Stocks Rising into Final Hour on Central Bank Hopes, Buyout Speculation, Yen Weakness, Tech/Defense Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Mixed
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 13.28 -.25%

• Euro/Yen Carry Return Index 140.35 +.37%

• Emerging Markets Currency Volatility(VXY) 9.82 -.91%

• S&P 500 Implied Correlation 60.12 -1.05%

• ISE Sentiment Index 165.0 +44.74%

• Total Put/Call 1.05 +6.06%

• NYSE Arms 1.24 -24.30% 

Credit Investor Angst:

• North American Investment Grade CDS Index 60.75 -.81%
• America Energy Sector High-Yield CDS Index 652.0 +.01%

• European Financial Sector CDS Index 55.77 +2.71%

• Western Europe Sovereign Debt CDS Index 21.58 -4.11%
• Asia Pacific Sovereign Debt CDS Index 60.10 +.71%

• Emerging Market CDS Index 374.33 -.35%

• iBoxx Offshore RMB China Corporates High Yield Index 114.31 -.10%
• 2-Year Swap Spread 25.25 +.5 basis point

• TED Spread 25.75 +1.25 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -22.25 +.5 basis point

Economic Gauges:

• 3-Month T-Bill Yield .01% unch.

• Yield Curve 142.0 +5.0 basis points

• China Import Iron Ore Spot $62.83/Metric Tonne +.43%

• Citi US Economic Surprise Index -49.20 -2.5 points
• Citi Eurozone Economic Surprise Index 58.0 +7.0 points

• Citi Emerging Markets Economic Surprise Index -2.3 +5.0 points

• 10-Year TIPS Spread 1.83 -1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating +98 open in Japan

• DAX Futures: Indicating -1 open in Germany

Portfolio: 

• Higher: On gains in my biotech/tech/medical/retail sector longs and emerging markets shorts 

• Disclosed Trades: None

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:  

• Body Language Reflects Chill as Kerry and Lavrov Discuss Ukraine. U.S. Secretary of State John Kerry and Russian Foreign Minister Sergei Lavrov, unsmiling and standing stiffly, let their body language speak for them before heading into private talks Monday in Geneva. Afterward, they showed there was little to smile about. 

• How Much More Economic Pain Can Vladimir Putin Take? It looks like the one-two punch of sanctions and cheap oil are about to wreck Russia.

• Greece May Need Third Rescue, EU’s Dombrovskis Says. Greece could need a third bailout deal when its current program expires in June because markets may still not be prepared to lend to its government, even with a euro-area credit line, European Commission Vice President Valdis Dombrovskis said. Prime Minister Alexis Tsipras, elected in January, said Friday his government won’t need another bailout. Greece has received pledges of 240 billion euros ($269 billion) in aid from its two rescue packages, and Tsipras’s government must meet creditor demands to tap remaining funds. 

• China Has Too Much Debt, PBOC Will Cut Rates Again: Every. (video)

• Record Home Sales in Sydney Add to Bubble Fear. Sydneysiders wanting to sell their homes have never had it easier. The proportion of successful house auctions in Australia's largest city was above 80% at the weekend for the fourth week in a row. That is the longest stretch on record and highlights the potential consequences of a projected interest-rate cut. Governor Glenn Stevens's effort to revive business investment with cheap finance is adding fuel to the country's biggest property market. Home sellers may get a further boost, with 18 of 29 economists forecasting a 25-basis-point cash rate reduction on Tuesday.

• Bill Gross Says Currency War Risks Slowing Global Growth. Bill Gross said a global race to devalue currencies in an “undeclared” war risks slowing growth instead of stimulating it. Central bank policies have pushed interest rates below zero in Europe, and countries including China and Japan appear to be devaluing their currencies, he wrote in an investment outlook for Janus Capital Group Inc., where he runs the $1.5 billion Global Unconstrained Bond Fund. While such moves make debt burdens more tolerable and exports cheaper, they are bound to hurt the global economy as a whole, he wrote. “Common sense would argue the global economy cannot devalue against itself,” Gross wrote. “Either the strong dollar weakens the world’s current growth locomotive (the U.S.) or else their near in unison devaluation effort fails to lead to the desired results.”  

• Emerging Currencies Decline to One-Week Low After China Rate Cut. Emerging-market currencies fell for a third day after a Chinese interest-rate cut pushed the yuan to a 2012 low and the ruble and Brazilian real led declines in developing Europe and Latin America. The yuan slid to as low as 6.274 against the dollar after rates were reduced for the second time in three months. The ruble dropped 0.9 percent. The real weakened 1.4 percent. South Africa’s rand sank to a one-week low after weaker-than-predicted manufacturing data followed a report last week showing a trade deficit. Developing-nation equities fell for a second day.

• Europe Stocks Fall From Highest Since 2007 as Energy Shares Drop. European stocks declined from their highest level in more than seven years as energy companies slid. The Stoxx Europe 600 Index retreated 0.2 percent to 391.29 at the close of trading, paring earlier losses of as much as 0.7 percent.

• Corporate-Bond Market Poses Systemic Risk, SEC’s Gallagher Says. A lack of liquidity in corporate-bond markets could pose a “systemic risk” to the economy when interest rates rise, U.S. Securities and Exchange Commission member Daniel Gallagher said. Gallagher, a Republican, warned that the Financial Stability Oversight Council, a group of U.S. regulators that monitors emerging systemic risks, hasn’t paid enough attention to the $7.3 trillion corporate-bond market, which has ballooned over the past seven years amid low interest rates. He made the remarks Monday at a banking conference in Washington.

• Barclays: Here Are Three Unpleasant Facts Tesla(TSLA) Wants Investors to Ignore.

ZeroHedge: 

• This Is What The Entire World Frontrunning The ECB Looks Like. (graph)

• How Badly Did Hedge Funds Underperform In February. (graph)

• Russia Warns NATO: Any Threat In Ukraine Will See Military Response.

• The Three Acronyms That Best Describe This Era: TINA, TANSTAAFL And FUGAZI.

• Mission Accomplished: Nasdaq 5000. (graph)

• Housing Bubble Redux: Subprime Auto Market Begins To Crack.

• ISM Manufacturing Tumbles To 13-Month Lows, Employment Slumps, Construction Spending Plunges. (graph)

• Theater Of The Absurd: Spain To Provide 14% Of Funds For Third Greek Bailout.

• US Savings Rate Surges To Highest Since 2012 As Consumers Save "Gas Tax Cut" Instead Of Spending. (graph)

Business Insider:

• Boko Haram is now using one of ISIS's most shocking tactics.

• Meet Tesla's(TSLA) sexy new challenger — the electric Audi R8 e-tron supercar.

Telegraph: 

• French factory decline even worse than Greece. New orders dry up and overseas demand falls, as output contracts in France at an even faster rate than in troubled Greece.

Daily Mail:

• Isis 'fed murdered kidnap victim to his own mother after she travelled to their headquarters and demanded to see him'.

Bear Radar

Style Underperformer:

• Mid-Cap Value -.06%

Sector Underperformers:

• 1) Gold & Silver -2.08% 2) Steel -1.86% 3) Energy -1.52%

Stocks Falling on Unusual Volume:

• SQBK, LL, ES, CORE, LPI, NAVI, LXU, CLM, PCRX, ROVI, ENOC, AKAO, WTW, BPOP, SIR, OSK, BPT, INXN, PACW, IEP, SCMP, KYTH, SYNA, HAWK, BID, RKUS, TUBE and VDSI

Stocks With Unusual Put Option Activity:

• 1) MBI 2) LL 3) XLE 4) BBY 5) XLK

Stocks With Most Negative News Mentions:

• 1) NAVI 2) ESV 3) JOY 4) ARUN 5) CHK
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Value +.58%

Sector Outperformers:

• 1) Semis +2.23% 2) Defense +1.41% 3) Airlines +1.38%
  

Stocks Rising on Unusual Volume:

• MVNR, EYES, NXPI, FSL, OMER, SMRT, SONC, ZIOP, RCAP and AMBA

Stocks With Unusual Call Option Activity:

• 1) ANF 2) GSAT 3) STX 4) THC 5) RMBS
  

Stocks With Most Positive News Mentions:

• 1) SONC 2) NXPI 3) FSL 4) JNJ 5) F
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Monday Watch

Weekend Headlines 
Bloomberg: 

• Russian Opposition Gathers in Moscow to Honor Murdered Nemtsov. Tens of thousands marched through Moscow to honor slain political activist Boris Nemtsov in the biggest show of support for Russia’s opposition in three years. The city’s police estimated 21,000 people attended, while Golos, a non-profit monitoring organization, said more than 50,000 took part. Protesters, led by former Prime Minister Mikhail Kasyanov, chanted slogans such as “Russia without Putin” as they passed the bridge near St. Basil’s Cathedral where Nemtsov, 55, was shot dead Friday. “The fact that all this could happen in Russia in the 21st century near the Kremlin walls, is shocking a lot of people,” Kasyanov told Bloomberg News. “Today’s demonstrators aren’t only our activists, but first of all, of course, people who care what is happening in the country.”

• Nemtsov Sought to Show Russia Is in Ukraine, Poroshenko Says. Ukrainian President Petro Poroshenko said his “friend” Boris Nemtsov, a Russian opposition leader gunned down on a sidewalk near the Kremlin overnight, wanted to show proof that his country’s troops are in Ukraine. Nemtsov, who was scheduled to lead a Sunday protest against Russian President Vladimir Putin and the conflict in Ukraine, was working on a report about Russia’s involvement, according to fellow opposition activist Ilya Yashin. His murder happened just before artillery fell mostly silent for the second time in a week as government forces and the separatists said they were pulling back weapons in line with a Feb. 15 cease-fire.  

• Murder in the Heart of Moscow Has Hallmarks of Professional Hit. The Friday night killing of Russian opposition leader Boris Nemtsov just outside the Kremlin, in one of the most closely watched areas of Russia, bears all the signs of having been planned and executed by professionals. That’s the assessment of former intelligence officials, analysts and activists familiar with the case. The murder turned a planned rally against President Vladimir Putin into a vigil Sunday to mourn Nemtsov, 55, who Ukrainian President Petro Poroshenko said was writing a report on Russia’s involvement in the neighboring country’s conflict.

• Ukrainian Economy Starts to Buckle Behind Cloak of Calm in Kiev. Ukrainians are seeing signs the economy is cracking under the weight of war and the risk of default.  

• Rajoy Denies Tsipras Claim That Spain Sought to Undermine Greece. Spanish Prime Minister Mariano Rajoy rejected remarks from his Greek counterpart accusing Spain and Portugal of trying to undermine Greece’s government. Spain is committed to help Greece, as the 26 billion euros ($29 billion) of loans and guarantees already provided to the Greek bailout show, said Rajoy at a political event in Seville today. Greek Prime Minister Alexis Tsipras, speaking yesterday in Athens, said Spain and Portugal took negotiations over Greece’s bailout to the brink of failure in a bid to avoid domestic political consequences.

• Hong Kong Moves to Cool Property Prices. (video) 

• Asian Stocks Advance as Chinese Central Bank Cuts Interest Rates. Asian stocks gained after Chinese policy makers increased efforts to spur growth in Asia’s largest economy. Almost two shares rose for each that fell, as the MSCI Asia Pacific Index added 0.2 percent to 146.44 as of 9:08 a.m. in Tokyo.  

• Oil Drops as Gain in Saudi Arabian Output Boosts OPEC Production. Oil fell after posting the first monthly gain since June as Saudi Arabia stepped up production, lifting OPEC’s output beyond its collective quota for a ninth month. Futures decreased as much as 1.1 percent in New York. The Organization of Petroleum Exporting Countries pumped 30.6 million barrels a day in February, according to a Bloomberg survey. Saudi Arabia’s output rose by 130,000 barrels a day to 9.85 million a day, the highest level since September 2013, a Bloomberg survey of companies, producers and analysts shows. The country pumps the most crude among the 12 nations of OPEC, which supplies about 40 percent of the world’s oil.

• Bearish Oil Wagers Surge to Record as Glut Keeps Growing: Energy. Hedge funds raised bearish wagers on oil to an all-time high, speculating crude has further to fall as the supply glut keeps swelling. Money managers increased short positions in West Texas Intermediate crude by 17 percent in the seven days ended Feb. 24, U.S. Commodity Futures Trading Commission data show. Net-long positions slid to the lowest in seven weeks. Stockpiles in the U.S. have risen for seven consecutive weeks to a record 434.1 million barrels. Domestic production is continually topping weekly records, reaching 9.29 million barrels a day during the report period, while an unprecedented decline in oil drilling rigs is showing signs of slowing.  

