Stocks Lower into Final Hour on Trade War Fears, Oil Decline, US/European/Emerging Markets Debt Angst, Retail/Energy Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• Volatility(VIX) 18.36 unch.

• Euro/Yen Carry Return Index 136.99 -.1%

• Emerging Markets Currency Volatility(VXY) 7.91 -.63%

• S&P 500 Implied Correlation 41.17 -4.88%

• ISE Sentiment Index 89.0 -7.29%
  

• Total Put/Call .97 +6.58%

• NYSE Arms 1.66 +35.5%

Credit Investor Angst:

• North American Investment Grade CDS Index 56.98 +1.61%
  

• America Energy Sector High-Yield CDS Index 386.0 +1.58%

• European Financial Sector CDS Index 52.87 +.36%

• Italian/German 10Y Yld Spread 130.0 -2.25 basis points
  

• Asia Pacific Sovereign Debt CDS Index 12.0 +1.36%

• Emerging Market CDS Index 119.54 +.81%
  

• iBoxx Offshore RMB China Corporate High Yield Index 148.03 +.02%

• 2-Year Swap Spread 28.5 +.75 basis point

• TED Spread 36.0 -1.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -30.0 unch.

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 75.51 -.15%
• 3-Month T-Bill Yield 1.68% +2.0 basis points
  

• Yield Curve 63.0 -.25 basis point

• China Iron Ore Spot 72.20 USD/Metric Tonne -.28%

• Citi US Economic Surprise Index 40.30 +2.2 points

• Citi Eurozone Economic Surprise Index -8.0 -.8 point

• Citi Emerging Markets Economic Surprise Index 12.30 -.2 point

• 10-Year TIPS Spread 2.13 unch.
  
• 100.0% chance of Fed rate hike at May 2 meeting, 100.0% chance at June 13 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +32 open in Japan 
• China A50 Futures: Indicating +47 open in China

• DAX Futures: Indicating +7 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 75% Net Long

Bear Radar

Style Underperformer:

• Large-Cap Value -.5%

Sector Underperformers:

• 1) Gold & Silver -2.2% 2) Oil Service -1.8% 3) Retail -1.5%

Stocks Falling on Unusual Volume: 

• AVAV, DLTR, TLND, PRMW, SPPI, IMNT, ESPR, BZUN, ROST, IP, GLYC, HRG, BURL and BGS

Stocks With Unusual Put Option Activity:

• 1) BX 2) ADSK 3) KR 4) NOV 5) DLTR

Stocks With Most Negative News Mentions:

• 1) AVAV 2) DG 3) CVNA 4) AWI 5) MDXG

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth +.6%

Sector Outperformers:

• 1) Social Media +1.2% 2) Medical Equipment +.9% 3) Computer Services +.9%

Stocks Rising on Unusual Volume:

• ZSAN, MIXT, MED, CLSD, ATH, ADSK, FORM, ACMR, ANF, MOMO, KFY, MGRC, MDB, HCI, RGNX, GTHX, GWRE, BOJA, EDIT, CASY, REPH, AMD, HIFR, INXN, YY, HRB, CLSD, PTCT, VCEL, NTLA, BOX, WTW, AMD, NCS and WD

Stocks With Unusual Call Option Activity:

• 1) HFC 2) ADSK 3) AMD 4) FE 5) WDC

Stocks With Most Positive News Mentions:

• 1) ADSK 2) ANF 3) MED 4) HRB 5) AMD

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -8.6% Below 100-Day Average
• 2 Sectors Rising, 8 Sectors Declining
• 46.1% of Issues Advancing, 48.9% Declining
• 69 New 52-Week Highs, 18 New Lows
• 46.7% of Issues Above 200-day Moving Average
• Average 14-Day RSI 46.4%
• Vix 18.5 +1.0%
• Total Put/Call .99 +8.8%
• TRIN/Arms 1.32 +7.8%

Wednesday Watch

Evening Headlines

Bloomberg:

• Global Boom Swells the Ranks of the Ultra-Wealthy. Stronger global growth and booming stock markets have been great for the super rich. The number of people with more than $50 million of net assets rose 10 percent last year, the fastest pace in at least five years in 2017, according to a report published Wednesday by broker Knight Frank LLP. The increase, to a total of almost 130,000, came as each of the world’s major economies began to grow at the same time. Asia leapfrogged Europe as the region with the second highest number of ultra wealthy, while North America retained top spot, according to the data compiled by Wealth-X. New York was ranked top in the broker’s city wealth index, followed by London, San Francisco and Los Angeles.

• Australia Economy Slows as Exports Cool, Mining Hangover Lingers. Australia’s economy grew at a slower pace in the final three months of 2017 as exports and construction fell, a temporary slowdown the central bank predicts will reverse this year.

• U.S. Considers Broad Curbs on Chinese Imports, Takeovers. (video)

• China's Shiniest Tech Stars May Ignite a Feeding Frenzy. China’s push to get its fastest-growing companies to list shares at home could trigger a feeding frenzy from investors chasing the flashiest securities in a market dominated by old-economy stalwarts. Beijing is trying to stem an exodus to American markets -- and that’s good news for U.S. investors as it may bring a valuation boost. From Alibaba Group Holding Ltd. to Baidu Inc., the country’s brightest tech stars have for years chosen to debut in New York despite once-richer valuations at home, drawn to abundant capital and the prestige of a marquee international listing. But executives say Beijing is now pondering regulatory changes to catch the next wave of debutantes like Xiaomi Corp., while helping U.S.-listed companies create Chinese Depositary Receipts to tap trillions of dollars in domestic savings.

• U.S. Futures Drop as Cohn Resigns; Yen, Bonds Gain. (video) Benchmarks reversed initial declines in Japan and South Korea, while stocks advanced in Hong Kong and China. Australian stocks dropped and S&P 500 Index futures fell over 1 percent before paring losses. The yen climbed against the greenback and bond yields fell. The won rallied after North Korea indicated -- according to South Korea -- that it was open to giving up its nuclear weapons. The Australian dollar maintained a decline as economic growth data missed estimates. The Topix index rose 0.4 percent as of 11:04 a.m. in Tokyo and the Nikkei 225 Stock Average gained 0.3 percent. Australia’s S&P/ASX 200 Index fell 0.7 percent. Kospi index gained 0.7 percent. The S&P 500 Index futures dropped 0.7 percent. The S&P 500 rose 0.3 percent. The MSCI Asia Pacific Index added 0.4 percent.

• Five Things You Need to Know to Start Your Day. (video)

• Fed's Brainard Suggests Growth Tailwinds May Speed Hike Pace.

Wall Street Journal:

• Fight Heats Up to Stop Tariff Plan. Trump says he hopes to ‘straighten out’ trade imbalance in ‘loving way’; critics sound off.

MarketWatch.com: 

• Why a full-blown Trump trade war won’t happen.

Fox News:

• Gowdy, Goodlatte demand appointment of special counsel, citing FISA abuses. (video)

CNBC:

• Gary Cohn resigns as Trump's top economic advisor.

• Trump tariff that excludes Canada and Mexico would create 'wave of jubilation' in the market. (video)

• Chevron(CVX) CEO: We're in 'early innings' of US shale 'really performing'. (video)

• Stocks making the biggest moves after hours: Urban Outfitters, Autodesk, H&R Block, Boeing, Caterpillar & more.

• Our big move into A.I will help our clients like UnitedHealth: Cloud software CEO.

• Investors staged a near-record exodus from US stocks in February. (video)

Zero Hedge: 

• Gary Cohn Resigns, Trump Promises To Choose Replacement "Wisely".

• The WSJ Also Uncovered The Source Of The Next Consumer Debt Crisis. (graph)

• Krieger: "Foreign Government Lobbying Is An Abomination, Should Be Eradicated Immediately".

• Seattle Police Begin Gun Confiscations: No Laws Broken, No Warrant, No Charges.

• WTI Down, RBOB Up After Huge Gasoline Draw, Crude Build. (graph)

• 9 Years "Off The Lows": World Stocks +200%, Central Banks +170%, Dollar Unchanged. (graph)

Night Trading 

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

• Asia Ex-Japan Investment Grade CDS Index 69.0 unch. 

• Asia Pacific Sovereign CDS Index 11.75 -.25 basis point.

• Bloomberg Emerging Markets Currency Index 75.60 -.02%.

• FTSE 100 futures -.56%.

• S&P 500 futures -1.04%.

• NASDAQ 100 futures -.97%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (ANF)/1.10

• (BF/B)/.41

• (CASY)/.64

• (DLTR)/1.90

• (CZR)/.00

• (COST)/1.45

• (THO)/1.81

• (ZAGG)/.68

Economic Releases

8:15 am EST

• The ADP Employment Change for February is estimated to fall to 200K versus 234K in January.

8:30 am EST

• The Trade Deficit for January is estimated to widen to -$55.0B versus -$53.1B in December.
  

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory gain of +2,029,300 barrels versus a +3,019,000 barrel gain the prior week. Gasoline supplies are estimated to rise by +730,300 barrels versus a +2,483,000 barrel gain the prior week. Distillate inventories are estimated to fall by -652,800 barrels versus a -960,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.04% versus a -.3% decline prior.

2:00 pm EST

• US Fed releases Beige Book.

3:00 pm EST

• Consumer Credit for January is estimated at $17.65B versus $18.447B in December.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Dudley speaking, Fed's Bostic speaking, Japan GDP report, Eurozone GDP report, weekly MBA Mortgage Applications report, UBS Consumer /Retail Conference, (PSMT) monthly sale report, (AXP) investor day, (CERN) investment meeting, (PH) investor day and the (XOM) analyst meeting could also impact trading today.

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

Stocks Slightly Higher into Final Hour on Diminishing Trade War Fears, Less US/European/Emerging Markets Debt Angst, Short-Covering, Transport/Retail Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Around Average

• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• Volatility(VIX) 18.09 -3.42%

• Euro/Yen Carry Return Index 137.21 +.57%

• Emerging Markets Currency Volatility(VXY) 7.91 -1.37%

• S&P 500 Implied Correlation 40.84 +1.14%

• ISE Sentiment Index 95.0 +4.4%
  

• Total Put/Call .92 -7.07%

• NYSE Arms 1.05 +81.41%

Credit Investor Angst:

• North American Investment Grade CDS Index 55.84 +.58%
  

• America Energy Sector High-Yield CDS Index 383.0 -2.08%

• European Financial Sector CDS Index 52.68 -5.87%

• Italian/German 10Y Yld Spread 132.25 -3.75 basis points
  

• Asia Pacific Sovereign Debt CDS Index 11.80 -1.83%

• Emerging Market CDS Index 118.61 -.43%
  

• iBoxx Offshore RMB China Corporate High Yield Index 148.0 -.01%

• 2-Year Swap Spread 27.75 +.75 basis point

• TED Spread 37.25 -1.0 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -30.0 +1.75 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 75.40 +.07%
• 3-Month T-Bill Yield 1.66% unch.
  

• Yield Curve 63.25 -1.25 basis points

• China Iron Ore Spot 74.02 USD/Metric Tonne +.64%

• Citi US Economic Surprise Index 38.10 -.8 point

• Citi Eurozone Economic Surprise Index -7.2 +.4 point

• Citi Emerging Markets Economic Surprise Index 12.30 -.2 point

• 10-Year TIPS Spread 2.13 -1.0 basis point
  
• 100.0% chance of Fed rate hike at May 2 meeting, 100.0% chance at June 13 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +167 open in Japan 
• China A50 Futures: Indicating +30 open in China

• DAX Futures: Indicating +41 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 100% Net Long