Today's Headlines

Bloomberg:

• Yuan Borrowing Rate Surges in Hong Kong: What You Need to Know. (video) Hong Kong Interbank Offered Rates for yuan loans jumped by records to all-time highs across all tenors Tuesday as intervention by China to support its exchange rate tightened the currency’s supply in the offshore market. Here’s what you need to know about the surge:
• Chinese Options Signal Stocks Not Yet Out of the Woods: Analysis. China equity option term structures have aggressively inverted over the past week and implied volatilities are edging closer to peaks seen during August rout, as yuan devaluation roils global markets, Bloomberg strategist Tanvir Sandhu writes.
• Hong Kong Developer `Price War' May Speed Property Correction. Hong Kong property prices could fall 3 percent per month during the first quarter, driven by a “price war” between developers as they offer discounts to move a rising supply of homes, CLSA Ltd. said in a report. CLSA expects a correction of 8 percent in the first quarter, accelerating from a previous estimate of a 2 percent decline. CLSA said the price declines will mostly come in the first part of the year and left unchanged its forecast of a 10 percent decline for all of 2016. The home price drops may prompt a response from Hong Kong policymakers, according to the report.
• Yen Bearing Brunt of Yuan Drop Seen Hurting Japan Tourism: Chart. (graph) The yen’s climb against the yuan as China weakens its currency to spur growth hurts Japan’s tourism industry, says SMBC Nikko Securities Inc. “The yen is getting the biggest brunt because it’s been the weakest among other currencies against the yuan,” said Junichi Makino, chief economist at SMBC Nikko in Tokyo. “When the yen strengthens, Chinese visitors will spend less even if their number remains the same. Inbound consumption will definitely decline.” The yen has surged 12 percent against the yuan since August when China surprised the global markets by devaluing its currency, more than twice as much the U.S. dollar’s appreciation.
• Saudi Debt Risk on Par With Junk-Rated Portugal as Oil Slides. Investors wanting to take out insurance on Saudi Arabia’s debt have to pay as much as they would for Portugal, a nation still saddled with a junk credit-rating five years after an international bailout. The cost of insuring the kingdom’s debt more than doubled in the past 12 months to a 190 basis points, or $190,000 annually to insure $10 million of the country’s debt for five years, as of 4:14 p.m. in Riyadh, the highest since April 2009, according to CMA prices compiled by Bloomberg. That’s almost identical to contracts linked to debt from Portugal, whose rating is seven levels below Saudi Arabia’s Aa3 investment grade at Moody’s Investors Service.
• U.K. Industrial Output Plunges Most in Almost Three Years. U.K. industrial production fell the most in almost three years in November as warmer-than-usual weather reduced energy demand. Output dropped 0.7 percent from the previous month, with electricity, gas and steam dropping 2.1 percent, the Office for National Statistics said in London on Tuesday. Economists had forecast no growth on the month.
• Frontier Status Suddenly Looms for Latin America's Best Economy. For more than a decade, Peru has been a rising star of emerging economies, with fast growth, declining public debt and healthy expansion of its international reserves. It has been widely viewed as one of the  most credit worthy states in Latin America. When the commodities bust hit, Peru, like its neighbors, took it on the chin. Government budgets were sliced, unemployment rose, exports suffered. But something else was happening and no one reacted: the number of companies big enough to keep Lima’s stock market in the "emerging" category was falling dangerously. Four years ago, there were close to a dozen; now there are barely three.
• India Stocks Drop to 19-Month Low as Global Funds Sell. Indian stocks extended losses from a 19-month low, tracking declines in Asian equities, as lenders retreated after IndusInd Bank Ltd. and Federal Bank Ltd. reported increases in bad loans. IndusInd tumbled to a two-month low and Federal Bank slid to its lowest price since May 2014. State Bank of India fell for a seventh day, the longest run of losses since February, while Axis Bank Ltd. was the worst performer on the S&P BSE Sensex. Tata Consultancy Services Ltd., India’s top software exporter, decreased to five-week low before it kicks off the quarterly earnings season. The Sensex slid 0.6 percent to the lowest close since May 2014.
• European Shares Rebound From Four-Day Rout as Carmakers Rally. (video) A rally in carmakers pushed European stocks to their best performance of the year as investors assessed valuations following a four-day losing streak. Auto-related companies rose the most on the Stoxx Europe 600 Index after an industry association forecast an acceleration in Chinese sales in 2016. Energy stocks reversed gains, falling after oil retreated toward a 12-year low. Declines of more than 2.6 percent each in Rio Tinto Group and BHP Billiton dragged a gauge of miners to its lowest level since July 2003 as commodity prices slipped. The Stoxx 600 rose 0.9 percent to 343.22 at the close of trading, paring an earlier advance of as much as 1.9 percent. 
• Crude Falls Below $30 a Barrel for First Time in 12 Years. Oil dropped below $30 a barrel in New York for the first time in 12 years on concern that turmoil in China’s markets will curb fuel demand. West Texas Intermediate crude tumbled to the lowest since December 2003. Concerns that China’s economic growth may slow has soured investors on the prospects for a quick recovery, turning hedge funds the least bullish in five years. A rapid appreciation of the U.S. dollar may send Brent oil to as low as $20 a barrel, Morgan Stanley said.
