>>> Asian Update

Asian Market Update: Risk assets extend rally on strong China trade components

***Economic Data***
- (CN) CHINA MAR TRADE BALANCE (CNY TERMS): 194.6B V 203.7BE; Exports (CNY) Y/Y: +18.7% v +14.9%e (1st rise in 9 months); Imports (CNY) Y/Y: -1.7% v -4.8%e
- (AU) AUSTRALIA APR WESTPAC CONSUMER CONFIDENCE INDEX: 95.1 V 99.1 PRIOR, M/M: -4.0% V -2.2% PRIOR
- (JP) JAPAN MAR M2 MONEY STOCK Y/Y: 3.2% V 3.1%E; M3 MONEY STOCK Y/Y: 2.6% V 2.5%E
- (JP) JAPAN MAR PPI M/M: -0.1% V 0.0%E; Y/Y: -3.8% V % -3.5%E
- (NZ) NEW ZEALAND MAR FOOD PRICES M/M: +0.5% V -0.6% PRIOR
- (CL) CHILE CENTRAL BANK (BCCH) LEAVES OVERNIGHT RATE UNCHANGED AT 3.50%; AS EXPECTED

***Index Snapshot (as of 04:30 GMT)***
- Nikkei225 +2.4%, S&P/ASX +1.3%, Kospi +0.6%, Shanghai Composite +2.1%, Hang Seng +2.4%, Jun S&P500 +0.3% at 2,060

***Commodities/Fixed Income***
- Apr gold -0.6% at $1,254/oz, May crude oil -0.9% at $41.78/brl, May copper +0.5% at $2.16/lb
- GLD: SPDR Gold Trust ETF daily holdings fall 2.7 tonnes to 815.1 tonnes
- (US) Weekly API Oil Inventories: Crude: +6.2M v -4.3M prior; largest build in 3 weeks
- (CN) China MoF sells 5-yr bonds at yield 2.58% v 2.50%e; bid-to-cover ratio 1.73x
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.4591 V 6.4616 PRIOR; strongest Yuan setting since Apr 1st; 3rd straight firmer setting
- (CN) PBOC to inject CNY40B in 7-day reverse repos
- (JP) BOJ offers to buy ¥350B in 1-3yr JGBs, ¥440B in 3-5yr JGBs, ¥450B in 5-10yr JGBs
- (AU) Australia sells A$900M in 4.75% 2027 bonds; Avg yield 2.5657%; Bid-to-cover 2.79x

***Market Focal Points/FX***
- Risk appetite on display in US hours that was fanned by dovish comments from Feds Kaplan and recovering inflation prints in Europe has carried over to Asia, where Chinese trade components signify some improvement in global conditions. Although the terms of trade missed expectations, China exports rose for the first time in 9 months while the decline in imports was much less than expected in both CNY and USD term. Imports of iron ore, copper, and crude oil all saw sequential increases. In the wake of the release, Shanghai Composite approached a 3-month high of 3,100, AUD/USD hit a 2-week high above $0.77, copper spiked up to 2-week high of $2.18, and USD/JPY tested 109 handle in an apparent confirmation of a double-bottom.

- Australia's basic materials / metals led the rally in Sydney with China's Dalian iron ore futures up some 5%, though Fortescue Metals was particularly strong on a slight y/y increase in shipments during Q3. FMG also maintained its FY16 capex forecast. Westpac consumer confidence was a dud, particularly in light of a strong NAB business index overnight, registering its 2nd straight sub-100 print. Resident economist said the recent rise in AUD could generate headwinds to economic transition from mining to services sectors such as tourism.

- Flows from US bonds into equities has helped the dollar to recover against Japanese Yen - a relief to some of the recent worries in Tokyo about adverse FX volatility. After the IMF cut global economic forecasts overnight, Dep MD Furusawa remarked that Yen moves are not deviating significantly from IMF assessment, adding that future BOJ rate cuts will likely have limits. Furusawa added that fiscal stimulus is the preferred policy action in Tokyo, though also recognizing the positive aspect of negative interest rate policy. BOJ's Harada also chimed it, stating the recovery remains weak, consumption is flat, and GDP rise in Japan is slight. Harada added that prices are still expected to rise as the impact of lower oil dissipates, calling for companies to raise wages in response to improved profits.

