Today's Headlines

Bloomberg:

• Abe’s Yen Exporting Deflation Risks Davos Tension: Currencies. Shinzo Abe’s debased yen is leaving other nations to pay the price for faster Japanese inflation. As Japan’s prime minister addresses the global financial elite today in Davos, Switzerland, the yen is within 3 percent of a five-year low against both the euro and dollar, with analysts forecasting further declines. “When your currency falls heavily like the yen did, you create inflation for yourself but disinflation for others,” David Bloom, the global head of currency strategy at HSBC Holdings Plc in London, said in a Jan. 20 phone interview. “If we get to the point where inflation falls and growth looks like it’s going to be incredibly weak again, then the background for a currency war is growing.”

• Merkel Aide Says Obama Spying Curbs Fall Short as Damage Sticks. An ally of German Chancellor Angela Merkel said President Barack Obama’s pledge to limit global surveillance by spy agencies isn’t persuasive, leaving U.S.- European relations at the lowest ebb since the Iraq war. Leverage to pressObama for further changes includes a pact that gives U.S. anti-terrorism investigators access to bank transaction data, which the European Union should suspend, Philipp Missfelder, the foreign-policy spokesman for Merkel’s Christian Democratic Union in parliament, said in an interview. 

• European Stocks Are Little Changed. European stocks were little changed, with the Stoxx Europe 600 Index at a six-year high, as a rally in ASML Holding NV offset a decline in ABB Ltd. ASML jumped the most in a year after saying it plans to increase its 2013 dividend. Rautaruukki Oyj soared 33 percent after SSAB AB offered to buy the Finnish steelmaker. ABB Ltd. retreated 3.6 percent after saying charges from project delays and operational issues will hurt profit. The Stoxx 600 added 0.1 percent to 336.06 at the close of trading. 

• WTI Crude Rises a Third Day on Distillate Supply Forecast. WTI for March delivery increased $1.83, or 1.9 percent, to $96.80 a barrel at 1:38 p.m. on the New York Mercantile Exchange. Futures touched $96.89, the highest intraday price since Jan. 2. Volume of all contracts was 14 percent above the 100-day average.

• Singer Says Derivatives He ‘Loves Trading’ Hurt Society. Billionaire hedge-fund manager Paul Singer said derivatives have been a “net negative” for society and that the touted hedging benefits have been overstated by financial companies. “I love trading them,” Singer, whose Elliott Management Corp. manages $23.9 billion, said during a panel discussion at the World Economic Forum in Davos, Switzerland, today. “On balance, there’s been a net negative to society from this particular type of invention.” While banks say that derivatives allow companies in industries from energy to agriculture to hedge their risks, the resulting increase in leverage and complexity to balance sheets hasn’t been worth it, said Singer, 69. He also said that the banking industry remains too dangerous to global stability five years after the financial crisis. 

• Resolved: Obamacare Is Now Beyond Rescue.

• Why Bill Fleckenstein Is (Almost) Ready to Short Stocks.

• U.S. East Shovels Record Snow as Temperatures Plunge.

Wall Street Journal: 

• Clashes in Ukraine Turn Deadly. Medic Says Two Protesters Shot and Killed Amid Clashes With Police. Two protesters died from gunshot wounds amid clashes with police, a medic said Wednesday, raising the stakes in two-month antigovernment protests that exploded into violence in recent days. One dead protester suffered four gunshot wounds, and the second was shot in the heart, said the medic, Oleh Musiy. The names of the victims weren't released immediately.

• Copper Eases After Mixed China Data. Copper futures eased a bit on Wednesday in thin trade as investors weighed mixed Chinese economic data and a coming holiday that may limit trading activity in the top consumer. The most actively traded copper contract, for March delivery, recently traded down 1.6 cents, or 0.5%, at $3.335 a pound on the Comex division of the New York Mercantile Exchange.

