Wednesday Watch

Evening Headlines 
Bloomberg: 

• EU Closes German-Designed Fiscal Straitjacket for Region. The European Union completed a framework for tougher controls on spending by euro-area governments in a German-led bid to prevent a repeat of the debt crisis that has threatened to break apart the single currency. The European Parliament voted to let the EU screen the budgets of euro nations earlier and more closely monitor countries where rising borrowing costs pose risks to financial stability. The assembly also approved tighter EU fiscal surveillance of nations after they exit rescue programs. 

• Italian Billionaire Says Bankers Must Follow Lawmakers Out Door. Italian billionaire Diego Della Valle, head of shoemaker Tod’s SpA (TOD), welcomed the wave of public disgust that swept established politicians from parliament last month and said it’s time to dislodge some top bankers as well. “It’s clear that people said, ‘That’s enough, it’s time to change, show us a decent country,’” Della Valle said March 6 in a Bloomberg Television interview. “That also has to happen in the world that we represent, finance and business and the civil society that guides the country.” Della Valle, 59, is picking fights with finance executives as banks curb lending and Italy slides deeper into recession.

• IMF’s Lipton Urges Officials to Redouble Bank Oversight Reform.  The International Monetary Fund’s No. 2 official urged policy makers to clean up banks and strengthen oversight of their financial systems or risk stalling a recent rally in global markets. With the world economy still subdued, further repair of banks’ balance sheets is necessary, which may require more capital for some lenders and closure for others, David Lipton, the fund’s first deputy managing director, said in a speech in Washington today. He also called for unwinding of excessive public and private debt.

• U.S. Intelligence Chief ‘Very Concerned’ on North Korea. North Korea’s nuclear weapons and missile programs pose a “serious threat” to the U.S. and its allies in Asia, according to U.S. intelligence agencies in an unclassified worldwide threat assessment. Presenting the report to the Senate intelligence committee yesterday, Director of National IntelligenceJames Clapper said he is “very concerned” about the actions of North Korea’s leader Kim Jong Un and the “very belligerent” rhetoric that has been emanating from his regime. His testimony comes as tensions on the Korean peninsula are at the highest since at least 2010, with North Korea threatening nuclear strikes and withdrawing from the 1953 armistice ending the Korean War. “The rhetoric, while it is propaganda laced, is also an indicator of their attitude and perhaps their intent,” Clapper told the committee. “So, for my part, I am very concerned about what they might do.” The North is capable of initiating “a provocative action against the South,” he said. 

• China’s Stocks Drop for Fifth Day as Industrial Companies Slump. Chinese stocks fell for a fifth day, dragging the benchmark index to its longest losing streak in four months, as industrial and financial companies slid amid concern the government will take steps to avert asset bubbles. Sany Heavy Industry Co. lost 2.1 percent, while Gemdale Corp paced declines by property developers, after news portal Sina.com reported the southern city of Shenzhen banned developers from raising prices of new residential properties. “Property curbs and the central bank’s possible attitude towards tightening liquidity make investors nervous,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. “There’s concern the economic recovery will falter.” The Shanghai Composite Index (SHCOMP) dropped 0.5 percent to 2,274.07 at 9:46 a.m. local time, adding to a four-day, 2.6 percent slump. The Shanghai gauge has declined 6.5 percent since its high on Feb. 6 amid concern the government will tighten monetary policy at the same time as economic expansion slows. Data over the weekend showed inflation accelerated in February, while industrial output had the weakest start to a year since 2009 and lending and retail sales growth slowed. 

• Stranded Hotel in Australia Emblem of Mining Bust: Commodities. Global capital spending by mining companies is set to drop by a third next year to $96 billion, from a record $141 billion last year, according to UBS AG estimates. Producers have slowed expansions and delayed projects on expectations that commodities prices have passed their highs, after economic growth began slowing in China, the biggest buyer of metals. 

• Rubber Declines Amid Yen’s Advance, Rising Stockpiles in China. Rubber dropped for a second day to the lowest level in more than a week as Japan’s currency climbed, reducing the appeal of yen-denominated contracts, and on concern that reserves in China are increasing. The contract for delivery in August fell as much as 2.7 percent to 284.5 yen a kilogram ($2,967 a metric ton) on the Tokyo Commodity Exchange, the lowest most-active price since March 5. It traded at 285.1 yen at 10:51 a.m. in Tokyo after losing 2.9 percent yesterday. 

• Rebar Falls to Lowest Level This Year on Inventory, Production. Steel reinforcement-bar futures declined for a sixth day to the lowest level this year as swelling inventory and record output in China increased concern that the market is oversupplied. Rebar for delivery in October on the Shanghai Futures Exchange fell as much as 1 percent to 3,853 yuan ($620) a metric ton, the lowest level for a most-active contract since Dec. 25, before trading at 3,862 at 9:59 a.m. local time. Inventory jumped 86 percent this year through March 8, according to Shanghai Steelhome Information. Total crude-steel production in China gained 9.8 percent in February from a year ago to 61.83 million tons, the statistics bureau said yesterday. Average daily crude-steel output rose to 2.2 million tons last month, a record high, according to a report by Wanda Futures Co. 

• OPEC Producers Said to Be in Talks to Replace Iran Oil for India. OPEC’s biggest oil producers are in talks to supply extra crude to India as the nation prepares to halt purchases from Iran because of global sanctions, four people with knowledge of the matter said.

