Thursday Watch

Evening Headlines
Bloomberg:

• IMF Resources Talks Should Follow Europe Financial Firewall, Brainard Says. Group of 20 nations should discuss possible further resources for the International Monetary Fund after Europe decides on its financial firewall, the U.S. Treasury Department’s top international official said. “I’m sure when Europe’s response becomes clear the G-20 will be able to better assess IMF resources.” Brainard said a discussion on further IMF resources should follow European leaders’ assessment on the capabilities of a firewall at a March 1-2 summit. The IMF is seeking $500 billion in additional lending power.
  
• Shanghai Reiterates Property Curbs. Shanghai reiterated its property curbs late yesterday after Shanghai Securities News reported that China’s financial center was easing measures to allow a broader pool of people to buy second homes. Shanghai isn’t changing its housing policies and will continue implementing home-purchase restrictions, Liu Haisheng, the head of the city’s housing authority, said in a statement on its website.
• China Stock Rally to End as Polices Disappoint, BofA(BAC) Says. China's stocks may fall as much as 13 percent by the end of the year as the central bank's “fine- tuning” of monetary policies won't be enough to offset an economic slowdown, according to Bank of America Corp. The government needs to cut interest rates or relax curbs in the property market to sustain this year's 9.3 percent rebound for the Shanghai Composite Index, David Cui, chief China strategist at the Merrill Lynch unit, said in an interview in its Shanghai office yesterday. Cui, 43, who has been bearish on China equities since May 2010, said the Shanghai gauge may drop to 2,100 by year-end. It rose 0.9 percent to 2,403.59 yesterday. “If the government only does fine tuning, it's not sufficient to remove the major overhangs behind the poor market performance over the past two years or so, including a lack of a new and sustainable growth driver and the banking system's bad debts,” said Cui. “The markets will likely remain lukewarm.” The Shanghai gauge tumbled 33 percent over the past two years, making it the worst performer among the world's 10 biggest markets. “Inflation is still a threat,” Cui said. “That is one of the reasons central bank hasn't been more forthcoming with loosening.” Bank of America joins China International Capital Corp. in predicting losses for China's stocks this year. “The reserve ratio cut is largely technical and we don't really read that as loosening,” Cui said. “The stronger indicator will be M2 growth, loan growth or a cut in interest rates.”
• iPad Battle Reveals Bank of China as Apple(AAPL) Opponent. Apple Inc. (AAPL)’s legal fight for the iPad name in China doesn’t just pit the world’s most-valuable company against a failed Hong Kong display maker. Some of the nation’s biggest banks also are opposing the technology giant.
• Iran's Snub of UN Inspectors Dims Prospects for Nuclear Accord. Iran’s refusal to let United Nations experts investigate allegations of illicit nuclear activities at a military base doesn’t inspire confidence for a return to negotiations with the international community, U.S. officials and nuclear-proliferation specialists said. An International Atomic Energy Agency team visiting Tehran was denied access to the Parchin military base during two days of meetings that ended Feb. 21. IAEA Director General Yukiya Amano expressed disappointment that the team “engaged in a constructive spirit, but no agreement was reached.”
• Vivus(VVUS) Weight-Loss Pill Qnexa Wins Backing of FDA Panel. Vivus Inc.’s weight-loss pill Qnexa won the backing of a U.S. advisory panel as the company seeks to gain approval for the first new obesity drug in 13 years. Advisers to the Food and Drug Administration voted 20-2 today that Qnexa’s benefits outweigh its risks at a meeting at agency headquarters in Silver Spring, Maryland. The FDA isn’t required to follow the panel’s recommendation. The agency is scheduled to make a decision on the drug, which it rejected in 2010, by April 17.
• H-P(HPQ) Forecast Misses Estimates Amid Slump. Hewlett-Packard Co. (HPQ) forecast fiscal second-quarter profit that missed analysts’ estimates as consumers curtail personal-computer buying, doing more computing on smartphones and tablets made by rivals. Profit excluding some items will be 88 cents to 91 cents a share for the period that ends in April, Hewlett-Packard said today in a statement. That fell short of 95 cents, the average analyst estimate, according to data compiled by Bloomberg. Sales in the PC group dropped 15 percent to $8.87 billion in the period that ended in January, as consumers held off on buying new machines in the first full quarter under Chief Executive Officer Meg Whitman. Revenue from servers, printers and storage gear also declined.

