Stocks Higher into Final Hour on Less European/US High-Yield Debt Angst, Technical Buying, Short-Covering, Biotech/Restaurant Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Higher
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 12.73 -2.75%

• Euro/Yen Carry Return Index 133.13 -.84%

• Emerging Markets Currency Volatility(VXY) 9.97 +.81%

• S&P 500 Implied Correlation 61.91 -2.23%

• ISE Sentiment Index 106.0 -13.82%

• Total Put/Call .77 -24.51%

• NYSE Arms .72 -3.92% 

Credit Investor Angst:

• North American Investment Grade CDS Index 60.50 -.18%

• America Energy Sector High-Yield CDS Index 1,113.0 +1.45%

• European Financial Sector CDS Index 62.46 -4.06%

• Western Europe Sovereign Debt CDS Index 21.91 -.07%

• Asia Pacific Sovereign Debt CDS Index 58.32 +.06%

• Emerging Market CDS Index 297.59 +1.01%
  

• iBoxx Offshore RMB China Corporates High Yield Index 115.24 +.17%

• 2-Year Swap Spread 26.50 +.5 basis point

• TED Spread 25.0 -.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -21.25 unch.

Economic Gauges:

• 3-Month T-Bill Yield .02% unch.

• Yield Curve 139.0 -2.0 basis points

• China Import Iron Ore Spot $47.53/Metric Tonne -1.68%

• Citi US Economic Surprise Index -52.20 +1.3 points

• Citi Eurozone Economic Surprise Index 56.90 +.5 point

• Citi Emerging Markets Economic Surprise Index 9.0 +3.8 points

• 10-Year TIPS Spread 1.82 -2.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating +167 open in Japan

• DAX Futures: Indicating +37 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 75% Net Long

Today's Headlines

Bloomberg:  

• Euro’s Reserve Status Jeopardized as Central Banks Dump Holdings. Quantitative easing may be helping Europe achieve its economic targets, but it’s also undermining the long-term viability of the euro by tarnishing its allure as a global reserve currency. Central banks cut their euro holdings by the most on record last year in anticipation of losses tied to unprecedented stimulus. The euro now accounts for just 22 percent of worldwide reserves, down from 28 percent before the region’s debt crisis five years ago, while dollar and yen holdings have both climbed, the latest data from the International Monetary Fund show.   
• Any Greece Deal Signals ‘Kicking the Can’: Craig. (video)
• European Stocks Extend Record for Best Weekly Gain Since January. European stocks extended an all-time high, posting their biggest weekly gain since January. The Stoxx Europe 600 Index advanced 0.9 percent to 412.93 at the close of trading in London. It has climbed 3.8 percent in a holiday-shortened week.
• Iron Ore Aid in China Will Prolong Global Glut, Fitch Says. Policies to help sustain iron ore production in China will only prolong a global surplus, according to Fitch Ratings Ltd., which said the government’s move this week to cut miners’ taxes will have limited impact as prices sink.
• VIX Finds Comfort Zone as Fed Soothes Investors’ Profits Anxiety. Investors are facing the prospects of declining corporate earnings, slower economic growth and higher interest rates. Yet a gauge of market volatility is showing a level of comfort not felt in almost two years. The Chicago Board Options Exchange Volatility Index, which is derived from the price of hedges on the Standard & Poor’s 500 Index, closed Thursday more than 10 percent below its 10-day, 50-day and 200-day moving averages. Before March, the gauge of U.S. equity trader anxiety hadn’t fallen that much since July 2013, data compiled by Sundial Capital Research Inc. show.
• Blackstone(BX) Goes on Biggest Real Estate Spree Since Boom. Blackstone Group LP cemented its position as the world’s biggest private-equity investor in real estate with a global buying spree that includes General Electric Co. assets and a California-based shopping-center owner. The agreement to buy GE real estate assets valued at $23 billion in a joint deal with Wells Fargo & Co. is the largest real estate transaction since the financial crisis and among the biggest for New York-based Blackstone, whose purchases include the record $39 billion acquisition of Equity Office Properties Trust in 2007 and the $26 billion takeover of Hilton Worldwide Inc. the same year.
• U.S. States Aren't Prepared for the Next Fiscal Shock. U.S. states, still grappling with the lingering effects of the longest recession since the 1930s, are even more vulnerable to another fiscal shock. The governments have a little more than half the reserves they’d stashed away before the 18-month recession that ended in June 2009, according to a report last month by Pew Charitable Trusts. New Jersey, Pennsylvania, Illinois and Arkansas have saved the least. 
• Fed’s Lacker Favors June Liftoff Even as Recent Data Weak. Federal Reserve Bank of Richmond President Jeffrey Lacker said he continues to favor a first interest rate increase in June because recent soft readings on the economy will probably prove temporary. “Readings on some indicators have been unexpectedly weak in recent weeks, some of which may be attributable to unseasonably adverse weather,” Lacker, who votes on monetary policy this year, said in Sarasota, Florida, on Friday. “It’s too soon say how much, however, and the more prudent approach is to look through very short-term fluctuations.” “I expect that, unless incoming economic reports diverge substantially from projections, the case for raising rates will remain strong at the June meeting,” Lacker said to an event hosted by the Global Interdependence Center and the Financial Planning Association of the Suncoast. The comments were similar to a speech he gave on March 31.

Wall Street Journal:

• Liberal Democrats Try to Push Hillary Clinton Left. Some Democrats think Hillary Clinton isn’t liberal enough, posing a challenge to her as she prepares for a presidential campaign.

MarketWatch.com: 

• Moody's downgrades GE debt after news to exit GE Capital, buy back $50 bln of shares. 
• Leading indicators signal a market top.

CNBC:

• Obamacare sticks some enrollees with unexpected bill.

ZeroHedge:

• Iran Unveils "Suicide Drones" Amid Nuclear Deal Talks.
• Greece Releases Graphic Footage From Nazi Occupation, Ups WWII Reparations Pressure. (video)
• How GE Will Fund The Largest Stock Buyback In History.
• Auto Import Prices Tumble Most On Record As Import Prices Plunge Most Since Financial Crisis. (graph)

Business Insider:

• The Apple(AAPL) Watch was 'largely sold out' in just 10 minutes.
• It's official: Michael Kors(KORS) isn't cool anymore.
• US oil rig count keeps collapsing, falls to lowest since December 2010. (graph)
• Russia just held a military exercise in a 'breakaway republic' in eastern Europe.
• Here are the political leanings of executives and employees at the biggest US companies.
• Iran's supreme leader just gave a speech that could put a nuclear deal out of reach.

NY Times:

• China Is Said to Use Powerful New Weapon to Censor Internet.  Late last month, China began flooding American websites with a barrage of Internet traffic in an apparent effort to take out services that allow China’s Internet users to view websites otherwise blocked in the country. Initial security reports suggested that China had crippled the services by exploiting its own Internet filter — known as the Great Firewall — to redirect overwhelming amounts of traffic to its targets. Now, researchers at the University of California, Berkeley, and the University of Toronto say China did not use the Great Firewall after all, but rather a powerful new weapon that they are calling the Great Cannon.

Financial Times:

• QE may not have been worth the costs. Even when the limits of these policies become evident, the solution appears more of the same rather than calls for a different approach. A new report from Swiss Re is changing that. The report calculates that US savers alone have lost $470bn in interest rate income — and that is net of lower debt costs. Central bank policies involve “a whole host of unintended consequences; asset price bubbles, an impaired credit intermediation process and increasing economic inequality are just a few,” the report warns.

The Independent:

• Yazidi sex slaves 'gang-raped in public' by Isis fighters, harrowing accounts reveal. Yazidi women released by Isis this week were gang-raped in public by fighters and tortured by their captors, according to distressing accounts of their ordeals. Hundreds of women and children were abducted from the town of Sinjar, in northern Iraq, and held hostage by Isis for over eight months. Some were sold to fighters as sex slaves or given as ‘prizes’. Many were beaten and forced to convert to Islam. "If you come and sit with the girls you will find different stories from girl to girl. A lot of them have been sold to Isis fighters, they have been raped in [...] public, and by more than two or three people at a time," he told the International Business Times. "They were tortured, beaten and subject to any type of violence."

