Stocks Slightly Higher into Final Hour on Fiscal Cliff Optimism, Short-Covering, Seasonal Strength, Metals/Mining/Biotech Sector Strength

Today's Market Take:

Broad Market Tone:

• Advance/Decline Line: Slightly Higher
  

• Sector Performance: Mixed
  

• Volume: Light

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• VIX 16.11 +1.32%

• ISE Sentiment Index 114.0 -21.9%

• Total Put/Call .90 +12.5%

• NYSE Arms .96 +89.47%

Credit Investor Angst:

• North American Investment Grade CDS Index 95.83 -2.38%

• European Financial Sector CDS Index 156.70 +2.25%

• Western Europe Sovereign Debt CDS Index 113.09 bps +2.93%

• Emerging Market CDS Index 217.10 bps -1.39%

• 2-Year Swap Spread 11.75 +.5 bp

• TED Spread 23.5 +.75 bp

• 3-Month EUR/USD Cross-Currency Basis Swap -24.5 +1.25 bps

Economic Gauges:

• 3-Month T-Bill Yield .08% unch.

• Yield Curve 138.0 -1 bp

• China Import Iron Ore Spot $123.40/Metric Tonne +1.98%

• Citi US Economic Surprise Index 49.70 -1.1 points

• 10-Year TIPS Spread 2.49 unch.

Overseas Futures:

• Nikkei Futures: Indicating -15 open in Japan

• DAX Futures: Indicating +1 open in Germany

Portfolio:

• Slightly Lower: On losses in the index hedges and emerging markets shorts

• Disclosed Trades: None

• Market Exposure: 25% Net Long

Today's Headlines

Bloomberg:

• Monti Says Markets Shouldn’t Fear Political Turmoil. Prime Minister Mario Monti said that investors shouldn’t expect the imminent demise of his government to lead to a political vacuum that will fuel market turmoil in Italy. Italian 10-year bond yields jumped the most in four months today in their first day of trading since Monti said on Dec. 8 that he planned to resign after former Prime Minister Silvio Berlusconi withdrew support for the government. The yield rose 29 basis points to 4.82 percent, while the benchmark FTSE MIB stock index slumped 2.2 percent, in contrast with gains in Germany, France and the U.K. 
• Italian Banks Plunge on Monti Resignation Plan: Milan Mover. Italian banks slumped, leading a slide in lenders across Europe, after an announcement that Prime Minister Mario Monti will resign pushed up bond yields and threatened a new front in Europe’s debt crisis. UniCredit SpA (UCG), Italy’s biggest bank, declined 21 cents, or 5.8 percent, to 3.44 euros at 12:54 p.m. in Milan trading, the biggest drop since September. Intesa Sanpaolo SpA (ISP) fell 6.6 percent to 1.20 euros. The European Stoxx 600 Banks Index (SX7P) slid 1.7 percent to 159.52. 
• French Business Confidence, Industrial Output Decline. French business confidence and industrial production unexpectedly declined as President Francois Hollande grapples with a budget deficit and an economy that is on the verge of recession. Sentiment among manufacturing executives fell to 91 in November from 92 the previous month, suggesting gross domestic product may fall 0.1 percent this quarter, the Bank of France said today. Industrial output dropped 0.7 percent in October, leaving it down 3.6 percent from a year earlier, national statistics office Insee said in a separate release. The declines show the economy is on the edge of its second recession in three years as Hollande struggles to cut the deficit and improve competitiveness. With French car registrations down about a fifth in November, companies including PSA Peugeot Citroen (UG) are cutting thousands of jobs at a time when jobless claims are at a 14-year high and climbing. “Clearly things are not great and the car industry in particular is a disaster,” said Dominique Barbet, an economist at BNP Paribas SA in Paris, who predicts that GDP will decline this quarter and in the first three months of 2013. “Consumer spending is depressed and as long as the labor market remains unfavorable, confidence will remain weak.”
• Carson Block Goes Short Unafraid as Chinese Gangsters Chase. He stopped trying to bet against Chinese companies this year after government agents hindered his analysts and harassed workers at a storage company he owns in Shanghai. “Tattooed gangsters” came looking for him, he wrote in an e-mail to Bloomberg on Dec. 4, retaliation for his success uncovering financial sleight of hand at companies such as Sino- Forest Corp., which is now bankrupt. “Block has been the most vocal and public about the accounting problems with U.S.-listed Chinese companies,” said Timothy Ghriskey, chief investment officer at New York-based Solaris Group LLC, which manages about $2 billion and sold positions in China last year.
• Egyptian President Empowers Army Ahead of Referendum on Charter. Egyptian President Mohamed Mursi gave the armed forces temporary powers to arrest civilians as activists warned that pushing ahead with a Dec. 15 vote on a draft constitution could lead to violence. Under the decree, the army will have the power along with police “to preserve security and protect vital state institutions” until the results of the referendum are announced, the state-run Middle East News Agency said. A bloc of opposition groups is calling for protests tomorrow against a charter that “tramples rights and freedoms.” A coalition of Islamist groups backing Mursi has called for counter-rallies on the same day in support of the president and the draft.
• Climate Treaty Hinges on Obama Making Case, Ex-Aides Say. One of the biggest things President Barack Obama can do to fight global warming is to talk about it. That’s the conclusion of at least seven former U.S. presidential aides and advisers serving in three administrations. Their comments came as envoys from more than 190 countries at a United Nations conference in Doha took steps toward completing a treaty by 2015 that would limit fossil fuel emissions starting in 2020. While Obama is succeeding in shaping the international response to the issue, he hasn’t said enough about it at home, said the officials, led by John Podesta, who oversaw Obama’s transition into office four years ago. Obama’s reticence may make it more difficult to persuade Congress and the public to favor an international deal toward the end of his second term. “The president really has to start talking about climate change again,” Podesta said in an interview in Washington. “He has to engage a national conversation, not just one White House meeting, but a big conversation.” 
• Fracking Seen Robbing OPEC of Gasoline Pricing Power. The success of American drillers in coaxing fossil fuels from shale rock has the potential to boost production so much that it may deny OPEC the power to set global oil and gasoline prices, an intelligence advisory panel concluded. 
• McDonald’s Posts Surprise Monthly Store Sales Gain in U.S. McDonald’s Corp. posted a surprise gain in U.S. same-store sales last month after a decline in October as the world’s largest restaurant chain increased advertising for less expensive items. Analysts projected a drop of 0.6 percent, the average of 14 estimates compiled by Consensus Metrix.
• Illinois May Face Downgrade If No Pension Fix, Quinn Says. Illinois Governor Pat Quinn said the battle to control employee pension costs “is our fiscal cliff and we need to deal with it” or analysts in “green eyeshades” will lower the state’s credit rating again. Quinn, 63, said there is “a clear and present danger” of another downgrade if state lawmakers don’t act in the closing days of the legislative session in early January to restructure a pension system saddled with $96 billion in unfunded liabilities.

Wall Street Journal:  

• The Fiscal Cliff: Live Stream.
• China Rebound Is No Sure Bet.  
• The Republican Tax Panic. The GOP should negotiate with Obama, not each other.
• Robert B. Zoellick: Obama's Historic Budget Opportunity. Without genuine spending cuts and reform, the U.S. faces four years of political trench fighting.

MarketWatch.com:

• Top 10 tech trends to watch in 2013.

CNBC:  

• US and UK Unveil Failing Banks Plan. U.S. and U.K. regulators will unveil the first cross-border plans to deal with failing global banks on Monday, outlining proposals to force shareholders and creditors on both sides of the Atlantic to take losses and to ensure sufficient capital exists in the banks' headquarters to protect taxpayers.
• Fed Is Killing Economy: John Tamny. 
• Next Battle on the 'Cliff's' Edge: Estate Taxes. The estate-tax rate is currently 35 percent on estates valued at $5 million or more. But if the United States goes over the fiscal cliff, the rate jumps to 55 percent. More importantly, the exemption drops from $5 million to $1 million – ensnaring tens of thousands of additional taxpayers in the tax.

