Stocks Modestly Lower into Afternoon on Diminished Fed Rate Cut Expectations, China Trade Deal Concerns, European/Emerging Markets/US High-Yield Debt Angst, Pharma/Homebuilding Sector Weakness

 Broad Equity Market Tone:

• Advance/Decline Line: Around Even
  

• Sector Performance: Mixed
  

• Volume: Light

• Market Leading Stocks: Outperforming

Equity Investor Angst:

• Volatility(VIX) 13.3 +5.9%

• Euro/Yen Carry Return Index 126.51 +.1%

• Emerging Markets Currency Volatility(VXY) 7.62 -.78%

• S&P 500 Implied Correlation 32.0 +1.1%

• ISE Sentiment Index 121.0 +23.5%
  

• Total Put/Call .91 unch.

• NYSE Arms .65 -27.8%

Credit Investor Angst:

• North American Investment Grade CDS Index 52.75 +2.35%
  

• America Energy Sector High-Yield CDS Index 604.0 -.02%

• European Financial Sector CDS Index 61.11 +2.23%

• Italian/German 10Y Yld Spread 210.75 -13.75 basis points
  

• Asia Ex-Japan Investment Grade CDS Index 62.65 +1.83%
  

• Emerging Market CDS Index 163.89 +.78%
  

• iBoxx Offshore RMB China Corporate High Yield Index 164.55 +.06%

• 2-Year Swap Spread 3.25 -.25 basis point

• TED Spread 13.0 -5.0 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -19.0 -2.25 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 67.52 -.41%

• 3-Month T-Bill Yield 2.22% +2.0 basis points

• Yield Curve 17.25 -1.5 basis points

• China Iron Ore Spot 108.50 USD/Metric Tonne +.32%

• Citi US Economic Surprise Index -58.50 +7.1 points

• Citi Eurozone Economic Surprise Index -9.9 -7.3 points

• Citi Emerging Markets Economic Surprise Index -35.60 -.9 point

• 10-Year TIPS Spread 1.69 +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 -56 open in Japan 

• China A50 Futures: Indicating -189 open in China

• DAX Futures: Indicating +8 open in Germany

Portfolio:

• Slightly Lower: On losses in my biotech/tech/industrial sector longs

• Disclosed Trades: None

• Market Exposure: 100% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Growth -.5%

Sector Underperformers:

• 1) Video Gaming -1.8% 2) Homebuilding -1.6% 3) Steel -1.3%

Stocks Falling on Unusual Volume: 

• EA, DOVA, NTNX, RIO, AYI and YRD

Stocks With Unusual Put Option Activity:

• 1) QEP 2) AET 3) RTRX 4) SYMC 5) BRZU

Stocks With Most Negative News Mentions:

• 1) HL 2) MU 3) SENS 4) AAL 5) FCAU

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value unch.

Sector Outperformers:

• 1) I-Banking +1.1% 2) Airlines +1.0% 3) Retail +.9%

Stocks Rising on Unusual Volume:

• DBVT, ITRN, GOL, AZUL, SMPL, CODI, DGLD, FONR, TSU, CUK, SUZ, FCNCA, EOG, OMP, TALO, BAP, VRTS, STNE, ARVN, PB, ROKU, MGLN and ALBO

Stocks With Unusual Call Option Activity:

• 1) PAYX 2) KPTI 3) QEP 4) BBBY 5) KRE

Stocks With Most Positive News Mentions:

• 1) BAC 2) F 3) MDR 4) SPLK 5) BA

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -19.1% Below 100-Day Average
• 1 Sector Rising, 10 Sectors Declining
• 26.6% of Issues Advancing, 70.4% Declining
• 38 New 52-Week Highs, 11 New Lows
• 61.2% of Issues Above 200-day Moving Average
• Average 14-Day RSI 53.3%
• Vix 13.8 +9.4%
• Total Put/Call 1.06 -100.0%
• TRIN/Arms .62 -31.1%

Friday Watch

Evening Headlines
Bloomberg:     

• Chinese Outbound M&A Plummets as Trade War Keeps Companies at Home.

• China Bond Defaults Are Looking Less Scary. Why That Won’t Last.

• Donald Trump Takes Center Stage on July 4th With Jets, Tanks and Fireworks. 

• Asia Stocks Set for Muted Start as Jobs Data Loom. Asian stocks looked set for a muted start to trading with no direction from their U.S. counterparts thanks to the American holiday. The dollar was flat as investors await the key U.S. jobs report Friday. Futures in Japan, Australia and Hong Kong were little changed, as were U.S. contracts. European shares drifted Thursday in a lackluster session marked by thin trading volumes. Core bonds in the region climbed, with German 10-year yields dipping below the European Central Bank’s deposit rate for the first time. Treasuries weren’t trading thanks to Independence Day. Gold slipped but stayed above $1,400. Oil futures fell, even amid further Middle East tensions, with the British seizure of an Iranian vessel. Nikkei 225 futures were little changed. S&P/ASX 200 futures were flat. Hang Seng futures were flat. Futures on the S&P 500 Index increased 0.1%.

• Five Things to Start Your Day.

Wall Street Journal:

• Squeezed by U.S. Sanctions, Iran Shifts From Patience to Confrontation.

• Farmers Built a Soybean Export Empire Around China. Now They’re Fighting to Save It.

