Morning Market Internals

NYSE Composite Index:

• Volume Running +10.2% Above 100-Day Average
• 5 Sectors Rising, 5 Sectors Declining
• 61.4% of Issues Advancing, 35.5% Declining
• 216 New 52-Week Highs, 15 New Lows
• 56.2% of Issues Above 200-day Moving Average
• Average 14-Day RSI 45.1%
• Vix 12.8 +2.7%
• Total Put/Call .99 +19.3%
• TRIN/Arms 1.78 +116.61%

Tuesday Watch

Evening Headlines

Bloomberg:

• $100 Billion Chinese-Made City Near Singapore 'Scares the Hell Out of Everybody'.
• China May Face Yuan Float if Capital Controls Fail. Dollar strength and rising U.S. interest rates under President-elect Donald Trump would intensify pressure on capital outflows from China, forcing its policy makers to choose between tightening capital controls or a drastic floating of the currency in coming months. That’s according to Victor Shih, a University of California at San Diego professor who studies China’s government and finance and specializes in tracking politics at the most elite level. "Given the Chinese government’s consistent preference for control, we may see much more Draconian capital controls before a decision to float the currency can be made," Shih said in an interview in Beijing. "The main objective is to avoid a panicky float."
• Yen Rises, Nikkei Retreats After Earthquake; Oil Holds Advance. The yen rose with Treasuries and Japanese stocks retreated as markets digested a tsunami warning in the Fukushima region. Oil extended its advance on optimism OPEC will agree to cut output, while Australian and South Korean stocks jumped after all four major U.S. equity benchmarks climbed to record highs. The Nikkei 225 Stock Average declined and 10-year Treasury yields fell two basis points to 2.30 percent. The S&P 500 Index, the Dow Jones Industrial Average, the Nasdaq Composite Index and the Russell 2000 Index rallied to their all-time peaks on Monday for the first time since 1999. Oil surged as Iran signaled optimism OPEC will agree to a supply-cut deal and Iraq said it will offer new proposals to help bolster unity before next week’s meeting in Vienna. The Nikkei fell as much as 0.3 percent, halting a four-day climb.
• Oil Rises to Three-Week High Amid OPEC Deal Optimism. (video) Oil rose to a three-week high on expectation OPEC members will agree to supply cuts next week as Libya’s delegate to a preliminary meeting in Vienna said talks on assigning quotas to individual countries were progressing well. Futures for January delivery climbed as much as 1.1 percent in New York after the December contract expired 3.9 percent higher Monday. The discussions went well, Libyan OPEC Governor Mohamed Oun said as he left the group’s headquarters in Vienna on Monday evening. Goldman Sachs Group Inc. said the likelihood of a deal next week meant the bank was bullish on oil prices in the short term. U.S. crude stockpiles are forecast to gain by 250,000 barrels to 490.5 million barrels, according to a Bloomberg survey before government data Wednesday.
• Global Gasoline Consumption Has All But Peaked. After fueling the 20th century automobile culture that reshaped cities and defined modern life, gasoline has had its day. The International Energy Agency forecasts that global gasoline consumption has all but peaked as more efficient cars and the advent of electric vehicles from new players such as Tesla Motors Inc. halt demand growth in the next 25 years. That shift will have profound consequences for the oil-refining industry because gasoline accounts for one in four barrels consumed worldwide. “Electric cars are happening,” IEA Executive Director Fatih Birol said in an interview in London, adding that their number will rise from little more than 1 million last year to more than 150 million by 2040.
• Junk-Bond Market Heads Toward Deep Freeze.  

Wall Street Journal:

• Donald Trump Calls for List of Day-One Executive Actions, Outlines First 100 Days. In video, Trump vows to order withdrawal from TPP trade deal, investigate immigration visa fraud, and create a plan to counter cyberattacks.
• If Oil Refiners Crash, So Will the Economy. Biofuel regulations are ruining merchant oil refiners—bad for business and national security.
• Donald Trump Calls for List of Day-One Executive Actions, Outlines First 100 Days. In video, Trump vows to order withdrawal from TPP trade deal, investigate immigration visa fraud, and create a plan to counter cyberattacks.

