Friday Watch

Evening Headlines

Bloomberg:  

• Japan Is Quietly Reflating, Buying Time for Reckoning With Debt. Hidden beneath the headlines about Japan’s continual failure to reach its inflation target is a quiet reflation of its economy. It took almost two decades, but Japan finally notched a record for the size of its economy in 2016, one of the most significant signs yet that Prime Minister Shinzo Abe’s reflation policies have had an impact on underlying fundamentals. Despite population declines on the order of more than a quarter million people a year, and in face of muted productivity gains, Japan’s nominal gross domestic product totaled 537 trillion yen ($6.1 trillion) last year, government data showed Monday. Last year was the first time that nominal GDP, which is unadjusted for price changes, hit a record since 1997.

• Goldman's Yu Sees Risk of Overheating Chinese Economy. (video)

• Asian Stocks Drop After Reflation Trade Pullback. Shares in Tokyo were weighed down by Thursday’s gains in the yen. A decline in the S&P 500 Index put a dampener on equities from Sydney to Seoul. Treasuries rose for the first time in six days on Thursday. Gold headed for its seventh weekly gain in eight weeks. Investors have pulled back after a weeklong rekindling of reflation trades that had been fueled by optimism that the U.S. economy can withstand higher interest rates. The yen slipped 0.1 percent to 113.39 per dollar as of 9:28 a.m. in Tokyo, after rising 0.8 percent on Thursday. The MSCI Asia Pacific Index lost 0.4 percent, after closing Thursday at the highest level since July 2015. Japan’s Topix declined 0.7 percent, poised for a weekly loss. Australia’s S&P/ASX 200 Index lost 0.3 percent, and New Zealand’s S&P/NZX 50 Index fell 0.1 percent. South Korea’s Kospi was down 0.4 percent.

Wall Street Journal:

• Trump Administration Backs Away From Russian Reset. ‘No collaboration on a military level,’ Defense Secretary Jim Mattis tells NATO counterparts.

• Don’t Wimp Out on Climate. If Trump doesn’t dump the Paris accord, his economic agenda is in jeopardy.

• Islamic State Claims Southern Pakistan Bombing That Killed at Least 70. Hundreds wounded in suicide blast at Sufi Muslim shrine.

• House Republicans Lay Out Health-Care Plan. Proposal offers policy specifics but shows party has yet to bridge divisions over many of its components.

Fox News:

• Conservative activists to mobilize amid anti-Trump protests. (video)

CNBC:

• Goldman Sachs(GS) says stock picking is back and this is how to play it.

Zero Hedge:

• Robert Harward Rejects Trump's Offer To Become Next National Security Advisor.

• Catalyst Capital CEO Speaks Out, Claims "Our Exposure Was Greatly Exaggerated".

• Mark Zuckerberg Rejects "America First", Calls For Global Community.

• Mike Flynn Faces "Legal Jeopardy" For Reportedly Lying To FBI.

• Auto Bubble Burst Begins As Subprime Delinquencies Soar To 2009 Levels. (graph)

• Fed President Admits US Banks Have Only "Half The Equity They Need".

• Stock Dip Kills Longest Win Streak In 4 Years As Catalyst-Crusher Comes To An End. (graph)

Night Trading 

• Asian equity indices are -.50% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 101.50 +.5 basis point.

• Asia Pacific Sovereign CDS Index 27.0 unch.

• Bloomberg Emerging Markets Currency Index 71.55 -.01%. 

• S&P 500 futures +.04%. 

• NASDAQ 100 futures +.03%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (B)/.64

• (CPB)/.89

• (DE)/.51

• (FLR)/.79

• (SJM)/2.02

• (MCO)/1.13

• (RUTH)/.29

• (VFC)/.99

Economic Releases
10:00 am EST

• The Leading Index for January is estimated to rise +.5% versus a +.5% gain in December. 
  

Upcoming Splits

• (CMCSA) 2-for-1

Other Potential Market Movers

• The UK Retail Sales report, (HAS) investor update and the (MAT) annual investor update could also impact trading today.

BOTTOM LINE:  Asian indices are mostly lower, weighed down by financial and industrial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.