• Homeland Security Chief Takes Border Focus Farther South.

• EU Compromise Exposes Merkel’s Waning Influence.

Fox News:

• Trump delivers 'Salute to America' speech in DC, celebrating the spirit of every American.

• Anti-Defamation League weighs in on Betsy Ross flag debate.

CNBC:

• 
  Wall Street analysts are crazy about these stocks and see big upside in the next 12 months.
  

Zero Hedge:

• Obama DHS Chief Says 2020 Democrats Have "Unworkable" And "Unwise" Immigration Positions.

• Global Chip Supply In Jeopardy As New Trade Feud Erupts Between Japan And South Korea.

• Clothing Line Releases Betsy Ross Flag-Themed Sneakers As Nike Recall Theirs.

• Strongest Earthquake In Decades Rocks Southern California On July 4th.

• Watch Live: Trump Delivers Independence Day Salute To America.

• Florida Democrat: We Should Prosecute Anyone Who "Makes Fun" Of Members Of Congress.

• This Isn't About Sneakers, But People Who Want "No USA At All".

Night Trading 

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

• Asia Ex-Japan Investment Grade CDS Index 62.0 -.5 basis point.

• China Sovereign CDS 40.75 -1.5 basis points.

• Bloomberg Emerging Markets Currency Index  67.79 -.02%.

• S&P 500 futures +.06%.

• NASDAQ 100 futures +.18%.

Morning Preview Links 

Earnings of Note 
Company/Estimate

Before the Open:

• None of note

After the Close:

• None of note

Economic Releases
8:30 am EST

• The Change in Non-Farm Payrolls for June is estimated at 162K versus 75K in May.

• The Unemployment Rate for June is estimated at 3.6% versus 3.6% in May.

• Average Hourly Earnings MoM for June is estimated to rise +.3% versus a +.2% gain in May.

Upcoming Splits

• None of note

Other Potential Market Movers

• The German Factory Orders report could also impact trading today.

BOTTOM LINE: Asian indices are slightly higher, boosted by commodity and technology shares in the region. I expect US stocks to open mixed and to strengthen into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Today's Headlines

Bloomberg:     

• Euro-Area Slowdown Is No Longer Temporary, ECB's Rehn Says.

• Weidmann Won’t Seek Helm of IMF as He’s Happy at Bundesbank.  

• Draghi May Have Italy Risk on His Mind With Fresh Stimulus. 

• South America Eyes Trade Deal With Trump After Scoring EU Pact.

• Europe Stocks, S&P Futures Edge Up; Dollar Steady: Markets Wrap.  

• Oil Near $57 as Smaller U.S. Stockpile Drop Adds to Economy Woes.

• A Lagarde ECB, U.K.'s Negative Surprise, FX Threats: Eco Day.

• Putin Meets Pope as Relations Thaw Between Russia and Vatican. 

• U.S. Employment Is Looking Cooler Ahead of Friday’s June Jobs Data.

• Donald Trump Takes Center Stage on July 4th With Jets, Tanks and Fireworks.

• Euro Investors Are Less Worried Than Yuan Investors About Trump’s Tweets.

Wall Street Journal:

• Justice Department Renews Push for Census Citizenship Question.

• Lagarde’s First Job as ECB Boss: Sway Germany.

• Hong Kong Police Make Wave of Arrests After Protests.

• For U.S. Military Drones, Airspace Is Growing More Congested, Dangerous.

• Emergency Border-Wall Funding Blocked by Appeals Court.

• Russian Submarine That Caught Fire Was Nuclear-Powered.

• When It Comes to Colin Kaepernick, the Flag and Nike, It’s Just Business.

MarketWatch.com:

• OPEC, allies waging a battle to keep oil prices supported amid trade tensions.

• Just 77 companies are powering the global stock market rally.

Fox News:

• Trump celebrates after Rep. Amash, a fierce critic of the president, says he’s leaving GOP.

CNBC:

• Trump says ‘absolutely moving forward’ with census citizenship question, despite claims to contrary.

• Wall Street analysts are crazy about these stocks and see big upside in the next 12 months.

Zero Hedge:

• Putin Confirms Deadly Fire Was Aboard "Secretive" Nuclear-Powered Submarine.

• For The First Time Ever, German Bund Yields Drop Below The ECB's Deposit Rate.

• S&P Futures Celebrate July 4th Above 3,000 As Global Yields Tumble.

• The Campus Social Justice Warrior's Guide To Celebrating The Fouth Of July.

• Global Persecution Of Christians Is On The Rise.

• DoJ "Re-Evaluating All Available Options" On Census Citizenship Question.

• Defensive Stocks Surge Ahead Of Payrolls As Entire Treasury Curve Is Now Inverted.

• President Trump Said To Weigh Potential Aluminium Tariffs For Australia After G-20.

• What Did President Trump Say When Asked About The Epidemic Of Human Feces On America's Streets.

• Italian 30Y Yields Plunge Most In 7 Years After Rome Avoids EU's Excess Debt Penalty.

• Mexico Deports 33% More Migrants After Deal To Avoid Trump Tariffs.

• Nothing Is More Expensive Than A Free Government Service.

• China Forcing Tourists To Install 'Spy' App That Steals Personal Data.

Business Insider:  

• Conservatives are boycotting Nike after it pulled a controversial US flag sneaker, and some want a 'not so woke' alternative.