Today's Headlines

Bloomberg: 

• China Growth Seen Slowing as Momentum Weakens. China’s factory output and investment growth probably weakened in December, adding to signs the world’s second-largest economy is losing momentum as analysts forecast 2014 expansion at the lowest in 24 years. Industrial-production gains slowed to a five-month low of 9.8 percent and gross domestic product grew 7.6 percent from a year earlier in the October-December period, based on the median estimates of analysts before data due Jan. 20. Expansion will moderate to 7.4 percent this year as investment slows and overcapacity is squeezed, according to a survey last month. 

• China’s IPO Freeze Ends as Neway to Debut Amid Pricing Crackdown. Neway Valve (Suzhou) Co. (603699), a maker of industrial valves, will become the first company to start trading in China today after a freeze on initial public offerings that lasted more than 15 months. The company and existing owners raised 1.5 billion yuan ($241 million) after selling 82.5 million shares at 17.66 yuan each, according to a statement on the Shanghai stock exchange. The deal values Neway Valve at 46.5 times its 2012 earnings, compared with 33.9 times for its listed industry peers, the company said Jan. 8.

• Severe Smog in North China Prompts Warnings to Stay Inside. China warned people in its northern regions to stay indoors today as air pollution in Beijing averaged 18 times World Health Organization-recommended levels. The concentration of PM2.5, fine particulates that pose the greatest risk to human health, was 447 micrograms per cubic meter at 10 p.m. near Tiananmen Square in Beijing, compared with an average of 456 over the past 24 hours, the Beijing Municipal Environmental Monitoring Center said on its website. The WHO recommends exposure to no higher than 25 micrograms per cubic meter over a day.

• HSBC May Overstate Assets by $92.3 Billion: Forensic Asia. HSBC Holdings Plc (HSBA), Europe’s largest bank, may be overstating its assets by as much as $92.3 billion and need to raise capital, according to analysts at Forensic Asia led by Thomas Monaco.

• Brazil Swap Rates Surge After Central Bank Signal; Real Drops. Brazil’s swap rates rose the most in three months as the central bank signaled it will extend the world’s biggest increases in borrowing costs after a surprise quickening of inflation last year. Swap rates on contracts maturing in January 2015 climbed 19 basis points, or 0.19 percentage point, to 10.93 percent at 1:23 p.m. in Sao Paulo. The real depreciated 0.2 percent to 2.3634 per U.S. dollar. The central bank lifted the target lending rate, known as the Selic, by a half-percentage point for a sixth straight meeting yesterday, raising it to 10.50 percent. The decision came after the government reported last week that consumer prices rose 5.91 percent in 2013 even as central bank President Alexandre Tombini said in October that inflation would be less than the prior year’s 5.84 percent. 

• Rowdy Teen Swarms Throw a Scare Into Brazil’s Shopping Centers. Mass visits to malls sustained beyond the holiday season would appear to be a retailer’s dream. In Brazil, they’re cause for concern. A gathering on Jan. 11 at the Shopping Metro Itaquera in Sao Paulo drew about 3,000 young people who began to jump, sing, shout and scare shoppers, leading the mall to shut down briefly and ask them to vacate the premises, according to the mall. Outside, police launched tear gas canisters and, once the mall reopened, young people unaccompanied by parents weren’t allowed entry. 

• European Rally Belies Slog Ahead With Debt at Record. The rally in European bond and stocks markets masks the slog that looms as the euro area confronts record unemployment and debt. Spain, whose banks were bailed out in 2012, sold 2.66 billions euros ($3.62 billion) of three-year debt at the lowest yield on record today. The Euro Stoxx 50 Index has gained 19 percent in the past six months to its highest since the collapse of Lehman Brothers Holdings Inc. in September 2008. “Markets are breaking record after record but the recovery remains feeble,” Isabelle Job-Bazille, chief economist at Credit Agricole in Paris, said today in an interview. “A lag between financial markets and the real economy may be normal, but markets are being very optimistic. Structural brakes on the recovery are still there, notably the debt burden.”  

• Metals, Currency Rigging Worse Than Libor, Bafin Chief Says. Germany’s top financial regulator said possible manipulation of currency rates and prices for precious metals is worse than the Libor-rigging scandal, which has already led to fines of about $6 billion. The allegations about the currency and precious metals markets are “particularly serious, because such reference values are based -- unlike Libor and Euribor -- typically on transactions in liquid markets and not on estimates of the banks,” Elke Koenig, the president of Bafin, said in a speech in Frankfurt today.

• Bears in Retreat as Put-Call Ratio Hits Nine-Year Low: Options. By one measure, demand for insurance against equity losses is drying up in the options market. For every 100 bullish contracts that changed hands on the CBOE, 73 bearish ones traded on average in the past 20 days, the lowest ratio since December 2004. "There is very little fear that's been baked into the market," Edward Painvin, CIO of Chase Investment Counsel Corp., said by phone. "There is definitely an element of greed that's involved by the simple fact that people are not willing to pay up for safety." The last time the CBOE put-to-call ratio was this low, in December 2004, the S&P 500 dropped three out of the following four months, with losses reaching as much as 7.2% from March to April.