Fox News: 

• Taking a hit: Anti-drug groups rebuke Obama over marijuana remarks. President Obama is taking a hit from anti-drug groups for downplaying the effects of marijuana use, as some point out his recent comments appear to clash with statements by his own health and law enforcement agencies. The president, in a recent interview with The New Yorker, likened pot to cigarettes and alcohol.

MarketWatch:

• Coach(COH) shares slump after worst same-store sales in at least 13 years.

• Kennedy says Obama’s wrong about pot, and more must-reads. Former Rep. Patrick Kennedy says President Barack Obama is wrong about the dangers of marijuana, “because the new marijuana is not the old marijuana.” Kennedy, a former eight-term Rhode Island Democrat, made the remarks in a televised interview in response to Obama’s statement that pot isn’t worse than alcohol. Kennedy said if Obama were to talk to his National Institutes of Health director in charge of drug abuse, she would tell him today’s modern, genetically modified marijuana is much stronger than what he acknowledged smoking as a young person.

CNBC:

• Aetna could be forced out of Obamacare: CEO.

ZeroHedge: 

• BOJ Approaches Limit Of Its Existing Bond Buys, As Doubts Spread It Will Boost QE.

• Thai CDS Rise To One Year Highs After Pro-Government Faction Leader Shot. (graph)

• Dead Mall Syndrome: The Self-Reinforcing Death Spiral of Retail.

• Verizon(VZ) Details How It Spied On Its Customers In 2013.

Business Insider:

• Someone Just Said Something About The Japan-China Conflict That Scared The Crap Out Of Everyone.

• Fox Finally Reveals All Of The Things Ex-CNBC Anchor Maria Bartiromo Will Be Doing.

• CARL ICAHN: I Want Apple(AAPL) To Buy Back More Stock, But I'm Better Off If They Do Nothing.

• S&P Says That Tim Geithner Called To Threaten Them After They Downgraded The US In 2011.

• It's Been A Year Since Jeff Zucker Took Over At CNN — And Ratings Have Plunged To 20-Year Lows.

Reuters: 

• Norfolk Southern(NSC) profit rises sharply on strong shipment volumes. Norfolk Southern Corp on Wednesday reported a 24 percent increase in fourth-quarter earnings, beating Wall Street's expectations, as strong chemicals, construction materials and auto shipments more than offset a dip in coal volumes. 

• United Technologies(UTX) profit tops estimates; revenues miss. United Technologies Corp, the world's largest maker of elevators and air conditioners, reported a rise in fourth-quarter profit that topped estimates, helped by a delay in shipping a helicopter order.

Financial Times:

• Davos leaders: Shinzo Abe on WW1 parallels, economics and women at work. Here at Davos, I’ve just had the opportunity to moderate a discussion between the Japanese prime minister, Shinzo Abe, and a group of international journalists. I asked Mr Abe whether a war between China and Japan was “conceivable”. Interestingly, he did not take the chance to say that any such conflict was out of the question. In fact, Mr Abe explicitly compared the tensions between China and Japan now to the rivalry between Britain and Germany in the years before the first world war, remarking that it was a “similar situation”.

Telegraph:

• Trying to deleverage China without blowing up the system. China is walking a tightrope without a net. There is an acute cash crunch. Credit at a viable cost is being fiercely rationed. Foreign buyers with money in hand can – and are – buying up nearly completed buildings from distressed developers for a song. The shadow banking system has risen to 30pc of all lending from 20pc in barely more than a year. The growth generated by each extra yuan of credit has fallen by three quarters from 1.0 to 0.25 in five years, evidence of credit exhaustion.

• Crippled eurozone to face fresh debt crisis this year, warns ex-ECB strongman Axel Weber. Ex-Bundesbank head Alex Weber expects fresh market attacks on eurozone this year and economist Kenneth Rogoff says the euro was a "giant historic mistake".

