Stocks Reversing Lower into Final Hour on Emerging Markets Debt Angst, Russia/Ukraine Tensions, Yen Strength, Financial/Tech Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Above Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 14.57 +2.61%

• Euro/Yen Carry Return Index 148.91 -.37%

• Emerging Markets Currency Volatility(VXY) 8.85 +.80%

• S&P 500 Implied Correlation 55.13 +1.58%

• ISE Sentiment Index 81.0 -25.69%

• Total Put/Call .84 +1.20%

• NYSE Arms 1.20 -8.15% 

Credit Investor Angst:

• North American Investment Grade CDS Index 64.07 +1.04%

• European Financial Sector CDS Index 86.92 -.40%

• Western Europe Sovereign Debt CDS Index 47.75 -1.11%
• Asia Pacific Sovereign Debt CDS Index 97.37 -1.34%

• Emerging Market CDS Index 318.43 +2.06%

• China Blended Corporate Spread Index 363.62 +2.43%
• 2-Year Swap Spread 13.75 unch.

• TED Spread 19.25 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -4.0 -.25 basis point

Economic Gauges:

• 3-Month T-Bill Yield .04% unch.

• Yield Curve 239.0 -2.0 basis points

• China Import Iron Ore Spot $104.90/Metric Tonne +.19%

• Citi US Economic Surprise Index -33.60 -2.0 points

• Citi Emerging Markets Economic Surprise Index 3.0 +2.1 points

• 10-Year TIPS Spread 2.21 -1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating -214 open in Japan

• DAX Futures: Indicating -23 open in Germany

Portfolio: 

• Slightly Higher: On gains in index hedges and emerging markets shorts

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 25% Net Long

Today's Headlines

Bloomberg:  

• Russia Gets Crimea Deadline as Yanukovych Warns of Civil War. Germany told Russia it must switch course in Crimea by next week or risk more sanctions as Ukraine’s deposed president warned of a possible civil war. The European Union will discuss harsher penalties on March 17 barring “obvious changes in Russia’s actions,” German Foreign Minister Frank-Walter Steinmeier said today in Estonia. A planned March 16 referendum in Crimea on whether to join Russia should be halted, he said. Toppled President Viktor Yanukovych told reporters in Russia that lawlessness is spreading in Ukraine, fomented by the “fascists and ultranationalists” who are in charge in Kiev. “We don’t want a confrontation, but the actions of the Russian side make the preparations necessary,” Steinmeier said in Tallinn. “We continue to urge Russia to use the last possibilities that are still there for a diplomatic solution against such an escalation. Otherwise, relations between Europe and Russia won’t improve.”

• Russia Scraps Fifth Bond Auction as Crimea Crisis Deepens Slump. Russian bonds declined, pushing yields to the highest in 21 months, and stocks dropped as the government canceled its fifth local-currency debt auction this year amid escalating tension in Crimea. The Micex Index (INDEXCF) dropped 2.3 percent to 1,308.70 by closing in Moscow, the lowest in a week. Ruble government bonds due February 2027 fell for a third day, lifting the yield 10 basis points to 8.96 percent, the highest since June 2012.

• China Ties Backfire on Australia in Job Slump: Chart of the Day. A plunge in exports from Chinese factories is reverberating 3,500 miles south in Australia, as joblessness rises and iron ore prices slump the most since 1999. Australia's increased reliance on shipments to China hasn't stemmed unemployment, which rose to a decade high of 6% in January.  

• Chaori Bondholders Weigh Suit After China’s First Default. Holders of bonds sold by Shanghai Chaori Solar Energy Science & Technology Co. will consider a lawsuit to force payment after the company became the first to default on onshore corporate debt in China. 

• Rio Tinto Sees Iron Ore Volatility on China Credit Squeeze. Rio Tinto Group (RIO), the world’s second-biggest iron ore shipper, said short-term price fluctuations will continue after a credit squeeze in China and high stockpiles plunged the commodity into a bear market. Closely held steel mills in China are “struggling to get funding at the moment,” said Joel Crane, a Melbourne-based commodity analyst with Morgan Stanley Australia Ltd. “So they’ll be refusing both contracted and spot iron ore, and that’s led to the panic selling.”

