Wednesday Watch

Evening Headlines

Bloomberg:

• China Is Pausing on U.S. Deals, Ex-Goldman Rainmaker Says. Chinese investors are hitting the pause button on U.S. and other outbound deals as they grapple with the ramifications of a Trump presidency and possible government curbs on overseas acquisitions, according to Fred Hu, a former Greater China chairman for Goldman Sachs Group Inc. The 53-year-old founder and chairman of Beijing-based investment firm Primavera Capital Group said in an interview in Hong Kong that he and other investors are focusing on industries spurred by consumer demand in China. Primavera has stakes in companies from e-commerce giant Alibaba Group Holding Ltd. to Yum China Holdings Inc., which operates the KFC and Pizza Hut chains there.
• How a China-U.S. Trade War Would Affect the iPhone. (video)
• Australia’s Economy Shrinks More Than Expected; Currency Slumps. Australia’s economy shrank the most in almost eight years in the third quarter as government spending fell and imports rose. The local currency slumped.
• The Yen's Swift Decline Could Go Too Far. The yen’s swift decline in the wake of Donald Trump’s election victory last month could go too far, according to Hakubun Shimomura, a senior member of Japan’s ruling Liberal Democratic Party. A weaker currency is generally welcome in Japan because it helps exporters and fuels desired inflationary pressures. But Shimomura, a former education minister and close ally of Prime Minister Shinzo Abe, said he worries that the currency could drive up the nation’s import bill.
• Stock Rally Extends Into Asia as Traders Await RBI, Aussie GDP. (video) Stock futures signaled a rally in U.S. equities will extend into Asian markets as traders await India’s central bank policy meeting, while the Australian dollar held losses before data expected to show the world’s 12th-largest economy shrank. Australia’s benchmark index jumped 0.6 percent, as equity-index contracts in Japan, Hong Kong and South Korea climbed at least 0.1 percent. Analysts forecast the Reserve Bank of India will cut its key interest rate on Wednesday, while the European Central Bank is expected Thursday to extend its bond-buying program beyond the current March end date. Australian gross domestic product probably declined 0.1 percent last quarter, its first contraction since the start of 2011. The MSCI Asia Pacific Index added 0.2 percent.
• Health Insurers Willing to Give Up a Key Obamacare Provision. U.S. health insurers signaled Tuesday that they’re willing to give up a cornerstone provision of Obamacare that requires all Americans to have insurance, replacing it with a different set of incentives less loathed by Republicans who have promised to repeal the law. Known as the “individual mandate,” the rule was a major priority for the insurance industry when the Affordable Care Act was legislated, and also became a focal point of opposition for Republicans. In a position paper released Tuesday -- the first since President-elect Donald Trump’s victory -- health insurers laid out changes they’d be willing to accept.
• Goldman Tells Stock Pickers to Rejoice as Correlations Decline. (video)
• Tesla(TSLA) Recalls 7,000 Charging Adapters After Two Overheat. The limited notice to customers only applies to plugs sold in the U.S. 

Wall Street Journal:

• Ad Agencies Probed Over Contracts to Produce Commercials. Justice Department examines whether ad companies rigged bids to favor in-house production units.

Fox News:

• House Report: US facing biggest Islamic terror threat since 9/11. The United States faces its highest threat from Islamist terrorists since 9/11 and much of that stems from those radicalized at home, according to the House Homeland Security Committee’s December Terror Threat Snapshot released Tuesday. What’s more, the report said, the threat to the United States and Europe will persist in 2017.

CNBC:

• The Persian Gulf's debt binge creates a 'vicious circle' on the Arab Peninsula.

