Morning Market Internals

NYSE Composite Index:

• Volume 3.0% Above 100-day average

• 4 Sectors Rising, 6 Sectors Declining

• 38.5% of Issues Advancing, 57.9% Declining

• 39 New 52-Week Highs, 6 New Lows

• 60.8% of Issues Above 200-day Moving Average (yesterday's close)

• Average 14-Day RSI 48.9 (yesterday's close)

• TRIN/Arms 1.14

Thursday Watch

Evening Headlines 
Bloomberg: 

• Why China's Credit Growth Is So Frightening. (video)

• China Just Made It Easier to Bet Against Its Priciest Stocks. Betting against China’s most expensive stocks just got a whole lot easier. Futures on the small-cap CSI 500 Index started trading on Thursday, giving investors a cheaper way to wager on declines in shares valued at more than twice the level of the benchmark Shanghai Composite Index. The CSI 500 has surged 47 percent this year, versus a 26 percent gain for the Shanghai measure. 

• Lew Urges Greece to Reach Deal With Creditors to Avoid Euro Exit. U.S. Treasury Secretary Jacob J. Lew urged Greece and its international creditors to reach an agreement on steps that need to be taken to avoid the nation’s exit from the euro and any resulting crisis. “There’s no doubt that if this leads to a crisis such as Greece leaving the euro zone, it will cause an enormous amount of disruption and hardship in Greece,” Lew said in an interview Wednesday. “Even if the contagion risk is much less now than it was, say, in 2012 and earlier, it would not be a good thing in a world economy just recovering from a deep recession to have that kind of uncertainty introduced.”

• Asian Stocks Rebound to 2008 High as Material Shares Lead Gains. Asian stocks rose, with the regional benchmark rebounding to it highest since May 2008, as materials companies and energy producers led gains. The MSCI Asia Pacific Index added 0.7 percent to 153.70 as of 11:08 a.m. in Tokyo.

• Oil’s Rally Seen Reversing Amid Biggest U.S. Glut Since 1930s. Oil’s surge to the highest level of the year may be short-lived as the highest supply in 85 years cushions against a drop in production. West Texas Intermediate crude jumped 5.8 percent Wednesday after the Energy Information Administration said inventories rose at the slowest pace since January. Stockpiles have increased for 14 weeks to the highest level since 1930.

• Rio bond risk rises with BHP(BHP) as iron glut called dumb alarms S&P. Forecasts for the steelmaking material are being slashed amid a ramp up in supply. Bond risk for Rio Tinto Group and BHP Billiton rose the most among Australia’s major investment- grade borrowers amid criticism of their decision to ship more iron ore into a declining global market. Credit-default swaps on Rio Tinto have risen 14 basis points over the past year to 101, while BHP contracts have climbed 10 basis points to 73, the two worst performers in the 25-member iTraxx Australia index, based on CMA data. The miners, along with junk-rated Australian peer Fortescue Metals Group Ltd., were among eight global producers that Standard & Poor’s said this week may have their debt ratings cut.

Wall Street Journal:

• Clinton Foundation to Keep Foreign Donors. Board’s decision to continue accepting funding from some countries could become 2016 campaign issue. The board of the Bill, Hillary and Chelsea Clinton Foundation has decided to continue accepting donations from foreign governments, primarily from six countries, even though Hillary Clinton is running for president, a summary of the new policy to be released Thursday shows. The rules would permit donations from Australia, Canada, Germany, the Netherlands, Norway and the U.K.—countries that support or have supported Clinton Foundation... 

• Faltering Growth Forces China to Rely on Traditional Tools to Prod Economy. Economists question whether infrastructure spending and easier credit will be enough.

• BMW China Dealers Press Auto Maker for More Financial Support. Distributors call on German auto maker to lower sales targets, provide new price incentives. In a fresh rift between BMW AG and its distributors in China, a group of dealers said it would miss sales targets this year unless it gets better financial terms from the German luxury car maker.

• Judge Rules GM Can Keep Its Bankruptcy Shield. Ruling could allow the auto maker to block billions of dollars in legal claims over defective ignition switches.

• Medicare Overpays as Hospital Prices Rise. Soaring bills for sickest patients can throw payment formula out of whack.

