Stocks Rising into Final Hour on Diminishing Global Growth Fears, Short-Covering, Financial/Tech Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: About Even
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 14.81 -2.05%

• Euro/Yen Carry Return Index 147.24 -.30%

• Emerging Markets Currency Volatility(VXY) 9.16 +.77%

• S&P 500 Implied Correlation 53.47 -.61%

• ISE Sentiment Index 180.0 +9.76%

• Total Put/Call .79 -1.25%

• NYSE Arms .51 -44.44% 

Credit Investor Angst:

• North American Investment Grade CDS Index 72.10 +11.80% (new series)

• European Financial Sector CDS Index 99.49 +13.85%

• Western Europe Sovereign Debt CDS Index 47.34 -1.14%
• Asia Pacific Sovereign Debt CDS Index 97.07 -.93%

• Emerging Market CDS Index 322.52 -.04%

• China Blended Corporate Spread Index 384.90 -1.17%
• 2-Year Swap Spread 12.75 +1.0 basis point

• TED Spread 18.25 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -3.5 unch.

Economic Gauges:

• 3-Month T-Bill Yield .05% unch.

• Yield Curve 235.0 +1.0 basis point

• China Import Iron Ore Spot $110.70/Metric Tonne +.18%

• Citi US Economic Surprise Index -32.60 +2.2 points

• Citi Emerging Markets Economic Surprise Index -4.30 +1.8 points

• 10-Year TIPS Spread 2.14 -4.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating +86 open in Japan

• DAX Futures: Indicating -11 open in Germany

Portfolio: 

• Slightly Lower: On losses in my biotech/medical sector longs and index hedges

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

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg: 

• Ukraine Military Concedes on Crimea as Russia Takes Hold. Ukraine said it plans to reinforce its eastern border with Russia and withdraw troops from Crimea, ceding control of the Black Sea peninsula as tensions remained high over Russian moves to annex the breakaway region. Demilitarizing Crimea “is the best way to de-escalate the situation,” Andriy Parubiy, head of Ukraine’s National Security Council, told reporters in Kiev yesterday. He declined to say when forces would leave, and his announcement came as pro-Russian civilians overran bases in the region and temporarily detained Ukrainian personnel, including its navy chief. 

• Companies in Russia Urged to Dust Off Evacuation Plans. U.S. companies with operations in Russia should prepare for growing tensions by reviewing evacuation plans, tightening cybersecurity and being alert for a spike in anti-American sentiment, according to corporate-security analysts. Non-essential travel to the country should also be delayed, said Brian Michael Jenkins, senior adviser to the president of the RAND Corp., which is based in Santa Monica, California, and provides research to governments and companies.

• China’s CSI 300 Falls to Five-Year Low on Yuan, Growth Concerns. China’s CSI 300 Index (SHSZ300) fell to the lowest level in five years, while Chinese stocks in Hong Kong entered a bear market after the yuan weakened and Goldman Sachs Group Inc. reduced the nation’s economic growth forecast. BYD Co. (002594), the automaker backed by Warren Buffett’s Berkshire Hathaway Inc., plunged more than 7 percent in Shenzhen and Hong Kong after the company’s first-quarter profit forecast trailed estimates. Aluminum Corp. of China Ltd. and Yanzhou Coal Mining Co. slid at least 2.4 percent to lead declines for material and energy producers. Yonyou Software Ltd. slumped 8.9 percent, halting a three-day, 17 percent rally. The CSI 300 fell 1.6 percent to 2,086.97 at the close, the lowest since Feb. 2, 2009. The Hang Seng China Enterprises Index (HSCEI) dropped 1.7 percent to 9,203.07, extending a slide to 21 percent since Dec. 2. The Shanghai Composite Index (SHCOMP) lost 1.4 percent to 1,993.48. Goldman Sachs cut its growth forecast for China’s gross domestic product to 7.3 percent from 7.6 percent. The yuan sank toone-year lows in onshore and offshore trading.

• France Housing Seen Threatened Amid Pressure on Rates: Mortgages. Just when French homebuilders said nothing could make a 15-year low in business worse, a new banking rule is threatening to do exactly that. The moribund economy, with unemployment at a 16-year high, leaves developers with no other means than some of the lowest interest rates on record to spur demand. Now the Bank of France may push mortgage rates higher.

