Stocks Reversing Lower into Final Hour on China Bubble-Bursting Fears, Emerging Market Currency Worries, Oil Decline, Retail/Homebuilding Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Above Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 24.05 -3.76%

• Euro/Yen Carry Return Index 134.09 -.19%

• Emerging Markets Currency Volatility(VXY) 11.93 +2.76%

• S&P 500 Implied Correlation 63.82 +2.27%

• ISE Sentiment Index 49.0 -19.67%

• Total Put/Call 1.23 -11.51%

• NYSE Arms 1.41 +10.40% 

Credit Investor Angst:

• North American Investment Grade CDS Index 97.53 +2.11%

• America Energy Sector High-Yield CDS Index 1,551.0 -2.89%

• European Financial Sector CDS Index 81.90 +3.32%

• Western Europe Sovereign Debt CDS Index 17.17 -.75%

• Asia Pacific Sovereign Debt CDS Index 76.31 -3.44%

• Emerging Market CDS Index 375.10 +1.93%
  

• iBoxx Offshore RMB China Corporate High Yield Index 123.60 -.11%

• 2-Year Swap Spread 8.0 -1.5 basis points

• TED Spread 42.25 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -19.25 +.75 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 67.90 -.23%
• 3-Month T-Bill Yield .19% -1.0 basis point

• Yield Curve 119.0 -1.0 basis point

• China Import Iron Ore Spot $42.13/Metric Tonne -1.22%

• Citi US Economic Surprise Index -21.3 +8.5 points

• Citi Eurozone Economic Surprise Index 25.5 -3.4 points

• Citi Emerging Markets Economic Surprise Index 1.10 -1.3 points

• 10-Year TIPS Spread 1.50% -2.0 basis points
• 40.5% chance of Fed rate hike at March 16 meeting, 46.0% chance at April 27 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -277 open in Japan 
• China A50 Futures: Indicating -337 open in China

• DAX Futures: Indicating -5 open in Germany

Portfolio: 

• Slightly Higher: On gains in my index hedges

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short

• Market Exposure: Moved to 25% Net Long

Friday Watch

Evening Headlines

Bloomberg:  

• China Flip-Flops on Stock Crash Rule and Adds to Chaos. (video) After watching a stock-market collapse wipe out $5 trillion of wealth in less than three months last year, Chinese authorities hatched a plan to stem the pain: circuit breakers that would be triggered by daily declines of 5 percent. The new system went into effect Jan. 4. It lasted all of four days. After two harrowing sessions -- on Monday and Thursday -- that tripped the breaker repeatedly and convulsed global markets, officials suspended the rule, saying it was only exacerbating declines. While that acknowledgment addresses critics’ concerns, the flip-flop at the same time only adds to the sentiment among global investors that authorities are improvising -- and improvising poorly -- as they try to stabilize markets and shore up the economy. “They are changing the rules all the time now,” Maarten-Jan Bakkum, a senior emerging-markets strategist at NN Investment Partners in The Hague with about $206 billion under management. “The risks seem to have increased.”

• Offshore Yuan Extends Gains as China Ends Run of Fixing Cuts. The offshore yuan extended gains after China set its reference rate little changed from Thursday’s fixing after an eight-day run of reductions that sent shockwaves through financial markets and escalated fears of a global currency war. The People’s Bank of China set the daily fixing, which restricts onshore moves to a maximum 2 percent on either side, at 6.5636 a dollar, 0.02 percent stronger than the previous day. That’s 0.5 percent higher than Thursday’s onshore effective closing price in the spot market and ends an eight-day reduction of 1.42 percent.

• China's Stock Market Is Hardly Free With Circuit Breakers Gone. China’s removal of market-wide circuit breakers after just four days still leaves investors facing plenty of restrictions in how they trade. A 10 percent daily limit on single stock moves and a rule preventing investors from buying and selling the same shares in a day remain in force. Volume in what was once the world’s most active index futures market is minimal after authorities curtailed trading amid a summer rout, making it more difficult to implement hedging strategies. Officials unveiled curbs Thursday on share sales by major stockholders just a day before an existing ban was due to expire. And the activity of foreign investors is limited by quotas, given either to asset managers or to users of the Hong Kong-Shanghai exchange link.

