Friday Watch

Evening Headlines 
Bloomberg: 

• Cheap Oil’s Boost to Global GDP Offset by Woes in Europe, Brazil. Plunging oil prices are giving a bump to consumer and business spending around the world -- just not enough to increase global growth forecasts. A darkening outlook in emerging markets including China, Russia and Brazil and geopolitical risks such as Greece’s possible exit from the euro are overshadowing the benefits from lower energy costs. The median estimate for 2015 world expansion from economists surveyed by Bloomberg News has been unchanged since October, when it fell to 3.5 percent from 3.6 percent. “People are cautious in a world where they see other risks skewed to the downside,” said Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York. “There’s still a question mark out there.”

• World’s Best Forecaster Targets Euro-Dollar Parity: Currencies. Being more bearish on the euro than the consensus helped ING Groep NV become the world’s most accurate currency forecaster in 2014. The Dutch bank sees no reason to change its strategy now, breaking from the pack to predict a drop to parity with the dollar within two years. After watching the 19-nation currency slide as low as $1.1754 today from last year’s high of $1.3993 in May, ING sees it continuing to weaken all the way to $1, a level last seen in 2002. The median estimate of more than 30 forecasters in a Bloomberg survey is $1.15 by the end of 2016.

• Kaisa Bondholders Wait to Hear Whether Developer Has Paid Coupon. Bondholders of Kaisa Group Holdings Ltd. (1638) are waiting to hear whether the Chinese developer made a coupon payment on its dollar-denominated notes. The builder of residential communities and shopping centers was due to pay interest on its $500 million of 10.25 percent 2020 notes yesterday. The $25.625 million semi-annual coupon on the debentures, sold in 2013, is payable every Jan. 8 and July 8, according to the notes’ prospectus. No Chinese developer has defaulted on dollar bonds and Kaisa would be the first, according to Dennis Lee, an analyst at Standard & Poor’s in Hong Kong. 

• The BRICs Will Be Cut to the ICs if Brazil and Russia Don't Shape Up, Warns Phrasemaker O'Neill. Brazil and Russia’s membership of the BRICs may expire by the end of this decade if they fail to revive their flagging economies, according to Jim O’Neill, the former Goldman Sachs Group Inc. chief economist who coined the acronym. Asked if he would still group Brazil, Russia, India and China together as emerging market powerhouses as he did in 2001, O’Neill said in an e-mail “I might be tempted to call it just ’IC’ or if the next three years are the same as the last for Brazil and Russia I might in 2019!!”

• Asian Stocks Extend Gains as Crude Rises; Dollar Falls. Asian stocks rose a second day, led by commodity producers, as U.S. crude oil headed for its longest streak of gains since August. The dollar weakened from a 10-year high after a second Federal Reserve official cautioned against raising interest rates this year. The MSCI Asia Pacific Index added 0.7 percent by 11:26 a.m. in Tokyo, paring its loss in the week to 0.4 percent. 

• Nickel Falls, Copper Heads for Weekly Drop on China Factory Data. Nickel fell and copper headed for the biggest weekly drop since November as China’s factory-gate prices extended a record run of declines, signaling weakening demand in the world’s largest metals user. Investors are weighing signs of slower growth in China and Europe and tumbling oil prices against strength in the U.S. China’s producer-price index in December fell 3.3 percent, the most in two years, according to the National Bureau of Statistics. U.S. payroll data is forecast to show unemployment last month slid to 5.7 percent, the lowest since 2008. “Metals prices should feel pressure from the weaker-than-expected PPI figure as it reflects inactivity in Chinese real economy,” said Lian Zheng, an analyst at Xinhu Futures Co. in Shanghai. Nickel for delivery in three months fell as much as 0.8 percent to $15,423 a metric ton on the London Metal Exchange and was trading at $15,480 a ton at 10:45 a.m. in Shanghai. Copper in London rose 0.3 percent to $6,124 a ton, paring it’s weekly loss to 2.1 percent, the largest such decline since Nov. 28. In New York, the metal for March delivery fell 0.2 percent to $2.764 a pound, while the contract for the same month on the Shanghai Futures Exchange decreased 0.4 percent to 44,500 yuan ($7,168) a ton.

