Today's Headlines

Bloomberg:

• EU Says Euro Area to Shrink in 2013 as Unemployment Rises. The euro-area economy will shrink in back-to-back years for the first time, driving unemployment higher as governments, consumers and companies curb spending, the European Commission said. Gross domestic product in the 17-nation region will fall 0.3 percent this year, compared with a November prediction of 0.1 percent growth, the Brussels-based commission forecast today. Unemployment will climb to 12.2 percent, up from the previous estimate of 11.8 percent and 11.4 percent last year. 
• ECB Says Banks to Repay Less Than Forecast of Second Loan. The European Central Bank said banks will repay only half the amount of emergency loans economists forecast, indicating financial institutions remain wary of lending to each other. Some 356 banks will hand back 61.1 billion euros ($80.5 billion) of the ECB’s second three-year loan on Feb. 27, the first opportunity for early repayment, the central bank said in a statement today. That compares with a forecast of 122.5 billion euros in a Bloomberg News survey of economists. The euro fell almost half a cent after the report to $1.3157.
• VW Forecasts 2013 Profit That Falls Short of Expectations. Volkswagen AG, Europe’s largest automaker, forecast that 2013 operating profit will match last year’s level, falling short of analysts’ estimates, as the shrinking auto market in its home region weighs on earnings.
• China’s Stocks Post Biggest Weekly Loss in 20 Months on Property. China’s stocks fell, dragging the benchmark index to its steepest weekly loss in 20 months, as higher home prices boosted concern the government will adopt tighter policies to prevent asset bubbles. SAIC Motor Corp., the biggest automaker, dropped 3.2 percent, adding to a five-day loss of 10 percent. China Construction Bank Corp., the largest mortgage lender, led declines for financial companies this week. A gauge of Shanghai property developers posted its worst weekly loss since July. New home prices rose in most cities the government tracked in January, government data showed today. The Shanghai Composite Index (SHCOMP) slid 0.5 percent to 2,314.16 at the close, adding to a 4.9 percent slump this week, the most since May 2011.
• Hong Kong Doubles Stamp Duty on All Property on Bubble Risk. Hong Kong doubled the sales tax on property costing more than HK$2 million ($258,000) and targeted commercial real estate for the first time as bubble risks spread from apartments to parking spaces, shops and hotels. The stamp duty will increase to 8.5 percent of the purchase price for all properties, Hong Kong Financial Secretary John Tsang said at a briefing today. The Hong Kong Monetary Authority also tightened mortgage terms for commercial properties and parking spaces.
• Economists Warn Fed Risks Losing Control Amid Budget Deficits. Four economists, including a former Federal Reserve governor who has co-written research with Chairman Ben S. Bernanke, warned that losses from the central bank’s more than $3 trillion balance sheet could lead to the Fed losing control of monetary policy. “The combination of a massively expanded central bank balance sheet and an unsustainable public debt trajectory is a mix that has the potential to substantially reduce the flexibility of monetary policy,” the economists write. “This mix could induce a bias toward slower exit or easier policy, and be seen as the first step toward fiscal dominance. It could thereby be the cause of longer-term inflation expectations and raise the risk of inflation overall.” The conclusion from economists, including Frederic Mishkin, a governor at the central bank from 2006 to 2008 and an academic collaborator with Bernanke before that, will be presented at the U.S. Monetary Policy Forum in New York. Their paper serves as a high-profile warning to an audience including Boston Fed President Eric Rosengren, Fed Governor Jerome Powell and St. Louis Fed President James Bullard. 
• Gasoline Rally Seen Fueling U.S. Stock Losses: Chart of the Day. (graph) 
• Aluminum Drops for Fifth Day as China Output Adds to Supplies. Aluminum fell for a fifth straight day, the longest slump in two months, on signs that increasing output in China will add to a global glut. Global output increased 5.7 percent in January from a year earlier to 3.917 million metric tons, the International Aluminium Institute said Feb. 20. Chinese production surged 16 percent, the IAI figures showed. Production exceeded demand by 419,400 tons last year, figures from the World Bureau of Metal Statistics showed this week.
• Fattened Margins Seen Shrinking 40% at Banks: Mortgages. Record mortgage profits that drove earnings at Wells Fargo & Co. (WFC) and JPMorgan Chase & Co. (JPM) are fading as increased competition keeps the rates banks are offering on new loans near all-time lows. The amount that lenders make from packaging each loan into securities and selling them to investors may be down as much as 40 percent from last quarter, Compass Point Research and Trading LLC estimates, as banks absorb most of the costs of tumbling bond prices.

