Wednesday Watch

Evening Headlines

Bloomberg:

• William Rhodes: China's Major Concern Is the Economy. (video)
• Trump Tax Cuts Could Jump-Start Global Economy, World Bank Says. President-elect Donald Trump’s tax cuts and spending plans could deliver a shot in the arm to the U.S. economy, lifting growth around the world, although uncertainty about his trade policies adds to the risks, according to the World Bank. The Trump administration could squander the economic gains of fiscal stimulus if it imposes new trade barriers that provoke retaliation by other countries, the Washington-based development lender said Tuesday in the latest update to its global economic outlook. Overall, it’s too early to assess what the net impact will be of Trump’s economic policies, the World Bank said. Accordingly, it left its forecast for U.S. growth this year and next unchanged, at 2.2 percent and 2.1 percent, respectively. The outlook doesn’t incorporate the expected effect of Trump’s policy proposals, according to the report.
• Asian Stocks Set for Gains Following Metals Surge: Markets Wrap. Contracts on equity indexes from South Korea to Hong Kong signaled advances after a mixed day for U.S. shares. Stocks in Australia rallied as the country’s 10-year debt eased back. The yen held on to a two-day climb versus the greenback amid anxiety ahead of Donald Trump’s first press conference since July, an event that could provide detail on the U.S. president-elect’s policy outlook. Gold was near its highest price since November after a surge in copper to iron ore on the Chinese data Tuesday. Oil snapped a two-day slide. Miners and technology shares led Australia’s S&P/ASX 200 Index up 0.2 percent as of 8:56 a.m. Tokyo time, as the S&P/NZX 50 Index in Wellington also climbed 0.2 percent in a third day of gains. Nikkei 225 Stock Average futures were bid up 0.1 percent to 19,320 in the Osaka pre-market, with yen-denominated contracts traded in Chicago little changed at 19,350. Futures on the Kospi index in Seoul advanced 0.1 percent in most recent trading, as those on Hong Kong’s Hang Seng and Hang Seng China Enterprises gauges climbed at least 0.3 percent.

Wall Street Journal:

• Jeff Sessions and John Kelly Confirmation Hearings: Live Coverage. (video)
• America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis. Lenders offering energy-conscious loans care little about borrowers’ creditworthiness, contractors function as loan brokers—and investors can’t get enough.

Fox News:

• Slain DNC staffer's father doubts WikiLeaks link as cops seek answers. (video)

MarketWatch:

• Vaccine skeptic Robert Kennedy Jr. says Trump asked him to chair commission. Vaccine skeptic Robert F. Kennedy Jr. said Tuesday that President-elect Donald Trump has asked him to chair a commission on vaccine safety and scientific integrity. The son of the late U.S. senator, attorney general and Democratic presidential candidate said after meeting with the president-elect at Trump Tower that “Trump has doubts about current vaccine policy.” “He said his opinion doesn’t matter,” Kennedy said, “but the science does matter, and we ought to be debating it.”

CNBC:

• Jeffrey Gundlach says he expects markets to reverse post-election moves. There will be "trouble for equity markets" if the yield on the benchmark 10-year U.S. Treasury note moves beyond 3 percent, Jeffrey Gundlach, chief executive of DoubleLine Capital, warned on Tuesday.
• Some Senate Republicans are trying to stop Trump from lifting sanctions on Russia.

Zero Hedge:

• US Intel Told Trump Russia Had Compromising Personal And Financial Information About Him.
• An Angry Trump Responds: "FAKE NEWS - A TOTAL POLITICAL WITCH HUNT!"
• Here Is The Full 35-Page Report Alleging Trump Was "Cultivated, Supported And Assisted" By Russia.
• Goldman "Concerned" As Risk Appetite Index Hits Record High. (graph)
• And The World's Most Volatile Currency Is... (graph)
• Obama Slashes Mortgage Insurance Premiums For Subprime Borrowers With Just 10 Days Left In Office.
• Oil Holds Losses After Inventory Data Shows More Builds. (graph)
• Bullion, Biotechs, & Banks Bid As Bonds & Black Gold Skid. (graph)

Busines Insider:

• How Iran made the US look weak with a tiny, outdated navy and some old ballistic missiles.
• Inflation will be China's next big export to the world.
• Mark Zuckerberg just poached Obama's former campaign manager to deepen his charity's ties with Washington.

Night Trading 

• Asian equity indices are -.25% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 116.25 +.5 basis point.
• Asia Pacific Sovereign CDS Index 34.25 -.25 basis point.
• Bloomberg Emerging Markets Currency Index 69.58 -.05%. 
• S&P 500 futures -.10%. 
• NASDAQ 100 futures -.08%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (MSM)/.93
• (SVU)/.14
• (KBH)/.44

Economic Releases
10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +930,100 barrels versus a -7,051,000 decline the prior week. Gasoline supplies are estimated to rise by +2,061,000 barrels versus a +8,307,000 barrel gain the prior week. Distillate inventories are estimated to rise by +1,469,800 barrels versus a +10,051,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.19% versus a +1.0% gain prior.

