Friday Watch

Evening Headlines

Bloomberg:

• China's `Stable, Solid' Yuan Faces Five Key Threats This Year. Chinese policy makers made it clear this week that they don’t want any surprises when it comes to the yuan. Three-month implied volatility on the currency is the lowest among emerging markets, as capital controls quell demand for foreign exchange. While Premier Li Keqiang hinted at an increased tolerance for bigger yuan moves at the start of the National People’s Congress, officials are sticking to their mantra. Deputy governor Yi Gang said on three separate occasions the yuan is “stable,” and his colleague Pan Gongsheng emphasized the currency market is “solid.”

• China Stock Bulls Turn Wary. Optimism over China’s economy has driven gains in the world’s second-largest equity market this year. But that budding recovery could also be investors’ undoing. Some money managers are turning cautious on Chinese shares on concern the economic rebound will gather enough momentum that the central bank has to tighten monetary policy further. While the People’s Bank of China has emphasized its neutral course in 2017 and steered clear of boosting benchmark interest rates so far, mainland markets have started to price in a “major hawkish shift” from the PBOC, according to Goldman Sachs Group Inc.

• Yen Drops as Global Bond Rout Deepens Before Jobs. The Topix index climbed 0.8 percent. Australia’s S&P/ASX 200 Index rose 0.4 percent and New Zealand’s S&P/NZX 50 Index added 0.2 percent. Futures on Hong Kong’s Hang Seng slid 0.2 percent.

Wall Street Journal:

• America Can’t Escape the Debt Vortex. Total obligations in the U.S. have hit 370% of GDP—and Trump seems intent on making matters worse.

• Oil Glut Worries Resurface, Triggering Market Tumble. Crude price falls below $50 for first time this year, in biggest two-day selloff since June.

CNBC:

• Trump told Mnuchin he wants deregulation done in six months, sources say. (video)

• Ulta(ULTA) blows past Wall Street forecasts, but shares drop on soft outlook.

Zero Hedge:

• The Fed Has Not Been This Far "Behind The Curve" In 40 Years. (graph)

• 31% Of College Students Spend Their Loans On Spring Break.

• OPEC Panics, Warns US Shale Not To "Assume" Production Cut Extension. (graph)

• Bond Blooodbath - Treasuries Haven't Seen A Longer Losing-Streak Than This In 43 Years.

• Fewer Corporate Insiders Are Buying Their Own Stocks Than At Any Point In 29 Years. (graph)

• Japan's Demographic Time Bomb Keeps Ticking.

• Chart Of The Day: Democrats Now Like The CIA More Than Republicans. (graph)

• Bearish Sentiment Spikes To 1-Year Highs (But It's Not What You Think). (graph)

• Five Injured After Axe Attackers Go On Rampage At Dusseldorf Train Station.

• Defiant Iran Conducts More Ballistic Missile Tests; This Time From Naval Vessel.

• 3 Key Risk On/Off Barometers Turning Down?

• It Took $4 In New Debt To Create $1 In GDP. (graph)

Business Insider: 

• Technology will destroy millions of American jobs.

• 'They'll tunnel anywhere they want': Go inside the underground passages smugglers burrow under the US border.

Night Trading 

• Asian equity indices are -.25% to +.5% on average.

• Asia Ex-Japan Investment Grade CDS Index 98.5 +3.25 basis points.

• Asia Pacific Sovereign CDS Index 28.50 +1.0 basis point

• Bloomberg Emerging Markets Currency Index 70.53 +.03%. 

• S&P 500 futures +.24%. 

• NASDAQ 100 futures +.22%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (BKE)/.79

• (CTRN)/.36

• (HIBB)/.54

Economic Releases 
8:30 am EST

• The Change in Non-Farm Payrolls for February is estimated at 200K versus 227K in January.

• The Unemployment Rate for February is estimated to fall to 4.7% versus 4.8% in January.   

• Average Hourly Earnings MoM for February is estimated to rise +.3% versus a +.1% gain in January. 

2:00 pm EST 

• The Monthly Budget Deficit for February is estimated at -$190.0B versus $51.3B in January.

Upcoming Splits

• None of note

Other Potential Market Movers

• The China Money Supply report, (MRVL) investor day, (ON) analyst day and the (UTX) analyst meeting could also impact trading today.

