Morning Market Internals

NYSE Composite Index:

• Volume Running -8.0% Below 100-Day Average
• 7 Sectors Rising, 3 Sectors Declining
• 55.7% of Issues Advancing, 39.3% Declining
• 87 New 52-Week Highs, 21 New Lows
• 46.4% of Issues Above 200-day Moving Average
• Average 14-Day RSI 36.2%
• Vix 10.6 -1.2%
• Total Put/Call .76 -15.6%
• TRIN/Arms 1.24 +20.8%

Wednesday Watch

Evening Headlines

Bloomberg:

• U.K.'s May Warns Further Terrorist Attacks Could Be Imminent. The British military will guard music and sports events in an unprecedented security operation as police hunt for potential accomplices of the suicide bomber who killed 22 people at a Manchester pop concert. After meeting with her top security officials, Prime Minister Theresa May announced intelligence analysts had raised the U.K. terrorism threat level from “severe” to “critical” -- the highest level -- for the first time in a decade. “This means that their assessment is not only that an attack remains highly likely but that a further attack may be imminent,” the premier said in a statement to media inside her official residence in London. Police asked for back up from the army, she said.

• China Downgraded to A1 by Moody's on Worsening Debt Outlook. Moody’s Investors Service cut its rating on China’s debt, saying that the outlook for the country’s financial strength will worsen as debt rises and economic growth slows. Moody’s reduced the rating to A1 from Aa3 and changed the outlook to stable from negative, the company said in a statement on Wednesday. The offshore yuan extended losses after Moody’s downgrade, weakening 0.12 percent to 6.8889 per dollar as of 8:24 a.m. in Shanghai. President Xi Jinping and other top leaders are seeking to rein in credit risks in the financial system, while ensuring there’s enough lending to keep the economy humming above their target for economic growth of at least 6.5 percent this year. Total outstanding credit climbed to about 260 percent of GDP by the end of 2016, up from 160 percent in 2008, according to Bloomberg Intelligence.

• China's Roaring Old Economy Spurs Sales Boom For Diggers, Steel. China’s economy may be slowing but construction is still booming. Sales of diggers at a five year high. The price of rebar, a steel product used to reinforce concrete, back at 2012 levels. Crude steel output surging to a record. China’s economy may be slowing down but the nation’s old economy is still booming.

• Asia Stocks Gain, Yen Erases Loss on China Rating. Asian stocks climbed as data lent support to the argument that global economic growth remains intact, while the yen erased losses after Moody’s cut its rating on China. Equities in Tokyo and Seoul climbed after the S&P 500 Index’s fourth straight gain took it back toward 2,400. The yen erased losses and the Aussie fell as Moody’s cut the rating it gives to China’s debt, saying that the outlook for the country’s financial strength will worsen. British assets remain in focus after Tuesday’s suicide bombing, as Prime Minister Theresa May warned that further attacks could be imminent. 

• HSBC Discovers Consumers Trust Robots for Surgery Over Savings. Andy Maguire faces a challenge: tasked with upgrading HSBC Holdings Plc’s digital-banking systems, he has discovered that customers are twice as likely to trust a robot for heart surgery than for picking a savings account.

• Three Charts Showing Bullish Sentiment May Be Fading. (video)

Wall Street Journal:

• Bipartisan Pushback Greets Trump’s Proposed Budget. White House’s $4.1 trillion spending blueprint relies on economic growth of 3% by 2021.

• S&P Adds to Brazil’s Woes, Warning of a Possible Credit Downgrade. The credit rating firm says political chaos created by fresh corruption allegations could delay fiscal and economic reforms.

Fox News: 

• Manchester attack: UK terror threat level raised to 'critical,' another attack may be imminent. (video)

CNBC:

• Nobel winner Robert Shiller: Stay in the market because it ‘could go up 50 percent from here’.

• The Fed is about to reveal how it could wind down its biggest policy experiment ever. (video)

• Silicon Valley VCs are tripping over themselves to hire biotech experts.

• Fed's Harker: Rate hike in June 'a distinct possibility'.

Zero Hedge: 

• UK Deploys Army As Terror Threat Raised To Critical, May Warns "More Attacks Imminent".

• Yuan Tumbles As Moody's Downgrades China To A1, Warns On Worsening Debt Outlook. (graph)

• Congressional Aides Fear Suspects In IT Breach Are Blackmailing Members With Their Own Data.

• Illinois Democrats In Senate Pass 33% Hike Of Personal And Corporate Income Taxes.

• BBC Anchor Admits "Europe Has To Get Used To Bombings". (video)

• "This Is Probably Just The Beginning" - Chinese Banks Are In Big Trouble.

