Wednesday Watch

Evening Headlines
Bloomberg:

• MSCI Emerging Markets Index Down 17% YTD. (video)
• Why China's Banks May Face Thinner Profit Margins in 2016. (video)
• China Pollution: Shanghai Warns People to Stay Indoors. (video)
• Investors Wary of `Brutal' Truth Skirt Europe's Banks in Flux. Across European banks, new chief executive officers have rolled out overhauls, pledging to fire thousands, exit businesses and cut assets to boost profit. For now, investors aren’t convinced the plans will pay off soon. Shares of Deutsche Bank AG, Credit Suisse Group AG and Standard Chartered Plc have dropped more than most peers since the CEOs unveiled their restructuring plans over recent months. Their complex reorganizations are largely trying to make the best of banks’ relative strengths, while working around models that are proving to be broken. At the same time, ever stricter capital rules, cooling emerging markets and record-low interest rates may complicate efforts. 
• Asia Stocks Rise as U.S. Consumer Spending Buoys Economic Growth. Asian stocks rose after a report showed American consumer spending supported growth in the world’s largest economy and gains in crude oil boosted energy shares. The MSCI Asia Pacific Index gained 0.1 percent to 130.61 as of 8:01 a.m. in Hong Kong. 
• Is a Devaluation of the Riyal the Biggest Threat to Oil? (video)  
• Oil Slump to 11-Year Low Just a Taste of Pain Felt by Producers. If oil’s slump to an 11-year low stung traders, it’s just a taste of the hardship felt by the industry. Brent’s plunge to $35.98 a barrel on Tuesday, its weakest intraday level since 2004, was probably painful enough for any remaining oil bulls. But that move was just playing catch-up with the annual average price, already at the lowest in 11 years -- a measure more important than intraday fluctuations to those that pump crude from the ground.
• U.S. Calls for 256% Tariff on Steel Imports From China. Corrosion-resistant steel imports from China were sold at unfairly low prices and will be taxed at 256 percent, according to a preliminary finding of the U.S. Department of Commerce.
• Get Used to Chinese Steel as Macquarie Sees It Getting Cheaper. (video) The world needs to get used to cheap Chinese steel, with export prices poised to fall again next year as the world’s biggest producer adjusts to demand that’s dropping for the first time in a generation. The price of hot-rolled coil, used in everything from fridges to freight containers, may decline about 13 percent next year, Colin Hamilton, Macquarie Group Ltd.’s head of commodities research, said by phone from London. The nation’s steel exports, which have ballooned to more than 100 million metric tons this year, may stay at those levels for the rest of the decade as infrastructure and construction demand continues to falter.
• Baosteel's Iron Ore Project Is Latest Casualty of Price Collapse. China’s second-largest steelmaker and its partners are mothballing a proposed iron ore project in Australia, the latest casualty of the market collapse that’s seen prices hit a record low this month. A partner meeting in Hong Kong on Monday decided to stop work on the feasibility study for the West Pilbara project, citing market conditions and uncertainty about future supply and demand, according to the venture’s railroad partner Aurizon Holdings Ltd.
• How Donald Trump May Be Helping Hillary Clinton. (video) Attacks tend to make the Democratic front-runner stronger. 

Wall Street Journal:

• Amazon(AMZN) Seeks to Ease Ties With UPS. Rising costs have Amazon seeking alternative delivery routes, straining relations with its longtime shipping ally.
• Coal Downturn Hammers Budgets in West Virginia and Wyoming. Steep drop in tax revenue leads to hiring freezes, widespread cuts; ‘Everything here is depressed'.
• Hillary Has Her Running Mate: Obama. The president is free to be Clinton’s designated partisan attack dog. The 2016 presidential race will be defined by the relationship between two titans of American politics: Barack Obama and Hillary Clinton. For the first time in more than two decades—since President Reagan campaigned with then-Vice President George H.W. Bush—an incumbent two-term president will be an active player in the campaign and possibly even an active presence at events.

Barron's: 

• Micron(MU) Drops 4%: FYQ1 Revenue Misses, Q2 View Misses by a Mile.

Fox News:

• Parents of 9/11 victims dying without seeing justice. (video) The wait for justice in the 9/11 court case has gone on for so long that the mothers and fathers who lost children in the terror attacks are dying without ever seeing a trial, according to family members contacted by Fox News.

MarketWatch.com:

• This ‘smart money’ indicator nailed the dot-com bust, and it’s even more bearish now. (graph)

CNBC:

• Bed Bath & Beyond(BBBY) lowers 3Q guidance, warns on 4Q. Home furnishings retailer Bed Bath & Beyond warned that its comparable sales will come in at about 1 percent for the fiscal fourth quarter through Christmas. Additionally, its preliminary findings for the third fiscal quarter showed a same-store-sales decrease of 0.4 percent, or relatively flat on a constant currency basis, according to a Tuesday statement. It expects third-quarter net sales to hit $3 billion, a 0.3 percent increase from a year ago. The company had previously guided toward a net sales increase of between 1.8 percent and 4 percent. BBBY shares fell about 5 percent in after-hours trading.

Zero Hedge:

• Something Just Snapped In China. (graph)
• How Would World Markets Respond To 4% Chinese GDP Growth? UBS Explains "The Dragon's Tail". (graph)
• Economists Confirm Financial Aid Is Inflating Student Loan Bubble.
• Beneath The Market's "Shallow" Surface, An Ugly Picture Emerges. (graph)
• Orwell's Nightmare Is Here - China Just 'Gamified' Obedience To The State (And Soon It'll Be Mandatory).
• Commerce Department Releases Consumer Spending Data Early - Worst YoY Growth Since May 2013. (graph)
• Chinese Executive Who Was Once Kidnapped By Angry Investors Disappears.
• Increasingly Durable Correlations. (graph)
• "Canadians Should Be Concerned" As Energy Sector Job Losses Spike To 100,000 This Year. (graph)
• Six Signs That 2016 Will Be Much Worse Than 2015.
• "When Is The Crash Going To Happen?" - Mark Spitznagel Revisits "The Ticking Time Bomb". (graph)
• The Fed's Grinchmas Message To Markets: This Is As Good As It Gets, Mizuho Warns.
• Crude Extends Gains After API Reports Unexpectedly Large Inventory Draw. (graph)
• 'Terrorists' Almost Spoil Traders' "Dash-For-Trash" As Volume Disappears. (graph)

Business Insider:

• Contagion from the energy market is coming.
• The US military is alleging that ISIS is telling its fighters to pose as Iraqi soldiers and massacre civilians.
• Over 1 million migrants have arrived in Europe in 2015.
• France says it foiled a terror attack that targeted 'soldiers, police and representatives of the state'.
• The US is expanding its sanctions over Russia's activities in Ukraine,
• Nike(NKE) beats on earnings, stock hits all-time high.

Reuters:

• Celgene(CELG) settles U.S. patent litigation for top seller Revlimid.

Evening Recommendations 

• None of note

Night Trading 

• Asian equity indices are +.25% to +.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 140.25 -1.25 basis points.
• Asia Pacific Sovereign CDS Index 74.5 unch.
• Bloomberg Emerging Markets Currency Index 69.40 -.03%.
• S&P 500 futures -.15%.
• NASDAQ 100 futures -.11%.

Morning Preview Links 

Earnings of Note 
Company/Estimate

• (LNN)/55
• (CALM)/2.40

Economic Releases
8:30 am EST

• Personal Income for November is estimated to rise +.2% versus a +.4% gain in October.
• Personal Spending for November is estimated to rise +.3% versus a +.1% gain in October.
• The PCE Core MoM for November is estimated to rise +.1% versus unch. in October.
• Durable Goods Orders for November are estimated to fall -.6% versus a +2.9% gain in October.
• Durables Ex Tranports for November are estimated unch. versus a +.5% gain in October.
• Cap Goods Orders Non-Defense Ex Air for November are estimated to fall -.2% versus a +1.3% gain in October.  

10:00 am EST

• New Home Sales for November are estimated to rise to 505K versus 495K in October.
• Final Univ. of Mich. Consumer Sentiment for December is estimated to rise to 92.0 versus 91.8 in November.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,363,640 barrels versus a +4,801,000 barrel gain the prior week. Gasoline supplies are estimated to rise by +1,336,360 barrels versus a +1,731,000 barrel gain the prior week. Distillate supplies are estimated to rise by +2,009,090 barrels versus a +2,563,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise by +.31% versus a -1.2% decline prior.
  

