Stocks Higher into Final Hour on Less Emerging Markets Debt Angst, Yen Weakness, Short-Covering, Tech/Energy Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: About Even
  

• Sector Performance: Most Sectors Rising
  

• Volume: Around Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 14.44 -4.31%

• Euro/Yen Carry Return Index 147.50 -.09%

• Emerging Markets Currency Volatility(VXY) 8.84 -.45%

• S&P 500 Implied Correlation 54.22 -2.34%

• ISE Sentiment Index 98.0 +15.29%

• Total Put/Call .73 -26.26%

• NYSE Arms .87 -21.95% 

Credit Investor Angst:

• North American Investment Grade CDS Index 71.49 -.44%

• European Financial Sector CDS Index 100.90 +.07%

• Western Europe Sovereign Debt CDS Index 46.16 -2.50%

• Asia Pacific Sovereign Debt CDS Index 94.95 -.21%

• Emerging Market CDS Index 299.82 -4.10%

• China Blended Corporate Spread Index 375.0 -1.29%

• 2-Year Swap Spread 14.0 +.25 basis point

• TED Spread 19.0 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -3.25 -.25 basis point

Economic Gauges:

• 3-Month T-Bill Yield .05% unch.

• Yield Curve 231.0 +2.0 basis points

• China Import Iron Ore Spot $111.80/Metric Tonne +1.18%

• Citi US Economic Surprise Index -31.70 +2.1 points

• Citi Emerging Markets Economic Surprise Index -7.10 -2.3 points

• 10-Year TIPS Spread 2.15 -1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating -37 open in Japan

• DAX Futures: Indicating +39 open in Germany

Portfolio: 

• Slightly Higher: On gains in my medical/tech sector longs

• Disclosed Trades: None

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:  

• Ukraine Seeks to Wrap Up IMF Talks as Crisis Hits Economy. Ukraine is completing bailout talks with the International Monetary Fund to avert a default and curb damage to the economy from a four-month political crisis. Loan negotiations began three weeks ago. To speed up the process, Ukrainian Premier Arseniy Yatsenyuk canceled a trip to The Hague, where world leaders are discussing the standoff with Russia over his country. The IMF will announce the results of its mission tomorrow, with Ukraine seeking as much as $20 billion, Finance Minister Oleksandr Shlapak said today in Kiev. 
• China Faces ‘Mini Crisis’ on Debt Defaults, Ex-PBOC Adviser Says. China is headed for a “mini crisis” in its local-government debt market as economic reforms lead to the first defaults, according to a former adviser to the People’s Bank of China. “It will be a partial, controllable and mini crisis,” Li Daokui told reporters on the sideline of the Credit Suisse Asian Investment Conference in Hong Kong today.
• German Confidence Falls. German business confidence fell for the first time in five months as companies assess the risks to trade from escalating European Union sanctions against Russia. The Ifo institute’s business climate index, based on a survey of 7,000 executives, fell to 110.7 in March after reaching 111.3 the prior month, the highest level since July 2011. Economists predicted a decline to 110.9, according to the median of 44 estimates in a Bloomberg News survey. 
• European Stocks Rebound Before U.S. Consumer, House Data. European stocks rose the most in three weeks as better-than-forecast U.S. consumer-confidence and housing data signaled the world’s largest economy has rebounded from the harsh winter. EasyJet Plc gained 3.7 percent after forecasting that its loss may narrow in the six months through March. Luxottica Group SpA advanced 4 percent after saying it will design spectacles that use Google Inc.’s Glass technology. Baloise Holding AG (BALN) climbed 2.9 percent after the Swiss insurer unexpectedly increased its dividend. The Stoxx Europe 600 Index added 1.3 percent to 328.57 at the close in London after yesterday falling the most in two weeks.

Fox News:

• Open the floodgates? Indiana becomes first state to scrap Common Core. Indiana has become the first of 45 states to opt out of the national education standard known as Common Core, and critics of the controversial K-12 program say the move could "open the floodgates" for others to follow.

CNBC:

• Out of Gas: Most Americans Can't Afford New Cars.
• Is the IPO market in a bubble?

ZeroHedge:

• Russia Prepares Mega-Deal With India After Locking Up China With "Holy Grail" Gas Deal.
• Fed Finds TBTF Banks Increase Systemic Risk, Have A Funding Advantage.
• Case Shiller Home Price Index Declines For Third Month A Row: Longest Negative Stretch Since March 2012. (graph)
• Consumer Confidence Jumps To 6-Year High (Led By Surge In Hope). (graph)
• New Home Sales Drop To Lowest Since October, Median Home Price Below Year Ago Levels. (graph)
• 5 Reasons Why Chinese "Stimulus" Hopes Are Overdone. (graph)
• What A Bank Run In China Looks Like: Hundreds Rush To Banks Following Solvency Rumors.
• IRS Rules Bitcoin Is Property (Not Currency).

ValueWalk:

• Falling Profits Is Best Leading Indicator For Recession: Edwards.

Business Insider:

• Everyone Is Saying This Is The Worst Tech IPO Of The Boom So Far.
• Obama Is Trying To Kill The Tomahawk And Hellfire Missile Programs.
• The Good, The Indifferent, And The Ugly Emerging-Market Currencies.
• Retired Ukrainian General: Russia Is 'Placing Europe On The Verge Of A Third World War'.
• HUGE DISAPPOINTMENT FROM THE RICHMOND FED. (graph)
• REPORT: GM(GM) Misled Grieving Families About Lethal Glitch.

CNN:

• Why Obama is losing millennials.

PxFeed Top News:

• BREAKING NEWS: Russia adds 10,000 troops, air defense artillery, wheeled vehicles to positions near Ukraine eastern border. Via CNN.

BusinessCloudNews:

• Google(GOOG) touts updates and price cuts to incentivise persistent cloud use.

TheWeeklyStandard:

• Obama: I'm Concerned About a Loose Nuke Being Detonated in Manhattan. (video)

Reuters:

• Fed's Plosser wants interest rates at 3 pct by end-2015. Philadelphia Federal Reserve Bank President Charles Plosser believes the Fed should aim to raise short-term rates to 3 percent by the end of 2015 and 4 percent by the end of 2016, a Philadelphia Fed spokeswoman said.

Telegraph:

• Moody's warns of Hong Kong risk to Chinese banks. Ratings agency warns of growing risks from the rapid rise in loans from Hong Kong banks owned by some of China's biggest lenders.

Bear Radar

Style Underperformer:

• Small-Cap Growth -.33%

Sector Underperformers:

• 1) I-Banks -1.30% 2) Gaming -1.05% 3) Retail -.84%

Stocks Falling on Unusual Volume:

• AI, BGC, HAE, GIII, FMI, CUK, SQI, HIMX, BIB, DSW, BK, CCL, DATA, SPLK, IBB, UVE, BSFT, LGF, AIR, SBNY, ENV, BMRN, HMIN, AWAY, HGR, NOW, CSOD and SGMO

Stocks With Unusual Put Option Activity:

• 1) FIO 2) HFC 3) PSX 4) MON 5) CCL
  

Stocks With Most Negative News Mentions:

• 1) GM 2) NFLX 3) BAC 4) GS 5) JCI
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Value +.19%

Sector Outperformers:

• 1) Airlines +1.59% 2) Computer Services +1.32% 3) Coal +1.14%
  

Stocks Rising on Unusual Volume:

• SONC, GALT, HDS, RAX, NPSP, MKC, NOG and ZLTQ

Stocks With Unusual Call Option Activity:

• 1) ASH 2) TSO 3) FIO 4) WAG 5) LAMR

Stocks With Most Positive News Mentions:

• 1) CCL 2) GOOG 3) RAX 4) WFC 5) AAPL
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Tuesday Watch

Evening Headlines 
Bloomberg:

• Russia Suspended From G-8 as Leaders Warn of Sanctions. The world’s top industrial powers threatened further sanctions to deter Russian President Vladimir Putin from taking over other parts of Ukraine and suspended Russia from participating in the Group of Eight. Meeting for the first time since last week’s annexation of Crimea by Russia, Group of Seven leaders said last night they won’t attend a planned G-8 meeting which was to have to been held in Sochi, site of the Winter Olympics, and will instead hold their own summit in June in Brussels. 
• Goldman Cuts Topix Forecasts on ‘Unanticipated Weakness’. Goldman Sachs (GS) Group Inc. lowered its forecasts for Japanese stocks, citing “the market’s unanticipated weakness and limited near-term catalysts.” The brokerage reduced its three-month target for the Topix index (TPX) to 1,200 from 1,350, Chief Japan Strategist Kathy Matsui wrote in a note dated March 20. The new forecast is 3.1 percent higher than the gauge’s level of 1,163.63 at the trading break in Tokyo today. Goldman Sach cut its six-month Topix forecast to 1,300 from 1,375, while maintaining its 12-month target at 1,450 on expectations that earnings per share will rise 21 percent in the fiscal year starting April. The Topix slumped 11 percent this year through yesterday, trailing all other major developed markets tracked by Bloomberg.
• Short China Stocks to Win From Rising Default Risk, Maglan Says. Investors should avoid China’s bond market after the first onshore default because state intervention and debt restructuring could prompt losses, according to New York-based hedge fund Maglan Capital LP. The best way to make money from distressed companies in the world’s second-largest economy is by betting against listed stocks, according to David Tawil, co-founder of Maglan Capital, which invests in companies struggling to repay their debt. “In China, government involvement is much more pervasive, especially in industries like banking and real estate,” Tawil said in a March 21 phone interview. “The only way to play the distressed cycle is shorting equities.
• China Money Rate Rises a Ninth Straight Day as PBOC Drains Funds. The seven-day repurchase rate, a gauge of funding availability in the interbank market, climbed four basis points to 3.62 percent as of 10:51 a.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. It’s advanced a total of 140 basis points since March 12 and reached 3.68 percent yesterday, the highest in three weeks.
• China Banks Drained by Funds Called Vampires Seek Rules. It has been labeled a “blood-sucking vampire” by a prominent commentator on state-run television. Executives at China’s largest banks have called for regulators to curb its rapid expansion. The focus of this ire is Internet financing, specifically Yu’E Bao, the fund pioneered nine months ago by Alibaba Group Holding Ltd.’s online-payment affiliate Alipay. Its ease of use, involving a few taps on a smartphone, has drawn deposits from 81 million customers, more than the population of Germany, as they chase returns higher than China’s banks can offer. The total exceeded 500 billion yuan ($80 billion) as of Feb. 28, according to the official Xinhua news agency, double the amount reported by Alipay in mid-January. 
• Deutsche Bank Says China Private Stocks Riskier Than SOEs.  John-Paul Smith, the Deutsche Bank AG strategist who’s been writing about the dangers of buying state-owned Chinese stocks since 2010, says private companies are now a bigger risk to investors as valuations surge. Smith’s warnings about government intervention in the world’s second-largest economy foreshadowed a shift by money managers away from state-controlled banks, commodity producers and industrial companies, known as SOEs. Investors have instead been piling into privately-owned firms that sell services and consumer goods, propelling an MSCI Inc. gauge of Chinese technology stocks to valuations seven times more expensive than financial companies this month, the biggest gap since 2001.
• Brazil’s Credit Rating Cut to BBB- by S&P on Sluggish Growth. Brazil’s credit rating was cut by Standard & Poor’s, which said sluggish economic growth and an expansionary fiscal policy are fueling an increase in the country’s debt levels. S&P downgraded the government one level to BBB-, its lowest investment-grade rating, from BBB. The new ranking is in line with countries including Spain and the Philippines and one notch below Russia. Yields on the country’s $2.15 billion of bonds due 2023 have climbed 1.01 percentage point in the past year to 4.26 percent, according to data compiled by Bloomberg.
• Asia Stocks Swing After U.S. Manufacturing Index Falls. Asian stocks swung between gains and losses, after the biggest rally in a month for the regional benchmark index yesterday, as data showed a slowdown in U.S. manufacturing and investors weighed the prospect of a recession in Russia. The MSCI Asia Pacific Index was little changed at 134.29 as of 12:14 p.m. in Tokyo.

Wall Street Journal:

• Crisis in Ukraine. Streaming Coverage:
• SEC Is Probing Dealings by Banks and Companies in Loan Securities. The Securities and Exchange Commission is investigating whether a Wall Street boom in complicated bond deals is creating new avenues for fraud, according to people close to the probes.
• NATO's Military Decline. As Russia re-arms, the West increasingly neglects its defenses.

Zero Hedge:

• Algo Activity (And Manipulation) Breaks Record On Friday's Quad Witching Debacle.
• Russia Is Slowly Turning The NatGas Tap Off To Europe.
• Message To The Fed: Here Are A Few Things That You Can't Do.
• In A World Artificially Priced To Perfection, The Imperfections Appear.
• IceCap: "Which Bubble Is Created Next?".
• Despite Late-Day Ramp, Stocks Slide As Yield Curve Flattens To 2009 Lows. (graph)

Business Insider:

• FORMER AMBASSADOR TO RUSSIA: If Putin Invades Eastern Ukraine, There Could Be Guerrilla Warfare For Years.

