Friday Watch

Evening Headlines
Bloomberg:

• Germany Opposes Any G-20 Fiscal Stimulus; Focuses on Reform. Germany’s finance minister opposed any fiscal stimulus plan from the Group of 20, whose top economic officials gather Friday, and instead sought to focus on structural reforms to strengthen national growth rates. Wolfgang Schaeuble, speaking hours before meeting with his counterparts from the G-20 developed and emerging markets, also said that the space for monetary policy has been exhausted. He warned that using debt to fund growth just leads to "zombifying" economies. "Talking about further stimulus just distracts from the real tasks at hand," Schaeuble said at a conference in Shanghai. German policy makers "do not agree on a G-20 fiscal stimulus package, as some argue in case outlook risks materialize."

• Yuan Headed for Weekly Loss After PBOC Weakens Reference Rate. The yuan headed for its first weekly loss in more than a month as the central bank weakened the currency’s reference rate for the first time since a run of reductions sparked a global stocks rout in early January. The People’s Bank of China kept a tight grip on its daily fixings from Jan. 8 through the Chinese New Year holiday after declines heightened concern about the state of Asia’s biggest economy and led to an equities selloff that erased more than $4 trillion of market value worldwide. There’s no basis for sustained depreciation of the yuan and stabilizing market expectations on the exchange rate is critical, the central bank said Friday as Group of 20 finance chiefs met for talks in Shanghai. The currency fell 0.24 percent since Feb. 19 to 6.5359 per dollar in Shanghai, after a 0.85 percent advance last week that marked its biggest gain since March 2015, according to China Foreign Exchange Trade System prices.

• Can the PBOC Afford to Keep Intervening? (video)

• Man Who Called Emerging-Market Rout Isn't Buying the Bull Case. (video) If John-Paul Smith is right, some of the world’s biggest investors are setting themselves up for a major disappointment. The London-based strategist, one of few to anticipate the slump in emerging markets that began in 2011, sees no sign of a turnaround and says the current environment resembles that of the late 1990s, when crises in Southeast Asia and Russia roiled the entire asset class. While Smith lacks BlackRock’s trillions under management and Franklin Templeton’s global footprint, the founder of research firm Ecstrat Ltd. has a track record for getting it right on emerging markets. His consistently pessimistic outlook since late 2010 foreshadowed losses of more than 30 percent in the MSCI Emerging Markets Index, while he gave early warning of Russia’s 1998 stock-market crash as a strategist at Morgan Stanley in Moscow.

• Brazilian Banks Downgraded by Moody’s After Sovereign Debt Cut. Itau Unibanco Holding SA, Banco do Brasil SA and Banco Bradesco SA were among more than two dozen financial firms in Brazil that had credit ratings cut by Moody’s Investors Service after it stripped the nation of an investment grade this week. Ratings affected in the latest shakeup included baseline credit assessments and bank deposit and debt ratings, New York-based Moody’s said Thursday in a statement.

• Japan Census Shows First Decline in Population Since 1920. Japan’s population declined last year for the first time in nearly a century. The number of Japanese dropped to 127.1 million in a national census for 2015, down 0.7 percent compared with five years earlier, according to data released today by the Ministry of Internal Affairs and Communications. The decline was the first recorded since the 5-year census started in 1920. Japan is one of the world’s fastest aging countries with 27 percent of people over 65 years old, according to the U.S. Census Bureau. Germany, France and Italy face similar population trends, with one in every five of their citizens over the age of 65, data showed.

• Asian Stocks Jump With Metals as Zhou Sees Easing Room; Kiwi Up. Asian stocks rallied, on track for their second straight weekly gain, with China’s central bank saying it sees room for monetary easing as Group of 20 finance chiefs discuss stimulus efforts. Oil headed for the biggest weekly rise since August. The regional benchmark is on track for a weekly climb of 0.6 percent, after the Standard & Poor’s 500 Index reached levels last seen at the start of 2016 on Thursday. Industrial metals rebounded and high-yielding currencies jumped, with the New Zealand dollar and the Malaysian ringgit strengthening. Gold extended gains. The MSCI Asia Pacific Index gained 0.8 percent as of 12:19 p.m. Tokyo time, as the Topix index in Tokyo was 0.8 percent higher and the Kospi index in Seoul climbed 0.2 percent. Hong Kong’s Hang Seng Index advanced 1.8 percent, the Straits Times Index surged 1.2 percent, the Jakarta Composite rallied 1.1 percent, while the Shanghai Composite was up 0.4 percent.

