Today's Headlines

Bloomberg:

• Euro-Area Manufacturing, Services Contraction Worsens: Economy. Euro-area services and manufacturing contracted at a faster pace than economists forecast in February as the economy struggled to recover from the deepest recession in almost four years. A composite index based on a survey of purchasing managers in both industries in the 17-nation currency bloc decreased to 47.3 from 48.6 in January, London-based Markit Economics said today. Economists had forecast a reading of 49, according to the median of 22 estimates in a Bloomberg survey. The data reinforce indications that the euro-area economy continued to contract in early 2013 after the recession worsened in the fourth quarter. The manufacturing gauge slipped to 47.8 from 47.9. In Germany, Europe’s biggest economy, the services measure fell to 54.1 in February from 55.7 last month, the sharpest decline since August. France’s services gauge fell to 42.7 this month from 43.6 in January, while its manufacturing index increased to 43.6 from 42.9, today’s data showed. 
• European Stocks Decline Most in Two Weeks on Fed, Economy. European (SXXP) stocks declined the most in more than two weeks as a measure of services and manufacturing output contracted, while concern mounted that the Federal Reserve will scale back its asset-purchase program. All 19 industry groups in the Stoxx Europe 600 Index retreated with a gauge of carmakers dropping 2.5 percent. BHP Billiton Ltd., the world’s biggest mining company, posted its largest two-day drop in more than nine months. Safran SA slid the most since August after saying it may make an offer for Avio SpA’s space-propulsion business. The Stoxx 600 sank 1.5 percent to 284.86 at the close of trading in London, its biggest tumble since Feb. 4.
• Euro Weakens Below $1.32 First Time in Six Weeks as Output Drops. The euro declined below $1.32 for the first time in six weeks as an industry report showed services and manufacturing in the region shrank at a faster pace in February than economists forecast.
• China Swaps Touch Two-Week High on Record PBOC Fund Withdrawals. China’s one-year interest-rate swaps touched a two-week high on speculation the central bank will tighten monetary policy to temper gains in home prices. Premier Wen Jiabao called on local authorities to “decisively” curb real estate speculation and take steps to rein in the property market after data showed prices surged the most in two years last month. The People’s Bank of China drained 910 billion yuan ($146 billion) from the financial system this week, the biggest withdrawal since Bloomberg started compiling the data in 2008. “It shows determination of the central bank to tighten liquidity conditions as they need to guard against nascent inflation and asset-price gains, especially in real estate,” said Dariusz Kowalczyk, a Credit Agricole CIB strategist in Hong Kong.
• Emerging Stocks Erase Gains for 2013 Year as Earnings Disappoint. Emerging-market stocks erased gains for the year, underperforming developed-nation equities as earnings at companies from Hyundai Motor Co. (005380) to Petroleo Brasileiro SA (PETR4) trailed analysts’ forecasts. The MSCI Emerging Markets Index (MXEF) fell 1.3 percent to 1,055.02 as of 4:45 p.m. in Hong Kong, wiping out this year’s advance. The gauge has fallen 2.6 percent from a 17-month high on Jan. 3 as 62 percent of the companies included reported quarterly profit that missed estimates, compared with 34 percent in the MSCI World Index of developed nations.
• Emerging Stocks Face Significant Correction, JPMorgan Says. Emerging-market stocks may enter a “significant correction” after they trailed developed-nation shares this year, according to JPMorgan & Chase Co. “Fundamentals and technicals are weakening,” Adrian Mowat, the chief Asia and emerging-market strategist at JPMorgan, wrote in a report dated yesterday. He recommended options that protect against stock losses and advised selling equities that are most sensitive to market swings.
• Insider Sales Reach 2-Year High as S&P 500 Nears Record. Corporate executives are taking advantage of near-record U.S. stock prices by selling shares in their companies at the fastest pace in two years. There were about 12 stock-sale announcements over the past three months for every purchase by insiders at Standard & Poor’s 500 Index (SPX) companies, the highest ratio since January 2011, according to data compiled by Bloomberg and Pavilion Global Markets. Whenever the ratio exceeded 11 in the past, the benchmark index declined 5.9 percent on average in the next six months, according to Pavilion, a Montreal-based trading firm.
• Hedge Funds Boost Stock Bets to ’07 High, Goldman Says. Hedge funds are more bullish on equities than they have been in six years and American International Group Inc. (AIG) replaced Apple (AAPL) Inc. as the top-held stock, according to Goldman Sachs Group Inc. Net long exposure to stocks in hedge funds climbed to 52 percent in the fourth quarter, matching the 10-year high reached in the first quarter of 2007, a team led by Goldman Sachs’ Amanda Sneider and David Kostin said in a report yesterday.
• Iron-Ore Swaps Drop as China Property Curbs Seen Cutting Demand. Iron-ore swaps dropped the most in almost six weeks alongside declines in steel futures and equities on speculation China’s call for real-estate curbs would curb demand for the commodity used in construction materials. The March contract tumbled 2.6 percent to $148.50 a dry metric ton as of 8:26 a.m. in London, according to GFI Group Inc. It headed for the biggest decline since Jan. 11, based on data from SGX AsiaClear, the largest clearer of the derivatives used to hedge prices and bet on Chinese growth. 
• Wheat Leads Slump as Nickel to Crude Fall: Commodities at Close. Copper, tin and nickel fell to the lowest this year on signs of a deepening slump in Europe and concern that the Federal Reserve will slow the pace of economic stimulus in the U.S. Copper futures for May delivery slumped 1.7 percent to $3.5625 a pound at 10:28 a.m. on the Comex in New York after touching $3.5585, the lowest since Dec. 24.
• Index of U.S. Leading Economic Indicators Rose in January. The index of U.S. leading indicators rose for a second month in January, showing the world’s largest economy is on track to sustain the expansion in the first half of this year. The Conference Board’s gauge of the outlook for the next three to six months increased 0.2 percent from a 0.5 percent rise in December, the New York-based group said today. The gain matched the increase projected by economists, according to the median estimate in a Bloomberg survey. 
• Previously Owned U.S. Home Sales Climb to 4.92 Million. Purchases of existing houses rose 0.4 percent to a 4.92 million annual rate, figures from the National Association of Realtors showed today in Washington.
• Consumer Bureau Said to Warn Banks of Auto Lending Suits. The U.S. Consumer Financial Protection Bureau has told at least four banks that it may sue them over vehicle loans and interest-rate markups by auto dealers that appear discriminatory, according to three people briefed on the matter. The banks received letters from the CFPB last week giving them 15 days to provide an explanation of the practice, said the people, who asked not to be identified because the plans aren’t public. The letters indicate the bureau believes the banks may have violated the Equal Credit Opportunity Act, a 1974 law that bars discrimination in lending.