Upcoming Splits 

• None of note

Other Potential Market Movers

• The $20B 10Y T-Note auction, UK Industrial Production report, weekly MBA mortgage applications report and the (SIG) December sales report could also impact trading today.

BOTTOM LINE:  Asian indices are mostly higher, boosted by technology and commodity 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 Slightly Higher into Final Hour on US Economic Data, Earnings Optimism, Metals & Mining/Medical Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Mixed
  

• Volume: Slightly Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 11.69 +1.12%

• Euro/Yen Carry Return Index 127.69 -.37%

• Emerging Markets Currency Volatility(VXY) 11.07 +.18%

• S&P 500 Implied Correlation 47.56 +.49%

• ISE Sentiment Index 100.0 unch.
  

• Total Put/Call .87 -12.12%

• NYSE Arms 1.06 -28.94%

Credit Investor Angst:

• North American Investment Grade CDS Index 65.55 +.76%
  

• America Energy Sector High-Yield CDS Index 422.0 +1.15%

• European Financial Sector CDS Index 88.03 +.97%

• Western Europe Sovereign Debt CDS Index 19.99 -1.48%

• Asia Pacific Sovereign Debt CDS Index 34.12 -.79%

• Emerging Market CDS Index 238.91 +1.66%
  

• iBoxx Offshore RMB China Corporate High Yield Index 132.67 unch.

• 2-Year Swap Spread 28.25 +.25 basis point

• TED Spread 50.25 -1.0 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -42.5 +2.25 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 69.63 -.31%
• 3-Month T-Bill Yield .51% +1.0 basis point

• Yield Curve 119.0 unch.
  

• China Import Iron Ore Spot $79.43/Metric Tonne +2.19%

• Citi US Economic Surprise Index 39.30 +10.8 points

• Citi Eurozone Economic Surprise Index 71.80 +.8 basis point

• Citi Emerging Markets Economic Surprise Index 28.70 +2.0 points

• 10-Year TIPS Spread 1.98 +1.0 basis point
• 33.1% chance of Fed rate hike at March 15 meeting, 46.4% chance at May 3 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +97 open in Japan 
• China A50 Futures: Indicating +77 open in China

• DAX Futures: Indicating -10 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:

• Credit Hedge Fund Shorting China Junk Bonds as Risks Mount. Double Haven Capital (Hong Kong), a credit hedge-fund firm that profited last year as most of the industry struggled to make money, is betting against Chinese high-yield bonds as many investors are seeing risks mount in this part of the market. Chinese high-yield bonds have gotten expensive, and heavily indebted issuers throughout Asia need to refinance existing loans, Darryl Flint, chief investment officer of the Hong Kong-based hedge fund, wrote in a newsletter to investors. Double Haven, which has traded more than $10.7 billion of public and private Asian securities since 2011, said a wave of refinancing activity could also amplify price volatility. Double Haven is joining peers such as BFAM Partners (Hong Kong) and Value Partners Group Ltd. in taking a bearish view on Chinese junk bonds this year after such securities helped regional fixed-income managers return nearly eight-fold the average Asian hedge fund gain in 2016. Double Haven did even better, climbing 8.7 percent last year as the average Asia hedge fund rose 0.8 percent for the worst annual performance since 2011, according to preliminary data from Eurekahedge in Singapore.
• Mexico as U.S. Manufacturing Scapegoat Masks China Effect: Chart.
• India Auto Sales Plunge Most in 16 Years on Modi’s Bank Note Ban. India’s automobile sales fell the most in 16 years last month after Prime Minister Narendra Modi’s unprecedented clampdown on cash prompted consumers to delay their purchases of cars, motorcycles and trucks. Automobile sales fell 19 percent to 1.2 million units in December, the biggest drop since the same month in 2000, according to data released by the Society of Indian Automobile Manufacturers in New Delhi. Passenger vehicles sales dropped 1.4 percent while scooters and motorcycles -- a key indicator of rural demand -- fell 22 percent, the biggest monthly contraction on record.
• Oil Drillers Are Expanding Again After Losing Half-Million Jobs. More than three quarters of the 440,131 oil jobs eliminated around the world through the end of 2016 came from the oilfield service providers, drilling contractors and equipment makers, said John Graves, whose Houston firm assists in oil and gas deals with audits and due diligence. He has tracked announcements of layoffs from all parts of the oil industry since the downturn began in the middle of 2014. Roughly a third of the cuts came in the U.S., Graves estimates.
• Junk Bonds' High-Wire Act.
• Hudson's Bay Shares Hit Record Low as Holiday Sales Disappoint.
• Hungary Plans to Crackdown on All Soros-Funded NGOs. Hungary plans to crack down on non-governmental organizations linked to billionaire George Soros now that Donald Trump will occupy the White House, according to the deputy head of Prime Minister Viktor Orban’s party. The European Union member will use “all the tools at its disposal” to “sweep out” NGOs funded by the Hungarian-born financier, which “serve global capitalists and back political correctness over national governments,” Szilard Nemeth, a vice president of the ruling Fidesz party, told reporters on Tuesday. 
• Richmond Fed’s Lacker to Retire Oct. 1, Search on for Successor.