• Copper Sags to Six-Year Low as Barclays Cuts Forecasts on China. Copper fell to the lowest since 2009 as Barclays Plc cut its price forecast and said recent data makes a recovery in the first half less likely in China, the world’s biggest user. Metals have been hammered in 2016 as concerns intensify that China’s economic growth is faltering. The nation’s stock selloff and depreciation of the yuan has roiled global financial markets, and data released Saturday showed inflation in December was about half the government’s 2015 target. Mining companies are suffering as prices slump, with shares of Freeport-McMoRan Inc. on Tuesday reaching the lowest since 2000. Copper futures for March delivery slid 0.4 percent to $1.9645 a pound at 10:49 a.m. on the Comex in New York, after falling to $1.9525 a pound, the lowest since 2009. On the London Metal Exchange, copper, aluminum, zinc and tin fell, while nickel touched the lowest since 2003. Lead gained in London.
• The Crop Surplus Is Bad News for America’s Farms. The American farm boom is all but over. Farmland values are down from all-time highs. Global surpluses left corn and soybean prices below the cost of production. And the amount of agricultural debt relative to income ballooned to the highest in three decades, just as the Federal Reserve has begun raising interest rates for the first time since 2006.
• Palladium Drops to 5-Year Low an China Demand Concerns. Palladium slumped to a five-year low as Chinese car sales increased at the slowest pace in three years, adding to concerns about weaker demand in one of the world’s biggest buyers of the metal. Gold also fell. With a faltering economy and turmoil in the stock market hurting consumer confidence, China’s vehicle sales rose 4.7 percent last year, the smallest gain since 2012, China Association of Automobile Manufacturers data show. Palladium futures fell as much as 4.8 percent, while platinum, which is also mainly used in catalytic converters that cut harmful emissions, traded near a seven-year low.
• Commodity Crash Redux as 2016 Starts Out Worse Than Last Year. Sure, 2015 was bad for commodities. So far, 2016 is even worse. The Bloomberg Commodity Index, a measure of returns for 22 raw materials, has tumbled more than 5 percent in 2016. That’s the worst start to a year since the comparable data begins in 1992. Hedge funds are positioning for more losses, holding the biggest net-short bet across raw materials since at least 2006.
• SunEdison(SUNE) Falls After Axiom Analyst Raises Concern About Debt. SunEdison Inc., the worst-performing clean energy company, fell the most in five days after analyst Gordon Johnson at Axiom Capital Management raised concern about the company’s costly debt restructuring. SunEdison fell 23 percent to $2.58 at 12:36 p.m. in New York, the biggest intraday decline since Jan. 7. The shares have declined 87 percent in the past year, the most on the WilderHill New Energy Global Innovation index of 104 companies.
• Morgan Stanley(MS) Lowers U.S. 2016 Growth Forecast. (video)
• Junk Bonds Signal 44% Chance of Recession in 2016, Fridson Says. The junk-bond market is indicating a 44 percent chance of a recession in the U.S. within one year, according to Martin Fridson, a money manager at Lehmann, Livian, Fridson Advisors LLC. “I am not an economic forecaster -- this is what the market is saying," said Fridson, who started his career as a corporate-debt trader in 1976. "There are lots and lots of caveats, but if you accept all of the assumptions, it’s a pretty startling comment."
• Corporate-Credit Outlook at Worst Since Crisis, S&P Says. The outlook for corporate borrowers worldwide is the worst since the global financial crisis, according to Standard & Poor’s. Potential downgrades at the ratings company exceed possible upgrades by the most since 2009, in percentage terms, according to a Jan. 11 report. The difference widened the most since the financial crisis in the past six months, S&P said. The corporate-debt outlook has darkened, particularly in Latin America, because of slower growth in China and a commodity rout that’s cut prices to the lowest since at least 1991. Company defaults have already risen to the highest since 2009 and investors are demanding the biggest yield in four years to hold junk bonds. There may be “significantly” more ratings downgrades than upgrades in 2016, S&P analysts led by Melbourne-based Terry Chan wrote in the report. S&P is considering cutting ratings at 17 percent of the companies it covers, as of December, the report said. That compares with possible upgrades for 6 percent of issuers. The 11 percentage-point gap is more than double the difference in June 2014, the report said.
• All That Commercial Lending by Banks Suddenly Isn't Looking so Hot. Commercial and industrial lending, the engine of banks' loan book growth in recent years, is showing signs of cracking, thanks to the dramatic fall in the price of oil and weakness in non-consumer-related things. On Tuesday, Deutsche Bank analysts cautioned that losses on C&I portfolios could end up as high as 90 basis points in 2016, more than the 20bps loss-rate currently expected by the Wall Street bank, and far more than the 15bps loss rate reported for last year. "Credit concerns are rising given continued pressure on oil prices (and commodities more broadly) as well as mixed U.S. economic data. If credit does weaken more than expected, many think it will show up in C&I given strong growth (+57 percent at large banks since 2010 vs. total loans +30 percent), loosening of underwriting standards and the  risk liquidity declines for certain borrowers," Deutsche Bank analysts led by Matt O'Connor said in a note published on Tuesday.
• Fed to Lift Rates in 2016 More Than Markets Price In, Posen Says. The Federal Reserve will raise interest rates more this year than investors currently are pricing in, according to Peterson Institute for International Economics President Adam Posen, a former Bank of England policy maker. “You should trust the Fed, not the markets,” Posen told Tom Keene and Francine Lacqua on Bloomberg Television on Tuesday. “I think the market is under-pricing the likelihood of both a March rise and the number of rises in the year to come.”
• Gundlach Called Oil and Junk in 2015. What Will He Predict for 2016?

