Stocks Slightly Lower into Final Hour on Rising Mideast Unrest, Profit-Taking, Homebuilding/Mining & Metals Sector Weakness

Today's Market Take:

Broad Market Tone:

• Advance/Decline Line: Slightly Higher
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• VIX 13.65 +5.90%
  

• ISE Sentiment Index 125.0 -3.8%

• Total Put/Call 1.03 +18.39%

• NYSE Arms 1.12 +88.01%

Credit Investor Angst:

• North American Investment Grade CDS Index 85.89 +1.19%

• European Financial Sector CDS Index 137.13 +.75%

• Western Europe Sovereign Debt CDS Index 99.33 +.67%

• Emerging Market CDS Index 213.90 +.42%

• 2-Year Swap Spread 16.5 +.5 bp

• TED Spread 24.0 +1.0 bp

• 3-Month EUR/USD Cross-Currency Basis Swap -13.75 -1.0 bp

Economic Gauges:

• 3-Month T-Bill Yield .06% -1 bp

• Yield Curve 168.0 +1 bp

• China Import Iron Ore Spot $148.40/Metric Tonne -.13%

• Citi US Economic Surprise Index .3 +2.3 points

• 10-Year TIPS Spread 2.53 +1 bp

Overseas Futures:

• Nikkei Futures: Indicating -34 open in Japan

• DAX Futures: Indicating +7 open in Germany

Portfolio:

• Higher: On gains in my retail/tech sector longs and emerging markets shorts

• Disclosed Trades: None

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• Italian Consumer Confidence Declines to 17-Year Low. Italian consumer confidence unexpectedly declined this month to the lowest in at least 17 years as the country’s fourth recession since 2001 damped optimism. The confidence index dropped to 84.6, the lowest since the series began in 1996, from 85.7 percent in December, the Italian statistics office Istat said in Rome today. Economists had predicted an increase to 86, according to the median of 12 forecasts in a Bloomberg News survey.
• Goldman Sachs(GS) to Raise $1 Billion Selling Stake in ICBC. Goldman Sachs Group Inc. (GS) is seeking to sell a $1 billion stake in Industrial & Commercial Bank of China Ltd. after the world’s biggest lender by market value rebounded almost 50 percent from last year’s low. The shares are being offered at HK$5.77 each, 3 percent lower than the Chinese lender’s HK$5.95 (1398) closing price in Hong Kong today, according to a term sheet obtained by Bloomberg News.
• Rehn Signals EU Might Ease Spain Budget Goal as Growth Suffers. European Union budget enforcer Olli Rehn signaled he may seek to ease Spain’s targets for cutting its budget deficit as austerity measures deepen the country’s economic slump. EU officials will make a decision on the best pace for Spain’s budget consolidation process when they deliver a scheduled assessment of the program next month, Rehn said at a press conference in Madrid today. “If there has been a serious deterioration in the economy, we can propose an extension of a country’s adjustment path,” said Rehn, the EU’s economic and monetary affairs commissioner, as he sat alongside Spanish Economy Minister Luis de Guindos. “That’s what we did last year in the case of Spain.”
• Turkey Stocks Drop Most in 16 Months on Moody’s Ratings Upset. Turkey’s stocks fell the most in 16 months as a credit rating upgrade anticipated by some analysts from Moody’s Investors Service failed to materialize. The benchmark ISE National 100 Index (XU100) dropped 4.2 percent, the most since September 2011, to 81,165.81 at the close in Istanbul. Of the 100 stocks, 98 fell, with trading volume at 38 percent above the gauge’s 30-day moving average. The measure hit a record high on Jan. 24. The nation’s banking index slid 5.6 percent. The three-day decline in banking stocks was the steepest loss since August 2011. 
• Facebook(FB) Calls Reach Record: Options. Options traders are more bullish on Facebook Inc. shares than ever as the operator of the world's most-popular social network expands into mobile and search services to boost revenue. The ratio of oustanding calls to buy the stock versus puts to sell reached 1.51-to-1 last week, the highest level since options started trading after the company's IPO in May, according to Bloomberg. The shares have rallied 78% from a record low in September.