Upcoming Splits

• (NKE) 2-for-1
• (ENSG) 2-for-1

Other Potential Market Movers

• The Canadian GDP report and the weekly MBA Mortgage Applications 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 lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

Stocks Rising into Final Hour on Less European/Emerging Markets/US High-Yield Debt Angst, Oil Bounce, Seasonal Strength, Retail/Energy Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Light

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 16.97 -9.25%

• Euro/Yen Carry Return Index 138.62 +.26%

• Emerging Markets Currency Volatility(VXY) 11.36 -.79%

• S&P 500 Implied Correlation 59.35 -1.8%

• ISE Sentiment Index 85.0 +51.79%

• Total Put/Call .89 +8.54%

• NYSE Arms .67 -24.58% 

Credit Investor Angst:

• North American Investment Grade CDS Index 94.62 -2.40%

• America Energy Sector High-Yield CDS Index 1,750.0 -2.64%

• European Financial Sector CDS Index 76.25 -2.49%

• Western Europe Sovereign Debt CDS Index 17.63 -1.95%

• Asia Pacific Sovereign Debt CDS Index 74.62 +.05%

• Emerging Market CDS Index 358.71 -.1%
  

• iBoxx Offshore RMB China Corporate High Yield Index 123.59 +.05%

• 2-Year Swap Spread 14.25 -.25 basis point

• TED Spread 41.75 -.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -31.50 -2.5 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 69.39 +.05%
• 3-Month T-Bill Yield .18% +2.0 basis points

• Yield Curve 127.0 +3.0 basis points

• China Import Iron Ore Spot $40.80/Metric Tonne +.84%

• Citi US Economic Surprise Index -29.2 +1.2 points

• Citi Eurozone Economic Surprise Index 17.6 unch.

• Citi Emerging Markets Economic Surprise Index 17.80 -.3 point

• 10-Year TIPS Spread 1.49% +1.0 basis point
• 54.0% chance of next Fed rate hike at April 27 meeting, 70.5% chance at June 15 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +23 open in Japan 
• China A50 Futures: Indicating +29 open in China

• DAX Futures: Indicating +54 open in Germany

Portfolio: 

• Higher: On gains in my retail/tech/medical sector longs 

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

• Market Exposure: Moved to 75% Net Long

Bear Radar

Style Underperformer: 

• Small-Cap Growth +.22%

Sector Underperformers: 

• 1) Alt Energy -1.6% 2) Oil Tankers -.8% 3) Hospitals -.5%

Stocks Falling on Unusual Volume:

• SCS, KNL, CMG, NTAP, RUN, NDRM, NEOG, PLUS, FMI, OPHT, FLKS, UA, NTRA, XRS, EGRX, OZRK and KMX

Stocks With Unusual Put Option Activity: 

• 1) ZNGA 2) HAS 3) SUNE 4) WTW 5) GDXJ

Stocks With Most Negative News Mentions: 

• 1) CMG 2) SCS 3) ZG 4) ALK 5) FOSL

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Value +.81%

Sector Outperformers: 

• 1) Steel +3.1% 2) Oil Service +2.9% 3) Road & Rail +2.1%

Stocks Rising on Unusual Volume: 

• NTI, RRMS, SMLP, OKS, EDE, DDC, GMLP, TGP, KYN, FINL, CLR, CEM, CEQP, BPL, ETE, UDF, BPT, TRGP, OKE, TEGP, CMP, WMB and MIC

Stocks With Unusual Call Option Activity: 

• 1) XLI 2) TIF 3) JOY 4) JWN 5) COP

Stocks With Most Positive News Mentions: 

• 1) LEN 2) FINL 3) CVX 4) BXLT 5) CAT

Charts: 

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -16.3% Below 100-Day Average
• 8 Sectors Rising, 2 Sectors Declining
• 60.7% of Issues Advancing, 36.7% Declining
• 16 New 52-Week Highs, 54 New Lows
• 28.0% of Issues Above 200-day Moving Average
• Average 14-Day RSI 36.8
• Vix 17.6 -5.7%
• Total Put/Call .86 +4.9%
• TRIN/Arms .81 -8.9%