• Iron’s Bear Market Drives Up Aussie Bond Risk: Australia Credit. Australia’s sovereign bond risk rose toward the highest in six months relative to the U.S. as the price of iron ore, the nation’s biggest export earner, dropped to a 1 1/2-year low. The cost of credit-default swaps on Australian government widened to 21.8 basis points more than that for U.S. Treasuries this week, near the 22.1-basis-point gap on Feb. 21 that was the most since September, data compiled by Bloomberg show. Benchmark iron ore prices lost 27 percent from a five-month high on Aug. 14 as demand slows in the world’s second-largest economy just as output rises. 

• European Stocks Are Little Changed; African Barrick Falls. European stocks were little changed, after swinging between gains and losses, as investors weighed economic data and the growing conflict in Ukraine for their impact on company earnings. African Barrick Gold Plc plunged the most in 14 months after its majority shareholder sold a 10 percent stake. Galenica AG (GALN) tumbled the most since July 2012 as its forecast fell short of some analysts’ estimates. Hannover Re fell 1.3 percent after reporting a 35 percent drop in quarterly operating profit. Geberit AG rallied to a record after naming a new chief executive officer and saying profitability increased. The Stoxx Europe 600 Index added less than 0.1 percent to 331.49 at the close in London.

• WTI Oil Falls Below $100 for First Time in Three Weeks. WTI for April delivery dropped $1, or 1 percent, to $100.12 a barrel at 2:06 p.m. on the New York Mercantile Exchange. Earlier, it touched $99.96, the lowest level since Feb. 14. Futures are up 1.7 percent this year. The volume of all futures traded was 24 percent above the 100-day average.

• UniCredit Posts Record Loss, Plans 8,500 Job Cuts. UniCredit SpA (UCG), Italy’s biggest bank, posted a record 15 billion-euro ($20.8 billion) fourth-quarter loss as it set aside money for bad loans and wrote down goodwill from acquisitions. It plans to cut 8,500 jobs. Provisions for doubtful loans soared to 9.3 billion euros in the quarter, more than double the year-ago level, while impairments, including those on the goodwill of units in Italy, central and eastern Europe and Austria, amounted to more than 9 billion euros, the Milan-based lender said today.

Wall Street Journal:  

• Probe Is Profiling Passengers, Exploring Many Possibilities. Search Widens Over Waters, Expands to Land in Southern Vietnam. Malaysian police said they were investigating whether a hijacking or sabotage caused an airliner to vanish midair, and were compiling psychological and personal profiles of passengers and crew.

• Sen. Feinstein Says CIA Spied on Congress. Intelligence Committee Says Agency's Actions May Have Violated Separation of Powers.

• China Expands Into a World of Peril. Beijing Faces Mounting Vulnerabilities on the Global Stage. The impression that China often projects to the world is one of supreme confidence, a country convinced that its moment has arrived. That's been particularly true since the 2008 global financial crisis when the idea took root in China that America was on the wane—its time had come and gone. This bred a new assertiveness that gave rise to anxious questions in the region about how China intends to exercise its growing power.

MarketWatch: 

• 10 foods eating into your budget.

CNBC:

• SAC Capital to be renamed Point72 Asset Management.

• Big hedge fund money warns about tech bubble. Prominent money managers are warning of a bubble in some technology stocks and recommending investors avoid emerging markets in favor of Europe. "The high probability is when you look back on this period five years from now, you'll say some of these companies grew into their (earnings) multiples … but I think biotech and other areas in tech have seen multiple expansions beyond what we can justify beyond any kind of reasonable cash flow expectations," Doug Silverman, co-founder of $6.7 billion hedge fund firm Senator Investment Group, said Monday at the Portfolios with Purpose Awards Night in New York. "You can only call it a bubble. But I have not guessed when it will end," Silverman added. Rich Pzena of $23.7 billion Pzena Investments agreed. "Yeah, I think we are in a bubble. I don't know if I would say it's broadly in tech stocks. I think it's in certain stocks. But the hype feels like we're in another Internet-type bubble like 1999," Pzena said.

• Why traders want to be long gold into the weekend.

ZeroHedge: 

• "Magic" Collateral: A Frank Look At The Sheer Credit Horror About To Be Unleashed In China.

