Monday Watch

Weekend Headlines 
Bloomberg: 

• Putin Stirs Azeri Angst Russia Will Seek to Extend Sway. As Vladimir Putin completes Russia’s annexation of Crimea, Azerbaijan is worried that his next move will be to shift his attention southward. The Caspian Sea nation, the only westward route for central Asian oil and gas that bypasses Russia, is finding itself hemmed in by Putin’s regional ambitions. Russian troops are already stationed in neighboring Georgia and Armenia and just four months ago, Putin said Russia will “never leave” the region. “If the West doesn’t do anything to stop Russia, they will be emboldened to take back Azerbaijan by force as they did a hundred years ago,” said Zahir Rahimov, a 39-year-old resident of Baku, referring to the Bolshevik takeover. Officials already complain about feeling the Kremlin’s pressure. The push from Moscow to join Putin’s new customs union, a project he wants to rival the European Union, is similar to the squeeze put on Ukraine, according to Siyavus Novruzov, a senior member of the ruling New Azerbaijan Party.

• Pro-Russian Activists Seize Buildings in Ukrainian Cities. Hundreds of pro-Kremlin demonstrators seized official buildings in Ukraine’s eastern regions, where separatist unrest turned deadly last month, urging referendums on joining Russia. Buildings in the cities of Donetsk, Kharkiv and Luhansk were occupied yesterday by protesters with Russian flags who also called for a boycott of May 25 presidential elections. Amid the unrest, acting President Oleksandr Turchynov canceled a trip to Lithuania and convened a special meeting of law enforcement officials, according to the website of the Ukrainian parliament. Ukraine’s government, which came to power after Kremlin-backed President Viktor Yanukovych fled the country last month, has accused Russia of stoking tensions in the country’s eastern regions following the annexation of Crimea. “Putin and Yanukovych contracted and paid for another round of separatist unrest eastern Ukraine,” Interior Minister Arsen Avakov said on his Facebook Inc. page. Organizers of the rallies may face as long as eight years in prison, the ministry said on its website.

• Merkel Says Europe Shouldn’t Fear Punishing Russia on Ukraine. German Chancellor Angela Merkel said Russia shouldn’t underrate the European Union’s resolve to impose economic sanctions in the conflict over Ukraine. Addressing a convention of her Christian Democratic Union party today, Merkel evoked growing up in Soviet-dominated former East Germany and said Europe shouldn’t be “filled with fear” that “a certain measure may cause problems for us.” “These times are confronting us with the question of where we stand,” Merkel said in Berlin. “Nobody should harbor any illusion. As different as we are in Europe, it’s our good fortune to be united and we will unite to make that decision” if Russia “violates Ukraine further.”

• Ukraine Debt Rating Cut to Caa3 by Moody’s on Russia Dispute. Ukraine’s credit rating was cut by Moody’s Investors Service, which said escalating political tensions and the withdrawal of Russian financial support are weakening the country’s fiscal strength. Moody’s lowered the rating one level to Caa3, two steps above default, with a negative outlook. The cut takes into account an agreement with the International Monetary Fund to provide “near term liquidity relief,” according to a report published today. 

• Asia Developing Economies to Grow at Slower Pace as China Cools. Developing East Asian economies will grow slower than forecast this year as China’s expansion moderates and political upheaval weighs on Thailand’s outlook, the World Bank said. China will expand 7.6 percent this year, down from 7.7 percent projected in October, while Thailand will grow 3 percent, 1.5 percentage points lower than seen six months ago, the World Bank said in its East Asia and Pacific Economic Update released today. Developing East Asia is forecast to grow 7.1 percent in 2014, down from 7.2 percent seen in October, it showed. 

• Tencent Extends Internet Stock Rout as Valuation Concerns Deepen. Tencent Holdings Ltd. (700) slumped to a two-month low and a gauge of Asian Internet companies erased its advance for the year amid growing concern that valuations overshot earnings prospects.

• ANZ Says Further Home Price Surge May Prompt Tighter Lending. Banks may tighten lending standards and buyers turn cautious if a surge in Sydney house prices spreads to other capital cities in Australia, according to the country head of the nation’s third-largest mortgage lender.

