Monday Watch

Today's Headlines

Bloomberg: 

• Yen Seen Climbing for JPMorgan as U.S. Puts Japan on Watch List. As if the yen’s surge to an 18-month high wasn’t causing Japanese officials enough trouble, they now have to contend with the nation being on a U.S. watch list for its currency practices. JPMorgan Chase & Co.’s Tohru Sasaki says friction with the U.S. will probably strengthen the yen more.The dollar-yen market is orderly and it’s important for countries to keep their Group-of-Seven and Group-of-20 currency commitments, the U.S. Treasury said Friday. The yen’s 13 percent surge this year has prompted comments from Japan’s Finance Minister Taro Aso that authorities would act if moves were one-sided. The movements are “extremely concerning” and the U.S. report puts no constraint on action, the Nikkei reported Aso as saying Saturday. Germany, China, South Korea and Taiwan were also included as countries to be monitored.
  
• Yen Under Pressure to Extend World-Beating Rally Against Dollar. The yen’s world-beating rally against the dollar looks to be gathering momentum, as central bank inaction on both sides of the Pacific Ocean leaves inflation expectations to drive the exchange rate. Japan’s currency surged to an 18-month high on Friday after Bank of Japan Governor Haruhiko Kuroda refrained from adding to stimulus the day before. That took its gain this year to 13 percent, the most among its developed-market peers. The BOJ’s decision came just hours after Federal Reserve Chair Janet Yellen frustrated dollar bulls by reiterating she’s in no rush to cool the economy by raising interest rates.
• Iraq Oil Exports Near Record as Baghdad Protests Intensify. Iraq’s oil exports approached a record high in April, adding barrels to a worldwide supply glut, even as protests against public corruption threatened to paralyze the government of OPEC’s second-largest producer. Shipments rose to 3.36 million barrels a day, or 100.92 million barrels for the month, Asim Jihad, a spokesman at the oil ministry, said by text message Sunday. The figures don’t include Kurdistan Regional Government exports. The exports rose from 3.29 million barrels a day in March and were close to the November all-time high of 3.365 million barrels a day, according to oil ministry figures. Oil shipments and production were not affected Sunday after protesters stormed parliament in Baghdad, Falah Al-Amri, chairman of Iraq’s State Oil Marketing Organization, said by Facebook message. Government forces are struggling in the fight against Islamic State militants as a plunge in oil prices of more than 50 percent in the last two years has battered its finances.
• Westpac(WBK) First-Half Profit Misses Estimates as Bad Debts Rise. Westpac Banking Corp. first-half profit narrowly missed estimates as charges for soured loans soared to the highest in six years. Shares fell the most in more than a month. Cash profit, which excludes one-time items, was A$3.9 billion ($3 billion) in the six months ended March 31, compared with A$3.78 billion, a year earlier, the Sydney-based lender said in a statement Monday. That missed the A$4.025 billion average estimate of four analysts surveyed by Bloomberg.
• Asian Stocks Slide After Yen Caps Biggest Gain Since 2008 Crisis. Asian stocks fell after the yen strengthened past 107 per dollar, weighing on the earnings outlook for Japanese exporters, while data in China suggested the country’s central bank may have less need to loosen monetary policy. The MSCI Asia Pacific Index lost 1.2 percent to 129.64 as of 9:08 a.m. in Tokyo.
• Puerto Rico's Governor Says Island Will Default on Bond Payment. Puerto Rico won’t make a bond payment for its Government Development Bank, sending its clearest signal yet to investors and U.S. officials that it doesn’t have enough money to keep paying its obligations. Governor Alejandro Garcia Padilla announced the default Sunday during a recorded televised address to the commonwealth. The island had until the end of day Monday to make the payment.
• Ultra Petroleum(UPL) Files for Bankruptcy, Citing $3.9 Billion Debt. Ultra Petroleum Corp. filed for bankruptcy protection, the latest oil and gas explorer to fall victim to the prolonged slump in energy prices. Ultra listed $1.3 billion in assets and $3.9 billion in debt in court papers filed in Houston on Friday. The Houston-based company has 159 employees and its main assets are gas-producing properties in Wyoming, as well as some assets in Pennsylvania and crude oil properties in Utah, according to court papers.
• Bernie Sanders Vows Contested Convention, Makes Case for Superdelegate Flips. The Vermont senator continued to argue that he could still win the Democratic nomination. Bernie Sanders on Sunday marked the one-year anniversary of his bid for the White House by vowing that the Democratic convention will be "contested," despite Hillary Clinton's wide lead in pledged and overall delegates. "It's virtually impossible for Secretary Clinton to reach the majority of convention delegates by June 14 with pledged delegates alone," the Vermont senator told reporters at the National Press Club in Washington. The convention will be held in Philadelphia in July, after the final nominating contest in Washington, D.C., on June 14.

Wall Street Journal:

• Why So Many Chinese Students Come to the U.S.
• On Close Inspection, India’s Sharp Growth Picture Gets Fuzzy. World-beating GDP figure is based on infrequent surveys, rough estimates of tiny, cash-based enterprises. 

