Wednesday Watch

Evening Headlines
Bloomberg: 

• PBOC Signals Less Appetite for Stimulus as Outlook Strengthens. China’s central bank is signaling less of an appetite for adding monetary stimulus following evidence of an acceleration in growth that has spurred a wave of upgrades of growth forecasts by private economists. While the People’s Bank of China hasn’t issued any official statement of a change in policy stance, the first signal of a shift came on Monday in a commentary by the state news agency Xinhua. While monetary policy will maintain a certain degree of looseness in coming months, prudence will feature more prominently than last year, Xinhua said. Late on Tuesday, PBOC research bureau chief economist Ma Jun said in a briefing with local media that future policy operations, while observing the need to continue supporting growth, will also pay attention to heading off macroeconomic risks, especially an over-expansion of corporate leverage.
• China Default Chain Reaction Looms Amid 192 Day Cash Turnaround. Chinese companies have never had to wait so long to get paid, as stockpiles build and customers delay sending funds. Firms now take a record 192 days to collect payment for their goods or services from when they pay for the inputs, according to data compiled by Bloomberg on non-financial corporations traded in Shanghai and Shenzhen. The cash conversion ratio is up from 125 days five years ago. Liquidity is tightening in China after company profits declined for the first time in three years and as debtors face their hardest time ever paying interest. “The longer the cash conversion cycle, the higher the risk of corporates not having enough cash to repay their debts,” said Iris Pang, senior economist for greater China at Natixis SA in Hong Kong. “That creates a chain reaction.”
• Slump in Chinese Tourists Leaves Hong Kong Malls Struggling. After 27 years of serving rib-eye steak and apple pie to American cuisine lovers in Hong Kong, Dan Ryan’s Chicago Grill has closed its doors at the city’s Pacific Place mall. Taking its place: a trendy new Italian restaurant called Operetta. "I don’t know why they had to leave," said Ho Kwan-lun, a urologist who took selfies with his friends in front of Dan Ryan’s before going in for one last meal the day it closed on April 10. "It’s a shame. This place has been here so long." The million-dollar question for landlords: How to keep mall traffic flowing when wealthy mainland shoppers have turned lukewarm toward Hong Kong and the local economy is slowing in tandem with China’s? Developers are searching for the answer by bringing in new tenants offering free yoga classes, champagne and caviar pop-up bars, and gelato.
• All Japan Sovereigns Yield Below 0.4% as 40-Year Hits Record Low. Japan’s 40-year bond yield fell to a record low, meaning all then nation’s sovereign bonds yield less than 0.4 percent amid speculation of additional monetary easing. The yield on the 1.4 percent government note maturing in March 2055 fell as much as 10 1/2 basis points to 0.31 percent in Tokyo Wednesday from 0.415 percent on Friday when the bond had last traded, according to Japan Bond Trading Co. The 30-year yield also touched a record low of 0.3 percent.
• Default Risk Increases for European Junk Borrowers, Moody's Says. The portion of European high-yield borrowers at risk of default is growing, according to Moody’s Investors Service. The number of companies in Europe, the Middle East and Africa that were rated at least seven levels below investment grade at the end of March increased to 47 from 33 a year earlier, according to a Moody’s report. The 42 percent increase in the lowest-rated issuers outpaced 5 percent growth in the total number of rated companies, wrote William Coley, senior vice president at the firm.
• Kuwait Oil Workers Ending Strike After Three-Day Disruption. (video) Kuwait oil workers said they’ll end a strike that disrupted output in OPEC’s fourth-largest producer for three days, after the government said it wouldn’t negotiate while the walkout lasted. Workers will resume their jobs at 7 a.m. local time on Wednesday out of respect for the country’s emir after successfully showing the importance of their role in the economy, KUNA, the country’s official news agency said, citing a statement from a labor union. The report came soon after Anas Al Saleh, the acting oil minister, said on Alrai television the government wouldn’t hold talks with workers as long as a strike continued.
• Asian Stocks Extend Four-Month High as Commodity Producers Jump. Asian stocks climbed, with the regional benchmark index extending a four-month high, as commodity producers rallied and Japanese shares advanced. The MSCI Asia Pacific Index gained 0.3 percent to 133 as of 11:11 a.m. in Tokyo.
• Prudential Says U.S. 10-Year Yield May Fall to Record Low 1.25%. Benchmark 10-year Treasury yields may tumble to a never-before-seen 1.25 percent as investors seek alternatives to lower interest rates around the world, according to Prudential Financial Inc. “We’re going to be low and range bound,” said Robert Tipp, the head of global bonds and foreign exchange for fixed-income division of the second-largest U.S. life insurer. “This is an extremely low-interest-rate world. The higher-yielding products are going to be dominating,” he said Tuesday on Bloomberg Television.

Wall Street Journal:

• New York Primary: Live Coverage. 
• Both Parties’ Voters Distrust Wall Street in Exit Polls. In New York, Democrats say that they are energized by primaries, Republicans that they are divided.
• Yahoo’s(YHOO) Troubles Mount as Bids Begin. Verizon Communications, Daily Mail, TPG all submit separate bids.
• Goldman(GS) Shows the Big Problem for Banks: Revenue. Plunge in first-quarter revenue continues trend among big lenders; can top investment banks generate the income they used to?
• Clinton’s Negative Majority. She’s getting more unpopular the longer the campaign goes on.
• A Big ObamaCare Exit. America’s largest health insurer flees after incurring huge losses. President Obama claimed credit at a Los Angeles fundraiser last week for “the steady progress that happens when people who love this country decide to change it,” and reality is unlikely to darken his farewell tour. But for everyone else, note that the largest U.S. health insurer is quitting ObamaCare.

