Wednesday Watch

Evening Headlines 
Bloomberg:

• Russians Race to Secure Mortgages Before Costs Spiral. Russians are racing to take out mortgages on concern that borrowing costs will rise further after the ruble’s weakness prompted the central bank to increase interest rates. The number of people applying for mortgages at Bank VTB 24, a retail unit of state-controlled VTB Group (VTBR), almost tripled in the first two weeks of December compared with the November average, according to Andrey Osipov, head of the Moscow-based bank’s home-loan department. The bank is lending as much as 2.5 billion rubles ($46 million) each day, he said. 

• Russian Bank Squeeze Captured by Gap in Rates: Chart of the Day. The rate at which Russian banks borrow from each other is the highest on record relative to the central bank’s benchmark as policy makers squeeze liquidity to boost the ruble and trust between commercial lenders deteriorates.

• UBS Raises Flag on China’s $1 Trillion Overseas Debt Pile. UBS Group AG is flagging risks from China’s $1 trillion worth of unhedged foreign debt as forecasters see bets against the greenback unwinding in 2015. The world’s second-largest economy is exposed to shifts in currency and interest rates as never before because of expanding international trade and easing foreign-exchange regulations, said Stephen Andrews, head of Asia banks research in Hong Kong at UBS. Daiwa Capital Markets has a $1 trillion estimate for carry-trade inflows since 2008, bets on the difference between yields in China and overseas. It sees a 5.7 percent drop in the yuan next year. 

• China Brokers’ Profit Seen at Risk From Government Action. China’s surging stock market is raising the prospect of government action to prevent an equities bubble, a potential threat to brokerage earnings that are projected to hit a seven-year high this year. UBS Group AG says regulators could act to limit the use of credit in buying stocks. In 2007, authorities raised a trading tax following a sixfold increase in the Shanghai Composite Index over two years. The securities regulator this month cautioned investors on buying shares and started inspecting some brokerages’ margin finance businesses. 

• China Stocks Fall on Bets Government Taking Steps on Bubble Risk. China’s stocks fell, extending the benchmark index’s biggest loss in two weeks, amid speculation the government is taking measures to cool the world’s best-performing major stock market over the past month. Citic Securities Co. and Haitong Securities Co., the nation’s biggest securities firms, slid more than 3 percent. Some brokerages raised the threshold for margin trading and short selling to control risks, the 21st Century Business Herald reported, while data showed new stock-trading accounts dropped 29 percent last week. China Life Insurance Co. and China Minsheng Banking Corp. slumped more than 3 percent to drag down a gauge of financial shares by the most among industry groups. The Shanghai Composite Index fell 0.4 percent to 3,020.84 at 9:47 a.m., after plunging 3 percent yesterday.

• Asian Stocks Pace U.S. Gains on Economy While Oil Drops. Asian stocks climbed, as Japanese shares followed gains in U.S. equities after data showed the world’s biggest economy grew at the fastest pace since 2003 last quarter. Australian bonds fell as crude oil retreated. The MSCI Asia Pacific Index jumped 0.5 percent by 10 a.m. in Tokyo, with the Topix index rising 1 percent after a holiday in Japan yesterday.

• Demonstrators Defy NYC Mayor's Call to Suspend Police Protests. Demonstrators tried to disrupt holiday shopping on New York’s Fifth Avenue today, defying Mayor Bill de Blasio’s request to suspend protests after two police officers were fatally shot over the weekend. Bearing signs calling for justice against police who have killed unarmed men, hundreds gathered near Central Park in a chilly light rain. “Stop Racist Police Terror,” read one banner displayed at Grand Army Plaza. “It’s preposterous and insulting to the people of color to say we should be silent,” said Noha Arata, 35, of Brooklyn. “Not showing up would have essentially had us agree with Mayor de Blasio." 

• Meredith Whitney’s Fund Sued by Billionaire Platt’s BlueCrest. Meredith Whitney’s hedge fund is being sued by its biggest investor, a fund connected to billionaire Michael Platt’s BlueCrest Capital Management, as demands to recoup money spill into court, according to people with knowledge of the dispute.  

Wall Street Journal:

• No Way Out for Iraqis Who Helped U.S. in War. Iraqi Colleagues of U.S. Troops Are Marked for Death by Islamic State. The first emails from Iraq landed in John Kael Weston ’s inbox while he was eating breakfast at a Utah ski resort. Islamic State fighters had just seized Fallujah, and the former State Department diplomat fired off a worried message to the Iraqi policeman who helped him over and over again during the war’s darkest days.

• China’s Shadow-Banking Boom Is Over. Tighter Government Rules, Jump in Stock Market Curb Informal-Lending Sector. Following years of explosive growth, China’s shadow-banking industry is experiencing a sharp slowdown after Beijing tightened its grip on the sector, which has been a key source of funding for the economy but also has added to rising debt levels and other risks in the financial system.

MarketWatch.com:

• The Fed is heading for another catastrophe. America’s Federal Reserve is headed down a familiar — and highly dangerous — path. Steeped in denial of its past mistakes, the Fed is pursuing the same incremental approach that helped set the stage for the financial crisis of 2008-2009. The consequences could be similarly catastrophic.

Zero Hedge:

• First Oil, Now Earnings Revisions Scream Recession. (graph)

• 20 Stunning Facts About Energy Jobs In The US. (graph)

• Here Are All The Theaters Showing 'The Interview' Christmas Day.

• US Government Admits $2.4 Billion Food-Stamps "Mis-Spent".

Business Insider:

• Putin Could Become Even More Dangerous In 2015.

• Coca-Cola(KO) Is Reportedly Cutting Jobs, Canceling Parties, And Telling Executives To Stop Taking Limos.

Yonhap News:

• N. Korea can practically miniaturize nukes: Seoul. South Korea believes that North Korea has practically acquired the technology to miniaturize nuclear warheads that could be mounted on its long-range ballistic missiles, military sources said Tuesday.

• Uber taxi founder indicted for illegal business in S. Korea. South Korean prosecutors said Wednesday they have indicted the founder of the U.S.-based taxi service Uber on charges of operating an illegal taxi service here. The Seoul Central District Prosecutors' Office said it prosecuted Travis Kalanick, the founder and CEO of the app-based taxi service, and the head of MK Korea, a local rental-car service operator, identified only as Lee, both without physical detention.

21st Century Business Herald:

• Some China Brokers Raise Margin Trading Threshold. Some brokerages raised new account threshold for margin trading and short-selling businesses to control risks, without citing anyone.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.25% to +.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 102.0 -1.0 basis point.

• Asia Pacific Sovereign CDS Index 64.5 -.75 basis point.

• S&P 500 futures +.09%.

• NASDAQ 100 futures  +.08%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note

Economic Releases
8:30 am EST

• Initial Jobless Claims are estimated to rise to 290K versus 289K the prior week.

• Continuing Claims are estimated to rise to 2375K versus 2373K prior.
  

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,811,110 barrels versus a -847,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +733,330 barrels versus a +5,250,000 barrel gain the prior week. Distillate supplies are estimated to fall by -822,220 barrels versus a -207,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall by -.19% versus a -1.9% decline the prior week.
  

Upcoming Splits

• None of note

Other Potential Market Movers

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

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and financial 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 Mostly Higher into Final Hour on US Economic Data, Seasonal Strength, Yen Weakness, Gaming/Financial Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Slightly Higher
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 14.50 -4.92%

• Euro/Yen Carry Return Index 153.46 +.09%

• Emerging Markets Currency Volatility(VXY) 10.82 -2.08%

• S&P 500 Implied Correlation 64.49 +1.24%

• ISE Sentiment Index 69.0 -29.59%

• Total Put/Call .85 +11.84%

• NYSE Arms .87 -19.95% 

Credit Investor Angst:

• North American Investment Grade CDS Index 64.30 -1.05% 
• America Energy Sector High-Yield CDS Index 629.0 +3.62%

• European Financial Sector CDS Index 62.38 -1.39%

• Western Europe Sovereign Debt CDS Index 27.74 +3.80%
• Asia Pacific Sovereign Debt CDS Index 64.55 -1.01%

• Emerging Market CDS Index 324.22 +1.74%

• China Blended Corporate Spread Index 343.30 -.36%
• 2-Year Swap Spread 18.5 -4.75 basis points

• TED Spread 21.75 -1.0 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -14.25 +.5 basis point

Economic Gauges:

• 3-Month T-Bill Yield .02% unch.

• Yield Curve 152.0 +2.0 basis points

• China Import Iron Ore Spot $66.84/Metric Tonne -1.56%

• Citi US Economic Surprise Index 36.90 4.2 points
• Citi Eurozone Economic Surprise Index 2.10 +.2 point

• Citi Emerging Markets Economic Surprise Index -14.0 -1.2 points

• 10-Year TIPS Spread 1.71 +4.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating +320 open in Japan

• DAX Futures: Indicating +6 open in Germany

Portfolio: 

• Slightly Lower: On losses in my biotech/medical sector longs

• Disclosed Trades: None

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• Russia May Be Cut to Junk as S&P Says It’s Considering Downgrade. Russia may lose its investment grade for the first time in a decade after Standard & Poor’s signaled it’s considering cutting the country’s rating. “We are reviewing our assessment of Russia’s monetary flexibility and the impact of the weakening economy on its financial system,” S&P said in a statement. The move implies at least a one-in-two likelihood of a “negative rating action” within 90 days, the statement said. S&P said it expects to conclude its review by mid-January. 

• Ukraine Lawmakers Annul Non-Aligned Status in NATO Move. Ukraine’s parliament backed a proposal to cancel the country’s non-aligned status, a decision that Russia denounced as a dangerous step toward seeking membership of NATO. The legislation put forward by President Petro Poroshenko was supported today by 303 of 357 lawmakers in the chamber, hours after the announcement of fresh talks to try to end the conflict with pro-Russian rebels in eastern Ukraine. The bill will help Ukraine as it seeks to achieve “all criteria of membership” for the North Atlantic Treaty Organization, Foreign Minister Pavlo Klimkin told parliament.

• Russia Moves to Stave Off Panic Among Depositors After Rescuing Bank. After arresting a decline in the ruble, Russia is now trying to avert a banking crisis. Lawmakers rushed legislation through the lower house of parliament today allowing the Deposit Insurance Agency to buy stakes in banks before they face bankruptcy proceedings to keep the system stable. While the ruble strengthened for a third day as the government told state-run exporters to sell foreign currency, it’s still down 30 percent in three months.

• Greece Moves Closer to Polls as Samaras Loses Vote. Prime Minister Antonis Samaras failed to win enough backing today for his nominee for president, bringing Greece a step closer to early elections. In the second of three attempts, 168 lawmakers in Greece’s 300-seat chamber voted for Samaras’s nominee, Stavros Dimas, short of the required 200 ballots. Although up from 160 in the first round on Dec. 17, it showed Samaras’s calls for consensus during the weekend didn’t lure enough opposition lawmakers to add to his coalition’s 155 votes. 

• European Stocks Rise to Post Biggest Six-Day Jump in Three Years. European stocks climbed for a sixth day amid better-than-expected U.S. economic-growth data. The Stoxx Europe 600 Index rose 0.6 percent to 344.06 at the close of trading.

• Iron Ore Extends Decline to Lowest Since 2009 as Surplus Builds. Iron ore extended losses to the lowest level in more than five years amid concern that slowing steel demand in China may hurt consumption in the world’s biggest user just as rising supplies deepen a glut. Ore with 62 percent content delivered to Qingdao, China, dropped 1.6 percent to $66.84 a dry metric ton, according to data compiled by Metal Bulletin Ltd. That’s the lowest since June 2, 2009. 

• Oil Futures Advance After U.S. Economic Growth Surges.

CNBC:

• FDA moves to ease ban on gay men's blood donation.

ZeroHedge:

• Here Is The Reason For The "Surge" In Q3 GDP. (graph)

• Natural Gas Suggests $33 Oil. (graph)

• "Off The Grid" Economic Indicators – Q4 2014. (graph)

• Exposing The Deception: How The US Economy "Grew" By $140 Billion As Americans Became Poorer. (graph)

• The Greater Abomination: Washington's Lies About TARP's "Success" Are Worse Than The Original Bailouts, Part I.

• T. Boone Pickens Rages On CNBC: "I Am The Expert, Not You", Says Oil Down Due To "Weak Demand". (video)

• The Housing Recovery Remains Cancelled Due To 6 Months Of Downward Revisions. (graph)

• UMich Consumer Confidence Near 8-Year High, Inflation Expectations Hit 4-Year Lows. (graph)

• Fed Tightening On Deck After Q3 GDP Soars To 5% On Revisions, Highest Since 2003. (graph)

• Durables Goods Data Ugly Across The Board, Worst Since Polar Vortex. (graph)

Business Insider:

• Sony Confirms It Will Let Theaters Show 'The Interview' On Christmas Day After All.

• Florida Is Now Bigger Than New York.

• Traders Are Getting That 1987-Feeling Again.

• ROSENBERG: There's A 'Black Swan' Stewing In China. David Rosenberg, Chief Economist & Strategist at Gluskin Sheff, has identified a big risk looming out there in the global economy: The Chinese housing market.

• David Tepper Is Worried We're About To Relive 1999. 

• Women And Girls Forced Into ISIS Sex Slavery Attempt Suicide.

Telegraph: 

• Russia faces oil export catastrophe, snared in Opec price trap. Russia's crude exports to drop to $95bn over next 12 months as Saudi Arabia and Opec take aim with oil price weapon.

RIA Novosti:

• Medvedev Says Russia Faces Risk of Deep Recession. Russia needs to move to hands-on management like in 2008 crisis, citing Prime Minister Dmitry Medvedev.

Interfax:

• Russia Calls Ukraine Vote on Non-Aligned Status Unfriendly. Decision to drop non-aligned status is unfriendly, political step that will only add tension in ties w/Russia, citing Russia's representative to OSCE Andrey Kelin.

Bear Radar

Style Underperformer:

• Small-Cap Growth -.32%

Sector Underperformers:

• 1) Biotech -5.30% 2) Drugs -2.62% 3) Medical Equipment -1.03%

Stocks Falling on Unusual Volume:

• WNRL, CLDN, RDUS, GDOT, BIB, ACHN, GILD, CELG, ASPS, VRTX, IBB, AGIO, HQL, HQH, REGN, ISIS, SERV, NSM, MGNX, KITE, BTI, OVAS, ENTA, ZU, ALXN, BLUE, ASPX, PCYC and OCN

Stocks With Unusual Put Option Activity:

• 1) CWB 2) EA 3) XLK 4) CELG 5) NVDA

Stocks With Most Negative News Mentions:

• 1) HAL 2) ACHN 3) GMCR 4) CELG 5) AET
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Value +.49%

Sector Outperformers:

• 1) Gold & Silver +2.89% 2) Gaming +2.19% 3) I-Banks +1.28%
  

Stocks Rising on Unusual Volume:

• VNDA, DDS, SWIR and CHK

Stocks With Unusual Call Option Activity:

• 1) APOL 2) ESRX 3) OCN 4) GNW 5) MET
  

Stocks With Most Positive News Mentions:

• 1) KMB 2) OII 3) CRY 4) LMT 5) WAG
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Tuesday Watch

Evening Headlines 
Bloomberg: 

• Russia Crisis Makes East European Companies Fret Over 1998 Redux. Shedding communism and embracing the European Union was supposed to shield the former eastern bloc from Russia’s economic pains. A quarter of a century later, there are companies that remain vulnerable. The ruble’s decline is reviving memories of the 1998 default. Moscow’s former satellites have tied their economic fortunes to western Europe and the proportion of exports to Russia is less than 5 percent, yet the financial turmoil is aggravating the pain caused by the trade confrontation between the 28-member EU bloc and Russia.

• China Stock Fever Fails to Infect Foreigners Amid 26% Share Jump. Since the day China loosened access to its stocks in November, the Shanghai Composite Index (SHCOMP) has soared 26 percent as the rest of the world’s markets stood still. Rather than attract overseas buyers, it’s repelling them. While individuals in China are opening the most equity trading accounts since 2007, professionals such as Tai Hui, the chief Asia market strategist at JPMorgan Asset Management, warn the advance has gone too far, too fast.

• RBA Frustrated as Weaker Aussie Goal Thwarted: Australia Credit. The Australian dollar is set for its first annual gain versus its major peers in three years as it outperforms the euro and the yen, frustrating central bank efforts to stimulate the economy with a weaker currency. A correlation-weighted gauge against nine developed-nation counterparts has risen 1.2 percent this year, even as an iron-ore glut halved prices of the nation’s key export. The Aussie climbed 3.9 percent versus the yen and 2.4 percent to the euro. Reserve Bank of Australia Governor Glenn Stevens said this month the local dollar “remains above most estimates of its fundamental value” as he kept interest rates at a record low.

• China’s Stocks Fall From Four-Year High as ICBC, PetroChina Drop. China’s benchmark stock index fell from a four-year high amid concern a world-beating rally over the past month was excessive relative to the outlook for the economy. Industrial & Commercial Bank of China Ltd. and PetroChina Co., the nation’s biggest companies, dropped more than 2 percent. Aluminum Corp. of China Ltd. plunged 6.9 percent after rallying 25 percent in three days. Zijin Mining Group Co. plunged 4.7 percent after its controlling stakeholder cut its stake in the company. Leshi Internet Information & Technology (Beijing) Co. climbed 2.9 percent as the ChiNext small-caps gauge rebounded from the biggest drop in a year. The Shanghai Composite Index (SHCOMP) slid 1.8 percent to 3,071 at 10 a.m., heading for the biggest loss in two weeks and paring a rally over the past month to 24 percent.

• Asian Stocks Drop as Dollar Holds Gains While Oil Climbs. Asian stocks fell, with commodity shares driving the regional index lower for the first time in four days. The dollar traded near a two-week high versus the yen before data on the U.S. economy, while crude oil climbed. The MSCI Asia Pacific excluding Japan Index lost 0.3 percent by 10:01 a.m. in Hong Kong, with a gauge of materials shares sliding 1.4 percent.

• Outlook Sours for Europe’s Oil Titans on Crude Slump: S&P. The U.S. shale-oil industry has made another enemy: Europe’s largest crude explorers. Standard & Poor’s Ratings Services revised its outlook to negative for Royal Dutch Shell Plc (RDSA), Total SA (FP) and BP Plc (BP/) as the oil-market rout driven by weakening demand and a flood of supply from American shale fields threatens cash flow into 2016.

Wall Street Journal:

• De Blasio, Police Unions Postpone Debate Until After NYPD Funerals. Law-Enforcement Agencies Nationwide Assess the Safety of Their Members. Mayor Bill de Blasio and police unions on Monday agreed to end a war of words until two officers fatally shot this past weekend are laid to rest, as law-enforcement agencies nationwide assessed the safety of their members.

• Startup Founders Leverage Hot Market for Early Paydays. Creators of Secret App Cashed in $6 Million in Early Funding Round. 

• Vermont’s Single Payer Washout. The left’s health-care ideal implodes over punishing tax rates.

Fox News:

• GOP report: Top IRS official considered admitting targeting before 2012 election -- but didn’t.

MarketWatch.com:

• Steelcase(SCS) shares slide as revenue comes in light.

Zero Hedge:

• How Japan Bankrupted Itself - Lessons For Europe.

• NYC Mayor de Blasio Slams Reporters For "Enabling" Racial Hatred.

• This Is For You Steve Liesman... Welcome To Economics. (graph)

• It Has Never Been More Expensive For 'Average Joe' To Buy Stocks. (graph)

• Don't Tell Germany Draghi Is About To Monetize 90% Of Bund Issuance.

• US Box Office Spend Plunges To Lowest Since 2000.

Business Insider:

• Here's North Korea's Over-The-Top Official Statement On The Sony Hack.

• Name The Exponential Chart.

Reuters:

• ECB's Hansson: ECB govt bond buys would be 'borderline' - Sueddeutsche Zeitung. Any move by the European Central Bank to buy government bonds would be "very borderline" and should not be made hastily, ECB Governing Council member Ardo Hansson told a German newspaper. "Governments could borrow more money than before because the interest costs would be lower," Sueddeutsche Zeitung quoted Hansson as saying in a summary of an interview to be published on Saturday. One would then have to ask "whether the ECB is illegally financing states or not," said Hansson, who is the head of Estonia's central bank.

Telegraph:

• China quietly joins Asia's currency wars to avert deflation. China is exposed like a sore thumb as countries devalue on all sides, from Russia, to Japan, Indonesia and Malaysia. 

People's Daily:

• Ruble Drop Won't Change China-Russia Ties. Ruble's depreciation affected China's exports to Russia and made it more difficult for the two countries to implement joint projects, yet the challenges shouldn't be exaggerated, according to the commentary.

Evening Recommendations 

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 103.0 -2.0 basis points.

• Asia Pacific Sovereign CDS Index 65.25 -2.5 basis points.

• S&P 500 futures +.06%.

• NASDAQ 100 futures  +.11%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (WAG)/.75

• (CALM)/.86

Economic Releases
8:30 am EST

• Durable Goods Orders for November are estimated to rise +3.0% versus a +.4% gain in October.

• Durables Ex Transports for November are estimated to rise +1.0% versus a -.9% decline in October.

• Cap Goods Orders Non-Defense Ex Air for November are estimated to rise +1.0% versus a -1.3% decline in October.

• 3Q GDP is estimated to rise +4.3% versus a prior estimate of a +3.9% gain. 

• 3Q Personal Consumption is estimated to rise +2.5% versus a prior estimate of a +2.2% gain.

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

9:00 am EST

• FHFA House Price Index for October is estimated to rise +.3% versus unch. in September.

9:55 am EST

• Final Univ. of Mich. Consumer Confidence for December is estimated to fall to 93.5 versus a prior estimate of 93.8.

10:00 am EST

• Richmond Fed Manufacturing Index for December is estimated to rise to 7.0 versus 4.0 in November.

• New Home Sales for November are estimated to rise to 460K versus 458K in October.

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

• Personal Spending for November is estimated to rise +.5% versus a +.2% gain in October.

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

Upcoming Splits

• None of note

Other Potential Market Movers

• The French GDP report, UK GDP report, $35B 5Y T-Note auction, weekly US retail sales reports and the (FDO) special meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and financial 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.