Wall Street Journal:

• Santorum Draws Fire in Fight for GOP Lead. Republican presidential candidate Mitt Romney sought Wednesday to portray Rick Santorum's 16-year career in Congress as a betrayal of conservative principles, using a televised debate to try to define his top rival at a moment when many voters are paying new attention to the former senator.
  
• New Push for Reform in China. Influential Report to Warn of Economic Crisis Unless State-Run Firms Are Scaled Back. An exclusive preview of an economic report on China, prepared by the World Bank and government insiders considered to have the ear of the nation's leaders, offers a surprising prescription: China could face an economic crisis unless it implements deep reforms, including scaling back its vast state-owned enterprises and making them operate more like commercial firms. "China 2030," a report set to be released Monday, addresses some of China's most politically sensitive economic issues, according to a half-dozen individuals involved in preparing and reviewing it.
  
• BATS Gets Closer to Going Public. BATS Global Markets may launch its long-planned initial public offering by the end of March in what would be the first U.S. flotation in almost four years launched on an exchange not run by NYSE Euronext or Nasdaq OMX Group Inc.
• U.S. Defends Targeted Killings. The Pentagon's top lawyer on Wednesday defended the use of targeted killings to eliminate suspected terrorists and militants, in an expansion of the Obama administration's public justification for its primary counterterrorism tool. Unmanned drone strikes and special-operations raids have been used to kill terrorist leaders such as Osama bin Laden, Anwar al-Awlaki and hundreds of other suspected operatives in attacks that have grown under President Barack Obama, but that have troubled some of the president's chief political allies.
• Asia Firms Stampede to Bonds or Funding. Asian companies are tapping bond markets at a record pace, worried that the euro-zone crisis may deepen and make it more difficult and expensive for them to secure funds later in the year, say bankers who arrange borrowing.
• Chinese Suppliers Linked to Impure Heparin. The Food and Drug Administration said Wednesday it found 14 additional Chinese companies supplied contaminated raw material to make heparin, a widely used blood thinner.
• Romney's Tax Reboot. His 20% marginal rate cut changes the tax reform debate.
• Health Care's Coming Price Revolution. The private sector is moving to give people the information they need to get treatments that are worth the money. But ObamaCare blocks the way. The old-line Marxists used to talk about "heightening the contradictions" of capitalism to make things worse and hasten the revolution. One of the great ironies of the Affordable Care Act is that it may be doing just that.

Zero Hedge:

• Negative Salaries, Negative Bailout and Now Negative Gold - Greece Just Became The Bankster's Paradise.
• Goldman(GS) Goes Long WTI.
• Number of European Money Losing Companies Rises for First Time in 2 Years, Doubles.
  

CNBC:

• Walgreen(WAG), Other Pharmacies Form Nationwide Network. Walgreen Co. and some independent drugstores are investing in a nationwide push to give pharmacists a chance to work more with patients to improve care and cut costs. The drugstores have invested in RxAlly, a Leesburg, Va., private company that is launching a network involving 20,000 pharmacies focused on better care coordination.
• UK and Japan Warn Volcker Rule Poses Threat to Recovery. The UK and Japan have urged the U.S. to rewrite its so-called “Volcker rule”, claiming that trading restrictions on U.S. banks could hit the international sovereign debt market at a delicate moment in the global recovery. George Osborne, the British chancellor, has joined forces with Jun Azumi, his Japanese counterpart, in warning in a column in today’s Financial Times that the U.S. banking reforms could make it “more difficult, costlier and riskier for countries to issue and distribute debt”, at a time when many eurozone countries are already under strain. The article is the highest profile expression of international concern about the impact of the U.S. reforms, coming from the finance ministers of two countries regarded as among Washington’s greatest economic allies.
• Huge Private Debts Pose Another Hurdle for Euro Zone. Away from the markets' fixation with the debts of Greece and other governments, concern is growing at the painfully slow progress Europe is making in tackling a much bigger mountain of corporate and household debt.

IBD:

• Liquidity Services(LQDT) Takes eBay Model In Unique Direction.
  

NY Times:

• Behind the Google(GOOG) Goggles, Virtual Reality.
• In Germany, a Limp Domestic Economy Stifled by Regulation.
  

Opalesque:

• CFTC Rescinds Hedge Fund Exemptions. The Commodities Futures Trading Commission (CFTC) has significantly changed how hedge funds will be able to participate in commodities. Earlier this month the Commission rescinded several exemptions provided to private funds that operate commodity pools. By removing these exemptions, funds that operate commodity pools will now be required to register with the CFTC as Commodity Pool Operators (CPOs) and may be required to take certification examinations. The rules also include foreign investment advisers that have US clients.

