Stocks Surging into Final Hour on Central Bank Hopes, Less European/Emerging Markets/US High-Yield Debt Angst, Short-Covering, Homebuilding/Healthcare Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Almost Every Sector Rising
  

• Volume: Below Average

• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• Volatility(VIX) 14.32 -6.04%

• Euro/Yen Carry Return Index 133.16 +.31%

• Emerging Markets Currency Volatility(VXY) 11.64 -1.36%

• S&P 500 Implied Correlation 54.69 -1.78%

• ISE Sentiment Index 83.0 -2.0%

• Total Put/Call 1.0 +21.95%

• NYSE Arms 1.29 +5.44% 

Credit Investor Angst:

• North American Investment Grade CDS Index 83.30 +.4%
  

• America Energy Sector High-Yield CDS Index 1,431.0 -4.76%

• European Financial Sector CDS Index 95.06 -.84%

• Western Europe Sovereign Debt CDS Index 26.02 -3.93%

• Asia Pacific Sovereign Debt CDS Index 57.30 -2.69%

• Emerging Market CDS Index 291.59 -.69%
  

• iBoxx Offshore RMB China Corporate High Yield Index 126.43 -.06%

• 2-Year Swap Spread 11.0 +1.75 basis points
  

• TED Spread 34.25 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -22.75 -1.25 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 71.74 +.42%
• 3-Month T-Bill Yield .23% -4.0 basis points
  

• Yield Curve 102.0 +2.0 basis points
  

• China Import Iron Ore Spot $55.11/Metric Tonne -1.17%

• Citi US Economic Surprise Index -3.80 +1.1 points

• Citi Eurozone Economic Surprise Index -31.50 +1.4 points

• Citi Emerging Markets Economic Surprise Index -12.10 -.6 point

• 10-Year TIPS Spread 1.62% +6.0 basis points
• 27.5% chance of Fed rate hike at June 15 meeting, 39.1% chance at July 27 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -8 open in Japan 
• China A50 Futures: Indicating +71 open in China

• DAX Futures: Indicating +70 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg: 

