Today's Headlines

Bloomberg: 

• Ukrainian Forces Inflict Rebel Losses After Poroshenko Win. Ukraine’s government said it inflicted “significant” losses on pro-Russian rebels in the east and retook Donetsk airport a day after President-elect Petro Poroshenko vowed to wipe out the separatists. Troops killed “dozens” of rebels without suffering any losses, Interior Minister Arsen Avakov said, while the mayor’s office in Donetsk said 40 people died and 31 were wounded. Gunmen also broke through the border from Russia after a firefight with government forces overnight, and the self-proclaimed Donetsk People’s Republic asked Russian President Vladimir Putin for humanitarian and military help, according to separatist leader Denis Pushilin. “The anti-terrorist operation is in an active phase now,” First Deputy Prime Minister Vitaliy Yarema told reporters in Kiev today. “We’ll continue this operation until there are no terrorists on Ukraine’s territory.”

• Micex Drops With Ruble as Ukraine Intensifies Fight With Rebels. Russian stocks and the ruble fell after Ukraine’s President-elect Petro Poroshenko vowed to step up military action against separatists in the east of the country, where 40 people died in clashes. The Micex Index (INDEXCF) fell 2.2 percent to 1,417.32 by the close in Moscow today, the steepest decline since April 24. The ruble slid 0.5 percent to 39.9831 against the central bank’s target basket of dollars and euros by 6 p.m. and the yield on 10-year government ruble bonds jumped 18 basis points to 8.80 percent.

• China Said to Study IBM Servers for Bank Security Risks. The Chinese government is reviewing whether domestic banks’ reliance on high-end servers from International Business Machines Corp. (IBM) compromises the nation’s financial security, people familiar with the matter said, in an escalation of the dispute with the U.S. over spying claims.

• China Sinking Fishing Vessel Raises Tensions With Vietnam. Vietnam and China traded barbs over the sinking of a Vietnamese fishing boat, their most serious bilateral standoff since 2007 as China asserts its claims in the disputed South China Sea. “It was rammed by a Chinese boat,” Vietnamese Foreign Ministry spokesman Le Hai Binh said by phone of the Vietnamese vessel, with the crew of 10 rescued after the scrap. The incident occurred after some 40 Chinese fishing vessels encircled a group of Vietnamese boats in Vietnam’s exclusive economic zone, the government in Hanoi said in a statement on its website.

• Leverage Addicts Get Junk-Loan Fix With Derivatives ETF. Forget complicated total-return swaps and collateralized loan obligations. A proposed exchange-traded fund will make it much easier for anyone to use borrowed money to double down on junk-rated loans. The AdvisorShares Pacific Asset Enhanced Floating Rate ETF will use derivatives to boost gains on high-yield loans, allowing retirees and pensioners to magnify bets on debt that promises higher yields when interest rates rise, according to a U.S. regulatory filing. The fund, which would be actively managed, is currently pending approval from the U.S. Securities and Exchange Commission. Why use leverage now? Because for buyers who have faith the riskiest companies will pay back their obligations, the loans just aren’t quite yielding enough. With a little more risk, the thinking goes, the return will be sweeter. Of course, any losses will also be more painful. The problem is, if fans of junk loans are wrong, their juiced investments won’t just increase the threat to profits, they’ll also have a magnified effect on the $1.1 trillion market that is one of the most difficult to trade in. Buying and selling takes place in telephone conversations and over e-mails, with sellers routinely waiting three weeks to settle a transaction, as opposed to just days for high-yield bonds.

• Alarm Raised by Plan to Ease Credit Norms on U.S. Parent Loans. Parents whose financial standing disqualify them from most loans may have an easier time borrowing to pay their children’s college costs under a U.S. government proposal to ease credit standards. The plan doesn’t sit well with consumer advocates and economists, who are sounding an alarm. The Education Department wants to look at “adverse credit” over two years instead of five and consider approving loans even if parents have delinquent credit balances, according to an agency document released this month.

Wall Street Journal:

• Crisis in Ukraine: Streaming Coverage.

CNBC:

• Citigroup's(C) 2Q trading revenue down at least 20% so far.

ZeroHedge:

• Here Is The Mystery, And Completely Indiscriminate, Buyer Of Stocks In The First Quarter. (graph)

• Bond Bears Are Scratching Their Heads While Looking At These Charts. (graph)

• The Housing "Recovery" In Four Charts.

