Morning Call: Weakness in technology stocks drags down U.S. stock indexes; Jun E-mini S&Ps down -0.18%; Jun WTI crude oil up +0.84% at a new 3-1/2 year high.
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Overnight Markets and News

Jun E-mini S&Ps (ESM18 -0.15%) this morning are down -0.18% on weakness in technology stocks, led by a 3% decline in Cisco in pre-market trading. Also, interest rate concerns are undercutting U.S. equity prices after the 10-year T-note yield rose to a 6-3/4 year high of 3.12% in overnight trade. A surge in energy prices has boosted inflation expectations hand helped fuel the latest slide in T-note prices after the 10-year T-note breakeven inflation rate climbed to a 3-3/4 year high today. European stocks are up +0.18% at a 3-1/2 month high as political risks in Italy eased when the anti-establishment Five Star Movement dropped its request for a 250-billion-euro write-off from the ECB. Strength in energy stocks is also boosting European stocks and limiting losses in U.S. markets with Jun WTI crude oil (CLM18 +0.97%) up +0.84% at a new 3-1/2 year high. Fund buying of crude oil continues on the prospects for lower global supplies after the U.S. reimposes sanctions on Iran, OPEC's third-largest producer. Asian stocks settled mixed: Japan +0.53%, Hong Kong -0.54%, China -0.48%, Taiwan -0.59%, Australia -0.21%, Singapore +0.11%, South Korea -0.53%, India -0.67%. China's Shanghai Composite fell to a 1-week low after China Apr foreign direct investment fell -1.1% y/y, the first decline in 4 months. Japan's Nikkei Stock Index rallied on strength in exporter stocks after USD/JPY rose to a 4-3/4 month high as the weaker yen boost exporters' earnings prospects.

The dollar index (DXY00 +0.10%) is up +0.10% as the jump in the 10-year T-note yield to a new 6-3/4 year high of 3.12% improves the dollar's interest rate differentials. EUR/USD (^EURUSD -0.19%) is down -0.17%. USD/JPY (^USDJPY +0.26%) is up +0.20% at a 4-3/4 month high.

Jun 10-year T-note prices (ZNM18 -0-005) are unchanged.

China Apr foreign direct investment fell -1.1% y/y, the first decline in 4 months.

Eurozone Apr new car registrations rose +9.6% y/y to 1.306 million, the largest increase in 13-months. Year-to-date new car registrations are up +2.7% to 5.478 million.

Japan Mar core machine orders fell -3.9% m/m, weaker than expectations of -3.0% m/m.

U.S. Stock Preview

Key U.S. news today includes: (1) weekly initial unemployment claims (expected +4,000 to 215,000, previous unch at 211,000) and continuing claims (expected -10,000 to 1.780 million, previous +30,000 to 1.790 million), (2) May Philadelphia Fed business outlook survey (expected -2.2 to 21.0, Apr +0.9 to 23.2), (3) USDA weekly Export Sales, (4) Apr leading indicators (expected +0.4%, Mar +0.3%), (5) Minneapolis Fed President Neel Kashkari speaks at a moderated Q&A at an event in Minneapolis, (6) Dallas Fed President Robert Kaplan (non-voter) speaks in a moderated Q&A at an event at the Richardson Chamber of Commerce, (7) Treasury auctions $11 billion of 10-year TIPS.

Notable Russell 1000 earnings reports today include: Walmart (consensus $1.12), Applied Materials (1.14), Nordstrom (0.43).

U.S. IPO's scheduled to price today: none.

Equity conferences this week: Bank of America Merrill Lynch Health Care Conference on Tue-Thu, JP Morgan Global Technology, Media and Communications Conference on Tue-Thu, Stephens Energy Executive Summit on Wed, BMO Capital Markets Farm to Market Conference on Wed-Thu, Capital Link Closed-End Funds and Global ETFs Forum on Thu.

Market Comments

June S&P 500 E-minis (ESM18 -0.15%) this morning are down -5.00 points (-0.18%). Wednesday's closes: S&P 500 +0.41%, Dow Jones +0.25%, Nasdaq +0.60%. The S&P 500 on Wednesday closed higher on strength in consumer stocks led by a 9% jump in Macy's after it reported Q1 net sales of $5.54 billion, better than consensus of $5.43 billion. Stocks were also boosted by the as-expected +0.5% increase in U.S. Apr manufacturing production and the +0.7% increase in Apr industrial production, better than expectations of +0.6%. Stocks were undercut by the -3.7% decline in U.S. Apr housing starts to 1.287 million (weaker than expectations of -0.7%) and the increase in the 10-year T-note yield to a new 6-3/4 year high of 3.10%.

