Thursday Watch

Evening Headlines

Bloomberg:

• These Chinese Developers Are Making Their Creditors Anxious. Chinese property developers investing in new ventures outside their core business are hurting their bonds. The notes of Sunac China Holdings Ltd and Dalian Wanda Commercial Properties Co. may come under more pressure this year as the groups branch out into non-core businesses. Purchases by highly leveraged Chinese developers unrelated to real estate raise the “knee-jerk question” of whether they might be having problems with their existing business, said Bryan Collins, a fixed-income portfolio manager at Fidelity International in Hong Kong.
• Asian Stocks Mixed While Yen Strengthens After Fed. Australian and South Korean shares edged higher, while Japan’s Topix index erased an early advance as the yen resumed gains. Futures on the S&P 500 slipped after the gauge eked out a small increase on Wednesday. Oil slumped while gold advanced. The Aussie extended gains after trade data topped estimates. China markets remain closed for the final day of Lunar New Year holidays that started last Friday. The MSCI Asia Pacific Index climbed 0.4 percent. Japan’s Topix index fell 0.4 percent and Australia’s S&P/ASX 200 Index gained 0.2 percent. South Korea’s Kospi added 0.4 percent.
• Gorsuch Pick Spurs Liberals’ Campaign for Democrats to Block. Liberal interest groups have already made up their minds on President Donald Trump’s first Supreme Court nominee, firing up an ambitious campaign to pressure Senate Democrats to block the confirmation of Neil Gorsuch. These efforts could put some Democrats in a particularly tough spot as they try to navigate the treacherous path ahead -- caught between an energized base geared up to battle Trump across the board and the political peril of denying a new president a high-court nominee with such a strong resume.
• Fed Waiting to See Economic Results From Flurry of Trump Actions. Like everyone trying to figure out where the U.S. economy is heading, the Federal Reserve is waiting to see what the whirlwind of executive orders and remarks from President Donald Trump mean for growth as they weigh the timing of the next interest-rate hike.
• Apple(AAPL) Holders Push Company to Put More Minorities in Top Ranks.

Wall Street Journal:

• Reckitt Benckiser Is in Talks to Buy Mead Johnson(MJN). Deal for baby-food maker could be worth more than $15 billion.

Fox News: 

• Trump makes unannounced trip to honor fallen Navy SEAL. (video)

MarketWatch:

• Look who is crashing the list of the world’s greatest hedge-fund managers.
• A rare trio of trends points to more upside for stocks.

CNBC:

• After-hours buzz: FB, SYM, QRVO, CAVM.
• The Federal Reserve has squandered an opportunity, former Dallas Fed advisor says.
• American steel companies 'fully prepared' to supply pipelines, US Steel(X) CEO says. (video)

Zero Hedge:

• Leaked Executive Order Reveals Trump's Plans For H-1B Visas.
• House Kills Requirement For Energy Companies To Disclose Payments To Foreign Governments.
• Global Inflation 'Surprise' Index Spikes To Highest Since 2011.
• Japan Will Invest Its Pensions In US Infrastructure To Create "Hundreds Of Thousands Of US Jobs".
• Facebook(FB) Surges To Record High After Smashing Expectations On 1.86 Billion Monthly Users.
• Gen. Flynn: "Today We Are Officially Putting Iran On Notice".
• VIX Crashes To 10-Year Lows As 'Dovish' Fed Sparks Gold Gains, Dollar Losses. (graph)

Busines Insider:

• Apple’s(AAPL) services business is exploding. (graph)
• 9 cancer risks Americans don’t recognize — and 3 we know well.

Night Trading 

• Asian equity indices are -.25% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 113.25 -.25 basis point.
• Asia Pacific Sovereign CDS Index 32.25 +.25 basis point.
• Bloomberg Emerging Markets Currency Index 70.87 +.04%. 
• S&P 500 futures -.15%. 
• NASDAQ 100 futures -.23%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AZN)/1.18
• (ALV)/1.83
• (BDX)/2.12
• (BSX)/.29
• (CI)/1.74
• (CME)/1.10
• (COP)/-.43
• (DLPH)/1.60
• (ETN)/1.10
• (EL)/1.17
• (IDXX)/.51
• (IP)/.71
• (KLIC)/.12
• (MRK)/.89
• (MKSI)/1.00
• (PH)/1.39
• (PM)/1.11
• (RL)/1.64
• (R)/1.42
• (AMZN)/1.42
• (AMGN)/2.79
• (CMG)/.54
• (CSC)/.71
• (CY)/.14
• (DECK)/4.23
• (GPRO)/.24
• (V)/.78
• (POST)/.55

Economic Releases 
7:30 am EST

• Challenger Job Cuts YoY for January.

8:30 am EST

• Preliminary 4Q Non-Farm Productivity is estimated to rise +1.0% versus a +3.0% gain in 3Q.
• Preliminary 4Q Unit Labor Costs are estimated to rise +1.9% versus a +.7% gain in 3Q.
• Initial Jobless Claims are estimated to fall to 250K versus 259K the prior week.
• Continuing Claims are estimated to fall to 2063K versus 2100K prior.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The China PMI report, Eurozone PPI report, weekly EIA natural gas inventory report, weekly Bloomberg Consumer Comfort Index, (MU) analyst conference and the (FTNT) earnings conference call could also impact trading today.

BOTTOM LINE:  Asian indices are mostly lower, weighed down by consumer and financial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.

Stocks Slightly Higher into Final Hour on Economic Optimism, Positive Earnings Surprises, Yen Weakness, Tech/Healthcare Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Slightly Lower
  

• Sector Performance: Mixed
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 11.74 -2.1%

• Euro/Yen Carry Return Index 127.20 +.03%

• Emerging Markets Currency Volatility(VXY) 10.65 -.37%

• S&P 500 Implied Correlation 45.70 -2.43%

• ISE Sentiment Index 84.0 +5.0%
  

• Total Put/Call .91 -10.78%

• NYSE Arms 1.21 -10.07%

Credit Investor Angst:

• North American Investment Grade CDS Index 65.97 -.08%
  

• America Energy Sector High-Yield CDS Index 402.0 -3.4%

• European Financial Sector CDS Index 90.36 +.04%

• Western Europe Sovereign Debt CDS Index 22.46 +3.65%

• Asia Pacific Sovereign Debt CDS Index 32.31 +1.25%

• Emerging Market CDS Index 235.70 -.51%
  

• iBoxx Offshore RMB China Corporate High Yield Index 133.36 -.11%

• 2-Year Swap Spread 29.50 unch.

• TED Spread 52.25 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -30.0 -.75 basis point
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 70.85 +.09%

• 3-Month T-Bill Yield .50% -1.0 basis point

• Yield Curve 126.0 +2.0 basis points
  

• China Import Iron Ore Spot $83.34/Metric Tonne n/a

• Citi US Economic Surprise Index 39.40 +7.6 points

• Citi Eurozone Economic Surprise Index 57.60 +2.3 points

• Citi Emerging Markets Economic Surprise Index 37.10 +5.4 points

• 10-Year TIPS Spread 2.06 -1.0 basis point

• 48.6% chance of Fed rate hike at May 3 meeting, 71.4% chance at June 14 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +62 open in Japan 

• China A50 Futures: Indicating n/a open in China

• DAX Futures: Indicating +10 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 75% Net Long

Today's Headlines

Bloomberg:

• Euro-Area Manufacturing Picks Up as Demand Drives Prices Higher. Euro-area manufacturing expanded at the strongest pace in nearly six years, with firm order growth signaling a build-up of underlying price pressures. A Purchasing Managers’ Index climbed to 55.2 in January, IHS Markit said on Wednesday. The reading compares with a flash estimate of 55.1 and is up from 54.9 in December. A weaker euro and more expensive global commodities raised companies’ input costs, while high demand drove price growth to the fastest pace in five-and-a-half years.
• Inflation Surprise Index Shows Unexpected Global Turn: Chart.
• Toyota Leads U.S. Sales Drops as Carmakers Keep Discounts Coming. Toyota Motor Corp. led carmakers reporting U.S. sales declines in January, as an industry trying for another record year piled on discounts to keep showrooms busy. Deliveries fell about 11 percent for both Toyota and Fiat Chrysler Automobiles NV. Sales also dropped for General Motors Co. and Ford Motor Co., while Japan’s Nissan Motor Co. and Honda Motor Co. reported gains.
• Iraq Plays Ball With OPEC as Tanker Tracking Shows Flows Are Cut. Oil flows out of Iraq suggest that the Middle East country is complying, at least in part, with OPEC’s plan to curb production. Observed shipments in January were 109,000 barrels a day below October’s level, the month used as a baseline for the Organization of Petroleum Exporting Countries’ reductions plan. That indicates that Iraq has implemented around half of the production cut it agreed as part of the accord, assuming flows provide an indication of output.
• Fed Nods to Improved Sentiment While Leaving Rates Unchanged. (video) Federal Reserve officials left interest rates unchanged while acknowledging rising confidence among consumers and businesses following Donald Trump’s election victory. “Measures of consumer and business sentiment have improved of late,” the Federal Open Market Committee said in its statement Wednesday following a two-day meeting in Washington. Policy makers reiterated their expectations for moderate economic growth, “some further strengthening” in the labor market and a return to 2 percent inflation.
• U.S. Treasury Yield Curve Turns Steeper. (graph)
• Retailer-Backed Coalition Launches Campaign Against Border Tax. (video)
• Lilly(LLY) CEO Encouraged by Trump Meeting, Concerned About Obamacare. Eli Lilly & Co. Chief Executive Officer Dave Ricks said he was encouraged by President Donald Trump’s understanding of the complexities of drug development, yet he’s concerned about risks the industry may face in a fresh overhaul of the U.S. health-care system. “There’s a chance to get that right this time,” he said of Republicans’ Obamacare repeal and replace efforts, adding that the result should be a system that is market-based, increases access to medication and provides more choices for patients.

CNBC:

• Fed sees 'improved' sentiment, but no interest rate hike. (video)
• Apple(AAPL) shares jump to highest since July 2015 after record iPhone sales.
• Leaked video shows new ‘nightmare-inducing’ wheeled robot from Boston Dynamics. (video)

Zero Hedge:

• White House Blackballs CNN; Refuses To Send Surrogates On "Fake News" Network.
• CNN Producer Sues Trump Over Immigration Order.
• The Oil War Is Only Just Getting Started. (graph)
• Trump Tells McConnell "Go Nuclear" If You Have To.
• Trump's AG Pick Sessions Approved By Senate Committee.
• Democrats Again Boycott Committee Vote, Blocking Confirmation Of Trump EPA Nominee.
• Trump’s Supreme Court Pick: "The Best The Left Could Have Hoped For".
• Stagflation Shock: ISM Shows Input Costs Soaring At Fastest Since 2011. (graph)
• WTI, RBOB Dump'n'Pump Despite Biggest Crude Build Since October, Record Gasoline Inventory.
• Democrats Again Boycott Committee Vote, Blocking Confirmation Of Trump EPA Nominee.
• US Added A Blistering 246K Private Sector Jobs In January, Most Since June. (graph)
• European Bond Bloodbath - Worst January On Record Exposes Political Panic Across EU.

The Telegraph:

• Pound surges after Donald Trump's trade chief Peter Navarro accuses Germany of abusing euro for own gain.

Bear Radar

Style Underperformer:

• Mid-Cap Value -.4%

Sector Underperformers:

• 1) Utilities -1.8% 2) Gold & Silver -1.5% 3) Telecom -1.4%

Stocks Falling on Unusual Volume: 

• FHB, TMHC, PBI, UNVR, SN, MTCH, MANH, ADP, TUP, UPS, D, CCJ, PAYC, NCMI, BABY, SPR, MTH, MNRO, SM, CACC and CTXS

Stocks With Unusual Put Option Activity:

• 1) SYMC 2) BBBY 3) SPG 4) GGP 5) ATVI

Stocks With Most Negative News Mentions:

• 1) RGC 2) KORS 3) RRTS 4) BGC 5) FOSL

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth +.2%

Sector Outperformers:

• 1) Semis +1.4% 2) HMOs +1.2% 3) I-Banks +1.2%

Stocks Rising on Unusual Volume:

• OKS, ACXM, AVY, AAPL, ALGN, CARB, GSM, CARA, AMD, OLN, VNOM, WNC, ESPR, CRUS, DISH, ARNC, RNR, COH, ENR, GSM, TPX, ENR, SGMS and MNTA

Stocks With Unusual Call Option Activity:

• 1) CTSH 2) AVP 3) EL 4) DIS 5) UPS

Stocks With Most Positive News Mentions:

• 1) AMD 2) MU 3) TWLO 4) SMP 5) COH

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +12.5% Above 100-Day Average
• 3 Sectors Rising, 7 Sectors Declining
• 43.6% of Issues Advancing, 52.9% Declining
• 125 New 52-Week Highs, 7 New Lows
• 58.7% of Issues Above 200-day Moving Average
• Average 14-Day RSI 39.2%
• Vix 11.8 -2.0%
• Total Put/Call .82 -19.6%
• TRIN/Arms 1.24 -7.8%