***Equities***
US equities / ADRs:
- MDVN: Reportedly rebuffs takeover effort from Sanofi - press; +8.5% afterhours
- CSX: Reports Q1 $0.37 v $0.37e, R$2.62B v $2.73Be; +0.4% afterhours
- VRX: Bond investor Centerbridge reportedly has notified company it intends to call a default - press; -3.9% afterhours

Notable movers by sector:
- Consumer discretionary: Chow Tai Fook Jewellery Group 1929.HK +1.0% (Q4 result); Takashimaya Co 8233.JP -6.1% (FY15/16 result)
- Financials: Shenzhen Investment 604.HK -0.3% (Mar result); Greenland Hong Kong 337.HK +2.0% (YTD result); Investa Office Fund IOF.AU -1.0% (Cromwell Property's acquisition)
- Materials: Sinopec Yizheng Chemical Fibre Co 1033.HK +2.4% (Q1 guidance); Fortescue Metals Group FMG.AU +7.4% (Q1 production)

>>> US After Hours Summary: RPRX +65% after positive clinical data; VR


After Hours Summary: RPRX +65% after positive clinical data; VRX -2% after report that a bondholder intends to call default on Co

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: CSX +0.6%

Companies trading higher in after hours in reaction to news: RPRX +65.2% (reports 'positive' clinical data for vaginal Proellex in women with severe menstrual bleeding due to uterine fibroids), ACUR +12.7% (announces FDA fast track designation for the development of LTX-04), MDVN +8.8% (Bloomberg report discussing potential bid from Sanofi (SNY)), APHB +8.3% (presented data at the ECCMID summarizing both the in vitro and in vivo activity of its proprietary, investigational phage mix AB-PA01), PTIE +6.7% (FDA determines NDA resubmission for Remoxy is sufficiently complete to permit a substantive review)

After Hours Losers:

Companies trading lower in after hours in reaction to news: RICE -3.4% (announces 23.5 mln share public offering of common stock), VRX -2.4% (The WSJ reports that a VRX bondholder intends to declare default on the Co for failing to file its 10-K

WSJ : Big Valeant Bond Investor Notifies Company of Intent to Call a Default

Big Valeant Bond Investor Notifies Company of Intent to Call a Default

Investor Centerbridge cites delay in drug maker’s filing of its annual report

A large holder of Valeant Pharmaceuticals International Inc.’s bonds intends to call a default as a result of the drugmaker’s failure to file its annual report on time.

Centerbridge Partners LP has notified the company of the intention, people familiar with the matter said.

The move would start a 60-day window during which the embattled company would have to file its annual report or potentially be forced to repay the bonds early. That could trigger default notices in other pieces of Valeant’s roughly $30 billion in debt, analysts have said, and become a major additional headache.

Valeant has said it is on track to file the annual report, which was due earlier this year, by April 29. That would enable it to avoid a default.

Valeant shares declined 6% to $30 after hours on the news.

Centerbridge owns about $250 million face value of Valeant’s $1 billion bond issue due 2023, some of the people said. The notes have an annual coupon of 5.5%.

Holders of 25% of any single issuance of Valeant bonds can declare a default under certain circumstances, such as when financial statements aren’t filed on time.

Creditors often threaten to call a default to win concessions in negotiations with borrowers, rather than to force repayment. Holders of Valeant loans already secured a fee from the company in exchange for later filing deadlines and looser financial conditions.

William Ackman, a Valeant board member and one of the company’s biggest shareholders, spoke with Centerbridge executives this weekend to discuss the matter, some of the people said.

The move by Centerbridge shows how various stakeholders are jockeying for position amid turmoil at the company. The shares have lost 88% of their value from an August high as a result of a backlash against its pricing of drugs, a reduced outlook and a financial restatement that delayed the annual report. The company is in the process of replacing its chief executive, Michael Pearson.