CCTV:

• Li Says China's Economy Faces Increasing Downward Pressure. Premier Li Keqiang says China's northeastern region faces bigger economic downward pressure than nationwide, citing comments made by Li at a seminar.

Bear Radar

Style Underperformer:

• Mid-Cap Growth +.09%

Sector Underperformers:

• 1) Gaming -1.04% 2) Coal -.89% 3) I-Banks -.53%

Stocks Falling on Unusual Volume:

• QURE, CTXS, LPLA, MVNR, FIS, ACH, GY, NSAM, ANGO, PRI, PSMT, AMP, YZC, VOYA, FRPT, AGX, CHU, DOV, CMP, BSET, RJF, PFG, YOKU, DGLY and GY

Stocks With Unusual Put Option Activity:

• 1) GE 2) XHB 3) EWH 4) ALTR 5) NTAP
  

Stocks With Most Negative News Mentions:

• 1) CTXS 2) CAB 3) MVNR 4) ANGI 5) MTH
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +.48%

Sector Outperformers:

• 1) Gold & Silver +2.07% 2) Tobacco +1.34% 3) Road & Rail +1.22%
  

Stocks Rising on Unusual Volume:

• EXL, BXMT, GE, CMG, CMCM, OVAS and EIGI

Stocks With Unusual Call Option Activity:

• 1) ADT 2) EXEL 3) EMN 4) IP 5) ASHR
  

Stocks With Most Positive News Mentions:

• 1) KNX 2) PDCE 3) GE 4) NFLX 5) APOG
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume 3.0% Above 100-day average

• 9 Sectors Rising, 1 Sector Declining

• 60.7% of Issues Advancing, 34.6% Declining

• 77 New 52-Week Highs, 3 New Lows

• 56.1% of Issues Above 200-day Moving Average (yesterday's close)

• Average 14-Day RSI 46.0 (yesterday's close)

• TRIN/Arms .77

Friday Watch

Evening Headlines 
Bloomberg: 

• We Traveled Across China and Returned Terrified for the Economy. China’s steel and metals markets, a barometer of the world’s second-biggest economy, are “a lot worse than you think,” according to a Bloomberg Intelligence analyst who just completed a tour of the country. What he saw: idle cranes, empty construction sites and half-finished, abandoned buildings in several cities. Conversations with executives reinforced the “gloomy” outlook. “China’s metals demand is plummeting,” wrote Kenneth Hoffman, the metals analyst who spent a week traveling across the country, meeting with executives, traders, industry groups and analysts. “Demand is rapidly deteriorating as the government slows its infrastructure building and transforms into a consumer economy.”
• Global PC Shipments Decline as Corporate Spending Fades. Worldwide personal-computer shipments fell 5.2 percent in the first quarter as corporate spending that helped slow declines last year tailed off, market researcher Gartner Inc. reported. About 71.7 million units were shipped in the quarter, down from 75.7 million in the same period a year earlier, Gartner said Thursday in a report. Market researcher IDC reported a wider decline, finding that 68.5 million units were shipped, a 6.7 percent drop. IDC said it was the lowest number of PC shipments since the first quarter of 2009. 
• Hong Kong Chartist Seeing Unlucky Number Eight. In charting the meteoric rise of Hong Kong stocks, Thomas Schroeder says there’s nothing lucky about a number starting with eight. The relative strength index for the Hang Seng China Enterprises Index rose to 83.5 on Thursday, the highest since October 2010, according to data compiled by Bloomberg. Some traders consider readings above 70 as a sign to sell. The equity measure of Chinese firms trading in the former British colony surged 16 percent through yesterday since regulators eased access to the shares for mainland funds on March 27.
• Asia Shares Heading for Weekly Gain as Nikkei 225 Touches 20,000. Asian shares were poised for a weekly advance, after the measure closed Thursday at its highest in almost seven years, as Japan’s Nikkei 225 Stock Average touched 20,000 for the first time in 15 years. The MSCI Asia Pacific Index slid 0.2 percent to 151.60 as of 9:14 a.m. in Tokyo. The measure is headed for a 2.5 percent advance this week.

