Stocks Slightly Higher into Final Hour on Less European/Emerging Markets/US High-Yield Debt Angst, Reversal Lower in Long-Term Rates, Yen Weakness, Healthcare/Homebuilding Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Around Even
  

• Sector Performance: Most Sectors Declining
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 12.73 -3.19%

• Euro/Yen Carry Return Index 124.91 +.73%

• Emerging Markets Currency Volatility(VXY) 10.86 -.55%

• S&P 500 Implied Correlation 52.97 -5.53%

• ISE Sentiment Index 74.0 +10.45%
  

• Total Put/Call .89 -1.11%

• NYSE Arms 1.18 +16.41%

Credit Investor Angst:

• North American Investment Grade CDS Index 73.40 -.25%
  

• America Energy Sector High-Yield CDS Index 585.0 -5.94%

• European Financial Sector CDS Index 106.50 -4.0%

• Western Europe Sovereign Debt CDS Index 23.35 -.15%

• Asia Pacific Sovereign Debt CDS Index 43.62 -1.41%

• Emerging Market CDS Index 268.27 -.46%
  

• iBoxx Offshore RMB China Corporate High Yield Index 132.97 +.03%

• 2-Year Swap Spread 19.75 -1.0 basis point

• TED Spread 45.75 -.75 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -60.75 +.5 basis point
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 69.33 -.07%
• 3-Month T-Bill Yield .47% +1.0 basis point

• Yield Curve 121.0 -1.0 basis point
  

• China Import Iron Ore Spot $77.30/Metric Tonne -4.37%

• Citi US Economic Surprise Index 16.80 +5.2 points

• Citi Eurozone Economic Surprise Index 61.60 -4.4 points

• Citi Emerging Markets Economic Surprise Index -4.7 -.3 point

• 10-Year TIPS Spread 1.90% +2.0 basis points
• 100.0% chance of Fed rate hike at Feb. 1 meeting, 100.0% chance at March 15 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +63 open in Japan 
• China A50 Futures: Indicating +61 open in China

• DAX Futures: Indicating -3 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:

• Europe Warned It’s on Edge of Abyss Unless Brexit Lessons Heeded. The European Union is at risk of collapse unless it shares out economic wealth more widely and does more to protect workers from the fallout of globalization, according to Social Democrat leaders in Germany, Austria and Sweden. Austrian Chancellor Christian Kern, Swedish Prime Minister Stefan Lofven and German Vice Chancellor Sigmar Gabriel cited the success of right-wing populists as they called on the EU to overhaul its tax, fiscal and labor policies to ensure more people benefit. The U.K.’s vote to leave the bloc and the election of Donald Trump in the U.S. are final warnings of the consequences of ignoring inequalities, Kern said. “The European way will be a dead end” and “the EU is at risk of failure if we don’t establish its legitimacy as a project where not just a few benefit but everybody,” Kern told reporters in Vienna Tuesday after meeting with his fellow party leaders. “After Brexit, after Trump, we’re staring into the abyss and we have to decide now: Do we want to modernize the European project, make it more just and rescue it, or do we risk its existence?”
• Italy’s Renzi May Resign Even If He Wins Vote, Corriere Says. (video) Prime Minister Matteo Renzi is weighing resignation after the Dec. 4 referendum even if voters pass the constitutional reform he is requesting, Italian newspapers including Corriere della Sera reported on Tuesday, without saying where they got the information. In that case, Renzi would seek re-appointment to form a new government with a broader majority within the current parliament, the newspapers said. Under the plan, the cabinet would be reshuffled and lawmakers would pass a new voting law before general elections next year or in 2018, Milan-based Corriere said.
• Asia Is About to Face a Significant Dollar Stress Test. A perfect storm of macro and market forces could generate a dollar crunch next year, Deutsche Bank AG analysts warn.
• Europe Stocks Advance Amid Thin Trading Before OPEC, Italy Vote. (video) A rebound in bank shares helped European stocks recover from their biggest drop in more than three weeks, while trading remained thin before the upcoming OPEC meeting and the Italian referendum. A gauge of banks rose for the first time in five days, with Italy’s UBI Banca SpA and Intesa Sanpaolo SpA among the biggest gainers. Actelion Ltd. jumped 10 percent, reversing earlier losses, after people familiar with the matter said Johnson & Johnson raised its takeover offer for the Swiss drugmaker. Discord among OPEC members before tomorrow’s meeting sent crude prices and energy shares lower, while boosting airlines on bets of cheaper fuel. IAG SA and Air France-KLM rose at least 1.3 percent. The Stoxx Europe 600 Index added 0.3 percent at the close, after swinging between gains and losses at least nine times. The volume of shares changing hands was 16 percent lower than the 30-day average, in keeping with the thin trading seen in recent sessions.
• Fed’s Powell Says Case for Rate Hike Has ‘Clearly Strengthened’. Federal Reserve Governor Jerome Powell signaled his readiness to raise interest rates, as unemployment and inflation approach the central bank’s goals. “The case for an increase in the federal funds rate has clearly strengthened since our previous meeting earlier this month,” Powell said in the text of a speech he is scheduled to deliver Tuesday in Indianapolis. He was referring to the Nov. 1-2 session of the Federal Open Market Committee. “The committee has been patient about raising rates,” he said. “That patience has paid dividends. But moving too slowly could eventually mean that the committee would have to tighten policy abruptly to avoid overshooting our goals.”
• Fed’s Dudley Says Puerto Rico Will Regain Access to Bond Market. New York Federal Reserve President William Dudley said heavily indebted Puerto Rico may be able to return to the bond market once it completes a plan to recover from its financial collapse and advised that any borrowing should be “strictly limited.” Dudley, speaking in San Juan, said the commonwealth needs some big reforms to reverse a prolonged economic slump that could "easily be called a depression." Puerto Rico’s economy has shrunk in the past 10 years, fueling excessive government borrowing that’s sent the island over a fiscal cliff and pushed it into federal financial oversight.

