Tuesday Watch

Evening Headlines

Bloomberg:

• China's Banks More Squeezed Than You Think.
• China December Factory Prices Jump 5.5% on Year, Consumer Prices Rise 2.1%. China's producer price index jumped 5.5 percent in December from a year earlier, compared to the median estimate of 4.6 percent in a Bloomberg survey and the 3.3 percent gain in November. The consumer-price index rose 2.1 percent, versus a 2.2 percent increase forecast by analysts.
  
• Asian Shares Track U.S. Retreat While Bonds Climb: Markets Wrap. Japanese equities fell on their first day of trading this week, tracking losses in the U.S., where the S&P 500 Index dropped from a record high. U.S. crude was around $52 a barrel after sinking the most in more than five weeks Monday amid concern over Iraq’s compliance with OPEC’s production cuts. The yen maintained its rebound as gold edged higher for the fifth time in six days, while Australian and New Zealand debt paced gains in Treasuries. The won rallied following its worst day since November. Japan’s Topix index fell 0.2 percent as of 9:41 a.m. Tokyo time, as more than twice as many stocks declined as rose on the dollar-denominated MSCI Asia Pacific Index.

Wall Street Journal:

• The Obama Legacy. A Presidency of great promise ends in rancor and disappointment.
• U.S. Pilots See Close Calls With Russian Jets Over Syria. As planes share crowded airspace fighting parallel wars, militaries struggle to minimize threat of an accident.
• Just Had a Baby? Prepare to Spend $233,610 Raising It. The cost of child-rearing rose 3% in 2015, the government says.

Fox News:

• Trump gets revenge, helps oust Kasich loyalist from Ohio GOP post. (video)

CNBC:

• ExxonMobil(XOM) and Iran did business under Secretary of State nominee Tillerson. (video)
• Carl Icahn: Trump can stop this 'idiocy' with overregulation. (video)
• UK prime minister reminds everyone that Brexit is actually happening and that’s hitting the pound. (video)
• JPMorgan's(JPM) Dimon says strong economy will speed interest rate hikes.

Zero Hedge: 

• Trump Backs Delay Of Obamacare Repeal After Pressure From Rand Paul.
• Snowden, Bergdahl? Obama Set For 'Pardon Frenzy' As He Leaves Office.
• Glenn Greenwald Blasts "Fake News" Peddling Washington Post For Lack Of "Basic Journalistic Skepticism".
• Trump Is Set To Label China A "Currency Manipulator": What Happens Then? (graph)
• Marissa Mayer Resigns From Yahoo(YHOO) Board; Yahoo To Be Renamed To Altaba.
• Consumer Credit Soars, Driven By Near Record Credit Card-Fueled Spending. (graph)
• "Dash For Trash" Continues - Lower Quality Stocks Have Led Market Over Past 3 Months. (graph)
• Crude Crushed, Dollar Dumps As Bonds & Bullion Bounce. (graph)

Busines Insider:

• Apple(AAPL) plans 'high-tech manufacturing' of data-center gear in Arizona.
• There’s a catch with OPEC’s plan to cut production.

ABC News: 

• Jewish Centers in Several States Targeted With Bomb Threats.

Reuters: 

• Fed's Rosengren calls for faster interest rate hikes. Boston Fed President Eric Rosengren on Monday called for the U.S. central bank to step up its pace of interest rate increases from the once-a-year pattern it has pursued since 2015, warning of inflation risks if it does not. "I expect that appropriate monetary policy will need to normalize more quickly than over the past year," Rosengren told the Connecticut Business and Industry Association.

Night Trading 

• Asian equity indices are -.50% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 115.75 +1.75 basis points.
• Asia Pacific Sovereign CDS Index 34.5 +1.5 basis points.
• Bloomberg Emerging Markets Currency Index 69.86 +.01%. 
• S&P 500 futures -.12%. 
• NASDAQ 100 futures -.09%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (SNX)/2.09

Economic Releases
6:00 am EST

• The NFIB Small Business Optimism Index for December is estimated to rise to 99.5 versus 98.4 in November. 

10:00 am EST

• Wholesale Trade Sales MoM for November is estimated to rise +.5% versus a +1.4% gain in October.
• JOLTS Job Openings for November are estimated to fall to 5500 versus 5534 in October.
  

