Stocks Falling Substantially into Final Hour on Russia/Ukraine Tensions, Rising Global Growth Fears, Yen Strength, Biotech/Tech Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Every Sector Declining
  

• Volume: Slightly Above Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 15.47 +11.94%

• Euro/Yen Carry Return Index 147.07 -.26%

• Emerging Markets Currency Volatility(VXY) 8.21 -.24%

• S&P 500 Implied Correlation 55.54 +5.95%

• ISE Sentiment Index 58.0 -34.09%

• Total Put/Call .93 +52.46% 

• NYSE Arms 1.54 +45.93% 

Credit Investor Angst:

• North American Investment Grade CDS Index 67.58 +3.22%

• European Financial Sector CDS Index 81.16 -1.01%

• Western Europe Sovereign Debt CDS Index 42.36 -.43%
• Asia Pacific Sovereign Debt CDS Index 86.36 -.11%

• Emerging Market CDS Index 270.10 -.23%

• China Blended Corporate Spread Index 351.33 -.76%
• 2-Year Swap Spread 13.5 unch.

• TED Spread 19.75 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -1.75 -.5 basis point

Economic Gauges:

• 3-Month T-Bill Yield .03% unch.

• Yield Curve 228.0 -4.0 basis points

• China Import Iron Ore Spot $119.10/Metric Tonne -.25%

• Citi US Economic Surprise Index -41.80 +3.4 points

• Citi Emerging Markets Economic Surprise Index -10.20 -7.1 points

• 10-Year TIPS Spread 2.14 unch.

Overseas Futures:

• Nikkei Futures: Indicating -260 open in Japan

• DAX Futures: Indicating -50 open in Germany

Portfolio: 

• Slightly Lower: On losses in my tech/retail/biotech/medical sector longs

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

• Market Exposure: Moved to 25% Net Long

Today's Headlines

Bloomberg:

• NATO Blames Russia for Ethnic Unrest Amid Gas Threat. Russian President Vladimir Putin threatened to shut off gas deliveries through Ukraine unless European leaders took steps to stabilize the country as NATO accused Russia of stoking ethnic unrest in its eastern regions. With some 40,000 combat-ready troops massing along the border with Ukraine, Russia is trying to subvert its neighbor’s government and force it to devolve power, North Atlantic Treaty Organization Secretary-General Anders Fogh Rasmussen said today in Prague. Rasmussen is using “Cold War-era rhetoric” in a bid to “close the ranks” between member countries in the face of a “sham external threat,” the Russian Foreign Ministry said on its website. “Russia is stirring up ethnic tensions in eastern Ukraine,” Rasmussen said. “If Russia is serious about a dialogue, the first step should be to pull back its troops.”

• Goldman(GS) Says China Junk Debt Not Paying Enough for Default Risk. Investors in high-yield bonds from China, the majority of which come from the real estate industry, aren’t being paid enough for assuming the risk of economic slowdown and defaults, Goldman Sachs Group Inc. said. “For China high yield, we do not think there is sufficient premium to compensate for these risks, especially given the potentially high correlation risks in the real estate sector,” analysts at the New York investment bank including Hong Kong-based Kenneth Ho wrote in a report today. Dollar bonds from issuers in China returned 2.24 percent since Dec. 31, tied with South Korea for third-worst performer in 15 Asian markets tracked by JPMorgan Chase & Co.

• Property Trust Sales Drop 49% as Vicious Loop Seen: China Credit. Chinese developers raised 49 percent less through trusts in the first quarter as the collapse of Zhejiang Xingrun Real Estate Co. highlighted default risks. Issuance of the property-related plans, which raise funds from wealthy investors, slid to 50.7 billion yuan($8.16 billion) from 99.7 billion yuan in the fourth quarter, according to data compiled by Use Trust. The yield on AA rated five-year bonds has climbed 172 basis points in the past year to 7.25 percent, according to Chinabond. "The banking system and the shadow banking system are becoming concerned about exposure in the property sector," David Cui, China strategist at Bank of America said in an interview yesterday. "Once people refuse to provide credit to developers, developers' balance sheets will be under pressure, forcing them to cut prices. Once enough of them cut prices, fewer people would buy because most people buy property only when they think the price is going up. If this persists, it will turn into a vicious loop." The collapse of Xingrun, a builder in a city south of Shanghai, with 3.5 billion yuan in liabilities last month is adding to concerns as developers grapple with trust repayments equivalent to the size of Puerto Rico's economy this year.