Fox News:

• At least six children killed, 23 hurt in Tennessee school bus crash. (video)
• Suspect arrested in killing of San Antonio police officer. (video)

CNBC:

• Magnitude 6.9 earthquake strikes off Japanese coast, USGS says. (video)

Zero Hedge

• Trump "Exploded" At Media Execs During Off-The-Record Meeting.
• The Percentage Of Stocks In A Bear Market Is Growing. (graph)
• Trump Says He Will Issue Executive Order On First Day In Office Withdrawing U.S. From TPP.
• Surge In Illegal Border Crossings Forces Officials To Open New Texas Housing Facility.
• John Mauldin: This Post-Election Stock Market Rally Won't Last,
• Mayor de Blasio Vows To Make New York A Safe Space From "Excesses Of Trump".
• "Record Highs" For Everyone... 

Business Insider:

• Man arrested for allegedly supporting ISIS, helping plan an attack on Times Square.
• The next credit bubble is unraveling right under our noses.
• We may never see $100 oil again.
• Californians might vote in 2018 on taking steps toward secession in a 'Calexit'.
• US: Russia's 'threats' to send nuclear-capable missiles, missile shields to Europe are 'destabilizing'.

Night Trading 

• Asian equity indices are unch. to +1.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 128.5 +1.0 basis point. 
• Asia Pacific Sovereign CDS Index 44.25 +.5 basis point.
• Bloomberg Emerging Markets Currency Index 69.62 +.11%. 
• S&P 500 futures +.22%. 
• NASDAQ 100 futures +.30%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (AMWD)/1.14
• (ADI)/.89
• (BKS)/-.39
• (CPB)/.95
• (CHS)/.13
• (CBRL)/1.84
• (DLTR)/.78
• (EV)/.59
• (HRL)/.45
• (JEC)/.77
• (MDT)/1.11
• (PDCO)/.60
• (SIG)/.20
• (TECD)/1.26
• (GME)/.47
• (HPE)/.60
• (HPQ)/.36
• (URBN)/.44

Economic Releases 
10:00 am EST

• The Richmond Fed Manufacturing Index for November is estimated to rise to 0.0 versus -4.0 in October.     
• Existing Home Sales for October are estimated to fall to 5.44M versus 5.47M in September. 

Upcoming Splits 

• (USNA) 2-for-1

Other Potential Market Movers

• The Eurozone Consumer Confidence report, $34B 5Y T-Note auction, weekly US retail sales report and the (H) Investor Day could also impact trading today.

BOTTOM LINE:  Asian indices are mostly higher, boosted by commodity and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Rising into Final Hour on Less European/Emerging Markets/US High-Yield Debt Angst, Oil Bounce, Short-Covering, Commodity/Gaming Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Slightly Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 12.44 -3.27%

• Euro/Yen Carry Return Index 123.11 +.38%

• Emerging Markets Currency Volatility(VXY) 11.0 -1.35%

• S&P 500 Implied Correlation 29.78 n/a

• ISE Sentiment Index 96.0 +37.14%
  

• Total Put/Call .82 -12.77%

• NYSE Arms .69 -38.45% 

Credit Investor Angst:

• North American Investment Grade CDS Index 75.68 -.78%
  

• America Energy Sector High-Yield CDS Index 633.0 +2.52%

• European Financial Sector CDS Index 108.75 +.04%

• Western Europe Sovereign Debt CDS Index 22.14 +.87%

• Asia Pacific Sovereign Debt CDS Index 44.35 -1.17%

• Emerging Market CDS Index 272.91 -2.66%
  

• iBoxx Offshore RMB China Corporate High Yield Index 132.89 +.08%

• 2-Year Swap Spread 21.75 -2.0 basis points

• TED Spread 48.0 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -53.50 -2.5 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 69.51 +.41%
• 3-Month T-Bill Yield .43% unch.

