Thursday Watch

Evening Headlines 
Bloomberg: 

• Japan Trade Deficit Swells to Record as Import Costs Surge. Japan’s trade deficit widened to a record in January as surging import costs weigh on Prime Minister Shinzo Abe’s campaign to drive a sustained recovery. The 2.79 trillion yen ($27.3 billion) shortfall reported by the Ministry of Finance in Tokyo today exceeded the 2.49 trillion yen median estimate in a Bloomberg News survey of 28 economists.

• BOJ Stimulus Impotence Threatens Inflation Aim: Chart of the Day. The Bank of Japan is getting less and less bang for its yen as it expands monetary-stimulus programs aimed at boosting annual inflation to 2 percent. The CHART OF THE DAY shows the so-called money multiplier fell in January to the lowest since 2003, when data became available, signaling the amount of money in the economy dropped relative to funds provided by the BOJ. The ratio of outstanding bank lending to customer deposits is also tracked as it holds near an all-time low. The lower panel shows the yield on Japan’s 10-year government note struggled to maintain gains since dropping to a record 0.315 percent on April 5, the day after the BOJ expanded monthly bond purchases. 

• Japan’s Penny-Pinching Beer Drinkers Show Challenge to Abenomics. Brewers in Japan face an April sales tax increase, stagnant wages and an aging population, the same challenges Abe’s monetary easing and stimulus spending must overcome to sustain a recovery.

• China Factory Gauge Falls to 7-Month Low Amid Financial Risk. A Chinese manufacturing index fell to the lowest level in seven months, adding to challenges for Communist Party officials grappling with risks to the financial system from trust defaults and soured loans. The preliminary February reading of 48.3 for a Purchasing Managers’ Index released today by HSBC Holdings Plc and Markit Economics compares with January’s final figure of 49.5 and the 49.5 median estimate in a Bloomberg News survey of 17 economists.

• Singapore’s Soaring Land Prices ‘Suicidal’ for Developers.

• Yellen Leads Fed Damned Every Way by Emerging Market Angst. Janet Yellen is discovering that when it comes to providing monetary stimulus, the Federal Reserve is damned by emerging markets when it does and damned when it doesn’t. 

• Asian Stocks Drop With Aussie on China PMI; Copper Slides. Asian stocks declined, with the benchmark regional index dropping from the highest in a month, Australia’s dollar weakened and copper slid as a private index on China’s manufacturing dropped to a seven-month low. South Korea’s won led emerging-market currencies lower. The MSCI Asia Pacific Index fell 1.1 percent by 12:15 p.m. in Tokyo.

• Gold Is Seen Losing Stigma by UBS as 2014 Forecasts Increased.

• Rubber Bear Market Boosts Bridgestone as Inventory Swells. Rubber’s bear market is poised to deepen as the global supply glut stretches into a fourth year and stockpiles in China swell, cutting costs for tiremakers. Futures on the Tokyo Commodity Exchange, the international benchmark, will drop as much as 15 percent to 200 yen a kilogram ($1,956 a metric ton) in 2014 from yesterday’s settlement, according to the median of 15 estimates compiled by Bloomberg News. That’s 63 percent below the record high set in 2011.

• Copper Falls Most in a Week on China Manufacturing Data. Copper dropped by the most in a week, leading industrial metals lower, after a manufacturing gauge for China declined more than estimated, damping demand prospects in the world’s biggest user of metals. The contract for delivery in three months on the London Metal Exchange retreated as much as 0.7 percent to $7,134.25 a metric ton, the biggest loss since Feb. 13, and was at $7,139.75 at 11:38 a.m. in Tokyo. Copper has fallen 3 percent this year, extending a 7.2 percent slump last year.

Wall Street Journal: 

• Truce Declared in Ukraine in Wake of Deadly Violence. President Says Negotiations to Begin to Halt Bloodshed. President Viktor Yanukovych bowed to pressure from the West and a widening rebellion at home by agreeing Wednesday to a truce with demonstrators who spent the day staring down riot police across a smoldering no-man's-land in the center of the capital. The move away from confrontation came as the U.S. and Europe—blindsided by the violence that left at least 25 people dead—edged toward imposing sanctions on Ukrainian officials they deem responsible for the crackdown.

• Deadly Clashes in Ukraine. Streaming Coverage:

• U.S. Feels Putin's Sharp Elbows in Ukraine. Obama Learning Moscow Will Go to Great Lengths to Protect Interests in World Hot Spots.

• NSA Weighs Retaining Data for Suits. Rule That Evidence Can't Be Destroyed Would Lead to Expansion of Controversial Phone Program. 

• Fed Puts Rate Increase on the Radar.  Move Before 2015 Remains Unlikely, but Meeting Minutes Suggest Some Inflation Hawks Are Circling. 