Wall Street Journal:

• FBI’s Comey Says Republican Data Also Hacked by Russians. Russians chose not to disclose as much GOP material as Democrats’ data, intelligence leader says.
• America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis. Lenders offering energy-conscious loans care little about borrowers’ creditworthiness, contractors function as loan brokers—and investors can’t get enough.
• The Limited Latest Apparel Retailer That Faced Struggles in Changing Industry. Retailer failed to adapt in the face of declining mall traffic, changing consumer tastes and rise of fast-fashion and off-price chains.

MarketWatch.com:

• Stoxx Europe 600 ends 2-day skid, even as Italian bank jitters linger.

Fox News:

• Sessions decries ‘caricature’ of him at AG hearing, vows recusal on Clinton matters. (video)

CNBC:

• All but one bank requested to raise discount rate in December: Fed minutes.
• Higher prices give homeowners billions more in equity, but mood is soured by rising mortgage rates.
• US contractors gearing up for Trump spending windfall.

Zero Hedge:

• Activists Are Hoping To Turn Trump's Inauguration Into One Of The Biggest Riots In U.S. History.
• GM(GM) Shares Jump 5% After Forecasting Higher 2017 Profits, Strong China Sales, $5 Billion Buyback.
• Wal-Mart(WMT) To Cut "Hundreds" More Jobs Before End-January.
• Top Five Monetary Policy Issues To Watch In 2017.
• Sessions Will Recuse Himself Of Any Probe Into Hillary Clinton, Does Not Support A Ban On Muslims.
• For Bill Gross, This Is The Only Thing That Matters For The Market Right Now.
• Despite OPEC Cuts, Iraq To Boost February Oil Exports To Record High.
• Job Openings, Hires, Quits And Layoffs All Rebounded In November. (graph)
• Wholesale Sales Disappoint Sending Inventories-Ratio Back Into Recession Territory. (graph)
• Chuck Schumer Slams Republicans For Proposing $9 Trillion In New Debt.
• Living Wage Idiocy And Free Money Experiments.
• The Mexican Peso Is Crashing (Again) To Record Lows. (graph)
• Trumphoria Sends Small Business Optimism Soaring Most Since 1980. (graph)

Bear Radar

Style Underperformer:

• Large-Cap Growth +.2%

Sector Underperformers:

• 1) Oil Service -1.0% 2) REITs -.7% 3) Computer Services -.5%

Stocks Falling on Unusual Volume: 

• WMB, NSTG, COLB, WDFC, ABAX, KONA, ACRS, ZLTQ, WRLD, SIMO, AM, AB, HALO, SHLM, CYNO, TNC, ALLE, KOF, ENDP, DDD, KITE, ACIA, ADMS, AWI, CNK, EROS and QTNA

Stocks With Unusual Put Option Activity:

• 1) EXPR 2) URI 3) WDC 4) KBH 5) JNK

Stocks With Most Negative News Mentions:

• 1) WRLD 2) CF 3) HGG 4) ABAX 5) DISCA

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value +.9%

Sector Outperformers:

• 1) Steel +3.7% 2) Gaming +2.4% 3) Airlines +2.4%

Stocks Rising on Unusual Volume:

• PCBK, ETRM, SRPT, YPF, ILMN, GNMK, TWNK, VRX, CMG, KTWO, W, HQY, MDRX, ZBH, BKD, HQY, PODD, ALK, RRGB and BSX

Stocks With Unusual Call Option Activity:

• 1) WMB 2) ILMN 3) BSX 4) ARIA 5) RCL

Stocks With Most Positive News Mentions:

• 1) RRGB 2) AMAG 3) BBY 4) LSCC 5) PHM

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -1.8% Below 100-Day Average
• 4 Sectors Rising, 6 Sectors Declining
• 59.4% of Issues Advancing, 37.2% Declining
• 40 New 52-Week Highs, 7 New Lows
• 57.8% of Issues Above 200-day Moving Average
• Average 14-Day RSI 40.5%
• Vix 11.7 +.8%
• Total Put/Call .77 -22.2%
• TRIN/Arms .88 -41.2%