Wall Street Journal:

• Italy: The Next Stop on Populism’s Global March. Sunday’s national referendum represents a vote of confidence in Matteo Renzi’s government, and a possible opening for the populist 5 Star Movement.
• Potential Cabinet Pick Wilbur Ross Jr. Has Used Trade to His Benefit. Donald Trump’s expected choice for commerce secretary has overseas investments in steel, textiles.
• China Looks to Loosen Job Security Law in Face of Slowing Economic Growth. Officials consider relaxing rules on employment contracts, severance in hopes of creating more jobs.

Fox News:

• Trump's pick for HHS could be the key to dismantling ObamaCare. (video)
• Wildfires threatening dozens of homes, Dollywood resort in Tennessee. (video)

CNBC:

• Oil prices could plunge to $25 as OPEC deal hopes die.
• SEC slaps Tesla's(TSLA) wrist over accounting practices.
• Smartphone sales set for a screeching slowdown across the globe this year, IDC says.
• Don’t look now, but stocks may be getting overvalued. (video)
• Online sales hit another record on Cyber Monday, as shoppers continue gobbling up deals. (video)

Zero Hedge:

• ISIS Claims Responsibility For Ohio State Attacker.
• OPEC Negotiations: Here Is The Latest.
• Could Pelosi Actually Lose Leadership Vote: "A Lot Of People Are Going To Be Surprised Tomorrow".
• "Highly Skeptical" JPMorgan Slams Reuters' ECB "Sources" Story On Italy.
• Trump Unleashes Renewed Tweet Storm Blasting "Pathetic" Media.
• Green Party Rebels Against Jill Stein: "We Do Not Support The Recount".
• Obama's Legacy: Obamacare Failure, Drone Policy Failure, Guantanamo Failure, NSA Spying Failure. (graph)
• Trump, Pence To Meet Goldman COO Cohn (After Ex-Goldman Partner Mnuchin Visits Trump Tower).
• US Home Prices Rise Above July 2006 Levels, Hit New Record High. (graph)
• Trump Picks Elaine Chao As Transportation Secretary.
• Trump Threatens Flag-Burning Americans With Loss Of Citizenship Or Jail.
• Defiant Iran Turns Tables, "Proposes" Saudis Cut Production By Over 1MM Barrels, Invokes Donald Trump.
• Trump Victory Sends Consumer Confidence Soaring To Post-Lehman Highs. (graph)
• The Corporate Media's Gulag Of The Mind.
• WTI Plunges Near $44 Handle After Iran Oil Minister Says "No Cut In Production". (graph)
• US Q3 GDP Revised Higher To 3.2%, Beating Expectations, On Stronger Consumer Spending. (graph)