Echoing fears that European policymakers remain in a state of cognitive dissonance – recognizing the need for root-and-branch overhaul of peripheral banks, but backtracking on joint liability plans – Christopher Flowers, the legendary FIG investor who now runs the £2.3 billion ($3.5 billion) private equity group JC Flowers, sounded the alarm over the negative sovereign-bank feedback loop. In a shot across the bows of market bulls, who cite the return of capital flows to weaker eurozone states, Flowers issued a stark warning: "There is a scenario where we have a Lehman-type event: we wake up some Thursday and a big country is in trouble. "And the ECB will have to decide to support banks x, y, z. And then the ECB will, in fact, decide to own bank x, y, z.


While we want you to share, we ask you use the functions on-site rather than copy/paste. See T's & C's for details. http://www.euromoney.com/Article/3211790/CurrentIssue/88924/Restructuring-Flowers-slams-Europe-over-inaction.html?copyrightInfo=true

Nikkei:

• Sharp to End U.S. Solar Panel Production by April. Decision prompted by lower cost competition. To cut about 300 jobs at Tennessee plant.

Yomiuri:

• Japan Creates Web Site Devoted to Disputed Islands. Govt will this week launch site justifying its ownership of disputed islands that have been source of disagreement with South Korea and China. Site will explain basis of Japan's ownership of islets as dictated by international law, also to cite efforts govt agencies have taken to protecting territories.

Bear Radar

Style Underperformer:

• Large-Cap Value -.37%

Sector Underperformers:

• 1) Gold & Silver -2.31% 2) Computer Services -2.12% 3) Gaming -2.03%

Stocks Falling on Unusual Volume:

• CEO, COH, QSII, CEC, SAP, AMAG, PETS, ARCO, IBM, BMS, RSE, KERX, PH, PDH, ATI, MSI, CGX, CSTE, ABB, CCJ, MPEL, TSCO, TJX, AGN and ABT

Stocks With Unusual Put Option Activity:

• 1) BSX 2) FFIV 3) HTZ 4) BBT 5) IBM
  

Stocks With Most Negative News Mentions:

• 1) COH 2) SNDK 3) AGN 4) MOS 5) DLTR
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Mid-Cap Value +.37%

Sector Outperformers:

• 1) Computer Hardware +2.27% 2) Homebuilders +1.71% 3) Road & Rail +1.31%
  

Stocks Rising on Unusual Volume:

• EVOK, SMCI, VISN, NUS, ASML, BBRY, NUAN, EAT, CALD, NSC, CCIH, TXT, TEL, ICPT, CREE, BCRX and UPL

Stocks With Unusual Call Option Activity:

• 1) BSX 2) ABT 3) COH 4) CREE 5) IBM

Stocks With Most Positive News Mentions:

• 1) VMW 2) TXT 3) UTX 4) BK 5) AAPL
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Wednesday Watch

Evening Headlines 
Bloomberg:

• Bank of Japan Sticks to Record Easing as Inflation Picks Up. The Bank of Japan maintained its record easing, as accelerating price gains mark progress in its bid to end 15 years of deflation. Governor Haruhiko Kuroda’s board stuck to its pledge to expand the monetary base by an annual 60 trillion to 70 trillion yen ($671 billion) today after a two-day meeting in Tokyo, in line with the forecasts of all 36 economists surveyed by Bloomberg News. The BOJ maintained its forecast that core inflation will reach 1.9 percent in the year starting April 2015, excluding the effects of sales-tax increases. With the BOJ’s preferred inflation gauge at more than half of its target 2 percent pace, analysts from HSBC Holdings Plc. to Daiwa Securities Co. have pushed back forecasts for when the central bank may add to easing. Kuroda’s policy makers may wait to assess trends in wages and the effects of the sales-tax increase in April before deciding on any extra stimulus. 

