Wake Up Call - Mar 2

Good Morning. U.S. equities are indicating a broadly lower open today, after a down day in Tokyo, a rise in China and a decline in Europe. The stomach of the market remains shaky, as the driver that led to this week's instability, Chinese markets, remain highly valued relative to other global shares. On Monday, a session of the National People's Congress will begin, and concern remains that efforts to control risk in equity markets could lead to their decline, in our opinion. Investors could react to any controls placed on investment, and restrictive measures typically hurt investment. In the long term, any measures taken may be positive factors, but in the short term they could lead to an exodus of capital. As we have seen this week, and in recent months with events in Thailand as well, high flying emerging markets could be susceptible to significant declines that could catch investors offguard and bear repercussions for the global economy.

Asia:

Hang Seng Index +0.49%; Shanghai/Shenzhen 300 +1.42%; NIKKEI 225 -1.35%; BSE SENSEX 30 -2.08%; KRX 100 -0.1%

U.K. & Europe:

DJ STOXX 50 Index -0.99%; FTSE 100 -0.31%; CAC 40 -0.85%; DAX -0.93%; Russian RTS Index -0.36%

KEY HEADLINE NEWS

• The NIKKEI 225 dipped further overnight in Japan, as the yen carry-trade unwind is impacting investment in Japanese stocks, not just foreign shares. In mainland China, shares reportedly traded cautiously, but the Shanghai and Shenzhen 300 Index still rose 1.4%. The index ended the week down 6.3% as it exhibited the risk inherent to the lofty valuation of its shares. We see another potential catalyst that could impact the still unsettled Chinese and global stocks next week, as China's National People's Congress begins its meeting on March 5th. China's government has recently sought to reign in borrowing that may be driving speculative investment in real estate and equities. China has been aggressively raising the reserve requirements on banks in order to control lending. Therefore, further measures are highly possible.
• In Europe, shares are trading broadly lower today ahead of the weekend and after a tulmutuous trading day in America yesterday and earlier weakness in Tokyo.
• U.N. Security Council members are reportedly making significant progress towards a second set of sanctions for Iran that may include a bar on travel for government officials. The group is set to discuss the topic again on Saturday, and is expected to begin drafting a new resolution as early as next week.
• A recent Fed insider trading crackdown on employees of several investment banks may lead to increased scrutiny of hedge funds and implicate some large funds, which in turn could lead to the exit of capital from those implicated. Any increased regulation, while possibly protecting some investors from future issues, could hurt the market in the short term by reducing the incentive for the operation of hedge funds. In any event, it's clear that hedge fund issues carry the ability to drive market volatility in the future.
• Though this article was published yesterday, we feel it's worthy of your review. Sub-prime loan defaults may pose significant risk to the economy and portend a greater problem for a broader group of borrowers.
• Later today, look for "Today's Morning Coffee" for your summary and analysis of the market drivers within overseas markets, economic data, commodities, geopolitical concerns and stock specific news.

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