Thursday Watch

Evening Headlines
Bloomberg:

• China Money Rate Jumps as Reserve Limits Hit Preferential Banks. China’s overnight money rate climbed by the most since the Lunar New Year holiday as some banks were obliged to set aside more funds as reserves at a time when open-market operations are draining cash from the financial system. Effective Thursday, the People’s Bank of China normalized reserve requirements for some lenders that had been assigned preferential terms. The monetary authority has added 580 billion yuan ($88.8 billion) to the financial system this week via auctions of seven-day reverse-repurchase agreements, less than the 960 billion yuan of contracts that mature through Friday. 
• Hedge Funds See No Respite Ahead in Asia After Brutal Start. Hedge funds in Asia, which struggled with a brutal market selloff last month, don’t see a respite anytime soon. The $241 million Orchid China Master Fund extended January’s 11.2 percent decline to slump another 2.6 percent this month through Feb. 15 and is bracing for more market swings, according to a letter to investors. The $33 million Truston Falcon Asia Fund has reduced unhedged positions amid extreme volatility and an uncertain outlook, it said in an investor letter. Open Door Capital Group, which suffered a 23 percent loss in its $188 million A-share fund last month, said in a letter that China’s slower growth “cannot provide any positive support for the capital market."
• Nikkei 225 in `Eerie' Parallel to Lehman Prelude in 2008: Chart. Japan’s Nikkei 225 gauge is tracing chart patterns seen in the 12 months through April 2008. A series of Federal Reserve rate cuts that began in September 2007 appeared too late, Norihiro Fujito, a strategist at Mitsubishi UFJ Morgan Stanley Securities, says in an interview today. The Nikkei fell 36% in the remaining eight months of 2008. The “eerie” parallel is unnerving, and may continue should U.S. and Japanese policy makers take the wrong actions, he said, referring to the recent Fed rate hike and a planned increase in Japan’s consumption tax.
• Australian Firms' Investment Plans Weakest in Nine Years. Australian companies’s annual investment plans fell to the lowest level in nine years as an expected pickup in spending by non-mining industries remains elusive. Firms plan to outlay A$82.6 billion of investment in the financial year beginning July 1, the weakest reading since 2007-08, government data showed Wednesday. The currency fell. The Reserve Bank of Australia had hoped that as mining investment and commodity prices retreated from record highs, easier monetary policy and a lower currency would encourage non-resources firms to open their pocket books. Yet it hasn’t been quite that simple. Governor Glenn Stevens acknowledged as much when he lamented this month the failure of “animal spirits” to really take hold. “Capital spending outside of mining is considerably weaker now than I would have expected,” Stevens told a parliamentary panel Feb. 12. “There is very little sign at this point of intentions to invest more.”
• China's Stocks Fall as Technology, Industrial Companies Retreat. Chinese stocks fell amid speculation recent gains for the benchmark index were overdone relative to the outlook for the economy and earnings. The Shanghai Composite Index slid 1.1 percent to 2,897.53 at 9:52 a.m. , led by technology and industrial companies. The benchmark gauge rebounded 10 percent from last month’s low through Wednesday as the government stepped up policy support ahead of the annual National People’s Congress. Agile Property Holdings Ltd. plunged the most in a month in Hong Kong after estimating a 70 percent drop in profits. The Hang Seng China Enterprises Index retreated for a third day.
• Most Asian Stocks Rise After Crude Rally as Japan Leads Advance. Most Asian stocks rose, following U.S. shares higher, as Japanese shares climbed and a turnaround in oil boosted energy companies. About three shares climbed for each that fell on the MSCI Asia Pacific Index, which traded little changed at 119.63 as of 9:05 a.m. in Tokyo. Energy and material shares led gains, while consumer companies dropped. Volatility over the past 30 days on the regional benchmark index remains near the highest level in four years amid tumbling oil prices and concern over the slowdown in China’s economy. U.S. crude erased a slump of more than 4 percent Wednesday to close above $32 a barrel.
• Rio Tinto(RIO) Dividend Cut Plan Fails to Prevent Moody's Downgrade. Rio Tinto Group had its credit rating cut by Moody’s Investors Service even after the miner announced plans to slash its dividend in response to plunging commodity prices. The world’s second biggest metal producer had its credit score lowered one level to Baa1, Moody’s third-lowest investment-grade rating, with a negative outlook. The downgrade follows a slide in energy and metals prices that’s put pressure on producers around the world and seen some, including Anglo American Plc, lose their investment-grade status. With profits falling, Rio Tinto has sought to shore up its balance sheet and announced earlier this month that it would lower its payment to shareholders by as much as half. “There has been a fundamental downward shift in the mining sector with the downturn being deeper and prospects for a recovery extended,” Moody’s said in a statement. “Ratings need to be re-calibrated to reflect expected performance over a more protracted challenging operating environment.”
• Islamic State Releases Video Targeting Facebook(FB), Twitter(TWTR) CEOs. Islamic State has released a new video that targets the chief executive officers of Facebook Inc. and Twitter Inc. The 25-minute clip shows the faces of Facebook’s Mark Zuckerberg and Twitter’s Jack Dorsey riddled with mock bullet holes, according to the Guardian newspaper and tweets by Rita Katz, director of the SITE Intelligence Group -- a company that monitors jihadist movements. The video was purportedly made by a group called the "Sons Caliphate Army." In January, the administration of U.S. President Barack Obama asked companies including Facebook and Twitter for help in the fight against terrorism. That gathering took place as Obama announced a new counterterrorism task force to thwart extremists and their use of social media after recent deadly attacks in Paris and San Bernardino, California.