Fox News:

• Hillary Clinton comes out against deportation raids in break with Obama. Democratic presidential front-runner Hillary Clinton joined her rivals Monday in opposing the Obama administration's deportation raids targeting Central American immigrants who entered the U.S. illegally and ignored deportation orders. Speaking at a forum aimed at young and minority voters in Iowa, Clinton said the raids had "sown fear and division in immigrant communities across the country. People are afraid to go to work. They are afraid to send their kids to school. They are afraid to go to the hospital, or even the grocery store."

CNBC:

• Global glut of crude oil is forcing prices to the floor. (video) Worldwide oil output is rising...
• Cashin: Watch for the next 'victims' of drop in oil. (video)
• Trader bets $6.5M against this hot sector. (video)

Zero Hedge:

• Forget $20 Oil: StanChart Says "Prices Could Fall As Low As $10 A Barrel". 
• After Noble, Here Are The Next 18 US Energy Companies To Be Junked.
• This Is What Happens When Every German Googles "Pepper Spray". (graph)
• Sharp Squeeze, Highest Foreign Central Bank Demand Since 2009 Lead To Scorching 3 Year Auction.
• Meanwhile In Chicago, 120 People Shot In First 10 Days Of 2016.
• The Arrests Begin: Sweden Police Scramble To Respond To Refugee Sex Assault Coverup.
• Are We Entering an Earnings/Sales Recession? (graph)
• Loonie Lurches To 13 Year Lows As Crude Nears '2' Handle. (graph)
• Fed "Policy Error" Panic Continues. (graph)
• Dow Gives Up "China Is Fixed" Gains As WTI Crashes To New Cycle Lows. (graph)
• The Chinese Central Bank Just Pulled A Martin Shkreli. (graph)
• Bank Of America(BAC) Is "Confused" Why Retail Spending Refuses To Pick Up. (graph)
• Crude Curve Collapses - Market Sees Sub-$50 Oil Through 2021. (graph)
• After "Murderous" Squeeze, China Boosts Capital Controls By Ordering Banks To Limit Yuan Outflows.
• Devaluation Odds Spike To Record Highs As Market Bets Saudi Dollar Peg Will Fall. (graph)

Business Insider:

• Bank of America just laid out why its clients are wrong about the bond market. Bank of America Merrill Lynch's high-yield team is bearish. So bearish, in fact, that it is getting into debates with its clients and colleagues over exactly how bad it is. "It is our fear that many of the signs we see in high yield ultimately foreshadows further economic and risk asset malaise in 2016 and 2017," the team led by Michael Contopoulos said Monday in a note. "However, as we sort through the financial press releases and discuss our views with investors and internally, we realize our disposition is perhaps on the unconventional side of where most currently sit."
• Bernie Sanders is starting to surge against Hillary Clinton at the exact right time.
• The Rio Olympics are a mess 7 months before the opening ceremony.
• This one photo perfectly sums up how frustrating it is to wear the Apple Watch. (pic)
• 25 jobs that are quickly disappearing from the US.
• Alcoa(AA) is getting crushed.

Reuters:

• Ex-politician John Edwards among lawyers vying for lead role in Volkswagen suit. Among the more than 140 plaintiffs' lawyers competing to lead private litigation against Volkswagen over its emissions cheating scandal is former U.S. Senator and Democratic Vice-Presidential candidate John Edwards. Edwards, who was a trial lawyer in North Carolina before his political career was felled by a sex scandal, sent a letter to U.S. District Judge Charles Breyer of San Francisco last Friday, asking to be appointed to the powerful plaintiffs' steering committee.

Telegraph:

• BP(BP) to cut 4,000 jobs in exploration and production as oil price bites. Employees in Scotland are bracing themselves as the company anounces 600 jobs will go in its North Sea operations.   

Bear Radar

Style Underperformer:

• Small-Cap Value -1.3%

Sector Underperformers:

• 1) Oil Tankers -8.5% 2) Coal -8.4% 3) Gold & Silver -5.5%

Stocks Falling on Unusual Volume:

• SAH, EDR, NHTC, AKRX, EURN, GME, PAG, PENN, BPT, RMP, DLPH, VTTI, QGEN, TISI, APC, GB, CFR, CHRS, WPZ, NUVA, WMB, IHG, IBKR, CHRS, IHS, WETF, REGN, CFMS, SUN, RGLD and HTWR

Stocks With Unusual Put Option Activity:

• 1) AA 2) XRT 3) MRO 4) EWC 5) XLV
  

Stocks With Most Negative News Mentions:

• 1) FCX 2) HES 3) PBR 4) BTU 5) FFIV
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Growth +.1%

Sector Outperformers: 

• 1) Computer Hardware +2.4% 2) HMOs +2.3% 3) Medical Equipment +1.1%

Stocks Rising on Unusual Volume: 

• SMCI, BURL, LULU, CTSH and HAIN

Stocks With Unusual Call Option Activity: 

• 1) FOX/A 2) JCI 3) HCA 4) BURL 5) BTU

Stocks With Most Positive News Mentions: 

• 1) LULU 2) HZNP 3) SBUX 4) SMCI 5) CTSH

Charts: 

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +19.1% Above 100-Day Average
• 3 Sectors Rising, 7 Sectors Declining
• 40.9% of Issues Advancing, 55.8% Declining
• 7 New 52-Week Highs, 324 New Lows
• 19.6% of Issues Above 200-day Moving Average
• Average 14-Day RSI 31.2%
• Vix 23.3 -4.2%
• Total Put/Call .84 -25.0%
• TRIN/Arms 1.62 +116.71%

Tuesday Watch

Evening Headlines

Bloomberg:  

• China’s Shanghai Composite Index Falls Below 3,000 Level. (video) China’s benchmark stock index fell below the 3,000 level in volatile trading as concern grew about the government’s ability to revive the economy and stabilize the yuan. The Shanghai Composite Index decreased 1 percent to 2,986.18 at 10:53 a.m. local time, after gaining as much as 1 percent. Energy and material companies led declines.  

• China Crisis Poses Threat to India. (video)

• In Rush to Exit Yuan, China Traders Buy Sinking Hong Kong Stocks. Chinese investors are so desperate to shift their money out of yuan-denominated assets that they’re piling into some of the world’s worst-performing stocks. Mainland buyers purchased Hong Kong shares through the Shanghai stock link for a 10th week last week, even as the Hang Seng Index tumbled 6.7 percent. Chinese traders held 112.5 billion yuan ($17.1 billion) of the city’s equities by Monday, the most since the bourse program started in 2014, and up by 23.7 billion yuan since late October. With the yuan weakening, investors are looking for a  way out, according to Reorient Group Ltd.

