Today's Headlines

Bloomberg: 

• NATO Warns Russia Force on Ukraine Border Ready to Act. NATO leaders warned today that Russian forces massed near the country’s border with Ukraine are in a high state of readiness and that any incursion across the frontier would be a “historic mistake.” The presence of as many as 40,000 soldiers along Ukraine’s eastern border is fueling concern that Russia is poised to invade on the pretext of protecting Russian-speaking inhabitants of eastern and southern Ukraine. Backed by state-run media, President Vladimir Putin says the Kiev-based government is influenced by Russophobe extremists and hasn’t done enough to stop them from persecuting Russian-speakers. “We have seen a very massive Russian military buildup along the Ukrainian borders,” North Atlantic Treaty Organization Secretary General Anders Fogh Rasmussen said after a two-day meeting of alliance foreign ministers in Brussels. “We also know that these Russian military armed forces are at very high readiness.”

• China Leverage Seen Rising Through 2016. China’s debt is poised to keep expanding faster than the economy through at least 2016, testing the limits of a credit-driven growth model that’s already exceeded the imbalances in Japan before its lost decade. The combined ratio of government, corporate and household debt to gross domestic product is set to climb to 236.5 percent in 2016 from 225 percent last year, based on median estimates in a Bloomberg News survey of economists and analysts. Asked when the ratio will peak over the next decade, the largest proportion of respondents said 2018 or 2019.

• China Dot-Coms Rush to U.S. as Buyers Shrug Off Murky Structures. Sky-high valuations mixed with murky corporate structures often scare off investors. That’s less so if the companies are from China. From microblogging site Weibo Corp. (0962693D) to real-estate website Leju Holdings Ltd., China-based companies have announced more than $2.5 billion of U.S. initial public offerings in 2014, data compiled by Bloomberg show. That’s the most since the fourth quarter of 2007, when Chinese stocks in the U.S. peaked before losing almost two-thirds of their value. The rush isn’t slowing soon.  

• Euro-Area Banks Face Tougher Risk-Model Scrutiny: Barnier. Euro-area banks face tougher scrutiny of how they measure the risk of losses on their assets, the European Union’s financial-services chief said. Michel Barnier said that once the European Central Bank takes on oversight of euro-area lenders in November, its tasks will include tackling potential inconsistencies in the so-called risk-weight models banks use to measure the capital they need to withstand crises.

• Euro-Area Economic Growth Revised Down to 0.2% in Fourth Quarter. The euro-area economy grew at a slower pace in the fourth quarter than initially estimated, providing further evidence for the European Central Bank assessment that the currency bloc’s recovery is still fragile. Gross domestic product expanded 0.2 percent in the three months through December, according to data posted on the website of the European Union’s statistics office today. That’s down from the preliminary measure of 0.3 percent on March 5. 

• European Stocks Gain for Seventh Day. European stocks climbed for a seventh day after a U.S. private-payrolls report showed companies in the world’s largest economy added more workers last month and factory orders increased in February. Deutsche Post AG gained 4.6 percent after Europe’s largest mail service predicted operating profit will rise through 2020. Neste Oil Oyj rallied 5.6 percent after a U.S. Senate committee proposed extending a tax credit for biodiesel. Deutsche Boerse AG dropped 2.2 percent after confirming that one of its businesses has become the subject of a criminal investigation. The Stoxx Europe 600 Index advanced 0.2 percent to 336.93 at the close of trading.

• Gold Rises on Speculation Seven-Week Low to Spur Demand. Gold futures for June delivery added 1 percent to $1,292.90 an ounce at 10:31 a.m. on the Comex in New York. Prices dropped to $1,277.40 yesterday.

• ICE Said Close to Start of Credit-Swap Futures That Mimic Index. IntercontinentalExchange Group Inc. (ICE), owner of the world’s largest credit-default swap clearinghouse, is close to offering futures on the most-active derivative indexes. The new contracts will replicate the lineup of companies included in the investment-grade and high-yield swap indexes owned by Markit Group Ltd., according to a person with knowledge of the plan. ICE, as the company is known, failed in an earlier effort at credit-swaps futures that sought to give investors a way to bet on improving or deteriorating credit markets.

