Overnight Markets and News

Jun E-mini S&Ps (ESM18 -0.69%) this morning are down -0.87% at a 2-1/2 week low, led lower by a -1.65% plunge in European stocks to a 1-1/2 month low after Italian political risks intensified. EUR/USD (^EURUSD -0.67%) tumbled -0.75% to a 10-1/4 month low and the Italian 10-year government bond yield soared to a 4-year high of 3.04% after leaders of the League and Five Star Movement pulled the plug on their attempt to form a government on Sunday. Italian bank stocks sold-off further and bond yields jumped even higher today after League party leader Salvini said that it makes no sense for Italy to remain in the European Union unless the bloc rewrites its rules. Italian President Mattarella vetoed the choice of a euro-skeptic candidate as finance minister and instead nominated Carlo Cottarelli, a former IMF official as prime minister-designate to propose a government. His proposal is almost certain to be rejected by the Italian parliament, leading to a new election as soon as September. The plunge in stocks fueled safe-haven demand for government debt as the 10-year German bund yield fell to a 13-1/4 month low of 0.188% and the 10-year T-note yield dropped to a 1-1/2 month low of 2.80%. Asian stocks settled mostly lower: Japan -0.55%, Hong Kong -1.00%, China -0.47%, Taiwan -0.22%, Australia +0.16%, Singapore closed for holiday, South Korea -0.87%, India -0.61%. Weakness in Asian iPhone screen makers led China's Shanghai Composite to a 3-week low and Japan's Nikkei Stock Index to a 1-month low after South Korea’s Electronic Times reported that Apple will use OLED for all new iPhone models in 2019. Japanese exporters also sold-off as the slump in global stocks boosted the safe-haven demand for the yen as USD/JPY slid to a 5-week low.

The dollar index (DXY00 +0.74%) is up +0.54% at a 6-1/2 month high. EUR/USD (^EURUSD -0.67%) is down -0.76% at a 10-1/4 month low. USD/JPY (^USDJPY -0.44%) is down -0.53% at a 5-week low.

Jun 10-year T-note prices (ZNM18 +0-200) are up +23.5 ticks to a 1-1/2 month high.

Speaking in Tokyo, St. Louis Fed President Bullard said, "inflation expectations in the U.S. remain low, suggesting that further normalization may not be necessary to keep inflation near target and that a reasonable policy going forward may be to temper the pace of normalization."

ECB Governing Council member and Bank of Italy Governor Visco said Italy is just steps away from the "very serious risk of losing the irreplaceable asset of trust."

U.S. Stock Preview

Key U.S. news today includes: (1) Mar S&P CoreLogic composite-20 home prices (expected +0.7% m/m and +6.4% y/y, Feb +0.83% m/m and +6.8% y/y), (2) Conference Board U.S. May consumer confidence (expected -0.7 to 128.0, Apr +1.7 to 128.7), (3) May Dallas Fed manufacturing activity (expected +1.2 to 23.0, Apr -1.0 to 21.8), (4) USDA weekly grain export inspections, (5) USDA weekly Crop Progress.

Notable Russell 1000 earnings reports today include: HP (consensus $0.48), Salesforce.com (0.45), Booz Allen (0.46), HEICO (0.52).

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

Equity conferences this week: Deutsche Bank Global Financial Services Investor Conference on Tue-Wed, Stifel Dental & Veterinary Conference on Wed, Cowen & Co. Technology, Media, and Telecom Conference on Wed-Thu, KeyBank Capital Markets Industrials and Basic Materials Conference on Wed-Thu, Bernstein Strategic Decisions CEO Conference on Wed-Fri, RBC Capital Markets Auto Tech: Connected, Autonomous, Shared, Electric Conference on Thu, RBC Capital Markets Consumer & Retail Conference on Wed-Thu, American Society of Clinical Oncology Meeting on Fri.

Market Comments

June S&P 500 E-minis (ESM18 -0.69%) this morning are down -23.75 points (-0.87%) at a 2-1/2 week low. Friday's closes: S&P 500 -0.24%, Dow Jones -0.24%, Nasdaq +0.16%. The S&P 500 on Friday closed lower on negative carry-over from a slide in European stocks to a 1-month low on European political risks as Italian government bonds fell on concern about the fiscal policies of Italy's coalition government, and Spain's biggest opposition party, the Socialists, said they are ready to push for a no-confidence vote against Prime Minister Rajoy unless he calls for snap elections. Stocks were also undercut by the -0.8 point decline in the University of Michigan U.S. May consumer sentiment to 98.0, weaker than expectations of unchanged at 98.8. Energy stocks were weak after crude oil prices plunged -4% to a 2-week low.