• China Bailout Costs Jump Seen in Policy Bank Yield Surge. Doubts over the Chinese government’s ability to cope with escalating debt are showing up in record borrowing costs for the nation’s policy banks. The average yield premium over the sovereign for five-year debt sold by China Development Bank, Export-Import Bank of China and Agricultural Development Bank of China widened 90 basis points from an August low to 142 basis points on Jan. 17, the highest in Chinabond data going back to 2007. The gap was 138 basis points yesterday. Yields have climbed on safer assets, including CDB’s, as delays in restructuring bad loans are stretching the central government’s ability to guarantee debt, Bank of America Merrill Lynch wrote in a report this week.

• China Money Rate Plunge Is No Relief for Bonds: Chart of the Day. Borrowing costs for the most creditworthy Chinese companies are climbing toward a 19-month high relative to the government, a sign the easing of the country's cash crunch is failing to quell concern that corporate defaults could mount. Yields on five-year AAA-rated corporate bonds traded at 1.80 percentage points above government securities. The gap, a proxy for broader Chinese corporate credit risk, is within .04 percentage point of a 23-month high set Dec. 30 and is up from 1.17 percentage points in July, according to Bloomberg data and Chinabond.

• Australia Inflation Accelerates Above RBA Midpoint; Aussie Gains. Australian inflation unexpectedly accelerated above the mid-point of the central bank’s target range last quarter, reducing scope for policy makers to lower interest rates further. The trimmed mean gauge of core prices rose 2.6 percent in the three months through December from 12 months earlier, the Bureau of Statistics said in Sydney today, compared with the median forecast of 23 economists for a 2.3 percent gain. The consumer price index advanced 2.7 percent, compared with economists’ forecast for a 2.4 percent increase. 

• Rajan Panel Proposes 4% CPI Target in India Policy Overhaul. An Indian central bank committee proposed adopting a 4 percent consumer-price-inflation target by 2016 as part of a sweeping monetary-policy overhaul, a shift that signals elevated interest rates if adopted. 

• Asia Stocks Fluctuate as Yen Gains on BOJ; Gas Climbs. Asian stocks fluctuated as gains by Chinese shares on lower money-market rates were offset by declines in Tokyo equities as the yen rose after the Bank of Japan left policies unchanged. The Australian dollar jumped the most in a week after inflation data dimmed rate-cut prospects. The MSCI Asia Pacific Index was little changed as of 1:22 p.m. in Tokyo. China’s Shanghai Composite Index surged the most in two months and Japan’s Topix index fell 0.5 percent.

• Rubber in Tokyo Declines for Fourth Day on China Demand Concerns. Rubber in Tokyo extended losses for a fourth day as concerns grew that abundant supply in China will slow purchases from the largest consumer. The contract for delivery in June on the Tokyo Commodity Exchange fell as much as 1.4 percent to 246 yen a kilogram ($2,357 a metric ton), the lowest level for a most-active contract since Aug. 8. Futures traded at 247.9 yen at 10:37 a.m. local time.

• Rebar Advances as Investors Weigh Improved China Money Supply. Steel reinforcement-bar futures in Shanghai climbed for the first time in five days as investors assessed improvement in China’s money markets and as iron ore futures rose. Rebar for May delivery on the Shanghai Futures Exchange gained as much as 0.9 percent to 3,439 yuan ($568) a metric ton and traded at 3,429 yuan at 11:19 a.m. local time.

• Loan Surge Above Par Putting Investors at Risk: Credit Markets. More speculative-grade U.S. loans are trading above par than at any time since May, exposing investors who are funneling record amounts of cash into the debt to greater risks as rising prices encourage borrowers to refinance at lower interest rates.

• IBM’s(IBM) Sales Drop for Seventh Quarter as It Forgoes Bonuses. International Business Machines Corp., the world’s biggest computer-services provider, reported a seventh straight quarterly sales decline amid plunging demand for servers, prompting top executives to forgo annual bonuses.