Wall Street Journal: 

• Multiple Bomb Attacks Rock Damascus. Dozens of Syrians were killed and wounded on Thursday in a wave of car bombs and mortar attacks targeting political, security and military symbols of President Bashar al-Assad's regime, according to witnesses, state media and opposition activists.
• Wal-Mart(WMT) Expects Flat U.S. Sales This Quarter. Wal-Mart Stores Inc.'s WMT +2.14% fiscal fourth-quarter earnings rose 8.6% helped by a lower tax rate and expense controls, while same-store sales at U.S. Wal-Mart stores were at the low end of the company's guidance. The world's largest retailer forecast flat same-store sales for its U.S. division in the current quarter, reflecting the strain its customers are under. Wal-Mart's lower income customers are grappling with higher payroll taxes, rising gasoline prices and delayed income-tax refunds.
• 'How Stupid Do You Think We Are?' An American CEO speaks the blunt truth to the French state.

MarketWatch:

• Fed's Bullard: Current policy looks very easy. Federal Reserve policy looks "very easy" and is below one of the Fed favorite guideposts for policy, said James Bullard, the president of the St. Louis Federal Reserve Bank on Thursday. In a speech at the New York University School of Business, Bullard said that one estimate of policy puts the Fed's short-term rate at negative 5%, considerably more negative than the Taylor rule that the central bank often used before the crisis to gauge policy. The Taylor rule and St. Louis Fed forecasts suggest that rates should increase above zero in August, Bullard said. But some analysts suggest that the Fed would want to keep rates at zero for an "extra time" to make up for having rates at zero since 2008. Bullard said Fed policy is consistent with the extra time approach. Bullard repeated that he backed tapering asset purchases to send signals to the market about the economy's progress.
• Iran Lifts Output, Upgrades Atomic Technology Before Meeting. Iran rolled out new atomic technology and boosted its output of enriched uranium that world powers are concerned may eventually be used for nuclear weapons, according to the International Atomic Energy Agency. Iran’s total production of medium-enriched uranium rose to 280 kilograms (617 pounds) from 232.8 kilograms reported in November, the IAEA said today in a 12-page restricted report. Iran has converted or is in the process of converting 103 kilograms, or 37 percent of the stockpile, into reactor fuel, which Iran has declared is for producing medical isotopes.

CNBC:

• Italy's Election: Tycoon, Comedian or Professor.
• Strike Three! The American Consumer Is Out. Faced with delayed tax refunds, an increased paycheck tax bite and higher gas prices, U.S. consumers are proceeding cautiously and scaling back, a trend that has already impacted one large retailer's bottom line. Nearly three-quarters of those polled by the National Retail Federation said their spending plans are taking a hit due to the expiration of a two-percent cut in payroll taxes that made consumers do a double-take on their paychecks at the start of the year. Lower-income consumers are already feeling the pinch, analysts said.

Zero Hedge:

• Frontrunning the Myopic Muppets - Bank Bailout Edition!
• Initial Jobless Claims Spike Even As BLS "Estimates" California, Virginia, Hawai And DC Data; Back To Year Ago Levels. (graph) 
• Philly Fed Plunges To 8 Months Low As Great Unrecovery Continues. (graph) 
• Congress Asks Bernanke For Full Risk Analysis On Fed's Soaring Balance Sheet.
• About Your $3.16 A Day Healthcare Insurance Plan...

Business Insider: 

• After Sequestration, A Shocking Proportion Of Government Spending Will Be On Entitlements. 
• GARTMAN: We Are Exiting All Bullish Positions And Rushing To The Sidelines. 
• Italy Had An Awful Day. (graph) 
• JPMORGAN: Here's What You Need To Know About The Radical Comedian Who's Offering Everyone In Italy A Free iPad.