• Why OPEC Is Talking Oil Down, Not Up, After 48% Selloff. If there ever was doubt about the strategy of the Organization of Petroleum Exporting Countries, its wealthiest members are putting that issue to rest. Representatives of Saudi Arabia, the United Arab Emirates and Kuwait stressed a dozen times in the past six weeks that the group won’t curb output to halt the biggest drop in crude since 2008. Qatar’s estimate for the global oversupply is among the biggest of any producing country. These countries actually want -- and are achieving -- further price declines as part of an attempt to hasten cutbacks by U.S. shale drillers, according to Barclays Plc and Commerzbank AG. 

• Oil Drop Fails to Halt Alberta Oil Sands Amid Record Output. Alberta’s oil production rose to a record in October and further gains are forecast this year as plunging prices fail to slow oil sands expansions. Canada’s biggest oil province produced 2.9 million barrels a day of crude, raw and upgraded bitumen and condensate, the most in data stretching back to 2007 and a 13 percent increase from a year earlier, the Alberta Energy Regulator said yesterday. Alberta will produce 3.05 million barrels of oil a day by the end of this year, Carl Evans, Boulder, Colorado-based crude oil analyst at Genscape Inc., said in an instant message. “Output from oil sands production will continue through this low-price environment as these projects are long-term investments with costs that can be spread over thousands of barrels,” he said.

• Energy Borrowers Find Loans Come at Steep Price: Credit Markets. Energy companies that were all but shut out of debt markets by a 55 percent drop in oil prices are starting to find investors willing to lend them money to keep drilling -- albeit at a steep price. Resolute Energy Corp., an oil explorer, struck a deal with Highbridge Capital Management LLC that guarantees the lender a return of at least 25 percent on its $142 million loan. In return for a $500 million loan to Linn Energy LLC, Blackstone Group LP will get an 85 percent working interest in some of the energy producer’s wells. “Double-digit yield is probably the starting point for investors, and for the first time since the credit crisis, many of these companies are price takers,” Paul Sharkey, a managing director in Citigroup Inc.’s leveraged syndicate group in New York, said in a telephone interview.

Wall Street Journal:

• Charlie Hebdo Attack: Police Actively Searching Area North of Paris. Thousands of Troops, Police Mobilized; Suspects Were on Terror Watch Lists. Tens of thousands of soldiers and police mobilized across France on Thursday amid a manhunt for two brothers who allegedly killed 12 people in a gruesome attack on Charlie Hebdo magazine, as anxious Parisians stopped for a moment of silence to honor the dead. President François Hollande raised the terror alert in an area north of Paris where the search was concentrated, after two men matching the description of the suspects were spotted at a gas station. But the two—both of whom have been on watch lists of possible terrorists for years—remained at large.

• Scammers Target Brokerage Accounts. The Morgan Stanley Data Breach Is a Reminder of the Big Dollars at Risk.

• Nelson Peltz Launches Proxy Fight Against DuPont(DD). After Breakup Proposal Was Rejected, Activist Trian Seeks Four Board Seats. 

• Car Loans See Rise In Missed Payments. Uptick Comes Amid Rise in Loans to Subprime Borrowers. Borrowers who took out auto loans over the past year are missing payments at the highest level since the recession, fueling concerns among regulators, analysts and some in the car industry that practices that helped boost 2014 light-vehicle sales to a near-decade high could backfire. “It’s clear that credit quality is eroding now, and pretty quickly,” said Mark Zandi, chief economist at Moody’s Analytics.

• How ObamaCare Harms Low-Income Workers. Full-timers become part-timers, losing wages and the opportunity to buy the health coverage they most prefer. The primary purpose of the Affordable Care Act was to make health insurance affordable for people with modest incomes. Yet as the employer mandate begins to kick in for 2015, the law is already hurting some of the people it was intended to help. By this time next year, we may find that many workers who earn within a few dollars of the minimum wage have less income and less insurance coverage (as a group) than they did before the mandate began to take effect. This is the conclusion I draw from my survey in December of 136...

Fox News:

• 34-year-old Paris suspect directly linked to Al Qaeda training camp in Yemen. One of the two brothers suspected of gunning down 12 people in an attack on a Paris-based satirical magazine traveled to Yemen in 2011 and had direct contact with an Al Qaeda training camp, according to U.S. government sources. Fox News is told the investigators have made it a priority to determine whether he had contact with Al Qaeda in Yemen's leadership, including a bomb maker and a former Guantanamo Bay detainee.