• The New Normal In One Sentence: "In The US Equity Market, The Worse A Company’s Finances, The Better It’s Doing". (graph)

• Consumer Confidence Falls Short Of Weather-Peak; Plans To Buy A Home Drop. (graph)

• US Service PMI Surges Near Record High As Margin Pressures Appear. (graph)

Business Insider:

• Beijing Has Started New 'Anti-Terror' Checks On The Subway, And The Lines Are Like Nothing You've Ever Seen.

• Amazon(AMZN) Will Have 10,000 Robots Filling Customer Orders By The End Of The Year.

Orlando Business Journal:

• Small business owners see increase in ugly subprime lending tactics. Small business owners are seeing more online lenders and loan brokers offering costly financing targeting troubled borrowers. Small business is the new target for subprime lending after Congress stepped in with the creation of the Consumer Financial Protection Bureau and new laws to protect individual borrowers. It won't be surprising to see some of those protections eventually expanded to include small business owners.

Real Clear Politics: 

• The Left's Health Care Paradise. For the left, the Department of Veterans Affairs is how health care is ideally supposed to work. No insurance companies, no private doctors, no competition — just the government and the patient.

Financial Times:

• Economic slowdown weighs on China retailers. China’s slowing economy, a crackdown on corruption, and the rise of online shopping are increasingly eating into earnings for some of the country’s traditional retailers – hitting sales at bricks and mortar stores such as shoe shops and supermarkets. Footwear chain Belle International and supermarket operator China Resources Enterprise both blamed a drop-off in economic growth as they reported sluggish earnings this week.

ShanghaiDaily.com:

• Chinese authorities advocate frugality. A nationwide campaign will be launched to encourage frugality among the public, Chinese authorities said on Tuesday. Thrift is a traditional Chinese virtue as well as a core socialist value, according to a statement issued by the Publicity Department of the Communist Party of China Central Committee and the National Development and Reform Commission. Promoting frugality is vital to improving society and the environment, and will prompt a healthy lifestyle among the public, said the statement. More efforts are needed to educate young people about frugality, it added.

Bear Radar

Style Underperformer:

• Large-Cap Value +.32%

Sector Underperformers:

• 1) Gold & Silver -3.55% 2) Hospitals -.82% 3) Oil Tankers -.55%

Stocks Falling on Unusual Volume:

• PF, AWF, DRTX, UGLD, ALOG, INDY, HQH, CATM, JKS, USLV, GLOG, HIBB, CLVS, NTLS, IFN, NMBL, VRX, HPQ, RNET, YY, BPT and THRM

Stocks With Unusual Put Option Activity:

• 1) FXY 2) HSH 3) SLM 4) KRE 5) WDAY
  

Stocks With Most Negative News Mentions:

• 1) PF 2) HPQ 3) FCX 4) ABX 5) BTU
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +1.71%

Sector Outperformers:

• 1) Alt Energy +2.07% 2) Biotech +1.75% 3) I-Banks +1.69%
  

Stocks Rising on Unusual Volume:

• HSH, ENOC, MONT, MOVE, PPC, TIBX, CXDC, SALE, FE, ISIS, EXC, BKS, OLED, SPLK, ICPT, OPHT, DWRE, DATA, RXN, CTRL and CNC

Stocks With Unusual Call Option Activity:

• 1) TIBX 2) HSH 3) S 4) GDP 5) FE

Stocks With Most Positive News Mentions:

• 1) AAPL 2) BAC 3) GOOG 4) TWTR 5) CPHD
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Tuesday Watch

Weekend Headlines 
Bloomberg:

• Poroshenko Defies Russia With Vow on Anti-Rebel Operation. President-elect Petro Poroshenko set Ukraine on a collision course with Russia even before the last vote had been counted, vowing to step up operations to rein in separatists in the east of the country. “There will be a sharp increase in the efficiency of anti-terrorist operations,” Poroshenko said in Kiev today. “They won’t last two or three months; they’ll last a few hours.” In Moscow, Foreign Minister Sergei Lavrov said that any escalation would be a “colossal mistake.” 
• A Europe Hooked on Russian Gas Debates Imposing Sanctions.
• Chinese Boat Attacks, Sinks Vietnam Fishing Vessel, Vietnam Says. A Chinese vessel attacked and sank a Vietnamese fishing boat in disputed waters off Vietnam’s coast, Vietnam’s foreign ministry said. “It sank,” ministry spokesman Le Hai Binh said of the Vietnamese vessel. “It was rammed by a Chinese boat.” The 10 fishermen on board were rescued by other Vietnamese boats after the sinking yesterday around 17 nautical miles (19.5 miles) from a Chinese oil rig located near the contested Paracel Islands, Vietnam News reported. 
• China Middle-Class Protests Turn Violent After Petitions Ignored.
• Japan’s Risk of Inflation With Low Growth Raises Stakes for Abe. Japan’s risk of spurring inflation without boosting the nation’s growth potential is raising the stakes for Prime Minister Shinzo Abe’s next round of economic restructuring measures, due in June. An economy “with low real growth rates under mild inflation” is possible, should the government fail to deliver, Bank of Japan Deputy Governor Kikuo Iwata said in a speech in Tokyo yesterday.
• Italian Bonds Rally With Spain’s on European Polls, ECB Stimulus. Italy’s government bonds rose for a second day as Prime Minister Matteo Renzi’s party defeated a populist challenge in the European Parliament elections, boosting demand for the euro area’s higher-yielding assets. Spanish bonds advanced on speculation the European Central Bank will increase economic stimulus and as European stocks climbed. Greek, Irish and Portuguese bonds also gained even as parties opposed to closer European Union surged in the polls. German bunds were little changed as a gauge of consumer confidence held at the highest since 2007. ECB President Mario Draghi said in Portugal today that policy makers need to be “particularly watchful” of low inflation. 
• Asian Stocks Extend Rally While Copper Climbs With Aussie. Asian stocks rose, with the regional index climbing a fourth day to the highest level in almost six months. Most industrial metals advanced on prospects policy makers will act to support global economic growth, while the Australian dollar strengthened and crop futures slumped. The MSCI Asia Pacific Index added 0.3 percent by 10:04 a.m. in Tokyo, set for the highest close since Nov. 29 as Japan’s Topix (TPX) gauge rose 0.6 percent to the highest level since April 4.
• Europe Stocks Rise as Italy Banks Surge on Renzi Victory. European stocks rose to their highest level since January 2008 as Italian banks surged after Prime Minister Matteo Renzi’s party beat a populist challenger in European Parliament elections. A gauge of European banks posted the second-best performance on the Stoxx 600, with Italian lenders including UniCredit SpA leading gains. Atos climbed the most since November 2011 after the French computer-services supplier offered to buy rival Bull for about 620 million euros ($845 million). Getinge AB sank 10 percent as the Swedish maker of hospital equipment postponed its investor day because of talks with the U.S. Food and Drug Administration. The Stoxx Europe 600 Index added 0.6 percent to 343.69 at the close of trading, for a fourth day of gains.
• Draghi’s Drive for Asset-Backed Action Rouses Academic Skeptics. Mario Draghi’s plans for credit easing may not turn out to be all that easy. In seeking to unblock the supply of loans to the economy by reviving the European market for asset-backed securities, the European Central Bank president risks an unprecedented reach into the functioning of the financial system that could backfire, according to academics including former Bank of England Deputy Governor Paul Tucker.
• Bad Credit No Problem as Shares of Balance Sheet Bombs Rise 94%. In the U.S. equity market, the worse a company’s finances, the better it’s doing. Stocks with the weakest balance sheets have climbed more than 8 percent in 2014 and 94 percent since the end of 2011, generating almost twice the gain in the Standard & Poor’s 500 Index (SPX) over that period, according to data compiled by Bloomberg and Goldman Sachs Group Inc. Shares in the category this year are beating those that most investors consider the bull market’s leaders, such as small caps and biotechnology, which tumbled in March.

Wall Street Journal: 

• Ukraine Chooses the West. But Russia won't stop trying to destabilize the new Kiev government. Ukrainians gave Europe a democracy lesson on Sunday. Now the daunting task falls to President-elect Petro Poroshenko to safeguard this hard-won freedom and Ukraine's independence against Russian assault. Mr. Poroshenko secured an unprecedented majority in the first round by winning across the country, including parts of the Russian-speaking east that were able to vote. He and the next three leading candidates ran on a pro-European platform. The two pro-Russia candidates won a mere 6% between them. Ukraine also shunned...
  