• Russia Warns US Against "Illegal" Ukraine Bailout; Ukraine Commences Live-Fire "Drill" With Tanks.

• Yen Breaks 103, Sends Stocks Reeling.

• The Hiringless Non-Recovery In Full Farce. (graph)

• Chinese Credit Concerns Clobber Copper; Collapse Continues To Lowest Since July 2010. (graph)

• The Devil Lurking In The Retail Store Closure Details. (graph)

• Wholesale Sales Collapse Most In 5 Years As Autos Lead Inventory Surge. (graph)

• 10 Warnings Signs Of Stock Market Exuberance.

Business Insider: 

• Supporters Of Abenomics Are Clinging To A Giant Myth About Japan.

• The Literal 'Death Cross' That Could Permanently Harm The Japanese Economy. (graph)

Reuters:

• ECB to take tough stance in health check on banks. The European Central Bank (ECB) will press euro zone banks to revalue their assets and take a more realistic view on likely losses when it probes their balance sheets in the coming months, signalling a new, more aggressive era of banking supervision. 

• Ship glut burdens LNG tanker market, slashes profits. Deliveries of new gas tankers have created a glut that is threatening to tip some operators into losses, just as other shipping markets emerge from their worst downturn in decades. 

• Wal-Mart(WMT) says sales 'very good' since weather improved.

Bear Radar

Style Underperformer:

• Small-Cap Value -.80%

Sector Underperformers:

• 1) Alt Energy -1.50% 2) Networking -1.06% 3) Banks -.93%

Stocks Falling on Unusual Volume:

• PLUG, OXLC, ACMP, TESO, EJ, HYGS, URBN, FGP, JAH, AEO, RKUS, UIS, IMOS, PRO, NES, LINE, IPWR, BPI, VIPS, AGIO, AMBC, UTHR, EBS, HA, APAM, CQB, HA, NXTM, OHRP, POST, MYGN and BPI

Stocks With Unusual Put Option Activity:

• 1) AEO 2) OIH 3) PLUG 4) XLI 5) DHI
  

Stocks With Most Negative News Mentions:

• 1) GM 2) FCEL 3) URBN 4) STT 5) FXI
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Mid-Cap Growth +.23%

Sector Outperformers:

• 1) Restaurants +1.69% 2) Gaming +1.09% 3) Oil Tankers +.88%
  

Stocks Rising on Unusual Volume:

• SNMX, NWBO, POWR, BYD, VLCCF, PLUG, PNK, ZU, UBNT, FIO and MTW

Stocks With Unusual Call Option Activity:

• 1) PCAR 2) CI 3) FCEL 4) NWBO 5) RGSE

Stocks With Most Positive News Mentions:

• 1) JCP 2) DKS 3) MCD 4) AAPL 5) M
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Tuesday Watch

Evening Headlines 
Bloomberg: 

• Russia Stands Fast on Crimea as Ukraine Drills Military. Russia showed no signs of yielding in the Crimea standoff as Ukraine’s prime minister prepared to meet U.S. President Barack Obama and western nations threatened further repercussions if Russia failed to defuse tensions. Ukraine is testing its military’s combat readiness, the Defense Ministry said, while reiterating the government’s desire for a peaceful solution. Russia, which has vowed to defend the ethnic Russians who dominate the Crimean peninsula, accuses Ukraine of ignoring radicals in the nation’s east and said it rejects the legitimacy of the western-backed leadership in Kiev. 

• 2014 Will Be a Year of Defaults for China: Miller. (video) China Beige Book International President Leland Miller discusses China’s economy, their recent bond default and why it’s making investors nervous.

• SoftBank’s Son Vows ‘Massive Price War’ If T-Mobile Deal Allowed. SoftBank Corp. President Masayoshi Son will start a “massive price war” if U.S. regulators allow him to purchase T-Mobile US Inc., he said in an interview with PBS’s Charlie Rose. The billionaire, who bought control of Sprint Corp. last year, said combining the third- and fourth-largest U.S. mobile-phone carriers would give him enough scale to compete against the largest operators, AT&T Inc. and Verizon Communications Inc.

