Morning Market Internals

NYSE Composite Index:

• Volume 9.0% Above 100-day average

• 2 Sectors Rising, 8 Sectors Declining

• 47.1% of Issues Advancing, 48.7% Declining

• 35 New 52-Week Highs, 5 New Lows

• 56.4% of Issues Above 200-day Moving Average (yesterday's close)

• Average 14-Day RSI 46.2 (yesterday's close)

• TRIN/Arms .98

Tuesday Watch

Evening Headlines 
Bloomberg: 

• China Walks $264 Billion Tightrope as Margin Debt Powers Stocks. Confident that China’s stock market rally still has legs, Jiang Lin recently began borrowing money from her brokerage to buy more shares. Her newly-opened margin finance account with state-owned China Investment Securities Co. has allowed Jiang, a 29-year-old marketing executive in Beijing, to double up her bets on the vertigo-inducing rally in Chinese share prices. “It’s worth the risk,” said Jiang, while admitting she doesn’t fully understand how margin finance works because she hasn’t had her broker explain it to her. Investors such as Jiang are part of a $264 billion dilemma facing the country’s securities regulator, the China Securities Regulatory Commission, after the Shanghai Composite Index climbed on Monday to a seven-year high. Should it tighten its rules governing margin finance and risk triggering a crash, or continue tinkering with regulations and see stock purchases on credit rise to potentially perilous levels?   
• China Junk Bonds Pose Most Risk Since ’04 on Credit-Quality Dips. Investors in Chinese junk bonds are taking the biggest gamble in at least a decade. Leverage for speculative-grade Chinese companies is at its highest since at least 2004, whether measured by earnings relative to interest expense or total debt to a measure of cash-flow, according to data compiled by Bloomberg using a Bank of America Merrill Lynch index. Borrowers have also piled on the most debt relative to their assets since 2007. The deterioration in credit quality coincides with the slowest annual growth since 1990 for Asia’s biggest economy, and helps explain why Fitch Ratings Ltd. predicts defaults will climb. That’s bad timing for bond investors who swallowed a record $209.2 billion of Chinese-company notes denominated in either dollars, euros or yen last year, Bloomberg data show. “The credit cycle in China has peaked,” said Hong Kong-based Arthur Lau, the head of fixed income for Asia ex-Japan at PineBridge Investments Asia Ltd., which manages $35.3 billion of debt globally. “Corporate earnings are negative in general and investors are bracing for a deterioration in metrics.”
• Abe Economic Adviser Hamada Sees Yen Weak at 120 Per Dollar. An economic adviser to Prime Minister Shinzo Abe indicated the yen has weakened enough and that the Bank of Japan needn’t force inflation to its 2 percent target. The yen at 120 against the dollar is “considerably weak” and a level around 105 would be appropriate based on purchasing power parity, Koichi Hamada said on BS Fuji television Monday evening in Tokyo. 
• Tencent Slumps Most in a Year After Billionaire Ma Cuts Stake. Tencent Holdings Ltd. slumped for the first time in 10 days after billionaire Chairman Ma Huateng cut his stake in the operator of Asia’s most-popular message services. The stock fell 4.9 percent to HK$162.10 as of 10:26 a.m. in Hong Kong trading, the most in almost a year. The benchmark Hang Seng index declined 0.9 percent.  
• China’s H-Share Index Declines After Prices Reach 2008 High. Chinese stocks trading in Hong Kong retreated for the first in nine days after the Hang Seng China Enterprises Index climbed to the highest level since May 2008. China Merchants Bank Co. and New China Life Insurance Co. slid at least 3 percent. Hainan Airlines Co. jumped by the 10 percent daily limit in Shanghai on a plan to sell new shares in a private placement. Hong Kong’s Hang Seng China Enterprises Index dropped 1.47 percent to 14,393.84 at 10:10 a.m. local time, poised to end a 23 percent rally over the past eight days. The measure’s 14-day relative strength index rose to 88.2 Monday. Levels above 70 signal to some traders that gains have gone too far, too fast. The Hang Seng Index lost 0.7 percent after an eight-day surge.
• Asian Stocks Rise as Industrial, Healthcare Stocks Lead Advance. Asia’s benchmark stock gauge climbed, trading at an almost seven-year high, as industrial and healthcare shares led the advance. Central Japan Railway Co. gained 1.2 percent in Tokyo, boosting the industrial industry group. Celltrion Inc. jumped 8.6 percent in Seoul, extending yesterday’s gains after EBEST Investment & Securities Co. initiated coverage on the biopharma company with a buy rating. Orix Corp. slid 0.9 percent in Tokyo after its Chief Executive Officer said the financial services firm is in early talks to purchase a U.S. fund manager. The MSCI Asia Pacific Index added 0.3 percent to 153.08 as of 9:30 a.m. in Tokyo, after closing Monday at its highest since May 2008.
• Oil-Rich Nations Burn Through Petrodollar Assets at Record Pace. In the heady days of the commodity boom, oil-rich nations accumulated billions of dollars in reserves they invested in U.S. debt and other securities. They also occasionally bought trophy assets, such as Manhattan skyscrapers, luxury homes in London or Paris Saint-Germain Football Club.
  
