Thursday Watch

Evening Headlines
Bloomberg:   

• China's Exporters Struggle as Yuan Swings Disrupt Business. The yuan’s swings are becoming a headache for the Chinese companies that should have been the biggest beneficiaries of last year’s devaluation. In rare overt comments, exporters including Midea Group Co. and TCL Corp. are expressing apprehension about the nation’s exchange-rate policy. Two said the increased volatility has made it difficult to manage costs because customers are choosing to place only short-term orders, while a third said the yuan was allowed to strengthen far too much in the past few years. “Overseas clients are taking into account losses that can be caused by exchange-rate swings and are placing shorter-term orders with smaller volumes, which creates difficulty for our operations," said Yuan Liqun, vice-president at Midea, China’s biggest maker of household appliances by market share. “The fluctuations last year were relatively significant. Companies can accept a market-based yuan that moves within a reasonable range.”
• Mayor of China's Growth Champion Turns to Reining in Excesses. Chongqing’s mayor is vowing to slash industrial capacity and reduce a housing glut as the booming municipality attempts to put itself at the vanguard of China’s push to restructure the economy. Mayor Huang Qifan, 63, told Bloomberg News that paying off debt, clearing excess property inventory and closing inefficient "zombie" companies are top priorities for the southwestern megacity, which has more people than Texas. The written interview during the annual legislative meetings in Beijing was his first with foreign media since he emerged as a candidate for a top economic post after last year’s market turmoil. "We must make sure to prevent systemic and regional financial risk," Huang said, adding that the municipality was taking steps to reduce capacity in coal mining, steel production, shipmaking and power production. Chongqing, with an economy larger than Greece, will use a "market-oriented approach" to swap high-cost debt for businesses that have promising outlooks and good liquidity, Huang said.
• Under the Hood of Japan Trade Data Are Weak Exports to U.S. (video)
• Islamic State Spreads in North Africa in Attacks Ignored by West. The Islamic State fighters appeared at dawn in the Tunisian town of Ben Guerdane, attacking police and army barracks. Last week’s clashes killed at least 58 people, including 46 militants and a 12-year-old girl. Tunisia is no stranger to jihadist violence -- three large-scale assaults last year decimated its tourism sector -- but it’s the first time militants have attempted to seize territory. The people of this desert crossroads helped turn the tide, hurling stones at militants as security forces engaged them. After 1 1/2 hours, the gunmen, some of whom had trained in neighboring Libya and smuggled weapons across the border, were on the run. The incident serves to remind the world of the risks an unraveling Libya poses across North Africa. Algeria, struggling under the decline in oil prices as it tries to partner with the West against Islamist militancy, went on high alert. Tunisia imposed a curfew and closed border crossings. Ben Guerdane is on lockdown, with shops and schools shut and security forces posted behind sandbags at checkpoints and on rooftops.
• Asian Stocks Advance as Dovish Fed Gives Boost to Risk Assets. Asian stocks rose after the Federal Reserve pared back expectations for interest-rate increases this year. The MSCI Asia Pacific Index gained 1.1 percent to 127.54 as of 9 a.m. in Tokyo, with material and consumer shares leading the advance.  
• Top China Copper Trader Says Second-Half Slump Stalks Market. One of China’s biggest copper traders expects the metal to sink in the second half as demand ebbs in the world’s biggest consumer amid a slowdown in global growth. He Jinbi, founder and president of Xi’an Maike Metals International Group, joins Codelco, the world’s biggest copper miner, and Goldman Sachs Group Inc. in predicting the metal’s advance from a six-year low won’t last. Prices, which traded above $5,000 a metric ton this month, will average between $4,200 and $4,300 this year, He said in recent interviews. “Demand for the second half might not be good and we may face some risks from the global markets,” He said at the Shanghai office of the company he founded in 1993. Maike has a joint venture, HFZ Capital Management Ltd., with Red Kite Group, one of the biggest metals hedge funds.
• Oil Investors See $7.4 Billion Vanish as Dividends Are Targeted. The check is not in the mail. Bludgeoned by falling energy prices, at least a dozen oil and natural gas companies have opted to cut dividends this year to preserve cash, cannibalizing payouts considered sacrosanct by many investors. The cost to shareholders: more than $7.4 billion in lost income, compared to what they would have received this year if the payouts remained the same.
• Houston's $3 Billion of Debt Cut by Moody's After Oil-Price Drop. Houston’s $3 billion of general-obligation debt was cut one level by Moody’s Investors Service, which cited weakening economic performance due to lower oil prices, the city’s pensions obligations and restrictions on raising taxes. The fourth largest U.S. city was downgraded to Aa3, Moody’s fourth-highest level, and remains on watch for additional cuts, the rating company said Wednesday. “The negative outlook reflects the recent weakness in economic and sales tax performance, fueled by energy companies’ reduced investments in personnel and capital, as oil prices have remained low,” Moody’s said in a release.

Wall Street Journal:

• Obama Picks Garland for Supreme Court, Setting Off High-Stakes Fight With Senate. Lawmakers reiterate promises not to hold hearings or votes until after November elections.
• U.S. Imposes Fresh Sanctions on North Korea. Measures block businesses from trade with North Korean entities engaged in finance, transportation, mining and energy. The Obama administration for the first time imposed sanctions on broad sectors of the North Korean economy in a move that is expected to increase pressure on China to cut it business dealings with the nuclear-armed state.
• Obama’s Supreme Politics. How GOP Senators should handle Merrick Garland’s nomination. President Obama’s nomination of Merrick Garland for the Supreme Court is meant to put Senate Republicans on the spot by elevating a well-qualified 63-year-old judge not known as a progressive firebrand. Republicans aren’t likely to fall into this trap, and Judge Garland’s jurisprudence suggests they’re right—with a caveat we’ll get to later.