• McNider and Christy: Why Kerry Is Flat Wrong on Climate Change. It was the scientific skeptics who bucked the 'consensus' and said the Earth was round. 

MarketWatch.com:

• Citi economic surprise indicator takes a plunge into the negative. Citi economic surprise indicator takes a plunge into the negative. The Citi Economic Surprise Index for the U.S. hit negative 4 on Wednesday, after touching zero on Tuesday for the first time since early November, according to Citi. It notched a recent peak of 72.7 on Jan. 15.

CNBC:

• Market showing signs of fatigue as traders ignore data.

Zero Hedge: 

• China Manufacturing PMI Misses, Tumbles To 7-Month Low. (graph)

• Tesla(TSLA): When Just GAAP Revenues Are Not Enough, Unleash The Non-GAAP.

• Facebook(FB) Blows $16 Billion On SnapChat Competitor WhatsApp; Stock Tanks.

• Venezuelan Protesters Sum It All Up (In One Banner).

• GE(GE) Sues IRS For $658 Million Tax Refund.

• Does The Trail Of Dead Bankers Lead Somewhere? 
• The Chinese Dominoes Are About To Fall: Complete List Of Upcoming Trust Defaults.

Business Insider: 

• Billionaire Investor Ken Griffin Just Made The Largest Donation Ever To Harvard University.

• A Nebraska Judge Just Threw A Potentially Huge Wrench Into The Keystone Pipeline Permit Process.

• John Hussman Discusses The Ominous 'Three Peaks And A Domed House' Stock Market Formation.

• A Bunch Of People Say They Are Ditching WhatsApp Now That Facebook(FB) Is Buying It.

NBC: 

• Homeland Security Alerts Airlines to Possible Shoe-Bomb Threat. The Department of Homeland Security on Wednesday told airlines about a potential new shoe-bomb threat and urged them to pay extra attention to flights from overseas into the United States.

Reuters:

• Appropriate to refresh U.S. Fed's longer-term 'exit strategy' -Williams. The U.S. Federal Reserve should update its longer-term "exit strategy" for winding down its swollen balance sheet to reflect changes in the plan since it was published in 2011, a top Fed policymaker said on Wednesday. 

• Japan manufacturing mood down, seen sliding further -Reuters Tankan. Sentiment at Japanese manufacturers slipped in February for the first time in five months and is seen sliding further, a Reuters poll showed, a worrying sign the economy may be ill-equipped to cope with a planned sales tax hike in April without further stimulus. Companies also voiced concern about weak shipments to China and risks from emerging market economies which are key markets for Japanese goods.

• Tesla(TSLA) gives strong 2014 outlook, shares jump 12 percent. Tesla Motors Inc (TSLA.O), led by billionaire entrepreneur Elon Musk, posted better-than-expected fourth-quarter results on Wednesday and said deliveries of its Model S electric sedan would surge more than 55 percent this year. Tesla shares jumped 11.8 percent to $216.41 in extended trade following the announcement.

Evening Recommendations

•  None of note
  

Night Trading

• Asian equity indices are -1.25% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 135.75 +3.75 basis points.

• Asia Pacific Sovereign CDS Index 104.75 +3.0 basis points.

• FTSE-100 futures -.67%.

• S&P 500 futures -.36%.

• NASDAQ 100 futures -.31%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (PWR)/.43

• (DTV)/1.29

• (WMT)/1.59

• (WBMD)/.24

• (JWN)/1.34

• (VMI)/2.66

• (ESRX)/1.12

• (MHK)/1.75

• (PCLN)/8.29

• (GRPN)/.02

• (INTU)/.02

• (HPQ)/.84

• (NEM)/.44

• (PSA)/2.02

Economic Releases
8:30 am EST

• The Consumer Price Index for January is estimated to rise +.1% versus a +.3% gain in December.

• The CPI Ex Food & Energy is estimated to rise +.1% versus a +.1% gain in December.

• Initial Jobless Claims are estimated to fall to 335K versus 339K the prior week.

• Continuing Claims are estimated to rise to 2970K versus 2953K prior.

8:58 am EST

• The Markit US PMI Preliminary for February is estimated at 53.6.

10:00 am EST

• The Philly Fed for February is estimated to fall to 8.0 versus 9.4 in January.

• The Leading Index for January is estimated to rise +.4% versus a +.1% gain in December.

11:00 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,111,000 barrels versus a +3,267,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -578,000 barrels versus a -1,853,000 barrel decline the prior week. Distillate supplies are expected to fall by -2,111,000 barrels versus a -731,000 barrel decline the prior week.

Upcoming Splits

• None of note

Other Potential Market Movers

• The BoJ Minutes, Eurozone Manufacturing PMI, weekly EIA natural gas inventory report, Bloomberg Economic Expectations Index for February, weekly Bloomberg Consumer Comfort Index and the (MCRS) Investor Meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and industrial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.