Stocks Revering Slightly Lower into Final Hour on Oil Decline, Earnings Concerns, European Election Worries, Commodity/Utility Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Mixed
  

• Volume: Around Average

• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• Volatility(VIX) 14.60 +1.25%

• Euro/Yen Carry Return Index 121.75 +.22%

• Emerging Markets Currency Volatility(VXY) 9.08 -1.2%

• S&P 500 Implied Correlation 46.68 +1.88%

• ISE Sentiment Index 84.0 -4.55%
  

• Total Put/Call .67 +4.69%

• NYSE Arms 1.51 +3.01%

Credit Investor Angst:

• North American Investment Grade CDS Index 68.74 +.21%
  

• America Energy Sector High-Yield CDS Index 366.0 +1.07%

• European Financial Sector CDS Index 91.85 -2.65%

• Western Europe Sovereign Debt CDS Index 11.86 -13.53%

• Asia Pacific Sovereign Debt CDS Index 24.67 +1.98%

• Emerging Market CDS Index 211.56 -.53%
  

• iBoxx Offshore RMB China Corporate High Yield Index 136.91 +.05%

• 2-Year Swap Spread 32.25 +.25 basis point

• TED Spread 34.50 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -29.0 -1.0 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.34 +.06%
• 3-Month T-Bill Yield .80% unch.
  

• Yield Curve 103.0 +3.0 basis points
  

• China Import Iron Ore Spot $64.60/Metric Tonne +2.22%

• Citi US Economic Surprise Index 6.40 -.2 point

• Citi Eurozone Economic Surprise Index 38.30 -.2 point

• Citi Emerging Markets Economic Surprise Index 39.1 -.6 point

• 10-Year TIPS Spread 1.86 +1.0 basis point
  
• 47.0% chance of Fed rate hike at June 14 meeting, 51.1% chance at July 26 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +8 open in Japan 
• China A50 Futures: Indicating -59 open in China

• DAX Futures: Indicating -1 open in Germany

Portfolio: 

• Higher: On gains in my biotech/medical/retail/tech sector longs and emerging markets shorts

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:

• U.S. Says Iran’s Link to Terror Could Scuttle Nuclear Accord. U.S. Secretary of State Rex Tillerson certified that Iran is complying with the multinational deal to curb its nuclear program but announced a review that could result in scuttling the accord. Tillerson, in report to Congress required every 90 days, said Iran is compliant through April 18th with its commitments in the accord signed in 2015 that provided relief from economic sanctions that crimped Iran’s oil exports and hobbled its economy. Still, President Donald Trump ordered his National Security Council to review whether to reimpose the sanctions because of Iran’s continued support for terrorism.

• China Rolls Out Fresh Tax Cuts in Bid to Support Economic Growth. China will further ease the tax burden on businesses and individuals, as part of a broader push to boost consumption and support economic growth. The structure of value-added tax will be simplified, from four brackets to three, and the rate for products including natural gas and agricultural items will be cut to 11 percent from 13 percent starting July 1, officials at a State Council meeting led by Premier Li Keqiang decided Wednesday, according to a statement.

• European Car Sales Surge 11% as Fiat, Renault Lure Buyers. European car sales in March rose to their highest level for the month as Fiat Chrysler Automobiles NV and Renault SA took advantage of a solid economy to lure more buyers. Benefiting from extra working days due to the Easter holiday in April this year, industrywide registrations climbed 11 percent to 1.94 million vehicles last month, the Brussels-based European Automobile Manufacturers’ Association, or ACEA, said Wednesday. Fiat and Renault gained market share at the expense of regional leader Volkswagen AG and No. 2 PSA Group.

• China's Small Caps Fall to Three-Month Low on Regulation Concern. The slump in Chinese stocks deepened Wednesday, with the ChiNext gauge of small-cap shares posting its lowest close since mid-January and the Shanghai Composite Index sliding for a fourth day. The ChiNext closed down 0.2 percent in Shenzhen, paring a loss of as much as 1.9 percent, while the Shanghai Composite fell 0.8 percent. The Hang Seng China Enterprises Index slid below the key 10,000 level for the first time in two months. PetroChina Co. closed at its lowest in four months in Hong Kong, and China Minsheng Banking Corp. declined after saying one of its branch heads is being investigated by police.

• European Equities Rebound as Lenders, Automakers Lead Advance. European stocks rose after their biggest drop in five months, led by banks and carmakers, as investors assessed the region’s growing slew of political events that now includes a snap general election in the U.K. The Stoxx Europe 600 Index climbed 0.2 percent at the close in London. Carmakers rose after European car sales in March surged to their highest level on record, while shares of banks tracked bond yields higher, jumping the most since the beginning of March. The U.K.’s FTSE 100 Index dropped for a second day, erasing its gain for the year.

• OPEC Chief Sees Oil Producers Closer to Re-Balancing Market. (video) Oil-producing nations are moving closer toward ending a global glut and re-balancing the crude market, and OPEC will decide next month whether to extend its cuts in output beyond June, the group’s Secretary-General Mohammad Barkindo said.