  Now that oil prices have dropped by half to $50 a barrel, Saudi Arabia and other commodity-rich nations are fast drawing down those “petrodollar” reserves. Some nations, such as Angola, are burning through their savings at a record pace, removing a source of liquidity from global markets. If oil and other commodity prices remain depressed, the trend will cut demand for everything from European government debt to U.S. real estate as producing nations seek to fill holes in their domestic budgets.
• Oil ETF Holders Cash Out for First Time in 7 Months on Rebound. Oil investors are cashing out of funds that track prices for the first time in seven months after crude rebounded. Holders of the three biggest U.S. exchange-traded products that follow oil have withdrawn almost $300 million so far in April, leaving the funds poised for their first monthly outflow since September. West Texas Intermediate climbed to near $54 this month after reaching a six-year low of $43.46 in March.  
• Prudential Chief Says Biggest Worry Is Liquidity, Echoing Dimon. Prudential Investment Management Chief Executive Officer David Hunt says the No. 1 concern among bond buyers globally is liquidity and its rapid disappearance. “The biggest worry of the buy side around the world is that there has been a dramatic decline in liquidity from the sell side for many fixed income products,” said Hunt, who heads Prudential Financial Inc.’s investment management unit, which had $934 billion in assets at the end of 2014. “I think it’s a big risk and is one of the unintended consequences” of regulators trying to prevent another financial crisis, he said.
• Ackman Says Student Loans Are the Biggest Risk in the Credit Market. Bill Ackman says the biggest risk in the credit market is student loans. “If you think about the trillion dollars of student loans we have outstanding, there’s no way students are going to pay it back,” Ackman, who runs $20 billion Pershing Square Capital Management, said today at 13D Monitor’s Active-Passive Investor Summit in New York.

Wall Street Journal: 

• Qualcomm’s(QCOM) Main Profit Driver Is Under Pressure. Decision sets precedent for chip maker that charges a royalty on nearly every smartphone made.
•  5 Things to Watch in Bank Earnings.
• Corporate Pension Funds Pile Into Bonds. Increased appetite fuels demand for highly rated debt issues.
• Hillary and the Liberal Way of Lying. How the Clintons pioneered the methods by which Obama sold his Iran deal. Sometime in the 1990s I began to understand the Clinton way of lying, and why it was so successful. To you and me, the Clinton lies were statements demonstrably at variance with the truth, and therefore wrong and shameful. But to the initiated they were an invitation to an intoxicating secret knowledge. What was this knowledge? That the lying was for the greater good, usually to fend off some form of Republican malevolence. What was...

Fox News:

• Jordan's King Abdullah II says airstrikes increasing inside Syria and Iraq. (video) Jordan’s King Abdullah II said Monday that airstrikes have increased inside Syria and Iraq following the murder of a Jordanian pilot burned to death earlier this year by Islamic State terrorists.

MarketWatch.com:

• Amazon(AMZN), HarperCollins reach multiyear deal.

Zero Hedge:

• Are These The "Everyday Americans" Hillary Clinton Is Running For? (video)
• "There Are Big, Big Problems" - The Shocker Crushing The Economy Revealed. (graph)
• Market Melts Down After Opening Buying-Panic. (graph)
• Human Bond Traders Barely Show Up To Work As Machines Take Control.
• Blinder Leading The Blind.
• Einhorn Slams Bernanke's Blog, Says Fed Policy Is A "Destructive Force That Shouldn't Exist Outside Of Fiction".
• GE(GE) Shakes Up Corporate Credit Market.
• Greeks Are The Poorest Since 1980... Could It Happen In America?

Business Insider:

• The global financial markets appear to have gone nuts.
• The fatal flaw in Canada's economy is its dependence on resources.
• Railroad giant Norfolk Southern warns that earnings will be hurt by 'increased hiring and training costs'.
• Brazil's economy faces a perfect storm of problems.
• Marco Rubio just launched his campaign by taking not-so-subtle shots at his older rivals.
• Russia's transfer of S-300 missiles to Iran reverses one of Obama's big foreign policy achievements.
• Russia and Iran just showed how 'they can do whatever they like' right now.
• The next recession could lead to a vicious spiral of debt-deflation.