• The Fed’s Faulty 1937 Excuse by Christian Broda and Stanley Druckenmiller. Central bankers aren’t likely to observe financial excesses until it’s too late. Policy makers and financial pundits insist that the risk of the Federal Reserve raising rates too early exceeds that of moving too late. The Fed appears to agree. In recent years, the Fed has repeatedly moved its goal posts, seemingly to avoid raising the federal-funds rate from near zero. But is the prevailing consensus correct if emergency...

Fox News:

• Mass movement: US Christians don orange in church to honor ISIS victims. A new campaign sweeping through American churches has worshipers wearing orange - either in their Sunday best or on ribbons - to raise attention to the Christians executed at the hands of ISIS.

MarketWatch.com:

• Rubin sees ‘realistic possibility’ there are bubbles in U.S. markets. There is the possibility that there are already asset bubbles in U.S. financial markets, said former Treasury Secretary Robert Rubin on Wednesday. “I don’t have a personal view on whether we now have [market] excesses or not. But it certainly is a realistic possibility when you look at the U.S. stock market, which is near all-time highs, when you look at covenant-light and now non-covenant lending, [and] a vast increase in fixed-income [exchange-traded funds],” Rubin said at a seminar on the sidelines of the International Monetary Fund/World Bank spring meetings.

Zero Hedge:

• The Collapse Of The Petrodollar: Oil Exporters Are Dumping US Assets At A Record Pace. (graph)

• America, Meet Your Brand New Largest Foreign Creditor. (graph)

• The Fed Never Learns - Another Inventory Dump Is Brewing.

• High-School-Educated Chinese Speculators Have Learned Well From US Investors.

• NFLX(NFLX) Goes Full Amazon: Burns Record Amount Of Cash But Stock Surges On Jump In International Subscribers.

• Oilpocalypse Wow - Stocks Pop, Dollar Drops As Crude Hits 5-Month Highs. (graph)

• SEC Reaches "Appropriate" Settlement With Freddie Mac Execs Who Will Pay Nothing And Receive No Punishment.

• The Four Chartsmen Of The Recession. (graph)

• The World Has Gone Mad - Fed's Lacker Edition. (graph)

• China's True Economic Growth Rate: 1.6%. (graph)

• Algos Celebrate Virtu's IPO With Massive Euro Stop Smash.

• Artist's Impression Of China's Soft Landing. (graph)

• "Bonds Don't Bring Breakups, Banks Do"; UBS Says Europe Risks Bank Runs On Grexit.

• CLO Volume Hits Record As PE, Wall Street Look To Stay Ahead Of New Rule. (graph)

Business Insider:

• Panera(PNRA) shares rally 11% after the company announces a huge stock buyback plan.

• Over 50% of students in some New York school districts are boycotting Common Core tests.

• Etsy prices its IPO at $16 per share, making it worth $1.78 billion.

• Russian-backed rebels have launched 'massive' attacks six miles from a key Ukrainian city.

Reuters:

• SanDisk(SNDK) forecasts first full-year revenue decline in three years. SanDisk Corp forecast a steeper-than-expected fall in full-year revenue and said it plans to cut jobs to reduce costs, as the data storage products maker struggles to meet demand for its flash-based memory products. The forecast of a revenue decline, which will be its first after two years, came after the company reported its first fall in quarterly revenue, also in two years. Shares of SanDisk, which makes products for cloud computing and datacenters as well as for smartphones and other mobile devices, fell 6 percent in extended trading.

• Fed confident in smooth U.S. rate hike despite questions -Potter. The Federal Reserve is confident it can smoothly lift interest rates when the time comes, though it stands ready to make adjustments on the fly given uncertainty about how investors could react, the Fed official responsible for market operations said on Wednesday.

Financial Times:

• Global property bubble fears mount as prices and yields spike. Fears of a renewed global property bubble are rising as prices and yields hit records last seen before the financial crisis, according to new data. The pricing of real estate around the world had become “increasingly aggressive”, research company MSCI said. This is particularly the case in the US, where investors’ returns from rental income are now lower than before 2008, when a crash in massively overleveraged property triggered an international banking slump.

