Friday Watch

Evening Headlines

Bloomberg:

• May to Urge G-20 to Coordinate on Tracking Terrorist Finances. Theresa May will use the Group of 20 summit in Hamburg to call for international coordination to track even small sums of money being transferred between terrorist groups. The British prime minister will argue that new technology is needed to monitor such transactions, as they can provide clues to coming attacks. She’ll say that parts of the international finance system act as “safe spaces” for Islamic State and related groups, and suggest partnerships between police and banks to spot suspicious activity.

• Police Break Up Hamburg Protest on Eve of G-20 With Water Cannons. (video) Hamburg police deployed a water cannon and pepper spray on Thursday against thousands protesting the Group of 20 summit, breaking up the march on the eve of the global gathering in Germany’s second-largest city. As authorities tried to separate about 1,000 people belonging to a masked group and let the protest move forward, demonstrators tossed projectiles and set off fireworks. The already tense situation -- with the crowd shouting: "all of Hamburg hates the police" -- then turned chaotic as police responded with water and pepper spray.

• Samsung Rides Surging Chip Demand to Record Quarterly Profit. Samsung Electronics Co. topped analyst estimates with its best-ever operating profit as global demand for semiconductors remained strong and the new Galaxy S8 flagship smartphone won over customers. Operating income rose to 14 trillion won ($12 billion) in the three months ended June, the Suwon, South Korea-based company said in preliminary results released Friday. That compares with the 13 trillion-won average of analysts’ estimates compiled by Bloomberg. Revenue rose to 60 trillion won, compared with the 58.4 trillion won projected.

• Bond Rout Deepens as Asia Stocks Set to Join Drop. Asian equity markets look poised to join a global selloff amid a rout in bonds with investors on edge as central bankers step up talk of tighter policy conditions. Bonds in Australia will likely join declines seen in Treasuries after German yields climbed to the highest level in 18 months following weaker-than-expected demand in a French debt auction. Futures on stock indexes in Japan, Australia and Hong Kong all retreated after a decline in the S&P 500 Index dragged the gauge below its average level over the past 50 days. The dollar weakened. Contracts on the Nikkei 225 Stock Average fell 0.5 percent in Singapore trading, while futures on Australia’s S&P/ASX 200 Index lost 0.4 percent, as did Hang Seng Index contracts.

• Iron Will Slump Back Below $50 on Supply, Top Exporter Says. (video)

• Fed's Fischer Says Fiscal-Policy Uncertainty Denting Investment. Uncertainty surrounding U.S. government policy may be holding back economic growth because of its negative impact on business investment, Federal Reserve Vice Chairman Stanley Fischer said. A “cautious approach to investment” by U.S. companies “may in part reflect the uncertainty about the policy environment,” Fischer said Thursday in remarks prepared for a speech in Vineyard Haven, Massachusetts. “Mitigating the damping effect of uncertainty by providing more clarity on the future direction of government policy is highly desirable.”

• Qualcomm(QCOM) Seeks Limited Ban on iPhone Shipments, Sues on Patents. Qualcomm Inc. is suing Apple Inc. for patent infringement, the latest volley in an increasingly bitter legal battle over whether Apple should pay for Qualcomm technology used in the iPhone.

• Goldman(GS) Economists See Drug Epidemic Taking Toll on U.S. Economy. “Use of both legal prescription pain relievers and illegal drugs is part of the story of declining prime-age participation, especially for men,” Goldman economists wrote in the study released Wednesday.

Wall Street Journal:

• Trump Says West Must Defend Its Civilization. U.S. president speaks to thousands of Poles during his second trip to Europe.

• Ships Exporting Iranian Oil Go Dark, Raising Sanctions Red Flags. Analysis reveals type of behavior U.S. officials say could be used to evade sanctions.

• Buffett’s Berkshire Nears Deal to Buy Electric-Grid Giant Oncor for More Than $17.5 Billion. Deal would cement electricity as one of the conglomerate’s largest businesses.

Fox News:

• Trump chides Russia ahead of Putin meeting, though not enough for Dem critics. (video)

CNBC:

• June job growth is expected to be strong, but the focus will be on whether wages are rising. (video)

• Global food prices set two-year high in June as meat, dairy and wheat climb.

• Amazon(AMZN) and Dish Network(DISH) could be exploring potential wireless partnership, according to a report. (video)

Zero Hedge:

• If You Want To Get A New Job, Don't Do This On Social Media.

• CNN's Ratings Collapse As Primetime Shows Draw Less Viewers Than Re-Runs Of "Yogi Bear".

• 14 Facts That Show America's System Of Public Education Deserves An 'F' Grade.

• "They're Selling Everything" - Bonds, Stocks, Oil, Gold, & Dollar All Tumble. (graph)

Business Insider:

• WHO warns of imminent spread of untreatable superbug gonorrhoea.

Night Trading 

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

• Asia Ex-Japan Investment Grade CDS Index 88.25 +.5 basis point. 

• Asia Pacific Sovereign CDS Index 22.5 +.25 basis point.