Wall Street Journal: 

• Moody's Downgrades Six of Canada's Big Banks. Moody's Investors Service Inc. MCO +0.28% downgraded six of Canada's largest banks, citing concern about high consumer-debt levels and elevated house prices—underscoring the headwinds buffeting what was once one of the more resilient developed economies amid the global economic crisis. Bank of Montreal, BMO +0.67% Bank of Nova Scotia, BNS.T +0.92% Caisse centrale Desjardins, Canadian Imperial Bank of Commerce, CM.T +0.64% National Bank of Canada and Toronto-Dominion Bank TD.T +0.34% were all downgraded one notch, with a stable outlook, the New York-based debt-rating firm said. TD, Canada's second biggest bank by assets behind Royal Bank of Canada, RY.T +0.90% lost its top triple-A rating, the only Canadian bank that had continued to maintain one. It is now rated Aa1. The "banks' exposure to the increasingly indebted Canadian consumer and elevated housing prices leaves them more vulnerable to unpredictable downside risks facing the Canadian economy than in the past," David Beattie, a Moody's vice president, said in a statement.

CNBC: 

• Caterpiller(CAT) Earnings Hit by China Fraud; Cautious for 2013. Caterpillar earnings after adjusting for a big write-down in China topped analysts' estimates Monday. The company said it expects earnings to improve later this year, but its outlook shows it isn't banking on it. The world's largest maker of construction equipment posted sharply lower profit due to a charge connected with accounting fraud at a Chinese subsidiary and weak demand among its dealers. Caterpillar's bulldozers, tractors, and other machines have been accumulating in warehouses due to slowing economies in China, Europe, and the U.S.
• Fighting Climate Change Could Come at a High Price. President Barack Obama is making climate change a key issue in his second term, but the cost of cutting the nation's carbon footprint is likely to place a heavy burden on average Americans—and the U.S. economy.Trying to be energy efficient and cutting greenhouse gases might slow the growth of the U.S. gross domestic product anywhere from two to four percentage points each year over the next 10 years due to potential job losses, manufacturing slowdowns and switching energy sources, according to research from the Stern Review on the Economics of Social Change. That translates to nearly $1,000 a year for every American toward higher energy bills and items like subsidies for solar and wind programs—as well as taxes on gasoline to reduce oil consumption. "You're taking money out of people's budgets when you put on a gas tax and that could really hurt lower incomes," said Chad Stone, chief economist at the Center on Policy and Budget Priorities. "Purchasing power would be pulled out of the economy and slow growth down," Stone added. That burden would be especially difficult when the economy is barely growing 2%-3% now.
• At Fed, Nascent Debate on When to Slow Asset Buying. The Federal Reserve has left little doubt about its plans for the next few months, and thus little mystery about the statement it will release Wednesday after the latest meeting of its policy-making committee. The economy remains weak. The Fed will keep buying bonds to hold down borrowing costs. Inside the central bank, however, debate is once again shifting from whether the Fed should do more to stimulate the economy to when it should start doing less.

Zero Hedge:

• The Cycling Of Money.
• December Core Capital Goods Plunge 4.3% Y/Y As Durables Headline Boosted By Boeing Orders. (graph)
• As The Euro Soars, This Is Where The "Max Pain" In Europe Is. (graphs)
• Rioting Returns To Cairo: Live Webcast.

Business Insider:

• Hagel Warned Obama Of Rogue Pentagon Leading A 'New World Order'. As Chuck Hagel seeks support for his nomination to Secretary of Defense, Bob Woodward has released a story about a White House trip the former Senator made in 2009. The Washington Post reports: 
• Check Out The Insane, Parabolic Surge In Japan's 'Mothers' Index. (graph)
• HUGE MISS: Pending Home Sales Plunge In December. (graph)
• Bank Of America(BAC) Sees First Signs That The Rally Could Reverse.

