Tuesday Watch

Evening Headlines 
Bloomberg:   

• SEC Faces China Auditor Appeal as Ban Imperils Diplomacy. Chinese affiliates of the four largest accounting firms plan to file an appeal to U.S. regulators as soon as today to reverse an administrative judge’s decision to bar them for six months after they stymied investigations of possible accounting fraud. The Securities and Exchange Commission will have to weigh the punishment just as U.S. and Chinese regulators make strides in overcoming some of the legal conflicts that the auditors say prevented them from cooperating with probes of China-based companies listed on U.S. exchanges. China has signaled that the diplomatic progress could be derailed if the SEC upholds the judge’s Jan. 22 decision. The firms said that day they will submit an appeal, which must be filed by Feb. 12.

• Chinese Coal Firms’ Debt Concerns Sink Shares: Chart of the Day. Shares of China’s biggest listed coal producers have dropped to their lowest valuations on record as falling fuel prices make it harder to repay debt.

• Visa(V) CEO Says China Delays Opening Card-Payments Market. Visa Inc. (V) Chief Executive Officer Charlie Scharf said China isn’t opening as quickly as expected to foreign payment processors and must be viewed as a five- to 15-year opportunity. “It’s going to take a long time for the market to actually open up in a way that we actually do have that level playing field,” Scharf told analysts today in New York during an industry conference sponsored by Keefe, Bruyette & Woods Inc.

• Goldman(GS) Fund Manager Bracing for Australia Yield Surge. Goldman Sachs Asset Management is avoiding Australia’s sovereign bonds and favoring floating-rate debt as it predicts 10-year yields may rise as much as one percentage point this year.

• Asian Stocks Outside Japan Gain Fourth Day Before Yellen Speech. A gauge of Asian stocks outside Japan rose, extending gains into a fourth day and heading for a two-week high, before Federal Reserve Chairman Janet Yellen delivers her first testimony on monetary policy. Zijin Mining Group Co. (2899), China’s biggest gold producer, jumped 5.6 percent in Hong Kong as the bullion’s price in Shanghai rallied to the highest this year. Australia & New Zealand Banking Group Ltd., Australia’s third-largest bank by market value, rose 2.4 percent after posting a 13 percent jump in first-quarter cash profit. Cochlear Ltd. sank 10 percent in Sydney after reporting first-half results and a second-half estimate that suggest the maker of hearing implants will miss its full-year profit forecast. The MSCI Asia Pacific excluding Japan Index advanced 0.9 percent to 448.46 as of 11:08 a.m. in Hong Kong.

• Gold Climbs to 2014 High to Head for Longest Rally Since August. Gold jumped to the highest level since November as investors assessed further cuts to U.S. monetary stimulus and Chinese buyers resumed purchases to extend last year’s record consumption. Silver was set for the longest rally since August. Bullion for immediate delivery rose as much as 0.8 percent to $1,284.34 an ounce, the highest price since Nov. 18, and traded at $1,284.08 by 10:29 a.m. in Singapore. A fifth day of gains would be the longest such run since August. Silver added 0.7 percent to $20.213 an ounce, advancing for an eighth day.

• Rebar Trades Near Lowest in 17 Months as China Inventory Climbs. Steel reinforcement-bar futures traded near the lowest level in more than 17 months as stockpiles of the building material climbed amid weak demand after Lunar New Year holidays. Rebar for May delivery on the Shanghai Futures Exchange fell as much as 0.3 percent to 3,411 yuan ($563) a metric ton before trading at 3,418 yuan at 10:08 a.m. local time. Futures touched 3,380 yuan yesterday, the lowest intraday level for a most-active contract since September 2012.

Wall Street Journal:  

• Health-Law Mandate Put Off Again. No Fines for Most Employers Until 2016 as Firms Pressure White House in Wake of Troubled Rollout. Most employers won't face a fine next year if they fail to offer workers health insurance, the Obama administration said Monday, in the latest big delay of the health-law rollout. The Treasury Department, in regulations outlining the Affordable Care Act, said employers with 50 to 99 full-time workers won't have to comply with the law's requirement to provide insurance or pay a fee until 2016. Companies with more workers could avoid some penalties in 2015 if they showed they were offering coverage to at least 70% of full-time workers.

• Frustrated by Karzai, U.S. Shifts Exit Plans. New Military Approach Would Give Obama Flexibility on Afghan Troop Decision.

• Syrian Regime Loyalists Seethe Over U.N. Aid Operation for Rebel Area. Assad Supporters Accuse Relief Workers of Bias in Helping Deliver Food and Evacuating Civilians.

• What to Watch for in Yellen’s Testimony.