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

Stocks Slightly Higher into Final Hour on Economic Optimism, Less European Debt Angst, Technical Buying, Financial/Healthcare Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Mixed
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 12.25 +3.29%

• Euro/Yen Carry Return Index 127.07 +.92%

• Emerging Markets Currency Volatility(VXY) 9.65 +2.55%

• S&P 500 Implied Correlation 46.17 +1.36%

• ISE Sentiment Index 54.0 -43.16%
  

• Total Put/Call 1.17 +20.6%

• NYSE Arms .73 +10.56%

Credit Investor Angst:

• North American Investment Grade CDS Index 64.30 +1.64%
  

• America Energy Sector High-Yield CDS Index 387.0 +5.83%

• European Financial Sector CDS Index 87.37 -1.69%

• Western Europe Sovereign Debt CDS Index 16.20 -9.22%

• Asia Pacific Sovereign Debt CDS Index 28.48 +3.36%

• Emerging Market CDS Index 222.14 +2.58%
  

• iBoxx Offshore RMB China Corporate High Yield Index 135.74 +.05%

• 2-Year Swap Spread 32.75 +1.5 basis points

• TED Spread 38.75 +1.75 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -22.75 +2.25 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 70.50 -.33%
• 3-Month T-Bill Yield .73% unch.
  

• Yield Curve 123.0 +3.0 basis points
  

• China Import Iron Ore Spot $86.79/Metric Tonne -.46%

• Citi US Economic Surprise Index 44.80 -1.0 point

• Citi Eurozone Economic Surprise Index 59.10 +.2 point

• Citi Emerging Markets Economic Surprise Index 47.60 -.4 point

• 10-Year TIPS Spread 2.01 +1.0 basis point
• 100.0% chance of Fed rate hike at May 3 meeting, 100.0% chance at June 14 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +57 open in Japan 
• China A50 Futures: Indicating -23 open in China

• DAX Futures: Indicating -16 open in Germany

Portfolio: 

• Higher: On gains in my in my biotech/medical sector longs and emerging markets shorts 

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

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg:

• Draghi Says Risks Receding, Just Not Fast Enough to End Stimulus. (video) Mario Draghi tweaked the European Central Bank’s policy language to show that the economic risks to the euro area are starting to recede, even while insisting that monetary stimulus must continue. The single currency rose. The ECB president said the cyclical recovery may be gaining momentum after almost four years of uninterrupted growth, and that policy makers considered removing a key phrase in their forward guidance on interest rates. He also said the balance of risks to growth has improved, and dropped a pledge to use “all instruments” within the central bank’s mandate if necessary.
• China Plans Stricter Bank Capital Rules to Contain Risks. China’s central bank plans to apply a stricter method for assessing banks’ capital as part of efforts to contain financial-sector risks, people with knowledge of the matter said. Under the proposed change to the so-called Macro Prudential Assessment framework, the People’s Bank of China will remove an intermediary category in its evaluation of banks’ capital adequacy, the people said, asking not to be identified because the matter is private. That means banks would either get a full score if they meet capital requirements, or a zero score if they fall short, according to the people. Banks in danger of falling into the bottom category will be encouraged to take steps to contain risks, such as raising capital or slowing asset growth, the people said. 
• China Money Supply Growth Slows Amid Campaign to Contain Risk. 
• China Factory Prices Extend Surge in February, Lifting Reflation Outlook. (video) Producer price index rose 7.8 percent last month from a year earlier, compared with median estimate of 7.7 percent in Bloomberg survey and a 6.9 percent in January. Factory prices only swung out of 4 1/2 years of deflation in September. Consumer price index rose 0.8 percent versus 1.7 percent increase forecast by analysts, as timing of Lunar New Year holidays skewed the reading.
• Europe Stocks Little Changed as Banks Rally After Draghi Speech. (video) European stocks closed little changed, erasing an earlier drop after Mario Draghi said downside risks to the euro-area economy were less pronounced. The Stoxx Europe 600 Index added less than 0.1 percent at the close. Banks rallied, leading gains among industry groups, after European Central Bank President Draghi acknowledged that the cyclical recovery may be gaining momentum, saying there’s no longer a “sense of urgency” prompted by deflation risks. The euro and German bond yields rose.
• The OPEC Deal Is Facing Its Biggest Test. (graph) With the focus now shifting to what the Organization of Petroleum Exporting Countries will do next, here are six charts indicating which way the oil market could be starting to turn.
• Dimon Says Trump Has Reawakened ‘Animal Spirits’ in the U.S. (video) Jamie Dimon said President Trump’s economic agenda has ignited U.S. business and consumer confidence and he expects at least some of the administration’s proposals to be enacted. “It seems like he’s woken up the animal spirits,” Dimon, chairman and chief executive officer of JPMorgan Chase & Co., said Thursday in a Bloomberg Television interview in Paris. Confidence has “skyrocketed because it’s a growth agenda,” Dimon said, adding that he’s not overly concerned about the possibility of a correction in equities markets, which have surged since the November election. 
• The Market Is Suddenly Having Second Thoughts on Reflation. (video)
• Trump Woos Lawmakers With Flattery and White House Bowling. (video) Less than two months on the job, President Donald Trump is showing that when it comes to wooing members of Congress, he’s no Barack Obama. Where Obama was usually reserved and met sparingly with lawmakers, Trump has launched a full-out charm offensive, much of it aimed at bolstering the beleaguered Republican Obamacare plan. Trump “was talking about how we all got to work together,” said Representative Tom Cole of Oklahoma, who was part of a group of House Republican vote-counters who met Trump Tuesday in the White House. “He even said at one point, ‘Maybe we should meet once a week. Maybe we should meet every four days!’”

