Friday Watch

Evening Headlines 
Bloomberg: 

• Hollande Tiptoes Toward Raid on Pensions Under Pressure From EU. President Francois Hollande is preparing to take on a French sacred cow: pensions. Facing European Union pressure to reach budget targets, the Socialist president is risking the wrath of his core supporters to shrink the pension system, which had a deficit of 14 billion euros ($19 billion) in 2011. While leaving the issue of fixing the retirement age to talks between representatives of employees and employers, Hollande may propose separating pension increases from inflation, government officials said. He’s venturing upon a pension overhaul -- which few of his predecessors have managed without drawing millions into the streets -- as his government says it’s unlikely to meet this year’s budget-deficit target. 

• Asian Stocks Retreat on Earnings. Rio Tinto declined 2.5 percent in Sydney after the miner reported its biggest loss in at least 15 years. Trend Micro tumbled 7.8 percent after the Japanese anti-virus software maker’s net income fell 23 percent. Auckland International Airport Ltd. slumped the most in four years after a New Zealand pension fund reduced its stake in the nation’s busiest terminal. The MSCI Asia Pacific Index slid 0.5 percent to 133.23 as of 12:56 p.m. in Hong Kong. Japan’s Nikkei 225 Stock Average slid 1.9 percent, led by banks and exporters, after Russia’s finance minister said Group of 20 nations should take a stronger stance against currency manipulation.

• Park May Face Prolonged Korea Growth Underperformance: Economy. South Korea’s incoming President Park Geun Hye may be saddled with an economy that underperforms for a prolonged period, increasing the allure of stimulus spending that could undermine the nation’s fiscal strength. Growth may stay below potential for a “considerable time,” the Bank of Korea said yesterday after officials voted to keep interest rates on hold. Policy makers are concerned about the need to regain momentum after last year’s 2 percent expansion, the weakest since 2009.

• Fed’s Bullard Says Balance-Sheet Growth Lifts Exit Concern. Federal Reserve Bank of St. Louis President James Bullard said central bank stimulus has been ramped up this year with the decision to increase outright bond purchases to $85 billion a month and that a growing balance sheet could be complicated to unwind. “The current stance of U.S. monetary policy is considerably easier than it was in 2012,” Bullard said in a speech prepared for delivery today in Starkville, Mississippi. “The size of the balance sheet could inhibit” the Fed’s “ability to exit appropriately from the current very expansive monetary policy.”

• China, Iran Boost Cyber Attacks on U.S., Lawmaker Says. China and Iran are intensifying cyber assaults against the U.S., the head of the House Intelligence Committee said as he pressed for legislation to encourage companies to share information on hacker threats. China’s cyber espionage effort targeting U.S. industrial secrets “has grown exponentially both in terms of its volume and damage it’s doing to our economic future,” the intelligence panel’s chairman, Mike Rogers, said at a hearing yesterday. “We have no practical deterrents in place today.”

• Libya Braces for Unrest on Anniversary of Qaddafi Revolt. Long lines of foreigners massed over the past couple of weeks at Tripoli International Airport looking to secure a flight out. Across town, Libya’s parliament meets in a tent.

• Oil Heads for Ninth Gain in 10 Weeks as OPEC Seen Cutting Supply. West Texas Intermediate oil headed for its ninth weekly gain in 10 weeks after a report signaled OPEC will cut crude shipments this month. Open interest for the U.S. benchmark contract rose to a record. Futures were little changed in New York after climbing 0.3 percent yesterday, and are up 1.7 percent this week. The number of contracts outstanding climbed to 1,665,014, the highest level since the futures began trading on the New York Mercantile Exchange in March 1983, the exchange’s owner said. The Organization of Petroleum Exporting Countries will cut crude shipments by 0.9 percent this month amid lower production by Saudi Arabia, according to Oil Movements, a tanker tracker. Crude for March delivery was at $97.33 a barrel, up 2 cents, in electronic trading in New York at 9:15 a.m. in Tokyo. The volume of all futures traded was 40 percent above the 100- day average. 

• Drone Tests Must Adhere to Privacy Rules, U.S. FAA Says. U.S. aviation regulators will require test facilities for unmanned aircraft to comply with federal and state privacy laws, as the government develops the first rules for operating drones in U.S. skies. “Each site operator and its team members will be required to operate in accordance with federal, state and other laws regarding the protection of an individual’s right to privacy,” the Federal Aviation Administration said in an e-mailed statement today. The agency is opening a contest to create six drone test sites to be run by government agencies or universities, it said in the statement.