Zero Hedge:

• Tech Titans Team Up Block "Extremist Content" With Centralized Censorship Database.
• Meanwhile On Main Street, Fast-Food Traffic Drops For The First Time In Five Years.
• Meet Donald Trump's Cabinet (So Far).
• Virginia Tech Snowflakes Unveil Definitive List Of Top 50 Microaggressions That Offend Them.
• Italian Government Prepares To Nationalize Monte Paschi.
• Is Trump Calling Out Xi Jinping?
• CNN Boss Admits "Democrats Bigger First Amendment Threat Than Trump".
• China Admits "Economic Downturn Just Beginning", Slashes Salary Guidelines. (graph)
• Trader Exclaims "Markets Are In An Alternate Universe". (graph)
• WTI Pops Despite Biggest Cushing Inventory Build Since 2008. (graph)
• Trumpgasm Returns: Dow Hits 11th Record Since Election As Small Caps Soar. (graph)

Business Insider:

• A small and highly-profitable dealmaking firm just claimed bragging rights in the most Wall Street way possible.
• CHINA WARNS 'ROOKIE' TRUMP: Don't cross us. Donald Trump is a "diplomatic rookie" who must learn not to cross Beijing on issues like trade and Taiwan, Chinese state media said Tuesday, warning America could pay dearly for his inexperience. 
• SCHWARZMAN: Donald Trump is going to change the 'architecture of the world'.
• Canada's housing market 'threatens the financial stability' of the country.

Telegraph:

• Italy's rebel economist hones plan to ditch the euro and restore the Medici florin,
• Like the House of Bourbon, the euro will eventually be broken on the anvil of popular insurrection.
• Friday is doomsday in the race to shore up Italy's banks.

Night Trading 

• Asian equity indices are unch. to +.5% on average.
• Asia Ex-Japan Investment Grade CDS Index 118.0 -6.5 basis points.
• Asia Pacific Sovereign CDS Index 39.5 -1.0 basis point.
• Bloomberg Emerging Markets Currency Index 69.68 +.01%. 
• S&P 500 futures +.02%. 
• NASDAQ 100 futures +.05%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (BF/B)/.50
• (HAIN)/.56
• (JW/A)/.66
• (KFY)/.57
• (VRA)/.22
• (CASY)/1.58
• (COST)/1.19
• (HRB)/-.68
• (LULU)/.43
• (UNFI)/.62

Economic Releases
10:00 am EST

• JOLTS Job Openings for October are estimated to rise to 5500 versus 5486 in September.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,294,250 barrels versus a -884,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +1,663,750 barrels versus a +2,097,000 barrel gain the prior week. Distillate inventories are estimated to rise by +1,523,000 barrels versus a +4,957,000 gain the prior week. Finally, Refinery Utilization is estimated to rise +.7% versus a -1.0% decline the prior week.

3:00 pm EST

• Consumer Credit for October is estimated to fall to $18.3B versus $19.292B in September. 

Upcoming Splits 

• None of note

Other Potential Market Movers

• The China Trade Balance report, weekly MBA mortgage applications report, Barclays Tech/Media/Telecom Conference, Citi Healthcare Conference and the (SBUX) Investor Day could also impact trading today.

BOTTOM LINE:  Asian indices are mostly higher, boosted by commodity and financial 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 Higher into Final Hour on Less European/Emerging Markets/US High-Yield Debt Angst, Yen Weakness, Short-Covering, Homebuilding/Gaming Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Slightly Below Average

• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• Volatility(VIX) 11.8 -2.8%

• Euro/Yen Carry Return Index 127.60 -.30%

• Emerging Markets Currency Volatility(VXY) 10.86 +.28%

• S&P 500 Implied Correlation 51.21 -1.14%

• ISE Sentiment Index 87.0 +2.35%
  

• Total Put/Call .87 +1.16%

• NYSE Arms 1.06 +28.32%

Credit Investor Angst:

• North American Investment Grade CDS Index 70.18 -2.62%
  

• America Energy Sector High-Yield CDS Index 533.0 +7.18%

• European Financial Sector CDS Index 101.38 -5.81%

• Western Europe Sovereign Debt CDS Index 23.42 -.34%

• Asia Pacific Sovereign Debt CDS Index 39.68 -2.06%

• Emerging Market CDS Index 257.80 -3.32%
  

• iBoxx Offshore RMB China Corporate High Yield Index 132.93 -.06%

• 2-Year Swap Spread 23.0 -1.25 basis points

• TED Spread 46.0 -1.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -56.25 +2.0 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 69.97 +.43%
• 3-Month T-Bill Yield .49% +3.0 basis points