• Quality of U.S. Emergency Room Care Falls, Physicians Say. With Obamacare bearing down on them, a doctors’ group said emergency rooms are less able to provide quality care, and more resources will be needed to handle an expected surge of patients from the new law. Hospitals have fewer beds available, causing delays in ERs that saw visits climb to 130 million in 2010, according to a report from the Dallas-based American College of Emergency Physicians. Federal funding for disaster preparedness has fallen, so the hospitals are also less prepared to handle a sudden influx of injured patients, the group said. “This report card is sounding an alarm,” Alex Rosenau, the physicians’ group president, said today on a conference call. “The need for emergency care is increasing, the role of emergency care is expanding, and this report card is saying that the policies are failing.”  

• Citigroup(C) Earnings Miss as Bond-Trading Slump Slows Recovery. Citigroup Inc., the third-biggest U.S. bank, reported fourth-quarter profit that missed Wall Street estimates as bond trading slumped. The stock fell more than 3 percent in New York trading.

• U.S. Said to Plan Tighter Limits on Racial Profiling in Probes. The U.S. Justice Department will soon extend its ban on the use of racial profiling during federal investigations, according to a law enforcement official briefed on the matter. The Justice Department under Attorney General Eric Holder has been reviewing the guidelines for federal investigations for several years, according to the official, and is planning to expand the definition to prohibit profiling based on religion, national origin, sexual orientation and gender.

Fox News: 

• World's greatest hacker calls Healthcare.gov security 'shameful'. Security expert -- and once the world's most-wanted cyber criminal -- Kevin Mitnick submitted a scathing criticism to a House panel Thursday of ObamaCare's Healthcare.gov website, calling the protections built into the site "shameful" and "minimal." In a letter submitted as testimony to the House Science, Space and Technology Committee, Mitnick wrote: "It's shameful the team that built the Healthcare.gov site implemented minimal, if any, security best practices to mitigate the significant risk of a system compromise."

• 'Not looking good': Coal workers see future dim amid regulation burden. Far below the Appalachian Mountains, in a space barely big enough to stand up straight, Bobby Combs works a job his father and his grandfather worked. Coal-mining is the highest-paying job available to him in eastern Kentucky. As he skillfully maneuvers a massive machine and rips into a seam of coal, though, Combs wonders if the family tradition ends with him. "It's not looking good," he says, dirt smudging his face.

ZeroHedge: 

• Continuing Claims Surge Most In Over 5 Years To 6-Month Highs. (graph)

• US Treasury's Lew (Ironically) Tells Japan: Stop Manipulating The Yen.

• Hombuilder Sentiment Slips As Buyer Traffic Tumbles. (graph)

• Philly Fed Beats Even As New Order Drop To May 2013 Levels, Inventories Tumble. (graph)

• Chart Of The Day: Goodbye Manufacturing Profits?

• Bernanke's Legacy: A Record $1.3 Trillion In Excess Deposits Over Loans At The "Big 4" Banks. (graph)

• GMO Market Commentary: Ignore The "Common Sense".

• NU Skin(NUS) Halted Third Time - Down $45 (39%).

Business Insider:

• MARISSA MAYER'S $109 MILLION MISTAKE.

• 25% Of U.S. Teens Have Abandoned Facebook(FB).

Reuters:

• China's ICBC says won't compensate investors in troubled shadow bank product. Industrial and Commercial Bank of China, the world's largest bank by assets, said on Thursday that it has no plans to use its own money to repay investors in a troubled off-balance-sheet investment product that it helped to market. 

• Best Buy(BBY) shares tumble on weak holiday sales, margin forecast. Best Buy Co (BBY.N) shares tumbled about 30 percent on Thursday after the world's largest consumer electronics chain reported disappointing holiday sales and warned of a bigger-than-expected decline in quarterly operating margins. The company blamed intense discounting by rivals, tight supplies of phones and high-end tablets industrywide, and weak traffic in December. The news, which knocked off almost $4 billion of Best Buy's market value, was the latest evidence that holiday sales at many chains came at the expense of profit. 

• Goldman Sachs(GS) Q4 profit hit by lower bond trading revenue. Goldman Sachs Group Inc reported a 21 percent drop in quarterly profit on Thursday as revenue from fixed-income trading fell in what Chief Executive Lloyd C. Blankfein described as "a somewhat challenging environment." 

• "True" euro zone stress test could show $1 trillion hole in banks - study. An objective stress test of the euro zone's biggest banks could reveal a capital shortfall of more than 770 billion euros ($1 trillion) and trigger further public bailouts, a study by an advisor to the EU's financial risk watchdog and a Berlin academic has found. The study and others published ahead of the EU stress tests, whose results are due in November, are important because they set the expectations against which markets will judge the credibility of the European Central Bank's attempt to prove its banks can withstand another crisis without taxpayer help.

NY Daily News:

• Last week, redOrbit reported that several new cases of human infection with H7N9 had been confirmed since the New Year began. In the past week, the World Health Organization (WHO) has received reports from two Chinese health agencies confirming 13 new cases of H7N9 bird flu.
  Read more at http://www.redorbit.com/news/health/1113045864/h7n9-rise-multiple-new-confirmed-cases-china-011414/#FsoYrYAMzVEcB8l3.99
  How Obamacare will hurt doctors.

Financial Times:

• US banks take on more risk. US banks shrank their holdings of safe securities by more than 3 per cent last year, a development that is likely to further stoke the debate about whether new rules are encouraging them to buy riskier assets.

Telegraph: 

• 'Fatal spiral' of fiscal crises threatens global economy in 2014. Ballooning debt levels in advanced economies pose biggest threat to the global economy, World Economic Forum report warns.

Jakarta Post:

Restructuring: Flowers slams Europe over inaction


While we want you to share, we ask you use the functions on-site rather than copy/paste. See T's & C's for details. http://www.euromoney.com/Article/3211790/CurrentIssue/88924/Restructuring-Flowers-slams-Europe-over-inaction.html?copyrightInfo=true

• China's bird flu cases continue to rise. The number of human H7N9 bird flu infections continues to rise nationwide with about 20 new cases reported in the first two weeks of 2014. On Wednesday, three new H7N9 cases were reported from Shanghai and Fujian and Zhejiang provinces.

Echoing fears that European policymakers remain in a state of cognitive dissonance – recognizing the need for root-and-branch overhaul of peripheral banks, but backtracking on joint liability plans – Christopher Flowers, the legendary FIG investor who now runs the £2.3 billion ($3.5 billion) private equity group JC Flowers, sounded the alarm over the negative sovereign-bank feedback loop. In a shot across the bows of market bulls, who cite the return of capital flows to weaker eurozone states, Flowers issued a stark warning: "There is a scenario where we have a Lehman-type event: we wake up some Thursday and a big country is in trouble. "And the ECB will have to decide to support banks x, y, z. And then the ECB will, in fact, decide to own bank x, y, z.


While we want you to share, we ask you use the functions on-site rather than copy/paste. See T's & C's for details. http://www.euromoney.com/Article/3211790/CurrentIssue/88924/Restructuring-Flowers-slams-Europe-over-inaction.html?copyrightInfo=true

Bear Radar

Style Underperformer:

• Mid-Cap Value -.43%

Sector Underperformers:

• 1) Road & Rail -2.54% 2) Retail -1.91% 3) HMOs -1.83%

Stocks Falling on Unusual Volume:

• BBY, NUS, RESI, BPT, IGTE, CLC, CSX, TSRA, ALLT, USNA, FUL, JKS, AGIO, C, DECK, CBL, MRC, CTRL, LOGI, ASML, FET, HGG, GNRC, MDVN, TX, FET, NSC, ULTA, KR and SPLS

Stocks With Unusual Put Option Activity:

• 1) COH 2) BK 3) DECK 4) AMAT 5) C
  

Stocks With Most Negative News Mentions:

• 1) BBY 2) GS 3) HLF 4) NUS 5) CSX
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Growth -.20%

Sector Outperformers:

• 1) Biotech +.76% 2) Gold & Silver +.39% 3) Utilities +.21%
  

Stocks Rising on Unusual Volume:

• CEC, GLOG, SRPT, YRCW, NAT, SEAS, CVLT, SCTY, SPWR, SPLK, AOL, LNKD and TXTR

Stocks With Unusual Call Option Activity:

• 1) ZIOP 2)NUS 3) SRPT 4) VVUS 5) CSX

Stocks With Most Positive News Mentions:

• 1) AMZN 2) SCHW 3) UNH 4) MRVL 5) NFLX
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Thursday Watch

Evening Headlines 
Bloomberg: 

• China’s Treasury Holdings Climb to Record in Government Data. China’s holdings of U.S. Treasuries increased $12.2 billion to a record $1.317 trillion in November, data released on the Treasury Department’s website showed. 

• China Money Rate Jumps Most This Year as PBOC Skips Injections. China’s benchmark money-market rate surged by the most this month as the central bank refrained from adding funds even as dealers expect tax payments and pre-holiday demand to reduce the supply of cash. The People’s Bank of China didn’t issue 14-day reverse-repurchase agreements today, the second week it hasn’t injected any money, according to data compiled by Bloomberg. The seven-day repurchase rate, a gauge of cash availability in the banking system, jumped 27 basis points to 4.29 percent as of 11:01 a.m. in Shanghai, according to a weighted average from the National Interbank Funding Center. That was the biggest increase since Dec. 31.

• Actavis to Exit China as Unfriendly Government Not Worth It. Actavis Plc, the second-biggest generic drugmaker by market capitalization, said it will end its presence in China because of the difficult business climate. While the country has more than 1.3 billion potential customers, the government has made it a difficult place to conduct business, Actavis Chief Executive Officer Paul Bisaro said in an interview. The company has sold one operation there and is in talks to sell another. “It is not a business friendly environment,” Bisaro said at the JPMorgan Chase & Co. health-care conference in San Francisco. “If we’re going to allocate capital, we’re going to do so where we can get the most amount of return for the least amount of risk. And China is just too risky.”  

• Asian Stocks Rise. Asian stocks rose for a second day as better-than-projected bank earnings boosted investor confidence and drove U.S. stock gauges to record highs. China South City Holdings Ltd. soared 57 percent in Hong Kong as Tencent Holdings Ltd. said it will buy a stake in the logistics-center operator. Newcrest Mining Ltd., Australia’s biggest gold producer, jumped 6.6 percent after saying gold production will be around the top of its forecast range. Tokyo Electric Power Co. rose 1.4 percent as the Japanese utility’s profit forecast exceeded analyst estimates. The MSCI Asia Pacific Index rose 0.2 percent to 139.67 as of 11:24 a.m. in Tokyo. 

• Rebar Falls From One-Week High Amid China’s Lower Credit Growth. Steel reinforcement-bar futures dropped for the first time in three days in Shanghai, slipping from a one-week high, amid concern that China’s lower credit growth may crimp demand for the building material. Rebar for May delivery on the Shanghai Futures Exchange retreated as much as 0.5 percent to 3,481 yuan ($576) a metric ton before trading at 3,490 yuan at 10:14 a.m. local time.

• Brazil Lifts Rate to 10.5% as CPI Defies Biggest Rate Rise. Brazil’s central bank maintained the pace of the world’s biggest interest rate increases after inflation last month surged the most in more than a decade. The bank’s board, led by President Alexandre Tombini, voted 8-0 to raise the benchmark Selic by a half-point for a sixth straight meeting to push the key rate to 10.50 percent from 10 percent.

• RBS to UBS Boosting Junk-Debt Teams Once Gutted: Credit Markets. Dealers from Royal Bank of Scotland Group Plc to UBS AG that gutted their credit units after the 2008 financial crisis are now hiring to trade junk debt, seeking to tap into the biggest fixed-income gains during the past year.

• BNP Derivatives Boss Says Few Banks Are Making Money in Equities. Most banks are losing money trading stocks in Europe when their cost of capital is considered, said the top equity derivatives executive at BNP Paribas SA. (BNP) “A lot of banks are running unprofitable equity businesses, which cannot be sustainable,” Yann Gerardin, head of global equities and commodity derivatives at France’s largest bank, said in an interview in Paris. Barclays Plc (BARC), UniCredit SpA and Nomura Holdings Inc. are among banks that have cut their equity businesses in Europe amid a decline in trading volumes and profitability. Europe’s biggest investment banks’ return on equity has tumbled to between 10 percent and 12 percent on average in the past three years, close to their cost of capital, according to analysts at Barclays Capital. 

• Big Banks Face Sharper Risk-Management Focus in OCC Policy Shift. Big banks such as JPMorgan Chase & Co. (JPM) may face quicker reprimands for risk-management failures under a new Office of the Comptroller of the Currency effort set to be announced tomorrow. The national-bank regulator’s policy shift will remove hurdles to targeting lenders with certain enforcement actions, according to OCC Chief Counsel Amy Friend. The change follows Comptroller Thomas Curry’s push to clean up management at banks hit with billions of dollars in penalties over misdeeds in the wake of the 2008 credit crisis.

• Banks Push for Changes to Volcker Rule Following CDO Fix. Bank-industry groups and Republican lawmakers called for broader Volcker Rule revisions a day after regulators permitted exemptions for some collateralized debt obligations faulted for obscuring lenders’ capitalization. Representatives of the Securities Industry and Financial Markets Association and other groups joined House Financial Services Committee members in highlighting the “unintended consequences” of the proprietary-trading rule at a Washington hearing today. Lawmakers and lobbyists alike said yesterday’s move to shield some CDOs backed by trust-preferred securities wasn’t enough to protect banks and the public from harm. 

• Debt Ceiling Still a Risk Facing U.S.: Feingold. (video)

• Citigroup(C) Sells Servicing to Fannie Mae on $10 Billion Loans. Citigroup Inc. (C), the third-largest U.S. lender, agreed to sell servicing rights for about 64,000 Fannie Mae residential first-mortgage loans as it seeks to reduce a portfolio of unwanted assets. The contracts, held in the Citi Holdings unit, are tied to loans with about $10.3 billion in unpaid principal balances, the New York-based bank said today in a statement. Fannie Mae acquired the rights and will transfer the servicing of the loans to another firm, Andrew Wilson, a Fannie Mae spokesman, said in a phone interview. Terms weren’t specified.

Wall Street Journal:

• Yahoo's(YHOO) No. 2 Is Out After Clash With CEO Mayer. Henrique de Castro, One of the Highest Paid Silicon Valley Executives, to Depart This Week.

• Australia Dollar Tumbles After Weak Jobs. Asian stocks moved higher on Thursday, while the Australian dollar fell to its lowest in over three years against the U.S. dollar following weak jobs data. The Australian dollar fell as low as US$0.8796, a level not seen since August 2010, from US$0.8912 late Wednesday in New York as the number of people employed unexpectedly fell by 22,600 in December, undershooting a forecast for a 10,000 increase.

• How Big Government Drives Inequality by Daid Malpass. Stifling economic growth and benefiting insiders with Washington access do not help the middle class. Inequality is the wedge issue that Democrats hope will carry them through the 2014 and 2016 elections, neutralizing the ObamaCare fiasco. The issue has popular appeal because median incomes (after inflation) have been falling throughout the recovery, while high-end incomes are increasing rapidly. For progressives, this situation seems made to order: If you want a flatter income distribution, don’t you need bigger government to get it? Yet experience shows the opposite: Washington’s increased size and power has concentrated income and wealth in fewer hands. Making government bigger will exacerbate this problem—it is already too big, intrusive and expensive to allow a robust economy that benefits everyone.

CNBC: 

• NLRB files retaliation complaint against Wal-Mart. The National Labor Relations Board said Wednesday it filed a complaint against Wal-Mart Stores Inc, alleging the world's largest retailer threatened people with reprisal if they mounted strikes against the company. 

• South Korean fund weighs Bank of America stake sale. Korea Investment Corp (KIC) will decide whether to sell its around $1 billion stake in Bank of America within a month, after watching its value fall by half since 2008, Korean media reported on Thursday. 

• Amazon(AMZN) Warehouse Workers Vote Against Joining Union. In the first vote of its kind among workers employed by Amazon in the U.S., a group of up to 30 of the commerce giant’s warehouse workers at a Delaware distribution center voted against unionization today. The group, which consists of equipment technicians and mechanics, was voting on whether it wanted to join the International Association of Machinists and Aerospace Workers. A source with knowledge of the vote told Re/code that 27 of the 30 workers voted, and 21 voted against unionization.

Zero Hedge:

• The Most Important Chart For Albert Edwards.

• The Blistering Recovery Continues: Week After Macy's, JCPenney Fires 2000, Closes 33 Stores.

• The Last 2 Times This Happened, The US Was Already In Recession. (graph)

• Summary Of Senate's Report On Benghazi Embassy Attack.

• Beijing Shuts Down As Pollution Over Past 12 Hours Literally "Off The Chart".

• A Less Exuberant Look At Retail Sales. (graph)

Business Insider:

• US Air Force Rocked By Major Exam Cheating Scandal Involving 34 Nuke Officers.

• Why Heroin Use Is Skyrocketing Across The US.

• EXPLAINED: 'Net Neutrality' For Dummies, How It Affects You, And Why It Might Cost You More.

NY Post:

• Another 25 Million ObamaCare Victims. It now looks like ObamaCare will hurt twice as many people as it helps — because the law isn’t nearly done with canceling people’s insurance. The 5 million-plus Americans who’ve seen their health plans canceled thanks to ObamaCare will be joined by millions more this year — because the Affordable Care Act makes their employer-provided policies illegal, as well.

NY Times:

• With China Awash in Money, Leaders Start to Weigh Raising the Floodgates. Move over, Janet Yellen and Ben Bernanke. Step aside, Mario Draghi and Haruhiko Kuroda. When it comes to monetary stimulus, Zhou Xiaochuan, the longtime governor of the People’s Bank of China, has no rivals. The latest data released by China on Wednesday show that the country’s rapid growth in money supply has continued. Mr. Zhou and his colleagues at the Chinese central bank have only begun the difficult and dangerous task of reining it in. The amount of money sloshing around China’s economy, according to a broad measure that is closely watched here, has now tripled since the end of 2006.

Reuters:

• Early holidays point to grim outlook for China's small factories. Scores of factories in China's manufacturing heartlands have closed earlier than usual for the country's biggest annual holiday due to weak orders and rising costs, workers and owners say, suggesting a rocky outlook for a key sector of the economy. While official trade data remains mildly positive, visits to five factory towns in coastal industrial hubs found that in some areas perhaps a third of manufacturers had already begun closing weeks before the Lunar New Year break in late January. In some cases anemic orders from key markets such as the United States and Europe were blamed. Others were being forced to curtail production because of a labor shortage, a symptom of shifting demographics, that has afflicted manufacturers for several years and many say is getting worse. "Lots of people have left already. I would say around a third of the workers," said Ren Lipeng, a factory worker riding a rusty bicycle along a dusty avenue where many shops and restaurants were shuttered in Changping, southern China.

• Exclusive: China's CITIC backs new fund set up by ex-FX Concepts execs. CITIC Capital Holdings Ltd, a unit of China's sovereign wealth fund, has invested in a new U.S.-based asset management fund set up by former executives of bankrupt hedge fund FX Concepts, two sources familiar with the matter said on Wednesday. The new fund will be run by Bob Savage, FX Concepts' former chief operating officer and chief strategist, and Ron DiRusso, the firm's co-chief investment officer and director of research.

• CSX(CSX) 4th-qtr profit misses Street view; coal volumes weak. CSX on Wednesday posted a fourth-quarter profit that fell short of Wall Street's estimates as rising shipments of chemicals, autos and agricultural products failed to make up for weak coal volumes. Shares of the company fell 3 percent after the bell.

• Shrugging off China risks, Australia miners dig deep for more iron ore. Australian miners shoveled record tonnages of iron ore in the December quarter, supported by billions of dollars worth of expansion plans coming on stream and despite signs of weakening demand from top consumer China. Iron ore continues to generate big returns even as prices fall, and miners in Australia - the world's biggest supplier - are counting on economies of scale to maintain profits for the steel making material.

• Riskier financings persist amid regulatory warnings. Investor demand for deals that regulators view as risky, including a $1.1 billion loan for software maker Applied Systems , shows no signs of abating, but banks are looking at new transactions more carefully to try to avoid raising red flags with regulators. U.S. market watchdogs are trying to clamp down on loans with higher leverage levels and dodgier repayment prospects, seeking to avert the problems emanating from the mortgage market that spurred the last financial markets meltdown and recession.

Telegraph:

• Coming 'oil glut' may push global economy into deflation. OPEC spare capacity set to reach levels last seen in the depths of the financial crisis in 2009, analysts say.

The Globe and Mail: 

• Household-debt surge merits caution, but don’t panic, Harper says. Prime Minister Stephen Harper says rising household debt levels are “not a reason to panic,” but urged Canadians to consider what will happen when interest rates rise in the coming years. Mr. Harper made the comments in a 45-minute discussion with what he called “cultural media” in Vancouver last week. It was unannounced publicly and closed to major media outlets, including The Globe and Mail, but a recording of the event was obtained and posted online by 24 Hours, a Sun Media paper in Vancouver.

Liquidity crunch a catalyst for big China slowdown – analysts The mini liquidity crunch is the early warning sign of a substantial economic correction long overdue, amid rising leverage and a broken growth model, say bearish analysts.


While we want you to share, we ask you use the functions on-site rather than copy/paste. See T's & C's for details. http://www.euromoney.com/Article/3222433/Liquidity-crunch-a-catalyst-for-big-China-slowdownanalysts.html?copyrightInfo=true

NHK:

• Abe Aide Says 10% Sales Tax Possible if 3Q GDP Growth >3%. Etsuro Honda, an adviser to Japanese Prime Minister Shinzo Abe, says it is possible for Japan to raise sales tax to 10% if 2014 3Q real GDP growth is above 3% and nominal GDP growth above 4%.

Shanghai Securities News:

• China Reforms Should Reduce Financial Risks. China should use financial reforms to effectively reduce financial risks, Chen Daofu, a researcher at the State Council's Development Research Center, writes in an article. Financial risks include more bad loans from banks and shocks in the stock and property markets, Chen writes.

Evening Recommendations

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 139.0 -1.0 basis points.

• Asia Pacific Sovereign CDS Index 106.50 -2.0 basis points. 

• FTSE-100 futures +.24%.

• S&P 500 futures +.05%.

• NASDAQ 100 futures +.11%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (SCHW)/.21

• (PNC)/1.64

• (BLK)/4.33

• (BBT)/.72

• (PPG)/1.73

• (UNH)/1.40

• (GS)/4.18

• (C)/.95

• (COF)/1.55

• (INTC)/.52

• (AXP)/1.25

• (WEN)/.11

Economic Releases
8:30 am EST

• The Consumer Price Index for December is estimated to rise +.3% versus unch. in November.

• The CPI Ex Food & Energy for December is estimated to rise +.1% versus a +.2% gain in October.

• Initial Jobless Claims are estimated to fall to 328K versus 330K prior.

• Continuing Claims are estimated to fall to 2850K versus 2865K prior.

9:00 am EST

• Net Long-Term TIC Flows for November are estimated to fall to $18.5B versus $35.4B in October.
  

10:00 am EST

• The Philly Fed Business Outlook Index for January is estimated to rise to 8.7 versus 7.0 in December.

