Morning Market Internals

NYSE Composite Index:

• Volume Running -4.9% Below 100-Day Average
• 4 Sectors Rising, 6 Sectors Declining
• 52.4% of Issues Advancing, 44.6% Declining
• 174 New 52-Week Highs, 11 New Lows
• 50.7% of Issues Above 200-day Moving Average
• Average 14-Day RSI 40.9%
• Vix 16.3 -2.1%
• Total Put/Call 1.6 +36.8%
• TRIN/Arms 1.44 +141.3%

Thursday Watch

Evening Headlines
Bloomberg:  

• Brexit ‘Disaster’ Strikes Euro Tourist Hotspots as Pound Plunges. It’s time for prayers, Irish restaurant owner Padraic Og Gallagher says, describing the prospect of Brexit with one word: “disaster.” About 40 percent of customers at Gallagher’s Boxty House in Dublin’s tourist district, Temple Bar, come from the U.K. Now, with the pound plunging, he’s worried. “I just had the first growth in seven years and now, Oh God, do I have to go through this again?” said Gallagher, 55, who has been serving boxty, a traditional Irish potato-bread dish, in the area since 1989. “The English are the cream -- they eat, they drink, they have fun.”
• Japan’s Industrial Production Drops Much More Than Forecast. (video) Japan’s industrial production declined more than economists forecast in another sign of sluggishness for the world’s third-largest economy as it struggles to recover. Output declined 2.3 percent in May from April when it rose 0.5 percent, the trade ministry reported on Thursday. The median forecast of economists surveyed by Bloomberg was for a 0.2 percent drop, and the slump was bigger than all but one of the estimates.
• Yuan Heads for Worst Quarter on Record as Outflows Seen Rising. The yuan’s worst quarterly performance on record is raising the risk of capital flight. China’s currency has slumped 2.9 percent since the end of March, the most since the nation unified the official and market rates at the start of 1994, to trade near its lowest level in five years. Losses deepened after the U.K.’s vote to secede from the European Union led to a jump in the dollar and dented the outlook for Chinese exports.
• China Investors Turn to Sovereign Debt Amid Company Defaults. There’s about to be a flight to quality in China’s bond market. Fourteen of 22 respondents in a Bloomberg survey of investors and analysts said they are most interested in buying securities issued by the government and policy banks in the next quarter, compared with just four of 19 in a similar poll three months ago. A run of defaults is the biggest risk facing China’s bond market in the next three months, and yield premiums are poised to widen, according to the most popular responses in the survey.
• Goldman(GS) Says China Metals Investors Fear Sharp Yuan Devaluation. Goldman Sachs Group Inc. said metals investors in China are concerned that the government may sharply weaken the nation’s currency in a decision that could trigger large swings in prices. There are “fears in the market over a sharp devaluation in China,” analysts Jeffrey Currie, Yubin Fu and Max Layton said in a report. The June 29 note summarized views from Chinese metals traders, producers and investors, and didn’t give the bank’s assessment of prospects for a devaluation. 
• Asia Stocks Rise as Global Rebound Gains Speed After Brexit Rout. Asian stocks climbed for a second day to track a global rebound, as anxiety over the economic fallout from the U.K. leaving the European Union diminished amid speculation central banks will support financial markets. The MSCI Asia Pacific Index advanced 0.7 percent to 128.63 as of 9:06 a.m. in Tokyo, after jumping 1.8 percent on Wednesday. The gauge has pared its monthly loss to 0.5 percent. Markets are regaining momentum after being roiled by last week’s U.K. vote to leave the EU. A gauge of global equities posted its steepest two-day gain since August as central banks around the world signaled a readiness to act if required in the aftermath of the so-called Brexit. 
• China’s Great Big Pile of Iron Ore Just Got Even Bigger: Chart. Iron ore stockpiles at China’s ports have capped a fourth quarterly increase in the longest run of gains in two years, signaling robust supply. BHP Billiton Ltd. predicted in May that the holdings -- which now stand at 101.5 million tons, the highest since December 2014 -- may go on rising right through this year. China has imported an excessive amount given that steel output has dropped from 2015, according to Ralph Leszczynski, Singapore-based head of research at shipbroker Banchero Costa & Co.

