Wednesday Watch

Evening Headlines

Bloomberg:

• It's Mission Half Accomplished as Kuroda Eyes Last Year at BOJ. As Bank of Japan Governor Haruhiko Kuroda enters what may be his final year in office, it’s looking unlikely he’ll achieve what he set out to -- end deflation once and for all. Continuing the bank’s history of radical policy measures, there were initial signs that prices were responding to the shock-and-awe of Abenomics in Kuroda’s early days in the job. But that was undercut by a collapse in oil prices and a fall in consumption after a tax hike pushed the nation into recession. While prices look to be rising again, Kuroda’s 2 percent inflation target looks a bridge too far in his final year: economists forecast prices will rise 0.6 percent this year and 0.9 percent in 2018. Unless he agrees to stay on for another five-year term, success or failure of the current policy will come in the term of his successor.

• Asia Set for Mixed Open as Tension Spurs Haven Bid. The Japanese currency breached 110 yen per dollar for the first time since November, and its strength is helping push down Nikkei 225 index contracts. Stock futures for Australia, South Korea and Taiwan foreshadow gains. The yield on 10-year U.S. notes closed below 2.3 percent for the first time since November and gold is near its highest level this year as North Korea and Syria tensions ramped up. Oil was steady after rising for a sixth day on Tuesday. The yen was steady against the dollar after jumping 1.2 percent on Tuesday, the biggest jump since January. Futures on the Nikkei 225 traded in Singapore fell 0.4 percent, while contracts on Sydney’s S&P/ASX 200 climbed 0.3 percent. Futures on South Korea’s Kospi were up 0.2 percent, while those on the Hang Seng were down 0.3 percent.

• Your Evening Briefing.

• Apple(AAPL)-Qualcomm(QCOM) Billions Put at Risk as Phone Alliance Frays. (video)

Wall Street Journal:

• U.S. Says Russia Tried to Cover Up Syria Sarin Attack. White House officials suggest Moscow knew sarin would be used.

• Trump Issues New Warning to North Korea. President wants to put more economic and political pressure on Pyongyang, with military options under consideration long-term. 

Barron's:

• PCs: Q1 Shipments a Bit Better, Says IDC; Actually, A Bit Worse, Says Gartner. Q1 personal computer sales are in from the two main keepers of data, research firms Gartner and IDC, and whether you believe things are getting better or getting worse depends on whom you believe. IDC said sales rose 0.6% from the first quarter of last year, the first growth for the market in five years, at 60.3 million. Gartner said sales fell 2.4%, and that shipments fell below 63 million for the first time since 2007, at 62.2 million.

MarketWatch: 

• Warren Buffett’s big bet on United Airlines(UAL) could be costing him millions.

CNBC:

• An NYU student spent 6 weeks working undercover in an iPhone factory -- here's what he learned.

Zero Hedge:

• Tony Robbins, Pitbull And 5 Other Signs That Toronto Real Estate Is About To Crash.

• WTI/RBOB Extend Gains After Biggest Crude Inventory Draw Of 2017. (graph)

• "I'm Sorry, We'll Fix This": United CEO Issues Apology To Passenger And Everyone Else.

• Commercial Property Lending Tumbles As Retail / Hotel Originations Plunge.

• Yellen's Self-Serving Assessment: Fed Is "Doing Pretty Well".

• Trump: "We're Sending A Very Powerful Armada" To North Korea.

• Bullion Jumps To Post-Election Highs As Banks Give Up 2017 Gains.  (graph)

Business Insider:

• Some prominent Mexicans are calling for Mexico to take back Texas and the Southern US desert region.

Night Trading 

• Asian equity indices are -.75% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 99.0 +3.0 basis points. 

• Asia Pacific Sovereign CDS Index 22.0 +.75 basis point.

• Bloomberg Emerging Markets Currency Index 71.69 -.02%.

• S&P 500 futures -.14%. 

• NASDAQ 100 futures -.14%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (DAL)/.74

• (FAST)/.46

• (PIR)/.33

Economic Releases
8:30 am EST 

• The Import Price Index MoM for March is estimated to fall by -.2% versus a +.2% gain in February.  

• The Export Price Index MoM for March is estimated unch. versus a +.3% gain in February. 

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -$981,250 barrels versus a +1,566,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -1,343,750 barrels versus a -618,000 barrel decline the prior week. Distillate inventories are estimated to fall by -975,000 barrels versus a -536,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.37% versus a +1.5% gain prior.
  