Upcoming Splits 

• None of note

Other Potential Market Movers

• The China Money Supply report, $24B 3Y T-Note auction, weekly US retail sales reports and the Needham Growth Conference could also impact trading today.

BOTTOM LINE:  Asian indices are mostly lower, weighed down by industrial and commodity shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

Stocks Slightly Lower into Final Hour on Technical Selling, Oil Decline, Yen Strength, Energy/Transport Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 11.59 +2.39%

• Euro/Yen Carry Return Index 128.14 -.4%

• Emerging Markets Currency Volatility(VXY) 11.16 +.72%

• S&P 500 Implied Correlation 46.69 -7.08%

• ISE Sentiment Index 111.0 +70.77%
  

• Total Put/Call .98 +2.08%

• NYSE Arms 1.29 +16.49%

Credit Investor Angst:

• North American Investment Grade CDS Index 65.31 +1.38%
  

• America Energy Sector High-Yield CDS Index 418.0 -.68%

• European Financial Sector CDS Index 87.19 -.36%

• Western Europe Sovereign Debt CDS Index 20.29 -2.41%

• Asia Pacific Sovereign Debt CDS Index 34.39 +1.96%

• Emerging Market CDS Index 234.94 +2.17%
  

• iBoxx Offshore RMB China Corporate High Yield Index 132.67 -.18%

• 2-Year Swap Spread 28.0 +1.0 basis point

• TED Spread 51.25 +1.5 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -44.75 +2.0 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 69.84 -.19%
• 3-Month T-Bill Yield .50% -1.0 basis point

• Yield Curve 119.0 -1.0 basis point
  

• China Import Iron Ore Spot $77.73/Metric Tonne +1.94%

• Citi US Economic Surprise Index 28.50 +1.5 points

• Citi Eurozone Economic Surprise Index 71.0 -.1 basis point

• Citi Emerging Markets Economic Surprise Index 26.70 +.7 point

• 10-Year TIPS Spread 1.97 -1.0 basis point
• 33.3% chance of Fed rate hike at March 15 meeting, 46.6% chance at May 3 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +31 open in Japan 
• China A50 Futures: Indicating +18 open in China

• DAX Futures: Indicating -9 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 25% Net Long

Today's Headlines

Bloomberg:

• China’s Biggest Money Fund Is Bracing for More Liquidity Shocks. China will face more frequent liquidity shocks this year, according to the manager of the nation’s biggest money-market fund, which plans to hold extra cash to protect against the risk of rising redemptions. The government’s efforts to curb risk in the financial system and support the sliding yuan are likely to “over-stretch a rope that’s already tight,” said Wang Dengfeng, who manages the 800 billion yuan ($115 billion) Yu’EBao fund at Tianhong Asset Management Co. “The biggest challenge for us this year is to appropriately manage our own liquidity risks - that we have ample cash to meet demand when large redemptions occur,” Wang said in an interview in Beijing last week. “We’ll set aside much more cash than needed, rather than allocating into high-yielding assets.”
• Nielsen: China Growth Falls to 3% Within Five Years. (video)
• Why the China Manipulator Label Looks Increasingly Appealing to Trump. (video) The name-and-shame maneuver may not be a long shot.
• McDonald’s(MCD) Sells Control of China Business to Citic, Carlyle. McDonald’s Corp. agreed to sell a controlling stake in its China and Hong Kong operations to a group of investors for about $1.7 billion, a key component of the fast-food giant’s reorganization in a market where it’s striving to catch up with more nimble rivals. Chinese state-backed conglomerate Citic Ltd., Citic Capital Holdings and U.S. private-equity firm Carlyle Group LP will acquire an 80 percent holding in a deal valuing the business at as much as $2.08 billion, according to a statement Monday.
• Italian Unemployment Rate Rises to Highest Since June 2015. Italy’s unemployment rate rose to the highest level since June 2015, as the country struggles to regain a solid economic footing. The jobless rate was 11.9 percent in November, up from a revised 11.8 percent the month before, statistics agency Istat said Monday in Rome. The median estimate in a Bloomberg survey of 13 analysts called for 11.6 percent. Youth unemployment rose to 39.4 percent, the highest since October 2015. The November unemployment rate for the 19-nation euro area was 9.8 percent, the European Union’s statistics office in Luxembourg said later Monday.
• Deutsche Bank(DB) Says Oil, Bond and Yen Trades May Be Due Break. The new year has barely started and it’s time for a breather, according to Deutsche Bank AG. The lender says three popular “reflation trades” -- selling government bonds, buying oil and shorting the yen -- may have gone too far. While fundamentals suggest these trends may have further to go, Deutsche Bank strategists including New York-based Parag Thatte wrote in a recent note that the trio of consensus calls are now looking “stretched.”
• Iraq’s Southern Oil Exports Hit Record Before OPEC Cuts. Iraq’s oil exports from its southern ports in the Gulf reached a record high in December, just before the country was due to join other major producers in cutting output to help curb a global oversupply. Shipments from southern ports in Basra Province averaged 3.51 million barrels a day in December, Oil Minister Jabbar Al-Luaibi said in an e-mailed statement, up from 3.407 million in November. He didn’t disclose figures for exports through Iraq’s northern pipeline network, which typically average about 600,000 barrels a day. “Achieving this record average will not affect Iraq’s decision to cut output from the beginning of 2017,” Al-Luaibi said. “Iraq is committed to achieving producers’ joint goals to control the oil glut in world markets.”
• The Options Market Isn't Too Worried About Retail Woes -- Maybe It Should Be. The ratio of puts to calls for the retail sector ETF has come in sharply, notes MKM Partners.

