Wednesday Watch

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 119.0 +4.0 basis points.

• Asia Pacific Sovereign CDS Index 78.25 +3.75 basis points.

• S&P 500 futures +.25%.

• NASDAQ 100 futures  +.30%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (GIS)/.76
• (JOY)/1.14
• (FDX)/2.25
• (MLHR)/.52
• (JBL)/.47
• (ORCL)/.68

Economic Releases
8:30 am EST

• The CPI MoM for November is estimated to fall -.1% versus unch. in October.
• The CPI Ex Food and Energy MoM for November is estimated to rise +.1% versus a +.2% gain in October.
• The Current Account Deficit for 3Q is estimated at -$97.5B versus -$98.5B in 2Q.
  

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,212,500 barrels versus a +1,454,000 barrel gain the prior week. Gasoline supplies are estimated to rise by +1,950,000 barrels versus a +8,197,000 barrel gain the prior week. Distillate inventories are estimated to fall by -12,500 barrels versus a +5,577,000 barrel gain the prior week.
  

2:00 pm EST

• The FOMC is expected to leave the benchmark Fed Funds rate at .25%.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Yellen speaking, Eurozone inflation data and the weekly MBA mortgage applications report could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and technology shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 25% net long heading into the day.

Stocks Slightly Higher into Final Hour on Central Bank Hopes, Oil Bounce, Short-Covering, Energy/Defense Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Higher
  

• Sector Performance: Mixed
  

• Volume: Slightly Above Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 20.84 +2.06%

• Euro/Yen Carry Return Index 152.91 -.09%

• Emerging Markets Currency Volatility(VXY) 11.41 +5.26%

• S&P 500 Implied Correlation 67.10 -1.25%

• ISE Sentiment Index 109.0 +81.67%

• Total Put/Call .95 -9.52%

• NYSE Arms .63 -53.90% 

Credit Investor Angst:

• North American Investment Grade CDS Index 75.35 +1.24% 

• America Energy Sector High-Yield CDS Index 672.0 +1.04%

• European Financial Sector CDS Index 72.37 +2.18%

• Western Europe Sovereign Debt CDS Index 33.12 +4.58%

• Asia Pacific Sovereign Debt CDS Index 77.25 +3.57%

• Emerging Market CDS Index 417.70 +.08%

• China Blended Corporate Spread Index 345.85 +.20%

• 2-Year Swap Spread 23.25 -.5 basis point

• TED Spread 22.25 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -9.25 -.25 basis point

Economic Gauges:

• 3-Month T-Bill Yield .03% +2.0 basis points

• Yield Curve 151.0 -2.0 basis points

• China Import Iron Ore Spot $68.58/Metric Tonne -.70%

• Citi US Economic Surprise Index 31.40 -3.0 points

• Citi Eurozone Economic Surprise Index -3.0 +16.6 points

• Citi Emerging Markets Economic Surprise Index -13.70 +1.5 points

• 10-Year TIPS Spread 1.64 +2.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating +50 open in Japan

• DAX Futures: Indicating -75 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 50% Net Long

Bear Radar

Style Underperformer:

• Large-Cap Growth +.27%

Sector Underperformers:

• 1) Airlines -2.51% 2) Gaming -2.42% 3) Software -.82%

Stocks Falling on Unusual Volume:

• YNDX, NAV, QIWI, EXAS, MGM, WHR, FRGI and LOGM

Stocks With Unusual Put Option Activity:

• 1) AMJ 2) S 3) VMW 4) AGNC 5) PEIX

Stocks With Most Negative News Mentions:

• 1) ADSK 2) PCLN 3) LUV 4) TSLA 5) AMBC
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Value +1.26%

Sector Outperformers:

• 1) Oil Service +3.68% 2) Energy +3.24% 3) Road & Rail +1.65%
  

Stocks Rising on Unusual Volume:

• CXO, PAY, LINE, CVE, WLL, OAS, LGCY, VNR, LNCO, ATLS, ROSE, RRC, SYRG, FANG, CLR, UIS, MEMP, SLXP, CLMT, BCEI, EPD, ZEN, XEC, DOV, ISIL, EVEP, CVS, PXD, APC, BWP, UNT, GTLS and TRGP

Stocks With Unusual Call Option Activity:

• 1) RSX 2) HYG 3) CVS 4) NUE 5) APO
  

Stocks With Most Positive News Mentions:

• 1) MNST 2) CVS 3) MMM 4) HES 5) APC
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Tuesday Watch

Evening Headlines 
Bloomberg: 

• Russia Defends Ruble With Biggest Rate Rise Since 1998. Russia took its biggest step yet to shore up the ruble and defuse the currency crisis threatening its stricken economy. In a surprise announcement just before 1 a.m. in Moscow, the Russian central bank said it would raise its key interest rate to 17 percent from 10.5 percent, effective today. The move was the largest single increase since 1998, when Russian rates soared past 100 percent and the government defaulted on debt. The news prompted an immediate gain in the ruble, with one-month ruble forwards up 1.6 percent in Asian trading. Yet the announcement, as well as its timing, underscored the financial straits in which Russia now finds itself. If sustained, the new higher rates would squeeze an economy that is already being hurt by sanctions led by the U.S. and European Union, and by a collapse in oil prices. Some analysts said they doubted the economy could withstand such high rates for long. 

• Russia Takes Ukraine’s Spot in Currency Abyss: Chart of the Day.

• Russia ADRs Fall Most in Five Years on Ruble’s Plunge. Russian stocks slid the most in five years in the U.S. as concern mounted that plunging oil prices and a weakening currency will further harm an economy already forecast to fall into a recession next year. The Bloomberg Russia-US Equity Index dropped 11 percent in New York yesterday, an eighth day of declines and its longest losing streak since October 2008. Oil producer OAO Surgutneftegas (SGTPY) sank the most on the gauge, losing 22 percent. Crude fell to a five-year low as the United Arab Emirates said OPEC won’t rein in production. Russia’s central bank raised its benchmark interest rate to 17 percent from 10.5 percent after the close of stock trading as the ruble slid below 64 per dollar for the first time.

• Japanese Companies See Weaker Inflation in Kuroda Challenge. Japanese companies see a weaker inflation outlook than three months ago, challenging central bank chief Haruhiko Kuroda’s effort to stoke faster price gains in the world’s third-biggest economy. Firms forecast annual inflation of 1.4 percent in a year, slower than 1.5 percent seen three months earlier, the Bank of Japan said today. They predict annual price gains of 1.6 percent in three years and 1.7 percent in five years.

• China’s H Shares Decline After Flash Manufacturing Gauge Drops. Chinese stocks declined in Hong Kong, led by energy companies and banks, after a factory gauge fell to a seven-month low in December. PetroChina Co. dropped 2.4 percent and China Shenhua Energy Co. slid 2.2 percent after crude oil retreated to a five-year low. Bank of China Ltd. slumped 1.5 percent. The preliminary Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 49.5, missing the median estimate of 49.8 in a Bloomberg survey and lower than last month’s 50.0. Numbers below 50 indicate contraction. Citic Securities Co. jumped 9.9 percent to lead gains in Shanghai. Hong Kong’s Hang Seng China Enterprises Index (HSCEI) fell 1.2 percent to 11,074.74 at 10:12 a.m. local time, heading for its lowest close since Dec. 3.

• Asian Stocks Extend Drop on Oil, China While Ruble Climbs. Asian stocks fell, with the regional index at a two-month low, as oil’s slump and weaker-than-estimated Chinese manufacturing stoked concern that the global economy may falter. Russia’s ruble jumped after interest rates were raised by the most since 1998, while Indonesia’s rupiah tumbled. The MSCI Asia Pacific Index (MXAP) slipped 0.7 percent by 11:04 a.m. in Tokyo, falling for a second day. A gauge of Chinese shares in Hong Kong lost 1.1 percent. 