2:00 pm EST

• The Monthly Budget Deficit for March is estimated to widen to -$169.0B versus -$108.0B in February.   

Upcoming Splits

• None of note

Other Potential Market Movers

• The China CPI report, $12B 30Y T-Bond auction, weekly MBA Mortgage Applications report, BofA Merrill Auto Summit, (JBLU) monthly traffic and the (MOS) analyst day could also impact trading today.

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

Stocks Falling into Final Hour on Geopolitical Tensions, Rising Eurozone Debt Angst, Yen Strength, Financial/Road & Rail Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Higher
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 15.17 +7.9%

• Euro/Yen Carry Return Index 121.48 -1.02%

• Emerging Markets Currency Volatility(VXY) 9.33 -.64%

• S&P 500 Implied Correlation 46.14 -2.33%

• ISE Sentiment Index 61.0 -29.89%
  

• Total Put/Call .87 -18.69%

• NYSE Arms 1.28 +9.99%

Credit Investor Angst:

• North American Investment Grade CDS Index 65.42 +1.22%
  

• America Energy Sector High-Yield CDS Index 348.0 +.07%

• European Financial Sector CDS Index 93.25 +1.89%

• Western Europe Sovereign Debt CDS Index 12.90 +.43%

• Asia Pacific Sovereign Debt CDS Index 22.06 +3.47%

• Emerging Market CDS Index 212.02 +.49%
  

• iBoxx Offshore RMB China Corporate High Yield Index 136.76 +.22%

• 2-Year Swap Spread 32.25 +.25 basis point

• TED Spread 34.75 +.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -29.75 -.25 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 71.70 +.02%
• 3-Month T-Bill Yield .81% unch.
  

• Yield Curve 107.0 -2.0 basis points
  

• China Import Iron Ore Spot $74.38/Metric Tonne -.44%

• Citi US Economic Surprise Index 36.40 +.8 point

• Citi Eurozone Economic Surprise Index 39.20 +.3 point

• Citi Emerging Markets Economic Surprise Index 21.0 -3.7 points

• 10-Year TIPS Spread 1.91 -2.0 basis points
  
• 59.3% chance of Fed rate hike at June 14 meeting, 62.8% chance at July 26 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -73 open in Japan 
• China A50 Futures: Indicating -23 open in China

• DAX Futures: Indicating +39 open in Germany

Portfolio: 

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

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:

• Russia Opens New Front in U.S. Rivalry With Taliban Support. Russia and the U.S. are increasingly sparring over Afghanistan, adding to rapidly souring ties between the Kremlin and President Donald Trump’s administration. U.S. Defense Secretary James Mattis has voiced alarm at Russia’s actions in Afghanistan, where it’s been cultivating links with the Taliban amid a campaign waged by the terrorist group against Afghan and NATO forces. His comments come as local Afghan officials and a former Taliban commander say there is evidence Russia is supplying arms to the insurgents. U.S. officials won’t go that far in public, but U.S. Central Command chief General Joseph Votel has told a congressional panel that Russia was probably providing the group with weapons.

• China H Shares Slide to One-Month Low Amid Regulation Worries. Chinese shares traded in Hong Kong slumped to their lowest in more than a month amid concern China may ramp up oversight of financial markets and as geopolitical risks linger. The Hang Seng China Enterprises Index fell 0.9 percent at the close. China Galaxy Securities Co. was among the biggest decliners, while China Life Insurance Co. retreated to its lowest price since Feb. 6. The Hang Seng Index slipped 0.7 percent to 24,088.46, and the Shanghai Composite Index reversed losses in the afternoon to advance 0.6 percent.

• Schwarzman Doubts China Will Be Labeled a Manipulator. (video)

• Complacent No More: Hedging Costs Jump in Europe’s Stock Market. (graph) With less than two weeks to go before the first round of French presidential elections, investors are racing to protect gains that have pushed the region’s shares to their highest prices in more than a year. The cost of hedging against declines in the Euro Stoxx 50 Index has surged to its highest level since the U.K. referendum on European Union membership, rebounding from near a 15-month low in just a little more than a week. Even as equities have remained stable, a gauge tracking volatility expectations has climbed for 10 straight days, the longest streak since November.

• Euro Volatility Spread Steepens to Record High on France: Chart. Investors are showing increasing concern before the French presidential elections, with market complacency giving way to extreme cautiousness. The spread between one-month and one-week implied volatilities on the euro versus the dollar closed at a record high of 6.35 percentage points on Monday, as near-term risks remain subdued and focus is almost solely placed on the chance that anti-euro candidate Marine Le Pen wins the race.

