Stocks Lower into Final Hour on More Hawkish Central Bank Commentary, Diminishing Healthcare/Tax Reform Hopes, Cyber-Terrorism Fears, Biotech/Tech Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Mixed
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 10.85 +9.6%

• Euro/Yen Carry Return Index 132.81 +1.73%

• Emerging Markets Currency Volatility(VXY) 7.41 +.41%

• S&P 500 Implied Correlation 33.90 +2.4%

• ISE Sentiment Index 86.0 -11.3%
  

• Total Put/Call .74 -6.33%

• NYSE Arms .79 -1.56%

Credit Investor Angst:

• North American Investment Grade CDS Index 61.32 +2.46%
  

• America Energy Sector High-Yield CDS Index 473.0 -1.81%

• European Financial Sector CDS Index 52.65 +2.76%

• Western Europe Sovereign Debt CDS Index 6.02 -15.2%

• Asia Pacific Sovereign Debt CDS Index 19.09 -.86%

• Emerging Market CDS Index 199.61 +1.71%
  

• iBoxx Offshore RMB China Corporate High Yield Index 139.57 +.06%

• 2-Year Swap Spread 20.0 -1.5 basis points

• TED Spread 29.75 -4.5 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -01.5 +.75 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.89 -.05%
• 3-Month T-Bill Yield 1.0% +4.0 basis points
  

• Yield Curve 83.0 +3.0 basis points

• China Import Iron Ore Spot $59.70/Metric Tonne +5.2%

• Citi US Economic Surprise Index -77.50 +1.0 point

• Citi Eurozone Economic Surprise Index 9.20 +2.6 points

• Citi Emerging Markets Economic Surprise Index 10.40 +.4 point

• 10-Year TIPS Spread 1.72 unch.
  
• 26.1% chance of Fed rate hike at Sept. 20 meeting, 27.6% chance at Nov. 1 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -25 open in Japan 
• China A50 Futures: Indicating -29 open in China

• DAX Futures: Indicating -57 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:

• New Cyberattack Goes Global, Hits WPP, Rosneft, Maers. (video) A new cyberattack similar to WannaCry is spreading from Europe to the U.S., hitting port operators in New York and Rotterdam, disrupting government systems in Kiev, and disabling operations at companies including Rosneft PJSC, advertiser WPP Plc. and the Chernobyl nuclear facility. More than 80 companies in Russia and Ukraine were initially affected by the Petya virus that disabled computers Tuesday and told users to pay $300 in cryptocurrency to unlock them, Moscow-based cybersecurity company Group-IB said. About 2,000 usershave been attacked so far, according to Kaspersky Lab analysts, with organizations in Russia and the Ukraine the most affected.

• Google(GOOGL) Gets Record $2.7 Billion EU Fine for Skewing Searches. 

• European Stocks Decline as Draghi Sees Room to Tweak Stimulus. (video) European stocks tumbled as investors assessed Mario Draghi’s comments indicating he sees room for paring monetary stimulus without tightening policy. The Stoxx Europe 600 Index retreated 0.8 percent at the close. Banks bucked the trend, following bond yields higher after comments by the European Central Bank President, while miners saw their best jump in a week. Shares of automakers were among the biggest losers, led by Schaeffler AG, which tumbled after cutting its 2017 profitability forecast.

• Your Evening Briefing. (video)

• Pharma's Big Bounceback.

Fox News:

• McConnell delays vote on Senate's ObamaCare overhaul bill. (video)

CNBC:

• Yellen: Banks 'very much stronger'; another financial crisis not likely 'in our lifetime'.

• Nvidia(NVDA) to launch graphics cards specifically designed for digital currency mining.

• Here's why businesses in the South are more optimistic.

• The car will be the '4th screen' so Tesla(TSLA) should become a media company, Morgan Stanley says.

• Steel stocks rise on speculation Trump administration's industry report will lead to China tariff.

• 2 billion people now use Facebook(FB) each month, CEO Mark Zuckerberg says.

Zero Hedge:

• "CNN Caught Cold" In Undercover Sting - Producer Admits Russia Fake News Story Pushed For Ratings.

• GOP Folds: Senate To Delay Healthcare Vote Until After July 4.

