Friday Watch

Evening Headlines

Bloomberg:

• Davos Wonders If It’s Part of the Problem. Did the global elite’s devotion to borderless capitalism sow the seeds of a populist backlash? Kenneth Rogoff can pinpoint the moment he started to grow concerned Donald Trump would be the next U.S. president: It was when Rogoff’s fellow attendees at the World Economic Forum’s annual meeting last January said it could never happen. “A joke I’ve told 1,000 people in the months since leaving Davos is that the conventional wisdom of Davos is always wrong,” says the Harvard professor and former chief economist of the International Monetary Fund. “No matter how improbable, the event most likely to happen is the opposite of whatever the Davos consensus is.”
• Dollar Pares Weekly Loss, Asian Stocks Are Mixed: Markets Wrap. The doll
  ar pared a weekly loss and Asian stocks were mixed as investors continued to assess whether market moves since the U.S. election have gone too far. Investors awaited Chinese trade data and earnings results at three of the largest U.S. banks. Australian and South Korean equities slumped while Japanese shares fluctuated. The yen gave up early gains, trimming its strongest week since July, while the dollar was higher after touching the lowest point in almost a month on Thursday. Gold was steady after a four-day rally. The MSCI Asia Pacific Index lost 0.4 percent as of 9:29 a.m. in Tokyo, with an almost equal number of shares rising and falling. Japan’s Topix index rose less than 0.1 percent and New Zealand’s S&P/NZX 50 slid 0.3 percent. Australia’s S&P/ASX 200 declined 0.8 percent and South Korea’s Kospi index retreated 0.5 percent.
• Robot Nannies Look After 3 Million Chickens in Coops of the Future. “Problems sometimes involve human error, so full automation enhances the safety level.”
• Scaramucci, Hedge-Fund Show Impresario, Scores White House Role. Anthony Scaramucci, founder of SkyBridge Capital, has been named an assistant to President-elect Donald Trump, according to people familiar with the decision. Scaramucci will have a general advisory role in the White House, said the people who asked not to be identified without authorization to speak publicly. He’s been a member of Trump’s transition team, making public appearances on television in support of his policies. "It’s not about me, and it’s not about any of these people on the team," Scaramucci said in an interview at Trump Tower earlier Thursday. "It’s about president-elect Trump and the American people."
• Lyft Loses $600 Million in 2016 as Revenue Surges. U.S. ride-hailing startup is said to generate revenue of $700 million last year. Lyft Inc., the second-largest ride-hailing startup in the U.S. behind Uber Technologies Inc., lost about $600 million last year while increasing revenue 250 percent, according to people familiar with the matter. In 2016, Lyft generated about $700 million in sales, said the people, who asked not to be identified because the financials are private. The San Francisco company's revenue growth far exceeded its 46 percent increase in losses.

Wall Street Journal:

• European Elections Test ECB President Mario Draghi. Politicians in Germany, France, Italy and the Netherlands—which all face general elections this year—have recently stepped up attacks on ECB.

Fox News:

• Inspector general to review DOJ, FBI handling of Clinton case. (video)

CNBC:

• Anadarko Petroleum(APC) to sell Texas assets for $2.3 billion.
• Hedge funds winners and losers: Risk gets rewarded. (video)

Zero Hedge:

• Jeff Gundlach's Forecast For 2017.
• "Fake News" Facebook(FB) Lands On List Of "America's Most Hated Companies".
• Obamacare's Death Throes.
• Morgan Stanley(MS) Cuts Investment Banking Bonuses By 15%, Fires 5% Of Managing Directors.
• Chatter Of Fed Balance Sheet Unwind Spikes Yield Curve. (graph)
• Just 3 Things. (graph)
• VIX-Crushing, Panic-Buying Bounce Saves Stocks From Worst Day In 3 Months. (graph)

Busines Insider:

• Pandora(P) just said its laying off 7 percent of its workforce — and the stock is spiking.
• It's time to start positioning your portfolio for rising interest rates.
• China's media is about to go to 'war' Russia style.
• This interactive map shows the high stakes missile stand-off between Russia and NATO in Europe.

Night Trading 

• Asian equity indices are -.50% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 116.5 unch.
• Asia Pacific Sovereign CDS Index 34.0 -.5 basis point.
• Bloomberg Emerging Markets Currency Index 70.09 +.02%. 
• S&P 500 futures +.08%. 
• NASDAQ 100 futures +.11%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (BAC)/.38
• (BLK)/5.04
• (INFY)/15.41
• (JPM)/1.43
• (PNC)/1.84
• (WFC)/1.00

Economic Releases
8:30 am EST

• The PPI Ex Food and Energy MoM for December is estimated to rise +.1% versus a +.4% gain in November. 
• PPI Final Demand MoM for December is estimated to rise +.3% versus a +.4% gain in November. 
• Retail Sales Advance MoM for December is estimated to rise +.7% versus a +.1% gain in November. 
• Retail Sales Ex Auto MoM for December are estimated to rise +.5% versus a +.2% gain in November.

