Stocks Slightly Higher into Final Hour on Nikkei Bounce, Short-Covering, Healthcare/Restaurant Sector Strength

Broad Market Tone:

• Advance/Decline Line: Modestly Higher
  

• Sector Performance: Mixed
  

• Volume: Light

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• VIX 15.37 +1.52%

• ISE Sentiment Index 73.0 -5.19%

• Total Put/Call 1.08 -3.57%

• NYSE Arms .81 +4.51%

Credit Investor Angst:

• North American Investment Grade CDS Index 83.49 +3.06%

• European Financial Sector CDS Index 157.36 +3.33%

• Western Europe Sovereign Debt CDS Index 87.0 unch.

• Emerging Market CDS Index 319.57 +6.55%

• 2-Year Swap Spread 18.0 +.75 bp

• TED Spread 23.25 -.25 bp

• 3-Month EUR/USD Cross-Currency Basis Swap -12.5 unch.

Economic Gauges:

• 3-Month T-Bill Yield .04% unch.

• Yield Curve 189.0 +3 bps

• China Import Iron Ore Spot $110.90/Metric Tonne n/a

• Citi US Economic Surprise Index -32.90 -.6 point

• 10-Year TIPS Spread 2.10 -4 bps

Overseas Futures:

• Nikkei Futures: Indicating +79 open in Japan

• DAX Futures: Indicating -10 open in Germany

Portfolio: 

• Higher: On gains in my medical/tech sector longs and emerging markets shorts

• Disclosed Trades: None

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg: 

• Italian Economy Contracts as French Confidence Stalls: Economy. Italy’s economy shrank more than initially reported in the first quarter and French industrial confidence stalled in May, as the euro area struggled to emerge from a record-long recession. Italian gross domestic product fell 0.6 percent from the previous three months, the Rome-based National Statistics Institute, said today, after a May 15 estimate of a 0.5 percent drop. A French index of sentiment among factory managers was unchanged at 94, while an index of service companies fell to 88 from 89, according to the Bank of France. “We don’t expect recovery this year in Italy or at the European level,” said Silvio Peruzzo, an economist at Nomura Holdings Inc. in London. “It’s no longer a periphery versus core issue, now that we see core countries like France struggling too, while Germany goes on its own path.” The euro-area economy contracted 0.2 percent in the first three months of the year, extending its recession into a sixth quarter, and is forecast to stagnate in the second quarter before returning to growth.
• Italian Bonds Fall as Production Declines; Germany’s Bunds Drop. Italian government bonds fell after reports showing industrial production declined in April and the economy shrank more than initially reported in the first quarter undermined demand for the nation’s assets. Italy’s 10-year yields climbed toward the highest level since April as the data added to concern the country’s recession is deepening. Spain’s bonds slid after El Pais reported that the nation may be given more time to tap funds for its banking bailout program. German 10-year bunds dropped, pushing yields to the highest in more than three months. “There seems to be some negative reaction in Italy after the data,” said Gianluca Ziglio, executive director of fixed-income research at Sunrise Brokers LLP in London. “The data was actually quite bad and that’s putting some pressure on the bonds.” Italy’s 10-year yield rose 10 basis points, or 0.1 percentage point, to 4.30 percent at 4:36 p.m. London time after increasing to 4.39 percent on June 6, the highest since April 5.
• Lira Sinks Most in Year as Erdogan Warns Protesters, Bankers. Turkey’s lira weakened the most in more than a year and bank stocks plunged as Prime Minister Recep Tayyip Erdogan warned demonstrators and lashed out against financial speculators for seeking to profit from protests against his government. The currency slumped 1.2 percent, the most since May 2012, to 1.8980 per dollar at 9:25 p.m. in Istanbul. Turkey’s benchmark stock index slid 2.5 percent as Turkiye Garanti Bankasi AS (GARAN), the country’s biggest lender by market value, lost 3.4 percent.
• Corporate Credit Swaps in U.S. Rise Amid Debate on Fed Stimulus. A gauge of U.S. corporate credit risk rose amid debate on when the Federal Reserve will reduce its unprecedented stimulus efforts. The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, increased 1.4 basis points to a mid-price of 82.4 basis points at 12:18 p.m. in New York, according to prices compiled by Bloomberg. The index added 1.9 basis points last week. The risk premium on the Markit CDX North American High Yield Index increased 8.9 basis points to 412.6 basis points, Bloomberg prices show. 
• Crude Declines From Two-Week High on China Data. West Texas Intermediate crude slid from a two-week high after industrial production slowed in China, the world’s second-biggest oil-consuming country. “The Chinese economic news is bearish,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “With the run-up we had, people are just feeling that maybe it’s a little too much given the economic situation especially in China.” WTI for July delivery slid 23 cents, or 0.2 percent, to $95.80 a barrel at 12:50 p.m. on the New York Mercantile Exchange.
• IRS Firings for Employee Misconduct Reach 11-Year Low. The Internal Revenue Service, under a congressional microscope for conference spending and improper scrutiny of small-government groups, has fired fewer workers for misconduct this year than at any time since 2002. 