• Corporate Default Swap Benchmarks Roll Into New Series in Europe. The latest series of indexes measuring the cost of insuring corporate debt against default started trading today. Gauges of credit-default swaps on companies rolled into their 21st series. New benchmarks are created every six months when companies are added or dropped depending on their ratings, cost of protection and ease of trading.

• European Bonds Decline With Global Peers on Yellen Rates Signal. European government bonds slumped with counterparts from the U.K. to Australia after Federal Reserve Chair Janet Yellen signaled that U.S. interest rates may rise by the middle of next year. German bunds dropped for a fifth day after Yellen indicated yesterday the central bank’s bond-buying program will wind down by year-end as forecast while a rate increase may follow in about six months. Spain’s securities fell along with their Italian peers even as borrowing costs at a sale of five-year Spanish debt declined to a record. France’s 10-year yields climbed to the highest level in a week as the country auctioned 8 billion euros ($11 billion) of notes.

• Most European Stocks Drop on Yellen’s Rate Remarks. Most European stocks declined as investors weighed Federal Reserve Chair Janet Yellen’s remark that benchmark interest rates could rise about six months after the central bank ends bond purchases. GlaxoSmithKline Plc lost 1.6 percent after saying its experimental lung-cancer drug failed to meet its objectives in a clinical study. Rheinmetall AG fell the most in four months after a report that Germany stopped the defense company from executing a deal in Russia because of the Ukraine crisis. Munich Re rose 1.4 percent after announcing a share buyback. The Stoxx Europe 600 Index added less than 0.1 percent to 327.67 at the close of trading, as two shares fell for every one that rose.

• Copper Falls Most in Week as Fed Signals Higher Interest Rates. “The market is beginning to question whether the Fed will be more likely to raise interest rates earlier than what they say,” Tim Evans, the chief market strategist at Long Leaf Trading Group in Chicago, said in a telephone interview. “That’s not going to have a positive impact on base metals at all.” Copper futures for delivery in May dropped 2 percent to $2.9285 a pound at 1:29 p.m. on the Comex in New York, the biggest loss since March 11. Prices reached $2.877 yesterday, the lowest since July 2010.

• Fewest Americans in Four Months See US Economy Improving. The percentage of negative responses about the future exceeded positive views by 12 points this month, the most since November, data from the Bloomberg Consumer Comfort Index showed. The weekly measure declined to minus 29 from minus 27.6 the prior period, the first drop in six weeks. “The latest results may mark the impact of challenges, including higher home-heating prices during the long winter, a sharp increase in food prices tied to California’s drought and the rising price of gasoline,” Gary Langer, president of Langer Research Associates LLC in New York, which produces the data for Bloomberg, said in a statement.

• Why Do High Frequency Traders Never Lose Money?

Wall Street Journal:

• Crisis in Ukraine. Streaming Coverage:

• Planes Scour Ocean After Possible Debris From Flight 370 Spotted. Two Objects Found on Satellite Imagery in Remote Area Could Be From Missing Malaysia Plane. 

• A Special Prosecutor for the IRS. Despite her denials, it's now plain that Lois Lerner was deeply involved in targeting conservative nonprofit groups. 

CNBC:

• S&P downgrades Russian outlook to 'negative'. Standard &Poor's on Thursday revised the outlook for the Russian Federation to negative from stable on rising geopolitical and economic risks. The rating agency affirmed Russia's BBB foreign currency rating. "The outlook revision reflects our view of the material and unanticipated economic and financial consequences that EU and U.S. sanctions could have on Russia's creditworthiness following Russia's incorporation of Crimea, which the international community currently considers legally to be a part of Ukraine," S&P said in a statement.

• New round of bank stress tests: What to watch for.

ZeroHedge:

• Ordinary Russians Also "Retaliate" To Obama's Sanctions.

• US/Europe Stocks Melt-Up Into EU Close. (graph)

• Here Come The Official Russian Counter Sanctions: Boehner, Reid, McCain Barred From Entering Russia.