June 10-year T-notes (ZNM18 +0-200) this morning are up +23.5 ticks at a 1-1/2 month high. Friday's closes: TYM8 +11.50, FVM8 +7.50. Jun 10-year T-notes on Friday rallied to a 3-week high and closed higher on carry-over support from a rally in German 10-year bunds to 5-month high on increased safe-haven demand from political risks in Spain and Italy. T-note prices were also supported by a slump in crude oil prices to a 2-week low, which undercut inflation expectation as the 10-year T-note breakeven inflation rate fell to a 1-1/2 month low.

The dollar index (DXY00 +0.74%) this morning is up +0.506 (+0.54%) at a 6-1/2 month high. EUR/USD (^EURUSD -0.67%) is down -0.0088 (-0.76%) at a 10-1/4 month low. USD/JPY (^USDJPY -0.44%) is down -0.58 (-0.53% at a 5-week low. Friday's closes: Dollar Index +0.430 (+0.46%), EUR/USD +0.0069 (-0.59%), USD/JPY +0.15 (+0.14%). The dollar index on Friday climbed to a 6-1/2 month high and settled higher on weakness in EUR/USD which plunged to a 6-1/2 month low on political risks in Italy and Spain that sent the 10-year German bund yield down to a 5-month low and undercut the euro's interest rate differentials. The Canadian dollar fell after crude oil prices plunged -4% to a 2-week low.

Metals prices this morning are mixed with Jun gold (GCM18 -0.12%) -0.8 (-0.06%), Jul silver (SIN18 -0.70%) -0.086 (-0.52%), and Jul copper (HGN18 +0.11%) +0.003 (+0.10%). Friday's closes: Jun gold -0.70 (-0.05%), Jul silver -0.141 (-0.84%), Jul copper -0.0185 (-0.60%). Metals on Friday closed lower on the rally in the dollar index to a 6-1/2 month high and on signs of weaker copper demand after LME canceled copper warrants fell -6,575 MT. Precious metals received a boost from safe-haven demand from the political risks in Spain and Italy.

Jul WTI crude oil prices (CLN18 -1.46%) this morning are down -93 cents (-1.37%) at a 1-1/4 month low and Jul gasoline (RBN18 -1.19%) is down -0.0248 (-1.14%) at a 2-1/2 week low. Friday's closes: Jul crude -2.83 (-4.00%), Jul gasoline -0.0539 (-2.42%). Jul crude oil and gasoline on Friday closed sharply lower with Jul crude at a 2-week low and Jul gasoline at a 1-week low. Crude oil prices were undercut by the the jump in the dollar index to a 6-1/2 month high and by comments from Saudi Arabian Energy Minister Khalid Al-Falih who said OPEC and its allies are likely to gradually boost crude production in the second half of this year.

Overnight U.S. Stock Movers

Scana (SCG +0.96%) was downgraded to 'Sell' from 'Hold' at Williams Capital with a price target of $30.

Genesco (GCO +0.99%) was downgraded to 'Neutral' from 'Buy' at CL King & Associates.

Infinera (INFN +1.00%) was downgraded to 'Underperform' from 'Hold' at Jeffries.

Phillips 66 (PSX -2.71%) was upgraded to 'Outperform' from 'Market Perform' with a price target of $134.

Ford Motor (F -0.95%) was upgraded to 'Buy' from 'Hold' at Jeffries with a price target of $14.

ION Geophysical (IO -3.93%) was rated a new 'Buy' at Janney Montgomery Scott LLC with a price target of $35.

Abiomed (ABMD) may open higher this morning when it was announced after the close of trading Friday that it will replace Wyndham Worldwide in the S&P 500 Index prior to the open of trading Thursday, May 31.

Farmer Brothers (FARM +0.71%) may move higher this morning after holder Leven Capital Strategies boosted its stake in the company to 8.4% from 1.17% in March.

Sparton Corp (SPA +2.28%) may move higher this morning after Gamco reported a 7% stake in the company.

Inovio Pharmaceuticals (INO +1.24%) dropped 11% in after-hours trading after it entered into agreement with Stifel through which it may sell up $100 million of its common stock.