Business Insider:

• ISIS recently called for the type of attack that just happened at Ohio State.
• White House: US won’t send official delegation to Castro’s funeral service, but some officials will attend.

The Telegraph:

• Fears Italy may need €40bn bail-out for its crumbling banks.

Bear Radar

Style Underperformer:

• Large-Cap Value unch.

Sector Underperformers:

• 1) Steel -3.1% 2) Oil Service -1.6% 3) Energy -1.5%

Stocks Falling on Unusual Volume: 

• BIP, SCVL, TCBI, MNK, BOJA, SITE, SSNC, ALL, IMAX, WOR, GLNG, DLPH, RIGP, ROCK, PAM, DLTH, BAX and ROCK

Stocks With Unusual Put Option Activity:

• 1) WPX 2) HES 3) GIS 4) SPLK 5) XRT

Stocks With Most Negative News Mentions:

• 1) UTHR 2) DLPH 3) WOR 4) QSII 5) DRI

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth +.5%

Sector Outperformers:

• 1) Homebuilders +2.1% 2) HMOs +1.9% 3) Airlines +1.0%

Stocks Rising on Unusual Volume:

• WGL, THO, TIF, BERY, ACRS, JD, SCMP, EVHC, AMSG, WLB, WGL, PKY, DW and TUP

Stocks With Unusual Call Option Activity:

• 1) CMCSA 2) TIF 3) HBI 4) JCI 5) EXPR

Stocks With Most Positive News Mentions:

• 1) ALXN 2) CVS 3) ACRS 4) VCYT 5) ZBH

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +4.5% Above 100-Day Average
• 6 Sectors Rising, 4 Sectors Declining
• 51.9% of Issues Advancing, 45.6% Declining
• 102 New 52-Week Highs, 19 New Lows
• 56.2% of Issues Above 200-day Moving Average
• Average 14-Day RSI 44.9%
• Vix 12.8 -2.9%
• Total Put/Call .98 +8.9%
• TRIN/Arms 1.22 +20.3%

Tuesday Watch

Evening Headlines

Bloomberg:

• Japan’s Household Spending, Retail Sales Decline in October. Japan’s household spending dropped for an eighth straight month and retail sales fell slightly in October, underscoring weak domestic consumption. The unemployment rate remained at the lowest in two decades. 
• Dollar Retreat Deepens as Bonds Recover While Japan Stocks Drop. The dollar continued to retreat amid further gains in government debt, with investors’ focus shifting from Donald Trump’s election win to other potential threats to market stability. Japanese stocks snapped their longest rally in 18 months as oil fell. The Bloomberg Dollar Spot Index edged lower for a third straight session, extending its decline from a decade high reached last week as 10-year Treasury yields dropped. The yen’s recovery weighed on Japan’s Topix index, which fell for the first time in 13 days, while other Asian benchmarks fluctuated. The euro held gains after concern over Italy’s forthcoming referendum on constitutional reform sank European bank stocks. U.S. oil fell for the third time in four sessions amid anxiety ahead of the OPEC meeting.
• OPEC Said to Remain Split as Saudis Call Cut Not Essential. OPEC officials failed on Monday to bridge their differences on an agreement to cut production and revive oil prices, following comments from Saudi Arabia that output curbs aren’t essential. With just two days left before ministers from the Organization of Petroleum Exporting Countries meet to finalize the first decline in production in eight years, the foundations for a deal are looking increasingly shaky.
• Oil Investors Have $490 Billion Riding on Big OPEC Decision. After two tough years of falling oil prices and company valuations, investors in the world’s biggest energy producers have some cause for hope as crude prices continue their recovery from a 12-year low. They will be looking to OPEC not to dash it. Oil and gas producers including Exxon Mobil Corp. and Royal Dutch Shell Plc have together added $490 billion to their market value this year, the biggest gain in six years following a 27 percent rise in benchmark Brent crude, according to data compiled by Bloomberg. This follows a $850 billion loss in value last year and $720 billion in 2014 as crude prices plunged.  

