Stocks Slightly Lower into Final Hour on China Tensions, Global Recession Fears, European Debt Angst, Energy/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) 29.8 +4.1%

• Euro/Yen Carry Return Index 124.11 +.39%

• Emerging Markets Currency Volatility(VXY) 10.86 +.18%

• S&P 500 Implied Correlation 66.1 +8.1%

• ISE Sentiment Index 99.0 -22.0 points

• Total Put/Call .96 +12.9%

• NYSE Arms 1.55 -28.9%

Credit Investor Angst:

• North American Investment Grade CDS Index 80.22 +2.7%
  

• US Energy High-Yield OAS 1,022.32 +.48%

• European Financial Sector CDS Index 85.28 +6.83%

• Italian/German 10Y Yld Spread 192.25 +7.75 basis points
  

• Asia Ex-Japan Investment Grade CDS Index 102.08 +1.53%
  

• Emerging Market CDS Index 290.25 -.31%
  

• iBoxx Offshore RMB China Corporate High Yield Index 165.90 -.32%

• 2-Year Swap Spread 9.25 +.25 basis point

• TED Spread 21.75 -2.0 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -10.75 +.75 basis point
• MBS  5/10 Treasury Spread  116.0 unch.
• IHS Markit CMBX BBB- 6 66.25 +1.0 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 60.07 +.14%
• 3-Month T-Bill Yield .13% -1.0 basis point

• Yield Curve 50.5 -.25 basis point

• China Iron Ore Spot 96.47 USD/Metric Tonne +.50%

• Citi US Economic Surprise Index -55.10 +.6 point

• Citi Eurozone Economic Surprise Index -275.60 +3.4 points

• Citi Emerging Markets Economic Surprise Index 19.6 +6.4 points

• 10-Year TIPS Spread 1.17 -1.0 basis point
• 99.3% chance of no change at July 29th meeting, 99.3% chance of no change at Sept. 16th meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -52 open in Japan 
• China A50 Futures: Indicating -121 open in China

• DAX Futures: Indicating +9 open in Germany

Portfolio:

• Slightly Lower: On losses in my industrial sector longs and emerging market shorts

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

• Market Exposure: Moved to 25% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Value -2.0%

Sector Underperformers:

• 1) Oil Service -3.6% 2) Airlines -3.0% 3) Banks -2.3%

Stocks Falling on Unusual Volume: 

• CALX, AYI, COR, SLG, CYTK, TWTR, KTB, KAR, SRI, PLMR, IOVA, UAL, EV, GNL, CHCT, SPR, KIM, LEG, SAVE, AERI, NFG, XRX, LNTH, GNRC, NXTC, NCLH, CRM, DVN, FGEN, FOCS, CUK, KSS, PPBI, AFG, RRR, APPN, COLL, TGTX, TRHC, BKE, HSTM, PVH, MAN, GTHX, HOG, CGNX, ADVM, DXC, JWN, TCMD, BBIO, MGNX and ARVN

Stocks With Unusual Put Option Activity:

• 1) SABR 2) XBI 3) JWN 4) VFC 5) IYR

Stocks With Most Negative News Mentions:

• 1) DXC 2) HPQ 3) ANF 4) GS  5) SABR

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Growth unch.

Sector Outperformers:

• 1) Medical Equipment +2.6% 2) Utilities +2.3% 3) Pharma +1.8%

Stocks Rising on Unusual Volume:

• ZS, WSM, RCUS, RPAY, VMW, GRUB, VIVO, CRWD, DELL, OKTA, PSTG, MRSN, BIG, DG, OLLI, ACLS, NTNX, SNAP and VECO

Stocks With Unusual Call Option Activity:

• 1) ZS 2) VMW 3) ECL 4) WSM 5) DVAX

Stocks With Most Positive News Mentions:

• 1) ZS 2) WSM 3) OKTA 4) DPZ 5) MRVL

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +4.3% Above 100-Day Average
• 0 Sectors Rising, 11 Sectors Declining
• 31.4% of Issues Advancing, 66.4% Declining
• 21 New 52-Week Highs, 5 New Lows
• 21.0% of Issues Above 200-day Moving Average
• Average 14-Day RSI 55.2%
• Vix 30.0 +4.4%
• Total Put/Call .88 +3.5%
• TRIN/Arms 1.47 -32.6%

Friday Watch

Evening Headlines

Bloomberg:       

• Trump Says He’ll Announce China Moves in Friday News Conference.

• U.S.-China Tension Only Set to Get Worse: ‘There Is No Off Ramp’.    

• Capital Flight Fears Grow Alongside Hong Kong Political Turmoil.

• Britons Stick to the Lockdown and Fear Health Risks When It Ends.

• A $2 Trillion Debt Deluge Is Set to Flatten Japan’s Yield Curve.  

• Japan Bankruptcies Seen Rising to Seven-Year High on Virus Hit.

• India’s Key Growth Engine Grinds to Halt in Sign of Deep Slump.   

• Decade-High Spreads on Longer India Company Bonds Flash Concerns.

• India Death Toll Tops China; Brazil Cases Surge: Virus Update.  

• U.K. Business Confidence Worst Since 2008 Even as Lockdown Eases.

• Asian Stock Futures Mixed; U.S. Rally Fizzles: Markets Wrap.  Asian stocks opened modestly lower after a rally in U.S. equities fizzled on fresh U.S.-China tensions. The dollar held losses. Sentiment is being tested as global equities round out a second month of gains, with President Donald Trump saying he’ll announce new U.S. steps on China on Friday, after it passed a national security law curbing freedoms in Hong Kong. Japanese shares dipped modestly along with those in Seoul and Sydney. U.S. contracts slid after the gauge gave up a gain of more than 1%, with the announcement stoking concern Sino-American tensions will disrupt the economic reopening narrative that’s propelled markets. Treasuries were steady. S&P 500 futures fell 0.4% as of 9:05 a.m. in Tokyo. The S&P 500 fell 0.2% Thursday. Japan’s Topix index fell 0.6%. South Korea’s Kospi declined 0.4%. Australia’s S&P/ASX 200 Index slid 0.3%.

