Stocks Slightly Higher into Final Hour on Less European/Emerging Markets Debt Angst, Central Bank Hopes, Oil Bounce, Commodity/Gaming Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Higher
  

• Sector Performance: Mixed
  

• Volume: Slightly Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 15.21 -.85%

• Euro/Yen Carry Return Index 141.26 -.38%

• Emerging Markets Currency Volatility(VXY) 11.16 -1.41%

• S&P 500 Implied Correlation 64.02 +.38%

• ISE Sentiment Index 110.0 -14.06%

• Total Put/Call .98 +13.95%

• NYSE Arms .89 +37.80% 

Credit Investor Angst:

• North American Investment Grade CDS Index 65.23 -1.27%
• America Energy Sector High-Yield CDS Index 709.0 -1.28%

• European Financial Sector CDS Index 63.96 -2.81%

• Western Europe Sovereign Debt CDS Index 26.44 -2.07%
• Asia Pacific Sovereign Debt CDS Index 68.21 unch.

• Emerging Market CDS Index 366.93 -1.68%

• iBoxx Offshore RMB China Corporates High Yield Index 113.32 +.02%
• 2-Year Swap Spread 26.75 unch.

• TED Spread 25.25 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -20.75 unch.

Economic Gauges:

• 3-Month T-Bill Yield .01% unch.

• Yield Curve 138.0 +2.0 basis points

• China Import Iron Ore Spot $63.19/Metric Tonne +1.48%

• Citi US Economic Surprise Index -37.20 -.3 point
• Citi Eurozone Economic Surprise Index 43.70 +12.6 points

• Citi Emerging Markets Economic Surprise Index -8.80 -.6 point

• 10-Year TIPS Spread 1.69 +2.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating +165 open in Japan

• DAX Futures: Indicating +7 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:     

• EU Warns Russia of More Sanctions. (video)

• Greece Locked in Talks With Creditors in Search for Compromise. Greece and its official creditors are extending talks over the weekend aimed at reaching a deal at a Monday meeting of finance ministers in Brussels on future financing for Europe’s most-indebted country. Greece’s new anti-austerity government led by Alexis Tsipras wants to exit the current bailout program, which it blames for the country’s economic hardships, and replace it with a new plan while obtaining bridge financing to avoid defaulting on its international debt. The plan, which would include raising wages and reinstating government workers, is not getting much support from the country’s creditors. “You can only spend money when you have it,” Dutch Finance Minister Jeroen Dijsselbloem, who also presides over euro-area finance ministers’ meetings, told reporters in The Hague on Friday. “Greece wants a lot but has very little money to do that. That’s really a problem.”   

• Italy's Economy Fails to Rebound. Italy’s economy stagnated in the three months through December, failing to rebound from its longest recession on record. Gross domestic product was unchanged from the previous quarter when it dropped 0.1 percent, national statistics institute Istat said in a preliminary report in Rome Friday. The median forecast in a Bloomberg News survey of 19 economists called for a drop of 0.1 percent. From a year earlier, GDP fell 0.3 percent.

• European Stocks Advance With DAX as German Economy Accelerates. European stocks climbed with Germany’s DAX Index after a report showed the nation’s economy accelerated. The Stoxx Europe 600 Index added 0.6 percent to 377.07 at the close of trading, paring gains of as much as 0.8 percent.

• Wall Street’s Bond Dealers Brace for Top-Rated Credit to Tumble. Wall Street’s biggest bond dealers are finding less and less to like about top-rated U.S. corporate bonds. So much so that they’re betting against some of them, with primary dealers turning the most bearish in 2015 on debt maturing in five to 10 years last week, Federal Reserve data show. The detail on banks’ more-granular positions only covers January and February because the Fed just started reporting it. In any event, it appears the fervent flight to the safety of high-quality corporate debt is coming to an abrupt end.

• U.S. Rigs Are Being Idled, but the Oil Boom Is Not Ending. The U.S. drilling frenzy is over. What’s not is the boom in oil production. While companies have idled 151 rigs in five shale formations since reaching a peak of 1,157 in October, they’ll need to park another 200 for growth to stall, according to data from the U.S. Energy Information Administration. Output there will reach a record 5.47 million barrels a day in March even though the number of rigs exploring for oil is the lowest since 2013.

Wall Street Journal: 

• Nigerian President Wants U.S. Troops to Fight Boko Haram. Goodluck Jonathan Says Militants Have Ties to Islamic State. President Goodluck Jonathan said Friday that he has asked the U.S. military to dispatch troops to northern Nigeria, the region where Islamist militants have captured territory, suggesting that Boko Haram had established links with Islamic State.

ZeroHedge:

• Patriot Act 2: Obama Executive Order Will Promote Sharing Of Confidential Information With Corporations.

• Fighting Rages After Ukraine "Ceasefire" Deal; Ukraine Ultranationalist Leader Rejects Peace Agreement.

• Chart Of The Day - Europe. (graph)

• 300 US Troops In Iraq Under "Severe Threat" After ISIS Seizes Nearby Town.

• UMich Consumer Confidence Tumbles, Biggest Miss On Record. (graph)

• China Creates Most Loans Since Lehman As M2 Growth Tumbles To Record Low. (graph)

• Global Deflation Exports To US Send Import Prices Tumbling Most Since Lehman. (graph)

Business Insider:

• Argentine President Kirchner is being formally investigated for alleged cover-up of 1994 bombing.

• 3 events Brian Williams is suspected of lying about.

• A major investment bank says Labour will 'seriously interfere with the private sector' and turn the UK into France if it wins the election.

• Here are the loopholes in the Ukraine peace agreement.

• Look at the world from Putin's perspective, and he is clearly winning.

@LOggOl:

• LARGE RUSSIAN MILITARY CONVOY SEEN MOVING TOWARDS UKRAINE, CRIMEA RESIDENTS SAY.

AFP:

• Dijsselbloem 'pessimistic' about a quick deal with Greece. "At this stage I'm very pessimistic about it," Dijsselbloem told the NOS public broadcaster when asked whether he thought concrete steps will be taken on Monday at the talks between Greece and its fellow single currency countries in the Eurogroup. "The Greeks have sky-high ambitions. The possibilities, given the state of the Greek economy, are limited," said Dijsselbloem, who is the Dutch finance minister, ahead of a cabinet meeting on Friday.

@Conflict_Report:

• conomic conditions are “getting closer and closer to those where it makes sense to really start thinking seriously about starting this process of normalization,” Williams told the FT in an interview.
  The newspaper said Williams said the Fed might have to hike borrowing costs "much more dramatically" than otherwise if it waited too long, saying it was better to move sooner and raise rates "gradually, thoughtfully." - See more at: http://www.thefiscaltimes.com/latestnews/2015/02/10/Feds-Williams-says-rate-hike-getting-closer-and-closer-FT#sthash.8HLK2bPs.dpuf
  Economic conditions are “getting closer and closer to those where it makes sense to really start thinking seriously about starting this process of normalization,” Williams told the FT in an interview.
  The newspaper said Williams said the Fed might have to hike borrowing costs "much more dramatically" than otherwise if it waited too long, saying it was better to move sooner and raise rates "gradually, thoughtfully." - See more at: http://www.thefiscaltimes.com/latestnews/2015/02/10/Feds-Williams-says-rate-hike-getting-closer-and-closer-FT#sthash.8HLK2bPs.dpuf
  Creating a pretext for a prolonged war – Russians launch massive missile attack on Luhansk.

Telegraph:

• Germany's surprise growth spurt leaves slowing France behind. GDP growth in the eurozone's two economic giants diverged in the final quarter of the year, with German GDP growth picking up while the French economy ground to a halt

The Guardian:

• Minsk ceasefire in balance while fighting continues in eastern Ukraine. Intense fighting continued near two cities in eastern Ukraine on Friday, raising further doubts about whether a ceasefire deal agreed in Minsk has any chance of success. According to the Minsk plan the ceasefire will start on Sunday but, rather than abating, the conflictappeared to escalate on Friday.

Bear Radar

Style Underperformer:

• Mid-Cap Value -.36%

Sector Underperformers:

• 1) Utilities -2.30% 2) Homebuilders -.92% 3) I-Banks -.73%

Stocks Falling on Unusual Volume:

• SFLY, PRO, AXP, KN, BT, HPY, TCO, DVA, RRGB, CQP, AIZ, BCOR, SSTK, SIR, CUDA, MRKT, RSG, AAP, SDRL, PNRA, AMBA, HOLI, CAG, IPHI, WM, OPK, EXC, DTE, IRWD, DLR, BCOR, UBNT and TCO

Stocks With Unusual Put Option Activity:

• 1) SMH 2) XLI 3) CELG 4) AXP 5) GREK

Stocks With Most Negative News Mentions:

• 1) GPS 2) CI 3) WM 4) FIVE 5) MOV
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Mid-Cap Growth +.32%

Sector Outperformers:

• 1) Gaming +2.58% 2) Oil Service +2.34% 3) Steel +2.28%
  

Stocks Rising on Unusual Volume:

• COLM, CYBR, KING, JCOM, ELLI, WWE, VDSI, FEYE, WWWW, FSL, IRE, BIDU, SKYW, VFC, WAC, FET, HOS, LOGM, SSI, ITT, EGN and WBC

Stocks With Unusual Call Option Activity:

• 1) HZNP 2) CERN 3) FNSR 4) NLY 5) SYMC
  

Stocks With Most Positive News Mentions:

• 1) IPG 2) CAB 3) KING 4) COLM 5) FLR
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Friday Watch

Evening Headlines 
Bloomberg:  

• Putin's High Tolerance for Pain and Europe's Reluctance to Inflict It. As a cease-fire emerges in Ukraine that gives Putin a lot of what he wants, the comments are a reminder of how the country remains trapped between the weight of Russian history and the force of European economics. In this squeeze, Putin’s narrative backed by Cold War memories is coupled with leaders unwilling to blow up ties with a major trading partner and energy supplier.“ Some EU member states just don’t care that much about Ukraine,” Paul Ivan, a former Romanian diplomat now with the European Policy Centre in Brussels, said this week. “There are countries with historical ties and good relations with Russia, and for some others they think they’re far away from Ukraine and they’re willing to compromise that country’s territorial integrity for their own economic interests.”

• EU Stands by Sanctions on Russia After Ukraine Truce Sealed. European leaders said Russia will have to wait for relief from economic sanctions, reflecting concern that Thursday’s cease-fire agreement will only mark a pause in the war that has devastated eastern Ukraine. The accord was struck after more than 18 hours of non-stop talks between Ukrainian President Petro Poroshenko, his Russian counterpart Vladimir Putin, German Chancellor Angela Merkel and French leader Francois Hollande. It envisages a truce from midnight at the start of Feb. 15 and reaffirms some commitments from a failed September bid to end the conflict that has devastated eastern Ukraine. The collapse of previous cease-fires has stoked doubts as to whether this one will hold. Ten months of fighting have killed more than 5,000 people, crushed Ukraine’s economy and propelled Russia toward a recession through U.S. and European sanctions. European Union sanctions -- whether to ease or stiffen them -- remained off the agenda for a summit in Brussels, with the bloc awaiting proof the truce is holding.  

• China Money Rate Set for Longest Run of Weekly Gains Since 2013. The seven-day repurchase rate, a gauge of interbank funding availability, climbed for a fifth week, adding 27 basis points to 4.62 percent as of 10:26 a.m. in Shanghai, according to a weighted average from the National Interbank Funding Center. The rate fell one three basis point Friday.

• Too Many Car Factories in China? Automakers have been successful at adding factories. Maybe too successful. Domestic and foreign-based carmakers are building more factories in China than anywhere else, a construction binge that risks hurting margins in what remains one of the world’s most profitable vehicle markets. By 2017 there will be 140 car production plants in China, vs. 123 at the end of 2014, estimates JSC Automotive Consulting. According to IHS Automotive forecasts, factories across the mainland in 2015 will be able to build 10.8 million more vehicles than will be sold in Greater China. In North America, however, IHS expects plants to churn out about 3.2 million more cars this year than the factories were intended to produce when they were built.  

