Wednesday Watch

Evening Headlines
Bloomberg:

• China's Large Banks Wary on Li Keqiang's Plan for Bad Loans. China’s proposal to deal with a potential bad-loan crisis by having banks convert their soured debt into equity is meeting with unexpected resistance from some of the biggest potential beneficiaries of the plan -- the country’s large banks. Asked about the plan at the Boao Forum last week, China Construction Bank Corp. Chairman Wang Hongzhang said he needs to think of his shareholders and wouldn’t want to see a plan that simply converted "bad debt into bad equity." China Citic Bank Corp.’s Vice President Sun Deshun said at a press conference last week that any compulsory conversion of debt into equity would have to be capped. And Bank of China Ltd. Chairman Tian Guoli said in Boao that it’s "hard to evaluate" how effective debt-equity swaps will be, as so much has changed in China since the tool was used to bail out the banking system during a previous crisis in the late 1990s.
• China Considers Tightening Control Over Internet Websites. China’s government is moving to tighten its grip over the Internet as it rolls out draft rules that will effectively ban Web domains not approved by local authorities, including possibly the most widely used .com and .org addresses.  
• China's Shifting Debt Goalposts. What's the limit to the patience of global investors with shifting goalposts in China? That test may be about to happen. Last Thursday, developer Guangzhou R&F asked creditors to remove several clauses from the documents of its dollar bonds which restrict the company's ability to take on more debt.
• China's True Demand For Copper Is Only Half as Much as You Think. (video) A 15 million metric tonne stockpile. Virtually every aspect of the commodities bust has a China angle. Forecasts for China's consumption of raw materials have proved wildly optimistic, while domestic production of certain resources have resulted in particularly severe gluts in commodities such as steel and coal. But in one respect, China has been putting an artificial degree of upward pressure on a select resource—copper—sparing it from the worst of the rout in commodities.
• Red Flag Rising for India Finances as Migrant Remittances Shrink. India’s most reliable source of foreign funding is under threat. Remittances fell to $15.8 billion last quarter, the lowest since April-June 2011 and a 9.4 percent drop from a year earlier, as the global slowdown and slumping oil prices reduce demand for foreign workers. Indians working abroad -- from construction laborers in Dubai to Silicon Valley engineers -- send home the most money in the world, helping to pay for imports of fuel and electronics. The drop in cash flows is a "red flag" even as lower oil costs help shrink the current-account deficit for now, said Suvodeep Rakshit, an economist at Kotak Securities Ltd. in Mumbai. While India isn’t dependent on remittances, a further erosion to one of the most stable components of the current account would be “a headache," he said.
• Japan's Industrial Output Falls as Weak Exports Sap Demand. Japan’s industrial production dropped the most since the March 2011 earthquake as falling exports sapped demand and a steel-mill explosion halted domestic car production at Toyota Motor Corp. Output slumped 6.2 percent in February after rising in January, the trade ministry said on Wednesday. Economists surveyed by Bloomberg had forecast a 5.9 percent drop. The government projects output will expand 3.9 percent this month. The data underscores the weakness of Japan’s recovery from last quarter’s contraction, with overseas shipments dropping for the last five months and sluggish domestic demand. With pressure building on policy makers to bolster growth, Prime Minister Shinzo Abe said Tuesday that the government would front load spending after parliament passed a record budget for the 12 months starting April 1. He resisted calls for a supplementary fiscal package.
• Even BOJ Has Limits as Central Bank Balks at Minus 0.6% Yield. Even the Bank of Japan, which has been pushing bond yields below zero by charging interest on bank reserves, has its limits. Almost a fifth of the 645 billion yen ($5.7 billion) of the debt put up for sale at a money market operation Monday was left unbought as the BOJ shunned commercial paper with yields of minus 0.647 percent or less. At its March 18 operation to buy Japanese government bonds with repurchase agreements, it also excluded bid yields lower than the average accepted level and bought less debt than its target. 
• Asia Stocks Rise as Yellen's Dovish Comments Lift Risk Appetite. Asian stocks advanced after Federal Reserve Chair Janet Yellen signaled the U.S. central bank remains wary of raising interest rates while threats remain to domestic growth from a slowing global economy. The Topix index fell in Tokyo after Yellen’s comments strengthened the yen, souring the outlook for Japanese exporters. The MSCI Asia Pacific Index gained 0.5 percent to 128.34 as of 9:03 a.m. in Tokyo. The measure is on course to post its largest monthly advance since October, climbing 7.7 percent to pare its quarterly loss to 2.7 percent.
• Yellen Prompts Traders to Scale Back Bets on Fed Rate Increase. Bond traders pushed back bets for the Federal Reserve to raise interest rates this year after Chair Janet Yellen said the global economy presents heightened risks. The probability of a move at the Fed’s next meeting in April has dropped to zero, futures contracts indicate. The odds are 64 percent by December, after traders saw a 73 percent chance as recently as the end of last week. “The comment was more dovish than I expected,” said Wontark Doh, head of overseas fixed-income investment in Seoul at Samsung Asset Management, which oversees $200 billion. “One or two times is possible, three or four times is not possible. The upside for Treasury yields is limited.”

 Wall Street Journal:

• Supreme Court Struggles to Deal With 4-4 Split. A pair of developments revealed the new dynamic of a court equally divided between conservatives and liberals.
• Iranian Miniskirts, Bags of Cash Raise Doubts Over Controls at HSBC. Monitor finds lapses in bank’s efforts to prevent money laundering and evasion of sanctions following 2012 settlement with Justice Department.
• Another Terrorist Strike, Another Obama Lecture. The president knows that the U.S. could defeat Islamic State outright, but he lacks the political will to lead the fight.

Fox News:

• Donald Trump rescinds pledge to support eventual GOP nominee. (video) Donald Trump said Tuesday night he will no longer honor his pledge to support the eventual Republican pick for president regardless of who wins the nomination. The Republican front-runner made the remarks during a town hall event in Milwaukee, Wis. When he was asked if he would keep the pledge he signed last September to back the eventual nominee, Trump responded "No, I won’t."
• States moving to restore work requirements for food stamp recipients. (video) States are moving to once again require able-bodied adults to put in work hours in exchange for food stamps, after the requirements largely were suspended by the Obama administration. The slow-moving reversal follows the administration pulling back on Clinton-era changes that required recipients to work for government welfare benefits. Signing the reform bill in 1996 alongside then-Speaker Newt Gingrich, then-President Bill Clinton said the goal was to make welfare “a second chance, not a way of life.”

CNBC:

• ADB cuts developing Asia growth forecasts on China slowdown. Asia's developing economies, once home to double-digit growth rates, will see momentum stall over the next two years amid a weak recovery in industrial nations and a slowdown in China, the Asian Development Bank (ADB) warned on Wednesday. Gross domestic product (GDP) growth for developing Asia is expected at 5.7 percent in 2016 and 2017, decelerating from 5.9 percent in 2015, the bank said in its new 2016 outlook.
• Yellen push back at hawks creates confusion. (video) Fed Chair Janet Yellen attempted to reassure markets that the U.S. central bank will move cautiously with further rate hikes, pushing back at recent hawkish comments from other Fed officials. But the Fed chair also managed to unleash a backlash from some of Wall Street's more often staid economists. 

Zero Hedge:

• "Made Out Of Sand" - A Dramatic Look Inside A Newly Built Chinese Apartment. (video)
• This (Crashing) Trend Is Not Your Friend. (graph)
• Price Controls May Be On the Way.
• The Difference Between Capitalism & Communism (Explained To President Obama).
• MSNBC Host Admits Democratic Primary Rigged, While Station Simultaneously Rigs Coverage.
• Japanese Industrial Production Crashes Most Since 2011 Tsunami. (graph)
• Fitch Downgrades Chicago After "Worst Possible Outcome" In State Supreme Court Pension Reform Bid.
• Rail Traffic Volumes Tumble As Coal Stockpiles Soar At Record Rate. (graph)
• "It's Worse Than 2008": Toronto's "Condo King" Weighs In On The Death Of Alberta's Housing Market.
• CBO Misses Its Obamacare Projection By 24 Million People. (graph)
• Crushed By The Record Oil Squeeze, This Is How Energy Bears Are Shorting Crude Now.
• Sell In March And Go Away? There's Something About April During Election Years. (graph)
• Top Silicon Valley VC Laments: Startups Being Funded Are "Mostly Crap & Largely Worthless".
• The Doha Dilemma - Prolonging The Agony Deeper & Longer.
• Crude Rises After Gasoline Draw, Crude Build. (graph)
• "When Hawks Die" - Yellen-nado Sends Bonds, Stocks, & Bullion Soaring. (video)

Business Insider:

• Anderson Cooper to Donald Trump: 'That's the argument of a 5-year-old'. (video)
• China is trying to silence its critics abroad by targeting their families back home.

21st Century Business Herald:

• Beijing's Neighbor Towns May Control Property Market. Some counties and towns of Hebei province bordering Beijing will take steps to stem surge in property prices, citing local govt.

Night Trading 

• Asian equity indices are +.25% to +1.5% on average.
• Asia Ex-Japan Investment Grade CDS Index 149.25 -3.5 basis points. 
• Asia Pacific Sovereign CDS Index 57.0 -1.75 basis points. 
• Bloomberg Emerging Markets Currency Index 71.77 +.06%. 
• S&P 500 futures +.12%. 
• NASDAQ 100 futures +.12%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (CCL)/.32
• (LULU)/.80
• (PAYX)/.50
• (MU)/-.09
• (PRGS)/.29 

Economic Releases  
8:15 am EST

• The ADP Employment Change for March is estimated to fall to 195K versus 214K in February.     

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,822,220 barrels versus a +9,357,000 barrel gain prior. Gasoline supplies are estimated to fall by -2,229,440 barrels versus a -4,642,000 barrel decline the prior week. Distillate supplies are estimated to fall by -342,780 barrels versus a +917,000 barrel build prior. Finally, Refinery Utilization is estimated to rise by +.09% versus a -.6% decline prior. 

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed's Evans speaking, $28B 7Y T-Note auction, weekly MBA mortgage applications report and the (CAE) investor day could also impact trading today.

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