• Yield Curve 125.0 -3.0 basis points
  

• China Import Iron Ore Spot $70.34/Metric Tonne -3.37%

• Citi US Economic Surprise Index 5.60 -2.3 points

• Citi Eurozone Economic Surprise Index 43.2 +2.5 points

• Citi Emerging Markets Economic Surprise Index -6.0 -.2 point

• 10-Year TIPS Spread 1.95% unch.
• 100.0% chance of Fed rate hike at Feb. 1 meeting, 100.0% chance at March 15 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +54 open in Japan 
• China A50 Futures: Indicating +15 open in China

• DAX Futures: Indicating +11 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 75% Net Long

Today's Headlines

Bloomberg:

• Day of Reckoning Strikes Europe’s Balance-Sheet Basket Cases. (video) It’s a new era for Europeans who for eight years got accustomed to watching companies with the worst balance sheets do nothing but rally. Now those stocks are getting crushed by rising bond yields, a trend strategists see continuing. Companies with the highest debt ratios have tanked 5.5 percent this month, the worst showing versus the Stoxx Europe 600 Index since 2008, data compiled by Goldman Sachs Group Inc. and Bloomberg show. Get used to it, says Morgan Stanley’s Graham Secker.
• Three Charts Signal Dark December for Slumping China Bond Market. Accelerating inflation, a weakening yuan and a cash crunch look set to deliver a triple blow to China’s bond market. Haitong Securities Co., ranked the best fixed-income forecaster by financial magazine New Fortune, revised up its 10-year sovereign yield estimate twice in less than three weeks to as much as 3 percent. Ten of 19 banks and brokerages say the yield could touch that level by year-end with the median forecast for a climb to 2.93 percent, from 2.885 percent on Monday, a survey by Bloomberg shows. “All the factors we see are negative,” said Deng Haiqing, chief economist at JZ Securities Co. in Beijing. “The market is entering the darkest period since 2013’s cash crunch.”
• Citigroup Leads U.S. Banks Higher in Global System Risk List. Global banking regulators said some U.S. lenders present a bigger risk to the financial system than last year and should face stiffer capital requirements to ward off threats. Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. all face higher capital surcharges after they rose in the Financial Stability Board’s latest ranking of the most systemically important banks in the world. Meanwhile, New York-based Morgan Stanley and London-based lenders HSBC Holdings Plc and Barclays Plc saw their buffer levels fall, the FSB said in a statement on Monday. HSBC’s capital surcharge falls to 2 percent of risk-weighted assets from 2.5 percent, while Citigroup’s buffer rises to 2.5 percent from 2 percent, the FSB said. Barclays surcharge falls to 1.5 percent from 2 percent; Wells Fargo rises to 1.5 percent from 1 percent; and the Industrial and Commercial Bank of China surcharge rises to 1.5 percent from 1 percent.
• Europe Stocks Rise After Longest Run of Daily Swings Since 2013. (video) A rally in commodity producers helped European equities erase declines, sending the shares for their longest streak of intraday fluctuations in more than three years. The Stoxx Europe 600 Index climbed 0.3 percent, reversing a slide of as much as 0.8 percent. Royal Dutch Shell Plc and Glencore Plc climbed more than 2 percent as commodities advanced. That marks a 10th day of the gauge alternating between intraday advances and losses, its longest streak since May 2013.
• OPEC Quota Talks End First Day as Optimism on Output Deal Grows. (video) Oil traders and analysts grew more confident that OPEC will reach a deal to curb global oversupply next week as delegates said talks on assigning quotas to individual countries made good progress. Today’s discussions went well, Libyan OPEC Governor Mohamed Oun said as he left the group’s headquarters in Vienna on Monday evening. The two-day meeting, a warm-up for a full OPEC meeting next week, will continue tomorrow.
• Iron Ore Awakens to Hangover as Stockpiles Surge, Rio Cuts Jobs. (video) Benchmark spot with 62 percent content at Qingdao fell 8.8 percent last week, capping the first weekly drop in almost two months, according to Metal Bulletin Ltd. Prices, which fell 3.4 percent to $70.34 a dry ton on Monday, may average $58 this quarter and $50 next year, according to Barclays. Earlier in Asia, the SGX AsiaClear contract fell as much as 2.3 percent to $65.30 a ton. That follows a 15 percent drop last week, and puts prices a little above the $64.78 close on Nov. 8, the last day of trade of before Trump’s win. On the Dalian Commodity Exchange, futures were at 552.5 yuan ($80) a ton, compared with the 519 yuan close on Nov. 8, and the Nov. 14 high of 627 yuan.
• Goldman(GS) Overweights Commodities for First Time in Four Years.