Tuesday Watch

Evening Headlines
Bloomberg:

• Funds With $3 Trillion Take Rain Check on Emerging Stocks. (video) Rich pickings will be hard to find in emerging-market shares next year. That’s the conclusion of most money managers as they see off the third successive year of declines that took stock prices to the lowest level in a decade relative to their developed peers and shaved more than $4 trillion off their value in the last six months alone. A combination of dollar strength, domestic political turmoil and lower prices for metals and oil is driving investor caution. Ten out of 12 multi-asset managers overseeing a combined $3 trillion said in a Bloomberg survey they will either maintain or cut holdings in developing-nation equities in 2016. "Emerging markets will continue to be a drag on global growth," said Michael Kelly, who oversees $12.9 billion as managing director and global head of asset allocation at PineBridge Investments LLC in New York. “While valuations have been beaten down, fundamentals will continue to deteriorate,” said Kelly, who has an underweight stance. 
• Bonds Set to Beat Stocks Globally in 2015 After China Falters. Bonds are poised to outperform stocks globally for a second year, the first time that has happened in more than a decade, as slowing growth in China drives demand for the safest assets. The Global Broad Market Index of bonds from Bank of America Merrill Lynch has risen 1.3 percent this year, while the MSCI All Country World Index of shares has slumped 3.1 percent including reinvested dividends. In 2014, debt returned 7.8 percent and stocks advanced 4.8 percent. Bonds haven’t outperformed equities for two straight years since 2001 and 2002 when a bubble in technology shares burst.
• What the Spain-Italy 10-Year Spread Shows: Chart. (graph) 
• Are Italy's Bank Failures Just the Tip of the Iceberg? (video) 
• Toshiba Falls to Three-Year Low After $4.5 Billion Loss Forecast. Toshiba Corp. fell more than 7 percent on Tuesday after forecasting a record 550 billion yen ($4.5 billion) loss and announcing plans to cut more jobs as it restructures businesses. The shares slid to as low as 236.9 yen in early trade in Tokyo. The slump follows a decline of 9.8 percent on Monday.
• Asian Stocks Little Changed After China Signals More Stimulus. Asian stocks were little changed in thin trading as investors weighed the prospect of more stimulus from Chinese leaders. The MSCI Asia Pacific Index added less than 0.1 percent to 130.05 as of 9:12 a.m. in Tokyo.
• Is There More High-Yield Carnage Coming? (video) 

Wall Street Journal: 

• Dividend Dilemma Hounds Energy Companies. In the midst of the worst commodity slump in years, investors still want their dividends. In the midst of the worst commodity slump in years, investors still want their dividends. That was illustrated as energy firm Oneok Inc. said Monday it was committed in 2016 to sustaining the dividend at its unit that processes and transports natural gas. Oneok’s shares soared $2.92, or 15%, to $21.85, making the Tulsa, Okla., company the day’s biggest gainer in the S&P 500. Oneok’s shares are down 56% so far this year.
• SEC to Retrench on SAC’s Cohen. Shift reflects changing legal landscape.
• Driver in Las Vegas Strip Car Incident Expected to Be Charged With Murder. Lakeisha Holloway is suspected of intentionally driving into pedestrians, killing one person and injuring dozens. 
• Let’s Elect Hillary Now. We want a president we can loathe all of the time—not support some of the time. Let us now pledge to elect Hillary Clinton as the 45th president of the United States. Let’s skip the petty dramas of primaries and caucuses, the debate histrionics, the sour spectacle of the convention in Cleveland. Let’s fast-forward past that sinking October feeling when we belatedly realize we’re going to...

Fox News:

• Republicans blast Kerry for suggesting Iran could skirt new visa rules. (video) Republicans on Monday blasted Secretary of State John Kerry for suggesting in a letter to his Iranian counterpart that the administration could help the country get around new visa restrictions passed by Congress. “Instead of bending over backwards to try to placate the Iranian regime, the White House needs to be holding it accountable for its recent missile tests, its continued support for terrorism, and its wrongful imprisonment of Americans,” House Foreign Affairs Committee Chairman Ed Royce, R-Calif., said in a statement to FoxNews.com.

