Wednesday Watch

Night Trading 

• Asian equity indices are -.50% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 96.0 unch.
• Asia Pacific Sovereign CDS Index 26.5 +1.0 basis point.
• Bloomberg Emerging Markets Currency Index 71.30 -.08%. 
• S&P 500 futures +.20%. 
• NASDAQ 100 futures +.10%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AEO)/.38
• (BBY)/1.67
• (DLTR)/1.33
• (LOW)/.78
• (MNST)/.30
• (SHAK)/.09

Economic Releases

8:30 am EST

• Personal Income for January is estimated to rise +.3% versus a +.3% gain in December.
• Personal Spending for January is estimated to rise +.3% versus a +.5% gain in December.
• PCE Core MoM for January is estimated to rise +.3% versus a +.1% gain in December. 

9:45 am EST

• Final Markit US Manufacturing PMI for February is estimated to rise to 54.5 versus a prior estimate of 54.3.
  

10:00 am EST

• ISM Manufacturing for February is estimated to rise to 56.2 versus 56.0 in January.
• ISM Prices Paid for February is estimated to fall to 68.0 versus 69.0 in January.
• Construction Spending MoM for January is estimated to rise +.6% versus a -.2% decline in December. 

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,633,330 barrels versus a +564,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -1,277,780 barrels versus a -2,628,000 barrel decline the prior week. Distillate inventories are estimated to fall by -900,000 barrels versus a -4,924,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.34% versus a -1.1% decline prior.

2:00 pm EST

• US Fed Beige Book.
  

Afternoon

• Total Vehicle Sales for February is estimated to rise to 17.7M versus 17.48M in January.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Kaplan speaking, German Unemployment report, weekly MBA mortgage applications report, (F) Feb. Sales Call, (HON) investor conference, (XOM) analyst meeting, (HSY) analyst day, Simmons Energy Conference, (MCD) investor meeting, BoA Merrill Ag/Chemical Conference, BTIG Med Tech/Diagnostics/Healthcare Conference and the Wells Fargo Real Estate Conference could also impact trading today.

BOTTOM LINE:  Asian indices are mostly higher, boosted by industrial and technology shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Stocks Lower into Final Hour on Diminishing Tax Reform Hopes, Yen Strength, Profit-Taking, Hospital/Retail Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Aaround Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 12.77 +5.61%

• Euro/Yen Carry Return Index 124.22 -.35%

• Emerging Markets Currency Volatility(VXY) 9.56 -.62%

• S&P 500 Implied Correlation 46.13 -1.45%

• ISE Sentiment Index 75.0 +1.0%
  

• Total Put/Call 1.13 +36.13%

• NYSE Arms 1.32 +78.90%

Credit Investor Angst:

• North American Investment Grade CDS Index 62.12 -.43%
  

• America Energy Sector High-Yield CDS Index 357.0 +.55%

• European Financial Sector CDS Index 91.85 -1.73%

• Western Europe Sovereign Debt CDS Index 20.87 -5.84%

• Asia Pacific Sovereign Debt CDS Index 26.60 +4.09%

• Emerging Market CDS Index 217.26 +1.07%
  

• iBoxx Offshore RMB China Corporate High Yield Index 135.09 +.02%

• 2-Year Swap Spread 35.25 -.5 basis point

• TED Spread 54.75 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -26.25 +.25 basis point
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 71.41 -.24%
• 3-Month T-Bill Yield .52% +2.0 basis point4

• Yield Curve 116.0 -2.0 basis points
  

• China Import Iron Ore Spot $91.27/Metric Tonne -1.15%

• Citi US Economic Surprise Index 34.70 -2.4 points

• Citi Eurozone Economic Surprise Index 71.10 -1.2 points

• Citi Emerging Markets Economic Surprise Index 46.60 +3.7 points

• 10-Year TIPS Spread 2.02 -1.0 basis point
• 66.9% chance of Fed rate hike at May 3 meeting, 79.9% chance at June 14 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +11 open in Japan 
• China A50 Futures: Indicating +30 open in China

• DAX Futures: Indicating -1 open in Germany

Portfolio: 

• Slightly Lower: On losses in my in my retail/tech sector longs

• Disclosed Trades: None

• Market Exposure: 75% Net Long

Today's Headlines

Bloomberg:

• Xi Stresses Reining in Systemic Risks as China's Leaders Gather. President Xi Jinping said China will continue "seeking progress while maintaining stability" this year and that better supervision is needed to control financial risk, according to the official Xinhua News Agency. Leaders will strive to improve the quality and efficiency of the economy and deepen supply-side structural reform, Xi said at a meeting of the Central Leading Group on Finance and Economic Affairs, Xinhua reported Tuesday. Xi also called for keeping the property market stable and promoting cuts in excess industrial capacity.
• China's Policy Balancing Act May Face Bumps as Bond Pain Endures. China’s central bank faces a dilemma: Whether to raise borrowing costs and potentially undermine the nascent economic recovery, or hold firm and risk spurring capital outflows as Federal Reserve policy tightening cuts into the country’s interest-rate advantage. The People’s Bank of China is trying to take the middle road, boosting money-market rates as a way of containing company leverage, while allowing bank borrowing to largely continue unchecked. At the same time, authorities have ramped up capital controls to quell outflows after the yuan’s worst annual decline in more than 20 years.
• ARM CEO Won't Rule Out Major Deal After Takeover by SoftBank. ARM’s new owner SoftBank is encouraging the British chip designer to think in “the broadest terms possible,” said Chief Executive Officer Simon Segars. That includes major deals and global expansion. Segars didn’t rule out the possibility of a large deal, citing backing from SoftBank Group Corp.’s Masayoshi Son. “He is constantly discussing what is going on the world among the group’s companies and the best way to build the business even more strongly,” said Segars in an interview at the Mobile World Congress in Barcelona Tuesday. “He’s thinking decades out in the future.”
• The Top Hedge Funds of 2016 Share Their Best Bets for This Year.
• Fidelity Slashes Commissions in the Latest Salvo of the Fee Wars. The new round of fee cuts includes a reduction in online trading commissions, to $4.95 from $7.95, for individual investors.

Wall Street Journal:

• Trump Proposes Cutting State Department Budget by 37%. Plan would cut aid given by U.S. Agency for International Development.
• Trump Looks to Jump-Start Momentum on Key Initiatives. Joint address to Congress will focus on health care, taxes and national security.

Fox News:

• SUV plows into Alabama Mardi Gras parade crowd; high school band members hurt. (video)

CNBC:

• Spring housing already overheating—think 60 offers on one house. (video)
• Target(TGT) CEO says border adjustment tax would have detrimental impact on American families. (video)
• Dallas Fed's Kaplan: We should be in the process of removing accommodation. (video)

Zero Hedge: 

• Meanwhile, In Germany... (pic)
• Nervous Retailers Launch Ad Slamming Border Adjustment Tax.
• European Stock Investors Hit The Panic Button. (graph)
• Trump Accuses Obama Of Being Behind Protests, Leaks.
• Chart Of The Day: American Consumer Confidence Soars To 16 Year Highs As Real Wages Plunge. (graph)
• Chicago PMI Rebounds To 2-Year Highs After January Crash. (graph)
• The Greek "Bank Jog" Is Back: Bank Deposits Tumble To Lowest Since 2001. (graph)
• Despite Rising Mortgage Rates, Home Prices Jump Most In A Year. (graph)
• US Economy Grew 1.9% In Q4, Unexpectedly Missing Expectations Despite Stronger Consumer Spending. (graph)
• In Latest Tightening Move, China To Cut Money Supply Growth To 12%.

Bear Radar

Style Underperformer:

• Small-Cap Value -1.3%

Sector Underperformers:

• 1) Hospitals -3.0% 2) Retail -2.1% 3) Alt Energy -1.9%

Stocks Falling on Unusual Volume: 

• TCAP, FRGI, INCR, LBY, ESND, PRGO, TGT, MEDP, SIG, AMTD, ZTO, RAIL, DFIN, NXTM, ETFC, QVCA, THC, DDD, AMD, DG, SNCR, P, BPT, EMES, WDAY, SLAB and RRD

Stocks With Unusual Put Option Activity:

• 1) WDAY 2) PBF 3) AMTD 4) TGT 5) KMX

Stocks With Most Negative News Mentions:

• 1) KONA 2) SIG 3) SCHW 4) GME 5) FTR

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Growth -.2%

Sector Outperformers:

• 1) Oil Tankers +1.0% 2) Utilities +.9% 3) Gold & Silver +.9%

Stocks Rising on Unusual Volume:

• SBY, TTD, NTRI, KITE, BWXT, LXU, PCLN, ALB, WTW, USCR, ENDP, WUBA, JBT, DPZ, DK, RP, HSII, SEAS, EBIX, VRTU, HTZ, MGNX, NTLA, NLNK and OKE

Stocks With Unusual Call Option Activity:

• 1) AMTD 2) P 3) KMX 4) WDAY 5) IBB

Stocks With Most Positive News Mentions:

• 1) PCLN 2) NTRI 3) DPZ 4) AMGN 5) ESPR

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running +.1% Above 100-Day Average
• 6 Sectors Rising, 4 Sectors Declining
• 40.4% of Issues Advancing, 55.7% Declining
• 102 New 52-Week Highs, 11 New Lows
• 62.6% of Issues Above 200-day Moving Average
• Average 14-Day RSI 42.4%
• Vix 12.2 +1.24%
• Total Put/Call .95 +14.5%
• TRIN/Arms 1.10 +49.6%

Tuesday Watch

Evening Headlines

Bloomberg:

• China Will Rein in Growth, Credit Targets in 2017 Master Plan: Economists. China will set lower economic growth and monetary expansion targets this year as policy makers switch gears to curb excessive credit growth and reduce financial risks, according to economists surveyed by Bloomberg News. Premier Li Keqiang will set the 2017 gross domestic product growth goal at "about 6.5 percent," versus a range of 6.5 to 7 percent in 2016, according to the median of 20 responses in a Feb. 17-23 survey of analysts. The target for M2 money supply expansion will be 11.5 percent from 13 percent in 2016, according to the median of estimates.

• In China, Public-Private Partnerships Are Really Public-Public. China’s effort to promote public-private partnerships to fund roads, bridges and railways and keep a lid on rampant debt growth is succeeding in luring companies to the projects. Problem is, they’re mainly state-owned. Two years into the PPP push, the majority of partners in the projects have turned out to be state-owned enterprises, according to analysts at Fitch Ratings Ltd., Bank of America Corp. and Oxford Economics Ltd. The upshot: while debt pressure will be relieved for local governments, it’ll just end up on the books of another arm of the state.

• Japan’s Industrial Output Falls for First Time in Six Months. Japan’s industrial production fell for the first time in six months in January, raising questions about the sustainability of Japan’s export-driven growth in the second half of 2016. Retail sales rose. Industrial production fell 0.8 percent in January from a month earlier (forecast +0.4 percent).

• Yen Drop Buoys Japan Stocks as Dow Streak Hits 12. A weaker yen lent support to Japanese stocks as the dollar nudged higher ahead of Donald Trump’s address to Congress. Japan’s Topix index climbed with Australian equities after the Dow Jones Industrial Average pushed its winning streak to 12 sessions, the longest in 30 years. The dollar strengthened as the Trump administration began outlining spending priorities ahead of the president’s speech Tuesday. The yen fell less than 0.1 percent to 112.70 per dollar as of 9:27 a.m. in Tokyo, after sliding 0.5 percent to end a three-day winning streak. The Topix index rose 0.8 percent, rebounding from Monday’s 1 percent decline, and Australia’s S&P/ASX 200 Index added 0.4 percent. New Zealand’s S&P/NZX 50 Index gained 0.3 percent.

• Senate Confirms Wilbur Ross as Trump's Commerce Secretary.

Wall Street Journal:

• As Donald Trump Heads to Congress, a New Polarization Is Hardening. An inability to find common ground could test the president’s agenda.

• Paul Tudor Jones’ New Hedge Fund Pitch: Low, Low Prices. Tudor’s flagship fund ended 2016 roughly flat despite a run-up in the U.S. stock market.

• College Faculty’s New Focus: Don’t Offend. Professors across the country are adapting to an environment in which a word or turn of phrase has the power to derail a career.

• AT&T(T) Lowers Price of Unlimited Data Plans. Smaller rivals T-Mobile and Sprint have been taking market share from AT&T and Verizon by pushing lower prices and plans without data caps.