• Crisis in Ukraine: Streaming Coverage.
• Real Estate Tycoon Sees Titanic Moment for China’s Housing Market. China’s once buoyant property market is facing some rough sailing. In fact, according to one tycoon – Soho China Ltd’s chief Pan Shiyi — the real estate market is looking more like the Titanic headed in the direction of an iceberg. Mr. Pan, the co-founder and chairman of Soho China Ltd., is taking a very bearish view on the housing market, which has struggled this year. In the first four months of the year, home sales were down 9.9% from the same period a year ago in value terms, official data shows. New construction starts — as calculated by area — were down almost 25% year over year in the same period.
• Loan Scheme Delivers Blow to Small Businesses. Tisto Chapman, an owner of a Powerhouse Gym in Burbank, Calif., said that in August he paid a St. Louis broker thousands of dollars to help him obtain a bank loan to upgrade his facilities and refinance debt. It seemed like a no-lose proposition, in part because the broker, Richard Saddler, promised to refund him the $12,500 fee if the loan didn't materialize, Mr. Chapman said. In the next month and a half, Mr. Saddler repeatedly reassured Mr. Chapman that the loan was being processed, according to the gym owner. But in...
• The Myth of the Climate Change '97%'. What is the origin of the false belief—constantly repeated—that almost all scientists agree about global warming? Last week Secretary of State John Kerry warned graduating students at Boston College of the "crippling consequences" of climate change. "Ninety-seven percent of the world's scientists," he added, "tell us this is urgent." Where did Mr. Kerry get the 97% figure? Perhaps from his boss, President Obama, who tweeted on May 16 that "Ninety-seven percent of scientists agree: #climate change is real, man-made and dangerous." Or maybe from NASA, which posted (in more measured language) on...
  

Fox News: 

• Medicaid surge triggers cost concerns for states. From California to Rhode Island, states are confronting new concerns that their Medicaid costs will rise as a result of the federal health care law. That's likely to revive the debate about how federal decisions can saddle states with unanticipated expenses.

CNBC: 

• Meet George Jetson: Apple(AAPL) preps iPhone 'big play'. Apple is readying a new software platform that would turn the iPhone into a remote control for lights, security systems and other household appliances, as part of a move into the "internet of things".
• As the US honors its veterans, problems pile up at the VA. (video) Questions surrounding the Department of Veterans Affair's leadership have swirled amid growing controversy about the agency's handling and oversight of hospitals dedicated to caring for America's veterans.
• Exclusive hedge funds crack open door to Main Street.

Zero Hedge:

• Gotta Keep Dancing – Trading Of Penny Stocks Soars To Record.
• China Has A Housing Bubble In "Some Cities", PBOC Admits.
• Financial Storm Chasing With Blinders On: How The Fed Is Driving The Next Bust.
• Daniel Hannan Explains Why Socialism Does Not Work.
• Japan Begins Purposely Dumping 100s Of Tons Of Radioactive Water From Fukushima Into The Pacific.
• China's Anti-Terrorism Challenge.
• China And Russia Hold "Massive" Joint Naval Drill: This Is What It Looked Like.
• Federal Reserve Admits Truth In Internal Memo: "Prices Continue To Rise Between 3% And 33%".
• Recovery Watch: Global Trade Tumbles Most In 5 Years. (graph)
• Piketty Fudged His Wealth Data But Progressives Still Support His 'Compelling Theoretical Predictions'.
• Edge of a knife! Eurozone: Countdown to Crisis? Yes or No? (graph)
• China Scrambles Fighter Jet, Flies Within 50 Meters Of Japanese Airplanes.
• When Does the Story Break?
• And The Worst Performing Strategy In 2014 Is... (graph)
• Europe Voted: Anti-EU And Protest Parties Take Nearly A Third Of All Europarliament Seats.
• The Retail Death Rattle Grows Louder.
• How To Fix High-Frequency Trading.
• The Top 100 Hedge Funds Ranked By Equity Holdings.

ValueWalk:

• Lacy Hunt: The Dark Side of Debt.

Business Insider:

• There's No Fear On Wall Street.
• Europe's Most Peace-Loving Countries Export A Huge Amount Of The World's Weapons.
• Former President Of Poland Says The US Is No Longer A World Leader.
• Deadly Bacteria Can Live On Airplane Seats For A Week.
• Armed Pro-Russian Separatists Have Gathered Outside The Home Of Ukraine's Richest Man.
• White House Accidentally Reveals The Identity Of The CIA's Afghanistan Chief. 
• FT: China Accuses Major US Consulting Firms Of Spying.
• The EU Is Safe For Now, But Its Future Looks Terrible. 
• More And More Once-Exclusive Hedge Funds Are Tapping Mom And Pop.
• KYLE BASS: China Isn't Just Slowing Down — It's Contracting.
• Key Chinese Industrial Commodity Prices Keep Tumbling.