• Heinz(HNZ) Turnaround CEO May Reap $100 Million After Buyout. Having turned around H.J. Heinz Co., Chief Executive Officer Bill Johnson may reap about $100 million from the company’s buyout. Warren Buffett’s Berkshire Hathaway Inc. and Jorge Paulo Lemann’s 3G Capital Inc. agreed to buy the iconic ketchup maker for about $23 billion. The billionaire buyers will pay $72.50 a share, compared with yesterday’s closing price of $60.48, according to a statement today. Johnson, 64, held 1.38 million Heinz shares as of Dec. 17, according to data compiled by Bloomberg News. His total compensation in the fiscal year ended in March was $16.2 million, including $1.3 million of salary.

• SEC Investigators Review Surge in Heinz(HNZ) Trades Before Merger. U.S. Securities and Exchange Commission investigators are reviewing whether a surge in bullish bets on H.J. Heinz Co. was fueled by inside information about Berkshire Hathaway Inc. and 3G Capital’s plan to buy the ketchup maker, a person familiar with the matter said. 

• Sharp Joins Panasonic in Surge of China Air-Purifier Sales. Sharp Corp. and Panasonic Corp., the Japanese electronics makers struggling to recover from record losses, are boosting sales of air purifiers in China as pollution worsens in the world’s most populous country.

Wall Street Journal: 

• Abe Nears Decision on BOJ Governor. Japanese Prime Minister Shinzo Abe is facing a rift with his finance minister, longtime ally Taro Aso, over who to pick as the next Bank of Japan governor, a division that epitomizes the difficulty of the selection process. Government officials said Mr. Abe may make his final decision in a few days and order his aides to begin private talks with the opposition parties to win their support. 

• Icahn Reports Big Stake in Herbalife(HLF); Shares Jump. Carl Icahn is officially long Herbalife Ltd. The billionaire investor disclosed late Thursday that he has built a 12.98% stake in the nutrition company.

• Deferred Pay Draws Fed's Scrutiny. U.S. banks and securities firms would have to step up their compensation disclosures under rules being considered by the Federal Reserve, said a person familiar with the central bank's regulatory efforts. The rules are in the formative stages and wouldn't take effect for some time. But an early draft has circulated internally at the Fed, this person said, marking a step on the path toward a public proposal.

• GOP Stalls Vote on Pick for Pentagon. Senate Republicans on Thursday blocked, at least temporarily, Chuck Hagel's nomination to be defense secretary, leaving him damaged and offering the latest example of how fierce the partisan divide has become in Congress.

• Shifting Blame Muddles S&P Suit. Like many other collateralized debt obligations, Delphinus CDO 2007-1 got a triple-A rating and then defaulted within months, causing painful losses to investors. Who is responsible for the mess? Last year, the Securities and Exchange Commission blamed Mizuho Financial Group Inc., 8411.TO -8.17% and the Japanese bank paid $127.5 million to settle a lawsuit filed by the U.S. agency.

• Generational Theft Needs to Be Arrested by Geoffrey Canada, Stanley Druckenmiller and Kevin Warsh. A Democrat, an independent and a Republican agree: Government spending levels are unsustainable. We come from different backgrounds, parties and pursuits but are bound by a common belief in the promise and purpose of America. After all, each of us has been the beneficiary of the choices made—and opportunities created—by previous generations of Americans.

CNBC: 

• Currency Wars Come to Moscow as G-20 Meets. It won't quite be hand-to-hand combat, but 'currency wars' will come to Moscow on Friday as finance officials from the Group of 20 nations spar over Japan's expansive policies that have driven down the value of the yen.

Zero Hedge: 

• The Unending British Deleveraging Cycle. (graphs)

• Bullish? (graphs)

• Germany, Spain Set To Pull The Plug On Green Energy.

• Shiller On Housing: Back? On Track? Or Still Cracked? (graphs)

• The Great Rebalancing: 10 Things To Watch In 2013.

Business Insider: 

• The Tesla(TSLA) Nightmare Shows Why All-Electric Cars Are (Basically) Dead On Arrival.

• Mexican Drug Kingpin Named Chicago's First Public Enemy No. 1 Since Al Capone. Guzman has been on the Forbes' list of billionaires since 2009, and Washington has a $5 million reward for his capture. However, there are allegations that Guzman works with the U.S. government. In court documents, a high-ranking member of Sinaloa currently in U.S. custody asserted that Guzman is a U.S. informant, Sinaloa was "given carte blanche to continue to smuggle tons of illicit drugs into Chicago," and Operation Fast and Furious was part of an agreement to finance and arm the cartel in exchange for information used to take down its rivals. The claims were corroborated by a Mexican foreign service officer who doubled as a confidential source for the U.S. security firm Stratfor when he alleged that the U.S. government works with Mexican cartels to traffic drugs into the U.S., adding that in 2010 the U.S. sided with Sinaloa in an attempt to limit the violence in Mexico. 