10:00 am EST

• Business Inventories for November are estimated to rise +.6% versus a -.2% decline in October.
• Preliminary Univ. of Mich. Consumer Sentiment for January is estimated to rise to 98.5 versus 98.2 in December.

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed's Harker speaking and the China Trade Balance report 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 50% net long heading into the day.

Stocks Falling into Final Hour on Profit-Taking, Yen Strength, Technical Selling, Financial/Gaming Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Mixed
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 11.52 +2.31%

• Euro/Yen Carry Return Index 127.12 -.32%

• Emerging Markets Currency Volatility(VXY) 11.42 unch.

• S&P 500 Implied Correlation 46.50 +.98%

• ISE Sentiment Index 67.0 -25.56%
  

• Total Put/Call 1.03 +22.62%

• NYSE Arms 1.14 -12.51%

Credit Investor Angst:

• North American Investment Grade CDS Index 66.12 +.83%
  

• America Energy Sector High-Yield CDS Index 426.0 +.21%

• European Financial Sector CDS Index 90.16 +1.04%

• Western Europe Sovereign Debt CDS Index 19.49 +.21%

• Asia Pacific Sovereign Debt CDS Index 34.03 -1.10%

• Emerging Market CDS Index 237.02 -.46%
  

• iBoxx Offshore RMB China Corporate High Yield Index 132.82 +.05%

• 2-Year Swap Spread 29.25 +.5 basis point

• TED Spread 51.50 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -42.0 unch.
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 70.11 +.78%
• 3-Month T-Bill Yield .51% unch.

• Yield Curve 118.0 unch.
  

• China Import Iron Ore Spot $80.99/Metric Tonne +.72%

• Citi US Economic Surprise Index 41.50 +1.7 points

• Citi Eurozone Economic Surprise Index 75.60 +4.5 basis points

• Citi Emerging Markets Economic Surprise Index 37.80 +7.0 points

• 10-Year TIPS Spread 2.0 unch.
• 27.8% chance of Fed rate hike at March 15 meeting, 40.6% chance at May 3 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +90 open in Japan 
• China A50 Futures: Indicating +45 open in China

• DAX Futures: Indicating +40 open in Germany

Portfolio: 

• Slightly Lower: On losses in my in my retail/tech sector longs 

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

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:

• China Credit Growth Exceeds Estimates as Lending Remains Robust. China’s broadest measure of new credit expanded faster than expected, bringing the total of new loans extended last year to roughly equal the size of Italy’s $1.8 trillion economy. Aggregate financing remained robust at 1.63 trillion yuan ($236 billion) in December, compared with a median estimate of 1.3 trillion yuan in a Bloomberg survey and 1.74 trillion yuan the prior month. New yuan loans stood at 1.04 trillion yuan, exceeding all 37 estimates in the survey. The broad M2 money supply increased 11.3 percent from a year earlier after climbing 11.4 percent in November. The rapid pace of lending is at odds with recent pledges by policy makers to curb excessive borrowing and reduce risk in the financial system.
• Clean Energy Spending Drops Most on Record as China Slows Growth. Global investments in renewable power dropped the most on record in 2016 as demand in China and Japan faltered. Worldwide spending on clean energy fell 18 percent from 2015’s record high to $287.5 billion, according to a report Thursday by Bloomberg New Energy Finance. It was the first decline since 2013 and comes as environmental policies face pressure from populist movements that have fueled the rise of Donald Trump, the U.K. Independence Party and others.
• ECB Stimulus Disagreements Signal Vigorous Debates Ahead. European Central Bank policy makers appear to have had a lively debate on how to set the path of stimulus last month, signaling more tension may be ahead as euro-area inflation accelerates. While the Governing Council largely shared the view that “the scenario of a gradual uptrend in inflation still relied, to a considerable degree, on accommodative monetary-policy support, ” the 25-member body couldn’t reach unanimity on how to maintain that support, an account of their Dec. 7-8 meeting shows. Executive Board member Peter Praet, the chief economist, presented two options of extending bond-buying after March for 6 months at 80 billion euros ($85 billion) a month, or for 9 months at 60 billion euros.
• Europe Stocks Fall to 2-Week Low as Drugmakers, Carmakers Plunge. The Stoxx Europe 600 Index fell 0.7 percent at the close. Carmakers retreated 2.8 percent after the U.S. government accused Fiat Chrysler Automobiles NV of using software that allowed excess diesel emissions in about 104,000 vehicles. Health-care shares tumbled the most since November, deepening losses that began late yesterday after Trump said he’d force the industry to bid for government business. 
• Saudi Oil Output Drops Under OPEC Quota Close to Two-Year Low. (video) Saudi Arabia has reduced oil production to less than 10 million barrels a day, below its targeted level, and will consider renewing its pledge to cut crude output in six months, Energy Minister Khalid Al-Falih said. The world’s biggest oil exporter is currently producing at a 22-month low. It had agreed to cut 486,000 barrels a day to 10.058 million barrels a day as part of a global deal to reduce output to curb a supply glut. The caps on production, together with rising demand and natural decreases in output in some countries, will help balance the market and support prices, Al-Falih said in a speech at an energy conference in Abu Dhabi.
• Fed’s Evans Says Fiscal Boost Could Lift Growth Forecasts. (video) Chicago Federal Reserve President Charles Evans said government stimulus policies could boost growth and reduce the need for monetary accommodation, underscoring some investor expectations that President-elect Donald Trump’s policies will lead to higher interest rates. A government stimulus “might increase growth by a couple of tenths over the next two years,” Evans told reporters Thursday after speaking at an event in Naples, Florida. “We look forward to refining that when we actually see proposals that are moving forward and likely to be implemented,” he said about gross domestic product forecasts, adding that estimates could go even higher depending on what policies are implemented.
• Dimon Praises Cabinet Picks, Says He’s Optimistic About Trump. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said he’s optimistic about President-elect Donald Trump’s administration because of the group of people he’s assembled to fill his cabinet. “If you want to win the game, put Tom Brady on the field,” Dimon, 60, said in an interview Thursday on CBS This Morning. Trump’s “hired a lot of professional people, people that are experienced, successful, smart and patriotic,” he said.

