Morning Market Internals

NYSE Composite Index:

• Volume Running -23.2% Below 100-Day Average
• 7 Sectors Rising, 3 Sectors Declining
• 56.5% of Issues Advancing, 40.0% Declining
• 98 New 52-Week Highs, 3 New Lows
• 48.5% of Issues Above 200-day Moving Average
• Average 14-Day RSI 48.9%
• Vix 13.8 +1.8%
• Total Put/Call .85 -24.1%
• TRIN/Arms 1.12 +38.8%

Thursday Watch

Evening Headlines
Bloomberg: 

• MSCI Says China's Trading Halts May Keep It Out of Stock Indexes. MSCI Inc. said China’s inclusion in global benchmark stock indexes will rest on whether authorities are prepared to prevent a repeat of the trading halts that closed down half the market amid last year’s rout. Investors remain concerned about liquidity risks, the index provider said in a statement announcing a fresh round of discussions on whether to add mainland equities to its emerging-markets gauge. A decision is due in June. Since MSCI deferred including A shares last year, a plunge wiped $5 trillion off the value of Chinese stocks and spurred unprecedented intervention from policy makers. In July, half the companies listed on China’s exchanges suspended their shares from trading, while the government also effectively shut down the mainland futures market, banned large shareholders from selling stakes and cracked down on short-selling. MSCI said a decision to include 5 percent of A shares in its index will depend on authorities implementing changes so that widespread trading halts can’t happen again.
• China Shipping Profits Sink on Low Rates, Lingering Overcapacity. China Cosco Holdings Co. posted a 22 percent slump in earnings last year, while China Shipping Container Lines Co. swung to a loss as overcapacity of vessels led to lower rates. Net income for China Cosco fell to 283.4 million yuan ($43.8 million) in 2015, from 362.5 million yuan in 2014, the company said in a statement to the Hong Kong stock exchange Wednesday. China Shipping Container Lines Co. posted a net loss of 2.9 billion yuan last year, compared with profit of 1.04 billion yuan in 2014, the nation’s second-biggest container shipping company said in a separate statement Wednesday. China Shipping in January had forecast a loss of 2.8 billion yuan for 2015.
• Templeton Names Dover to Replace Mobius as Emerging Markets Head. Mark Mobius, who is credited as a pioneer in emerging-market investing, will pass on his responsibilities of overseeing the Templeton Emerging Markets Group to Stephen Dover as he steps down from day-to-day management.
• Asia Stocks Set for Best Monthly Gain Since 2009 on Fed Optimism. Asian stocks rose, with the regional benchmark index heading for biggest monthly gain since May 2009, amid optimism the Federal Reserve is in no hurry to lift interest rates. Material and consumer-discretionary shares led the advance. The MSCI Asia Pacific Index climbed 0.5 percent to 129.48 as of 9:04 a.m. in Tokyo. The gauge is up 8.6 percent for the month and down 1.9 percent this quarter. Japan’s Topix index added 0.5 percent to pare its loss this year to 12 percent.
• Welcome to New `Ice Age' as Top China Mill Warns of Steel Crisis. The crisis engulfing the global steel industry has become so severe that one of China’s top producers has warned of a new Ice Age as mills confront overcapacity and increased competition that threatens their survival. “In 2015, China experienced slowdown in economic growth and excess steel capacity, which caused the domestic and overseas steel industry to enter into an ‘Ice Age’,” Angang Steel Co. said after posting a net loss of 4.59 billion yuan ($710 million) for last year. There are severe challenges, fierce competition and difficult survival conditions, it said.
• Iron Ore's 24% Surge Is Set to Fade as McKinsey Highlights Risks. Iron ore will probably snap back to $45 a metric ton as a nascent real-estate rebound in China won’t bolster construction demand in the world’s biggest user and supplies remain plentiful, according to McKinsey & Co. The commodity will trade between $45 and $50 a ton this year, eroding a first-quarter rally to as high as $63.74 that was spurred by speculation demand growth will rise, Oliver Ramsbottom, a Tokyo-based partner, said in an interview. There’s no real improvement in Chinese steel consumption, said Ramsbottom, who’s covered commodities for almost two decades. “There’s plenty of supply, there’s relatively weak downstream demand and sure, you get some uplift in price, but it’s not really that significant,” said Ramsbottom. “There’s little reason that iron ore is going to go above $45-to-$50 per ton. If anything, there’s probably more downside risks.”