• Samsung Profit Misses Estimates on Falling Chip, Display Prices. Samsung Electronics Co. posted fourth-quarter profit that missed analysts’ estimates as demand for premium smartphones and their components remained sluggish over the year-end holiday shopping season. Operating income rose to 6.1 trillion won ($5 billion) in the three months ended December, the world’s largest maker of phones and memory chips said in preliminary results released on Friday. That compares with the 6.64 trillion-won average of analysts’ estimates compiled by Bloomberg. Demand is waning for smartphones, including its own Galaxy devices and those from Apple Inc., as markets mature and China’s economy slows. That’s pressuring profit margins at Samsung businesses from screens to semiconductors that supply rivals including the iPhone maker, as sliding demand for TVs propels a steep decline in display-panel prices. “The latest iPhone 6s devices didn’t outsell its predecessors and that pressured the major components suppliers,” Lee Jae Yun, an analyst at Yuanta Securities Korea Co., said in Seoul before the earnings release. Samsung’s components business will face weaker sales “until global demand shows signs of a recovery.”

• China Woes Send Traders Running From Germany's Once-Mighty DAX. You know things are bad for German stocks when even Greece is beating them. The DAX Index has tumbled 7.1 percent this week through Thursday, posting one of the worst drops among developed markets and its biggest slump since the China-led rout in August. The German measure closed below 10,000 for the first time since October, just after completing a fourth straight year of advances. Here’s how bad it’s been and why:

• Europe Property Sales Growth to Slump to Zero, Knight Frank Says. Offices and shops in London, Paris and Frankfurt may be a little harder to sell this year because of concerns over high prices and shrinking demand from Asian and Middle East investors. The value of commercial property sales will probably be little changed in 2016, following three years in which it rose by more than 20 percent, property broker Knight Frank LLP said in a report on Friday. The deal volume for 2015 amounted to about 235 billion euros ($255 billion), according to the firm’s provisional estimate, approaching the 260 billion-euro record set in 2007.

• Asian Stocks Rise in Volatile Trading as Investors Watch China. Asian stocks advanced in volatile trading, with the regional measure paring its steepest weekly slump since 2011. The MSCI Asia Pacific Index reversed an early decline after China refrained from another cut to the yuan’s reference rate, with the equities gauge rallying as much as 0.9 percent.

• Copper Pain Seen Not Deep Enough to Spur Cuts Needed to End Glut. Copper at $2 got the market’s attention, but it will fail to spur big enough production cuts to reverse a glut of the metal. Futures, which Thursday traded below $2 for the first time since 2009, could drop as much as 25 percent more before the industry implements “meaningful” reductions in output, according to Kenneth Hoffman, a senior analyst of metals and mining at Bloomberg Intelligence. That’s because prices are still above production costs, allowing producers to wait and “let the other guy” curb output, Hoffman said.

• S&P 500 Caps Worst-Ever Start to Year on China Woes, Oil Slump. (video) The Standard & Poor’s 500 Index capped its worst-ever four-day start to a year, while gold rallied with the yen as turmoil in China spread around the world and billionaire George Soros warned that a larger crisis may be brewing. The U.S. equities benchmark ended the first four days of 2016 lower by 4.9 percent, while the Dow Jones Industrial Average has erased more than 900 points so far this year. A measure of global shares wrapped up a four-day slide of 5.2 percent, its worst start in records back to 1998. Selling in global equities began in China after the central bank weakened the yuan an eighth day. Crude settled at a 12-year low, and copper dipped below $2 for the first time since 2009. The yen reached a four-month high.

Wall Street Journal: 

• Missing U.S. Missile Shows Up in Cuba. Inert Hellfire missile sent to Europe for a training exercise makes mysterious trip, sparking concerns over loss of military technology. An inert U.S. Hellfire missile sent to Europe for training purposes was wrongly shipped from there to Cuba in 2014, said people familiar with the matter, a loss of sensitive military technology that ranks among the worst-known incidents of its kind.

• ‘All Is Not Well’ in Global Economy, Warns Investor Jeffrey Gundlach. And the Federal Reserve’s decision to raise interest rates is compounding the problem. Many investors believe the U.S. will weather the global market downturn better than other nations, thanks to its steadily expanding economy. But Jeffrey Gundlach, who runs asset manager DoubleLine Capital LP, is downbeat on financial markets and the global economy, and he is worried the Federal Reserve is compounding the problems. Mr. Gundlach argues that sharp declines for oil, commodity, junk-bond and stock prices...