New York Times: 

• Manufacturers Survey Points to New Downturn in Euro Zone.

Reuters: 

• Italy election stalemate worst option for markets. An inconclusive result in Italy's elections this weekend could prompt an even bigger sell-off in some markets than the return to power of scandal-mired Silvio Berlusconi, who led the country to the financial precipice in 2011. 
• Moody's outlook for US local governments remains negative. Moody's Investors Service is keeping its outlook negative for U.S. local governments in 2013, as cities and counties must continue to contend with tight revenues, high demand for spending, and an "uneven economic recovery," the rating agency said on Thursday.

Telegraph: 

• Angela Merkel accused of 'unholy alliance' with Britain. Angela Merkel has been accused of engaging in an “unholy alliance” with Britain after backing David Cameron’s demands for a cut to the European Union budget.

BBC:

• Libor setting 'still not clean' despite scandal. The way that the key Libor interest rate is set in the UK is still not clean and free of fraud, according to a top US regulator. "We have a lot more work to do," Gary Gensler, chairman of the Commodity Futures Trading Commission, told the BBC in London. He suggested that the rate was often "completely made up".

Naftemporiki:

• Greek Revenue Misses Target So Far This Month. State revenue in first 15 days of month seen at EU1.174b vs. EU1.365b target, citing preliminary finance ministry data.

Bear Radar

Style Underperformer:

• Small-Cap Growth -1.54%

Sector Underperformers:

• 1) Alt Energy -3.55% 2) Oil Service -2.52% 3) Networking -2.13%
  

Stocks Falling on Unusual Volume:

• PAY, SFY, TVL, TPLM, BOFI, IRE, TI, DISH, PBR, GFI, OMX, FBR, CBD, FOR, VAC, MX, TAL, PATK, EBIX, LBY, TSLA, CG, KORS, PPO, KMP, AZZ, NSR, GNRC, SWKS, TRW, DORM, BRC, BOFI, AMWD, HSNI, HAIN, DDD, PPO, LL, SPWR, WLT, RNF, WGO, SPPI, VCI, URI, NCT, RP, MCRS, RES, HEES, CLH, CQP, PCG, NRP, CACI, GPOR and SAFM

Stocks With Unusual Put Option Activity:

• 1) MTG 2) OIH 3) XLV 4) JCP 5) GM
  

Stocks With Most Negative News Mentions:

• 1) CLF 2) RIG 3) SKYW 4) POT 5) R
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth -.63%

Sector Outperformers:

• 1) Gold & Silver +2.98% 2) Tobacco +.69% 3) Papers +.29%
  

Stocks Rising on Unusual Volume:

• SWY, JCP, PAAS, JACK, AUY, BRY, GDP, PEGA, RPRX, AWAY, SM and CROX

Stocks With Unusual Call Option Activity:

• 1) NWS 2) PAY 3) WMB 4) ODP 5) UUP
  

Stocks With Most Positive News Mentions:

• 1) KO 2) WLP 3) AOL 4) HRL 5) SWY

Charts:

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

Thursday Watch

Evening Headlines 
Bloomberg: 

• Bersani Preaches Spread-the-Wealth Before Italian Vote. Pier Luigi Bersani is traveling from Palermo to Naples with a spread-the-wealth message to fend off populist rival Beppe Grillo in two poor regions pollsters say are vital to gaining control of Italy’s Senate. With outright victory at stake in the Feb. 24-25 parliamentary election, Bersani, 61, is set to appear in Naples, capital of the southern region of Campania, after speaking to thousands in Sicily’s biggest city yesterday. He has covered the length of the Italian peninsula this week to rally voters in the three must-win regions of Lombardy, Sicily and Campania. Victory in Campania and Sicily, two of Italy’s poorest regions, is in doubt as former comic Grillo’s anti-austerity message resonates with recession-scarred voters. Bersani drew cheers from flag-waving supporters in Palermo’s Piazza Verdi when he said he’d push to get more out of the wealthy. Still, his base of union supporters may not be enough to stop Grillo from carrying Sicily. Victory by Grillo in Sicily is “a concrete possibility,” said Roberto D’Alimonte, a professor at Rome’s Luiss University who does political analysis for Sole 24 Ore, Italy’s leading business newspaper.

• China Stocks Fall Most in 8 Months on Property, Commodity Risk. China’s stocks fell, sending the benchmark index to its biggest loss in eight months, after the government told local authorities to curb real estate speculation and commodity shares tumbled. Anhui Conch Cement Co. (600585), the nation’s biggest producer of the building material, slumped 5.5 percent on concern over real estate restrictions that include home-price control targets and the expansion of a property tax. China Construction Bank Corp. (601939), the largest mortgage lender, slid the most since June. Jiangxi Copper Co. and PetroChina Co. led declines for metal and energy stocks after minutes from the Federal Reserve’s last meeting showed debate over further stimulus action. The Shanghai Composite Index (SHCOMP) retreated 2.7 percent to 2,331.61 at the 11:30 a.m. break, heading for the biggest drop since June 4. The CSI 300 Index (SHSZ300) dropped 3.3 percent to 2,614.86, the most since November 2011.