 Wall Street Journal:

• Obama’s Greatest Triumph. He is six months away from destroying both the Republican Party and Reagan’s legacy. By early 2015, when the primary season began, virtually all issues inside the Republican Party had been reframed as proof of betrayal—either of conservative principle or of “the middle class.” Trade is a jobs sellout. Immigration reform is amnesty. With his Cheshire Cat grin, Barack Obama faded into the background and let the conservatives’ civil war rip. For Republicans, every grievance, slight or loss became a scab to be picked, day after day. In time, the attacks on “the establishment” and “donor class” became indiscriminate, ostracizing good people in the party and inside the conservative movement. The anti-establishment offensive created a frenzy faction inside the Republican base. And of course, it produced Donald Trump. 
• Trump’s Abortion Gaffe. His campaign will be a daily political adventure from here to November. Some months ago we wrote that Republicans who nominate Donald Trump for President would be diving off a cliff without knowing what’s at the bottom, and Wednesday was the latest illustration. The first-time candidate showed how little he understands about the politics of abortion by suggesting that “there has to be some kind of punishment” if abortion were made illegal. 

Zero Hedge:

• PBOC Slams Yuan Shorts Again - Strengthens Currency Most Since 2005. (graph)
• Yellen-Driven Short-Squeeze Sends Bonds To Best Quarter In 4 Years.
• "It's A Big, Scary World Out There," BofA Warns, And Only Janet Can Save Us.
• Brazil Posts Largest Budget Deficit Ever As Rousseff Cries "Coup," Olympic Ad Sales Top $1 Billion.
• European Peripheral Corporate Bond Yields Tumble To Record Lows Ahead Of Draghi's Monetization.
• How Many Tech Startups Are Empty Shells?
• Bonds, Bullion, & Black Gold Bidless But Stock-Bounce Sticks. (graph)

Business Insider:

• CITI: The 'Uber moment' for banks is coming — and more than a million people could lose their jobs.
• CHART: The US is awash with crude oil.
• Trump was never going to keep his Republican loyalty pledge.

@FrankLuntz:

• Latest @FoxNews head-to-head poll• Hillary 49% vs. Trump 38%• H 44% vs. Cruz 47%.

Financial Times:

• EM credit binge will exact painful price. Markets are underestimating the danger in corporate credit. The ebb and flow of asset values through this year’s young life has been larger than on previous occasions, but it is very unlikely that we are at a long-term inflection point for emerging markets. In the background of sentiment-motored noise one can pick up the steadily louder hum of increasing EM leverage, the bulk of it in the corporate sector. 
• Investment banks face sharp trading falls in tough climate.

The Standard:

• Hong Kong Luxury Mall rents tipped to drop by up to 25pc. UBS has issued a pessimistic outlook for the local property market, warning rents in shopping malls could drop by up to 25 percent. The investment house said rents in luxury malls will drop by 20 to 25 percent by the end of 2017, while other malls are also likely to see rents fall by 15 percent. This comes after many malls issued rent hikes last year when renewing leases with tenants. But UBS said it believed the drop would come from the heightened supply of retail space in the next three years. "Supply is to triple compared to the historical average," said UBS head of Hong Kong and China real estate research Eva Lee Chi-wing.

Night Trading 

• Asian equity indices are -.50% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 147.0 -2.25 basis points. 
• Asia Pacific Sovereign CDS Index 55.25 -1.75 basis points. 
• Bloomberg Emerging Markets Currency Index 72.15 -.07%. 
• S&P 500 futures -.16%. 
• NASDAQ 100 futures -.25%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (LNN)/.56
• (MOV)/.39
• (FC)/.05 

Economic Releases  
8:30 am EST

• Initial Jobless Claims for last week are estimated at 265K versus 265K the prior week.
• Continuing Claims are estimated to rise to 2200K versus 2179K prior.      

9:00 am EST

• ISM Milwaukee for March. 

9:45 am EST

• Chicago Purchasing Manager for March is estimated to rise to 50.8 versus 47.6 in February.

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed's Evans speaking, Fed's Dudley speaking, China Manufacturing PMI report, UK GDP report, EIA weekly natural gas inventory report, Challenger Job Cuts report for March, weekly Bloomberg Consumer Comfort Index, Sidoti Emerging Growth Convention, (CX) shareholder's meeting and the (NDAQ) investor 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 Rising into Final Hour on Central Bank Hopes, Less European/Emerging Markets/US High-Yield Debt Angst, Quarter-End Window-Dressing, Tech/Road & Rail Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 13.49 -2.49%

• Euro/Yen Carry Return Index 133.19 +.10%

• Emerging Markets Currency Volatility(VXY) 11.40 -1.72%

• S&P 500 Implied Correlation 53.72 -.44%

• ISE Sentiment Index 78.0 +3.0%

• Total Put/Call 1.13 +14.14%

• NYSE Arms .63 -54.56% 

Credit Investor Angst:

• North American Investment Grade CDS Index 79.63 -3.54%
  

• America Energy Sector High-Yield CDS Index 1,472.0 +2.07%

• European Financial Sector CDS Index 90.02 -5.30%

• Western Europe Sovereign Debt CDS Index 25.63 -1.16%

• Asia Pacific Sovereign Debt CDS Index 55.40 -2.64%

• Emerging Market CDS Index 283.40 -2.51%
  

• iBoxx Offshore RMB China Corporate High Yield Index 126.59 +.13%

• 2-Year Swap Spread 10.25 -.75 basis point
  

• TED Spread 40.5 +6.25 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -23.25 -.5 basis point
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.19 +.64%
• 3-Month T-Bill Yield .19% -4.0 basis points
  

• Yield Curve 107.0 +5.0 basis points
  

• China Import Iron Ore Spot $54.18/Metric Tonne -1.69%

• Citi US Economic Surprise Index -3.40 +.4 point

• Citi Eurozone Economic Surprise Index -33.60 -2.1 points

• Citi Emerging Markets Economic Surprise Index -12.20 -.1 point

• 10-Year TIPS Spread 1.65% +3.0 basis points
• 22.0% chance of Fed rate hike at June 15 meeting, 32.9% chance at July 27 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +197 open in Japan 
• China A50 Futures: Indicating +114 open in China

• DAX Futures: Indicating +42 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 75% Net Long

Today's Headlines

Bloomberg:

• ICBC, Bank of China Cut Dividend Payouts as Profit Growth Stalls. Industrial & Commercial Bank of China Ltd. and Bank of China Ltd., two of the nation’s largest state-controlled lenders, cut their dividend payout ratios for 2015 as profit growth stalled amid rising bad loans. Net income at ICBC rose 0.5 percent to 277.1 billion yuan ($42.8 billion) last year while Bank of China reported a 0.7 percent profit gain, the Beijing-based lenders reported to the Hong Kong exchange on Wednesday. The percentage of profit they paid out as dividends fell to about 30 percent from 33 percent in 2014 as the two lenders sought to preserve capital. 
• Chinese Authorities Trying to Avoid Credit Crunch. (video)
• China's Big Three Airlines Take $2.5 Billion Currency Hit. China’s Big Three state-owned airlines combined suffered about $2.5 billion in foreign-exchange losses last year after the country unexpectedly devalued the yuan in August, squeezing passenger yields and limiting profit gains from declining oil prices. Net income at China Southern Airlines Co., Asia’s largest carrier by passengers, more than doubled to 3.7 billion yuan ($571.2 million), while China Eastern Airlines Corp.’s profit climbed 33 percent to 4.5 billion yuan. Both fell short of the average analyst estimates -- 3.9 billion yuan and 5.3 billion yuan, respectively -- compiled by Bloomberg. Air China Ltd.’s net income rose 83 percent to 7.06 billion yuan, beating an estimate of 6.78 billion yuan. The companies released separate statements to the Hong Kong exchange Wednesday, based on international accounting standards.
• Hon Hai's Quarterly Profit Slides as Smartphone Demand Wilts. Hon Hai Precision Industry Co.’s quarterly profit dropped for the first time in more than three years after the main assembler of Apple Inc.’s devices fell prey to slowing iPhone sales and intensifying competition in contract manufacturing. The largest member of billionaire Terry Gou’s Foxconn Technology Group reported a 7 percent slide in fourth-quarter net income to NT$52.9 billion ($1.6 billion), compared with the NT$59.1 billion average of analysts’ estimates. The fall in profit was Hon Hai’s first since the second quarter of 2012 on a comparable basis, according to data compiled by Bloomberg. Hon Hai’s 2015 profit exceeded expectations but it’s grappling with a slowdown in smartphone demand.
• Abe Weighs Stimulus Package Before Japan Summer Vote, NHK Says. Just a day after parliament passed a record budget for the fiscal year starting April 1, Japanese Prime Minister Shinzo Abe said he was considering a new economic stimulus package ahead of elections this summer, public broadcaster NHK reported Wednesday. Abe made the remarks to Natsuo Yamaguchi, head of junior coalition partner Komeito, NHK said, without saying where it got the information. Abe on Tuesday brushed off suggestions that the government would announce stimulus steps -- which some members of his own party said could amount to as much as 10 trillion yen ($89 billion). Abe reiterated that Japan will go ahead with a plan to increase the sales tax next year, barring a major economic shock on a scale of the collapse of Lehman Brothers or a major earthquake, NHK reported. Public debt is piling up and the Bank of Japan’s unprecedented asset-purchase program and negative-rate policy has so far been unable to stoke inflation and break a cycle of economic expansion and contraction. With some economists suggesting that central banks are reaching their limits, the onus is falling back on governments to deliver fiscal stimulus and structural reform.
• Bank of Korea Warns Economic Growth Is Poised to Drop Below 3%. Bank of Korea Governor Lee Ju Yeol warned Wednesday that economic growth for 2016 is poised to fall below 3 percent and said the impact of further interest-rate cuts may be limited. The comments come amid a change in the BOK’s board and speculation of additional rate cuts given the ruling party’s request for the bank to follow the lead of Japan and Europe’s central banks to purchase more bonds. Korea’s government bond yields fell to the lowest level in more than a month on Wednesday. “First-quarter growth was weaker than expected, but recently there are some positive signs like the rebound in global oil and improvement in sentiment,” Lee said at a press briefing. “While volatility in financial markets has decreased recently and capital outflow has stabilized, factors remain that limit the impact of rates, like sluggish external demand and financial stability issues like household debt.”
• Europe's Bond Shortage Means Draghi Is About to Shock the Market. (video) As European Central Bank Governor Mario Draghi prepares to increase and broaden his bond-buying program, the shrunken market might be in for a shock. While policy makers will expand their asset-purchase plan by 20 billion euros ($22.7 billion) a month at the start of April, corporate debt won’t be included until later in the quarter. That’s leaving investors to face even higher demand for government bonds with supply unable to keep up and some of Europe’s biggest banks are predicting yields are headed for even more record lows. “All of that is going to be in covered bonds, in govvies, in agencies,” Vincent Chaigneau, global head of rates and foreign-exchange strategy at Societe Generale SA in London, said in an interview on Bloomberg Television’s “On The Move” with Guy Johnson. “That’s going to create a shock on supply-demand in Europe.”
• Euro-Area Economic Confidence Falls to Lowest in 13 Months. Euro-area economic confidence fell to the lowest level in more than a year just as the European Central Bank deployed fresh stimulus to spur growth and quash the threat of deflation. An index of executive and consumer confidence slumped for a third month, declining to 103.0 in March from a revised 103.9 the previous month, the European Commission in Brussels said on Wednesday. That’s the weakest since February 2015 and compares with a median estimate for a reading of 103.8 in a Bloomberg survey of economists.
• Europe Shares Gain After Yellen Reiterates Rates to Rise Slowly. European shares advanced for a second day after Federal Reserve Chair Janet Yellen reiterated that interest rates will be raised gradually in light of uncertain global growth. The Stoxx Europe 600 Index climbed 1.3 percent to 341.18 at the close of trading. Before yesterday’s advance, it had fallen for four consecutive sessions, signaling a loss of momentum in the rebound that more than halved its 2016 decline. It is on course for a 2.2 percent gain in March, its first monthly rise since November, paring its loss for the year to 6.7 percent from as much as 17 percent.
• The $90 Billion Default Flood. If anyone doubts that the credit cycle is souring quickly, just have a look at the mounting tally of defaults in the world’s biggest corporate-bond market.
• Exxon(XOM) Climate Science Probe Expands as New York Gains Allies. Massachusetts became the latest state investigating whether Exxon Mobil Corp. misled investors and the public about how climate change may affect its business. News of the state’s probe came as part of a larger announcement on Tuesday by attorneys general from California to New York who are joining forces to fight global warming and look into whether companies have understated its effects. The group of 17 states and territories may jointly investigate the climate change disclosures of individual oil and natural gas companies, according to a statement from New York Attorney General Eric Schneiderman. “With more states jumping on board, these investigations are sure to generate some serious waves,” May Boeve, executive director of 350.org, an environmental advocacy group, said in an e-mailed statement. “We’ll be looking for the Department of Justice and many more cities and states to get involved.” Suzanne McCarron, Exxon’s vice president of public and government affairs, described climate-change allegations leveled against the company as “politically motivated and based on discredited reporting funded by activist organizations.” The company is “assessing all legal options,” she said in an e-mailed statement.
• Trump’s New Russia Adviser Has Deep Ties to Kremlin’s Gazprom. Carter Page brings a “real-world” resume—and says his close relations with Russian business are a strength.

Wall Street Journal:

• Fidelity Marks Down Startups Including DropBox, Zenefits. Largest Fidelity markdown in February is enterprise-software company Cloudera.
• Investors’ Message to Hedge Funds: We Are Replacing You With Clones. In last quarter of 2015, more money was withdrawn from hedge funds than was taken in.

Fox News: 

• North Korea warns of new famine as Kim's weight, belligerence balloon. (video) Portly North Korean dictator Kim Jong Un, whose hostile actions have brought crippling international sanctions to his impoverished nation, has a new message for the Hermit Kingdom's starving masses: Get ready to eat plant roots. Kim, whose weight the South Korean government estimates has ballooned to 290 pounds, signaled through state media that the nation could be headed for another famiine like the one that killed an estimated 3.5 million people in the 1990s.  
• Cuomo hit for visiting Cuba, but banning North Carolina travel. (video) New York Gov. Andrew Cuomo will go to Cuba … but North Carolina is off-limits. What gives?

CNBC:

• Fed's Evans: April rate hike would be surprising. (video) The Federal Reserve is reluctant to plow ahead with more interest rate hikes because of increased global risks, Chicago Fed President Charles Evans told CNBC on Wednesday. Evans spoke a day after central bank Chair Janet Yellen struck a dovish tone compared with recent comments by other Fed officials advocating hiking interest rates. He told CNBC's "Squawk Box" he believes Yellen has made it clear all meetings are live.

Zero Hedge:

• Does Someone Know Something About The Result Of The Wisconsin Primary? (graph) With Wisconsin becoming make-or-break for the avoidance of a contested convention, it appears, based on PredictIt's odds, that someone suddenly knows something about the result and has bet heavily on Cruz to win... Trump's odds have collapsed in the last hour (on huge volume).
• Meanwhile In San Francisco - $400/Month To Live In A Box In Someone's Living Room.
• U.S. Home Prices Are 14% Overvalued According To Bank of America. (graph) 
• Are Housing Stocks Putting Up A Roof? (graph) 
• Iran's Future Is In Missiles, Not Dialogue, And Anyone Who Says Otherwise Is "Ignorant Traitor": Ayatollah. (video)
• Fed's Flip-flopping Causes Technicians To Lose The Plot. (graph)
• Crude Pops & Drops As US Production Tumbles To 16-Month Lows. (graph)
• Noose Tightens On Clinton As Second Federal Judge Grants Discovery In E-Mail Fiasco.
• What Janet Hath Wrought... (graph)
• The End Of Europe As We Know It?
• Former Fed President: "Living In Constant Fear Of Market Reaction Is Not How You Manage Central Bank Policy".
• Gross To Central Banks: "Get Global Growth Moving Now, Or Else".
• About That ADP Jobs Number: Dear Mark Zandi, Please Explain This (Again). (graph)
• Boeing(BA) Will Terminate More Than 4,500 Workers.

Business Insider:

• China's internet is getting creepier and creepier.
• 'Total catastrophe': Experts say Donald Trump's position on nuclear proliferation would be a disaster.
• US: No, China, we won't recognize these red lines you've drawn all over the South China Sea.
• Half of American parents have gone into debt after spoiling their kids.
• The FDA just authorized the expanded use of a medical abortion pill.
• Obama just shortened the prison sentences of 61 drug offenders.

The Telegraph: 

• Immigration is what will decide the outcome of the referendum, as it will in Holland too. 
• House price crash could leave savers without cash to fund retirement, Bank official warns.