Wall Street Journal:

• Apple(AAPL) Sets Its Sights on Hollywood With Plans for Original Content. Apple Inc. is planning to build a significant new business in original television shows and movies, according to people familiar with the matter, a move that could make it a bigger player in Hollywood and offset slowing sales of iPhones and iPads.
• Justice Department Watchdog Launches Internal Probe Into Handling of Clinton Email Case. Inquiry follows public debate over FBI director’s pre-election statements.

Fox News:

• Cartels, smugglers exploit border wall fears ahead of Trump presidency. (video)
• Defense secretary nominee Mattis warns world order under historic threat. (video)

CNBC:

• House Speaker Paul Ryan says Obamacare is 'collapsing' and in 'death spiral' as he seeks quick 'repeal and replace'. (video)
• St. Louis Fed's Bullard says Trump effects only apparent over time.

Zero Hedge:

• Justice Department Launches Probe Into FBI, DOJ Actions During Presidential Campaign.
• Curve Steepens, USDJPY Spikes After Mediocre 30Y Auction Tails Despite Jump In Indirects. (graph)
• Soros Lost $1 Billion Following Trump Election.
• 13 Contrarian Economic Predictions For 2017.
• 'Protectionist' Obama Escalates Trade War, Slams China With Subsidized Aluminum Complaint.
• "Disappointed" Fiat-Chrysler Responds To EPA Accusations.
• RBC Explains Why The Market Is Dumping, Adds "This Is Not The Big Short"... Yet.
• Amazon(AMZN) To Create 100,000 New Jobs In The US.
• Beijing Not Amused After Tillerson Says US Will Block Chinese Access To South China Sea Islands.

Bear Radar

Style Underperformer:

• Small-Cap Value -1.6%

Sector Underperformers:

• 1) Disk Drives -1.8% 2) Computer Hardware -1.6% 3) Alt Energy -1.6%

Stocks Falling on Unusual Volume: 

• VSTO, FCAU, MGPI, PCBK, HES, EVTC, ETRM, CUDA, FCFS, COLB, GATX, NSIT, SNX, JBLU, CMI, CINF, THG, SWKS and THG

Stocks With Unusual Put Option Activity:

• 1) SPLK 2) MNK 3) CMI 4) VFC 5) KRE

Stocks With Most Negative News Mentions:

• 1) X 2) OCN 3) THG 4) NSIT 5) AKS

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth -.3%

Sector Outperformers:

• 1) Oil Tankers +.9% 2) Gold & Silver +.9% 3) Biotech +.6%

Stocks Rising on Unusual Volume:

• STRP, AAOI, ABCO, MYCC, MPET, GLOB, CENX, TIF and PII

Stocks With Unusual Call Option Activity:

• 1) GRPN 2) CYH 3) KBH 4) CSX 5) TBT

Stocks With Most Positive News Mentions:

• 1) ABC 2) CCJ 3) AAOI 4) BKD 5) PII

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +8.2% Above 100-Day Average
• 0 Sectors Rising, 10 Sectors Declining
• 26.8% of Issues Advancing, 70.2% Declining
• 52 New 52-Week Highs, 16 New Lows
• 59.2% of Issues Above 200-day Moving Average
• Average 14-Day RSI 42.0%
• Vix 12.4 +9.7%
• Total Put/Call 1.09 +29.8%
• TRIN/Arms .89 -31.5%