• PBOC Switch to Drain Cash Turns Citigroup Bearish. The People’s Bank of China’s first draining of cash since June, seeking to damp a property-market revival, is prompting Citigroup Inc. (C) to predict one-year yields will rise faster than longer-term rates. “The PBOC regards the current liquidity conditions as overly loose,” said Weisheng He, a strategist in Shanghai at Citigroup. “Going into April, I expect the bond curve to bear- flatten,” he said, predicting the one-year yield will rise to 3 percent this year from 2.70 percent yesterday. The outlook for a flattening yield curve reflects the risks that excessive lending may fuel inflation in the world’s second- largest economy and lead to a property-market bubble.

• China Aluminum Stockpiles Seen at Record, Swelling Global Glut. Aluminum inventories in China’s main trading regions are estimated to have climbed to a record as supply growth outpaces demand in the largest user and producer, adding to a global glut of the lightweight metal. Reserves expanded to 1.119 million metric tons from 750,000 tons a year ago, according to a survey of warehouses in four cities by data provider SMM Information & Technology Co. Stockpiles in six hubs including Shanghai increased to 1.156 million tons, according to Li Xun, an analyst at Myyouse.com, researcher Mysteel.com’s sister website, citing their survey. The estimates add to signs that surging supplies from new capacity in China’s northwest are not being absorbed, and may weigh on aluminum, which has declined 6.7 percent in London in the past year. Global production will outpace demand by 1.82 million tons this year from 1.49 million tons in 2012, Barclays Plc said on Feb. 15, advising investors to bet on lower prices of the metal used to make autos, appliances and packaging. “I have no doubt that the inventories will expand further,” Wang Chunhui, a Shanghai-based analyst at SMM, said in a telephone interview on Feb. 19. “Maybe it can exceed 1.2 million tons this year.” 

• Rebar Futures Fall for Second Day on China Property Curbs. Steel reinforcement-bar futures in Shanghai fell for a second day as the Chinese government moved to curb property speculation, reducing demand for the building material. Rebar for delivery in October fell by as much as 2.1 percent to 4,082 yuan ($653) a metric ton on the Shanghai Futures Exchange, before trading at 4,093 yuan at 10:02 a.m. local time. The contract has dropped 4.3 percent this week as investors returned to the market after the Lunar New Year holiday.

• Copper Slides to Seven-Week Low as Metals Fall on China Concern. Copper slumped to a seven-week low and nickel tumbled to the lowest level in 12 weeks after China moved to curb property speculation and Federal Reserve minutes showed a debate over the stimulus. Aluminum, lead, zinc, and tin also declined. Copper for delivery in three months lost as much as 0.8 percent to $7,900 a metric ton on the London Metal Exchange, the lowest since Dec. 31, before trading at $7,935 at 10:11 a.m. Shanghai time. Nickel dropped as much as 1.9 percent to $16,840 a ton, the lowest since Nov. 28. Chinese Premier Wen Jiabao called on local authorities to “decisively” curb real estate speculation and take steps to rein in the property market after data showed prices surged the most in two years last month.

• Commodities Tumble on Speculation Hedge Fund Selling Positions. “You have a sort of mini perfect storm hitting commodities today,” Dave Lutz, the head of exchange-traded fund trading and strategy at Stifel Nicolaus & Co. in Baltimore, said in a telephone interview. “There’s market chatter that a fund is blowing up, gold has fallen below $1,600, and oil storage tanks in Cushing are near all-time records.”

• Aussie Set for 2-Day Drop as Asian Stocks Decline. The Australian dollar declined, following yesterday’s biggest one-day drop in almost a month, as Asian stocks extended equity losses worldwide, curbing demand for higher-yielding assets.

• Asset Freezes Among Steps Obama Urged to Take on Cyber Thieves. President Barack Obama must take tougher actions than those specified so far to deter cyber attacks on vital computer networks, including freezing offenders’ assets or denying them entry into the U.S., cybersecurity experts said. Obama’s administration yesterday pledged to share more intelligence with companies about nations involved in economic espionage and methods used to steal corporate information, and to study the need for stronger U.S. laws against trade-secret theft.

• VeriFone(PAY) Plunges After Profit Forecast Trails Estimates. VeriFone Systems Inc. tumbled as much as 35 percent after the maker of credit-card terminals forecast second-quarter profit that missed analysts’ estimates, amid weak economic conditions in Europe. The shares plunged as low as $20.81 in extended trading, after earlier falling 3.5 percent to $31.89 at the close in New York. Earnings excluding some items will be 45 cents to 50 cents a share in the quarter ending in April, San Jose, California- based VeriFone said in a statement. Analysts on average had predicted profit of 80 cents a share, according to data compiled by Bloomberg. VeriFone also announced preliminary first-quarter adjusted profit of 47 cents to 50 cents a share, less than the company’s prior projection of as much as 73 cents. Beyond Europe, VeriFone said it experienced lower than anticipated sales from customers in Brazil, and also had an increase in deferred revenue from clients in Africa and the Middle East.