Zero Hedge:

• Chart of the Day: Italian Political Polls. (graph) Yet while a Berlusconi government appears out of the question, what is the key risk as we explained over the weekend, is what concessions the PD will have to give in order to create a coalition government that will give it a majority vote. Because it is not the return of Silvio that is the biggest risk: it is the threat that Italy, like the US, will suddenly find itself in a gridlocked position in which it is unable to make any political decisions, until such time as the ECB chimes in.
• Italy's Worst 5-Days In 6 Months. (graph)
• The Sheer Comedy Of Erroneous Economist GDP Forecasts In 13 Simple Charts. 
• GGBs Soar As Buyback Backfires. (graph) 
• European Nobel Peace Prize Award: Compare And Contrast. (pics) 
• Real Estate: Is the Bottom In, Or Is This A Head-Fake?

Business Insider:

• Restaurants Are Furious After London Bans Rare And Medium-Rare Burgers. 
• CHART OF THE DAY: The Epic Implosion Of The Green Energy Bubble. 
• Morgan Stanley On The Real European Story That Should Be Making You Depressed. 
• Syrian Opposition's Best Fighters Are Now Terrorists In The Eyes Of The US. 
• This Extreme Anti-Islam Poster Will Be Plastered All Over NYC Subway Stations Next Week.

CNN:

• Wall Street's Italy Problem Isn't Just Berlusconi. What's scarier than the return of Silvio Berlusconi? For some investors, it's his likely opponent in the race to succeed Mario Monti as Italy's prime minister: Pier Luigi Bersani.

Telegraph:

• World risks fresh credit bubble, Switzerland's BIS warns. Asset prices across the world have risen to heady levels not seen since the credit boom five years ago and may be losing touch with economic reality yet again, the Bank for International Settlements has warned. 
• Debt Crisis: Live. 
• Hedge fund managers become bullish on global economy. Hedge fund managers have become more positive about the global economy, with optimists outnumbering pessimists three to one. 

Ansa:

• Italian premier Monti should stay out of the race, Bersani told reporters in Piacenza, Italy. Elections in February are feasible, said Bersani. 

Back-Of-The-Envelope Economics:

• A Pessimistic Note on the Euro. (graphs)

Bear Radar

Style Underperformer:

• Large-Cap Growth -.24%

Sector Underperformers:

• 1) Homebuilders -.88% 2) I-Banks -.83% 3) Internet -.43%
  

Stocks Falling on Unusual Volume:

• DMND, HNP, SPRD, CKH, BKE, DPM, NTES, VOC, ARLP, GPS, SIX, GIII, REXX, SGEN, MRO, EQT, VFC, DECK, RGR, FRAN, PCLN, FII, MAKO, DKS, NRP and GEO

Stocks With Unusual Put Option Activity:

• 1) MRO 2) ADM 3) JNPR 4) MU 5) TXN
  

Stocks With Most Negative News Mentions:

• 1) MRO 2) GTI 3) XOM 4) X 5) DOW
  

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +.49%

Sector Outperformers:

• 1) Disk Drives +1.59% 2) Computer Hardware +1.24% 3) Biotech +1.18%
  

Stocks Rising on Unusual Volume:

• NXY, HK, UNXL, INFI, GEO, MCP, ARIA, BKS, CNQR and INVN

Stocks With Unusual Call Option Activity:

• 1) EMN 2) PSX 3) FNSR 4) GRA 5) NWS
  

Stocks With Most Positive News Mentions:

• 1) MCD 2) COHR 3) IN 4) IR 5) CVS

Charts:

• ETFs Rising on Unusual Volume 
• Stocks Rising on Unusual Volume

Monday Watch

Weekend Headlines 
Bloomberg: 

