Friday Watch

Evening Headlines

Bloomberg:

• U.K. Won't Escape Shackles of EU Laws After Brexit, Bloc Says. (video) The U.K. must comply with hundreds of European Union regulations and European Court of Justice rulings even after its withdrawal from the bloc or face penalties, according to a series of negotiating documents under discussion by the EU’s 27 remaining member states. “All rulings given by the Court of Justice pursuant to the provisions of the withdrawal agreement are binding on the union and the United Kingdom, and are enforceable in the United Kingdom,” the European Commission’s Task Force in charge of preparing Brexit negotiations said in one of the so-called position papers circulated to national governments. The papers, posted on the commission’s website on Thursday, will be discussed among officials as soon as June 29.
• Happy Europeans May Bring Back Spark to Lagging Consumer Stocks. Europeans haven’t felt this good about spending in 16 years. That bodes well for companies focused on shoppers. The MSCI Europe Consumer Discretionary Index, which has typically tracked improvements in sentiment, has so far lagged gains in the broader regional measure this year. That may change, with the euro-area consumer confidence in June surging to its highest level since early 2001. 
• China Manufacturing Rose in June Amid Global Upturn. (video) China’s official factory gauge rose, adding to evidence that the world’s second-largest economy maintained its momentum in the second quarter.
• Asia Stocks Follow U.S. Drop as Dollar, Bonds Fall. Asian equity markets slid, paring a quarterly gain, after a slump in U.S. stocks triggered a surge in volatility. The dollar held on to losses and bonds fell as central banks worldwide shift toward a more hawkish tone. Stocks in Japan, Australia and South Korea declined after the S&P 500 Index lost the most in six weeks. The U.S. technology sector’s woes deepened as investors sold off the year’s biggest winners and rotated into banks. Australian 10-year yields jumped for a third day after the benchmark U.S. rate topped 2.29 percent for the first time in a month. Japan’s Topix dropped 0.8 percent as of 9:10 a.m. in Tokyo, trimming the quarter’s gain to 6.5 percent. Australia’s S&P/ASX 200 Index lost 1.4 percent. South Korea’s Kospi declined 0.6 percent, paring its quarterly advance to 10 percent. Futures on Hong Kong’s Hang Seng Index slid 0.5 percent.
• Apple’s(AAPL) Cook Reaped $145 Million Last Year, Most of S&P 500 CEOs.

Wall Street Journal:

• Trump Administration Tightens Limits on Getting Into the U.S., Targeting Six Nations and Refugee Program. New rules lay out more restrictive definition as to who constitutes close family, raising the ire of immigration advocates.
• GOP Operative Sought Clinton Emails From Hackers, Implied a Connection to Flynn. Peter W. Smith portrayed the former general as an ally in an effort, independent of the Trump campaign, to find personal emails deleted by Hillary Clinton.
• GE(GE), the Ultimate Global Player, Is Turning Local. Just look at its $200 million investment in India, which was crucial to winning giant locomotive deal.
• Trump Declares End to Obama-Era Energy Curbs. President pledges an era of ‘energy dominance’ by boosting nuclear and liquid natural gas and opening federal lands.

Fox News:

• House passes Kate’s Law, as part of illegal immigrant crackdown. (video)

MarketWatch:

• Low-income families spend 40% of their money on luxuries.
• It’s been an ugly first half for commodities in 2017. (graph)

CNBC: 

• Nike(NKE) tops Wall Street expectations; confirms deal with Amazon(AMZN).
• Senate GOP mulling not repealing Obamacare tax increase. (video)
• Alibaba(BABA) is working on an Amazon Echo rival that speaks Chinese, report says.
• Micron(MU) earnings: $1.62 a share, vs. estimated EPS of $1.51. (video)
• Japan May industrial output falls 3.3 percent on-month, marking fastest pace of decline since 2011.

Zero Hedge:

• Comey Friend Unveils "Smoking Gun" Story.
• Susan Rice Agrees To Testify Before House Intel Panel In Closed Session: Report.
• Global Debt Hits A New Record High Of $217 Trillion; 327% Of GDP. (graph)
• The "Diplomatic Quagmire" In Qatar Deepens 3 Days Before The Saudi Ultimatum Expires.
• Bob Woodward Blasts MSM: "Fair-Mindedness Is Essential If You Want People To Trust You". (video)
• In "Unprecedented Step" US Sanctions Chinese Entities With Ties To North Korea.
• "This Is Getting Out Of Hand" - Another Vol Event Strikes As FANGs Face Worst Week In 5 Months. (graph)

Night Trading 

• Asian equity indices are -1.0% to -.5% on average.
• Asia Ex-Japan Investment Grade CDS Index 86.25 +.75 basis point. 
• Asia Pacific Sovereign CDS Index 19.75 +.25 basis point.
• Bloomberg Emerging Markets Currency Index 72.95 +.02%.
• S&P 500 futures +.03%.
• NASDAQ 100 futures -.27%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note

Economic Releases 
8:30 am EST

• Personal Income for May is estimated to rise +.3% versus a +.4% gain in April. 
• Personal Spending for May is estimated to rise +.1% versus a +.4% gain in April.
• The PCE Core MoM for May is estimated to rise +.1% versus a +.2% gain in April.