• Bloomberg Emerging Markets Currency Index 72.35 -.02%.

• S&P 500 futures +.05%.

• NASDAQ 100 futures +.13%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note

Economic Releases 
8:30 am EST

• The Change in Non-Farm Payrolls for June is estimated to rise to 178K versus 138K in May.

• The Unemployment Rate for June is estimated at 4.3% versus 4.3% 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 G-20 Conference, German Industrial Production report and the UK Industrial Production report could also impact trading today.

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

Stocks Lower into Final Hour on Rising Long-Term Rates, Earnings Concerns, European/Emerging Markets/US High-Yield Debt Angst, Healthcare/Retail Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 12.44 +12.4%

• Euro/Yen Carry Return Index 134.94 +.57%

• Emerging Markets Currency Volatility(VXY) 7.96 +1.02%

• S&P 500 Implied Correlation 36.58 +4.0%

• ISE Sentiment Index 79.0 -30.7%
  

• Total Put/Call 1.13 +22.8%

• NYSE Arms 1.45 +27.56%

Credit Investor Angst:

• North American Investment Grade CDS Index 62.0 +1.77%
  

• America Energy Sector High-Yield CDS Index 460.0 +.21%

• European Financial Sector CDS Index 53.46 +.72%

• Western Europe Sovereign Debt CDS Index 6.20 +7.5%

• Asia Pacific Sovereign Debt CDS Index 22.25 -.27%

• Emerging Market CDS Index 209.12 +1.57%
  

• iBoxx Offshore RMB China Corporate High Yield Index 139.80 +.04%

• 2-Year Swap Spread 24.75 +.75 basis point

• TED Spread 26.50 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -27.0 +.25 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.35 -.07%
• 3-Month T-Bill Yield 1.03% -1.0 basis point
  

• Yield Curve 97.0 +5.0 basis points

• China Import Iron Ore Spot $61.96/Metric Tonne -2.09%

• Citi US Economic Surprise Index -63.40 -.3 point

• Citi Eurozone Economic Surprise Index 36.30 -2.1 points

• Citi Emerging Markets Economic Surprise Index 15.60 +.4 point

• 10-Year TIPS Spread 1.77 unch.
  
• 31.4% chance of Fed rate hike at Sept. 20 meeting, 32.8% chance at Nov. 1 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -54 open in Japan 
• China A50 Futures: Indicating -99 open in China

• DAX Futures: Indicating -27 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 50% Net Long

Bear Radar

Style Underperformer:

• Mid-Cap Value -.8%

Sector Underperformers:

• 1) Hospitals -3.6% 2) Computer Hardware -2.2% 3) Oil Service -1.6%

Stocks Falling on Unusual Volume: 

• DBD, YUMC, LB, FWONK, TSLA, PDCO, STX, CBI and GE

Stocks With Unusual Put Option Activity:

• 1) BHGE 2) SEAS 3) FINL 4) ARNC 5) GE

Stocks With Most Negative News Mentions:

• 1) LB 2) PDCO 3) GPC 4) DVN 5) XOM

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth -.5%

Sector Outperformers:

• 1) Airlines +.6% 2) Insurance +.2% 3) Semis -.1%

Stocks Rising on Unusual Volume:

• BGNE, HSNI, MLHR, CUTR, HOME, ARNA, CECE, TWX, BBL, MZOR, OKE, COST, PRU, CALA, AOBC, DIOD, PFBC, BHP, MNST, MKSI, PCAR, PLSE, PRTA and ZUMZ

Stocks With Unusual Call Option Activity:

• 1) VIAB 2) CREE 3) LB 4) ETN 5) M

Stocks With Most Positive News Mentions:

• 1) NVDA 2) MS 3) DAL 4) LMT 5) COST

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -12.0% Below 100-Day Average
• 2 Sectors Rising, 8 Sectors Declining
• 20.0% of Issues Advancing, 77.2% Declining
• 23 New 52-Week Highs, 35 New Lows
• 47.4% of Issues Above 200-day Moving Average
• Average 14-Day RSI 36.9%
• Vix 12.3 +11.2%
• Total Put/Call .97 +5.4%
• TRIN/Arms .88 -22.4%

Thursday Watch

Evening Headlines

Bloomberg:

• China Bond Defaults Work Wonders in Introducing Pricing for Risk. Just as global investors get a new channel to access China’s $9.8 trillion onshore bond market, it’s starting to look like one that they might recognize. Gone are the days when China’s corporate debt was all pretty much priced the same, with an implicit government backstop giving buyers little reason to demand higher returns from some borrowers over others. Things started changing in 2014, when the Communist Party leadership with little warning began to allow defaults. With a steady rise in delinquencies, investors are now distinguishing among issuers based on perceived credit quality.