Fox News: 

• US snooping is slippery slope to abuse of civil liberties.

MarketWatch: 

• The charts that have some worried over China.
• Homebuilders to Bernanke: Fail.

CNBC:

• 'Almost Every Major Asset Class in the World Is Overpriced': Analyst.
• As Investors Return to Jumbo Mortgages, Big Banks Sell. (video)

Zero Hedge:

• May Hedge Fund Performance Update: Ben Bernanke Keeps Crushing it. 
• How The Fed, Courtesy Of Foreign Banks, "Grew" The US Economy By $146 Billion In The First Quarter. (graph)
• Treasury Yields Spike To New 14 Month Highs. (graph)
• The Smoke And Mirrors Are Running Out.
• The Painful Side Of Japan's "Growth Strategy". (video)
• S&P Upgrades US Outlook From Negative To Stable On "Receding Fiscal Risks".

Business Insider:

• Investors Pulled Out Between $2 And $3 Billion At SAC Capital.
• Apple(AAPL) Unveils iOS 7: Here's Everything That's About To Change On Your iPhone And iPad.
• The World Has More Oil And Gas Than Anyone Thought.
• Elon Musk Hung Up On A Reporter Who Asked Him About Battery Costs.
• Hey, Obama, Are You Going To Respond To This Claim That You're Recording 'Nearly All Human Communications'?

Reuters:  

• Fed's Bullard wants Congress to do more on fiscal path.
• EMERGING MARKETS-Brazil stocks slip as Vale, JBS weigh.

Telegraph: 

• House price falls worsen in Greece and Spain. A world league table of property markets has shown values are falling fastest in southern Europe, as a recovery gathered pace in major markets across the globe. Prices in Greece, where the economy has been crippled by the weight of government debt and by austerity measures, fell by 11.8pc in the year to the end of March, according to estate agency Knight Frank. The rate of decline worsened from 9.8pc a year earlier. Other countries in the so-called PIIGS countries - Spain (-7.9pc), Portugal (-6.9pc), Italy (-4.1pc) and Ireland (-3pc) - were also among the weakest markets (see the table below). The fall in the value of Spanish propery was marginally worse than the year before when it was 7.3pc.

Euromoney: 

• China bears re-emerge from the wilderness as credit fears grow. Fears are growing that China’s elevated debt levels, diminishing returns from its bank-financed investment-led growth strategy and slowing GDP prospects mean a credit crisis is in the making.

Bear Radar

Style Underperformer:

• Mid-Cap Growth -.26%

Sector Underperformers:

• 1) Homebuilders -2.01% 2) Steel -1.24% 3) Biotech -1.02%

Stocks Falling on Unusual Volume:

• TLK, MBT, HNP, IRE, IBN, EVEP, AEE, IMI, HMSY, FLWS, TTM, RBA, ARP, BAH, TWI, ROVI, LG, LAMR, ESD, MXIM, LQDT, EIX, HSY, FBHS, RYL, TCK, DEO, AMWD, NSH, LEN, PKO, LBTYK, CPB, HTA, BAH, ROVI and GNRC

Stocks With Unusual Put Option Activity:

• 1) MON 2) XLB 3) MBI 4) XLV 5) KBH
  

Stocks With Most Negative News Mentions:

• 1) MXIM 2) TWI 3) MS 4) JCI 5) UNP
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Value +.33%

Sector Outperformers:

• Gaming +1.28% 2) Restaurants +1.09% 3) Internet +.75%
  

Stocks Rising on Unusual Volume:

• CSIQ, KNDI, TPLM, ZLC, ACAD, MON, CLDX, SCTY, SODA, FB, APOL and BDBD

Stocks With Unusual Call Option Activity:

• 1) KR 2) ACAD 3) MON 4) HMA 5) NWS
  

Stocks With Most Positive News Mentions:

• 1) MCD 2) DVN 3) WY 4) LMT 5) WY
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Monday Watch

Weekend Headlines 
Bloomberg:

• Merkel Says Euro Nations Must Follow Germany’s Lead on Growth. Chancellor Angela Merkel said euro nations must follow Germany’s lead in tightening budgets and reshaping labor markets to return to growth as she seeks to stave off any crisis eruptions before elections in September. As European leaders struggle to stanch recession and unemployment, Merkel lauded Germany’s efforts to keep its economy stable through the crisis and said the euro area’s 17 member states must stick to a recipe of budget discipline and improving competitiveness so that growth can take hold. 