Wall Street Journal:

• In Stock-Market Rally, Small Beats Large. Russell 2000 has risen 10% since Election Day, outpacing the S&P 500’s 2% climb.
• Donald Trump Poised to Put Pressure on Nafta. While an abrupt withdrawal from the trade deal is unlikely, the president-elect and his advisers are gunning for big changes.
• The Darker Side of the Dollar’s Rise. Expectations of better growth are also tightening financial conditions.

Fox News:

• Trump's energy plans look to roll back Obama's climate moves.
• BIAS ALERT: NYT accused by its public editor of bias in Trump, Clinton coverage.

CNBC:

• Stocks are zooming: S&P 500 joins Dow, Nasdaq, small and mid-cap stocks at all-time highs.
• Apple(AAPL) faces a 'decade-long malaise,' says analyst. (video)
• Trump policies to boost S&P 500 by 15% to 2,500 in 2018, Deutsche Bank says.

Zero Hedge:

• A "Big Problem" Emerges For Trump's Economic Plan. (graph)
• These Mainstream Media Anchors Just Went For An "Off The Record" Meeting With Trump.
• ECB Rejects Buying Stocks As Draghi Drops The 'C' Word To EU Parliament.
• Brace For A Year Of "Peak Everything, Big Rotations" - Here Is BofA's Guide How To Trade It. (graph)
• Martin Armstrong Warns "Rising Civil Unrest In America Is Highly Dangerous For The Future".
• Dallas Mayor Admits Police Pension Pushing City Toward "Fan Blades Of Municipal Bankruptcy".
• Cable Slides As British PM May Confirms No Extension Of Brexit Process. (graph)
• WTI Tops $48 After "Making Progress" Headlines From OPEC. (graph)
• What Will Trump Do About The Fed, The Debt Ceiling, And Trade: His Key Economic Advisor Explains.
• Billionaire, Wall Street Democrat Added To Treasury List As More Clues Emerge On Trump Cabinet.
• America Has Never Been More Divided: Gallup. (graph)
• Traders Are Now 100% Sure The Fed Hikes Rates In December. (graph)

Business Insider:

• Walmart's(WMT) Cyber Monday plans should have Amazon(AMZN) terrified.
• PELOSI CHALLENGER: I'm 'pulling the fire alarm' because 'house is burning down' and we might 'cease being a national party'.
• Trump is set to meet with one of Bernie Sanders’ most visible congressional supporters.
• UN: Turkey should reject law that would allow men accused of sexually abusing girls to avoid punishment by marrying them. A bill that could allow men accused of sexually abusing girls in Turkey to avoid punishment if they marry their victim would create a climate of impunity for child abuse in the country, U.N. agencies warned on Monday. The Turkish parliament gave preliminary backing to the controversial proposal put forward by the ruling AK Party last week. MPs are due resume the debate on Tuesday before a second and final vote.
• Russia to place nuclear-capable missiles, defenses near Europe as 'countermeasures' against NATO.
• 'The polls are still getting it wrong': After Trump and Brexit, it's unclear how France will vote.
• These economic 'black swans' could rock global markets.

Reuters:

• NBCUniversal invests $200 million more in BuzzFeed.

Financial Times: 

• EU to retaliate against US bank capital rules. Brussels proposals will raise costs for foreign lenders and potentially hurt London.

The Telegraph:

• Baltic Dry index surges to two-year high on Trump's infrastructure plans as pound spikes above $1.25.