PCBDesign:

• Semiconductor Revenue Down on High Level of Inventory. Chip inventory held by semiconductor suppliers reached alarmingly high levels in the third quarter of 2012 amid weak market conditions, according to an IHS iSuppli Semiconductor Inventory Insider Market Brief from information and analytics provider IHS. Overall semiconductor revenue declined by 0.7 percent sequentially during the fourth quarter last year. The poor results came after inventory reached exceedingly high levels by the end of the third quarter in 2012, amounting to 49.3 percent of total semiconductor revenue—more elevated than at any point since the first quarter of 2006. Chip stockpiles among semiconductor suppliers had actually gone down during the final two quarters of 2011, showing a promising drawdown, as depicted in the figure attached. But then inventories steadily ticked up again after that, reaching 47.5 percent of total revenue in the second quarter before hitting the current peak in the third—the latest time.

Reuters:

• EMERGING MARKETS-Brazil stocks fall on Bradesco profit miss.
• NRF sees slower sales growth in 2013. U.S. retail sales should rise 3.4 percent this year, down from 4.2 percent growth in 2012, as higher payroll taxes cut into discretionary spending for consumers, the world's largest retail trade association said on Monday.

RTCC:

• Russia Threatens 'Radical Measures' In Response to Kyoto Protocol Extension. Russia, Belarus, Ukraine and Kazakhstan have agreed what they term a “series of measures” in response to an agreement at the UN climate talks in Doha last December to extend the Kyoto Protocol.

Bear Radar

Style Underperformer:

• Mid-Cap Growth -.60%

Sector Underperformers:

• 1) Coal -2.61% 2) Homebuilders -2.01% 3) Steel -1.43%
  

Stocks Falling on Unusual Volume:

• JOSB, RPRX, PROV, PETM, UAN, DDD, NTE, HBHC, DBL, HLF, NFLX, PPG, USNA, MW, SSYS, TZOO, TTC, PERY, INGR, OSK, HEP, TGH, LPS, HAIN and YUM

Stocks With Unusual Put Option Activity:

• 1) HRB 2) WM 3) HYG 4) TGT 5) EWT
  

Stocks With Most Negative News Mentions:

• 1) SCCO 2) BA 3) NFLX 4) JOY 5) AKS
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth -.07%

Sector Outperformers:

• 1) Computer Hardware +.59% 2) Software +.48% 3) Networking +.39%
  

Stocks Rising on Unusual Volume:

• YOKU, IDIX, HES, OPK, GGC, DOLE and ARUN

Stocks With Unusual Call Option Activity:

• 1) WM 2) RPRX 3) KERX 4) EVEP 5) STSI
  

Stocks With Most Positive News Mentions:

• 1) PG 2) XRX 3) PG 4) HES 5) BIIB

Charts:

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

Monday Watch

Weekend Headlines 
Bloomberg:

• Euro Crisis Seen Reaping Social Toll With Record Jobless. Euro-area jobless data this week will expose the social cost of last year’s debt crisis and recession on southern European economies as unemployment across the region probably rose to a record in December. Unemployment in the 17-nation bloc climbed for a fifth month to 11.9 percent, according to the median of 34 economists in a Bloomberg News survey. That result due on Feb. 1 would show the highest jobless rate since records began in 1995.

• Merkel Rebuffs Rajoy’s Call to Do More to Boost Euro Stimulus. German Chancellor Angela Merkel rebuffed calls by Spanish Prime Minister Mariano Rajoy that euro nations in better financial health should help the bloc out of its economic slump by spurring growth. Merkel, in the Chilean capital Santiago today for a meeting of European and Latin American leaders, said euro member states need to focus on both fiscal consolidation and growth. Rajoy said yesterday countries that have the funds should use them. “There is no either/or,” Merkel said today after meeting with Chilean President Sebastian Pinera. “Confidence can only increase if you have solid finances on the one hand, and on the other hand have the structures of reform in such a way that the economy can grow. We are trying to make a contribution.”