• Collateral Damage From China's Antigraft Drive. Drooping sales of prepaid cards are hurting retailers.
  

• Asian Stocks Advance With Emerging Currencies; Yen Gains. Asian stocks climbed with emerging-market currencies after a ceasefire deal in Ukraine and signs of compromise on Greece’s debt negotiations. The yen held gains on bets that the Bank of Japan will refrain from additional stimulus. The MSCI Asia Pacific Index added 0.7 percent by 12:13 p.m. in Tokyo, as mining and energy shares drove Australia’s S&P/ASX 200 Index toward its highest close since May 2008.

• U.S. Yield Increase in February Hurts Bondholders to Homebuyers. From bondholders to home buyers, this month’s jump in Treasury yields is starting to bite. U.S. government debt has fallen 1.9 percent in February, headed for the biggest monthly loss since May 2013, based on Bloomberg World Bond Indexes. U.S. mortgage rates increased this week. Benchmark Treasury yields are climbing as investors prepare for the Federal Reserve to raise interest rates.

Wall Street Journal:

• Ukraine Peace Talks Yield Cease-Fire Deal. Leaders Caution There Is Much to Do to Ensure Truce Holds. Germany and France’s leaders emerged from 17 hours of all-night negotiating with Russian President Vladimir Putin on Thursday with a truce for Ukraine intended to glue together the shards of the last one—but with little confidence in the West that it would.

• Chinese Shake Up Aluminum. Tax Quirks Prompt Smelters to Mask Metal for Export as Processed. A surge in aluminum exports from China is altering market dynamics for one of the world’s most heavily traded commodities. Because of quirks in China’s tax system, the trend involves reshaping the metal itself.

• GOP Contender Walker Draws Wall Street Cash. New York Fundraisers Plan Donor Events for the Wisconsin Governor in the Coming Days. Wall Street is warming up to Wisconsin’s Republican Gov. Scott Walker. Several GOP fundraisers from the financial-services industry and other Manhattan business sectors are hosting donor events for Mr. Walker, a likely presidential candidate, when he visits New York next week.

• Putin’s Latest Victory. The Minsk accord ratifies a Russian satrapy in Ukraine. The last time the Kremlin signed an agreement to end the war in Ukraine—as recently as September—it promised to withdraw “military equipment as well as fighters and mercenaries” from the war zone, ban offensive operations and abide by an immediate cease-fire. In exchange the Ukrainian government granted unprecedented political autonomy to its rebellious eastern regions.

CNBC:

• These EM bonds are vulnerable to king dollar’s reign. Expectations that the Federal Reserve will hike interest rates later this year have powered a rally in the U.S. dollar, and with further gains likely, analyst warn that some dollar-denominated emerging market (EM) debt is vulnerable. "The dollar's appreciation has pushed up the local-currency value of EM debt that is denominated in U.S. dollars, making it harder to service," said Capital Economics' Senior Asia Economist Daniel Martin.

Zero Hedge:

• Financial Markets: Pinocchio’s Enchanted Island. 

• The Central Planners Are Failing Fast. (graph)

• 3 Things - Uncomfortable Facts, 25-54 Employment, Houston RE. (graph)

• Dijsselbloem Pours Cold Water On Greek Compromise: "Don't Get Your Hopes Up".

• VIXnado Sends Stocks Near Record Highs; Crude Jumps, Dollar Dumps. (graph)

• Feds Hold Hearing On Whether They Should ‘Regulate’ Sites Like Zero Hedge.

• The New-Normal Down-Under. (graph)

• Fourth Turning: The Shadow Of Crisis Has Not Passed - Part 3.

• 2015 US Economic Data Is Worst Since 2009. (graph)

• "Independent" Fed Lobbies GOP Against Audit.

Business Insider:

• The collapse of Yemen's government took the US totally by surprise. 

• A third of China's $2.5 trillion corporate bond market is going to be hung out to dry.

• Sources: Marissa Mayer is firing people at Yahoo(YHOO).

Washington Post: 

• Which image of Obama mugging for BuzzFeed’s cameras diminishes the presidency the most, ranked. (pics)

Reuters:

• Euro zone needs radical change, Juncker tells leaders. The euro zone needs fundamental changes to the way it is run or faces endemic unemployment and the trap of low economic growth for years to come, the European Union's chief executive told the bloc's leaders on Thursday. In a presentation, European Commission President Jean-Claude Juncker called for a deepening of the cooperation that underpins the 19-member currency area, despite the reluctance of countries to cede more sovereignty to EU institutions.

AFP:

• EU leaders warn of further sanctions, if Ukraine deal breached. The leaders of Germany and France have said that more sanctions could be brought against Russia if a new Ukraine ceasefire fails. A deal aimed at ending the bloodshed in eastern Ukraine was reached on Thursday.

Financial Times:

• European leaders cautious over ‘Minsk 2’ agreement. European leaders and analysts were sceptical of the 13-point document that emerged on Thursday after 16 hours of bruising, all-night discussions in Minsk. Some gave warning that President Vladimir Putin of Russia appeared to have come out on top.

Economic Information Daily:

• China May See More Privately Placed Bond Defaults. A combined 17b yuan of privately placed bonds listed on the Shanghai and Shenzhen exchanges will mature this year amid an environment of higher-risk default, citing Wind Info. The economic slowdown and worsening operating environment for small cos. may lead to more defaults, the report cites researchers. Private bonds defaults may also spread to larger cos. the report said.

China Securities Journal:

• China Rate Cut Unlikely in Near Future. An interest rate cut is unlikely as the latest monetary policy moves need time to take effect and a narrower interest margin between China and overseas may intensify capital outflow, a front-page commentary said.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are +.25% to +1.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 107.50 -2.5 basis points.

• Asia Pacific Sovereign CDS Index 68.25 -1.25 basis points.

• S&P 500 futures -.06%.

• NASDAQ 100 futures +.01%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (MT)/.25

• (CPN)/-.11

• (DTE)/1.05

• (EXC)/.51

• (ITT)/.57

• (SJM)/1.51

• (RUTH)/.22

• (TRW)/1.87

• (VFC)/.98

Economic Releases
8:30 am EST

• The Import Price Index for January is estimated to fall -3.2% versus a -2.5% decline in December.

10:00 am EST

• Preliminary Univ. of Mich. Consumer Sentiment for February is estimated at 98.1 versus 98.1 in January.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Fisher speaking, Eurozone GDP and the (MU) analyst conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and real estate 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.

Stocks Rising into Afternoon on Diminished Russia/Ukraine Tensions, Greece Hopes, Oil Bounce, Commodity/Gaming Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Slightly Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 15.71 -7.37%

• Euro/Yen Carry Return Index 141.66 -.65%

• Emerging Markets Currency Volatility(VXY) 11.16 -1.41%

• S&P 500 Implied Correlation 63.33 -3.05%

• ISE Sentiment Index 154.0 +81.18%

• Total Put/Call .86 -10.42%

• NYSE Arms .70 -36.0% 

Credit Investor Angst:

• North American Investment Grade CDS Index 66.04 -1.04%
• America Energy Sector High-Yield CDS Index 716.0 +.31%

• European Financial Sector CDS Index 65.81 -3.85%

• Western Europe Sovereign Debt CDS Index 27.0 +1.54%
• Asia Pacific Sovereign Debt CDS Index 69.22 -.27%

• Emerging Market CDS Index 376.17 -1.97%

• iBoxx Offshore RMB China Corporates High Yield Index 113.29 -.01%
• 2-Year Swap Spread 26.75 +.25 basis point

• TED Spread 25.25 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -20.75 +1.25 basis points

Economic Gauges:

• 3-Month T-Bill Yield .01% unch.

• Yield Curve 136.0 +2.0 basis points

• China Import Iron Ore Spot $62.27/Metric Tonne +.14%

• Citi US Economic Surprise Index -36.90 -7.3 points
• Citi Eurozone Economic Surprise Index 31.10 +.1 point

• Citi Emerging Markets Economic Surprise Index -8.20 +1.4 points

• 10-Year TIPS Spread 1.67 -2.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating -65 open in Japan

• DAX Futures: Indicating +33 open in Germany

Portfolio: 

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

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 75% Net Long