Wednesday Watch

Evening Headlines
Bloomberg:

• FX Reserves: Is China Running Out of Options? (video)
• Will the Yen Rally Accelerate? This Indicator Says It Will: Chart. The yen’s strengthening past 115 yen has raised concern that the rally in the Japanese currency will undermine the Bank of Japan’s efforts to revive inflation -- even after Governor Haruhiko Kuroda brought in negative deposit rates at the end of last month. The appreciation has put the yen on the verge of breaching the lower end of the so-called ichimoku cloud on a weekly chart for the first time since Shinzo Abe became prime minister in December 2012.
• Asian Stock Rout Intensifies as Yen Strengthens; Crude Rebounds. Japanese stocks extended losses and Singaporean shares tumbled following a two-day break, as persistent concern over market volatility helped the yen solidify its ascent. Oil climbed back above $28 a barrel before an update on U.S. stockpiles. The Topix index fell at its lowest point since October 2014 in Tokyo as a gauge of Japanese equity volatility jumped to the highest level since August. The Straits Times Index in Singapore sank the most in three weeks while the yen strengthened a third day and gold resumed its advance. U.S. index futures reversed some early gains as Vermont Senator Bernie Sanders defeated Hillary Clinton in the New Hampshire Democratic Primary, while Donald Trump prevailed over a crowded Republican field. The Topix fell 2.3 percent as of 11:16 a.m. Tokyo time, spurring the MSCI Asia Pacific Index’s 1.3 percent drop. The Straits Times gauge slipped 2.1 percent.Australia’s S&P/ASX 200 Index dropped 2.3 percent, extending losses at its lowest level since July 2013, even as Commonwealth Bank of Australia, the country’s biggest mortgage lender, rallied after reporting an increase in half-year profit.
• Iron Glut to Stay as Majors `Offset' Cuts by High-Cost Mines. Iron ore capacity cuts driven by slumping prices have yet to swing the global market to a deficit as the world’s biggest producers keep on adding supply, according to Morgan Stanley, which projects that a glut will endure to at least 2020. An estimated 91 million metric tons of high-cost capacity has been cut last year and so far in 2016, the bank said in a report. When combined with reductions not spurred by low-prices -- such as the suspension of Samarco Mineracao SA’s operations in Brazil after a dam burst -- tonnage removed climbs to 141 million tons, or 10 percent of seaborne supply, the bank said. “However, this continues to be offset by expanded output from the majors,” the bank said, citing supplies from Rio Tinto Group and BHP Billiton Ltd. in Australia. The increases will ensure that seaborne output still grows in 2016, rising by about 1.8 percent, to keep the market oversupplied, the bank said.
• Copper Falls as Freeport's Indonesian Shipments to Boost Glut. Copper continued its decline after Indonesia recommended Freeport-McMoRan Inc. resume shipments from its Grasberg mine, the world’s largest in terms of capacity, potentially swelling a global glut.The metal used in power cables and air-conditioners retreated 0.2 percent to $4,499 a metric ton on the London Metal Exchange at 9:41 a.m. in Singapore. Prices fell as much as 3.1 percent on Tuesday, the biggest drop in a month.

Wall Street Journal:

• The Carbon Tax Budget. Robbing consumers of the benefit of lower oil prices. President Obama rolled out his $4.1 trillion fiscal 2017 budget proposal on Tuesday, and the good news is that most of it has no chance of passing. The blueprint is nonetheless important as a statement of progressive priorities and the direction a Democratic successor might lean. That goes in particular for his proposal for a $10 a barrel tax on oil.

Fox News: 

• Trump wins, Kasich takes 2nd in GOP New Hampshire primary, Fox News projects. (video) Donald Trump is the winner in the New Hampshire Republican primary and Ohio Gov. John Kasich will take second place, Fox News projects. The battle for third, though, remains a fierce contest among three candidates – Texas Sen. Ted Cruz, former Florida Gov. Jeb Bush and Florida Sen. Marco Rubio. It is too early to project how those three will finish, though Rubio is trailing that group in early returns. 
• Supreme Court puts Obama's power plant regs on hold. (video) A divided Supreme Court on Tuesday abruptly halted President Obama's controversial new power plant regulations, dealing a blow to the administration's sweeping plan to address global warming. In a 5-4 decision, the court halted enforcement of the plan until after legal challenges are resolved. The surprising move is a victory for the coalition of 27 mostly Republican-led states and industry opponents that call the regulations "an unprecedented power grab."

