Stocks Surging into Final Hour on Less Eurozone Debt Angst, Buyout Speculation, Stable Long-Term Rates, Tech/Biotech 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) 13.19 -6.19%

• Euro/Yen Carry Return Index 140.90 +.75%

• Emerging Markets Currency Volatility(VXY) 9.53 +1.06%

• S&P 500 Implied Correlation 60.78 -.15%

• ISE Sentiment Index 86.0 -35.82%

• Total Put/Call 1.13 unch.

• NYSE Arms .93 -57.52% 

Credit Investor Angst:

• North American Investment Grade CDS Index 63.06 -1.51%

• America Energy Sector High-Yield CDS Index 1,097.0 +.76%

• European Financial Sector CDS Index 73.24 -4.44%

• Western Europe Sovereign Debt CDS Index 22.40 -5.58%

• Asia Pacific Sovereign Debt CDS Index 59.01 -.71%

• Emerging Market CDS Index 286.04 +.25%
  

• iBoxx Offshore RMB China Corporates High Yield Index 119.89 -.04%

• 2-Year Swap Spread 23.25 -3.0 basis points

• TED Spread 27.5 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -22.25 +.75 basis point

Economic Gauges:

• 3-Month T-Bill Yield .01% unch.

• Yield Curve 149.0 -3.0 basis points

• China Import Iron Ore Spot $63.10/Metric Tonne +.51%

• Citi US Economic Surprise Index -55.60 +1.2 points

• Citi Eurozone Economic Surprise Index -11.0 +.2 point

• Citi Emerging Markets Economic Surprise Index -17.3 +.1 point

• 10-Year TIPS Spread 1.82 -3.0 basis points

Overseas Futures:

• Nikkei 225 Futures: Indicating +203 open in Japan 
• China A50 Futures: Indicating -85 open in China

• DAX Futures: Indicating +12 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg: 

• Greek Talks Said to Be Going Nowhere. (video) 
• Greek Bonds Rise as Official Says Nation Close to Accord on Debt. (video) Greece’s government bonds rose after the nation said it will start drafting an accord on Wednesday with international creditors to unlock much-needed bailout funds. Yields on Greece’s two-year notes dropped the most in a week, even after international officials including European Commission Vice President Valdis Dombrovskis said a deal wasn’t imminent. A Greek official, who asked not to be identified, said an agreement that included changes to the nation’s pension system and a long-term solution on debt was close.
• Negative Rates in Europe Prompt Demand for Investment Safeguards. Credit markets in Europe are so distorted that investors are demanding assurances they won’t have to pay borrowers for lending money after key benchmark interest rates turned negative. Debt issuers from Volkswagen AG to a subsidiary of Rabobank are inserting clauses into their deal documents to protect creditors from having to pay if rates on their investments fall below zero. The euro interbank offered rate, which is dropping, is a benchmark for a notional amount of more than $180 trillion of debt including asset-backed securities, corporate loans, floating-rate bonds and exchange-traded derivatives, according to the European Money Markets Institute. The European Central Bank’s unprecedented stimulus measures are warping credit markets and causing confusion for investors.
• Commodity Trader Default No One Saw Coming Deepens Brazil Rout. No one saw this default coming. Before Ceagro Agricola Ltda., a Brazilian commodity trader, told bondholders on May 22 that it wouldn’t make an interest payment this month, its $100 million of notes traded at about 95 cents on the dollar. They quickly collapsed to a record low 20.6 cents that day. The default -- the sixth this year in Brazil -- highlights the increasing perils faced by creditors of companies exposed to declines in both raw-material prices and the real. Ceagro Agricola, which cited “significant losses” due to adverse economic conditions, followed two sugar producers and an oil-services company in halting debt payments. Unlike those companies, this one came as a shock. 
• Europe Stocks Rise to One-Month High on Greek Debt Deal Optimism. European stocks rose to a one-month high amid optimism that Greece has made progress on a debt deal with its creditors. The Stoxx Europe 600 Index added 1.3 percent to 408.88 at the close of trading.
• Iron-Ore Supply Cuts by Majors Just Won’t Work, Says Goldman(GS). The world’s biggest iron ore miners are right to press on with expansions into an oversupplied market as reining in supply growth would hurt efficiency and be hard to coordinate, according to Goldman Sachs Group Inc. “Efforts to support prices via voluntary production cuts would be counter-productive,” analyst Christian Lelong wrote in a report on Wednesday. While such cutbacks are appealing in theory, any such proposal is misguided, according to Lelong.
• Long Slog to Build Power Lines May Imperil Obama’s Carbon Cuts. A seven-year quest to connect windmills in Kansas to customers as far away as Virginia highlights a challenge facing the Obama administration’s plan to use renewable energy to cut carbon emissions: getting transmission lines built to carry the electricity. Clean Line Energy Partners’ 780-mile Grain Belt Express, proposed in 2008, has already been reviewed by regulators in four states. Even if everything goes as planned, it will be four more years before electricity starts flowing. It’s one of almost 200 high-voltage power line projects that have been proposed, some of which may be needed for President Barack Obama to meet his goal of beefing up renewable energy. But an approval process that can take 10 years means many won’t even be in operation before the administration’s proposed plan to cut power-plant emissions goes into effect. “Everybody is pushing to come up with the lowest cost solution,” says Michael Skelly, Clean Line’s president. To do that, “we have to change how we do transmission. All the entities involved have to move much more quickly,” he said. It’s a dilemma because wind blows hardest in the interior plains and transmission lines are needed to connect with populous cities to the west and east that need the power.