• Battle for 261 Million Wallets Grips China's Online Shopping Giants. To foretell where JD.com Inc. is going to expand in Indonesia, follow the cell phone towers. Wider mobile coverage means more consumers starting to shop online, so the Chinese e-commerce company tracks their construction to decide where to market its web store and set up delivery centers. JD has four warehouses in the archipelago, with plans to build another three by the end of the year. Staffing has almost tripled to about 400 people in the past 12 months. Within five years, the Beijing-based company plans to have refrigerated trucks delivering fresh food and frozen goods to homes.

• Asia Stocks Face Mixed Start as Fed Minutes Parsed. Stocks in Asia are headed for a mixed start as investors digested details from the Federal Reserve’s most recent meeting. Equity index futures in Japan and Hong Kong were flat, while contracts signaled gains for Australian shares. The S&P 500 Index posted small gains and technology shares boosted the Nasdaq 100. Oil recovered some losses after slumping toward $45 a barrel, snapping eight days of gains. Futures on the Nikkei 225 Stock Average were flat in Singapore trading. Contracts on Australia’s S&P/ASX 200 Index rose 0.4 percent.

• U.S. Strategic Crude Reserves Shrink to Lowest Level Since 2005.

• Your Evening Briefing. (video)

• Reading Between the Fed's Lines. (video)

Wall Street Journal:

• Fed Officials Ready to Start Shrinking Portfolio in Months. June meeting minutes show officials expect their balance-sheet reduction plans to have a limited impact on markets.

• Volvo Gives Tesla a Shock, As Others Plan Electric Push. Volvos, Jaguars, BMWs and Fords, among others, will offer a system that uses battery technology to comply with emissions rules.

• U.S., Russia Spar Over Approach to North Korea Threat. Pentagon notes advances by Pyongyang as U.S. warns regime of further isolation, military option.

• Get Able-Bodied Americans off the Couch. Nearly 95 million people have removed themselves entirely from the job market.

• Hotels, Cruise Lines, Casinos Among Top U.S. Stocks So Far This Year. As consumers shun brick-and-mortar retailers, demand for travel and leisure remains strong.

Fox News:

• Did CNN commit a crime? Cruz suggests warning to Reddit user poses legal problem. (video)

MarketWatch:

• Mark Zuckerberg touts free money for all.

CNBC:

• Cramer uses tech's top 10 stocks to argue the sector is not overvalued.

• Trump suggests the pressure on China over North Korea may just be beginning. 

• Retail analyst names one retail stock he's bullish on, and it's not Amazon. (video)

Zero Hedge:

• After Failing To Prove "Trump-Russia Collusion", Dems Set Their Sights On "Pro-Trump Websites".

• Haley: US Will Use Military In North Korea "If It Must".

• Demographic Shock Ground Zero: Japan's Population Drops At Fastest Pace On Record.

• Bill Gates Urges End To Generosity, Fears African Refugees Will Decimate Europe.

• CNN Blackmails Reddit User Over Trump Wrestling Video, Threatens To Expose Identity.

• Terrible News For Illinois: Moody's Puts State On Review For Downgrade To Junk Despite Budget.

• Is The Second Shale Boom Grinding To A Halt?

• WTI Bounces On Biggest Crude Draw Since 2016

• Energy Stocks Slammed Most In 4 Months, Nasdaq Bounces Despite "Worse Than Lehman" Bearish Bets. (graph)

Business Insider:

• Canada has twice as many vacant homes as the US did before the crash.

• The gunman who shot and killed an NYPD officer had posted anti-police sentiments on Facebook(FB).

• A type of drug used by 50 million Americans has been linked to an increased risk of death. About 50 million people in the US are on PPIs, Al-Aly noted, and there is strong evidence that the drugs are overused. Popular drugs in this class include omeprazole (Prilosec), esomeprazole (Nexium), and lansoprazole (Prevacid).

Night Trading 

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

• Asia Ex-Japan Investment Grade CDS Index 87.75 -.5 basis point. 

• Asia Pacific Sovereign CDS Index 22.25 +.5 basis point.

• Bloomberg Emerging Markets Currency Index 72.37 -.04%.

• S&P 500 futures -.05%.

• NASDAQ 100 futures -.27%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AZZ)/.69

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 fall to 185K versus 253K in May. 
  

8:30 am EST

• Initial Jobless Claims for last week are estimated at 244K versus 244K the prior week.

• Continuing Claims are estimated to fall to 1940K versus 1948K prior.

• The Trade Balance for May is estimated at -$46.3B versus -$47.6B in April.
  

10:00 am EST

• ISM Non-Manufacturing for June is estimated to fall to 56.5 versus 56.9 in May.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,766,670 barrels versus a +118,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -1,588,890 barrels versus a -894,000 barrel decline the prior week. Distillate supplies are estimated to fall by -118,330 barrels versus a -223,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.63% versus a -1.5% decline prior.

Upcoming Splits

• (MRTN) 5-for-3

Other Potential Market Movers

• The Fed's Fischer speaking, Fed's Williams speaking, Fed's Powell speaking, Eurozone Factory Orders report, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, (LB)/(FRED)/(BKE)/(CATO) June sales reports,  could also impact trading today.

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