Telegraph:

• Japan's huge debt pile just got scarier. Japanese government debt will soar to 400pc of GDP within 30 years unless policymakers implement vital reforms, OECD warns.

• World faces 'perfect default storm' when Fed hikes rates - Deutsche Bank. Rising US interest rates could trigger a wave of corporate defaults, interrupting more than a decade of calm in global bond markets.

China Business News:

• China's private jet market hits turbulence from graft crackdown. Growth slows as corruption crackdown deters buyers from ordering luxury items.

Evening Recommendations 
BMO:

• Rated (SBUX) Outperform, target $56. 

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 105.75 -.25 basis point.

• Asia Pacific Sovereign CDS Index 59.25 +.25 basis point.

• S&P 500 futures +.09%.

• NASDAQ 100 futures +.11%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (ADS)/3.44

• (BLK)/4.51

• (BX)/1.03

• (C)/1.40

• (FCS)/.11

• (GS)/4.27

• (KEY)/.27

• (PM)/1.01

• (PPG)/2.33

• (SHW)/1.44

• (UNH)/1.34

• (AMD)/-.06

• (AXP)/1.36

• (MAT)/-.09

• (SLB)/.92

Economic Releases
8:30 am EST

• Housing Starts for March are estimated to rise to 1040K versus 897K in February.

• Building Permits for March are estimated to fall to 1081K versus 1092K in February.

• Initial Jobless Claims are estimated to fall to 280K versus 281K the prior week.

• Continuing Claims are estimated to rise to 2323K versus 2304K prior.

10:00 am EST

• The Philly Fed Business Outlook for April is estimated to rise to 6.0 versus 5.0 in March.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Rosengren speaking, Fed's Mester speaking, Fed's Lockhart speaking, European New Car Registrations report, Bloomberg Economic Expectations Index for April, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report and the 3D Print Design Show could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity 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.

Stocks Rising into Final Hour on Central Bank Hopes, Oil/Euro Strength, Short-Covering, Commodity/Tech Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 13.0 -4.90%

• Euro/Yen Carry Return Index 132.66 -.16%

• Emerging Markets Currency Volatility(VXY) 9.77 +1.56%

• S&P 500 Implied Correlation 67.17 +2.61%

• ISE Sentiment Index 90.0 -11.76%

• Total Put/Call .78 -28.44%

• NYSE Arms .90 +8.76% 

Credit Investor Angst:

• North American Investment Grade CDS Index 60.44 -2.21%

• America Energy Sector High-Yield CDS Index 1,131.0 +2.14%

• European Financial Sector CDS Index 65.35 unch.

• Western Europe Sovereign Debt CDS Index 23.03 +.59%

• Asia Pacific Sovereign Debt CDS Index 59.58 +.97%

• Emerging Market CDS Index 297.24 +.03%
  

• iBoxx Offshore RMB China Corporates High Yield Index 116.16 +.06%

• 2-Year Swap Spread 26.5 -.25 basis point

• TED Spread 26.0 +.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -23.25 -.5 basis point

Economic Gauges:

• 3-Month T-Bill Yield .01% unch.

• Yield Curve 139.0 unch.

• China Import Iron Ore Spot $50.33/Metric Tonne -.89%

• Citi US Economic Surprise Index -49.0 -1.0 point

• Citi Eurozone Economic Surprise Index 55.30 -.4 point

• Citi Emerging Markets Economic Surprise Index -13.2 -6.6 points

• 10-Year TIPS Spread 1.83 +2.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating +11 open in Japan

• DAX Futures: Indicating +13 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg:    

