Stocks Falling into Final Hour on Protectionism Fears, European/Emerging Markets/US High-Yield Debt Angst, Oil Decline, Energy/Hospital Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Around Average

• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• Volatility(VIX) 12.2 +15.5%

• Euro/Yen Carry Return Index 126.91 -1.32%

• Emerging Markets Currency Volatility(VXY) 10.75 -.28%

• S&P 500 Implied Correlation 47.73 +12.3%

• ISE Sentiment Index 91.0 +9.6%
  

• Total Put/Call 1.07 +8.1%

• NYSE Arms 1.79 +76.19%

Credit Investor Angst:

• North American Investment Grade CDS Index 65.84 +2.60%
  

• America Energy Sector High-Yield CDS Index 414.0 +2.93%

• European Financial Sector CDS Index 89.54 +2.75%

• Western Europe Sovereign Debt CDS Index 23.06 +5.68%

• Asia Pacific Sovereign Debt CDS Index 32.79 +1.82%

• Emerging Market CDS Index 237.43 +1.11%
  

• iBoxx Offshore RMB China Corporate High Yield Index 133.47 +.05%

• 2-Year Swap Spread 30.0 +.25 basis point

• TED Spread 52.75 -1.0 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -33.0 +4.5 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 70.59 +.23%
• 3-Month T-Bill Yield .50% unch.

• Yield Curve 128.0 +1.0 basis point
  

• China Import Iron Ore Spot $83.34/Metric Tonne n/a

• Citi US Economic Surprise Index 31.60 -4.2 points

• Citi Eurozone Economic Surprise Index 55.0 +4.0 points

• Citi Emerging Markets Economic Surprise Index 36.70 -2.8 points

• 10-Year TIPS Spread 2.07 unch.
• 32.9% chance of Fed rate hike at March 15 meeting, 47.7% chance at May 3 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -193 open in Japan 
• China A50 Futures: Indicating n/a open in China

• DAX Futures: Indicating +15 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• Netanyahu to Discuss Renewed Sanctions Against Iran With Trump. Israeli Prime Minister Benjamin Netanyahu said he will bring up renewed sanctions on Iran when he meets with U.S. President Donald Trump at the White House next month, citing Iran’s testing of a ballistic missile. Netanyahu will visit the U.S. Feb. 15 for talks with the president, White House Press Secretary Sean Spicer said at his daily briefing Monday.
• Greek Markets Tumble as EU Holds Up Payment Amid IMF Doubts. Greek stocks and bonds fell on Monday after the government in Athens failed to bridge differences with European creditors over the conditions attached to the country’s latest bailout review and the International Monetary Fund warned that its debt is on an unsustainable path. Almost two-thirds of the actions creditors have demanded for the disbursement of the next tranche of emergency loans have yet to be completed, the government conceded in a memo discussed between Finance Minister Euclid Tsakalotos and bailout auditors last week in Brussels, a person familiar with the matter said. Greek stocks fell 3.5 percent to their lowest since Dec. 15 at the close in Athens, while yields on 10 year-notes rose 48 basis points to 7.66 percent, amid renewed doubts about the prospects for completing the review before national elections in the Netherlands, France and Germany later this year.
• Europe Stocks Slump Most Since U.S. Vote as Trump Trades Unravel. (video)  European equities fell, with the winners in a rally spurred by Donald Trump’s U.S. victory turning losers on Monday, as investors assessed the potential for political fallout from his order halting some immigration. Miners, energy producers, banks and insurers -- the best performers in the final quarter of 2016 -- led losses in the Stoxx Europe 600 Index. The benchmark slid 1.1 percent, the most since Nov. 2. Greek stocks fell the most among western-European markets on concern over the country’s bailout payment.

Fox News:

• Suspect in Quebec mosque terror attack was of Moroccan origin, reports show. (video) One of two gunmen who shouted 'Allahu akbar!' as they opened fire at a mosque in Quebec City was of Moroccan origin, a witness and local media reported Monday, revealing the first details about the attackers in the massacre that killed six men. The terror suspects were identified as Mohamed Khadir and Alexandre Bissonnette, the CBC reported. The two men were arrested soon after the shooting at the Quebec Islamic Cultural Centre Sunday night and were expected to appear in court later Monday, police told reporters.

CNBC:

• Goldman: Trump rally has another 5% to go before political uncertainty sinks it later this year.
• Apple's(AAPL) earnings to miss Wall Street expectations on weak iPhone demand, JPMorgan says.

