10 Things You Need To Know Before The Opening Bell

Good morning. Here's what you need to know.

Traders eyeing Crimea. The focus is on Ukraine's Crimea region, which will hold a referendum over the weekend on declaring independence from Ukraine. "The Crimean parliament has already approved independence," says Marc Chandler, global head of currency strategy at Brown Brothers Harriman. "Of course, much of Europe, the U.S. and Japan have warned that they do not recognize the referendum. China may be quiet on the issue, and strategically, why not? From the point of its own domestic interest, China could not accept the legitimacy of a referendum by one of its minority populations (e.g. Tibet or Taiwan) from seeking independence. The next level of sanctions against Russia will likely be announced shortly after the referendum. At the same time, reports suggest a build-up of Russian forces on the Ukrainian border. While they are most likely for defensive purposes, many fear that Russia may expand its operations shortly. Meanwhile, U.S. aid ($1 billion) is tied up in the Senate as it has become entangled in the debate over IMF reform. Ukraine reportedly has sought military assistance from the U.S., which has not directly refused, but has indicated not now."

Markets are mixed. S&P 500 futures and U.S. Treasury futures both point to a slightly positive open. The U.S. dollar is down another 0.4% against the Japanese yen today, trading just above ¥101.40. European indices are extending yesterday's losses - right now the Spanish IBEX 35 is down 1.0%. Overnight, Asian indices took a beating - the Japanese Nikkei 225 closed down 3.3%, the Hong Kong Hang Seng gave up 1.0%, and the Shanghai Composite lost 0.7%.

Emergency unemployment benefits back in play. Senators have proposed extending the emergency unemployment compensation program that expired at the end of 2013, but such a bill will be difficult to get through Congress. Chris Krueger, a Washington, D.C.-based policy analyst at Guggenheim Securities, has the details: "The compromise would retroactively restore for five months long-term unemployment benefits that expired on Dec. 28 (they would expire at the end of May). The bill would be paid for by a combination of: pension smoothing, PBGC reforms, extension of U.S. Customs fees, and a prohibition for millionaires and billionaires to receive benefits. The bill would also put into place certain reforms of the unemployment benefits program advocated for by Senate Republicans. The five Republicans who brokered the deal were all from high unemployment states: Sens. Heller (R-Nev.), Portman (R-OH), Murkowksi (R-Alaska), Kirk (R-Ill.), and Collins (R-Maine). If the compromise clears the Senate (we believe that it will), it will very likely not move in the House. The House GOP may pass their own bill to provide some relief to the long-term unemployed after feeling pressure from their Senate colleagues, but the legislation would likely be as foreign to Senate Democrats as this current compromise is to House Republicans."

Custody holdings tank. In the week between March 5 and March 12, foreign central banks liquidated $104 billion of U.S. Treasuries that were being held in custodial accounts at the Federal Reserve. This is the largest weekly drop on record - the second-largest weekly drop was $32 billion, recorded amid the market turmoil of the summer of 2013. The recent escalation of conflict between Russia and Ukraine and the prospect of international sanctions against Russia likely has something to do with it.

Bank of Japan pleased with progress. The minutes of the Bank of Japan's February 17-18 meeting showed that monetary policymakers saw the economy and prices improving in line with their forecasts. They also revealed an agreement that the consumption tax hike scheduled for April will not derail the economy. This line of thinking may hold the BoJ back from expanding its stimulus program in the coming months.

Japanese industrial production rises. Japanese industrial output expanded by 3.8% from the previous month in January, marking an acceleration from December's 0.9% gain but failing to meet expectations for a 4% advance. The year-over-year rate of expansion in output accelerated to 10.3% from 7.1%.

U.K. trade deficit widens. The U.K. posted a visible trade deficit (one that includes goods but not services) of £9.79 billion in January, up from £7.66 billion in December. The non-EU trade deficit swelled to £3.99 billion from £2.32 billion. Both numbers were larger than expected, and owed largely to a 4% drop in exports to the lowest level since June 2012.

U.K construction output rises. U.K. construction output expanded by 1.8% from the previous month in January, besting expectations for a 1.5% gain. The year-over-year growth rate in output accelerated to 5.4% from 4.9%, exceeding expectations for a smaller acceleration to 5.2%.

Producer prices on deck. February U.S. producer prices data are released at 8:30 AM ET. Economists predict prices rose 0.2% from the previous month in February, matching January's pace of growth and leaving the year-over-year price rise unchanged from January at 1.2%. Excluding food and energy, prices are expected to have risen only 0.1% last month, but the year-over-year rate of change is expected to have received a boost to 1.4% in February from 1.3% in January.

Consumer confidence to wrap things up. Preliminary results of the University of Michigan's monthly consumer confidence survey are released at 9:55 AM. Economists predict the report's headline index rose to 82 from February's 81.6 reading.

***

Below is a Q&A with Dave Lutz, head of ETF trading and strategy at Stifel Nicolaus.

***

BUSINESS INSIDER: Various commodities have seen prices surge recently. How much of this would you attribute to "fast money" ETF flows?

DAVE LUTZ: Right now, Not a terrible amount. Natural gas is a great example - while the commodity was jumping 70% the start of 2014, we saw investors unwinding shares of the UNG. That said, ETFs almost control the Gold market - the GLD lost almost 50% of it's shares outstanding in 2013 as individuals liquidated the ETF - and that was a major headwind for the metal's price. Gold is up 14% YTD 2014, in large part that liquidations of ETFs have not only subsided, but shares outstanding are starting to increase again.

BI: The PBoC has been moving to shake investors out of carry trades designed to make money on a rising renminbi. Are there any other key markets where the fate of the "carry trade" should be watched closely?

DL: The Main "Carry Trade" to watch involves the Yen. Global investors short Yen as it is a very "inexpensive" currency when compared to other country's deposit rates. They take the proceeds from shorting the Yen, and by higher yielding, liquid assets like the USD, A$, and global equities. In times of risk aversion, the Yen will rally against these other assets, as individuals unwind this leverage. There is tight correlation between the S&P and the Dollar-Yen cross.

BI: ETFs as a product are exploding in popularity. Is there anything scary going on in certain corners of the ETF industry that average investors don't seem to be aware of?

DL: Sometimes it is mis-advertising, for example for long periods of 2013, the "Homebuilder" ETF (XHB) had top 5 holdings that included TPX, WSM, PIR and HD. It was more of a "home Consumer" ETF. Also, the use of Levered and Inverse ETFs needs to be understood better - specifically that these are short-term trading vehicles. The average holding time of a 2X ETF is 3hours, and 3X ETF is 42 minutes! The longer these levered ETFs are held in a portfolio, the more "slippage" they have from their benchmarks.

BI: What is the most exciting trade out there right now, in your opinion?

DL: I'm a contrarian, so I look for "Pain Trades" - areas where people are too concentrated in positions, and the stampede to the exit can become violent. Right now, Oil Speculators are the most bullish that they have been since 2006, according to CFTC Futures data. The last several times they got close to this extreme, the commodity reversed hard in the other direction. I used the same methodology with Treasury Shorts back in Q4 2013, predicting the 10YY would break towards 2.5% from 3% in short order, causing the "maximum pain."

BI: Which developments in global financial markets, if any, would you flag as most concerning for risk appetite?

DL: Clearly, geopolitical issues are weighing heavy. Russia's market is trading in 3Y+ lows, causing a tremendous amount of angst in Europe - where the DAX has underperformed the S&P by a staggering 7% in March. Turkey's market is looking very sloppy as well, as their 10YY surges beyond 4Y highs into their elections at the end of this month. Finally, many macro players are scratching their head at China - as they attack the shadow banking system there. This is causing pressure in Copper and Ore markets (Used for financing, being liquidated on collateral margin calls), and Emerging Markets levered to China.