ZeroHedge: 

• How Clinton Foundation Donations Led To Billions In Weapons Sales To Autocratic Regimes.
• Obama Loses Immigration Battle As States Block Executive Order.
• JPMorgan Warns Greece "Is Not Investable" As Germany Denies Any Deal Progress.
• When Stock Buybacks Go Horribly Wrong. (graph)
• Buy This Company Quickly For $10 Million Before It IPOs On The Shenzhen Exchange. (graph)
• Mary Meeker Warns "Pockets Of Over-Valuation... Growth Rates Are Slowing" In Her Latest 'State Of The Internet' Presentation.
• Need To Manipulate Markets? Just Email The Bank Of England At hammer@bankofengland.co.uk.
• The Real Story Behind Deutsche Bank's Latest Book Cooking Settlement.
• Shake Shak(SHAK) Slumps As "Chicken Spin-Off" Gains Disappear.
• WTI Crude Crumbles Back To 6-Week Lows (Under $57.50). (graph)

Business Insider:

• Oracle(ORCL) won another battle in its epic war with Google(GOOG), and the whole computer industry is nervous about it.
• The most staggering part of FIFA's $150 million bribery scandal.
• Tiffany(TIF) is surging.
• The war on coal is real, and one side is clearly winning.
• There is a new giant among oil traders.
• JIM CHANOS: There's a 'disaster waiting to happen' in the oil and gas industry.
• Even Wall Street's China bulls are worried. (graph)

Telegraph: 

• Spain risks euro split over radical new ECB mandate. Madrid proposes European Central Bank adopt a "Federal Reserve-style" mandate to prevent dangerous imbalances in the single currency.

Het Financieele Dagblad:

• Fink Says Concessions to Greece More Dangerous Than Grexit. A Greek exit from the euro area is less disastrous then making concessions, citing an interview with BlackRock CEO Larry Fink. Says that if concessions are made, other countries may also demand them. Says it's unacceptable Alexis Tsipras wants to reverse earlier agreements on reforms.

Handelsblatt:

• IMF's Blanchard Says Eurozone Can Withstand Grexit. IMF's Blanchard says solution for Greece still possible. Says earlier Grexit fears now less important.

Bear Radar

Style Underperformer:

• Mid-Cap Growth +.38%

Sector Underperformers:

• 1) Oil Tankers -.83% 2) Homebuilders -.62% 3) Coal -.51%

Stocks Falling on Unusual Volume:

• KORS, WDAY, STE, VNET, SHAK, YOKU, KATE, TRR, CHKP, COH, CPG, LBRDA, TOL, MOV, MPLX, CHTR, VAL, DANG, SWIR, VTTI, PANW, EXCU, LONG, CONN and FOSL

Stocks With Unusual Put Option Activity:

• 1) ICON 2) OIL 3) HES 4) MNST 5) DXJ
  

Stocks With Most Negative News Mentions:

• 1) CHKP 2) GEF 3) WDAY 4) CHS 5) KORS
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Growth +.66%

Sector Outperformers:

• 1) Biotech +1.36% 2) HMOs +1.35% 3) Semis +1.32%
  

Stocks Rising on Unusual Volume:

• TIF, DSW, ACHC, RTRX, HA, JNPR, ALDR and AXLL

Stocks With Unusual Call Option Activity:

• 1) ANF 2) S 3) JNPR 4) WDAY 5) CHTR
  

Stocks With Most Positive News Mentions:

• 1) RAI 2) TIVO 3) TIF 4) HRL 5) CSC
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running 9.4% Below 100-day average
• 9 Sectors Rising, 1 Sector Declining
• 60.3% of Issues Advancing, 36.6% Declining
• 37 New 52-Week Highs, 37 New Lows
• 51.1% of Issues Above 200-day Moving Average
• Average 14-Day RSI 41.2
• Vix 13.5
• Total Put/Call .98
• TRIN/Arms .95

Wednesday Watch

Evening Headlines 

Bloomberg: 

• Greece to Meet With Creditors as Talks Stuck in Stalemate. Greek officials plan to meet Wednesday in Brussels with creditors as time runs short to secure a deal before the country needs to make payments to the International Monetary Fund in early June. There has been little convergence in recent talks to release bailout funds the country needs to pay the IMF almost 1.6 billion euros ($1.75 billion) next month, said people familiar with the matter, who asked not to be identified because the discussions are private. The first of the transfers is due June 5.