Wall Street Journal:

• Donald Trump Names Son-in-Law Jared Kushner as Senior Adviser. One of the most influential voices in the Trump camp to get a wide-ranging portfolio.
• Donald Trump Backs Repeal, Replace of Obamacare All at Once, Senator Says. Rand Paul says the president-elect told him he agrees with his stance on Affordable Care Act.

Fox News:

• Assange blasts 'embarrassing' US intel report, insists Russia not his source. (video)
• Manhunt grips Orlando as police search for suspect in officer's shooting death. (video)

CNBC:

• China’s latest moves to manage the yuan add fuel to Trump’s threats.
• With recovery 'largely done,' Lockhart says Fed should step aside.

Zero Hedge:

• GM(GM) Lied To The Public And To Trump About Where Chevrolet Cruze Sedans Sold In The USA Are Assembled.
• Fiat CEO Warns May Shut All Mexico Production If Trump Tariff Too High.
• Obama "Gifts" Iran With Massive Uranium Shipment From Russia Sufficient "For More Than 10 Nuclear Bombs".
• Toyota To Invest $10 Billion In America As Jack Ma Meets Trump To Discuss Creation Of 1 Million US Jobs.
• Oil Slumps As Nigeria Production Jumps, Kuwait Hints At OPEC Deal "Non-Compliance", SPR Sale. (graph)
• Fed's Labor Market Conditions Index Plunges Most In 7 Years. (graph)
• Mexico Spent $4 Billion To Defend The Peso Last Week...And This Is What They Got. (graph)
• US Destroyer Fired Warning Shots At Four Iranian Vessels In Strait Of Hormuz.

FXStreet:

• Fed’s Williams: Possibility of fiscal stimulus is “really not that important” for rate changes this year - FT.

Reuters: 

• Japan's Takeda to buy U.S. cancer drug maker Ariad(ARIA) in $5.2 billion deal.
• UnitedHealth(UNH) to buy Surgical Care Affiliates in $2.3 billion deal.

The Telegraph:

• German fury grows over inflation 'Horror-Kurve' as fears of destructive boom-bust cycle mount.

Bear Radar

Style Underperformer:

• Small-Cap Value -1.1%

Sector Underperformers:

• 1) Oil Service -1.7% 2) Construction -1.5% 3) Road & Rail -1.4%

Stocks Falling on Unusual Volume: 

• AMAG, AYI, ATRC, AQXP, BGSF, MHG, WTW, FIVE, NLS, EGRX, CMC, FMS, ADMS, AGIO, MANH, SHAK, MBLY, HELE, KEP, ERI, SAM, QDEL, AZZ, TEL, EBS, MTG, SHAK and BOOT

Stocks With Unusual Put Option Activity:

• 1) MNKD 2) AEO 3) CELG 4) M 5) AA

Stocks With Most Negative News Mentions:

• 1) MANH 2) ACAT 3) NLS 4) SAM 5) RIG

Charts:

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