Wednesday Watch

Evening Headlines 
Bloomberg:

• Russia Set to Raise Main Rate as Ruble Rout Endangers Stability. Russia’s central bank will probably raise borrowing costs to avert threats to financial stability as oil prices near the lowest in more than five years and sanctions over Ukraine risk the collapse of the ruble. The Bank of Russia will increase its key rate to 10 percent from 9.5 percent, according to the median estimate of 27 economists surveyed by Bloomberg. Eleven forecast no change. Fifty of 77 traders polled by brokerage Tradition project a rate increase of between 100 and 400 basis points. The regulator will announce the decision at about 1:30 p.m. tomorrow in Moscow, followed by a news conference.

• It’s Oil, Stupid, as Russian Rates Powerless: Chart of the Day. Investors are betting that the Bank of Russia will raise interest rates tomorrow after it exhausted all other options for stabilizing the ruble. A look at the oil price suggests that too may be futile.

• AAA-or-Nothing Ruling Adds to China Bond Default Concern. With $90 billion of bonds sold by local government financing vehicles coming due next year, China is walking a fine line between teaching investors a lesson and preventing widespread defaults. The nation’s clearing agency said this week that local bonds rated lower than the highest AAA grade are too risky to be used as collateral for short-term loans. That means about half of the outstanding 1 trillion yuan ($162 billion) securities sold by local government financing vehicles, or LGFVs, in the exchange market can no longer be pledged to raise funds, according to Morgan Stanley.

• Asia Stocks Drop With Oil as Dollar Gains After China CPI. Asian stocks fell, with the regional index heading for for its biggest two-day drop in a month, and the dollar advanced as oil erased yesterday’s gains. Chinese stocks fluctuated as inflation data missed estimates, underscoring growth concerns in Asia’s largest economy. The MSCI Asia Pacific Index slid 1.3 percent by 11:29 a.m. in Tokyo, set for its lowest close since Oct. 24 as Japan’s Topix gauge slid 1.5 percent. The Hang Seng China Enterprises Index (HSCEI) was little changed after tumbling 4.6 percent yesterday. The Bloomberg Dollar Spot Index increased 0.1 percent as the yen weakened and the Australian currency held a record losing streak. Oil fell for the fourth time in five days. 

• Copper Leads Industrial Metals Lower on China Growth. Copper fell for the third time in four days on concern demand is slowing in China after factory-gate deflation deepened and consumer prices climbed at the slowest pace since 2009 in the world’s largest metals user. Copper dropped as much as 0.7 percent.

• Oil Resumes Drop as Iran Sees $40 If There’s OPEC Discord. Brent resumed its decline as an Iranian official predicted a further slump in prices if solidarity among OPEC members falters. West Texas Intermediate in New York also erased yesterday’s gains. Futures slid as much as 1.6 percent in London after snapping a five-day losing streak. Crude could fall to as low as $40 a barrel amid a price war or if divisions emerge in the Organization of Petroleum Exporting Countries, said an official at Iran’s oil ministry. The 12-member group, which supplies 40 percent of the world’s oil, may need to call an extraordinary meeting in the first quarter if the drop continues, according to Energy Aspects Ltd.

Wall Street Journal: 

• Beijing Taps Brakes, and Markets Drop. China Notches Biggest Market Loss in 5 Years After Surprise Move to Rein In Lending. China notched its biggest market loss in five years after Beijing made a surprise move to rein in lending, fueling concerns about growth in the world’s No. 2 economy. Tuesday’s selloff came as policy makers convened in Beijing to plot an economic policy course for the next year—a meeting widely expected to yield a drop in the 2015 growth target to 7% from 7.5%.

• Fed Sets Tough New Capital Rule for Big Banks. J.P. Morgan(JPM) Would Face $21 Billion Shortfall. Eight of the largest U.S. banks will need fatter capital cushions as part of U.S. regulators’ latest efforts to make the financial system less risky. The biggest impact will be felt by J.P. Morgan Chase & Co., the nation’s largest bank by assets, which is $21 billion short of the requirement, according to Fed officials. 

• Spooks of the Senate. The report on CIA interrogations is a collection of partisan second-guessing. The Senate Intelligence Committee report on CIA interrogations is a moment for reflection, but not for the reasons you’re hearing. The outrage at this or that ugly detail is politically convenient. The report is more important for illustrating how fickle Americans are about their security, and so unfair to those who provide it. After the trauma of 9/11 and amid the anthrax letters in 2001, Americans wanted protection from another terror attack. 

• Ex-CIA Directors: Interrogations Saved Lives. The Senate Intelligence investigators never spoke to us—the leaders of the agency whose policies they are now assailing for partisan reasons.

Fox News:

• House leaders unveil budget bill, race to avert partial shutdown. (video) House leaders unveiled a $1.1 trillion spending bill Tuesday night that would avert a partial government shutdown while delaying a fight over President Obama's immigration actions until early 2015. The GOP-led House Appropriations Committee released the plan, which would keep most of the government funded through September 2015, following days of backroom negotiations.

Zero Hedge: 

• Welcome To The Recovery: 40% of Americans Live Paycheck To Paycheck (Up From 30% In 2012).

• Markets Turmoiled As 5th Hindenburg Looms. (graph)

• Deutsche Bank Is Stumped: The Broad Market Is Ignoring The Bear Market In Energy, "Something Has To Give". 

• Do Not Underestimate How Low Treasury Yields Can Fall.

• If At First You Fail Miserably & Blow Up The Financial System, Do It Again!

• Chart Of The Day: This Is What 6 Years Of Central Bank Liquidity Injections Look Like. (graph)

• Beijing, We Have A Problem.

• Profit Recession On Deck Due To Surging Dollar And Plunging Crude, Deutsche Warns.

• Popping The Chinese Stock Market Mania. (graph)

Business Insider:

• Here's Jeff Gundlach's Awesome Presentation On The Changing World Of Investing.

• The OPEC Era Is Over.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -1.25% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 104.75 +3.25 basis points.

• Asia Pacific Sovereign CDS Index 65.5 +2.25 basis points.

• S&P 500 futures -.09%.

• NASDAQ 100 futures  -.13%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (TOL)/.73

• (COST)/1.09

• (HOV)/.22

• (RH)/.47

• (MW)/.87

• (TITN)/.23

• (VRA)/.19

Economic Releases
10:30 pm EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,625,000 barrels versus a -3,689,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +2,450,000 barrels versus a +2,143,000 barrel gain the prior week. Distillate supplies are estimated to rise by +887,500 barrels versus a +3,028,000 gain the prior week. Finally Refinery Utilization is estimated to rise by +.31% versus a +1.9% gain the prior week.
  

2:00 pm EST

• The Monthly Budget Deficit for November is estimated at -$65.0B versus -$135.2B in October.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Australian Unemployment report, $21B 10Y Note auction, weekly MBA mortgage applications report, USDA's WASDE report, Oppenheimer Healthcare Conference, BofA Basic Materials Conference, (DBD) investment conference, (TSN) investor day, (BGG) investor day and the (BF/A) analyst meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and technology shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.