Fox News:

• Fox News Poll: Clinton up by 6 points, 89 percent say 'hot-headed' describes Trump. (video) Donald Trump has had a few rocky weeks on the campaign trail, and it shows in the latest Fox News Poll.  Just over half of Republicans would rather have someone besides Trump as their nominee, and his support in the presidential ballot test has dropped seven points since May. Democrat Hillary Clinton is up 44-38 percent over Trump in a head-to-head matchup.

Zero Hedge:

• IMF: "Deutsche Bank Poses The Greatest Risk To The Global Financial System".
• Brexit Aftermath - Here's What Will Happen Next.
• Revenge Of The Rubes - Why The Days Of The Financial Elite's Rule Are Numbered. (graph)
• Goldman Warns Of Downside Risk To $50 Oil Forecast Due To Ceasefire With Niger Delta Avengers.
• Paul Singer: "Donald Trump Will Cause A Widespread Global Depression". (video)
• Mainstream Media Explains The Benghazi Report.
• Health Care Costs Are Rising Sharply, And It Will Get Much Worse.
• Futures Spike After Banks Unveil Tens Of Billions In Buybacks.
• Fed Fails Deutsche Bank And Santander In Stress Test, As 31 Other Banks Unleash Dividend, Buyback Frenzy.
• For Those Who Still Care About Fundamentals, A Troubling Chart.
• From Brexit Wounds To Buying Panic (In Bonds & Stocks). (video)

Business Insider:

• China's smog is knocking 25 months off people's life expectancy.
• Mitch McConnell: 'Trump clearly needs to change'.

Telegraph: 

• Was Brexit fear a giant hoax or is this the calm before the next storm?

Night Trading 

• Asian equity indices are +.75% to +1.5% on average.
• Asia Ex-Japan Investment Grade CDS Index 141.25 -4.5 basis points.
• Asia Pacific Sovereign CDS Index 50.75 -2.75 basis points.
• Bloomberg Emerging Markets Currency Index 72.42 -.05%. 
• S&P 500 futures +.02%. 
• NASDAQ 100 futures -.02%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (CAG)/.52
• (STZ)/1.52
• (DRI)/1.09
• (MKC)/.74
• (PAYX)/.49
• (SCHN)/.11
• (MU)/-.11

Economic Releases  
8:30 am EST

• Initial Jobless Claims for last week are estimated to rise to 267K versus 259K the prior week.
• Continuing Claims are estimated to rise to 2151K versus 2142K prior.   

9:45 am EST

• Chicago Purchasing Manager for June is estimated to rise to 51.0 versus 49.3 in May.

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed's Bullard speaking, China Manufacturing PMI, Eurozone inflation report, German Unemployment Rate, UK GDP report, Canada GDP report, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, (PRXL) investor day and the (CACI) investor day could also impact trading today.

BOTTOM LINE:  Asian indices are higher, boosted by commodity 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 Surging into Afternoon on Less European/Emerging Markets/US High-Yield Debt Angst, Short-Covering, Oil Bounce, Commodity/Tech Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Every Sector Rising
  

• Volume: Slightly Above Average

• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• Volatility(VIX) 16.64 -11.25%

• Euro/Yen Carry Return Index 118.99 +.20%

• Emerging Markets Currency Volatility(VXY) 10.37 -3.45%

• S&P 500 Implied Correlation 55.75 -3.59%

• ISE Sentiment Index 62.0 -8.82%
  

• Total Put/Call 1.20 +6.19%

• NYSE Arms .66 +17.6% 

Credit Investor Angst:

• North American Investment Grade CDS Index 81.11 -4.20%
  

• America Energy Sector High-Yield CDS Index 806.0 -4.69%

• European Financial Sector CDS Index 116.50 -9.97%

• Western Europe Sovereign Debt CDS Index 32.13 -10.57%

• Asia Pacific Sovereign Debt CDS Index 50.876 -4.85%

• Emerging Market CDS Index 272.16 -7.13%
  

• iBoxx Offshore RMB China Corporate High Yield Index 130.02 -.01%

• 2-Year Swap Spread 12.75 +1.25 basis points
  

• TED Spread 36.75 -.75 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -40.25 -2.0 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.36 +.84%
• 3-Month T-Bill Yield .25% unch.