• Fox News Says Bill O'Reilly Won't Be Returning.

Wall Street Journal:

• Democrats Falter in Bid for Outright Win in Georgia House Race. Democratic candidate will face Republican in runoff.

• Mainstream European Leaders Try New Election Tactic: Full-Throated Defense of the EU. To counter rising nationalist parties, French and German candidates mount vigorous defense of the EU and its single currency, a switch that will be tested in French presidential elections this weekend.

• Utah Rep. Jason Chaffetz Won’t Seek Re-Election in 2018. As House Oversight chairman, lawmaker tasked with investigating Trump administration.

• ECB Officials Warn Against Dialing Back Stimulus Too Soon. France’s Villeroy de Galhau says the ECB’s policies shouldn’t be adjusted until inflation has picked up 

Fox News:

• AP translates Fresno shooter's 'Allahu Akbar' to 'God is great'. (video)

CNBC:

• Hedge funds see biggest inflows in 20 months in March. (video)

• Fed's Beige Book: Economic activity increased across all 12 districts at modest pace. (video)

• Santoli: Stocks have been in a 'quiet correction' for months.

Zero Hedge:

• 44% Of Americans Won't Pay Any Federal Income Tax.

• Russian Nuclear-Capable Bombers Fly Within 36 Miles Of Alaska For Second Day In A Row.

• Fed's Rosengren: "Quite Likely" The Fed's Balance Sheet Will Be Used In The Next Recession.

• Exxon(XOM) Seeks Russian Sanctions Waiver To Work With Rosneft.

• Investors Rage After 3 Billion Yuan Vanish From China's Largest Private Bank.

• New York Towns, Cities Follow AG's Order To Ignore Sessions, Adopt Illegal Alien Sanctuary Laws.

• WTI/RBOB Tumble After Surprise Gasoline Build, Crude Production Hits 20-Month Highs. (graph)

• Goldman(GS): "Investors Are Increasingly Concerned About An S&P Drawdown". (graph)

• As French Election Looms, Risk Premia Spike Near Record Highs Across Every Market.

• Another Flip? Trump Tells Congress Iran Compliant With "Disastrous" Nuclear Deal.

The Telegraph:

• Austerity is over: after five years of belt tightening, the IMF says the rich world has stopped cutting.

Bear Radar

Style Underperformer:

• Large-Cap Value unch.

Sector Underperformers:

• 1) Gold & Silver -3.9% 2) Computer Services -2.0% 3) Oil Service -1.4%

Stocks Falling on Unusual Volume: 

• LTXB, LBY, IBM, FNSR, MUSA and BAS

Stocks With Unusual Put Option Activity:

• 1) MAT 2) SEE 3) IBM 4) VLO 5) QCOM

Stocks With Most Negative News Mentions:

• 1) TNET 2) CGI 3) X 4) GWW 5) IBKR

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth +.8%

Sector Outperformers:

• 1) Eduction +1.5% 2) Airlines +1.3% 3) Retail +.9%

Stocks Rising on Unusual Volume:

• CAMP, RARE, APFH, ING, MZOR, KPTI, LRCX, LAD, IAC, SPA, ISRG, DY, AN, HAYN, GPC, SBNY, FAST, RACE, XENT, MSM, ESNT, COL, ROG, NLNK and MDXG

Stocks With Unusual Call Option Activity:

• 1) JWN 2) RL 3) CREE 4) URI 5) HOG

Stocks With Most Positive News Mentions:

• 1) ISRG 2) WRK 3) IMGN 4) LRCX 5) MSM

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -7.9% Below 100-Day Average
• 8 Sectors Rising, 2 Sectors Declining
• 64.3% of Issues Advancing, 31.2% Declining
• 66 New 52-Week Highs, 10 New Lows
• 54.0% of Issues Above 200-day Moving Average
• Average 14-Day RSI 37.8%
• Vix 13.8 -5.1%
• Total Put/Call .57 -10.9%
• TRIN/Arms 1.19 -18.9%

Wednesday Watch

Evening Headlines

Bloomberg:

• China's $8.5 Trillion Shadow Bank Industry Is Back in Full Swing. China’s shadow banking is back in full swing, an unintended side effect of the government’s campaign against financial leverage, which has curbed traditional lending and squeezed bond financing. Data from the central bank Friday showed that off-balance sheet lending surged 754 billion yuan ($109 billion) in March, taking the first quarter’s total increase to a record 2.05 trillion yuan. Efforts by the People’s Bank of China to curb fresh lending may have prompted borrowers, especially real estate developers, to resort to alternative forms of financing, said Xu Gao, chief economist at Everbright Securities Co.

• Beware the Rally in Emerging-Market Currencies. Beware the rally in emerging-market currencies: the best quarterly performance in almost seven years is about to reverse. That’s the message from the most-accurate forecaster of developing-nation Asian currencies last quarter: Wells Fargo & Co. “We don’t see continued appreciation through the rest of the year,” said Nicholas Bennenbroek, head of currency strategy at the U.S. bank in New York. “Federal Reserve interest-rate increases should continue at a steady pace, which should weigh on most foreign currencies, including Asian currencies.”