Wall Street Journal:

• The Big New Threat to Oil Prices: A Glut of Gasoline. Several refineries in the Midwest have opted to reduce activity for economic reasons. Refineries in the U.S. Midwest are losing their thirst for oil, posing a new risk for the battered crude market. The Midwest accounts for nearly a quarter of the crude processed in the U.S. and is home to shale producers that have few other outlets for their oil. But refiners there are already swimming in gasoline and other fuel, forcing them to cut back production until the excess can be worked off.
• Sharp Accepts Foxconn’s $6.24 Billion Takeover Offer.
• U.S. Warns Banks Off Russian Bonds. State, Treasury say helping sell debt would undermine sanctions on country. 
• S&P 500 Earnings: Far Worse Than Advertised. The gap between reported and pro forma earnings last year reached its widest level since the financial crisis.
• The Donald Doesn’t Have a Lock—Yet. There is still time for a non-Trump majority to coalesce around a single candidate. Donald Trump scored a very impressive win in Nevada, taking 45.9% and 14 of the state’s 30 delegates to the GOP convention. But the Republican nomination is far from settled. After four contests, only 133 of the convention’s 2,472 delegates have been selected. The choices made by late-deciding voters would be a sign of consolidation, but in South Carolina Mr. Trump drew only 17% of those who made up their mind in the final week of the campaign. Among the 30% in Nevada who decided in the final week, Sen. Marco Rubio carried 42%, far more than any candidate. Donald Trump could well have a lock on the nomination after March 15 if a fragmented opposition gives him an absolute majority of delegates on that day. There is still time for the non-Trump GOP majority to coalesce around a single candidate, but not much.

CNBC:

• HP earnings fall on 'tough' PC and printer markets. (video) HP Inc. reported quarterly earnings that met analysts' expectations on Wednesday, but revenues in its printing and personal systems segments fell slightly more than Wall Street had estimated. The company posted fiscal first-quarter adjusted earnings per share of 36 cents on $12.25 billion in revenue. Analysts had expected HP to report earnings of about 36 cents per share on $12.2 billion in revenue, according to a consensus estimate from Thomson Reuters. HP shares wavered in after-hours trading after the announcement.
• Oil may push banks to boost reserves. (video) After JPMorgan announced Tuesday that it would increase reserves to offset losses on loans in the energy sector, Wall Street is waiting for more shoes to drop.