• The NAHB Housing Market Index for January is estimated at 58 versus 58 in December.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Bernanke speaking, Fed's Williams speaking, Eurozone CPI, weekly EIA natural gas inventory report, Bloomberg Jan. US Economic Survey, Bloomberg Economic Expectations Index for January, weekly Bloomberg Consumer Comfort Index, (ILMN) investor day and the (BBY) holiday sales report could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

Stocks Rising into Final Hour on Global Growth Optimism, Yen Weakness, Earnings, Tech/Financial Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Slightly Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 12.11 -1.38%

• Euro/Yen Carry Return Index 148.38 -.19%

• Emerging Markets Currency Volatility(VXY) 8.58 +1.42%

• S&P 500 Implied Correlation 50.84 +2.54%

• ISE Sentiment Index 175.0 +10.76%

• Total Put/Call .75 +10.29%

• NYSE Arms .85 +36.30% 

Credit Investor Angst:

• North American Investment Grade CDS Index 63.38 -2.31%

• European Financial Sector CDS Index 84.54 -2.10%

• Western Europe Sovereign Debt CDS Index 50.0 -3.84%

• Emerging Market CDS Index 282.18 -.76%

• 2-Year Swap Spread 12.75 +.5 basis point

• TED Spread 20.25 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap .75 +2.0 basis points

Economic Gauges:

• 3-Month T-Bill Yield .04% +1 basis point

• Yield Curve 249.0 +1 basis point

• China Import Iron Ore Spot $129.60/Metric Tonne +.08%

• Citi US Economic Surprise Index 72.70 +2.4 points

• Citi Emerging Markets Economic Surprise Index .5 -.1 point

• 10-Year TIPS Spread 2.27 +2 basis points

Overseas Futures:

• Nikkei Futures: Indicating +68 open in Japan

• DAX Futures: Indicating +31 open in Germany

Portfolio: 

• Higher: On gains in my medical/tech sector longs

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• Gross Says Brazil No Longer Pimco Emerging-Market Favorite. Pacific Investment Management Co.’s Bill Gross said Brazil is no longer a preferred emerging-market country for the world’s largest fixed-income manager. 

• Bailed-Out Euro Nations See Painful Economic Challenges Remain. Bailed-out euro-area countries are facing “painful” challenges with worse-than-anticipated consequences of economic adjustment, including high unemployment and slow growth, central banks and finance ministries said.

• ECB Said to Favor 6% Capital Requirement in Stress Test. The European Central Bank favors requiring banks to show their capital won’t fall below 6 percent of their assets when it puts them through a simulated recession later this year, said two euro-area officials with knowledge of the matter. 

• Europe Stocks Advance for Fourth Day; Burberry Increases. European stocks rose, with the benchmark Stoxx Europe 600 Index reaching a six-year high, after the World Bank raised its global growth forecast. Burberry Group Plc gained 4.6 percent after the U.K.’s largest luxury-goods maker reported quarterly revenue that topped analysts’ estimates. Peugeot SA and Daimler AG gained as a gauge of European carmakers posted the best performance of 19 industry groups in the Stoxx 600. Chr. Hansen A/S declined 4.8 percent after it said net income missed projections. The Stoxx 600 climbed 1 percent to 334.51 at the close of trading in London.

• Dollar Climbs to Highest in 4 Months as Growth Boosts Taper Bets. The dollar rose to the highest in four months as signs the world’s biggest economy is recovering fueled speculation the Federal Reserve will keep monetary cutting stimulus. The Bloomberg Dollar Spot Index (SAPMI), which measures the currency’s value against 10 major counterparts, gained 0.5 percent to 1,030.03 at 1:18 p.m. New York time and touched 1,030.54, the strongest since Sept. 9. It jumped 0.4 percent yesterday. The dollar rose 0.6 percent to $1.3592 per euro after sliding to $1.3699 yesterday, the weakest since Jan. 2. The U.S. currency gained 0.4 percent to 104.64 yen after jumping 1.2 percent yesterday. The euro dropped 0.2 percent to 142.22 yen.

• WTI Crude Climbs After U.S. Inventories Tumble to 22-Month Low. West Texas Intermediate crude advanced after a government report showed that U.S. inventories tumbled to the lowest level in almost 22 months. Futures rose as much as 2.1 percent. WTI for February delivery climbed $1.82, or 2 percent, to $94.41 a barrel at 12:34 p.m. on the New York Mercantile Exchange. The contract traded at $93.46 before the release of the report at 10:30 a.m. in Washington. The volume of all futures traded was 27 percent above the 100-day average.

• Artic Cold Begins to Sweep Into the U.S. Next Week. Lows of zero degrees Fahrenheit (minus 18 Celsius) for Chicago and single-digit readings from Washington to Boston are possible by next week, said Matt Rogers, president of Commodity Weather Group LLC. Average temperatures in the eastern U.S. are expected to be at least 3 degrees below normal from Minnesota to Alabama and across the East from Jan. 20 to 24, said Rogers, based in Bethesda, Maryland. That would be followed by a more widespread and intense outbreak of cold from Jan. 25 to 29.