Wall Street Journal:

• Fed Split Over How Long To Keep Cash Spigot Open. Federal Reserve officials, uneasy with potential risks springing from the central bank's low-interest-rate policies, are split over an early retreat from the experimental programs created to revive the U.S. economy. Minutes released Wednesday from the Fed's January policy meeting show officials concerned that the current easy-money policies could lead to excessive risk-taking and instability in financial markets. The Fed is buying $85 billion in mortgage and U.S. Treasury securities a month to drive down long-term rates and has promised to keep short-term rates near zero until unemployment improves. Some said the Fed might have to taper its controversial bond buying before the job market fully recovers, according to the January minutes. The Fed has previously allowed bond buying programs to end in this recovery and then restarted them. It will review the programs at its next meeting, March 19-20, setting the stage for another high-stakes debate.  

• European Banks Move to Boost Health Gauge. Big European banks are boosting a key gauge of their financial health through largely cosmetic maneuvering, even as regulators in some countries try to crack down on the practice. Banks are recalculating the risks in their loan portfolios and trading books in flattering ways, a move that has the effect of raising their ratio of capital to "risk-weighted" assets—a metric that investors and regulators use to assess banks' abilities to absorb unexpected losses. While such maneuvering has been going on for years, analysts say it appears to be accelerating at some major European banks, which are under pressure to raise their capital ratios as new regulations known as Basel III start phasing in this year.

• Google(GOOG) Developing Touchscreen Devices Using Chrome Operating System. Google Inc. has developed the first touchscreen laptops powered by its Chrome operating system to be sold later this year, according to people familiar with the matter, as the Internet giant tries to go toe-to-toe with Microsoft Corp.'s Windows operating system. Interestingly, the new Chrome devices also would compete with devices powered by Google's other operating system, called Android, which took the smartphone and tablet market by storm in recent years, propelling Google as a force in mobile-device software. 

• GE(GE) Sues Whirlpool(WHR) on Cartel. General Electric Co. has sued rival Whirlpool Corp. and two European suppliers, saying the companies ran a price-fixing cartel that caused GE to overpay for parts for its refrigerators. GE alleges that it was hurt by an international conspiracy to set prices at "supra-competitive levels," to decrease manufacturing capacity and to limit product availability by a group of global manufacturers of refrigerator compressors. Compressors create cold air that keeps food fresh or frozen in refrigerators.

• U.S. Ups Ante for Spying on Firms. China, Others Are Threatened With New Penalties. The White House threatened China and other countries with trade and diplomatic action over corporate espionage as it cataloged more than a dozen cases of cyberattacks and commercial thefts at some of the U.S.'s biggest companies.

• Companies Seek to Avoid China New Year Hangover. For the world's manufacturers, post-holiday no-shows are an increasingly frustrating part of China's tightening labor market. The trend reflects rising expectations among China's workers, who are seeking out higher pay even as they show less inclination to work in factories. Many workers use the break to look for new jobs or start families.

• ObamaCare's 'Baby Elephant'. John Kasich says Valerie Jarrett promised, and other Medicaid tales. On Wednesday Florida Republican Rick Scott became the latest GOP Governor to volunteer to shoulder some responsibility for ObamaCare, which has liberal sages gloating about a resistance-is-futile shift in the GOP. The media don't want to discuss the substance, only the politics, so allow us to report how the flippers are justifying their flips.

CNBC: 

• Tesla(TSLA) Loss Is Wider Than Expected; Revenue Beats. Tesla reported a wider-than-anticipated net loss for the fourth-quarter as higher production costs offset better-than-anticipated revenues. 

• Technical Red Flags Could Signal More Stock Market Selling. Markets threw up enough technical red flags amid a wave of volatility Wednesday to have traders wondering if the first real sell off of 2013 has finally arrived. 

• Shorting the Yen? Here’s How It Could Go Wrong.

Zero Hedge:

• Meet China's Housing Debt Slaves. 

• Jobs & The Economy - This Time It's No Different. (graphs)

• Presenting The Hedge Fund World's Newest Most Widely Held Stock.

• America's TBTF Bank Subsidy From Taxpayers: $83 Billion Per Year.

• Stocks Drop Most In 2013 As Gold Is Crucified On The Death Cross. (graphs)

Business Insider: 

• An IT Company May Have Scored $500M In IRS Contracts Due To A 'Personal Relationship'.

• The Writers Of The GMAT Are Testing Future MBAs On Their 'Soft Skills'.

• America Is Basically Helpless Against The Chinese Hackers.

Washington Post:  

• Japan’s Prime Minister Shinzo Abe: Chinese need for conflict is ‘deeply ingrained’. China has a “deeply ingrained” need to spar with Japan and other Asian neighbors over territory, because the ruling Communist Party uses the disputes to maintain strong domestic support, Japanese Prime Minister Shinzo Abe said in an interview. Clashes with neighbors, notably Japan, play to popular opinion, Abe said, given a Chinese education system that emphasizes patriotism and “anti-Japanese sentiment.” Abe’s theory on the entrenched motivation behind China’s recent naval aggression helps explain why he has spent more effort trying to counter the Chinese than make peace with them: He thinks the fierce dispute with China over an island chain in the East China Sea isn’t going away anytime soon.

NY Times:

• White House Tactic for C.I.A. Bid Holds Back Drone Memos. The White House is refusing to share fully with Congress the legal opinions that justify targeted killings, while maneuvering to make sure its stance does not do anything to endanger the confirmation of John O. Brennan as C.I.A. director.

