Friday Watch

Night Trading 

• Asian equity indices are -1.75% to -.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 140.5 +1.25 basis points 
• Asia Pacific Sovereign CDS Index 50.75 -1.0 basis point.
• Bloomberg Emerging Markets Currency Index 72.07 -1.46%. 
• S&P 500 futures -1.72%. 
• NASDAQ 100 futures -1.62%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (FINL)/.21

Economic Releases  
8:30 am EST

• Durable Goods Orders for May are estimated to fall -.5% versus a +3.4% gain in April.
• Durables Ex Transports for May are estimated to rise +.1% versus a +.5% gain in April.
• Cap Goods Orders Non-Defense Ex Air for May are estimated to rise +.4% versus a -.6% decline in April.

10:00 am EST

• Final Univ. of Mich. Consumer Sentiment for June is estimated to fall to 94.1 versus 94.3 in May.

Upcoming Splits 

• (SSNC) 2-for-1
• (CORE) 2-for-1

Other Potential Market Movers

• The France GDP report could also impact trading today.

BOTTOM LINE:  Asian indices are sharply lower, weighed down by commodity and technology shares in the region. I expect US stocks to open sharply lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the day.

Stocks Surging into Final Hour on Diminished Brexit Fears, Less European/Emerging Markets/US High-Yield Debt Angst, Oil Gain, Commodity/Financial Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Almost Every Sector Rising
  

• Volume: Below Average

• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• Volatility(VIX) 18.63 -12.0%

• Euro/Yen Carry Return Index 125.47 +1.75%

• Emerging Markets Currency Volatility(VXY) 10.27 -3.84%

• S&P 500 Implied Correlation 56.52 -6.02%

• ISE Sentiment Index 123.0 +36.7%
  

• Total Put/Call 1.30 +27.5%

• NYSE Arms .72 -43.32% 

Credit Investor Angst:

• North American Investment Grade CDS Index 76.68 -2.3%
  

• America Energy Sector High-Yield CDS Index 746.0 -4.36%

• European Financial Sector CDS Index 94.67 -3.71%

• Western Europe Sovereign Debt CDS Index 27.87 -2.65%

• Asia Pacific Sovereign Debt CDS Index 50.75 -2.15%

• Emerging Market CDS Index 277.50 -1.69%
  

• iBoxx Offshore RMB China Corporate High Yield Index 129.99 +.05%

• 2-Year Swap Spread 12.75 -.25 basis point
  

• TED Spread 37.75 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -36.50 +2.5 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.92 +.56%
• 3-Month T-Bill Yield .28% +1.0 basis point

• Yield Curve 95.0 +1.0 basis point
  

• China Import Iron Ore Spot $51.89/Metric Tonne -.76%

• Citi US Economic Surprise Index -19.0 -3.0 points

• Citi Eurozone Economic Surprise Index -.3 +1.0 point

• Citi Emerging Markets Economic Surprise Index -5.8 unch.

• 10-Year TIPS Spread 1.54% +6.0 basis points
• 33.4% chance of Fed rate hike at Sept. 21 meeting, 34.8% chance at Nov. 2 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +272 open in Japan 
• China A50 Futures: Indicating -9 open in China

• DAX Futures: Indicating +10 open in Germany

Portfolio: 

• Higher: On gains in my biotech/medical/tech/retail sector longs 
  

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg:  

