Thursday Watch

Evening Headlines

Bloomberg:

• China’s Great Ball of Money Has More Bubbles in Sight for 2017. Call it China’s Great Ball of Money, Whac-a-Mole Finance, or simply a whole lot of liquidity. Whatever term you use for the excess credit trapped in China’s financial system, few would deny that predicting its sometimes erratic movements can be a money-maker for analysts, traders and investors. After a string of market bubbles in recent years, China will again see assets threatened in 2017 by prices detaching from fundamentals. That’s the opinion of all but one of 14 economists surveyed by Bloomberg late last month. Half penciled in the risk of a real-estate bubble inflating, despite efforts by policy makers in recent months to avoid exactly that outcome. An additional four saw the corporate bond market as most vulnerable to becoming a bubble, again even as officials take steps to raise costs and reduce a build-up in debt.
• In Surprise Rate Cut, Brazil Signals New Pace of Easing Ahead. (video)
• India's Economy Faces a Bumpy Road to Recovery. India's Economy Faces a Bumpy Road to Recovery. India’s economy is set for a choppy recovery from the world’s most sweeping currency policy change in decades. Inflation continued to slow in December as the cash ban squelched demand while a volatile factory output gauge rose in November, according to Bloomberg surveys before data due at 5:30 p.m. in New Delhi on Thursday. Companies are bracing for lower sales and employment and bond-market swings are at the highest level since 2013.
• Yen Gains, Japan Stocks Drop After Trump Comments: Markets Wrap. The yen strengthened for a fourth day and Japanese stocks retreated after Donald Trump’s first press conference since his election victory gave scant detail on policy. Oil maintained gains and currencies of commodity-producing nations climbed. Japan’s currency headed toward 115 per dollar as the greenback held on to Wednesday’s losses. Asia’s regional equity index advanced for a fourth day, poised for the highest closing level since October. The Aussie climbe
  d and the country’s equity market nudged higher. Oil held on to gains after a government report showed U.S. refiners processed a record amount of crude last week. The MSCI Asia Pacific Index rose 0.5 percent as of 9:25 a.m. in Tokyo.
• Goldman Sachs’s(GS) Dina Powell Said to Join Trump Administration. Goldman Sachs Group Inc.’s Dina Powell, head of the firm’s philanthropic efforts, is poised to be named to a role in Donald Trump’s administration, according to people with knowledge of the matter.

Wall Street Journal:

• Trump Nominee Rex Tillerson Suggests Tough Line on Russia, But Won’t Commit on Sanctions. Pick for secretary of state takes surprisingly hawkish line, but draws ire of senatorsfor hedging on incoming administration’s position.
• Senate Gears Up for Obamacare Repeal with Late-Night Votes. Marathon session of amendments could end with passing budget resolution.
• PC Market Declines For Fifth Straight Year. Personal computer sales have been on the decline since 2012.

Fox News:

• Trump Pentagon likely to abandon social experiments for core mission under Mattis, say experts. (video)

Zero Hedge:

• Identity Of "Former Intelligence Officer" Who Prepared The Trump Dossier, Has Been Revealed.
• NYT Accuses CNN, BuzzFeed Of Peddling "Fake News" Over Russia Report.
• BofA Finds Consumer Spending Tumbled In December, Warns Of Disappointing Retail Sales. (graph)
• To "Prevent Public Panic", Beijing Orders Banks To Keep Capital Controls Secret.
• Soros Group Vows To Stay In Hungary Despite Plans For Government Crackdown On NGOs.
• Why OPEC Should Fear The Trump Administration.
• Trump Impeachment Now Even Odds At Bookies.
• Hedge Fund Net Short Exposure Drops To Lowest On Record. (graph)
• WTF Chart Of The Day: VIX At Pre-Crisis Lows, Uncertainty At All-Time Highs. (graph)
• Dollar Dumped, Stocks Trump'd, Gold Jumped. (graph)

Busines Insider:

• Why intellectual property theft is one of the biggest crimes threatening the US economy.
• Iraq is the biggest threat to the OPEC deal.

Telegraph:

• Perils of the Icarus Trade as the world runs short of dollars.

Night Trading 

• Asian equity indices are -.50% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 116.5 +.25 basis point.
• Asia Pacific Sovereign CDS Index 34.5 +.25 basis point.
• Bloomberg Emerging Markets Currency Index 69.58 +.01%. 
• S&P 500 futures -.13%. 
• NASDAQ 100 futures -.15%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (DAL)/.82
• (FCEL)/-.35
• (SJR)/.31
• (TSM)/3.71

Economic Releases
8:30 am EST

• The Import Price Index MoM for December is estimated to rise +.7% versus a -.3% decline in November
• Initial Jobless Claims for last week are estimated to rise to 255K versus 235K the prior week.
• Continuing Claims are estimated to fall to 2084K versus 2112K prior. 

2:00 pm EST

• The Monthly Budget Deficit for December is estimated at -$26.0B versus -$136.7B in November.

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed's Yellen speaking, Fed's Harker speaking, Fed's Evans speaking, Fed's Bullard speaking, WASDE Crop report, $12B 30Y T-Bond auction, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, (SPLK) analyst meeting, (KMX) analyst day and the (MNST) investor meeting could also impact trading today.

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

Stocks Higher into Final Hour on Economic Optimism, Oil Gain, Technical Buying, Energy/Transport Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Lower
  

• Sector Performance: Mixed
  

• Volume: Slightly Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 11.48 -.09%

• Euro/Yen Carry Return Index 127.50 -.12%

• Emerging Markets Currency Volatility(VXY) 11.47 +3.61%

• S&P 500 Implied Correlation 46.11 +1.52%

• ISE Sentiment Index 90.0 -4.26%
  

• Total Put/Call .84 -7.69%

• NYSE Arms 1.32 +12.1%

Credit Investor Angst:

• North American Investment Grade CDS Index 66.12 +.52%
  

• America Energy Sector High-Yield CDS Index 424.0 +.78%

• European Financial Sector CDS Index 89.23 +1.37%

• Western Europe Sovereign Debt CDS Index 19.44 -2.70%

• Asia Pacific Sovereign Debt CDS Index 34.70 +1.73%

• Emerging Market CDS Index 241.61 +.09%
  

• iBoxx Offshore RMB China Corporate High Yield Index 132.76 +.06%

• 2-Year Swap Spread 28.75 +.5 basis point

• TED Spread 51.0 +.75 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -42.0 +.5 basis point
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 69.52 -.13%
• 3-Month T-Bill Yield .51% unch.

• Yield Curve 118.0 -1.0 basis point
  

• China Import Iron Ore Spot $80.41/Metric Tonne +1.23%

• Citi US Economic Surprise Index 39.80 +.5 point

• Citi Eurozone Economic Surprise Index 71.10 -.7 basis point

• Citi Emerging Markets Economic Surprise Index 30.80 +2.1 points

• 10-Year TIPS Spread 2.0 +2.0 basis points
• 31.50% chance of Fed rate hike at March 15 meeting, 43.7% chance at May 3 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +21 open in Japan 
• China A50 Futures: Indicating +36 open in China

• DAX Futures: Indicating +4 open in Germany

Portfolio: 

• Slightly Lower: On losses in my in my biotech sector longs and emerging markets shorts

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

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg:

• European Stocks Advance as FTSE 100 Caps Record Winning Streak. European stocks ended the session higher amid gains in miners and energy shares, while comments by U.S. President-elect Donald Trump weighed on drugmakers. The Stoxx Europe 600 Index added 0.2 percent at the close, erasing an early decline of as much as 0.3 percent. Health-care stocks fell the most among sectors after Trump saidin his first press conference as U.S. President-elect that he’d force the industry to bid for government business.
• Long-Short Hedge Funds Are Ditching the Shorts to Focus on Longs. What happens when you take the “short” out of a long-short trading strategy? Some hedge funds are about to find out. Equity long-short fund managers, the biggest category in hedge funds, hold the fewest bearish stock bets on record, data compiled by Credit Suisse Group AG show. The shift reflects their abysmal performance in 2016, when the S&P 500 advanced 9.5 percent as the long-short managers tracked by Credit Suisse fell 4.3 percent, their worst year since 2011.
• Drug Stocks Plunge as Trump Threatens to Force Price Bidding. (video) Pharmaceutical and biotech stocks plummeted Wednesday as President-elect Donald Trump said he’d force the industry to bid for government business in order to save the government billions of dollars. “They are getting away with murder. Pharma has a lot of lobbyists and a lot of power and there is very little bidding,” Trump said at a press conference in New York. “We’re the largest buyer of drugs in the world and yet we don’t bid properly and we’re going to save billions of dollars.” The industry is the latest victim to a president who has made a habit of negotiating with industries via Twitter. The Nasdaq Biotechnology Index fell 2.6 percent at 11:28 a.m. in New York, and the Standard & Poor’s 500 Pharmaceuticals, Biotechnology & Life Sciences Index was down 1.7 percent.
• Suddenly, Home Sale Agreements Are Falling Apart Across the U.S. The share of sales that failed to close doubled in 2016, and nobody knows why. Spending months to find the perfect home in your price range, only to have your mortgage application rejected, or a home inspection turn up expensive repairs, is a nightmare—one that is coming true with increasing frequency, according to a new report from real estate listings website Trulia. A Trulia analysis of U.S. listings shows that 3.9 percent of homes that moved from for-sale to pending moved back to for-sale again, nearly double the rate in 2015. Such “failed sales” increased in 96 of the 100 biggest U.S. metros, with big swings in areas large and small, rich and poor. That includes Los Angeles and Charleston, S.C., as well as San Jose and Akron, Ohio.