• Ex-State Department Contractor Gets 13 Months for Leak. Former U.S. State Department contractor Stephen Kim was sentenced to 13 months in prison for disclosing intelligence on North Korea to a Fox News reporter in a case that sparked criticism from free-press advocates of the Obama administration’s crackdown on unauthorized leaks.

Wall Street Journal:

• Chinese Investors Scramble Into Dubai. After pouring billions of dollars into cities from London to New York to Sydney, Chinese investors are looking to Dubai with a fresh appetite. The influx of money is beginning to reshape post-financial crisis Dubai. As the WSJ’s Rory Jones reports:

• Highlights from the Supreme Court’s Campaign-Finance Ruling. The Supreme Court on Wednesday struck down aggregate limits on political contributions, concluding in a 5-4 ruling that the goal of fighting corruption doesn’t justify the burden on First Amendment rights imposed by such restrictions. Here are highlights from the majority opinion written by Chief Justice John Roberts.

• IMF's Lagarde: Global Economy May Face Years of Slow, Subpar Growth. Christine Lagarde Says if Central Banks and Lawmakers Don't Help Boost Output, Global Growth Could Remain Sluggish.

Fox News:

• Ex-CIA chief confirms he ignored Benghazi guidance from top officer on ground. The former acting director of the CIA, in his first public testimony on Benghazi, confirmed that he ignored guidance from the top CIA officer on the ground in favor of reporting from analysts far removed from the scene, in shaping the flawed "talking points" which said the attack sprung from a protest.

CNBC:

• Looming debt defaults mark turning point for China. China's ruling party has spoken: The money-lending party is over. In response to an historic lending boom that has saddled China with too much of everything from unsold real estate to underused mines and factories, the government in recent weeks has sent a clear message to lenders and borrowers: The days of easy credit are over. The move comes as China's $9.4 billion economy show signs of a slowdown after a borrowing-and-spending spree that left behind billions of dollars worth of bank write-downs and the restructuring of billions more in failed and troubled loans in money-losing companies.

ZeroHedge:

• Furious Russia Will Retaliate Over "Illegal And Absurd" Payment Block By "Hostile" JPMorgan(JPM).

• Goodbye Blythe Masters.

• Presenting The Next Market Rigged By High Frequency Trading. (graph)

• The Fed Goes Hunting For "Asset Price Bubbles".

• Double Whammy Shocker From Goldman Which Is Also Waving Goodbye To The NYSE.

• What Happens After The Low-Hanging Fruit Has Been Picked?

• Factory Orders Beat Expectations Thanks To Major Seasonal Adjustments. (graph)

• W(h)ither Petrodollar: Russia, Iran Announce $20 Billion Oil-For-Goods Deal.

• De-escalation Off: US Navy Sends Warship To Black Sea "In Direct Response To Ukraine Circumstances".

Business Insider:

• How Amazon's(AMZN) Fire TV Box Could Be A Huge Threat To Netflix(NFLX).

• The Massive Recalls Have Us Wondering Whether The Government Actually Saved GM(GM).

• It's Becoming Clear That Russia Wants To Break Up Ukraine. 

• St. Louis Fed's Bullard Sees The Fed Hiking Rates In Early 2015.

Foreign Policy:

• The Russians Are Coming. 10 very good reasons not to believe Vladimir Putin when he says he's totally not going to invade eastern Ukraine.

Reuters: 

• Chile copper mines weather quake; some ports shut.

• U.S. senator accuses GM(GM) of 'culture of cover-up' in recalls. General Motors Co came under withering attack for its decade-long failure to notify the public about defective parts linked to fatal crashes, as a U.S. Senate hearing opened on Wednesday with accusations that the company fostered "a culture of cover-up." Democratic Senator Claire McCaskill rebutted some of GM CEO Mary Barra's testimony to a House of Representatives panel on Tuesday that her company had recently cleaned up its act.