Wall Street Journal: 

• Big Sugar Is Set for a Sweet Bailout. Candy makers will suffer if the U.S. government buys sugar. The U.S. Department of Agriculture is considering buying 400,000 tons of sugar—enough for 142 billion Hershey's Kisses—to stave off a wave of defaults by sugar processors that borrowed $862 million under a government price-support program. The action aims to prop up tumbling U.S. sugar prices, which have fallen 18% since the USDA made the nine-month operations-financing loans beginning in October. The purchases could leave the price-support program with an $80 million loss, its biggest in 13 years, said Barbara Fecso, an economist at the USDA, in an interview.

• White Pressed on Past Representing Banks. Mary Jo White, in a Senate hearing Tuesday, fended off pointed questions from lawmakers about whether her time spent defending Wall Street banks would impinge on her ability to police Wall Street.

• U.S. Steps Up Alarm Over Cyberattacks. The nation's top spies warned Tuesday of the rising threat of cyberattacks to national and economic security, comparing the concern more directly than before to the dangers posed by global terrorism. U.S. intelligence officials told a Senate hearing that the nation is vulnerable to cyberespionage, cybercrime and outright destruction of computer networks, both from sophisticated, government-sponsored assault as well as criminal hacker groups and cyberterrorists.

• A Ryan Reboot. The budget will never balance without faster economic growth.

Fox News: 

• Former administration insider skewers Obama national security team.

MarketWatch.com:

• H&R Block(HRB) snafu delays refunds. Mandatory field on tax form left blank, IRS says. A tax-preparation software glitch caused more than 600,000 returns to be filed incorrectly, delaying refunds by as much as six weeks, the IRS says. 

• Equifax(EFX), others admit to being hacked: reports. Credit reporting agencies Equifax Inc., Experian PLC, and TransUnion Corp. have said their credit reports have been breached by computer hackers, according to media reports Tuesday. The confirmation comes after reports from TMZ.com Monday that several celebrities ranging from Michelle Obama to Paris Hilton had their financial information posted online.

CNBC: 

• Defunding Obamacare in Budget Right Thing to Do: Paul Ryan.

Zero Hedge: 

• Surge In Trading Leverage Triggers Bank Of America(BAC) Contrarian Sell Signal. (graphs)

• The 14 Steps From Credit Expansion To Speculative Bust.

• Swirlogram Shows Slowdown Is Here.

• When HFT Steals Liquidity - Exploratory Trading In The eMini.

• Let's Stop Fooling Ourselves: Americans Can't Afford the Future. (graphs)

Business Insider: 

• Republicans Ramp Up Demands To Access Americans Wounded In The Benghazi Attack.

• A Major Consumer Protection Organization Wants The FTC To Check Out Herbalife(HLF).

• Don't Forget The Devastating Capability Of North Korea's Massive Artillery Armada.

• Our Ridiculous Nanny-State Government Now Says Tweets Have To Include 'The Fine Print'.

• The Top Story On The Financial Times Front Page Says The UK Faces One Of The Scariest Situations In Economics.

• The Dow's Record High Is Distracting Everyone From The Huge Story Developing In Italy.

• The Number Of Dead Pigs Found In Shanghai River Doubles In Fewer Than 24 Hours.

Reuters: 

• Italy's debt costs to rise at auction in wake of Fitch downgrade. Italy's borrowing costs will climb on Wednesday at its first sale of long-term debt since Fitch cut its credit rating, but demand for high yields and European Central Bank protection will temper the rise, analysts said.

Sina.com:

• China's southern city of Shenzhen banned developers from raising prices of new residential properties, citing officials with developers including Vanke, Merchants Property and Gemdale. Developers are ordered to have "zero-price-increase" for new homes on a monthly basis, the report said.

Shanghai Securities News:

• Shanghai Futures Exchange will try to start futures trading at night time from this year, citing the exchange's chairman Yang Maijun.

21st Century Business Herald:

• The China Banking Regulatory Commission warned financial institutions to be cautious of their local government financing vehicle bond holdings, citing a person familiar with draft guidelines. This is the first time the CBRC has issued a warning on LGFV bonds. CBRC reiterated that "total amount" of LGFV lending should be controlled. CBRC ordered banks to centralize approval of all LGFV bond transactions at their head offices, citing the draft rules.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -1.0% to -.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 103.0 +3.0 basis points.

• Asia Pacific Sovereign CDS Index 80.5 +.75 basis point.

• FTSE-100 futures -.26%.

• S&P 500 futures -.02%.

• NASDAQ 100 futures unch.

Morning Preview Links

Earnings of Note
Company/Estimate

• (MW)/-.05

• (VRA)/.57

• (MRX)/.71

Economic Releases
8:30 am EST

• The Import Price Index for February is estimated to rise +.6% versus a +.6% gain in January.

• Advance Retail Seals for February are estimated to rise +.5% versus a +.1% gain in January. 

• Retail Sales Less Autos for February are estimated to rise +.5% versus a +2% gain in January.

• Retail Sales Ex Auto & Gas for February are estimated to rise +.2% versus a +.2% gain in January.

10:00 am EST

• Business Inventories for January are estimated to rise +.5% versus a +.1% gain in December.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory gain of +2,300,000 barrels versus a +3,833,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -1,200,000 barrels versus a -616,000 barrel decline the prior week. Distillate inventories are estimated to fall by -2,000,000 barrels versus a -3,830,000 barrel decline the prior week. Finally, Refinery Utilization is estimated unch. versus a -2.9% decline the prior week.

2:00 pm EST

• The Monthly Budget Deficit for February is estimated at -$205.0B versus -$231.68B in January.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Italy 10Y bond auction, 10Y T-Note auction, Basal Committee meeting, Australia unemployment report, (LYB) investor day, (CAB) investor day, weekly MBA mortgage applications report and the UBS Consumer Conference could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by commodity and financial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.