• Italy Vote Will Test EU Nobel Winners After Greek Buyback. The imminent end of Italian Prime Minister Mario Monti’s government threatens to open a new front in Europe’s crisis fight before a year-end summit, as Greece wraps up a six-month effort to secure a new bailout payment. European Union leaders, gathering in Oslo today to collect the Nobel Peace Prize, were set to check an item off their to-do list with the completion of a 10 billion-euro ($13 billion) Greek debt buyback. At the same time, former Italian Prime Minister Silvio Berlusconi’s pledge to topple Monti with his German-skeptic, anti-austerity message may rattle investors.
• Euro Near 2-Week Low on Monti Resignation Plan.
• Italian Bonds Decline as Berlusconi Threatens Government. Italian 10-year government bonds posted their first weekly drop in four after former Premier Silvio Berlusconi threatened to withdraw his party’s support for Prime Minister Mario Monti’s coalition government. Declines yesterday pushed the yield to the most since Nov. 28 as Berlusconi’s top political deputy called for an “orderly end” to Monti’s government, saying the administration failed to develop a strategy to halt the recession. Germany’s two-year notes advanced amid speculation the European Central Bank will cut interest rates after a report yesterday showed the country’s industrial production declined in October. Finnish and Dutch two-year yields fell below zero yesterday. The drop in Italian bonds “gives us a good clue as to how much the market doesn’t like the idea of the politicians being back in power,” said Marc Ostwald, a rates strategist at Monument Securities Ltd. in London. There may be “a drift higher in yields,” he said.
• Spanish Bailout Caution Grows as Business Lobbies Back Rajoy. Spain’s biggest business lobby is getting as cautious as Mariano Rajoy’s government on a possible bid request because of concern on just how stringent conditions might be to trigger European Central Bank bond-buying. A rescue “could impose a criminal pace of reduction in public spending,” Alberto Nadal, vice secretary-general of CEOE, Spain’s main business group, said in an interview. The group’s newfound skepticism contrasts with their earlier support for a request following the ECB’s unveiling of its bond-buying program in September after President Mario Draghi committed to do “what it takes” to save the euro.
• Spain Bad Bank Profit Pledge Seen Hindered by Housing. Spain’s pledge to generate profit from its bad bank will be undermined by two more years of property-price declines and the cost of maintaining the repossessed homes it will own, according to real estate and finance professor Jose Luis Suarez. The bank, known as Sareb, was created to purge toxic assets from the books of troubled Spanish lenders. Most of it will be linked to residential property and development land in Spain that will continue a price decline that started when the country’s housing bubble burst in 2007, said Suarez of the IESE business school in Madrid.
• Republicans Firm Against Higher Tax Rates, McCarthy Says. U.S. House Republicans insist on broadening the tax base to generate revenue rather than raising rates, Representative Kevin McCarthy said, signaling no softening in the chamber’s standoff with President Barack Obama. Republicans have offered $800 billion in additional revenue over the next decade, achieved in a way that would be less damaging to the economy than higher rates, McCarthy, the third- ranking Republican in the House, said today on NBC’s “Meet the Press.” “The best way to get that is through closing special loopholes,” the California congressman said.
• Japan Sinks Into Recession as Abe Calls for More Stimulus Steps. Japan’s economy sank into recession in the second and third quarters, fueling opposition leader Shinzo Abe’s calls for more stimulus and highlighting the risk that weak growth will derail a planned sales-tax rise. Gross domestic product shrank an annualized 3.5 percent in the three months through September, the Cabinet Office’s second estimate showed in Tokyo today, matching a preliminary reading. The government revised the previous quarter to a 0.1 percent contraction, matching the textbook definition of a recession.
• China Survey Shows Wealth Gap Soaring as Xi Pledges Help. China’s wealth gap is now 50 percent higher than a risk level for social unrest, according to a central bank-backed survey, underscoring new Communist Party chief Xi Jinping’s warning that corruption may endanger its rule. The Gini coefficient, an index measuring income inequality, was 0.61 in 2010, based on a survey of 8,438 households by the Survey and Research Center for China Household Finance, a body set up by the Finance Research Institute of the People’s Bank of China and Southwestern University of Finance and Economics.
• Speculators Cut Bullish Bets as U.S. Talks Stall: Commodities. Investors cut bullish commodity bets for the first time in three weeks as U.S. lawmakers appeared no closer to an agreement to avert more than $600 billion in automatic tax increases and spending cuts and Europe cut its growth outlook. Speculators and money managers decreased net-long positions across 18 U.S. futures and options by 3.4 percent to 898,380 contracts in the week ended Dec. 4, U.S. Commodity Futures Trading Commission data show. Gold holdings fell 25 percent, the biggest drop since March, as Goldman Sachs Group Inc. said the longest winning streak in at least nine decades will peak next year. Wheat bets fell for the second time in three weeks. 
• Apple(AAPL), Google(GOOG) Team Up for Surprise Alliance in Kodak Patent Bid. Apple Inc. (AAPL) and Google Inc. have joined forces to offer more than $500 million to buy Eastman Kodak Co. (EKDKQ)’s patents out of bankruptcy, said people familiar with the situation. The two companies, competing for dominance of the smartphone market, have partnered after leading two separate groups this summer to buy some of Kodak’s 1,100 imaging patents, said the people, who asked not to be identified because the process is private.

Wall Street Journal: 

• Obama, Boehner Meet as Urgency Over Talks Increases. President Barack Obama and House Speaker John Boehner met at the White House Sunday for budget talks, the first face-to-face meeting between the two men in weeks as both sides attempted to speed up negotiations heading into a crucial period. The coming week could prove pivotal for Washington to engineer a deal that does more than merely patch up the problem caused by a pending package of tax increases and spending cuts. If serious negotiations don't start, there is likely little time left between now and the end of the year to seal a more ambitious deal. 
• Fiscal Cliff: Live Coverage.
• Chinese Survey Shows a Higher Jobless Rate. The survey of 8,000 households shows the urban unemployment rate hit 8.05% in June, up slightly from 8% in August 2011 and nearly twice as high as the official 4.1% rate. The survey was run by Gan Li, an economics professor at South Western University of Finance and Economics in Chengdu. The unemployment rate for China's army of 160 million migrant workers has risen sharply to 6% in June 2012, up from 3.4% in August 2011 according to the survey, suggesting 10 million unemployed as a result of the sharp slowdown in exports and real-estate construction.
• Egyptians Detain Suspected Terrorist Ringleader. 
• Banking Industry Squirms Over European Rate Probe.
• Consumer Spending Wobbles. Job Worries, 'Fiscal Cliff' Uncertainty Threaten a Key Engine for U.S. Economy.
• Vice President, Chávez's Choice as Successor, Built Global Alliances.
• Crisis-Era Measure Nears End. Small banks are making a last-ditch attempt to persuade Congress to extend a crisis-era blanket guarantee on nearly $1.5 trillion in deposits before it expires at the end of the year. However, they face long odds of success. Even though the Senate is on track to vote this week to continue the Federal Deposit Insurance Corp. program, Republican leaders in the House are opposed. That makes passage of legislation extending the program into 2013 unlikely, congressional aides said.
• Egypt Faces Turmoil Over Vote. President Morsi Makes Concession but Stands by Saturday Constitutional Referendum, Fueling Tensions. President Mohammed Morsi made some concessions to his political opponents on Sunday but dismissed their demands to delay a referendum this week on an Islamist-leaning draft constitution, leading to fresh protests and setting up a dispute with the judiciary that has a long historic precedence. The leaders of Mr. Morsi's recently united opponents rejected the president's announcement that he planned to lift a controversial constitutional decree that awarded him near-absolute power over the country's secular-minded judiciary.