• China Rout Infects Aussie Resource Giants as Bond Risk Surges. Australia’s credit market is having its shakiest start to a year since at least 2008 as the prospects for resource and gaming companies are clouded by China’s market turmoil. The cost of insuring debt from Woodside Petroleum Ltd. jumped 39 basis points to 226, while casino owner Crown Resorts Ltd. saw its credit-default swaps rise 32 to 285 and BHP Billiton Ltd. contracts increased 25 to 205. They’re the worst performers in the Markit iTraxx Australia index, which climbed 9 basis points so far this month, the biggest early January increase in CMA data that stretches back eight years. “The concerns have really been around things like China,” said Gavin Goodhand, who helps oversee the equivalent of about $450 million as a money manager at Altius Asset Management in Sydney. “Those moves at the beginning of the year can actually be easily connected to what’s been going on globally with equity markets and concerns about economic growth.”

• Japan Stocks Sink for Sixth Day as Markets Reopen After Holiday. Japanese stocks fell for a sixth straight day, as markets reopened after a public holiday. Energy explorers led declines as crude oil prices tumbled. The Topix index lost 2.4 percent to 1,413.17 at the lunch break in Tokyo. The Nikkei 225 Stock Average dropped 2.1 percent to 17,322.56, after posting its worst first week of a year since 1997 amid turmoil in Chinese equity and currency markets. The yen traded at 117.64 per dollar, from 118.29 when Japan’s stock market closed on Friday. “Investors are questioning when the weak yuan and the fall in Chinese shares will stop and concerns over the Chinese economy is worsening market sentiment,” Toshihiko Matsuno, chief strategist at SMBC Friend Securities Co. in Tokyo, said by phone. “Japanese stocks are oversold from a valuation perspective.”

• Asian Stocks Outside Japan Rally With U.S. Futures; Oil Near $31. Asian stocks rose outside of Japan as China kept its yuan fixing little changed, while oil extended declines to a seventh day. Australian equities rose for the first time this year, while the Shanghai Composite Index swung between gains and losses following a $1.4 trillion rout. Japanese shares fell as they traded for the first time this week. The Chinese currency traded in Hong Kong’s free market rose 0.2 percent. A Bloomberg gauge of dollar strength was near its highest level since at least 2005. Crude slumped toward $31 a barrel in New York.

• Petronas Predicts More Tough Years as $30 Oil Seen on Oversupply. Petroliam Nasional Bhd. said crude prices could average $30 a barrel and warned the Malaysian state oil company faces two to three tough years.
  
  Just two months after the company was assuming an average price of $48 a barrel, Chief Executive Officer Wan Zulkiflee Wan Ariffin laid out the new "low-price" scenario for 2016. Petronas remains committed to its multi-billion dollar projects as it sticks to its capital expenditure plan of as much as 350 billion ringgit ($80 billion) over the next five years, he said Monday.

  - See more at: http://www.rigzone.com/news/oil_gas/a/142433/Petronas_Predicts_More_Tough_Years_as_30_Oil_Seen_on_Oversupply#sthash.OKBH3IP5.dpuf

• Shipyards vanish as China loses appetite for consuming iron ore. The weakening yuan and China’s waning appetite for raw materials have come around to bite the country’s shipbuilders, raising the odds that more shipyards will soon be shuttered. About 140 yards in the world’s second-biggest shipbuilding nation have gone out of business since 2010, and more are expected to close in the next two years after only 69 won orders for vessels last year, JPMorgan Chase & Co. analysts Sokje Lee and Minsung Lee wrote in a Jan 6 report. That compares with 126 shipyards that fielded orders in 2014 and 147 in 2013. Total orders at Chinese shipyards tumbled 59% in the first 11 months of 2015, according to data released Dec. 15 by the China Association of the National Shipbuilding Industry.

• Iron Ore Slump Threatens $2 Billion Australian Mine. The plunge in the price of iron ore looks set to claim another casualty with Gindalbie Metals Ltd. questioning its future, as partner Anshan Iron and Steel Group Corp. considers withdrawing funds for a $2 billion mine. Anshan engaged a third party to assess the viability of its Karara iron ore mine in Western Australia amid the steel making material’s price collapse, according to a statement from Gindalbie. Shares in the Perth-based company slumped 48 percent to 1.1 cents at 11:26 a.m. in Sydney, giving it a market value of A$16.5 million compared with A$780 million at the end of the 2011 fiscal year.