• German Top Court Likely to Say ‘Yes, But’ to ECB Policy. Germany’s top court probably won’t intervene in the European Central Bank’s plan to buy bonds of crisis-torn countries, in line with previous cases involving the country’s integration with the European Union. The ECB’s Outright Monetary Transactions program and the European Stability Mechanism will be reviewed by the Federal Constitutional Court in Karlsruhe at hearings this week. While the judges may voice doubts about the central bank’s plans, the court won’t stop it, said Christoph Ohler, a law professor at Jena University.

• La Dolce Vita Eludes Italian Students Found Unemployable. Young college graduates in Italy have among the highest unemployment rates in Europe, and those with jobs make only 9 percent more on average than those with high-school diplomas, compared with 37 percent in other industrialized countries. Italians also spend more time earning degrees and drop out at greater rates than their international peers.

• Yen at 90 Seen by Options Losing Confidence in Abe: Currencies. Shinzo Abe is losing the confidence of the currency market, where traders are repudiating efforts by Japan's Prime Minister to end persistent deflation and revive the world's third-largest economy. Instead of continuing to push the yen lower in response to Abe's economic programs and the Bank of Japan's money-printing policies, traders have made it the best-performing major currency over the past month. Options show there's about an even chance it will gain to 90 per dollar by year-end, from as high as 95 last week and an almost five-year low of 103.74 on May 22. "We've been very skeptical of the rapid weakening in the yen," Robert Rennie, the Sydney-based chief currency strategist at Westpac Banking Corp., Australia's second-largest lender, said in a phone interview. "What Abenomics had done is it's changed expectations, I'm just not sure how quickly it can change reality," he said in reference to Abe's economic policies. 

• China Export Growth Plummets Amid Fake-Shipment Crackdown. China’s trade, inflation and lending data for May all trailed estimates, signaling weaker global and domestic demand that will test the nation’s leaders’ resolve to forgo short-term stimulus for slower, more-sustainable growth. While the figures boost the case for easing monetary policy or approving more spending, the government’s room is limited by rising home prices, financial risks and overcapacity. May exports rose 1 percent from a year earlier, down from 14.7 percent in April, while imports dropped 0.3 percent from a year earlier. The median estimates of analysts were for 7.4 percent export growth and 6.6 percent import gains. The $20.4 billion trade surplus compared with forecasts for $20 billion. “This shows the real state of the Chinese export situation,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. The data give a “pretty depressed” picture, with weak external demand and a yuan that has appreciated substantially against a trade-weighted basket of currencies, said Shen, who previously worked at the European Central Bank.

• Asian Stocks Rise on U.S. Jobs Data; Japan Shares Rally. Asian stocks rose, with the regional benchmark index rebounding from the biggest weekly drop in a year, after a report showed the U.S. added more workers than expected. Japanese shares surged after a three-week, $600 billion rout. The MSCI Asia Pacific Index added 1.2 percent to 131.92 as of 11:53 a.m. in Tokyo, the biggest gain since May 20.

• Rubber Declines to 7-Week Low as China’s Auto Sales Growth Slows. Rubber declined to a seven-week low as China’s passenger-vehicle sales rose at a slower pace in May, raising concern that demand may weaken from the world’s largest consumer of the commodity used in tires. The contract for delivery in November lost as much as 1.3 percent to 242.9 yen a kilogram ($2,479 a metric ton), the lowest level since April 18. Futures traded at 245.9 yen on the Tokyo Commodity Exchange at 12:01 p.m., extending this year’s losses to 19 percent. 

• Copper Declines for Third Day on Demand Concern in China, U.S. Copper slumped for a third day as China’s trade and industrial production in May trailed estimates and on prospects that the Federal Reserve will scale back stimulus. China and the U.S. are the top consumers of metals. The metal for delivery in three months on the London Metal Exchange fell as much as 1.1 percent to $7,151.25 a metric ton, the lowest price since May 16, and was at $7,157.25 at 10:24 a.m. in Tokyo. Prices lost 1.1 percent last week. Futures for delivery in July on the Comex slid 1.1 percent to $3.2325 per pound.