• Rupiah Falls as Stocks Drop Most Since August on Election. Indonesian stocks had the biggest drop since August and the rupiah weakened by the most in three weeks after Jakarta Governor Joko Widodo’s party received less support than expected in parliamentary elections. The Jakarta Composite index of shares fell 3.2 percent from April 8 to close at 4,765.729, the steepest decline since Aug. 27. The currency weakened 0.6 percent, the most since March 20, to 11,355 per dollar, prices from local banks show.

• Fast Retailing Cuts Profit Forecast Amid Waning Japan Demand. Fast Retailing Co. (9983), Asia’s biggest clothing retailer, cut its forecast for annual profit as costs rose and demand weakens for the company’s casual wear in Japan. Net income will be about 88 billion yen ($865 million) for the year ending August, lower than its previous forecast of 92 billion yen, the maker of Uniqlo brand clothing said yesterday. That compares with the 94.5 billion yen average of 19 analyst estimates compiled by Bloomberg. 

• Japan’s Dispatches of Jets Against China Rise to Record. Japan’s dispatches of fighter jets to pursue Chinese aircraft rose by a third in the past year to a record 415 times, reflecting growing tensions stemming from a territorial dispute in the East China Sea.

• European Stocks Drop as China Imports Unexpectedly Plunge. European stocks declined as a report showed Chinese imports unexpectedly slumped last month, outweighing gains by personal- and household-goods companies after LVMH Moet Hennessy Louis Vuitton SA posted results. Tryg A/S lost 4 percent after reporting first-quarter net income that missed analysts’ estimates. LVMH added 3.2 percent as the world’s largest luxury-goods company posted the fastest growth in fashion and leather-goods sales in two years. The Stoxx Europe 600 Index fell 0.5 percent to 333.41 at the close of trading.

• Dollar Drops to Lowest in 5 Months as Yen Gains. The yen gained to the strongest in three weeks against the greenback as an unexpected decline in Chinese exports revived demand for safer assets.

• Treasuries Rise as Cooled Fed Rate Concern Fuels Bond Sale Bids. Treasuries rose as the U.S. sale of $13 billion in 30-year bonds drew higher-than-average demand a day after Federal Reserve minutes damped bets policy makers would accelerate interest-rate increases. Benchmark 10-year yields declined five basis points to 2.64 percent.

• Faulty Hedges in Junk Loans Foil Rate Protection: Credit Markets. Ashish Shah, who manages company-debt investments for a living, has a message for individuals who’ve poured $70.7 billion into junk-rated loans since 2012: You’ll probably be disappointed. Below-investment grade loans have attracted new cash for a record 94 weeks by promising interest payments that will float higher along with benchmark rates. The catch: More than 85 percent of the debt won’t actually do that until the three-month London interbank offered rate, or Libor (US0003M), more than quadruples to exceed 1 percent, Morgan Stanley data show. Futures show that traders don’t expect Libor to breach that level for almost two years. In the meantime, prices on the $1 trillion of outstanding U.S. loans are poised to fall when the Federal Reserve raises borrowing costs.  

• Technology IPOs Face Skittishness as Market Momentum Slips. Goodbye, momentum. Technology companies had a relatively easy time marketing initial public offerings while stock markets were steadily rising: the Nasdaq 100 Index rose 33 percent to a 14-year high in the year through early March. For Sabre Corp., Weibo Corp., Leju Holdings Ltd. and Paycom Software Inc., which are pitching to raise $1.63 billion over the next week, the timing may not be ideal. Since that early March peak, the technology benchmark has dropped more than 5 percent - and newly public shares have been hit particularly hard. Almost all the Internet and software IPOs that were conducted since 2012 fell in the 10 days through April 7, and the median drop was about 11 percent, data compiled by Deutsche Bank AG show.

Wall Street Journal:

• Chinese Premier Li Warns Southeast Asia Nations Against 'Provocations'. Remarks Follow Philippines Legal Challenge to Its Claims in South China Sea. 

• China Prepares Way for New Low in Growth. Amid More Signs of Weakening, Premier Leaves Wiggle Room to Miss 7.5% Target.

Fox News:

• House panel votes to hold ex-IRS official Lerner in contempt of Congress.

MarketWatch: 

• OPEC oil output drops; cartel lowers 2014 forecast. Production by the Organization of the Petroleum Exporting Countries, which supplies more than a third of the oil consumed globally each day, fell by over half a million barrels a day last month to 29.6 million barrels a day, the group said in its monthly oil market report. A steep drop in Iraq’s oil output of nearly 300,000 barrels a day led the decline, though there was also a substantial downturn in Angola, Libya and Saudi Arabia last month. 

• Gold near 3-week high after ‘dovish’ Fed minutes. Prices close above $1,320; sharp drop in U.S. equities adds support.

CNBC:

• Art Cashin: 'We need to be very careful'. (video)

• Fidelity looking to open new trading platform. Fidelity Investments is working with other asset managers to create a new trading platform aimed at lowering costs for its customers.

• Why tech losses at hedge funds can hurt you. Is it only the rich who get hurt when hedge funds lose money, or should regular investors pay attention?

ZeroHedge:

• It's On: Gazprom Prepares "Symbolic" Bond Issue In Chinese Yuan.

• Nasdaq Biotech Index Crucified, Falls Most Since August 2011. (graph)

• Donetsk Creates "People's Army".

• Is The Fed To Blame For The Bursting Of The Tech Bubble? *TARULLO SEES RISK OF LARGE LOSSES IN LEVERAGED LOAN FUNDS *TARULLO: FARMLAND, SMALL TECH FIRM VALUATIONS SEEM `STRETCHED' *TARULLO SEES RISK OF LARGE LOSSES IN HIGH-YIELD CORPORATE BONDS *TARULLO FAVORS KEEPING OPTION OF USING RATES AGAINST BUBBLES. 

• 10 Year Breakdown To 2.4% Possible BofA Warns. (graph)

• Satellite Photos Released Revealing Russian Military Build Up. (pics)

• Picturing The Gap Between Hope And Reality In Stocks. (graph)

• Banks Win Again As Proposed "Toughened" Basel Derivatives Rule "Seems To Have Evaporated".

Business Insider:

• Ten Warning Signs We Could Be Headed For A Crash.

Politico:

• Limbaugh: CBS has 'declared war on the heartland of America' by hiring Colbert.

Reuters:

• Family Dollar(FDO), other retailers see shoppers pull back. Family Dollar Stores Inc, seeking to reverse declining sales and profit, said on Thursday it is slashing prices to win shoppers, cutting jobs, and shutting hundreds of weak performing stores. The discount retailer, which caters to lower income shoppers, many living paycheck to paycheck, reported sales at stores open at least a year fell 3.8 percent in the quarter ended March 1. It expects sales to decline this quarter, too. Family Dollar Chief Executive Howard Levine on a call with investors pointed to "a more financially constrained consumer," echoing recent comments from rivals. Wal-Mart Stores Inc a few weeks ago said sharp cuts in food stamp benefits and higher payroll taxes had pinched its customers.

• EMERGING MARKETS-Latam stocks fall on weak Chinese trade data.

South China Morning Post:

• Beijing rules out strong stimulus despite trade decline. Beijing maintains emphasis on structural reforms and urbanisation to drive growth after a decline in exports and imports for March. He said: "We won't adopt short-term strong stimulus policies just because of temporary fluctuations in the economy. Instead, we will put more emphasis on promoting healthy development.

Bear Radar

Style Underperformer:

• Small-Cap Growth -2.82%

Sector Underperformers:

• 1) Biotech -5.71% 2) Social Media -4.02% 3) Alt Energy -3.33%

Stocks Falling on Unusual Volume:

• HCLP, BBBY, TS, APAM, PSMT, CTRX, CBSH, FDO, TM, COG, APOG, ALG, EBAY, HQH, CTCT, POOL, HIBB, FMBI, TQQQ, HMC, VISN, IBB, WUBA, N, CRS, NMBL, MNST, GILD, CTRX, FEYE, NOW and IMPV

Stocks With Unusual Put Option Activity:

• 1) XBI 2) BBBY 3) ADM 4) EWY 5) WDAY
  

Stocks With Most Negative News Mentions:

• 1) CVX 2) BBBY 3) GS 4) PCLN 5) COG
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +.45%

Sector Outperformers:

• 1) Tobacco +.19% 2) Utilities +.09% 3) Telecom +.07%
  

Stocks Rising on Unusual Volume:

• CSH

Stocks With Unusual Call Option Activity:

• 1) KOG 2) HST 3) SE 4) RAD 5) BBBY

Stocks With Most Positive News Mentions:

• 1) COST 2) RAD 3) ADP 4) LNKD 5) NKE
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Thursday Watch

Evening Headlines 
Bloomberg: 

• Putin Seen Signing China Gas Deal as Crisis Forces Russia’s Hand. Vladimir Putin is more likely to sign a 30-year deal to supply pipeline gas to China next month after more than a decade of false starts because the crisis in Ukraine is forcing Russia to look for markets outside Europe.