June 10-year T-notes (ZNM18 -0-005) this morning are unch. Wednesday's closes: TYM8 -2.00, FVM8 -1.0. Jun 10-year T-notes on Wednesday fell to a new contract low and closed lower on hawkish comments from Atlanta Fed President Bostic who said stimulus from fiscal policies "means we can be a little more rapid" in policy normalization. T-note prices were also undercut by the stronger-than-expected U.S. Apr industrial production report of +0.7%. T-notes were supported by the weaker-than-expected U.S. Apr housing starts report.

The dollar index (DXY00 +0.10%) this morning is up +0.098 (+0.10%). EUR/USD (^EURUSD -0.19%) is down -0.0020 (-0.17%). USD/JPY (^USDJPY +0.26%) is up +0.22 (+0.20%) at a 4-3/4 month high. Wednesday's closes: Dollar Index +0.173 (+0.19%), EUR/USD -0.0030 (-0.25%), USD/JPY +0.05 (+0.05%). The dollar index on Wednesday climbed to a 4-3/4 month high and closed higher on the increase in the 10-year T-note yield to a new 6-3/4 year high of 3.10%, which improved the dollar's interest rate differentials. There was also weakness in EUR/USD which fell to a 4-3/4 month low on Italian political risks after the Five Star and League parties discussed a potential government debt default on 250 billion euros of securities held by the ECB.

Metals prices this morning are mixed with Jun gold (GCM18 -0.26%) -4.9 (-0.38%), Jul silver (SIN18 +0.33%) +0.024 (+0.15%), and Jul copper (HGN18 +0.64%) +0.014 (+0.44%). Wednesday's closes: Jun gold +1.20 (+0.09%), Jul silver +0.102 (+0.63%), Jul copper +0.0145 (+0.47%). Metals on Wednesday settled mixed. Metals prices were supported by the stronger than expected U.S. Apr industrial production report, which was positive for copper demand. There was also fund-buying of gold as long gold positions in ETFs rose to a 5-year high Tuesday. Metals prices were undercut by the rally in the dollar index to a 4-3/4 month high and by the weaker-than-expected U.S. Apr housing starts report.

Jun WTI crude oil prices (CLM18 +0.97%) this morning are up +60 cents (+0.84%) and Jun gasoline (RBM18 +0.67%) is up +0.0107 (+0.48%), both at new 3-1/2 year highs. Wednesday's closes: Jun crude +0.18 (+0.25%), Jun gasoline +0.0451 (+2.05%). Jun crude oil and gasoline on Wednesday rallied to 3-1/2 year highs and closed higher on the -3.79 million bbl decline in EIA gasoline inventories (vs expectations of -1.5 million bbl) and the -92,000 bbl decline in EIA distillate inventories to a 3-1/2 year low. Energy prices were undercut by the rally in the dollar index to a 4-3/4 month high and by the +0.2% increase in U.S. crude production to a record 10.723 million bpd in the week ended May 11.

Overnight U.S. Stock Movers

Cisco Systems (CSCO -0.70%) fell 3% in after-hours trading after it forecast Q4 adjusted EPS of 68 cents to 70 cents, the midpoint right on expectations of 69 cents.

Valero Energy (VLO -0.79%) was upgraded to 'Overweight' from 'Equal-Weight' at Morgan Stanley with a price target of $140.

Costco Wholesale (COST +1.65%) was rated a new 'Buy' at Loop[ Capital Markets with a price target of $224.

Align Technology (ALGN +1.48%) was rated a new 'Outperform' at Evercore ISI with a price target of $340.

Take-Two Interactive Software (TTWO -0.35%) fell nearly 5% in after-hours trading after it forecast fiscal 2019 adjusted revenue of $2.67 billion to $2.77 billion, well below consensus of $2.87 billion.

Jack in the Box (JACK +1.10%) slid 4% in after-hours trading after it reported Q2 adjusted operating EPS of 80 cents, below consensus of 86 cents.

Molson Coors Brewing (TAP +0.10%) was downgraded to 'Hold' from 'Buy' at Stifel.

First Busey (BUSE +0.79%) was upgraded to 'Outperform' from 'Market Perform' at Keefe, Bruyette & Woods

Comcast (CMCSA +1.69%) was rated 'Overweight' at KeyBanc Capital Markets with a price target of $38.

EnerSys (ENS -0.08%) climbed 2% in after-hours trading after it reported preliminary Q4 net sales of $683 million, better than consensus of $669.3 million.

Coca-Cola (KO -0.41%) was upgraded to 'Overweight' from 'Equal-Weight'at Barclays with a price target of $48.

Altice USA (ATUS +3.74%) was rated 'Overweight' at KeyBanc Capital Markets with a price target of $25.

Acxiom (ACXM +0.66%) tumbled 10% in after-hours trading after it forecast full-year adjusted EPS of 90 cents to 95 cents, weaker than consensus of $1.02.

Extreme Networks (EXTR +2.10%) rose more than 2% in after-hours trading on signs of insider buying.