4-traders:

• Ineffective Communication Hurts Brazil's Credibility -Moody's. Brazil's government is reaching for more flexibility in its fiscal and monetary policies, but it hasn't been able to communicate effectively with the market, causing confusion and hurting credibility, according to Moody's Investors Service Vice President Mauro Leos.

Reuters: 

• U.S. dollar holds gains as Fed minutes fuel withdrawal symptoms.

• EMERGING MARKETS-Brazil stocks fall to 3-mo low, Mexico rebound flags.

• Cheesecake(CAKE) Factory's profit misses Street, shares down. Restaurant chain The Cheesecake Factory Inc forecast a current-quarter profit largely below analysts' estimates after reporting weaker-than-expected results for the last quarter, sending its shares down more than 3 percent after the bell. 

• Fluor(FLR) revenue short of estimates, has loss on ruling. Engineering company Fluor Corp on Wednesday reported slower-than-expected revenue growth and a quarterly loss due to a $265 million charge for the Greater Gabbard wind project off the coast of Britain. Shares of Fluor, the largest publicly traded U.S. engineering company, dropped 2 percent in after-hours trading following a 3 percent slide in the regular session on the New York Stock Exchange.

Financial Times: 

• Pet owner points to Kroger’s(KR) dilemma.

• Fed doubtful on open-ended QE3 policy. The US Federal Reserve is cooling on open-ended asset purchases as officials grow nervous about the dangers of a bigger balance sheet. According to the minutes of its January meeting, released on Wednesday, “many” officials are concerned about the costs and risks of further asset purchases, as the Fed buys securities at a pace of $85bn a month. The minutes suggest that QE3 – as the Fed’s third round of quantitative easing is known – could end earlier than previously thought and is no longer a truly open-ended programme. The Fed’s balance sheet has reached $3.078tn and could exceed $4tn if QE3 continues for the rest of the year.

Eastday.com:

• Commentary: US Hacking allegations against China both baseless and revealing. It is highly unlikely that both the origins of the hackers and the attacks they have launched can be located. That is why China's foreign ministry and defense ministry both described the firm's report as "amateurish" when they dismissed Mandiant's false accusations.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -2.25% to -1.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 108.25 -.25 basis point.

• Asia Pacific Sovereign CDS Index 82.5 -.5 basis point.

• FTSE-100 futures -.63%.

• S&P 500 futures -.09%.

• NASDAQ 100 futures -.09%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (PCG)/.59

• (CHK)/.15

• (ZEUS)/.08

• (HRL)/.48

• (PDCO)/.52

• (ZLC)/1.01

• (HST)/.37

• (WMT)/1.57

• (PEG)/,39

• (DNR)/.28

• (TTC)/.42

• (RS)/.97

• (SWY)/.76

• (WBMD)/.04

• (INTU)/.32

• (COG)/.22

• (FLS)/2.84

• (AIG)/-.08

• (MHK)/.94

• (NEM)/.97

• (JWN)/1.35

• (PSA)/1.78

• (HPQ/.71

• (PZZA)/.76

Economic Releases
8:30 am EST

• The Consumer Price Index for January is estimated to rise +.1% versus unch. in December.

• The CPI Ex Food & Energy for January is estimated to rise +.2% versus a +.1% gain in December.

• Initial Jobless Claims are estimated to rise to 355K versus 341K the prior week.

• Continuing Claims are estimated to rise to 3150K versus 3114K prior. 

8:58 am EST 

• The Preliminary Markit US PMI for February is estimated to fall to 55.5 versus 55.8 in January.

 10:00 am EST

• Philly Fed for February is estimated to rise to 1.1 versus -5.8 in January.

• Existing Home Sales for January are estimated to fall to 4.9M versus 4.94M in December.

11:00 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,000,000 barrels versus a +560,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -900,000 barrels versus a -803,000 barrel decline the prior week. Distillate inventories are estimated to fall by -1,800,000 barrels versus a -3,677,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall by -.4% versus a -.4% decline the prior week.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Fisher speaking, Fed's Bullard speaking, Fed's Williams speaking, Eurozone manufacturing & services PMI data, Spain 10Y bond auction, China home price data, Bloomberg Economic Expectations Index for February, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, 4Q Mortgage Delinquencies report and the 4Q Mortgage Foreclosures report could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by financial and commodity 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.

Sotocks Falling Sharply into Final Hour on Global Growth Worries, Sequestration Fears, Less Dovish Fed Rhetoric, Homebuilding/Commodity Sector Weakness

Today's Market Take:

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Every Sector Declining
  

• Volume: About Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• VIX 14.63 +18.85%
  

• ISE Sentiment Index 83.0 -16.16%

• Total Put/Call 1.13 +14.14%

• NYSE Arms 3.0 +208.0%

Credit Investor Angst:

• North American Investment Grade CDS Index 87.59 +2.57%

• European Financial Sector CDS Index 142.37 -.31%

• Western Europe Sovereign Debt CDS Index 99.0 -.77%

• Emerging Market CDS Index 235.06 +1.92%

• 2-Year Swap Spread 15.50 +.5 bp

• TED Spread 17.25 -1.5 bps

• 3-Month EUR/USD Cross-Currency Basis Swap -17.0 +.5 bp

Economic Gauges:

• 3-Month T-Bill Yield .12% +2 bps

• Yield Curve 175.0 unch.