Obama takes on coal with first-ever carbon limits
Read more at http://www.philly.com/philly/news/politics/20130919_ap_0f857b20e0c144a5a1e1b9dddc9f9d72.html#YRThyDOhArykUeYy.99

Financial Times:

• Biotech sell-off heightens fears that sector has reached peak.

Telegraph:

• Capital controls feared in Russia after $70bn flight. Investors are withdrawing money at a rapidly increasing rate amid escalating sanctions from the West.

South China Morning Post:

• China Acts Like Russia in Dispute, Japan Official Says. China's attempt to unilaterally grab disputed islands from Japan are similar to Russia' behavior in seizing Crimea, citing Yasutoshi Nishimura, sr. cabinet office vice minister.

Shanghai Securities News:

• China May Face 'Serious' Cash Flow Problems, Ex-CBRC Head Says. China may face "serious" cash flow problems and needs good management of liquidity for the next two years, according to a transcript of former China Banking Regulatory Commission Chairman Liu Mingkang's remarks published today. Fed tapering may keep impacting China and emerging economies in 2014 and 2015, Liu says. Fed fund rate may rise to about 4% and the liquidity problems behind it can't be underestimated, Liu says. Structural bull market for sovereign bonds of developed countries and Asian emerging nations is over, Liu says.

Evening Recommendations

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 134.0 unch.

• Asia Pacific Sovereign CDS Index 95.25 -.5 basis point.

• FTSE-100 futures +.44%.

• S&P 500 futures +.20%.

• NASDAQ 100 futures  +.17%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (GIII)/.49
• (CCL)/-.08
• (MKC)/.58
• (WAG)/.93
• (PVH)/.142
• (SCS)/.17
• (SFD)/.82

Economic Releases
9:00 am EST

• The House Price Index for January is estimated to rise +.6% versus a +.8% gain in December.

10:00 am EST

• Consumer Confidence for March is estimated to rise to 78.5 versus 78.1 in February. 
• The Richmond Manufacturing Index for March is estimated to rise to 4 versus -6 in February.
• New Home Sales for February are estimated to fall to 445K versus 468K in January.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Lockhart speaking, Fed's Plosser speaking, G7 Meeting, UK inflation data, $32B 2Y T-Note auction, (AKAM) investor summit, (PNRA) investor day and the (NVDA) investor day could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by real estate 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 Falling into Final Hour on Russia/Ukraine Tensions, Rising Global Growth Fears, Technical Selling, Biotech/Tech Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Above Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 15.03 +.2%

• Euro/Yen Carry Return Index 147.61 +.28%

• Emerging Markets Currency Volatility(VXY) 8.93 -.56%

• S&P 500 Implied Correlation 54.97 +1.16%

• ISE Sentiment Index 81.0 -28.32%

• Total Put/Call .96 +7.87%

• NYSE Arms .95 -25.24% 

Credit Investor Angst:

• North American Investment Grade CDS Index 71.51 +1.20%

• European Financial Sector CDS Index 100.82 +2.88%

• Western Europe Sovereign Debt CDS Index 47.34 +1.28%

• Asia Pacific Sovereign Debt CDS Index 95.45 -.42%

• Emerging Market CDS Index 312.41 -1.41%

• China Blended Corporate Spread Index 379.91 -.16%

• 2-Year Swap Spread 13.75 unch.

• TED Spread 19.0 +.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -3.0 -.5 basis point

Economic Gauges:

• 3-Month T-Bill Yield .05% unch.

• Yield Curve 229.0 -3.0 basis points

• China Import Iron Ore Spot $110.50/Metric Tonne -.18%

• Citi US Economic Surprise Index -33.80 -1.2 points

• Citi Emerging Markets Economic Surprise Index -4.80 -.6 point

• 10-Year TIPS Spread 2.16 +1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating -110 open in Japan

• DAX Futures: Indicating +45 open in Germany

Portfolio: 

• Slightly Lower: On losses in my biotech/medical/tech sector longs and emerging markets shorts

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

• Market Exposure: Moved to 50% Net Long