• Brazil likely to raise interest rates again, signals more hikes. Brazil will likely raise interest rates for the ninth straight time on Wednesday, aiming to tame a surge in food prices that threatens to push inflation through the official target ceiling in an electoral year. All 62 economists polled by Reuters expect the central bank to raise its benchmark Selic rate by 25 basis points to 11 percent -- what would be the highest level in more than two years.

Bear Radar

Style Underperformer:

• Small-Cap Growth +.02%

Sector Underperformers:

• 1) Education -3.07% 2) HMOs -.82% 3) Software -.64%

Stocks Falling on Unusual Volume:

• LQDT, HE, APOL, ESS, UNF, FIVE, AGU, MTCN, SNN, ELLI, IMPV, HSTM, TBI, LDRH, DEO, TSN, WUBA, JGW, SAP, CRTO, YELP, BWLD, CBOE, DATA and ECOM

Stocks With Unusual Put Option Activity:

• 1) RVBD 2) XLY 3) HD 4) KSS 5) CMI
  

Stocks With Most Negative News Mentions:

• 1) CSCO 2) AGU 3) TWTR 4) GM 5) HSTM
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Mid-Cap Growth +.25%

Sector Outperformers:

• 1) Gold & Silver +2.18% 2) Airlines +1.09% 3) Retail +.68%
  

Stocks Rising on Unusual Volume:

• PRSC, AFOP, MYGN, GLOG, TFM, GTAT, XLRN and LPI

Stocks With Unusual Call Option Activity:

• 1) DG 2) MNKD 3) APOL 4) ADT 5) OXY

Stocks With Most Positive News Mentions:

• 1) AYI 2) FB 3) JNPR 4) CME 5) MON
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Wednesday Watch

Evening Headlines 
Bloomberg:

• Steel Defaults Seen by S&P as Yuan Ruins Ore Loans: China Credit. The Chinese steel industry’s ability to survive 1 billion yuan ($161 million) of losses per month without more defaults is under threat as a slump in iron ore and the yuan undermines a key source of financing. The currency has weakened 2.5 percent this year and a measure of exchange-rate swings reached a record, prompting Goldman Sachs Group Inc. to predict funding that uses the steelmaking ingredient as collateral will drop over the next two years due to foreign-exchange hedging costs. Iron ore prices fell 11 percent in the past five months as cash shortages at closely held mills prompted what Morgan Stanley says is panic selling.

• China’s Overnight Rate in Longest Rising Streak Since October. China’s overnight money-market rate climbed for a seventh day, the longest stretch in five months, after the central bank drained more cash from financial system. The overnight repurchase rate, a gauge of funding availability among banks, climbed eight basis points, or 0.08 percentage point, to 2.94 percent as of 10:35 a.m. in Shanghai, according to a weighted average from the National Interbank Funding Center. That’s the highest since March 20.

• Asian Stocks Rise Sixth Day as U.S. Manufacturing Expands. Asian stocks rose, with the regional benchmark index extending its winning streak to a sixth day, after an increase in U.S. manufacturing boosted optimism about growth in the world’s biggest economy. Nissan Motor Co., a Japanese carmaker that gets 34 percent of its revenue in North America, added 2.3 percent. Consumer discretionary shares and telecommunication services companies gained the most among the 10 industry groups on the regional index. Goodman Fielder Ltd., a food supplier, slumped 18 percent in Sydney after it cut its fourth-quarter earnings forecast. The MSCI Asia Pacific Index gained 0.3 percent to 138.72 as of 9:26 a.m. in Tokyo as two shares rose for each that fell.

• Virtu Said to Delay IPO Amid Furor Spurred by Michael Lewis Book. Virtu Financial Inc., the high-frequency trader that announced plans last month to sell shares, has delayed the deal, two people with knowledge of the matter said. Virtu’s bankers won’t start marketing the initial public offering until after April 20, delaying the process from this week, according to the people, who asked not to be named because the decision is private.

Wall Street Journal:

• U.S. Gambit on Mideast Peace Talks Falters. Washington Hasn't Decided Whether to Free Spy; Palestinian Leader to Raise Pressure on Israel.

