Wednesday Watch

Evening Headlines
Bloomberg:

• China's Banks May Be Getting Creative About Hiding Their Losses. Chinese lenders are reacting to a regulatory crackdown on shadow financing by increasing activity in their more opaque receivables accounts, a practice Commerzbank AG estimates may result in losses of as much as 1 trillion yuan ($153 billion) over five years. Banks are increasingly using trusts or asset management plans to lend and recording them as funds to be received rather than as loans, which are subject to stricter regulatory oversight and capital limits. The German bank’s forecast is based on total outstanding receivables of around 11.5 trillion yuan. “Chinese banks haven’t provisioned for receivables and those are essentially riskier loans,” said Xuanlai He, credit analyst at Commerzbank in Singapore. “The eventual losses will have significant impact on China’s economy because you could have contagion risk in banking sector.”

• China's Markets Risk 2009 Timewarp as New Lending Surges: Chart. A bubble in Chinese stocks has burst, the nation’s exports are tumbling, the economy is growing at its slowest pace in years -- and banks are doling out loans faster than ever. The last time that happened in 2009, the Shanghai Composite Index doubled in less than 12 months before embarking on a five-year downward spiral as optimism about stimulus turned into concern excessive credit would worsen overcapacity and boost bad debts.

• China-Based Firms Sell Convertible Debt at Record Pace: Chart. 

• Singapore's January Exports Fall More Than Economists Estimated. The decline in Singapore’s exports deepened in the first month of the year, clouding the economic outlook before the next monetary policy decision due in April. Non-oil domestic exports fell 9.9 percent in January from a year earlier, worse than the median estimate of a 7.6 percent drop in a Bloomberg News survey and the 7.2 percent decline in December, a government report showed Wednesday. Electronics shipments slid 0.6 percent from a year earlier, and petrochemical exports plunged 18.3 percent. Pharmaceuticals rose 6.9 percent.

• Asia's Rate Cut Pressure Seen in Indonesia as Exports Collapse. Once again, Asian central banks face the burden of supporting economic growth. The collapse in Asian exports that began last year is spilling into 2016 with China and Indonesia on Monday reporting shipments fell in January. South Korea’s overseas sales shrank the most since 2009 last month and Thailand’s central bank forecast exports would remain flat in 2016 after contracting for three straight years.

• Japan's Economic Woes Cast Shadow on Abe's Twin Election Choice. With Japan’s economy shrinking, the stock market in turmoil, and a stronger yen threatening export earnings, Prime Minister Shinzo Abe’scalculus on whether to call a snap general election this summer has suddenly grown more complicated. Another win in the lower chamber along with an expected victory in the upper house vote set for the summer could allow Abe’s ruling Liberal Democratic Party to stay in power until 2020, making him the longest-serving premier since the 1970s. With ministerial blunders and economic woes eroding his support, Abe risks the opposition Democratic Party of Japan gaining ground in any double vote.

• Korean Won Weakens to Five-Year Low as Rate-Cut Bets Increase. The won fell to a five-year low as bets increased the Bank of Korea will cut its policy rate and as a drop in oil deterred risk-taking. One of seven board members called for a reduction as the central bank left its benchmark rate at a record low 1.5 percent on Tuesday. It would be "more than reasonable" to expect a cut in the next few months, Gary Yau, a strategist at Credit Agricole CIB in Hong Kong, wrote in a report Tuesday. Crude dropped the most in a week overnight on speculation a pledge by Saudi Arabia and Russia to freeze production at January levels won’t push up prices. 

• Asia Stocks Drop as Topix Fluctuates While Energy Shares Slide. Asian stocks declined as Japanese shares fluctuated while energy shares tracked a slide in oil prices. The MSCI Asia Pacific Index lost 0.3 percent to 118.33 as of 9:20 a.m. in Tokyo. Global shares rallied the past three days after more than $8 trillion was wiped from the value of equities since the start of the year amid concern growth in the world’s largest economies is weaker than forecast. Crude retreated amid bets that a pledge by the two biggest oil producing nations to freeze output won’t succeed in tackling the global surplus.

• Why an OPEC Output Cut Wouldn't Make Much of a Difference. (video)

• Hedge Funds in Asia Had Nowhere to Hide in January ‘Bloodbath’. Hedge funds in Asia, which navigated turbulent markets to post gains in 2015, had nowhere to hide in January. As global stocks, currencies, commodities and risky bonds were roiled in a renewed frenzy of selling in January, hedge funds including those from Quam Asset Management Ltd. and Greenwoods Asset Management Ltd. fell more than 10 percent last month. As a group, Asia-focused hedge funds declined 3.1 percent, their worst start to a year since 2008, according to Singapore-based Eurekahedge Pte. About 81 percent of hedge funds actively reporting to the Asia Long-Short Equities category had negative returns last month, according to the research firm.

• Strategist for $1.7 Trillion in Funds Says Rout Has Room to Run. Don’t be fooled into thinking the rebound in stocks means we’ve reached the bottom, says Marcella Chow, who watches the world’s markets for JPMorgan Asset Management Inc. The global strategist for the $1.7 trillion money manager says she’s on edge, her clients are panicky and she’s telling them to stash as much as 70 percent of holdings in bonds including U.S. Treasuries. Calm won’t return until China’s economy improves and central banks regain credibility with investors, she said. She’s waiting for oil to fall to as low as $22 a barrel, and in the meantime she’s battening down and trying to avoid volatility.

Wall Street Journal:

• President Plans to Nominate a Successor to Justice Antonin Scalia in Next Few Weeks. Administration officials indicated Barack Obama wants a Supreme Court pick who can attract some Republican support. President Barack Obama on Tuesday said he seeks a Supreme Court candidate who “indisputably is qualified” for the job, while administration officials indicated he wants a nominee who can attract some Republican support and complicate GOP plans to push off any confirmation process until after the election.

• Saudi Arabia, Russia, Qatar, Venezuela Agree to Freeze Oil Output. Prices fall, however, as investors look for more action to reduce global petroleum glut. Saudi Arabia and Russia, the world’s two largest crude-oil exporters, said Tuesday they would halt production increases as long as other major producers followed suit, but prices fell anyway as investors looked for more-concrete action to reduce the global glut of petroleum. 

• Iran ‘Foreign Legion’ Leads Battle in Syria’s North. Forces backed by Tehran press assault in Aleppo, marking its regional ambitions. In a mausoleum here for slain members of Hezbollah, the Iran-backed Shiite militant group, a woman prayed next to the tomb of her son’s best friend who was killed three years ago in Damascus, she said, in an attack in which her own son was wounded.

• The Plot to Kill the $100 Bill. The $100 bill could be the most endangered U.S. bank note. The $100 bill is America’s most popular currency denomination. It also could be the most endangered.

Fox News:

• Exclusive: China sends surface-to-air missiles to contested island in provocative move. (video) The Chinese military has deployed an advanced surface-to-air missile system to one of its contested islands in the South China Sea according to civilian satellite imagery exclusively obtained by Fox News, more evidence that China is increasingly "militarizing" its islands in the South China Sea and ramping up tensions in the region. The imagery from ImageSat International (ISI) shows two batteries of eight surface-to-air missile launchers as well as a radar system on Woody Island, part of the Paracel Island chain in the South China Sea.

• Confusion over Scalia’s death stirs sideshow debate, conspiracy theories. (video) As congressional lawmakers and presidential candidates battle over the late Justice Antonin Scalia’s potential Supreme Court replacement, a sideshow debate has developed over the circumstances of his death. Questions linger over the precise cause, after the 79-year-old Scalia was found dead Saturday at a remote Texas ranch.

MarketWatch:

• This has been the worst quarter for company earnings reports since 2009.

• Cerner(CERN) adjusts outlook following weaker bookings. Cerner Corp. on Tuesday adjusted its revenue projections for the year after bookings in the fourth quarter came in below estimates. Shares, down 22% over the past 12 months, tumbled 15% in late trading to $47.40, below the 52-week-low of $52.91 set on Feb. 8 during regular trading.

• Junk-bond market facing record refinancing cliff: Moody’s. A record $947 billion of U.S. high-yield, or “junk,” debt, is scheduled to mature in the next five years, and some issuers may struggle to refinance it, Moody’s Investors Service warned on Tuesday.

CNBC:

• Oil, stocks may be just in 'trial separation'.