CNBC:

• How America's rich are viewing stocks, economy into 2016. (video)

Zero Hedge:

• China "Suspends" Another Unofficial PMI Data Release To Make "Major Adjustment". (graph)
• 272 Islamic State Terrorists Are Hiding In Europe, 150 More Are On Their Way, Dagbladet Reports.
• The Fed Never Solved The Mystery Of The "Missing Inflation", And Now It Has A Big Problem. (graph)
• 2015 - The Year In Money. (graph)
• "I Know Of No One Who Predicted This": Russian Oil Production Hits Record As Saudi Gambit Fails. (graph)
• Caught On Tape: U.S. Senator Issues Dire Warning On Unchecked Executive Power. (video)
• Why Capitalists Are Repeatedly "Fooled" By Business Cycles.
• Chasing Unicorns - 5 Investing Myths That Will Hurt You. (graph)
• Whistleblower Exposes Exactly How The Government Spies On Your Cell Phone.
• Germans Scramble To Buy Weapons Amid Nationwide Spike In Migrant-Driven Crime.
• Congress's $1.15 Trillion Spending Bill: Heads They Win, Tails You Lose.
• Bank Counterparty Risk Surges To 4-Year High. (graph)
• Chipotle(CMG) Pukes Another 5% After CDC Reports "Another More Recent Ecoli Outbreak". (graph)
• Traders Panic-Buy Stocks Into The Close Despite Crude And Credit Crumble. (graph)

Business Insider:

• The Mall of America is suing Black Lives Matter protestors.
• Canada is considering the 'unthinkable'.
• The Fed has been pulling the economy to the 'Dark Side'.
• Oil prices have slid to an 11-year low, but OPEC won't slow production.
• Hillary Clinton is getting shredded for saying the US is 'where we need to be' in the fight against ISIS.

Reuters:

• Latam stocks down; Brazil real weakens after minister switch.
• Fed proposes higher big bank capital thresholds when credit risk rises. The Federal Reserve proposed on Monday that big banks would have to hold additional capital if regulators determine that U.S. credit risk has risen to above-normal levels and threatens the financial system. The proposal for what the Fed is calling a "countercyclical capital buffer" is designed to fortify banks against potential losses and "help moderate fluctuations in the supply of credit," the U.S. central bank said in a press release.

Telegraph:

• Political uprising in Spain shatters illusion of eurozone recovery. "Our message to Europe is clear. Spain will never again be the periphery of Germany. We will restore the meaning of sovereignty," said Podemos.

Evening Recommendations 

• None of note

Night Trading 

• Asian equity indices are -.25% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 141.5 -.75 basis point.
• Asia Pacific Sovereign CDS Index 74.5 unch.
• Bloomberg Emerging Markets Currency Index 69.43 +.12%.
• S&P 500 futures -.02%.
• NASDAQ 100 futures -.05%.

Morning Preview Links 

Earnings of Note 
Company/Estimate

• (CAG)/.59
• (PAYX)/.51
• (CAMP)/.29
• (MU)/.23
• (NKE)/.86 

Economic Releases
8:30 am EST

• 3Q GDP is estimated to rise +1.9% versus a prior estimate of a +2.1% gain.
• 3Q Personal Consumption is estimated to rise +2.9% versus a prior estimate of a +3.0% gain.  
• 3Q GDP Price Index is estimated to rise +1.3% versus a prior estimate of a +1.3% gain.
• Core PCE QoQ is estimated to rise +1.3% versus a prior estimate of a +1.3% gain. 

9:00 am EST

• The FHFA House Price Index MoM for October is estimated to rise +.5% versus a +.8% gain in September.

10:00 am EST

• Existing Home Sales for November are estimated to fall to 5.35M versus 5.36M in October. 
• Richmond Fed Manufacturing Index for December is estimated to rise to -1.0 versus -3.0 in November.
  

Upcoming Splits

• (NKE) 2-for-1
• (ENSG) 2-for-1

Other Potential Market Movers

• The German Consumer Confidence, weekly US retail sales reports, (STE) conference call and the (ESRX) financial guidance call could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by consumer and industrial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.