• U.K. Profit Warnings Rise to the Highest Since 2008, E&Y Says. UK company profit warnings in the fourth quarter rose 26% to 86, taking the 2012 total to 287, Ernst & Young LLP said in an e-mail report today. 

• Tripling in Debt to $1.7 Trillion Drags on Economy: China Credit. Chinese companies are spending more than ever to service debt after their borrowing almost tripled over five years, prompting strategists to warn of rising default risk and a threat to economic growth. Total short- and long-term borrowing by 3,895 publicly traded non-financial companies rose to almost $1.7 trillion in their latest filings, from $604 billion at the end of 2007, data compiled by Bloomberg show. Financing costs, including interest, on all forms of debt climbed to the highest level as a percentage of gross domestic product last year, according to Sanford C. Bernstein & Co. Bernstein says that means less cash for investment to fuel the world’s second-largest economy, while Royal Bank of Scotland Group Plc says the threat of defaults will hold back interest- rate liberalization. The average 10-year yield for top-rated company bonds is near a 13-month high at 5.27 percent, compared with the 2.6 percent yield in a Bank of America Merrill Lynch global corporate index. “There’s just a lot more debt in China today than there was really ever in the past, relative to nominal GDP,” said Mike Werner, a Hong Kong-based analyst at Bernstein. “More and more of the country’s resources have to be put to just financing outstanding debt, and that itself is a headwind for economic growth.” While the nation exited a seven-quarter slowdown in October-December as the government eased monetary policy, incoming Premier Li Keqiang may need to confront the fading effects of government support, a likely pickup in inflation and rising risks from shadow banking. Price growth accelerated to a seven-month high in December, driving up benchmark bond yields.

• Markets may be very volatile this year, Lou Jiwei, chairman of China Investment Corp., China's sovereign wealth fund, said at a forum in Beijing today. China should reduce short-term stimulus and improve labor-market flexibility, he said. 

• China's Yi Warns on Currency Wars. China’s foreign-exchange regulator urged Group of 20 nations to improve collaboration to avoid any so-called currency wars while signaling he’s comfortable with the value of the yuan. On a global level, there needs to be “better communication and coordination” on foreign exchange among the G-20, Yi Gang, who is also a deputy governor of China’s central bank, said in an interview at the World Economic Forum’s annual meeting in Davos, Switzerland on Jan. 26. “Right now, it is pretty much close to the equilibrium level,” he said, referring to the Chinese currency’s exchange rate. 

• PBOC's Pan: China Banks' Profit Growth Outlook 'Grim' for 2013. The outlook is still "grim" after banks' income growth slumped in 2012, Pan Gongsheng, a deputy governor at the People's Bank of China, said at a forum in Beijing today.

• IMF's Lagarde Says Growth Outlook Is Fragile, Timid. IMF Managing Director Christine Lagarde said in Davos, Switzerland, at the World Economic Forum that the IMF would like Japan to have a mid-term debt plan. 

• Mursi Under Fire From Islamists, Opposition After Dozens Killed. Small groups of protesters clashed with security forces in Cairo early today, raising the prospect of further bloodshed after 32 people were killed in fighting in Port Said and authorities warned that a state of emergency may be declared in the country. The unrest in the Egyptian capital built on two days of violence surrounding the second anniversary of the start of the uprising that ousted Hosni Mubarak from power, and highlighted increasing tensions in the nation since Mohamed Mursi’s election as president in June. Mursi, who was fielded for office by the Muslim Brotherhood after the vote, faces mounting criticism from secularists and youth activists who contend he has put the Islamist group’s interests ahead of the country’s and failed to fulfill any of his pledges or revive an economy that, since the revolution, has grown at the slowest pace for two decades. 