• European Stocks Steady as Real Estate Rally Offsets Tech Slump. The Stoxx Europe 600 Index lost less than 0.1 percent at the close after swinging between a 0.3 percent gain and a 0.5 percent decline. Banks fell to a one-month low, while Dialog Semiconductor Plc led technology shares to the worst drop in the broader index after Bankhaus Lampe warned that Apple Inc. may cut back on its use of the company’s chips.

• Clean Energy Investment Drops 17% as China and U.S. Scale Back. Clean-energy investment fell 17 percent in the first quarter, keeping pace with last year’s decline, as the U.S. and China both scaled back support for wind and solar farms. The $53.6 billion funneled into projects such as renewable energy, efficiency and electric cars during the first three months of the year marked the lowest investment for the quarter since 2013, according to Bloomberg New Energy Finance. A surge in financing for large offshore wind projects at the start of last year wasn’t repeated in 2017.

• Gymboree Said to Prepare Bankruptcy Filing as Debt Payment Looms.

Wall Street Journal:

• Lending for Commercial Property Falls as Investors Pull Back. Lenders closed roughly $491 billion of mortgage loans in 2016, down 3% from 2015.

• Congressmen Warn Venezuela Default Could Lead to Russian Control of U.S. Oil Infrastructure. PdVSA owes Rosneft $1.5 billion; its Citgo unit has most foreign ownership of America’s domestic refinery capacity.

• Saudi Arabia Wants OPEC to Extend Production Cuts. Saudi support is essential for renewal of agreement, though Iran and Russia are question marks.

• Donald Trump Promises ‘Pleasant Surprises’ on Nafta in Session With CEOs. President declined to give specifics about changes to trade pact; he also said he wants to overhaul government’s computers.

MarketWatch.com: 

• China car-sales growth slows in March. Growth in China's car sales slowed sharply in March, illustrating the effects of a higher sales tax on the world's biggest car market. Sales of vehicles, excluding those typically used for commercial purposes, grew 1.7% to 2.1 million units in March from a year earlier, the government-backed China Association of Automobile Manufacturers said Tuesday. This marked a slowdown from the 6.3% growth in the first two months of the year. By comparison, sales grew nearly 10% in March 2016 from the previous year. South Korean manufacturers suffered from the fallout of a continuing political dispute between Beijing and Seoul over the latter's deployment of a missile-defense system--a step the Chinese government has vehemently opposed. The dispute has led to the boycotting of Korean products by many Chinese consumers, hitting sales of Hyundai Motor Co. and Kia Motors Corp. in China in March, analysts say.

Fox News:

• Tillerson in Moscow, getting in line with Haley on tough Syria talk. (video)

CNBC:

• Corporate debt is at new highs, and these companies owe the most.

• Here’s an obscure thing hedge funds are buying because of the North Korea nuclear risk.

• Trump says administration is revamping Dodd-Frank rules. (video)

• US small businesses expect continued 2017 growth.

• Trader explains the ‘uber-bullish scenario’ everyone is missing. (video)

• Vacation home sales plunged in 2016, as prices hit highest level in a decade.

Zero Hedge: 

• Oil Spikes As Saudis Reportedly Push For OPEC Production Cut Extension. (graph)

• Gold Spikes To $1275, Above Key Technical Level - Highest Since Election. (graph)

• S&P Slumps Below Key Support As USDJPY Dumps To 5-Month Lows. (graph)

• Labor Market JOLTed: Rate Of Hiring Suffers Biggest Drop In 4 Years. (graph)

• China Threatens To Bomb North Korea's Nuclear Facilities If It Crosses Beijing's "Bottom Line".

• North Korea Threatens U.S. With Nuclear Attack At Any Sign Of Pre-Emptive Strike.

• How China Is Keeping Its Financial System From Collapsing, In One Chart.

• United CEO Defends Staff's Violent "Reaccomodation" Of "Belligerent" Passenger.

• French Sovereign Risk Soars To 5 Year Highs As Election Looms. (graph)

• Trump Warns North Korea Is "Looking For Trouble", Threatens To "Solve Problem Without China".

Business Insider:

• Trump just made another move that will anger Russia. President Donald Trump on Tuesday approved the addition of Montenegro to NATO, a move that's likely to anger Russia, which opposes the expansion of the alliance.

• OPEC is over-delivering on its pledge.

• Betting odds are crashing for the dark horse candidate in France's presidential election.