NY Times: 

• BlackRock’s(BLK) Chief, Laurence Fink, Urges Other C.E.O.s to Stop Being So Nice to Investors. On Tuesday morning, the chief executives of 500 of the nation’s largest companies will receive a letter in the mail that will most likely surprise them. The sender of the letter is Laurence D. Fink, chief executive of BlackRock, the largest asset manager in the world. Mr. Fink oversees more than $4 trillion — that’s trillion with a “t” — of investments, making him perhaps the world’s most important shareholder. He is planning to tell the leaders that too many of them have been trying to return money to investors through so-called shareholder-friendly steps like paying dividends and buying back stock. To Mr. Fink, these maneuvers, often done under pressure from activist investors, are harming the long-term creation of value and may be doing companies and their investors a disservice, despite the increases in stock prices that have often been the result.

Reuters:

• S&P warns of imminent downgrade for several miners. Standard & Poor's warned on Monday it may soon downgrade several miners as it lowered its iron ore price estimates for the next couple of years.

Evening Recommendations 
Susquehanna:

• Rated (SODA) Positive, target $24.
• Rated (PEP) Positive, target $123.
• Rated (CCE) Negative, target $33.
• Rated (KO) Negative, target $33.

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 105.0 +.75 basis point.

• Asia Pacific Sovereign CDS Index 58.75 +.25 basis point.

• S&P 500 futures +.14%.

• NASDAQ 100 futures +.12%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (FAST)/.42
• (JBHT)/.72
• (JNJ)/1.54
• (JPM)/1.41
• (WFC)/.98
• (CSX)/.45
• (INTC)/.41
• (LLTC)/.53

Economic Releases
8:30 am EST

• Retail Sales Advance for March are estimated to rise +1.1% versus a -.6% decline in February.
• Retail Sales Ex Autos for March are estimated to rise +.7% versus a -.1% decline in February.
• Retail Sales Ex Autos and Gas for March are estimated to rise +.6% versus a -.2% decline in February.
• PPI Final Demand for March is estimated to rise +.2% versus a -.5% decline in February.
• PPI Ex Food and Energy for March is estimated to rise +.1% versus a -.5% decline in February.
  

9:00 am EST

• NFIB Small Business Optimism Index for March is estimated at 98.0 versus 98.0 in February.
  

10:00 am EST

• Business Inventories for February are estimated to rise +.2% versus unch. in January.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Kocherlakota speaking, China Industrial Production/GDP data, UK CPI/Retail Sales data, weekly US retail sales reports, Needham Healthcare Conference, (DKS) analyst meeting and the (FLO) investor briefing could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and financial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

Stocks Reversing Lower into Final Hour on Earnings Worries, Euro Weakness, Technical Selling, Commodity/Road & Rail Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: About Even
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 14.0 +11.29%

• Euro/Yen Carry Return Index 132.60 -.38%

• Emerging Markets Currency Volatility(VXY) 9.97 +.71%

• S&P 500 Implied Correlation 63.58 +2.25%

• ISE Sentiment Index 137.0 +28.04%

• Total Put/Call .89 +4.71%

• NYSE Arms .89 +11.93% 

Credit Investor Angst:

• North American Investment Grade CDS Index 61.52 +1.72%

• America Energy Sector High-Yield CDS Index 1,115.0 -1.28%

• European Financial Sector CDS Index 62.54 +.12%

• Western Europe Sovereign Debt CDS Index 21.90 -.05%

• Asia Pacific Sovereign Debt CDS Index 58.80 +.67%

• Emerging Market CDS Index 297.93 +.20%
  

• iBoxx Offshore RMB China Corporates High Yield Index 115.72 +.42%

• 2-Year Swap Spread 26.25 -.25 basis point

• TED Spread 26.25 +1.25 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -22.0 -.75 basis point

Economic Gauges:

• 3-Month T-Bill Yield .01% -1.0 basis point

• Yield Curve 140.0 +1.0 basis point

• China Import Iron Ore Spot $48.82/Metric Tonne +2.71%

• Citi US Economic Surprise Index -45.60 +6.6 points

• Citi Eurozone Economic Surprise Index 56.20 -.7 point

• Citi Emerging Markets Economic Surprise Index -6.2 -15.2 points

• 10-Year TIPS Spread 1.81 -1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating +3 open in Japan

• DAX Futures: Indicating -25 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 25% Net Long

Today's Headlines

Bloomberg:   

