Wednesday Watch

Evening Headlines

Bloomberg:

• China Warns on Debt, But Bond Buyers Shrug. What happens when you say you’ve taken away a safety net, but nobody believes you? That’s essentially what’s going on in one corner of China’s bond market, with the implication being that someone needs to get hurt before the message hits home. The issue relates to local government financing vehicles, or LGFVs, which boomed a decade ago when China’s Communist leadership let provincial and municipal authorities ramp up borrowing to fund all sorts of infrastructure and property development. National policy makers nowadays have prioritized reducing risk in the financial system, and part of that involves telling local authorities to let LGFVs stand on their own, without the backing of the state. Some have listened -- for example, Moody’s Investors Service and Fitch Ratings have said debt repayment failures are becoming more likely.

• Asian Stocks Decline as Dollar Slips on Tax News. (video) Asian stocks declined, suggesting a pause in a rally that lifted regional equities to the highest levels in at least a decade. The dollar came under pressure after advancing against G10 peers amid concern about the progress of U.S. tax reforms. Japan’s Nikkei 225 Stock Average fell after rallying to close at its strongest level since January 1992 on Tuesday, buoyed by corporate earnings and a weakening yen. Stocks edged lower in Hong Kong as S&P 500 Index futures declined. The dollar slipped and the yen and Australian dollar edged higher, after a report that Senate Republican leaders are considering a delay in the implementation of a corporate-tax cut. Oil and metals declined after recent rallies. The Nikkei 225 fell 0.3 percent as of 10:45 a.m. in Tokyo. The Topix index declined 0.1 percent. The S&P/ASX 200 Index was little changed near its highest since January 2008. South Korea’s Kospi index was 0.3 percent higher. Hong Kong’s Hang Seng Index fell 0.3 percent and the Shanghai Composite Index was 0.2 percent lower.

• Five Things You Need to Know to Start Your Day. (video)

• Copper Traders Are Making High-Flying Bets About the Future of the Metal. The frenzy in the copper market is luring traders to take high-flying bets that prices are headed back toward a record. Call options wagering on copper climbing above $10,000 a metric ton by December 2018 have started trading during the past two weeks, London Metal Exchange data show. In total, traders have spent about $4.5 million on the contracts.

Wall Street Journal:

• Saudi Crackdown Targets Up to $800 Billion in Assets. Authorities detain more prominent businessmen, freeze bank accounts.

• Fed’s New Regulatory Point Man: Everything Is on the Table. Randal Quarles, Fed’s supervision chief says stress tests ‘on the front burner’ as part of fresh look at all rules.

• What to Watch as Virginia and New Jersey Votes Are Tallied. Both parties will be looking for signals about the landscape heading into next year’s midterms. 

• U.S. Prepares Show of Strength as Trump Urges North Korea to ‘Come to the Table’. In carrot-and-stick approach, president shifts tone while referring to nearby naval exercises.

MarketWatch.com:

• Chip stocks have easily beaten the broader market, and some still offer incredible values.

Fox News:

• Democrats Northam, Murphy win gubernatorial races in Virginia and New Jersey.

• Texas church shooter attended celebration with parishioners days before rampage. (video)

CNBC:

• Amazon(AMZN) shares are breaking out. Here's how much higher it could go. (video)

• Mall owner shares soar amid buyout speculation.

• Stocks making the biggest moves after hours: SNAP, LC, MTCH & more.

• Wall Street throws a thumbs-up to Trump and rolls out record-setting deals.

• UPS(UPS) dives into blockchain technology as trucking companies seek to evolve.

• The company behind 'Grand Theft Auto' gave strong guidance, and shares are popping.

Zero Hedge:

• Donna Brazile Has A Few Theories About Who Might've Killed Seth Rich.

• Tax Bill Fiasco: Senate Considering 1 Year Corporate Tax Cut Delay; Dollar Slides.

• Democrats Now Concerned Trump Is Colluding With China.

• US Credit Card Debt Rises Above $1 Trillion As Student, Auto Loans Hit All Time High. (graph)

• Facebook(FB) Now Wants Your Nude Photos.

• Saudi CDS Spikes, Currency Crumbles But Stock Market Miracles Abound. (graph)

• Rev. Jesse Jackson Accused Of Sexual Harassment.

• 20% Of Snapchat's Market Cap Just Disappeared After Company Admits It May Have Committed Suicide.

• WTI/RBOB Drop After Surprise Gasoline Build. (graph)

• Manhattan DA: Weinstein May Be Arrested As Soon As Next Week.

• Is There A Housing Bubble In Your City? (map)

• Yield Curve & Credit Markets Are Flashing Red As Small Caps Slump On Tax Turmoil. (graph)

Night Trading 

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

• Asia Ex-Japan Investment Grade CDS Index 78.50 +3.5 basis points. 

• Asia Pacific Sovereign CDS Index 15.5 +.25 basis point.

• Bloomberg Emerging Markets Currency Index 72.30 +.04%.

• S&P 500 futures -.16%.

• NASDAQ 100 futures -.06%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (ECA)/.06

• (HUM)/3.27

• (GPN)/1.10

• (MGM)/.36

• (ZEUS)/.10

• (REGN)/3.82

• (ROK)/1.72

• (SEE)/.46

• (WEN)/.12

• (WWW)/.37

• (FOXA)/.48

• (ALB)/1.07

• (UHAL)/7.18

• (IAC)/.83

• (MNST)/.40

• (TDW)/-1.16

Economic Releases 

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,393,220 barrels versus a -2,435,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -1,929,890 barrels versus a -4,020,000 barrel decline the prior week. Distillate inventories are estimated to fall by -1,072,940 barrels versus a -320,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.31% versus a +.3% gain prior.

Upcoming Splits

• None of note

Other Potential Market Movers

• The China Trade Balance report, $36B 10Y T-Note auction, weekly MBA Mortgage Applications report, Deutsche Bank Gaming/Lodging/Leisure Conference and the (COP) analyst meeting could also impact trading today.

BOTTOM LINE:  Asian indices are mostly lower, weighed down by industrial and consumer shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed.  The Portfolio is 75% net long heading into the day.