Wall Street Journal:

• Australia's Housing Boom Spreads Beyond Sydney. Prices Fuel Debate Over Whether Central Bank Should Act. This once-downtrodden Sydney suburb is on the rise, an emblem of Australia's booming housing market. Dilapidated cottages and housing estates are giving way to large homes and modern multistory apartments. Vacant land for residential development here goes for as much as A$400,000 ($352,574) per acre, compared with about A$200,000 five years ago, according to Australand Property Group, a developer in the area.

• Amazon(AMZN) Considering Online Pay-TV Service. Live TV Channels Would Compete With Cable, Satellite.

• Banks Sit Out Riskier Deals. Regulatory Pressures Push Some Lenders to Let Lucrative Deals Go.

• Ex-Virginia Governor, Wife Indicted on Corruption Charges. Prosecutors Allege the Pair Illegally Accepted Gifts, Other Benefits.

• Pimco CEO Mohamed El-Erian to Leave Pimco in March. El-Erian Will Stay on Parent Company's International Executive Committee.

• Target(TGT) Cuts Health Coverage for Part-Time Workers. Retailer Points to Insurance Options Available Through Public Exchanges. 

• Exchanges See Little Progress on Uninsured. Early Estimates Suggest That Majority of Sign-Ups Already Had Health Plans.

• The President Inhales. Mr. Obama is now the President, not a stoned teenager riffing with his Choom Gang, and he might have set a better example. Parents trying to teach their kids to make better choices than getting high are at a disadvantage when the person in charge of upholding the law says breaking the law is no big deal.

Fox News:

• Report claims Syrian government behind 'systematic killing' of 11,000 detainees. A report compiled by three international war crimes prosecutors claims that the Syrian government is behind the "systematic killing" of approximately 11,000 detainees between March 2011 and August 2013.

MarketWatch.com:

• Analysts forecast a corrosive year for copper prices. The outlook for copper isn’t very bright, with analysts expecting prices for the metal to fall this year. Goldman Sachs analysts on Tuesday said they expects copper prices on the London Metal Exchange to average $6,850 per metric tons, or about $3.11 a pound this year. That’s down from an estimated average of $7,328 per metric ton, or $3.32 a pound in 2013. The analysts see a surplus of 385,000 metric tons in 2014.

CNBC:

• Texas Instruments(TXN) to cut 1,100 jobs in restructuring. Texas Instruments Inc plans to cut 1,100 jobs worldwide as part of a corporate restructuring intended to help it save $130 million by the end of 2014. The U.S. chipmaker, which in 2012 announced it would lay off 1,700 people as it wound down its mobile processor business, said on Tuesday it wanted to reduce expenses in its embedded-processing division and in Japan.

Zero Hedge:

• Bloomberg Sentiment Suggests Stagnant Economy To Stay. (graph)

• Mohamed El-Erian Leaving PIMCO.

• IBM(IBM) Asian Revenues Crash, Adjusted Earnings Beat On Tax Rate Fudge; Debt Rises 20% To Fund Stock Buybacks. 

• Where The Chinese Liquidity Tsunami Is Going.

• The $23 Trillion Credit Bubble In China Is Starting To Collapse – What Next? 

• Italian Bad Loans Hit Record High - Up 23% YoY. (graph)

• China's Epic Offshore Wealth Revealed: How Chinese Oligarchs Quietly Parked Up To $4 Trillion In The Caribbean.

Business Insider:

• The US Army Is Considering A Plan To Replace Thousands Of Troops With Robots.

• Sears Will Close Its Flagship Store In Chicago.

• Winter Storm Hitting The Northeast Is Worse Than Expected: Thousands Of Flights Canceled; New Yorkers Told To Stay Home.

Washington Post: 

• Obama goal for quick revamp of NSA program may be unworkable, some U.S. officials fear. U.S. officials directed by President Obama to find a way to end the government’s role in gathering Americans’ phone records are deeply concerned that there may be no feasible way to accomplish the task soon, according to individuals familiar with the discussions.