• Yield Curve 85.0 unch.
  

• China Import Iron Ore Spot $53.89/Metric Tonne +.45%

• Citi US Economic Surprise Index -20.1 +.4 point

• Citi Eurozone Economic Surprise Index .5 +1.1 points

• Citi Emerging Markets Economic Surprise Index -10.0 -1.5 points

• 10-Year TIPS Spread 1.42% +2.0 basis points
• 1.9% chance of Fed rate hike at Sept. 21 meeting, 3.9% chance at Nov. 2 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +219 open in Japan 
• China A50 Futures: Indicating -59 open in China

• DAX Futures: Indicating -14 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg:     

• Hollande Takes Aim at City of London in Euro Clearing Threat. (video) The City of London is facing the first direct threat to its role as Europe’s dominant financial center as French President Francois Hollande takes aim at a key pillar of the U.K. industry. European Union member states should prepare to take over euro-denominated clearing that will no longer be possible in the U.K., Hollande said. “The City, which could handle clearing operations in euros thanks to the U.K.’s presence in the EU, won’t be able to do them any more,” the French head of state said after the first day of an EU summit in Brussels. Hollande is the second French leader to target London’s leading role in clearing euro-denominated transactions since Britons decided last week to leave the EU. Francois Villeroy de Galhau, governor of the Bank of France and a member of the ECB’s Governing Council, said on Saturday that clearing cannot be located in London without following EU rules. Hollande wanted to illustrate the consequences of last week’s Brexit decision, and he will make clearing a key point in exit talks with the U.K., according to French officials who asked not to be identified. The EU will seek concessions from Britain in return for continued access to the single market, the officials said. EU officials have said repeatedly that freedom of movement for workers and adhering to market regulations are conditions for access to the single market. The negotiations may determine where clearing will fit in the U.K.’s future financial relationship with the EU, one of the officials said.
• EU Calls for ‘Orderly’ Brexit at Historic Meeting Minus U.K. (video) European Union leaders called for an orderly British withdrawal from the bloc to minimize instability as they pledged to learn lessons from the U.K.’s political earthquake and do better at serving their citizens. As EU government chiefs took the historic step of meeting without one of the bloc’s members for the first time, they lamented the British decision to part ways then began to lay plans for a new union minus its second-largest economy. That included setting the parameters of Britain’s future relationship with the EU, and insisting that negotiations to finalize secession won’t be started until the U.K. gives official notification of departure.
• Brexit Vote Stokes Euro Breakup Concern Among Investors: Chart.
• Pound Extends Rally From 1985 Low as Post-Brexit Markets Calm. (video) The pound extended its advance from a three-decade low as traders took advantage of the global market rout to go on a buying spree. Stocks, oil and higher-yielding euro-zone bonds all recovered some of the losses seen in the wake of Britain’s vote to leave the European Union. Sterling is still down 8 percent since the nation went to the polls June 23, though the U.K.’s FTSE 100 stocks index wiped out its post-Brexit slide.
• Bitter Scotland Weighs Its Own Divorce. (video) Despite voting to stay in the European Union in last week’s Brexit referendum, Scots now face being forced to leave after being outvoted by a predominantly English majority. That realization has brutally exposed the lopsided nature of the U.K., a union of four nations in which there are almost 10 English voters for every Scottish one. 
• Italian Bank-Rescue Push Falters as Merkel Sticks to the Rules. Prime Minister Matteo Renzi’s efforts to shore up Italy’s struggling banks ran into a roadblock, as German Chancellor Angela Merkel insisted on sticking to the rules put in place since the financial crisis to prevent taxpayer bailouts. “We can’t do everything all over again every other year,” Merkel told reporters after a European Union summit in Brussels on Wednesday. The bloc’s laws on the resolution and recapitalization of banks “offer enough leeway for the specific conditions in individual member states.”