• Egypt’s Mursi Declares State of Emergency Amid Mounting Unrest. Egyptian President Mohamed Mursi declared a state of emergency and curfew in three provinces wracked by days of unrest that have left almost 50 dead, and said he was ready to take additional steps to protect the nation. In a late-night televised address yesterday, Mursi said attacks on civilians and state installations won’t be tolerated and that he had ordered security forces to deal with transgressors with “all firmness and strength” to halt further violence. The Islamist leader also said he was calling on leaders of political parties to gather for a national dialogue today -- an offer his opposition has so far largely shunned.

• Israel Deploys Missiles as Netanyahu Sees Syria Collapse. Prime Minister Benjamin Netanyahu said that Israel must prepare for the threat of a chemical attack from Syria as the army deployed its new Iron Dome anti- missile system near the border with its northern neighbor. Netanyahu told members of the Cabinet during the weekly meeting in Jerusalem today that Israel faces dangers from throughout the Middle East. Top security officials held a special meeting last week to discuss what may happen to Syrian stocks of chemical weapons amid the civil unrest there, Vice Prime Minister Silvan Shalom told Army Radio. “We must look around us, at what is happening in Iran and its proxies and at what is happening in other areas, with the deadly weapons in Syria, which is increasingly coming apart,” Netanyahu told his Cabinet, according to an e-mailed statement.

• Obama Picks Rejected as Court Casts Doubt on Recess Power. President Barack Obama violated the Constitution by making appointments to the federal labor board without Senate approval, a U.S. appeals court said in a ruling that calls hundreds of board decisions into question and may extend to the head of the new consumer finance agency. The U.S. Court of Appeals in Washington sided with Republican lawmakers in a unanimous opinion. 

• Ryan Says Balanced Budget Needs Spending Cuts, Not More Revenue. Reduced spending for entitlement programs such as Medicare is needed to eliminate deficits within 10 years, said U.S. House Budget Committee Chairman Paul Ryan. “Our goal is to get cuts in reforms that put us on a path to balancing our budget within a decade,” Ryan, a Wisconsin Republican, said today on NBC’s “Meet the Press” program. “Spending is the problem, revenues aren’t the problem.” 

• Kim Vows North Korean Retaliation Against U.S. for Sanctions. North Korean leader Kim Jong Un vowed “high-profile” retaliation against the U.S. and its allies for increasing United Nations sanctions against his regime, building on last week’s pledge to test a nuclear device. Kim convened a meeting of foreign affairs and security officials on Jan. 26 to discuss the “grave situation” caused by “hostile forces,” the official Korean Central News Agency said yesterday. “The U.S. has reached its height in its anti- DPRK strategy,” KCNA said, referring to the country’s official name, Democratic People’s Republic of Korea.

• Norway Data Shows Earth’s Global Warming Less Severe Than Feared. New estimates from a Norwegian research project show meeting targets for minimizing global warming may be more achievable than previously thought. After the planet’s average surface temperature rose through the 1990s, the increase has almost leveled off at the level of 2000, while ocean water temperature has also stabilized, the Research Council of Norway said in a statement on its website. After applying data from the past decade, the results showed temperatures may rise 1.9 degrees Celsius if Co2 levels double by 2050, below the 3 degrees predicted by the Intergovernmental Panel on Climate Change. “The Earth’s mean temperature rose sharply during the 1990s,” said Terje Berntsen, a professor at the University of Oslo who worked on the study. “This may have caused us to overestimate climate sensitivity.” 

• Hedge Funds Boost Bullish Bets by Most Since July. Hedge funds increased bullish commodity bets by the most in six months as accelerating growth from China to the U.S. boosted prices for a seventh week. Speculators raised net-long positions across 18 U.S. futures and options by 11 percent to 758,048 contracts in the week ended Jan. 22, the biggest gain since July 3, U.S. Commodity Futures Trading Commission data show. Bullish crude- oil bets reached a four-month high, while those for soybeans climbed by the most since March. Investors are the most bullish on cotton since February 2011. 