• The Major Paradox at the Heart of the Chinese Economy. “China’s economy is in a very critical period of restructuring,” said Zhang Bin, a senior fellow at the Chinese Academy of Social Sciences in Beijing. And there will be economic pain as the government pushes through overdue structural reforms. “Even if GDP growth is lower, it isn’t a bad thing. We have talked about it for many years without progress, but now it is really making progress.”
• The Latest Numbers From China Show the Government Is Facing a Huge Challenge. (graph) China’s GDP growth came in on target in the first quarter. Slumping output in March, a slide into deflation and an expanding credit bubble underline the magnitude of the challenge the economy continues to face. We believe the weeks ahead will see the government intensifying efforts to support growth. Alternative measures of growth painted a gloomier picture. Bloomberg’s monthly GDP tracker came in at 6.5 percent year on year in the first quarter. An index composed of electricity, rail freight and bank loans — measures reportedly favored by Li — suggested growth is in the mid-single digits. 
• China Steel Output Slides to Worst First Quarter in 20 Years. China’s crude steel output fell in the first three months of the year, the first decline over that period in 20 years, as the country grew at the slowest pace since the global recession. Crude steel production from January to March slid 1.7 percent from a year earlier to 200.1 million metric tons, according to National Bureau of Statistics data released Wednesday in Beijing. First quarter output hasn’t contracted since 1995. Falling production in the world’s largest steelmaker reflects the country’s slowing pace of construction and sliding exports. Output is poised to fall further as the government tries to trim overcapacity and cut pollution in its drive to shift the world’s second-biggest economy toward consumption and services.
• ECB Keeps Rates on Hold as Investors Await Draghi Assurance on QE Path. The European Central Bank kept interest rates unchanged at record lows as it focuses on a bond-buying program to bolster the improving euro-area economy. The 25-member Governing Council left the main refinancing rate at 0.05 percent at its meeting in Frankfurt on Wednesday, as predicted by all 51 economists in a Bloomberg News survey. The deposit rate and the marginal lending rate stayed at minus 0.2 percent and 0.3 percent, respectively.
• Strong Dollar’s Economic Ax to Fall on Small U.S. Exporters. The big hit from the strong dollar is going to fall on small U.S. exporters. While large U.S. multinational corporations have kicked up a storm of complaints about the currency’s advance, their broader customer and production bases make them more nimble and able to cope. For the smaller counterparts with fewer products to offer and most factories in the U.S., it’s becoming more difficult to remain competitive.  
• Europe Stocks Extend Record as Draghi Says QE Will Stay Course. European stocks rose with commodity shares after Mario Draghi said quantitative easing will continue until there’s sustained improvement in inflation. The Stoxx Europe 600 Index added 0.6 percent to 414.06 at the close of trading, with gauges of miners and energy shares posting the biggest gains.
• Saudi Arabia Leads OPEC Oil Boom as U.S. Shale Growth Slows. Saudi Arabia pumped close to a record amount of crude oil last month, leading the biggest surge in OPEC output in almost four years just as the U.S. shale boom shows signs of slowing, the International Energy Agency said. The Organization of Petroleum Exporting Countries may extend its biggest output gain since June 2011 into next month as recovery in Libya and Iraq adds to the Saudi increase, the IEA said. Average U.S. oil production of 12.6 million barrels a day in the first six months of 2015 will slide to 12.5 million by the fourth quarter as companies curb drilling, the agency said.
• Oil Production Jumps in March Even as U.S. Drilling Collapses. The U.S. keeps pumping oil at a near-record pace, in spite of the collapse in prices over the past year and cutbacks in drilling. Crude production rose 1.3 percent in March to the highest level since 1973, a Federal Reserve index showed Wednesday. Output was up 13.7 percent from a year ago, according to the central bank's report on industrial production. For all of 2014, the gauge of oil extraction climbed 15.4 percent.

Fox News:

• Fierce clashes in Iraq as ISIS takes control of villages near Ramadi. The Islamic State group launched an offensive in Iraq's western Anbar province on Wednesday, capturing three villages near the provincial capital of Ramadi and forcing villagers to flee from their homes as fierce clashes were underway between the extremists and government troops, residents said. The militants' push comes after the Islamic State was dealt a major blow earlier this month, when Iraqi troops routed the group from Tikrit, Saddam Hussein's hometown. Wednesday's fighting could also further threaten Ramadi, 70 miles west of Baghdad. The city is mostly held by government forces but militants control some parts of it, mainly on the outskirts.