• Ukraine’s Rust Belt Fears Ruin as Putin Threatens to Choke Trade. For Pavel Cesnek, the future of his sprawling locomotive maker in eastern Ukraine lies in the balance and its fate will be sealed across the Russian border. The head of Luganskteplovoz in the city of Luhansk rules over a communist-era factory and workforce of 6,500 that builds trains primarily for state-run OAO Russian Railways. Like many local businessmen, he fears the pro-European government in Kiev will antagonize the Kremlin into unleashing trade restrictions that could wipe out industry across Ukraine’s rust belt. “Trade ties with Russia are an existential question -- to be or not to be,” said the 40-year-old Czech. “Without Russia, there’d be a total collapse for me, my workers and my owner.”

• PC Shipments Drop; Corporate Demand Slows Pace of Decline. Worldwide personal-computer shipments dropped in the first quarter as consumers in emerging markets opted for smartphones and tablets, while corporate demand helped slow the pace of the decline, researchers said. Unit sales fell 1.7 percent from a year earlier to 76.6 million, market researcher Gartner Inc. said today in a statement. IDC, another technology-research firm, said quarterly shipments worldwide fell 4.4 percent to 73.4 million. The PC market is on course for a third annual contraction, threatening earnings at companies that rely on sales of the devices, such as Intel Corp. (INTC) and Hewlett-Packard Co. 

• Asian Stocks Pare Gains With Aussie as China Trade Drops. Asian stocks pared gains and Australia’s dollar trimmed its advance as Chinese trade figures unexpectedly fell, tempering optimism after the Federal Reserve eased concern about when U.S. rates will rise. Indonesian equities tumbled after elections failed to show a clear winner. The MSCI Asia Pacific Index advanced 0.3 percent by 11:41 a.m. in Tokyo, after gaining as much as 0.9 percent before China’s data release.

• Gold Near Two-Week High on Speculation U.S. Rates Will Stay Low. Bullion for immediate delivery traded at $1,313.13 an ounce at 8:41 a.m. in Singapore from $1,311.80 yesterday, when the metal completed a two-day advance that’s the longest streak in a month, according to Bloomberg generic pricing.

• Iron-Ore Bear Market Deepens as Aussie Mines Expand: Commodities. The world is mining more iron ore than steelmakers need. Australia, the largest supplier, sent 504 ships from Port Hedland during the first quarter carrying enough iron-ore exports to build more than 700 Golden Gate Bridges. Shipments jumped 35 percent to the biggest buyer, China, where inventories have ballooned to the highest ever. After companies including BHP Billiton Ltd. and Rio Tinto Group expanded capacity to meet surging steel demand, output is climbing just as China’s economy slows to the weakest since 1990. Prices that already are down 14 percent in the past year will slump at least 16 percent further in the second half to less than $100 a metric ton, the lowest level since 2012, according to Credit Suisse Group AG and Standard Chartered Plc.

• JPMorgan’s(JPM) Dimon Says Cyber Intruders Could Breach Bank Defenses. JPMorgan Chase & Co. (JPM) is facing “increasingly complex and more dangerous” cyberattacks and some of the intruders may get through, Chief Executive Officer Jamie Dimon said. “It is going to be a continual and likely never-ending battle to stay ahead of it -- and, unfortunately, not every battle will be won,” Dimon wrote today in his annual letter to shareholders of the New York-based bank. The company will boost spending on cybersecurity to $250 million this year from $200 million in 2012, with future efforts expanding “exponentially,” he wrote.

• Bed Bath & Beyond(BBBY) Drops After Profit Forecast Trails Estimates. Bed Bath & Beyond Inc. (BBBY) tumbled as much as 5.9 percent in late trading after the retail chain’s first-quarter profit forecast fell short of analysts’ estimates.

Wall Street Journal: 

• Pro-Russia Citizens of Eastern Ukraine Occupy Buildings and Wait for Russia. 'Donetsk People's Republic' Wants Independence From Kiev; Moscow Hasn't Responded—So Far.

• G-7 Mulls New Sanctions Against Russia. Ministers Consider Formal Warning as Putin Ratchets Up Pressure on Ukraine Over Energy Supplies. 