• Third Avenue Sees Assets Fall 21% in Quarter as Investors Flee. Third Avenue Management, which took the rare step of freezing redemptions in a distressed debt mutual fund last month, saw investors also pull money from its equity funds, contributing to a 21 percent decline in the firm’s assets last quarter. Third Avenue managed $6.3 billion as of Dec. 31, down from $8 billion as of Sept. 30, Daniel Gagnier, a spokesman, said in an e-mail. Investors withdrew an estimated $720 million, or almost 13 percent of total assets, from Third Avenue’s four equity mutual funds in December, according to data compiled by  Bloomberg.

• Worst Start to Health Conference Since 2001 Has Investors Glum. (video) Health care investors have grown accustomed to four days of optimism when Wall Street decamps to San Francisco each January to hear about science, deals and fresh opportunities at the J.P. Morgan Health Care Conference. Instead, on Monday, it was practically a bloodbath. The 190-member Nasdaq Biotechnology Index fell 3.4 percent, the worst opening day of trading during the conference since 2001, when the broader market was in a downturn. The 56-member Standard & Poor’s Health Care Index fell 1.2 percent, its worst conference Monday since 2009. Stocks plunged, taking down everything from tiny biotechs to large cap drugmakers.

Wall Street Journal: 

• Why China’s Market Illness Has Gotten More Contagious. Global investors worry about Beijing’s management of nation’s huge economy. Last week’s global-markets rout began with people like Wu Yizhang. The 65-year-old retiree had just taken a seat facing the trading board in his favorite Shanghai stock-trading hall on Thursday morning when he saw the market go into free fall. Panicked, Mr. Wu unloaded shares.

• Oil Plunge Sparks Bankruptcy Concerns. Crude’s plunge to near $30 a barrel fans worries that it could sink a third of U.S. oil producers. Crude-oil prices plunged more than 5% on Monday to trade near $30 a barrel, making the specter of bankruptcy ever more likely for a significant chunk of the U.S. oil industry. Three major investment banks—Morgan Stanley, Goldman Sachs Group Inc. and Citigroup Inc.—now expect the price of oil to crash through the $30 threshold and into $20 territory in short order as a result of China’s slowdown, the U.S. dollar’s appreciation and the...   

• Denying the Obvious About Islamist Terror. After another ISIS-inspired shooting, Philadelphia’s mayor joins the chorus: It’s not about religion, no sir.

Fox News:

• ISIS burns fighters alive for letting Ramadi fall. (video) ISIS fighters who fled to the terror group’s Iraqi stronghold of Mosul after being defeated in Ramadi were burned alive in the town square, sources told FoxNews.com, in an unmistakable message to fighters who may soon be defending the northern city from government forces.

MarketWatch.com:

• Skullcandy(SKUL) shares drop 18% after fourth-quarter outlook cut. Skullcandy shares, which had been halted at $4.60 before the announcement, fell 18% to $3.75 after hours.

CNBC:

• Half of US shale drillers may go bankrupt: Oppenheimer's Gheit. (video)

Zero Hedge:

• Chinese Money Markets In Turmoil - Overnight Rates Hit 82% As Offshore Yuan Short-Squeeze Escalates. (graph)

• The Cost Of China's "Neutron Bomb" Exploding: $7.7 Trillion And Higher.

• In "Very Unusual" Move, Avenue Capital's Junk Bond Fund Stops Reporting Asset Levels.

• "Fasten Your Seatbelts" - UBS Warns Of "Record Spikes In Volatility" If This Level Breaks. (graph)

• Chicago Schools In "Dramatic Trouble": "They're Looking At A Disaster," Illinois Governor Warns.

• The (Uncensored) 2016 State Of The Union. (graph)

• What Makes The World Go Around (In 2 Uncomfortably Truthful Charts). (graph)

• The China Syndrome: The Coming Global Financial Meltdown.

• "Loss Of Faith" Escalates As Markets Enter Reality "Discovery Phase".

• Behold Accounting Magic 101: This Is How Alcoa Just "Beat" Consensus EPS. (graph)

• Despite TurmOIL Stocks Stage Furious Last-Hour Comeback. (graph)

Business Insider:

• Yahoo(YHOO) insiders are so fed up with Marissa Mayer that they've apparently come up with a snarky nickname for her.

• 'Who the hell wants to woo her!': Donald Trump renews attacks on Megyn Kelly ahead of Fox News debate.

