Today's Headlines

Bloomberg:

• China's Yuan Pessimists Are Multiplying. (video) China is tightening capital controls as the imminent renewal of a foreign-exchange conversion quota adds to depreciation pressure on the yuan. Chinese citizens are allowed to convert $50,000 worth of yuan annually, and with the new year less than a month away, the potential for capital flight is building. Individuals and households are the biggest threat to the yuan now, because they can easily be influenced by short-term volatility, according to Xia Le, a Hong Kong-based economist at Banco Bilbao Vizcaya Argentaria SA. The yuan has weakened 3.1 percent this quarter amid concern the Federal Reserve will raise borrowing costs, strengthening the dollar.
• German Industrial Production Rose Less Than Forecast in October. German industrial production rose less than analysts forecast in October, signaling that Europe’s largest economy took a slow start to the final quarter of the year. Production, adjusted for seasonal swings, gained 0.3 percent from the previous month, when it declined a revised 1.6 percent, data from the Economy Ministry in Berlin showed on Wednesday. The reading, which is typically volatile, compares with a median estimate for a 0.8 percent increase in a Bloomberg survey. Output was up 1.2 percent from a year earlier.
• European Stocks Rise for a Third Straight Day. (video)
• AAA Ratings Return for Securities Backed by Riskier Home Loans. Two ratings firms are assigning AAA ratings to bonds backed by new riskier home loans, one of the few times such securities have won top grades since the financial crisis, according to documents obtained by Bloomberg. Fitch Ratings and DBRS Inc. are giving the ratings to more than $210 million of bonds backed by loans made by Caliber Home Loans, a unit of Lone Star Funds, and by loans from Sterling Bank & Trust and LendSure Mortgage Corp. The bonds are partially backed by mortgages in which the lender verified a borrower’s income with bank statements rather than tax returns. Another ratings firm, Moody’s Investors Service, recently called out those types of mortgages as risky.

Wall Street Journal:

• Senate Clears Bill to Ease FDA Drug and Device Approvals. Measure includes money for NIH, cancer moonshot, precision medicine initiative. Passage of legislation aimed at speeding up Food and Drug Administration approvals, combined with an incoming president who has pledged to “cut red tape” at the agency, is expected to usher in a new, more industry-friendly era of drug and device regulation.
• China’s Banks Are Hiding More Than $2 Trillion in Loans. Accounting sleight of hand means banks don’t have to set aside capital for potential losses, sowing fears of a crisis; new apartments with no residents.

Fox News:

• Manhunt under way after 1 Georgia cop killed, 1 seriously injured in shooting. (video)

CNBC:

• Dow soars, up 250 points to record highs as telecoms rise more than 2%; S&P gains 1%. (video)
• Shopping for the holidays? These are 14 of the hottest toys of 2016.
• Paul Ryan says Obamacare is 'entering a death spiral'. (video)

Zero Hedge:

• Denzel Washington Slams Mainstream Media For Peddling "Bullshit".
• Jamie Dimon Named Chairman Of Business Roundtable Scoring Another Key D.C. Post For Wall Street.
• Trump Taps Oklahoma Attorney General Scott Pruitt As EPA Head.
• David Rosenberg Throws Up On The "Trump Rally" - Here's Why. (video)
• France: Decomposing In Front Of Our Eyes.
• This Is the Purge We All Knew Was Coming: "Shutting Down Extremist Content".
• What's Behind The Relentless Market Surge? RBC Explains.
• Trump Picks Iowa Governor Branstad As US Ambassador To China, Beijing Calls Him "Old Friend".
• Indian Economy Crashes As Modi's "Black Money" Theory Collapses. (graph)
• Chinese Reserves Tumble By $69 Billion, Biggest Drop Since January. (graph)
• Crude Tumbles Below $50 After Biggest Cushing Build Since Jan 2009. (graph)
• Job Market Rolling Over: Rate Of Hiring Declines At Fastest Pace Since 2013. (graph)
• Saxo Bank's 10 Outrageous Predictions For 2017: Brexit Never Happens, Bitcoin Surges, Fed Folds.
• Our "Gaslight" Economy. (graph)
• OPEC Cheating Will Cap Oil At $52. (graph)
• Donald Trump Is Time Magazine's 2016 "Person Of The Year".
• Biotechs Slide After Trump Says "I'm Going To Bring Down Drug Prices".
• Another Trump Win: Apple Supplier Foxconn Says It Is In Discussions To Expand US Operations.

Bear Radar

Style Underperformer:

• Small-Cap Growth +.3%

Sector Underperformers:

• 1) Biotech -2.9% 2) Drugs -1.2% 3) Medical Equipment -.2%

Stocks Falling on Unusual Volume: 

• LADR, VRA, OXM, FTK, AVAV, ALR, HBI, SNCR, NUS, BLUE, AKRX, SCMP, MIK, CELG, SHPG, BLCM and BPMC

Stocks With Unusual Put Option Activity:

• 1) VA 2) UUP 3) ALR 4) PAA 5) S

Stocks With Most Negative News Mentions:

• 1) GLT 2) ALOG 3) MIK 4) SIGM 5) HUM

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value +1.0%

Sector Outperformers:

• 1) Coal +2.9% 2) Steel +2.3% 3) Telecom +2.2%

Stocks Rising on Unusual Volume:

• PLAY, UA, FNF, REGI, CS, WDC, PI, SODA, AGX, BOBE, KFY, FRAN, AIRG, CVI, BWA, CVI, PI, BNED, FNF, BX, FCE/A, UNVR and MMP

Stocks With Unusual Call Option Activity:

• 1) QVCA 2) XLB 3) HON 4) WDC 5) XHB

Stocks With Most Positive News Mentions:

• 1) CAL 2) DFS 3) UNH 4) JNPR 5) WDC

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +11.8% Above 100-Day Average
• 8 Sectors Rising, 2 Sectors Declining
• 68.1% of Issues Advancing, 28.8% Declining
• 273 New 52-Week Highs, 11 New Lows
• 56.2% of Issues Above 200-day Moving Average
• Average 14-Day RSI 45.6%
• Vix 11.4 -3.0%
• Total Put/Call .75 -8.5%
• TRIN/Arms 1.08 +11.6%

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