Fox News:

• Fox News Poll: Confidence in military remains high, in media low. (video)

CNBC:

• After-hours buzz: PCLN, FTR, PRGO & more.

Zero Hedge: 

• Minimum Wage Massacre: Wendy's Unleashes 1,000 Robots To Counter Higher Labor Costs.

• GM(GM) Pickup Incentives Surge Over 80% As Auto Bubble Continues To Show Signs Of An Imminent Bust.

• Second House Conservative Won't Back Trump's Obamacare Replacement.

• Ethereum Soars After JPMorgan, Intel, Microsoft And Others Form Blockchain Alliance.

• New Rules Force Banks To Charge For Research; Hedge Funds Push Back: "We Won't Pay For Crap".

• Gas Taxes Set To Surge In Roughly A Dozen States.

• China Accounts For Half Of All Global Debt Created Since 2005: Here Are The Implications.

• Boston Dynamics Unveils Its Latest "Nightmare-Inducing" Robot. (video)

• 'Out Of The Blue', March Rate Hike Odds Soar To Cycle Highs.

• Deep State War? Russian Officials Keep Dying Unexpectedly.

• Oscars Viewership Tumbles To Second Lowest In History.

• Guess 'Who' Just Figured Out The Fed Is Behind The Curve.

• Wal-Mart(WMT) Is Quietly Cutting Prices, Squeezing Vendors In Deflationary Supply-Chain Shock.

• The Dow Has Never Had A Longer Streak Of Record Closes... Ever. (graph)

Busines Insider:

• The world's biggest drugmaker just pulled back the curtain on drug pricing.

• One of the top hedge fund launches of the year has landed a big-name backer.

• Jewish community centers all over the US report receiving bomb threats.

StreetInsider.com:

• Cowen Upgrades US Steel (X) to Outperform. Cowen upgraded US Steel (NYSE: X) from Market Perform to Outperform with a price target of $60.00 (from $36.00).

Reuters:

• Japan Jan industrial output falls 0.8 pct mth/mth -govt.

Night Trading 

• Asian equity indices are -.25% to +.5% on average.

• Asia Ex-Japan Investment Grade CDS Index 96.0 +.5 basis point.

• Asia Pacific Sovereign CDS Index 25.5 +.25 basis point.

• Bloomberg Emerging Markets Currency Index 71.58 -.02%. 

• S&P 500 futures -.05%. 

• NASDAQ 100 futures -.07%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (DDD)/.13

• (AZO)/8.19

• (DPZ)/1.44

• (FSS)/.16

• (FCN)/.27

• (IPI)/-.12

• (TGT)/1.52

• (VRX)/1.21

• (AIRM)/.58

• (JAZZ)/2.66

• (PANW)/.62

• (ROST)/.75

• (CRM)/.25

• (TSRO)/-1.89

Economic Releases
8:30 am EST

• 4Q GDP QoQ is estimated to rise +2.1% versus a prior estimate of a +1.9% gain.

• 4Q Personal Consumption is estimated to rise +2.6% versus a prior estimate of a +2.5% gain.

• 4Q GDP Price Index is estimated to rise +2.1% versus a prior estimate of a +1.9% gain.

• Core PCE QoQ is estimated to rise +1.3% versus a prior estimate of a +1.3% gain.

• Wholesale Inventories MoM for January are estimated to rise +.5% versus a +1.0% gain in December.

9:00 am EST

• S&P CoreLogic CS 20-City MoM for December is estimated to rise +.7% versus a +.88% gain in November.

9:45 am EST

• Chicago Purchasing Manager for February is estimated to rise to 53.3 versus 50.3 in January.
  

10:00 am EST

• Consumer Confidence for February is estimated to fall to 111.0 versus 111.8 in January.

• The Richmond Fed Manufacturing Index for February is estimated to fall to 10.0 versus 12.0 in January.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's George speaking, Fed's Williams speaking, Fed's Bullard speaking, President Trump's address to Congress, China Manufacturing PMI report, Eurozone GDP report, weekly US retail sales report, (JPM) investor day and the CSFB Healthcare Conference could also impact trading today.

BOTTOM LINE:  Asian indices are mostly higher, boosted by commodity and technology shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.