• Stick A Fork In The "Housing Recovery" (Spoiler Alert: Blame Record Student Debt). (graph)

• Existing Home Sales Lowest In 19 Months, Cheapest Home Sales Tumble 18%; Weather, Student Loans Blamed. (graph)

• Philly Fed Jumps Most In 9 Months As Employment Plunges To 9-Month Lows. (graph)

• Caterpillar(CAT) Global Retail Sales Continue Sliding, Drop For 15th Month In A Row; LatAm Tumbles. (graph)

Business Insider:

• Russia To NATO: Drop Dead.

• China's Economic Predicament: Why Pain Is Coming No Matter What.

• Israel's Defense Chief Said The US Is 'Showing Weakness' On Ukraine, And The White House Is Livid.

• Here's A List Of Stocks With A Lot Of Exposure To Russia And Ukraine.

NY Times:

• Dudley Expresses Concern on Leverage Rule. An influential New York bank regulator has privately raised concerns in recent weeks about a proposed rule that seeks to make the nation’s largest banks safer, frustrating other regulators who see it as a centerpiece of a financial system overhaul and want it to take effect swiftly. William C. Dudley, president of the Federal Reserve Bank of New York, expressed his concerns to senior Fed officials in Washington, according to three people who knew about his efforts. The rule, proposed last July and known as the supplementary leverage ratio, would put a stricter cap on the amount of borrowing that the biggest banks can do. Mr. Dudley raised the possibility that the rule could inhibit the Fed’s ability to conduct monetary policy, these people said. They spoke on the condition of anonymity because they were not authorized to speak publicly about the regulation.

Seeking Alpha:

• Here's How Housing Bubble 2.0 Becomes Housing Crash 2.0.

Reuters:

• Investment banks should cut balance sheets by $1 trillion - report. Investment banks must take tough decisions to quit ailing business areas and should reduce their balance sheets by $1 trillion (£606 billion) - trillion (£606 billion) - or almost a tenth - to lift profitability, an industry report said. European banks face a particularly challenging outlook and are likely to continue losing market share to big U.S. rivals, according to the 2014 Wholesale & Investment banking Outlook by Morgan Stanley and Oliver Wyman, released on Thursday.

• Brazil small and mid-size business confidence drops -study.

EconMatters:

• U.S. Debt Crisis Is Coming With or Without China.

Telegraph:

• Emerging markets face ordeal by fire as Fed’s Janet Yellen turns tough.

Bear Radar

Style Underperformer:

• Small-Cap Growth -.03%

Sector Underperformers:

• 1) Homebuilders -1.72% 2) Biotech -.70% 3) Gaming -.63%

Stocks Falling on Unusual Volume:

• GES, CATO, LJPC, FEYE, BDC, BP, XONE, OXY, BYI, BOFI, RYAAY, SNCR, NFG, DRTX, BNFT, CHL, CMGE, LEN, SNP, JBHT, FUN, VIPS, CRTO, SCHL and ENLK

Stocks With Unusual Put Option Activity:

• 1) GNK 2) EWJ 3) OXY 4) LEN 5) OIH
  

Stocks With Most Negative News Mentions:

• 1) GM 2) WLT 3) GPS 4) FDX 5) XONE
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Value +.13%

Sector Outperformers:

• 1) Banks +1.41% 2) HMOs +1.19% 3) Networking +1.06%
  

Stocks Rising on Unusual Volume:

• VOYA, BURL and HZNP

Stocks With Unusual Call Option Activity:

• 1) SO 2) JNJ 3) XLU 4) WLT 5) TAL

Stocks With Most Positive News Mentions:

• 1) LEN 2) AVT 3) GOOG 4) CMG 5) TWX
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Thursday Watch

Evening Headlines 
Bloomberg:

• Russia’s Trade, Energy Might Frustrates EU Move for Sanctions. European Union leaders are set to spar over punishing Russia for seizing Crimea after preparatory meetings between EU government officials failed to reach a consensus. Beset by east-west divisions and concerns that trade curbs would do self-inflicted damage to Europe’s economy, the EU’s 28 member states remain divided over whether and how to press further sanctions against Russia for its move to annex Ukrainian territory. As leaders including President Francois Hollande of France and Germany’s Chancellor Angela Merkel prepare to gather for a two-day summit in Brussels today, it is unclear whether they will be able to agree on a road map for economic sanctions, six EU officials told reporters yesterday. One less controversial option would be to expand an existing blacklist of 21 Russian and Crimean officials, they said.