• Obama Is Going To Combat Climate Change With Or Without Congress.

Reuters: 

• JP Morgan(JPM) star trader Gulati quits to set up hedge fund: FT. JPMorgan Chase & Co's global head of equity proprietary trading has quit the investment bank to set up a hedge fund in Switzerland, the Financial Times reported on Thursday. Deepak Gulati, one of the bank's star traders, will launch Argentière Capital sometime in the second or third quarter of this year, the financial daily quoted two people familiar with the plans.  

• Doom scenarios for U.S. budget cuts may be overplayed.

• Retail investors exit US stock funds, look elsewhere -Lipper.

Financial Times:

• US residential securities make a comeback. You might have thought that credit market investors would be glad to see the back of all those suburban McMansions that homebuilders flung up across the American sunbelt, back when lenders barely checked a borrower’s pulse, let alone their credit score. After all, it was the collapse in the value of those homes, used as collateral in trillions of dollars of mortgage-backed securities, that triggered a credit crisis from which the US has still not fully recovered. But if bankers have their way, the very same McMansions may find their way back into credit market investors’ portfolios, and soon, as the collateral behind a whole new kind of security.

Evening Recommendations 

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 110.75 -.25 basis point.

• Asia Pacific Sovereign CDS Index 85.0 -.5 basis point.

• FTSE-100 futures -.22%.

• S&P 500 futures -.22%.

• NASDAQ 100 futures -.13%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AEP)/.45

• (BKW)/.15

• (CPB)/.66

• (ENB)/.44

• (SJM)/1.39

• (KRFT)/.66

• (LPNT)/.66

• (TRW)/1.33

• (VFC)/3.04     

Economic Releases
8:30 am EST

• The Empire Manufacturing Index for February is estimated to rise to -2.0 versus -7.78 in January.

 9:00 am EST

• Net Long-Term TIC Flows for December are estimated to fall to $35.0B versus $52.3B in November.

 9:15 am EST

• Industrial Production for January is estimated to rise +.2% versus a +.3% gain in December.

• Capacity Utilization for January is estimated to rise to 78.9% versus 78.8% in December.

• Manufacturing Production for January is estimated unch. versus a +.8% gain in December.

9:55 am EST 

• Preliminary Univ. of Mich. Consumer Confidence for February is estimated to rise to 74.8 versus 73.8 in January.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Pianalto speaking, Eurozone Trade Data and the (ONNN) Analyst Day could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by industrial and mining shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

Stocks Slightly Higher into Final Hour on Buyout Speculation, Short-Covering, Oil Service/Coal Sector Strength

Today's Market Take:

Broad Market Tone:

• Advance/Decline Line: Slightly Higher
  

• Sector Performance: Mixed
  

• Volume: Slightly Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• VIX 12.66 -2.47%
  

• ISE Sentiment Index 114.0 -12.31%

• Total Put/Call .84 -6.67%

• NYSE Arms .88 -34.25%

Credit Investor Angst:

• North American Investment Grade CDS Index 85.75 -.16%

• European Financial Sector CDS Index 140.28 -.34%

• Western Europe Sovereign Debt CDS Index 100.0 +.28%

• Emerging Market CDS Index 230.40 -1.28%

• 2-Year Swap Spread 15.25 unch.

• TED Spread 19.50 -.5 bp

• 3-Month EUR/USD Cross-Currency Basis Swap -17.25 -.5 bp

Economic Gauges:

• 3-Month T-Bill Yield .10% +1 bp

• Yield Curve 173.0 -1 bp

• China Import Iron Ore Spot $155.10/Metric Tonne n/a

• Citi US Economic Surprise Index -5.0 +2.0 points

• 10-Year TIPS Spread 2.57 unch.

Overseas Futures:

• Nikkei Futures: Indicating -67 open in Japan

• DAX Futures: Indicating +14 open in Germany

Portfolio:

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

• Disclosed Trades: None 

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• Euro-Area Economy Shrinks Most Since Depths of Recession. The euro-area recession deepened more than economists forecast with the worst performance in almost four years as the region’s three biggest economies suffered slumping output. Gross domestic product fell 0.6 percent in the fourth quarter from the previous three months, the European Union’s statistics office in Luxembourg said today. That’s the most since the first quarter of 2009 in the aftermath of the collapse of Lehman Brothers Holdings Inc. and exceeded the 0.4 percent median forecast of economists in a Bloomberg survey. The data capped a morning of releases showing that the economies of Germany, France and Italy all shrank more than forecast in the fourth quarter.
• Italian Economy Shrinks Most in Almost Four Years Before Vote.Italy’s economy contracted the most in almost four years in the quarter through December as the country’s fourth recession since 2001 deepened. Gross domestic product shrank 0.9 percent from the previous three months, a sixth quarterly contraction and almost five times the 0.2 percent pace of the third quarter, the National Statistics Institute Istat in Rome said in a preliminary report today. The decline was more than the 0.6 percent median forecast in a Bloomberg News survey of 24 economists. From a year earlier, output shrank 2.7 percent. Italy’s central bank has called on whichever government emerges from this month’s elections to consolidate public finances to boost competitiveness and economic growth, after revising its GDP forecast for the euro region’s third-biggest economy. The economy shrank 2.2 percent in 2012, Istat said today. The Bank of Italy forecast the economy will contract 1 percent this year and won’t emerge from the recession until the second half of 2013, citing weak domestic demand. The central bank’s new forecast is five times the 0.2 percent contraction it estimated in July.
• S&P 500 Bearish Bets at Two-Year Low: Options. Puts protecting against a 10% decline in the S&P 500 cost 7.88 points more than calls betting on a 10% gain, according to three-month options data compiled by Bloomberg. The price relationship known as skew fell to 7.49 on Feb. 1, the lowest since November 2010.
• Euro Drops to Three-Week Low as Recession Deepens; Yen Advances. The euro slid to a three-week low against the dollar after a report showed Europe’s recession deepened more than forecast last quarter, sapping demand for the region’s assets and spurring bets on lower interest rates. The 17-nation currency dropped for a third day versus the yen as separate data showed gross domestic product shrank in both Germany and France. “The GDP data out of the euro zone was quite poor, putting the idea of a potential rate cut by the European Central Bank back on the table,” Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc in Stamford, Connecticut, said in a telephone interview. “The market priced in further potential for easier monetary policy coming out of the ECB, which led to a weaker euro.” The euro slumped 0.9 percent to $1.3327 at 11:43 a.m. New York time and reached $1.3315, the lowest level since Jan. 24.
• Gold Demand Rose 3.8% in Fourth Quarter, Narrowing Annual Drop. Gold demand rose 3.8 percent in the fourth quarter as Indian purchases jumped, narrowing the first drop in annual usage in three years, the World Gold Council said. India remained last year’s biggest buyer, ahead of China.
• The Real Risk-Takers Are at the Federal Reserve. In a nutshell: The Fed buys risk-free Treasury securities, depressing the yields. The public is goaded into buying riskier assets, such as stocks and corporate bonds, sending those prices higher. Businesses financing themselves with equity have more money to invest. Consumers feel wealthier and spend more. Whenever I hear the bit about risk-taking, I wonder what the dividing line is between encouraging higher asset prices and creating froth in asset markets. How does the Fed know when asset prices have gotten out of whack?
• Chicago Shamed by Murder as Aurora Has Homicide-Free Year. Aurora saw its factories shrivel and its street gangs thrive until the past five years, when its police methodically smothered the criminals by partnering with neighborhood groups as well as state and federal law enforcement. The agencies drew from the playbook used to get the Chicago crime icon Al Capone - - attacking the enterprise, not just the violence it spawns. Aurora’s violent-crime rate has plunged, even as the city’s population soared 38 percent in the last decade to almost 200,000, roughly the size of Salt Lake City. Aurora’s annual homicide total in the past five years averaged fewer than 3, down from 26 in 2002, according to police. The last year for which the city recorded no killings was 1946.
• BlackBerry(BBRY) Co-Founder Balsillie Sells Stake in Company.Jim Balsillie, who served as co- chief executive officer of Research In Motion Ltd. until January of last year, has cut his 5.1 percent ownership stake to zero, raising concern that he has lost confidence in the company.
• Postal Union Millions to Democrats Roils Saturday Cuts. All but five of Congress’s 255 Democrats and independents received campaign donations from postal worker union groups in the past six years, raising the political risk of Postmaster General Patrick Donahoe’s move to end Saturday mail delivery. Political action committees for the seven postal unions contributed $9.6 million from 2007 to 2012 to current members of Congress, 91 percent of it to Democrats and two independents who caucus with them, according to data compiled by Bloomberg from the Federal Election Commission and the Center for Responsive Politics, a Washington-based research group.
• Berkshire(BRK/A) Joins 3G Capital to Buy Heinz(HNZ) in $23 Billion Deal. Warren Buffett’s Berkshire Hathaway Inc. and Jorge Paulo Lemann’s 3G Capital agreed to buy HJ Heinz Co. for about $23 billion as the billionaires increased their bets on consumer products. The buyers will pay $72.50 a share, compared with yesterday’s closing price of $60.48, according to a statement today. Berkshire will spend about $12 billion to $13 billion on the deal for the maker of condiments and Ore-Ida potato snacks. The transaction is valued at about $28 billion including the assumption of debt, according to the statement.
• Hong Kong Bourse to Start After-Hours Futures Trading. Hong Kong Exchanges & Clearing Ltd., the world’s largest exchange company by market value, said it received regulatory approval to start after-hours futures trading and will begin the service on April 8. Hang Seng Index and H-shares Index futures will be available for trading from 5 p.m. to 11 p.m. from the date, in addition to regular hours, the bourse said in a statement today. Gold futures will also be considered for inclusion at a later stage, it said.

Wall Street Journal: 

• Boehner: House Won’t Act First to Avoid Sequester. House Speaker John Boehner (R., Ohio) challenged the Senate to pass a bill to avoid the across-the-board spending cuts known as the sequester, saying the House won’t act to do so first. At a weekly press conference, Mr. Boehner declined to comment on a Senate Democratic bill that is expected to be unveiled later Thursday that would partially defer the $85 billion in scheduled spending cuts by raising revenues through ending some tax deductions. He said that until the Senate passes such a bill, there was no reason for him to comment on it. The Republican leader said the House had passed legislation last year to shift the burden of the cuts away from defense and other key federal programs. But that bill died at the end of the last Congress, House GOP leaders don’t plan to reintroduce it this year.
• Hagel Nomination Again in Jeopardy. Chuck Hagel's confirmation as the next secretary of defense was again in jeopardy Thursday as Republicans declared he wouldn't have the 60 votes necessary for his nomination to proceed. Republican leaders told Senate Majority Leader Harry Reid (D., Nev.) they were withholding GOP votes until they received more information, a Democratic leadership aide said.

MarketWatch:

• Sen. Warren: Too-big-to-fail is too-big-for-trial. Fed’s Tarullo: changes to Volcker rule ahead. In her first hearing as a U.S. senator Thursday, Elizabeth Warren criticized federal regulators for settling civil cases with Wall Street banks instead of taking them to trial.

CNBC: 

• Expect an Apple TV Event in March: Analyst.
• John Kerry's Good Heinz(HNZ) Day. (video) 
• Why Companies Still Aren't Likely to Invest—or Hire. Investors have opened their wallets following the fiscal bargain struck in Washington, but corporate CEOs may not be so quick to tap into their swelling coffers.
• General Motors(GM) Profits Rise, but Europe, Charges Weigh. Declining market share and continued weakness its European operations dragged on the earnings of General Motors in the fourth quarter, which missed Wall Street's expectations as the company took nearly $34 billion worth of assorted charges against its earnings.

Zero Hedge:

• Initial Claims Plunge As Department Of Labor "Estimates" Claims For Illinois, Connecticut; Blizzard "Blamed". (graph)
• The Pain In Spain Falls Mainly... Everywhere. 
• Guess Who Was Buying HNZ Stock From Its Clients. 
• In Search Of The Economic Recovery. (graphs) 
• Greek Youth Unemployment Tops 60%. (graph) 
• "Boomerang Foreclosures" Are Back As Bernanke's Second Housing Bubble Begins To Pop.

Business Insider:

• 18 Scary Charts That Show The Real Crisis In Europe. 
• CHART: The European Housing Market Is Ridiculously Disconnected. 
• Idaho School Locked Down After Reports Of Intruder With Double-Bladed Ax. 
• BOEHNER: Every Time I Get Into One Of These Negotiations With Obama 'It's My Rear End That Got Burnt'. 
• This Chart Really Drives Home The Dire Direction Of Eurozone GDP. 
• FELIX ZULAUF: If The Stock Market Doesn't Correct Soon, Then We Could Repeat 1987.

Forbes:

• Peer-Reviewed Survey Finds Majority Of Scientists Skeptical Of Global Warming Crisis.

Reuters: 

• Moody's says U.S. states' outlook negative for 6th year.
• Fed's Bullard: raising minimum wage will mean fewer people hired.

The Guardian:

• Oscar Pistorius murder charge: South African police deny burglary claims. Sprinter charged with murdering girlfriend, as police deny making claims that he had thought she was an intruder.

Bear Radar

Style Underperformer:

• Large-Cap Value -.50%

Sector Underperformers:

• 1) Telecom -3.03% 2) Airlines -2.35% 3) Education -2.12%
  

Stocks Falling on Unusual Volume:

• CTL, WIN, TOT, BCS, BBVA, LBTYA, TV, ECA, NFX, UNFI, BPL, EEP, TAP, AFFY, ULTA, WTW, WFM, STMP, FORR, HSP, CTU, GNRC, LCC, ITRI, PRLB, IPI, ALXN, BIN, TNGO, TRIP, MLU, SSS, MDLZ, PNK, NUS, EIX, UPL, NDAQ, UNG, HSC, AFFY, TROX and STRA

Stocks With Unusual Put Option Activity:

• 1) CTL 2) WFM 3) TRIP 4) Z 5) HYG
  

Stocks With Most Negative News Mentions:

• 1) EXPE 2) ETR 3) CPN 4) CLH 5) NFX
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth +.28%

Sector Outperformers:

• 1) Oil Service +1.93% 2) Gold & Silver +.85% 3) Foods +.45%
  

Stocks Rising on Unusual Volume:

• STZ, HNZ, SWC, BAS, BUD, HAL, CPB, JCOM, PGI, ANGI, Z, SKX, VCLK, CJES, GNC, EZCH, CAR, NTSP, EQIX, BBY, ARUN and LUFK

Stocks With Unusual Call Option Activity:

• 1) ESI 2) GIS 3) TWX 4) MDY 5) GNC
  

Stocks With Most Positive News Mentions:

• 1) TWX 2) GIS 3) IM 4) PEP 5) CAH

Charts:

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

Thursday Watch

Evening Headlines 
Bloomberg: 

• EU Seeks Broad Transaction Tax to Curb Rules ‘Patchwork’. The European Union will propose a far-reaching tax on financial transactions which could be collected worldwide as soon as Jan. 1 next year by the 11 nations that have so far signed up to participate. The plan by the EU in Brussels, to be outlined today, invokes “residence” and “issuance” ties to firms in participating countries, in a bid to prevent traders from escaping the levy by trading outside the tax’s zone, according to documents obtained by Bloomberg News. The plan says that to escape the proposed tax entirely, firms in other nations would have to entirely cease financial-services business with the 11 EU nations involved.

• Italy Tax Pledges Spook Investors as Economy Wilts: Euro Credit. Italian voters, being wooed by promises of lower taxes that are spooking investors, will get a reality check today with data probably showing the country slipping deeper into its fourth recession since 2001. 

• BOJ Rejects Keeping Virtually Zero Rates Until Price Goal Near. The Bank of Japan rejected a proposal for keeping interest rates virtually at zero until a price target is in sight and refrained from adding to stimulus, ahead of leadership changes next month. The central bank kept its asset purchase fund unchanged at 76 trillion yen ($813 billion), according to a BOJ statement released in Tokyo today. That was in line with analysts’ forecasts. Policy makers rejected board member Ryuzo Miyao’s call for the pledge on rates.

• Sakakibara Says Japan Punishes Neighbors as Yen Falls Toward 98. Japan is punishing its trading partners by guiding the yen toward levels that haven’t been seen in almost four years, said Eisuke Sakakibara, a former Ministry of Finance official. Japan’s currency has entered a range of between 88 to 98 per dollar, according to Sakakibara, known as “Mr. Yen” for his efforts to influence exchange rates in the late 1990s. An official from a Group of Seven nation said Japan will be in the spotlight at the Group of 20 gathering this weekend amid concern the yen’s slide has been excessive. “Guiding the yen lower is a policy that punishes neighboring nations,” Sakakibara, 71, said in an interview in Tokyo yesterday. Impressions overseas that Japan is trying to orchestrate further declines in the yen mean that “it will be criticized by the G-7, as well as the G-20,” he said.

• China’s Citic to Buy 13% Stake in Alumina for A$452 Million. Citic Group Corp., China’s largest state-owned investment company, will pay about A$452 million ($468 million) for a stake in Alumina Ltd., partner in the world’s biggest alumina business.

• Perry Goes to California for Jobs After Brown 'Fart' Remark. First, California Governor Jerry Brown mocked a Texas ad campaign to lure jobs from his state as a “burp, barely a fart.” Then Texas Governor Rick Perry escalated the battle with a four-day recruiting trip to Brown’s state, capped by a news conference today to boast of his efforts. “It’s not about bashing California, it’s about promoting Texas,” said Perry, 62, a Republican, on a conference call with reporters. “The ad campaign is doing what it was intended to do: get people talking about the differences of California and Texas.” 

• State Farm Invests in Iran-Linked Firms, California Says. State Farm Mutual Automobile Insurance Co. and units of Cigna Corp. are among insurers investing in firms that do business with Iran, California Insurance Commissioner Dave Jones said. An ING Groep NV unit also has Iran-linked holdings, according to a statement today from Jones. Insurers that operate in California have $198 million invested in firms that do business with Iran’s military, energy and nuclear sectors, down from about $6 billion in 2009 when California began pushing them to divest, Jones said.

• Apple(AAPL) Says It Will Fight Greenlight’s Bid to Block Vote. Apple Inc. said it will fight Greenlight Capital Inc.’s bid to bar the company from adopting a measure restricting its ability to issue preferred stock. 

• Dell(DELL) Said to Plan Shareholder Meetings to Assess Demands for LBO. Dell Inc. is setting up meetings with shareholders to assess their demands for getting its $24.4 billion buyout done and also preparing a public response to critics of the deal, said people with knowledge of the situation.

Wall Street Journal:

• U.S. Funds Score Big by Betting Against Yen. Some of the biggest U.S. hedge-fund investors have made billions betting against the yen, exploiting Japan's determination to weaken its currency and boost its economy. Wagering against the yen has emerged as the hottest trade on Wall Street over the past three months. George Soros, who made a fortune shorting the British pound in the 1990s, has scored gains of almost $1 billion on the trade since November, according to people with knowledge of the firm's positions. Others reaping big trading profits by riding the yen down include David Einhorn's Greenlight Capital, Daniel Loeb's Third Point LLC and Kyle Bass's Hayman Capital Management LP, investors say. 

• Tensions Mount as China Snatches Farms for Homes. 

• U.S. Slams EU's Tax-on-Trades Plan. European Commission Says Proposed Levy Could Raise €35 Billion Annually for the 11 Participating Countries. The U.S. Treasury said it opposes plans by 11 European Union countries to impose a small tax on trades in shares, bonds and derivatives. The European Commission, the EU's executive arm, will propose a new financial-transaction tax it says could raise as much as €35 billion ($47 billion) a year for the 11 participating states, which include Germany, France, Italy and Spain, according to documents to be published Thursday and seen by The Wall Street Journal.

• China's 'Wall' Hits Business. Firms Say Censorship Slows Web Connections, Curbs Access to Services.

• Four Key Questions for Health-Care Law. Thanks to the Supreme Court and Barack Obama's re-election, the Affordable Care Act—"Obamacare" to foes and a few of its friends—isn't going away. The issue now is how it will work. 

• The Rookie. If there's a crisis on Jack Lew's Treasury watch, buy gold.

• Henninger: The State of Obama. The State of the Union speech was about just one thing: the Obama project. Here's what has to be understood. It's all about him. A State of the Union speech normally is about relating a president's public policies to conditions in the country. An Obama State of the Union speech is about one thing: the Obama project.

Fox News:

• Treasury nominee Lew pressed on $1M bonus from bailed-out firm. (video) Treasury secretary nominee Jack Lew was challenged Wednesday over a nearly $1 million bonus he accepted from Citigroup just as the company was getting bailed out by the government, at an at-times tense confirmation hearing on the Hill. 

MarketWatch.com:

• Eight states join lawsuit challenging Dodd-Frank. Lawsuit: System to dismantle a big failing bank is unconstitutional.

CNBC: 

• American and US Airways Merger Create World's Largest Airline.

• Big Investors Lead Bets Against Junk Bonds. Some of the world's most sophisticated credit investors have been ramping up their bets against junk bonds even as retail investors have been pouring money into the asset class. The list of junk-bond bears includes GSO, the credit arm of Blackstone; Apollo Global Management; Centerbridge Partners; Oaktree Capital; and a host of credit and so-called "macro" hedge funds, according to executives familiar with the firms' investment activities.

Zero Hedge: 

• Greek Consumers Most Pessimistic On Earth: 40% Have No Disposable Income. 

• Japan Refuses To Exit Triple-Dip Recession As Q4 GDP Disappoints Expectations Of A Positive Print. (graph)

• Six More Equity Offerings Price After The Close As The Greater Fools Start Getting Second Thoughts.

• Meet Stingray Surveillance: The "Unconstitutional, All-You-Can-Eat Data Buffet".

Business Insider:

• Warren Buffett's Favorite Valuation Metric Has Breached The 100% Level. (graph)

• CITI(C): Stock Market Sentiment Is Perilously Close To All-Out Euphoria. (graph)

• Navy SEAL Chris Kyle Had A Funeral Procession Fit For A Head Of State [VIDEO].

• ACKMAN: 'If The FTC Misses Herbalife(HLF) It's The Equivalent Of The SEC Missing Madoff'.

• CITI(C): OPEC's Days Look Numbered.