• Asian Stocks Snap 8-Day Winning Streak Led by Industrials. Asian stocks fell for the first time in nine days, snapping the longest winning streak on the regional gauge this year, with telecommunication and industrial shares leading declines. Naver Corp. slumped 6 percent in Seoul and SoftBank Corp. lost 4.7 percent in Tokyo as telecom and technology shares slid. Fanuc Corp., a Japanese maker of factory equipment, sank 2.2 percent, leading industrial firms lower. Japanese drug company Daiichi Sankyo Co. rose 3.8 percent after Indian drugmaker Sun Pharmaceutical Industries Ltd. agreed to buy Ranbaxy Laboratories Ltd. in a $4 billion stock deal. Daiichi owns 63.5 percent of Ranbaxy. The MSCI Asia Pacific Index lost 0.5 percent to 138.58 as of 9:40 a.m. in Tokyo, with all 10 industry groups on the gauge falling, before Hong Kong trading starts. Markets in mainland China and Thailand are closed for a holiday.

• Hedge Funds Get Gold Timing Wrong on Rebound: Commodities. Hedge funds and other speculators misjudged gold prices for a second time in three weeks. Just after the investors sold bullion holdings for a second consecutive week, a disappointing U.S. jobs report sparked the biggest rally in prices since mid-March. Their funds fared better in the five preceding weeks, correctly adjusting wagers 80 percent of the time. 

• U.S. Gasoline Rises to Eight-Month High in Lundberg Survey. The average price for regular gasoline at U.S. pumps rose 4.9 cents in the past two weeks to $3.6065 a gallon, the highest since July 26, according to Lundberg Survey Inc. 

• Copper Extends Weekly Drop on Concern Demand Will Fall. Copper fell for a third day, dropping to a one-week low after U.S. jobs data added to signs of slowing growth in the world’s second-biggest user amid increasing mine supplies. The contract for delivery in three months on the London Metal Exchange retreated as much as 0.6 percent to $6,577.50 a metric ton, the lowest intraday level since March 28, and was at $6,586.75 at 9:41 a.m. in Tokyo. The metal slid 0.8 percent last week, the first such drop in three weeks.

• Copper Titans Gather as Glut Overshadows Quakes in Chile. The world’s strongest earthquake in a year and hundreds of aftershocks rattled the copper-rich Atacama Desert last week, forcing almost a million people to seek refuge from tsunamis. The copper market barely reacted. The metal is down 0.6 percent in London since Anglo American Plc to Antofagasta Plc temporarily halted some operations after an 8.2-magnitude temblor struck on the evening of April 1. Investors’ indifference is explained by surging global output at a time of waning Chinese demand growth. As tremors continue to shake northern mines, it will be the prospect of the biggest global glut since the so-called super-cycle began -- and how miners are reacting by shelving expansions and shoring up balance sheets -- that dominate discussion at the industry’s annual get-together in Santiago this week. Chile, the top producer, is opening three mines in a year, more than it has started in the past decade. “Demand is not going to grow by the same margin, which is going to generate a significant surplus,” Alvaro Merino, head of research at Chilean mining society Sonami, said in an April 4 interview. “You are really going to see this increase in the second half of this year.”

• GM(GM) Dealers Turn Therapists to Counsel Anxious Recall Customers. The chatter on the showroom floor of John McEleney’s Chevrolet dealership this week focused more on defects than deals. General Motors Co. (GM)’s chief executive officer faced two days of congressional hearings this week about the automaker’s slow response to fatally flawed ignition switches. That has McEleney, whose store is in Clinton, Iowa, worried about his business.

Wall Street Journal: 

• Ukraine Leader Warns of Gas Shutoff. Prime Minister Yatsenyuk Says Country Will Not Recognize Russia's Price Increase.

• Yahoo(YHOO) Makes New Push Into Video Production. Internet Company Hunts for Original Web-Series Programming. 

• Direct Lending Takes Off in Europe. U.S. Investment Firms Offer Funds to Companies as Continent's Lenders Pull Back.

• Fallout From High-Frequency Trading Hits Brokerages. Shares of E*Trade, Charles Schwab and T.D. Ameritrade fell last week amid concerns sparked by Michael Lewis's book on high-speed trading. 

• More Obfuscation on Benghazi. Testimony by the former acting head of the CIA makes clear that Congress's current approach isn't sufficient. 

MarketWatch.com:

• Warnings underline stock market’s earnings conundrum. BMO’s Belski: Inflection point as market transitions to fundamental-led growth.

Fox News:

• Ships race to reach site where electronic pulses detected in Malaysia jet search. Three distinct but brief signals from the Indian Ocean revived hope for investigators in the search for missing Malaysia Airlines Flight 370 on Sunday, as authorities rush to determine the origin of the signals before the batteries of the plane's black box run out.

Zero Hedge:

• Christine Lagarde Is Clueless: 70 Words Of Pure Keynesian Claptrap.

• Visualizing The Collapse Of Chicago's Middle Class.

• Every New Job Created Is "Not" The Same.

• George Soros Pushes For Pot Legalization. Mr. Soros has spent at least $80 million on the legalization effort since 1994. 

• Baltic Dry Drops 9th Day In A Row; Worst Q1 In Over 10 Years. (graph)

• The 2014 "Growth" Recovery Has Been Indefinitely Postponed Due To Inclement Weather. (graph)

• Momos Mauled: Nasdaq Crashes Most Since 2011, Stocks Tumble From Record High. (graph)

• Bulls Vs. Bears: Some Profit Margin Stories Are Better Than Others.

• ABN Amro Ex-CEO Found Dead.

• The Complete Interactive Guide To How The NSA Spies On Everything You Do.

• How Much Bad Debt Can China Absorb? (graph)

• Zillow Study Shows 1 In 3 Homes Are Unaffordable, But Vacation-Home Sales Are Soaring.

• As The Hedge Fund Slaughter Continues, Here Is Who Is Unwinding And What Stocks To Watch. (graph)

• Gary Shilling: China's Problems Are The World's Problems.

• From Euphoria To Despair. (graph) And keep in mind that the Nikkei is still roughly, and artificially, 50% higher than where it will be once the Abenomics euphoria is fully faded. Which is why the purple line may still have a very long way to go... in an inversely upward direction.

• The Day That BTFD Failed. (graph)

• High Frequency Trading: All You Need To Know.

ValueWalk:

• The Lions in the Grass, Revisited by Mauldin Economics.

Business Insider:

• North Korea Gives Ominous Warning On Nuclear Test: 'Wait And See'.

• The Exit Of Two 'Goldilocks' FOMC Members Means The Fed Could Become More Hawkish.

• Japan Orders Military Strike On Any North Korea Missiles Considered A Threat.

• More Wall Street Economists Now Expect The Fed To Hike Rates By June 2015.

• Mob Attacks Ebola Treatment Center In Guinea, As Alarming Outbreak Spreads In West Africa.

• Why No One Trusts Facebook(FB) To Power The Future.

• A Financial Typhoon Warning For Hong Kong.

• Dark Markets May Be A Bigger Threat To Investors Than High-Frequency Trading.

• Masked 'Pro Russia Protestors' Seize State Buildings In 3 East Ukraine Cities [PHOTOS].

• Senator McCaskill: GM Ignition Switch Case Could Lead To Criminal Charges.

Reuters:

• Boeing(BA), GE(GE) say get U.S. license to sell spare parts to Iran. Boeing Co (BA.N), the world's biggest airplane maker, and engine maker General Electric Co (GE.N) said on Friday they had received licenses from the U.S. Treasury Department to export certain spare parts for commercial aircraft to Iran under a temporary sanctions relief deal that began in January.

• GE(GE) says U.S. approved overhaul of 18 aircraft engines for Iran. General Electric Co (GE.N) on Friday said it had received permission from the U.S. government to overhaul 18 engines sold to Iran in the late 1970s under a temporary sanctions relief deal reached in January.

• Hedge funds' leveraged bets on market rally to magnify sell-offs. Hedge funds are borrowing record amounts of money to fund bets that stock markets will continue rising, creating conditions that could accelerate price falls if those leveraged positions are hurriedly closed. With equity leverage levels sitting at all-time highs, a mild retreat in stocks could morph into a sharp correction as investors faced with paying back the debt on top of taking a loss tend to sell out quickly when shares start to dip.Data from the New York Stock Exchange shows margin debt - equities bought with borrowed money - on the NYSE market totaled around $465 billion at the end of February, its highest level ever. Such investments have been fuelled by cheap money as the Fed has kept interest rates ultra-low and injected huge amounts of liquidity into the economy to support growth. Data from Eurekahedge, which monitors the global hedge fund industry, paints a similar picture, with figures showing the weighted average ratio of hedge funds' gross assets to capital hitting 1.70, above the previous peak of 1.68 reached in 2007. The vast majority of positions are 'long', betting on a stock market rise. According to data from Markit, 'long' positions currently outnumber 'shorts' by 12.3 times globally - down from a peak of 14.2 hit earlier this year, but still very high historically. The elevated level of leverage is not a trigger for a correction in itself, but once the market starts to retreat, a potential rush by hedge funds to cut positions would strongly amplify the sell-off. "There are caveats, but the truth is: it's high and it is very dangerous," said Andy Ash, director at Monument Securities. 

• U.S. to send more missile defense ships to Japan. The United States moved on Sunday to reassure Tokyo over its mounting security concerns, saying it would send more missile defense ships to Japan following North Korean launches and use a high level trip to warn China against abusing its "great power."

• Deadbeat Chinese shipyards stick banks with default bill. Chinese banks are stuck in a lose-lose legal battle between domestic shipyards and foreign buyers over billions of dollars in refund guarantees that are supposed to be paid out if shipbuilders fail to deliver on time. One in three ships ordered from Chinese builders was behind schedule in 2013, according to data from Clarksons Research, a UK-based shipping intelligence firm.

Financial Times:

• Death knell sounds for Brazil’s economic strategy. Until recently, the government of Brazil’s President Dilma Rousseff talked glowingly about a “new matrix” of economic policies that would revive the country’s faltering growth story.

• Property groups’ bank stakes stir unease among Chinese regulators. Chinese property companies are buying stakes in banks and raising fears that the country’s already stretched developers are trying to cosy up to their lenders. Ten Chinese property companies have invested Rmb18.4bn ($3bn) in banks, according to the Financial News, an official newspaper published under the aegis of China’s central bank. Some of the developers are heavily indebted, sparking questions about the motivation for these deals, and specifically whether the property companies are hoping to use their links to the banks to obtain preferential financing.

Telegraph:

• The real reasons why Draghi flirts with QE. The fear is that money raised from quantitative easing in the eurozone will just be used to prop up banks that need to be allowed to fail.

Bild am Sonntag:

• Germany Should Halt Renewable Energy Race, Oettinger Says. EU Energy Commissioner Guenther Oettinger also says Germany gets 45% of electricity from lignite coal and will depend on coal for a considerable time. Speed limits should be set on development of solar, wind power. Main problem of alternative energy is that it can't be stored in large quantities with limited loss in the conversion.

Nikkei:

• Hagel Says U.S. Supports Japan Collective Defense Right. U.S. Secretary of Defense Chuck Hagel expressed support for Prime Minister Shinzo Abe's effort to legitimize Japan's right to collective self defense, citing an interview.

Weekend Recommendations

Barron's:

• Bullish commentary on (BEAV), (HPQ) and (BBRG).

• Bearish commentary on (DNKN) and (WWE).

Night Trading

• Asian indices are -1.0%. to unch. on average.

• Asia Ex-Japan Investment Grade CDS Index 124.0 -.5 basis point.

• Asia Pacific Sovereign CDS Index 88.75 -.75 basis point.

• FTSE-100 futures -.69%.

• S&P 500 futures -.10%.

• NASDAQ 100 futures -.16%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (TCS)/.27

• (TISI)/.01

• (SHLM)/.33

Economic Releases 
3:00 pm EST

• Consumer Credit for February is estimated to rise to $14.0B versus $13.698B in January.

Upcoming Splits

• (NJ) 2-for-1

Other Potential Market Movers

• The Fed's Bullard speaking, German Industrial Production, BoJ Minutes and the Japan Trade Balance report could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology 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 25% net long heading into the week.