9:45 am EST

• The Chicago Purchasing Manager Index for June is estimated to fall to 58.0 versus 59.4 in May.
  

10:00 am EST

• Final Univ. of Mich. Consumer Sentiment for June is estimated at 94.5 versus a prior estimate of 94.5.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The China Manufacturing PMI report, Eurozone CPI report and the (DAL) annual meeting could also impact trading today.

BOTTOM LINE:  Asian indices are lower, weighed down by technology and industrial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher.  The Portfolio is 50% net long heading into the day.

Stocks Falling into Final Hour on Profit-Taking, Tax/Healthcare Reform Worries, Hawish Central Bank Commentary, Gaming/Tech Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Above Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 13.14 +31.0%

• Euro/Yen Carry Return Index 133.67 +.25%

• Emerging Markets Currency Volatility(VXY) 7.63 +.66%

• S&P 500 Implied Correlation 36.75 +11.5%

• ISE Sentiment Index 88.0 +4.8%
  

• Total Put/Call .96 +2.13%

• NYSE Arms .48 -33.96%

Credit Investor Angst:

• North American Investment Grade CDS Index 61.75 +2.08%
  

• America Energy Sector High-Yield CDS Index 462.0 -2.55%

• European Financial Sector CDS Index 52.54 -.43%

• Western Europe Sovereign Debt CDS Index 6.09 -4.62%

• Asia Pacific Sovereign Debt CDS Index 19.69 +.82%

• Emerging Market CDS Index 202.43 +2.02%
  

• iBoxx Offshore RMB China Corporate High Yield Index 139.54 -.02%

• 2-Year Swap Spread 21.75 unch.

• TED Spread 28.5 -1.0 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -27.75 +1.25 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.89 -.22%
• 3-Month T-Bill Yield 1.02% +2.0 basis points
  

• Yield Curve 90.0 +3.0 basis points

• China Import Iron Ore Spot $64.71/Metric Tonne +3.82%

• Citi US Economic Surprise Index -76.40 +1.1 points

• Citi Eurozone Economic Surprise Index 73.60 +13.8 points

• Citi Emerging Markets Economic Surprise Index 10.10 -.3 point

• 10-Year TIPS Spread 1.74 -1.0 basis point
  
• 27.8% chance of Fed rate hike at Sept. 20 meeting, 29.3% chance at Nov. 1 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -210 open in Japan 
• China A50 Futures: Indicating -145 open in China

• DAX Futures: Indicating -28 open in Germany

Portfolio: 

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

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short

• Market Exposure: Moved to 75% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Growth -1.7%

Sector Underperformers:

• 1) Semis -3.2% 2) Gaming -2.6% 3) Networking -2.6%

Stocks Falling on Unusual Volume: 

• GOV, DOC, GMS, ALDR, FUL, BLCM, EMKR, GOOS, ASML and AKBA

Stocks With Unusual Put Option Activity:

• 1) RAD 2) STZ 3) CTL 4) SIG 5) ABT

Stocks With Most Negative News Mentions:

• 1) EMKR 2) PIR 3) FRED 4) EDIT 5) SBUX

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value -.4%

Sector Outperformers:

• 1) Coal +2.2% 2) Oil Service +1.5% 3) Banks +.9%

Stocks Rising on Unusual Volume:

• WGP, SCSS, SHLM, STZ, WATT, HSBC, TPX, STRL, AYI, C, FFIN, FDS, AVAV, JPM, LULU, ATI, OKS, TRVG, VAR, WFC, CLR, WBC, WAL, CRZO and RF

Stocks With Unusual Call Option Activity:

• 1) NFX 2) KND 3) SPLS 4) ITB 5) ADSK

Stocks With Most Positive News Mentions:

• 1) GRPN 2) BAC 3) AYI 4) ANF 5) FITB

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +16.3% Above 100-Day Average
• 2 Sectors Rising, 8 Sectors Declining
• 25.1% of Issues Advancing, 72.8% Declining
• 62 New 52-Week Highs, 21 New Lows
• 48.0% of Issues Above 200-day Moving Average
• Average 14-Day RSI 38.04%
• Vix 11.82 +17.75%
• Total Put/Call .80 -14.89%
• TRIN/Arms .49 -32.6%

Thursday Watch

Evening Headlines

Bloomberg:

• AI Will Add $15.7 Trillion to the Global Economy. Artificial intelligence may not be so threatening after all. Amid warnings of the economic disruption that robots and automation could unleash on the world economy as traditional roles disappear, researchers are finding that new technologies will help fuel global growth as productivity and consumption soar. AI will contribute as much as $15.7 trillion to the world economy by 2030, according to a PwC report Wednesday. That’s more than the current combined output of China and India.

• Japan Retail Growth Slows as Wages Continue to Disappoint. Japan’s retail sales growth slowed in May compared to last year, signaling that consumers are still reluctant to open their wallets. 