• Obama Rewrites ObamaCare. Another day, another lawless exemption, once again for business. 'ObamaCare" is useful shorthand for the Affordable Care Act not least because the law increasingly means whatever President Obama says it does on any given day. His latest lawless rewrite arrived on Monday as the White House decided to delay the law's employer mandate for another year and in some cases maybe forever.

Fox News: 

• US government reportedly ordering drone strikes based on cell phone location. The U.S. government reportedly is ordering some drone strikes based on the location of terror suspects' cell phones -- without necessarily confirming the location of the suspects themselves -- raising concerns about missiles hitting unintended targets.

CNBC: 

• Google(GOG) strikes big ad measurement deal with comScore. Google signed a major advertising deal with comScore to help the world's largest Internet search provider win more business from big brands like Kellogg. 

• Behind the massive bet against Caterpillar. (video) Caterpillar has had a nice run this year, rising nearly 4 percent, which is enough to make it the second-best performing Dow component. But one giant player appears to think the run is over.

Zero Hedge: 

• Will Austrian Bank Woes Be Again the Catalyst For A European Kondratieff Winter?

• 2014's Best And Worst Performing Hedge Funds.

• BofAML: "Equities Are Set To Top And Roll". (graph)

• The US Macro Cycle (It's Not Different Or Sustainable This Time). (graph)

• What Would Chinese Hegemony Look Like?

• Another Conspiracy Theory Becomes Fact: Meet The Men With The Plan Behind Italy's Bloodless Coup.

Business Insider: 

• The Red-Hot Biotech Sector Has Experts Screaming Bubble. 

Washington Post: 

• Obamacare’s $70 billion pay cut. In his State of the Union address, President Obama urged Congress to “give America a raise.” Well, it turns out that Obama is giving America a $70 billion annual pay cut, courtesy of Obamacare.

Reuters:

• Commodity groups launch next attack on U.S. position limits rule. A group of commodity firms came out against a new U.S. rule to curb market speculation in a letter on Monday, after banks successfully shot down an earlier version of the position limits rule in court. The new rule by the Commodity Futures Trading Commission attracted well over 100 comment letters by industry participants after the agency - which regulates swaps and futures - launched it in November.

• Debt limit rise should be tied to budget cuts -U.S. Senator Cruz. U.S. Senator Ted Cruz, the Tea Party firebrand who egged on Republicans in the House of Representatives during last year's government shutdown battle, said on Monday it would be "irresponsible" for Congress to grant President Barack Obama a debt limit increase without spending reforms.

Obama takes on coal with first-ever carbon limits
Read more at http://www.philly.com/philly/news/politics/20130919_ap_0f857b20e0c144a5a1e1b9dddc9f9d72.html#YRThyDOhArykUeYy.99

Financial Times:

• Investors turn to ‘shadow’ bond market. The shadows are growing in the corporate bond market as investors turn to derivatives to buy and sell. An increasingly illiquid cash bond market is behind the shift, with banks starting to withdraw from market making.

Telegraph:

• ECB paralysed by German court decision as deflation threatens. The ‘thunderbolt’ ruling on eurozone rescue policies by Germany’s top court marks a serious escalation of Europe’s governance crisis.

China Securities Journal:

• China's Economy Will Be 'Very Difficult' This Year. China's economic operation will continue to be "very difficult" this year as it has accumulated problems that it needs to solve, citing Wu Jinglian, researcher at State Council's Development Research Center. Wu warns about the handling of "dead" cos. as a large number of state cos. with high debt ratio are still depending on subsides for survival.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are +.25% to +.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 144.0 unch.

• Asia Pacific Sovereign CDS Index 108.5 -2.5 basis points.

• FTSE-100 futures +.38%.

• S&P 500 futures +.25%.

• NASDAQ 100 futures +.22%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (RAI)/.80

• (HCP)/.74

• (REGN)/2.09

• (ZTS)/.34

• (CVS)/1.11

• (ICE)/1.95

• (DF)/.18

• (OMC)/1.13

• (S)/-.36

• (MOS)/.43

• (FEYE)/-.37

• (FOSL)/2.43

Economic Releases
7:30 am EST

• NFIB Small Business Optimism for January is estimated at 93.9 versus 93.9 in December.

10:00 am EST

• JOLTs Job Openings for December are estimated to fall to 3980 versus 4001 in November. 

• Wholesale Inventories for December are estimated to rise +.5% versus a +.5% gain in November.

Upcoming Splits

• (LIVE) 3-for-1

Other Potential Market Movers

• The Fed's Yellen speaking, Fed's Plosser speaking, Fed's Lacker speaking, $30B 3Y T-Note auction, weekly retail sales reports, Goldman Tech/Internet Conference, Stifel Transport/Logistics Conference and the (XLNX) investor day could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by technology and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.