• Yield Curve 128.0 +1.0 basis point
  

• China Import Iron Ore Spot $79.73/Metric Tonne +1.41%

• Citi US Economic Surprise Index 30.10 +1.4 points

• Citi Eurozone Economic Surprise Index 66.10 +7.2 points

• Citi Emerging Markets Economic Surprise Index 3.9 +.3 point

• 10-Year TIPS Spread 1.99% +2.0 basis points
• 100.0% chance of Fed rate hike at Feb. 1 meeting, 100.0% chance at March 15 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +150 open in Japan 
• China A50 Futures: Indicating +16 open in China

• DAX Futures: Indicating +47 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg:

• China Urged to Stop ‘Disappearing’ Officials in Graft Crackdown. A global rights advocacy group is calling on China to stop detaining Communist Party members indefinitely without charge, releasing a report criticizing the system on the unofficial anniversary of Xi Jinping’s four-year-old corruption crackdown. The practice, known as shuanggui, which the Communist Party uses to secure confessions from corruption suspects, lacks legal basis and perpetuates rights abuses, Human Rights Watch said in a report released Tuesday in Hong Kong. Such extrajudicial detentions are a key feature of Xi’s anti-graft campaign, which began on Dec. 6, 2012, with the investigation of Li Chuncheng, then a deputy party chief in the southwestern province of Sichuan.
• Asia’s New Tiger Economy Fears Currency Slide. Myanmar’s central bank is braced for a deeper slide in the nation’s currency and has little scope to tackle the decline after the kyat fell the most in Asia, according to one of the monetary authority’s top officials. The kyat has weakened about 10 percent against the dollar in the past six months, data compiled by Bloomberg show. The drop could deepen if the U.S. Federal Reserve increases interest rates this month as expected, said U Win Thaw, the director general of the foreign-exchange management department in the Central Bank of Myanmar.
• South Korean President ‘Ready’ to Face Friday Impeachment Vote. 
• SocGen's "Most Worrying Chart" Shows Markets Still Shrugging Off Political Risk. Credit spreads should be twice as wide.
• Goldman Sachs(GS) Slashes Indian Growth Estimates Amid Currency Crackdown. The impact of India's high-value cash ban is now showing up in the data.
• Rally in Banks Spurs More Gains in European Stocks Ahead of ECB. (video) European stocks capped their biggest back-to-back gains since the U.S. election as banks jumped ahead of this week’s European Central Bank meeting and utilities climbed on a German court ruling. The Stoxx Europe 600 Index climbed 1 percent at the close, with banks surging the most since June on optimism of more stimulus from the ECB. Italian lenders UniCredit SpA and Mediobanca SpA climbed 9.9 percent or more.
• Oil Falls From 16-Month High as OPEC Production Keeps on Rising. (video) Futures slid as much as 2.9 percent in New York after rising 15 percent over the previous four sessions. OPEC boosted production to 34.16 million barrels a day last month, according to a Bloomberg News survey, with Angola, Libya and Nigeria leading the gains. Attention is shifting to which non-OPEC producers will join Russia in reducing output when they meet in Vienna on Saturday. OPEC is hoping they will cut 300,000 barrels a day further than the 300,000 already promised by Russia. 
• Saks’ Owner HBC Tumbles as Department-Store Slump Crimps Sales. Hudson’s Bay Co. tumbled as much as 6.8 percent after third-quarter results missed estimates, a sign the owner of Saks Fifth Avenue and Lord & Taylor is struggling to cope with a moribund department-store industry. Excluding nonrecurring items, the company posted a third-quarter loss of 56 cents a share in the period, which ended Oct. 29. Analysts had projected a deficit of 22 cents, according to data compiled by Bloomberg. Sales and adjusted earnings also fell short of predictions.
• U.S. CEOs Become More Optimistic on Outlook for Sales, Jobs. Chief executive officers of some of the largest U.S. companies became more optimistic about their sales and hiring prospects in the weeks before and after last month’s presidential election, even as they pared plans for capital spending. The Business Roundtable’s CEO Economic Outlook Index -- a measure of expectations for revenue, capital spending and employment -- increased by 4.6 points to 74.2 in the fourth quarter, the highest since the second quarter of 2015, according to a survey released Tuesday. The gauge remains below its long-run average of 79.6. Readings above 50 indicate economic expansion.

