Wednesday Watch

Evening Headlines

Bloomberg:

• China’s Factory Inflation Eases to Lowest Since November 2016. China’s factory inflation slid to the lowest level since November 2016 last month amid slowing output and higher year-ago base comparisons. The producer price index rose 4.9 percent in December from a year earlier, versus a projected 4.8 percent rise in a Bloomberg survey and 5.8 percent in November. The consumer price index climbed 1.8 percent, the statistics bureau said Wednesday, compared with a median forecast of 1.9 percent.

• Asia Stock Rally Fades as Investors Eye Yield Jump. (video) Asia’s stock rally to record highs looked to take a breather on Wednesday as investors consider the impact of a jump in bond yields that spurred the fixed-income veteran Bill Gross to declare a bond bear market. Rising commodity prices, looming U.S. debt sales and prospects for reduced central bank asset purchases support the case for higher bond yields, in a potential test to surging equity valuations. Chinese inflation data Wednesday and U.S. consumer prices Friday offer the latest check on cost pressures in the world’s top two economies. Oil is near its highest since 2014. Japan’s Topix index and Australia’s S&P/ASX 200 Index climbed 0.1 percent. Futures on Hong Kong’s Hang Seng Index added 0.1 percent. The MSCI All-Country World Index is trading near the highest on record, hit Tuesday.

• Five Things You Need to Know to Start Your Day. (video)

Wall Street Journal:

• Donald Trump Is Optimistic a Deal Can Be Reached on ‘Dreamers’. President agrees to put off some contentious issues in talks with lawmakers; wall appears to remain a stumbling block.

• Trump Signs Order Expanding Mental-Health Help for New Veterans. Aim is to curb suicides in year after service members depart military.

• How Millions of Iranians Are Evading the Internet Censors. Tehran’s online crackdown aimed to help stamp out protests, but could weaken its control of information.

• A Glimpse of Brilliant, Necessary and/or Totally Crazy Technologies to Come. 

• Trump Says Drilling Won’t Be Allowed Off Florida Coast. Interior Secretary Ryan Zinke says he made decision after meeting with Republican Gov. Rick Scott.

MarketWatch.com

• Why bitcoin is worth exactly $0 (and blockchain might be very valuable).

• Nvidia(NVDA) now has a two-year lead over its competition in autonomous driving.

• White men who can’t get jobs say they’re being discriminated against. A new Pew survey indicates that some STEM workers believe they’re victims of reverse discrimination.

Fox News: 

• 'Somebody's already been killed' because of Trump dossier, Fusion GPS rep revealed. (video)

CNBC:

• Legendary investor Bill Miller: Market could be headed for a 'melt-up' of 30%. (video)

• January and its unusual string of new highs is setting a good tone for the market.

• Toyota, Mazda to build $1.6 billion plant in Alabama.

• Between Walmart(WMT) and Kroger(KRO), 500 stores are about to ditch cashiers.

• Nordstrom's(JWN) holiday sales up 2.5 percent, boosted by its Rack stores.

• Another firm just pulled its plans to launch bitcoin ETFs. (video)

Zero Hedge:

• Bridgewater's Dalio Decries America's "Trial By Gossip" New Normal.

• "The S&P Will Have Negative Return In 2018": Complete Gundlach Presentation Highlights.

• North Korea: "All Our Atomic Bombs And ICBMs Are Aimed At The U.S., Not Seoul, China Or Russia".

• NFL Wildcard Playoff Ratings Crash 14% Versus 2017.

• WTI/RBOB Spike After Massive Crude Draw. (graph)

• RussiaGate Turns On Its Originators.

• Bonds Bloodbath, Ripple Recked, S&P Surges To Best Start In 30 Years. (graph)

Business Insider: 

• The Australian tax office is coming after crypto traders.

• Clint Carlson's hedge fund assets drop $1 billion in five months after brutal performance.

Night Trading 

• Asian equity indices are -.5% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 59.75 -1.25 basis points. 

• Asia Pacific Sovereign CDS Index 9.75 -1.25 basis points.

• Bloomberg Emerging Markets Currency Index 74.82 +.04%.

• S&P 500 futures -.07%.

• NASDAQ 100 futures -.13%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (LEN)/1.47

• (SVU)/.51

• (KBH)/.77

• (PRGS)/.60

• (RMAX)/.51

Economic Releases

8:30 am EST

• The Import Price Index MoM for December is estimated to rise +.4% versus a +.7% gain in November.

• The Export Price Index MoM for December is estimated to rise +.3% versus a +.5% gain in November.

10:00 am EST

• Wholesale Sales MoM for November are estimated to rise +.6% versus a +.7% gain in October.
  

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -3,441,000 barrels versus a -7,419,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +3,037,500 barrels versus a +4,813,000 barrel gain the prior week. Distillate inventories are estimated to rise by +2,264,100 barrels versus a +8,899,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.65% versus a +1.0% gain prior.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Evans speaking, Fed's Kashkari speaking, Fed's Bullard speaking, $20B 10Y T-Note auction, China CPI report, UK Industrial Production report, weekly MBA Mortgage Applications report, CSFB China Tech/Internet Conference and the (DPZ) investor day could also impact trading today.

BOTTOM LINE:  Asian indices are mostly lower, weighed down by technology 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 75% net long heading into the day.

Stocks Higher into Final Hour on Economic Optimism, Oil Gain, Sector Rotation, Biotech/Financial Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Around Even
  

• Sector Performance: Mixed
  

• Volume: Above Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 9.58 +.63%

• Euro/Yen Carry Return Index 140.01 -.72%

• Emerging Markets Currency Volatility(VXY) 7.53 +1.07%

• S&P 500 Implied Correlation 33.46 -3.7%

• ISE Sentiment Index 102.0 -20.93%
  

• Total Put/Call .80 +.25%

• NYSE Arms .77 -33.0%

Credit Investor Angst:

• North American Investment Grade CDS Index 45.87 +1.02%
  

• America Energy Sector High-Yield CDS Index 342.0 -.71%

• European Financial Sector CDS Index 43.55 +1.59%

• Italian/German 10Y Yld Spread 157.0 +1 basis point
  

• Asia Pacific Sovereign Debt CDS Index 9.75 -10.0%

• Emerging Market CDS Index 111.20 +.03%
  

• iBoxx Offshore RMB China Corporate High Yield Index 146.54 +.04%

• 2-Year Swap Spread 19.50 +.5 basis point

• TED Spread 29.0 -1.25 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -24.5 -1.0 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 74.78 -.21%
• 3-Month T-Bill Yield 1.43% +2.0 basis points
  

• Yield Curve 58.25 +6.0 basis points

• China Iron Ore Spot 520.0 CNY/100 Metric Tonnes +.1%

• Citi US Economic Surprise Index 67.0 -6.9 points

• Citi Eurozone Economic Surprise Index 58.80 +6.6 basis points

• Citi Emerging Markets Economic Surprise Index 0.0 +1.2 points

• 10-Year TIPS Spread 2.04 +2.0 basis points
  
• 81.5% chance of Fed rate hike at March 21 meeting, 82.3% chance at May 2 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +21 open in Japan 
• China A50 Futures: Indicating +48 open in China

• DAX Futures: Indicating +4 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 100% Net Long

Today's Headlines

Bloomberg:

• China Becomes One of the Top 5 U.S. Patent Recipients for the First Time. Chinese companies have increased the number of U.S. patents they’ve received by tenfold in less than 10 years, another sign that the world’s second-largest economy is succeeding in its strategy to transform from Silicon Valley’s factory to a powerhouse of research. Chinese inventors received 11,241 U.S. patents last year, a 28 percent increase over the same period in 2016, according to a report released Tuesday by IFI Claims Patent Services, a unit of Fairview Research LLC. That propels the nation into the top five recipients for the first time, behind the U.S., Japan, Korea and Germany, but ahead of Taiwan.

• China Driving Global Battery-Electric Vehicle Sales Past Hybrids.

• France Tightens Controls on Chinese Investment to Protect Tech.

• Global Bond Risk Falls to 2007-Low. (video) The cost to buy protection for investment-grade bonds in North America, Europe and Asia ex-Japan fell to a decade-low this month amid investor optimism about lower U.S. taxes and a broadening global economic recovery. The prospect of rating upgrades outnumbering downgrades globally this year and next is higher than at any time since the financial crisis, Fitch Ratings said in a report this week. Credit quality may start to weaken beyond that as ultra-supportive monetary policies are phased out and rising interest rates start to affect funding costs and asset quality, it said. Investors have money to put to work in the New Year and are encouraged by the stability in the major bond markets around the world, said Steve Wang, senior credit analyst at Citic CLSA Securities in Hong Kong.

• Treasury Yields Are Surging and Bond Traders Are Starting to Get Nervous. The 10-year U.S. Treasury yield climbed to the highest level in more than nine months, leading Bill Gross at Janus Henderson Group to declare a bond bear market just ahead of a deluge of sovereign debt sales.

• One of John Paulson's Hedge Funds Crashed 70% Over the Last Four Years. (video)

• The Auto Industry’s To-Do List for the Electric, Self-Driving Future. (video)

• Goldman Doesn't Fear Equity Bear Market Even as Rally Heats Up. (video)

Wall Street Journal:

• North Korea to Send Delegation to Winter Olympics, Refuses to Discuss Weapons. South Korea pursues diplomatic dialogue in first face-to-face talks with North in two years.

• Despite Setbacks, Drugmakers Have Plans to Fight Alzheimer’s. Pharmaceutical industry, scientists keep pursuing treatments, with some focusing on earlier intervention.

• Mohammed bin Salman’s Next Saudi Challenge: Curtailing Ultraconservative Islam. Crown prince’s overhaul includes a crackdown on religious fundamentalists who exercised rigid control; woman drivers and music concerts.

• Republicans Scale Down Agenda for Safety-Net Programs, Health Law. Lawmakers likely to focus their efforts on funding the government, debt limit and immigration.

MarketWatch.com:

• Dimon thinks even his own economist at J.P. Morgan is dead wrong about GDP, predicts 4% U.S. growth.

• U.S. oil companies expected to produce gusher profits — and big gains for investors.

• 7 forecasts for 2018 from some of the brightest financial minds.

Fox News:

• Dems change tune on border wall, after backing barrier under Obama.

CNBC:

• 130-year-old Eastman Kodak joins cryptocurrency craze with 'KodakCoin'; shares surge.

• Activist hedge fund manager with $5 billion says his fund is 'more invested today than we've ever been'.

• Trump to attend World Economic Forum in Davos, White House confirms. (video)

• House Speaker Ryan: 'We want' a deal to protect young immigrants, but need more border security.

• Here's a smart robot for the elderly that can play videos, chat and more.

• 10 cities with booming employment growth in 2017. (video)

• Boeing's(BA) deliveries just set a record, but so did its massive backlog of orders.

• Three charts are creating the perfect storm for more records, says technician. (video)

• American oil drillers' output could top Saudi Arabia and rival Russia by 2019, US forecast shows.

Zero Hedge:

• Intel(INTC) Tumbles After Microsoft Warns Fixes "Will Significantly Slow" Servers.

• Two Companies Quietly Pull Bitcoin ETFs After "Call With SEC".

• Why Higher Inflation From Oil Prices Won't Necessarily Result In Higher Long Rates. (graph)

• JOLTS: Job Openings Drop To Lowest In Six Month As Hiring, Quitting Slows. (graph)

• 10Y Treasury Yields Breakout To 10-Month Highs, Curve Steepens Most Since Election. (graph)

• Ripple's Getting Routed Again. (graph)

• Stocks Smash More Records As Global Melt Up Accelerates; BOJ, PBOC Surprise Traders.

Nasdaq Times: 

• Nektar Therapeutics (NKTR)- Stocks Sparking Bullish Stampede across Wall Street.