Stocks Falling into Final Hour on Surging Eurozone/Emerging Markets/US High-Yield Debt Angst, Rising Global Growth Fears, Yen Strength, Commodity/Financial Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 20.55 +2.43%

• Euro/Yen Carry Return Index 154.44 +.43%

• Emerging Markets Currency Volatility(VXY) 9.75 +3.39%

• S&P 500 Implied Correlation 70.52 -2.03%

• ISE Sentiment Index 74.0 +37.04%

• Total Put/Call 1.01 +3.06%

• NYSE Arms 1.24 +26.76% 

Credit Investor Angst:

• North American Investment Grade CDS Index 71.82 +4.37% 
• America Energy Sector High-Yield CDS Index 652.0 +3.09%

• European Financial Sector CDS Index 65.26 +5.72%

• Western Europe Sovereign Debt CDS Index 31.32 +1.95%
• Asia Pacific Sovereign Debt CDS Index 70.24 +5.73%

• Emerging Market CDS Index 383.59 +8.45%

• China Blended Corporate Spread Index 333.47 -.90%
• 2-Year Swap Spread 24.0 +1.0 basis point

• TED Spread 22.0 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -8.0 +.5 basis point

Economic Gauges:

• 3-Month T-Bill Yield .02% -1.0 basis point

• Yield Curve 155.0 -3.0 basis points

• China Import Iron Ore Spot $68.99/Metric Tonne -.55%

• Citi US Economic Surprise Index 29.60 +4.8 points
• Citi Eurozone Economic Surprise Index -20.30 +.3 point

• Citi Emerging Markets Economic Surprise Index -15.50 -9.3 points

• 10-Year TIPS Spread 1.63 -8.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating +14 open in Japan

• DAX Futures: Indicating -5 open in Germany

Portfolio: 

• Slightly Higher: On gains in my retail sector longs, index hedges and emerging markets shorts

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

• Market Exposure: 25% Net Long

Today's Headlines

Bloomberg:

• Ruble’s Plunge Surrounds Central Bank Chief With Rotten Choices. (video) Russian central bank Governor Elvira Nabiullina is running out of policy options for stabilizing the ruble without inflicting deeper damage to the economy. On one side, she wants to support the currency to slow inflation and keep Russians from abandoning the ruble. On the other, the scale of interest-rate increases required to do that would further strangle an economy on the verge of a recession, and pile pressure on companies struggling to refinance debt as sanctions cut them off from international capital markets.

• BOJ Said to Reject Adding Stimulus to Ease Blow to CPI From Oil. The Bank of Japan rejects the idea that additional monetary stimulus is needed to prevent the decline in oil prices in recent months from pulling down inflation, according to people familiar with the discussions. For now, policy makers assess that while cheaper energy costs may weigh on consumer prices for a time, they ultimately will boost the economy -- spurring inflation, the people said, asking not to be named as the talks are private. Less agreement is found on how much capacity the central bank has to expand its buying of government debt, some of the people said.

• China’s Slowdown Deepens as Factory Output Growth Wanes: Economy. (video) Bloomberg’s gross domestic product tracker came in at 6.78 percent year-on-year in November, down from 6.91 percent in October and a fourth month below 7 percent, according to a preliminary reading. Factory production rose 7.2 percent from a year earlier, retail sales gained 11.7 percent, and investment in fixed assets expanded 15.8 percent in January through November from a year earlier, official data showed. 

• Greek Bonds Extend Worst Week Since Euro Crisis. The last time Greece’s bonds had this bad a week, the nation had just undergone the biggest debt restructuring in history, inconclusive elections had stoked concern it may exit the euro and Mario Draghi’s “whatever it takes” pledge was more than two months away. The yield on Greek 10-year bonds has surged about 200 basis points this week, the biggest leap since the height of the euro-area sovereign-debt crisis in May 2012. Worse still, the yield on three-year notes, issued in July as part of Greece’s emblematic return to capital markets, have jumped more than 450 basis points, climbing above the longer-dated rates in a sign that investors are increasingly concerned the nation will be unable to pay its debt. 