CNBC:

• Lexmark(LXK) agrees to be acquired by Apex Technology, PAG Asia Capital for $3.6B. Lexmark International has agreed to be acquired by Apex Technology and PAG Asia Capital for $3.6 billion or $40.50 per share. The deal represents a 16 percent premium to its Tuesday closing price of $34.66. Shares of Lexmark gained as much as 12 percent in after-hours trading on the news.

Zero Hedge:

• China Retaliates In Trade Wars - Increases Steel Output To Record High. (graph)
• Kuwait Oil Workers Strike Over; Oil Tumbles.
• Iran Is Ready To Flood The World With Oil... It Just Has No Ships To Deliver It.
• "Unequivocally" Great News America - Gas Prices Are Soaring. (graph)
• Stocks Are In "A Far More Precarious State Than Was Ever Truly Believed Possible". (graph)
• Intel(INTC) Fires A Massive 12,000 Workers, 11% Of Its Entire Workforce, As It Misses Q1 Sales, Guides Lower.
• Has The ECB's QE Been A Failure? This Is What Europe's Banks Think.
• "This Is Catastrophic" - Thousands Of Gallons Of Radioactive Waste Leak At Nuclear Site.
• Why Negative Rates Are Positive For Gold.
• Eric Hunsader: The Financial System Is "Absolutely, Positively Rigged".
• Largest U.S. Health Insurer Is Done With Obamacare: UnitedHealth To Exit Most State Exchanges.
• Sam Zell Predicts Recession Next Year: "I'm Being Realistic, Not Pessimistic".
• Stocks Stumble As Silver Soars Into Bull Market, Dollar Hits 10-Month Lows. (graph)

Business Insider: 

• San Francisco just became the first big US city to require solar panels on new buildings.
• You'd have lost nearly 20% of your money if you bought these 21 hot tech IPOs of 2014 and 2015.
• Owners are complaining about problems with the first Tesla(TSLA) Model X SUVs.
• Manhattan office rents are seeing 'signs of wariness'.

Reuters:

• Intuitive Surgical(ISRG) boosts procedure growth forecast. Intuitive Surgical Inc on Tuesday reported better-than-expected first-quarter profit on expanded use of its da Vinci robots in U.S. general surgeries such as hernia repair, and it raised its full-year outlook for procedure growth. The company now expects procedures using da Vinci robots to increase 12 percent to 14 percent in 2016, helped also by a favorable outlook for prostate and gynecological surgeries, executives said on a conference call. Intuitive previously forecast procedure growth of 9 percent to 12 percent. 
• Japan manufacturers' mood up; yen rise weighs on outlook: Reuters Tankan. Confidence among Japanese manufacturers rose in April but it is expected to worsen again in the coming three months, a Reuters poll found on Wednesday, reflecting concerns about the yen's rise and tepid overseas demand. The Reuters Tankan, which tracks the Bank of Japan's quarterly tankan survey, found the service sector's mood soured in April and saw it getting worse because of the weakness in private consumption, which accounts for about 60 percent of the economy. The service-sector index fell to 23 from 24 in March and is seen declining to 15 in July, weighed on by retailers, information/communications and transport/utilities. The Reuters Tankan sentiment index for manufacturers rose to 10 in April from 6 in March, led by materials industries such as oil refineries and steelmakers. It is seen sliding back to 6 in July.
• UnitedHealth's(UNH) Obamacare exit adds pricing pressure on rivals. UnitedHealth Group Inc's decision to exit most of its Obamacare health insurance exchanges next year means rivals will need to raise prices further to prop up an unprofitable business, healthcare analysts and policy experts said on Tuesday.

Telegraph:

• Michael Gove is wrong: cool-headed evaluation of Brexit risks is not unpatriotic.

Night Trading 

• Asian equity indices are -.50% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 139.0 +.25 basis point. 
• Asia Pacific Sovereign CDS Index 56.25 -1.5 basis points. 
• Bloomberg Emerging Markets Currency Index 73.25 -.07%. 
• S&P 500 futures -.24%. 
• NASDAQ 100 futures -.22%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (ABB)/.30
• (ABT)/.39
• (ARMH)/.08
• (ASML)/.42
• (CHKP)/1.03
• (KO)/.44
• (DISH)/.57
• (EMC)/.33
• (ITW)/1.26
• (STJ)/.88
• (TXT)/.52
• (USB)/.76
• (TUP)/.86
• (HTLD)/.16
• (AXP)/1.34
• (BXS)/.37
• (CBI)/1.13
• (CTXS)/.92
• (FFIV)/1.63
• (KMI)/.18
• (LRCX)/1.10
• (LVS)/.63
• (MAT)/-.07 
• (NEM)/.19
• (QCOM)/.96
• (RJF)/.75
• (STLD)/.24
• (SYK)/1.20
• (TSCO)/.46
• (UAL)/1.18
• (VMI)/1.25
• (WERN)/.32
• (YUM)/.83   

Economic Releases  
10:00 am EST

• Existing Home Sales for March are estimated to rise to 5.28M versus 5.08M in February.
  

10:30 am EST

• Weekly Bloomberg consensus estimates call for a crude oil inventory build of +2,295,000 barrels versus a +6,634,000 build the prior week. Gasoline supplies are estimated to fall by -1,462,000 barrels versus a -4,237,000 barrel decline the prior week. Distillate supplies are estimated to fall by -75,000 barrels versus a +505,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.13% versus a -2.2% decline prior.

Upcoming Splits 

• None of note

Other Potential Market Movers

• The German PPI, UK GDP, Japan CPI, weekly MBA mortgage applications reports and the New Zealand Central Bank decision could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and technology shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.