Friday Watch

Evening Headlines

Bloomberg:

• China Readies for State-Enterprise Ownership Reforms. (video)

• Bond Yields Shrug Off Commodity Slide Before Jobs. Australian bond yields rose, tracking US. Treasuries in shrugging off declines in oil and other commodities that raised questions about global reflation, while the nation’s stocks retreated. Better-than-forecast earnings at Macquarie Group Ltd. initially buoyed Australian stocks, which are headed for a losing week amid a sell-off in industrial metals including iron ore and copper. West Texas Intermediate crude steadied after tumbling almost 5 percent to below $46 a barrel -- a drop that took the Bloomberg Commodities Index to an eight-month low. Japan and South Korea are closed for a holiday. Australia’s S&P/ASX 200 Index was down 0.2 percent, while futures on the Hang Seng dropped 0.2 percent. New Zealand’s S&P/NZX 50 Index was little changed.

• Trump Tax Cuts Could Fuel Animal Spirits in Corporate Bonds. President Donald Trump’s tax reform proposals have the potential to unleash a short-term wave of enthusiasm in the corporate bond market. A lowering of the corporate tax rate and a one-time repatriation for overseas cash holdings of U.S. companies may tighten credit spreads. However, any initial boost might be unsustainable, said Morgan Stanley analyst Adam Richmond.

• Buffett Sells a Third of Berkshire's IBM(IBM) Holding, CNBC Reports. Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., sold about a third of his company’s investment in computer-services giant IBM, CNBC reported. The sales came in the first and second quarters, CNBC said, citing Buffett. Berkshire started building its International Business Machines Corp. stake in 2011, eventually becoming the company’s largest shareholder, with an investment valued at almost $13 billion. IBM’s shares gained about 21 percent in 2016 after a run of three straight annual declines, and are still more than 25 percent lower than the company’s 10-year peak in 2013. The shares have lagged behind both technology peers and the S&P 500 Index in 2017. “I don’t value IBM the same way that I did six years ago when I started buying,” Buffett told CNBC. “I’ve revalued it somewhat downward.”

Wall Street Journal: 

• Iraq Launches Fresh Push on Islamic State in Mosul. Forces advance from northern outskirts on militants trying to hold territory in the Old City.

• How a Hedge-Fund Ace Chased Silicon Valley Riches—and Embarrassed Himself. Wellington’s Nick Adams made his career in bank stocks before pouring money into tech startups, leading to an apology, refunds and a vow to get back to basics.

• House Panel Approves Plan to Undo Parts of Dodd-Frank Financial Law. Financial Choice Act includes easing regulations and some capital requirements for healthy firms and restructuring the Consumer Financial Protection Bureau.

• GOP Approves Bill to Replace Most of Affordable Care Act. (video) Bill faces uncertain prospects in the Senate. House Republicans repealed most of President Barack Obama’s signature health-insurance law Thursday in a tight vote, handing President Donald Trump his first legislative victory and vindicating GOP leaders who failed twice before to pass a bill.

• Ending ObamaCare, Part One. House Republicans take a giant step toward better health care.

Fox News:

• Pentagon eyes Iran-North Korea military connection. (video)

CNBC: 

• Jeff Bezos just sold $941 million worth of Amazon stock, his most lucrative sale ever.

Zero Hedge: 

• This Has Never Happened Before... (graph)

• Senate To Write Its Own Obamacare Repeal Bill.

• April Payrolls Preview: "It Better Be Good".

• US Vs Canada: The Numbers Behind the World’s Closest Trade Relationship.

• President Obama Sought NSA Intel On 1000s Of Americans During The 2016 Election.

• The Chart That's Keeping Goldman Up At Night.

• War Of Words Escalates: China Blasts "Hyper-Aggressive" North Korea's "Irrational Logic".

• Stocks Shrug As Obamacare Ouster Trumps Commodity Crash, Crude Carnage. (graph)

Business Insider:

• Ivanka Trump and EPA chief set to meet over the Paris climate agreement.

• British manufacturers are shaking off Brexit and reporting rapid growth.

• A top strategist says stocks look good despite a slow first quarter.

Telegraph:

• The European Union's antics serve as a reminder of why Britain voted to leave.

Night Trading 

• Asian equity indices are -.50% to unch. on average.

• Asia Ex-Japan Investment Grade CDS Index 92.75 +.5 basis point. 

• Asia Pacific Sovereign CDS Index 21.25 -.5 basis point.

