Thursday Watch

Evening Headlines
Bloomberg:

• Investors With 60% of Greek Bonds Agree to Swap. Investors with about 60 percent of the Greek bonds eligible for the nation’s debt swap have so far indicated they’ll participate, putting the country on the verge of the biggest sovereign restructuring in history. Greece’s largest banks, most of the country’s pension funds, and more than 30 European banks and insurers including BNP Paribas (BNP) SA, Commerzbank AG (CBK) and Assicurazioni Generali SpA (G) have agreed to the offer. That brings the total to about 124 billion euros ($163 billion), based on data compiled by Bloomberg from company reports and government statements. The goal of the exchange is to reduce the 206 billion euros of privately held Greek debt by 53.5 percent and turn the tide against the debt crisis that has roiled Europe for more than two years. While Greece would prefer a voluntary deal, the government has said it will use collective action clauses to force holders of Greek-law bonds into the swap if the so-called private sector involvement falls short and it gets sufficient approval from investors to change the bonds’ terms. “Adding up the commitments to participate in the Greek PSI, it is now clear that the CAC hurdles will very likely be cleared,” Commerzbank’s head of fixed-income strategy, Christoph Rieger, said in a note yesterday. Under the rules of the exchange, investors holding at least 50 percent of the eligible bonds must vote on the swap, and 66 percent of those must agree to amend the bonds to enable the government to impose the collective action clauses, Rieger said. The offer ends at 10 p.m. Athens time today.
  
• ECB's Inflation Radar May Limit Scope to Lower Rates as Recession Looms. Inflation is back on the European Central Bank’s radar, complicating efforts to bolster growth as the sovereign debt crisis pushes the economy toward recession. The ECB will lift its 2012 inflation forecast above the 2 percent price-stability threshold today, limiting its ability to cut interest rates further even as it lowers the outlook for growth, economists said. Policy makers in Frankfurt will keep the benchmark rate at a record low of 1 percent, 55 of 58 economists in a Bloomberg News survey predict. The decision is due at 1:45 p.m. and ECB President Mario Draghi will unveil the bank’s new economic projections at a 2:30 p.m. press conference. “Draghi’s message won’t be a particularly pleasant one,” said Klaus Baader, chief euro-area economist at Societe Generale SA in London. “The ECB will breach its inflation limit for another year and the economic outlook hasn’t brightened significantly. That’s tying their hands on rates for now.”
• Emerging-Market Stocks in Deepest Losing Streak of Year on Greek Debt Swap. Emerging-market stocks fell, completing the worst three-day slump since November, as concern Greece’s debt swap won’t get enough investor support and prospects Chinese exports are dropping damped appetite for riskier assets. The MSCI Emerging Markets Index (MXEF) retreated for a third day, losing 0.3 percent at the close in New York to 1,037.71, the lowest since Feb. 1. The three-day loss is the steepest since Nov. 23.
• Oil Trades Near Two-Day High as Iran Tension Counters Rising U.S. Supplies. Oil traded near the highest price in two days as speculation that sanctions on Iran are cutting supplies countered signs of weakening fuel demand in the U.S., the world’s biggest crude consumer. Futures were little changed after gaining 1.4 percent yesterday. U.S. lawmakers proposed new sanctions against Iran’s nuclear program, while Barclays Capital said shipments from the Persian Gulf nation have dropped by 300,000 to 400,000 barrels a day. London-traded Brent’s premium to New York crude was near the widest in almost a month. Crude supplies at Cushing, Oklahoma, climbed to the highest level since July. “We’ve seen that differential between Brent and West Texas blow out again and that’s further evidence to suggest that there are supply concerns” because of Iran, said Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty in Sydney. “The demand picture is certainly looking weaker.” Oil for April delivery was at $106.12 a barrel, down 4 cents, in electronic trading on the New York Mercantile Exchange at 2 p.m. Sydney time. The contract yesterday increased $1.46 to $106.16 a barrel, the highest close since March 5. Prices are 7.4 percent higher this year. Brent oil for April settlement was at $124.05, down 7 cents, on the London-based ICE Futures Europe exchange.
• Fed Debt-Purchase Approach May Hurt Rather Than Help, RBC's Cloherty Says. A plan reported to be under discussion by the Federal Reserve to spur the economy while keeping a lid on inflation would drive up short-term interest rates, according to Royal Bank of Canada’s Michael Cloherty. Fed officials are considering a program in which the central bank would buy long-term mortgage or Treasury bonds and effectively tie up the money by borrowing it back for short periods at low rates, the Wall Street Journal reported without citing sources. The approach would keep excess money out of the system and head off inflation, damping criticism by opponents of earlier Fed efforts to support the economy, the newspaper said. Such a plan would be “one of the more perplexing policy steps in this crisis” because it would encourage banks to invest their reserve balances in the Treasury repurchase- agreement market, said Cloherty, head of U.S. interest rate strategist at RBC Capital Markets in New York, one of 21 firms that trade with the Fed. This would offset much of the benefit of the low interest rates the Fed has maintained. “Executing this policy would have a sizable distortions and open a number of questions that the Fed doesn’t want opened,” Cloherty said in an interview. The plan “would do dramatically more harm than good.”
• Drones Move Closer to Flying in Civilian Airspace. Drone aircraft moved closer to taking flight in U.S. civilian airspace as regulators issued a call for advice on establishing test sites. The Federal Aviation Administration said today it wants drone makers and the public to comment on where to locate proving grounds and their management, according to a filing in the U.S. Federal Register’s Public Inspection Desk. “Unmanned aircraft can help us meet a number of challenges, from spotting wildfires to assessing natural disasters,” Transportation Secretary Ray LaHood said in a statement. “These test sites will help us ensure that our high safety standards are maintained as the use of these aircraft becomes more widespread.”
• China Puts Jump to Three-Year High as Dominance Shrinks: Options. China's shrinking dominance over global economic growth is driving trading in the options market, which the cost to protect against losses in the nation's biggest companies is the highest compared with the U.S. since 2008. Options on the Hang Seng China Enterprises Index of 40 companies from PetroChina Co. to China Construction Bank Crop. cost the most since the collapse of Lehman Brothers Holdings Inc. when compared with contracts on U.S. stocks. The difference, or skew, shows investors are increasingly bearish on the index of Hong Kong-traded China shares.
• Asia Faces Headwinds With Greece Debt Deal. Australian employers unexpectedly cut jobs, South Korea’s central bank warned of “downside” risks to growth and Japan reported an increasing reliance on energy imports that threatens to damp its economic rebound. Today’s indicators highlighted headwinds for the Asia- Pacific region’s expansion as policy makers evaluate whether to add to stimulus implemented in recent months. With inflation pressures remaining, South Korean and New Zealand officials kept benchmark interest rates unchanged and Indonesia was forecast to do the same. “Global trade has slowed so Asian countries heavily reliant on exports are certainly suffering,” said Annette Beacher, the Singapore-based head of Asia-Pacific research at TD Securities Inc., a unit of Canada’s second-largest bank.
  

Wall Street Journal:

• Iran Steps Up Rights Abuses, U.N. Says. Iran has dramatically increased executions over the past decade and abused the rights of students, women, journalists and religious minorities, according to a new United Nations report that spotlights Tehran's crackdown on domestic dissent as the country faces an international clampdown over its nuclear ambitions.
• Greek Debt Restructuring Expected to Put CDS Market to Test. It isn't yet known if Greece's debt restructuring will trigger payouts on insurance-like contracts called credit-default swaps covering the government's debt. But if it does, it will touch off the biggest-ever CDS auction for sovereign bonds and determine how much banks and others will have to pay to settle the swaps.
• U.S. Warns Apple(AAPL). The Justice Department has warned Apple Inc. and five of the biggest U.S. publishers that it plans to sue them for allegedly colluding to raise the price of electronic books, according to people familiar with the matter.
• Emerging-Market Engines Falter. Fresh signs of economic weakness in Brazil are adding to a growing worry for the global economy: that the emerging markets that have boosted growth in recent years are slowing. That is a big concern amid the drag of the European debt crisis and a sluggish U.S. recovery. Brazil, China, Russia, India and South Africa are among the dynamic economies that helped the world bounce back from the 2008 financial crisis. This time around, they seem less likely to provide the same boost as they deal with problems such as strong currencies, inflation, deficits and real-estate bubbles.
• Facebook(FB) Beefs Up Its IPO Roster. Facebook Inc.'s march toward its highly anticipated initial public offering is now coming with a lot more help. On Wednesday, the social network said in a new disclosure document that it added 25 underwriters to an original group of six for its IPO, as the company also boosted its financial muscles with a new credit line and bridge loan. In addition, it offered more information on where it derives its revenue.
• General Motors(GM) Recalls Vehicles in China. General Motors Co. will recall 18,204 imported vehicles in China because of problems with the cars' anti-lock braking systems, China's quality control agency said in a statement dated Wednesday.

MarketWatch:

• Tough Climate, Dilemmas for China's Small Business. The problems have indeed been mounting in recent months among the nation’s small businesses, the most vulnerable of China’s private sector players. Labor supplies are strained, driving up wages. Credit access is tight, as banks prefer big and state-owned companies. Production and raw materials costs are rising. Customers are in arrears. And brutal competition for clients at home as well as abroad is making for razor thin profits, if any.

Business Insider:

• China Isn't Playing Fair, And Neither Should We.
• Goldman(GS) Reveals The Frustrating Reason That Big Government Debts Slow The Economy.
  

Zero Hedge:

• China Moves To Further Marginalize Dollar: Offers CNY-Denominated BRIC Loans.
• Iran Nuclear Site 'Clean-Up' Raises Suspicions Further.

CNBC:

• Consumer Credit Surges 8.6%, Mostly on Student Debt. The American consumer is levering-up again, as consumers borrowed more for everything from student loans to cars. Consumer credit jumped 8.6 percent, or $17.7 billion, in January to $2.54 trillion, the Federal Reserve reported. It was the fifth straight month that borrowing increased and the largest gain since 2004.
• US Eyes Summers and Rice for World Bank: Sources. Former White House adviser Lawrence Summers, diplomat Susan Rice and PepsiCo CEO Indra Nooyi are on a "short list" of possible U.S. candidates to head the World Bank, a person with knowledge of the Obama administration's thinking said on Wednesday.

NY Times:

• Auto Overcapacity Gives Leaders Another Issue to Ponder. While Europe has been preoccupied with the euro crisis, another storm has been gathering that could also take a grievous toll on jobs and growth. Just as Europe has too much debt, it also has more automobile factories than the economy can support. The overcapacity is not exactly a secret, but judging from the talk at the Geneva auto show this week, a long-postponed reckoning is nigh.
• Cost of Gene Sequencing Falls, Raising Hopes for Medical Advances. In Silicon Valley, the line between computing and biology has begun to blur in a way that could have enormous consequences for human longevity.

Washington Post:

• Greek Debt Write-Down: The Era of Risk-Free Government Bonds Nears Its End.

CNN:

• AIG(AIG) Bailout: $42 Billion To Go. The Treasury Department is selling $6 billion worth of its AIG stock at a profit. But it's still not clear taxpayers will come out ahead on the insurer's bailout.
• Wells Fargo(WFC) to Charge $7 Fee On More Checking Accounts.
  

Reuters:

• Japan GDP Contraction Eases, Current Account in Red. Japan's economy shrank less than initially estimated in the fourth quarter as companies ramped up capital expenditure, but the current account swung to a record deficit in January as a shift away from nuclear power pushes up fossil fuel imports. The revision to GDP showed a 0.2 percent contraction, bang in line with the median market forecast as companies look to an increase in demand due to reconstruction of the country's tsunami-battered northeast coast.
• Proview Shenzhen Asks China Distributors to Halt iPad Sales. Proview Technology, which is battling Apple over the iPad trademark in China, has asked Chinese distributors to stop selling the popular tablet PC after the U.S. technology giant launched the latest version of its iPad. The move is the latest twist in a long-running lawsuit between the world's most valuable technology company and the Chinese firm, a unit of near-bankrupt Proview International Holdings Ltd, but was expected to have little impact on the case.
• US Senate Democrat Proposes Ban on Keystone Pipeline Fuel Exports. A Democratic U.S. senator proposed on Wednesday to ban exports of oil from the proposed Keystone XL crude pipeline from Canada and require U.S. iron and steel be used to build it, part of an effort to derail a Republican plan that would fast-track the project.
• Korn Ferry(KFY) 3Q Misses Estimates; Outlook Weak. Korn/Ferry International Inc posted lower-than-expected quarterly results, hurt by higher expenses, and the U.S. executive search company forecast fourth-quarter earnings below Wall Street expectations. Korn/Ferry, which competes with Heidrick & Struggles International Inc, expects fourth-quarter earnings of 24 cents to 30 cents a share, excluding items. Analysts, on average, were expecting earnings of 31 cents a share, according to Thomson Reuters I/B/E/S. Shares of the Los Angeles-based company were down nearly 3 percent in trading after the bell.

Telegraph:

• Triple Trouble in Europe, US and China Brings Out The Bears. Graham Secker from Morgan Stanley said it is rare for global stocks, oil prices and government bonds to rise in lockstep, and such exuberance becomes a "very reliable sell signal for stocks" once speculators join the party.

South China Morning Post:

• Port of Shanghai Sees A Slowdown. In a sign of slowing global trade, the throughput of Shanghai, the world's busiest port, turned out to be weaker than expected in the first two months of this year. Shanghai's container throughput rose 3.6 per cent to 4.8 million twenty foot equivalent units (teus) in January and February, while cargo throughput grew 7 per cent to 76.16 million tonnes, according to the website of Shanghai International Port Group, the port operator. Given that Shanghai's container throughput enjoyed 7 per cent to 9 per cent year-on-year growth in the second, third and fourth quarters last year, a growth of 3.6 per cent falls short of expectations, said Nomura analyst Jim Wong. Combining the data of January and February and eliminating the distorting effects of the Lunar New Year, Wong said: "This year people are more cautious. They are delaying things all over the world. Factories in China stayed closed for a longer period." Willy Lin Sun-mo, chairman of the Hong Kong Shippers' Council, said: "At this moment, the forecast is it's going to be a very difficult season in the first six months of this year." He added: "The overall sentiment is still weak. People still don't have much confidence in the market. "The global economy is not very dynamic, and the Chinese government just lowered its GDP forecast to 7.5 per cent this year.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are +.50% to +1.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 164.50 -5.5 basis points.
  
• Asia Pacific Sovereign CDS Index 133.50 -1.75 basis points.
• FTSE-100 futures +.17%.
  
• S&P 500 futures +.13%.
  
• NASDAQ 100 futures +.10%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (SFD)/.65
• (HITK)/.83
• (WSM)/1.13
• (NAV)/-.27
• (BKE)/1.15
• (JW/A)/.94
• (ZUMZ)/.59
• (COO)/1.04
• (ZQK)/-.10
• (ULTA)/.67
• (ARO)/.38

Economic Releases
8:30 am EST

• Initial Jobless Claims are estimated at 351K versus 351K the prior week.
• Continuing Claims are estimated to fall to 3400K versus 3402K prior.
  

Upcoming Splits

• (RES) 3-for-2
  

Other Potential Market Movers

• The Challenger Job Cuts report for February, Greek Bond Swap Deadline, BoE rate decision, ECB rate decision, weekly Bloomberg Consumer Comfort Index, RBC Consumer Outlook Index for March, weekly EIA natural gas inventory report, (HUN) investor day, (XOM) analyst meeting, China CPI/Fix Asset Investment/Industrial Production/PPI/Retail Sales, UBS Tech Conference, (ALTR) Mid-Quarter Update and the (TXN) Mid-Quarter Update could also impact trading today.
  

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

Stocks Rising into Final Hour on Euro Bounce, US Economic Data, Short-Covering, More Financial/Tech Sector Optimism

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Almost Every Sector Rising
  
• Volume: Light
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 19.34 -7.33%
  
• ISE Sentiment Index 100.0 +31.58%
  
• Total Put/Call 1.01 -2.88%
  
• NYSE Arms .91 -62.12%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 96.18 -1.40%
  
• European Financial Sector CDS Index 174.32 -1.70%
  
• Western Europe Sovereign Debt CDS Index 352.40 -.13%
  
• Emerging Market CDS Index 245.0 -2.63%
  
• 2-Year Swap Spread 25.75 -1.75 bps
  
• TED Spread 39.75 -.75 bp
  
• 3-Month EUR/USD Cross-Currency Basis Swap -64.50 +2.25 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .08% +1 bp
  
• Yield Curve 167.0 unch.
  
• China Import Iron Ore Spot $143.0/Metric Tonne unch.
  
• Citi US Economic Surprise Index 46.90 -.6 point
  
• 10-Year TIPS Spread 2.22 +4 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +74 open in Japan
• DAX Futures: Indicating -5 open in Germany

Portfolio:

• Higher: On gains in my Tech, Retail, Medical and Biotech sector longs
  
• Disclosed Trades: None
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 trades near session highs despite yesterday's swoon, rising energy prices, a reversal lower in (AAPL), an inline ADP jobs report and rising global growth fears. On the positive side, Homebuilding, Semi, Networking, Bank and Disk Drive shares are especially strong, rising more than +1.5%. Financial and Tech shares have traded well throughout the day. Copper is rising +.9% and the UBS-Bloomberg Ag Spot Index is down -1.1%. Major European indices are rising around +.50%, however Spanish shares are flat. Spain remains the worst-performing index Europe and is now down -4.7% ytd, which is a red flag for the region. The Bloomberg European Financial Services/Bank Index is rising +1.01%. The Italy sovereign cds is falling -2.5%, the Russia sovereign cds is down -2.4% to 188.60 bps and the UK sovereign cds is down -3.9% to 65.33 bps. On the negative side, Steel, Utility, Alt Energy, Airline, REIT and Paper shares are lower-to-flat on the day. Oil is rising +1.5%, Gold is gaining +.65% and Lumber is down -1.2%. The 10Y T-Note Yield at 1.97%, remains a concern considering the recent stock rally, falling Eurozone debt angst and improvement in US economic data. Despite the recent positive US economic data, the Philly Fed/ADS Real-Time Business Conditions Index has declined -5.08% over the last 10 days and continues to trend lower from its peak in mid-December. Lumber is -5.5% since its Dec. 29th high despite the better US economic data, more dovish Fed commentary, improving sentiment towards homebuilders, equity rally and decline in eurozone debt angst. Moreover, the weekly MBA Purchase Applications Index has been around the same level since May 2010. The Baltic Dry Index has plunged over -60.0% from its Oct. 14th high and is now down over -50.0% ytd. The Western Europe Sovereign CDS Index is still fairly close to its Jan. 9th all-time high. Overall, credit gauge improvement has stalled over the last few weeks and these gauges are still at stressed levels. China Iron Ore Spot has plunged -21.0% since Sept. 7th of last year. Shanghai Copper Inventories are up +711.0% ytd and are still very near their recent all-time high. I still think this is more of a red flag for falling demand rather than the intentional hoarding, which many suggest. Major Asian indices fell around -.75% overnight, led lower by a -1.4% decline in Australian shares. This article in China Daily is openly hostile towards the real estate industry and seems to indicate that tightening measures on the industry are likely to stay in place for some time. Stocks are rebounding from morning lows on a bounce in the euro, an inline ADP jobs report and rumors that the Fed is considering a new “sterilized” QE program. I doubt that the Fed would embark on this given the current macro backdrop. In my opinion this would prove a big mistake as it would boost inflation expectations too much, thus harming the economy later in the year. Its unlikely recent stock weakness has already run its course and I will be looking for signs of another move lower by next week at the latest. For an intermediate-term equity advance from current levels, I would still expect to see further European credit gauge improvement, a further subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices and higher-quality stock market leadership. I expect US stocks to trade mixed-to-lower into the close from current levels on Eurozone debt angst, rising energy prices, rising global growth fears, more shorting and profit-taking.

Today's Headlines

Bloomberg:

• Investors With 58% of Greek Bonds Agree to Swap. Investors with at least 58 percent of the Greek bonds eligible for the nation’s debt swap have so far indicated they’ll participate, putting the country on the verge of the biggest sovereign restructuring in history. Greece’s largest banks, most of the country’s pension funds, and more than 30 European banks and insurers including BNP Paribas (BNP) SA, Commerzbank AG (CBK) and Assicurazioni Generali SpA (G) have agreed to the offer. That brings the total so far to at least 120 billion euros ($157 billion), based on data compiled by Bloomberg from company reports and government statements.
• German Factory Orders Unexpectedly Fall on Slump in Export Demand: Economy. German factory orders unexpectedly declined in January as foreign demand for investment goods such as machinery slumped. Orders (GRIORTMM), adjusted for seasonal swings and inflation, fell 2.7 percent from December, when they gained 1.6 percent, the Economy Ministry in Berlin said today. Economists forecast a 0.6 percent increase, according to the median of 37 estimates in a Bloomberg News survey. From a year ago, orders dropped 4.9 percent when adjusted for work days.
• Spain Trails Italy as Growth Concern Halts Rally: Euro Credit. Spanish bonds are underperforming those of Italy as concern the Iberian nation’s economy will struggle to grow has left it trailing in a rally sparked by two rounds of extraordinary European Central Bank lending. Spain’s benchmark borrowing costs rose above Italy’s for the first time in almost eight months last week after Prime Minister Mariano Rajoy said his nation’s 2012 deficit would be higher than agreed at budget talks with the European Union. Italy’s 2011 deficit narrowed more than economists forecast even as the economy slipped into recession. “The spotlight is back on Spain’s fiscal performance,” said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London.
• China's Stocks Fall for Third Day on Concern Over Global Economic Slowdown. China’s stocks fell for a third day, the longest losing streak in almost two months, on concern a global slowdown will hurt earnings. Jiangxi Copper Co. paced losses by raw materials producers after commodity prices slid the most this year. China Life Insurance Co. (601628) slipped to a two-month low after the nation’s biggest insurer said profit may have fallen as much as 50 percent in 2011. China Eastern Airlines Corp., the nation’s second-largest carrier, sank 0.7 percent after Chairman Liu Shaoyong said he expects a “big” drop in travel-demand growth. “Corporate earnings aren’t looking very promising and expectations about first-quarter profits may be pessimistic amid the slowdown,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. The Shanghai Composite Index (SHCOMP) sank 15.65 points, or 0.7 percent, to 2,394.79 at the close. The three-day, 2.7 percent drop is the longest string of declines since a four-day period ended Jan. 16.
• ADP Estimates U.S. Companies Added 216,000 Jobs in February. Companies in the U.S. added more workers in February than a month earlier, another sign of labor market strength, data from a private report based on payrolls showed today. Employment increased by 216,000 for the month after a revised 173,000 gain in January, according to figures from ADP Employer Services. The median estimate in the Bloomberg News survey called for a 215,000 increase this month.
• Productivity in U.S. Cools as Labor Costs Jump. The productivity of U.S. workers rose at a slower pace in the fourth quarter and labor costs jumped, indicating businesses are reaching the limit of wringing efficiency from their workforce. The measure of employee output per hour climbed at a 0.9 percent annual rate, after a 1.8 percent gain in the prior three months, revised figures from the Labor Department showed today in Washington. Expenses per worker climbed at a 2.8 percent rate, more than twice as much as previously estimated.
• Oil Rises From Two-Week Low as Greek Debt Swap Bolsters European Optimism. Oil rose from a two-week low as more investors signed on to a Greek debt swap, reducing concern that the country will default and bolstering optimism that the European economy will rebound. Futures climbed as much as 1.5 percent after investors with holdings amounting to 58 percent of the Greek bonds eligible for the nation’s debt swap agreed to participate. An Energy Department report showed that U.S. crude supplies increased last week while stockpiles of gasoline, diesel and heating oil fell. Crude oil for April delivery rose $1.39, or 1.3 percent, to $105.09 a barrel at 1:01 p.m. on the New York Mercantile Exchange. Prices are up 7.3 percent this year. Brent oil for April settlement increased $1.71, or 1.4 percent, to $123.69 a barrel on the London-based ICE Futures Europe exchange.
• Goldman(GS), FedEx(FDX) to Slide Amid Oil Shock: UBS. Goldman Sachs Group Inc. (GS), FedEx Corp. (FDX) and Bank of America Corp. (BAC) are among 20 stocks that may be most adversely affected in the event of an oil shock, according to Jonathan Golub, chief U.S. market strategist at UBS AG. Auto, transportation, materials, banking and diversified financial companies are likely to be the industry groups hurt most by a supply disruption, Golub said in a note today. He cited a March 4 report from UBS oil analyst Julius Walker that outlined price shock scenarios related to Iran and said Brent crude might rise to between $130 and $270 a barrel, though he expects any jumps to be short-lived.

Wall Street Journal:

• Fed Weighs 'Sterilized' Bond Buying if It Acts. Federal Reserve officials are considering a new type of bond-buying program designed to subdue worries about future inflation if they decide to take new steps to boost the economy in the months ahead. Under the new approach, the Fed would print new money to buy long-term mortgage or Treasury bonds but effectively tie up that money by borrowing it back for short periods at low rates. The aim of such an approach would be to relieve anxieties that money printing could fuel inflation later, a fear widely expressed by critics of the Fed's previous efforts to aid the recovery.
• Apple(AAPL) Unveils New iPad With 4G LTE. Apple Inc. took the wraps off a new iPad tablet with a sharper display and the ability to connect to the Internet on 4G broadband networks, as the electronics giant strives to stay ahead of rivals in a market it has helped create. Apple Chief Executive Tim Cook took the stage Wednesday in San Francisco to demonstrate the new product at an invitation-only event. "In many ways the iPad is reinventing portable computing, and it's outstripping the wildest of predictions," Mr. Cook told the audience.
  

CNBC.com:

• Apple(AAPL) Unveils New Version of Its Best-Selling iPad. Apple unveiled its next generation iPad with a "retina" high-resolution display, the company's first tablet to operate on the high-speed 4G network, in San Francisco on Wednesday. The 4G network runs at speeds roughly 10 times faster than the current 3G technology and may go a long way toward banishing the sometimes shaky video quality of older devices. The new iPad, which will go on sale March 16 and will start at $499, will have a sharper screen and a faster processor and will show more saturated colors than previous models. Versions capable of accessing cellular networks will cost $629 to $829.
• Does Rising Consumer Debt Show Strength or Stress?
• 'Some Drag' on Economy From Energy: Goldman's(GS) Hatzius. Higher energy costs are starting to have an effect on the U.S. economy, Goldman Sachs Group chief economist Jan Hatzius told CNBC Wednesday.

Business Insider:

• Never Before Seen 1991 Video Of A Harvard Protest Shows Barack Obama Defending A Radical Law Professor. (video)
• Ukraine Is Two Weeks Away From A Meltdown As Forex Reserves Disappear.
• The US Dollar Instantly Tanks After That Report On More QE.
  

Zero Hedge:

• Oil Implications and Fed Policy.
• The Death of The PIIGS Illustrated.
  

Washington Examiner:

• Obama High-Speed Rail Debt Costs Total $709 Million A Year in California. A new California Legislative Analyst Office report estimates that the state will have to pay $709 million annually in interest payments if Gov. Jerry Brown sells the $9.4 billion in bonds California voters previously authorized to build a high-speed rail system.

Reuters:

• Luxury Watchmakers See Clouds on China "Eldorado". Luxury watchmakers are hoping a stronger-than-expected recovery in the United States and global exposure will help them sail through a more challenging market in China, where the days of unstoppable growth are ticking by. "Asia is the market which everybody is more concerned about. People are concerned because they know that if Asia is going down there will be big problems," Thierry Stern, chairman of Geneva-based watchmaker Patek Philippe, told Reuters at the world's biggest watch and jewels fair in Basel on Wednesday.
• Fitch: Robust US Bank C&I Loan Growth Likely Short-Lived.
  

Telegraph:

• And the Losers from Greek CDS Contracts Are... Germany.
• Hoban Warns Brussels Over 'Disproportionate' Regulation. Mark Hoban, the Financial Secretary to the Treasury, has warned Brussels to avoid imposing “disproportionate” regulation on Europe’s embattled financial and economic system.

Passaer Neue Presse:

• German Economy Minister Philipp Roesler opposes international calls to make Europe's permanent rescue fund bigger, citing an interview.
  

Expansion:

• Spanish regions will have to raise taxes and introduce co-payment programs for health and education to meet the central government budget deficit target.
  

RAI Television:

• Italy will increase the value-added tax by two percentage points to 23% starting in October, Deputy Finance Minister Vittorio Grilli said in an interview.

Kathimerini:

• Tour operators including TUI AG and Alltours are seeing a 33% drop in German bookings for summer holidays in Greece compared with last year. Germans are choosing other destinations, because prices in Greece haven't dropped and because of worries about anti-German sentiment, citing comments by Alltours found Willi Verhuven.
  

O Estado de Sao Paulo:

• Sao Paulo New Home Sales Fell 15.3% in 2011 to $7.6 billion, the lowest level in five years, citing real-estate association Secovi-SP.

Bear Radar

Style Underperformer:

• Large-Cap Value +.68%

Sector Underperformers:

• 1) Steel -1.0% 2) Papers -.60% 3) Coal -.10%

Stocks Falling on Unusual Volume:

• IP, RAI, BVSN, FSLR, AVAV, CY, STAA, MAKO, PLCE, CTRP, DECK, VPHM, TZOO, P, AYR and HLX
  

Stocks With Unusual Put Option Activity:

• 1) P 2) KRE 3) VLO 4) XLU 5) CIEN
  

Stocks With Most Negative News Mentions:

• 1) VALE 2) JCP 3) MS 4) DECK 5) WFC
  

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Growth +.78%

Sector Outperformers:

• 1) Homebuilders +2.43% 2) Banks +1.48% 3) Disk Drives +1.31%

Stocks Rising on Unusual Volume:

• OVTI, TRCR, CIEN, PLCM, SHFL, MPEL, MAG, TNS, VLO, TCB, AEO and CLNE
  

Stocks With Unusual Call Option Activity:

• 1) MCK 2) SVNT 3) WNR 4) DVY 5) P
  

Stocks With Most Positive News Mentions:

• 1) LMT 2) LUV 3) DKS 4) LULU 5) AA
  

Charts:

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

Wednesday Watch

Evening Headlines
Bloomberg:

• Societe Generale, UniCredit Join Firms Participating in Greece's Debt Swap. Societe Generale SA (GLE), France’s second-biggest bank, Assicurazioni Generali SpA and UniCredit SpA (UCG) joined firms saying they would participate in Greece’s debt swap as the country threatened to compel holdouts to take part. Greece’s six largest banks also plan to accept the offer, the country’s Finance Ministry said in a statement late yesterday. The lenders are among the biggest private holders of the nation’s sovereign debt, data compiled by Bloomberg show, making them crucial to the success of the exchange. The Greek government, which set a 75 percent participation rate as a threshold for proceeding with the transaction, said it will use collective action clauses to force holders of Greek-law bonds to accept the swap if it receives sufficient consent from investors. The goal of the exchange, which runs through March 8, is to reduce the 206 billion euros ($270 billion) of privately held Greek debt by 53.5 percent, helping avert a disorderly default that could roil markets and fuel contagion.
  
• Spain Lags Italy as Growth Concerns Halt Rally: Euro Credit. Spanish bonds are underperforming those of Italy as concern the Iberian nation's economy will struggle to grow has lief it trailing in a rally sparked by two rounds of extraordinary ECB lending. Spain's benchmark borrowing costs rose above Italy's for the first time in almost eight months last week after Prime Minister Mariano Rajoy said his nation's 2012 deficit would be higher than agreed at budget talks with the European Union. "The spotlight is bank on Spain's fiscal performance," said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London.
• Libor Links Deleted as Bank Lobby Group Backs Away From Scandalized Rate. Twenty-six years after helping to design the London interbank offered rate, Britain’s bank lobbyists are distancing themselves from their creation amid regulatory investigations and lawsuits. The British Bankers’ Association, the century-old lobby group that oversees the rate, last week deleted references from its website referring to its role in setting Libor. This week, it met regulators and bank executives to review the future of the benchmark. Under one option, the Bank of England’s proposed Prudential Regulation Authority would take responsibility for policing the rate, said a person with knowledge of the talks who asked to remain anonymous because discussions are private. The BBA says it isn’t seeking to cede oversight to the regulator.
• Prices Pressure Asia Central Banks to Pause. Asia-Pacific central banks will probably hold off on adding monetary stimulus this week as higher oil prices combine with diminishing concern of a euro- region meltdown to make the case for preserving firepower. South Korea and New Zealand will hold interest rates tomorrow, according to all economists surveyed by Bloomberg News. Indonesia will keep its key rate at 5.75 percent the same day after an unexpected cut last month, while Malaysia will stand pat for a fifth meeting a day later, separate surveys indicated. The 18 percent jump in crude oil since September risks spurring price pressures in a region that’s seen little slackening in job markets as employers retain workers even with exports moderating.
  
• Australia's Economy Comes Under Q4 Forecast. Australia’s economy expanded at half the pace economists forecast last quarter as a housing slump deterred consumer spending, sending bond yields falling and the local currency to a six-week low. Fourth-quarter gross domestic product advanced 0.4 percent from the previous three months, when it rose a revised 0.8 percent that was weaker than previously reported, a Bureau of Statistics report released in Sydney today showed. The result compared with the median of 25 estimates in a Bloomberg News survey for a 0.8 percent gain.
• Gold Set for Worst Run This Year as Commodities Slump on European Concerns. Gold may drop for a fourth day in the worst run this year as concern resurfaced that Europe’s debt crisis will slow growth, strengthening the dollar and eroding demand for alternative investments.
• Ford(F) Awards CEO Mulally $58.3M in Stock. Ford Motor Co. (F) awarded Chief Executive Officer Alan Mulally $58.3 million in stock as a reward for the automaker’s turnaround. Mulally will receive other compensation for 2011, including salary and benefits, which will be revealed in a proxy report in the coming weeks. Ford has awarded him stock worth more than $100 million the past two years.
• Sarkozy Proposes Minimum Corporate Tax. French President Nicolas Sarkozy said he’ll create a new tax that would force large French companies to pay a minimum amount of tax.
• Congress Poll Rout in India Risks Economy as Gandhi Flops Again. India's ruling Congress party was routed in regional elections, a defeat that shattered claims by its chief campaigner Rahul Gandhi to have rebuilt support and endangers the government's agenda to boost a flagging economy. Gandhi, 41, touted to replace his mother as Congress chief this year, took responsibility for the party's performance in India's most populous state of Uttar Pradesh where it was set to win 7 percent of seats. An unexpected loss in Punjab underscored how Congress is struggling to escape blame for rising prices and alleged corruption two years before a national ballot.

Wall Street Journal:

• Romney Wins Ohio. Mitt Romney eked out a narrow win in Ohio and extended his delegate lead on Super Tuesday, but voters failed to deliver a decisive victory that could have brought a swift end to the Republican nominating contest. Mr. Romney notched wins in Ohio, Massachusetts, Idaho, Virginia, and Vermont, while Newt Gingrich took Georgia and Rick Santorum won Tennessee, Oklahoma and North Dakota. Alaska returns were the last tallied.
  
• Romney Extends Delegate Advantage. Mitt Romney appeared poised to extend his lead in delegates for the Republican presidential nomination even as voters in Super Tuesday contests handed out wins to each of the three main candidates.
• Young Adults See Their Pay Decline. Young people entering the job market are taking the brunt of the downward pressure on wages caused by high unemployment, according to a new analysis of pay trends. In data compiled for a coming report, the Economic Policy Institute, a center-left think tank in Washington, found that the average inflation-adjusted hourly wage for male college graduates aged 23 to 29 dropped 11% over the past decade to $21.68 in 2011. For female college graduates of the same age, the average wage is down 7.6% to $18.80.
• Carefully Orchestrated Moves Set Stage for Greek Debt Deal. Greece is unlikely to get all of its bondholders to agree willingly to a debt-restructuring plan before a Thursday deadline, but it repeated Tuesday that it is ready to force the deal through by other means. Greece stepped up pressure on its creditors Tuesday, saying it won't have money available to pay bondholders who resist. Creditors have until Thursday evening to decide whether they will accept the deal, which replaces existing bonds with a package of new securities with less than half of the face value.

MarketWatch:

• Why Bad Money in China Drives Out The Good. China to suffer as long as politics placed above market.

Business Insider:

• Morgan Stanley(MS): There's Something Weird Going On With The Economic Data.
• Colts Will Release Peyton Manning on Wednesday.
• Pandora(P) Tanks After a Miss on EPS, Revenue.
  

Zero Hedge:

• European Banks Now Face Huge Margin Calls As ECB Collateral Crumbles.

IBD:

• Cepheid(CPHD) Stock Price Rises on Strong 2012 Sales Outlook.
  

The Detroit News:

• Air Force Plans to Cut 850 Jobs in Michigan. The U.S. Air Force said late Tuesday that Michigan could lose more than 850 full- and part-time jobs as part of proposed cuts at Selfridge Air National Guard Base and Kellogg Air Guard Station in Battle Creek — worse than earlier predictions. The cuts would include more than a quarter of the state's Air National Guard.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 26% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-one percent (41%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -15 (see trends).

Reuters:

• Exclusive: Netflix(NFLX) in Talks for Cable Partnership. Netflix Chief Executive Reed Hastings has quietly met with some of the largest U.S. cable companies in recent weeks to discuss adding the online movie streaming service to their cable offerings, according to sources familiar with matter.
• Obama Mulls Giving Moscow Data on Missile Defense. The Obama administration disclosed on Tuesday that it is considering sharing some classified U.S. data as part of an effort to allay Russian concerns about a controversial antimissile shield.
• ASMI(ASMI) 4th Quarter Net Profit Falls. Dutch chip gear maker ASM International NV reported lower fourth-quarter sales as customers held back orders, and said it sees lower sales in the current quarter. New orders booked in the fourth quarter but not yet paid for -- the best indication of future earnings -- was down 17 percent from the previous quarter.
• Cypress Semiconductor(CY) Forecasts Weak 1st Qtr. Chipmaker Cypress Semiconductor forecast a first quarter below analysts' expectations as it saw fewer orders from some wire line and handset customers.

Financial Times:

• Athens Issues Threat to Bond Holdouts. Greece has threatened to default on any of its bondholders who do not take part in a €206bn debt restructuring that officials believe is key to returning Athens to solvency, a move that turns up the heat on potential holdouts ahead of a deadline on Thursday. The Greek public debt management agency said in a statement Athens "does not contemplate the availability of funds" to pay private investors who hold on to their bonds once the restructuring occurs. The transaction is projected to wipe €100bn from Greece's debt pile, but 95 per cent of bondholders must participate for that target to be reached. "There is no commitment not to pay, but there is a threat," said Charles Blitzer, a former senior IMF official. "If you don't maximise participation, you're asking for more stress in the programme or more [bailout] money from the official sector."

China Daily:

• China Lower GDP Target Is Healthier. In response to Premier Wen Jiabao's announcement in his government work report delivered to the ongoing session of the National People's Congress that China will set its GDP growth for 2012 at 7.5 percent, stock markets, especially the Hong Kong stock market, fell drastically amid concerns about China abandoning its years-long efforts to maintain an 8 percent economic growth rate. However, the markets should not over-interpret China's lowered economic growth target. By decelerating its GDP growth to 7.5 percent, the slowest since 2005, the Chinese government aims to promote the quality of its economic growth. The slightly lowered GDP target is a reflection of China's determination to reduce its dependence on GDP-centered economic development and push for a long-overdue economic transformation. It also demonstrates the Chinese government's efforts to expand domestic demand to promote its sustainable economic growth at a time when the global economic recovery remains impotent. country's rapid economic growth since reform and opening-up, especially in the last decade, has been achieved largely on an extensive basis. This is one of the main reasons for some at home and abroad casting doubt on the quality of the country's GDP and its statistical accuracy. Some economists have also doubted China's ability to sustain its economic growth, arguing that it can no longer maintain economic growth which has been attained at the cost of the environment and the well-being of the majority of ordinary people. It is natural that China should strive to improve its economic growth quality, especially after several decades of high-pace development, in order to address such misgivings. Raising the quality of the country's GDP will require efforts to boost its economic growth without excessive exhaustion of its resources and a deteriorating environment. It should also not draw on future economic development potential in pursuit of short-term performance. To attain these targets, China badly needs to make some policy and systematic arrangements to ensure that none of its GDP growth measures will damage its efforts for environmental protection and sustainable development. An excessive credit expansion has made China a real estate-dependent economy over the past years. Under a series of preferential credit policies, the concentrated flow of domestic funds to the real estate market has seemingly transformed the country into the largest construction site in the world. Such a property-dependent economic development model has seriously eroded the country's future development potential and also endangered its sustainable development. Much worse, the huge real estate bubble has also brought huge risks to the country's financial market and simmering social contradictions as the result of the uneven wealth distribution it has caused. At the same time, the real estate-supported economic growth has also hampered China's efforts to transform its economic pattern, squeezed residents' consumption capabilities and slowed the country's ongoing industrial structural adjustments. At a time when the domestic real estate market has produced a serious "squeezing effect" on other industries, what the country should do is extricate itself from the housing-hijacked economic development model and improve its GDP quality. So the country should not relax its regulation of the housing market in order to return property prices to a reasonable level.
• China can use trade measures against U.S. trade protectionist policies, such as the recent bill passed by the U.S. Congress, citing Yuan Zheng, a researcher at the Chinese Academy of Social Sciences' institute of American studies.
  

Economic Information Daily:

• Combined sales at China's 77 largest steelmakers fell 8.5% in January from a year earlier to 260b yuan, citing an official at the China Iron and Steel Association. Profitability in February and after aren't optimistic, the official said.

Shanghai Securities News:

• China Banking Regulatory Commission Assistant Chairman Yan Qingmin said the regulator will study stock investments by bank wealth management product funds, citing an interview. The regulator may limit the proportion of stock investments by the funds to control risk, Yan said.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -1.25% to -.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 170.0 +8.0 basis points.
  
• Asia Pacific Sovereign CDS Index 135.25 +2.75 basis points.
• FTSE-100 futures -.23%.
  
• S&P 500 futures +.17%.
  
• NASDAQ 100 futures +.18%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CIEN)/-.04
• (PLCE)/.90
• (TFM)/.38
• (AEO)/.35
• (BF/B)/1.00
• (HOV)/-.42
• (MW)/-.13
• (SMTC)/.31
• (PLL)/.74
• (HRB)/.07
• (KFY)/.30
  

Economic Releases
8:15 am EST

• ADP Employment Change for February is estimated to rise to 215K versus 170K in January.
• Final 4Q Non-Farm Productivity is estimated to rise +.8% versus a prior estimate of a +.7% gain.
• Final 4Q Unit Labor Costs are estimated to rise +1.2% versus a prior estimate of a +1.3% gain.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,500,000 barrels versus a +4,160,000 barrel gain the prior week. Distillate supplies are estimated to fall by -1,650,000 barrels versus a -2,069,000 barrel decline the prior week. Gasoline inventories are estimated to fall by -1,600,000 barrels versus a -1,600,000 barrel decline the prior week. Finally, Refinery Utilization is estimated unch. versus a -1.9% decline the prior week.
  

3:00 pm EST

• Consumer Credit for January is estimated at $10.45B versus $19.308B in December.
  

Upcoming Splits

• (HMST) 2-for-1
• (RES) 3-for-2
  

Other Potential Market Movers

• The weekly MBA Mortgage Applications report, German 5Y Bond auction, Wedbush Tech/Media/Telecom Conference, CSFB Communications/Networking Equipment Conference, Morgan Stanley Utilities Conference, Goldman Sachs Ag Biotech Forum, (GE) Investor Meeting, (HON) Investor Conference and the (BEBE) Investor Day could also impact trading today.
  

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