Monday Watch

Today's Headlines
Bloomberg: 

• Abenomics rebuked as BlackRock joins $46 billion Japan pull-out. While markets elsewhere are climbing back from a global selloff, investors in Japan see fewer reasons for optimism. For global equity investors and Shinzo Abe, it’s splitsville. Starting in the first days of 2016, foreign traders have been pulling out of Tokyo’s stock market for 13 straight weeks, the longest stretch since 1998. Overseas traders dumped $46 billion of shares as economic reports deteriorated, stimulus from the Bank of Japan (BoJ) backfired and the yen’s surge pressured exporters. The benchmark Topix index is down 17% in 2016, the world’s steepest declines behind Italy. Losing the faith of foreigners would be a blow to the Japanese Prime Minister—they’re the most active traders in a market Abe has held up as a litmus on his growth strategies.
• Aussie Hazards From Mortgages to Mines Lift Macquarie Bond Risk. Those Australians struggling with mortgage payments and the possibility of damage from the global commodity price slump are helping to inflate bond risk for Macquarie Group Ltd.’s banking unit. The cost of insuring Macquarie Bank notes against non-payment climbed to as much as 172 basis points last month, the highest since June 2013, after the lender flagged a rise in overdue home loans. The Sydney-based bank’s credit-default swaps have increased 40 basis points in 2016, the most in the benchmark Markit iTraxx Australia index, and were at 157 basis points April 7.
• Emerging Markets That Fueled Agriculture Boom Now Driving a Bust. The expression emerging markets has a whole new meaning for farmers across the globe. In the late 2000s, food demand from China and India’s growing populations sparked a frenzy for agriculture investment and sent prices soaring. Now, the other two big emerging markets -- Russia and Brazil -- are behind the collapse in prices as farmers ramp up grain production and stockpiles swell. Weak currencies make it profitable for growers in those countries to boost output and may prolong the bear market for another three to five years, according to Dan Basse, president of researcher AgResource Co. in Chicago.
• Bank Sees Low Growth for Latin America as Commodity Boom Fades. Latin American economies will contract this year and face low growth in years to come as nations adjust to the end of a commodity price boom, the Inter-American Development Bank said in its annual outlook. Dragged down by recessions in two of its largest countries, Brazil and Argentina, the region will post a 0.3 percent contraction in 2016 before bouncing back to annual growth of 1.5 percent through 2018, the bank said in a statement released during its annual meeting in Nassau, Bahamas, on Sunday.
• Panama Furor Rumbles Into Second Week as Global Pressure Mounts. The fallout from the Panama leaks showed no sign of abating as U.K. Prime Minister David Cameron was forced to provide more transparency over his wealth and European officials pledged measures to require companies to report their offshore bank accounts. Cameron will face lawmakers on Monday as he seeks to draw a line under the crisis stemming from information about the use of offshore tax havens leaked from Panama-based law firm Mossack Fonseca. Iceland’s prime minister has resigned, Malta’s government faces a confidence vote and Argentine President Mauricio Macri promised to put his assets in a blind trust after he was linked to two companies listed in Panama.
• Japanese Stocks Fall as Yen Strengthens, Machine Orders Decline. Japanese stocks fell, extending two weeks of losses, as the yen rallied for a seventh day and a report showed machine orders dropped in February for the first time in three months. The Topix index lost 1.4 percent to 1,269.39 at 9:37 a.m. in Tokyo, with all but two of its 33 industry groups retreating. The Nikkei 225 Stock Average fell 1.3 percent to 15,611.71. The yen traded at 107.99 per dollar, extending gains. Core machine orders slipped 9.2 percent in February from the previous month. Analysts had expected a 12 percent drop.
• Asian Stocks Decline as Japanese Shares Slump Amid Economic Data. Asian stocks fell, ahead of Chinese data on inflation and factory prices, as Japanese shares retreated amid a slump in machine orders. Energy producers climbed as U.S. oil topped $40 a barrel. The MSCI Asia Pacific Index dropped 0.4 percent to 125.83 as of 9:08 a.m. in Tokyo.
• Iraq Boosts Oil Production to Record Before Talks to Cap Output. Iraq increased crude output to a record level in March, ahead of a meeting in Qatar of OPEC members and other producers on capping production to curb a global glut. Crude output in OPEC’s second-biggest producer rose to 4.55 million barrels a day last month from 4.46 million barrels in February, according to the state-run Oil Marketing Co. Exports increased to 3.81 million barrels a day in March from 3.23 million the previous month, the company, known as Somo, said in an e-mailed statement.
• Record Pork-Price Jump Seen Reversing China Bond Advance: Chart. (graph) The price of pigs in China surged a record 61 percent in the first quarter, the most in Shanghai JC Intelligence Co. data going back to 2011. This helped set inflation up for its fifth monthly advance in a row in data due Monday, threatening to halt a tumble in bond yields. “CPI is China Pork Index,” said Hao Hong, chief China strategist at Bocom International, adding that rising inflation may reduce the need for rate cuts and hurt bond prices in the months ahead.