Fox News:

• What happens to delegates won by Rubio, other ex-candidates? (video) With Marco Rubio dropping out of the Republican presidential race Tuesday, the Florida senator leaves a large cache of delegates behind. So what happens to them, and the delegates of other former candidates, at the convention in Cleveland? The short answer is: It varies from state to state, but the Republican Party leaves enough wiggle room that the delegates of former candidates could end up being a factor in July. "An inbound delegate is worth their weight in gold," Rick Wilson, a GOP strategist, told FoxNews.com. "It's hard to speculate and there's a lot going on right now."
• Obama Supreme Court pick faces conservative heat on gun votes. (video)

MarketWatch:

• Energy sector defaults could go like dominos. Energy issuers may be headed for $40 billion in defaults this year, Fitch says.
• Williams-Sonoma(WSM) shares drop after outlook, earnings miss. Williams-Sonoma Inc. shares dropped in the extended session Wednesday after the high-end home furnishings retailer's outlook and quarterly results fell short of Wall Street estimates. Williams-Sonoma shares fell 6.4% to $55.65 after hours. The company forecast adjusted first-quarter earnings of 48 cents to 52 cents a share on revenue of $1.07 billion to $1.09 billion. Analysts surveyed by FactSet had estimated earnings of 55 cents a share on revenue of $1.1 billion.
• 59% of fund managers see an economy in its final innings — highest percent since 2008 

Zero Hedge:

• Wage Growth Dream Crushed - Weekly Earnings Rise Weakest In 18 Months. (graph)
• Here Is What Janet Yellen Answered When Steve Liesman Asked If The Fed "Has A Credibility Problem".
• World’s Second Largest Reinsurer Buys Gold, Hoards Cash To Counter Negative Interest Rates.
• Japanese Exports To US Plunge Most Since 2011 As Weak Yen Tailwind Evaporates.
• Shorts Slammed As Yuan Spikes Most In 6 Weeks. (graph)
• How Negative Interest Rates Will Turbocharge The Migrant Crisis.
• P2P Property Lending Explodes In China; Officials Panic.
• In Dramatic Move, Syrian Kurds Set To Declare Proto-State On Erdogan's Border.
• Ackman Begins Portfolio Liquidation To Shore Up Cash, Sells $800 Million In Mondelez After Losing 26% YTD. (graph)
• Gold, Stocks, & Bonds Soar As "Cowardly Lyin'" Fed Batters Banks & Greenback. (graph)

Business Insider:

• FedEx(FDX): Amazon(AMZN) would have to spend 'tens of billions' to compete with us.
• Coal miners in China are staging a massive protest.
• The best possible response to the Great Recession would have been to do nothing.
• The US is nearing a decision on whether to label ISIS attacks 'genocide' — and that could have major implications.
• The 'unsinkable' global financial system is rushing headlong toward an iceberg.
• FedEx(FDX) earnings beat expectations, stock gains 5%.

Washington Post:

• Clinton would trounce Trump with demographics and message. Republicans are deluding themselves if they think Donald Trump, if selected as the GOP nominee, can “remake” the electoral map so as to beat Hillary Clinton. The polls and the demographics (Clinton with the Obama coalition amplified by even more Hispanic voters, Trump without even a full GOP turnout) are stacked heavily in her favor.

CNN: 

• Ted Cruz plots a path to 1,237 delegates -- but keeps his backup plan. Ted Cruz is girding for an admittedly long, narrow path to clinching the GOP nomination before the GOP convention in July, a tightrope walk that has no margin for error if he is to dethrone Donald Trump at the ballot box. Gone are the projections that the GOP race would be practically finished by the end of March, along with hopes to sow up the nomination after outlasting Marco Rubio. They've been replaced by hopes to reach the delegate threshold on the very last day on the Republican calendar -- and if that's not possible, to successfully screen delegates and emerge the victor at a contested Republican convention.

Reuters:

• McKesson(MCK) cuts 1,600 jobs to trim costs - Bloomberg. U.S. drug distributor McKesson Corp is cutting 1,600 jobs, or about 4 percent of its U.S. workforce, to slash costs after the company lost some key customers, Bloomberg reported on Wednesday.

Telegraph:

• World coal giant Peabody faces bankruptcy as industry implodes.

Night Trading 

• Asian equity indices are +.50% +1.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 135.75 -2.25 basis points. 
• Asia Pacific Sovereign CDS Index 65.0 -2.0 basis points. 
• Bloomberg Emerging Markets Currency Index 70.88 +.24%. 
• S&P 500 futures +.26%. 
• NASDAQ 100 futures +.30%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (IGT)/.45
• (LE)/.73
• (MIK)/.84
• (ADBE)/.61
• (ARO)/-.13
• (SCVL)/.14

Economic Releases 
8:30 am EST

• The 4Q Current Account Deficit is estimated at -$118.0B versus -$124.1B in 3Q.
• Philly Fed Business Outlook for March is estimated to rise to -1.5 versus -2.8 in February.
• Initial Jobless Claims for last week are estimated to rise to 268K versus 259K the prior week.
• Continuing Claims are estimated to rise to 2235K versus 2225K prior.

10:00 am EST

• JOLTS Job Openings for January are estimated to fall to 5500K versus 5607 in December.
• The Leading Index for February is estimated to rise +.2% versus a -.2% decline in January.

Upcoming Splits 

• None of note

Other Potential Market Movers

• The China Property Price report for Feb., Eurozone CPI report, BofE rate decision, Bloomberg Economic Expectations Index for March, weekly Bloomberg Consumer Comfort Index and the weekly EIA natural gas inventory report could also impact trading today.

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