Wall Street Journal: 

• Ohio State University Says Student Carried Out Attack. Suspect is identified as a student, Abdul Razak Ali Artan. At least 11 people were injured Monday at Ohio State University after a student allegedly jumped a curb in a motor vehicle, then slashed pedestrians with a butcher knife before he was shot and killed.
• ECB’s Mario Draghi Warns of Risks of Prolonged Low Interest Rates. A lengthy period of low rates has created ‘fertile terrain’ for financial-market risks, the central bank chief says.

Fox News: 

• Jill Stein -- Fighting election fraud or lining her own pockets? (video) President-elect Donald Trump isn’t mincing words. He believes the recount effort – and multimillion-dollar fundraising goal – led by Green Party candidate Jill Stein is nothing more than a scam. Stein and her party are raising money for presidential recounts in Wisconsin, Michigan and Pennsylvania. Hillary Clinton’s campaign has offered help, but Clinton’s own lead counsel admitted that the recount won’t likely lead to any changes in the outcome of the presidential election.

Zero Hedge

• OSU Attacker Complained That As A Muslim "I'm Not What The Media Portrays Me To Be", Slammed US "Interference".
• How Far Can Bond Yields Rise Before Hurting Equities? Goldman Answers.
• Wisconsin Denies Request For Recount By Hand As Stein Threatens To Sue.
• Aussie Media Push Globalists' "Cash Is For Criminals" Narrative.
• Where Are We In The Business Cycle: A Troubling Chart From Morgan Stanley.
• Ohio State Attack Suspect Is Abdul Ali Artan, 18-Year-Old Somali Refugee; Terrorism Investigated.
• "Buy High, Sell Low"? Bullish Sentiment Soars Most In 6 Years As Stocks Spike. (graph)
• Trumpsgiving Hangover? Gold Gains Most In A Month As Banks, Small Caps, Dollar Stumble. (graph)

Business Insider:

• Robert Wolf, Democratic fundraiser and Obama's top Wall Street adviser, joins Fox News as contributor.
• The world could be about to run low on dollars.
• Bond yields have to rise a lot more to price in 'Trumpflation'.
• Trump responds to Ohio State attack, thanks first responders.

Night Trading 

• Asian equity indices are -.25% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 127.5 +.5 basis point 
• Asia Pacific Sovereign CDS Index 44.25 unch.
• Bloomberg Emerging Markets Currency Index 69.02 +.%. 
• S&P 500 futures +.02%. 
• NASDAQ 100 futures -.02%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (MNK)/1.99
• (TIF)/.67
• (ADSK)/-.24
• (SPLK)/.08

Economic Releases 
8:30 am EST

• 3Q GDP is estimated to rise +3.0% versus a prior estimate of a +2.9% gain.
• 3Q Personal Consumption is estimated to rise +2.3% versus a prior estimate of a +2.1% gain.
• The 3Q GDP Price Index is estimated to rise +1.5% versus a prior estimate of a +1.5% gain.
• The 3Q Core PCE is estimated to rise +1.7% versus a prior estimate of a +1.7% gain. 

9:00 am EST

• The S&P CoreLogic CS 20-City MoM for September is estimated to rise +.4% versus a +.24% gain in August. 

10:00 am EST

• Consumer Confidence for November is estimated to rise to 101.5 versus 98.6 in October.
  

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed's Fischer speaking, Fed's Dudley speaking, Eurozone Industrial Production/Consumer Confidence reports, French GDP report, Japan Housing Starts, CSFB Industrials Conference, Jefferies Energy Conference, Citi Basic Materials Conference, Piper Jaffray Healthcare Conference and the (UNH) Investor Conference could also impact trading today.

BOTTOM LINE:  Asian indices are mostly lower, weighed down by commodity 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.