Fox News: 

• Republicans tee up round 2 of debt-ceiling fight. Republicans gave no ground Sunday to President Obama's demand for near-unilateral power to increase the debt ceiling, with one influential senator predicting the party will once again use the debt-ceiling vote to extract trillions in spending cuts. The senator, Tennessee's Bob Corker, broke with some in his party Sunday by urging Republicans to drop their opposition to tax hikes on the wealthiest 2 percent. Corker, though, explained that he only thinks Republicans should cave to Obama on tax hikes because then they can focus on winning entitlement cuts as part of the debt-ceiling negotiations. "Republicans know that they have the debt ceiling that's coming up right around the corner, and the leverage is going to shift, as soon as we get beyond this issue," Corker said on "Fox News Sunday." "The leverage is going to shift to our side, where hopefully we'll do the same thing we did last time."

CNBC:  

• Why Only a 'German-Built' Euro Will Survive. The euro area leaders have done nothing to strengthen the monetary union and to prevent another debilitating, and maybe terminal, crisis in the future. The market turbulence unleashed by the imminent fall of Italy's "technical" government, and a possible return of Silvio Berlusconi, shows that the ultimate backstop to whatever remains of this crisis, and to what may be any future crisis, are still the printing presses of the European Central Bank (ECB).

Zero Hedge: 

• Meet Liz Fowler: Architect of ObamaCare Jumps Ship To Johnson & Johnson(JNJ).
• Complacency Everywhere You Look. (graph)
• Chart Of The Day: The Real Household Net Worth As A % Of Debt Chart.
• Foodstamps Soar By Most In 16 Months: Over 1 Million Americans Enter Poverty In Last Two Months. (graph)
• Preview Of The Key Events In The Coming Week.

Business Insider: 

• Canada Approves Controversial Oil Company Sale To China.
• JACK WELCH: It's 'Interesting' That October And September Jobs Numbers Were Revised Down.
• ECRI's ACHUTHAN: This Chart Will Convince You That The US Recession Started In July.
• Deutsche Bank's Jim Reid Presents A European Nightmare Scenario That The ECB Would Be Powerless To Prevent.
• Why China's Super-Rich Are Packing Up And Moving Abroad.
• 3 Bearish Signs In A Sea Of Negativity.
• Inside The Dramatic Collapse Of Greece's Healthcare System. 
• Another Reason For Americans To Fear The End Of The Year: The 'Agriculture Abyss'. 
• REPORT: Bloomberg Considering A Bid For The Financial Times.

IBD:

• B/E Aerospace(BEAV) Sales Rise Amid Demand For New Aircraft.

Wall Street All-Stars:

• Indicator Update: Something new from the Fed?

New York Times: 

• Mortgage Crisis Presents a New Reckoning to Banks. The nation’s largest banks are facing a fresh torrent of lawsuits asserting that they sold shoddy mortgage securities that imploded during the financial crisis, potentially adding significantly to the tens of billions of dollars the banks have already paid to settle other cases. Regulators, prosecutors, investors and insurers have filed dozens of new claims against Bank of America(BAC), JPMorgan Chase(JPM), Wells Fargo(WFC), Citigroup(C) and others, related to more than $1 trillion worth of securities backed by residential mortgages. Estimates of potential costs from these cases vary widely, but some in the banking industry fear they could reach $300 billion if the institutions lose all of the litigation. Depending on the final price tag, the costs could lower profits and slow the economic recovery by weakening the banks’ ability to lend just as the housing market is showing signs of life.

CNN: 

• Proposal for global regulation of web. An unexpected new proposal for international regulation of the internet drew warnings over the weekend of a spread of online censorship and left a global conference on the issue on the edge of collapse. The deep divisions over treatment of the internet came after a group of Arab states put forward a plan late on Friday that would require countries around the world to explicitly regulate internet companies. The proposal, made at a conference in Dubai to agree a new international telecoms treaty, has also won the backing of Russia and China, along with a group of other countries. 
• Chinese investors take 80% stake in AIG(AIG) aircraft leasing unit.

