Thursday Watch

Evening Headlines
Bloomberg:   

• China's Exporters Struggle as Yuan Swings Disrupt Business. The yuan’s swings are becoming a headache for the Chinese companies that should have been the biggest beneficiaries of last year’s devaluation. In rare overt comments, exporters including Midea Group Co. and TCL Corp. are expressing apprehension about the nation’s exchange-rate policy. Two said the increased volatility has made it difficult to manage costs because customers are choosing to place only short-term orders, while a third said the yuan was allowed to strengthen far too much in the past few years. “Overseas clients are taking into account losses that can be caused by exchange-rate swings and are placing shorter-term orders with smaller volumes, which creates difficulty for our operations," said Yuan Liqun, vice-president at Midea, China’s biggest maker of household appliances by market share. “The fluctuations last year were relatively significant. Companies can accept a market-based yuan that moves within a reasonable range.”
• Mayor of China's Growth Champion Turns to Reining in Excesses. Chongqing’s mayor is vowing to slash industrial capacity and reduce a housing glut as the booming municipality attempts to put itself at the vanguard of China’s push to restructure the economy. Mayor Huang Qifan, 63, told Bloomberg News that paying off debt, clearing excess property inventory and closing inefficient "zombie" companies are top priorities for the southwestern megacity, which has more people than Texas. The written interview during the annual legislative meetings in Beijing was his first with foreign media since he emerged as a candidate for a top economic post after last year’s market turmoil. "We must make sure to prevent systemic and regional financial risk," Huang said, adding that the municipality was taking steps to reduce capacity in coal mining, steel production, shipmaking and power production. Chongqing, with an economy larger than Greece, will use a "market-oriented approach" to swap high-cost debt for businesses that have promising outlooks and good liquidity, Huang said.
• Under the Hood of Japan Trade Data Are Weak Exports to U.S. (video)
• Islamic State Spreads in North Africa in Attacks Ignored by West. The Islamic State fighters appeared at dawn in the Tunisian town of Ben Guerdane, attacking police and army barracks. Last week’s clashes killed at least 58 people, including 46 militants and a 12-year-old girl. Tunisia is no stranger to jihadist violence -- three large-scale assaults last year decimated its tourism sector -- but it’s the first time militants have attempted to seize territory. The people of this desert crossroads helped turn the tide, hurling stones at militants as security forces engaged them. After 1 1/2 hours, the gunmen, some of whom had trained in neighboring Libya and smuggled weapons across the border, were on the run. The incident serves to remind the world of the risks an unraveling Libya poses across North Africa. Algeria, struggling under the decline in oil prices as it tries to partner with the West against Islamist militancy, went on high alert. Tunisia imposed a curfew and closed border crossings. Ben Guerdane is on lockdown, with shops and schools shut and security forces posted behind sandbags at checkpoints and on rooftops.
• Asian Stocks Advance as Dovish Fed Gives Boost to Risk Assets. Asian stocks rose after the Federal Reserve pared back expectations for interest-rate increases this year. The MSCI Asia Pacific Index gained 1.1 percent to 127.54 as of 9 a.m. in Tokyo, with material and consumer shares leading the advance.  
• Top China Copper Trader Says Second-Half Slump Stalks Market. One of China’s biggest copper traders expects the metal to sink in the second half as demand ebbs in the world’s biggest consumer amid a slowdown in global growth. He Jinbi, founder and president of Xi’an Maike Metals International Group, joins Codelco, the world’s biggest copper miner, and Goldman Sachs Group Inc. in predicting the metal’s advance from a six-year low won’t last. Prices, which traded above $5,000 a metric ton this month, will average between $4,200 and $4,300 this year, He said in recent interviews. “Demand for the second half might not be good and we may face some risks from the global markets,” He said at the Shanghai office of the company he founded in 1993. Maike has a joint venture, HFZ Capital Management Ltd., with Red Kite Group, one of the biggest metals hedge funds.
• Oil Investors See $7.4 Billion Vanish as Dividends Are Targeted. The check is not in the mail. Bludgeoned by falling energy prices, at least a dozen oil and natural gas companies have opted to cut dividends this year to preserve cash, cannibalizing payouts considered sacrosanct by many investors. The cost to shareholders: more than $7.4 billion in lost income, compared to what they would have received this year if the payouts remained the same.
• Houston's $3 Billion of Debt Cut by Moody's After Oil-Price Drop. Houston’s $3 billion of general-obligation debt was cut one level by Moody’s Investors Service, which cited weakening economic performance due to lower oil prices, the city’s pensions obligations and restrictions on raising taxes. The fourth largest U.S. city was downgraded to Aa3, Moody’s fourth-highest level, and remains on watch for additional cuts, the rating company said Wednesday. “The negative outlook reflects the recent weakness in economic and sales tax performance, fueled by energy companies’ reduced investments in personnel and capital, as oil prices have remained low,” Moody’s said in a release.

