Stocks Surging into Final Hour on Economic Optimism, Tax Reform Hopes, Yen Weakness, Construction/Financial Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Almost Every Sector Rising
  

• Volume: Heavy

• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• Volatility(VIX) 11.96 -7.43%

• Euro/Yen Carry Return Index 125.17 +.51%

• Emerging Markets Currency Volatility(VXY) 9.76 +1.67%

• S&P 500 Implied Correlation 45.29 -3.45%

• ISE Sentiment Index 114.0 unch.
  

• Total Put/Call .87 -26.27%

• NYSE Arms .56 -58.53%

Credit Investor Angst:

• North American Investment Grade CDS Index 60.33 -3.32%
  

• America Energy Sector High-Yield CDS Index 329.0 -2.23%

• European Financial Sector CDS Index 88.40 -3.76%

• Western Europe Sovereign Debt CDS Index 22.70 +8.74%

• Asia Pacific Sovereign Debt CDS Index 26.50 -.38%

• Emerging Market CDS Index 208.53 -3.81%
  

• iBoxx Offshore RMB China Corporate High Yield Index 135.22 +.10%

• 2-Year Swap Spread 34.0 -1.25 basis points

• TED Spread 43.5 -1.25 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -27.25 -1.0 basis point
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 71.36 unch.
• 3-Month T-Bill Yield .62% +10.0 basis points

• Yield Curve 118.0 +2.0 basis points
  

• China Import Iron Ore Spot $91.26/Metric Tonne -.01%

• Citi US Economic Surprise Index 32.60 -2.1 points

• Citi Eurozone Economic Surprise Index 69.0 -2.1 points

• Citi Emerging Markets Economic Surprise Index 54.80 +8.2 points

• 10-Year TIPS Spread 2.03 +1.0 basis point
• 83.1% chance of Fed rate hike at May 3 meeting, 90.2% chance at June 14 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +237 open in Japan 
• China A50 Futures: Indicating +62 open in China

• DAX Futures: Indicating +30 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 100% Net Long

Today's Headlines

Bloomberg:

• Dow Passes 21,000, Dollar Jumps. (video) 

• China's Factory Gauge Strengthens as Producer Prices Rebound. China’s official factory gauge firmed in February as producer prices rebounded, giving top officials gathering in Beijing a solid economic backdrop as they seek to rein in financial risk. Manufacturing purchasing managers index climbed to 51.6 in February, compared with a median estimate of 51.2 in a Bloomberg survey of economists and 51.3 in January. 

• China Said to Order Steel, Aluminum Curbs to Fight Pollution. China has ordered curbs on steel and aluminum output in as many as 28 northern cities during the winter heating season as it steps up its fight against pollution, according to people with knowledge of the matter. The cuts include halving steel capacity in four major cities, including top producer Tangshan in Hebei province, according to the people, who asked not to be identified because the matter is confidential. The other cities are Shijiazhuang and Handan in Hebei, and Anyang in the neighboring province of Henan.

• Euro-Area Manufacturing Picks Up as Inflation Pressures Build. Euro-area manufacturing accelerated for a sixth month in February amid signs that inflation pressures may be starting to build as factories struggle to keep up with demand. A Purchasing Managers’ Index climbed to 55.4, IHS Markit said on Wednesday. The reading compares with a flash estimate of 55.5 and is up from 55.2 in January. Companies raised output charges at the fastest pace in more than five years as higher commodity prices and a weaker euro drove up costs, while suppliers took longer to fill orders, the London-based company said.

• European Stocks Surge on Fed Hike Bets With FTSE 100 at a Record. (video) European stocks jumped the most since the U.S. election, led by banks and miners, as increasing prospects for a Federal Reserve rate increase and robust China factory data boosted optimism about global growth. The Stoxx Europe 600 Index added 1.4 percent at the close, as all 19 industry groups gained. The benchmark extended gains in afternoon trading as U.S. equities scaled new peaks. The U.K’s FTSE 100 Index and FTSE 250 Index rose to all-time highs, while Germany’s DAX Index rallied 2 percent to close above 12,000 for the first time since April 2015.

• Fed Says U.S. Growing Modestly With Subdued Signs of Inflation. The economy grew at a modest to moderate pace across the U.S., further tightening the labor market but without significant acceleration in wages or inflation, a Federal Reserve survey showed. The central bank’s Beige Book economic report, based on information collected by regional Fed banks from early January through Feb. 17, said employment grew moderately while some districts reported “widening labor shortages,” another sign the economy was at or near what economists consider full employment. Wages generally continued to respond only “modestly or moderately” to the tightening jobs market, with a few districts reporting “some pickup in the pace of wage growth.” Overall pricing pressures were little changed from the prior report, the Fed said Wednesday. “Businesses were generally optimistic about the near-term outlook but to a somewhat lesser degree than in the prior report.”

• McDonald's(MCD) Sees $100 Billion Delivery Market as Key to Growth.

Wall Street Journal:

• Snap, on Cusp of IPO, Looks Set for Strong Debut. If stock prices well, IPO could arouse what has been a largely dormant tech IPO market.

• Nationalists and Economic Growth: The Bad and the Good. Hungary and Poland prove nationalism need not hamper growth, at least in short run.

• How ObamaCare Punishes the Sick. Patients with costly conditions like MS are seeing coverage cut.

Fox News:

• Coal mining begins seeing revival as Trump gives industry hope. (video)

CNBC:

• Lowe's(LOW) earnings: 86 cents a share vs 79 cents EPS expected. (video) Same-store sales: A 5.1 percent increase versus a 2.4 percent increase expected by FactSet.

• US demand for trucks, SUVs helps February sales. (video)

• Trump rally no longer on 'thin ice' after emotional speech, longtime bull Jeremy Siegel says. (video)

• Trump to lift federal coal ban, other green rules, next week: White House.

• Stock that’s more than quadrupled is still attracting the bulls. (video) Call it the stock of steel: With two months down in 2017, U.S. Steel(X) is on track to follow an astonishing year with a phenomenal one.

Zero Hedge:

• Dramatic Aerial Footage Shows What The Oroville Dam Looks Like Now. (video)

• Euro Breakup Contagion Risk Is Exploding. (graph)

• Q1 GDP Estimates Tumble: Goldman, Atlanta Fed Cut To 1.8%, JPM At 1.5%, Bank Of America Sees Only 1.3%. (graph)

• Bunds Are Crashing. (graph)

• Huge Shake Up At World's Largest Hedge Fund: Ray Dalio Steps Down As Co-CEO; Rubinstein Departs.

• WTI/RBOB Tumble As US Crude Inventories Hit New Record High, Production Surges. (graph)

• The US Warms Up To Trump: 3 In 4 Americans Approve Of Trump Address.

• US Construction Spending Tumbles As Federal Building Crashes Most Since 2010. (graph)

• "Manufacturing Is Far From Booming" - PMI Drops Despite Surge In ISM New Orders. (graph)

• Real Personal Spending Crashes Most Since 2009. (graph)

• 30Y Yields Tops 3% As March Rate Hike Odds Spike Above 80%.

• German Inflation Jumps 2.2%, Surpassing ECB Target And Highest Since 2012. (graph)

Business Insider:

• ISIS just pledged to attack China — here's why.

Bear Radar

Style Underperformer:

• Mid-Cap Growth +1.2%

Sector Underperformers:

• 1) Hospitals -.8% 2) Utilities -.3% 3) Retail unch.

Stocks Falling on Unusual Volume: 

• BW, PANW, CYBE, XOXO, TASR, ETSY, DIN, PRAA, AMBA, AMC, SGY, CSU, AEO, BBY, CLNS and ANF

Stocks With Unusual Put Option Activity:

• 1) SYF 2) SAGE 3) WTW 4) DLTR 5) MYL

Stocks With Most Negative News Mentions:

• 1) ETSY 2) DRQ 3) PANW 4) VRX 5) OXY

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value +2.1%

Sector Outperformers:

• 1) Gaming +4.2% 2) Banks +3.3% 3) Construction +3.1%

Stocks Rising on Unusual Volume:

• OXFD, NDRM, WTW, PCRX, ITCI, YDKN, TRCO, NP, AKRX, NOAH, KITE, INGN, CBPO, BLDR, DY, WLH, LOW, AMED, BGFV, MIDD, HLI, ESPR, DAR, AA, XNCR, GOGO, PARR, DCI, WYNN, NLNK, USCR, TNET, KITE, LOGM, ITCI, MYL, VRTU, GMS, AIRM, LJPC, GTN, YDKN, FNB, SBGI, BID, ETFC, PAH, OCFC, PODD, MOD, NXTM, AMTD, RESI and VMC

Stocks With Unusual Call Option Activity:

• 1) TXT 2) HUM 3) PANW 4) KR 5) ILG

Stocks With Most Positive News Mentions:

• 1) MU 2) MDR 3) GMS 4) TCX 5) MRVL

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +26.6% Above 100-Day Average
• 8 Sectors Rising, 2 Sectors Declining
• 66.3% of Issues Advancing, 31.7% Declining
• 269 New 52-Week Highs, 20 New Lows
• 60.9% of Issues Above 200-day Moving Average
• Average 14-Day RSI 40.6%
• Vix 12.2 -5.5%
• Total Put/Call .70 -40.7%
• TRIN/Arms .68 -50.2%

Wednesday Watch

Night Trading 

• Asian equity indices are -.50% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 96.0 unch.
• Asia Pacific Sovereign CDS Index 26.5 +1.0 basis point.
• Bloomberg Emerging Markets Currency Index 71.30 -.08%. 
• S&P 500 futures +.20%. 
• NASDAQ 100 futures +.10%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AEO)/.38
• (BBY)/1.67
• (DLTR)/1.33
• (LOW)/.78
• (MNST)/.30
• (SHAK)/.09

Economic Releases

8:30 am EST

• Personal Income for January is estimated to rise +.3% versus a +.3% gain in December.
• Personal Spending for January is estimated to rise +.3% versus a +.5% gain in December.
• PCE Core MoM for January is estimated to rise +.3% versus a +.1% gain in December. 

9:45 am EST

• Final Markit US Manufacturing PMI for February is estimated to rise to 54.5 versus a prior estimate of 54.3.
  

10:00 am EST

• ISM Manufacturing for February is estimated to rise to 56.2 versus 56.0 in January.
• ISM Prices Paid for February is estimated to fall to 68.0 versus 69.0 in January.
• Construction Spending MoM for January is estimated to rise +.6% versus a -.2% decline in December. 

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,633,330 barrels versus a +564,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -1,277,780 barrels versus a -2,628,000 barrel decline the prior week. Distillate inventories are estimated to fall by -900,000 barrels versus a -4,924,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.34% versus a -1.1% decline prior.

2:00 pm EST

• US Fed Beige Book.
  

Afternoon

• Total Vehicle Sales for February is estimated to rise to 17.7M versus 17.48M in January.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Kaplan speaking, German Unemployment report, weekly MBA mortgage applications report, (F) Feb. Sales Call, (HON) investor conference, (XOM) analyst meeting, (HSY) analyst day, Simmons Energy Conference, (MCD) investor meeting, BoA Merrill Ag/Chemical Conference, BTIG Med Tech/Diagnostics/Healthcare Conference and the Wells Fargo Real Estate Conference could also impact trading today.

BOTTOM LINE:  Asian indices are mostly higher, boosted by industrial 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 100% net long heading into the day.