Reuters:

• Engineer charged with trying to leak details on U.S. F-35 program to Iran. A former engineer for defense contractors has been indicted on charges that he tried to send Iran secret details on the U.S. Air Force's F-35 joint strike fighter program, the office of the U.S. Attorney for Connecticut said on Tuesday. 

• Citi(C) warns against Britain's exit from the EU -FT. Citigroup Inc. has warned against the United Kingdom opting out of the European Union, saying such a move could hurt the British economy and reduce investment from international companies, the Financial Times reported on Tuesday. 

• Chipmaker Xilinx(XLNX) forecasts weak current-quarter revenue. Chipmaker Xilinx Inc forecast current-quarter revenue largely below analysts' estimates, hurt by weak sales to telecom, aerospace and defense customers, sending its shares down 4 percent in extended trading. 

• LED maker Cree's(CREE) profit jumps 75 pct. LED maker Cree Inc reported a 75 percent rise in second-quarter profit, driven by higher sales in its lighting products business, sending its shares up 5 percent in extended trading. 

• In 2013, Brazil added fewest net payroll jobs in a decade. Brazil's economy added the fewest net payroll jobs in a decade last year, a sign that three consecutive years of weak economic growth had weighed down profit margins and hiring at shops and services firms, government data showed on Tuesday. Excluding seasonal adjustments, farms, industrial factories and retail firms created a net 730,687 payroll jobs in 2013, the smallest number since 2003, the labor ministry said.

China Securities Journal:

• China's Tight Liquidity Unlikely to Change in 2014. China's tight liquidity situation is unlikely to change in 2014, according to a front-page commentary. PBOC will continue to strictly control financial risks and push for de-leveraging, commentary says.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.25% to +.50% on average.

• Asia Ex-Japan Investment Grade CDS Index 143.0 -1.0 basis point.

• Asia Pacific Sovereign CDS Index 111.50 +5.0 basis points.

• FTSE-100 futures +.35%.

• S&P 500 futures +.13%.

• NASDAQ 100 futures +.20%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (EAT)/.58

• (USB)/.75

• (NTRS)/.75

• (ABT)/.58

• (TXT)/.59

• (PH)/1.24

• (UTX)/1.53

• (GD)/1.75

• (ATI)/-.21

• (COH)/1.11

• (STJ)/.99

• (FCX)/.80

• (NSC)/1.51

• (SYK)/1.22

• (NFLX)/.66

• (EBAY)/.80

• (SNDK)/1.67

• (CCI)/.94

• (VAR)/./90

• (RJF)/.73

• (WDC)/2.08

• (JEC)/.74

• (PGR)/.42

• (ETH)/.40

Economic Releases

• None of note

Upcoming Splits

• (MA) 10-for-1

Other Potential Market Movers

• The HSBC China PMI, Bank of Canada rate decision, weekly retail sales reports, weekly MBA mortgage applications report and the CIBC Institutional Investor Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by real estate and technology 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.

Stocks Slightly Higher into Final Hour on Diminished Global Growth Fears, Yen Weakness, Biotech/Bank Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Higher
  

• Sector Performance: Mixed
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 12.84 +3.22%

• Euro/Yen Carry Return Index 147.49 +.16%

• Emerging Markets Currency Volatility(VXY) 8.70 +1.05%

• S&P 500 Implied Correlation 50.95 -1.14%

• ISE Sentiment Index 105.0 -20.45%

• Total Put/Call .75 +7.14%

• NYSE Arms 1.53 +14.19% 

Credit Investor Angst:

• North American Investment Grade CDS Index 65.69 +.43%

• European Financial Sector CDS Index 87.70 +.96%

• Western Europe Sovereign Debt CDS Index 50.0 +3.62%

• Emerging Market CDS Index 291.62 -.12%

• 2-Year Swap Spread 13.5 +.25 basis point

• TED Spread 20.5 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -2.0 -1.0 basis point

Economic Gauges:

• 3-Month T-Bill Yield .03% unch.