Wall Street Journal:

• Ayatollah Blasts Terms of Nuclear Framework. Iran’s supreme leader casts doubt on nuclear deal; White House plays down impact. Just a week after agreeing on a framework for a nuclear deal, Iran’s supreme leader and the Obama administration clashed over its core elements, rekindling doubts about whether Washington and Tehran can finalize an accord by a June 30 deadline. The supreme leader, Ayatollah Ali Khamenei, in his first public comments on the diplomacy, said on Thursday the U.S. and its negotiating partners must lift all sanctions... 
• GE(GE) Close to Selling Real-Estate Holdings. Talks under way with Blackstone, Wells Fargo for most of $30 billion portfolio.
• FAA Calls Out ‘Systemic’ Hazard at United. Repeated violations regarding pilot qualification, scheduling requirements prompt regulator to step up oversight.
• Corker’s Fickle Friends on Iran. Senate Democrats who once were hawkish about a nuclear deal have gone into hiding.

Fox News:

• Jabs at Pelosi latest sign of friction in Dem ranks. (video) With a leadership transition on the horizon on Capitol Hill and President Obama entering his final two years in office, cracks are beginning to show in the Democratic Party. Most recently, two House Democrats spoke out against their longtime and powerful leader, Nancy Pelosi. Massachusetts Democratic Rep. Stephen Lynch said on WGBH’s Greater Boston that it’s time for the House Democratic leader to step aside. "Nancy Pelosi is not going to lead the Democrats back into the majority," Lynch said.

Zero Hedge:

• When You Think The Financial World Can’t Get Any Crazier… This Happens.
• Wall Street's Biggest Banks May Have To Make Good On $26 Billion In Oil Hedges. (graph)
• "Do Not Worry! Do Not Panic!" Warns Hong Kong Exchange CEO Ahead Of Today's Market Open.
• Can't Wait To Read Bernanke's Memoirs? Here Are All The Timeless Statements By The Former Fed Chairman.
• "I’m The First To Say: I Can’t Do It" - The Energy Junk-Bond Implosion Just Claimed Its First Victim.
• "Saudi Arabia Is Going For it" - Why The Saudis Just Boosted Oil Production To A Record High. (graph)
• 19 Signs That American Families Are Being Economically Destroyed.
• Spelling Out The Big Reset.

Business Insider:

• China has 41 brand new billionaires thanks to a surge in share prices.

Reuters:

• Dealers expect first Fed rate hike in September - NY Fed survey. U.S. primary dealers now expect the Federal Reserve to begin raising rates in September, rather than in June, according to the New York Fed's latest regular survey. The survey, taken as U.S. central bankers prepared for their March 17-18 policy-setting meeting and published Thursday, also found that economists at the top banks see a receding chance that the Fed will need to reverse course soon after it begins to raise interest rates.
• U.S.-based European stock funds attract $1.5 bln, most in 7 weeks - Lipper.
• Russian net capital outflow $32.6 billion in Q1 - central bank.

Financial Times:

• US warns of ‘increasingly unbalanced’ global economy. The US Treasury has stepped up calls for big economies, including the euro area and Japan, to boost demand as it warned the global economy was becoming “increasingly unbalanced”. In a semi-annual report to Congress, the Treasury urged euro area governments and Tokyo not to rely solely on monetary policy to lift growth, while pressing South Korea to reduce interventions in currency markets and let the won rise.

Xinhua News Agency:

• Chinese Investors Should Be in Awe of Stock Market. Stock market won't always rise and isn't an ATM machine, the official Xinhua News Agency says in an article on Thursday. A healthy bull market won't neglect fundamentals of companies.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are unch. to +1.0% on average.

• Asia Ex-Japan Investment Grade CDS Index 104.0 -1.0 basis point.

• Asia Pacific Sovereign CDS Index 58.25 +.5 basis point.

• S&P 500 futures -.07%.

• NASDAQ 100 futures -.05%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (DCO)/.29

Economic Releases
8:30 am EST

• The Import Price Index for March is estimated to fall -.4% versus a +.4% gain in February.
  

2:00 pm EST

• The Monthly Budget Deficit for March is estimated at -$43.4B versus -$36.9B in February.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Kocherlakota speaking, Fed's Lacker speaking and the UK industrial production report could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by real estate and technology shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.