• Gold Bull Bets Reach Seven-Week High Before Retreat: Commodities. Hedge funds increased wagers on a gold rally to the highest in seven weeks before a report showing the U.S. added more jobs than forecast spurred the biggest retreat in prices since April. Speculators raised their net-long position by 19 percent to 57,113 futures and options by June 4, U.S. Commodity Futures Trading Commission data show. The holdings surged 60 percent in two weeks, the most since March, as short bets contracted. Net-bullish wagers across 18 U.S.-traded commodities slid 3.3 percent as investors became more bearish on sugar and coffee. 

• No Inflation as Yield Rise Belies Point of No Return View. For the first time since 2009, U.S. bond yields are rising at the same time inflation is slowing, providing a cushion for investors in Treasuries whether or not the Federal Reserve slows the pace of its debt purchases.

• Syrian Opposition Says ‘Door Shut’ on Peaceful Solution to War. The Syrian opposition ruled out “any peaceful solution” to end the two-year conflict in the nation after government forces backed by Lebanon’s Hezbollah ousted rebels from al-Qusair. “What is happening now in Syria has shut the door on any peaceful solution,” George Sabra, acting leader of the Syrian National Coalition, said today from Istanbul in a broadcast shown by Al Jazeera satellite television. “I call upon the Syrian people to resist invaders with all means.”

Wall Street Journal: 

• Afghan Militants Attack Near Coalition Base. Afghan insurgents Monday morning launched an attack in the vicinity of the U.S.-led coalition's base at the Kabul airport, officials said, waking the country's capital at dawn with the sound of blasts and gunfire, and halting air traffic. A number of suicide bombers took over a building under construction near the airport and were launching rocket-propelled grenades from it, Kabul police and coalition spokespeople said.

• Housing's Up, but Is Foundation Sound? The housing-market recovery is here but there's a growing debate among bulls and bears over how long it will last and how strong it will become, with both groups pointing to the same data to make their case: U.S. demographics.

• Energy Deal Maker Eyes Big Slice of Pie. Now that he is pitching Wall Street on his new energy company, Aubrey McClendon is asking for a lot of money, an unusually large slice of profits and a high degree of control over his business.

Marketwatch.com: 

• The sequester may start to show in data. Retail sales, industrial production data to be in focus. So far, signs that sequestration and higher tax rates have damaged the economy have been few and far between. 

• China’s economy slowing; government may not care. 

CNBC: 

• For Some Investors, Federal Reserve Can Start Tapering NOW. While the end of easy monetary policy has been cast as the great enemy of the stock market, for some investors tapering can't happen soon enough. 

• Japan Revises First Quarter Growth Figures Upwards. Japan has revised annualized gross domestic product growth (GDP) for January-to-March to 4.1 percent from a preliminary reading of 3.5 percent, official data showed on Monday.

Zero Hedge:

• NSA Whistleblower Reveals Himself.

• 94% Of April Consumer Credit Goes To Student And Car Loans. (graph)

• Japanese Birth Rate Plunges To Record Low As Death-Rate Hits Record High. (graph)

• Shoot The PRISM-Gate Messenger: Obama To Launch Criminal Probe Into NSA Leaks.

• Are Central Bankers Losing Control?

• Is This The Biggest Threat To The Market? (graphs)

• Meanwhile In China... (graph)

• Demand For Warren Buffett's Company Crashes By 71% As Charity Lunch Raises Least In 6 Years.

• Greek GDP Plunges To Year 2000 Levels. (pics)

• American Households On Foodstamps Climb To New Record. (graph)

• The Good, Bad, And Ugly "Taper" Scenarios.

• On The Wisdom Of Crowds (And Madness Of Mobs). (letter)

• Gas Prices, Consumption, And Why The Average American Is Being Left Behind. (graph)

• Richard Koo: "Honeymoon For Abenomics Is Over".

• The ECB's "Unlimited, Open-Ended" Bond Purchase Program Gets A €524 Billion Limit.

• Japan's Ruling LDP Party Joins JGBi Market In Fears that "Abenomics Could Fail".

Business Insider:

• Hedge Funds Haven't Owned This Much Of The Stock Market Since Right Before The Crash In 2008.

• And Now The Small Investors Have Come Pouring Into Stocks...

• Officials: NSA Has Mistakenly Intercepted Phone Calls And Emails Of Innocent Americans.