Wall Street Journal:

• Rex Tillerson Confirmation Hearing: Live Coverage.
• China Sends Aircraft Carrier Through Taiwan Strait. Maneuver occurs amid heightened tensions between Beijing and the self-ruled island.

Fox News:

•  Trump blasts Russia reports, unveils plan for business empire at feisty news conference. (video)

CNBC:

• Is Putin a war criminal? 'I would not use that term,' says Rex Tillerson. (video)
• Tillerson and Rubio spar over 'resurgent Russia' and scope of Moscow threat. (video)

Zero Hedge:

• NYT Accuses CNN, BuzzFeed Of Peddling "Fake News" Over Russia Report.
• Trump Slams BuzzFeed As "Failing Pile Of Garbage", Tells CNN "You Are Fake News".
• Crude Dumps'n'Pumps Despite Massive Inventory Builds, Biggest Jump In Production In 20 Months. (graph)
• Trump Unveils 'Conflicts Of Interest' Solution: No Divestment, Hands Business Over To Sons And "Ethics Officer".
• Protests In Mexico Push Country To Brink Of Revolution And Nobody's Talking About It.
• Gold Nears $1200 As The Dollar Tumbles To 2017 Lows. (graph)
• To RBC, This Is The Single Largest Risk To The Market Right Now.
• Tillerson Protests Break Out As Chants Of "Reject Rexx" Fill D.C.
• Tom DeMark Says Put Your "Dow 20,000" Hats Away.
• Turkish Lira Carnage Continues: "Prepare For The Messy Endgame". (graph)
• Italian Bond Yields Slide After Constitutional Court Decision Avoids Early Elections.
• Peso Pounded To New Record Lows As Trump Presser Looms. (graph)

Bear Radar

Style Underperformer:

• Small-Cap Growth -.6%

Sector Underperformers:

• 1) Biotech -3.7% 2) Gaming -2.3% 3) Drugs -2.2%

Stocks Falling on Unusual Volume: 

• PPH, BRG, SGNL, PFGC, NICE, ETRM, VECO, IBB, PRGO, IMMR, ENDP, YIN, SIG, GGAL, UBIO, ANIK, SRPT, BIB, ETH, EDIT, AMBA, LMAT, FN, EXEL, TEVA, PFGC, FRED, SCMP and TRCO

Stocks With Unusual Put Option Activity:

• 1) QEP 2) PSX 3) EWY 4) AMBA 5) SMH

Stocks With Most Negative News Mentions:

• 1) NVCR 2) STX 3) SMG 4) RF 5) SGEN

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Value -.1%

Sector Outperformers:

• 1) Oil Service +1.2% 2) Hospitals +1.2% 3) Utilities +.8%

Stocks Rising on Unusual Volume:

• KRNT, FBNC, CUDA, WDAY, MSM, SSW, BOX and GMED

Stocks With Unusual Call Option Activity:

• 1) WDAY 2) HIG 3) HPQ 4) MRK 5) ON

Stocks With Most Positive News Mentions:

• 1) CCE 2) VC 3) ISRG 4) NBL 5) EP

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -3.0% Below 100-Day Average
• 7 Sectors Rising, 3 Sectors Declining
• 51.0% of Issues Advancing, 44.4% Declining
• 59 New 52-Week Highs, 10 New Lows
• 58.1% of Issues Above 200-day Moving Average
• Average 14-Day RSI 40.9%
• Vix 11.7 +1.7%
• Total Put/Call .62 -31.9%
• TRIN/Arms 1.20 +1.1%