Wall Street Journal:

• Fed May Struggle to Signal What Comes After December. Officials are likely to indicate they are sticking with their plan to raise rates gradually until the new government’s policies become clearer.

Fox News:

• Merkel calls for burqa ban in Germany. (video)
• Anti-Trumpers trying to sow chaos in Electoral College. (video)

CNBC:

• Trump says SoftBank will invest $50 billion in the US, aiming to create 50,000 jobs.
• These stocks could surge if Trump cuts corporate taxes. (graph)
• One really important group is not buying during the Trump rally: Corporate insiders.

Zero Hedge:

• Time Urges 65 Million Americans Who Voted For Hillary Not To Pay Taxes.
• Bill Gross Reveals The "Global Establishment's Overall Plan" In Eight Simple Steps.
• Oil’s Most Popular Trading Products May Soon Be Shut Down.
• "China Has Run Off The Cliff So Fast, People Seem To Think They’ll Make It To The Other Side".
• Trump Sold All His Stocks In June.
• The Dramatic Impact Of Surging Rates On Housing And Refis In One Chart.
• Supreme Court Rules On Insider Trading For First Time In 20 Years: Why It Matters.
• Boeing Responds To Trump.
• Fitch Cuts Outlook For Italian Banks To Negative Due To High Bad Debt, Referendum Vote Risks.
• Core Durable Goods Orders Contract For 22nd Straight Month - Longest Non-Recessionary Streak In US History. (graph)
• Factory Orders Surged Most In 16 Months (Before The Election). (graph)
• Trade Deficit Grows More Than Expected As Stronger Dollar Pressures Exports. (graph)
• US Productivity Suffers First Two-Quarter Annual Decline Since 1993. (graph)

Business Insider: 

• Turkey is hosting a new round of peace talks between Russia and Syrian rebels — and it looks like the US wasn't invited.
• A $3.5 billion firm backed by investing legend Julian Robertson is shutting down one of its hedge funds.

The Telegraph:

• There's nothing the UK can do to save the eurozone from its own folly.
• The 'Trump bump' in the markets is powered by a welcome cut in corporate taxes.
• Mark Carney warns Britain is suffering first lost decade since 1860 as people across Europe lose trust in globalisation. (video)

Xinhua:

• Researcher Says China Property, Financial Risks Increase. Monetary policy should better support the real economy and prevent risks, citing Wang Yiming, vice president of Sate Council Development Research Center.

Bear Radar

Style Underperformer:

• Large-Cap Growth unch.

Sector Underperformers:

• 1) Social Media -.7% 2) Gold & Silver -.7% 3) Oil Service -.6%

Stocks Falling on Unusual Volume: 

• SBSI, MIK, STWD, SNCR, FET, CMG, OMCL, TEVA, BNED, MTDR, RCII, HMST, AGIO, GBT, COT, AMCX, JUNO, AKRX, SCSS, LPLA and BLCM

Stocks With Unusual Put Option Activity:

• 1) TOL 2) SPWR 3) EWT 4) XME 5) GLW

Stocks With Most Negative News Mentions:

• 1) RCII 2) SPWR 3) JUNO 4) SCSS 5) ABM

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value +.5%

Sector Outperformers:

• 1) Airlines +2.3% 2) Homebuilders +1.9% 3) Gaming +1.5%

Stocks Rising on Unusual Volume:

• IL, ZG, FRAN, BOBE, CONN, ING, TOL, UBS, CS, TLYS, CAVM, HSBC, DB, FCE/A and BWA

Stocks With Unusual Call Option Activity:

• 1) WPX 2) Z 3) TOL 4) LNKD 5) SWKS

Stocks With Most Positive News Mentions:

• 1) IDTI 2) BKE 3) PLUG 4) IDTI 5) BA

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -.7% Below 100-Day Average
• 3 Sectors Rising, 7 Sectors Declining
• 54.3% of Issues Advancing, 42.2% Declining
• 159 New 52-Week Highs, 19 New Lows
• 55.8% of Issues Above 200-day Moving Average
• Average 14-Day RSI 44.8%
• Vix 11.8 -2.6%
• Total Put/Call .90 +4.7%
• TRIN/Arms 1.07 +29.7%