“Volatility is greatest at turning points, diminishing as a new trend becomes established.” — George Soros

1. Nikkei sinks towards bear territory — the Nikkei (EWJ) has lost over 19% since hitting a 52-week high on May 23 – a drop of 20% would put the index in a technical bear market.
2. Chinese PMI (Purchasing Manager Index) comes in mixed — China’s HSBC PMI for May fell a bit more than the “flash” read — at 49.2 vs. 50.4 in April. The downward revision “suggests a marginal weakening of activities towards the end of last month, due to deteriorating domestic demand conditions,” says HSBC.
3. Turkish markets plunge after protests continued — the Istanbul National 30 index down 6.6%; Turkish shares (TUR) have plummeted after demonstrations in Istanbul over the preservation of a park turned into a vehicle for an outpouring of anti-government anger amid accusations that it has become increasingly authoritarian.
4. Japan’s Premier Lines Up New Overhauls — WSJ, Abe’s ‘Three Arrows’ Aim for Long-Term Economic Boost, With New Policies on Industry, Investment and Taxes to pull his country out of deflation. The program includes allowing Japan’s massive public pension funds to buy more stocks, the creation of special economic zones, free-trade agreements, privatization, and power-market reform. The hope is to raise average income by 3%, which is greater than the two-year inflation target of 2%.
5. U.S. oil output surpasses imports — WSJ, U.S. crude oil production exceeded imports last week for the first time in 16 years. Since January 1997, weekly U.S. crude imports averaged around 9.2M bpd, topping domestic output by 3.5M bpd. But by late 2014, U.S. crude oil output should surpass imports by nearly 2.5M bpd.
6. NSA taps in to user data of Google, Skype and others, secret files reveal — theguardian reported government electronic surveillance have widened to include several of the country’s largest technology companies under a program called PRISM. A National Security Agency document reportedly shows that it has “direct access” to the servers of Microsoft (MSFT), Yahoo (YHOO), Google (GOOG), Facebook (FB), Paltalk, AOL (AOL), Skype, YouTube and Apple (AAPL).
7. Japan’s $1 trln public pension cuts govt bond weighting, lifts stocks — Reuters, Japan’s public pension fund, the world’s largest with a pool of $1.1 trillion, announced the most significant shift in its asset allocation since 2006 so it can take on greater risk by shifting into stocks and away from Japanese government bonds. It is increasing its Japanese stocks allocation to 12 percent of its portfolio from 11 percent, while lowering its JGB weighting to 60 percent from 67 percent.
8. AAII Bullish Sentiment Falls — bullish sentiment declined to 29.5% from last week’s reading of 36.0%. After reaching a short term peak of 49% two weeks ago, bullish sentiment has now declined by 19.5 percentage points in just the last two weeks.

The week ahead — Economic data from Econoday.com: