Stocks Slightly Higher into Final Hour on Asian Gains, Short-Covering, Biotech/REIT Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Slightly Higher
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 15.11 -1.18%

• Euro/Yen Carry Return Index 145.37 -.13%

• Emerging Markets Currency Volatility(VXY) 9.32 -.43%

• S&P 500 Implied Correlation 52.53 -.42%

• ISE Sentiment Index 131.0 unch.

• Total Put/Call .89 +9.88%

• NYSE Arms 1.51 +108.01% 

Credit Investor Angst:

• North American Investment Grade CDS Index 67.75 +.15%

• European Financial Sector CDS Index 94.0 +.21%

• Western Europe Sovereign Debt CDS Index 53.0 unch.
• Asia Pacific Sovereign Debt CDS Index 108.61 -2.19%

• Emerging Market CDS Index 327.53 +2.03%

• China Blended Corporate Spread Index 362.29 +.11%
• 2-Year Swap Spread 12.0 -.25 basis point

• TED Spread 17.75 +2.0 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -4.0 +.75 basis point

Economic Gauges:

• 3-Month T-Bill Yield .06% -2.0 basis points

• Yield Curve 237.0 unch.

• China Import Iron Ore Spot $120.80/Metric Tonne -.08%

• Citi US Economic Surprise Index 24.60 +1.0 point

• Citi Emerging Markets Economic Surprise Index 12.40 +1.5 points

• 10-Year TIPS Spread 2.18 +1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating -73 open in Japan

• DAX Futures: Indicating +11 open in Germany

Portfolio: 

• Slightly Higher: On gains in my tech/medical/biotech sector longs and emerging markets shorts

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg: 

• China Watchdog Said to Tell Small Banks to Set Aside Fund. China’s banking regulator ordered some of the nation’s smaller lenders to set aside more funds to avoid a cash shortfall, three people with knowledge of the matter said, signaling rising concern that defaults may climb. China Banking Regulatory Commission branches asked some city commercial banks and rural lenders to strengthen liquidity management this year, the people said, asking not to be identified because the matter is confidential. Different requirements are being instituted by province, such as quarterly stress tests, after CBRC studies last year showed increasing risks at those lenders, the people said.

• Junk Yield Premiums Soar on China’s Looming First Default. The extra cost to borrow for China’s riskiest companies is at the highest in 20 months as soaring interest rates heighten concern the nation will experience its first onshore bond default. The yield gap on five-year AA- notes over AAA debt jumped 27 basis points last month to 224, the most since June 2012, Chinabond indexes show. Ratings of AA- or below are equivalent to non-investment grades globally, according to Haitong Securities Co., the nation’s second-biggest brokerage. The similar spread in the U.S. is 403 basis points, Bank of America Merrill Lynch data show. 

• EU Struggles With One Ukraine Policy Amid Default Warning. European Union leaders are struggling to come up with a united policy toward Ukraine as anti-government protesters warn that President Viktor Yanukovych is leading the nation toward default. 

• European Stocks Are Little Changed as L’Oreal, Nokia Rise. European stocks were little changed as L’Oreal SA and Nokia Oyj rallied, offsetting worse-than-forecast reports on industrial production in France and Italy. L’Oreal jumped the most since May 2010 as Nestle SA (NESN) was said to explore ways to reduce its 29 percent stake in the biggest cosmetics maker. Nokia advanced 2.8 percent after HTC Corp. agreed to pay it royalties as part of a patent-row settlement. Securitas (SECUB) AB fell 1.5 percent after reporting quarterly profit that missed projections. The Stoxx Europe 600 Index gained less than 0.1 percent to 325.3 at the close in London.

• Gold, Silver Futures Head for Longest Rally Since August. Gold has climbed 6 percent this year amid currency turmoil in emerging markets, while about $1.63 trillion has been erased from the value of global equity markets. The metal rose 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system. Janet Yellen, the new chairman, will deliver her first testimony to Congress tomorrow. “The safe-haven premium is back with growth concerns re-emerging,” Bart Melek, an analyst at TD Securities in Toronto, said in a telephone interview. “Tomorrow, people will be watching Yellen’s determination to continue with tapering.” Gold futures for April delivery rose 1 percent to $1,275 an ounce at 11:30 a.m. on the Comex in New York. The price has climbed for the fourth straight session, the longest rally since Aug. 12. Silver futures March delivery advanced 0.8 percent to $20.095 an ounce. The metal climbed for the sixth straight session, the longest rally since Aug. 16. 

• U.S. Winter Storm Seen Spreading Snow, Sleet Across South. Georgia’s governor declared a state of emergency for 45 counties and Atlanta canceled classes for tomorrow and the next day as a winter storm neared, less than two weeks after a system stranded thousands of people in cars, buses and schools. The region may get 1 to 3 inches (2.5 to 7.5 centimeters) of snow and ice over the next three days as the storm moves from Texas to the Atlantic Ocean, according to the U.S. National Weather Service. Sleet and snow will begin falling late today or early tomorrow, the agency said.

• VIX Traders Pile Into S&P 500 Rebound Bets as Puts Jump: Options. Traders are making unprecedented use of the options market to bet on a rebound in U.S. stocks. Ownership of puts on the Chicago Board Options Exchange Volatility Index reached a record 3.2 million on Feb. 6, according to data compiled by Bloomberg. Money poured into the bets against the VIX (VIX) after the gauge, used by investors as insurance against share losses because it rises when equities fall, climbed to a 13-month high of 21.44 last week before collapsing to 15.29 by Feb. 7. The trading shows some investors have been unconvinced that turmoil in emerging markets and signs of slowing growth in the U.S. and China would spur lasting declines in the Standard & Poor’s 500 Index.

• 'Doc Shock' Reaches the Masses. In December, I predicted that “doc shock” was going to be a major problem for the U.S. health-care overhaul, as people found out that the narrow networks insurers use to keep premiums low often don’t cover the top-notch doctors you’d like to see if you get really sick:

Wall Street Journal: 

• Rising Borrowing Costs Pose Risks in China. Borrowing costs for Chinese companies are rising strongly, a shift that could herald weaker corporate profits, slower economic growth and even the first defaults by increasingly indebted corporations on the mainland. Driven by a surge in borrowing in recent years, Chinese companies amassed an estimated $12.1 trillion worth of debt at the end of last year, according to Standard & Poor's. That compares with an estimated $12.9 trillion for U.S. businesses, now the world's most indebted. The ratings company estimates that debt at Chinese companies is poised to exceed the U.S. total this year or next. "The leverage in the corporate sector is already very high and does pose a latent risk to the entire economy," said Shuang Ding, an economist at Citigroup Inc. C -0.18% Challenges for companies are mounting as the government tightens credit and investors demand higher yields to fund borrowers.

MarketWatch: 

• What’s unnerving about the S&P 500′s pullback this year.

CNBC: 

• US takes India to task—and court—over solar subsidies. The United States plans to take India to the World Trade Organisation over subsidies New Delhi gives to its solar power industry, an Indian government source said on Monday, a step that could further strain relations between the countries.

• What Congress is likely to hear from Yellen.

ZeroHedge:

• Bitcoin Flash Crashes, Drops By 80% In Seconds.

• America's Make-Work Sectors (Healthcare & Higher Education) Have Run Out of Oxygen. (graph)

• On The Lessons 'Economists' Fail To Learn.

• "Breathtaking" Corruption In Europe.

• TSLA(TSLA) Surges To Record High; Two-Thirds Of GM's Enterprise Value. 

• JPMorgan(JPM) Sued For Crony Justice - Presenting "A Decade of Illegal Conduct by JP Morgan Chase".

Business Insider:

• America's Policy Disaster In Syria: We Can Stop Pretending Now.

• The Rise Of Foreign Assets In US Portfolios Since 1945. (graph)

• RBS CEO: We Sold Customers Things They Didn't Need, And We 'Literally And Metaphorically' Put Them At The Back Of The Line.

• 'Selfies With Homeless People' Is The Latest Vile Teen Trend To Get Its Own Tumblr.

• Carl Icahn Gives Up On Apple(AAPL) Buyback Plan.

CNN:

• Source: U.S. debating targeted killing of American terror suspect overseas. The Obama administration is in high-level discussions about staging an operation to kill an American citizen involved with al Qaeda and suspected of plotting attacks against the United States, a senior U.S. official tells CNN.

Reuters: 

• Mexico auto production rose 2.7 pct in Jan, exports down 0.4 pct. Mexican auto production rose while exports fell in January, the Mexican Auto Industry Association (AMIA) said on Monday. Production rose 2.7 percent to 249,400 vehicles while exports dropped 0.4 percent to reach 177,928 units during the month, AMIA said.

• Europe, China help McDonald's offset soft U.S. sales in January. McDonald's Corp on Monday reported better-than-expected global sales at established restaurants for January as gains in Europe and China helped the company offset weak numbers in United States, where customers remained cautious in their spending.

Great Wisdom:

• China CBRC to Curb LGFV Non-Standardized Loans. China Banking Regulatory Commission told lenders to rein in "non-standardized loans" to local government financing vehicles this year at a regulatory meeting after Chinese lunar New Year, citing a person familiar with the matter.

Bear Radar

Style Underperformer:

• Small-Cap Value -.45%

Sector Underperformers:

• 1) Education -2.45% 2) Homebuiders -2.014% 3) Steel -1.50%

Stocks Falling on Unusual Volume:

• BWP, CYOU, MDCO, SOHU, BYI, CLFD, CIB, L, SFUN, NKA, TYL, DGLD, NSP, MWIV, ACIW, SNA, CI, PDFS, LIN, MTCN, AMG, MCY, GM, TDW, RYL, EGOV, TTI, CZR, L, LQDT, MDCO, ACIW and EHTH

Stocks With Unusual Put Option Activity:

• 1) IGT 2) BKS 3) JWN 4) Z 5) HES
  

Stocks With Most Negative News Mentions:

• 1) MCD 2) MO 3) AIG 4) COH 5) JLL
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Growth -.01%

Sector Outperformers:

• 1) Gold & Silver +2.27% 2) Medical Equipment +.44% 3) Agriculture +.37%
  

Stocks Rising on Unusual Volume:

• AMAP, HAS, GALT, ITMN, KNDI, ICPT, FEYE, CDE, HAS, GTAT and YELP

Stocks With Unusual Call Option Activity:

• 1) SWY 2) IRM 3) ANGI 4) NFX 5) CCI

Stocks With Most Positive News Mentions:

• 1) BA 2) MCD 3) DKS 4) LUV 5) TD
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Monday Watch

Weekend Headlines 
Bloomberg:

• Hong Kong Students Clear Barricades as Crisis Talks Start. Pro-democracy protesters allowed civil servants to enter Hong Kong’s government offices as demonstrations that had paralyzed parts of the city for 10 days thinned after the start of talks with student leaders. Civil servants started entering offices from at least 7 a.m. after protesters who had besieged the buildings cleared some barricades yesterday. The move followed an ultimatum from the city’s leader to open the site where 3,000 people work by today or face possible police action.
• Ukraine Prepares for East Buffer Zone With Artillery Vow. Ukrainian troops prepared to set up a buffer zone to cement a monthlong truce between them and the pro-Russian separatists they’ve been battling for half a year. While the government said some insurgents are continuing to violate the truce and reported the deaths of two soldiers, the military declared a complete halt to artillery fire. The move is a precursor to an army pullback to help create a demilitarized zone, President Petro Poroshenko said. An international commission is determining the boundaries of the no-fire area. 
• World Bank Cuts Developing East Asia 2015 GDP Forecast. The World Bank lowered its forecasts for growth in developing East Asia this year and next as China’s expansion moderates and policy makers brace for tighter global monetary conditions. The region is forecast to grow 6.9 percent in 2014 and 2015, down from 7.1 percent projected in April, the Washington-based lender said in its East Asia and Pacific Economic Update released today. China will expand 7.4 percent this year and 7.2 percent next year, compared with 7.6 percent and 7.5 percent previously forecast, the report showed.
• Neves to Face Rousseff in Brazil in Surprise Comeback. Aecio Neves pulled off a surprise second-place finish to force a runoff with Brazilian President Dilma Rousseff, pitting a candidate favored by investors against an incumbent who says the end of her party’s 12-year rule threatens policies that pulled 35 million out of poverty. The incumbent of the Workers’ Party, or PT, has 41 percent of the votes, followed by Neves of the Brazilian Social Democracy Party, known as PSDB, with 34 percent and Marina Silva with 21 percent, Brazil’s Superior Electoral Court reported based on 97 percent of ballots counted.
• Seven Economic Shifts Underlying Hong Kong’s Divide With Beijing. Underlying the test to China’s control of Hong Kong with pro-democracy protests over the past 10 days are economic tensions that have fueled social unease and concern over the city’s place within the nation. Without the release valve of free elections to vent their frustration, demonstrators have taken their anger towards what they perceive as an unrepresentative government to the streets.
• Asian Stocks Rise on U.S. as Hong Kong Swings; Gold Falls. Asian stocks rose, rebounding from a six-day slide in the regional index, while Hong Kong shares fluctuated as protesters in the city vowed to fight on. The dollar was near a four-year high after American payrolls data and gold slid to a 2014 low as platinum and palladium tumbled. The MSCI Asia Pacific Index added 0.5 percent by 11:36 a.m. in Tokyo, as Japan’s Topix index jumped 1.3 percent after the yen’s biggest drop for 2014 on Oct. 3.
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Wall Street Journal:

• Hong Kong Protests Enter New Phase. Police Show No Signs of Clearing Protest Areas With Force. This city’s government met for the first time late Sunday with student leaders in an effort to resolve a political stand-off that has paralyzed three commercial districts here, while fears of a crackdown eased at the main protest site outside government headquarters Monday morning. As dawn broke on the protest sites Monday, protesters were mostly asleep on the roads. Police were standing back and taking no action to enforce an earlier threat to clear the areas.
• BHP(BHP) Plows Ahead on Iron-Ore Production. Shakeout Is Possible, With Further Pressure on Already-Falling Prices.
• Weak Export Growth Raises Prospect of Currency Moves. Sluggish Global Trade Growth Is Tempting Officials to Devalue Their Currencies to Jump-Start Economies.
• The Next Front Line in the Islamic State Onslaught. Lebanon’s precarious state has worsened as ISIS beheads citizens and holds hostage Lebanese troops and police.

Barron's:

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MarketWatch.com:

• Becton Dickinson(BDX) to buy CareFusion(CFN) for $12.2 billion. 
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Fox News:

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CNBC:

• HP(HPQ) returns to breakup plan it shelved three years ago.
• Time to buy insurance on an ‘unsustainable’ market?
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Zero Hedge:

• Why The Chinese Admire "Putin The Great".
• During An Ebola Pandemic All Of Your Rights Would Essentially Be Meaningless.
• "Off The Grid" Indicators Suggest US Economy Anything But On Solid Ground. (graph)
• Market Breadth Has Collapsed Around The World. (graph)
• Risky Asset Outflows Surge Again As "Up-In-Quality" Rotation Accelerates. (graph)
• US Vacancy Rate Rises For First Time Since 2009 In Wake Of Apartment Building Construction Surge.
• Putin Rules Out Capital Controls As Ruble Hits Record Lows, "Curbs Risk" By Shifting To Non-Dollar Settlements.
• 5 Things To Ponder: Motley Cognizance. (graph)
• Low-Volume Melt-Up Fails To Stall Small Caps Worst Streak In Over 2 Years. (graph)
• Thousands Sign Petition To Ban Flights From Ebola Countries; Two Removed From Newark Airplane By Hazmat Crew.
• Violence Erupts As Hong Kong's Leader Threatens To Use "All Necessary Measures To Restore Social Order".
• Bridgewater Warns Low Volatility Markets "Sow The Seeds Of Their Own Demise". (graph)
• Here We Go Again: Greece Will Be In Default Within 15 Months, S&P Warns.
• Obama's Economic Recovery In Pictures.
• Citi Warns "The Land Of The Rising Sun Is Setting". (graph)
• OccupyCentral Protesters End Government Building Blockade After Hong Kong Police Unleash Tear Gas, Pepper Spray "To Avoid Injuries". (pic)
• Jim Grant: We’re In An Era Of "Central Bank Worship".
• Game Over Abenomics: "This Week Japan Will Acknowledge It Is In Recession", Goldman Reveals.
• Analysts Are Slashing Guidance Ahead Of Q3 Earnings Results. (graph)
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ValueWalk:

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Business Insider:

• Saudi Arabia Is Losing Its Grip On Oil.
• ISIS Is Now Threatening To Execute A Former US Army Ranger.
• The Communist Party Is Facing Its Toughest Challenge Since 1989.
• The UN Says Iraq Slave Markets Sell Women For $10 To Attract ISIS Recruits 
• Everybody Is Panicking At America's 'Ground Zero' For Ebola.
• REPORT: 'Russians' Behind Huge JPMorgan Cyberattack.
• A New Gossip App Called 'Streetchat' Has Teens Throwing Up Their Hands: 'What The Heck Is Wrong With Us?'.
• US NURSES: We're Not Prepared To Handle Ebola Patients.
• Hong Kong Protesters Remain In The City Center Amid Warnings Of A Crackdown.
• ISIS Is Getting Dangerously Close To Baghdad International Airport.
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Wall Street All-Stars:

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CNN:

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NY Times:

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Washington Post:

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Reuters:

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Seeking Alpha:

Financial Times:

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Telegraph:

• Robots replace humans in mines as commodity slump forces cost cuts. Major mining firms could have converted around 40pc of their machinery to operate autonomously by the end of the decade.
• Hans-Werner Sinn: eurozone doomed to 'decade of crises'. Hans-Werner Sinn, the president of the respected Ifo think-tank, says France could put the future of the single currency at risk and warns that the Ukrainian crisis threatens to trigger a "triple-dip depression" in parts of the bloc.

BBC:

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Focus:

• Bundesbank's Weidmann Warns of ECB Taking ABS Credit Risk. ECB risks being offered lower-quality asset-backed securities, Bundesbank President Jens Weidmann quoted by Focus magazine as saying. The ECB is at risk of overpaying, he said.

Handelsblatt:

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Sueddeutsche Zeitung:

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To Vima:

• ECB Measures Will Have Limited Impact, Ackermann Says. Recent liquidity-enhancing steps by ECB, including TLTRO program, ABS purchases will have limited impact as stand-alone measures, former Deutsche Bank CEO Josef Ackerman cited as saying in interview. ECB's policy tools are exhausted, he said. It rests up euro area national govts to implement structural reforms that will kick-start private investment, Ackermann said. US-style quantitative easing not likely in euro area due to political difficulties. The Federal Reserve may start raising rates in 1Q, instead of 2Q currently projected, and faster than currently anticipated, he said.

Folha de Sao Paulo:

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Nikkei:

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Kyodo:

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China Securities Journal:

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China Daily:

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Xinhua:

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Shanghai Securities News:

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Financial News:

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Al-Arabiya:

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Weekend Recommendations

Barron's:

• Bullish commentary on .

• Bearish commentary on .

Night Trading

• Asian indices are -.25% to +.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 96.0 -2.0 basis points.

• Asia Pacific Sovereign CDS Index 70.0 -1.75 basis points.

• FTSE-100 futures +.18%.

• S&P 500 futures +.27%.

• NASDAQ 100 futures +.31%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CAMP)/.19
• (TCS)/.11
• (TISI)/.34

Economic Releases

• None of note

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's George speaking, RBA decision, German Factory Orders, (ADBE) analyst briefing, (BKH) analyst day and the (CDE) investor day could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and consumer shares in the region. I expect US stocks to open modestly higher and to maintain gains into the afternoon. The Portfolio is 75% net long heading into the week.

Weekly Outlook

Wall St. Week Ahead by Reuters.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week mixed as rising global growth fears, increasing emerging markets debt angst and technical selling offset a weaker yen, short-covering and lower long-term rates. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 75% net long heading into the week.