• Oil Set for Record Monthly Gain on Brightening Demand Picture.   

• One Trader Is Behind 32 Million Barrels of Venezuelan Oil Deals

• Global Green Shoots, Hong Kong Capital Fears, Deflation: Eco Day.  

• GM Plans to Ramp Up Plants With Dealers Running Low on Pickups

• New Jersey May Have to Fire 200,000 Public Workers, Murphy Says.  

• The Greatest Corporate Debt Binge Ever Breaks Record in 149 Days.  

• This Is How Deeply the Coronavirus Changed Our Behavior.  

• Masks Can Limit Household Spread Before Virus Symptoms Appear.

• JPMorgan’s Kolanovic Dials Back Bullish Stance on Equities.

Wall Street Journal:

• Behind the Fall of China’s Luckin Coffee: a Network of Fake Buyers and a Fictitious Employee.

• Governor Orders National Guard to Minneapolis Amid Continued Upheaval.

• The Covid Political Earthquake.

• The Twitter Fairness Doctrine.

• Most Countries Fail to Capture Extent of Covid-19 Deaths.

• Covid-19 Antibody Tests Pose More Questions Than Answers.

• Churches Weigh Virus Danger Against the Need to Worship.

Fox News:

• As Minnesota faces protests, riots over George Floyd killing, feds keep quiet on charges against officers.

• What's in Trump's executive order on social media?

CNBC.com:

• Costco saw sales bounce from pandemic, but stay-at-home orders limited bigger gains.

• Jim Cramer: Wall Street is still in for a ‘rough ride’.

• Coronavirus live updates: San Francisco releases reopening timeline, Boston Marathon canceled.

• Stocks making the biggest moves after hours: Williams-Sonoma, Dell, VMware and more.

• Nordstrom sales fall 40%, but retailer says it has ‘sufficient liquidity’ to weather pandemic.

• Dollar Tree CEO wonders how long a sales surge from customers spending coronavirus checks can last.

MarketWatch.com:         

• Tesla’s Elon Musk gets performance-based payday worth nearly $800 million. Salesforce shares dip 4% on light revenue, earnings guidance.  

• Millionaires are hesitant to buy stocks amid gloomy market outlook.

Zero Hedge:   

• Trump Signs Executive Order Stripping Social Media Companies Of "Liability Shield".

• Here's How 'Rare' Trend Of Pay Cuts For Employed Nationwide Spells Doom For Rapid Recovery.

• Rioting In Minneapolis Is So Bad, The Fires Show Up On Air Quality Maps.

• Global Ad Spending Plunges As Hopes For V-shaped Recovery Fade.

• Boston Marathon Cancelled, Global Coronavirus Cases Near 6 Million: Live Updates.

• Watch Live: Minnesota National Guard Activated In Response To Social Unrest.

• The Last Time Albert Edwards Saw "Nonsense" Like This Was 2008: This Is How It Ended.

• Quantifying The Economy's Current Hole And How The Government's Measures To Fill It (Don't) Add Up.

• Japanese Farmers Lose $3.7 Billion In US CLOs, Are Done Investing In Crazy Products.

• The Hydroxychloroquine Controversy Is A Reminder That Prescription Laws Are A Government Racket.

• DraftKings Shares Soared 300% As COVID Killed Sporting Events.

• China Proposes A Law Allowing Citizens To Sue US For Starting Coronavirus Pandemic.

• Dollar Slumps, Small Caps Dump, Oil Pumped.

The Epoch Times:

• US, UK Lambast Beijing After Passage of Hong Kong Law, Promise to Defend ‘Bastion of Freedom’.

• Epoch News: CCP Claims Real Estate Market Revival, Reality Proves Otherwise.

John Hopkins University:

• Coronavirus Global Cases. (map)

BNO News:

• Tracking Coronavirus: Map, data and timeline.

KFF:

• State Data(Tests/Hospitalizations).

Night Trading 

• Asian equity indices are -.75% to -.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 100.25 -.25 basis point.

• China Sovereign CDS 51.75 -.75 basis point.

• Bloomberg Emerging Markets Currency Index 59.98 +.01%.

• FTSE 100 futures -.81%

• S&P 500 futures -.37%.

• NASDAQ 100 futures -.42%.

Morning Preview Links

Earnings of Note 
Company/Estimate

Before the Open:

• (BIG)/.40

• (CGC)/-.44

After the Close:

• None of note

Economic Releases
8:30 am EST

• The Advance Goods Trade Balance for April is estimated at -$65.0B versus -$64.4B in March.

• Wholesale Inventories MoM for April is estimated to fall -.7% versus a -.8% decline in March.

• Personal Income for April is estimated to fall -6.0% versus a -2.0% decline in March.

• Personal Spending for April is estimated to fall -12.8% versus a -7.5% decline in March.

• The PCE Core for April is estimated to fall -.3% versus a -.1% decline in March.

9:45 am EST

• The MNI Chicago PMI for May is estimated to rise to 40.0 versus 35.4 in April.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Powell speaking, Italian GDP report, ASCO virtual scientific program and the (AMGN) investor meeting could also impact trading today.

Market Hours
Normal:

• 9:30 am - 4:00 pm EST
  

BOTTOM LINE: Asian indices are lower, weighed down by financial and commodity 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.