• The G-7's Problem: Can the World Deal With a Greek Default? When the world’s top finance ministers and central-bank chiefs meet in Dresden this week, they may struggle to stick to an agenda set by their German hosts that doesn’t mention Greece. The Group of Seven meeting starting on Wednesday will officially focus on big-picture themes of economic growth, tax evasion and strengthening the global financial architecture. Yet the most pressing matter for many of the policy makers attending is whether Greece can stay in the euro, and whether the world can handle the consequences if it can’t.

• Luxury Brands’ Value Shrinks $7 Billion as China Curbs Largesse. Luxury isn’t what it used to be. The value of the top 10 luxury-goods brands fell 6 percent, or $7.1 billion, to $105 billion as companies from Prada SpA to Cartier grappled with slowing sales in China and Russia, research company Millward Brown said in the 2015 BrandZ study published Wednesday.

• Ahmadinejad Enters Fray as Iran Argues Over Nuclear Concession. Iran’s former President Mahmoud Ahmadinejad got embroiled in a fight among Iran’s ruling elite about nuclear concessions the Islamic Republic will make as part of a deal to lift sanctions. Officials told Iran’s parliament last week that the government has agreed to allow international inspections of military sites under its supervision, according to the state-run Fars news agency. Iran’s Supreme Leader Ayatollah Ali Khamenei had previously ruled out visits to army sites or interviews with nuclear scientists. 

• Asia Stocks Follow U.S. Shares Lower as Data Spur Rate-Rise Bets. Asian stocks dropped, following a decline in U.S. equities, after better-than-estimated economic data bolstered the case for higher interest rates in the world’s largest economy. The MSCI Asia Pacific Index lost 0.3 percent to 152.77 as of 9:01 a.m. in Tokyo.

• OPEC Seen Backing Saudi Arabia’s Plan to Keep Supplies Elevated. When Saudi Arabia argues next week that OPEC should keep up production to fight the rise in U.S. shale oil levels, prices will be on its side. Crude plunged for eight of nine weeks prior to group’s November gathering, when the kingdom faced down opposition from the majority of fellow members, who advocated output reductions to tackle a global glut. With oil companies around the world cutting investment, U.S. output peaking and prices up, Saudi Arabia’s strategy will be extended at OPEC’s semiannual meeting on June 5, say Societe Generale SA and Bank of America Corp. 

• Iron Ore Forecast Cut 32% by Citigroup as Demand to Drop. Global iron ore demand will contract over the 2020s as steel consumption growth in China peaks, according to Citigroup Inc., which reduced its long-run price forecast for the raw material by 32 percent. The long-run estimate was cut to $55 a metric ton from $81 as the world’s major mining companies added more cheap supply, analysts including Ivan Szpakowski wrote in a report on Wednesday. From 2016 to 2018, prices may average $40, it said.

• Identity Thieves Got Private Data for 104,000 U.S. Taxpayers. Identity thieves stole information on 104,000 U.S. taxpayers from the IRS website and used the data to file fake tax returns that yielded as much as $50 million in refunds, agency Commissioner John Koskinen said. The thieves had enough personal information on the taxpayers to get past security filters on the “Get Transcript” function on the Internal Revenue Service’s website, Koskinen said Tuesday on a conference call with reporters.

• Airlines Slide Into Bear Market on 21% Drop From 2015 Peak. The U.S. airline industry slipped into a bear market as investors worry that carriers are losing power to raise fares even as oil prices rise. The Bloomberg U.S. Airlines Index tumbled for a fifth straight day Tuesday, dropping 21 percent from its 2015 high on Jan. 26, a common definition of a bear market. The decline has occurred despite forecasts for a record industry profit this year and as planes fly with more than 80 percent of seats filled. 

• Ivy League Presidents Are Starting to Get Paid Like Corporate Executives. Ivy League presidential pay is looking more like the big leagues. Columbia University paid President Lee Bollinger $4.6 million in 2013, a 36 percent increase from the year before, according to a tax filing released Tuesday. Yale University recently revealed it paid former President Richard Levin a bonus of $8.5 million when he retired in 2013 after 20 years. Presidential pay at elite universities is increasingly resembling that of corporate America, with performance bonuses and exit packages. While colleges say the rewards reflect the complexity of running multi-billion-dollar organizations, professors, alumni and others have questioned whether it is appropriate for nonprofits.