NY Times:

• Seeking Growth, Nurses’ Union Links to Teachers’ Union. One of the nation’s largest nurses’ unions — the National Federation of Nurses — plans to announce on Thursday that it will affiliate with the far larger American Federation of Teachers. Barbara Crane, the president of the nurses’ federation, said her group’s national board voted to join forces with the teachers’ union to give the nurses more political clout and money to try to unionize more nurses.

Reuters: 

• MetLife(MET) profit falls on derivative losses; operating profit beats. MetLife Inc reported a 90 percent fall in quarterly profit on derivative losses linked to its credit spreads but the largest U.S. life insurer's operating profit beat estimates. MetLife, heavily exposed to persistently low interest rates, has long had a substantial derivatives program designed to smooth out that risk. But higher interest rates, foreign currency changes and impact of the company's credit spreads resulted in derivative net losses of $924 million, after tax, in the quarter. The company recorded derivative net gains of $351 million a year earlier.

• Whole Foods(WFM) store sales soften, shares fall. Whole Foods Market Inc, the largest U.S. natural and organic grocery chain, said on Wednesday that sales at established stores so far this quarter softened from the prior period and its shares fell 6.1 percent after the close. 

• Cisco(CSCO) results beat Street; CEO sees challenge in Europe. Cisco Systems Inc's quarterly results topped Wall Street views on Wednesday amid early signs tech spending was on the mend, but CEO John Chambers warned the picture was mixed and parts of Europe remained challenging. The company's shares were down 1.7 pct in after hours trading after Cisco reported that revenue growth in Europe - which accounts for a quarter of its business - was down 5 percent.

• Weight Watchers(WTW) forecasts weak full-year earnings; shares fall. Weight Watchers International Inc forecast full-year earnings below Wall Street expectations as attendance at its diet meetings remained low so far this year, sending its shares down more than 15 percent after the bell. 

• Engineers union files complaint, accuses Boeing(BA) of intimidation. A union representing engineers and technical workers at Boeing Co filed a complaint with the National Labor Relations Board accusing the airplane maker's security personnel of stopping union members from distributing leaflets on a labor contract ballot at the Everett factory. 

• Pressure builds for Keystone decision after Obama speech. Environmentalists and industry groups ramped up efforts on Wednesday to influence the White House's decision on the Keystone XL pipeline project, a day after President Barack Obama said he would take action to curb climate-warming emissions. 

• Applied Materials(AMAT) forecasts strong quarter as orders pick up. Applied Materials Inc, the world's largest chip gear maker, posted better-than-expected quarterly results driven by the popularity of smartphones and tablets, and forecast earnings ahead of analysts' estimates for the current quarter. 

• Nvidia(NVDA) revenue outlook misses, PC and tablet chips slow. Nvidia gave a revenue outlook for the current quarter that missed expectations, pointing to a slowing PC industry and slower production of tablets using its chips ahead of the release of newer models.

• Obama Medicare rebate plan could hurt drug companies. President Barack Obama's decision to spotlight drug rebates as a way to save money on Medicare is likely to be opposed by the pharmaceutical industry, which could potentially lose billions of dollars in profits.

Financial Times:

• US authorities widen SAC Capital probe. US authorities are expanding their investigation into potential insider trading involving SAC Capital , the $14bn hedge fund, to include more stocks than previously identified, people familiar with the matter said. The probe by the Federal Bureau of Investigation and the US attorney’s office in Manhattan has widened to include at least four and as many as six more stocks, these people said. 

Telegraph:

• In the last three years UK inflation has eroded a decade of economic growth, and worse is to come.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.25%  to +.50% on average.

• Asia Ex-Japan Investment Grade CDS Index 111.0 -.5 basis point.

• Asia Pacific Sovereign CDS Index 85.50 -1.0 basis point.

• FTSE-100 futures +.07%.

• S&P 500 futures +.03%.

• NASDAQ 100 futures -.05%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (ALXN)/.53

• (REGN)/1.37

• (JAH)/1.26

• (CAB)/1.21

• (BWA)/1.14

• (VMC)/-.12

• (PEP)/1.05

• (DISCA)/.76

• (APA)/2.29

• (A)/.67

• (TAP)/.64

• (SPW)/1.56

• (GM)/.51

• (DTV)/1.15

• (STRA)/1.44 

Economic Releases
8:30 am EST

• Initial Jobless Claims are estimated to fall to 360K versus 366K the prior week.

• Continuing Claims are estimated to fall to 3205K versus 3224K prior. 

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Bullard speaking, G-20 Meeting, China FDI, BoJ decision, 30Y T-Note auction, weekly EIA natural gas inventory report, Bloomberg Feb. US Economic Survey, weekly Bloomberg Consumer Comfort Index, (JDSU) analyst day, (TEN) analyst meeting and the (OI) investor day could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.