Friday Watch

Evening Headlines 
Bloomberg:

• China Hard Landing War-Gamed for World Economy. A hard landing in China would hobble global growth and buoy the dollar, says Societe Generale SA in a study that war-games the international implications of a steep decline in China’s expansion. A plunge to 2 percent from more than 10 percent in 2010 would be enough to slash 1.5 percentage points from worldwide economic growth in the first year as China’s troubles are transmitted through trade, banking and financial market channels, the French bank said in a Feb. 11 report.

• China Banks’ Bad Loans Rise to Highest Since Financial Crisis. Chinese banks’ bad loans increased for the ninth straight quarter to the highest level since the 2008 financial crisis, highlighting pressures on asset quality and profit growth as the world’s second-largest economy falters. Non-performing loans rose by 28.5 billion yuan ($4.7 billion) in the last quarter of 2013 to 592.1 billion yuan, the highest since Sept. 2008, the China Banking Regulatory Commission said in a statement on its website yesterday. Bad loans accounted for 1 percent of total lending, up from 0.97 percent three months earlier.

• China Inflation Stays Subdued as Producer Prices Extend Decline. China’s inflation stayed subdued in January while factory-gate prices extended the longest drop since the 1990s, in a sign of moderating demand in the world’s second-largest economy. The consumer price index rose 2.5 percent from a year earlier, the National Bureau of Statistics said today in Beijing, the same pace as in December. The producer-price index fell 1.6 percent.

• Pandemic Potential Seen in Gene Changes of Bird Flu. Genetic variations in the deadly bird flu virus circulating in China increase the potential for a pandemic strain to emerge, researchers in Shanghai said. Three new variants of the avian influenza type-A H7N9 virus have been found this winter, spurred by transmission in poultry and the adaption of genetic material from another strain called H9N2, scientists at the Shanghai Public Health Clinical Center and Institutes of Biomedical Sciences said. The new strains may be behind a wave of infections in Guangdong, the southern province bordering Hong Kong.

• Kiwi Will Drop With New Zealand Like Ireland in 2007, Jen Says. New Zealand is “like Ireland in 2007” and it’s only a matter of time before its currency enters a meaningful depreciation, according to Stephen Jen, a partner at London-based hedge fund SLJ Macro Partners LLP. While “the case for kiwi seems compelling,” the reality is “quite different,” Jen, a former International Monetary Fund official, and colleague Fatih Yilmaz wrote in a note to clients yesterday. “New Zealand has severe structural weaknesses that are very similar to those of crisis-hit Southern European and Southern emerging-market economies. Kiwi may be 20 percent overvalued.”

• SkyBridge Sees Up to $50 Billion in Emerging Outflows. Anthony Scaramucci’s SkyBridge Capital says the rout in emerging-market stocks will deepen, pitting the firm against calls by BlackRock Inc. and Templeton Asset Management that shares are cheap and will lure buyers. 

• Asian Stocks Head for Year’s First Weekly Gain; Rupiah Up. Asian stocks rose, with a regional benchmark index heading for its biggest weekly advance since September. The Australian dollar climbed, Indonesia’s rupiah led emerging-market currencies higher and gold extended a rally above $1,300 an ounce. The MSCI Asia Pacific Index added 0.6 percent as of 10:44 a.m. in Tokyo.

• Gold Extends Climb to Three-Month High as SPDR Holdings Increase. Bullion for immediate delivery rose as much as 0.3 percent to $1,307.16 an ounce, the highest price since Nov. 8, and traded at $1,306.08 at 10:13 a.m. in Singapore. Gold has traded above the 100-day moving average since Feb. 10, and is heading for a close above the 200-day moving average for the first time since February 2013. This week, bullion is up 3.1 percent.

Wall Street Journal:

• Taliban Take Toll on Pakistan's Biggest City. Militants Claim Responsibility for Deadly Karachi Blast, Extending Hold Despite Government Crackdown. 

• Malaise Mounts as Spending Slips. Decline of 0.4% in January, December Revised Downward.

Fox News:

• Battle for the Arctic? Concerns US ignoring resource-rich region as ice recedes. While the Obama administration focuses on hotspots like the Middle East and Asia, some lawmakers worry the U.S. is ignoring what could be a critical battleground – the Arctic Ocean.

CNBC:

• AIG(AIG) cuts workforce by 3% after earnings beat. American International Group reported quarterly earnings and revenue that easily beat analysts' expectations on Thursday and announced it will cut its workforce by 3 percent because of a charge taken in the fourth quarter. 

• Smartphone sales growth to slow this year: Gartner. Growth in global smartphone revenue is expected to slow this year as cheaper devices hit the market and weigh on average selling prices, research firm Gartner said on Thursday.