• Hands-On With the Samsung Galaxy S6 and S6 Edge. (video) These aren't just new phones; they're throw-downs—challenges to Apple(AAPL).

Wall Street Journal:

• Fed’s Williams Sees Full U.S. Employment by Year End. The U.S. economy will be operating at “full employment” by the end of this year as the unemployment rate drops to 5%, said John Williams, president of the Federal Reserve Bank of San Francisco, on Sunday.

• Institutions Pour Cash Into Bond ETFs. Move to exchange-traded funds comes as big investors deal with bond-trading challenges. Institutions are piling into exchange-traded bond funds at the fastest pace on record, driven by forces reshaping the increasingly illiquid corporate-debt market and their desire to stay nimble ahead of expected interest-rate moves.

• Putin’s Culture of Fear and Death by Garry Kasparov. Boris Nemtsov threw his big body, big voice and big heart into the uphill battle to keep democracy alive in Russia.

Fox News:

• Israel PM Benjamin Netanyahu heads to Washington to address Congress. (video) Israeli Prime Minister Benjamin Netanyahu headed to Washington on Sunday to press his case against an emerging deal on Iran's nuclear program in a contentious address to the U.S. Congress, which he said he is delivering out of concern for Israel's security.

MarketWatch.com:

• China rate cut renews economic concerns. The central bank renewed concerns about an array of issues weighing on the economy: a slumping property market, capital flight that is squeezing banks' ability to lend, and growing risks of falling prices that, in effect, are pushing up borrowing costs for businesses.

Zero Hedge:

• Prominent Politician And Putin Critic Shot To Death In Moscow; "Shocked" John Kerry Urges Russia To Bring Justice.

• Self-Aware? World's Largest Hedge Fund Shifts Strategy To Artificial Intelligence.

• China And The Dragon Tail Of Marx.

• In "Paranormal" Europe, Banks Will Pay You To Borrow, And Charge You To Save.

• 5 Things To Ponder: Weekend Catch Up. (graph)

• Chart Of The Day - Fantasy February Edition.

• "Monetary Policy Is Bankrupt" Dr. Lacy Hunt Warns "Bonds, Not Stocks, Are A Good Economic Indicator".

• The Forgotten War – Understanding The Incredible Debacle Left Behind By NATO In Libya.

• China Cuts Interest Rates, Takes Number Of Central Banks Easing In 2015 To 21.

• Here Is The Reason Why Stocks Just Had Their Best Month Since October 2011. (graph)

• As Greece Scrambles To End Its Bank Run, JPM Throws A Wrench: Says Deposit Outflows Continued After "Deal". (graph)

• Grant Williams: Why The Smart Money Is So Nervous Now.

• Annaly CEO: Central Bankers Are Witch Doctors, Demands "Return To Market-Driven Pricing".

• Breaking Bad (Debt) - Episode One. (graph)

• 1987 Or 2015? The Gap Between Growth Expectations & Valuations Is "Ridiculous". (graph)

• Spot The Birth Of High-Frequency Trading. (graph)

• Obama Decrees Ban On Ammo For The Most Popular Rifle In America.

• "Massive Mis-Governance" - Q4 Obliterates The Case For QE And ZIRP.

• "Spectacular Developments" In Austria: Bail-In Arrives After €7.6 Billion Bad Bank Capital Hole "Discovered".

• David Stockman Warns "It's One Of The Scariest Moments In History". (video)

• Taking The Monetary Policy Ride Into The Theater Of The Absurd.

• World's Largest Container-Shipper Warns Global Trade Is Slowing Down. (graph)

• More Flash Crashes To Come As Shadow Banking Liquidity Collapses.

• Meanwhile, Over At The "New York" Stock Exchange... Lasers. (pic)

• Paul Krugman Is The Brian Williams Of Economics Bloggers.

• Corruption Crackdown Costs - Macau Casino Revenues Collapse "Shockingly Bad" 53%. (graph)

• Are Central Banks Creating Deflation? (graph) It’s that linkage between investment (or the lack of it) and all the stimulus which we find so disturbing. If the first $5tn of global QE, which saw corporate bond yields in both $ and € fall to all-time lows, didn’t prompt a wave of investment, what do we think a sixth trillion is going to do? Another client put it more strongly still. “By lowering the cost of borrowing, QE has lowered the risk of default. This has led to overcapacity (see highly leveraged shale companies). Overcapacity leads to deflation. With QE, are central banks manufacturing what they are trying to defeat?”

