Wednesday Watch

Evening Headlines
Bloomberg:

• Yen Intervention Futile for Sakakibara as Abenomics Nears Limits. The man whose ability to move Japan’s currency earned him the name ‘Mr. Yen’ advises against intervention to halt its appreciation as the effectiveness of Prime Minister Shinzo Abe’s policies fades. Even if Japan wants a weaker yen, any government action would be futile as “Abenomics is nearing its best-before date,” said Eisuke Sakakibara, in charge of intervention at the Ministry of Finance from 1997 to 1999. He said an expansion of Bank of Japan stimulus would only temporarily slow the yen’s gains to 100 by year-end. “In the current situation, Japan shouldn’t even think about intervention,” the 75-year-old said in an interview Monday in Tokyo. “There’s nothing more foolish than undertaking intervention when it won’t be effective. As likely as not, it’ll have the opposite of the desired effect.”
• Asian Stock Rally Fueled by Oil as Metals Climb; Yen Holds Drop. Asian stocks extended their longest climb since October as crude oil solidifying above $40 a barrel supported other commodities and burnished the global economic outlook. The yen nursed losses, while government bonds declined. The regional equity benchmark rose a sixth straight day, with the yen’s return to above 108 per dollar helping Japan’s Topix index toward its highest level since the end of March. Mining stocks drove gains in Asia as most base metals extended their advance before data on Chinese trade. U.S. crude pulled back below $42 a barrel after jumping to its highest settlement since November on prospects Russia and Saudi Arabia have forged a deal on freezing oil output. Australian to Japanese 10-year debt retreated following a slump in Treasuries. The MSCI Asia Pacific Index rose 0.9 percent as of 10:12 a.m. Tokyo time, set for its highest close since March 31. The Topix climbed 1.5 percent as banks and exporters drove a second consecutive day posting gains of more than 1 percent.
• Oil Drillers Feel the Pain as Banks Slash Their Credit Lines. Chesapeake Energy Corp., the deeply indebted shale producer, said this week that it can hang on to its $4 billion bank line as long as it posts just about everything it owns as collateral. Many of its competitors are faring far worse. Almost two years into the worst oil bust in a generation, lenders including JPMorgan Chase & Co., Wells Fargo & Co. and Bank of America Corp. are slashing credit lines for struggling energy companies. It’s a tacit acknowledgment that energy prices aren’t coming back, and represents an abrupt turnaround from last year when banks were lenient on struggling drillers in the hope that better times were coming. Since the start of 2016 lenders have yanked $5.6 billion of credit from 36 oil and gas producers, a reduction of 12 percent, making this the most severe retreat since crude began tumbling in mid-2014, according to data compiled by Bloomberg. 
• China's Swelling Junkyards Are Readying Iron-Ore's Next Threat. As China’s booming middle class junks aging cars and home appliances, the next threat to the world’s ailing iron-ore producers is materializing. In a country that uses more steel than any other, it’s now become about as profitable to make the alloy by melting down scrap metal as it is from iron-ore and coal in a traditional furnace, Bloomberg Intelligence calculates. China’s scrap supply will double in the next decade and then accelerate at an even faster rate, according to Morningstar Inc. Expanded use of recycled metal in China at a time of a global steel surplus means even less demand for the ore that’s the top earner for BHP Billiton Ltd. and Rio Tinto Group, who’ve already seen profits plunge with prices. The nation’s ore demand may contract 50 percent by 2040 as steel use dwindles and more recycled metal is used, according to Goldman Sachs Group Inc. “The scrap wave is coming,” said Oliver Ramsbottom, a Tokyo-based partner at McKinsey & Co., who sees a significant increase in China’s scrap from mid next-decade. “There’s no doubt that the iron-ore industry is going to be pretty challenged over the next decade at least because you’ve obviously got a lot of supply out there.”
• Internet-Connected Cars a Hacker Magnet, U.S. Official Says. Internet-connected and driverless cars could be targets for hackers -- potentially including terrorists and hostile nations -- so the automotive industry must ensure vehicles have built-in cybersecurity protection, a top U.S. Justice Department official said. “There is no Internet-connected system where you can build a wall that’s high enough or deep enough to keep a dedicated nation-state adversary or a sophisticated criminal group out of the system," John Carlin, U.S. assistant attorney general for national security, said Tuesday at an auto industry conference in Detroit.

Wall Street Journal:

• U.S. Readies ‘Plan B’ to Arm Syria Rebels. Moderate groups could get antiaircraft weapons if cease-fire collapses, officials say.
• Big Valeant(VRX) Bond Investor Calls for Default. Investor Centerbridge points to drugmaker’s delay in filing its annual report. A large holder of Valeant Pharmaceuticals International Inc.’s bonds called a default as a result of the Canadian drugmaker’s failure to file its annual report earlier this year, adding to the litany of woes it faces.
• History of a Climate Con. Al Gore had a revelation: Energy taxes would be a loser for Obama. How’s this for an irony? As state attorneys general gin up a fake securities-fraud case against oil companies over climate change, starting with Exxon Mobil Corp., the Securities and Exchange Commission has launched a real securities-fraud investigation of the nation’s biggest solar power company.