• World's Best Economy Betraying Investors as India Earnings Decay. Talk to a skeptic about this month’s global stock rebound and the first thing he mentions is likely to be earnings, or the lack thereof. Why should the nation with the brightest economic outlook be any different? India’s S&P BSE Sensex is up 9 percent from its February low and set for its best month in more than two years. Company profits are on the opposite trajectory, falling in four of the last five quarters in the worst run since the financial crisis. That’s despite the government forecasting the country to expand faster than any other major economy in the fiscal year through March. While profits are falling worldwide, nowhere is the divergence of earnings and the economy more pronounced than in India, where bad debts at banks, the commodities slump and uncooperative weather are squeezing companies. Stagnating income is widening stock valuations and inciting bearishness among the country’s equity strategists, who have left targets mostly unchanged amid the rally.
• China Stocks Drop for Second Day as Curbs Hurt Property Shares. (video) China’s stocks fell for a second day, paring this month’s advance, as a gauge of small companies slumped and property developers extended losses amid concern new price-cooling measures will hit sales. The Shanghai Composite Index slid 1.3 percent. Poly Real Estate Group. dropped to the lowest level in a month, dragging down a gauge of developers. The small-cap ChiNext index plunged the most in three weeks. The Shanghai index closed below the key 3,000 level for a fourth straight day at 2,919.83, the lowest level in more than a week. Trading volumes were 17 percent below the 30-day average. The ChiNext slid 2.1 percent, paring a rally since last month’s low to 17 percent through Monday. The ChiNext trades at 60 times reported earnings, four times more expensive than the Shanghai index, according to data compiled by Bloomberg.
• BOE Ready to Support Financial Stability on `Brexit' Risks. (video) Bank of England officials said they’re ready to support financial stability as they warned of the threats stemming from the U.K.’s referendum on its membership in the European Union. “Heightened and prolonged uncertainty has the potential to increase the risk premia investors require on a wider range of U.K. assets,” the BOE’s Financial Policy Committee said in a statement of its March 23 meeting released on Tuesday. “These pressures have the potential to reinforce existing vulnerabilities for financial stability.”
• Emerging-Markets 2015 Debt Trading Lowest Since 2009, EMTA Says. Emerging-markets debt trading in 2015 fell to the lowest in six years as investors allocated less to the asset class due to rising volatility and a weak growth outlook, EMTA said. Annual trading volume fell 20 percent to $4.73 trillion from $5.92 trillion in 2014, the lowest reported volume since 2009, according to a survey of 49 leading banks, asset management firms and hedge funds, conducted by the New York-based association for emerging-market debt trading and investment.
• European Stocks Halt Four-Day Declining Streak as Markets Reopen. (video) European stocks rose, snapping their longest losing streak in more than a month, as markets reopened after the Easter holiday. The Stoxx Europe 600 Index added 0.5 percent at the close of trading. It earlier erased an increase of as much as 1 percent as miners reversed gains. Real-estate shares posted the biggest gains on the gauge, with LEG Immobilien AG and Immofinanz AG up 2.5 percent or more.
• Iran Said to Attend Doha Talks Without Joining Oil Freeze. Iran will attend talks with fellow OPEC members and Russia in Qatar next month without joining their proposal to freeze crude oil production, according to a person familiar with the nation’s policy. Oil Minister Bijan Namdar Zanganeh will attend the discussions in Doha on April 17, said the person, who asked not to be identified as the talks are private. Iran will maintain its policy of regaining market share lost during years of sanctions so won’t accept limits on its output, the person said. Most OPEC members, including Saudi Arabia, have said they will go to the meeting. “By attending the freeze meeting, and yet still being able to say they managed to escape the freeze, Iran earns some brownie points with its domestic audience,” said Olivier Jakob, managing director at consultant Petromatrix GmbH in Zug, Switzerland.
• Shorts Crowding Into Texas Banks Bet Energy Pain Isn't Over. With energy stocks enjoying the biggest rebound since the beginning of the oil rout, short sellers have shifted their sights to regional banks that do business with the industry. Bearish bets have shot up 35 percent on average this year among the 10 most-shorted stocks in the KBW Regional Banking Index, data compiled by Bloomberg and Markit show. Cullen/Frost Bankers Inc. and Prosperity Bancshares Inc. in Texas have seen short interest surge about 60 percent. The banking gauge fell 0.8 percent at 9:30 a.m. New York time.
• China's True Demand For Copper Is Only Half as Much as You Think. A 7 million metric tonne stockpile. Virtually every aspect of the commodities bust has a China angle. Forecasts for China's consumption of raw materials have proved wildly optimistic, while domestic production of certain resources have resulted in particularly severe gluts in commodities such as steel and coal. But in one respect, China has been putting an artificial degree of upward pressure on a select resource—copper—sparing it from the worst of the rout in commodities.
• Steel Rally Is Too Good to Be True. Is it time to call the bottom of the steel market? Lakshmi Mittal seems to think so. The billionaire CEO of ArcelorMittal, the world's largest steelmaker, told the Financial Times this month the trough had been reached and "things should continue to improve." Is he right?
• Fed's Williams Sees Gradual Hikes as U.S. Economy on Track. (video) Federal Reserve Bank of San Francisco President John Williams said the U.S. economy appears to be weathering cooler global growth and he repeated that the central bank will raise interest rates at a gradual pace. “Despite recent financial market volatility, my overall outlook for both the U.S. and the global economy remains largely unchanged over the past few months,” Williams said Tuesday in a speech in Singapore. “We took the first small step with a modest rate hike in December, and the future pace will be, as we’ve said repeatedly, gradual and thoughtful.”
• Yellen Says Caution in Raising Rates Is ‘Especially Warranted’. (video) Federal Reserve Chair Janet Yellen said it is appropriate for U.S. central bankers to “proceed cautiously” in raising interest rates because the global economy presents heightened risks. The speech to the Economic Club of New York made a strong case for running the economy hot to push away from the zero boundary for the Federal Open Market Committee’s target rate. “I consider it appropriate for the committee to proceed cautiously in adjusting policy,” Yellen said in the text of prepared remarks Tuesday. “This caution is especially warranted because, with the federal funds rate so low, the FOMC’s ability to use conventional monetary policy to respond to economic disturbances is asymmetric.”
• Traders Prepare for Death of a Junk Rally. Many traders don't trust the rally in riskier debt right now, and some are plotting ways to bet against it. The credit cycle seems to be souring, with corporate earnings generally weakening, and central bankers are seemingly more desperate. Yet riskier corporate debt is surging again, especially U.S. junk debt tied to energy companies, which has experienced a record 16 percent rally so far in March. That's fueled a 4 percent gain in the broader high-yield market, the biggest monthly gain since 2011.

Wall Street Journal:

• Pakistan Militant Group Jamaat-ul-Ahrar Threatens Fresh Wave of Violence. Extremists behind deadly Easter Sunday attacks make warning as government rounds up thousands in dragnet. The militant group behind the park massacre here this week on Tuesday threatened to unleash a wave of new attacks, as the government rounded up thousands of suspects. The Easter Sunday assault that killed 72 people was the latest in a series of bloody incursions by Jamaat-ul-Ahrar extremists over the past two years, which has established them as the most brutal and capable militant group in the country. ​The Pakistani Taliban affiliate’s network, officials say, reaches into the country’s heartland of... 
• Slowing in China: Not Just Economy but Political Resolve. A brittle regime lacks the determination to make painful industrial changes. China’s economic collapse no longer seems imminent. The Wall Street hedge funds who bet against the Chinese currency have taken heavy losses and battered stock markets are stabilizing. In fact, collapse was never in the cards. Over the short term, as Beijing has demonstrated, it has enough financial firepower left to fight off threats...
• Trump Is Obama Squared. Two epic narcissists who see themselves as singularly suited to redeem America.

MarketWatch.com: 

• What this stock market and the Cleveland Browns have in common. Rally is nothing more than a dead-cat bounce within a cyclical bear market.

CNBC:

• Yellen: Economic readings mixed, appropriate to proceed cautiously. (video) It is appropriate for the Federal Open Market Committee to proceed with caution in adjusting policy, Federal Reserve Chair Janet Yellen said Tuesday, acknowledging that economic and financial conditions are in some respects less favorable now than in December. 
• Quiet times for stocks tend to end with big drops. (video)

Zero Hedge:

• Credibility Watch - Janet Yellen Crushes Recent Hawkishness, Unleashes Fresh Bout Of Soothing Dovishness: Live Feed.
• "Buy It All" Uber-Dovish Yellen Sends Stocks, Bonds, Gold, Oil Surging. (graph)
• Brazil's Coalition Government Officially Collapses As Vice President's Party Abandons Rousseff.
• "Europe Is Burning" Nigel Farage Slams Merkel's Migration Maelstrom. (video)
• Pentagon Orders Hundreds Of Military Families To Evacuate Turkey. 
• Loonie? (graph)
• As Conference Board Confidence Jumps, Gallup Confidence Dumps. (graph)
• Here Are The Four Reasons Why Investors Never Believed This Rally. (graph)
• Commodities Longs Will "Liquidate In Unison," Driving Bulls Off A Cliff, Barclays Warns. (graph)
• Case-Shiller Home Prices Jump Driven By West Coast Chinese Buyers. (graph)
• WTI Crude Tumbles Into 'Correction' To 2-Week Lows. (graph)
• SunEdison(SUNE) Plummets 40% On "Substantial Bankruptcy Risk" Warning. (graph)
• Prominent Hedge Fund Luxor Capital Warns Redeeming Investors Will Be "Gated" After Sharp Losses.

Business Insider:

• Donald Trump's campaign manager was just charged with misdemeanor battery after allegedly bruising a reporter.
• Chipotle's(CMG) best-case scenario is looking pretty grim. 
• This is why virtual reality headsets can make you feel so sick.
• Feds resume program that lets cops pocket cash and property — even from people who were never charged with a crime.
• The Supreme Court just issued a huge victory to public-sector unions in the biggest case affected by Scalia’s death.
• Scott Walker throws his support to Ted Cruz a week before the crucial Wisconsin primary.

Washington Times:

• Ex-Trump strategist calls candidacy a ‘charade’ in scathing open letter. A former campaign strategist for Donald Trump penned a blistering column on Monday calling the GOP front-runner a “self-preservationist” who “would stab any one of his supporters in the back if it earned him a cent more in his pocket.” Stephanie Cegielski, a former communications director for Mr. Trump’s short-lived “Make America Great Again” super PAC, claimed in an open letter for XOJane that Mr. Trump aimed to position himself as a “protest” candidate and never expected to do so well in the Republican primary. “What was once Trump’s desire to rank second place to send a message to America and to increase his power as a businessman has nightmarishly morphed into a charade that is poised to do irreparable damage to this country if we do not stop this campaign in its tracks,” she wrote. “And I am now taking full responsibility for helping create this monster — and reaching out directly to those voters who, like me, wanted Trump to be the real deal,” Ms. Cegielski wrote. “I don’t think even Trump thought he would get this far. And I don’t even know that he wanted to, which is perhaps the scariest prospect of all. “He certainly was never prepared or equipped to go all the way to the White House, but his ego has now taken over the driver’s seat, and nothing else matters. The Donald does not fail. The Donald does not have any weakness. The Donald is his own biggest enemy.” “I’ll say it again: Trump never intended to be the candidate. But his pride is too out of control to stop him now,” she continued. “He doesn’t want the White House. He just wants to be able to say that he could have run the White House.

Financial Times:

• Germany fears influence of homegrown militants on Syrian migrants.

Bear Radar

Style Underperformer:

• Large-Cap Value +.1%

Sector Underperformers:

• 1) Oil Service -2.2% 2) Coal -2.1% 3) Banks -1.7%

Stocks Falling on Unusual Volume:

• CONN, PBYI, CXRX, SNX, ALDR, PJT, MDVN, ALE, HBHC, CIT, OKSB, NVS, BBH, STWD, SONC, SCHN, SPKE, PB, GWPH, WEX, CALM, NTES, CMA, SM, ARI, PJT and CONN

Stocks With Unusual Put Option Activity:

• 1) XLI 2) RCL 3) RH 4) COF 5) JNPR

Stocks With Most Negative News Mentions:

• 1) CMG 2) MDVN 3) CALM 4) MU 5) SWKS

Charts:

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

Bull Radar

Style Outperformer: 

• Small-Cap Growth +.8%

Sector Outperformers:

• 1) Hospitals +2.1% 2) Gold & Silver +1.7% 3) Homebuilders +1.7% 

Stocks Rising on Unusual Volume: 

• CNL, WATT, HIMX and AMBA

Stocks With Unusual Call Option Activity: 

• 1) GIS 2) NAVI 3) RTN 4) WWAV 5) PAGP

Stocks With Most Positive News Mentions: 

• 1) AMBA 2) MCK 3) CMTL 4) FB 5) KO

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -16.9% Below 100-Day Average
• 4 Sectors Rising, 6 Sectors Declining
• 47.6% of Issues Advancing, 49.4% Declining
• 81 New 52-Week Highs, 9 New Lows
• 43.1% of Issues Above 200-day Moving Average
• Average 14-Day RSI 45.4%
• Vix 15.4 +.9%
• Total Put/Call 1.66 +102.4%
• TRIN/Arms 1.81 +48.6%

Tuesday Watch

Evening Headlines
Bloomberg:

• The Credit Card Loophole That Gets Around China's Capital Curbs. More than 800. That’s how many times Hong Kong insurance agent Raymond Ng swiped the credit cards of a mainland Chinese client buying HK$28 million ($3.6 million) worth of insurance policies in the city earlier this month. Dozens, maybe more. That’s how many other agents are using similar tactics as a way around new restrictions on insurance policy purchases by mainlanders that are often used to evade capital controls and get their money out of China, according to interviews with five Hong Kong agents working for Prudential Plc, AIA Group Ltd. and two smaller insurance companies. “There are always ways around new restrictions,” said Ng, 30, who started selling insurance and investment products to mainland Chinese four years ago, declining to allow his company’s name to be used. "Chinese customers are accelerating the pace of moving assets outside China, especially through insurance products."
• China Pushes Big State Companies to Leave Overcrowded Beijing. Beijing may be pulling in the welcome mat for many of the country’s biggest state-owned companies, including some that have had their headquarters in the capital for decades, setting off a scramble among other cities competing to lure them away. The plan -- part of President Xi Jinping’s blueprint to reinvigorate the economy -- aims to move the main offices of state firms that have no core business in Beijing, according to two people familiar with the discussions. The relocations would help reduce traffic congestion, pollution and overcrowding in the capital as well as reinvigorate other first- and second-tier cities on the receiving end, such as Shenzhen, Tianjin, Wuhan and others, according to the people who asked not to be identified because the discussions were private.
• The Most China-Dependent Economy Isn't So Keen on Chinese Money. Australia, the developed world’s most China-reliant economy, offers a natural destination for billions of dollars of investment from its largest trading partner. There’s just one hurdle -- the Australians themselves.
• Central Bank Interventions Are Fraught With Peril: Roach. (video)
• Asia Stocks Fall as Japan Goes Ex-Dividend, Pharma Shares Slide. Asian stocks fell for the first time in three days as health-care companies led losses and more than two-thirds of the companies in Japan’s Topix index traded without the right to the next dividend. The MSCI Asia Pacific Index slipped 0.4 percent to 127.55 as of 9:01 a.m. in Tokyo. The gauge is up 7.1 percent since the start of March, on course for the best month since October. The Topix slid 0.8 percent. 
• Oil Trades Near $39 as U.S. Crude Stockpiles Seen Expanding Glut. Oil traded near $39 a barrel before weekly U.S. government data forecast to show increasing crude stockpiles kept supplies at the highest level in more than eight decades. Futures were little changed in New York after slipping 0.2 percent Monday. Inventories probably rose by 3 million barrels last week, according to a Bloomberg survey before an Energy Information Administration report Wednesday.
• Buffett's Wells Fargo(WFC) Stake Hits Level Requiring Fed Review. Warren Buffett’s holding in Wells Fargo & Co. reached 10 percent, a level that triggers a Federal Reserve review and could prevent him from buying more shares until he receives regulatory approval. The billionaire investor’s stake reached that threshold because Wells Fargo has been buying back stock, according to a regulatory filing Monday. The document said the holding is about 506 million shares, the same as on Dec. 31 when it accounted for 9.9 percent.

Wall Street Journal:

• FBI Opens San Bernardino Shooter’s iPhone; U.S. Drops Demand on Apple(AAPL). Move delays a high stakes showdown between Washington, Silicon Valley. The Justice Department filed court papers Monday saying it had cracked the iPhone of a San Bernardino, Calif., terrorist, seeking to drop its legal case to force Apple Inc. to help them unlock it.
• Chinese Bidder for Starwood Has Mysterious Ownership Structure. Beijing’s Anbang, locked in a bidding war with Marriott over Starwood Hotels, has a complicated web of investors that is difficult to unravel.
• Hillary & Bernie, Tax Fantasists. Soak-the-rich proposals ignore history and wouldn’t raise nearly enough money to fund big spending plans. Here is a question to ask Hillary Clinton and Bernie Sanders: What is the best tax rate to impose on high-income earners to ensure there is enough government revenue to pay for your trillion-dollar promises to voters?

Fox News:

• Bloody tide: Terror deaths increased 8-fold since 2010, says study. (video) The deadly toll of terrorism around the globe has jumped nearly 800 percent in the past five years, according to an exhaustive new report that blames the alarming expansion of Islamist groups across the Middle East and Africa. The nonprofit Investigative Project on Terrorism found that an average of nearly 30,000 people per year have been killed by terrorists since 2010, when terrorism's death toll was 3,284. The authors of the study, which tabulated the numbers through the end of 2015, say that the exponential increase shows two troubling trends: More attacks are happening, and they tend to be deadlier than ever.
• Sanders swings for the fences after caucus sweep, makes play for New York. (video) Bernie Sanders, despite facing persistently long odds to overtake Hillary Clinton in the Democratic primary delegate battle, quickly is moving to build on his momentum from a weekend caucus sweep -- looking to take the fight to the front-runner in New York, Wisconsin and beyond.
• ObamaCare may force employers to pull the plug on millions of health plans, CBO report finds. (video) In the latest report to undercut President Obama's "If you like your health care plan, you can keep it" promise, the Congressional Budget Office projects millions of workers will leave employer-sponsored health plans over the next decade because of ObamaCare. 

CNBC:

• 'Cautious' on Tesla(TSLA) despite Model 3 launch: Expert. (video) Tesla Motors' launch of a cheaper car this week will fail to negate the electric automaker's existing problems, one analyst contended Monday. "I think there are a lot of reasons to be really cautious," said Colin Langan of UBS on CNBC's "Closing Bell."
• Study of Theranos Medical Tests Finds Irregular Results. Finger blood tests from Theranos, the medical start-up, produced more irregular results than conventional tests offered by the nation's two largest clinical laboratories, researchers reported Monday in the first published independent assessment of the company's tests. 

Zero Hedge:

• Japanese Retail Sales Plunge Most Since 2010. (graph)
• With Hillary Clinton's Email Lies Unravelling, 147 FBI Agents Are On Her Heels.
• Saudis To "Modernize" Economy As Interbank Rates Surge & Money Supply Collapses At Record Pace. (graph)
• US Drops Case Against Apple After FBI Successfully Hacks Terrorist's iPhone.
• U.S. Lifted The Crude Oil Export Ban, And Exports Went... Down.
• 2015 Ends With a Stratospheric P/E Multiple Of 23x. (graph)
• Stocks Shrug Off Dismal Data, Shootings, Bomb Alerts, And Viruses To Close Unchanged. (graph)

Business Insider:

• Congress just fired a shot against its next drug-pricing target, and its shares took a hit.
• The global cost of terrorism is at an all-time high.

Reuters:

• Brazil party set to abandon Rousseff, making impeachment more likely. Brazil's largest party will decide on Tuesday to break away from President Dilma Rousseff's floundering coalition, party leaders said, sharply raising the odds that the country's first woman president will be impeached amid a corruption scandal.

Telegraph:

• Barclays warns of a "rush for the exits" on commodities. Analysts at Barclays have warned of a “rush for the exits” as investors back away from commodities, resulting in price levels for oil and copper dropping as much as 25pc. A note issued by the bank said that although investors have been attracted to commodities as one of the best performing assets so far in 2016, returns are unlikely to be sustained in the second quarter of the year. “This could make commodities vulnerable to a wave of investor liquidation that we estimate could, in a worst case scenario, knock as much as 20-25% from current price levels,” the note said. This would take the price of oil back to the low $30s and copper to the low $4,000s, the analysts said.
• A 'perfect storm' is brewing over the most important part of the UK economy

Night Trading 

• Asian equity indices are -.50% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 152.75 -1.0 basis point. 
• Asia Pacific Sovereign CDS Index 58.75 +.5 basis point. 
• Bloomberg Emerging Markets Currency Index 71.47 +.03%. 
• S&P 500 futures +.18%. 
• NASDAQ 100 futures +.18%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (CONN)/.32
• (LEN)/.52
• (MKC)/.69
• (PLAY)/.43
• (RH)/.18
• (SONC)/.16
• (VNCE)/.00

Economic Releases  
9:00 am EST

• S&P/CS 20 City MoM SA for January is estimated to rise +.7% versus a +.8% gain in December.     

10:00 am EST

• Consumer Confidence for March is estimated to rise to 94.0 versus 92.2 in February. 

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed's Yellen speaking, Fed's Williams speaking, Fed's Kaplan speaking, $34B 5Y T-Note auction, US weekly retail sales reports and the (MMM) investor day could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and technology 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.