Wall Street Journal: 

• Iraqi Forces, Militias Launch Attacks to Drive Islamic State From Ramadi. Extremists captured Anbar’s provincial capital this month. Military and paramilitary forces launched attacks around Ramadi in what the government called the start of an offensive against Islamic State in Iraq’s biggest province, a high-stakes campaign that hands Iran-backed militias the lead role against the Sunni extremists. The counteroffensive comes just over a week after the fall of...

• Google(GOOG), Yahoo(YHOO) Have Had Talks to Buy Flipboard. Twitter’s(TWTR) Flipboard discussions have largely stalled since April.

• New Push Ties Cost of Drugs to How Well They Work. As drug costs rise, Express Scripts seeks new payment deals for some cancer medications.

• How to Prevent the Fall of Baghdad. Islamic State is likely to use the tactics that worked in Ramadi. The U.S. can do much to change the outcome. Islamic State, also known as ISIS, has seized control of Ramadi, the capital of Anbar province just 70 highway miles from Baghdad. Fallujah, located between, is already a terror stronghold. There is little doubt that ISIS leader Abu Bakr al-Baghdadi plans to capture the city whose name he bears. A man who declared himself a caliph, Baghdadi knows his home was...

CNBC:

• Snapchat CEO: There's a bubble, and a correction is coming. Snapchat CEO Evan Spiegel said that years of near-zero interest rates have created an asset bubble that has led people to make "riskier investments" than they otherwise would. 

• Sandwich chain Jimmy John's prepares IPO: Sources.

• This is giving a sense of a major top: Jim Paulsen. (video)

Zero Hedge: 

• Martin Armstrong Warns "Kiss Your Pension Fund Goodbye".

• China's Third Bond Default Imminent: Coke Supplier To Miss Payment. (graph)

• Gold Price Moves Since QE3 Have Been A Warning To Mainstream Economists, Not Cause For Celebrations. (graph)

• Hillary Clinton's State Department Approved $165 Billion In Arms Deals To Clinton Foundation Donors.

• The Only Question That Matters In Today's Markets. (graph)

• NATO General Warns, Putin Is A "Dangerous Gambler... Willing To Use Nuclear Weapons".

• Why China Is So Desperate To Blow The Most Epic Stock Bubble. (graph)

• And Just Like That, Volume Is Back. (graph)

• VIX-nado, Dollar-splosion, & Crude Carnage Spark Dump In Stocks & Bond Yields. (graph)

Business Insider:

• The Fed has 'thrown the gauntlet down' and the market is reacting.

• Why Tesla's(TSLA) batteries won't work for rooftop solar.

• The oil market can't ignore fundamentals forever. (graph) Present data, however, suggests that the global over-supply has gotten worse, not better, that overall demand for liquids remains weak, and the world economic outlook is discouraging.

• China's stock market surge screams danger. (graph)

• Bill Clinton has a mysterious shell company.

Telegraph:

• Eurozone leaders attempt to quell fears of Grexit panic. As time runs out for Greece to pay its IMF debts, eurozone officials attempt to assure markets that the currency union will not fall apart.

• The world is drowning in debt, warns Goldman Sachs(GS). (map) Ageing populations mean countries' debt piles risk growing out of control, warns European head of Goldman Sachs Asset Management.

Macao Daily:

• Macau 1Q Retail Sales Fall 11% y/y on Luxury Goods. 1Q retail sales of watches, jewelery slump 31% on year.

Evening Recommendations 

BB&T:

• Rated (KATE) Buy, target $35.

• Rated (COH) Underweight.

Night Trading

• Asian equity indices are -1.25% to -.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 107.5 +1.5 basis points.

• Asia Pacific Sovereign CDS Index 59.5 +1.0 basis point.

• S&P 500 futures -.08%.

• NASDAQ 100 futures -.08%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (BWS)/.35

• (CHS)/.28

• (DSW)/.48

• (KORS)/.91

• (TIF)/.70

• (TOL)/.35

• (CPRT)/.49

• (PANW)/.20

• (SMTC)/.28

Economic Releases 

• None of note

Upcoming Splits

• (LFC) 3-for-1

Other Potential Market Movers

• The weekly US retail sales reports, Bank of Canada rate decision, weekly MBA mortgage applications report, Sanford C. Bernstein Strategic Decisions Conference, Citi Consumer Conference, Cowen Tech/Media/Telecom Conference, (SO) annual meeting, (IDTI) analyst day and the (COT) analyst meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and commodity shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.