• Yield Curve 245.0 +1.0 basis point

• China Import Iron Ore Spot $123.20/Metric Tonne -1.28%

• Citi US Economic Surprise Index 64.10 -2.5 points

• Citi Emerging Markets Economic Surprise Index 4.5 -.3 points

• 10-Year TIPS Spread 2.24 unch.

Overseas Futures:

• Nikkei Futures: Indicating +33 open in Japan

• DAX Futures: Indicating +29 open in Germany

Portfolio: 

• Slightly Lower: On losses in my index hedges

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:

• UBS Tells Davos Leverage Ratio Over-Reliance Threatens Stability. UBS AG (UBSN), Switzerland’s biggest bank, said a shift in emphasis to leverage ratios from risk-based capital measures could endanger financial stability. “We caution against over-reliance on leverage ratios as a regulatory tool,” UBS said in a report, which the Zurich-based bank prepared for release at the World Economic Forum in Davos, Switzerland, and made available to Bloomberg. Such a focus “could lead to further deleveraging by banks and pose risks for financial stability.” 

• German ZEW Investor Confidence Unexpectedly Fell in January. German investor confidence unexpectedly fell for the first time in six months, signaling caution over the outlook for the euro area’s economic recovery. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, slid to 61.7 in January from a seven-year high of 62 in December. Economists predicted an increase to 64, according to the median of 40 estimates in a Bloomberg News survey.

• Russia Mounts Security Sweeps to Choke Insurgency Near Sochi. Russia sent troops across Dagestan today as the government pressed an offensive against insurgents and new threats emerged weeks before the Winter Olympics kick off in the Black Sea resort of Sochi. Two counter-terrorism operations were under way in Dagestan, a Muslim-majority region on the Caspian, east of Sochi, said Alexander Polyakov, a spokesman for the National Anti-Terrorist Committee. Security forces also embarked on a third mission, surrounding a group of suspected militants in a house, Interfax reported, citing an unidentified local official.

• Alstom Cuts Margin and Cash Flow Outlook as Demand Falls. Alstom SA (ALO), the French maker of trains and power equipment, cut its forecast for operating margins for the second time in nine months because of weaker-than-expected sales of thermal-power equipment. The operating margin will remain at about 7 percent this fiscal year ending March, and “may slightly decline next year,” the company based near Paris said in a statement today. Alstom previously forecast this year’s margin to be little changed from fiscal 2013’s 7.2 percent, before gradually rising over the next two to three years to about 8 percent of sales. Alstom shares fell as much as 14 percent. “Confidence is broken,” said Gael de Bray, an analyst at Societe Generale. (GLE) He cut his target price for Alstom shares to 26 euros from 32 euros. “The expected deleveraging process was the main support to the shares but is further postponed.” 

• EU Must Contain Energy Costs or Risk ‘Deindustrialization’: EU. Europe must get a grip on energy prices to protect growth and stop its industry from fleeing abroad, according to two top policy makers. The region needs to reduce the cost gap with the U.S., where a shale-gas revolution has slashed prices, European Union Energy Commissioner Guenther Oettinger told a conference in Berlin via a video link from Brussels.

• SAP Falls on Delayed Profitability Target From Cloud Push. SAP AG (SAP) pushed back its profitability target by two years as it shifts sales efforts from traditional business software licenses to programs delivered over the Internet. The shares fell the most in six months.

• European Shares Are Little Changed as Unilever Advances. European stocks were little changed, erasing earlier gains, as a rally in food and beverage makers offset a decline in mining stocks. Unilever gained 2.3 percent after the maker of Magnum ice cream and TRESemme shampoo reported fourth-quarter sales growth that exceeded estimates. Rio Tinto Group and BHP Billiton Ltd., the world’s biggest miners, each declined at least 1.7 percent. Alstom SA (ALO) tumbled 14 percent after the French maker of trains and power equipment reduced its operating-margin outlook. The Stoxx Europe 600 Index climbed less than 0.1 percent to 335.76 at the close of trading, paring an earlier rally of as much as 0.6 percent.