Zero Hedge:

• Why The Cold War Between Tech CEOs and Trump Is About To Go Nuclear.
• Kellyanne Conway Rages Against "Misinformation" Over Trump's Immigration Order.
• ECB Assets Rise Above 36% Of Eurozone GDP; Draghi Now Owns 10.2% Of European Corporate Bonds.
• Why Our System Is Broken: Cheap Credit Is King.
• Trump Signs Executive Order On Regulation: "For Every New Regulation, Two Regulations Must Be Revoked".
• Speculation Grows That Bashar Assad Has "Suffered A Stroke" As Syria Slams Trump's "Safe Zone" Proposal.
• Did Iran Just Break Nuclear Deal (Again) With Ballistic Missile Test-Launch?
• How Steve Bannon Rose To The Top Of Trump's Power Structure.
• Russia Launches Biggest Arctic Military Expansion Since Fall Of USSR.
• Dallas Fed Manufacturing Survey Soars To Highest Since 2010. (graph)
• Trump Will Announce Supreme Court Pick On Tuesday At 8:PM.
• Americans Spend More Than They Earn For 9th Straight Month As Savings Rate Tumbles To 2015 Lows. (graph)
• French Bond Risk Spikes To 3-Year High After Radical Left Cheers Hamon's Win In Socialist Primary. (graph)
• ECB Under Pressure As German Inflation Spikes To Highest Since 2013.

Reuters:

• Keysight Technologies(KEYS) to buy Ixia(XXIA) for $1.6 billion.

The Telegraph: 

• Eurozone 'destruction' necessary if countries are to thrive again, warns former ECB hawk.

Bear Radar

Style Underperformer:

• Small-Cap Value -1.4%

Sector Underperformers:

• 1) Oil Service -2.9% 2) Steel -2.8% 3) Hospitals -2.3%

Stocks Falling on Unusual Volume: 

• TPX, EEP, OPB, EEQ, BAH, FGEN, SRG, SMCI, AAL, SNE and VAR

Stocks With Unusual Put Option Activity:

• 1) ACWI 2) RICE 3) HPE 4) GD 5) NBR

Stocks With Most Negative News Mentions:

• 1) ARRY 2) PBR 3) SEM 4) MDC 5) TPX

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth -.8%

Sector Outperformers:

• 1) Oil Tankers -.1% 2) Networking -.3% 3) Restaurants -.3%

Stocks Rising on Unusual Volume:

• XXIA, NEP, IPGP, HTLD, LRN, TLRD, LOGM, AMG, BANC, SYNA, ENLC, HIBB, BGG and DDS

Stocks With Unusual Call Option Activity:

• 1) ACWI 2) OLN 3) COH 4) UNP 5) NOV

Stocks With Most Positive News Mentions:

• 1) MOV 2) RIGL 3) CBAY 4) HDP 5) NEP

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +8.4% Above 100-Day Average
• 2 Sectors Rising, 8 Sectors Declining
• 18.3% of Issues Advancing, 79.3% Declining
• 22 New 52-Week Highs, 27 New Lows
• 58.5% of Issues Above 200-day Moving Average
• Average 14-Day RSI 40.9%
• Vix 12.9 +21.6%
• Total Put/Call 1.31 +32.3%
• TRIN/Arms 1.51 +48.0%

Monday Watch

Today's Headlines

Bloomberg:

• Saudi King, Trump Agree to Tackle Iran's Influence, Boost Ties. Donald Trump and Saudi Arabia’s King Salman agreed to bolster economic ties, anti-terrorism efforts and tackle Iran’s “destabilizing regional activities” in a call held amid growing criticism over the U.S. president’s move to block immigration from seven predominantly Muslim countries. The two leaders “agreed on the importance of strengthening joint efforts to fight the spread of radical Islamic terrorism and also on the importance of working jointly to address challenges to regional peace and security, including the conflicts in Syria and Yemen,” the White House said. The king agreed to support “safe zones in Syria and Yemen, as well as supporting other ideas to help the many refugees who are displaced by the ongoing conflicts,” according to the statement.

• German Pride Shifting to Frustration in Role as Motor of Europe. Germany is cursed by its own economic strength. For eight years, the nation of 83 million people has been the euro area’s growth driver. Now it’s at the forefront of the currency bloc’s reflation, with price increases potentially exceeding 2 percent, and dissatisfaction with the European Central Bank has morphed into outrage. Critics and media are slamming the institution’s monetary stance -- set to support not just Germany but the entire 19-nation region -- as mainstream parties struggle to contain a surge in populism ahead of national elections. Finance Minister Wolfgang Schaeuble has warned that higher inflation could cause “political problems,” and German monetary officials are urging their peers to start devising an exit strategy from unconventional stimulus.