• Why China Shifted Its Strategy for the Yuan, and How It Backfired. Investors pounce on the central bank’s efforts to steer the currency lower. When the International Monetary Fund added the Chinese yuan to its elite basket of global reserve currencies in late November, officials at China’s central bank patted themselves on the back.

• Commodities Rout Forces Resource Firms to Cut Further. Mining, oil companies must search for new savings, as hopes of a commodity-price rebound fizzle on weak Chinese demand. Resource companies are facing renewed pressure to cut spending and investor payouts after a deepening commodities rout erased billions of dollars in shareholder value on Thursday.

• 5 Things to Watch in the December Jobs Report.

• Crayons Down, Kids. It’s Hillary Story Time. Two new picture books depict Mrs. Clinton with a hagiographic glow that even kindergartners might find hard to swallow.

Fox News:

• US student visa program's 'many vulnerabilities' raise spying, terror fears. (videos) From potential terrorists who enroll at phony schools only to melt into the U.S. population, to foreign scientists who come to study weapons technology at America’s top schools, the student visa program is allowing dangerous enemies into the country, a former top federal official told FoxNews.com.

MarketWatch.com:

• Gap(GPS) December sales fall 5%; shares tumble. Gap Inc. said its core sales fell 5% in December amid declines across all of its brands, as the retailer continues to struggle to turn itself around. Shares of Gap tumbled 6.9% to $24.90 a share in after-hours trading. Gap's stock had risen 5.7% in trading Thursday as a number of retailers reported strong holiday results.

• Container Store(TCS) slumps after reporting third-quarter loss. Shares sank 12% in after-hours trading.

• Here’s how China’s yuan drives the global selloff.

CNBC:

• Oil bull Andy Hall ends year down 35%. Respected energy hedge fund manager Andrew Hall, a well-established bull in the embattled oil market, lost about 35 percent last year, according to someone who has reviewed Hall's performance numbers.

• How bad? Strategist says up to 25% drop ahead.

• More key Apple suppliers cut revenue forecasts. (video) Two Apple suppliers tempered expectations Thursday, warning their quarterly results would likely be below estimates in the latest of a string of supplier woes that have dimmed the tech giant's shine on Wall Street. 

Zero Hedge:

• This Is The Dow's Worst Start To The Year... Ever. (graph)

• Russell Napier Explains How The Decline Of The Yuan Destroys Belief In Central Banking.

• Slovak PM Closes The Door To Refugees: "We Don't Want What Happened In Germany To Happen Here".

• The "Monsters" Unmasked: Cologne Police Admit "Most Of The Attackers Were Refugees".

• As The Saudi Economy Implodes, A Fascinating Solution Emerges: The Aramco IPO. (graph)

• "Nowhere To Hide" As Baltic 'Fried' Index Careens To Fresh Record Low. (graph)

• Bob Janjuah Warns The Bubble Implosion Can't Be "Fixed" This Time.

• For Commodities, This Is The Next Great Depression. (graph)

• Bloodbath. (graph)

Business Insider:

• Wall Street's nightmare stock(SUNE) crashed 35%.

• Former US defense secretary reportedly found top Obama national-security aides 'dangerously naive'.

• Bill Gross went to see 'The Big Short' and thinks the same thing is happening all over again.

• US to China: End 'business as usual' with North Korea.

• The stock market is losing its biggest source of demand. (graph)

• Here's one reason why Saudi Arabia is happy to take the pain of low oil prices.

Reuters:

• U.S. stock funds bleed: see biggest outflows since September - Lipper. Investors pulled more than $12.2 billion out of U.S. stock funds over the week that ended Jan 6, Lipper data showed on Thursday, slicing their risk as U.S. markets tumbled. The withdrawals struck both mutual funds and exchange-traded funds during a week that saw concerns about a slowdown in China weigh heavily on U.S. markets. Taxable bond funds saw $2.7 billion in withdrawals during the same period.

• EMERGING MARKETS-Latam currencies drop on China turmoil; Mexico peso hits record low.

• US high-yield bond market stumbles out of the gate. The embattled US high-yield market has struggled to get back on track in the first week of 2016, after three issuers bypassed public bond sales in a sign of more trouble for the asset class. The junk-bond sector, which delivered a net loss in 2015, now faces renewed questions about the extent of demand for what is believed to be a US$90bn pipeline of bond and loan deals.

Financial Times:

• Mexico warns of China triggering ‘perverse’ currency wars. Chinese market turmoil and the renminbi’s fall to a four-year low against the US dollar risks the prospect of “perverse” currency wars, Mexico has warned. Latin America’s second-biggest economy, which saw its currency tumble to a historic low of 17.72 pesos to the dollar on Thursday — on top of a slide of more than 14 per cent in 2015 — would be in the front line since the peso is the most widely traded emerging market currency and is often used by traders as a proxy.

Telegraph:

• Capital flight pushes China to the brink of devaluation. Beijing cannot keep burning through reserves at a record pace to defend the yuan and at the same time loosen monetary policy. It has to choose.  

Economic Information Daily:

• China Local Govts May Sell 1t Yuan New Debt This Year. Regions with "overly high" debt ratio will be allocated with fewer new debt to prevent risks, citing a person familiar with the matter. The new debt includes general bonds that use fiscal revenue for repayment and special notes which rely on project income. China may also allow larger amount of local debt swaps this year.

Night Trading 

• Asian equity indices are -.50% to +.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 146.0 +2.0 basis points.

• Asia Pacific Sovereign CDS Index 79.0 +3.5 basis points.

• Bloomberg Emerging Markets Currency Index 68.12 +.1%.

• S&P 500 futures +1.18%

• NASDAQ 100 futures +1.25%.

Morning Preview Links 

Earnings of Note 

Company/Estimate

• (AYI)/1.58

• (AZZ)/.89

• (SYRG)/.00

Economic Releases

8:30 am EST

• The Change in Non-Farm Payrolls for December are estimated to fall to 200K versus 211K in November.

• The Unemployment Rate for December is estimated to remain at 5.0%

• Average Hourly Earnings MoM for December are estimated to rise +.2% versus a +.2% gain in November.

10:00 am EST

• Wholesale Inventories MoM for November are estimated to fall -.1% versus a -.1% decline in December.

3:00 pm EST

• Consumer Credit for November is estimated to rise to $18.0B versus $15.982B in October.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Lacker speaking, Fed's Williams speaking, China CPI report and the German Industrial Production report and could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by financial and industrial shares in the region. I expect US stocks to open higher and to maintain gains into the afternoon. The Portfolio is 50% net long heading into the day.

Stocks Falling Substantially into Final Hour on China Bubble-Bursting Fears, Surging European/Emerging Markets/US High-Yield Debt Angst, Oil Decline, Commodity/Homebuilding Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Above Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 25.15 +22.29%

• Euro/Yen Carry Return Index 134.19 +.54%

• Emerging Markets Currency Volatility(VXY) 11.67 +3.18%

• S&P 500 Implied Correlation 61.26 +1.96%

• ISE Sentiment Index 60.0 -17.81%

• Total Put/Call 1.33 +31.68%

• NYSE Arms 1.13 -41.52% 

Credit Investor Angst:

• North American Investment Grade CDS Index 95.44 +2.75%

• America Energy Sector High-Yield CDS Index 1,597.0 +2.43%

• European Financial Sector CDS Index 79.26 +1.45%

• Western Europe Sovereign Debt CDS Index 17.30 +5.49%

• Asia Pacific Sovereign Debt CDS Index 78.05 +3.45%

• Emerging Market CDS Index 368.10 +2.06%
  

• iBoxx Offshore RMB China Corporate High Yield Index 123.73 -.14%

• 2-Year Swap Spread 9.5 -.75 basis point

• TED Spread 41.75 +1.0 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -20.0 +.75 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 68.08 -.01%

• 3-Month T-Bill Yield .20% unch.

• Yield Curve 120.0 +1.0 basis point

• China Import Iron Ore Spot $42.65/Metric Tonne -.61%

• Citi US Economic Surprise Index -29.8 -.5 point

• Citi Eurozone Economic Surprise Index 28.9 +11.6 points

• Citi Emerging Markets Economic Surprise Index 2.40 -3.5 points

• 10-Year TIPS Spread 1.52% -4.0 basis points

• 35.0% chance of Fed rate hike at March 16 meeting, 42.2% chance at April 27 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -182 open in Japan 

• China A50 Futures: Indicating -178 open in China

• DAX Futures: Indicating -117 open in Germany

Portfolio: 

• Slightly Higher: On gains in my index hedges and emerging markets shorts

• Disclosed Trades: None

• Market Exposure: 25% Net Long

Today's Headlines

Bloomberg:

• China's 29 Minutes of Chaos: Stunned Brokers and a Race to Sell. (video) Even by the rough-and-tumble standards of China’s stock market, it was a chaotic 29 minutes. With share prices going into free fall almost as soon as local exchanges opened, market gurus at Huaxi Securities Co. were at a loss to explain why. One manager of $46 million in Shanghai liquidated all his holdings. Other investors, including a top-performing hedge fund, tried in vain to cash out as circuit breakers brought trading to an abrupt halt. By 9:59 a.m. local time it was all over -- except that it wasn’t. Next came a torrent of calls from angry clients upset by the carnage in a week that’s seen two abbreviated trading sessions and a 12 percent tumble in the benchmark CSI 300 Index. And it’s only January 7th. "We are dealing with a flood of angry phone calls from clients complaining about the market plunge and the circuit breaker," said Wei Wei, an analyst at Huaxi Securities in Shanghai. "We are also feeling at a loss and confused today as we didn’t quite figure out what was going on in the market."

• China renews curb on investors’ stock sales to ease panic. Chinese regulators have renewed restrictions on the amount of stock major corporate shareholders can sell as authorities move to allay panic among equity investors. Starting Jan 9, major investors are permitted to sell no more than 1% of a company’s shares on the open market in three months, the China Securities Regulatory Commission said in a statement on Thursday. The rule doesn’t apply to transactions such as block trades and transfer agreements, and replaces an existing six-month ban on any secondary market sales that was due to expire Friday, it said.

• Is China Relying on Too Much Debt for Growth? (video)

• China's Defense of the Yuan Is Growing More Costly: Chart. (video) China is burning through cash as it battles to support the yuan. The nation’s foreign currency reserves tumbled by a record $108 billion in December as the central bank sold dollars to stem a slide in the currency. That was about four times greater than analysts predicted in a Bloomberg survey, and reduced the stockpile to the lowest level in three years. Despite the intervention, the yuan’s descent has steepened, with the currency falling to a five-year low on Thursday.

• China Reserves Post First Yearly Drop Since 1992 Amid Yuan Slide. China’s foreign reserves shrank last year for the first time since 1992, ending a 22-year ascent that began under former top leader Deng Xiaoping and accelerated with presidents Jiang Zemin and Hu Jintao. The currency hoard plunged by $513 billion in 2015 to $3.33 trillion as of Dec. 31, the People’s Bank of China said Thursday. It was dragged down down by factors including central bank intervention to prop up the yuan after an August devaluation roiled global markets and capital flight from the world’s second-largest economy, analysts said.

• If Options Traders Are Right, the Yuan's Slump Is Far From Over. The options market is signaling that the yuan’s slide to a five-year low has plenty of room to run. Contract prices on Wednesday indicated a 79 percent probability that the currency will weaken and 33 percent odds that it will drop beyond 7 per dollar, a rate last seen in 2008, according to Bloomberg calculations. That’s up from 15 percent at the start of December and comes as the central bank shows signs of reining in its support for the exchange rate in the face of rising intervention costs and sliding exports. The yuan dropped 0.6 percent in onshore trading at 4:07 p.m. local time after the central bank cut its reference rate.

• Hedge Funds in China Facing Forced Sales as Panic Spreads. Hedge funds in China are facing forced sales of stock holdings as the market plunge triggers a mandatory liquidation of assets. The manager of a Chinese hedge fund that returned a surprising 86 percent during last year’s stock rout, Xinhong Investment, plans to sell all its stock holdings on Friday, Chairman Lu Weidong said in an interview. Hedge funds in China generally have agreements with investors spelling out mandatory liquidation levels if their holdings drop below a certain value, and as many as 30 percent of Chinese hedge funds may have reached those levels or are approaching them, Lu said. “The selling pressure is huge,” Lu, whose firm oversees less than $3 million in assets, said on Thursday from his base in Dongguan in southern China. “They absolutely want to run.”