• Rebar in Shanghai Drops as Iron Ore, Coke Prices Slump. Steel reinforcement-bar futures in Shanghai fell to a 16-month low as prices of steel-making materials slumped. Rebar for May delivery on the Shanghai Futures Exchange retreated by 1.2 percent to 3,410 yuan ($564) a metric ton. That’s the lowest closing price for a most-active contract since Sept. 7, 2012.

• Brent Crude Rises First Time in Four Days on IEA Forecast. Brent for March settlement climbed 66 cents, or 0.6 percent, to $107.01 a barrel on the London-based ICE Futures Europe exchange at 12:22 p.m. The volume of all contracts traded was 17 percent more than the 100-day average.

• Syria Uses War Crimes to Crush Rebels, Human Rights Watch Says. The Syrian regime has been using a “strategy of war crimes” that’s killing 5,000 people a month to crush the armed opposition and peace negotiators must focus more attention on the deaths, Human Rights Watch said. Roth also upbraided U.S. Secretary of State John Kerry for not wanting to “rock the boat” in his effort to bring both sides to the negotiating table in Switzerland tomorrow. “You don’t even see the U.S. government speaking about the mass atrocities.”

• Global Hedge Funds Assets Climb 17% to a Record $2.63 Trillion. Global assets rose by $376 billion, including $63.7 billion in net inflows from investors and $312 billion in investment gains, the Chicago-based data provider said in a report today. The fourth quarter was the sixth in a row that the industry saw a growth in assets, it said.

• Is S&P Being Sued Because It Downgraded the U.S.?

Barron's:

• Goldman Sachs(GS) Predicts Lower Metal Prices, Cliffs Natural Resources(CLF), Rio Tinto(RIO) Fall.

MarketWatch:

• The market is at a major inflection point.

CNBC: 

• Winter storm set to 'go bananas' across Northeast.

• China's unwelcome export to the US: Air pollution.

ZeroHedge: 

• A Comedy Of IMF Forecasting Errors: Global Trade Growth Tumbles More Than 50% From IMF's 2012 Prediction. (graph)

• Turkish Lira Crumbles To New Record Low As Erdogan Blames Fed Not Politics. (graph)

• Goldman Defends Its "Stocks Are Overvalued" Call From Angry Clients. (graph)

• The First Domino to Fall: Retail-CRE (Commercial Real Estate). (graph)

• Iran Naval Flotilla Makes History, Will Enter Atlantic For First Time.

Business Insider:

• RICHARD RUSSELL: I Believe 2014 Will Be The Year When 'The Excrement Hits The Fan'.

• 3 Big Dow Stocks Are Tumbling After Announcing Earnings.

• Jon Stewart Skewers Obama's Sneaky NSA Speech.

NY Times:

• Deutsche Bank(DB) Loss Underlines European Economy’s Dependence on Banks.

Real Clear Politics:

• Millennials Unhappy With Obama's War on the Young.

Reuters:

• Illinois budget gap to grow despite pension reform -study. A reform package passed late last year will make improvements to Illinois' woefully underfunded public pension system, but the state's budget gap still will increase to $13 billion by 2025 if current policies remain in place, according to an independent analysis released on Tuesday.

• Gold falls about 1 pct on Fed tapering speculation. 

• EMERGING MARKETS-Brazil stocks erase early gains as CSN weighs.

• Loeb's Third Point takes Dow Chemical(DOW) stake, urges spinoff.

• IMF sees up to 20 pct chance of prices falling in Europe.

Financial Times:

• IMF warns on emerging market exposure to capital flight. Weaker emerging economies are exposed to sudden capital flight as the global economy is on course to strengthen as expected this year, the International Monetary Fund said on Tuesday.

Telegraph:

• Euro 'increasing unemployment and social hardship', says EC. Deepening economic divisions between North and South, rich and poor eurozone countries threaten to undermine the European Union itself, report states.