CNBC:

• Italy Goes Down to the Wire as Nervous Investors Watch. Two of the four leading candidates in the Italian election are convicted criminals. Such is the state of politics in this highly-indebted country as Italians go to the polls this weekend to choose a new government. Recent market action shows global investors are nervous about the outcome.
• Pimco's Gross: Fed Not Vigilant Enough. (video) Pimco Founder Bill Gross called out the Federal Reserve on its vigilance in three major areas, during a CNBC interview on Friday. "I don't think the Fed is vigilant in terms of the negative aspects of zero-bound rates," Gross said in an appearance on "Squawk Box" with St. Louis Fed President James Bullard. "I don't think they're vigilant in terms of other central banks and their quantitative easing policies," he added. "I don't they're vigilant in terms of asset prices."
• More States Consider to Ban Credit Card Surcharges. 
• They Bailed On Their Homes - Now They Want Back In. Home sales are slowly climbing back, thanks to investor demand, improving consumer confidence in housing, and the surprising return of former homeowners who once walked away from their commitments. These so-called, "strategic defaulters," some of them investors and some owner-occupants, are coming back to the market, despite damaged credit, and apparently the market is welcoming them back.

Zero Hedge:

• Spain's "Inverse Austerity" Leads To Multi-Year High Budget Deficit. 
• ObamaCare: The Neutron Bomb That Will Decimate Employment. 
• Franco-German Divide Nears Record High. (graphs) 
• Europe's €1.7 Trillion Maturity Cliff In A Declining Excess Liquidity Context. (graph) 
• Bernanke: "There Is No Bubble". 
• Dr. Copper Sends A Deja Vu Warning Signal. (graphs) 
• What The 'Real' Money Thinks Of The Italian Election.

Business Insider:

• Chinese Hackers Have A Weapon Of Mass Destruction That No One Is Talking About. 
• We Now Have Definitive Proof That Higher Taxes Are Bad News For Consumption. 
• It Looks Like Europe Will Do The Unthinkable To Banker Bonuses. 
• 40 Obvious And Painless Ways For The US To Cut Its Budget. 
• Jon Stewart Tears Into Obama: 'What Is In Those Drone Memos That Is So Terrible?'
• China Admits Pollution Has Caused 'Cancer Villages'. 
• Obama's New Bonds Are Clearly A Gimmick To Hide Debt.  
• BREAKING: JUDGE GRANTS GREENLIGHT'S MOTION TO BLOCK APPLE VOTE. 
• Here's How Washington Insiders Think The Sequester Fight Is Going To Go Down. 
• I Have Seen The Scariest Chart In Europe — And It Very Much Resembles This One.

Reuters:

• Darden(DRI) warns on third-quarter profit, cuts FY forecast.Restaurant operator Darden Restaurants Inc cut its full-year profit forecast for the third time this year, as it expects a severe winter coupled with higher payroll taxes and gasoline prices to hurt third-quarter earnings. Darden's forecast underscores the pressure U.S. consumers are facing due to the Jan. 1 expiration of a 2 percentage point cut in payroll taxes, a delay in income tax refund payments and a 30 cent increase in gasoline prices this year through last week.
• METALS-Copper slides to two-month low on global economy concerns.
• Euro hits 6-week low as European bank repayments disappoint. 
• Political problems await when Fed needs to reverse policy -Bullard. Political problems await the U.S. Federal Reserve when it comes time to reverse its very accommodative monetary policies, Federal Reserve Bank of St. Louis President James Bullard said on Friday. "We're going to pay interest on reserves to large banks in the U.S., and to foreign banks, to the tune of tens of billions of dollars, at a time when we're not going to pay anything back to the U.S. Treasury," Bullard said in describing the part of the Fed's planned strategy for the future. "That sounds like a recipe for political problems."
• Abercrombie(ANF) holiday sales down, gives soft forecast. Abercrombie & Fitch Co on Friday reported a drop in comparable sales during the holiday quarter on weakness at its overseas stores and in its Hollister chain, and the youth retailer warned of a sluggish start to the new fiscal year.
  Shares were down 6.4 percent to $45.96 in midday trading.
• Brazil inflation cools less than expected in mid-February. 
• Fed's Bullard-Policy to stay easy despite exit chatter. The U.S. Federal Reserve will keep its monetary policy stance loose for a long while despite increasing signs of concern among policymakers about the potential costs of asset buying, a top Fed official said on Friday. "Fed policy is very easy and it's going to stay easy for a long time," James Bullard, St. Louis Fed president, said in an interview with CNBC television.