Wall Street Journal:

• Syrian Government Plans to Retake Aleppo With Russian Support. Move clouds the future of already-fragile cease-fire. Syrian government forces, with support from Russia, are planning an operation to retake Aleppo and battle an Islamist rebel offensive in the region, the Syrian prime minister said Sunday after a week of clashes. The use of Russian firepower in the Syrian government offensive to retake Syria’s largest city, which has been partly controlled by rebels since 2012, clouds the future of upcoming peace talks.
• Spreads Point to Growing Stress in Japanese Government Bond Market. The gap between the prices at which investors are willing to buy and sell long dated Japanese bonds is growing.  The Bank of Japan enormous stimulus programs are an unmissable presence in the government bond market, and it’s now starting to show some signs of stress. The central bank joined in the negative interest rate club in January, adding to its already Herculean efforts to encourage growth and inflation. The BOJ also now buys almost as much sovereign debt as the government issues, and owns over a third of the total amount outstanding. Japan Macro Advisors suggests that in two years, at its current pace of purchases the central bank will own 50% of the market.
• Delegate-Selection Fight Plays to Ted Cruz’s Strength. GOP presidential candidate steps up pressure on Donald Trump in state contests. Ted Cruz shut out his Republican presidential rivals in the Colorado delegation-selection contest this weekend, and he is intensifying pressure on front-runner Donald Trump to step up his game in similar state and local conventions that are taking on heightened significance in the campaign’s next phase.

Fox News:

• Iran to US: Missile program ‘not open to negotiation’. (video) Iran’s foreign minister said Sunday the Islamic Republic’s ballistic missile program is “not open to negotiation” with the United States, seemingly spurning an overture from Secretary of State John Kerry. Kerry said Thursday during a visit to Bahrain that the U.S. and its regional allies were “prepared to work on a new arrangement to find a peaceful solution” to the dispute over recent Iranian ballistic missile tests.

MarketWatch:

• Yahoo(YHOO) may get buyout bid from U.K.’s Daily Mail. Two purchasing scenarios laid out ahead of April 18 deadline.

 Zero Hedge:

• Obama Announces Unexpected Meeting With Yellen Following Tomorrow's "Expedited Procedures" Fed Meeting.
• Austria Just Announced A 54% Haircut Of Senior Creditors In First "Bail In" Under New European Rules.
• Iraq Is Latest To Announce Record Oil Production: Why This Is Just The Beginning Of The Supply Glut. (graph)
• "It's Pure Chaos Now; There Is No Way Back" - Venezuela Hits Rock Bottom As Its Morgues Overflow. (graph)
• The U.S. Dollar - Return Of The King? (graph)
• Italy Seeks "Last Resort" Bailout Fund To "Ringfence" Troubled Banks, Meeting Monday.
• Obama Defends Hillary In Email Scandal: "There's Classified And There's Classified".
• Japan Needs A Stronger Dollar, China Wants A Weaker Dollar: The Fed Can't Please Both.
• Did The Canary Of New York's Luxury Housing Market Just Die: Real Estate Developer Files For Bankruptcy.
• "I Used To Be A Big Deal... And Then A Billion Dollars Walked Out The Door" - Hugh Hendry's Sad Story. 
• Barclays Warns "Grexit" May Return This Summer While Tsipras "Demonizes" IMF.
• "The People Aren't Stupid" - Germany Takes Aim At The ECB, May Sue Draghi: Spiegel.
• Why USDJPY Matters (Or The Carry Collapse Cometh).
• "Where Else Can I Put My Money?" - China Starts Arresting People As Crisis It Created Comes Full Circle.
• Ukraine Prime Minister Resigns, Says "Destabilization Inevitable" Without New Government.
• Has The Global Earnings Recession Finished, Morgan Stanley Asks And Answers. (graph)