Twitter:

• CHART: Canadian house prices relative to incomes, rents courtesy of Bank of Canada.

Reuters: 

• China exports rise much weaker than expected. China's exports rose in November at a much weaker pace than expected and imports were flat compared with a year earlier, taking some shine off weekend data that suggested a revival in the world's second-biggest economy was deepening. Exports rose 2.9 percent from a year earlier, well below expectations for a 9.0 percent increase and October's 11.6 percent pace, customs figures showed on Monday. Imports were unchanged on the year, weaker than forecasts for a 2.0 percent increase. The data represented the weakest performance for exports and imports since August.
• Bundesbank's Weidmann blasts new Greek debt deal - paper. Bundesbank chief Jens Weidmann has criticized a new debt deal for Greece agreed to by the country's international creditors at the end of last month. In an interview with Germany's Welt am Sonntag newspaper, Weidmann, who sits of the European Central Bank's (ECB)policymaking Governing Council, said Greece's funding gap would be financed by new credits and for the first time by actual transfers from national budgets. Weidmann criticized the fact that Greece would meet part of its funding needs through auctions of short-term T-bills, saying this paper would mainly be bought by local banks, who in turn were largely financed through central bank means, complicating the ban on direct state financing. "Unfortunately the central banks are also not spared," he said.
• Britain's business minister sees risk of triple-dip recession. British business minister Vince Cable said Britain could fall back into recession for a third time since the 2008 financial crisis but expected the economy to stagger on with minimal growth. In an interview published on Sunday, Cable, one of the most senior ministers in the coalition's junior Liberal Democrats, said Britain could also face a Japanese-style stagnant "lost decade".
• Apple(AAPL), JPMorgan(JPM) among Barron's top 10 picks for 2013.
• Political upheaval seen pushing Italy to centre of euro crisis. Prospects of a political crisis in Italy sooner than expected - after Prime Minister Mario Monti said he intends to resign early - are expected to drive up Rome's borrowing costs and tensions in the euro zone after months of calm on the bond market. Monti's surprise announcement on Saturday that he intended to resign after the approval of next year's budget raised the prospect of an election in February, weeks before the end of his term in April, and heightened the uncertainty over who will succeed him.

Telegraph:

• Reform Government Spending or Go Bankrupt. 
• Shadow banking worries limit China’s rebound. China's industrial output rebounded sharply last month and retail sales gathered speed, boosting hopes that Asia’s powerhouse economy has finally come back to life. Xianfang Ren from IHS Global Insight said the government is returning to bad old ways, driving growth with state infrastucture projects. But there is no denying that a fresh cycle of growth is underway. Planned investment for new projects grew 29pc in November. “It is likely to be a weak expansion cycle. Stimulation won’t work for sectors that have already been overstimulated – reflected by huge capacity overhang,” she said. Charlene Chu from Fitch said credit growth is running at a brisk 20pc, including off-book lending. She said the output generated by each extra yuan of lending has fallen from 0.75 to 0.30 this year, a sign that credit-driven growth is nearing exhaustion. Zhiwei Ziang from Nomura said the central bank is worried about shadow banking excesses and is likely to impose curbs early, keeping the economy on a short leash.“Financial risks in the trust loan sector are mounting and the regulators will probably have to tighten controls. We would expect growth momentum to weaken,” he said.

Welt am Sonntag:

• Bundesbank President Jens Weidmann said EU treaties should be amended with regard to the creation of a banking union in Europe to prevent a conflict of interest between monetary policy and banking regulation, he said in an interview. "I don't see how it's possible to transfer supervising powers to the ECB under the legal basis envisaged. In my opinion, a legally clean solution would require a change in the EU treaties," he said. A treaty change is necessary even if it means delaying the start of the banking regulator. Weidmann doesn't see the banking regulator starting work next year. Weidmann repeated his opposition to the ECB OMT program, saying: "We're making decisions that are driving us to the limits of our mandate." Weidmann also said the question of an exit in the case of a country not fulfilling the conditions stipulated is one that still hasn't been resolved.