• VW, BMW Shares Tumble as China's Woes Put Growth Under Threat. Shares in Volkswagen AG, BMW AG and Daimler AG tumbled as China’s woes put growth plans at risk. The German carmakers were among the biggest losers in the European market, leading the Euro Stoxx autos and parts index to its lowest level since October 2015. Volkswagen, already reeling from the emissions-cheating scandal, fell 4.9 percent. BMW shares dropped 5 percent, and Daimler, the parent of Mercedes-Benz, slid 4.8 percent. “The massive devaluation of the Chinese currency is currently seen as the single biggest threat to the global economy and the reason for panic selling,” Arndt Ellinghorst, a London-based analyst with Evercore ISI, said in a report. He estimates that a 20 percent drop in the yuan’s value will equate to a loss of about 5.5 billion euros ($6 billion) in the combined profit of the German automakers.

• ADXY Below 1998 Trendline Points to More Downside Risk: Analysis. (video) It's not just the yuan. 

• Brazil Industry Drop Signals Recession Deepened at Year-End. Brazil’s industrial production fell more than all analyst forecasts in November, underscoring the challenge that policy makers face in pulling Latin America’s largest economy out of its worst slump in decades. Output in November decreased 2.4 percent from the previous month after a revised 0.6 percent decline in October, the national statistics agency said Thursday. The biggest slip since December 2013 was more than twice than the median 1 percent drop in a Bloomberg survey of analysts. From a year earlier, industrial production fell 12.4 percent, and hasn’t registered year-on-year growth since the first half of 2014. “This adds to evidence that the recession deepened in the fourth quarter,” said Edward Glossop, emerging market economist at Capital Economics.

• George Soros Sees Crisis in Global Markets That Echoes 2008. (video) Global markets are facing a crisis and investors need to be very cautious, billionaire George Soros told an economic forum in Sri Lanka on Thursday. China is struggling to find a new growth model and its currency devaluation is transferring problems to the rest of the world, Soros said in Colombo. A return to positive interest rates is a challenge for the developing world, he said, adding that the current environment has similarities to 2008. Global currency, stock and commodity markets are under fire in the first week of the new year, with a sinking yuan adding to concern about the strength of China’s economy as it shifts away from investment and manufacturing toward consumption and services. Almost $2.5 trillion was wiped from the value of global equities this year through Wednesday, and losses deepened in Asia on Thursday as a plunge in Chinese equities halted trade for the rest of the day. “China has a major adjustment problem,” Soros said. “I would say it amounts to a crisis. When I look at the financial markets there is a serious challenge which reminds me of the crisis we had in 2008.”

• Brazil Real Drops as Commodities, China Turmoil Spark Selloff. The real dropped as China weakened the yuan reference rate for an eighth straight day, fueling concern that the slowdown in Brazil’s top export market is deeper than official data suggest and dimming prospects for trade. The move spurred a selloff in Chinese equities and forced a trading halt for the second time this week. China is the biggest buyer of the commodities many developing nations rely on to fuel growth, and Brazil is its second-largest supplier of goods from developing nations. The S&P GSCI Index of raw materials declined 0.2 percent to an 11-year low. The real dropped 0.5 percent to 4.0484 per dollar at 2:51 p.m. in Sao Paulo.

• Junk-Bond Risk Gauge Jumps as China Meltdown Adds to Energy Rout. Junk-bond investors coming off their first losing year since 2008 are in the crosshairs again, as a stock-market meltdown in China and a plunge in oil prices cloud the outlook for debt sold by the least credit-worthy companies. The risk premium on the Markit CDX North American High Yield Index, a credit-default swaps benchmark tied to the debt of 100 speculative-grade companies, surged as much as 21 basis points to 516 basis points, rising toward the highest mark in three years. The average borrowing costs for the riskiest portion of the high-yield market surged to 18.5 percent, Bank of America Merrill Lynch index data show, a level not seen since 2009.

• Emerging Stocks Slump as China Turmoil Prompts Broad Selloff. Emerging-marketstocks sank to the lowest since 2009 as China’s move to further weaken the yuan’s reference rate sparked a selloff in mainland stocks that spread throughout developing nations. The CSI 300 Index of companies listed in Shanghai and Shenzhen plunged more than 7 percent before exchanges were halted by circuit breakers in the first half-hour of trading. South Africa’s rand weakened to a record low against the dollar. The Ibovespa tumbled for a second day as a plunge in Brazilian industrial production added to concern that demand for the nation’s exports will weaken further as China’s economy slows. The MSCI Emerging Markets Index fell 2.5 percent to 740.12 at 11:22 a.m. in New York. Its 14-day relative-strength index fell to 22.9, below the level of 30 that some analysts see as a signal a market is set to rebound. The developing stock measure has tumbled 6.7 percent this week, compared with a 4.5 percent drop in the MSCI World Index.