Wall Street Journal:

• U.S. Household Net Worth Reaches Record $92.8 Trillion. Fourth-quarter gains driven by stock market’s surge, according to Fed report.
• Getting to the Bottom of a Climate Crusade. Are investigations by the ‘Green 20’ an effort to intimidate scientific dissenters?
• Early Victory for House Health Bill, but Opposition Remains Strong. A Republican-led committee approved repealing penalties on Americans who lack insurance, but opposition to the overhaul remains strong.
• Grocery Heavyweights Expand Delivery Services. Meijer and Shipt started testing deliveries in Michigan; Wal-Mart and Kroger plan to expand curbside pickups.

Fox News:

• US military budget cuts stretching 'Screaming Eagles' to the limit. (video)
• Republicans want to know why Trump hasn't fired the IRS head. (video)

CNBC:

• Engineers give America's infrastructure a near failing grade. (video)
• Technical analyst who called the stock rally sees only a brief pause. (video)
• Trump's EPA chief says he's addressing a rule that automakers oppose 'very soon'. (video)
• McConnell on Mexico Paying for Trump’s Wall: ‘Uh, No’.

Zero Hedge:

• Bank Stocks Tumble Into Red After Spicer Confirms Trump's "Commitment To Restoring Glass-Steagal". (graph)
• Things Just Got Even Weirder.
• Russia's Largest Bank Confirms Hiring Podesta Group To Lobby For Ending Sanctions.
• It's 1994 Again: Why Albert Edwards Expects An Imminent "Bond Market Bloodbath".
• Bad News For Wall Street: No Tax Reform Until Fiscal 2018, McConnell Warns.
• Precious Metals Pounded Into European Close - Break Below Key Technical Levels. (graph)
• New York City Rents Crash Again In February Under Weight Of "So Much Inventory".
• Are Central Banks Losing Control?
• WikiLeaks Holds Press Conference On CIA Hacking, Will Share Hacking Tools With Tech Firms.
• Trump EPA Chief Says Carbon Dioxide Not "Primary Contributor To Global Warming".
• Trump Vows "Full-Court Press" As Opposition To 'RyanCare' Mounts.
• US Sends Hundreds Of Marines 20 Miles From ISIS Capital.
• US Import Prices Soar To 5 Year Highs As Fuel Costs Spike. (graph)
• Energy Credit Risk Soars As Crude Carnage Continues. (graph)

The Telegraph:

• US shale surge overwhelms oil market as OPEC splits deepen.

Bear Radar

Style Underperformer:

• Mid-Cap Value -.2%

Sector Underperformers:

• 1) Oil Service -1.6% 2) Construction -1.1% 3) Retail -.9%

Stocks Falling on Unusual Volume: 

• TLRD, JOBS, MOMO, HZN, SFS, CWH, SGY, IGT, SSYS, SLCA, AMX, HCLP, ESPR, EXP, GES, CRZO, EMES and SND

Stocks With Unusual Put Option Activity:

• 1) UUP 2) OAS 3) AFSI 4) USO 5) XOP

Stocks With Most Negative News Mentions:

• 1) TLRD 2) ASNA 3) RIG 4) FINL 5) ARA

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth +.1%

Sector Outperformers:

• 1) Hospitals +1.7% 2) Banks +.7% 3) Drugs +.7%

Stocks Rising on Unusual Volume:

• CMTL, ELF, CRCM, TGTX, EQIX, NEWS, SIG, AGU, AFI, DSLV, FIZZ, GBT, TECD, POT, CECE, ALRM, CNQ, AXTA, MMYT, MRO, CYTK and PLAY

Stocks With Unusual Call Option Activity:

• 1) HIG 2) WPX 3) DNR 4) COL 5) JBLU

Stocks With Most Positive News Mentions:

• 1) TECD 2) XLRN 3) NGS 4) REGN 5) ITRI

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +3.9% Above 100-Day Average
• 9 Sectors Rising, 1 Sector Declining
• 46.5% of Issues Advancing, 50.4% Declining
• 26 New 52-Week Highs, 55 New Lows
• 54.3% of Issues Above 200-day Moving Average
• Average 14-Day RSI 35.9%
• Vix 11.8 -.25%
• Total Put/Call 1.04 +7.2%
• TRIN/Arms .59 -11.1%