•  WTI/RBOB Pop-n-Drop After Mixed Inventory Data. (graph)

•  Stocks Near Record Highs As US Economic Data Crashes To 15-Month Lows. (graph)

Business Insider:

• What a 'nail bomb' is and why they are terrifying improvised weapons.

Telegraph:

• Greek creditors seek to thrash out new deal as economists warn fourth bail-out looms.

Night Trading 

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

• Asia Ex-Japan Investment Grade CDS Index 90.5 +.75 basis point. 

• Asia Pacific Sovereign CDS Index 20.0 unch.

• Bloomberg Emerging Markets Currency Index 72.79 -.08%.

• S&P 500 futures -.07%.

• NASDAQ 100 futures -.06%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AAP)/2.14

• (CHS)/.29

• (DY)/1.19

• (EV)/.59

• (LOW)/1.06

• (TIF)/.70

• (CPRT)/.36

• (GES)/-.32

• (HPQ)/.39

• (NTAP)/.82

• (PVH)/1.60

• (SCVL)/.48

• (WSM)/.49

Economic Releases 
9:00 am 

• The FHFA House Price Index MoM for March is estimated to rise +.5% versus a +.8% gain in February.

10:00 am EST

• Existing Home Sales for April are estimated to fall to 5.65M versus 5.71M in March.
  

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,250,000 barrels versus a -1,753,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -594,710 barrels versus a -413,000 barrel decline the prior week. Distillate inventories are estimated to fall by -369,290 barrels versus a -1,944,000 barrel decline the prior week.
  

2:00 pm EST

• FOMC Meeting Minutes.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Kashkari speaking, Eurozone Manufacturing PMI report, $35B 5Y T-Note auction, weekly MBA Mortgage Applications report and the (DV) investor day could also impact trading today.

BOTTOM LINE:  Asian indices are mostly higher, boosted by technology and financial 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 Slightly Higher into Final Hour on Less European/Emerging Markets/US High-Yield Debt Angst, Oil Gain, Yen Weakness, Financial/Transport Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Slightly Higher
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 10.74 -1.74%

• Euro/Yen Carry Return Index 130.44 -.06%

• Emerging Markets Currency Volatility(VXY) 8.28 -1.08%

• S&P 500 Implied Correlation 39.65 -1.34%

• ISE Sentiment Index 119.0 +36.78%
  

• Total Put/Call .89 +4.71%

• NYSE Arms 1.03 -23.90%

Credit Investor Angst:

• North American Investment Grade CDS Index 62.22 -1.2%
  

• America Energy Sector High-Yield CDS Index 355.0 -1.4%

• European Financial Sector CDS Index 67.05 -2.07%

• Western Europe Sovereign Debt CDS Index 8.47 -7.48%

• Asia Pacific Sovereign Debt CDS Index 19.90 -.77%

• Emerging Market CDS Index 193.63 -1.79%
  

• iBoxx Offshore RMB China Corporate High Yield Index 138.47 +.04%

• 2-Year Swap Spread 23.75-.5 basis point

• TED Spread 28.25 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -33.25 -2.25 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.85 -.12%
• 3-Month T-Bill Yield .90% unch.
  

• Yield Curve 98.0 +1.0 basis point
  

• China Import Iron Ore Spot $62.0/Metric Tonne -1.88%

• Citi US Economic Surprise Index -38.90 -8.2 points

• Citi Eurozone Economic Surprise Index 60.40 +10.3 points

• Citi Emerging Markets Economic Surprise Index 23.0 -1.6 points

• 10-Year TIPS Spread 1.86 +2.0 basis points
  
• 93.4% chance of Fed rate hike at July 26 meeting, 95.7% chance at Sept. 20 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +157 open in Japan 
• China A50 Futures: Indicating -12 open in China

• DAX Futures: Indicating +5 open in Germany

Portfolio: 

• Slightly Lower: On losses in my biotech/retail sector longs 

• Disclosed Trades: None

• Market Exposure: 75% Net Long

Today's Headlines

Bloomberg:

• Terror Returns to England’s Home of Music and Marxism. Manchester bounced back from a devastating 1996 IRA bombing. The young pop fans caught up in the suicide bomb in central Manchester weren’t even born the last time the city was hit by a terror attack. In 1996, the Irish Republican Army targeted the economy more than innocent victims, detonating a truck bomb causing 500 million pounds ($650 million) of damage to businesses. It killed nobody because the perpetrators issued a warning. With the deaths of 22 concertgoers, including children, the northern English city has now been horrifically exposed to terrorism of a wholly more arbitrary kind.
• China Joins EU, Canada in Backing Climate Deal Before Trump Plan. China, Canada and the European Union are joining forces to advance the Paris Agreement while President Donald Trump is still deciding whether the U.S. should stick with the landmark deal on climate change. Canada’s environment minister Catherine McKenna, EU Climate and Energy Commissioner Miguel Arias Canete and China’s special envoy for climate change Xie Zhenhua are meeting Tuesday in Berlin to discuss climate leadership and how to maintain momentum if the U.S. pulls out of the Paris Agreement.
• Recent Major Terror Attacks in Europe. (video)
• Glencore Said to Make Takeover Approach to Grain Trader Bunge. Glencore Plc, the miner and commodities trader led by billionaire Ivan Glasenberg, has made a takeover approach for U.S. grain trader Bunge Ltd., according to a person with knowledge of the situation, asking not to be named discussing a private matter. Bunge, based in White Plains, New York, has a market value of about $11.3 billion. The shares jumped as much as 17 percent today after the Wall Street Journal reported Glencore’s approach.
• Jaguar Land Rover's Profit Margin Improves on China, U.S. Demand. Jaguar Land Rover’s fourth-quarter profit margin improved from the preceding three months on strong demand for its sport utility vehicles in major markets including China and the U.S.
• U.S. Sues Fiat Chrysler for Diesel Emissions Violations.
• Your Evening Briefing.
• Investors Just Pulled the Most Cash From Small Caps in a Decade. The small-cap trade got a lot less crowded. Investors pulled $3.5 billion from the biggest exchange-traded fund that tracks the Russell 2000 Index last week, spooked by the steepest selloff in the domestically focused stocks since before Donald Trump’s surprise election win.
• Investors Aren't As In Love With Stocks As You Might Think. (video) Its bout of anxiety over, the stock market has jumped back to where it was 10 days ago, with headline volatility at bay. But away from benchmark indexes, signs abound that investors are not as head-over-heels for stocks as is generally portrayed. Here’s a few indicators signaling restraint:

Wall Street Journal:

• Islamic State Claims Manchester Arena Bombing; At Least 22 Dead.
• Trump Unveils Fiscal 2018 Budget: Live Updates and Analysis.
• Introducing The Future of Everything Podcast. Jennifer Strong explores where we’re going and how we’ll get there in a new audio series.

Fox News:

• Manchester terror attack suspect identified as Salman Abedi. (video)

CNBC:

• The Trump budget is just telling the truth—and you can’t handle the truth! (video)
• Bitcoin plummets $200 in 4 hours then recovers to fresh record in wild trading that serves as a cautionary tale.
• Goldman(GS) makes Wingstop(WING) one of its favorite stocks because digital ordering will drive sales.
• Alphabet’s(GOOG) self-driving Waymo unit could be worth $70 billion, more than GM, Morgan Stanley says.

Zero Hedge:

• Suicide Bomber Kills 22 At Ariana Grande Concert In Manchester, Worst UK Terrorist Attack Since 2005.
• Watch Live: White House Releases Details Of Trump's 2018 Budget Proposal. (video)
• Trader "Appalled" At Market Reaction To Manchester Bombing "There's More To Life Than Next Few Basis Points".
• Cost Of Universal Healthcare In California: A Mere 2x The State's Entire Annual Budget.
• Cable Spikes As Germany Warns Brits "Will Learn Brexit Was A Mistake".
• CBS Reports Suspected Manchester Attacker Is 23-Year-Old Salman Abedi. (video)
• New Home Sales Collapse In April. (graph)
• Islamic State Claims Responsibility For Manchester Bombing.
• OPEC Is Studying The Following Three Options Ahead Of Thursday's Meeting.
• "Somewhat Underwhelming" US Manufacturing Slumps To 8-Month Lows As Services Rebound Amid Soaring Costs.
• Soft Data Collapse Continues - Richmond Fed Crashes. (graph)
• Mnuchin Comments On Trump's "Historic" Budget Proposal: "It Will Prevent Taxpayer Bailouts".

Bear Radar

Style Underperformer:

• Mid-Cap Growth -.1%

Sector Underperformers:

• 1) Gold & Silver -2.1% 2) Social Media -1.3% 3) Retail -1.2%

Stocks Falling on Unusual Volume: 

• ALXN, AZO, MOMO, NDSN, DSW, XLNX, CMCM, WB, HLF, SINA and ATH

Stocks With Unusual Put Option Activity:

• 1) ALXN 2) AXL 3) MYL 4) UNG 5) DLTR

Stocks With Most Negative News Mentions:

• 1) HP 2) MDXG 3) FRSH 4) TARO 5) SOHU

Charts:

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