• Twitter Is Said to Be Worth $9 Billion as BlackRock(BLK) Buys Shares. Twitter Inc. was valued at about $9 billion after early employees sold $80 million in shares to a fund managed by BlackRock Inc. (BLK), three people with knowledge of the matter said. The sales were overseen by Twitter Chief Operating Officer Ali Rowghani, said one of the people yesterday, who asked not to be identified because the transactions were private.

Wall Street Journal:  

• European Companies Brace for Write-Downs. Europe's blue chip companies are set to wipe billions of dollars from their balance sheets this year, writing down the value of assets acquired over recent years as the economic slowdown makes cash-flow forecasts look increasingly optimistic. The write-downs will serve as a report card on executives' records in making shrewd acquisitions and are important because they will reduce company earnings by a corresponding amount and potentially diminish shareholder returns. The charges will also indicate how pessimistic executives are about the current business outlook in Europe and influence how investors value companies.

• Algeria Probes Possible Role of Local Workers in Attacks. Algerian authorities are investigating whether any local employees from the In Amenas gas plant aided terrorists who attacked the remote Saharan facility this month, amid survivors' accounts that the gunmen arrived with basic knowledge of the plant.

• Device Makers Add Fees to Cover Obamacare Tax. Some medical-device companies faced with a new tax meant to help finance the health law are hoping someone else will pick up the tab: their hospital customers. Companies including feeding-tube supplier Applied Medical Technology Inc. and respiratory-valve maker Hans Rudolph Inc. quietly added new surcharges or warned hospitals of price increases to cover the new 2.3% tax on device sales that went into effect Jan. 1, according to letters and invoices from nine manufacturers sent to hospitals that were reviewed by The Wall Street Journal.

• Brazil Nightclub Blaze Kills More Than 200. Cellphone Cameras Record Grisly Scene Apparently Ignited by Performers' Flare.

• Republicans Bristle at Obama's New Roster. President's Second-Term Team of Like-Minded Allies Draws Complaints From Some Who See Little Room for Compromise.

• Treasury Gets a Citibanker. From Wall Street failure to the pinnacle of finance in four short years. There was a time when you had to be successful on Wall Street to become secretary of the Treasury. Now along comes presidential nominee Jack Lew, whose only business credential is a stint at the most troubled too-big-to-fail bank. During the darkest days of the financial crisis Mr. Lew served as the chief operating officer of Citigroup's Alternative Investments unit (CAI). When Mr. Lew took this job in January 2008, the unit was already infamous for overseeing "structured investment vehicles" that hid mortgage risks outside Citi's balance sheet. It also housed internal hedge funds that were in the process of imploding. CAI no longer exists. At the end of Mr. Lew's first quarter on the job, the unit reported a $358 million loss. Things got much worse after that but Citi stopped breaking out CAI results in its earnings releases. The unit was eventually shuttered and many of its assets were sold.

Marketwatch.com: 

• Land Down Under faces Europe-style downturn. Commentary: Australia’s commodities boom nears a bitter end.

CNBC:   

• Europe's Crisis Not Over Say Bankers, Policymakers. International bankers and finance ministers warned on Saturday that Europe's crisis was not over even though the euro currency is now stabilized, it will take years to overcome economic malaise and mass unemployment in Europe. After a private meeting of leading commercial bankers, government officials, central bankers and trade union officials, Swedish Finance Minister Anders Borg told Reuters: "There is a clear divide between the financial markets, who think a lot of this is fixed, and the people in the real economy and particularly from our side as the governments."

• US Facing Fresh Financial Shock to Economy. The $1.2 trillion in automatic spending cuts that Barack Obama once promised to avert are looking increasingly likely to occur because of entrenched politics in Washington, threatening a shock to confidence in the US economy.

Zero Hedge: 

• Q4 Earnings Season: Far Worse Than Most Suspect. (graphs)

• Visualizing The Euphoria. (graphs)

• Italian Scandal Widens As Italy's Third Largest Bank Set To Get Third Bailout In 3 Years; Draghi, Monti Implicated.