• China Developers Get Share-Sale Approval in Government Shift. Chinese developers Tianjin Tianbao Infrastructure Co. and Join.In Holding Co., received regulatory approval for new-stock sales, the first the government has allowed by real estate companies in about four years. The China Securities Regulatory Commission said yesterday the companies are allowed to sell yuan-denominated A shares in private placements, according to separate statements to Shanghai and Shenzhen stock exchanges. China hasn’t allowed developers to raise money by selling shares since 2010, when it stepped up efforts to cool the real estate market amid rising home prices, according to Zheshang Securities Co. and Haitong Securities Co. Yesterday’s approval comes after a developer collapsed under its debt, prompting declines in property companies’ shares and bonds. 

• Australia May Have Found Objects Linked to Missing MH370 Flight. Australian authorities combing the Indian Ocean for missing Malaysian Airline Flight MH370 have found two objects and diverted surveillance aircraft to locate them, Prime Minister Tony Abbott said. “The Australian Maritime Safety Authority has received information based on satellite imagery of objects possiblyrelated to the search,” Abbott told lawmakers in parliament today. “Following specialist analysis of this satellite imagery, two possible objects related to the search have been identified.”

• Asia Stocks Drop to Six-Week Low as Fed Signals Rate Rise. Asian stocks fell, with the regional gauge heading for a six-week low, as the Federal Reserve signaled it may raise U.S. interest rates from the middle of next year. Newcrest Mining Ltd. (NCM), Australia’s biggest gold producer, slumped 6.4 percent after bullion dropped the most in three months as the Fed’s announcement curbed demand for the metal as a store of value. Myer Holdings Ltd. declined 5.3 percent in Sydney as the retailer reduced its forecast for gross profit margin. Toyota Motor Corp., the world’s largest carmaker, rose 0.5 percent in Tokyo after the yen slumped yesterday. The MSCI Asia Pacific Index declined 0.8 percent to 133.61 as of 9:45 a.m. in Tokyo, heading for the lowest close since Feb. 7.

• Yellen Retreat From Policy Thresholds Doubted as Yields Rise. Janet Yellen said the Federal Reserve wasn’t altering policy when it overhauled the way it signals changes in borrowing costs. Investors didn’t buy it. In her first press conference as Fed chair, Yellen emphasized that dropping a 6.5 percent unemployment threshold for considering an interest-rate increase “does not indicate any change in the committee’s policy intentions.”

• BofA(BAC) Said to Cut Jobs Across Montag’s Banking, Trading Divisions.

• Obama Aides’ Anti-Keystone View Clashes With Risk of Senate Loss. President Barack Obama’s advisers are lining up against the proposed Keystone XL oil pipeline. Top Democratic donors oppose the project. And Obama himself dismisses claims that it will create many jobs. Yet there’s still one big obstacle to the president saying no to Keystone: election-year politics. If Obama rejects the pipeline, it might sink Democratic candidates in states with big energy industries, such as Louisiana and Alaska. That could cost Democrats control of the Senate -- a risk that’s likely to weigh heavily on any decision the president makes, to approve the pipeline, reject it or wait until after November to announce a decision.

Wall Street Journal: 

• Yellen Debut Rattles Markets. Wary Investors Seize on New Fed Chief's Mixed Message on Pace of Rate Increases.

• Falling Yuan Curbs Cash Entering China. Chinese Currency Trades Past Its Previous 1% Band for the First Time.

MarketWatch.com:

• Investors now fear China more than Janet Yellen: Barclays survey.

CNBC:

• Why equities sold off despite a dovish Fed.

Zero Hedge:  

• The Music Just Ended: "Wealthy" Chinese Are Liquidating Offshore Luxury Homes In Scramble For Cash.

• The Chinese Yuan Is Collapsing. (graph)

• "The Cacophony Of Fed Confusion," David Stockman Warns Will Lead To "Economic Calamity".

• The Problem With Forward P/Es. (graph)

• The 16 "Dots" That Sent Stocks Reeling.