Telegraph:

• Eurozone to stay in recession for another year. Unemployment in Europe is "unacceptably high" and threatens "grave social consequences", the European Commission has warned as it painted a gloomy picture of the eurozone's troubled economy.
• France is a 'problem child', says Merkel ally. A leading member of German Chancellor Angela Merkel's conservatives said France was a "problem child" in the eurozone and must scrap its 35-hour work week as well as push back its retirement age.

Bear Radar

Style Underperformer:

• Large-Cap Growth +.57%

Sector Underperformers:

• 1) Oil Tankers -1.31% 2) Coal -1.23% 3) Steel -.70%
  

Stocks Falling on Unusual Volume:

• INT, ANF, TV, BTU, SFY, NTT, MMSI, EBIX, VOLC, MRC, TRLA, AHS, NDSN, CEC, RNF, RAX, AGU, RWT, NCMI, SATS, BLMN, OFIX, TPC, CLGX, EQIX, AYR, MDCO, ELLI, CW and MRC

Stocks With Unusual Put Option Activity:

• 1) RDN 2) DRI 3) JWN 4) AIG 5) HPQ
  

Stocks With Most Negative News Mentions:

• 1) CF 2) POT 3) INT 4) AGU 5) VOLC
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth +.68%

Sector Outperformers:

• 1) Alt Energy +1.21% 2) Semis +1.13% 3) Computer Hardware +.89%
  

Stocks Rising on Unusual Volume:

• COG, CHTR, BBG, WBMD, AVG, ARUN, BLOX, PAY, FIRE, HPQ, RKUS, ONXX, HMSY, SPWR and JCP

Stocks With Unusual Call Option Activity:

• 1) AWAY 2) FTR 3) ARUN 4) FIRE 5) ODP
  

Stocks With Most Positive News Mentions:

• 1) WBMD 2) ESV 3) V 4) MRVL 5) HPQ

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Friday Watch

Evening Headlines 
Bloomberg: 

• Monti’s Austerity Pushes Italians Toward Parliamentary Upheaval. Elisa Dalbosco says she lost her job when it came time for her former employer, a refugee shelter in much,” said Dalbosco, who at 26 is now unemployed and poised to vote for self-described populist Beppe Grillo in elections on Feb. 24 and Feb. 25. Dalbasco’s disappointment shows why Italy is braced for its biggest political upheaval since 1994. Dalbosco, whose ballot five years ago went to an ally of front-runner Pier Luigi Bersani, won’t vote for anyone tied to incumbent Mario Monti because she says his austerity policies in a shrinking economy put the interests of banks ahead of everyone else’s. 

• Spain’s Graft Scandals Reach Palace as King’s Adviser Testifies. The graft allegations roiling the Spanish elite may edge closer to the head of state, King Juan Carlos, when his son-in-law and a senior palace official testify in court on corruption charges. Inaki Urdangarin, a former Olympic handball player married to Princess Cristina, is due to answer questions in Mallorca tomorrow as part of a private prosecution where he has been named as an official suspect on six counts including fraud, embezzlement and money laundering, a court spokeswoman said. Magistrates on the tourist island will also question Carlos Garcia Revenga, the princess’s personal secretary, who is also a suspect, she said.

• Euro Trades Near 6-Week Low Before Italian Vote; Aussie Advances. The euro traded 0.4 percent from the lowest in six weeks before Italy’s parliamentary election starts this weekend. Australia’s dollar rose after the Reserve Bank signaled it will refrain from rapid interest-rate cuts.

• Shanghai Composite Heads for Weekly Loss; Autos Lead Decline. China’s benchmark stock index fell, heading for its steepest weekly loss in five months. Automakers and metal shares slid, while consumer-staples shares advanced. SAIC Motor Corp., the biggest automaker, climbed 2.2 percent, adding to a five-day loss of 9 percent. Chinese stocks dropped this week on concern government policies to curb gains in property prices may damp demand for autos, bank loans to construction materials. New home prices rose in most cities the government tracks in January, a government report today showed. Kweichow Moutai Co. led a rally for liquor makers. The Shanghai measure has dropped 4.4 percent this week, heading for the biggest loss since September.

• China Home-Price Gains May Presage Policy Tightening: Economy. China’s new home prices rose in most cities the government tracks for a third month, adding pressure on leaders to intensify policy-tightening efforts to prevent asset bubbles and inflation as the economy rebounds. Prices climbed in January from December in 53 of the 70 cities, compared with the previous month’s 54, which was the most since April 2011, according to data today from the National Bureau of Statistics. Ten cities showed declining prices and seven were unchanged. 

• India Profit Growth Curbed by Slowing Economy, Kotak Says. India’s slowest economic expansion in a decade is limiting profit growth at the biggest companies even as foreigners remain net buyers of the nation’s stocks, according to Kotak Institutional Equities. Earnings-per-share (SENSEX) for the 30 companies making up the benchmark S&P Dow Jones Sensex Index in the year ending March 31, 2014, will probably be 1,320 rupees, 2 percent below previous estimates, Sanjeev Prasad, co-head and senior executive director at Kotak, said yesterday in Mumbai. 

• Bombings in India’s Hyderabad Kill as Many as 15 People. Three bombs exploded in the southern Indian city of Hyderabad, home to the local headquarters of Microsoft Corp. (MSFT), killing as many as 15 people, a spokesman for the state’s chief minister said.

• CME(CME) Sued by CFTC for Disclosing Non-Public Information. CME Group (CME) Inc., owner of the world’s largest futures exchange, and two former employees were sued by the U.S. Commodity Futures Trading Commission for disclosing material non-public information on customer trades. William Byrnes and Christopher Curtin, who worked for CME’s New York Mercantile Exchange, broke the law by revealing nonpublic information to an outside commodity broker between February 2008 and September 2010, the CFTC said in a lawsuit filed today in federal court in Manhattan. 

• Massachusetts S&P Probe Said to Extend Into Post-Crisis Ratings. Standard & Poor’s practices for rating commercial property bonds since the 2008 credit crisis are under scrutiny by Massachusetts authorities, three people familiar with the matter said. The scope of the probe by state Attorney General Martha Coakley extends beyond the securities and period that are the subject of a lawsuit brought by the Justice Department against New York-based McGraw-Hill Cos. and its S&P unit.

Wall Street Journal:

• Italian Voters Face Chances of Chaotic Results. When Italians head to the polls on Sunday for one of the country's most globally watched elections in decades, Silvana Giorgetto and her five million fellow undecided voters will have an important voice. The 61-year-old retired schoolteacher from the southern town of Avellino has cast a ballot in every Italian election since she came of voting age at 18. This time, she is at a loss. "We're all a bit torn—everyone has been such a disappointment."

• Payroll Tax Whacks Spending. Firms Adjust as Resumption of Levy, Expensive Gas, Stagnant Wages Bite Consumers. Wal-Mart Stores Inc. on Thursday joined a parade of retailers, restaurants and consumer-goods companies worried about the economic impact of the recently restored federal payroll tax that has left Americans with less money to spend. The world's largest retailer, Burger King Worldwide Inc., Kraft Foods Group Inc. and others are lowering forecasts and adjusting sales and marketing strategies, expecting consumers with smaller paychecks to dine out less and trade down to less expensive purchases.

• Citi(C) Awards CEO $11.5 Million in Pay. Citigroup Inc. C -2.01% awarded Chief Executive Michael Corbat $11.5 million for 2012, a year in which he took over the third-largest U.S. bank by assets in a surprise October shake-up and set plans to cut 11,000 jobs. The figure puts Mr. Corbat's compensation on par with that of James Dimon, chairman and chief executive of J.P. Morgan Chase JPM -0.74% & Co. For 2012, net income was $7.54 billion at Citigroup and $21.3 billion at J.P. Morgan.

• Noonan: Government by Freakout. Obama's scare tactics aren't much of a long-term strategy.

Fox News:

• Saudi religious police arrest Ethiopian workers for practicing Christianity.

CNBC: 

• Copper Uncoils as Economic Worries Stalk Markets. Copper prices are unraveling as global economic uncertainty returns to haunt risk assets. After an optimistic start to the year, Europe's recovery hopes were dashed by weak manufacturing data; there are fears the U.S. sequestration will undermine growth, and China is showing signs of weakness. And the minutes from the last Federal Reserve policy setting meeting showed divisions about when the central bank may start to wind down its bond-buying program. 

• Is This the Start of China's Tightening Cycle? "The very fact that the PBOC (People's Bank of China) conducted the draining operation is a hawkish signal. Clearly, the central bank is trying to send a message that it will not tolerate too easy liquidity conditions," Dariusz Kowalczyk, senior economist and strategist, at Credit Agricole CIB said.

• Hewlett-Packard(HPQ) Earnings, Outlook Top Forecasts. Hewlett-Packard reported fiscal first quarter earnings and revenue Thursday that exceeded analyst predictions. Shares of the world's leading PC maker popped more than 6 percent after the closing bell, following the news.

• AIG(AIG) Posts Net Loss After Unit Sale but Results Beat. Insurer American International Group reported a net loss for the fourth quarter following the sale of its aircraft-leasing business but its operating results topped forecasts.

Zero Hedge: 

• Global Leading Indicator Shows Slowdown Dead-Ahead. (graph)

• Stanley Druckenmiller: "We Have An Entitlement Problem" And One Day The Fed's Hamster Wheel Will Stop.

• The Global Risk Landscape For 2013.

• Nirvana, Creditopia, And Why Central Banks Are The Devil.

• FX Markets Flashing Risk Warning Signal. (graph)

Business Insider: 

• There's A Reason Obama Would Rather Talk About Benghazi Than Drones.

• HERE IT IS: David Einhorn's Massive Presentation On What Apple(AAPL) Should Do.

NY Times:

• The Rise of a Protest Movement Shows the Depth of Italy’s Disillusionment. For months, he has been shouting his way from piazza to piazza, drawing tens of thousands as he rails against tax collectors, corrupt politicians and financial speculation. And when he arrives in Rome on Friday for the final campaign rally of his “Tsunami tour,” Beppe Grillo, the Internet-savvy comedian turned populist rabble-rouser, may lead Italy’s third-most popular party.

Reuters: 

• Bundesbank looks ahead to ECB "exit" as LTROs repaid. A bumper return of 3-year loans to the ECB would boost the case for it exiting crisis mode, a top Bundesbank official said ahead of Friday's news on how much banks will hand back at a repayment window next week. 

• GM(GM) pledges $7.3 bln investment in S.Korea unit. General Motors Co said it would invest $7.3 billion in its South Korean unit over the next five years -- an amount which will likely help relieve concerns that the U.S. automaker was set to reduce its presence in the country. 

• U.S.-focused stock mutual funds regain favor with inflows of $924.6 mln -Lipper.

• Corzine avoids lifetime futures ban, for now -regulator. A key U.S futures-market regulator said on Thursday it will block Jon Corzine, the former chief executive of failed broker MF Global, from the industry unless he clears an investigation into his fitness as a participant. However, the National Futures Association, which oversees brokers and asset managers, rejected a proposed lifetime ban for Corzine for now. 

• Nordstrom(JWN) store expansion, e-commerce plans dent profit forecast. Nordstrom Inc on Thursday said it would spend far more money this year on building out its e-commerce capacity and expanding its chain of discount Rack stores, leading to a profit forecast that disappointed Wall Street. 

• White House: keeping close eye on spiraling gasoline prices.

Financial Times: 

• Brussels turns up pressure over Libor. The commission can impose a maximum penalty equivalent to 10 per cent of a company’s global turnover for each cartel it is found to be involved with. A bank implicated in all three rate-fixing cases could, for example, face fines of up to 30 per cent of total revenues.

Telegraph:

• The Bank of England can’t just go on doing down the pound. Devaluation has now become an end in itself at the Bank of England – but it’s no panacea and we risk a lost decade like Japan.

Economic Information Daily:

• China Ministries Consider Steps to Curb Overcapacity. China is considering measures to curb overcapacity and "blind expansion" by companies, including limits on energy consumption and differential power prices, citing a person familiar with the matter. The National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Finance, Ministry of Land and Resources and Ministry of Environment Protection will work together on the measures, according to the report.

Want China Times:

• Official austerity hits China's high-end catering business hard. High-end catering companies across China have seen a substantial drop in business since the central government launched new rules to combat extravagance, wastage and corruption in December, said Shen Danyang, spokesman for the Ministry of Commerce on Wednesday at a press conference. Restaurants and function centers in Beijing have seen a 35% decline in revenue, those in Shanghai a 20% decline, and those in Ningbo in the eastern province of Zhejiang, a 30% drop, according to a survey. Sales of prestigious dishes including bird's nest and abalone also saw a 40% fall during the Lunar New Year holiday, known locally as Spring Festival. The sale of shark fin has fallen 70%. Luxury hotels have seen a 45% drop in sales of their gift boxes and sales of premium spirits including Moutai and Wuliangye have also been hit hard.

Evening Recommendations 
Piper Jaffray:

• Rated (BRCM) Overweight, target $50.

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 109.5 +1.25 basis points.

• Asia Pacific Sovereign CDS Index 84.0 +1.5 basis points.

• FTSE-100 futures +.47%.

• S&P 500 futures +.23%.

• NASDAQ 100 futures +.21%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (ANF)/1.96

• (B)/.51

• (IPG)/.53

Economic Releases

• None of note

Upcoming Splits

• (DDD) 3-for-2
  

Other Potential Market Movers

• The Fed's Powell speaking, German IFO/CPI data, Eurozone GDP and the EU economic forecasts could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by healthcare and consumer shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

Stocks Falling into Final Hour on Surging Eurozone Debt Angst, Rising Global Growth Fears, Sequestration Worries, Tech/Commodity Sector Weakness

Broad Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: About Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• VIX 15.50 +5.59%
  

• ISE Sentiment Index 91.0 +12.35%

• Total Put/Call 1.13 unch.

• NYSE Arms 1.20 -59.90%

Credit Investor Angst:

• North American Investment Grade CDS Index 888.35 +.91%

• European Financial Sector CDS Index 150.23 +5.63%

• Western Europe Sovereign Debt CDS Index 101.19 +2.21%

• Emerging Market CDS Index 237.31 +.84%

• 2-Year Swap Spread 15.50 unch.

• TED Spread 16.75 -.5 bp

• 3-Month EUR/USD Cross-Currency Basis Swap -18.0 -1.0 bp

Economic Gauges:

• 3-Month T-Bill Yield .12% unch.

• Yield Curve 173.0 -2 bps

• China Import Iron Ore Spot $156.20/Metric Tonne -1.70%

• Citi US Economic Surprise Index -4.70 -1.0 point

• 10-Year TIPS Spread 2.53 -2 bps

Overseas Futures:

• Nikkei Futures: Indicating -51 open in Japan

• DAX Futures: Indicating +11 open in Germany

Portfolio: 

• Slightly Higher: On gains in my index hedges and emerging markets shorts
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back
• Market Exposure: 25% Net Long

Today's Headlines

Bloomberg:

• Euro-Area Manufacturing, Services Contraction Worsens: Economy. Euro-area services and manufacturing contracted at a faster pace than economists forecast in February as the economy struggled to recover from the deepest recession in almost four years. A composite index based on a survey of purchasing managers in both industries in the 17-nation currency bloc decreased to 47.3 from 48.6 in January, London-based Markit Economics said today. Economists had forecast a reading of 49, according to the median of 22 estimates in a Bloomberg survey. The data reinforce indications that the euro-area economy continued to contract in early 2013 after the recession worsened in the fourth quarter. The manufacturing gauge slipped to 47.8 from 47.9. In Germany, Europe’s biggest economy, the services measure fell to 54.1 in February from 55.7 last month, the sharpest decline since August. France’s services gauge fell to 42.7 this month from 43.6 in January, while its manufacturing index increased to 43.6 from 42.9, today’s data showed. 
• European Stocks Decline Most in Two Weeks on Fed, Economy. European (SXXP) stocks declined the most in more than two weeks as a measure of services and manufacturing output contracted, while concern mounted that the Federal Reserve will scale back its asset-purchase program. All 19 industry groups in the Stoxx Europe 600 Index retreated with a gauge of carmakers dropping 2.5 percent. BHP Billiton Ltd., the world’s biggest mining company, posted its largest two-day drop in more than nine months. Safran SA slid the most since August after saying it may make an offer for Avio SpA’s space-propulsion business. The Stoxx 600 sank 1.5 percent to 284.86 at the close of trading in London, its biggest tumble since Feb. 4.
• Euro Weakens Below $1.32 First Time in Six Weeks as Output Drops. The euro declined below $1.32 for the first time in six weeks as an industry report showed services and manufacturing in the region shrank at a faster pace in February than economists forecast.
• China Swaps Touch Two-Week High on Record PBOC Fund Withdrawals. China’s one-year interest-rate swaps touched a two-week high on speculation the central bank will tighten monetary policy to temper gains in home prices. Premier Wen Jiabao called on local authorities to “decisively” curb real estate speculation and take steps to rein in the property market after data showed prices surged the most in two years last month. The People’s Bank of China drained 910 billion yuan ($146 billion) from the financial system this week, the biggest withdrawal since Bloomberg started compiling the data in 2008. “It shows determination of the central bank to tighten liquidity conditions as they need to guard against nascent inflation and asset-price gains, especially in real estate,” said Dariusz Kowalczyk, a Credit Agricole CIB strategist in Hong Kong.
• Emerging Stocks Erase Gains for 2013 Year as Earnings Disappoint. Emerging-market stocks erased gains for the year, underperforming developed-nation equities as earnings at companies from Hyundai Motor Co. (005380) to Petroleo Brasileiro SA (PETR4) trailed analysts’ forecasts. The MSCI Emerging Markets Index (MXEF) fell 1.3 percent to 1,055.02 as of 4:45 p.m. in Hong Kong, wiping out this year’s advance. The gauge has fallen 2.6 percent from a 17-month high on Jan. 3 as 62 percent of the companies included reported quarterly profit that missed estimates, compared with 34 percent in the MSCI World Index of developed nations.
• Emerging Stocks Face Significant Correction, JPMorgan Says. Emerging-market stocks may enter a “significant correction” after they trailed developed-nation shares this year, according to JPMorgan & Chase Co. “Fundamentals and technicals are weakening,” Adrian Mowat, the chief Asia and emerging-market strategist at JPMorgan, wrote in a report dated yesterday. He recommended options that protect against stock losses and advised selling equities that are most sensitive to market swings.
• Insider Sales Reach 2-Year High as S&P 500 Nears Record. Corporate executives are taking advantage of near-record U.S. stock prices by selling shares in their companies at the fastest pace in two years. There were about 12 stock-sale announcements over the past three months for every purchase by insiders at Standard & Poor’s 500 Index (SPX) companies, the highest ratio since January 2011, according to data compiled by Bloomberg and Pavilion Global Markets. Whenever the ratio exceeded 11 in the past, the benchmark index declined 5.9 percent on average in the next six months, according to Pavilion, a Montreal-based trading firm.
• Hedge Funds Boost Stock Bets to ’07 High, Goldman Says. Hedge funds are more bullish on equities than they have been in six years and American International Group Inc. (AIG) replaced Apple (AAPL) Inc. as the top-held stock, according to Goldman Sachs Group Inc. Net long exposure to stocks in hedge funds climbed to 52 percent in the fourth quarter, matching the 10-year high reached in the first quarter of 2007, a team led by Goldman Sachs’ Amanda Sneider and David Kostin said in a report yesterday.
• Iron-Ore Swaps Drop as China Property Curbs Seen Cutting Demand. Iron-ore swaps dropped the most in almost six weeks alongside declines in steel futures and equities on speculation China’s call for real-estate curbs would curb demand for the commodity used in construction materials. The March contract tumbled 2.6 percent to $148.50 a dry metric ton as of 8:26 a.m. in London, according to GFI Group Inc. It headed for the biggest decline since Jan. 11, based on data from SGX AsiaClear, the largest clearer of the derivatives used to hedge prices and bet on Chinese growth. 
• Wheat Leads Slump as Nickel to Crude Fall: Commodities at Close. Copper, tin and nickel fell to the lowest this year on signs of a deepening slump in Europe and concern that the Federal Reserve will slow the pace of economic stimulus in the U.S. Copper futures for May delivery slumped 1.7 percent to $3.5625 a pound at 10:28 a.m. on the Comex in New York after touching $3.5585, the lowest since Dec. 24.
• Index of U.S. Leading Economic Indicators Rose in January. The index of U.S. leading indicators rose for a second month in January, showing the world’s largest economy is on track to sustain the expansion in the first half of this year. The Conference Board’s gauge of the outlook for the next three to six months increased 0.2 percent from a 0.5 percent rise in December, the New York-based group said today. The gain matched the increase projected by economists, according to the median estimate in a Bloomberg survey. 
• Previously Owned U.S. Home Sales Climb to 4.92 Million. Purchases of existing houses rose 0.4 percent to a 4.92 million annual rate, figures from the National Association of Realtors showed today in Washington.
• Consumer Bureau Said to Warn Banks of Auto Lending Suits. The U.S. Consumer Financial Protection Bureau has told at least four banks that it may sue them over vehicle loans and interest-rate markups by auto dealers that appear discriminatory, according to three people briefed on the matter. The banks received letters from the CFPB last week giving them 15 days to provide an explanation of the practice, said the people, who asked not to be identified because the plans aren’t public. The letters indicate the bureau believes the banks may have violated the Equal Credit Opportunity Act, a 1974 law that bars discrimination in lending.

Wall Street Journal: 

• Multiple Bomb Attacks Rock Damascus. Dozens of Syrians were killed and wounded on Thursday in a wave of car bombs and mortar attacks targeting political, security and military symbols of President Bashar al-Assad's regime, according to witnesses, state media and opposition activists.
• Wal-Mart(WMT) Expects Flat U.S. Sales This Quarter. Wal-Mart Stores Inc.'s WMT +2.14% fiscal fourth-quarter earnings rose 8.6% helped by a lower tax rate and expense controls, while same-store sales at U.S. Wal-Mart stores were at the low end of the company's guidance. The world's largest retailer forecast flat same-store sales for its U.S. division in the current quarter, reflecting the strain its customers are under. Wal-Mart's lower income customers are grappling with higher payroll taxes, rising gasoline prices and delayed income-tax refunds.
• 'How Stupid Do You Think We Are?' An American CEO speaks the blunt truth to the French state.

MarketWatch:

• Fed's Bullard: Current policy looks very easy. Federal Reserve policy looks "very easy" and is below one of the Fed favorite guideposts for policy, said James Bullard, the president of the St. Louis Federal Reserve Bank on Thursday. In a speech at the New York University School of Business, Bullard said that one estimate of policy puts the Fed's short-term rate at negative 5%, considerably more negative than the Taylor rule that the central bank often used before the crisis to gauge policy. The Taylor rule and St. Louis Fed forecasts suggest that rates should increase above zero in August, Bullard said. But some analysts suggest that the Fed would want to keep rates at zero for an "extra time" to make up for having rates at zero since 2008. Bullard said Fed policy is consistent with the extra time approach. Bullard repeated that he backed tapering asset purchases to send signals to the market about the economy's progress.
• Iran Lifts Output, Upgrades Atomic Technology Before Meeting. Iran rolled out new atomic technology and boosted its output of enriched uranium that world powers are concerned may eventually be used for nuclear weapons, according to the International Atomic Energy Agency. Iran’s total production of medium-enriched uranium rose to 280 kilograms (617 pounds) from 232.8 kilograms reported in November, the IAEA said today in a 12-page restricted report. Iran has converted or is in the process of converting 103 kilograms, or 37 percent of the stockpile, into reactor fuel, which Iran has declared is for producing medical isotopes.

CNBC:

• Italy's Election: Tycoon, Comedian or Professor.
• Strike Three! The American Consumer Is Out. Faced with delayed tax refunds, an increased paycheck tax bite and higher gas prices, U.S. consumers are proceeding cautiously and scaling back, a trend that has already impacted one large retailer's bottom line. Nearly three-quarters of those polled by the National Retail Federation said their spending plans are taking a hit due to the expiration of a two-percent cut in payroll taxes that made consumers do a double-take on their paychecks at the start of the year. Lower-income consumers are already feeling the pinch, analysts said.

Zero Hedge:

• Frontrunning the Myopic Muppets - Bank Bailout Edition!
• Initial Jobless Claims Spike Even As BLS "Estimates" California, Virginia, Hawai And DC Data; Back To Year Ago Levels. (graph) 
• Philly Fed Plunges To 8 Months Low As Great Unrecovery Continues. (graph) 
• Congress Asks Bernanke For Full Risk Analysis On Fed's Soaring Balance Sheet.
• About Your $3.16 A Day Healthcare Insurance Plan...

Business Insider: 

• After Sequestration, A Shocking Proportion Of Government Spending Will Be On Entitlements. 
• GARTMAN: We Are Exiting All Bullish Positions And Rushing To The Sidelines. 
• Italy Had An Awful Day. (graph) 
• JPMORGAN: Here's What You Need To Know About The Radical Comedian Who's Offering Everyone In Italy A Free iPad.

New York Times: 

• Manufacturers Survey Points to New Downturn in Euro Zone.

Reuters: 

• Italy election stalemate worst option for markets. An inconclusive result in Italy's elections this weekend could prompt an even bigger sell-off in some markets than the return to power of scandal-mired Silvio Berlusconi, who led the country to the financial precipice in 2011. 
• Moody's outlook for US local governments remains negative. Moody's Investors Service is keeping its outlook negative for U.S. local governments in 2013, as cities and counties must continue to contend with tight revenues, high demand for spending, and an "uneven economic recovery," the rating agency said on Thursday.

Telegraph: 

• Angela Merkel accused of 'unholy alliance' with Britain. Angela Merkel has been accused of engaging in an “unholy alliance” with Britain after backing David Cameron’s demands for a cut to the European Union budget.

BBC:

• Libor setting 'still not clean' despite scandal. The way that the key Libor interest rate is set in the UK is still not clean and free of fraud, according to a top US regulator. "We have a lot more work to do," Gary Gensler, chairman of the Commodity Futures Trading Commission, told the BBC in London. He suggested that the rate was often "completely made up".

Naftemporiki:

• Greek Revenue Misses Target So Far This Month. State revenue in first 15 days of month seen at EU1.174b vs. EU1.365b target, citing preliminary finance ministry data.