Wednesday Watch

Evening Headlines 
Bloomberg:

• Japan Is Running Out of Options by William Pesek. Minutes from the central bank's Oct. 31 board meeting, at which officials surprised the world by expanding an already massive quantitative-easing program, show that Kuroda now has a budding mutiny on his hands. Many of his staffers think the central bank has already gone too far to weaken the yen and buy virtually every bond in sight. That's a problem for Kuroda and Abe in two ways.

• Asian Stocks Rise for Fourth Day as Materials Shares Lead Gains. Asian stocks rose, with the regional benchmark index heading for a fourth day of gains, as materials and health-care shares advanced, countering a decline in Japan’s Topix (TPX) index amid a stronger yen. The MSCI Asia Pacific Index (MXAP) added 0.1 percent to 140.90 as of 9:03 a.m. in Tokyo after rising 1.1 percent the past three trading days. Japan’s Topix slid 0.3 percent as the yen gained 0.1 percent to 117.81 per dollar after advancing 0.3 percent yesterday.

• Oil Bust of 1986 Reminds U.S. Drillers of Price War Risks. The last time that U.S. oil drillers got caught up in a price war orchestrated by Saudi Arabia, it ended badly for the Americans. In 1986, the Saudis opened the spigot and sparked a four-month, 67 percent plunge that left oil just above $10 a barrel. The U.S. industry collapsed, triggering almost a quarter-century of production declines, and the Saudis regained their leading role in the world’s oil market.

• RBA’s Lowe Sees Aussie Dollar Falling With Commodity Prices. Australia’s dollar is likely to drop in line with commodity export prices, central bank Deputy Governor Philip Lowe said, as the currency hit a four-year low. “If the exchange rate is to play its important stabilizing role, it needs to go down when the terms of trade and investment are declining,” Lowe said in a speech in Sydney late yesterday. “We have seen some adjustment, but if our assessment of the fundamentals is correct we would expect to see more in time."

Wall Street Journal:

• Justice Department Investigating Possible HSBC Leak to Hedge Fund. Investigation Comes as Part of Broader Currencies’ Market Probe.

Fox News:

• In interview, Darren Wilson says there was 'no way' Michael Brown had his hands up during shooting. The Ferguson, Mo. police officer who shot and killed an unarmed black teenager in August said in an interview aired on Tuesday that there was "no way" Michael Brown had his hands up right before he was killed -- disputing one of the core controversies at the heart of a case that touched off nationwide protests and racial unrest.

MarketWatch.com: 

• Two mini–flash crashes rock stock market Tuesday. In two separate instances Tuesday, stocks plummeted sharply for a brief period before returning to normal. At around roughly 10:18 a.m. Eastern, 88 stocks fell or rose by 1% or more. Eric Hunsader, founder of Nanex LLC, pointed out the changes on his Twitter feed.

Zero Hedge:

• Forget Ferguson, 244 Teenagers Have Been Shot In Chicago Since Michael Brown Died.

• Grant Williams: The Consequences Of Economic Peace. (video)

• "Bearish" Mark Spitznagel Profiting Strongly Since 2009, Warns "Only So Much Debt An Economy Can Take".

Business Insider: 

• This Is What Ferguson Looks Like The Day After Riots.

• Uber Will Be Valued At $40 Billion In New Round, Says Report.

• Russia Is Building A Network of Military Bases In The Arctic.

Reuters:

• Microsoft(MSFT) to Pay China $140 Million for “Tax Evasion”. China has levied about $140 million in back taxes from Microsoft in the first major case concerning cross-border tax evasion in the country, as regulators ramp up pressure on U.S. corporations doing business there.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are unch. to +.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 102.50 +.5 basis point.

• Asia Pacific Sovereign CDS Index 62.50 +.5 basis point.

• FTSE-100 futures -.29%.

• S&P 500 futures +.14%.

• NASDAQ 100 futures  +.16%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (DE)/1.57

• (CNQR)/.20 

Economic Releases
8:30 am EST

• Durable Goods Orders for October are estimated to fall -.6% versus a -1.3% decline in September.

• Durables Ex Transports for October are estimated to rise +.5% versus a -.2% decline in September.

• Cap Goods Orders Non-Defense Ex Air for October are estimated to rise +1.0% versus a -1.7% decline in September.

• Initial Jobless Claims are estimated to fall to 288K versus 291K the prior week.

• Continuing Claims are estimated to rise to 2350K versus 2330K prior.

• Personal Income for October is estimated to rise +.4% versus a +.2% gain in September.

• Personal Spending for October is estimated to rise +.3% versus a -.2% decline in September.

• The PCE Core for October is estimated to rise +.2% versus a +.1% gain in September.

9:45 am EST

• Chicago Purchasing Manager for November is estimated to fall to 63.0 versus 66.2 in October.

9:55 am EST

• Final Univ. of Mich. Consumer Confidence for November is estimated to rise to 90.0 versus a prior estimate of 89.4.
  

10:00 am EST

• Pending Home Sales for October are estimated to rise +.5% versus a +.3% gain in September.

• New Home Sales for October are estimated to rise to 470K versus 467K in September.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +220,000 barrels versus a +2,608,000 barrel increase the prior week. Gasoline supplies are estimated to rise by +1,363,640 barrels versus a +1,034,000 barrel gain the prior week. Distillate supplies are estimated to fall by -436,360 barrels versus a -2,056,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.3% versus a +1.1% gain prior.

Upcoming Splits

• None of note

Other Potential Market Movers

• The UK GDP report, $29B 7Y T-Note auction, weekly Bloomberg Consumer Comfort Index and weekly MBA mortgage applications report could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by metals/mining and industrial 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 day.

Stocks Slightly Higher into Final Hour on US Economic Data, Seasonal Strength, Short-Covering, Transport/Metal & Mining Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Slightly Lower
  

• Sector Performance: Mixed
  

• Volume: Light

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 12.55 -.55%

• Euro/Yen Carry Return Index 153.58 -.03%

• Emerging Markets Currency Volatility(VXY) 7.59 -.52%

• S&P 500 Implied Correlation 30.38 unch.

• ISE Sentiment Index 116.0 -9.38%

• Total Put/Call 1.0 +28.21%

• NYSE Arms 1.07 -25.57% 

Credit Investor Angst:

• North American Investment Grade CDS Index 60.90 -.70%

• European Financial Sector CDS Index 62.63 +.21%

• Western Europe Sovereign Debt CDS Index 28.97 +.38%

• Asia Pacific Sovereign Debt CDS Index 62.94 +1.35%

• Emerging Market CDS Index 269.03 -.92%

• China Blended Corporate Spread Index 322.79 -.59%

• 2-Year Swap Spread 19.25 -3.0 basis points

• TED Spread 22.75 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -8.0 +1.5 basis points

Economic Gauges:

• 3-Month T-Bill Yield .02% +1 basis point

• Yield Curve 175.0 -6.0 basis points

• China Import Iron Ore Spot $69.58/Metric Tonne -1.19%

• Citi US Economic Surprise Index 16.40 +3.0 points

• Citi Eurozone Economic Surprise Index -23.70 +1.6 points

• Citi Emerging Markets Economic Surprise Index .3 +.3 point

• 10-Year TIPS Spread 1.86 -2.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating +19 open in Japan

• DAX Futures: Indicating +13 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• Germany Vows to Keep Russia Sanctions for Ukraine Impasse. German Chancellor Angela Merkel said sanctions against Russia will stay as long as the government in Moscow does little to resolve the conflict in Ukraine. “We’re working on a diplomatic resolution to this crisis,” Merkel said today in Berlin. “As long as Russia contributes very little or nothing to overcome this crisis, we need economic sanctions. They’re unavoidable, although I know they impact the German and the European economies.” The stance underscores the growing resolve among Ukraine’s allies as violence between separatists and government troops sidelines diplomatic efforts to reach a negotiated outcome. France today ruled out delivery of a warship to Russia. 
• Emerging Stocks Decline as Energy Shares Slide; Ruble Weakens. Emerging-market stocks fell from a three-week high as Chinese energy producers sank and investors bet yesterday’s rally in Hong Kong was excessive. Russia’s ruble ended a six-day gain. Brazilian shares rallied. OAO Tatneft dropped 1.5 percent in Moscow and Saudi Basic Industries Corp. led a 1.8 percent decline in Saudi Arabian stocks. The Hang Seng China Enterprises Index (HSCEI) dropped 0.6 percent after its biggest increase in a year yesterday. PetroChina Co. (857) and China Petroleum & Chemical Corp. slid at least 2.3 percent. Brazil’s Ibovespa gained 0.4 percent. The ruble weakened 2.1 percent against the dollar. The MSCI Emerging Markets Index declined 0.3 percent to 1,008.70 at 11:11 a.m. in New York.
• European Stocks Extend Two-Month High as Germany’s DAX Rallies. European stocks rose, extending a two-month high as German equities posted their longest winning streak since May 2013. The Stoxx Europe 600 Index gained 0.2 percent to 346.28 at the close of trading, after earlier rising as much as 0.6 percent. The DAX Index (DAX) climbed 0.8 percent.
• Oil Drops as Producers Fail to Deliver Output Pledge. Brent for January settlement lost $1.26, or 1.6 percent, to $78.42 a barrel at 12:08 p.m. New York time on the London-based ICE Futures Europe exchange. The volume of all futures was 5.2 percent above the 100-day average.
• Iron Ore Drops Below $70 for First Time Since ’09 as Glut Widens. Iron ore traded below $70 for the first time in five years as rising low-cost supplies by the world’s top miners widen a global glut amid slowing demand from China, the biggest user. Ore with 62 percent content delivered to Qingdao fell 1.2 percent to $69.58 a dry metric ton today, the lowest since June 2009, data from Metal Bulletin Ltd. showed. Prices are heading for a 13 percent loss this month, the most since May. Iron ore slumped 48 percent this year as surging output from Rio Tinto Group (RIO), BHP Billiton Ltd. and Vale SA, the three largest miners, spurred a glut. 
• Million-Dollar Home Sales Gains Slow in Investor Markets. Growth in million-dollar home sales is slowing in areas including Miami, Las Vegas and Los Angeles as rising prices and the strengthening U.S. dollar discourage foreign investors who helped lead the recovery. In seven investor-heavy markets -- the Los Angeles, Riverside and Ventura areas of Southern California; Las Vegas; and Florida’s Fort Lauderdale, Miami and Orlando -- sales of homes for $1 million or more rose 5 percent in the third quarter from a year earlier, compared with a 46 percent surge in the same part of 2013, data compiled by brokerage Redfin Corp. show. 
• Ferguson Rocked by Decision: Scenes From the Night. (video)
• More Medicine Goes Off Limits In U.S. Drug-Price Showdown. Steve Miller is waging war on high-priced medicine, guiding decisions to ban drugs from the health plans of millions of Americans and sending companies reeling in a $270 billion market. He and his colleagues at Express Scripts Holding Co. (ESRX) say they are just getting started.

Wall Street Journal: 

• Eurozone Stagnation Poses Major Risk to Global Growth, OECD Warns. Currency Bloc Needs Monetary Stimulus, Softening of Fiscal Discipline to Avoid Persistent Low Growth.

ZeroHedge: 

• Ferguson In Flames: The Morning After. (pics)
• A Tale Of Two Credit Markets: New Auto Loans Highest In 9 Years As New Mortgages Slump Near Record Lows. (graph)
• Nothing Has Changed - And That's The Problem. (graph)
• 30 Year Yield Drops Below 3.00% As Richmond Fed Tumbles Most Since 2006. (graph)
• Record Stocks & Plunging Gas Prices Send Consumer Confidence Tumbling, Biggest Miss Since June 2010. (graph)
• Q3 GDP Revised Above Highest Estimate, Prints 3.9%. (graph)
• Case Shiller Reports "Broad-Based Slowdown For Home Prices", First Monthly Decrease Since November 2013. (graph)
• Another Hedge Fund Legend Calls It Quits: Phil Falcone Leaves Harbinger Group, Gets $20.5 Million Severance. (graph)

Business Insider:

• The US Is On A Collision Course With An 'Absolutely Indispensable' Ally. The US and Turkey are headed for a showdown over Syria, as evidence mounts that Ankara is enabling groups that Washington is actively bombing.
• A Massive Snow Storm Is About To Wreck A Bunch Of Thanksgiving Travel In The Northeast.
• This Is What $11.71 Trillion Worth Of Household Debt Looks Like. (graph)
• Brazilian Stocks Are No Bargain.

