Friday Watch

Evening Headlines
Bloomberg: 

• China's Troubled Credit Swells to Sweden-Sized $628 Billion. Chinese banks’ troubled loans swelled to almost 4 trillion yuan ($628 billion) by the end of September, more than the gross domestic product of Sweden, according to figures released by the industry regulator. Banks’ profit growth slumped to 2 percent in the first nine months from 13 percent a year earlier, according to data released on Thursday night by the China Banking Regulatory Commission. The numbers come as a debt crisis at China Shanshui Cement Group Ltd. prompts lenders including China Construction Bank Corp. and China Merchants Bank Co. to demand immediate repayments and as weakness in October credit growth shows the risk of a deeper economic slowdown. While the official data shows non-performing loans at 1.59 percent of outstanding credit, or 1.2 trillion yuan, that rises to 5.4 percent, or 3.99 trillion yuan, if “special mention” loans, where repayment is at risk, are also included. The amount of bad debt piling up in China is at the center of a debate about whether the country will continue as a locomotive of global growth or sink into decades of stagnation like Japan after its credit bubble burst.
• China Spooks Neighbors in South China Sea With Lighthouses. Lighthouses have for centuries guided the world’s seafarers, preventing ships from striking rocks and reefs and helping fishermen find their way home. In the disputed South China Sea, they may be taking on a darker role. China’s program to build beacons on reclaimed reefs it occupies in the waters -- through which about 30 percent of global trade passes -- is spooking other claimant countries concerned it will use them as political tools. Having lighthouses perched on top of the reefs, ostensibly to help navigation in the waters, could boost China’s argument for sovereignty. 
• Biggest Australian Stock Dividend Besieged as BHP's Woes Deepen. BHP Billiton Ltd. has already lost its title as Australia’s most valuable stock, and now its status as the biggest dividend-payer may be under threat. The mining company’s market value is down A$161 billion ($115 billion) from a 2008 peak, when it had almost three times as much clout in the country’s equity index as its nearest rival. BHP may be forced to cut shareholder payouts as a deadly mining disaster in Brazil adds to the company’s woes amid slumping commodity prices and slowing global growth, according to Craigs Investment Partners Ltd. BHP gave $6.5 billion to shareholders in the most recent financial year, more than any other Australian listed company, and has committed to steadily increasing its payouts. 
• Europe's Top Banks Are Cutting Losses Throughout Latin America. European banks are on the retreat all across Latin America. Societe Generale SA announced in February that it’s dismissing more than 1,000 workers while exiting the consumer-finance business in Brazil. In August, HSBC Holdings Plc sold its unprofitable Brazilian unit, with more than 20,000 employees. Two months later, it was Deutsche Bank AG’s turn. The German lender said it’s closing offices in Argentina, Mexico, Chile, Peru and Uruguay and moving Brazilian trading activities elsewhere. Barclays Plc is shrinking its operations in Brazil too. The exodus threatens to deepen Latin America’s turmoil, making it harder for companies and consumers to obtain financing. The region already is out of favor as sinking commodity prices drive it toward the worst recession since the late 1990s. European banks, meanwhile, are looking to cull weak businesses as they struggle to generate profits and meet tougher capital requirements back home.
• Chinese Stocks Drop Most in Six Weeks in Hong Kong on Economy. Chinese stocks fell the most in six weeks in Hong Kong trading after commodity prices plunged and the nation’s broadest measure of new credit slumped. Hong Kong’s Hang Seng China Enterprises Index slid 1.8 percent to 10,222.71 at 9:46 a.m. local time, dragged down by oil companies and banks. China Construction Bank Corp. and PetroChina Co. retreated at least 2 percent. The Shanghai Composite Index dropped 0.5 percent, paring a loss of as much as 1.1 percent as airlines and utilities rallied. 
• Asian Stocks Track U.S. Drop as Energy, Material Shares Retreat. Asian stocks followed U.S. shares lower, with the regional benchmark index heading for a third weekly decline, as energy and material shares slid amid a renewed selloff in commodities.The MSCI Asia Pacific Index fell 0.6 percent to 132.81 as of 9:01 a.m. in Tokyo, poised for a 0.7 percent retreat this week.
• Commodities: What’s Fallen the Most? (video)
• Gold to Copper Bulls Left Heartbroken as Price Collapse Deepens. Metal markets took a pounding on Thursday, sending gold to a five-year low and copper to the cheapest since 2009. Falling prices are dragging down producer shares, pushing the Bloomberg World Mining Index to a five-week low. Investors are fleeing -- withdrawing more than a $1 billion from exchange-traded funds tracking industrial and precious metals just this month, data compiled by Bloomberg show. Platinum dropped Thursday in the worst losing streak since 2002, while silver posted its longest slump since March 2014.  
• China's Steel Output Heading for a Fall, Noble Group Warns. Steel output in China is set to tumble, according to commodity trader Noble Group Ltd., which warned that the slump in the top producer will hurt raw-material demand. Mills are making losses of about $50 on every ton, the Hong Kong-based company said in its earnings statement. Combined with a construction slowdown this quarter, that means a drop in the country’s crude-steel output is highly probable, it said on Thursday.
• Rusal Cuts Aluminum Demand Growth Forecast as Profit Slumps 26%. United Co. Rusal, the world’s biggest aluminum producer last year, said third-quarter profit fell 26 percent as prices of the alloy declined, and cut its demand forecast on a weaker outlook in emerging markets. Adjusted earnings before interest, taxes, depreciation and amortization fell to $420 million from $568 million the previous quarter, the Moscow-based company said in a statement Friday. Revenue dropped 9 percent to $2.07 billion. Analysts typically compare Rusal’s quarterly results with the preceding three months rather than year-earlier figures. The producer cut its global aluminum demand growth forecast for 2015 to 5.6 percent from 6 percent and raised its surplus forecast to 373,000 metric tons in 2015, according to the statement.