• Bloomberg Emerging Markets Currency Index 71.98 -.03%.

• S&P 500 futures +.01%. 

• NASDAQ 100 futures -.03%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AXL)/.88

• (CI)/2.46

• (JLL)/.39

• (MCO)/1.24

Economic Releases  
8:30 am EST

• The Change in Non-Farm Payrolls for April is estimated to rise to 190K versus 98K in March.

• The Unemployment Rate for April is estimated to rise to 4.6% versus 4.5% in March.

• Average Hourly Earnings MoM for April are estimated to rise +.3% versus a +.2% gain in March.

3:00 pm EST

• Consumer Credit for March is estimated to fall to $14.0B versus $15.206B in February.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Yellen speaking, Fed's Fischer speaking, Fed's Williams speaking, Eurozone Retail Sales report, (PSMT) monthly sales report and the (AUY) investor day could also impact trading today.

BOTTOM LINE:  Asian indices are mostly lower, weighed down by industrial and commodity shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher.  The Portfolio is 75% net long heading into the day.

Stocks Slightly Lower into Final Hour on Emerging Markets/US High-Yield Debt Angst, Oil Decline, Earnigs Concerns, Commodity/Telecom Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Lower
  

• Sector Performance: Mixed
  

• Volume: Above Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 10.41 -2.5%

• Euro/Yen Carry Return Index 128.82 +.57%

• Emerging Markets Currency Volatility(VXY) 8.54 +.47%

• S&P 500 Implied Correlation 42.67 -5.2%

• ISE Sentiment Index 66.0 -4.35%
  

• Total Put/Call .91 -15.7%

• NYSE Arms .88 -7.48%

Credit Investor Angst:

• North American Investment Grade CDS Index 63.18 +.37%
  

• America Energy Sector High-Yield CDS Index 378.0 +1.71%

• European Financial Sector CDS Index 87.60 +22.9%

• Western Europe Sovereign Debt CDS Index 7.83 -5.26%

• Asia Pacific Sovereign Debt CDS Index 21.27 -2.21%

• Emerging Market CDS Index 197.90 +3.29%
  

• iBoxx Offshore RMB China Corporate High Yield Index 137.16 +.04%

• 2-Year Swap Spread 29.0 unch.

• TED Spread 31.0 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -30.25 +2.0 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.02 -.44%

• 3-Month T-Bill Yield .87% +1.0 basis point
  

• Yield Curve 104.0 +2.0 basis points
  

• China Import Iron Ore Spot $68.68/Metric Tonne n/a

• Citi US Economic Surprise Index -20.10 -.6 point

• Citi Eurozone Economic Surprise Index 68.80 +3.0 points

• Citi Emerging Markets Economic Surprise Index 32.4 -.6 point

• 10-Year TIPS Spread 1.86 -2.0 basis points
  

• 90.2% chance of Fed rate hike at July 26 meeting, 94.2% chance at Sept. 20 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +140 open in Japan 

• China A50 Futures: Indicating -26 open in China

• DAX Futures: Indicating +3 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 75% Net Long

Today's Headlines

Bloomberg:

• North Korea Issues Direct Criticism of China Amid Nuke Dispute. (video) North Korea has issued a rare direct criticism of China through a commentary saying its "reckless remarks" on the North's nuclear program are testing its patience and could trigger unspecified "grave" consequences. China, North Korea's largest trading partner and main benefactor, suspended imports of North Korean coal in line with U.N. sanctions and has been urging its traditional ally to stop nuclear and missile activities amid U.S. pressure to use its leverage to resolve the nuclear standoff. The commentary released Wednesday by the state-run Korean Central News Agency said that "a string of absurd and reckless remarks are now heard from China everyday only to render the present bad situation tenser."

• China H Shares Drop Most in Two Weeks Amid Deleveraging Concerns. (video) Chinese stocks traded in Hong Kong fell the most in two weeks, with an intensifying clampdown on financial leverage and increased regulatory scrutiny taking their toll on the nation’s assets. HSBC Holdings Plc surged after its first-quarter net income beat estimates. The Hang Seng China Enterprises Index slipped 0.8 percent at the close, its largest loss since April 18. China Minsheng Banking Corp. dropped to a 10-month low and commodity producers were among the biggest decliners after metals prices tumbled the most since November. The Shanghai Composite Index fell 0.3 percent to 3,127.37 at the close, its lowest level since Jan. 20.