Reuters:

• METALS-Copper drops after weak U.S. confidence data, doubts on China. Copper and other base metals dropped on Tuesday after a surprise fall in U.S. consumer confidence and as investors doubted whether additional monetary policy easing in top metals consumer China would translate into a significant increase in demand. Three-month copper on the London Metal Exchange (LME) closed down 1 percent at $6,606 a tonne, undermined by data showing U.S. consumer confidence fell in November to its lowest level since June.
• Tiffany(TIF0 sales miss estimates on weak demand in Japan.

Frankfurter Allgemeine Zeitung:

• Russian Economy Minister Compares Sanctions to 'Avalanche'. Russia's economy is feeling the effects of sanctions in access to global capital markets, balance of payments, outflow of capital, currency, inflation, citing interview with Economy Minister Alexei Ulyukaev.

Bear Radar

Style Underperformer:

• Small-Cap Growth -.30%

Sector Underperformers:

• 1) Oil Tankers -1.91% 2) Oil Service -1.31% 3) Energy -1.23%

Stocks Falling on Unusual Volume:

• MNRO, AVG, WDAY, HDB, BECN, CASY, ANFI, HRL, DEO, DANG, GRMN, P, VAL, DAKT, HAL, OC, IBN, LXFT, CEO, EPZM, WAGE, PXD, RLI, SNN and NFLX

Stocks With Unusual Put Option Activity:

• 1) COP 2) EWY 3) F 4) XLE 5) DE

Stocks With Most Negative News Mentions:

• 1) P 2) BAC 3) JAH 4) LVLT 5) CNX
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Growth -.07%

Sector Outperformers:

• 1) Gold & Silver +.95% 2) Airlines +.78% 3) HMOs +.22%
  

Stocks Rising on Unusual Volume:

• AERI, DSKY, DY, NES, SIG, POST, PANW, QIHU, VDSI and BWS

Stocks With Unusual Call Option Activity:

• 1) TIBX 2) AEO 3) QEP 4) OAS 5) HST
  

Stocks With Most Positive News Mentions:

• 1) TJX 2) PANW 3) WERN 4) NUAN 5) TIF
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Tuesday Watch

Evening Headlines 
Bloomberg:

• Abe Sales Tax Backfiring With More Debt Not Less: Japan Credit. What started as a plan to reduce Japan’s debt is turning into a reason to issue more bonds. Prime Minister Shinzo Abe’s administration implemented a higher sales tax in April to boost revenue as government liabilities ballooned to 1 quadrillion yen ($8.5 trillion), more than double the nation’s yearly economic output. Consumption plunged and the economy fell into a recession, prompting companies including Mirae Asset Global Investments Co. and High Frequency Economics to predict even more sovereign debt sales to revive growth.

• Singapore Predicts 3% Growth This Year as Global Outlook Falters. Singapore said a global slowdown in the final months of the year will cap full-year economic growth at about 3 percent before an uneven recovery in 2015. The island’s expansion will probably ease after gross domestic product rose 3.3 percent in the first three quarters from a year earlier, the Ministry of Trade and Industry said today. GDP grew 2.8 percent in the three months through September from a year earlier, and gained an annualized 3.1 percent from the second quarter, more than an October estimate. 

• ECB’s Coeure Says Officials Won’t Rush as They Debate All Assets. The European Central Bank won’t make a hasty decision to add more stimulus and will hinge any measures on incoming economic data, Executive Board member Benoit Coeure said. “We’ll have to understand how what we’ve already decided works -- we’re not going to rush to a new decision without knowing,” Coeure said yesterday in an interview with Bloomberg Television’s Francine Lacqua. “We have to look at the data around us, and we have to discuss thoroughly all possible options in particular when it comes to buying new assets. There’s unanimous agreement in the Governing Council that there might be situations where we’d have to do more.”

• Asian Stocks Advance Third Day as Japan Plays Catch-Up. Asian stocks rose, with the regional benchmark gauge heading for a three-day advance, as consumer and industrial shares climbed as Japanese stocks rallied after a holiday. The MSCI Asia Pacific Index (MXAP) added 0.1 percent to 140.62 as of 9:03 a.m. in Tokyo.