Wall Street Journal:

• In China’s Widening Stock Crackdown, It’s ‘Kill the Chicken to Scare the Monkey’. Traders feel chill as arrests, probes spread in wake of summer’s market rout. China’s crackdown on alleged misdeeds by traders escalated dramatically in recent days, as officials went after one of the country’s best-known fund managers and then members of his family. In the past 10 days, authorities have gone from detaining Xu Xiang, who runs Shanghai-based Zexi Investment, for alleged insider trading and stock-price manipulation, to freezing stockholdings valued at more than $1 billion owned by his...
• Economists Overwhelmingly Expect Fed to Raise Interest Rates in December. WSJ survey finds about 92% of economists surveyed see December liftoff. There is near-unanimous agreement among private forecasters surveyed that the Federal Reserve will begin raising short-term interest rates next month after holding them near zero for seven years.
• Fed Weighs Tightening Revolving-Door Curbs. Federal Reserve is weighing measures to tighten its restraints on bank examiners who leave it for jobs with financial institutions. The Federal Reserve is weighing new measures to tighten the restraints it imposes on bank examiners who leave the central bank for jobs with financial institutions, following questions of a revolving door between the regulator and Wall Street.
• GM(GM) to Import Chinese-Made Buick SUV. U.S. auto maker poised to bring Buick Envision built in Shandong province to America. General Motors Co., fresh off agreeing to a new union contract that is expected to drive up its U.S. labor costs, plans to become the first major auto maker to sell Chinese-made cars in the U.S.
• Warren Buffett Has an Image Problem. Some say billionaire hides behind image of folksy businessman. Wall Street’s relationship with Warren Buffett has turned openly testy, rekindling a long-held complaint about the chairman of Berkshire Hathaway Inc: He gets to play by his own set of rules.
• Why Students Need to Sit Up and Pay Attention. Our charters are guided by what I learned from a great public-school teacher: Distracted, misbehaving children aren’t learning.

Fox News:

• Clinton unveils coal country plan, firing up critics of energy stance. (video) Hillary Clinton's campaign on Thursday unveiled a $30 billion plan to help coal communities rebound as the "clean energy economy" develops -- drawing a rebuke from Republicans who accuse her of backing policies that are "crippling" coal country in the first place.

MarketWatch.com:

• Fossil(FOSL) cuts outlook, profit falls 45%. Fossil Group Inc. cut its 2015 guidance as the watch and fashion-accessories company reported third-quarter earnings fell 45% on weaker sales, especially of its watches. The Richardson, Texas, company's shares fell 13% to $44.50 as its outlook for the current quarter missed Wall Street views.
• Eighty million U.S. jobs at risk from automation, central bank official says. (graph)
• El Pollo Loco(LOCO) cuts guidance as sales growth slows. El Pollo Loco Holdings Inc. on Thursday lowered expectations for the full year after reporting a sharp drop in third-quarter profits. Shares, down 42% this year, fell 8% to $10.58 in after-hours trading.
• Netflix(NFLX) shares fall on news Time Warner(TWX) could invest in Hulu.