• Bond Vigilantes Slap Oil CEOs With Junk Tag on $258 Billion Debt. They have sold off hundreds of oil fields, eliminated thousands of jobs and slashed millions of dollars from capital spending and dividends. But in this unforgiving new world of $30-a-barrel oil, it’s barely been enough. As U.S. oil executives from Anadarko Petroleum Corp. to Hess Corp. take drastic measures to weather the worst slump in a generation and cling to their debt ratings, creditors are already writing some of them off. So much so that late last month, average borrowing costs for energy bonds with the lowest investment grades -- issues totaling $258 billion -- soared past those of the highest-rated U.S. junk borrowers for the first time. What’s more, debt issuance industry wide has all but ground to a halt after a record year in 2015. “Between falling demand and the geopolitical game of chicken, forecasting the path of oil companies has become extremely cloudy,” said Matthew Duch, a money manager at Calvert Investments Inc., which oversees $12 billion. Even an investment-grade producer “with the best of intentions can still just run out of room to move and run out of time. Things could get very bad.”

• Exxon's(XOM) Downgrade Threats Mount as Oil Rebound Prospects Dim. Exxon Mobil Corp. may lose its top-notch credit rating from Moody’s Investors Service as the oil-market collapse imperils cash flow needed to cover debt payments and investment in new discoveries. Seven of the other largest U.S. energy explorers also were put on notice or downgraded by Moody’s Thursday after the rating company concluded crude prices will remain weak for years. The Moody’s review featured a Who’s Who of American oil and gas heavyweights, from Chevron Corp. to Marathon Oil Corp. to ConocoPhillips. The outlook for Exxon, which has held Moody’s top Aaa rating for more than 90 years, dropped to negative from stable, the rating company said in a statement on Thursday. The move followed a warning earlier this month from Standard & Poor’s that its own rating on Exxon’s debt may be in jeopardy.

• Rubio Puts Trump on Defensive Over Immigration, Obamacare in Super Tuesday Debate. The Florida senator unleashed a rapid-fire string of near-mocking attacks on everything from Trump's record of hiring immigrants to his inherited wealth. Florida Senator Marco Rubio, for the first time in any Republican presidential debate, seemed to rattle billionaire Donald Trump with a rapid-fire string of near-mocking attacks on everything from his record of hiring immigrants to his inherited wealth and even to his propensity to repeat a series of crowd-pleasing but carefully rehearsed lines.

Wall Street Journal:

• Houston Republican Debate: Live Coverage.

• Why Oil Prices Will Leave a Mark at Warren Buffett’s Berkshire Hathaway. Cheaper oil is a growing problem for some of conglomerate’s key holdings. Berkshire Hathaway Inc.’s annual results Saturday will give investors a closer look at how Warren Buffett is coping with what could be the market’s biggest problem: oil. Cheaper oil is a bright spot for many of Berkshire’s manufacturing and industrial businesses. But it is a growing problem for key holdings including BNSF Railway Co., which makes a lot of money hauling oil and other commodities and accounted for about a fifth of...

• Trump Is the Ultimate Insider. The Donald’s rivals have given him a pass on his greatest vulnerabilities. There’s an old saying that “to catch a fish, you need to think like a fish.” And there’s a modern translation of that for today’s GOP: To beat a Donald, you need to think like a Trump voter.

Fox News:

• ‘He’s repeating himself’: Rubio tries to turn tables on Trump at GOP debate.

Zero Hedge:

• China May Have Found A "Solution" To Its Massive Bad Debt Problem.