• Japan 10-Year Yield Falls to Zero for First Time in Five Months. Japan’s benchmark 10-year bond yield fell to zero percent for the first time since November as U.S. Treasury yields plunged on weak economic data, while lingering tensions over North Korea and uncertainty over France’s presidential election keep haven demand intact. The 10-year Treasury yield fell eight basis points Tuesday to a five-month low of 2.17 percent. The Guardian reported the U.S. military is considering shooting down North Korean missile tests, citing two unidentified people briefed on the planning. The U.S. is closely monitoring the situation in North Korea, a White House spokesman said.

• Canada Puts Housing Speculators on Notice as Toronto Prices Soar.

• Asian Stocks Drop After Weak U.S. Trading Session. Japan’s Topix index fell 0.1 percent.
  Australia’s S&P/ASX 200 Index lost 0.5 percent and South Korea’s Kospi index declined 0.3 percent. Hang Seng futures slid 0.1 percent.

Wall Street Journal:

• Banks Rack Up Advisory Fees as Fiduciary Rule’s Future Hangs. Trump administration may scrap the Obama-era rule, but Wall Street already sees benefits of recurring fees over commissions.

• U.S. Carl Vinson Carrier Wasn’t on Way to North Korea. Despite representations by Trump and defense advisers, Vinson was thousands of miles away on exercises off northwest coast of Australia.

Fox News:

• Double threat? ISIS and Al Qaeda are in talks to join forces, Iraq's VP says. (video)

CNBC:

• Verizon(VZ) CEO said he may be interested in merger with Disney(DIS), Comcast(CMCSA) or CBS(CBS).

• PetSmart(PETM) is acquiring Chewy.com for $3.35 billion in largest e-commerce acquisition.

• The French election is a big deal — and it has more than one scary outcome for markets. (video)

• Trump: 'We're going to surprise you' with speed of tax reform.

Zero Hedge:

• Meet Brad Birkenfeld: "Lucifer's Banker".

• IBM(IBM) Tumbles After Posting Lowest Revenue In 15 Years, 20th Consecutive Quarter Of Declining Sales.

• Three People Killed In Fresno Shooting Spree; Shooter Screamed "Allahu Akbar", Hated "White People".

• Obama, Comey Relied On Discredited Dossier To Obtain FISA Warrant On Trump Campaign.

• Wall Street Is Pouring Money Back Into Shale.

• Stockman: We're Borrowing Our Way To Economic Disaster.

• WTI/RBOB Tumble After Unexpected Build In Gasoline Inventories. (graph)

• 'May'hem Strikes - Dollar & Bond Yields "Pounded" To Post-Election Lows. (graph)

Business Insider:

• Hillary Clinton reportedly blamed everyone but herself for her humiliating defeat to Trump. 

• MARK CUBAN: Gary Cohn is leading a 'Democratic invasion' of Trump's White House. Billionaire business mogul Mark Cuban said Tuesday that Gary Cohn, head of President Donald Trump's National Economic Council, is leading a "Democratic invasion of the White House." Cuban, the owner of the NBA's Dallas Mavericks and star of ABC's "Shark Tank," told the Fox Business Network that was why Trump is becoming more centrist, according to Fox Business reporter Charlie Gasparino. "50% of non-military leadership are Democrats," Cuban said, pointing to Cohn, Treasury Secretary Steve Mnuchin, senior adviser Jared Kushner, and assistant to the president Ivanka Trump.

Night Trading 

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

• Asia Ex-Japan Investment Grade CDS Index 103.0 +1.75 basis points. 

• Asia Pacific Sovereign CDS Index 24.25 +.5 basis point.

• Bloomberg Emerging Markets Currency Index 72.35 +.01%.

• S&P 500 futures +.12%. 

• NASDAQ 100 futures +.13%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (ABT)/.43

• (ASML)/.92

• (BLK)/4.90

• (MS)/.90

• (AMTD)/.41

• (TXT)/.45

• (USB)/.80

• (AXP)/1.27

• (BMI)/.27

• (CP)/2.49

• (CSX)/.43

• (EBAY)/.48

• (KMI)/.18

• (QCOM)/1.20

• (SCSS)/.46

• (STLD)/.79

• (URI)/1.55

• (VMI)/1.63

Economic Releases
10:30 am EST 

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,033,330 barrels versus a -2,166,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -1,633,330 barrels versus a -2,973,000 barrel decline the prior week. Distillate inventories are estimated to fall by -788,890 barrels versus a -2,153,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.11% versus a +.2% gain the prior week.
  

2:00 pm EST

• US Fed releases Beige Book report. 
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Rosengren speaking, Eurozone CPI/Trade Balance reports and the weekly MBA Mortgage Applications report could also impact trading today.

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