Fox News:

• Cruz determined to win Indiana and more; Sanders now eyes contested convention. (video) Sens. Bernie Sanders and Ted Cruz significantly trail the front-runners in their respective Democratic and Republican presidential primaries, but both said Sunday they will stay in their races until the end, even amid bad news about the Indiana primary on Tuesday. “We intend to fight for every vote and every delegate remaining,” Sanders said at a press conference in Washington, D.C., before heading to campaign events in Indiana. The Vermont senator said Democratic front-runner Hillary Clinton winning enough pledged delegates in the remaining state contests to secure the nomination before the July convention would be “virtually impossible.” So his only path to the nomination will be to flip superdelegates, the party insiders who can back either candidate and are overwhelmingly behind Clinton. “In other words, the convention will be a contested contest,” Sanders said.

CNBC:

• Why the Fed will never get what it wants: Strategist. (video) The Federal Reserve surprised few last week when it keep interest rates unchanged, noting that it "continues to closely monitor inflation indicators and global economic and financial developments." However, one market watcher has a blunt message for Fed chair Janet Yellen: You're placing your hope in a fairy tale.

MarketWatch:

• Stock pickers beware, this unwelcome pattern is driving markets again. (graph) HSBC risk-on-risk-off index spikes to highest level since 2010. Sorry stock pickers, but the herd-like trading pattern that dominated financial markets in the aftermath of the financial crisis appears to be back in force. In a note earlier this week, HSBC’s multi-asset quant research team said the so-called risk-off-risk-on theme is, once again, the “single most important driver of asset markets.”

Zero Hedge:

• Consensus Forming: China Heading Back Into Financial Crisis. (graph)
• This Won't End Well. (graph)
• Seymour Hersh Says Hillary Approved Sending Libya's Sarin To Syrian Rebels.
• Leaked Docs Reveal TTIP Trade Deal In Jeopardy As "Irreconcilable Differences" Emerge.
• Why Socialism Will Always Fail.
• Deutsche Bank Has Systemic Money Laundering, Terrorist Financing And Sanctions Problems: UK Regulator.
• Why So Worried? (graph)
• Was The Fed Just Given The Launch Codes? (graph)
• "Only The Dumb Save" - ECB Pens Incoherent Response To Germany's Criticisms.
• Puerto Rico Default "Virtually Certain" As Bond Prices Crash To Record Low. (graph)
• Schwab(SCHW) Is Forcing Cash Out Of Money Market Funds And Into Treasuries.
• 10 Stats About The Last 10 Years. 
• "If This Goes Well, I'll Use It At Goldman Sachs Next Year" - Obama Mocks Everyone At His Final "Nerd Prom". (video)
• CSX(CSX) Freight Train Derails In Washington D.C., 9 Cars Overturned, Hazardous Material Leaking.

Business Insider:

• The market's $1 trillion bubble is unprecedented. Junk bonds are living up to their name right now. As we have noted in the past, the lowest-rated junk bonds may have inflated a $1 trillion bubble at the bottom of the debt market. The thing is, it never should have gotten that way.
• Something's really wrong with jobs in China.
• Halliburton's(HAL) mega-merger with Baker Hughes is going to be called off.
• US senator warns of ‘spying billboards’ that turn cellphones into 'James Bond-like personal tracking devices’.
• China is carrying $1 trillion in bad debt and 'unless this vicious cycle is broken, financial crisis or at least a sharp slowdown is an inevitable ultimate outcome'.
• 'Very troubling': Analysts question the way Apple describes its data.
•  China manufacturing PMI misses in April.

Reuters:

• Ambitious new bankruptcy code may take years to clean up India's debt mess. A long-awaited Indian bankruptcy code may soon win parliamentary approval, but struggling creditors - above all state banks trying to recover $100 billion in bad loans - shouldn't start celebrating just yet.

Financial Times:

• US banks sound caution on commercial property loans. Executives say they are tightening lending standards amid concerns of bubbles forming. Top US bankers have sounded caution over commercial real estate lending as concerns rise that bubbles are forming in parts of the country’s property market. Lenders have helped fund a boom in recent years in cities such as New York and Miami, where luxury high rises have sprung up across the skyline. But executives at several banks signalled during results season that they were tightening up standards for CRE lending, which includes mortgages secured against big apartment and office developments.
• Abenomics is failing, warns Japanese opposition leader. Democratic party makes renewed effort to end the ruling LDP’s dominance of Japanese politics.

Telegraph:

• Everyone’s lining up against Brexit, but voters aren’t fooled.

Night Trading

• Asian indices are -1.75% to -.5% on average.
• Asia Ex-Japan Investment Grade CDS Index 140.75 -.5 basis point.
• Asia Pacific Sovereign CDS Index 54.25 -2.25 basis points.
• Bloomberg Emerging Markets Currency Index 73.65 +.01%.
• S&P 500 futures -.04%.
• NASDAQ 100 futures -.18%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (DO)/.29
• (L)/.52
• (SYY)/.41
• (AIG)/1.00
• (APC)/-1.18
• (RGR)/.96
• (THC)/.33
• (VNO)/1.22

Economic Releases 

9:45 am EST

• Final Markit US Manufacturing PMI for April is estimated at 50.8 versus a prior estimate of 50.8. 

10:00 am EST

• ISM Manufacturing for April is estimated to fall to 51.5 versus 51.8 in March.
• ISM Prices Paid for April is estimated to rise to 51.8 versus 51.5 in March.
• Construction Spending MoM for March is estimated to rise +.5% versus a -.5% decline in February. 

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Williams speaking, Eurozone Manufacturing PMI and the RBA meeting could also impact trading today.

BOTTOM LINE: Asian indices are 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 week.