Wall Street Journal:

• Obama Picks Garland for Supreme Court, Setting Off High-Stakes Fight With Senate. Lawmakers reiterate promises not to hold hearings or votes until after November elections.
• U.S. Imposes Fresh Sanctions on North Korea. Measures block businesses from trade with North Korean entities engaged in finance, transportation, mining and energy. The Obama administration for the first time imposed sanctions on broad sectors of the North Korean economy in a move that is expected to increase pressure on China to cut it business dealings with the nuclear-armed state.
• Obama’s Supreme Politics. How GOP Senators should handle Merrick Garland’s nomination. President Obama’s nomination of Merrick Garland for the Supreme Court is meant to put Senate Republicans on the spot by elevating a well-qualified 63-year-old judge not known as a progressive firebrand. Republicans aren’t likely to fall into this trap, and Judge Garland’s jurisprudence suggests they’re right—with a caveat we’ll get to later.

Fox News:

• What happens to delegates won by Rubio, other ex-candidates? (video) With Marco Rubio dropping out of the Republican presidential race Tuesday, the Florida senator leaves a large cache of delegates behind. So what happens to them, and the delegates of other former candidates, at the convention in Cleveland? The short answer is: It varies from state to state, but the Republican Party leaves enough wiggle room that the delegates of former candidates could end up being a factor in July. "An inbound delegate is worth their weight in gold," Rick Wilson, a GOP strategist, told FoxNews.com. "It's hard to speculate and there's a lot going on right now."
• Obama Supreme Court pick faces conservative heat on gun votes. (video)

MarketWatch:

• Energy sector defaults could go like dominos. Energy issuers may be headed for $40 billion in defaults this year, Fitch says.
• Williams-Sonoma(WSM) shares drop after outlook, earnings miss. Williams-Sonoma Inc. shares dropped in the extended session Wednesday after the high-end home furnishings retailer's outlook and quarterly results fell short of Wall Street estimates. Williams-Sonoma shares fell 6.4% to $55.65 after hours. The company forecast adjusted first-quarter earnings of 48 cents to 52 cents a share on revenue of $1.07 billion to $1.09 billion. Analysts surveyed by FactSet had estimated earnings of 55 cents a share on revenue of $1.1 billion.
• 59% of fund managers see an economy in its final innings — highest percent since 2008 

Zero Hedge:

• Wage Growth Dream Crushed - Weekly Earnings Rise Weakest In 18 Months. (graph)
• Here Is What Janet Yellen Answered When Steve Liesman Asked If The Fed "Has A Credibility Problem".
• World’s Second Largest Reinsurer Buys Gold, Hoards Cash To Counter Negative Interest Rates.
• Japanese Exports To US Plunge Most Since 2011 As Weak Yen Tailwind Evaporates.
• Shorts Slammed As Yuan Spikes Most In 6 Weeks. (graph)
• How Negative Interest Rates Will Turbocharge The Migrant Crisis.
• P2P Property Lending Explodes In China; Officials Panic.
• In Dramatic Move, Syrian Kurds Set To Declare Proto-State On Erdogan's Border.
• Ackman Begins Portfolio Liquidation To Shore Up Cash, Sells $800 Million In Mondelez After Losing 26% YTD. (graph)
• Gold, Stocks, & Bonds Soar As "Cowardly Lyin'" Fed Batters Banks & Greenback. (graph)

Business Insider:

• FedEx(FDX): Amazon(AMZN) would have to spend 'tens of billions' to compete with us.
• Coal miners in China are staging a massive protest.
• The best possible response to the Great Recession would have been to do nothing.
• The US is nearing a decision on whether to label ISIS attacks 'genocide' — and that could have major implications.
• The 'unsinkable' global financial system is rushing headlong toward an iceberg.
• FedEx(FDX) earnings beat expectations, stock gains 5%.

Washington Post:

• Clinton would trounce Trump with demographics and message. Republicans are deluding themselves if they think Donald Trump, if selected as the GOP nominee, can “remake” the electoral map so as to beat Hillary Clinton. The polls and the demographics (Clinton with the Obama coalition amplified by even more Hispanic voters, Trump without even a full GOP turnout) are stacked heavily in her favor.

CNN: 

• Ted Cruz plots a path to 1,237 delegates -- but keeps his backup plan. Ted Cruz is girding for an admittedly long, narrow path to clinching the GOP nomination before the GOP convention in July, a tightrope walk that has no margin for error if he is to dethrone Donald Trump at the ballot box. Gone are the projections that the GOP race would be practically finished by the end of March, along with hopes to sow up the nomination after outlasting Marco Rubio. They've been replaced by hopes to reach the delegate threshold on the very last day on the Republican calendar -- and if that's not possible, to successfully screen delegates and emerge the victor at a contested Republican convention.

Reuters:

• McKesson(MCK) cuts 1,600 jobs to trim costs - Bloomberg. U.S. drug distributor McKesson Corp is cutting 1,600 jobs, or about 4 percent of its U.S. workforce, to slash costs after the company lost some key customers, Bloomberg reported on Wednesday.

Telegraph:

• World coal giant Peabody faces bankruptcy as industry implodes.

Night Trading 

• Asian equity indices are +.50% +1.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 135.75 -2.25 basis points. 
• Asia Pacific Sovereign CDS Index 65.0 -2.0 basis points. 
• Bloomberg Emerging Markets Currency Index 70.88 +.24%. 
• S&P 500 futures +.26%. 
• NASDAQ 100 futures +.30%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (IGT)/.45
• (LE)/.73
• (MIK)/.84
• (ADBE)/.61
• (ARO)/-.13
• (SCVL)/.14

Economic Releases 
8:30 am EST

• The 4Q Current Account Deficit is estimated at -$118.0B versus -$124.1B in 3Q.
• Philly Fed Business Outlook for March is estimated to rise to -1.5 versus -2.8 in February.
• Initial Jobless Claims for last week are estimated to rise to 268K versus 259K the prior week.
• Continuing Claims are estimated to rise to 2235K versus 2225K prior.

10:00 am EST

• JOLTS Job Openings for January are estimated to fall to 5500K versus 5607 in December.
• The Leading Index for February is estimated to rise +.2% versus a -.2% decline in January.

Upcoming Splits 

• None of note

Other Potential Market Movers

• The China Property Price report for Feb., Eurozone CPI report, BofE rate decision, Bloomberg Economic Expectations Index for March, weekly Bloomberg Consumer Comfort Index and the weekly EIA natural gas inventory report could also impact trading today.

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

Stocks Higher into Final Hour on Central Bank Hopes, Less European/Emerging Markets/US High-Yield Debt Angst, Oil Bounce, Metals & Mining/Gaming Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Slightly Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Slightly Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 15.21 -9.68%

• Euro/Yen Carry Return Index 131.99 +.47%

• Emerging Markets Currency Volatility(VXY) 11.92 +1.97%

• S&P 500 Implied Correlation 57.79 -1.97%

• ISE Sentiment Index 120.0 +37.93%

• Total Put/Call .93 +4.49%

• NYSE Arms 1.50 +51.58% 

Credit Investor Angst:

• North American Investment Grade CDS Index 86.53 -2.53%

• America Energy Sector High-Yield CDS Index 1,765.0 +1.93%

• European Financial Sector CDS Index 84.08 +1.85%

• Western Europe Sovereign Debt CDS Index 28.47 +.73%

• Asia Pacific Sovereign Debt CDS Index 65.36 -2.45%

• Emerging Market CDS Index 322.50 -2.71%
  

• iBoxx Offshore RMB China Corporate High Yield Index 125.73 +.08%

• 2-Year Swap Spread 7.5 +1.0 basis point
  

• TED Spread 30.25 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -19.0 +3.75 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 70.61 +.54%
• 3-Month T-Bill Yield .31% -3.0 basis points

• Yield Curve 106.0 +6.0 basis points
  

• China Import Iron Ore Spot $53.57/Metric Tonne +1.30%

• Citi US Economic Surprise Index -3.40 +1.5 points

• Citi Eurozone Economic Surprise Index -50.60 +.3 point

• Citi Emerging Markets Economic Surprise Index -20.20 -1.6 points

• 10-Year TIPS Spread 1.58% +7.0 basis points
• 9.6% chance of Fed rate hike at April 27 meeting, 37.4% chance at June 15 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -110 open in Japan 
• China A50 Futures: Indicating -95 open in China

• DAX Futures: Indicating -8 open in Germany

Portfolio: 

• Slightly Lower: On losses in my biotech sector longs and emerging market shorts
  

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

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:   

• China Traders Hold Noses at Plan to Repackage Bad Loans as Bonds. Bond traders at Chinese banks say they’ll avoid notes backed by the nation’s highest non-performing loans in a decade. Regulators will allow domestic banks to issue up to 50 billion yuan ($7.7 billion) of such asset-backed securities and Bank of China Ltd. plans its first sale since 2008, people familiar with the matter said last month. Guangzhou Rural Commercial Bank Co. said it wouldn’t be interested in buying debt underpinned by NPLs due to lack of transparency. Guangdong Shunde Rural Commercial Bank Co. said probably only wealth-management departments of lenders would want to add exposure to soured loans. “It would be too risky for us to invest,” said Lin Yijian, a bond trader at Guangzhou Rural Commercial Bank in the southern city of Guangzhou. "We wouldn’t know what exactly would be in the bundled assets and it would take a long time for us to do due diligence on them."
• European Stocks Little Changed as Oil Jump Offsets Bank Slide. (video) European shares were little changed as a surge in oil helped offset sliding banks, while investors speculated on the Federal Reserve’s latest policy meeting. Energy stocks jumped as crude rallied after Qatar’s energy minister said some OPEC members will meet with other producers in April to resume talks on capping output. Prudential Plc led insurers higher after an industry levy was raised less than expected in the U.K. budget. UBS Group AG paced lenders lower, sliding 4.8 percent after saying its wealth-management and investment-banking units didn’t recover in the first quarter. The Stoxx Europe 600 Index added less than 0.1 percent at the close of trading, after falling as much as 0.6 percent and rising 0.5 percent.
• Moving Average Math Is Firing Bearish Signals at S&P 500: Chart. (graph) The Standard & Poor’s 500 Index is up against two technical resistance levels and a bearish indicator that may halt its rise after one of the fastest rallies in recent years. Up as much as 12 percent in the past four weeks, the index is testing its 200-day moving average and a short-term trend line of lower highs that began in November. More troubling: About 90 percent of the index’s members are trading above their 50-day moving averages, a level that has repeatedly preceded dips.
• Oil Freeze Won't Dent Global Glut Even With Wider Support: Chart. (video) If Saudi Arabia and Russia were to pull off a diplomatic coup and persuade producers all over the world to join their oil-output freeze, it would have little impact on the global surplus. That’s because Iran and Brazil, the two countries the International Energy Agency predicts will add most supply this year, have shown little interest in participating. Even if other suppliers as diverse as Argentina and Equatorial Guinea agreed to cap output, their combined efforts would curb supply this year by just 50,000 barrels a day, or 5 percent of the global production surplus, IEA data show.  
• Fed Scales Back Rate-Rise Forecasts as Global Outlook Weakens. (video) Federal Reserve officials held off from raising borrowing costs and scaled back forecasts for how high interest rates will rise this year, citing the potential impact from weaker global growth and financial-market turmoil on the U.S. economy. The Federal Open Market Committee kept the target range for the benchmark federal funds rate at 0.25 percent to 0.5 percent, the central bank said in a statement Wednesday following a two-day meeting in Washington. The median of policy makers’ updated quarterly projections saw the rate at 0.875 percent at the end of 2016, implying two quarter-point increases this year, down from four forecast in December.
• Treasuries Surge as Fed Lowers Forecast for 2016 Rate Increases. Treasuries surged, with two-year note yields falling by the most in more than a month, after the Federal Reserve left interest rates unchanged and lowered its projected path for increases this year. Yields fell after Federal Open Market Committee officials cited the potential impact from weaker global growth and financial-market turmoil on the U.S. economy in a statement at the conclusion of their two-day meeting. After weeks of financial-market volatility at the start of 2016, traders had wagered that there was almost no chance of a rate increase at this meeting.
• Peabody Energy(BTU) Raises ‘Going Concern’ Doubts in Filing. Peabody Energy Corp. may not have enough liquidity to continue operating and said it may need to seek bankruptcy protection if it can’t raise additional capital. “We may not have sufficient liquidity to sustain operations and to continue as a going concern,” the largest U.S. coal miner said in a 10-K filing on Wednesday. The current plan to find other sources of capital and improve operating performance may not be successful and St. Louis, Missouri-based company said it may need to seek protection under Chapter 11 of the U.S. bankruptcy code.
• Valeant(VRX) Shatters Creditor Calm as Debt Casts Bigger Shadow. (video) Valeant Pharmaceuticals International Inc. is losing the confidence of its biggest investor base: debt markets that lent the drugmaker more than $30 billion to fund its rapid expansion. The company’s bonds plunged Tuesday by the most ever, pushing the yield on its most actively traded securities above 10 percent for the first time after it slashed its forecast for the year and warned that it may breach debt agreements. Credit analysts at Barclays Plc lowered their outlook on the debt, and Moody’s Investors Service cut its credit rating on the company deeper into junk.
• Trump Causes Fox to Scuttle Debate, Warns of Possible Convention Riots. (video) Ohio Governor John Kasich said that if Trump skipped the debate, he would, too—and the network pulled the plug. Fresh off three more primary victories, Donald Trump vowed Wednesday to blow off the next Republican presidential debate and warned of “riots” if power-brokers deny him the nomination at the convention even if he's leading in the delegate count. The billionaire New York developer, who held a narrow lead in Missouri and lost Ohio on Tuesday, is faced with the prospect of a floor fight at the party convention in July if he's leading in delegates but falls short of a majority, 1,237. “I think we’ll win before getting to the convention, but I can tell you, if we didn’t and if we’re 20 votes short or if we’re 100 short and we’re at 1,100 and somebody else is at 500 or 400 cause we’re way ahead of everybody, I don’t think you can say that we don’t get it automatically,” Trump said on CNN on Wednesday. “I think you’d have riots.”

Fox News:

• North Korea sentences American tourist to 15 years in prison with hard labor. (video) North Korea's highest court sentenced an American tourist to 15 years in prison with hard labor on Wednesday for subversion. Otto Warmbier, a University of Virginia undergraduate, was convicted and sentenced in a one-hour trial in North Korea's Supreme Court. He was charged with subversion under Article 60 of North Korea's criminal code. The court held that he had committed a crime "pursuant to the U.S. government's hostile policy toward (the North), in a bid to impair the unity of its people after entering it as a tourist."

Zero Hedge:

• "Data Dependent" Fed Chickens Out Again - Blames Global Uncertainty For US Rate Hold.
• BAML Warns Bad Market Breadth Signals November Nosedive Deja-Vu. (graph)
• Here Comes The Big Flush - Recession Pending, Fed "Put" Ending. (graph)
• "At The Moment, It's Carnage" - The Startling Truth About China's 'Strong Consumer'.
• Oil Won't Stage A Serious Rebound Until This Happens. (graph)
• Head Of Brazilian Central Bank Ready To Quit Amid Political Insanity.
• Hillary Clinton Emails Reveal More Shameless Cronyism.
• Crude Confused After Production Cut Offsets Cushing Build, Smaller-Than-Expected Gasoline Draw. (graph)
• US Industrial Production Collapses Most Since 1952 Outside Of Recession. (graph)
• Bonds & Stocks Tumble As Core CPI Surges By Most Since October 2008. (graph)
• Deutsche Bank Tumbles After CEO Says Bank Won't Be Profitable This Year.
• Housing Starts Beat Expectations, As Slowdown In Rental Permits Suggest Further Rent Increases In Coming Months. (graph)

Bear Radar

Style Underperformer:

• Mid-Cap Growth -.3%.

Sector Underperformers:

• 1) Coal -2.5% 2) Retail -1.8% 3) Drugs -1.3%

Stocks Falling on Unusual Volume:

• MNK, ZYNE, FNBC, PNX, PEN, GWPH, ITRI, PFSW, STCK, ACOR, LNKD, NHF, SNY, NUAN, CAL, AGN, HZNP, UBS, DSW, LXK, SHPG, UBIO, USNA, RLYP, DB and NUAN

Stocks With Unusual Put Option Activity:

• 1) MNK 2) XLNX 3) FDX 4) LYB 5) FOSL

Stocks With Most Negative News Mentions:

• 1) PHM 2) MNK 3) FOSL 4) LNKD 5) GPS

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer: 

• Small-Cap Value unch.

Sector Outperformers:

• 1) Gaming +1.1% 2) Construction +.8% 3) Software +.6% 

Stocks Rising on Unusual Volume: 

• TWC, QIWI, CHTR, ENDP and TRGP

Stocks With Unusual Call Option Activity: 

• 1) EA 2) HOT 3) BMY 4) CBS 5) ODP

Stocks With Most Positive News Mentions: 

• 1) ORCL 2) STLD 3) PGR 4) VIA/B 5) PLCE

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running -18.3% Below 100-Day Average
• 5 Sectors Rising, 5 Sectors Declining
• 63.7% of Issues Advancing, 33.1% Declining
• 18 New 52-Week Highs, 12 New Lows
• 38.1% of Issues Above 200-day Moving Average
• Average 14-Day RSI 47.1%
• Vix 15.9 -5.9%
• Total Put/Call 1.43 +60.7%
• TRIN/Arms 1.14 +16.2%