Zero Hedge:

• Yuan Extends Slide As China Weakens Fix By Most In 5 Weeks. (graph)

• Presenting The Most Striking Way Chinese Are Evading Capital Controls.

• "You Should Be Very Worried, You Should Be Prepared" Warns Jim Rogers.

• Why Aren't Presidential Candidates Discussing Who They Would Pick For Fed Chairman? 

• Foreign Officials Sell A Record $48 Billion In U.S. Treasurys In December. (graph)

• 50% Of Canadians Say They Are Within $200/Month Of Being Unable To Pay Their Bills.

• Calgary's Housing Market Collapses While "Three-Alarm Blaze" Burns Next Door In Vancouver. (graph)

• Tech IPO Market "Frozen" As Investors "Nurse Wounds" After 40% Collapse. (graph)

• Keynesianism's Long March To The Dustbin Of History.

• Carl Icahn, David Einhorn Dump "No Brainer" Apple(AAPL) Shares.

• "Truck-ocalypse" Hits Main Street As Daimler Fires 1,250 Amid Collapsing Demand. (graph)

• Why The Fed Thinks 'You' Are Crazy.

• Stocks Surge On Biggest Short-Squeeze In 4 Months As Crude, Credit, & Carry Crumble. (graph)

Business Insider:

• China's lending binge may not improve its economic prospects.

• The collapse in global trade is breathtaking.

• Fossil(FOSL) smashes earnings expectations, stock jumps 14%.

• Home prices in the Chinese city of Shenzhen are out of control.

Politico:

• Rubio surges back to electrify South Carolina.

Telegraph:

• There will be another crisis. It’s just a question of when. All eyes are trained on the meeting of G20 finance ministers and central bank governors in Shanghai later this month.

Epoch Times: 

• China May Put Its Nuclear Forces on ‘Hair-Trigger Alert’. The Chinese regime may be changing its policy on nuclear weapons, from one based on “survivability” to one that has its missiles ready to launch at any moment. Recent discussions in the Chinese military “suggest pressure is building to change China’s nuclear posture,” says a new report from the Union of Concerned Scientists. It may be moving, the report says, “toward a policy of launch-on-warning and hair-trigger alert.”

Night Trading 

• Asian equity indices are unch. to +.5% on average.

• Asia Ex-Japan Investment Grade CDS Index 164.75 -1.0 basis point. 

• Asia Pacific Sovereign CDS Index 79.0 -.5 + basis point. 

• Bloomberg Emerging Markets Currency Index 68.02 -.11%. 

• S&P 500 futures +.12%. 

• NASDAQ 100 futures +.05%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (ADI)/.53

• (BLMN)/.21

• (DPS)/.98

• (GRMN)/.48

• (NBL)/-.03

• (PCLN)/11.81

• (TMUS)/.15

• (ABX)/.06

• (CF)/.86

• (JACK)/1.03

• (LSCC)/-.13

• (LZB)/.40

• (MRO)/-.48

• (MAR)/.76

• (NTAP)/.68

• (NEM)/.14

• (NVDA)/.43

• (SUNE)/-.67

• (SNPS)/.61

• (VMI)/1.38

• (WMB)/.16   

Economic Releases
8:30 am EST

• Housing Starts for January are estimated to rise to 1173K versus 1149K in December.

• Building Permits for January are estimated to fall to 1200K versus 1232K in Decmeber.

• PPI Final Demand MoM for January is estimated to fall -.2% versus a -.2% decline in December.

• PPI Ex Food and Energy MoM for January is estimated to rise +.1% versus a +.1% gain in December.

• PPI Ex Food, Energy, Trade for January is estimated to rise +.1% versus a +.2% gain in December.  

9:15 am EST

• Industrial Production MoM for January is estimated to rise +.4% versus a -.4% decline in December.

• Capacity Utilization for January is estimated to rise to 76.7% versus 76.5% in December.

• Manufacturing Production for January is estimated to rise +.2% versus a -.1% decline in December. 

2:00 pm EST

• FOMC releases Minutes for Jan. 26-27 Meeting.
  

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed's Bullard speaking, China CPI report, Australia Employment Change, UK Jobless Claims, weekly US retail sales reports, weekly MBA mortgage applications report, Barclays Industrial Conference and the (ETH) investor meeting could also impact trading today.

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