• China Import Iron Ore Spot $158.90/Metric Tonne +.57%

• Citi US Economic Surprise Index -3.70 -1.2 points

• 10-Year TIPS Spread 2.55 -2 bps

Overseas Futures:

• Nikkei Futures: Indicating -38 open in Japan

• DAX Futures: Indicating +3 open in Germany

Portfolio: 

• Slightly Lower: On losses in my tech/retail/medical sector longs
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, added to my equity-specific hedges
• Market Exposure: Moved to 25% Net Long

Today's Headlines

Bloomberg:

• Merkel Says Euro Has ‘Long Way’ to Go Before Crisis Is Overcome.German Chancellor Angela Merkel said the euro area has a “long way” ahead before it overcomes the three-year-old debt crisis even though measures to boost competitiveness and cut debt are bearing fruit. “We’ve achieved much but still have a lot of work ahead of us,” Merkel told Germany’s Straubinger Tagblatt/Landshuter Zeitung in an interview. The euro bailout funds, the fiscal pact governing debt reduction and an agreement on mapping out joint banking supervision are all moving forward, Merkel said. “It’s moving ahead step by step,” Merkel said. It’s now “high time” to achieve what the founders of the single currency didn’t and move states toward improving competitiveness and structural reform, Merkel told the southern German newspapers. 
• French Workers Who Talk for 3 Hours Don’t Cut It, Titan Says. Titan International Inc. Chairman Maurice Taylor has got French backs up with his comments that the country’s workers earn high wages and work short hours. In a letter to French Industry Minister Arnaud Montebourg declining to reconsider buying a tire plant in the country, he wrote that France can keep its “so-called workers.” Taylor, who ran for the Republican presidential nomination in the 1996, laid out why his company walked away and won’t reexamine buying a plant that Goodyear Tire & Rubber Co., the largest U.S. tire- maker, is closing in France. “I have visited the factory several times,” Taylor wrote. “The French workforce gets paid high wages but works only three hours. They get one hour for breaks and lunch, talk for three and work for three. I told the French union workers this to their faces. They told me that’s the French way!” 
• Spain Said to Impose Yield Ceiling on Bond Sales by Regions. Spain is limiting the amount of interest its 17 semi-autonomous regions can pay to borrow, shutting many out of debt markets, as it seeks to repair the nation’s finances, two people familiar with the matter said. The government wants administrations to pay yields no more than 100 basis points above sovereign securities when they sell bonds, said the people, who asked not to be identified before the policy is announced. Catalonia, the nation’s biggest region, pays 314 basis more than government debt on its 1 billion euros ($1.3 billion) of 4.95 percent bonds due 2020. 
• China Orders More Cities to Restrict Housing Purchases. Chinese Premier Wen Jiabao called on local authorities to “decisively” curb real estate speculation and take steps to rein in the property market after data showed prices surged the most in two years last month. Cities that have had “excessively fast” price gains should promptly impose home-purchase restrictions if they’ve not done so already, China said in a statement released yesterday after a State Council meeting headed by Wen. Provincial capitals and municipalities reporting directly to the central government should also publish annual price control targets to keep new- home costs “basically stable,” according to the statement. Shares of Chinese developers listed in Shanghai fell the most in more than six months on Feb. 19 on concerns the government would impose new restrictions to cool the real estate market after prices rebounded.
• Currency Rhetoric Heats Up With New Zealand Joining Warnings. New Zealand’s central bank governor said he’s ready to intervene in foreign-exchange markets, adding to comments by officials from South Korea to South America warning their currencies are too strong, even as Group-of-20 nations say they’ll refrain from competitive devaluation. “There seems to be a sense that the gloves are off in terms of central-bank action in currency markets,” said Mitul Kotecha, global head of foreign-exchange strategy at Credit Agricole SA in Hong Kong.
• Einhorn Adds Short Bets as Markets Rally Amid Economic Slump. Hedge-fund manager David Einhorn reduced bets that stocks will rise as equities climbed to a five-year high while U.S. economic growth halted. "As the market continues to advance, even as the economy doesn't, we tend to become less enthusiastic," Einhorn said on a conference call today held by his Greenlight Capital RE Ltd. reinsurer. "We took some gains in our long portfolio and added to our shorts." Einhorn said long positions exceeded short wagers by 29 percentage points as of Jan. 31, down from 39 percentage points at the start of the year.
• Apple(AAPL) Falls After IPhone Builder Foxconn Halts Hiring. Apple Inc.’s shares declined after Foxconn Technology Group, the manufacturer of products including the iPhone, froze hiring across China. 
• Toll Brothers(TOL) Falls as Homebuilder’s Earnings Miss Estimates. Toll Brothers Inc., the largest U.S. luxury-home builder, fell the most in eight months after reporting fiscal first-quarter earnings and revenue that trailed analyst estimates.
• World Powers to Make New Offer to Iran, Diplomat Says. The five United Nations Security Council permanent members and Germany will make a new offer to Iran to resolve the dispute about its nuclear program in talks next week, a Western diplomat said. 
• JPMorgan(JPM) Said to Seek First Sale of Mortgage Bonds Since Crisis. JPMorgan Chase & Co. is seeking to sell securities tied to new U.S. home loans without government backing in its first offering since the financial crisis that the debt helped trigger. The deal may close this month, according to a person familiar with the discussions. Servicers of the underlying loans may include the New York-based lender, First Republic Bank and Johnson Bank, said the person, who asked not to be identified because terms aren’t set.
• Copper Falls to Four-Week Low as China Orders Limits on Housing. Copper fell to a four-week low in New York as China, the world’s biggest consumer, moved to cool property purchases and as inventories expanded.