• Global currency markets are now dancing to China's tune.

• Carl Icahn is buying up shares of Time Warner — and no one knows why.

Reuters:

• Fed's Kaplan says he'll 'wait and see' on China's U.S. impact. Robert Kaplan, the new chief of the Dallas Federal Reserve Bank, said on Monday he would take a "wait-and-see" approach on assessing how China's slowdown will affect the U.S. economy. Kaplan told the Dallas chapters of Financial Executives International, the Association for Corporate Growth and the National Association of Corporate Directors that he was not surprised that China's stock market volatility had jarred markets around the world. But he said it was still too soon to tell if it will get worse, or if in a couple of months China will turn out to have rebounded. 

• Fed's Kaplan warns against delays to further rate hikes.

• Lululemon(LULU) raises revenue forecast after strong holiday sales. The company raised its forecast to $690 million-$695 million from $670 million-$685 million for the quarter ending Jan. 31.

Telegraph:

• RBS cries 'sell everything' as deflationary crisis nears. Clients told to seek safety of Bunds and Treasuries. 'This is about return of capital, not return on capital. In a crowded hall, exit doors are small'.

Night Trading 

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

• Asia Ex-Japan Investment Grade CDS Index 149.75 -.5 basis point.

• Asia Pacific Sovereign CDS Index 76.25 unch.

• Bloomberg Emerging Markets Currency Index 68.12 -.04%.

• S&P 500 futures +.01%

• NASDAQ 100 futures +.01%.

Morning Preview Links 

Earnings of Note 

Company/Estimate

• (IHS)/1.56

• (CSX)/.46

• (PRGS)/.49

Economic Releases

6:00 am EST

• The NFIB Small Business Optimism Index for December is estimated to rise to 95.0 versus 94.8 in November.

10:00 am EST

• JOLTS Job Openings for November are estimated to rise to 5450 versus 5383 in October.

• IBD/TIPP Economic Optimism Index for January is estimated to rise to 47.5 versus 47.2 in December.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Lacker speaking, UK Industrial Production report, $24B 3Y T-Note auction, USDA WASDE report, US weekly retail sales reports, Deutsche Bank Auto conference, (BOJA) investor meetings and the Needham Growth Conference 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 modestly higher. The Portfolio is 50% net long heading into the day.

Stocks Slightly Higher into Final Hour on Central Bank Hopes, Technical Buying, Bargain-Hunting, Homebuilding/Tech Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Slightly Above Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 25.69 -4.89%

• Euro/Yen Carry Return Index 133.47 -.33%

• Emerging Markets Currency Volatility(VXY) 11.87 -.50%

• S&P 500 Implied Correlation 64.04 -.59%

• ISE Sentiment Index 90.0 +18.0%

• Total Put/Call 1.14 -14.93%

• NYSE Arms .96 -45.16% 

Credit Investor Angst:

• North American Investment Grade CDS Index 99.0 +1.81%

• America Energy Sector High-Yield CDS Index 1,334.95 +.71%

• European Financial Sector CDS Index 79.88 -2.59%

• Western Europe Sovereign Debt CDS Index 17.86 +3.96%

• Asia Pacific Sovereign Debt CDS Index 75.91 -.53%

• Emerging Market CDS Index 380.92 +1.55%
  

• iBoxx Offshore RMB China Corporate High Yield Index 123.48 -.09%

• 2-Year Swap Spread 8.25 +.25 basis point

• TED Spread 42.75 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -20.5 -1.25 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 67.49 -.27%
• 3-Month T-Bill Yield .18% -1.0 basis point

• Yield Curve 123.0 +4.0 basis points

• China Import Iron Ore Spot $41.31/Metric Tonne -1.95%

• Citi US Economic Surprise Index -22.6 -1.3 points

• Citi Eurozone Economic Surprise Index 24.0 -1.5 points

• Citi Emerging Markets Economic Surprise Index -1.70 -2.8 points

• 10-Year TIPS Spread 1.48% -2.0 basis points
• 38.6% chance of Fed rate hike at March 16 meeting, 43.2% chance at April 27 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -423 open in Japan 
• China A50 Futures: Indicating -120 open in China

• DAX Futures: Indicating -12 open in Germany

Portfolio: 

• Slightly Higher: On gains in my tech sector longs, index hedges and emerging markets shorts

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

• Market Exposure: Moved to 50% Net Long