• No One Is Talking About The Insane Law That Lets Authorities Read Any Email Over 180 Days Old.

• A Lot Of People Are Freaking Out Because They Think Microsoft's(MSFT) New Xbox Is Going To Spy On Them. Microsoft's new gaming console, the Xbox One, will come with a motion sensor/camera accessory called the Kinect that will be used for video chats and controlling games with your body. But the device will always be on by default, and that has a lot of people concerned, especially after yesterday's report that Microsoft and other big tech companies are working with the NSA and providing user data to the government through the scary-sounding PRISM program. 

• All Signs Suggest This Is The End Of The Stock Market Rally. 

• Marine Gen. John Kelly Gave An Amazing D-Day Anniversary Speech.

• The Stock Market Is Broadly Expensive According To This Uncommon Measure. (graph)

• The May Jobs Report Contains Warning Signs That The Economy Is Stalling. 

• 29-Year Old NSA Whistleblower Makes Mindblowing Claims About What Kind Of Power He Had.

• Chinese Lending Slows As Concerns Of A Credit Crisis Loom.

• A Complete Look At China's Latest Disappointing Data In One Chart.

• MAULDIN: I'm So Sure Japan Is Screwed That I'm Converting My Mortgage Into Yen.

• BRIAN BELSKI: Big Investors Aren't Ready For What Could Be Coming Next.

Wall Street All-Stars:

• Indicator Update: A Tipping Point for Stocks?

Reuters: 

• Intel(INTC) offers to pay up for Internet TV programming deals. Intel Corp's talks to buy content from media companies for its new TV service are advancing, and the chipmaker is offering to pay as much as 75 percent more than traditional cable rates, people familiar with the talks said. 

• Google(GOOG) close to buying Israeli mapping start-up Waze -report. Google is close to buying Waze for $1.3 billion, an Israeli newspaper reported on Sunday, potentially trumping rival offers for the Israeli mapping start-up.

Financial Times: 

• New stamping ground for Nike(NKE) and Adidas as 3D shoes kick off. Nike and Adidas are embracing 3D printing to speed up the shoemaking process, using the technology to make multiple prototype versions at a previously impossible speed.

Euro am Sonntag:

• Rising Electricity Prices Jeopardize German Jobs. Germany risks losing more jobs than were created by renewable energy industry, citing an interview with EON CEO Johannes Teyssen. German electricity prices are "exploding" compared with China, U.S. If prices continue to rise, many jobs are in danger. Modern gas-fired power plants can't operate profitably due to distortion from subsidized renewables.

Der Spiegel: 

• IMF Wants to Get Next Greek Haircut Under Way. The IMF can only participate in further rescue programs for Greece if financing for the country has been secured for the next 12 months. New haircut necessary amid EU4.6 billion funding shortfall. Germany's exposure to Greek debt is EU15 billion in KfW loans, plus EU35 billion as the country's contribution to various stability mechanisms. Germany many not be keen on the discussion ahead of federal elections in September as it would indicate taxpayers' money is lots.

Le Figaro:

• Chad's Deby Says Libya Without Army Is Poised to Explode. Chad's President Idriss Deby said in an interview that Libya is increasingly controlled by brigades of jihadists and Islamist militants as the country has no army, no institutions, and no civil society. Jihadists chased out of Mali are building brigades and training camps in Tripoli and other parts of Libya, Deby said.

Weekend Recommendations

Barron's:

• Bearish commentary on (TSLA).

Night Trading

• Asian indices are unch. to +1.0% on average.

• Asia Ex-Japan Investment Grade CDS Index 126.0 -2.0 basis points.

• Asia Pacific Sovereign CDS Index 105.25 +.75 basis point.

• FTSE-100 futures -.27%.

• S&P 500 futures +.11%.

• NASDAQ 100 futures +.21%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (BNNY)/.28

• (NAV)/-1.20

• (PBY)/.09 

• (HNZ)/.82

Economic Releases

• None of note

Upcoming Splits

• (WAB) 2-for-1

Other Potential Market Movers

• The Fed's Bullard speaking, China Trade/Industrial Profits/Retail Sales/Yuan Loan data reports, Japan GDP report, Italy GDP report, (TXN) Mid-Quarter Update and the (MCD) May Same-Store-Sales report could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the week.

Weekly Outlook

U.S. Week Ahead by MarketWatch (video). 
Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on rising global growth fears, Fed "taper" worries, more Mideast unrest, increasing Eurozone debt angst, profit-taking and more shorting. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 50% net long heading into the week.