MarketWatch.com:

• Obama proposes "free" community college. President Barack Obama is proposing the government offer students two free years of community college education, enough to earn an associate's degree, according to a video released Thursday afternoon by the White House.

CNBC:

• Fear Fed hasn't learned its lesson: Roach. (video) When the central bank was incremental in normalizing rates 10 years ago during a time of enormous froth in the housing, equity and credit markets, it led to huge distortions in the real economy, he said in an interview with "Closing Bell." "Finally, when the bubbles popped the whole house of cards came down." The Fed still hasn't learned its lesson, he added.

• Meet the most powerful woman in hedge funds.

Zero Hedge:

• How Bad Is It For Shale Companies: The Cost Of Resolute Energy's New Second-Lien Debt: 25%! (graph)

• Some Folks Were Short-Squeezed: "Soothing Statement" By Fed Sends Stocks Green For 2015. (graph)

• The WSJ Looks At "Non-GAAP" Earnings, Is Horrified By What It Finds. (graph)

• 3 Things - Volatility, The Fed And Yield Spreads. (graph)

• Credit Card Debt Tumbles Most In 1 Year As US Households Resume Deleveraging. (graph)

• A Winter Wonderland Of Fear: US Cities To Ban Unregulated Sledding.

• On This Day In History, The Baltic Dry Index Has Never Been Lower. (graph)

• On The Verge Of The Next Economic Crisis, 62% Of Americans Are Living Paycheck To Paycheck.

• "Europe Can't Afford A Greek Exit" German Opposition Warns Merkel Is "Playing With Fire".

Business Insider:

• The Number That Makes China Look Like Europe Is Out. Thursday night at 8:30 PM EST, China released December figures for its producer price index (PPI) and consumer price index (CPI). These are numbers associated with inflation. PPI came in at -3.3%, missing analyst expectations, and CPI came right in line at 1.5%.

• Macy's(M) Is Shutting Down 14 Stores And Cutting Jobs.

• The Obama Administration Has Made A Striking Choice In Iraq. "One senior administration official told us that the U.S. government is aware of this, but is caught in a dilemma," Bloomerg reports. "The flawed Iraqi security forces are unable to fight Islamic State without the aid of the militias, who are often trained and sometimes commanded by officers from Iran’s Revolutionary Guard Corps.

Reuters:

• U.S.-based stock funds post $12.3 bln outflows in week - Lipper.

• Starbucks(SBUX) COO Alstead taking 'extended unpaid leave'.

• Vanguard Group execs say deflation a real risk for global economy.

Financial Times:

• Britain at risk of Paris-style attacks, warns MI5. Syrian-based terrorists are planning attacks in the UK similar to the one that killed 12 people at French satirical magazine Charlie Hebdo, a security chief has warned. Andrew Parker — director-general of MI5, the UK’s domestic counter-intelligence service — said there had been more than 20 Syrian-linked terror plots against western targets in the past 14 months.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are unch. to +1.0% on average.

• Asia Ex-Japan Investment Grade CDS Index 114.0 -1.0 basis point.

• Asia Pacific Sovereign CDS Index 70.75 -1.5 basis points.

• S&P 500 futures -.17%.

• NASDAQ 100 futures  -.05%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AYI)/1.13

• (AZZ)/.73

• (INFY)/27.37

Economic Releases
8:30 am EST

• The Change in Non-Farm Payrolls for December is estimated at 240K versus 321K in November. 

• The Unemployment Rate for December is estimated to fall to 5.7% versus 5.8% in November.

• Average Hourly Earnings for December are estimated to rise +.2% versus a +.4% gain in November. 

10:00 am EST

• Wholesale Inventories for November are estimated to rise +.3% versus a +.4% gain in October.

• Wholesale Sales for November are estimated unch. versus a +.2% gain in October. 

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Evans speaking on CNBC, Fed's Lacker speaking and the German Industrial Production/Trade reports could also impact trading today.

BOTTOM LINE: Asian indices are mostly 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 modestly lower. The Portfolio is 50% net long heading into the day.