Friday Watch

Evening Headlines 
Bloomberg: 

• Russia Raises Forecast Deficit for Next Year as Recession Looms. Russia is facing a “considerably higher” deficit next year than planned as the economy slides toward recession, according to Finance Minister Anton Siluanov. “If incomes are lower and the main spending is fully financed, then we’ll have to use reserves and increase the deficit,” Siluanov told reporters in Moscow. “One year with a deficit isn’t so scary, the most important thing is to prepare future budgets.”

• Russia's Defense of the Ruble Cuts Reserves by $15.7 Billion in Week. Russia’s international reserves plunged the most in six years, losing $15.7 billion last week as the government and central bank pledged measures to support banks and defend the currency. The value of the stockpile, which includes the central bank’s reserves and two sovereign wealth funds, fell to $398.9 billion in the week through Dec. 19, the Bank of Russia said today on its website. That is 22 percent drop from January. 

• Japan Struggles to Escape Recession as Production Drops: Economy. Japan’s inflation slowed for a fourth month in November, and industrial production and retail sales unexpectedly dropped, pointing to further weakness in an economy Prime Minister Shinzo Abe is trying to revive from recession. Output (JNIPMOM) fell 0.6 percent in November from a month earlier, the trade ministry said today, against a median estimate of a 0.8 percent increase in a Bloomberg News survey of economists. Retail sales slid 0.3 percent, while consumer prices excluding fresh food rose 2.7 percent from a year earlier. Real wages fell the most since 2009. 

• Saudi Rulers to Curb Wages as Kingdom Confronts Oil Slump. Saudi authorities pledged to curb wages and push ahead with investments next year as the world’s largest oil exporter seeks to counter the effect of tumbling crude prices on the economy. The government said it expects the budget deficit in 2015 to widen to 145 billion riyals ($39 billion), from 54 billion riyals this year, the Finance Ministry said today. That amounts to about 5 percent of gross domestic product, according to Arqaam Capital, a Dubai-based investment bank.

• Asian Shares Extend Weekly Gain as Gold Climbs, Yen Falls. Asian shares extended a weekly advance while the yen fell against the dollar as slowing inflation in Japan boosted speculation the central bank will introduce more stimulus to revive the economy. Gold and silver rose with oil. The MSCI Asia Pacific Index (MXAP) added 0.2 percent to 137.65 at 11:28 a.m. in Tokyo, heading for its first weekly gain since November.

• NYPD Arrests Seven for Threats After Slayings of Officers. At least seven New Yorkers have been charged with making threats against police officers since the Dec. 20 killing of two patrolmen shot in their squad car in Brooklyn, a police spokeswoman said.

• U.S. Spy Agency Reports Improper Surveillance of Americans. The National Security Agency today released reports on intelligence collection that may have violated the law or U.S. policy over more than a decade, including unauthorized surveillance of Americans’ overseas communications. The NSA, responding to a Freedom of Information Act lawsuit from the American Civil Liberties Union, released a series of required quarterly and annual reports to the President’s Intelligence Oversight Board that cover the period from the fourth quarter of 2001 to the second quarter of 2013.

• Sony’s ‘The Interview’ Packs Theaters Without Violence. Sony Pictures’ “The Interview,” the Seth Rogen comedy that sparked a cyber attack linked to North Korea and threats of violence in theaters, filled cinemas in a limited Christmas Day release across the U.S. without incident.

Wall Street Journal:

• U.S. Puts New Focus on Fortifying Cyber Defenses. Sony Hacking Case Gives White House, Business Interests Urgency to Address Internet Security. The Obama administration is increasingly concerned about a wave of digital extortion copycats in the aftermath of the cyberattack on Sony Pictures Entertainment, as the government and companies try to navigate unfamiliar territory to fortify defenses against further breaches.

• Antigraft Campaign Ripples Through China’s Economy. Some Business Are Adjusting Priorities In a Climate of Stricter Government Scrutiny. China’s biggest oil company is eschewing everything from multibillion-dollar deals to employee birthday cakes. A company that supplies alcohol for high-end spirits makers has turned to making industrial chemicals, while a restaurant chain that once served spicy fish heads to well-fed officials is now investing in big data.

• S&P Nears Settlement on Real-Estate Bond Ratings. Pact Would Be With SEC, New York and Massachusetts. Standard & Poor’s Ratings Services is nearing a settlement with regulators over their investigation of how the company graded real-estate bonds, according to people familiar with the matter.

Fox News:

• ObamaCare woes: Struggling Iowa health insurer taken over by state.

Zero Hedge:

• The Keynesian Desperation Regarding 1920-21 Is Now Embarrassing. (graph)

• 50 Numbers From 2014 That Sound Fake But That Are Actually Real.

• US Yield Curve Collapses To 6.5 Year Lows. (graph)

• China's Christmas Present To The World: Beijing Eases Again, Sets Non-Bank Deposit Reserve To Zero. (graph)

• Japanese 10Y Yield Drops To Record Low; 2s Sell Subzero After BOJ Indirectly Buys Record Foreign Stocks. (graph)

• SF Fed Warns US Equity Valuations Will Be Cut In Half In Next Decade.

Business Insider:

• We Spoke To A North Korean Defector Who Trained With Its Hackers — What He Said Is Pretty Scary.

• It Looks LIke US Retailers Are Just Barely Going To Meet Holiday Expectations.

• The NYPD Is Facing A Wave Of Violent Threats Against Officers.

• Saudi Arabia Projects Its Biggest Deficit Ever After Oil Crash.

• Pressures Intensify On Russia's Banking Sector.

NY Times:

• Ukraine Vote Takes Nation a Step Closer to NATO.

Reuters:

• Russian presidential aide sees 11 pct inflation at end-2014 - RIA.

Telegraph:

• France has never had this many unemployed people before. Jobless total in France hits record high in November, as troubles continue for Europe's second largest economy.

Evening Recommendations 

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 103.50 +1.5 basis points.

• Asia Pacific Sovereign CDS Index 64.5 unch.

• S&P 500 futures +.13%.

• NASDAQ 100 futures  +.24%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note

Economic Releases

• None of note

Upcoming Splits

• None of note

Other Potential Market Movers

• The China industrial profits report could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and real estate 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 Seasonal Strength, Less European Debt Angst, Short-Covering, Biotech/Airline Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Higher
  

• Sector Performance: Mixed
  

• Volume: Light

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 14.10 -4.73%

• Euro/Yen Carry Return Index 153.31 -.06%

• Emerging Markets Currency Volatility(VXY) 10.85 -.28%

• S&P 500 Implied Correlation 64.97 -1.77%

• ISE Sentiment Index 51.0 -27.14%

• Total Put/Call .94 +10.59%

• NYSE Arms 1.07 +38.68% 

Credit Investor Angst:

• North American Investment Grade CDS Index 64.25 -.35% 

• America Energy Sector High-Yield CDS Index 636.0 +1.1%

• European Financial Sector CDS Index 61.86 -.86%

• Western Europe Sovereign Debt CDS Index 26.76 -3.51%

• Asia Pacific Sovereign Debt CDS Index 64.55 +.01%

• Emerging Market CDS Index 325.69 +.46%

• China Blended Corporate Spread Index 339.71 -1.04%

• 2-Year Swap Spread 18.75 +.25 basis point

• TED Spread 23.5 +1.75 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -14.75 -.5 basis point

Economic Gauges:

• 3-Month T-Bill Yield .00% -2.0 basis points

• Yield Curve 153.0 +1.0 basis points

• China Import Iron Ore Spot $66.94/Metric Tonne +.15%

• Citi US Economic Surprise Index 38.60 +1.6 points

• Citi Eurozone Economic Surprise Index 2.60 +.5 point

• Citi Emerging Markets Economic Surprise Index -13.70 +.3 point

• 10-Year TIPS Spread 1.68 -3.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating +80 open in Japan

• DAX Futures: Indicating +7 open in Germany

Portfolio: 

• Slightly Higher: On gains in my biotech/medical sector longs

• Disclosed Trades: None

• Market Exposure: 50% Net Long

Bear Radar

Style Underperformer:

• Large-Cap Value +.03%

Sector Underperformers:

• 1) Energy -1.22% 2) Oil Service -1.20% 3) Social Media -.90%

Stocks Falling on Unusual Volume:

• CAMP, DLNG, CUBA, BIS, AFG, CAF, CALM, WMC, PKO, ARDX, OAS, PTY, SSL, VLP, AAVL, PDI, TGP, NOAH, BCPC, KOP, NE and CLR

Stocks With Unusual Put Option Activity:

• 1) SHLD 2) NVDA 3) XLU 4) OIH 5) BBY

Stocks With Most Negative News Mentions:

• 1) MON 2) CHK 3) JCP 4) NBL 5) CLR
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +.61%

Sector Outperformers:

• 1) Gold & Silver +2.27% 2) Biotech +2.17% 3) Utilities +1.44%
  

Stocks Rising on Unusual Volume:

• ADMS, BRP, NVGS, ACHN, GPRO, ISIS, QIHU, VNDA and CELG

Stocks With Unusual Call Option Activity:

• 1) OVTI 2) AEP 3) KKR 4) GPS 5) UPS
  

Stocks With Most Positive News Mentions:

• 1) OVAS 2) BAC 3) AAPL 4) TOL 5) ABBV
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

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