Stocks Slightly Lower into Final Hour on Surging Eurozone Debt Angst, Global Growth Fears, Yen Strength, Homebuilding/Metals & Mining Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Slightly Lower
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 12.6 -1.87%

• Euro/Yen Carry Return Index 134.04 +.80%

• Emerging Markets Currency Volatility(VXY) 9.77 unch.

• S&P 500 Implied Correlation 67.18 +1.59%

• ISE Sentiment Index 174.0 +53.98%

• Total Put/Call .84 +7.69%

• NYSE Arms 1.06 +16.16% 

Credit Investor Angst:

• North American Investment Grade CDS Index 61.44 +1.48%

• America Energy Sector High-Yield CDS Index 1,111.0 -1.77%

• European Financial Sector CDS Index 70.78 +8.32%

• Western Europe Sovereign Debt CDS Index 24.71 +7.27%

• Asia Pacific Sovereign Debt CDS Index 59.21 +.05%

• Emerging Market CDS Index 297.94 -.01%
  

• iBoxx Offshore RMB China Corporates High Yield Index 116.23 +.06%

• 2-Year Swap Spread 26.5 unch.

• TED Spread 26.50 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -23.25 unch.

Economic Gauges:

• 3-Month T-Bill Yield .01% unch.

• Yield Curve 140.0 +1.0 basis point

• China Import Iron Ore Spot $49.78/Metric Tonne -1.09%

• Citi US Economic Surprise Index -56.70 -7.7 points

• Citi Eurozone Economic Surprise Index 54.40 -.9 point

• Citi Emerging Markets Economic Surprise Index -13.6 -.4 point

• 10-Year TIPS Spread 1.85 +2.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating -55 open in Japan

• DAX Futures: Indicating +7 open in Germany

Portfolio: 

• Slightly Lower: On losses in my tech sector longs and emerging markets shorts

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

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:    

• Lagarde Won’t Give Support to Greece Missing IMF Payment. (video) International Monetary Fund Managing Director Christine Lagarde warned that she wouldn’t let Greece skip a debt payment to the lender, shutting down a potential avenue to buy the Greek government some financial leeway. “We never had an advanced economy actually asking for that kind of thing, delayed payment,” Lagarde said in an interview Thursday in Washington with Bloomberg Television. “And I very much hope that this is not the case with Greece. I would certainly, for myself, not support it.”
• Greek Pressure Builds as Bond Yields Climb to Highest Since 2012. (video) Greece’s bonds tumbled, pushing 10-year yields to the highest in more than two years, as pressure mounted on the southern European nation to secure funding or risk a possible default. The price of Greece’s three-year notes dropped the most since February and Greek corporate bonds also slumped. Credit-default swaps suggested there was a 79 percent chance of the country being unable to repay its debt in five years.
• Putin Says People in Rebel Ukraine Areas Will Decide Their Fate. The future of rebel-held areas of eastern Ukraine will be decided by the people who live there, Russian President Vladimir Putin said. A peace agreement negotiated in Minsk, Belarus, to end the yearlong conflict offers a chance to rebuild relations between the government in Kiev and pro-Russian separatists in Ukraine’s Donbas region, Putin said. “In the end, of course, the right to have the final word on who, how and with whom they want to live, under what conditions, should belong to the people living on those territories,” Putin said at his annual televised call-in program in Moscow on Thursday. “To a great extent, this will depend on the flexibility and the political wisdom of the Kiev leadership.”
• ECB Rues Limits of Stimulus as IMF Gauges Rust in Economy. As European Central Bank policy makers vaunt the success of their stimulus measures so far, they remain as aware as ever of its limits. Fresh from their latest policy meeting in Frankfurt on Wednesday, euro-zone officials are now headed for Washington, where the International Monetary Fund singled out the currency bloc in an assessment last week on the depletion of growth potential across the world. The IMF and the ECB concur that decay from two recessions since 2008, one debt crisis and the lack of reforms to repair the damage risk acting as a brake on inflation that monetary stimulus can’t overcome.
• American-Made Junk CLOs Now Being Served in Yield-Starved Japan. Bankers have a proposition for Japanese investors: Why don’t you put your money into bundles of junk-rated U.S. loans? It’ll be a classic win-win, as the thinking goes. For Japanese institutions tired of decade after decade of paltry returns on Japanese government debt, they’ll earn higher yields; and for the riskiest U.S. companies, they’ll get access to a cheaper source of financing. What could possibly go wrong?
• European Stocks Fall as Germany, Italy, Portugal Lead Declines. European stocks fell the most in three weeks, with German, Italian and Portuguese gauges leading declines. The Stoxx Europe 600 Index slid 0.8 percent to 410.93 at the close of trading in London.
• Saudi Arabia Adds Half a Bakken to Oil Market in a Month. Saudi Arabia boosted crude production to the highest in three decades in March, with a surge equal to half the daily output of the Bakken formation in North Dakota. The kingdom boosted daily crude output by 658,800 barrels in March to an average of 10.294 million, according to data the country communicated to the Organization of Petroleum Exporting Countries’ secretariat in Vienna. The Bakken formation, among the fastest-growing shale oil regions in the U.S., pumped 1.1 million barrels a day in February, according to data from the North Dakota Industrial Commission.
• Bets on September Fed rate hike surge in latest economist survey. Most economists now expect the Federal Reserve's first rate hike in almost a decade to come at its late-summer meeting, in a ballroom-worthy swing from their outlook last month. The share of economists projecting the Fed will wait until September more than doubled to 71 percent in the latest Bloomberg survey, from 32 percent last month. Team June shrank to 12 percent from 45 percent in March. The camp calling for a July rate hike fell to 5 percent from 12 percent. 
• Etsy Doubles in Debut, Leading Gains Among Trio of New Listings. The U.S. IPO market got a shot in the arm Thursday after a high-frequency trader, a handicrafts marketplace, and a party-supply retailer all jumped in their trading debuts. Etsy Inc., the website for artisans, logged the biggest gain, surging 94 percent in its first trade after it raised $267 million in its initial public offering. Virtu Financial Inc. gained 21 percent as did retailer Party City Holdco Inc.

ZeroHedge:

• Meanwhile, In Greece — Live Feed. (video)
• Spot The Common Theme: Prostitution Scandals, Kickbacks And Money Laundering.
• Citadel Head Bond Trader (And TBAC Member) "Leaves" After Losing $1 Billion.
• Contagion Arrives: European Peripheral Bond Risk Soars. (graph)
• Virtu Explains Why It Lost Money On Just One Trading Day In 6 Years. (graph)
• 175,846,629,768 Reasons Why Ben Bernanke Joined Citadel. (graph)
• Fed's Fischer Says Fed Can't Be "On Hold For Ever", Spooks Bonds & Bullion. (graph)
• Philly Fed Limps Higher After "Weather" Crash, New Orders Tumble To 2 Year Lows. (graph)
• Housing Starts And Permits Miss Badly As "Warm Weather" Rebound Fails To Materialize. (graph)
• Goldman Reports Best Quarter In Four Years, "Average" Employee Paid $381,948. (graph)

Business Insider:

• Corporate bankruptcies are on the rise in America.
• The strongest BRIC is starting to crumble.
• It seems Hillary Clinton has already flip-flopped on 2 major issues. 

Reuters:

• TSMC sees Q2 sales dip after key client loses business. Taiwan Semiconductor Manufacturing Co Ltd (TSMC) (2330.TW) (TSM.N) on Thursday said revenue is likely to fall in the second quarter from the first, due in part to the loss of business at one of its key customers. The world's largest contract chip manufacturer expects a decline of 7 percent to 8 percent in April-June. In the three months prior, revenue was flat on quarter but grew 50 percent on year, pushing net profit beyond analyst estimates.

Handelsblatt:

• ECB QE Crowding Insurers Out, Munich Re CEO Says. Insurers, pension funds and other investors are being crowded out of the market by the ECB, Munich Re CEO Nikolaus von Bomhard says in an interview. Risk of collateral damage from ECB spending program outweighs possible positive effects, he said.

Bild:

• Merkel Ally Urges 'Open Discussion' on Greek Euro Exit. Euro region govts should have an "open discussion about a Plan B for Greece, be it Grexit, the introduction of a parallel currency or another way," Kurt Lauk, head of the economic council of Chancellor Angela Merkel's CDU party, says.

Bear Radar

Style Underperformer:

• Small-Cap Value -.32%

Sector Underperformers:

• 1) Homebuilders -2.32% 2) Hospitals -1.83% 3) Steel -1.22%

Stocks Falling on Unusual Volume:

• IMDZ, NHTC, CARB, PCRX, SNDK, HTWR, MTDR, ASML, CCOI, NVDQ, TEVA, WSO, GS, GLF, MHK, SHW, DXGE, PACW, AMAT, RDC, PSIX, DOOR, WBS, CLVS, MFRM and CCOI

Stocks With Unusual Put Option Activity:

• 1) WFM 2) XLF 3) HYG 4) SNDK 5) OCN
  

Stocks With Most Negative News Mentions:

• 1) SNDK 2) ESV 3) TIF 4) PBR 5) YELP
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Mid-Cap Growth -.12%

Sector Outperformers:

• 1) HMOs +2.43% 2) Tobacco +1.33% 3) Airlines +1.18%
  

Stocks Rising on Unusual Volume:

• INVE, TZOO, NFLX, PNRA, PM, KEP, ADXS, AGIO, SHAK, RCPT and FCS

Stocks With Unusual Call Option Activity:

• 1) HZNP 2) PM 3) MCP 4) FMSA 5) AVP
  

Stocks With Most Positive News Mentions:

• 1) PNRA 2) NFLX 3) COH 4) UNH 5) CCL
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

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.