credit Investor Angst:

• North American Investment Grade CDS Index 64.18 +3.77%
  

• America Energy Sector High-Yield CDS Index 430.0 +.96%

• European Financial Sector CDS Index 65.57 +3.69%

• Italian/German 10Y Yld Spread 134.0 +2.75 basis points
  

• Asia Pacific Sovereign Debt CDS Index 13.02 +1.24%

• Emerging Market CDS Index 142.28 +2.43%
  

• iBoxx Offshore RMB China Corporate High Yield Index 148.55 -.03%

• 2-Year Swap Spread 32.0 -.75 basis point

• TED Spread 54.75 +8.5 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -9.25 -3.0 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 75.06 -.25%
• 3-Month T-Bill Yield 1.71% -3.0 basis points
  

• Yield Curve 54.5 -3.75 basis points

• China Iron Ore Spot 65.27 USD/Metric Tonne -2.84%

• Citi US Economic Surprise Index 39.4 unch.

• Citi Eurozone Economic Surprise Index -57.90 -19.3 points

• Citi Emerging Markets Economic Surprise Index 37.20 -.4 point

• 10-Year TIPS Spread 2.08 -2.0 basis points
  
• 79.0% chance of Fed rate hike at June 13 meeting, 79.9% chance at August 1 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -471 open in Japan 
• China A50 Futures: Indicating -178 open in China

• DAX Futures: Indicating -14 open in Germany

Portfolio: 

• Lower: On losses in my industrial/retail/biotech/tech/medical sector longs

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my emerging markets shorts

• Market Exposure: Moved to 25% Net Long