• Asia Stocks Climb as Investors Weigh China Credit, BOJ. Asian stocks rose, after the regional benchmark index yesterday dropped the most in two weeks, as investors weighed data showing China’s credit growth trailed estimates in February and awaited the conclusion of the Bank of Japan’s policy meeting. Taiheiyo Cement Corp., Japan’s biggest maker of the product, jumped 4.4 percent on a report the company’s U.S. unit will post its first profit in six years. Yamada Denki Co. added 1.8 percent after JPMorgan Chase & Co. raised its rating on the electronics retailer. Fortescue Metals Group Ltd., Australia’s third-largest producer of iron ore, lost 0.7 percent, extending a two-day slump to 10 percent, after the raw material used to make steel plunged by most since August 2009. The MSCI Asia Pacific Index gained 0.2 percent to 137.95 as of 10:03 a.m. in Tokyo.

• Copper Has Biggest Two-Day Drop in 28 Months on Economic Concern. Copper futures posted the biggest two-session drop in 28 months on signs of faltering economic growth from France to China, the world’s biggest consumer of industrial metals. On the Comex in New York, copper dropped below $3 a pound for the first time since June. French industrial production production unexpectedly dropped in January for the second straight month, and business confidence declined, separate reports showed today. In China, exports slid in February by the most since 2009, government data showed on March 8. 

• Iron Ore Plunges Most Since August 2009 on China Concern. Iron ore extended its decline into a bear market, slumping by the most since August 2009, amid concern that demand in China is slowing just as rising output signals a global glut. Ore with 62 percent content delivered to Tianjin fell 8.3 percent to $104.70 a dry ton, the lowest since October 2012 and the biggest drop in more than four years, according to data from The Steel Index Ltd. yesterday. The benchmark price lost 27 percent since Aug. 14, when it reached a five-month high of $142.80. The raw material dropped into a bear market on March 7.

• Investing for the Next Shock by A. Gary Shilling.

Wall Street Journal: 

• Stolen Passports Used on Malaysia Airlines Flight Show Gaps in Air Security Around Globe. Investigation Shines Light on Thriving Market for Illicit Documents and Disparity in Aviation Security Around World. The investigation into passengers aboard a missing Malaysia Airlines 3786.KU 0.00% flight who were traveling with stolen passports has drawn attention to a thriving market for illicit documents and the disparity in aviation security across the globe.

• GM(GM) Taps Former Lehman Investigator to Lead Recall Probe. Anton "Tony" Valukas to Work With GM General Counsel Michael Millikin in Review.

• Drones Find Fans Among Farmers, Filmmakers. FAA Still Debating Rules but Drones are Spraying 40% of Japan's Rice Fields.

Fox News:

• Russians enter town north of Crimea, say Ukrainians. Ukrainians in the Kherson province just north of Crimea say Russian operatives have moved into the territory, an incursion which, if true, could show Vladimir Putin has more than just the Black Sea peninsula in his sights. Residents of the village of Chonhar, in the Kherson region of Ukraine, say Russian troops showed up last week in armored personnel carriers, prompting the dispatch of Ukrainian troops and a standoff.  The suspected Russian troops pulled back and established a checkpoint on a major road leading north from the Crimean capital of Simferopol.

MarketWatch.com:

• Why China’s economy is in trouble in one chart.

CNBC:

• Corporate debt fever rises to new record in 2014. Corporate America's love affair with debt has intensified in 2014, with record levels of borrowing happening as feared rate increases have yet to materialize. This year was supposed to be the one where the rock-bottom rates began to lift as the Federal Reserve eased its foot off the stimulus pedal and economic growth pushed borrowing costs higher.

Zero Hedge:

• The Holy Grail Of Trading Has Been Found: HFT Firm Reveals 1 Losing Trading Day In 1238 Days Of Trading.

• A Tale Of Two Bubbles. (graph)

• Hussman Warns S&P 500 Over-Valuation Now Higher Than Housing In 2006. (graph)

• 20 Stunning Facts On The US Retail Apocalypse.

• America's Most Overvalued Companies Are... 

• Bank Of Japan Disappoints.

Business Insider:

• PRESENTING: The Big Battle That's Brewing Inside The Fed.

• US Profit Growth Is Much Weaker Than Reported. (graph)

• Why Terrorists Usually Don't Claim Responsibility For Their Attacks.