• Geithner's Legacy: The "0.2%" Hold $7.8 Trillion, Or 69% Of All Assets; And $212 Trillion Of Derivative Liabilities. 

• The End Of An Era. (graphs)

• Trading The Macro-Market Disconnect.

Business Insider: 

• Privacy Advocates Urge Skype To Disclose Info About Alleged Government Spying.

• Kissinger: The Iran Nuclear Situation Will Come To A Head In The 'Very Foreseeable Future'. 

• A Point-By-Point Refutation Of The Treasury's List Of Tim Geithner's Accomplishments. 

• MORGAN STANLEY(MS): 'The Odds Favor A Government Shutdown'. 

• This USA Today Infographic Will Make Every Investor Cringe.

• World Economic Forum Ends With Stark Warning Over Global Economy.

• A New Federal Reserve Report Quantifies The Risks It's Taking In A Very Scary Way. 

• Starting Today, Retailers Are Free To Charge Customers Fees For Using Credit Cards.

• GMO: China Is Marching Toward A Massive Credit Crisis.

IBD:

• Cadence Design(CDNS) Seen With Strong Profit, Sales Gains.

Washington Post: 

• The wrong man to be defense secretary by Senator Jim Inhofe. Our military and national security interests are at a critical juncture. As a former colleague of Chuck Hagel’s, I know that he is a good man with a record of service and sacrifice that deserves respect. While his service is commendable, the lens through which his nomination as defense secretary must be considered needs to be both broader and more refined. Whether he is the right person to lead the Defense Department should be determined by his judgment, his fundamental view of America’s role in the world and his assessment of the military required to support this role. After carefully reviewing his record from this perspective, I am unable to support his nomination.

Reuters:

• Bank of America(BAC) begins moving $50 billion of derivatives to UK: FT. Bank of America has begun moving $50 billion of derivatives out of its Irish-based operations into its British subsidiary, The Financial Times reported on its website on Sunday. The move will allow the world's number 10 bank by assets to benefit from tax breaks stemming from accumulated losses in its UK business, the FT said. According to the Financial Times, bankers said Irish officials were uncomfortable with the scale of the business which posed a theoretical risk to Irish taxpayers.

Financial Times:

• US regulators warn banks on living wills. US regulators have warned banks not to assume that countries will work together to avoid the catastrophic failure of a financial group. The alert to the world’s biggest international financial institutions followed growing concerns about the progress of global regulatory reform efforts.

Telegraph: 

• David Cameron has one great ally: the people of Europe. Cherry-picking. Europe a la carte. And from Madrid, a finger-waving admonition that "David Cameron must understand he cannot pretend to renegotiate the treaties, and undo what we have done, or slow the speed of the EU cruiser."

WirtschaftsWoche: 

• Bundesbank board member Andreas Dombret says the so-called Basel III capital rules will go into effect in the EU in early 2014 at the latest. Dombret has "no doubt" the U.S. will introduce the Basel III rules as well.

• Owners of German medium-sized companies would face tax rates on profits of more than 60% under plans by the opposition Social Democratic Party that would go into effect after an election victory, citing calculations by the DIHK industry and trade chamber umbrella organization. The top income tax rate of the typical owner of a company with 200 employees, with sales of EU40m per year and a profit of EU2m, would rise to more than 60% from 47.5% at present, citing DIHK managing director Martin Wansleben.

Welt am Sonntag:

• Greece has carried out some reforms, though not much has improved in the past 12 months, citing Bill Gross, co-chief investment officer of PIMCO. Gross also said the euro crisis isn't over and warned not to draw the wrong conclusions from calmer capital markets. Gross said countries are rushing to devalue their currencies and the situation reminds him of the 1930s.

• German Foreign Minister Guido Westerwelle says efforts shouldn't be made to keep the U.K. in the European Union by reducing the EU's legal rights, citing a commentary by Westerwelle.