• Euro-Area Industrial Output Grows a Less-Than-Forecast 0.1%. Industrial output in the 18-nation region rose 0.1 percent, less than the 0.2 percent increase forecast by economists in a Bloomberg News survey. The data from Luxembourg-based Eurostat also showed production was up 0.7 percent from a year earlier.

• Ibovespa Poised for Worst Week Since October as Petrobras Slumps. The Ibovespa was set for the worst week since October, approaching a bear market, as a decline in crude oil below $60 a barrel sank Petroleo Brasileiro SA. Petrobras, as the state-run company is known, extended a five-day slide to 16 percent. Itau Unibanco Holding SA, Latin America’s largest bank by market value, contributed the most to the benchmark equity index’s drop. Homebuilder Rossi Residencial SA surged 11 percent after a six-day slump. Cia. Paranaense de Energia, the utility known as Copel, jumped on a plan to invest 2.5 billion reais ($940 million) next year. The Ibovespa fell 2.6 percent to 48,580.38 at 3:31 p.m. in Sao Paulo, bringing its losses from this year’s high to 22 percent. The gauge has dropped 6.6 percent for the week. 

• Europe Stocks’ Worst Week in 3 Years Eclipses U.S., Asia Drops. Tumbling oil prices and the worst rout in Greek equities since 1987 sent European shares for their biggest weekly slump in more than three years. Today’s 2.6 percent plunge in the Stoxx Europe 600 Index was the largest in almost two months and extended the week’s losses to 5.8 percent. That’s more than double the five-day drop in the MSCI Asia Pacific Index and Standard & Poor’s 500 Index. With oil tumbling to a five-year low, European energy companies slumped to their lowest level since April 2009 and commodity producers had their worst week since May 2012. In Greece, anxiety that voters will kick out leaders committed to the nation’s bailout sent the ASE Index down 20 percent, making it this year’s worst performing equity market after Russia. 

• Crude Oil Extends Drop Below $60 as IEA Cuts Forecast. (video) Benchmark U.S. oil prices extended losses below $60 a barrel as the International Energy Agency cut its global demand forecast for the fourth time in five months. West Texas Intermediate crude is poised for a weekly decline of 12 percent while Brent has lost 10 percent. The IEA reduced its estimate for oil demand growth in 2015 by 230,000 barrels a day, the agency said in a report today. U.S. output, already at a three-decade high, will continue to rise in 2015, the IEA said.

• Oil Rot Spreading in Credit. Credit investors are preparing for the worst. They’re cleaning up their portfolios, selling riskier debt that’s harder to trade in bad times and hoarding longer-term government bonds that do best in souring markets. While investors have pruned energy-related holdings in particular as oil prices plunge, they’re also getting rid of other types of corporate bonds, causing yields to surge to the highest in more than a year. 

• Junk-Bond Yields Poised for Biggest Jump Since August. Junk-rated companies are facing the biggest weekly jump in borrowing costs in four months as the plunge in oil prices roils the U.S. bond market. The average yield on speculative-grade bonds has surged 0.34 percentage point this week to 7.1 percent, heading for the largest increase since it rose 0.38 percentage point in the period ended Aug. 1, according to Bank of America Merrill Lynch index data. The rise in August was the biggest since yields soared 0.48 percentage point in September 2011.

• Junk-Bond Well Runs Dry as Oil Shock Quells Debt Supply. The market for new junk bonds has all but shut as plunging oil prices and borrowing costs at an 18-month high deter issuers. Even as sales of high-yield, high-risk notes in the U.S. reached a record $353.1 billion this year, offerings have stalled this month with the slowest pace for a December since 2011. Junk is on track to deliver its second straight quarterly loss, the first time that’s happened since 2008, and trimming gains for the year to 1.47 percent, according to Bank of America Merrill Lynch index data. “Momentum in high-yield is coming to a halt,” Margie Patel, a money manager who oversees $1.4 billion for Wells Capital Management in Boston, said in a telephone interview. “We are still seeing the results of oversupply, most of which comes from the sector that has been disproportionately impacted by big changes in energy prices, along with global growth worries that have caught the market wrong-footed.”