CNBC:

• The shorts are surging in this commodity. (video) Crude oil is pacing for its worst weekly performance in the last three months as concerns about slowing global growth and a strengthening dollar have commodity traders hitting the sell button. And that has one group of traders very happy: short sellers. 
• Cisco(CSCO) shares slide 5% as guidance disappoints. (video) Cisco Systems reported quarterly results that topped analysts' expectations on Thursday, but gave disappointing guidance for its current quarter driven by lower-than-expected order growth and foreign exchange rates.
• US inflation to rebound next year: Fed's Fischer. (video)

Zero Hedge:

• Something Very Strange Is Taking Place Off The Coast Of Galveston, TX. (graph)
• An Interactive Look At China's Massive Coal Bubble.
• "What We've Got Here Is A Failure To Communicate".
• Another Bubble Bursts: Ultra Luxury London Home Prices Tumble 12%. (graph)
• Here Is The Biggest, And Most Underreported, Risk Facing China.
• World's Largest Hedge Fund Dumped 31% Of Its US Equity Holdings In The Third Quarter.
• This All Has A Familiar Ring To It. (graph)
• Can't Afford To Buy A House? Buy It Anyway Housing "Experts" Advise.
• Black Fridays Matter. (graph)
• Nordstrom(JWN) Plummets After Abysmal Results, Slashing Guidance.
• "Sell Mortimer": Stocks Tumble Most In 6 Weeks, Back To Red For 2015. (graph)
• The Amazing Chart Showing What All The Debt Issued This Century Has Been Used For. (graph)
• Oil Majors Don't Share OPEC's Optimism On Oil Prices In 2016.

Business Insider:

• Employees are paying more for healthcare than ever.
• Wall Street banks are writing huge checks to finance the takeover boom.
• The FBI is reportedly expanding its investigation into Hillary Clinton's private email server.
• The US might label one of ISIS's attacks 'genocide' — and that could have major implications.
• Hulu is reportedly in talks with Time Warner(TWX) to sell a stake of itself that would value the company at $5 billion.
• 17 eerie photos that show just how polluted China's air has become.

Reuters:

• U.S. stock funds see first outflows in five weeks -Lipper. Investors in U.S.-based stock funds withdrew $1 billion in cash during the week that ended Nov. 11, marking the first outflows from those funds in five weeks, Lipper data showed on Thursday. During the same period, taxable bond funds posted $3.7 billion in outflows, their biggest withdrawals since September, according to Lipper. The fund research service said safe-haven money-market funds attracted $6.5 billion during the period, following outflows of nearly $14 billion the week before.
• China Apparent Steel Consumption Falls -5.7% Jan.-Oct. China's apparent steel consumption drops to 590.5m tons in the first 10 months, citing Wang Yingsheng, vice secretary-general at China Iron and Steel Association.

Telegraph:

• Global oil glut highest in a decade as inventories soar. Non-Opec producers are being burnt by a strategy of flooding markets with cheap energy, the cartel finds in its latest monthly report.

21st Century Business Herald:

• Ex-PBOC Deputy Head Backs Neutral Monetary Policy. Wu Xiaoling, a former Chinese central bank deputy governor, said the country lacks investor confidence instead of interbank liquidity, citing interview with Wu. China needs to adjust structure to eliminate overcapacity, allow good products to be sold at good prices and hence recover investor confidence. China should cut taxes for companies and avoid making too much direct investment with fiscal funds.

Evening Recommendations 

• None of note

Night Trading 

• Asian equity indices are -1.5% to -.5% on average.
• Asia Ex-Japan Investment Grade CDS Index 127.75 +1.0 basis point.
• Asia Pacific Sovereign CDS Index 70.75 +2.0 basis points.
• Bloomberg Emerging Markets Currency Index 70.84 -.04%.
• S&P 500 futures +.16%.
• NASDAQ 100 futures +.03%.

Morning Preview Links 

Earnings of Note 
Company/Estimate

• (JCP)/-.56
• (TYC)/.61 

Economic Releases
8:30 am EST

• Retail Sales Advance MoM for October are estimated to rise +.3% versus a +.1% gain in September.
• Retail Sales Ex Autos MoM for October are estimated to rise +.4% versus a -.3% decline in September.
• Retail Sales Ex Autos and Gas for October are estimated to rise +.4% versus unch. in September.
• PPI Final Demand for October are estimated to rise +.2% versus a -.5% decline in September.
• PPI Ex Food and Energy MoM for October is estimated to rise +.1% versus a -.3% decline in September. 

10:00 am EST

• Preliminary Univ. of Mich. Consumer Sentiment for November is estimated to rise to 91.5 versus 90.0 in October.
• Business Inventories for September are estimated unch. versus unch. in August. 

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Mester speaking, Eurozone GDP report, Bloomberg Nov. US Economic Survey, (RAI) investor day and the (CE) investor day could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by financial and commodity 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.