Stocks Surging into Final Hour on Fed Rate-Cut Hopes, Less European/Emerging Markets/US High-Yld Debt Angst, Short-Covering, Transport/Restaurant Sector Strength

 Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Below Average

• Market Leading Stocks: Outperforming

Equity Investor Angst:

• Volatility(VIX) 12.9 +.23%

• Euro/Yen Carry Return Index 126.29 -.18%

• Emerging Markets Currency Volatility(VXY) 7.85 -.13%

• S&P 500 Implied Correlation 32.51 +1.2%

• ISE Sentiment Index 115.0 +64.3%
  

• Total Put/Call .76 -13.6%

• NYSE Arms 1.0 -25.4%

Credit Investor Angst:

• North American Investment Grade CDS Index 51.69 -1.33%
  

• America Energy Sector High-Yield CDS Index 606.0 -.51%

• European Financial Sector CDS Index 59.28 -1.68%

• Italian/German 10Y Yld Spread 197.0 -23.5 basis points
  

• Asia Ex-Japan Investment Grade CDS Index 61.5 -.12%
  

• Emerging Market CDS Index 163.11 -.13%
  

• iBoxx Offshore RMB China Corporate High Yield Index 164.37 +.08%

• 2-Year Swap Spread 3.5 -.75 basis point

• TED Spread 18.0 +.75 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -16.75 -.75 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 67.68 +.10%
• 3-Month T-Bill Yield 2.20% +3.0 basis points

• Yield Curve 18.75 -2.5 basis points

• China Iron Ore Spot 116.50 USD/Metric Tonne -.7%

• Citi US Economic Surprise Index -65.40 -6.1 points

• Citi Eurozone Economic Surprise Index -2.6 +2.0 points

• Citi Emerging Markets Economic Surprise Index -34.70 -.6 point

• 10-Year TIPS Spread 1.65 -1.0 basis point
• 100.0% chance of Fed rate cut at Sept. 18th meeting, 100.0% chance of cut at October 30th meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +60 open in Japan 
• China A50 Futures: Indicating -54 open in China

• DAX Futures: Indicating +3 open in Germany

Portfolio:

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

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

• Market Exposure: Moved to 100% Net Long

Morning Market Internals

NYSE Composite Index:

• Volume Running -14.2% Below 100-Day Average
• 10 Sectors Rising, 1 Sectors Declining
• 63.7% of Issues Advancing, 31.8% Declining
• 161 New 52-Week Highs, 20 New Lows
• 59.8% of Issues Above 200-day Moving Average
• Average 14-Day RSI 52.2%
• Vix 13.1 +1.6%
• Total Put/Call .88 unch.
• TRIN/Arms 1.27 -5.2%

Wednesday Watch

Evening Headlines
Bloomberg:       

• EU Leaders Nominate Lagarde for ECB President: Summit Update.

• Pence Abruptly Cancels Trip; Official Says ‘No Cause for Alarm’.

• Asia Stocks Slip; U.S. Yields Hit New 2 1/2-Year Low. Stocks in Asia were mostly lower Wednesday as investors took a breather after four weeks of gains. Ten-year Treasury yields dipped to the lowest since November 2016 following a disappointing run of economic data. Japanese shares slipped with equities in Korea and Hong Kong, while those in Australia edged higher. The yen hit its high for the session after the Bank of Japan made small tweaks to its bond buying program. The rally extended in Treasuries and gold. News on European Central Bank and Federal Reserve leadership appointments underlined the prospect for easier monetary policy, which could offer support for a range of assets. Futures on the S&P 500 Index slid 0.1% as of 10:20 a.m. in Tokyo. The underlying gauge rose 0.3% Tuesday. Japan’s Topix fell 0.8%. Hong Kong’s Hang Seng Index declined 0.3%. Australia’s S&P/ASX 200 Index rose 0.4%. South Korea’s Kospi lost 0.6%.  

• Five Things You Need to Know to Start Your Day.  

• Lagarde Supremacy, Depth of Fed Cut, Truce Too Late: Eco Day.

• Grim Earnings Forecasts Are Getting Worse by the Week.

• Hedge Funds Are Tracking Private Jets to Find the Next Megadeal.

Wall Street Journal:

• IMF’s Lagarde Nominated to Run ECB.

• Tech Giants Battle Spread of Spurious Cancer Treatments.

• A Leftist Mob Attacked Me in Portland.

• Nike(NKE) Defends Pulling ‘Betsy Ross’ Sneaker as Arizona Governor Withdraws Aid.

• China Hardens Line on Hong Kong Protests, Hinting It Could Intervene.

Fox News:

• Navy SEAL celebrates 'not guilty' verdict in murder trial as wife says family 'terrorized'.

• Mayor Pete using police shooting probe to 'further political campaign:' officer.

CNBC:

• Trump to nominate Judy Shelton, Christopher Waller to the Federal Reserve.

• Amazon is making grocery brands pay for losses on Prime Day promotions, as focus on profit grows.

• Symantec shares soar on report that Broadcom is in talks to acquire the security software maker.

Zero Hedge:

• Would The Founding Fathers Be Banned From Social Media? 

• Arizona Blocks Nike After Kaepernick-Complaint Sparks Virtue-Signaling Sneaker Ban.

• Pastors: Ocasio-Cortez And MSM Spewing 'Misinformation' On Border Facility Conditions .

• Gold Surges After Trump Nominates Gold Standard Advocate Judy Shelton To Fed Board.

• Sorry, Elon: Waymo's Robo Taxis Win Approval To Start Carrying Passengers.

• Trump Admin Drops Fight For Citizenship Question In 2020 Census.  