• "We Are Heading Into Anarchy": Official Says EU Will "Completely Break Down In 10 Days".

• R.I.P. M&A Boom: Goldman Fails To Get $2 Billion LBO Deal Done Even At Double-Digit Yields. (graph)

• The Curious Case Of "Strong" January Durable Goods: It Was All In The Seasonal Adjustment. (graph)

• Albert Edwards Is In Love With This Asset That Hasn't Had A Losing Year Since 2007. (graph)

• Intraday Market Rescue Team Most Active Since 2011. (graph)

• 3 Things: Earnings Lies, Profits Slide, EBITDA Is Bulls**t. (graph)

• "Broken" Bond Market Sparks Farcical Oil & Stock Buying Scramble. (graph)

Business Insider:

• Here's why Marco Rubio accused Donald Trump of running a 'fake university'.

• We have too much much free stuff and it's destroying America. "The only way to save the economy is to crash it," began Brown in a post entitled "Abundance." "There’s too much of everything and it’s not good for anyone. It’s hurting everyone. Paradoxically, abundance is now the enemy. This sets us apart from virtually every other society throughout history." His thesis is simple: There's a glut of everything — funding for startups, money for mega-corporations, media content, TV, music, political voices, everything — and it has created a toxic atmosphere that needs a downturn to correct it.

• A major Turkish city is turning into a war zone.

• HP(HPQ) will lay off 3,000 workers this year.

Financial Times:

• German ‘doom loop’ proposal would hit Italian, Spanish banks. Italian and Spanish banks would suffer another blow to their profits if Brussels adopts a German plan to break the “doom loop” that ties together lenders and their governments this year, according to analysts.

• Exports from China to Brazil collapse as recession deepens. Chinese exports to Brazil collapsed last month in the latest dramatic sign of the deepening recession in Latin America’s biggest economy. Containerised exports from China to Brazil of goods ranging from automotives to textiles fell 60 per cent in January compared with a year earlier as the weak real limits Brazilians’ ability to buy imported goods, according to Maersk Line, the world’s largest shipping company. Total volume of containerised imports into Latin America’s biggest economy halved, data showed.

Telegraph:

• Mark Carney issues stark warning on global growth as storm clouds gather.

Night Trading 

• Asian equity indices are unch. to +1.0% on average.

• Asia Ex-Japan Investment Grade CDS Index 156.0 -1.25 basis points. 

• Asia Pacific Sovereign CDS Index 76.0 -1.75 basis points. 

• Bloomberg Emerging Markets Currency Index 68.73 +.07%. 

• S&P 500 futures unch. 

• NASDAQ 100 futures +.08%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (AMT)/1.18

• (FL)/1.13

• (HLT)/.22

• (HMSY)/.16

• (JCP)/.22

• (MGA)/1.11

• (RDC)/.74

• (SRE)/1.32

• (BID)/1.14

• (BRK/B)/2904.73

Economic Releases 
8:30 am EST

• The Advance Goods Trade Deficit for January is estimated at -$61.2B versus -$61.513B in December.

• Preliminary 4Q GDP is estimated to rise +.4% versus a prior estimate of a +.7% gain.

• Preliminary 4Q Personal Consumption is estimated to rise +2.2% versus a prior estimate of a +2.2% gain.

• Preliminary 4Q GDP Price Index is estimated to rise +.8% versus a prior estimate of a +.8% gain.

• Preliminary Core PCE is estimated to rise +1.2% versus a prior estimate of a +1.2% gain.

10:00 am EST

• Personal Income for January is estimated to rise +.4% versus a +.3% gain in December.

• Personal Spending for January is estimated to rise +.3% versus unch. in December.

• The PCE Core MoM for January is estimated +.2% versus unch. in December.   

• Final Univ. of Mich. Consumer Sentiment for February is estimated to rise to 91.0 versus a 90.7 prior estimate. 

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed's Powell speaking, Fed's Brainard speaking, Eurozone Confidence report and the (ETN) analyst conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and real 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.