Centerbridge manages about $25 billion. It was founded in 2005 by Jeff Aronson, a former distressed-debt investor at Angelo, Gordon & Co., and Mark Gallogly, who once headed the private-equity business at Blackstone Group LP. It manages private-equity and credit assets on behalf of pensions and other institutions.

WSJ : Regulators Set to Find Flaws in Big U.S. Banks’ ‘Living Wills’

Regulators Set to Find Flaws in Big U.S. Banks’ ‘Living Wills’

J.P. Morgan, other firms, set to receive not credible verdict from Fed, FDIC

WASHINGTON—U.S. regulators are preparing to notify some of the largest U.S. banks, including J.P. Morgan Chase & Co., that they have submitted flawed plans detailing how they would handle a potential bankruptcy, according to people familiar with the matter.

The move, which could come as soon as this week, would raise the prospect of higher capital requirements or other regulatory sanctions for some of the institutions, and call into question whether the firms remain “too big to fail” without a taxpayer bailout.

At least half of the eight American banks labeled “systemically important” by global regulators are expected to receive a harsh verdict on their “living wills” that they were required to submit under rules crafted since the financial crisis aimed at preventing another bank bailout, these people said.

The long-awaited verdict by the Federal Reserve and Federal Deposit Insurance Corp. is not yet final and could change, but regulators are putting the finishing touches on their feedback to the firms and will make their findings public soon, these people said.

The Fed’s governing board was set to hold a closed meeting Tuesday afternoon to discuss the matter, one of the people said.

Representatives for the Fed, FDIC and J.P. Morgan declined to comment.

J.P. Morgan has previously said its living will is credible and that it has a “fortress balance sheet” that would prevent it from ever needing to tap taxpayers for help in a crisis. “We will be vigilant and will never take such a high degree of risk that it jeopardizes the health of our company....this is a bedrock principle,” Chief Executive James Dimon said in his recent shareholder letter.

The adverse findings would mean J.P. Morgan and other firms will have to rewrite their bankruptcy strategies to address issues regulators have identified, or face sanctions, such as being required to hold higher levels of capital, which restricts borrowing and protects against losses—but can also eat into profitability. If they fail to submit credible strategies repeatedly over a period of years, regulators could force them to divest certain assets.

In addition to J.P. Morgan, regulators have significant concerns about the bankruptcy strategies of the two so-called trust banks in the group: Bank of New York Mellon Corp. and State Street Corp., according to people familiar with the matter. Regulators have also been considering whether Bank of America Corp. should receive an adverse verdict, these people said.

Representatives for Bank of New York, State Street and Bank of America had no immediate comment.

Citigroup Inc. was expected to receive a positive finding from regulators, these people said.

A Citigroup spokesman had no comment.

Details about the other three American banks covered by the process— Goldman Sachs Group Inc., Morgan Stanley and Wells Fargo & Co.—couldn’t be confirmed.

The expected verdicts do not mean the regulators believe the banks face any imminent danger of going out of business. Rather, the whole exercise was designed to start with the premise that each might one day face such extreme distress and show how they would respond. The bankruptcy strategies also don’t take into account the fact that regulators could use other methods to avoid bailouts, including using the FDIC’s authority to take over and liquidate a failing firm.

Regardless of what regulators say when they release their findings, however, the decisions are likely to feed big-bank critics across the political spectrum who say the government needs to take drastic action to reduce the size and influence of large Wall Street banks.

The regulators’ rulings are likely to stir controversy, both among banks and among political critics who see the whole living-wills process as an example of postcrisis regulatory overreach. House Republicans Tuesday released a report from the Government Accountability Office that criticized the Fed and FDIC for a lack of transparency in handling living wills. The congressional watchdog said in its report that “may weaken public and market confidence” in the plans “and limit the extent to which the regulators can be held accountable for their decisions.”

The agencies said in a letter in response to the report that they are “committed to enhancing public disclosure” in the living-will process.

Under the 2010 Dodd-Frank law, the eight U.S. banks designed as crucial to the broader financial system must file living wills showing they have a credible strategy to go through bankruptcy without causing a broader economic panic or needing help from taxpayers, one of many provisions in the law designed to prevent a repeat of the 2008 bailouts.

Four foreign-owned U.S. banks, including units of Barclays PLC, Credit Suisse Group AG, Deutsche Bank AG, and UBS Group AG, are also expected to receive feedback on their bankruptcy strategies this week, but regulators have been less concerned about those firms because a requirement that they organize all their U.S. operations under one holding company doesn’t take effect until the summer.

The firms first received individual feedback on their bankruptcy strategies in 2014, when all but one of them, Wells Fargo, came up well short of regulators’ expectations. They resubmitted the plans in July 2015 and have been waiting for feedback since.

In 2014, regulators issued only a general public statement describing shortcomings in the firms’ plans. This year, regulators are expected to release specific information about problems at individual firms, rather than lumping the group together, people familiar with the matter said. One option on the table, these people said, is releasing redacted versions of the private letters that regulators send to firms detailing the feedback—an outcome that Fed Chairwoman Janet Yellen hinted at during recent congressional testimony.

The language regulators use will be crucial. The Fed and FDIC have been preparing to determine that a majority of the eight U.S. firms, including J.P. Morgan, have living wills that either aren’t credible, or don’t facilitate an orderly resolution, people familiar with the matter said. Resolution is regulatory jargon for unwinding a failing firm.

Dodd-Frank says that when regulators make that determination, they must give firms a chance to fix deficiencies that regulators identify, “including any proposed changes in business operations and corporate structure to facilitate implementation of the plan.”

The firms would then have a chance to resubmit their living wills, perhaps after a year. If those new plans again fail to demonstrate that the banks could credibly go through an orderly bankruptcy, regulators can impose further sanctions such as higher capital requirements or restrictions on growth or activities. Two years after the initial sanctions are imposed, regulators have the power to force firms to divest assets or operations that are deemed obstacles to an orderly bankruptcy.

The decisions may arrive as investors are already focused on the financial conditions and strategies of the biggest banks. They are reporting first-quarter earnings this week. J.P. Morgan kicks off Wednesday, followed by Bank of America and Wells Fargo on Thursday, and Citigroup on Friday. Investors and analysts anticipate a quarter driven heavily by turbulent trading and energy exposures, but a rebuke from regulators on living wills could also dominate conversations.

Once the firms receive the letters from regulators, they will be taking a close look at whether the Fed and FDIC have identified problems that are fixable without significant changes to their businesses. It is possible that regulators could identify problems that don’t require a significant reorganization, such as deficiencies in the computer models firms use to predict the amount of cash they would need during a bankruptcy.

>>> US Close Dow+0.94% S&P+0.97% Nasdaq+0.80% Russell+1.04%

Closing Market Summary: Rebound in Oil Rallies Averages

The S&P 500 ended the Tuesday affair higher by 1.0%, taking part in a lockstep rally with crude oil. Other factors for today's gain included leadership from the heavily-weighted financial (+1.3%), health care (+0.8%), and industrial (+0.8%) sectors. The benchmark index (+1.0%) ended its day ahead of the Dow Jones Industrial Average (+0.9%) and ahead of the Nasdaq Composite (+0.8%).

Today's session began on a wobbly note as global growth concerns and earnings prospects pressured the major averages from their opening gains. Ahead of today's session the IMF lowered its 2016 growth estimate for the global economy from 3.4% to 3.2%. Meanwhile, mixed results in Alcoa's (AA 9.48, -0.26) first quarter earnings report also acted as a headwind. The company missed top-line expectations as revenue shrank 15.0% year-over-year.

On the commodities front, WTI crude began its day with a modest gain as investors eyed an upcoming meeting between oil producers in Doha. However, investors would not have to wait until Sunday for good news as reports indicated Saudi Arabia and Russia will freeze oil production at current levels even if Iran did not take part in a similar production cap. As a result, WTI crude climbed 4.1% ($42.12/bbl) before the end of its pit session. This represents a high for 2016 and a gain of 14.5% week to date.

The major averages followed the trajectory of oil after the news as the technology (+0.6%) and consumer discretionary (+0.8%) spaces recovered from some early losses. By the end of the day, all ten sectors were in the green with energy (+2.8%), financials (+1.3%), and materials (+1.2%) leading the advance.

Money center banks outperformed in the economically-sensitive financial (+1.3%) sector ahead of key earnings later this week. On that note, JPMorgan Chase (JPM 59.28, +1.08) gained 1.9% ahead of its first quarter report, which will be released tomorrow before the open. To be fair though, the rally in crude oil probably alleviated some pressure on the company as concerns about bad energy loans recede. JPMorgan Chase announced $600 million in loan loss reserves for energy and materials sector loans on February 23.

In the heavyweight health care space (+0.8%), AbbVie (ABBV 59.89, +1.39) outperformed after announcing that it received accelerated approval from the FDA for its chronic lymphocytic leukemia medication. Biotechnology ended ahead of the broader sector as Regeneron Pharmaceuticals (REGN 408.07, +11.93) extended its April gain to 13.2%.

CSX (CSX 24.99, +0.46) displayed relative strength in the industrial sector (+0.8%). The rail name is scheduled to report first quarter earnings after today's close. Elsewhere, Caterpillar (CAT 76.10, +1.47) gained 2.0% as the construction and farm equipment sub-group outperformed.

On the flipside, technology (+0.6%), consumer staples (+0.6%), and utilities (+0.7%) rounded out the leaderboard. In the influential technology sector (+0.6%), heavily-weighted Facebook (FB 110.61, +1.62) rallied as the company's CEO Mark Zuckerberg announced a new messenger platform. Meanwhile, the broader space underperformed as Juniper Networks (JNPR 23.06, -1.83) weighed on the networking sub-group. The stock fell 7.4% after the company lowered its top and bottom-line guidance for the first quarter.

The U.S. Dollar Index (94.00, +0.05) ended its day narrowly above its flat line as losses against the Canadian dollar partially offset gains against the yen and the euro. The dollar ended lower by 1.1% against the commodity-sensitive currency (1.2757). Meanwhile, the euro lost 0.2% against the dollar (1.1389) while the dollar/yen pair finished at 108.51 (+0.5%).

The Treasury complex ebbed lower as the rally in the broader market continued. The yield on the 10-yr note finished at 1.77% (+5 bps).

Participation was above the recent average as more than 951 million shares changed hands on the NYSE floor.

Today's economic data included March Import and Export Prices and the Treasury Budget for March: 

  • Specifically, a 4.9% increase in import fuel prices in March helped drive a 0.2% increase in the price index for U.S. imports.
    • That is the first monthly increase since June 2015, although it would be remiss not to add that the import price index is still down 6.2% year-over-year.
    • Excluding fuel, import prices declined 0.1% for the third straight month with falling prices for consumer goods, food, and capital goods offsetting rising prices for nonfuel industrial supplies and materials.
  • Export prices, meanwhile, were unchanged in March after declining 0.5% in February, leaving them down 6.1% year-over-year.
    • Excluding agriculture, the price index for nonagricultural exports rose 0.3% with higher prices for nonagricultural industrial supplies and materials more than offsetting falling auto prices.
    • That was the first monthly increase for that measure since May 2015.
  • The Treasury Budget statement for March showed a deficit of $108.0 billion. This Treasury data is not seasonally adjusted so the March deficit cannot be compared to the February surplus of $52.9 billion

Tomorrow's economic data will include the 7:00 ET release of the weekly MBA Mortgage Index while March Core PPI (consensus 0.2%) and Retail Sales for March (consensus +0.1%) will be released at 8:30 ET. Finally, February Business Inventories (consensus -0.1%) and the Fed's Beige Book for April will be released at 10:00 ET and 14:00 ET, respectively.   

Additionally, China's Trade Balance for March is tentatively scheduled to be released at 21:40 ET. 

  • Nasdaq Composite -2.7% YTD
  • Russell 2000 -2.7% YTD
  • S&P 500 +0.9% YTD
  • Dow Jones +1.7% YTD