• IRS at the Crossroads. New evidence that Lois Lerner targeted conservative groups.

CNBC: 

• Dimon warns regulation will push credit costs higher. Jamie Dimon, chief executive of JPMorgan Chase, has warned that customers will face more costly credit or be denied certain financial products altogether as a result of tougher regulation. Mr Dimon is famous for clashing with regulators, including Mark Carney, head of the Financial Stability Board and now governor of the Bank of England, as well as slamming capital rules as "anti-American".

Zero Hedge: 

• The Stunning Metamorphosis Of An "Obama Girl".

• Fed Cat Bounce. (graph)

• Citi(C) Warns The Leverage Clock Is Ticking. (graph)

• US Households To Withdraw $430 Billion From Stocks In 2014 - Most Since Last Bubble. (graph)

• Fed Admits Policies Benefit Rich, Fears For "Nation's Democratic Heritage".

• 16 Signs That Most Americans Are Not Prepared For The Coming Economic Collapse.

• China Warns Obama "US Is Moving In A Direction We Don't Want To See".

• Asian Data Double Whammy Sparks FOMC-Exuberance Unwind.

Business Insider:

• Two Absolutely Awful Datapoints From Japan.

• The US Is Reportedly Refusing To Give Ukraine Intelligence About An Impending Russian Invasion.

Reuters:

• Chevron(CVX) expects first-quarter profit to slip. Chevron Corp, the second-largest oil company in the United States, said on Wednesday it expected first-quarter income to slip because of high currency conversion costs and environmental charges in its mining unit.

Evening Recommendations

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 121.75 -.75 basis point.

• Asia Pacific Sovereign CDS Index 86.5 -1.25 basis points.

• FTSE-100 futures +.30%.

• S&P 500 futures -.04%.

• NASDAQ 100 futures  -.04%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (PIR)/.41

• (RAD)/.04

• (FDO)/.89

• (TITN)/.20

Economic Releases
8:30 am EST

• Initial Jobless Claims are estimated to fall to 320K versus 326K the prior week.

• Continuing Claims are estimated to fall to 2835K versus 2836K prior.

• Import Price Index for March is estimated to rise +.2% versus a +.9% gain in February.

2:00 pm EST

• The Monthly Budget Deficit for March is estimated at -$36.0B versus -$106.5B in February.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Evans speaking, China inflation data, BoE rate decision, $13B 30Y T-Bond auction, weekly EIA natural gas inventory report, Bloomberg April US Economic Survey, weekly Bloomberg Consumer Comfort Index, (COP) analyst meeting, (HST) investor day and the (PSX) analyst meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by real estate and financial shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 50% net long heading into the day.

Stocks Surging into Final Hour on Central Bank Hopes, Yen Weakness, Short-Covering, Biotech/Tech Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Slightly Below Average

• Market Leading Stocks: Outperforming

Equity Investor Angst:

• Volatility(VIX) 13.89 -6.72%

• Euro/Yen Carry Return Index 147.07 +.36%

• Emerging Markets Currency Volatility(VXY) 8.19 +.61%

• S&P 500 Implied Correlation 52.91 -5.53%

• ISE Sentiment Index 90.0 +9.76%

• Total Put/Call .56 -38.46% 

• NYSE Arms 1.26 +29.47% 

Credit Investor Angst:

• North American Investment Grade CDS Index 66.03 -2.39%

• European Financial Sector CDS Index 81.99 -2.35%

• Western Europe Sovereign Debt CDS Index 42.55 +1.40%

• Asia Pacific Sovereign Debt CDS Index 86.97 -1.03%

• Emerging Market CDS Index 271.11 -3.37%

• China Blended Corporate Spread Index 354.02 -.34%

• 2-Year Swap Spread 13.5 +.5 basis point

• TED Spread 19.75 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -1.25 +.75 basis point

Economic Gauges:

• 3-Month T-Bill Yield .03% unch.

• Yield Curve 232.0 +4.0 basis points

• China Import Iron Ore Spot $119.40/Metric Tonne +1.02%

• Citi US Economic Surprise Index -45.20 unch.

• Citi Emerging Markets Economic Surprise Index -3.10 +1.0 point

• 10-Year TIPS Spread 2.14 +2.o basis points

Overseas Futures:

• Nikkei Futures: Indicating +165 open in Japan

• DAX Futures: Indicating +39 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 75% Net Long