Friday Watch

Evening Headlines

Bloomberg:         

• China Is Hunting for Foreign Buyers for Its Sovereign Debt.  

• China’s Debate Over a Shrinking Birth Rate Highlights Growth Concerns.  

• How China’s Spies Became Key Players in the Trade War.

• India’s Path to Become World’s Fifth-Biggest Economy Won’t Be Easy.  

• Property Markets From Hong Kong to Sydney Join Global Slump.  

• Three Theories on the FX Flash Crash: Robots, Apple, Yen Shorts.

• Asia Stocks to Track U.S. Losses on Growth Worries. Asian stocks are set to open lower after data that added to anxiety about global growth and Apple Inc.’s sales outlook cut sunk U.S. stocks. Treasuries and the yen rallied. All eyes will be on Japan, where futures point to shares falling when they trade for the first time in 2019 after an extended new-year break. Australian stocks opened lower and Chinese and Korean futures fell. The S&P 500 Index tumbled 2.5 percent for the steepest sell-off since Christmas Eve. Apple plunged the most since 2013 after citing an unforeseen slowdown in China for its woes. Ten-year Treasury yields sank to an 11-month low as a measure of U.S. manufacturing plunged the most since October 2008. In currency markets, the yen was steady after extending an advance after being whipsawed during a bout of sharp gyrations Thursday amplified by algorithmic programs amid thin liquidity during the Japanese holiday. Bloomberg’s dollar index fell. Oil maintained an advance. Futures on the Nikkei 225 Stock Average fell 2 percent in Chicago. Australia’s S&P/ASX 200 Index fell 0.8 percent. FTSE China A50 futures were down 0.5 percent. Hong Kong’s Hang Seng Index futures rose 0.2 percent. S&P 500 futures rose 0.3 percent.  

• Five Things You Need to Know to Start Your Day.  

• U.S. Growth Worries, Jobs Preview, China's Birth Rate: Eco Day.

• Market Earnings Angst Goes Beyond Apple(AAPL).  

• Aggressive Change in Market’s Fed Outlook Drives Inversions in Yield Curve.

Wall St. Journal: 

• AI Helps Auto-Loan Company Handle Industry’s Trickiest Turn.

• Charts: Pressure on China’s Consumers.

• Chinese Consumers Curb Spending, Likely Deepening Slowdown.

• iPhone Loses Ground to China’s Rivals.

• Marijuana Is More Dangerous Than You Think.

• Five Things to Watch in the December Jobs Report.

Fox News:

• Meth, cocaine overdoses rise as cartels sidestep anti-opioid crackdown.

• Trump makes unexpected stop at White House briefing room, touts border wall support.

• Millennials offended over jokes about 'Soup Nazi,' same-sex relationships.

CNBC:

• Apple’s(AAPL) woes show US and China are taking hits in trade war — and that could push them to make deal.

• Square(SQ) hires Amrita Ahuja as its new CFO.

• JP Morgan’s(JPM) market guru says he got it wrong last year, but there’s a big buy signal now.

• Apple(AAPL) needs to overcome a core challenge, and it’s not China, says top analyst Toni Sacconaghi.

• Another hedge fund all star struggled last year with Dan Loeb down 11%.

• Banks are cutting back on credit-card rewards programs, WSJ reports.After-hours buzz: SQ, ATVI & more.

Zero Hedge:    

• Bloodbath: Stocks Crater As Perfect Storm Of Apple And Recession Fear Strikes. 

• Reporter Quits NBC Citing Network’s Support For Endless War.

• Trump Learns Markets Don't Like Uncertainty.

• IRS Won't Issue Refunds During Shutdown: That Could Be A Problem.

• More Troops To Be Deployed To Southern US Border; Will Build 160 Miles Of Fencing.

• Berkshire Shares Suffer Second Biggest Plunge In 7 Years.

• 2, 3 and 5-Year Treasury Yields All Drop Below The Effective Fed Funds Rate.

Telegraph:

• Happy birthday to the euro, destined to stagger on and condemn Europe to further disaster.

Night Trading 

• Asian equity indices are -1.5% to -.5% on average.

• Asia Ex-Japan Investment Grade CDS Index 100.0 unch. 

• Asia Pacific Sovereign CDS Index n/a.

• Bloomberg Emerging Markets Currency Index 66.96 +.02%.

• FTSE 100 futures -.39%.

• S&P 500 futures +.01%.

• NASDAQ 100 futures +.03%.

Morning Preview Links

Earnings of Note
Company/Estimate
Before the Open:

• (ANGO)/.21

• (CALM)/.43

After the Close:

• None of note

Economic Releases
8:30 am EST

• The Change in Non-Farm Payrolls for Dec. is estimated to rise to 180K versus 155K Nov.