• Metals Extend Sell-Off on Mounting China Concerns, Fed Outlook. (video) Copper posted the biggest two-day loss since 2015 as industrial metals plunged amid concern over demand in China and speculation that the Federal Reserve will further raise U.S. interest rates this year. Mining shares also extended losses. Demand concerns are mounting just as copper stockpiles tracked by the London Metal Exchange jumped 25 percent in two days, the most since March, signaling ample supplies. The Bloomberg World Mining Index of equities fell for a fourth day as iron ore tumbled in Dalian and steel plummeted in Shanghai.

• The World Is Buying American Diesel as Fast as Refiners Can Make It. The international market has a message for American refiners: Stay calm and keep turning crude into diesel. While a global glut has pushed crude prices down to five-month lows, manufacturers of middle distillates can’t make enough to satisfy demand. A combination of seasonal events is giving refiners on both the Atlantic and Gulf coasts a chance to boost exports to Europe and South America.

• American Consumer Comfort Remains Close to a 15-Year High.

Wall Street Journal:

• House Votes to Repeal Obamacare: Live Updates.

Fox News:

• ObamaCare replacement bill approved in House. (video)

CNBC:

• Apple's(AAPL) investing $1 billion to expand US jobs—here's how many it's created so far.

• Netflix(NFLX) hits new high as cord cutting increases and investors abandon traditional media.

• AT&T CEO says a corporate tax cut would mean thousands more jobs for 'hard hat' workers. (video).

Zero Hedge:

• "Someone Is Blowing Up": RBC Warns China-Induced Unwinds Are Escalating. (graph)

• Black Gold Bloodbath - WTI Crude Crashes To $45 Handle, 9-Month Lows. (graph)

• Kyle Bass Warns "All Hell Is About To Break Loose" In China.

• Core Factory Orders Tumble Most In 13 Months. (graph)

• March Trade Deficit Shrinks To Smallest Since October. (graph)

• Trump Rages "'Fake News' Media Is Officially Out Of Control".

• US Productivity Plunges In Q1. (graph)

• Jobless Claims Crash To Multi-Decade Lows. (graph)

Bear Radar

Style Underperformer:

• Mid-Cap Value -.7%

Sector Underperformers:

• 1) Oil Service -3.3% 2) Gold & Silver -3.0% 3) Steel -2.0%

Stocks Falling on Unusual Volume: 

• CBF, HTGC, COMM, THS, BEAT, GKOS, VIAB, LKSD, ENTL, LNTH, CAKE, TGH, SLCA, LPI, CATM, UNT, STOR, MASI, WSR, LVLT, DDD and CLVS

Stocks With Unusual Put Option Activity:

• 1) SLCA 2) NBR 3) OAS 4) SQ 5) CTL

Stocks With Most Negative News Mentions:

• 1) CAKE 2) EEP 3) CTL 4) HEP 5) HFC

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Growth +.2%

Sector Outperformers:

• 1) Drugs +.8% 2) Biotech +.7% 3) Software +.4%

Stocks Rising on Unusual Volume:

• CLDR, PVTB, FORM, GIS, RAIL, USNA, SQ, DATA, RACE, LITE, BREW, KLIC, NSIT, ATSG, VWR, STMP, CEVA, SNI, HIIQ, EVTC, CCE, MGPI, NICE, CENTA, FIVN, OSUR, USCR, BZH, CSGS, IIVI, PRTK SFS, INOV, ARRS, GOGO, XPO, FOXF, ANSS, OMF, CF, GPN, ZTS, ALGN, CECO, VIAV, GMED, REGN, ITRI, VAC, ICPT, BRKR, MMS, ABC, AXDX, FEYE, TPX and ACIW

Stocks With Unusual Call Option Activity:

• 1) GIS 2) FMSA 3) FOXA 4) VIAB 5) XLU

Stocks With Most Positive News Mentions:

• 1) DLPH 2) GMED 3) EMKR 4) REGN 5) TLRD

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +34.5% Above 100-Day Average
• 6 Sectors Rising, 4 Sectors Declining
• 57.3% of Issues Advancing, 42.7% Declining
• 114 New 52-Week Highs, 85 New Lows
• 49.8% of Issues Above 200-day Moving Average
• Average 14-Day RSI 36.4%
• Vix 10.7 +.6%
• Total Put/Call .76 -29.6%
• TRIN/Arms .82 -14.5%