• "Petya" Ransomware Cyber Attack Goes Global.

• Stocks Slammed After Fed Williams Warns "Market Rally Running On Fumes".

• EUR Spikes To 9 Month Highs After Harker Says US "May Be Entering Low Inflation World. (graph)

• Warren Buffett Says America Is "So Rich" It Can Afford Single Payer.

• Trump "Increasingly Frustrated With China" Over North Korea, Trade: Reuters.

• Conference Board Consumer 'Hope' Stumbles To 5-Month Lows. (graph)

• IMF Slashes US GDP Forecast, Says Trump's Growth Target Is "Unrealistic".

• Case-Shiller Home Price Growth Slows As San Francisco Bubble Continues To Deflate. (graph)

• Euro, Bund Yields Extend Spike After Hawkish Draghi Shocks Markets. (graph)

• Bank Of England Orders Banks To Boost Capital To "Protect From Rising Risks".

The Telegraph:

• ‘Merkron’ axis is likely to leave the European economy in worse shape.

Bear Radar

Style Underperformer:

• Large-Cap Growth -.5%

Sector Underperformers:

• 1) Semis -1.3% 2) Utilities -1.1% 3) Biotech -.9%

Stocks Falling on Unusual Volume: 

• ARR, ARNC, CAR, IRBT, OMER, PI, ALDR, RARX and STX

Stocks With Unusual Put Option Activity:

• 1) DRI 2) URBN 3) EPI 4) VIAB 5) RAD

Stocks With Most Negative News Mentions:

• 1) PI 2) CAMT 3) STX 4) SYX 5) CTAS

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value +.5%

Sector Outperformers:

• 1) Hospitals +1.9% 2) Banks +1.5% 3) Steel +1.4%

Stocks Rising on Unusual Volume:

• CBI, NSA, OSUR, POWI, CARA, DRI, AVAV, ELF, CCI, LOB, ESPR, ARNA, MT, WBMD, VVI, ZYNE, LPL, JUNO, KBWB, BHP, BURL, YRD, SEMG, BBBY, ARNA, RH, OII, NXTM and STRL

Stocks With Unusual Call Option Activity:

• 1) EGN 2) AA 3) BSX 4) HCA 5) KBH

Stocks With Most Positive News Mentions:

• 1) OSUR 2) JCP 3) DRI 4) BBOX 5) SENR

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -1.8% Below 100-Day Average
• 6 Sectors Rising, 4 Sector Declining
• 53.4% of Issues Advancing, 42.7% Declining
• 52 New 52-Week Highs, 6 New Lows
• 46.4% of Issues Above 200-day Moving Average
• Average 14-Day RSI 37.2%
• Vix 9.9 -.3%
• Total Put/Call .83 +5.1%
• TRIN/Arms .74 -7.8%

Tuesday Watch

Night Trading 

• Asian equity indices are -.25% to +.5% on average.
• Asia Ex-Japan Investment Grade CDS Index 85.0 -3.5 basis points. 
• Asia Pacific Sovereign CDS Index 19.0 -.25 basis point.
• Bloomberg Emerging Markets Currency Index 72.91 -.02%.
• S&P 500 futures +.01%.
• NASDAQ 100 futures +.03%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (DRI)/1.15
• (FDS)/1.84
• (AVAV)/.99
• (CAMP)/.27
• (KBH)/.26

Economic Releases 

9:00 am EST

• The S&P CoreLogic CS 20-City MoM for April is estimated to rise +.45% versus a +.87% gain in March.

10:00 am EST

• The Conference Board Consumer Confidence Index is estimated to fall to 116.0 versus 117.9 in May.
• The Richmond Fed Manufacturing Index for June is estimated to rise to 6.0 versus 1.0 in May.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Yellen speaking, Fed's Kashkari speaking, Fed's Williams speaking, Fed's Harker speaking, German retail sales report, weekly US retail sales reports, $34B 5Y T-Note auction, Macquarie Metals/Mining/Materials Conference, (MA) annual meeting and the (LPX) analyst day could also impact trading today.

BOTTOM LINE:  Asian indices are mostly higher, weighed down by technology and industrial 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.