• The Unemployment Rate for Dec. is estimated at 3.7% versus 3.7% in Nov.

• Average Hourly Earnings MoM for Dec. is estimated to rise +.3% versus a +.2% gain in Nov.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Powell speaking, Fed's Bostic speaking, Fed's Barkin speaking and the Eurozone Services PMI report could also impact trading today.

BOTTOM LINE:  Asian indices are lower, weighed down by technology and industrial 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 Falling Substantially into Afternoon on Global Growth Fears, Apple(AAPL) Concerns, Technical Selling, Tech/Transport Sector Weakness

 Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 24.4 +5.3%

• Euro/Yen Carry Return Index 127.78 -.49%

• Emerging Markets Currency Volatility(VXY) 10.02 +1.83%

• S&P 500 Implied Correlation 50.36 +5.4%

• ISE Sentiment Index 73.0 +7.35%
  

• Total Put/Call 1.39 +31.1%

• NYSE Arms 1.20 +20.0%

Credit Investor Angst:

• North American Investment Grade CDS Index 89.09 +1.15%
  

• America Energy Sector High-Yield CDS Index 795.0 -.19%

• European Financial Sector CDS Index 117.58 +4.82%

• Italian/German 10Y Yld Spread 270.75 +18.0 basis points
  

• Asia Pacific Sovereign Debt CDS Index 11.75 n/a

• Emerging Market CDS Index 206.80 -.25%
  

• iBoxx Offshore RMB China Corporate High Yield Index 152.05 +.05%

• 2-Year Swap Spread 15.75 -1.0 basis point

• TED Spread 39.75 +3.5 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap .5 -.75 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 67.0 +1.09%
• 3-Month T-Bill Yield 2.41% unch.

• Yield Curve 17.25 +1.5 basis points

• China Iron Ore Spot 70.40 USD/Metric Tonne -.3%

• Citi US Economic Surprise Index -25.0 -2.5 points

• Citi Eurozone Economic Surprise Index -71.1 +.5 point

• Citi Emerging Markets Economic Surprise Index -12.7 +.6 point

• 10-Year TIPS Spread 1.69 -2.0 basis points
• 0.0% chance of Fed rate hike at March 20th meeting, 0.0% chance at May 1st meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -500 open in Japan 
• China A50 Futures: Indicating -6 open in China

• DAX Futures: Indicating +10 open in Germany

Portfolio: 

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

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my emerging market shorts

• Market Exposure: Moved to 25% Net Long

Morning Market Internals

NYSE Composite Index:

• Volume Running +6.5% Above 100-Day Average
• 3 Sectors Rising, 8 Sectors Declining
• 27.7% of Issues Advancing, 70.6% Declining
• 7 New 52-Week Highs, 21 New Lows
• 12.6% of Issues Above 200-day Moving Average
• Average 14-Day RSI 42.4%
• Vix 25.5 +9.7%
• Total Put/Call 1.06 unch.
• TRIN/Arms 1.53 +52.0%

Thursday Watch

Night Trading 

• Asian equity indices are -.50% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 100.0 +4.75 basis points. 

• Asia Pacific Sovereign CDS Index 11.75 unch.

• Bloomberg Emerging Markets Currency Index 66.74 +.69%.

• FTSE 100 futures -.27%.

• S&P 500 futures -1.31%.

• NASDAQ 100 futures -2.15%.

Morning Preview Links

Earnings of Note
Company/Estimate
Before the Open:

• None of note

After the Close:

• (RECN)/.23

Economic Releases
7:30 am EST

• The Challenger Job Cuts YoY report for December.

8:15 am EST

• The ADP Employment report for December is estimated to rise to 180K versus 179K in November.

8:30 am EST

• Initial Jobless Claims for last week are estimated to rise to 220K versus 216K the prior week.

10:00 am EST

• Construction Spending MoM for November is estimated to rise +.2% versus a -.1% decline in October.
• ISM Manufacturing for December is estimated to fall to 57.5 versus 59.3 in November.
• ISM Prices Paid for December is estimated to fall to 57.8 versus 60.7 in November.
  

Afternoon:

• Total Vehicle Sales for December are estimated to fall to 17.22M versus 17.4M in November.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Eurozone Money Supply report, weekly MBA Mortgage Applications report, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report and the (F) Dec. US sales call could also impact trading today.

BOTTOM LINE:  Asian indices are mostly lower, weighed down by technology and industrial shares in the region. I expect US stocks to open lower and to maintain losses into the afternoon.  The Portfolio is 75% net long heading into the day.