• Nomura Joins Yen Capitulators, Raises Forecast 17% on Brexit. Long-time yen bear Nomura Holdings Inc. has finally bowed to the market forces that drove the currency to 99 per dollar for the first time since 2011. It’s far from alone. HSBC Holdings Plc, Citigroup Inc., and Mizuho Financial Group Inc. join Japan’s biggest brokerage in raising year-end yen forecasts by as much as 20 percent after the U.K.’s decision to leave the European Union spurred a rush for the currency as a haven. The median of  estimates compiled by Bloomberg has shifted 3.6 percent stronger this month, the most for year-end forecasts within any year since 2011, when the yen was on its way to a record high following the devastating earthquake and tsunami in March.
• India Central Bank Sees Sharp Rise in Bank Risk on Bad Loans. (video) Risks to India’s banking industry have “sharply increased” since September as surging bad loans drag lenders’ profitability to the lowest since at least 1999, according to the Reserve Bank of India. Banks’ return on assets fell to 0.4 percent at the end of March from 0.8 percent a year earlier, according to the central bank’s Financial Stability Report released Tuesday. The industry’s gross bad-loan ratio jumped to a 13-year high of 7.6 percent, following a six-month RBI audit of banks’ bad-debt disclosures. Under a “baseline stress scenario,” that ratio may rise to 8.5 percent by next March, the deadline set by RBI Governor Raghuram Rajan for banks to clean up soured credit, the report showed.
• Rosenberg: Vancouver Housing Market in ’Outright Bubble’. (video)
• Europe Stocks Recoup More Brexit Losses as Commodity Shares Rise. (video) European equities rose for a second day, recovering more of the declines triggered in the immediate aftermath of the U.K.’s decision to leave the European Union. The Stoxx Europe 600 Index climbed 3.1 percent at the close of trading, with miners and energy producers as the best performers.
• San Francisco Landlords Gird for Slowdown as Startup Frenzy Ebbs. Office landlords are bracing for a cooling of San Francisco’s red-hot market as weaker startup valuations and lower venture-capital funding temper years of runaway growth in the technology-industry hub. The city’s office-vacancy rate jumped in the second quarter by the most since the last recession, while the amount of space available for sublease almost doubled, according to a report to be released this week by brokerage Cushman & Wakefield Inc. New lease deals have tumbled so far this year. With demand seen cooling further, office owners who benefited from years of heated leasing by the likes of Uber Technologies Inc., Airbnb Inc. and Twitter Inc. are now rushing to seal deals and capture rents near record highs. They’re seeking to sign longer leases with creditworthy companies before prices slide, renewing agreements well ahead of their expiration and offering concessions, including free rent and cash for space improvements, according to J.D. Lumpkin, a managing director at Cushman & Wakefield in San Francisco. “We may not be in a free fall, but it’s a sign of things to come,” Lumpkin said. “Those who are smart know it’s time to get aggressive and lock in credit tenants that you want for the next five, seven, 10 years in new leases and do whatever it takes.”
• Millennials Are Pretty Cocky About Their Investing Skills.
• Apple(AAPL) to Face More Scrutiny as China Cracks Down on Apps. More than half a billion Chinese smartphone users face increased monitoring of their mobile app usage thanks to new laws targeting operators including Apple Inc. App stores and providers must establish the identity of users, while monitoring and reporting postings that contain banned content. The legitimacy of developers who post apps for download must also be verified, according to new rules posted on the Cyberspace Administration of China’s website. All app stores and providers are now required to keep a record of users’ activity for 60 days. And in an effort to boost privacy protection, they must now seek a user’s consent before collecting personal information, location data and contacts lists.