• Hagel Exit Shows Obama Has Taken Power Away From Pentagon. President Barack Obama pushed Defense Secretary Chuck Hagel out of his job today after less than 21 months, with White House officials citing disagreements over Iraq and Syria policy. Hagel, who had grown increasingly frustrated with tight White House management of policy, was ready to go anyway, a U.S. defense official said. He resigned without a fight.

Wall Street Journal:

• Ferguson Grand Jury Decision: Streaming Coverage.

• Federal Government to Mandate More Calorie Counts. Final Labeling Rules, to be Unveiled Tuesday, Will Apply to Movie Theaters, Convenience Stores.

• United Technologies(UTX) CEO Chenevert Abruptly Steps Down. Gregory Hayes Named as Successor; Edward Kangas Elected Nonexecutive Chairman.

Fox News:

• Grand jury in Ferguson case does not indict officer in Michael Brown shooting. Protesters fired about 100 gunshots, burned buildings, looted stores and vandalized police cars in Ferguson, Mo. Monday night after a grand jury did not indict a police officer who shot and killed an unarmed black teenager in August. Heavily armed police fired pepper spray and smoke canisters to disperse the crowd of protesters. It was not immediately clear if there were any injuries or if anyone had been arrested.

CNBC:

• David Tepper to return billions to clients. Billionaire money manager David Tepper plans to return billions of dollars to clients amid a year of poor performance by his hedge funds. Appaloosa Management will return between 10 percent and 20 percent of investor assets by the end of 2014, according to a person familiar with the firm. 

Zero Hedge:

• Ferguson Grand Jury Verdict: No Indictment; Shots Fired, Police Car Destroyed, Tear-Gas Deployed, Looting, Protests In Major Cities.

• Liquidity Does Not Create Solvency.

• Currency Wars Reignite As Yuan Tumbles Most In 2 Months And Chinese Bond Market Freezes. (graph)

• Mapping Recent "Incidents" Between Russia And NATO.

• Just 8 Numbers.

• Auto Loan Delinquencies Surge 18% Among Young Americans.

• US Stocks Surge To 'Best' Streak In 86 years. (graph)

• Global Business Confidence Collapses To Post-Lehman Lows. (graph)

Business Insider:

• ISIS Is Building An Army of Child Soldiers In The Capital Of Its 'Caliphate'.

• With Putin's Russia Looming, Finland Is Now Debating Joining NATO.

• Putin Just Tightened His Control Of The East Black Sea.

China Securities Journal:

• China Rate Cut Isn't Start of Full-Scale Stimulus. China can't go back to the old ways of boosting investment with stimulus and leading to an asset bubble, according to a front-page commentary. Long-term costs would be higher if China continues to cut benchmark interest rates to control financing costs, the commentary said.

Evening Recommendations

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 102.0 -3.0 basis points.

• Asia Pacific Sovereign CDS Index 62.0 -2.0 basis points.

• FTSE-100 futures -.37%.

• S&P 500 futures -.14%.

• NASDAQ 100 futures  -.10%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (BWS)/.68

• (CPB)/.72

• (CBRL)/1.29

• (DSW)/.52

• (EV)/.63

• (TIFF)/.77

• (ADI)/.68

• (CTRP)/.32

• (HPQ)/.79

Economic Releases
8:30 am EST

• 3Q GDP is estimated to rise +3.3% versus a prior estimate of a +3.5% gain.

• 3Q Personal Consumption is estimated to rise +1.9% versus a prior estimate of a +1.8% gain.

• 3Q Core PCE is estimated to rise +1.4% versus a prior estimate of a +1.4% gain.

9:00 am EST

• The FHFA House Price Index for September is estimated to rise +.4% versus a +.5% gain in August.

• The 3Q Hour Price Purchase Index is estimated to rise +1.0% versus a +.81% gain in 2Q.

• The S&P/CS 20 City Home Price Index MoM SA for September is estimated to rise +.3% versus a -.15% decline in August.

10:00 am EST

• The Consumer Confidence Index for November is estimated to rise to 96.0 versus 94.5 in October.

• The Richmond Fed Manufacturing Index for November is estimate to fall to 16.0 versus 20.0 in October.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The German GDP report, $35B 5Y T-Note auction, US weekly retail sales reports and the (JEC) analyst day could also impact trading today.

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