• Tesla(TSLA) Shares Spike 8% On Record Deliveries And Record Production In Q2 2019.

• Bigger-Than-Expected Crude Draw Fails To Revive Oil's Worst OPEC Reaction Since 2014.

• Gold Soars Most In 8 Months As Copper & Crude Collapse.

Business Insider: 

• Chinese officials are forcing tourists to install an invasive app that downloads their texts and scans their phones at the border of one of the most surveilled regions in the country.

• Hedge funds are failing left and right and billionaire investors say the carnage has only gotten started.

Night Trading 

• Asian equity indices are -.75% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 62.50 +.5 basis point.

• China Sovereign CDS 42.25 +.75 basis point.

• Bloomberg Emerging Markets Currency Index  67.59 -.03%.

• S&P 500 futures -.13%.

• NASDAQ 100 futures -.10%.

Morning Preview Links 

Earnings of Note 
Company/Estimate

Before the Open:

• (ISCA)/.39

• (OMN)/.21

After the Close:

• None of note

Economic Releases
7:30 am EST

• Challenger Job Cuts YoY for June.

8:15 am EST

• The ADP Employment Change for June is estimated to rise to 140K versus 27K in May.
  

8:30 am EST

• The Trade Balance for May is estimated at -$54.0B versus -$50.8B in April.

• Initial Jobless Claims for last week are estimated to fall to 223K versus 227K the prior week.

• Continuing Claims are estimated to fall to 1675K versus 1688K prior.

10:00 am EST

• Factory Orders for May are estimated to fall -.6% versus a -.8% decline in April.

• The ISM Non-Manufacturing Index for June is estimated to fall to 56.0 versus 56.9 in May.
  

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,312,710 barrels versus a -1,278,800 barrel decline the prior week. Gasoline supplies are estimated to fall by -2,703,430 barrels versus a -996,000 barrel decline the prior week. Distillate inventories are estimated to fall by -1,491,290 barrels the prior week. Finally, Refinery Utilization is estimated to fall by -.27% versus a +.3% gain prior.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The China Services PMI, weekly Bloomberg Consumer Comfort Index, weekly MBA Mortgage Applications report and the (F) conference call could also impact trading today.

BOTTOM LINE: Asian indices are mostly 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 75% net long heading into the day.

Stocks Slightly Lower into Final Hour on China Trade Deal Concerns, Global Growth Worries, Oil Plunge, Energy/Transport Sector Weakness

 Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 13.5 -4.3%

• Euro/Yen Carry Return Index 126.54 -.45%

• Emerging Markets Currency Volatility(VXY) 7.87 -2.0%

• S&P 500 Implied Correlation 33.43 -4.02%

• ISE Sentiment Index 73.0 -20.0%
  

• Total Put/Call .81 -7.95%

• NYSE Arms 1.22 +25.8%

Credit Investor Angst:

• North American Investment Grade CDS Index 52.57 -1.01%
  

• America Energy Sector High-Yield CDS Index 610.0 +1.36%

• European Financial Sector CDS Index 60.30 -2.96%

• Italian/German 10Y Yld Spread 220.5 -11.75 basis points
  

• Asia Ex-Japan Investment Grade CDS Index 61.45 -1.34%
  

• Emerging Market CDS Index 163.09 +1.53%
  

• iBoxx Offshore RMB China Corporate High Yield Index 164.25 -.01%

• 2-Year Swap Spread 4.25 -.75 basis point

• TED Spread 17.25 -7.0 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -16.0 -.75 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 67.59 -.09%
• 3-Month T-Bill Yield 2.17% +5.0 basis points

• Yield Curve 21.25 -3.25 basis points

• China Iron Ore Spot 117.0 USD/Metric Tonne -2.1%

• Citi US Economic Surprise Index -59.30 -.1 point

• Citi Eurozone Economic Surprise Index -4.6 +1.8 points

• Citi Emerging Markets Economic Surprise Index -34.10 +1.4 points

• 10-Year TIPS Spread 1.66 -4.0 basis points
• 100.0% chance of Fed rate cut at Sept. 18th meeting, 100.0% chance of cut at October 30th meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -100 open in Japan 
• China A50 Futures: Indicating -146 open in China

• DAX Futures: Indicating +1 open in Germany

Portfolio:

• Slightly Lower: On losses in my biotech/medical/retail sector longs

• Disclosed Trades: None

• Market Exposure: 75% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Value -.9%

Sector Underperformers:

• 1) Oil Service -2.6% 2) Steel -1.7% 3) Semis -1.6%

Stocks Falling on Unusual Volume: 

• PUYI, GBX, AYI, ADP, WMGI, BCEI, BL, HNGR, GTT, PAYS, PB, CC, DD, RMR, BDC, LOGI, NFE, PAYX, LYB, AERI and MTLS

Stocks With Unusual Put Option Activity:

• 1) CHK 2) ITCI 3) APC 4) MCHP 5) FEYE

Stocks With Most Negative News Mentions:

• 1) ARW 2) JWN 3) VALE 4) WDC 5) MU

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth -.1%

Sector Outperformers:

• 1) Gold & Silver +2.2% 2) Telecom +1.6% 3) REITs +1.5%

Stocks Rising on Unusual Volume:

• BPTH, AMRN, DOVA, SRC, LHX and CARS

Stocks With Unusual Call Option Activity:

• 1) CHK 2) ZNGA 3) SWN 4) AET 5) JCP

Stocks With Most Positive News Mentions:

• 1) AMRN 2) PRGO 3) DAL 4) EA 5) LMT

Charts:

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