• Flareup in East Ukraine Fighting Sets Stage for Talks in Berlin. Fighting intensified in eastern Ukraine before the country’s foreign minister meets his counterparts from Russia, Germany and France for talks in Berlin on Monday. One Ukrainian soldier was killed and six wounded during the past 24 hours, Oleksandr Motuzyanyk, a presidential military spokesman in Kiev, told reporters on Monday. The number of rebels wounded in the clashes has tripled to an average of 15 a day in the last week, the separatist news website DAN reported, citing the acting director of a trauma center in Donetsk.
• Greek Talks With EU Are ‘Very Complicated’: Dombrovskis. (video)
• European Stocks Extend Record With Spanish Shares at 5-Year High. European stocks advanced for a fifth day, with Spanish equities jumping to their highest levels since January 2010. The Stoxx Europe 600 Index added 0.2 percent to 413.63 at the close of trading in London, after rising as much as 0.3 percent.
• Budget Deficit in U.S. Widens as Spending Exceeds Record Revenue. The budget deficit in the U.S. widened over the first six months of fiscal 2015 as spending on Social Security and health services increased, a government report showed. Spending exceeded revenue by $439.5 billion from October through March, compared with a $413.3 billion deficit in the same period the prior year, Treasury Department figures released Monday showed. The shortfall in March was bigger than economists projected.

Fox News:

• Rubio announces his 2016 GOP presidential campaign. (video) Florida Sen. Marco Rubio said Monday that he is running for president and feels “uniquely qualified” to talk about the future. Rubio, a Republican, is scheduled to make a full-scale announcement later today in Miami at an event before hundreds of supporters and that will include a video message. The first-term senator has long been assembling his political team, including donors who helped previous presidential nominees collect tens of millions of dollars. Now, Rubio's campaign kickoff formalizes what has been unfolding for months.
• Why Marco Rubio has a real shot at 2016 Republican nomination.

ZeroHedge:

• "We Have Come To The End Of The Road" - Greece Prepares For Default, FT Reports.
• The Best And Worst Performing Hedge Funds In 2015. (table)
• She's Back!!
• The "Crude" Reality Of Oil Storage Capacity In Six Easy Charts. (graph)
• Russia Warns "Attempts At Isolation Are Counterproductive & Useless".
• Citi Writes Iron Ore Price Obituary. (graph)
• This Is What Happens When The US Treasury Market Is Taken Hostage By "Malfunctioning Algos". (graph)
• Proxy War Escalates: Russia Lifts Ban On Selling Anti-Aircraft Missiles To Iran.
• Wall Street Reacts To China's Shocking Trade Data.
• USDJPY Tumbles After Abe Advisor Says Yen At 105 "Appropriate". (graph)

Business Insider:

• STAN DRUCKENMILLER: The only way to win the hedge fund game is by being a 'pig'.
• Hackers are coming for your smartwatch.
• OPEC: Some of you non-OPEC oil producers are being stubborn.
• The latest sign of the craziness going on in the Chinese stock market.
• The Fed could be about to make the same mistake it did before the financial crisis. The longer the Fed does nothing, the more Silvia worries that we may be repeating the mistakes of the past. By repeating these mistakes, Silvia sees potential for us to once again head towards a major event in credit markets that, while not large enough to cause a global financial crisis, could, in Silvia's view, majorly upset what have become fairly sanguine markets in the last several years. Silvia writes:
• Russia and Iran begin massive oil-for-goods deal.

Telegraph: 

• How German government debt just got dangerous. "Poisonous cocktail" of events could see investors burnt by holding ultra-safe German government debt. 
• General election chaos could trigger 'Lehman moment' for pound. Experts warn that pound could fall to as low as $1.35 against the dollar over the coming weeks, as traders brace themselves for "messy outcome" after May's general election. 

Xinhua:

• China's Rail-Freight Volume Dropped 9% Y/Y in 1Q. Railways moved 870m mt of cargo in Jan.-March period, citing China Railway Corp.

Bear Radar

Style Underperformer:

• Large-Cap Growth -.24%

Sector Underperformers:

• 1) Gaming -2.15% 2) Road & Rail -1.32% 3) Steel -1.22%

Stocks Falling on Unusual Volume:

• ZNH, CUDA, GE, SINA, CBMG, CORE, MVO, HNP, VTAE, RKUS, SYMC, PFPT, ASPS, QADA, CRS, DOOR, WUBA, HAE, XONE, EDN, LMT, MSB, AFOP, LFC and QLYS

Stocks With Unusual Put Option Activity:

• 1) SYK 2) VLO 3) GE 4) BHI 5) DXJ
  

Stocks With Most Negative News Mentions:

• 1) MO 2) CRS 3) OMC 4) CAM 5) INTC
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +.52%

Sector Outperformers:

• 1) Airlines +1.12% 2) Computer Hardware +.69% 3) Biotech +.68%
  

Stocks Rising on Unusual Volume:

• BLDR, CLVS, MCRL, NFLX, ATHN, JMEI, BKS, CLDN, AERI, INCY, ADXS, MACK and BXMT

Stocks With Unusual Call Option Activity:

• 1) DNKN 2) IP 3) BRCM 4) HES 5) CLF
  

Stocks With Most Positive News Mentions:

• 1) CLVS 2) NFLX 3) TSL 4) AAPL 5) SHLD
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume