Stocks Higher into Final Hour on Central Bank Hopes, Short-Covering, Less European/Emerging Markets Debt Angst, Retail/Healthcare Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 15.86 -6.66%

• Euro/Yen Carry Return Index 136. 70 -.80%

• Emerging Markets Currency Volatility(VXY) 10.18 -.88%

• S&P 500 Implied Correlation 56.10 -3.32%

• ISE Sentiment Index 91.0 -7.14%

• Total Put/Call .98 +4.26%

• NYSE Arms 1.64 +46.56% 

Credit Investor Angst:

• North American Investment Grade CDS Index 84.05 -.12%

• America Energy Sector High-Yield CDS Index 1,298.0 +3.81%

• European Financial Sector CDS Index 69.97 -.76%

• Western Europe Sovereign Debt CDS Index 18.99 -1.94%

• Asia Pacific Sovereign Debt CDS Index 67.61 -.18%

• Emerging Market CDS Index 311.94 -1.62%
  

• iBoxx Offshore RMB China Corporate High Yield Index 124.15 +.12%

• 2-Year Swap Spread 6.0 +.25 basis point

• TED Spread 27.75 +3.25 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -447.75 -3.5 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 71.15 +.13%
• 3-Month T-Bill Yield .10% +1.0 basis point

• Yield Curve 136.0 +1.0 basis point

• China Import Iron Ore Spot $44.91/Metric Tonne -1.17%

• Citi US Economic Surprise Index -9.1 -.5 point

• Citi Eurozone Economic Surprise Index 24.0 -.6 point

• Citi Emerging Markets Economic Surprise Index 2.10 +2.1 points

• 10-Year TIPS Spread 1.64 +3.0 basis points
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 2.67 -.03

Overseas Futures:

• Nikkei 225 Futures: Indicating +55 open in Japan 
• China A50 Futures: Indicating +3 open in China

• DAX Futures: Indicating -11 open in Germany

Portfolio: 

• Slightly Lower: On losses in my index hedges and emerging market shorts

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

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:

• Death Toll Rises to 18 as Mali, French Forces Advance in Hotel. (video) At least 18 people were killed in the Radisson Blu Hotel in the Malian capital of Bamako after gunmen claimed to be loyal to al-Qaeda carried out the biggest-ever attack on international interests in the West African nation. As of 16:15 local time, French and Malian forces were advancing toward the seventh floor of the hotel where some of the attackers barricaded themselves and are still holding hostages, army spokesman Captain Modibo Traore said by phone Friday from Bamako. The attack began at 7:00 a.m. when gunmen burst into the lobby and began firing, hotel manager Gary Ellis said. Troops from Mali, France and the U.S. stormed the hotel and moved room to room evacuating guests, a United Nations official said Friday by e-mail from Bamako. People covered in blood were carried out of the hotel by Malian security forces, while dozens of others walked out one by one. About 73 of the 170 hostages originally taken have been freed, Colonel Fode Cissoko, an Interior Ministry official, said. Troops from Mali, France and the U.S. stormed the hotel and moved room to room evacuating guests, a United Nations official said Friday by e-mail from Bamako.
• Cazeneuve: France to Keep Border Controls as Long as Threat Remains. Checks at entry points will remain in place for as long as France faces a heightened terrorist threat, French Interior Minister Bernard Cazeneuve said. “France will maintain the controls on its borders it set up on Friday as long as the terrorist threat requires us to do so,” he told reporters in Brussels at the conclusion of a meeting of his European Union counterparts. France introduced controls at its normally check-free frontiers in response to Europe’s worst terrorist attack in a decade, which killed 129 people and injured another 352 in Paris on Nov. 13. 
• China Cracks $64 Billion `Underground Bank' Moving Money Abroad. (video) China said it cracked the nation’s biggest “underground bank,” which handled 410 billion yuan ($64 billion) of illegal foreign-exchange transactions, as the authorities try to combat corruption and rein in capital outflows that have hit records this year. More than 370 people have been arrested or face lawsuits or other punishment in the case centered in eastern Zhejiang province, the official People’s Daily reported on Friday, citing police officials. The case brought the total for underground banking and money-laundering activities to 800 billion yuan since April, the newspaper said.
• Hedge Funds Shorting Mexico Peso Means More Emerging-Market Pain. (video) There will be no reprieve from the swoon in emerging-market currencies as far as hedge funds are concerned. And to get a sense of how bad it might get, look no further than the Mexico peso, the most-traded currency in developing nations and the market’s proxy for risk. So-called net shorts -- the difference between the number of bearish wagers on the peso by hedge funds and other large speculators versus bullish ones -- last week surged by the most since March 2007.
• When It Comes to Ruble, Oil Means More to Citigroup Than Putin. Beware the rally in the ruble. The best-performing major currency in the five days through Thursday is being buoyed by a thaw in relations between Russia and the West following the terror attacks in Paris, and the prospect this will lead to the dismantling of sanctions imposed over the Ukraine conflict. Yet with oil near a six-year low, Citigroup Inc. and Morgan Stanley say the gains can’t last. 
• Euro Resumes Drop as Draghi Leaves Little Doubt of More Stimulus. The euro fell for the first time in three days after European Central Bank President Mario Draghi said policy makers will do what they must to raise inflation “as quickly as possible.” The shared currency weakened to almost a seven-month low against the dollar and dropped versus all of its 16 major peers. Draghi said in Frankfurt that downside risks to price growth have increased in recent months. The euro also fell after German producer prices declined more in October than forecast. The euro declined 0.4 percent to $1.0690 at 9:45 a.m. New York time, after gaining 0.9 percent in the previous two days. It touched $1.0617 on Nov. 18, the lowest since April 15. The shared currency fell 0.5 percent to 131.27 yen.
• European Stocks Rise Amid Growth Optimism, Health-Care Gains. European stocks rose for a second day, extending a three-month high, amid investor optimism about global growth, while gains in health-care companies helped offset declines in banks. AstraZeneca Plc led drugmakers higher with a 1.6 percent advance. ABN Amro Group NV climbed 3.4 percent on its first day of trading in Amsterdam after an initial public offering. Glencore Plc fell 1.8 percent as miners erased earlier gains. Barclays Plc led lenders lower, falling 3.5 percent after Morgan Stanley cut its rating to equal weight, citing risks to consensus earnings estimates.The Stoxx Europe 600 Index rose 0.2 percent to 381.78 at the close of trading.
• Commodities Have Headwinds Until Dollar Peaks: Blanch. (video)
• Copper Slump Seen Extended as Miners Look to 'Tough It Out'. Copper’s worst rout in seven years will be prolonged by the industry’s reluctance to shut major mines, some of which are already unprofitable, according to the world’s top miner. The price of the metal has tumbled 27 percent this year as investors fret over faltering Chinese demand and a stronger dollar. Yet major copper suppliers are making only marginal cutbacks to satisfy shareholders, while resisting shuttering operations on the belief they can “tough it out,” Codelco Chairman Oscar Landerretche said.
• Dudley: Economy in Good Shape; Liftoff Data-Dependent. (video)
• Fed's Bullard Says Investors Should Prepare for Uncertainty Era. Federal Reserve Bank of St. Louis President James Bullard said investors should prepare for uncertainty on whether the Federal Open Market Committee will raise its target interest rate at each meeting next year, as the era of signaling moves is over. “We are going to return to an era where there is a bit more uncertainty about what the committee is going to do, meeting to meeting,” Bullard, who votes next year on policy, told reporters after a speech in Fort Smith, Arkansas. “Markets have been used to us being at zero for seven years where we didn’t have this kind of uncertainty. I would welcome the return of that.” Bullard said the best guide to the FOMC’s pace of tightening will be the quarterly forecasts submitted by participants. Policy makers believed that higher interest rates might be justified by December, though the pace of tightening will be gradual, according to minutes of the Oct. 27-28 meeting, released Wednesday in Washington. Asked what gradual meant for 2016 and whether it would preclude, for example, an increase at the next meeting after liftoff, Bullard said, “I do think this will be debated a lot once the committee makes a decision on liftoff and this will be an important part of the policy debate in coming quarters.”
• S&P 500 Profits Fall $25b in First 3 Quarters, Further Drop Seen. Profits from S&P 500 companies fave fallen by about $25 billion in the first three quarters of the year, as a sharp rally in the dollar has hit exporters while a drop in oil prices has hurt energy firms. About 96% of S&P 500 companies have reported 3Q results so far, and the aggregate net income from continuing operations for the first 3 quarters is $804b, vs $828b for the first 3 quarters last year, data compiled by Bloomberg shows. S&P 500 aggregate revenue has fallen by $287b y/y over the same period. On share-weighted basis, S&P 500 profits down 3.3% y/y so far for 3Q, making this earnings season the worst since 2009, and market a second consecutive quarter of negative earnings growth. Energy sector the most hit as earnings plummet 57% in 3Q. Profits are set to fall further, with analysts expected a 5% y/y drop in S&P 500 profits in 4Q. 
• Credit Market Conundrum: What Junk Bond Spreads Reveal. (video)
• Jefferies: Department Stores, Electronics Have Been Weak. (video)
• Inside the Money Laundering Scheme That Citi(C) Overlooked for Years. How Citigroup's Banamex USA unit turned a blind eye on the Mexican border. Seven years after the financial crisis laid bare Wall Street’s inability to contain risk, big global banks are still struggling to stamp out bad behavior and profitably manage their international operations. They’ve paid billions of dollars in fines after employees were found to have manipulated interest rate and foreign-exchange benchmarks, helped clients avoid taxes, and funneled money to countries such as Sudan and Iran. 
• Goldman(GS) Said to Raise $1.3 Billion to Buy Hedge Fund Stakes. Goldman Sachs Group Inc. has raised $1.3 billion for its second Petershill fund that buys stakes in hedge fund firms, beating its initial target, according to a person with knowledge of the matter. 
• Hospitals Feel Pain as UnitedHealth Eyes Obamacare Exit Door. (video) The possible departure of insurance leader UnitedHealth Group Inc. from Obamacare signals worsening prospects for hospitals already facing a slowdown in gains from the program. UnitedHealth said Thursday it expects to lose as much as $500 million next year selling coverage under the Patient Protection and Affordable Care Act. The company has scaled back marketing efforts for individual ACA insurance plans, and it may stop participating in 2017.

Fox News:

• Dozens feared dead as hostage situation in Mali hotel apparently ends. (video) The deadly hostage situation at a hotel in Mali's capital city appeared to come to an end Friday, but the fate of dozens of guests and hotel workers was still unclear. Local media reported there were no more hostages by Friday afternoon at the Radisson hotel in Bamako. A U.N. official told The Associated Press that initial reports from the field indicate that 27 people were killed in the attack. Al Qaeda-linked jihadists claimed responsibility for the siege. The official, speaking on condition of anonymity because the operation is still ongoing, said 12 bodies were found in the basement and 15 bodies were found on the second floor. The official stressed that the building had yet to be totally cleared.

CNBC:

• Expect at LEAST three rate hikes in 2016: Economist. (video)
• Nasdaq 100 rally can be credited to just two stocks. (video)

Zero Hedge:

• Mali Hostage Situation Over; 27 People Reported Dead, 2 Gunmen Killed.
• Is This How The Next Global Financial Meltdown Will Unfold? (graph)
• Three "Do You Believe In Crude Oil Miracles" Charts. (graph)
• The End Of The Recovery, In One Chart. (graph)
• Spot The Odd One Out. (graph)
• EU's Founding Treaty To Be "Reconsidered", Seeking End To Passport-Free Travel.
• Is The "Easy" Money Over For European Stocks? (graph)
• "Desperate" Novice Trader May Be Suicidal If He Didn't Cover: KBIO Short Squeeze Goes "Full Volkswagen".
• Fed To Hold An "Expedited, Closed" Meeting On Monday.
• Tesla(TSLA) Tumbles After Recalling 90,000 "Best Car Ever" Model S Sedans. (graph)
• Albert Edwards Explains What The Next Stage In Global Currency War Look Like. (graph)

Business Insider:

• We just got a major sign that world trade is crashing.
• MACAU: It's way worse than Wall Street thought.

Telegraph:

• Speculators test Saudi currency as oil crisis deepens. “A de-peg of the Saudi riyal is our number one ‘black-swan’ event for oil in 2016,” said Bank of America. 
• Goldman(GS) eyes $20 oil as glut overwhelms storage sites. “The world is floating in oil. The numbers we are facing now are dreadful," said David Hufton from PVM Group.

Xinhua:

• China SOE Profits Fall 0.8% in First 10 Months. China SOE profits dropped 9.8% to 1.88 trillion yuan in Jan.-Oct. period, hurt by the economic slowdown. Profits slid 8.2% in first 9 months. SOEs in petrochemical, oil refining and construction materials posted substantial profit declines, while those in steel and coal suffered more losses.

Bear Radar

Style Underperformer: 

• Large-Cap Value +.18%

Sector Underperformers: 

• 1) Disk Drives -5.02% 2) Gold & Silver -3.07% 3) Gaming -1.88%

Stocks Falling on Unusual Volume:

• MENT, NMBL, UVE, IRS, CRESY, WSM, RVNC, SPLK, AMWD, KEYS, BLDR, BMRN, RH, AKAM, WDAY, TSNU, PTCT, NGVC, CDNS, ENBL, SNPS, EE, HAYN, ABY, CF, ADSK, DEPO, BLDR, SNPS, RVNC and PSTG

Stocks With Unusual Put Option Activity: 

• 1) OIL 2) HPQ 3) ALTR 4) CF 5) FSLR

Stocks With Most Negative News Mentions: 

• 1) NMBL 2) MENT 3) AKAM 4) GS 5) TSLA

Charts:

• ETFs Falling on Unusual Volume 
• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +.87%

Sector Outperformers: 

• 1) HMOs +3.16% 2) Hospitals +2.36% 3) Retail +1.89%

Stocks Rising on Unusual Volume: 

• MTCH, KBIO, HIBB, ANF, SRPT, WAIR, FL, INTU, ROST, VIPS, FRAN, NKE, GES, GPS, SRPT, SPWH, BURL, CAB, GPS and HABT

Stocks With Unusual Call Option Activity: 

• 1) BMRN 2) AMD 3) CL 4) TMUS 5) SRPT

Stocks With Most Positive News Mentions: 

• 1) NKE 2) ROST 3) DG 4) HIBB 5) INTU

Charts: 

• ETFs Rising on Unusual Volume 
• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running +5.6% Above 100-Day Average
• 7 Sectors Rising, 3 Sectors Declining
• 63.5% of Issues Advancing, 33.6% Declining
• 60 New 52-Week Highs, 78 New Lows
• 34.8% of Issues Above 200-day Moving Average
• Average 14-Day RSI 42.8
• Vix 16.3
• Total Put/Call 1.09
• TRIN/Arms 1.21

Friday Watch

Evening Headlines
Bloomberg:

• France Scrutinizes EU's Terror Failings a Week After Attacks. (video) France took European allies to task after investigations exposed serious security flaws that may be partly to blame for the country’s worst attack on home soil since World War II. In a thinly-veiled jab at Belgium, whose intelligence services are under scrutiny after investigators found at least three Brussels residents took part in the carnage, French Interior Minister Bernard Cazeneuve said "it’s essential that Europe pulls itself together." "There needs to be a collective realization by all European ministers, we need to move quickly and forcefully," Cazeneuve said ahead of a meeting with European Union counterparts requested by France in the Belgian capital. An increasing body of evidence shows an intelligence breakdown may have allowed a well-flagged jihadi free to roam the continent. Cazeneuve highlighted how Abdelhamid Abaaoud, the suspected architect of the attacks killed in a police raid on Wednesday, had been implicated in four of six attacks foiled by French forces since January. He added that both international and European warrants had been issued for his arrest. At least four of the attackers were listed on a counter-terrorism database maintained by the U.S. intelligence community, with one or more on a U.S. no-fly list, Reuters reported, citing unidentified U.S. officials.
• The Politics Surrounding the Fight Against Islamic State. (video)
• Does China Have a $1.2 Trillion Ponzi Problem? (video) 
• BOJ Easing Seen as Blunt Tool by Invesco, Blowing Bubbles by TCW. TCW Group Inc. says the Bank of Japan has made a mistake and should exit quantitative easing as soon as possible. Invesco Ltd. says the only error was not starting sooner. The split in views at the funds, which manage a combined $971 billion, comes as BOJ Governor Haruhiko Kuroda kept monetary policy unchanged on Thursday and his board said inflation expectations seem to be rising. TCW is among critics that say easing has only served to artificially inflate asset prices above what is merited by the real economy, and the longer it continues, the bigger the eventual crash.
• Taiwan Tech Demise Shows Pain of Dependence on Desktop PCs. For a stark depiction of how Taiwan’s technology industry has been ravaged by the rise of the smartphone and the fall of the desktop computer, look at Asia’s stock market. The 10 worst performers in Morgan Stanley’s 106-member Asia-Pacific Infotech Index this year come from Taiwan, once the leader of computer innovation and a powerhouse in hardware and semiconductor manufacturing. The sagging companies include former PC giant Acer Inc. and its manufacturing spinoff Wistron Corp. -- both are down 40 percent -- and smartphone maker HTC Corp., once the biggest seller in the U.S.
• Deep Dive: Baltic Dry Index, Swiss Watchmakers. (video)
• Here's Why Consumption in Latin America's Biggest Economy Is Taking a Hit. Recession and inflation hobble growth and companies shed workers. When Brazil’s Dilma Rousseff was sworn in for her second presidential term in January, she proclaimed that maintaining jobs and raising salaries were her “greatest priority.” Months later, real wages are falling and — even with people leaving the workforce — unemployment has spiked to its highest in more than six years. How does all this look on the ground?  
• Asian Stocks Drop as U.S. Dollar Holds Biggest Slump in a Month. Asian equities pared their biggest weekly gain in six weeks as investors paused for breath after a rally fueled by optimism that the Federal Reserve’s pace of tightening will be gradual. The dollar held its biggest slump in a month, while oil languished near a three-month low. The MSCI Asia Pacific Index lost 0.3 percent as Japanese shares led declines, with exporters dragged lower by the yen’s advance.
• Are Energy Stocks Overvalued? (video)
• Fischer Says Fed Trying Not to Surprise Markets at Liftoff. Federal Reserve Vice Chairman Stanley Fischer said the central bank has done its best to prepare international markets for its first interest rate increase since 2006 and reiterated that no decision has been made yet about the precise timing of liftoff. "In the relatively near future probably some major central banks will begin gradually moving away from near-zero interest rates," Fischer on Thursday told the Asia Economic Policy Conference Thursday at the Federal Reserve Bank of San Francisco. "We have done everything we can to avoid surprising the markets and governments when we move, to the extent that several emerging market (and other) central bankers have, for some time, been telling the Fed to ’just do it.’”

Wall Street Journal:

• Islamic State Tactics Shift, Borrowing From al Qaeda. Extremists are engineering larger, more coordinated plots against the West. U.S. and European counterterrorism officials believe Islamic State has changed its operational tactics by borrowing from al Qaeda’s playbook, deploying trusted lieutenants to engineer larger, more coordinated plots against the West.
• Paris Attacks Shine Light on Europe’s Failing Border Policies. EU nations have been slow to improve their information-sharing practices. In the minds of many Europeans, last Friday’s attacks in Paris have merged terrorism with the continent’s refugee crisis. That was probably the idea. A forged Syrian passport found near the body of a suicide bomber outside the Stade de France sports stadium strongly suggests the perpetrators of the outrage wanted it that way. The attacks have provided ammunition for nationalist politicians in Poland, Italy and elsewhere to reinforce an anti-immigration narrative. But the links between the two biggest issues on the European agenda have been made by mainstream policy makers too.
• NYPD Commissioner Bratton: Homelessness in NYC Has ‘Exploded’ in Past Two Years. Bratton said he was ‘frustrated’ by the problem during a panel discussion on quality-of-life issues. Police Commissioner William Bratton said Thursday that homelessness in New York City had “exploded” over the past two years—including in his own Upper East Side neighborhood—and was posing a challenge to police.
• Uncertain Leadership in Perilous Times. Paris is different, but the president can’t seem to change.

Fox News:

• Islamic State terrorists determined to build chemical weapons, officials say. (video) The Islamic State group is aggressively pursuing development of chemical weapons, setting up a branch dedicated to research and experiments with the help of scientists from Iraq, Syria and elsewhere in the region, according to Iraqi and U.S. intelligence officials.

MarketWatch.com:

• UnitedHealth(UNH) suggests Obamacare is being gamed. 
• The countries where ISIS finds support, in two charts.

CNBC: 

• Ken Griffin warns art prices 'cause for concern'. (video)
• UnitedHealth(UNH) move a 'wake-up call' for the White House: Analyst. As UnitedHealth Group threatens to opt out of participating in Obamacare in 2017, one expert says no one should be surprised.

Zero Hedge:

• The Great Fall Of China Started At Least 4 Years Ago. (graph)
• China's "Minksy Moment" - $1.2 Trillion In Ponzi Financing. (graph)
• Subprime Auto Lending Soars As Fed Report Shows Spike In Loans To Underqualified Borrowers.
• The Beginning Of The End For The Affordable Care Act? Largest US Health Insurer May Exit ObamaCare.
• Hillary Clinton's Aides Demand Comedy Club Remove Video Making Fun Of Her.
• The Stunning Visualization Of The World's 3 Billion Barrel Oil Glut.
• 3 Things: Earnings, Profits, Rates. (graph)
• Bonds & Bullion Bid As Fed "Policy Error" Fears Spark Dollar Drop, Stock Slop. (graph)

Business Insider: 

• The Clintons have generated $3 billion. The Washington Post just unveiled a jaw-dropping tally of Clinton Inc. showing that over four decades Bill and Hillary Clinton have generated $3 billion in total contributions to their global charitable, education and health care work, presidential and Senate campaigns and personal fees and royalties.
• Terrorism cost the world $52.9 billion in 2014.
• Yahoo(YHOO) insiders say Marissa Mayer is an indecisive micromanager and may be looking to quit.
• The US consumer has borrowed over $1 trillion for cars.
• The short seller who called out Lumber Liquidators' formaldehyde problem is now targeting a furniture company.
• The retail business is warning of an imminent recession.
• Gap(GPS) slashes forecast for earnings, shares drop. 
• Nike(NKE) is buying back $12 billion of itself.
• Senator: 'Young people are being robbed by older generations'.

Reuters:

• Mutual fund investors drive money out of U.S. stock funds -Lipper.

Financial Times:

• Paris attacks: Intelligence agencies forced to rethink tracking of Isis. Western intelligence agencies were forced to rethink their operations and reassess their ability to track Isis on Thursday as French officials confirmed the organiser of Friday’s Paris attacks had been operating under their noses.

Focus:

• German Police Discover Suspected Munich Terrorist Cell. German police found terrorist group in Central Apart Hotel in Berg am Laim district late Thursday evening. Investigators found several gas canisters and German police uniforms in hotel room. Federal, state police searching for suspects.

Evening Recommendations 

• None of note

Night Trading 

• Asian equity indices are -.50% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 126.25 -.25 basis point.
• Asia Pacific Sovereign CDS Index 67.75 -.25 basis point.
• Bloomberg Emerging Markets Currency Index 71.12 +.09%.
• S&P 500 futures -.10%.
• NASDAQ 100 futures -.11%.

Morning Preview Links 

Earnings of Note 
Company/Estimate

• (ANF)/.22
• (FL)/.95
• (HIBB)/.68

Economic Releases
11:00 am EST

• The Kansas City Fed Manufacturing Activity Index for November is estimated to rise to 0.0 versus -1.0 in October.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Bullard speaking, German PPI report and the (K) analyst day could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by consumer 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.