Le Progres:

• French Unemployment Seen Rising to 11% by OFCE. France will have about 250,000 additional unemployed by the end of this year, citing economist Mathieu Plane at Sciences Po's research center OFCE. Economic growth of 1.2% is required to reverse the unemployment trend; OFCE predicts growth will be around 0%.

Kathimerini:

• European Central Bank Board member Joerg Asmussen said a default of Cyprus would risk a contagion of Greek banks, citing an interview. "We are still not in normal times, and therefore I think that disorderly developments in Cyprus could harm the progress we made in Europe in 2012. There are two kinds of effects that a bad development in Cyprus can produce. One is possible contagion of Greece via banking channels, since a number of Cypriot banks are active in Greece. Secondly, it can send the wrong signal to the rest of the euro area. We are in a phase where countries like Portugal and Ireland are preparing to re-enter capital markets:" Asmussen said. Asmussen also said that the central bank needs to "return to a situation in which the ECB can rely on its standard monetary policy instruments. We can take non-standard measures, but the extraordinary crisis policies should not become permanent."

Japan Times:

• Krugman’s worn-out ideas for Japan don’t fly. Abe’s big idea, the one that has investors feeling the most bullish on Japan since 2009, is fiscal pump-priming and getting the Bank of Japan to do more to stimulate growth. About 21 percent of respondents to a Bloomberg poll now see Japan as offering the best opportunities over the next year. The same poll showed 54 percent are more optimistic than pessimistic about what some are calling Abenomics. Those numbers are hard to ignore on two scores. First, I only hope that those in charge of managing my retirement accounts aren’t among the Japan-bulls-come-lately. The second is how short memories can be. Abe, remember, failed miserably in his first term as prime minister in 2006-2007.

Nikkei:

• Advantest(ATE) to Miss FY Op Profit Forecast. Advantest is getting few orders from Apple(AAPL) suppliers. Weak PC demand is cutting orders for DRAM test equipment. Chipmaker capital investment has reached a peak. 

Financial News: 

• China should adopt differentiated policies, such as when levying property taxes, to control home price inflation in the largest cities, according to a front-page commentary by reporter Xu Shaofeng. Rising home prices in large cities may fuel inflation expectations. Bad loan rates may increase if property prices fall following the bursting of a real estate bubble, the commentary said.

Weekend Recommendations

Barron's:

• Bullish commentary on (AAPL), (UNP), (CPN), (TOL), (LH), (RHP) and (NUE).

• Bearish commentary on (ISRG), (LMT), (NOC), (RTN) and (GD).

Night Trading

• Asian indices are -.50% to +.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 105.5 -3.5 basis points.

• Asia Pacific Sovereign CDS Index 84.25 -.75 basis point.

• FTSE-100 futures +.28%.

• S&P 500 futures +.07%.

• NASDAQ 100 futures +.14%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (BIIB)/1.46

• (CAT)/1.70

• (IRF)/-.51

• (GGG)/.60

• (STLD)/.14

• (YHOO)/.28

• (VMW)/.78

• (ILMN)/.41

• (PCL)/.29

• (AEP)/.46

• (BMC)/1.01   

Economic Releases
8:30 am EST

• Durable Goods Orders for December are estimated to rise +2.0% versus a +.7% gain in November.

• Durables Ex Transports for December are estimated to rise +.8% versus a +1.6% gain in November.

• Cap Goods Orders Nondef Ex Air for December are estimated to fall -1.0% versus a +2.7% gain in November.

 10:00 am EST 

• Pending Home Sales for December are estimated to rise +.1% versus a +1.7% gain in November.

 10:30 am EST

• Dallas Fed Manufacturing Activity for January is estimated to fall to 3.0 versus 6.8 in December.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Italian bond auction and the Australia Leading Indicators data could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and real estate shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% 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 US debt ceiling concerns, global growth fears, China-Japan/Mideast tensions, Eurozone debt angst, profit-taking, earnings disappointments, technical selling and more shorting. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 50% net long heading into the week.