Wall Street Journal: 

• Death Toll From Istanbul Airport Attack Rises. Islamic State implicated in early investigation, Turkey’s prime minister says. The death toll from the brutal attack on this city’s main airport rose to 41, including 13 foreign citizens, and dozens more are injured, officials said Wednesday, as condolences and condemnation poured in from the country’s allies.
• Climate Denial Finally Pays Off. A series of Journal editorial page-bashing ads shows the climate cause in mid-crackup.
• Clinton’s Benghazi Cover Story. She wonders why she’s so distrusted. Here’s the reason.

MarketWatch.com:

• After GE ruling, here are the too-big-to-fail banks and financial firms.

Fox News:

• 'Defies reality': Kerry takes heat for claiming airport attack a sign of ISIS desperation. (video) Secretary of State John Kerry faced swift criticism Wednesday for suggesting the terror attack at Istanbul’s Ataturk Airport was evidence the Islamic State is getting “desperate” – an assessment one top Republican official said “defies reality.” Kerry made the remarks late Tuesday at the Aspen Ideas Festival in Colorado, referring to ISIS by the name Daesh.
• Americans not always told when named on ISIS ‘kill lists,’ lawmaker demands answers from FBI. (video)

CNBC:

• Wall Street charting legend Yamada sees dying bull. Similar to previous market tops in 2007 and during the dot-com bubble in 2000, a sideways trading market paired with fading momentum does not bode well for stocks, the founder of Louise Yamada Technical Research Advisors explains in an exclusive video for CNBC PRO. She started the independent research company in October 2005 after a 25-year career as the top chart analyst at Citigroup.

Zero Hedge:

• 'Elites' Called To Arms: "It's Time To Rise Up Against The Ignorant Masses".
• Hillary Superpac Has Taken $200,000 In Banned Donations.
• The Real 'Fear' Index Just Went To '11'. (graph)
• Another Attempt To Explain The Volumeless Rally, Now From JPM: "A Function Of Disbelief And Skepticism". (graph)
• BofA: To Save Markets Central Banks Just Made Inequality And Populism Even Worse.
• Brexit, A Step In The Right Direction: The Optimistic View.
• There Is Now A Staggering $11.7 Trillion In Negative Yielding Debt. (graph)
• Brexiteers 1 : 0 Scaremongers - UK Stocks Erase All Brexit Losses.
• Puerto Rico To Default On July 1 After Senate Passes Bailout Bill.
• The Prison Of Peoples - France's Le Pen Calls For European 'Spring'.
• What's Driving This Ramp? The Biggest Short Squeeze In 5 Years. (graph)
• Scotland Is About To Have Its Own Currency And Much More: How JPM Sees Brexit Playing Out.
• Oil Jumps Above $49 As Crude Production Tumbles, Inventories Drop. (graph)
• Pending Home Sales Crash Most In 6 Years - 'Supply' Blamed. (graph)
• Brexit: Here Are The Latest Known Unknowns.
• "Panic May Have Passed... But This Is Far From Over". (graph) 
• April Spending Exuberance Plunges Back To Earth In May As Income Growth Slows. (graph)

Business Insider:

• The hottest tech IPO around is rocketing up another 18%.

Reuters:

• ECB happy to stay put after Brexit vote as markets regain pose-sources. The European Central Bank is in no rush to ease its monetary policy in response Britain's vote to leave the European Union, taking comfort in a calmer-than-feared market reaction, several sources have told Reuters. The Brexit vote has hit the shares of euro zone banks and is likely to act as a drag on the euro zone economy, as ECB President Mario Draghi told EU leaders on Tuesday. It is also raising fundamental questions about the future of the EU. But conversations with around a dozen officials familiar with the ECB's thinking showed that the bank found some reassurance in the market rebound this week and was happy to take a wait-and-see stance, given the lack of hard evidence about the actual impact of Brexit.

Xinhua:

• Lou Says China Struggling to Meet Annual Fiscal Target. Outlook for achieving China's annual target for national fiscal revenue is not optimistic, citing China's Finance Minister Lou Jiwei delivering the state council report to National People's Congress Standing Committee. The Chinese economy is generally running steady in reasonable range this year, while facing great downward pressure, he said. Lou said China will set limits to control debt scale at local govt level.