Stocks Sightly Lower into Final Hour on Earnings Outlooks, Yen Strength, Profit-Taking, Telecom/Financial Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Lower
  

• Sector Performance: Mixed
  

• Volume: Slightly Above Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 12.0 +1.61%

• Euro/Yen Carry Return Index 126.71 -.53%

• Emerging Markets Currency Volatility(VXY) 10.42 -1.51%

• S&P 500 Implied Correlation 46.05 +.99%

• ISE Sentiment Index 87.0 +10.13%
  

• Total Put/Call .99 +7.61%

• NYSE Arms 1.07 -6.79%

Credit Investor Angst:

• North American Investment Grade CDS Index 65.73 -.26%
  

• America Energy Sector High-Yield CDS Index 393.0 -2.64%

• European Financial Sector CDS Index 88.87 -1.65%

• Western Europe Sovereign Debt CDS Index 22.89 +1.96%

• Asia Pacific Sovereign Debt CDS Index 32.20 -.32%

• Emerging Market CDS Index 229.17 -2.58%
  

• iBoxx Offshore RMB China Corporate High Yield Index 133.49 +.10%

• 2-Year Swap Spread 30.0 +.5 basis point

• TED Spread 53.75 +1.5 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -29.25 +.75 basis point
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 71.16 +.45%
• 3-Month T-Bill Yield .50% unch.

• Yield Curve 127.0 +1.0 basis point
  

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

• Citi US Economic Surprise Index 39.40 unch.

• Citi Eurozone Economic Surprise Index 57.30 -.3 point

• Citi Emerging Markets Economic Surprise Index 43.70 +6.6 points

• 10-Year TIPS Spread 2.05 -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 +130 open in Japan 
• China A50 Futures: Indicating +109 open in China

• DAX Futures: Indicating +7 open in Germany

Portfolio: 

• Slightly Lower: On losses in my in my biotech/tech sector longs 

• Disclosed Trades: None

• Market Exposure: 75% Net Long

Today's Headlines

Bloomberg:

• Bank of America Says European Credit Is ‘Mispricing’ Inflation. Buckle up, bond investors. Global reflation and fading central-bank stimulus herald a new dawn for the European corporate debt market that will buoy high-yield paper at the expense of high-grade, according to analysts at Bank of America Corp., citing an upcoming portfolio shift among investors. " In 2016 we saw the lowest in yields and spreads," strategists at the U.S. bank led by Ioannis Angelakis, wrote in a report this week. "We doubt that we will see these levels again, especially post the recent strengthening of economic data across the globe."
• European Stocks Slide as Deutsche Bank, Daimler Drop on Earnings. (video) European stocks fell for the fourth time in five days as a slew of worse-than-forecast results and tepid forecasts damped the outlook for corporate health. The Stoxx Europe 600 Index fell 0.3 percent at the close. Drugmakers led declines as Novo Nordisk A/S slid 7.3 percent after trimming its 2017 sales projection. Daimler AG dropped 2.7 percent after saying profit will rise only “slightly” this year, while Deutsche Bank AG tumbled 5.2 percent after its quarterly trading revenue missed analysts’ estimates.
• Surging Business Sentiment May Actually Matter This Time Around. Animal spirits are about to get physical, kicking off the next phase of the U.S. expansion. Business investment and productivity growth typically go hand in hand -- and they’ve both been largely absent during the nation’s economic recovery from the financial crisis. Residential and non-residential investment both made positive contributions to GDP growth in the fourth quarter -- the first time that’s happened in more than a year -- but Federal Reserve policy makers judged there to be more room to run for business fixed investment in Wednesday’s statement.
• Trump Welcomes Harley-Davidson(HOG) CEO in Latest White House Session.

Fox News: 

• Democrats fuming over Gorsuch backed him in 2006. (video)

Zero Hedge:

• Trump Threatens To Pull U.C. Berkeley Funds After Violent Protesters Cancel Yiannopoulos Speech. (video)
• The Central Banks Pull Back: Now It's Up To Fiscal Policy To "Save The World".
• Trump: "I Haven't Eased Anything On Russia".
• Democrats Plot Protests At Trump's Speech To Congress; Will "Refuse To Shake Hands".
• Defiant Iran Slams Trump: We Won't Yield To "Useless" Threats, Will Conduct More Ballistic Missile Tests.
• Bullish Sentiment Nears 3-Year Highs. (graph)
• Here Is The "Open Letter" Google(GOOGL), Apple(AAPL), Facebook(FB) And Others Are Sending To Donald Trump.
• Post-Election, Continuing Jobless Claims Are Soaring Most Since 2008. (graph)
• US Productivity Growth Has Never Been This Low For This Long. (graph)
• Dan Loeb's Q4 Letter: Trump Will Make Investing Great Again.

Business Insider:

• ConocoPhillips(COP) reports a smaller than expected loss.

The Telegraph:

• The cost of leaving the euro is rising every month for Italy. It lays out in minute detail why Italy is finally running out of road after eighteen years of economic depression and eurozone mismanagement. The awful possibility of a full-blown debt crisis in a country that is too big to save - and by now too angry to bully - must be faced head on.
  

Bear Radar

Style Underperformer:

• Small-Cap Growth -.3%

Sector Underperformers:

• 1) Road & Rail -1.0% 2) HMOs -1.0% 3) Telecom -.9%

Stocks Falling on Unusual Volume: 

• RL, SFLY, CSGS, CRUS, MLNX, PMF, SBH, AMTD, ETFC, ALV, SNA, EW, EGOV, R, CARA, INGR, IP, PRXL and AMAG

Stocks With Unusual Put Option Activity:

• 1) RL 2) TLRD 3) ARNC 4) EL 5) CRUS

Stocks With Most Negative News Mentions:

• 1) EW 2) ETFC 3) SFLY 4) CVS 5) EGOV

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Value +.3%

Sector Outperformers:

• 1) Steel +1.2% 2) REITs +.9% 3) Restaurants +.7%

Stocks Rising on Unusual Volume:

• MJN, CDNS, BRKS, UTEK, MUSA, KLIC, EPAY, BKFS, ACLS, IAC, SGMS, OKS, HLI, NVRO, CTXS, LCI, PENN, MSCI, AXS, AMP, TUP, IDXX, X, CRS, M, CTXS, MSCI, EQT, BSX, AMD, MTCH, COST, CBT and EL

Stocks With Unusual Call Option Activity:

• 1) MJN 2) AA 3) RH 4) CRUS 5) TSCO

Stocks With Most Positive News Mentions:

• 1) URBN 2) JWN 3) ANF 4) CATB 5) ATI

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +11.7% Above 100-Day Average
• 8 Sectors Rising, 2 Sectors Declining
• 54.3% of Issues Advancing, 41.7% Declining
• 94 New 52-Week Highs, 18 New Lows
• 58.1% of Issues Above 200-day Moving Average
• Average 14-Day RSI 38.7%
• Vix 11.8 -.3%
• Total Put/Call 1.03 +12.0%
• TRIN/Arms 1.03 -10.8%

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.