CNBC:

• Massive 8.0 quake off Chile coast sparks tsunami. A major earthquake of magnitude 8.0 struck off the coast of Chile on Tuesday, triggering a tsunami that hit the northern part of the country and a tsunami warning for all of South and Central America's Pacific coast.

Zero Hedge:

• If HFT Algos Were People They'd Be Perp Walked.

• This Is Where Today's Buying Deluge Came From. (graph)

• SEC Has Opened Several HFT Probes.

• Things That Make You Go Hmmm... Like Iron Fists And Velvet Gloves.

• Equity Futures Spike On Chile Earthquake, USDJPY Momentum Ignition. (graph)

People's Daily:

• China Yuan Weakening May Trigger Foreign Debt Risk. Yuan exchange rate depreciation and outflows of capital may trigger an "outbreak" of foreign debt risk, Zhang Monan, a researcher at the China Center for International Economic Exchanges, writes in a commentary. Chinese real estate developers sold large volumes of bonds overseas last year and in the first months of this year, Zhang writes in the newspaper.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are +.25% to +.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 121.75 -3.25 basis points.

• Asia Pacific Sovereign CDS Index 88.25 -4.5 basis points.

• FTSE-100 futures +.21%.

• S&P 500 futures +.15%.

• NASDAQ 100 futures  +.20%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (MON)/3.06

• (AYE)/.83

• (RECN)/.05

Economic Releases
8:15 am EST

• The ADP Employment Change for March is estimated to rise to 195K versus 139K in February.

10:00 am EST

• Factory Orders for February are estimated to rise +1.2% versus a -.7% decline in January.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,422,220 barrels versus a +6,619,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -1,277,780 barrels versus a -5,101,000 barrel decline the prior week. Distillate inventories are estimated to rise by +177,780 barrels versus a +1,555,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise +.04% versus a +.4% gain the prior week.

Upcoming Splits

• (GOOG) 2-for-1 

Other Potential Market Movers

• The Fed's Bullard speaking, Fed's Lockhart speaking, China Non-Manufacturing PMI, Brazil Central Bank decision, Eurozone PPI, weekly MBA mortgage applications report, ISM New York for March, (GM) Senate Panel Hearing and the (BWLD) analyst day could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and real estate 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 Rising into Final Hour on Less Emerging Markets/Eurozone Debt Angst, Yen Weakness, Short-Covering, Biotech/Tech Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Mixed
  

• Volume: Around Average

• Market Leading Stocks: Outperforming

Equity Investor Angst:

• Volatility(VIX) 13.40 -3.46%

• Euro/Yen Carry Return Index 149.25 +.61%

• Emerging Markets Currency Volatility(VXY) 8.42 -1.05%

• S&P 500 Implied Correlation 53.31 -1.35%

• ISE Sentiment Index 97.0 +14.12%

• Total Put/Call .96 unch.

• NYSE Arms 1.12 +37.20% 

Credit Investor Angst:

• North American Investment Grade CDS Index 67.71 -1.98%

• European Financial Sector CDS Index 88.27 -5.51%

• Western Europe Sovereign Debt CDS Index 46.02 +.24%
• Asia Pacific Sovereign Debt CDS Index 88.27 -1.69%

• Emerging Market CDS Index 286.19 -3.78%

• China Blended Corporate Spread Index 358.54 -1.16%
• 2-Year Swap Spread 12.0 -.75 basis point

• TED Spread 19.75 -.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -2.75 +.5 basis point

Economic Gauges:

• 3-Month T-Bill Yield .03% unch.

• Yield Curve 232.0 +2.0 basis points

• China Import Iron Ore Spot $117.60/Metric Tonne +.68%

• Citi US Economic Surprise Index -34.50 -1.9 points

• Citi Emerging Markets Economic Surprise Index -7.20 +1.5 points

• 10-Year TIPS Spread 2.14 unch.

