World stocks are flying higher as investors welcomed Fed Chair Janet Yellen's "cautious" stance on raising U.S. interest rates. In a speech Tuesday, Yellen said global and financial uncertainties posed risks to the domestic economy and justified a slower path for rate increases. "She totally contradicted the four Fed presidents who spoke last week, and any chance of the April rate hike suggested by them is over," said Mark Matthews, head of research at Julius Baer. Her dovish position also helped propel Wall Street indexes to their highest closing levels of 2016.

Economy

Japan missed out on the global rally, however, after announcing that industrial output dropped 6.2% in February due to sluggish demand both at home and abroad. The month-on-month fall marks the biggest drop since March 2011, when a devastating earthquake in Japan crippled the country's supply chain. Japanese factory activity is closely monitored by market watchers as a proxy for the trend of the national economy. Nikkei -1.3%.

Huge industrial overcapacity will drag on China's growth this year, according to the Asian Development Bank, which cut its growth outlooks for the world's second-largest economy. The ADB's new forecast sees GDP growth slowing to 6.5% this year and 6.3% in 2017, compared with Beijing's expectations of between 6.5-7% for 2016 and an average of 6.5% over the next five years. Separately, the PBOC today issued guidance on financial support for "new consumption areas," including expanding the consumer credit market and encouraging financing firms to issue bonds and other credit products.

As global leaders converge on Washington for tomorrow's nuclear security summit, one enduring question is casting a shadow over the discussions: can anything now prevent North Korea from becoming a full-fledged nuclear state? Thursday's gathering comes amid toughened U.N. sanctions, but with China at odds with the other powers' interpretation of the restrictions, experts believe they are no killer blow. As tensions climb higher, Pyongyang late Tuesday test-fired another short-range missile off its east coast.

"Those who say the future is in negotiations, not in missiles, are either ignorant or traitors," Iran's Supreme Leader Khamenei declared, offering support to the country's Revolutionary Guards for testing ballistic missiles. The statement comes after the U.S. and its European allies condemned the Islamic Republic, stating that by launching nuclear-capable missiles it defied a United Nations Security Council resolution which endorsed last year's historic nuclear deal.

Negative interest rates are not the European Central Bank's main instrument and it still has a wide range of policy tools, despite suggestions it is running out of options, ECB Executive Board Member Benoit Coeure told Politico in an interview. However, the bank is not contemplating "helicopter money," or directly providing cash to consumers to boost consumption, as such a scheme risks crossing the line between monetary and fiscal policies.

None of the three remaining Republican presidential candidates would guarantee last night that they would support the eventual GOP nominee for president, departing from previous vows to do so and injecting new turmoil into an already-tumultuous contest. Front-runner Donald Trump, Texas Sen. Ted Cruz and Ohio Gov. John Kasich were each given a chance during a CNN town hall in Milwaukee to definitively state they would support the nominee, but all three declined to renew their "loyalty pledge."

Lawmakers in Washington have revealed legislation that would give Puerto Rico the ability to restructure some of its $70B debt, weeks before an expected crippling default of the island's de facto finance authority. Although it wouldn't grant access to Chapter 9, the plan would award the territory some of the legal tools found in bankruptcy as long as it first jumps through a number of hoops. The restructuring process also calls for putting Puerto Rico's finances under a presidentially appointed oversight board - a bitter pill to many on the island.

The Brazilian Democratic Movement Party - the country's largest - has left the governing coalition of President Dilma Rousseff, sharply raising the odds she could be impeached in a matter of months. While not totally unexpected, the loss of this key ally will likely lead other parties to follow suit. Vice President Michel Temer is a PMDB member and likely successor to Rousseff should she exit the presidency.

Stocks

Capping weeks of drama and intense negotiations, Foxconn Technology (OTC:FXCOF) has finally clinched a deal to take over Sharp (OTCPK:SHCAY), but with a lower price tag than their original agreement. The Taiwanese firm will pay about $3.5B for a two-thirds controlling stake in the embattled Japanese company, nearly $900M less than its initial offer. Sources have also told the Yomiuri newspaper that Foxconn is planning to overhaul Sharp's management including replacing its CEO.

Apple may have the chance to return a punch thrown by the FBI, by using a Brooklyn drug case to force the government to reveal how it hacked into the iPhone belonging to one of the San Bernardino shooters. Questions are still lingering over how the FBI found a backdoor into the device, but the agency reportedly hired Israeli-firm Cellebrite for technical assistance in accessing the phone. Shares in the cybersecurity company's Japan-listed parent, Sun Corp., have leapt more than 60% since the hack was first publicized. In other news, Apple (NASDAQ:AAPL) has signed a multi-year partnership deal for iPad Pro tablets with the MLB.

Snapchat is bolstering its chat function with multimedia functions including voice and video calling and digital stickers, releasing an update that steps up competition with Facebook (NASDAQ:FB). Called Chat 2.0, Snapchat's (Private:CHAT) feature emulates "face-to-face communication," while making it easier to switch between video chatting, texting and calling. WhatsApp introduced voice calls last year, but users are still waiting for video. Facebook's Messenger communications app added audiovisual capabilities last April.

Alphabet's Google Fiber is introducing a home phone service, Fiber Phone, in addition to its existing high-speed internet and cable TV offerings (and potentially a triple play package). The service is set to provide unlimited local and nationwide calls for $10 per month, while adopting the same international calls rates as Google Voice (GOOG, GOOGL). According to the company, a user's Fiber number "lives in the cloud," allowing them to use it on any phone, tablet, or laptop.

Music-streaming site Spotify has raised $1B in convertible debt from investors, facing increasing competition from Apple Music (AAPL), Pandora Media (NYSE:P), SoundCloud and Tidal. Private-equity firm TPG and hedge fund Dragoneer Investment Group allegedly led the deal, which is expected to close at the end of this week. By raising debt instead of equity, Spotify (Private:MUSIC) is adding to its war chest without the likelihood of pressuring its stock.

After emerging from bankruptcy last month as a private company, American Apparel (OTCPK:APPCQ) has named the former head of Liz Claiborne as chairman of its revamped board. Joining him will be Susan Davidson, another Claiborne veteran, and Bruce Fetter, CEO of St. John Knits. The changes are aimed at bolstering the seven-person board's retail experience as American Apparel attempts a comeback.

General Electric has agreed to sell GE Capital's U.S. hotel franchise loan portfolio (totaling $1.4B) to a unit of Western Alliance Bancorp (NYSE:WAL) for an undisclosed sum. The conglomerate will also sell its unit (containing $300M of loans) that provides financing to Canada's hospitality and restaurant industries. Both businesses represent a large part of GE Capital's franchise finance unit, which is the last North American business to be sold as part of a plan to cut down the size of GE Capital.

McCormick has raised its offer for the U.K.'s Premier Foods (OTCPK:PFODF) to around £537 million ($773M), or £1.5B including shares and debt. Premier, whose brands include Mr. Kipling cakes and OXO stock cubes, rejected a previous 60 pence a share offer by stating it significantly undervalued its "growth prospects," but McCormick (NYSE:MKC) believes its revised bid should be well received by shareholders and the company's board. Premier Foods +7.4% in London.

Is Novartis in more hot water? An anonymous whistleblower has accused the Swiss drugmaker of paying bribes in Turkey through a consulting firm to secure business advantages worth an estimated $85M. The alleged benefits include getting medicines added to drug lists approved for prescription in government-run hospitals, and avoiding price cuts in other countries by changing the names of two drugs. Last week, the U.S. asked Novartis (NYSE:NVS) for records of 80K "sham" doctor events.

Takata has estimated that a comprehensive callback of its airbag inflators would total about ¥2.7T ($24B), sending its shares tumbling by a fifth to an all-time low. Sources told Bloomberg that the worst-case recall scenario would involve 287.5M airbag inflators. Big Takata (OTCPK:TKTDY) customers are also feeling the heat: Honda (NYSE:HMC) -3.6%, Nissan (OTCPK:NSANY) -3.7% and Toyota (NYSE:TM) -2.5% in Tokyo.

Volkswagen's 'clean diesel' advertising campaign could put the automaker on the line for billions of dollars worth of fines after the U.S. Federal Trade Commission launched a new lawsuit. The legal action seeks a monetary remedy for the 550K cars sold in the U.S. over VW's (OTCPK:VLKAY) deceptive marketing practices of clean diesel vehicles.

Confirming earlier reports, Boeing (NYSE:BA) says it will eliminate about 4,000 jobs in its commercial airplanes division by the middle of this year. "While there is no employment reduction target, the more we can control costs as a whole the less impact there will be to employment," spokesman Doug Alder said. The job cuts will include hundreds of executives and managers, but will not be executed through involuntary layoffs.

Nearly 80 years after the Hindenburg disaster, airships are poised for a comeback. Straightline Aviation has signed a letter of intent to acquire 12 new Lockheed Martin (NYSE:LMT) hybrid airships - 280 feet long, able to carry 20 tons of cargo - in a deal valued at about $480M. The company plans to use the massive blimps to run air operations for oil-and-gas companies, transporting their equipment and commodities to and from remote locations.

Today's Markets

In Asia, Japan -1.3% to 16879. Hong Kong +2.2% to 20803. China +2.8% to 3000. India +1.8% to 25339.
In Europe, at midday, London +1.7%. Paris +2%. Frankfurt +1.7%.
Futures at 6:20, Dow +0.7%. S&P +0.7%. Nasdaq +0.8%. Crude +1.7% to $38.93. Gold +0.2% to $1239.40.
Ten-year Treasury Yield +1 bps to 1.82%

Today's Economic Calendar

7:00 MBA Mortgage Applications
8:15 ADP Jobs Report
10:30 EIA Petroleum Inventories
1:00 PM Results of $28B, 7-Year Note Auction
3:00 Farm Prices