• CLOs Should Be Exempt From Volcker Rule Clause, LSTA's Ganz Says. The Loan Syndications and Trading Association is warning regulators that the Volcker Rule may force U.S. banks to sell their holding of collateralized loan obligations and reduce credit to U.S. companies. "The final rule as written would cause banks to recognize significant losses on otherwise safe, high-quality assets, which furthers no regulatory objective," Elliot Ganz, general counsel at the NY-based trade group, said today. The LSTA is asking regulators to modify parts of the rule so CLOs aren't treated as equity securities, which would make them ineligible to be held by banks.

Wall Street Journal: 

• IMF Chief Warns on Rising Risks of Deflation. Lagarde Says 'Growth Stuck in Low Gear', Too Fragile. The head of the International Monetary Fund Wednesday warned that deflation in advanced economies threatens to derail a strengthening, but still fragile global recovery this year, requiring central banks in the U.S. and Europe to keep easy money flowing. "With inflation running below many central banks' targets, we see rising risks of deflation, which could prove disastrous for the recovery," IMF Managing Director Christine Lagarde said in a speech at the National Press Club. "If inflation is the genie, then deflation is the ogre that must be fought decisively," she said.

• Iraq Bombings Kill 41. Explosions Strike Busy Markets and Funeral North of Baghdad.

• Which Countries Are Most at Risk from a Fed Exit? 

• Netflix(NFLX), YouTube Could Feel Effects of 'Open Internet' Ruling. Bandwidth Hogs May Have to Pay Broadband Tolls.

Fox News:

• Senate report: Benghazi attackers tied to Al Qaeda groups. A comprehensive report by the Senate Intelligence Committee definitively declared that individuals tied to Al Qaeda groups were involved in the Benghazi attack, challenging recent claims that the terror network was not a factor. The report was released Monday, nearly one year after then-Secretary of State Hillary Clinton, under congressional questioning over the nature of the attack, shouted at lawmakers: “What difference, at this point, does it make?” 

• Senate Intelligence Committee review of terror attacks on US facilities in Benghazi. (read)

MarketWatch:

• A serious emerging-markets selloff is underway.

• Fitch Solutions: Sears(SHLD) CDS Climb 39%, Now Lag JC Penney(JCP).

• Bank of America's(BAC) 4Q net surges as credit improves. Bank of America Corp.'s fourth-quarter profit surged sharply, beating analyst estimates, as the banking giant bounced back from a year-ago weighed down by one-time charges, while also benefiting from stronger credit quality.

CNBC:

• Jim O’Neill: Global income redistribution could be coming. (video) "I wonder if we could be in the very early stages of a redistribution of wealth from capital back to mass income through government policies, whether it be from taxes or things being done to boost minimum wages," O'Neill told CNBC's "Squawk on the Street" on Wednesday. "But obviously this is something else just as human beings, nevermind investors, that we all have to watch closely." 

• Byron Wien: 10 percent correction looms–here’s why. (video)

ZeroHedge: 

• Confused By The "Artificial Market"? Deutsche Bank(DB) Explains It All.

• This Trend Is Not Your Friend. (graph)

• The Sheer Idiocy Of The Markets In One Chart... Is Back. (graph)

• CB Eases European Bank Stress Test By 25%, Lowers Capital Ratio Requirement From 8% to 6%.

• San Francisco Home Sales Plunge To 6-Year Lows.

• Tell The Fed How You Really Feel About Banks Trading Physical Commodities. (comment form)

• Beige Book Saw "Moderate" Expansion Despite "Harsh Weather", Ongoing Obamacare Concerns.

• Puerto Rico Default "Likely", FT Reports.

ValueWalk:

• ‘Double Irish’ Tax Crackdown On Google(GOOG) – Apple(AAPL), Amazon(AMZN) To Follow? 

Business Insider:

• Netflix(NFLX) Is Sliding.

• BP(BP): The Great American Shale Boom Has At Least Another Decade Before It Peaks.

• Bank Of America Just Confirmed The Fed's Fears About The US Mortgage Market.

• How The Fed Prints Money.

Reuters: 

• Fed's Evans: reasonable to continue to taper unless get 'really offbeat' data. Chicago Federal Reserve Bank president Charles Evans, one of the Fed's most dovish policymakers, told reporters he expects the U.S. central bank to continue to taper its massive bond-buying at a measured pace of perhaps $10 billion at each meeting, unless data comes in unexpectedly weak. "At the moment the plan seems quite reasonable," he told reporters after a speech here. Bond-buying will likely continue until after the first half of the year, he said, although if data comes in better than expected, the Fed could taper the program more aggressively. Asked if the Fed could pause its program of tapering should data weaken, Evans suggested that was unlikely, because the Fed has determined to move away from bond-buying and toward forward guidance on rate policy as its main tool.

Financial Times:

• China’s shadow banking loans leap. Funding from trust companies and other entities in the shadow sector rose to its highest level on record and accounted for 30 per cent of the Rmb17.3tn ($2.9tn) in total credit issued last year, the People’s Bank of China said, up from a 23 per cent share of aggregate financing in 2012.