• Bookies Place About 90% Chance on Brexit Rejection, Odds Show. (video) Bookmakers and gamblers strengthened again in their conviction that the U.K. will opt to remain in the European Union, as Britain began voting Thursday on whether to remain a member or split from the 28-nation bloc. Paddy Power Betfair Plc, Ireland’s largest bookmaker, said Thursday that the odds on a “Remain” vote had shortened to a 1/12 chance, indicating a 92 percent probability. Yesterday, odds showed a 77 percent chance. That pattern was mirrored across gambling firms. “Remain has been backed hard again this morning with the price coming in on the back of 4 million pounds traded,” said Naomi Totten of Betfair, in a note. “There was nearly 10 million pounds traded on the day of the Scottish referendum so the market will be worth watching closely as polling day continues.”
• French Output Declined for First Time in Four Months in June. France’s private-sector economy shrank for the first time in four months in June, with manufacturing slumping the most in more than a year. A composite Purchasing Managers’ Index fell to 49.4 from 50.9 in May, London-based Markit Economics said Thursday. That’s below the 50-point mark that divides expansion from contraction. A gauge for manufacturing dropped to 47.9, while a measure for services fell to 49.9. “A renewed fall in new business was behind the decline, with respondents highlighting the difficulty of securing work amid a fragile demand environment,” said Jack Kennedy, senior economist at Markit. “A flagging manufacturing sector was again the main source of weakness.”
• China Stocks in U.S. Approach Death Cross as Losses Widen: Chart.
• China's Early Data Show Smaller Firms Hurting. China’s fragile economic stabilization looks to be largely intact in June, though strains are showing for small companies, according to the earliest batch of private indicators. Minxin’s small and medium-sized business manufacturing indexes declined this month. That’s in contrast to a separate survey of executives at bigger, listed companies that showed improving conditions. Rounding out a mixed bag of readings, a measure of sales managers’ sentiment was stable, while a manufacturing gauge that’s based on satellite images showed an improvement for a third month. As a credit surge from earlier this year wanes, the government is boosting investment to pick up the slack from an indebted private sector that’s proving reluctant to spend. Judging by the indications emerging so far for June, that strategy risks favoring larger, state-owned corporations while private ones miss out on the benefits of government support. The first official reading for the month comes July 1, with the government’s manufacturing purchasing manager index at this stage forecast to remain steady at 50.1, according to economists surveyed by Bloomberg. Here’s what the earliest private indicators show:
• Global Steel Frictions Rise as China Hits Back at U.S. Mills. China has pushed back after the U.S. boosted anti-dumping and anti-subsidy duties on some of its steel products, saying mills in the world’s biggest economy lack competitiveness because they are over-protected.
• Europe Stocks Rise for 5th Day as Britons Vote on EU Membership. (video) European equities extended their rally into a fifth day as U.K. voters headed to polls to decide whether to stay or leave the European Union. The Stoxx Europe 600 Index rose 1.5 percent at the close of trading, as two polls conducted before Thursday showed a lead for the campaign to keep Britain in the European Union. Bookmaker Paddy Power Betfair Plc said Thursday that the odds on a “Remain” vote had shortened to a 1/12 chance, indicating a 92 percent probability. All industry groups in the Stoxx 600 climbed. The gauge is set for its best week since 2011. Britain’s benchmark FTSE 100 Index advanced 1.2 percent.
• Giving Up on Oil Recovery, European Banks Head for Exit on Loans. After hanging on for two years of depressed energy prices, some European banks that lent to the oil and gas industry are starting to scale down their exposure. Lenders including UniCredit SpA, HSBC Holdings Plc and ING Groep NV have either sold some of the loans they made to energy companies in the past two months or held discussions with potential buyers, according to people familiar with the situations, who asked not to be identified because they weren’t authorized to discuss them publicly. New loans to energy companies in the region have also fallen by more than 50 percent this year, data compiled by Bloomberg show. Banks are losing hope that a recent pickup in crude will be enough for them to dodge losses on energy-industry loans originally made when oil was at double today’s prices. That’s making them rethink whether maintaining corporate-banking relationships is worth the potential credit risks. “European banks have been extending the debt for one or two years thinking that the market would repair itself, just like it did in 2009-10,” said Alex Brooks, an analyst at Canaccord Genuity Group Inc. in London. “It’s clear that it’s not going to happen.” 
• Tesla(TSLA) Bull Adam Jonas Cuts Rating Due to SolarCity(SCTY) Deal Risk. (video) Morgan Stanley’s Adam Jonas, one of the most bullish analysts on Tesla Motors Inc., joined the ranks of those who have panned Elon Musk’s $2.86 billion proposal to combine the automaker with solar-panel provider SolarCity Corp. Jonas, whose firm has underwritten securities offerings for Tesla, lowered his recommendation on the stock Thursday to equal-weight from overweight and reduced his 12-month target for the stock price to $245 from $333.