Wall Street Journal: 

• Fed Officials Feared Easy Money Could Rattle Markets. Federal Reserve officials expressed growing unease with the central bank's easy-money policies at its latest policy meeting and some suggested the Fed might need to pull them back before the job market is fully back to normal. Minutes released Wednesday of the Fed's Jan. 29-30 policy meeting showed that officials worried the central bank's easy-money policies could lead to instability in financial markets and might be hard to pull back in the future. The Fed plans to evaluate how the programs are doing at its next meeting March 19 and 20. Several officials said that the Fed should be prepared to vary the pace of its asset purchases, depending on how the economy performs and its analysis of the costs and benefits of the program, according to the minutes. Some Fed officials suggested the Fed may need to alter its stated course to continue the bond-buying programs until the job market improves "substantially," a threshold it hasn't defined.
• J.P. Morgan(JPM) Faces Calls to Split CEO, Chairman Roles. Investors that control more than 16 million shares are calling for J.P. Morgan Chase JPM -1.01% & Co. to split the chairman and chief executive posts held since 2006 by James Dimon, citing concerns over a trading fiasco that saddled the company with more than $6 billion in losses.

MarketWatch:

• PIMCO’s Gross says Fed minutes hint QE could be ‘at risk’ later in 2013.

CNBC: 

• Why Sequestration Will Hit Housing on Several Fronts.

Zero Hedge: 

• Chart Of The Day: Housing Starts Adjusted vs Unadjusted Redux. 
• Italy's North-South Divide, And Lombardia's Starring Role In The Elections.
• Caterpillar(CAT) Sales Latest Cratering Confirm Global Growth Slowdown. (table)
• The Spending Crunch Is Official: "We Are Confident There Is An Issue With The Consumer". 
• This New Law Will Ensure You Pay More For Online Purchases...

Business Insider: 

• Steve Ballmer Just Said Something That Should Really Scare Microsoft(MSFT) Investors. 
• ART CASHIN: Traders On The Floor Are Passing Around This Gloomy Quote From Investing God Seth Klarman. 
• 'Bug-Sized' Drones Are The Most Frightening Type Of Killer Robot Yet. 
• Columbine Shooting Survivor Slams Obama For His Gun Control Proposals. A man who survived the  Columbine High School massacre in 1999 is not pleased with President Barack Obama's proposed gun control reforms.
• Wall Street Banks Are More Dangerous Than Ever.
• The Biggest Problem In France Is France.

Reuters:

• India to miss 2012/13 export target: Anand Sharma. 
• Mortgage applications fell last week as rates rose: MBA. Applications for U.S. home mortgages fell for a second straight week as both refinancing and loan requests for new mortgages eased last week, an industry group said on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, was 1.7 percent lower in the week ended February 15. The MBA's seasonally adjusted index of refinancing applications fell 1.6 percent, while the gauge of loan requests for home purchases, a leading indicator of home sales, dropped 1.7 percent.
• Asia steel output growth offsets fall in EU, U.S. in Jan. Stronger steel output in top producer China and in Asia as a whole, offset falls in Europe, the United States and most other producing regions in January, data from an industry body showed on Wednesday. Global crude steel production rose 0.8 percent to 125 million tonnes in January from the same month a year earlier, data from the World Steel Association showed. Output in China, which is also the top consumer of the alloy, rose 4.6 percent in January to 59.3 million tonnes, while Asia as a whole posted a 4 percent increase to 82.3 million tonnes.

Telegraph:

• Losing our AAA rating could mean bank collapse and deflation. Like a condemned man, the British government awaits the sentence. It’s ceased to be a question of whether we’ll lose our AAA rating, but when.
• Bulgaria succumbs to euro deflation curse. Another euro-pegged government defending an overvalued exchange rate bites the dust, a reminder that the underlying economic and social disaster across the Europe’s Arc of Depression is still getting worse. Bulgarian prime minister Boiko Borisov resigned this morning after days of mass protests against austerity across the country.

Radiocor:

• S&P Sees Risk Italian Reforms May Slow After Vote. Italy's uncertain election outcome means the nation's economic overhaul risks losing steam after the Feb. 24-25 vote, citing a report by S&P. S&P said a lack of economic growth is the main credit risk for Italy.

Xinhua:

• Wen Says China to Curb Property Speculation. Chinese Premier Wen Jiabao said the country should be "determined" in curbing property speculation and "strictly" implement home purchase limits, citing Wen speaking at a State Council meeting. Wen also said China will expand property tax trials.
• China May Ban Barbecues in Densely Populated Urban Areas. Proposed restrictions are aimed at combating air pollution, citing draft technical guideline issued by the Ministry of Environmental Protection.