Overseas Futures:

• Nikkei Futures: Indicating +119 open in Japan

• DAX Futures: Indicating +23 open in Germany

Portfolio: 

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

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• NATO Reassuring East Allies Amid No Sign of Russian Pullback. NATO said it will recommit to defending frontline states in eastern Europe that have been unsettled by the seizure of Crimea as the alliance reported no signs of a Russian troop pullback from Ukraine’s borders. Secretary General Anders Fogh Rasmussen said allied intelligence hasn’t picked up evidence of Russia scaling back its “massive military buildup” and pledged to shore up the alliance’s eastern defenses. “We are now considering all options to enhance our collective defense, including an update and further development of our defense plans, enhanced exercises and also appropriate deployments,” Rasmussen told reporters at a meeting of North Atlantic Treaty Organization foreign ministers in Brussels today. The immediate crisis management focused on the 40,000 Russian troops that the U.S. estimates have taken positions near the Ukrainian border, potentially poised to invade on the pretext of protecting ethnic Russian inhabitants of eastern and southern Ukraine. Rasmussen said “unfortunately” there are no signs of a withdrawal.
• China Xuzhou Zhongsen Missed Bond Coupon Payment, Paper Says. A privately held Chinese building materials company failed to pay interest on high-yield bonds, 21st Century Business Herald reported today. Xuzhou Zhongsen Tonghao New Board Co., based in the eastern province of Jiangsu, missed the 10 percent coupon payment due March 28 on the notes, which it sold 180 million yuan ($29 million) of last year in a private placement, the report said, citing an unidentified person. This would be the first default in China’s private-placement market for high-yield bonds from small- and medium-sized enterprises that was started in 2012, according to Yang Aibin, a general manager at Pengyang Investment Management Co.
• China Burns Speculators as $5.5 Billion Lost on Yuan Bets. China is succeeding in making its currency less predictable. Investors are paying the price. Clients of U.S. commercial banks have lost about $2 billion this year on $332 billion of options betting the yuan would appreciate, while Chinese companies lost $3.5 billion on $150 billion wagered on a benchmark forwards contract, according to data compiled by Morgan Stanley and the Depository Trust & Clearing Corp. in Washington.
• Japan Corporate Sentiment Gains Seen Short-Lived as Tax Rises. Sentiment among large Japanese manufacturers rose to the highest level since 2007, a gain that may be short-lived as today’s sales-tax increase weighs on consumption and confidence.
• Europe’s Recovery Diverges as Italy Jobless at Record. Europe’s two-speed economy was underscored in data today showing strengthening in the German labor market just as Italy’s jobless rate reached a record. Overall euro-area unemployment was at 11.9 percent in February, lower than the 12 percent median forecast of 32 economists in a Bloomberg News survey. In Italy it rose to 13 percent, while in Germany the locally defined jobless rate for March stayed at the lowest in at least two decades. The divergence between the region’s third-biggest and largest economies highlights the challenge faced by the European Central Bank’s Governing Council as it meets this week to assess the need for stimulus and gauge the risk of deflation at a time when consumer prices are increasing at about a quarter of the pace that officials would like. 
• European Stocks Advance as U.S. Manufacturing Accelerates. European stocks advanced, after the Stoxx Europe 600 Index declined last month, as a report showed manufacturing in the U.S. expanded at a faster pace in March. Alstom SA jumped the most since January 2012 after agreeing to sell a unit to Triton. Metso Oyj soared 19 percent after Weir Group Plc proposed a merger with the Finnish maker of rock crushers. ICAP (IAP) Plc rose 2.6 percent after the world’s largest broker of transactions between banks forecast full-year profit will meet analysts’ estimates, even as sales from its broking unit continued to decline. The Stoxx 600 gained 0.6 percent to 336.35 at the close of trading. 
• WTI Crude Drops a Second Day on U.S. Inventories. WTI for May delivery declined $1.91, or 1.9 percent, to $99.67 a barrel at 2:08 p.m. on the New York Mercantile Exchange. The volume of all futures traded was 8.5 percent below the 100-day average. Prices decreased 1 percent in March.
• Yellen’s Real-Life Examples of Unemployed Omit Criminal Records. In her first speech as Federal Reserve chair, Janet Yellen told the stories of three people who had trouble finding work to illustrate her concern about the unemployed -- omitting the fact that two had criminal records that might have influenced employers’ decisions on whether to hire them.
• GM(GM) recall woes worsen as CEO Mary Barra set to go before Congress. The news keeps getting worse for General Motors Co. With Chief Executive Officer Mary Barra set to testify this afternoon before the U.S. House, a top auto regulator signaled he would blame GM during the hearings for not providing sufficient information to start an investigation. Barra acknowledged she didn’t know why it took more than a decade to recall 2.6 million vehicles linked to the deaths of 13 people. Meanwhile, GM announced a new recall of 1.5 million vehicles for faulty power steering, doubling recall-related charges to $750 million.