Reuters:

• US Grilling Season Seen Costly as Beef Prices Surge. The grilling season this spring is shaping up to be the costliest ever for Americans already feeling the pinch from rising gasoline prices.

Financial Times:

• Germany Fights Eurozone Firewall Moves. The German government is set to resist or delay increasing the size of the eurozone’s financial “firewall” against contagion from the Greek debt crisis, in the face of mounting pressure from its partners, the International Monetary Fund and the US administration.
• Record Sterling Oil Price Sparks Fears. Oil prices have soared to a record high in sterling terms and are approaching euro highs, raising fears that European countries struggling with heavy debts will face further barriers to economic recovery. “This is a regional oil shock,” said Amrita Sen, commodities analyst at Barclays Capital in London.

Telegraph:

• ECB's Mario Draghi Magic Corrupts Bond Markets. The European Central Bank's blitz of measures to stave off a credit crunch and shore up EMU states are profoundly distorting debt markets and may ultimately do more harm than good. ECB boss Mario Draghi has sparked a blistering rally in global asset markets by lending banks as much as they want for three years at 1pc, but bond experts say the side-effects are toxic and the benefits are wearing off. "It's a sugar rush," said Alberto Gallo, European credit chief at RBS. "It lowers the risk of defaults, but also lowers recovery rates if things go wrong." Lenders must provide the ECB with collateral, at a haircut of up to 65pc, using up ever more of their balance sheets. The ECB has first claim on these assets, pushing other creditors down the pecking order. The longer it goes on, the worse it gets. "There is no such thing as a free lunch. Liquidity today comes at the price of subordination tomorrow," said Mr Gallo, warning that BBVA, BNP, Commerzbank, Intesa, Santander and Unicredit are all vulnerable.
• Spain Appeals to Brussels For Easier Deficit Reduction Targets. Spain has appealed to Brussels for softer deficit-reduction targets, raising fears that Europe's rescue strategies are unworkable in the bigger eurozone economies and not just Greece.

The Australian:

• Julia Gillard Calls Leadership Vote as Kevin Rudd States His Case For A Return As PM. JULIA Gillard says she will go to the backbench if she loses a Monday leadership ballot, and would not recontest the prime ministership. Announcing a ballot for 10am on Monday in Canberra, Ms Gillard challenged Kevin Rudd to give the same undertaking, seeking to lock the former foreign minister into a one-shot strategy.

China National Radio:

• China will implement resource tax and power price reform in western regions of the country first, citing Du Ying, a deputy director with the National Development and Reform Commission.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -1.0% to -.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 165.0 +5.0 basis points.
  
• Asia Pacific Sovereign CDS Index 133.0 +1.75 basis points.
• FTSE-100 futures -.14%.
  
• S&P 500 futures -.06%.
  
• NASDAQ 100 futures +.06%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (DDS)/2.02
• (PDCO)/.50
• (CKP)/-.06
• (DISH)/.61
• (KSS)/1.80
• (AMT)/.72
• (TGT)/1.39
• (SHLD)/.68
• (DNR)/.34
• (TTC)/.60
• (SWY)/.64
• (GPS)/.42
• (WBMD)/.29
• (OVTI)/.11
• (CRM)/.40
• (MNST)/.37
• (AIG)/.56
• (DECK)/3.14
• (ADSK)/.45
• (MHK)/.72
• (VNO)/.1.23
• (PSA)/1.58

Economic Releases
8:30 am EST

• Initial Jobless Claims are estimated to rise to 355K versus 348K the prior week.
• Continuing Claims are estimated to rise to 3455K versus 3462K prior.

10:00 am EST

• The House Price Index for December is estimated to rise +.1% versus a +1.0% gain in November.
• The House Price Index for 4Q is estimated to rise +.2% versus a +.2% gain in 3Q.

11:00 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,350,000 barrels versus a -171,000 barrel decline the prior week. Distillate inventories are estimated to fall by -1,500,000 barrels versus a -2,867,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +250,000 barrels versus a +400,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.5% versus a +1.2% gain the prior week.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The 7Y T-Note Auction, Kansas City Fed Manufacturing Index for Februrary and weekly Bloomberg Consumer Comfort Index could also impact trading today.
  

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