ZeroHedge:

• The Madness Of Negative Bond Yields. (graph)
• Bullard Hints The Fed May Hike Rates Only To Cut Them Right After.
• WTI Spikes Above $55 After Crude Inventories Rise At Slowest Pace In 14 Weeks. (graph)
• Homebuilder Confidence In April Jumps Most Since July. (graph)
• US Industrial Production Plunges By Most Since Aug 2012, Utility Output Drops Most In 9 Years. (graph)
• German FinMin Schaeuble Sees "No Contagion" From Grexit, Don't Show Him This Chart. (graph)
• April Empire Fed Manufacturing Plunges, New Orders Crash To Jan 2013 Lows. (graph)
• Bank of America(BAC) Revenue Drops, Misses Due To Declining Trading Revenues, Loan Creation And Net Interest Margin.

Business Insider:

• Apple(AAPL) just dropped a big clue about a major new product coming in June.
• STAN DRUCKENMILLER: I just know this is going to end badly; I can feel it in my bones.
• The Fed says employers are offering more money and they're still struggling to find skilled workers. The Fed sees the economy expanding at a modest pace. 
• Health care costs continue to only go up. (graph)
• HARD LANDING? All of the charts scream 2009 for China all over again. (graph)
• Here's the case for how Marco Rubio could defeat Hillary Clinton.
• Nike(NKE) just got a great sign it will dominate in the future.
• Smith & Wesson(SWHC) said Americans are buying more guns, and now its stock is going wild.

NY Times:

• Schaeuble Says ECB Monetary Policy 'Can Only Buy Time'. Euro area budgets "need to prepare for an eventual normalization of monetary policy and capital markets," German Finance Minister Wolfgang Schaeuble said Wendesday in NYT op-ed. Debate over "tapering" in the US "shows how difficult it is to withdraw a stimulus once governments and markets get used to it," he sad. ECB policy "cannot substitute for fiscal and structural reforms in member countries." Debt problems can't be solved by heaping on new debt, Schaeuble said.

Reuters: 

• Exclusive: Six percent of U.S. adults plan to buy Apple Watch - Reuters/Ipsos poll. If calculated based on 2014 U.S. Census projections, and excluding younger teens, this could mean potential sales of about 15 million watches, if those who said they intended to buy follow through with an actual purchase.

Telegraph:

• IMF tells regulators to brace for global 'liquidity shock'. Financial engineering that preceded the last two financial crises is back, International Monetary Fund warns.
• Greece downgraded further into 'junk' as black hole in public finances widens. Standard & Poor's slashes sovereign bonds as Athens' budget surplus shrinks by more than two-thirds.

Unian:

• Ukraine Says Russia Sent Grad Systems, Tanks to Rebels. 25 tanks, 5 Grad systems were sent Wednesday to territories controlled by militants in self-proclaimed Donetsk and Luhansk republics, citing Col. Valentyn Fedichev, Ukrainian government deputy commander in Donetsk and Luhansk regions.

Bear Radar

Style Underperformer:

• Large-Cap Growth +.23%

Sector Underperformers:

• 1) HMOs -2.26% 2) Networking -1.22% 3) REITs -.52%

Stocks Falling on Unusual Volume:

• NSAM, WUBA, STWD, LPLA, PCP, ASML, ADXS, WSO, LFC, GLOB, BFR, EDN, PNC, GWPH, CI, NFLX, CCU, HNP, NUVA, FMI, NEWM, PFNX, DECK, NGVC and GGAL

Stocks With Unusual Put Option Activity:

• 1) UNH 2) AVP 3) MRO 4) USB 5) DDD
  

Stocks With Most Negative News Mentions:

• 1) NUVA 2) BAC 3) BA 4) CSX 5) PCP
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Value +.47%

Sector Outperformers:

• 1) Oil Service +2.65% 2) Gold & Silver +1.76% 3) Gaming +1.74%
  

Stocks Rising on Unusual Volume:

• FOMX, SAGE, SWHC, MBLY, JMEI, CMGE, DK, YNDX, INTC, RGR, EVEP, LINE, DYN, FLR, CJES and OZRK

Stocks With Unusual Call Option Activity:

• 1) NSAM 2) EMN 3) TWX 4) RRC 5) THC
  

Stocks With Most Positive News Mentions:

• 1) HCA 2) INTC 3) DOW 4) MBLY 5) NKE
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume