Stocks Surging into Final Hour on Central Bank Hopes, Less Eurozone/Emerging Markets/US High-Yield Debt Angst, Yen Weakness, Financial/Tech Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 17.9 -12.56%

• Euro/Yen Carry Return Index 129.44 +1.03%

• Emerging Markets Currency Volatility(VXY) 11.64 -2.84%

• S&P 500 Implied Correlation 58.71 -4.49%

• ISE Sentiment Index 86.0 -28.93%

• Total Put/Call .85 -29.17%

• NYSE Arms 1.27 -5.56% 

Credit Investor Angst:

• North American Investment Grade CDS Index 102.06 -5.07%

• America Energy Sector High-Yield CDS Index 2,327.0 -4.94%

• European Financial Sector CDS Index 103.13 -4.43%

• Western Europe Sovereign Debt CDS Index 32.83 -4.03%

• Asia Pacific Sovereign Debt CDS Index 73.09 -2.03%

• Emerging Market CDS Index 355.67 -3.62%
  

• iBoxx Offshore RMB China Corporate High Yield Index 123.99 unch.

• 2-Year Swap Spread 4.0 -1.0 basis point
  

• TED Spread 31.50 -1.0 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -30.25 -.25 basis point
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 69.03 +.90%
• 3-Month T-Bill Yield .32% unch.

• Yield Curve 98.0 +2.0 basis points
  

• China Import Iron Ore Spot $51.44/Metric Tonne +3.67%

• Citi US Economic Surprise Index -12.70 +6.7 points

• Citi Eurozone Economic Surprise Index -67.70 +3.2 points

• Citi Emerging Markets Economic Surprise Index -8.80 +.1 point

• 10-Year TIPS Spread 1.49% +4.0 basis points
• 22.6% chance of Fed rate hike at April 27 meeting, 38.0% chance at June 15 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +495 open in Japan 
• China A50 Futures: Indicating +45 open in China

• DAX Futures: Indicating +51 open in Germany

Portfolio: 

• Slightly Lower: On losses in my index hedges and emerging market shorts

• 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:

• Global Junk-Bond Default Rate to Rise to '09 Level, Moody's Says. Global junk-bond defaults will rise to the highest level in seven years in 2016 as a prolonged downturn in commodity prices continues to wreak havoc on company profits and balance sheets, according to Moody’s Investors Service. The ratings company forecasts that the speculative-grade default rate will reach 4 percent this year, up from 3.5 percent in 2015 and the highest level since 2009. The default rate for all of Moody’s-rated corporate issuers is estimated to rise to 2.1 percent, also a post-financial crisis high, from 1.7 percent last year. "Persistently low commodity prices, slowing economic expansion and widening high-yield spreads will send default rates higher in 2016," Moody’s credit analyst Sharon Ou wrote in a Feb. 29 report. Diminished credit quality "combined with the sharp increase in defaults and rising investor caution, indicate that the credit cycle is turning."
• Merkel Says Euro Is at Risk If Europe Crumbles in Refugee Crisis. German Chancellor Angela Merkel said Europe’s discord over refugees threatens the euro, raising the stakes as European Union leaders prepare for their next emergency meeting to stem the crisis. “If we disintegrate into small countries again, a common currency will be very difficult,” Merkel said at a party rally late Monday in the western German town of Volkmarsen. “What we are seeing in recent days, with certain countries going their own way to the detriment of another country like Greece -- that isn’t the European way.”
• Euro-Area Factories Cut Prices at Fastest Pace Since 2013. Euro-area factories cut prices at the fastest pace in almost three years in February, compounding an already worrisome inflation environment for the European Central Bank. Markit Economics said the price gauge of its manufacturing Purchasing Managers Index fell further below the key 50 level, dropping to the lowest since June 2013. All countries bar one in its monthly survey reported falling output prices, including Germany, France and Italy, the region’s three largest. The report comes a day after data showed consumer prices in the euro region fell an annual 0.2 percent in February, the most in a year. With ECB policy makers due to meet next week, the mounting catalogue of negative numbers may prompt them to increase their stimulus programs again. Chris Williamson said the report suggests that “deflationary pressures have intensified.” “With all indicators -- from output and demand to employment and prices -- turning down, the survey will add pressure on the ECB to act quickly and aggressively to avert another economic downturn,” he said.
• U.K. Manufacturing Has Its Worst Month in Almost Three Years. U.K. manufacturing grew the least in almost three years in February and new orders barely rose, highlighting the fragility of the economy as it heads into an uncertain year. Markit Economics said its factory index dropped to 50.8 from 52.9, marking the weakest reading since April 2013. A gauge of new orders was just above the key 50 line that divides expansion from contraction while employment shrank for a second month.
• Europe's Biggest Oil Hub Fills as Ship Queue at Seven-Year High. The queue of ships waiting outside Europe’s biggest port and oil-trading hub of Rotterdam has grown to the longest in seven years as a global supply glut fills storage capacity. As many as 50 oil tankers, twice as many as normal, are waiting outside Rotterdam because storage sites are almost full, the port’s spokesman Tie Schellekens said by phone on Tuesday. “This is a clear sign of the oversupply filling up storage to the brim,” Gerrit Zambo, an oil trader at Bayerische Landesbank in Munich, said by phone. “People are preferring to store oil rather than cut production. These are bearish signs.” 
• Barclays Plummets as Bank Slashes Dividend in Plan to Shrink. (video) Barclays Plc fell the most in more than three years in London trading as investors balked at Chief Executive Officer Jes Staley’s pitch that more short-term pain will be necessary for the bank to right itself. The lender cut its dividend for the next two years and said costs from its non-core division will rise by as much as 1 billion pounds ($1.39 billion) this year as it accelerates the unit’s wind-down, according to a statement Tuesday. The shares plummeted 8.1 percent to close at 158.1 pence in London, the most since June 2012. The stock has dropped 28 percent this year, more than any other large U.K. lender.
• European Stocks Complete Longest Rally Since October; LSE Jumps. (video) Carmakers led a fourth day of gains in European stocks, while London Stock Exchange Group Plc jumped amid a bidding war. BMW AG gained 4.2 percent after its chief executive officer forecast another year of record sales, and Daimler AG added 2.5 percent after its CEO noted strong growth in Europe and China. LSE surged 7.2 percent after Intercontinental Exchange Inc. said it’s considering a bid for the company that’s in merger talks with Deutsche Boerse AG. The Stoxx Europe 600 Index added 1.4 percent at the close of trading, as all 19 industry groups rose.
• Fed's Dudley 'Somewhat Less Confident' on Inflation Outlook. Federal Reserve Bank of New York President William Dudley said that while he still expects inflation to reach the U.S. central bank’s 2 percent target over time, he’s lost some confidence in that prediction, adding his voice to the concern expressed by several other policy makers. “On balance, I am somewhat less confident than I was before,” Dudley, the vice chairman of the policy-setting Federal Open Market Committee, said Tuesday in the Chinese city of Hangzhou. “Partly, this reflects my assessment that uncertainty to the outlook has increased and that downside risks have crept up.”
• Ryan Chides Trump, Indirectly, Over Lack of KKK Denunciation. House Speaker Paul Ryan on Tuesday scolded Donald Trump -- without directly naming him -- over his refusal to sufficiently disavow the support of former Ku Klux Klan grand wizard David Duke. Ryan’s criticism was indirect, but clear. "If a person wants to be a nominee of the Republican Party, there can be no evasion and no games," he said. "They must reject any group or cause that is built on bigotry. This party does not prey on people’s prejudices."
• Sports Authority Said to Plan Bankruptcy as Soon as This Week. Sports Authority Inc. is planning to file for bankruptcy within the next few days, assuming it can finalize terms for a loan to keep it operating during court proceedings, according to people with knowledge of the matter. The retailer is sorting out details on the loan, known as debtor-in-possession financing, said the people, who asked not to be identified because the talks are private. Lenders such as Wellington Management and Blackstone Group’s credit unit GSO Capital Partners are considering providing the financing, two of the people said. They are two of the holders of Sports Authority’s $300 million term debt maturing November 2017.

Wall Street Journal:

• GOP Senate Leaders Tell Obama They Won’t Consider His Supreme Court Pick. Senators decline president’s offer to review a list of potential nominees in advance of an announcement.

Fox News:

• Rubio, Cruz locked in critical Super Tuesday battle for runner-up. (video) Marco Rubio and Ted Cruz are battling fiercely to be the definitive alternative to take on Trump in what could be a bruising, to-the-convention fight for the future of the party.

CNBC:

• Obamacare is main roadblock to cancer 'moonshot'. President Barack Obama has promised a "moonshot" to cure cancer, but the biggest obstacle to that goal could be his major healthcare achievement – The Patient Care and Affordable Care Act. 
• NYC judge unlocks door to Apple(AAPL) privacy win.

Zero Hedge: 

• Someone Isn't "Buying" This Rally: The "Smart Money" Sells For Five Consecutive Weeks As Buybacks Soar. Hedge funds, institutional clients, and private clients alike were net sellers last week, led by hedge funds. All three groups are also now net sellers on a cumulative basis year-to-date (again, led by hedge funds).
• London Bubble Trouble - Visas Issued To Wealthy Foreigners Plunge 84%.
• "VIX Tails" Send Dow Up 350 Points From Overnight Lows. (graph)
• China's Mass Unemployment Wave Begins: Six Million Workers To Get Pink Slips. (graph)
• Spot The End Of Monetary Policy Effectiveness. (graph)
• Most "Priced In" Policy Since 2011 - Why Draghi Better Not Disappoint. (graph)
• Growing "Signs Of Distress" In US Manufacturing Data Demolish Decoupling Dream. (graph)
• The Great Corporate Earnings Fraud.
• Global Manufacturing Rolling Over: Over 70% Of Global PMIs Decline In February. (table)
• Buffett's Fallacy - 2% Growth & Future Prosperity.
• The Best And Worst Performing Assets Of February And 2016. (graph)

Business Insider:

• The Wolves of Wall Street are everywhere.
• The two stocks that have been the source of so much pain on Wall Street are tanking again.
• Former hedge fund manager Phil Falcone spoke in public for the first time in years, and slammed the industry. Former hedge fund manager Philip Falcone said that there's "an awful lot of mediocrity" these days in the hedge fund space.
• Bonds are getting smoked. 

CNN:

• National poll: Clinton, Sanders both top Trump. (video) Both of the remaining Democratic candidates for president easily top Republican front-runner Donald Trump in hypothetical general election match-ups, according to a new CNN/ORC Poll. But Hillary Clinton, who is well ahead in the Democratic race for the presidency, would likely face a stronger challenge should Florida Sen. Marco Rubio or Texas Sen. Ted Cruz capture the Republican nomination for president. In the scenario that appears most likely to emerge from the primary contests, Clinton tops Trump 52% to 44% among registered voters. That result has tilted in Clinton's favor since the last CNN/ORC Poll on the match-up in January. But when the former secretary of state faces off with either of the other two top Republicans, things are much tighter and roughly the same as they were in January. Clinton trails against Rubio, with 50% choosing the Florida senator compared to 47% for Clinton, identical to the results in January. Against Cruz, Clinton holds 48% to his 49%, a slight tightening from a 3-point race in January to a 1-point match-up now.

Bear Radar

Style Underperformer:

• Small-Cap Growth +1.2%

Sector Underperformers:

• 1) Gold & Silver -3.1% 2) Oil Tankers -.9% 3) Medical Equipment -.5%

Stocks Falling on Unusual Volume:

• ASPS, DPLO, POM, OA, NVRO, TNET, MSI, KAMN, MHG, GB, TUBE, ANAC, LNCE, ZLTQ, LLTC, MDT, PAM, ASCMA, ICE, NLNK, ENDP, SCOR, VRX, NRZ, SRDX, FSS, MSI and NRZ

Stocks With Unusual Put Option Activity:

• 1) FAST 2) MRO 3) EWH 4) RH 5) F

Stocks With Most Negative News Mentions:

• 1) FSLR 2) VRX 3) DSW 4) SUNE 5) DKS

Charts:

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

Bull Radar

Style Outperformer: 

• Large-Cap Growth +1.9%

Sector Outperformers:

• 1) Gaming +5.7% 2) Steel +4.8% 3) Banks +4.1% 
  

Stocks Rising on Unusual Volume: 

• WDAY, KATE, SMLP, HIMX, LXRX, CKEC, KITE and F

Stocks With Unusual Call Option Activity: 

• 1) MCHP 2) MPLX 3) KATE 4) WWAV 5) SGMS

Stocks With Most Positive News Mentions: 

• 1) WDAY 2) TMUS 3) HPQ 4) RTN 5) T

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +24.4% Above 100-Day Average
• 6 Sectors Rising, 4 Sectors Declining
• 75.8% of Issues Advancing, 22.4% Declining
• 40 New 52-Week Highs, 21 New Lows
• 27.5% of Issues Above 200-day Moving Average
• Average 14-Day RSI 45.0%
• Vix 19.0 -7.3%
• Total Put/Call .96 -20.0%
• TRIN/Arms 1.86 +38.4%

Tuesday Watch

Evening Headlines
Bloomberg: 

• China's PMI Reports Show Slowdown Deepening as Services Slip. (video) China’s factory gauge extended its stretch of deteriorating conditions to a record seven months while a measure of services fell to the weakest in seven years, underscoring the challenge for policy makers as they seek to cut overcapacity in manufacturing without derailing growth. The manufacturing purchasing managers index dropped to 49 in February, missing the median estimate of 49.4 in a Bloomberg News survey of economists. It hasn’t been weaker since January 2009. Numbers below 50 indicate conditions worsened. In a sign China’s slowdown is spreading, the non-manufacturing PMI -- which has been outperforming the factory measure -- fell to the lowest level since December 2008. A separate manufacturing reading from Caixin Media and Markit Economics fell to 48 in February, from 48.4 in January.

• Why China’s Economy. Will Be So Hard to Fix. (graph)  

• Smells Like Subprime. Chinese bankers often pride themselves on having studied in the U.S. or the U.K and true to form, they're bringing home a lot of the intricate financing that helped people overseas get loans for homes, cars and education. But these financiers are taking creative structures one step further. On Monday, Bloomberg News reported that China will allow domestic banks to issue as much as 50 billion yuan ($7.6 billion) of asset-backed securities that would be paid back using the proceeds from nonperforming loans. (Yes, you read that correctly.) The structure they're employing is similar to the method that was used to repackage subprime mortgages in the U.S. ahead of the global financial crisis.

• Sydney Median Home Price Falls to 10-Month Low as Market Slows. (graph) The Sydney median home price dropped to a 10-month low in February after record values and a regulatory clampdown that tightened lending standards crimped demand. The median dwelling value in Australia’s largest city fell to A$730,000 ($522,000) from A$765,000 a month earlier, falling for a third consecutive month, data from researcher CoreLogic Inc. showed Tuesday. The measure touched a record A$800,000 in October, according to the data. 

• Most China Stocks Rise After Reserve Ratio Cut, Factory Data. Most Chinese stocks advanced after the central bank’s move to cut the amount of cash lenders must hold in reserve and a strengthening yuan countered disappointing manufacturing data. The Shanghai Composite Index edged higher in mid-morning trading, with about four stocks gaining for every that fell. The required reserve ratio will drop by 0.5 percentage point effective March 1, the People’s Bank of China said after the nation’s markets closed Monday.

• Asian Stocks Swing as Yen Advance Offset China Economic Stimulus. Asian stocks fluctuated between gains and losses as continuing strength in the yen pressured Japanese shares while investors weighed disappointing China manufacturing data against the nation’s stimulus efforts. The MSCI Asia Pacific Index climbed 0.1 percent to 119.32 as of 11:39 a.m. in Tokyo, after dropping 0.1 percent earlier.

• S&P 500 Falls for a Third Month as Late-February Rebound Fades. (video) The Standard & Poor’s 500 Index erased a February gain Monday, despite a rally in crude oil, as a two-week rebound faltered in the month’s lightly traded final session. Banks and health-care shares were the biggest drags today, with lenders capping a third monthly decline, losing 6.9 percent in February. JPMorgan Chase & Co. and Wells Fargo & Co. fell at least 2.1 percent to pace Monday’s retreat. Amgen Inc. sank 3.6 percent and Endo International Plc plunged 21 percent as health-care companies had their worst decline in more than two weeks. Energy shares fell 1.2 percent to post the fourth consecutive monthly drop and ninth in the last 10. The S&P 500 fell 0.8 percent to 1,932.23 at 4 p.m. in New York, extending its monthly losing streak to three, the longest in more than four years. It closed 0.4 percent lower for February.

Wall Street Journal:

• 1MDB Scandal: Deposits in Malaysian Leader Najib’s Accounts Said to Top $1 Billion. Global investigators believe much of it originated with state development fund and moved to Prime Minister Najib Razak’s accounts via offshore entities.

• The Donald and The Terminator. The perils of a conservatism where the messenger trumps the message. Before there was Donald, there was Arnold. And therein lies a cautionary tale with particular resonance this Super Tuesday. The caution has to do with the limits of a personality-driven populism for effecting conservative change. The moment has to do with the 11 primaries and caucuses on Tuesday: The results may well make it all but impossible for any rival to wrest the 2016 GOP presidential nomination from Donald Trump. 

• Making Depressions Great Again. The U.S. may renounce its trade leadership at a dangerous economic moment. Political leaders have made many mistakes since the 2008 financial panic, but by some miracle a trade war isn’t one of them. There are signs that this luck is running out, at a moment the world economy can least afford it. 

Fox News:

• Lynch: No ‘artificial deadline’ on DOJ’s Clinton email probe. (video) Attorney General Loretta Lynch said Monday in an interview with Fox News that the Justice Department has no deadline for concluding the Hillary Clinton email investigation and that it’s being handled “like any other review,” even with the presidential election just months away. Lynch said on "Special Report with Bret Baier" that the investigation is being handled by the agency’s “career independent lawyers” and that they will “review the facts and the evidence and make a determination in due course.”

• Hobby Lobby Founder Endorses Rubio, Calls Trump a 'Bully'. Hobby Lobby founder David Green, who just endorsed Marco Rubio for president, explained to the FOX Business Network’s Neil Cavuto why he is not going to vote for Donald Trump. “I don’t want a loose cannon to take care of the problems we have,” Green said. “We’re all angry at where we’ve been. But, to do something because we think someone’s made a billion dollars—we’ve made billions of dollars, but that doesn’t make us have the ability to run this country… the last thing we need in this country [right] now is an individual that leads us by a scorched earth attitude and no matter what it takes to get ahead.”

Zero Hedge:

• China Faces 15 Trillion Bombshell As Shadow Banking Sector Collapses.

• China PMIs Plunge, Economists Demand Stimulus To "Prevent Economy Falling Off A Cliff". (graph)

• "This Is Pretty Freaking Nuts": Vancouver Home Sells For $735,000 Above Asking Price. (graph)

• Aussie Housing Bubble Bursts - Building Approvals Crash Most In 4 Years. (graph)

• China's Crowd-Sourced Housing Bubble Goes "Crazy" - $585,000 For A 65 Square Foot 'Apartment'. (graph)

• Systemic "Fragility" Surges. (graph)

• With $1.8 Trillion In Debt Maturing This Year, Two Big Problems Emerge. (graph)

• It's Not Just The GOP – The Democratic Party Is Also Imploding.

• This Is The Last Stage Before Recession. (graph)

• "The GOP Is On The Verge Of A Meltdown": Senior Republicans Threaten To Vote For Hillary. (graph) They fear that a victory for Mr Trump could fatally fracture the party and prevent them from winning the White House in November.

• Peak Complacency (Again). (graph)

• Get Shorty? PBOC Strengthens Yuan, Erases All RRR-Cut Swing. (graph)

• Japan Braces For A "Turbulent, Volatile" 10-Year Auction With First Ever Negative Yield On Deck. (graph)

• Workers At Tesla's Gigafactory Stage Mass Walk Out Protesting Out Of State Employees.

• Exporting Death & Destruction. (graph)

• Ackman Losses $200 Million In An Instant After Valeant(VRX) Reveals SEC Investigation; Stock Crashes.

• Gold Glows As Stocks Suffer Longest Losing Streak Since 2011. (graph)

Business Insider:

• A Trump victory could mean the end of the Republican Party.

• China's economic transition is in trouble.

• China is about to pour even more money into its military.

• The world is swimming in debt.

• Spending by the wealthy has peaked.

Xinhua:

• China State Media Warns of Home Price Surge in Top Cities. Some developers and real estate agents created illusion of massive demand for homes that led to purchases by panic buyers, according to a commentary written by reporter Zheng Juntian.

Night Trading 

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

• Asia Ex-Japan Investment Grade CDS Index 159.0 +1.0 basis point. 

• Asia Pacific Sovereign CDS Index 74.50 -1.25 basis points. 

• Bloomberg Emerging Markets Currency Index 68.45 +.05%. 

• S&P 500 futures -.16%. 

• NASDAQ 100 futures -.20%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (AZO)/7.29

• (DFRG)/.36

• (DLTR)/1.07

• (DCI)/.34

• (JD)/-.16

• (JKS)/1.36

• (MDT)/1.06

• (BOBE)/.55

• (ROST)/.64 

Economic Releases 
9:45 am EST

• The Final Markit US Manufacturing PMI for February is estimated to rise to 51.2 versus 51.0 in January.

10:00 am EST

• The IBD/TIPP Economic Optimism Index for March is estimated to rise to 47.9 versus 47.8 in February. 

• ISM Manufacturing for February is estimated to rise to 48.5 versus 48.2 in January. 

• ISM Prices Paid for February is estimated to rise to 35.0 versus 33.5 in January.

• Construction Spending for January is estimated to rise +.3% versus a +.1% gain in December.  

Afternoon:

• Wards Total Vehicle Sales for February are estimated to rise to 17.7M versus 17.47M in January.

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Eurozone Manufacturing PMI, Super Tuesday Primaries, US weekly retail sales reports, CSFB Healthcare Conference, Pac Crest Emerging Tech Summit, (APC) conference call, (F) February sales conference call and the (OI) investor day could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted 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 25% net long heading into the day.