ZeroHedge: 

• Presenting The $303 Trillion In Derivatives That US Taxpayers Are Now On The Hook For. 

• US Oil Rig Count Tumbles Most In 2 Years. (graph)

• What Would Happen "If It Was A Free Market" - Deutsche Bank Explains.

• We Have Just Escaped The Earth's Gravity And Are Now In Space Orbit. (graph)

• WTI Crashes To $57 Handle; 80% Of Shale Production Non-Economic. (graph)

• Treasury Yields Are Crashing-er. (graph)

• What's The Biggest Loser Since Oil Prices Peaked? (graph)

• The Financialized-Oil Dominoes Are Toppling. (graph)

• Oil Producers' Currencies Are Collapsing-er. (graph)

• PPI Slides, Misses Estimates, After Finished Goods Prices Tumble Most Since July 2009. (graph)

Business Insider: 

• The Oil Crash Is Not The Biggest Story In The Global Markets Right Now. The most talked-about story in the market is oil, but there is a more important move happening in markets: US Treasury bonds are on fire. The yield on long-dated US Treasury bonds — meaning the 10- and 30-year bonds — has been falling sharply over the past week. 

• OBAMA: 'I Spend Most Of My Time Watching ESPN In The Morning'.

• Airline Shares Just Slumped As A Massive Computer Failure Closed London's Airports.

• LARRY FINK: I Was Just In The Middle East And I Came Back 'More Bearish' On Oil.

Reuters:

• EMERGING MARKETS-Brazil leads Latam stocks lower on oil, Petrobras woes.

ZeeNews:

• India Industrial Production Plunges to 3-Year Low; Contracts -4.2% in October. India's industrial output growth rate contracted by 4.2 percent in October, dragged down by a fall in the manufacturing and the capital goods sector.

Bear Radar

Style Underperformer:

• Small-Cap Value -.92%

Sector Underperformers:

• 1) I-Banks -2.15% 2) Defense -2.12% 3) Steel -2.06%

Stocks Falling on Unusual Volume:

• PCTY, SSTK, ESL, AKR, TBI, LUK, MEI, HUN, CZR, WLL, NX, SPR, TRCO, EXLP, RUSHA, ALDR, ABY, BPT, AER, OXM, ZIV, VNR, FLR, PUK, SMLP, ENTA, FCX, CONN, PWR, CLMT, EMR, OLN, HUN, WLH, TBI, JOY, LINE, W, TERP, MEI and NX

Stocks With Unusual Put Option Activity:

• 1) IBM 2) XLF 3) XLB 4) SNDK 5) MON

Stocks With Most Negative News Mentions:

• 1) COST 2) EMR 3) MET 4) RAX 5) AMBC
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth -.91%

Sector Outperformers:

• 1) Restaurants +.45% 2) Retail +.16% 3) Biotech -.04%
  

Stocks Rising on Unusual Volume:

• DDC, ADBE, LULU, CTRP, ISIS and TGTX

Stocks With Unusual Call Option Activity:

• 1) MWE 2) SAVE 3) ADBE 4) SIRI 5) USO
  

Stocks With Most Positive News Mentions:

• 1) LULU 2) GPRO 3) GWW 4) ADBE 5) VIA/B
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Friday Watch

Evening Headlines 
Bloomberg:

• Putin in ETFs Hits Investors as Assets Plunge. Investors are abandoning WisdomTree Investments Inc.’s flagship emerging-markets exchange-traded fund at the fastest pace ever, and the fund provider has President Vladimir Putin to blame. Asset managers have pulled a record $1.59 billion from the WisdomTree Emerging Markets Equity Income Fund in the past year, the sixth-most among more than 1,000 U.S. ETFs tracked by Bloomberg. Russian companies, which have plunged an average 43 percent this year in dollar terms, make up 17 percent of the ETF’s holdings, five times as much as in MSCI Inc.’s industry benchmark. WisdomTree’s Emerging Markets SmallCap Dividend Fund, where Russian stocks comprise 0.1 percent, posted an outflow of less than $270,000.

• Chinese Leaders to Maintain Prudent Monetary Policy in 2015. China’s leaders will keep growth on track next year by applying a prudent monetary stance with a balance between loosening and tightening, according to a statement from a key economic meeting that ended yesterday. While China faces challenges to arrest a slowdown, growth is showing resilience and potential, giving the government plenty of room to maneuver, the official Xinhua News Agency said in a summary of the policy-setting Central Economic Work Conference yesterday. As in past years, Xinhua didn’t announce detailed growth targets for next year.

• China Rate Swap Rises for a Second Week as Stimulus Bets Recede. China’s benchmark interest-rate swaps were set to climb for a second week as the central bank’s use of targeted fund injections damped speculation there will be a more broad-based loosening of policy.

• Stevens Pushes Back on RBA Cut Calls, Sees Aussie Falling. Reserve Bank of Australia Governor Glenn Stevens indicated the nation’s currency will probably decline further next year and pushed back against calls for near-term interest rate cuts because the economy is performing as the central bank forecast.

• Asian Stocks Follow U.S. Higher as Oil Trades Below $60. Asian stocks advanced, following U.S. stocks higher on better-than-estimated retail sales in the world’s biggest economy. Oil in New York extended declines below $60 a barrel and the dollar strengthened. The MSCI Asia Pacific Index increased 0.6 percent by 11:10 a.m. in Tokyo, paring the biggest weekly decline since Oct. 17 as Japanese shares gained before elections this weekend.

• Oil Extends Drop Below $60 as Producers Tussle for Market Share. Oil extended losses below $60 a barrel amid speculation that OPEC’s biggest members will defend market share against U.S. shale producers. Brent also slid after closing at the lowest price since July 2009. West Texas Intermediate futures fell as much as 1.9 percent in New York and are down 10 percent this week. Iraq, the second-largest producer in the Organization of Petroleum Exporting Countries, said its decision to widen a discount for January sales to Asia isn’t proof of a price war. Crude will drop further next week, a Bloomberg News survey of analysts and traders shows.

• Skepticism Jumps in Options as VIX Rises 70% in Four Days. Options traders aren’t buying the stock market’s message. While the Standard & Poor’s 500 Index (VIX) posted its first gain of the week on Dec. 11, rising 0.5 percent, the Chicago Board Options Exchange Volatility Index also jumped, climbing 8.4 percent to cap its biggest four-day advance since 2011. The two gauges, one measuring share prices and the other anxiety among traders, only move in unison about 20 percent of the time. 

• Sony's Hacking Nightmare Gets Worse: Employees Medical Records Revealed. Documents stolen from Sony Corp. (6758) by hackers include detailed and identifiable health information on more than three dozen employees, their children or spouses -- a sign of how much information employers have on their workers and how easily it can become public.

• Tesla’s(TSLA) China President Resigns After Less Than 9 Months.

Wall Street Journal:

• House Passes $1.1 Trillion Spending Bill Ahead of Midnight Deadline. Measure Expected to Pass Senate, but Timing Remains Unclear. The House narrowly passed Thursday a $1.1 trillion spending bill aimed at avoiding a government shutdown just hours before the midnight deadline.

• High-Yield Bond Funds See $1.9 Billion Outflow in Latest Week. Marks Largest Weekly Decline Since Week Ended Oct. 1, According to Lipper.

• A Flawed Report’s Important Lesson. Americans regardless of party should agree torture is wrong. The “torture report” exists. It shouldn’t—a better, more comprehensive, historically deeper and less partisan document should have been produced, and then held close for mandatory reading by all pertinent current and future officials—but it’s there. Anyone in the world who wants to read it can do a full download, and think what they think.

Fox News:

• Brennan defends CIA interrogation program, challenges Senate report. CIA Director John Brennan on Thursday delivered a lengthy and detailed defense of his agency's post-9/11 interrogation techniques, reminding the nation that agents used the tactics in pursuit of a single goal -- preventing another devastating terror attack.

Zero Hedge:

• What Do They Know? CME Implements Gold, Precious Metals Circuit Breakers Up To $400 Wide.

• Cromnibust! Hindenburg Cluster Grows As Crude, Credit, & US Government Credibility Crash. (graph)

• 10 Legendary Investment Rules From Legendary Investors.

• Duck And Cover - The Lull Is Breaking, The Storm Is Nigh.

• Greece Suffers Biggest 3-Day Crash In 27 Years. (graph)

• WTI Crude Crashes Into The $50s. (graph)

• Habitual Chinese Gamblers Dump Macau, Go All In On Chinese Stocks. (graph)

Business Insider:

• Investors Are Still Bullish On The US Energy Boom Even As Oil Crashes.

• Halliburton(HAL) Cuts 1,000 Jobs As Oil Prices Tank.

Reuters:

• U.S.-based stock funds post $2.9 bln outflows in week-Lipper. 

• 'Grexit' threat could complicate ECB QE: James Saft.

• Number of hedge fund launches falls to 240 in Q3 -HFR.

Telegraph:

• Crisis as Dubai stock market suffers biggest crash in five years. The plunging oil price has dragged the Dubai stock market down in its biggest one day fall since 2009.

• France drifts into deflation as ECB 'pea-shooter' falls short. The Bank of Italy warns that any further falls in prices at this stage could have 'extremely grave consequences for economies with very high public debt levels'.

China Business News:

• China Cuts 2015 GDP Growth Target in Work Conference. China lowered its planned GDP growth target for next year at the Central Economic Work Conference which ended yesterday, without saying how much.

Evening Recommendations 

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 106.0 unch.

• Asia Pacific Sovereign CDS Index 66.5 -1.25 basis points.

• S&P 500 futures -.18%.

• NASDAQ 100 futures  -.21%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (NX)/.20

Economic Releases
8:30 pm EST

• PPI Final Demand for November is estimated to fall -.1% versus a +.2% gain in October.

• PPI Ex Food & Energy for November is estimated to rise +.1% versus a +.1% gain in October.
  

9:55 am EST

• Preliminary Univ. of Mich. Consumer Confidence for December is estimated to rise to 89.5 versus 88.8 in November.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The China Industrial Production data, (CAH) analysts day and the (NUS) analyst day could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and technology 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 Higher into Final Hour on US Economic Data, Yen Weakness, Short-Covering, Retail/Healthcare Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 18.18 -2.43%

• Euro/Yen Carry Return Index 154.03 +.57%

• Emerging Markets Currency Volatility(VXY) 9.25 +1.76%

• S&P 500 Implied Correlation 70.19 +4.03%

• ISE Sentiment Index 53.0 -36.90%

• Total Put/Call .99 +3.13%

• NYSE Arms 1.18 -65.05% 

Credit Investor Angst:

• North American Investment Grade CDS Index 68.61 +.29% 

• America Energy Sector High-Yield CDS Index 628.0 +4.13%

• European Financial Sector CDS Index 61.88 +.99%

• Western Europe Sovereign Debt CDS Index 30.72 +3.31%

• Asia Pacific Sovereign Debt CDS Index 65.82 -.81%

• Emerging Market CDS Index 351.28 +.25%

• China Blended Corporate Spread Index 336.50 +1.73%

• 2-Year Swap Spread 23.0 unch.

• TED Spread 21.50 +.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -8.50 -1.5 basis points

Economic Gauges:

• 3-Month T-Bill Yield .03% unch.

• Yield Curve 158.0 -1.0 basis point

• China Import Iron Ore Spot $69.37/Metric Tonne +.33%

• Citi US Economic Surprise Index 24.80 +6.7 points

• Citi Eurozone Economic Surprise Index -20.60 -1.2 points

• Citi Emerging Markets Economic Surprise Index -6.2 +.9 point

• 10-Year TIPS Spread 1.71 unch.

Overseas Futures:

• Nikkei Futures: Indicating +198 open in Japan

• DAX Futures: Indicating -40 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 50% Net Long