Zero Hedge:

• "Credit Risk Is Growing," FDIC Warns As Loss Provisions Jump $3.8 Billion In 3 Months. (graph)
• Canary, Meet Coal Mine: These Are The Tranches Where The CLO 2.0 Meltdown Begins. (graph)
• According To Morgan Stanley(MS) This Is The Biggest Threat To Deutsche Bank's Survival. (graph)
• Japanese 'Margin' Traders Suffer Biggest Losses "Since Lehman". (graph)
• Jim Rogers Warns "Governments Plan Is To Destroy The People Who Save". (video)
• When Currency Pegs Break, Global Dominoes Fall. (graph)
• Norway Warns Sweden Will Collapse, PM Will Defy Geneva Convention To Protect Border.
• Restoration Hardware(RH) Stock Crashes After Terrible Earnings; Company Blames Crashing Stock Price. (graph)
• Wedbush Goes There: "Beware The Panics And Crashes Of March".
• Citi: "We Have A Problem". (graph)
• What Could Go Wrong? Brazil Plans To Kill Zika With Gamma Radiation Burst.
• Here Are 100 Reasons Why We Need To Audit The Federal Reserve.
• Worst US Economy Since Government Shutdown Sparks Panic-Buying In Stocks. (graph)

Business Insider:

• MITT ROMNEY: There's good reason to believe there's a 'bombshell' in Donald Trump's taxes.
• Al-Qaeda is taking control of a pivotal Middle East country.
• Carl Icahn has lost billions on energy trades this year.
• US spy agencies are saying Clinton's emails should have been 'top secret' because of their content.
• 'Do you want to divide Europe?' Hungary's provocative prime minister discusses Europe's refugee crisis.
• 'China is clearly militarizing the South China Sea and you’d have to believe in the flat Earth to think otherwise'.
• Here’s your first look at the super cheap phone that will take on the iPhone in China. (video)
• Salesforce(CRM) shares soar after Q4 beat.

Reuters:

• Ackman's fund off 17.3 percent for year, erases banner gains from 2014.

Financial Times:

• S&P warns of Asia’s corporate repayment risk. Asia-Pacific companies are on the hook to repay almost $1tn of debt over the next four years — more than half of it priced in US dollars — according to Standard & Poor’s.

Night Trading 

• Asian equity indices are -1.25% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 157.25 +.75 basis point. 
• Asia Pacific Sovereign CDS Index 77.75 -1.25 basis points. 
• Bloomberg Emerging Markets Currency Index 68.54 +.02%. 
• S&P 500 futures -.14%. 
• NASDAQ 100 futures -.13%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (ALKS)/-.24
• (BUD)/1.61
• (APA)/-.46
• (BBY)/1.39
• (CVC)/.17
• (CPB)/.80
• (CRI)/1.29
• (CHS)/.00
• (DPZ)/1.11
• (KSS)/1.56
• (ZEUS)/-.17
• (PWR)/.28
• (SAFM)/.45
• (SHLD)/-2.62
• (SFM)/.16
• (TD)/1.19
• (VC)/.77
• (AIRM)/.64
• (ADSK)/.11
• (BIDU)/1.21
• (GPS)/.57
• (GG)/.00
• (HLF)/.97
• (MHK)/2.73
• (MNST)/.81
• (PANW)/.39
• (WTW)/.02
• (ZOES)/-.06 

Economic Releases 
8:30 am EST

• Initial Jobless Claims for last week are estimated to rise to 270K versus 262K the prior week.
• Continuing Claims are estimated to fall to 2253K versus 22723K prior. 
• Preliminary Durable Goods Orders for January are estimated to rise +2.9% versus -5.0% in December.
• Preliminary Durables Ex Transports for January are estimated to rise +.3% versus a -1.0% decline in December.
• Preliminary Cap Goods Orders Non-Defense Ex Air for January are estimated to rise +1.0% versus a -4.3% decline in December.

9:00 am EST

• The House Price Purchase Index for 4Q. 
• The FHFA House Price Index MoM for December is estimated to rise +.5% versus a +.5% gain in November. 

11:00 am EST

• Kansas City Fed Manufacturing for February is estimated to rise to -6.0 versus -9.0 in January.

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed's Lockhart speaking, Fed's Williams speaking, UK GDP report, China Property Price report, $28B 7Y T-Note auction, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, Cantor Internet/Tech Conference and the (ZION) investor conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and real estate 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.