• European Stocks Pummeled on China Woes as DAX Falls Below 10,000. (video) European stocks fell for the third time in four days, mirroring declines that shook global equities in August, as they extended the worst start to a year since 2000 amid a China-fueled selloff in mining and energy shares. Europe’s equities have tumbled 5.3 percent in the first four days of the year, and companies with the most sales in the world’s second-biggest economy are bearing the brunt. Anglo American Plc and Glencore Plc slid 8.3 percent or more today, pushing a gauge of miners to its lowest level since 2009. Carmakers fell to to the lowest since October. Stocks around the world are in retreat as an eighth day of cuts in the yuan’s reference rate exacerbated concern that growth in China is slowing more than previously forecast. The declines are a setback for European equity bulls who had speculated that central-bank stimulus and a slowly improving economy would insulate the region from stress in Asia and North America. “The Chinese economic outlook is getting bleaker,” said Daniel Weston, chief investment officer of Aimed Capital in Munich. “Chinese demand for European exports is weakening. In August, the Chinese said it would be a ‘one off’ devaluation, but now the market knows it is much more than that.” The Stoxx Europe 600 Index fell 2.2 percent at the close of trading. It pared losses of as much as 3.6 percent.

• Crude Oil Is Having Its Worst-Ever Start to the Year: Chart. (video)

• Oil Falls to Lowest Since 2003 as Yuan Drop Shows China Turmoil. Oil plunged to a 12-year low in New York on speculation slower economic growth in China will curb fuel demand, worsening a worldwide oversupply. West Texas Intermediate oil for February delivery fell as much as $1.87, or 5.5 percent, to $32.10 a barrel, the lowest in intraday trade since December 2003. China’s central bank reduced the onshore yuan’s fixing to the lowest since March 2011, triggering a selloff that led to the closure of Chinese stock exchanges.

• Deepening Metals Rout Sends Copper Below $2 for First Time Since '09. Copper futures fell below $2 a pound for the first time in more than six years as a slump across industrial metals deepened on concern that China’s economic slowdown is worsening. The retreat in prices helped send a gauge of world mining companies to the lowest since 2004 on Thursday. The Bloomberg Industrial Metals Subindex tumbled 27 percent in 2015, the worst loss since the global recession of 2008. Weak Chinese economic reports this week triggered turmoil across global markets and billionaire George Soros warned of a crisis.

• Anglo Leads Mining Collapse as China Woes Driving Vicious Spiral. Anglo American Plc led a slump in mining stocks to the lowest in more than a decade as market turmoil in China, the biggest consumer of metals, ignites a vicious spiral of tumbling equities and collapsing commodity prices around the world. The 80-member Bloomberg World Mining Index sank as much as 4.1 percent on Thursday, with Anglo sliding 12 percent at one point to a record low and Glencore Plc down as much as 7.9 percent in London trading. The Bloomberg Commodity Index, a gauge of returns on raw materials, dropped to its lowest level since 1999 as industrial metals and oil declined.

• Fed's Lacker Urges Higher Rates as Inflation Heads Back to Goal. Federal Reserve Bank of Richmond President Jeffrey Lacker expressed confidence that inflation will return to the central bank’s target after oil prices and the U.S. dollar stabilize and called for a continued tightening in monetary policy. “While there is uncertainty about the pace at which monetary policy rates will rise, the case for an upward adjustment in rates should be clear,” Lacker said in the text of a speech Thursday in Raleigh, North Carolina.

• Charts to Make You Go: 'ARGGHHHH'. (graph) A painful paradigm shift. Matt King has a smorgasbord of ugly charts to share. In an aptly-timed note, the Citigroup strategist suggests markets are "dangerously close to a paradigm shift" that would entail the end of  liquidity-fueled markets and a "return to fundamentals." The only problem is "those fundamentals are themselves following markets." Scared yet? Here's a quick sampling.

• The 'Average' Stock Is Already in a Bear Market. (video) For most companies, the bear market is already a reality.