Friday Watch

Evening Headlines
Bloomberg:     

• Asian Banks Are Generous. Worried? True to historical form, Asian banks are lending away even as their peers in other emerging markets have slowed advances. That wouldn't be so alarming if they had the healthy balance sheets they did during the credit crisis, when they were viewed as something of a financial haven. But things are slightly different now. Loan volumes in Asia excluding Japan, Australia and New Zealand dropped 11.4 percent in the first quarter, the biggest fall since 2013. In eastern Europe, Middle East and Africa, however, they tumbled almost 50 percent and about 70 percent in Latin America.
• Defaults Don't Matter as China Junk Spread at Record Low: Chart. Investors are flocking to Chinese junk bonds even as the number of corporate defaults increase. The extra yield that investors demand to hold two-year AA- notes over AAA securities fell to 32 basis points on March 31, the least in data compiled by the ChinaBond clearing house going back to January 2008. There were three defaults last month alone, with a sausage manufacturer, an iron-ore miner and a steelmaker all missing payments and prompting China Securities Co. to warn that failures will escalate. Ratings of AA- or below are considered the equivalent of non-investment ratings globally. 
• Getting Money Out of China, One Swipe at a Time. Mainlanders come to Hong Kong to buy insurance.
• Fast Retailing Plunges After Profit Outlook Cut to 5-Year Low. Fast Retailing Co. fell the most in three years in Tokyo trading after cutting a profit forecast by a third, saying a stronger yen eroded the value of overseas sales and unexpectedly warm winter weather hurt demand for the company’s down coats and thermal underwear. Shares of Asia’s largest clothing retailer slumped 10 percent as of 9:16 a.m. local time to 27,405 yen, the lowest intraday since March 2013. Operating profit will probably be 120 billion yen ($1.1 billion) for the year ending August 2016, down from the 180 billion yen forecast made in January, the company said Thursday after the Tokyo market closed. That lagged behind 168.6 billion yen average analyst estimate compiled by Bloomberg.
• Yen Surges to One-and-Half Year High. (video) 
• Is Depressed Oil About to Spoil Manila’s Mood? Remittances from the Middle East are a large percentage of GDP.
• China’s Stocks Head for Longest Losing Streak Since January. China’s stocks fell for a third day, led by consumer-discretionary and energy companies, after global equities slumped and investors speculated next week’s inflation data will make it difficult for the government to further ease monetary policy. The Shanghai Composite Index dropped 0.5 percent, sending the benchmark gauge toward its first weekly loss in a month. Reports on inflation, trade, industrial production and new bank lending are expected in the coming week, with Monday’s data estimated to show the consumer-price index climbed to 2.4 percent in March. While below the government’s target, it may be enough to give it pause before lowering borrowing costs. The Hang Seng China Enterprises Index slid for a fifth day after entering a bull market last week.
• Asian Stocks Follow U.S. Slump as Traders Shun Risk. Asian stocks slumped, with Japanese shares sliding to a their lowest level in almost two months as concern over the effectiveness of central-bank stimulus damped demand for riskier assets. Emerging-market currencies retreated while oil resumed gains. The Topix index dropped for the third time this week in Tokyo, as the yen pulled back from its strongest level in 1 1/2 years while remaining on track for its best week in almost two months. The South Korean won and the Malaysian ringgit led currency losses in Asia as most industrial metals extended declines. Crude oil swung back to gains, rising for the third time this week. Australian and Japanese government bonds tracked a bounce in Treasuries. The MSCI Asia Pacific Index sank 1.1 percent as of 9:53 a.m. Tokyo time, led lower by mining stocks and consumer-discretionary companies as Fast Retailing Co., Asia’s largest clothing retailer, tumbled to its lowest level since 2013. The gauge of 1,020 regional equities is headed for a third weekly drop, down 1.1 percent. The Topix lost 1.1 percent, set for its lowest close since Feb. 12. The gauge has dropped 3.3 percent this week, its second straight weekly decline.
• Copper Heading for Worst Week Since January on Demand Outlook. Copper is poised for the biggest weekly loss since January, erasing gains for the year, on concerns that demand in China won’t be enough to absorb increasing global supplies. The metal used in pipes and wiring fell as much as 0.2 percent to $4,639.50 a metric ton on the London Metal Exchange, near the lowest level in more than a month, and traded at $4,655 by 9:20 a.m. in Shanghai. Prices slid the most since September on Thursday.
• Gap(GPS) Tumbles After Its March Sales Miss Already-Low Expectations. Gap Inc. fell as much as 11 percent in late trading after its March results missed analysts’ estimates, a sign the struggling apparel chain has even further to go in its comeback bid. Same-store sales fell 6 percent last month, the San Francisco-based company said on Thursday. Analysts had projected a 5 percent decline, according to Retail Metrics. Gap’s Banana Republic division performed especially badly, with same-store sales plunging 14 percent.

Wall Street Journal:

• Markets Flash Warning as Bonds Rise, Yen Strengthens. Bond yields tumbled and the yen surged to its strongest level against the dollar in a year and a half Thursday, the latest sign that markets are growing cautious following a nearly two-month-long rally in prices of riskier assets.
• Obama Readies Flurry of Regulations. Burst of rule-making comes in an election season that has already been tough on corporate interests. The Obama administration is racing to make final a flurry of regulations affecting broad swaths of the economy, further riling U.S. businesses in an election season that has already been tough on corporate interests.
• CEO Pay Shrank Most Since Financial Crisis. Median compensation for some S&P 500 bosses fell to $10.8 million from $11.2 million.
• War of Words Escalates in Democratic Race. Sanders says Clinton is unfit to be president and a headline said she said the same about him. The Democratic race between Hillary Clinton and Bernie Sanders detoured Thursday from high-minded debate over issues into a he-said-she-said squabble ahead of the presidential primary fight for New York, a contest with outsize importance to both candidates.
• A Vast Email Conspiracy. Hillary’s biggest problem isn’t Bernie. It’s the Freedom of Information Act.

MarketWatch:

• The divergence that’s worrying the stock market’s bulls. The Dow Transports index is a leading indicator—and it’s falling while the Dow Jones Industrial Average is rising.
• Fed’s George says commercial real estate a potential asset bubble. The commercial real estate market is a potential asset bubble that “bears watching,” said Kansas City Fed President Esther George on Thursday, pressing her case for the U.S. central bank to “stay the course” and gradually raise interest rates. “In the long run, a failure to keep interest-rate policy in line with improving fundamentals can distort the allocation of capital toward less fruitful — or perhaps excessively risky — endeavors,” George said in a speech to an economic forum in York, Nebraska. She cited prior bubbles in the stock market, housing “and most recently, commodity prices.” “My concern for some time has been that extending monetary policy too far beyond its scope of capability risks undesirable financial, economic and political distortions,” she said.

CNBC: 

• The end of short covering and 'Fed put' spells market trouble. (video) Two important trends that have helped propel the stock market are coming to an end, posing significant challenges for investors, according to Wall Street experts. One is a near-term pattern — namely the rush to cover short positions that has driven the S&P 500 more than 13 percent off its Feb. 11 intraday low. JPMorgan Chase's models show that short covering is running out of gas. The other is longer term — namely the oft-cited "Fed put," or the backstop traders believe has come from the U.S. central bank's easy monetary policy. Strategists at Bank of America Merrill Lynch see a pattern in which the riskiest stocks that benefit the most from Fed policy are now underperforming their higher-quality peers. 

Zero Hedge:

• 19 Facts That Prove Things In America Are Worse Than They Were Six Months Ago. (graph)
• The Panama Papers Could Really End Hillary Clinton's Campaign. 
• Nomura's Bob "The Bear" Janjuah: "The Question Is What Would Be Necessary For The Fed To Do QE Or NIRP".
• Puerto Rico Bonds Crash After "Moratorium" Raises Default Risk. (graph)
• Consumer Credit Rises $17.2 Billion; Holding Of Federal Debt Hit New All Time High. (graph)
• Is This Why Car Sales Are Soaring? (graph)
• "It's Probably Nothing": Truck Orders Plunge 37% As Unsold Inventories Soar Most Since 2007. (graph)
• The Costs & Consequences Of $15/Hour.
• Presenting The "Boiling Frog" Slowdown. (graph)
• Bonds & Bullion Surge As Stocks Slump Most In 2 Months. (graph)

Business Insider:

• Bill Clinton unleashes blistering rebuttal to Black Lives Matter protesters.
• ALBERT EDWARDS: A 'tidal wave' is coming that will throw the US into recession. The Societe Generale economist, and noted perma-bear, believes that the profit recession facing American corporations is going to lead to a collapse in corporate credit.
• Here's why Japan won't do anything about the crazy yen surge.
• Americans are worried about the next president — and its making them very cautious with their money.
• Pfizer(PFE) isn't the only one affected by new tax rules — past inversion deals could be hit too.
• KKR has a 'chilling' message about the end of the credit cycle.
• Japan's printing 1.23 billion 10,000-yen bills as people hoard cash at home.
• A favorite indicator of Paul Tudor Jones says gold's bear market is over.
• This infographic shows how gigantic the Arctic's undiscovered oil reserves might be.

Reuters: 

• DoubleLine's Gundlach says negative interest rates backfiring. Jeffrey Gundlach, the widely followed investor who runs DoubleLine Capital, said on Thursday that negative interest rates implemented by some major central banks, notably in Japan, are backfiring. "The negative interest rate experiment seems to be backfiring," said Gundlach, who helps oversee $95 billion for Los Angeles-based DoubleLine. "The best evidence of negative interest rates backfiring is the yen versus the dollar and the Nikkei." Gundlach said: "Negative interest rates are not just deflationary, they are deflation. You lose money."
• Stock ETFs add sixth week to streak of inflows: Lipper.
• Fed's Yellen says U.S. still on track for more rate hikes.

21st Century Business Herald:

• Shanghai Halts Registration of Investment Cos. Amid Risks. Shanghai halted registration of investment cos. from this week amid risk incidents including shutdown of Wealthroll Asset Management Co., citing people familiar with the matter.

Night Trading 

• Asian equity indices are -.75% to -.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 148.25 +3.5 basis points. 
• Asia Pacific Sovereign CDS Index 60.75 +1.75 basis points. 
• Bloomberg Emerging Markets Currency Index 71.69 +.05%. 
• S&P 500 futures +.09%. 
• NASDAQ 100 futures +.09%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• None of note

Economic Releases 
10:00 am EST

• Wholesale Inventories MoM for February is estimated to fall -.2% versus a +.3% gain in January.
• Wholesale Trade Sales MoM for February is estimated to rise +.2% versus a -1.3% decline in January.      

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed's Kaplan speaking and the UK industrial production report could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by retail and commodity 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.