• Dollar Slips After Trump Move, Asia Stocks to Fall. The dollar headed lower and Asian stocks signaled a weaker start to the week as traders digested the tensions sparked by Donald’s Trump order halting some immigration, a move that’s ignited opposition from world leaders. The greenback weakened against all its major peers in early Asian trading. Equity-index futures in Japan and Australia dropped, while markets in Hong Kong, China, Malaysia, Korea, Singapore, Taiwan and Vietnam are among those closed for holidays. Australian 10-year bonds climbed.

• Kuwait Extends World-Topping Rally as Traders Dismiss U.S. Ban. Kuwait stocks, the world’s best performers this year, extended a rally to an 18th day, the longest winning streak in over a decade, as the country moved a step closer to a debut sale of dollar bonds. Gulf markets didn’t react to a U.S. travel ban on seven mainly Muslim countries. The Kuwait Stock Exchange Index advanced 1.3 percent to 6,943.24 on Sunday, the highest level since November 2014. The Bahrain Bourse All Share Index finished at the highest level since 2015 and Oman’s MSM30 Index added 0.2 percent. Kuwait picked six banks to advise on its first international debt sale as the OPEC member shores up public finances after the slump in oil prices.

Wall Street Journal:

• Donald Trump’s Immigration Order Sparks Confusion, Despair at Airports. Scientists, business travelers, grandmothers among those banned from entering; 375 blocked Saturday include green-card holders. Scientists, business travelers and grandmothers were among those trapped at U.S. airports or diverted in transit to the U.S. Saturday as the impact of an executive order reverberated around the globe. Citing security concerns, President Donald Trump late Friday suspended the entire U.S. refugee program for four months and banned for 90 days entry into the U.S. of nationals from Iran, Iraq, Libya, Somali, Sudan, Syria and Yemen...

• Fed Grapples With Massive Portfolio. Years after the financial crisis, central bank considers what to do with holdings of long-term bonds and other assets.

• Small Businesses Uneasy Over Border-Adjustment Tax Plan. Owners say they may have to raise prices, lay off workers; exporters expect to benefit.

MarketWatch.com:

• Earnings releases are still a confusing mess, and it’s investors who pay the price.

Barron's:

• Had bullish commentary on (LM), (BMY), (ABCO), (ANTM), (MGA), (SYNT), (BLUE), (LLY) and (CVS). 

• Had bearish commentary on .

Fox News:

• Senate Democrats bash Trump's immigration ban; emotional Schumer vows fierce Hill opposition. (video)

• White House backs Trump's decision to include strategist Bannon at national security meetings. (video)

CNBC: 

• Trump: America 'proud nation of immigrants', says executive order 'is not about religion'.

• Wall Street veteran Art Cashin finds the rally ‘discomforting,’ here’s why. (video)

Zero Hedge:

• Here Are The Latest Updates On Trump's Refugee Ban.

• "This Is Not A Muslim Ban" - President Trump Confirms Policy Is Similar To Obama's 2011 Iraqi Refugee Ban.

• "I'm A Woman Who Went To The Women's March And The March For Life. The Differences Were Stunning".

• Federal Judge Grants Partial Block Of Trump Immigration Order.

• War With US Becoming A "Practical Reality" Chinese Military Warns.

• The Trap Is Set: "Both Sides Are Utterly Unprepared For What's Coming".

• Why Unwinding The Fed's Balance Sheet Could Get Messy. (graph)

Business Insider: 

• There are a lot of problems with Trump's 20% border tax idea.

• Apple’s(AAPL) hidden multi-billion dollar business could be the star of Tuesday's earnings.

Night Trading

• Asian indices are -1.0% to unch. on average.

• Asia Ex-Japan Investment Grade CDS Index 111.25 -.5 basis point.

• Asia Pacific Sovereign CDS Index 32.25 -.5 basis point.

• Bloomberg Emerging Markets Currency Index 70.46 +.04%.

• S&P 500 futures -.31%.

• NASDAQ 100 futures -.33%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (AMG)/3.70

• (CR)/.98

• (GGG)/.86

• (IEX)/.93

• (SANM)/.67

• (WERN)/.26

Economic Releases
8:30 am EST

• Personal Income for December is estimated to rise +.4% versus unch. in November.

• Personal Spending for December is estimated to rise +.4% versus a +.2% gain in November.

• Real Personal Spending for December is estimated to rise +.3% versus a +.1% gain in November.

• The PCE Core MoM for December is estimated to rise +.1% versus unch. in November.

10:00 am EST

• Pending Home Sales MoM for December are estimated to rise +1.5% versus a -2.5% decline in November.
  

10:30 am EST

• Dallas Fed Manufacturing Activity for January is estimated at 15.5 versus 15.5 in December.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Eurozone CPI report and the Japan Industrial Production report could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighted down by commodity and industrial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the week.