• Beef Prices Surge Most In A Decade As Food Inflation Soars. (graph)

• Serfs Up – Average Healthcare Premiums Have Soared 39%-56% Post Obamacare.

• Goldman's(GS) FOMC Statement Post-Mortem.

• Busted! – U.S. Tech Giants Knew Of NSA Spying Says Agency's Senior Lawyer.

Business Insider:

• Russia Just Warned The US That It May Play The 'Iran Card' On Ukraine.

• HP(HPQ) CEO Says The Company Will Flesh Out 3D-Printing Entry In June.

• Markets Have To Increasingly Price In The End Of Cheap Money.

Washington Post:

• The Insiders: Democrats should bail on Obamacare.

Reuters: 

• Starbucks(SBUX) faces higher milk, coffee costs.

• Russia will respond in kind to US sanctions - deputy foreign minister.

China Securities Journal:

• China Corporate Bond Default Risk Rises. Default risk of China's corporate bonds rises as economic growth and property investment growth slow, according to a front-page commentary. Cos. relevant to the property sector will face a "more severe" situation of overproduction, the commentary said. More defaults may have an impact on banks. China should keep economic policies stable and prevent risks from becoming systemic.

Evening Recommendations
Keybanc:

• Rated (CVD) Buy, target $121.

Goldman Sachs:

• Cut (BYI) to Sell.

Night Trading

• Asian equity indices are -1.25% to -.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 130.25 +2.25 basis points.

• Asia Pacific Sovereign CDS Index 98.0 +1.75 basis points.

• FTSE-100 futures -.68%.

• S&P 500 futures -.28%.

• NASDAQ 100 futures  -.27%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (IHS)/1.24

• (LEN)/.28

• (SCHL)/-.37

• (CAG)/.60

• (NKE)/.72

• (SCVL)/.04

• (TIBX)/.18

• (CKP)/.31 

Economic Releases
8:30 am EST

• Initial Jobless Claims are estimated to rise to 322K versus 315K the prior week.

• Continuing Claims are estimated to rise to 2880K versus 2855K prior.

10:00 am EST

• Philly Fed Business Outlook for March is estimated to rise to 3.2 versus -6.3 in February.

• Existing Home Sales for February are estimated to fall to 4.6M versus 4.62M in January.

• Leading Index for February is estimated to rise +.2% versus a +.3% gain in January.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed Bank Stress Test results, weekly EIA natural gas inventory report, Bloomberg Economic Expectations Index for March, weekly Bloomberg Consumer Comfort Index and the (TRI) investor day could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by technology and industrial 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.

Stocks Falling into Final Hour on Rising Emerging Markets Debt Angst, Fed Statements, Higher Long-Term Rates, Gaming/REIT Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Mixed
  

• Volume: Slightly Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 14.30 -1.52%

• Euro/Yen Carry Return Index 147.85 +.27%

• Emerging Markets Currency Volatility(VXY) 8.97 +.56%

• S&P 500 Implied Correlation 52.93 -1.38%

• ISE Sentiment Index 151.0 -3.82%

• Total Put/Call .75 +1.35%

• NYSE Arms .80 -.10% 

Credit Investor Angst:

• North American Investment Grade CDS Index 63.64 +.74%

• European Financial Sector CDS Index 87.38 -.84%

• Western Europe Sovereign Debt CDS Index 47.89 -.95%

• Asia Pacific Sovereign Debt CDS Index 96.37 +.10%

• Emerging Market CDS Index 319.06 +1.02%

• China Blended Corporate Spread Index 389.44 +2.01%

• 2-Year Swap Spread 11.75 -1.75 basis points

• TED Spread 18.25 -.75 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -3.5 -.25 basis point

Economic Gauges:

• 3-Month T-Bill Yield .05% unch.

• Yield Curve 234.0 +1.0 basis point

• China Import Iron Ore Spot $110.50/Metric Tonne unch.

• Citi US Economic Surprise Index -34.80 -1.3 points

• Citi Emerging Markets Economic Surprise Index -6.10 unch.

• 10-Year TIPS Spread 2.18 -1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating +119 open in Japan

• DAX Futures: Indicating -35 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 25% Net Long