Reuters:

• Bank of Japan, more confident about recovery, quietly eyes stimulus exit. The Bank of Japan has begun shifting its focus from supporting growth to ways of phasing out its massive stimulus, taking first tentative steps towards a potentially momentous move for the world economy. Current and former central bankers familiar with internal discussions say an informal debate is under way on how to prepare for an exit from the BOJ's 13-month-old "quantitative and qualitative monetary easing."
• Russia urges Kiev to halt "military operation against own people". Russia urged the Ukraine government to halt what it called a military operation against its own people on Monday and called on the OSCE international monitoring mission to investigate clashes with pro-Russian separatists in the eastern city of Donetsk. Ukraine launched air strikes and a paratrooper assault against pro-Russian rebels who seized an airport on Monday, as its newly elected leader rejected any talks with "terrorists". 
• Pfizer(PFE) walks away from $118 bln AstraZeneca takeover fight.
• Russia's secret spending on rise, budget risks not properly assessed - IMF. Russian public spending that is classified as secret will nearly double by 2016 to reach a quarter of all expenditures, the IMF said on Monday, urging more disclosure and analysis of budget risks. The International Monetary Fund also said financial reporting on the public sector - which accounts for more than two-thirds of Russia's $2-trillion economy - was not comprehensive enough. The category includes government entities and state-controlled firms.
• Brazil's 2014 inflation view rises to 6.47 pct.

Telegraph: 

• Hedge funds in worst start to year since financial crisis. Lansdowne Partners, Odey Asset Management and Brevan Howard are among the stellar hedge funds to have had a poor start to the year.

Wirtschaftswoche:

• German Economy May Grow .5% in 2Q, IWH Institute Tells WiWo. German GDP growth may slow to .3% in 3Q, citing forecast by the Institute for Economic Research in Halle.

Economic Observer:

• China Cuts Central SOE Profit Growth Target to 5%. China cuts profit growth target for central government-controlled companies to 5% this year from 10% year earlier, citing people from the State-owned Assets Supervision and Administration Commission.

Weekend Recommendations

Barron's:

• Bullish commentary on (TSN), (BRSS), (TWX) and (BKS).

• Bearish commentary on (SHLD).

Night Trading

• Asian indices are -.25% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 112.0 -6.0 basis points.

• Asia Pacific Sovereign CDS Index 82.25 -2.75 basis points.

• FTSE-100 futures +.41%.

• S&P 500 futures +.33%.

• NASDAQ 100 futures +.36%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AZO)/8.44
• (CRMT)/.78
• (WDAY)/-.15

Economic Releases
8:30 am EST

• Durable Goods Orders for April are estimated to fall -.7% versus a +2.6% gain in March.
• Durables Ex Transports for April are estimated unch. versus a +2.0% gain in March.
• Cap Goods Orders Non-Defense Ex Air for April are estimated to fall -.3% versus a +2.2% gain in March.

9:00 am EST

• The FHFA House Price Index for March is estimated to rise +.5% versus a +.6% gain in February.
• The S&P/CS 20 City MoM SA for March is estimated to rise +.7% versus a +.76% gain in February.
  

9:45 am EST

• The Preliminary Markit US Services PMI for May is estimated to fall to 54.5 versus 55.0 in April.

10:00 am EST

• Consumer Confidence for May is estimated to rise to 83.0 versus 82.3 in April.
• Richmond Fed Manufacturing for May is estimated to fall to 5.0 versus 7.0 in April.

10:30 am EST

• Dallas Fed Manufacturing Activity for May is estimated to fall to 9.2 versus 11.7 in April.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Lockhart speaking, ECB's Draghi speaking, $31B 2Y T-Note auction, KeyBanc Industrial Automotive/Transportation Conference and the Deutsche Bank Financial Services Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and financial shares in the region. I expect US stocks to open modestly higher and to maintain gains into the afternoon. The Portfolio is 75% 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 higher on technical buying, central bank hopes, less European debt angst and short-covering. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 75% net long heading into the week.

Market Week in Review

• S&P 500 1,900.53 +1.21%*

 The Weekly Wrap by Briefing.com.

*5-Day Change