• Weight Watchers(WTW) shares plunge on drastic full-year guidance. Weight Watchers forecast a full-year profit far below estimates, sending the company's shares down 17 percent in extended trading.

Zero Hedge:

• The Tanks Are Rolling In Post-Devaluation Kazakhstan. (video)

• CBO 'Admits' Assumption That US Never Falls Into Recession Again Is Wrong.

• Bitcoin Crumbles To 3-Month Lows On Mt.Gox As CEO Defends Exchange. (graph)

• The European Debt Crisis Visualized. (video)

• Martin Armstrong Exclaims "The Entire Social Contract Is Collapsing". 
• A Walkthru Explaining Facebook's(FB) "Millions" Of Fake Users.
• Santelli Slams The "Self-Sustaining Recovery" Myth. (video)

Business Insider:

• European Revenue Expectations Have Been Tanking. (graph)

NY Times: 

• One-Fifth of New Enrollees Under Health Care Law Fail to Pay First Premium.

Reuters:

• Agilent Tech(A) cuts full-year adj profit forecast. Agilent Technologies Inc cut its full-year adjusted profit forecast, citing lower revenue from its electronic measurement business due to "challenges" in the aerospace and defense market. Shares of Agilent fell 7 percent in extended trading. 

• Apache(APA) Q4 profit misses estimates as output down sharply. U.S. oil and gas company Apache Corp on Thursday reported a bigger-than-expected decline in fourth-quarter profit as its output fell sharply on asset sales and a frigid winter in the United States. Apache warned of weak fourth-quarter output in January, saying that severe winter weather in November had disrupted production at its operations in Oklahoma, Texas and New Mexico. 

 Financial Times:

• T Rowe Price Fund Manager Warns on US Small Caps. Repeat of last year's performance by small caps "highly unlikely," citing Henry Ellenbogen, manager of New Horizons fund. "Small caps as an asset class will probably not outperform for another year," citing Ellenbogen. Doesn't see valuations going much higher.

The Guardian:

• Australia’s housing bubble ready to burst, US investment guru claims. House prices set to plummet by up to 50% as ‘demographic crisis’ and falling Chinese demand looms. If you are one of the many thousands of Australians at risk of being priced out of the property market, you had better wish that Harry Dent has got his sums right. Dent, an American investment guru who uses demographics to forecast economic cycles, thinks the soaring housing market is ready to burst any day now, perhaps reducing values by as much as 50% in some places. Dent, who was in Sydney this week to promote his book The Demographic Cliff, has a formidable record. He claims credit for predicting Japan’s deflationary decade and the US boom and bust of the past 20 years, and has now turned his numbers on Australia.

Yomiuri:

• Japan to Cancel Approvals for 670 Solar Projects.

China Securities Journal:

• China's Economic Growth Slowdown 'Inevitable'. A slowdown in China's economic growth is "inevitable" because of high growth rates can't be sustained, according to a front-page commentary by reporter Gu Xin. A recovery of the nation's exports may be hit by the simultaneous recovery in developed countries and the emerging market crisis, the commentary said.

Shanghai Securities News:

• China Can Allow 1-2 Local Govt Defaults. China can allow 1-2 local governments to default to "trigger adjustments in local government debt," Chen Daofu, a researcher at the State Council's Development Research Center, writes in a commentary. Existing vehicle debt should be separated from any subsequent financing necessary in risk management, the commentary says.

Evening Recommendations
 RBC Capital:

• Rated (WBMD) Top Pick, target $70.

Night Trading

• Asian equity indices are -.50% to +.50% on average.

• Asia Ex-Japan Investment Grade CDS Index 141.0 +2.0 basis points.

• Asia Pacific Sovereign CDS Index 108.25 +2.0 basis points.

• FTSE-100 futures -.15%.

• S&P 500 futures -.34%.

• NASDAQ 100 futures -.28%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CPB)/.71

• (DTE)/.95

• (H)/.20

• (IPG)/.59

• (ITT)/.47

• (SJM)/1.68

• (LPNT)/.80

• (RRGB)/.59

• (RUTH)/.18

• (TRW)/1.66

• (VFC)/.84

• (WLH).52

Economic Releases
8:30 am EST

• The Import Price Index for January is estimated to fall -.1% versus unch. in December.

9:15 am EST

• Industrial Production for January is estimated to rise +.2% versus a +.3% gain in December.

• Capacity Utilization is estimated to rise to 79.3% versus 79.2% in December.

• Manufacturing Production is estimated to rise +.1% versus a +.4% gain in December.

9:55 am EST

• Preliminary Univ. of Mich. Consumer Confidence for February is estimated to fall to 80.2 versus 81.2 in January.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Eurozone GDP report, (HAS) investor update and the (MAT) analyst presentation could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and technology 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.