Business Insider:

• Greece's tragedy has entered act II.

• Killed Russian opposition leader Boris Nemtsov vowed to 'free Russia from Putin'.

• The UN condemns Islamic State's 'barbaric terrorist acts' in Iraq.

• BREMMER: The outlook for US-Russia relations just reached a new low for the post-Cold War era.

• This is NYC's coldest February in 81 years.

• The Greek government is calling for a radical new 'basic income' welfare policy.

• Berkshire Hathaway(BRK/A) earnings missed by $289 per share.

• ISIS just attacked a northern Iraqi city with suicide bombers and sniper fire.

• This quote from former chess champion Garry Kasparov captures the significance of a Russian opposition leader's murder.

• Putin now has the elite exactly where he wants them — terrified.

New York Times:

• Wells Fargo(WFC) Puts a Ceiling on Subprime Auto Loans. Wells Fargo, one of the largest subprime car lenders, is pulling back from that roaring market, a move that is being felt throughout the broader auto industry.

ValueWalk:

• Seward & Kissel: Newly-formed Hedge Funds Study.

Reuters:

• Exclusive: NXP(NXPI) nears deal for Freescale Semiconductor(FSL) - sources. NXP Semiconductors NV is close to a deal to acquire smaller peer Freescale Semiconductor Ltd in a $40 billion cash and stock merger that will reshape the semiconductor industry, according to two people familiar with the matter.

• Japan business capex growth slows in Q4, points to economic headwinds. Japanese corporate capital expenditures grew in October-December from a year earlier but the pace slowed from the prior quarter, casting doubt about strength of business investment seen as key to spurring growth in the world's third-largest economy. The 2.8 percent year-on-year increase in capital spending in the fourth quarter followed a 5.5 percent annual gain in July-September, data by the Ministry of Finance showed on Monday.

Telegraph:

• China’s bursting coal bubble raises fear of stranded assets. A shift in policy towards cleaner energy has seen a dramatic slowdown in china's demand for coal.

21st Century Business Herald:

• China Doesn't Have Condition for Massive Loosening. China doesn't have conditions for massive loosening and stimulus, Yang Tao, researcher at Chinese Academy of Social Sciences, writes. Cuts in interest rate and reserve requirement ratio mainly aims to weaken market expectations on deflation.

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 98.25 -1.75 basis points.

• Asia Pacific Sovereign CDS Index 59.25 -1.75 basis points.

• S&P 500 futures +.11%.

• NASDAQ 100 futures +.15%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (FSS)/.28

• (ICPT)/-1.62

• (BID)/1.28

• (SSYS)/.49

• (MBI)/.11

• (MDR)/-.06

• (SLXP)/-.29

• (PANW)/.17

• (NBR)/.39

• (MYL)/1.05

Economic Releases
8:30 am EST

• Personal Income for January is estimated to rise +.4% versus a +.3% gain in December.

• Personal Spending for January is estimated to fall -.1% versus a -.3% decline in December.

• The PCE Core for January is estimated to rise +.1% versus unch. in December.
  

9:45 am EST

• Final Markit US Manufacturing PMI for February is estimated at 54.3 versus 54.3 in January.

10:00 am EST

• Construction Spending for January is estimated to rise +.3% versus a +.4% gain in December.

• ISM Manufacturing for February is estimated to fall to 53.0 versus 53.5 in January.

• ISM Prices Paid for February is estimated to rise to 37.0 versus 35.0 in January.
  

Upcoming Splits

• (NJR) 2-for-1

• (HBI) 4-for-1

Other Potential Market Movers

• The Eurozone PMI, Eurozone CPI, RBA rate decision, Cowen Health Care Conference and the Morgan Stanley Tech/Media/Telecom Conference could also impact trading today.

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

Weekly Outlook

Wall St. Week Ahead by Reuters.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week mixed as Russia/Ukraine tensions, global growth fears and earnings concerns offset diminished European debt angst, buyout speculation and central bank hopes. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 50% net long heading into the week.