Wall Street Journal:

• Asian Stock Hedge Funds Flat in First Quarter. Hedge funds that bet on stocks in Asia took a bruising in March after some of their favorite trades went awry, leaving them barely in positive territory in 2014 after big gains last year.
• Paul Ryan Unveils GOP Plan to Balance Budget in 10 Years. Budget Blueprint Proposes Changes to Medicare, Medicaid, Food Stamps, Other Programs.

CNBC: 

• Sheryl Sandberg slashes Facebook(FB) holdings.  
• Chicago tackles pension problem with tax hike, benefits cut. Chicago Mayor Rahm Emanuel proposed raising property taxes and reducing retirement benefits for some city workers in order to ease a severe pension funding problem, according to details of the plan released by his office on Tuesday.

ZeroHedge:

• Buy-To-Rent Is Officially Dead In California. 
• 12 Largest Banks Sued By Public Retirement Funds For "Conspiring To Rig Global FX Markets".
• Almost One Quarter Of European Youths Are Unemployed. (graph)
• US PMI Drops, Misses By Most In 7 Months, Weather Implicated Again. (graph)
• Worst. Recovery. Ever: Japan Regular Wages Decline For 21 Consecutive Months.
• Saxo Bank CEO: Short The Euro As It's A "Currency Of Mass Destruction".
• Best And Worst Performers In March And Q1: Full "Consensus Crushing" First Quarter Summary. (graph)
• GM(GM) CEO Mary 'Under-The-Bus' Barra's "Why Did It Take So Long?" Congressional Hearing - Live Feed.

Business Insider:

• Tiger Woods Pulls Out Of The Masters After Back Surgery.
• The Current Hangover In China's Stock Market Is Worse Than 1929. (graph)
• Japan Is About To Repeat A Rookie Economic Policy Mistake.

The Real Deal: 

• Manhattan Residential prices shoot through roof. Manhattan condo and co-op prices are finally seeing the impact of chronically low residential inventory and a shift toward über luxury in new development. The average sales price for a Manhattan apartment jumped by a shocking 30.9 percent year over year, according to a quarterly report compiled by appraisal firm Miller Samuel on behalf of brokerage Douglas Elliman. The average price per square foot increased by 23.6 percent year over year, to $1,363 in the first quarter of the year. “This is going to be widely talked about,” said Miller Samuel CEO Jonathan Miller, “and it made me nervous just because there was such ajump.” With pricing reaching historic highs, is there any anxiety in the market that another bubble could be inflating? “There is no fear that I’m sensing among some highly sophisticated individuals to enter the marketplace,” Appel said.

Reuters:

• Ford's(F) Russian venture cuts 700 jobs as economy falters.
• Weather, incentives help lift March U.S. auto sales. U.S. auto sales inched up more than expected in March after two months when weather reduced demand, but the robust sales rebound some expected will have to wait until April, initial reports by major automakers showed on Tuesday. 
• Most major economies end first quarter on weaker note. Manufacturing activity in Asia and Europe finished the first quarter on a weaker note but activity in the United States remained relatively steady, suggesting severe winter weather in North America had only a modest effect on U.S. factories. Factories across Europe eased back on the throttle in March while China's vast manufacturing industry contracted for a third straight month.