Stocks Mostly Lower into Afternoon on Surging Emerging Markets/European Debt Angst, Global Growth Fears, Yen Strength, Transport/Telecom Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Mixed
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 15.30 +7.67%

• Euro/Yen Carry Return Index 154.42 -.52%

• Emerging Markets Currency Volatility(VXY) 9.01 +1.81%

• S&P 500 Implied Correlation 67.59 +1.14%

• ISE Sentiment Index 64.0 -3.03%

• Total Put/Call 1.09 +4.81%

• NYSE Arms 1.05 -29.32% 

Credit Investor Angst:

• North American Investment Grade CDS Index 65.50 +1.47%

• European Financial Sector CDS Index 59.95 +4.77%

• Western Europe Sovereign Debt CDS Index 26.70 +3.99%
• Asia Pacific Sovereign Debt CDS Index 65.28 +3.32%

• Emerging Market CDS Index 332.18 +2.77%

• China Blended Corporate Spread Index 328.40 +.81%
• 2-Year Swap Spread 22.25 +.25 basis point

• TED Spread 22.50 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -9.75 +.5 basis point

Economic Gauges:

• 3-Month T-Bill Yield .01% unch.

• Yield Curve 160.0 -3.0 basis points

• China Import Iron Ore Spot $69.06/Metric Tonne -1.06%

• Citi US Economic Surprise Index 17.90 +2.0 points
• Citi Eurozone Economic Surprise Index -17.10 +4.3 points

• Citi Emerging Markets Economic Surprise Index -6.5 +.3 point

• 10-Year TIPS Spread 1.74 +2.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating -123 open in Japan

• DAX Futures: Indicating +62 open in Germany

Portfolio: 

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

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 50% Net Long

Bear Radar

Style Underperformer:

• Large-Cap Growth -.63%

Sector Underperformers:

• 1) Airlines -3.07% 2) Drugs -1.61% 3) Telecom -1.41%

Stocks Falling on Unusual Volume:

• TRNO, CBST, CONN, LHO, CAF, MANU, ENV, NOAH, SAVE, XLRN, GLP, KPTI, IBKC, CVRR, VZ, GMZ, WLDN, LCI, WRB, IDT, UTIW, MC, CTRP, YPF, T, MRK, BKS, HRB, SGMS, TMUS and DRIV

Stocks With Unusual Put Option Activity:

• 1) CONN 2) XLV 3) AA 4) XLNX 5) SPLS

Stocks With Most Negative News Mentions:

• 1) SAVE 2) C 3) CONN 4) BA 5) KEX
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth -.31%

Sector Outperformers:

• 1) Gold & Silver +4.15% 2) Oil Service +.89% 3) Utilities -.05%
  

Stocks Rising on Unusual Volume:

• BLUE, SC, BTE, BURL, PDCE, ANF, OAS, KITE, BCEI, CRZO, CLR, EMES and SM

Stocks With Unusual Call Option Activity:

• 1) PRU 2) SAVE 3) LPI 4) SEE 5) SC
  

Stocks With Most Positive News Mentions:

• 1) NRG 2) LULU 3) CXO 4) LHCG 5) PDCE
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Tuesday Watch

Evening Headlines 
Bloomberg: 

• Russia Capital Control Jitters Appear in Moscow-to-London Spread. Evidence is surfacing in Russia’s bond market that investors are concerned President Vladimir Putin will impose capital controls to stem the ruble’s 39 percent plunge this year. Bond buyers are demanding a growing premium to own ruble-denominated bonds traded in Moscow rather than ruble debt that trades in London and other international markets. The yield gap between the two securities has swelled to 0.66 percentage point, the widest since January 2013 and more than six times the average over the past two years, according to data compiled by Bloomberg. It had been as small as 0.03 percentage point in September.

• Ukraine to Observe One-Day Truce Amid Plan for New Peace Talks. Ukraine will observe a day of truce in the east, which may set the stage for a new round of peace talks with pro-Russian separatists this week. Ukraine will hold a “day of silence” today after a deal with representatives from Russia, rebels and the Organization for Security and Cooperation in Europe. Talks in the Belarusian capital Minsk are possible later this week, the Tass news service reported, citing representatives of separatists and unidentified officials in Kiev.

• China’s Rate Swaps Surge Most Since June 2013 as Bonds Tumble. China’s one-year interest-rate swaps jumped 29 basis points, the most since a record cash crunch in June 2013, to 3.67 percent. The yield on government debt due October 2019 surged 16 basis points to 3.90 percent as of 9:04 a.m. in Shanghai, according to prices from the National Interbank Funding Center. That’s the biggest increase for a five-year note since November 2013, ChinaBond data show. China has halted new corporate bond repurchase applications for debt with ratings below AAA, according to a statement posted to the China Securities Depository and Clearing Corp.’s website yesterday. Rising rates in the bond and money markets pose a challenge for policy makers as they seek to spur spending in an economy that’s forecast to expand this year at the slowest pace in more than two decades.

• Australian Business Confidence at 16-Month Low as Rate Cuts Seen. Australian business sentiment dropped to the lowest level since before last year’s election, National Australia Bank Ltd. said as its economists predicted the central bank will cut interest rates twice in 2015. The confidence index dropped to 1 in November from a revised 5 a month earlier, a NAB survey of more than 400 companies taken Oct. 27-31 and released in Sydney today showed. The business conditions gauge, a measure of hiring, sales and profits, slid to 5 from 13. 

• Brazil’s Real Touches Nine-Year Low as China’s Imports Decline. Brazil’s real touched a nine-year low after an unexpected decline in China’s imports last month added to concern that Latin America’s largest economy will struggle to regain momentum. The real dropped 0.5 percent to 2.6004 per U.S. dollar at the close of trade in Sao Paulo, after falling to 2.6174, the weakest intraday level since April 2005. Swap rates, a gauge of expectations for changes in Brazil’s borrowing costs, climbed seven basis points, or 0.07 percentage point, to 12.48 percent on the contract maturing in January 2016.

• Asian Stocks Follow U.S. Shares Lower as Oil Slides, Yen Gains. Asian stocks fell, after U.S. shares dropped the most in almost seven weeks, as oil extended its decline and a stronger yen weighed on Japanese exporters. The MSCI Asia Pacific Index (MXAP) slid 0.3 percent to 139.70 as of 9:06 a.m. in Tokyo after adding 0.1 percent yesterday. Japan’s Topix (TPX) index decreased 0.7 percent after the yen added 0.6 percent against the dollar yesterday.

• JPMorgan Cuts Iron Ore Outlook as Growth in Supply Beats Demand. Iron ore prices will extend declines as growth in low-cost supply from the world’s largest producers outstrips demand, according to JPMorgan Chase & Co., which reduced forecasts through 2017. The steel-making raw material will average $67 a metric ton next year, 24 percent less than previously forecast, and $65 in 2016, down 23 percent, the bank said in an e-mailed report received today. So far this year, it’s averaged $98.95 a ton, according to data from Metal Bulletin Ltd. In 2017, prices will average $69 a ton, 16 percent less, the bank said. 

• Copper Retreats for Third Day as Demand Seen Slowing. Copper for delivery in three months on the London Metal Exchange slipped 0.2 percent to $6,393 a metric ton at 9:58 a.m. in Shanghai. In New York, March futures retreated 0.2 percent to $2.8785 a pound, while in Shanghai the metal for February delivery fell 0.5 percent to 45,670 yuan ($7,385) a ton.

• Oil Drops as Deeper OPEC Discounts Signal Fight for Market Share. West Texas Intermediate fell to a five-year low as Iraq followed Saudi Arabia in cutting prices for crude sales to Asia, adding to signs that OPEC’s biggest members are defending market share. Brent was steady in London.

• Too-Big-to-Fail May Lead to U.S. Bank Pay Rules: Hoenig. U.S. lawmakers may follow their European counterparts and regulate bankers’ pay if reforms aimed at ending government bailouts for lenders stall, Federal Deposit Insurance Corporation Vice Chairman Thomas Hoenig said. Regulatory focus on bankers’ pay “will become more of an issue in the U.S. if we don’t solve the too-big-to-fail problem,” Hoenig said in an interview in Amsterdam yesterday. “If we focus on that and get that solved, then the remuneration issue will become less significant and we’ll just see how that plays.”

Wall Street Journal: 

• Fed Aims to Signal Shift on Low Rates. Central Bank Could Drop ‘Considerable Time’ Phrasing in Policy Statement. Federal Reserve officials are seriously considering an important shift in tone at their policy meeting next week: dropping an assurance that short-term interest rates will stay near zero for a “considerable time” as they look more confidently toward rate increases around the middle of next year. 

• Crude Oil’s Fall Pressures Energy Megaprojects. Oil Industry’s Multibillion-Dollar Investments Come Under New Scrutiny.

• ObamaCare’s Casualty List. Three elections later, the law continues to be a political catastrophe for Democrats. Mary Landrieu’s defeat in Saturday’s Louisiana Senate runoff was no surprise, but that doesn’t mean it should be ignored as inevitable. Ms. Landrieu was a widely liked three-term incumbent, and her GOP foe was hardly a juggernaut, yet she lost by 14 points after Washington Democrats all but wrote her off. Think of Ms. Landrieu as one more Democrat who has sacrificed her career to ObamaCare.

Fox News:

• St. Louis police allege hate crime in latest attack on Bosnian resident. The St. Louis police chief has asked for the FBI's help investigating what he believes was a hate crime attack against a woman in the same Bosnian neighborhood where a man was beaten to death days earlier by hammer-wielding teens, and where assaults have spiked dramatically in recent months.

Zero Hedge:

• Did Blackstone(BX) Just Call The Top In Commercial Real Estate? (graph)

• Q3 2014 Earnings Breakdown - Do You Still Believe In Miracles? (graph)

• "Cash-Strapped" Venezuela Stares Into The Abyss... And Its Default Risk Goes Parabolic.

• Why James Bullard Won't Bail Out The Market's Next Correction.

• Angry Eurodollar Traders Have Had Enough: "This Is The Year The Fed Is Going To Lose Credibility". (graph)

• Meet China's Morlocks: 1 Million Beijing Residents Live Undeground.

• What The Fed's Shift From "Considerable Period" To "Patient" Means.

• PBOC Tries To Pop Equity Bubble, Tightens FX & Slashes Collateral/Margin Availability; Yuan Crashes Most Since 2008.

• Baltic Dry Plunges Back Below $1000 - Lowest December Since 2008. (graph)

Business Insider:

• Tesla(TSLA) Has Been Getting Hammered.

Telegraph:

• China's stock mania decouples from economic reality. The stock boom comes as Chinese industry battles with massive overcapacity in everything from steel to shipbuilding, coal output, cement and solar panels.

Securities Times:

• Local Chinese Regulator Warns of Margin-Trading Risk. A local securities regulator in China expressed concerns over rapidly growing risks in margin trading and short-selling businesses at a meeting yesterday, citing a person who participated in the meeting. Securities cos.' margin trading and short selling businesses will face high risks if stock market encounters sharp decline after surging. Some brokerages use working capital on these businesses, which may result in liquidity risks once the market shifts direction. Brokerages that open accounts for unqualified clients will be severely punished.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -1.0% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 101.50 +.5 basis point.

• Asia Pacific Sovereign CDS Index 63.25 +1.5 basis points.

• FTSE-100 futures n/a.

• S&P 500 futures -.18%.

• NASDAQ 100 futures  -.10%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AZO)/7.16

• (KKD)/.19

• (KFY)/.45

Economic Releases
7:30 am EST

• The NFIB Small Business Optimism Index for November is estimated to rise to 96.5 versus 96.1 in October.
  

10:00 am EST

• The JOLTS Job Openings report for October is estimated to rise to 4790 versus 4735 in September.

• Wholesale Inventories for October are estimated to rise .2% versus a +.3% gain in September.

• Wholesale Trade Sales for October are estimated to rise +.1% versus a +.2% gain in September.

• The IBD/TIPP Economic Optimism Index for December is estimated to rise to 47.0 versus 46.4 in November.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's meeting on risk-based capital, Japan CPI report, China CPI report, $25B 3Y Note auction, US weekly retail sales reports, Wells Fargo Energy Symposium, CapitalOne Energy Conference, Goldman Financial Services Conference, Barclays Tech Conference, (BRCM) analyst day, (PHM) investor day, (WEX) investor day and the (TSO) analyst presentation could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and commodity shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

Stocks Reversing Lower into Final Hour on Global Growth Fears, Surging Emerging Markets/Eurozone Debt Angst, Yen Strength, Energy/Gaming Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 13.83 +17.01%

• Euro/Yen Carry Return Index 155.11 -.45%

• Emerging Markets Currency Volatility(VXY) 8.85 +1.61%

• S&P 500 Implied Correlation 66.66 +2.39%

• ISE Sentiment Index 66.0 -30.53%

• Total Put/Call 1.01 -1.94%

• NYSE Arms 1.35 +22.43% 

Credit Investor Angst:

• North American Investment Grade CDS Index 64.56 +3.43%

• European Financial Sector CDS Index 57.29 +2.35%

• Western Europe Sovereign Debt CDS Index 25.67 +1.62%
• Asia Pacific Sovereign Debt CDS Index 62.87 +1.85%

• Emerging Market CDS Index 322.23 +5.69%

• China Blended Corporate Spread Index 327.48 unch.
• 2-Year Swap Spread 22.0 +.75 basis point

• TED Spread 22.50 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -10.25 +.25 basis point

Economic Gauges:

• 3-Month T-Bill Yield .01% unch.

• Yield Curve 163.0 -4.0 basis points

• China Import Iron Ore Spot $69.80/Metric Tonne -2.74%

• Citi US Economic Surprise Index 15.90 +1.0 point
• Citi Eurozone Economic Surprise Index -21.40 +3.9 points

• Citi Emerging Markets Economic Surprise Index -6.8 -2.2 points

• 10-Year TIPS Spread 1.72 -3.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating -80 open in Japan

• DAX Futures: Indicating -40 open in Germany

Portfolio: 

• Higher: On gains in my biotech/medical sector longs, index hedges and emerging markets shorts

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 25% Net Long

Today's Headlines

Bloomberg: 

• Russia Bond Yields Surge to 5-Year High as Rate Pressure Mounts. Russia’s borrowing costs jumped to a five-year high as the tumbling ruble sparked speculation the central bank will raise interest rates as early as this week to stem the depreciation. The yield on 10-year local-currency bonds rose 60 basis points to 12.67 percent at 7:26 p.m. in Moscow and the ruble lost 2.3 percent to 53.75 per dollar. Shares of Mail.ru Group tumbled to a record in London after UBS Group AG downgraded the internet company amid growing concern that an economic slowdown will curtail corporate earnings next year. Pipemaker OAO TMK’s dollar bonds fell further past levels deemed as distressed.
• Russia's Ruble Disaster in One Chart.
• Emerging-Markets Currencies Tumble to Decade-Low on Dollar, Oil. Nothing’s going right for emerging-market currencies these days. Oil prices are falling the most in six years, undermining exchange rates of energy producers from Latin America to Russia, just as slowing growth in China and a tumbling yen weigh on currencies across Asia. And surging demand for the dollar, the result of speculation that U.S. interest rates will rise, is adding to the woes of developing-nation currencies. An index tracking 20 key exchange rates has fallen to levels last seen more than a decade ago, down 10.2 percent this year and headed for the biggest annual slide since 2008.
• Economists Wrong-Footed by Investment Drop at Japanese Companies. Differences between how Japan’s finance ministry and cabinet office assess corporate investments caught economists off-guard today, resulting in gross domestic product forecasts that missed their mark. Economists last week started narrowing their estimates for the size of Japan’s economic contraction in the third quarter, trimming their figures following the finance ministry’s release of data showing investment by companies rose in the three months through September. The statistics used by the cabinet office that fed into updated GDP numbers today showed business spending dropping 0.4 percent. 
• Europe Stocks Drop From 7-Year High as Sika, Energy Shares Slump. A plunge in construction and energy companies sent European stocks down after a four-week rally. The Stoxx Europe 600 Index slid 0.7 percent to 348.61 at the close of trading in London after a 1.1 percent gain last week propelled it to its highest level since January 2008. Sika AG tumbled a record 22 percent today and Cie. de Saint-Gobain SA also fell as a hostile bid by Europe’s biggest supplier of building materials sparked a management revolt at the Swiss company. Oil and gas producers reached a three-year low. The DAX Index dropped 0.7 percent from an all-time high after a report showed German industrial production climbed less than forecast. 
• Copper Declines on Concern China Metals Demand Will Wane. Copper for delivery in three months on the London Metal Exchange dropped 0.7 percent to $6,405 a metric ton ($2.91 a pound) at 5:02 p.m. local time. Prices fell for the fourth time in five sessions.
• Paulson Comeback Reverses as Event Fund Drops 27% in Year. John Paulson’s lousy 2014 is getting worse. The billionaire’s firm posted a 27 percent year-to-date loss in its event-driven fund after a 3.1 percent decline in November, according to two people familiar with the matter. The Paulson Recovery Fund has declined 14 percent this year and a version of the event-driven strategy that can buy new share issues such as Alibaba Group Holding Ltd. (BABA) has fallen 17 percent.

ZeroHedge:

• Stocks Suffer Mini Flash Crash Just As 4th Hindenburg Omen Spotted. (graph)
• Energy Bond Risk Soars To Fresh Record High As Stocks Slump To 20-Month Lows. (graph)
• Oil Crash Comes Home To Roost: ConocoPhillips(COP) To Slash 2015 CapEx By 20%.
• Hedge Funds Most Long The S&P500, Most Short The 10 Year In Six Months, Still Long Crude. (graph)
• Job Market Growth Hovers Near 2-Year Lows, Fed's Labor Market Index Shows. (graph)
• McDonalds(MCD) Implodes, Reports Worst US Sales In Over A Decade. (graph)
• Oil Prices Collapse To New Cycle Lows, Canada Heavy Tumbles Under $50. (graph)

Business Insider:

• The Northeast Is About To Get Hit With Another Major Snowstorm. 
• Three Nightmare Economic Scenarios That Could Trigger Recession In 2015.
• Elizabeth Warren Supporters Are Preparing For War Against Wall Street.

Telegraph:

• Six triggers that could renew a eurozone crisis in 2015. Tensions in the eurozone's largest economies could pull the region apart next year, as a number of political risks could bubble over according to Nordea. 
• Tumbling euro not enough to save Germany’s factories. German industrial production data has failed to match the expectations of analysts, as the country faces lower growth next year.