Handelsblatt:

• Landesbank Berlin Writedowns Expand by EU910m. Banks's total writedowns are 2.2b euros, citing people close to the bank's owners.

Real News:

• Finland's Urpilainen Against OSI on Greek Debt. Forgiveness of Greek debt under Official Sector Involvement wouldn't be acceptable nor would it be good for the EU, citing Finnish Finance Minister Jutta Urpilainen in a preview of an interview to be published tomorrow. Urpilainen says Greece's return to the financial markets will be a natural result if the country sticks to its reform program. Urpilainen said the sale of state assets and re-evaluation of state real-estate can play a critical rose in Greece's return to the financial markets. Urpilainen said for Greece to remain in the euro area it depends entirely on the country itself. Urpilainen said Greece's debt buyback program must succeed.

El Pais:

• Spain needs to reduce its financing costs and only Spanish PM Mariano Rajoy can decide on requesting full bailout for the country, EU's Competition Commissioner Joaquin Almunia says. Series of actions that must be taken, some by European authorities and some by national authorities, to lower costs. The ECB is ready to act but only Spanish PM can make decisions. It is not suitable to tell the ECB how to do its job. It is essential now that small and medium sized companies regain access to credit. Main worry now is how to ensure economies such as Spain grow as they implement tough austerity measures.

Yonhap News:

• Obama's 'strategic patience' fuels N. Korea's weapons program: Joel Wit. The Barack Obama administration's "strategic patience" with North Korea will only facilitate Pyongyang's "natural process" of developing nuclear weapons and delivery systems, a prominent U.S. pundit said Sunday. North Korean officials feel clearly that time is on their side and that sanctions are ineffective due to China's patronage, according to Joel Wit, a former U.S. State Department official specializing in North Korean issues.

China Securities Journal:

• China's steel and cement industries have been hit by weak demand and overcapacity. Chinese steel mills at the northern Chinese city of Tangshan operated at a low rate after steel prices fell in November, citing Dong Bin, a local steel trader.

South China Morning Post:

• Watches, mistresses on show as China highlights graft. Lurid reports of Chinese officials sporting luxury watches or promoting their twin mistresses are being hailed by state media as proof of a corruption crackdown -- but real reforms remain a distant prospect.
  

Jerusleum Post: 

• PM: Hamas has no intention of compromising. Hamas has no intention of compromising with Israel, Prime Minister Binyamin Netanyahu said Sunday at the start of the weekly cabinet meeting. Echoing comments made by President Shimon Peres earlier in the day, Netanyahu said Hamas leader Khaled Mashaal's comments in Gaza over the weekend exposed "our enemies' true face" once again. "They have no intention of compromising with us; they want to destroy the state. They will fail, of course; in the annals of the history of our people, we – the Jewish People – have overcome such enemies," he continued.

Weekend Recommendations

Barron's:

• Made positive comments on (WFC), (TXN), (XTXI), (MW) and (DTV).

• Made negative comments on (PENN).

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 113.0 +1.0 basis point.

• Asia Pacific Sovereign CDS Index 86.0 +.5 basis point.

• FTSE-100 futures +.14%.

• S&P 500 futures +.05%.

• NASDAQ 100 futures -.02%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (IDT)/.35

• (JW/A)/.81

• (CASY)/.85

• (ABM)/.40

Economic Releases

• None of note

Upcoming Splits

• (MTX) 2-for-1

Other Potential Market Movers

• The Eurozone Industrial Production data, China Trade Balance, China Money Supply data and the (TXN) Mid-Quarter Update could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by real estate and financial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the week.

Weekly Outlook

U.S. Week Ahead by MarketWatch (video). 
Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on Eurozone debt angst, rising US fiscal cliff concerns, more Mideast unrest, technical selling, profit-taking, more shorting and increasing global growth fears. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 25% net long heading into the week.