Stocks Slightly Lower into Final Hour on Greece Worries, Russia-Ukraine Tensions, Oil Decline, Commodity/REIT Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Higher
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 15.25 -1.29%

• Euro/Yen Carry Return Index 141.21 -.12%

• Emerging Markets Currency Volatility(VXY) 10.22 -1.02%

• S&P 500 Implied Correlation 64.50 +2.02%

• ISE Sentiment Index 121.0 +40.70%

• Total Put/Call .90 -5.26%

• NYSE Arms 1.23 -.25% 

Credit Investor Angst:

• North American Investment Grade CDS Index 64.24 +.33%
• America Energy Sector High-Yield CDS Index 690.0 -1.80%

• European Financial Sector CDS Index 62.03 -1.66%

• Western Europe Sovereign Debt CDS Index 25.66 -3.73%
• Asia Pacific Sovereign Debt CDS Index 65.0 -1.06%

• Emerging Market CDS Index 374.54 +1.37%

• iBoxx Offshore RMB China Corporates High Yield Index 113.71 +.02%
• 2-Year Swap Spread 28.5 +.75 basis point

• TED Spread 24.25 -.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -22.5 unch.

Economic Gauges:

• 3-Month T-Bill Yield .02% unch.

• Yield Curve 149.0 +1.0 basis point

• China Import Iron Ore Spot $63.44/Metric Tonne n/a

• Citi US Economic Surprise Index -48.30 +.1 point
• Citi Eurozone Economic Surprise Index 46.0 -.6 point

• Citi Emerging Markets Economic Surprise Index -11.90 -.5 point

• 10-Year TIPS Spread 1.75 +3.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating +106 open in Japan

• DAX Futures: Indicating -9 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:       

• Germany Rejects Loan Request Saying Greece Must Meet Conditions. (video)
  Germany rebuffed Greece’s request for an extension of its aid program as euro-area finance ministers prepare to meet to avert a cash crunch for the region’s most-indebted nation. The Greek proposal “doesn’t meet the criteria agreed upon in the Eurogroup on Monday,” German Finance Ministry spokesman Martin Jaeger said in an e-mailed statement. “In truth, it aims at bridge financing without meeting the requirements” of the rescue program. European Commission Spokesman Margaritis Schinas moments earlier had said the Greek letter could be the basis for a “reasonable compromise.”  
• Ukraine Rebels Thirst for Territory After Debaltseve. This is what a cease-fire looks like in eastern Ukraine: Vuhlehirsk, a village seven kilometers from the disputed town of Debaltseve, was redolent with acrid smoke Wednesday, constantly shaken by the deep thunder of tanks and artillery cannons as separatists fired on Ukrainian positions. Along much of the front line, both sides have largely observed the truce agreed to last week in Minsk, Belarus. But around the strategic rail hub of Debaltseve the rebels pushed the advantage that they had gained from weeks of shelling government forces. On Wednesday, thousands of battle-weary Ukrainian troops withdrew from Debaltseve -- leaving rebels thirsting for more territory, cease-fire or not. “We must kill them all now,” said Evgeny, a fighter from Donetsk nicknamed Boroda, or Beard. “Just a perfect day!”
• Obama Realized Too Late Putin's Return Would Undermine the Reset. The fractured relationship between U.S. President Barack Obama and Russian leader Vladimir Putin has reached a critical juncture in the conflict over Ukraine, with ties between the two nations more strained than at any time since the Cold War. Russia’s annexation of Crimea last year and its support for separatists in Ukraine’s east have soured Obama on Putin and prompted U.S.-led sanctions that have helped push Russia’s economy toward recession. The confrontation “will continue and could escalate pretty easily,” said Fiona Hill, a senior fellow at the Brookings Institution in Washington and author of “Mr. Putin: Operative in the Kremlin.” The standoff between Obama and Putin complicates efforts to defuse the Ukrainian conflict, and German Chancellor Angela Merkel has taken the lead. The U.S. also needs Russia’s help in the Iranian nuclear talks and in trying to thwart Islamic State in the Middle East. It wasn’t long ago that Obama took a different view, beginning his presidency by offering Russia a “reset” and new era of cooperation. These days, he fulminates that Putin views the world through a “Cold War lens” of the past.
• Greeks Backing Tsipras With Votes But Not Cash. Greek voters gave Alexis Tsipras’s Syriza party a mandate to force a new deal from the rest of the euro area. Without the backing of savers, he’ll struggle to deliver. As their prime minister went toe-to-toe with the German government over the terms of a new aid package, Greeks yanked their cash from the banking system, some delayed tax payments and, by putting off spending and investing in the run-up to the election, they tipped the economy back toward recession. The financial squeeze leaves Tsipras little room to maneuver in the face of German demands.  
• ECB Said to Push Greek Banks to Shed State Debt If Talks Fail. The European Central Bank intends to tell Greek banks to reduce their holdings of state debt if talks over the country’s finances break down, three people familiar with the discussions said. The ECB’s Supervisory Board, in charge of bank oversight across the euro area since November, is concerned that Greek lenders will be saddled with illiquid assets from a government heading for default. The board’s actions are contingent on progress at a meeting of euro-area finance ministers that starts on Friday, the people said, asking not to be named as the matter is private. An ECB spokesman declined to comment.
• Iran Wields Power From Syria to Gulf as Rise Alarms Sunni Rivals. The commander of the foreign wing of Iran’s Revolutionary Guards was upbeat as he addressed a rally marking the 36th anniversary of the uprising that ushered in theocratic rule. “We are witnessing the export of the Islamic revolution throughout the region,” Qassem Suleimani, the increasingly public head of the elite Quds Force, said last week. “From Bahrain and Iraq to Syria, Yemen and North Africa.”  
• European Stocks Extend Seven-Year High Amid Greek Negotiations. European stocks extended a seven-year high amid optimism Greece will reach a deal with euro-area creditors. The Stoxx Europe 600 Index added 0.3 percent to 381.41 at the close of trading. It climbed as much as 0.4 percent intraday after the European Commission said Greece’s request for an extension of loan facilities could pave the way for compromise. It then traded little changed as Germany rejected the plan.
• Options Traders Shore Up Defenses Against Oil Rebound Ending. Options traders are betting that oil’s rebound from a six-year low won’t last. The 17 percent gain from late January has spurred investors to buy options that protect against a drop in prices. Contracts that give the owner the right to sell U.S. crude futures are the most expensive relative to those offering the right to buy in data going back to 2010, according to data compiled by Bloomberg. The rebound will reverse because rising U.S. production is deepening the global supply glut, according to analysts at UBS Group AG, Bank of America Corp. and Commerzbank AG, who are forecasting Brent will drop to $45 or lower in the next three months.
• Tax on Sugary Foods Proposed by U.S. Panel to Fight Obesity. Americans should pay taxes on sugary sodas and snacks as a way to cut down on sweets, though they no longer need to worry about cholesterol, according to scientists helping to revamp dietary guidelines as U.S. obesity levels surge. The recommendations Thursday from the Dietary Guidelines Advisory Committee also call for Americans to reduce meat consumption and to take sustainability into account when dining.

ZeroHedge: 

• How Germany Is Blowing Up The European Union.
• Greek Deposit Run Accelerates Ahead Of Monday's Bank Holiday.
• Spain And Italy Bonds Are Pricing In "Anti-Contagion". (graph)
• Germany Slams Greek Bailout Extension Proposal As "Trojan Horse" - Full Text.
• It's Official: Global Economy Back In Contraction For First Time Since 2012 According To Goldman. (graph)
• Biggest Nordic Buyout Fund Sees "Asset Bubbles Wherever We Look".
• EIA Crude Inventories & Production Surge To Record Highs. (graph)
• Philly Fed Down 3rd Month In A Row, "Hope" Plunges Most Since Lehman. (graph)
• Caterpillar(CAT) Suffers Worst Month Since Lehman, 26 Consecutive Months Of Declining Retail Sales. (graph)
• Ukraine Fighting Shifts To Mariupol Whose Capture Would Grant Russian Land Corridor To Crimea.
• Walmart Slides After Cutting Sales Growth Guidance, Blames Strong Dollar.
• Texas Initial Jobless Claims Surge Higher As Continuing Claims Jump Most In 2015. (graph)

Frankfurter Allgemeine Zeitung:

• ECB, Regulators Said to Prefer Greek Capital Controls. ECB Governing Council and bank regulators would "feel better" if Greece introduced capital controls to prevent banks hemorrhaging, citing central bank sources.

Handelsblatt:

• El-Erian Says Push to Weaken FX Is Unsustainable. The trend for central banks to actively weaken their currencies is not sustainable, Allianz's Mohamed El-Erian said. Efforts may continue as long as the U.S. accepts "drastically strengthening" of USD, and as long as markets are willing to ignore fundamental economic data when pricing risks.

Kathimerini:

• ECB Rejected Greek Request for Additional T-Bills. Greek deposit outflows reached EU21b since Oct., withdrawals on Feb. 17 were EU800m, Kathimerini reports. Bank of Greece had asked for additional Emergency Liquidity Assistance of EU10b, ECB only approved EU3.3b.

Bear Radar

Style Underperformer:

• Large-Cap Value -.50%

Sector Underperformers:

• 1) Steel -1.91% 2) REITs -1.72% 3) Gold & Silver -1.71%

Stocks Falling on Unusual Volume:

• HSTM, BCC, CW, BGS, I, RLJ, GTS, BLL, UIHC, SCTY, AXP, PBPB, EOG, DORM, AXDX, LHO, Z, EVTC, ARII, SSL, WMT, HST, MANT, LPLA, FNF, GLF, EVTC, BLL, RAX, CVRR, CVI, HST and VNDA

Stocks With Unusual Put Option Activity:

• 1) CAR 2) EWJ 3) SCTY 4) MON 5) AXP

Stocks With Most Negative News Mentions:

• 1) DUK 2) AXP 3) BLL 4) XOM 5) FIVE
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +.18%

Sector Outperformers:

• 1) Defense +1.79% 2) Airlines +1.09% 3) Hospitals +.85%
  

Stocks Rising on Unusual Volume:

• BJRI, PCLN, TILE, EXAM, OLN, TTPH, NMBL, CAR, TRN, IPI, MIC, REGN and THRX

Stocks With Unusual Call Option Activity:

• 1) EXAS 2) AXLL 3) EXEL 4) KO 5) DNKN
  

Stocks With Most Positive News Mentions:

• 1) HOLX 2) VLO 3) TRN 4) PCLN 5) KO
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Thursday Watch

Evening Headlines 
Bloomberg:  

• Greece Pressure Mounts as ECB Shows Caution on Bank Funds. Pressure mounted on Greece as U.S. and European officials called on the government to reach a deal with its creditors and the European Central Bank granted the nation’s cash-strapped banks only a small increase in emergency funds. Prime Minister Alexis Tsipras’s administration will submit a request to the euro area for a six-month loan extension on Thursday, a day later than originally planned, according to a government official. ECB policy makers on Wednesday set Emergency Liquidity Assistance for Greek banks at 68.3 billion euros ($77.9 billion), up from 65 billion euros, a euro-area central-bank official said. Both officials asked not to be identified because the matters are private.   

• Russian Quest for More Meat Goes Awry as Sanctions Bite. Ukraine’s conflict over the past year has undermined Russia’s quest to wean itself from foreign meat. The annexation of Crimea and Russia’s support of rebels in eastern Ukraine led to economic sanctions, trade bans and a weaker ruble. In a country that became the world’s fifth-largest food importer as rising incomes boosted demand for chicken and pork, domestic producers now find it is too expensive to import new equipment and borrowing costs have doubled. “All costs need to be recalculated,” Alexey Zhdanov, deputy chief executive officer of Russian Agricultural Bank, said at a conference from Moscow on Feb. 6. “Demand for new investment loans is zero.”

• Japan Stocks Rise Toward 15-Year High While Crude Slumps. Japanese stocks climbed, pushing the Nikkei 225 Stock Average toward its highest close since 2000, while oil retreated before U.S. stockpiles data. Australian bonds rose on speculation the Federal Reserve will delay raising interest rates. The Nikkei 225 rose 0.5 percent by 10:56 a.m. in Tokyo, while the broader Topix index is at a seven-year high. Australian energy shares declined as U.S. oil slid 3 percent.

• Steve Forbes: The Fed Has Created Its Own Tightrope. (video)

• Traders Who Say Yields Are Too Low Should Check Surprise Index. Investors who say Treasury yields are too low given what’s happening in the U.S. economy should look at the Citi Economic Surprise Index. It shows U.S. economic data are failing to meet expectations by the most in more than two years. The figure jibes with a Federal Reserve statement Wednesday signaling policy makers’ willingness to keep interest rates low for longer, given risks to the economy ranging from a stronger dollar to wages and housing.

Wall Street Journal:

• Clinton Foundation Defends Acceptance of Foreign Donations. Charity has received funds from governments of U.A.E., Saudi Arabia, Oman and Canada, among others. The Clinton Foundation on Wednesday defended its practice of accepting donations from overseas governments, amid concerns from some ethics experts that such contributions are inappropriate at a time when Hillary Clinton is preparing to run for president.

• Lenders Step Up Financing to Subprime Borrowers. Loans to those with low credit scores driven by boom in car lending, new crop of financial firms. Loans to consumers with low credit scores have reached the highest level since the start of the financial crisis, driven by a boom in car lending and a new crop of companies extending credit.

• Pinterest Seeks $11 Billion Valuation With New Funding. Scrapbooking website is in talks to raise $500 million.

• The Ideological Islamist Threat. The radicals are waging a war of ideas the West refuses to fight. President Obama opened this week’s White House Conference on Violent Extremism with a speech about community-based counter-radicalization efforts, and his Administration is being roundly mocked for its refusal to use terms like “Muslim terrorism” or “Islamism.” The mockery is deserved. Foreign policy is not a Harry Potter tale of good versus He-Who-Must-Not-Be-Named. And war cannot be won against an enemy we refuse to describe except in meaningless generalities.

Zero Hedge:

• WTI Crude Slumps To $50 Handle On Larger-Than-Expected Inventory Build. (graph)

• "Don't Be A Menace": Obama Speaks On Countering Violent Extremism. (video)

• Fearful Fed Sparks Mass Confusion But S&P 'Rigged' To 2,100 Close. (graph)

• Housing Recovery? Weekly Mortgage Purchase Apps Drop Again, Down 66% From 2004. (graph)

• Shipbuilding Orders Slump As Baltic Dry Hits Fresh Record Low. (graph)

• US Macro Collapses To 11-Month Lows, 88% Of Data Has Missed In February. (graph)

• Why Greece Might Very Well Say “Goodbye To All That”. (graph)

• Marc Faber: "This Is The Year Investors Lose Faith In Central Banks".

• 31st Japanese Trade Deficit In A Row, Longest Stretch In 60 Years. (graph)

• India Lifts Ban On Bank Gold Imports: Gold Can Again Be Used As Loan Collateral.

• Russia Dumps Most US Paper Ever As China Reduces Treasurys Holdings To January 2013 Levels. (graph)

Business Insider:

• Another oil company has slashed its spending plans.

• The battle for Ukraine rages on. (pic)

• Another blast of arctic air is headed for the Northeast, Midwest, and South.

• The Fed is worried about what happens when everyone rushes for the exit.

• Iranian-backed militias are causing a political crisis in Iraq.

• Samsung just bought the one payments company that could be bigger than Apple(AAPL) Pay.

• CREDIT SUISSE: Get ready for low returns in the stock market.

Telegraph: 

• Greece plays for time as bail-out talks go down to the wire. Athens to ask for a loan extension as US urges both sides to compromise and end the country's "hardship".

Evening Recommendations 

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 103.25 -1.75 basis points.

• Asia Pacific Sovereign CDS Index 65.75 -1.0 basis point.

• S&P 500 futures -.07%.

• NASDAQ 100 futures +.02%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (BCC)/.53

• (DNR)/.23

• (DTV)/1.40

• (DISCA)/.42

• (NBL)/.35

• (PCLN)/10.10

• (PWR)/.46

• (RS)/1.06

• (TK)/.28

• (TTC)/.49

• (WMT)/1.54

• (ED)/.55

• (INTU)/-.13

• (MHK)/2.21

• (NEM)/.11

• (JWN)/1.35

• (SWY)/.60

Economic Releases
8:30 am EST

• Initial Jobless Claims are estimated to fall to 290K versus 304K the prior week.

• Continuing Claims are estimated to rise to 2360K versus 2354K prior.

10:00 am EST

• Philly Fed Business Outlook Index for February is estimated to rise to 9.0 versus 6.3 in January. 

• The Leading Index for January is estimated to rise +.3% versus a +.5% gain in December.

11:00 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +3,000,000 barrels versus a +4,868,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -188,890 barrels versus a +1,977,000 barrel gain the prior week. Distillate supplies are estimated to fall by -1,044,440 barrels versus a -3,252,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall by -.73% versus a +.1% gain the prior week.

Upcoming Splits

• (CNC) 2-for-1

Other Potential Market Movers

• The Eurzone Current Account data, Bloomberg Economic Expectations Index for February, weekly EIA natural gas inventory report and the weekly Bloomberg Consumer Comfort Index could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and industrial 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 Lower into Final Hour on Russia/Ukraine Tensions, Yen Strength, Earnings Concerns, Financial/Energy Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: About Even
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 16.13 +2.09%

• Euro/Yen Carry Return Index 141.14 -.69%

• Emerging Markets Currency Volatility(VXY) 10.44 -1.51%

• S&P 500 Implied Correlation 63.98 +.02%

• ISE Sentiment Index 83.0 +9.21%

• Total Put/Call .97 +3.19%

• NYSE Arms 1.14 +94.88% 

Credit Investor Angst:

• North American Investment Grade CDS Index 63.95 -1.95%
• America Energy Sector High-Yield CDS Index 698.0 -.82%

• European Financial Sector CDS Index 63.08 -6.26%

• Western Europe Sovereign Debt CDS Index 26.75 -3.17%
• Asia Pacific Sovereign Debt CDS Index 65.90 -1.24%

• Emerging Market CDS Index 368.58 -.11%

• iBoxx Offshore RMB China Corporates High Yield Index 113.68 +.04%
• 2-Year Swap Spread 27.75 unch.

• TED Spread 24.5 -.75 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -22.5 +.25 basis point

Economic Gauges:

• 3-Month T-Bill Yield .02% +1.0 basis point

• Yield Curve 148.0 +2.0 basis points

• China Import Iron Ore Spot $63.44/Metric Tonne +.67%

• Citi US Economic Surprise Index -48.40 -3.0 points
• Citi Eurozone Economic Surprise Index 46.60 -.6 point

• Citi Emerging Markets Economic Surprise Index -11.40 -2.4 points

• 10-Year TIPS Spread 1.72 unch.

Overseas Futures:

• Nikkei Futures: Indicating +100 open in Japan

• DAX Futures: Indicating +8 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 50% Net Long