• Equity Rally Extends to Asia as Higher Rates Seen. Stocks in Asia look set to join a rally in U.S. equities as investors bet the global economy can withstand tighter financial conditions as growth picks up. American financial shares climbed on capital return plans. Equity-index futures in Japan, Australia and Hong Kong all advanced after the S&P 500 Index rebounded from the biggest selloff in six weeks, with technology shares snapping back. Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. all climbed in after-hours trading after lifting dividends and buying back shares. The pound held onto its gain triggered by Bank of England chief Mark Carney’s comments that rates may need to rise soon. The loonie had also climbed as Canada’s Stephen Poloz reiterated he’s considering tighter policy. Futures on Japan’s Nikkei 225 Stock Average gained 0.3 percent in Chicago trading. Contracts on Australia’s S&P/ASX 200 Index rose 0.7 percent and futures on Hong Kong’s Hang Seng Index climbed 0.6 percent.

• Banks Unleash Surprisingly Big Payouts After Fed’s Stress Tests. (video) The Federal Reserve told big banks they have more than enough capital, and they promptly announced a windfall for their shareholders. JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. led U.S. firms in unveiling plans to boost dividends and stock buybacks more than analysts had projected, after every lender passed annual stress tests for the first time since the Fed began the reviews in the wake of the 2008 financial crisis. Shares across the industry rallied in late trading. Still, Capital One Financial Corp. slipped more than 2 percent after it was the lone bank to stumble through the exam Wednesday, garnering conditional approval to make payouts while it fixes “material weaknesses” in planning.

Wall Street Journal:

• Anthem Pulling Back on Offering ACA Plans in Nevada. The state’s health insurance exchange says insurers will be offering plans in only three Nevada counties.

Fox News:

• High-tax Connecticut facing new budget mess.

MarketWatch:

• There may be fecal bacteria in your Starbucks(SBUX) iced coffee, investigation finds.

CNBC:

• Citi(C) doubles dividend, bank shares jump after industry passes Fed stress tests. (video)

• Google(GOOGL) has just built a prototype for virtual-reality ads on mobile devices.

• Big bank cash returns just beginning, experts say. (video)

• Why Janet Yellen is very wrong about the banks.

• Alibaba(BABA) to invest $1 billion into Lazada as Southeast Asia awaits Amazon.

Zero Hedge:

• FBI Director McCabe Subject Of Three Separate Federal Inquiries Into Alleged Misconduct: Report.

• Lacy Hunt: The Fed Has Undermined The Economy's Ability To Grow.

• Blue Apron Prices IPO At Bottom Of Deeply Discounted Range.

• Banks Rush To Announce Dividend, Buyback Plans After All Pass Fed's Stress Test, COF Needs To Resubmit Plan.

• Moody's Warns That Private-Label Credit Card Issuers Will Be Crushed By Retail Implosion.

• The Power Grid Is Far More Vulnerable To Cyber Attacks Than Most People Realize.

• "How Did It Go So Wrong" Goldman Asks, As It Slashes Oil Price Target.

• Investors Just Panic-Dumped "Growth" Stocks As ETF Outflows Hit Record High.

• Dollar Dumped, Tech Stocks Pumped As Central Banker Bias Turns Tighter. (graph)

Business Insider: 

• Canada hit 2 critical warning signs for a financial crisis.

• This robot-made pizza in Silicon Valley should terrify Domino's(DPZ) and Pizza Hut.

Night Trading 

• Asian equity indices are +.25% to +.5% on average.

• Asia Ex-Japan Investment Grade CDS Index 85.50 -.5 basis point. 

• Asia Pacific Sovereign CDS Index 19.5 +.25 basis point.

• Bloomberg Emerging Markets Currency Index 73.16 +.15%.

• S&P 500 futures +.21%.

• NASDAQ 100 futures +.17%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AYI)/2.03

• (CAG)/.37

• (STZ)/1.98

• (HAIN)/.40

• (MKC)/.76

• (RAD)/-.01

• (WBA)/1.30

• (MU)/1.51

• (NKE)/.50

Economic Releases 
8:30 am EST

• 1Q GDP is estimated to rise +1.2% versus a prior estimate of a +1.2% gain. 

• 1Q Personal Consumption is estimated to rise +.6% versus a prior estimate of a +.6% gain.

• 1Q GDP Price Index is estimated to rise +2.2% versus a prior estimate of a +2.2% gain.

• 1Q Core PCE is estimated to rise +2.1% versus a prior estimate of a +2.1% gain.

• Initial Jobless Claims for last week are estimated to fall to 240K versus 241K the prior week.

• Continuing Claims are estimated to fall to 1934K versus 1944K prior.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Bullard speaking, Japan Industrial Production report, German CPI report, weekly EIA Natural Gas Inventory repo and the weekly Bloomberg Consumer Comfort Index could also impact trading today.

BOTTOM LINE:  Asian indices are mostly lower, weighed down by technology and financial shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher.  The Portfolio is 100% net long heading into the day.