CNBC:

• From ZIRP to NIRP: What's the Fed's next move? (video)
• SolarCity(SCTY) shares plunge as installations miss estimates.
• What impatient markets will get from Yellen. (video)

Zero Hedge: 

• Carnage Continues - Japanese Stocks Crash (Again) As Australia Enters Bear Market. (graph)
• If It Looks Like A Recession, And Smells Like A Recession... (graph)
• The Walking Dead: Something Is Rotten In The Banking System. (graph)
• As Goldman(GS) Risk Explodes, President Says "No One Should Question Viability Of US Banks". (graph)
• What's Dragging Down European Banks: Oil And Commodity Exposure As High As 160% Of Tangible Book. (graph)
• Anadarko(APC) Slashes Dividend By Over 80%.
• The Return Of Crisis.
• S&P Downgrades Banks With Highest Energy Exposure; Expects "Sharp Increase" In Non-Performing Assets.
• Crude Confused After API Reports Across-The-Board Inventory Builds. (graph)
• What The Charts Say: "Complacent" Bulls Remain As S&P Support Under Pressure.
• Deutsche Desperation & Twist Talk Save Stock Sheep From Slaughter. (graph)

Financial Times:

• Outflows from China top $110bn in January. Chinese companies and residents sent more than $110bn out of the country in January alone, according to new estimates, as they continued to evade tightening capital controls amid another round of market turmoil. Surging capital outflows from China have become a source of growing concern around the world and left Beijing scrambling to support its currency. Recently-released data showed the country’s foreign exchange reserves falling to their lowest level in almost four years in January. 

Telegraph:

• Europe's 'doom-loop' returns as credit markets seize up. 'We all know that QE2 is not really going to work but the market says "I’m a smoker, I know it kills me, but so long as I can get cigarettes, I’m happy"'.
• Creditors must brace for a tsunami of losses in a world awash with debt. Countries have taken on far more debt than can ever be repaid. As the European banking sell-off is already signalling, creditors are in for a brutal awakening. Get ready for debt restructuring mayhem.

Night Trading 

• Asian equity indices are -2.0% to -.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 165.0 +7.75 basis points.

• Asia Pacific Sovereign CDS Index 85.5 +1.5 basis points.

• Bloomberg Emerging Markets Currency Index 68.36 +.11%.

• S&P 500 futures -.23%.

• NASDAQ 100 futures -.20%.

Morning Preview Links 

Earnings of Note 

Company/Estimate

• (ARMH)/.08
• (HUM)/1.46
• (OC)/.46
• (SEE)/.50
• (TWX)/1.00
• (AEM)/.02
• (ANDE)/.64
• (CSCO)/.54
• (EXPE)/1.02
• (MYL)/1.27
• (OII)/.58
• (OHI)/.79
• (ORLY)2.08
• (PPC)/.40
• (PRU)/2.30
• (TSLA)/.08
• (TWTR)/.12
• (WFM)/.40

Economic Releases

10:30 am EST

•  Bloomberg consensus estimates call for a weekly crude oil inventory build of +3,012,500 barrels versus a +7,792,000 barrel gain the prior week. Gasoline supplies are estimated to rise by +387,500 barrels versus a +5,938,000 barrel gain the prior week. Distillate inventories are estimated to fall by -1,314,290 barrels versus a -777,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall by -.16% versus a -.8% decline prior. 

2:00 pm EST

• The Monthly Budget Statement for January is estimated at $47.5B versus -$17.5B in December.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Yellen speaking, Fed's Williams speaking, UK Industrial Production report, $23B 10Y T-Note auction, OPEC monthly update, weekly MBA Mortgage Applications report, Leerink Swann Healthcare conference, BB&T Transport conference, BofA Insurance conference and the (MXIM) investor day could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by industrial 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 25% net long heading into the day.