CNBC:

• Oil producers risk new crude price collapse. (video) Producing nations risk an oil bust if they don't reach a freeze agreement of some sort when they meet in Doha, Qatar, this weekend. Market expectations are high and rising for a deal, and crude futures have been climbing as a result, but an accord that would halt production growth will be difficult to reach and difficult to keep. Even if there is an agreement among OPEC and non-OPEC producers, capping production would still leave a glut of oil on the world market. 
• Brazil's economic free fall could bring wider fallout. 

Zero Hedge:

• Used-Car Inventories Surge To Record Highs As Goldman Fears "Spillovers From Demand Plateau". (graph)
• Dear Dallas Fed, Any Comment?
• SocGen: "Now We Know Why The Fed Desperately Wants To Avoid A Drop In Equity Markets". (graph) Aggressive central bank monetary policies have created artificial demand for corporate debt which we think companies are exploiting by issuing debt they do not actually need. The proceeds of this debt raising are then largely reinvested back into the equity market via M&A or share buybacks in an attempt to boost share prices in the absence of actual demand. The effect on US non-financial balance sheets is now starting to look devastating. We’re not the only ones to be worried. The Office of Financial Research (OFR), a body whose function is to assess financial stability for the US Treasury, highlights corporate debt issuance as their primary threat to financial stability going forward.
• Fed vs. Fed: New York Fed To Issue Its Own GDP Nowcast; Atlanta Fed Too Pessimistic? (graph) 
• The New Middle Kingdom Of Concrete And The Red Depression Ahead.
• Faltering Fundamentals Vs "The Fed Won't Let The Market Crash". (graph)
• What The Market Thinks Are The Biggest "Tail Risks" Right Now. (graph)
• April Retail Sales Plunge Most Since 2005. (graph)
• Oil Plunges After Surprisingly Large Inventory Build. (graph)
• Doha Deal "Hope" Sparks Biggest Stock Short-Squeeze In 2 Months. (graph)

Business Insider:

• The number of child suicide bombers used by Boko Haram has risen tenfold.
• Snapchat is stealing Instagram's teen users away.

Reuters:

• IMF's Furusawa warns of limits to further BOJ rate cuts. The Bank of Japan still has tools to further expand monetary stimulus but must bear in mind that there are limits to how far it can deepen negative interest rates, a senior International Monetary Fund official said on Tuesday. Mitsuhiro Furusawa, the IMF's deputy managing director, said he did not see recent yen rises as deviating sharply from the fund's existing assessment that yen moves were "broadly in line with fundamentals." When asked whether recent yen rises were sharp enough to justify unilateral yen-selling intervention by Japanese authorities, he told Reuters: "All I can say is that there's a consensus among nations that authorities can take necessary action against rapid and disorderly exchange-rate moves."

Telegraph:

• There's no room for mistakes if the global economy is in as much trouble as the IMF thinks.

Night Trading 

• Asian equity indices are +.5% to +2.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 142.0 -3.25 basis points. 
• Asia Pacific Sovereign CDS Index 57.5 -1.25 basis points. 
• Bloomberg Emerging Markets Currency Index 72.98 +.4%. 
• S&P 500 futures +.22%. 
• NASDAQ 100 futures +.30%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (CBSH)/.63
• (JPM)/1.26
• (PIR)/.21

Economic Releases  
8:30 am EST

• Retail Sales Advance MoM for March is estimated to rise +.1% versus a -.1% decline in Feburary.
• Retail Sales Ex Auto MoM for March is estimated to rise +.4% versus a -.1% decline in Feburary.
• Retail Sales Ex Auto and Gas MoM for March is estimated to rise +.3% versus a +.3% gain in February.
• PPI Final Demand MoM for March is estimated to rise +.2% versus a -.2% decline in February. 
• PPI Ex Food and Energy MoM for March is estimated to rise +.1% versus unch. in February. 
  

10:00 am EST

• Business Inventories for February is estimated to fall -.1% versus a +.1% gain in January.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +733,330 barrels versus a -4,937,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -1,422,220 barrels versus a +1,438,000 barrel build prior. Distillate inventories are estimated to rise by +233,330 barrels versus a +1,799,000 barrel build prior. Finally, Refinery Utilization is estimated to rise by +.16% versus a +1.0% gain prior.

2:00 pm EST

• Fed's Beige Book release.

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed's Lockhart speaking, Eurozone industrial production report, Bank of Canada rate decision, $20B 10Y T-Note auction, OPEC Monthly Update, weekly MBA mortgage applications report, (FLO) investor briefing, (ADBE) general meeting, (GME) investor day and the (DLPH) investor meeting could also impact trading today.

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