Reuters: 

• Urban Outfitters(URBN) warns on current-quarter results after sales miss. Teen apparel retailer Urban Outfitters Inc reported lower-than-expected quarterly sales, citing severe winter weather in the United States, and said it was "very cautious" on its current-quarter performance. Shares of the company, known for its Anthropologie, Free People and Urban Outfitters brands, fell 3 percent in extended trading.

• French business under no illusions about challenges in home market.

Telegraph:

• Markets hold breath as China's shadow banking grinds to a halt. Fresh loans in China’s shadow banking system evaporated to almost nothing from $160bn in January.

NHK:

• 55% of Japanese to Cut Spending After Sales Tax Hike. 72% of interviewees say they are worried about the economy after the increase.

China Youth Daily:

• People's Bank of China Governor Zhou Xiaochuan said yesterday that restrictions against printing money are lacking, citing Zhou as saying in a speech at a CPPCC meeting. Printing too much money will cause asset bubbles or inflation, Zhou said.

Shanghai Securities News:

• Australia May Start Probe on Chinese Solar Imports. Australia may start an anti-dumping and anti-subsidy investigation on Chinese solar product imports, citing a person from China Chamber of Commerce for Import and Export of Machinery and Electronic Products.

Evening Recommendations
 Piper Jaffray:

• Rated (BLOX) Overweight, target $30.

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 128.0 +1.0 basis point.

• Asia Pacific Sovereign CDS Index 94.0 - basis points.

• FTSE-100 futures +.33%.

• S&P 500 futures -.06%.

• NASDAQ 100 futures  -.01%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (JW/A)/.84

• (AEO)/.26

• (DKS)/1.11

• (PAY)/.27

Economic Releases
7:30 am EST

• The NFIB Small Business Optimism Index for February is estimated to fall to 93.8 versus 94.1 in January.

10:00 am EST

• JOLTs Job Openings for January are estimated to rise to 4015 versus 3990 in December.

• Wholesale Inventories for January are estimated to rise +.4% versus a +.3% gain in December.

• Wholesale Sales for January are estimated to rise +.2% versus a +.5% gain in December.

Upcoming Splits

• None of note

Other Potential Market Movers

• The German trade figues, $30B 3Y T-Note auction, weekly retail sales reports, BofA Consumer/Retail Conference, Barclays Healthcare Conference, Piper Jaffray Tech/Media/Telecom Conference, Pershing Square (HLF) conference call, (CVX) analyst meeting, (MMC) investor day and the (DLPH) investor update could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by consumer and industrial 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 Lower into Final Hour on Rising Global Growth Fears, Ukraine/Russia Tensions, Emerging Markets Debt Angst, Homebuilding/Gaming Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Slightly Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 14.58 +3.33%

• Euro/Yen Carry Return Index 149.32 -.11%

• Emerging Markets Currency Volatility(VXY) 8.77 +1.15%

• S&P 500 Implied Correlation 54.67 +.98%

• ISE Sentiment Index 89.0 -26.45%

• Total Put/Call .88 +7.32%

• NYSE Arms 1.42 +54.87% 

Credit Investor Angst:

• North American Investment Grade CDS Index 63.38 -.12%

• European Financial Sector CDS Index 87.27 +1.63%

• Western Europe Sovereign Debt CDS Index 48.28 -.82%
• Asia Pacific Sovereign Debt CDS Index 98.69 +2.74%

• Emerging Market CDS Index 312.45 +.68%

• China Blended Corporate Spread Index 354.99 -.13%
• 2-Year Swap Spread 13.75 unch.

• TED Spread 19.25 +.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -3.75 -2.0 basis points

Economic Gauges:

• 3-Month T-Bill Yield .04% -1.0 basis point

• Yield Curve 241.0 unch.

• China Import Iron Ore Spot $104.70/Metric Tonne -8.32%

• Citi US Economic Surprise Index -31.60 -.4 point

• Citi Emerging Markets Economic Surprise Index .9 -13.4 points

• 10-Year TIPS Spread 2.22 -1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating +49 open in Japan

• DAX Futures: Indicating +9 open in Germany

Portfolio: 

• Higher: On gains in my biotech sector longs, index hedges and emerging markets shorts

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

• Market Exposure: Moved to 50% Net Long