Wall Street Journal:

• Brexit: U.K. Votes in EU Referendum—Live Coverage.
• Some GOP Business Leaders Are Backing Clinton. Democratic presidential candidate to get backing from executives, some of whom cite unease with Trump’s candidacy.

Fox News:

• Supreme Court blocks Obama immigration plan. (video)

CNBC:

• Twilio soars as stock opens at $23.99 for trading. (video)
• Deutsche Bank(DB) to shut 188 German branches, cut 3,000 staff.
• New warning lights for rising home prices.

Zero Hedge:

• Britain Votes: All You Need To Know About Today's Brexit Referendum And What To Look For.
• The European Union: Government By Deception.
• World's Largest Hedge Fund Stumbles: Bridgewater Pure Alpha Loses Over 6% In June; Down 14% YTD. (graph)
• Heavily-Armed Gunman Killed After Opening Fire In German Cinema.
• Political Shock Coming No Matter Which Side Wins Brexit.
• New Home Sales Plunge Most In 8 Months Following Sharp Downward Revisions; Median Home Price Tumbles. (graph)
• US Manufacturing PMI Jumps In June But "Domestic Demand Remains Worryingly Weak". (graph)
• Where Are The Jobs?
• Fed's National Activity Index Plunges In May. (graph)
• Hawkish Fed Looms As Initial Jobless Claims Plunge Near 42 Year Lows. (graph)

Business Insider:

• SUPREME COURT BLOCKS OBAMA'S IMMIGRATION PLAN.
• The Supreme Court just ruled in favor of affirmative action in college admissions.
• Here is what will happen on Friday if Britain votes to remain in the EU.
• The Baltimore police officer who allegedly gave Freddie Gray a ‘rough ride’ was found not guilty.
• Brexit is just one example of the political problems Europe is facing.

Bear Radar

Style Underperformer:

• Large-Cap Growth +.9%

Sector Underperformers:

• 1) Utilities -.2% 2) Gold & Silver +.2% 3) HMOs +.4%

Stocks Falling on Unusual Volume:

• EBS, RHT, CACI, FINL, WLL, SNI, SEDG and STMP

Stocks With Unusual Put Option Activity:

• 1) BBBY 2) IILG 3) RHT 4) P 5) FSLR

Stocks With Most Negative News Mentions:

• 1) POWI 2) SCTY 3) SJM 4) KNX 5) BBBY

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value +1.8%

Sector Outperformers:

• 1) Disk Drives +3.7% 2) Banks +2.6% 3) Computer Hardware +2.3%

Stocks Rising on Unusual Volume:

• PLNT, NTRA, CRH, MLHR, APOG, MGPI, HZO, EUFN, MEI, BKS, STRZA, ALRM, MU, TS, HYH, POT, QUNR, ANIP, MOS, CY, BDC and PGND

Stocks With Unusual Call Option Activity:

• 1) EWU 2) JCP 3) YELP 4) EEM 5) CCL

Stocks With Most Positive News Mentions:

• 1) MU 2) POST 3) APOG 4) CERN 5) OCN

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -17.9% Below 100-Day Average
• 6 Sectors Rising, 4 Sectors Declining
• 84.3% of Issues Advancing, 13.3% Declining
• 130 New 52-Week Highs, 4 New Lows
• 56.9% of Issues Above 200-day Moving Average
• Average 14-Day RSI 42.1%
• Vix 18.4 -13.1%
• Total Put/Call 1.15 +12.8%
• TRIN/Arms .91 -28.5%