Business Insider:

• A French bank boss says he's 'much more worried than I was in 2009'. The chairman of France's second-biggest retail bank is more worried about Europe's banking sector now, in some ways, than when he took the reins at BPCE bank during the depths of the global financial crisis in 2009. Francois Perol said on the sidelines of an economic conference in Italy on Saturday that negative interest rates in the eurozone are a major problem, squeezing interest margins in a way that was unsustainable over the longer term. "I am much more worried than I was in 2009 in certain respects," Perol said outside the closed-door conference, held on the shores of Lake Como. "It was 100% clear what had to be done (in 2009)," he added. "I think it's more of a difficult situation for banks (now) because fundamental changes are underway in an environment that's incredibly challenging due to negative interest rates." 
• China is trying to make a huge industrial shift that could have disastrous consequences.
• Hillary Clinton can't exactly divorce Bill right now — but she should fire him.
• 'DEPORTATIONS TO BEGIN': Boston Globe prints provocative anti-Trump cover.
• Jihadists initially planned on a 2nd France strike but chose Brussels after investigators 'surprised' them.
• JAMIE DIMON: The US has 'serious issues that we need to address'.
• Tesla(TSLA) is about to repeat a huge mistake — and this time it could be even worse.
• The Syria ceasefire 'is about to collapse'.
• German spy chief: ISIS wants to attack us and the situation is 'very serious'.

CNN:

• Rocket strikes in Kabul intended for John Kerry, Taliban say. U.S. Secretary of State John Kerry was the intended target of rocket strikes in Afghanistan's capital Saturday, the Taliban said in a statement claiming responsibility for the attacks. The attacks in Kabul on Saturday night came within an hour after Kerry had departed Afghanistan, following a visit aimed at defusing a political crisis in the unity government he helped build.

@Callum_Thomas:

• China Containerized Freight Index (CCFI) dropped again last week. (graph)

Reuters:

• U.S. banks' dismal first quarter may spell trouble for 2016. It is only April, but some on Wall Street are already predicting a rotten 2016 for U.S. banks. Analysts say it has been the worst start to the year since the financial crisis in 2007-2008 and expect poor first-quarter results when reporting begins this week. Concerns about economic growth in China, the impact of persistently low oil prices on the energy sector, and near-zero interest rates are weighing on capital markets activity as well as loan growth.

 Financial Times:

• BlackRock’s(BLK) Larry Fink warns negative rates could hit spending. Negative interest rates risk hitting consumer spending and undermining the economic growth they are intended to encourage, the head of the world’s largest asset management group has warned. Larry Fink, chief executive of BlackRock, said that not enough attention was being given to the effect of negative rates on saving habits in a downbeat annual letter to his shareholders.
• Global economic recovery ‘in danger of stalling’. In a publication ahead of the spring meetings of the International Monetary Fund and World Bank this week, the index provides sober reading, highlighting sluggish capital investment, falling industrial production and declining business confidence.
• US faces ‘disastrous’ $3.4tn pension funding hole. The US public pension system has developed a $3.4tn funding hole that will pile pressure on cities and states to cut spending or raise taxes to avoid Detroit-style bankruptcies. According to academic research shared exclusively with FTfm, the collective funding shortfall of US public pension funds is three times larger than official figures showed, and is getting bigger.

 Telegraph:

• Beijing risks 'ERM-style' currency crisis as deflation persists. A top adviser to the Chinese government has warned that Beijing risks a currency blow-up akin to Britain's traumatic ordeal in 1992, if it continues trying to defend its exchange rate peg amid a deepening deflation crisis.
• The West's central banks are ignoring the basic lessons of economic history. 

Night Trading

• Asian indices are -.75% to -.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 147.0 -1.25 basis points.
• Asia Pacific Sovereign CDS Index 59.50 -1.25 basis points.
• Bloomberg Emerging Markets Currency Index 72.15 +.03%.
• S&P 500 futures -.32%.
• NASDAQ 100 futures -.35%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AA)/.03
• (OZRK)/.57

Economic Releases 

• None of note

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Kaplan speaking and the Japan bank lending report could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by industrial and technology 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 week.