• China Steel Capacity Transfer Is ‘Imaginary’: Chart of the Day. China’s push to transfer excess steel capacity by building plants overseas faces skepticism from analysts because of the size of the mills being proposed.

• Oil Sands Output Rises as Canadian Crude Falls Below $40. Canadian heavy crude traded below $40 a barrel for the first time in five years just as surge of new projects are scheduled to start operation. A total of 14 new oil sands projects are scheduled to start next year with a combined capacity of 266,240 barrels a day, according to data published by Oilsands Review. That’s 36 percent more than was started in 2014. 

• Copper Declines as China Factory Data Falls to Seven-Month Low. Copper fell a second day after data today showed industrial activity is contracting in China, the biggest consumer of base metals. Copper lost as much as 0.6 percent after dropping the most in two weeks yesterday. The China preliminary manufacturing Purchasing Managers’ Index figure from HSBC Holdings Plc and Markit Economics was 49.5, the lowest since May and down from 50 in November. A number below 50 signals contraction.

Wall Street Journal: 

• Australian Hostage Drama Ends in Deaths, Questions. Lone Gunman Identified as Man Haron Monis Pronounced Dead at Hospital, Along With Two Hostages. The 16-hour siege of a Sydney cafe ended with three people dead, including the lone gunmen whose Islamist rhetoric raised fears in Australia about the threat posed by radicalized individuals with no clear links to organized terror groups. Police stormed the Lindt Chocolate Café in the heart of this city’s business district behind a barrage of gunfire after hours of fruitless negotiations, during which most of the captor’s 17 hostages managed to escape. Two hostages—a 34-year-old man and a 38-year-old woman—were killed during the siege. Police didn’t say whether the victims’ wounds came from the gunman or from police.

• GE’s(GE) Oil and Gas Gambit Falters. After Bulking Up Through Billions in Acquisitions, CEO Immelt to Address Impact of Crude’s Collapse. 

• China Wants ‘Made in China’ Nuclear Reactors. Foreign Suppliers Risk Getting Left Out; Westinghouse Hands Over Plans.

• I Am Not Sorry the CIA Waterboarded. Dick Cheney says he would “do it again in a minute.” He’s right.

Zero Hedge: 

• Russia Shocks With Emergency Rate Hike, Boosts Interest Rate From 10.5% To 17%.

• The Bloodbathery Continues - "Some Folks Were Selling... Everything".

• When The Tide Rolls Out - COO, CEO & Chairman Flee FBI-Probed REIT.

• China, Russia Dump US Treasurys In October As Foreigners Sell Most US Stocks Since 2007. (graph)

• Oil: The Battle For Market Share & The Saudi's 1985 Playbook.

• The First Sellside Reactions Trickle In: "17% Rate Hike Not Enough" According To Citi, JPM.

• China Manufacturing PMI Drops Back Into Triple-Dip Contraction, Lowest In 7 Months. (graph)

• It's Not The Economy; It's The Flow, Stupid. (graph)

• When Central-Planning Fails: "Stimulative" Chinese Rate Cuts Spark Surge In Borrowing Costs. (graph)

Business Insider:

• High-Yield Energy Bonds Are Getting Crushed. (graph)

• China's Lost It. HSBC's purchasing managers index (PMI) came in at 49.5, analysts expected a read of 49.8.

Reuters:

• Boeing(BA) boosts share buyback to $12 bln, lifts dividend 25 pct.

Telegraph: 

• Russian crisis turns systemic as rouble crashes 13pc. Russia's central bank is letting the rouble plunge as the path of least resistance, but this is becoming dangerous as fear spreads.

China Business News:

• China Local Debt Actual Amount Larger Than Reported. Actual amount of local govt debt is hugely different than amount reported to central govt, citing Li Tie, director-general of NDRC's China Center for Urban Development. Some cities reported 10%-30% of local debt to central govt, Li said, citing a research trip to more than 10 cities.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -2.0% to .5% on average.

• Asia Ex-Japan Investment Grade CDS Index 115.0 +3.0 basis points.

• Asia Pacific Sovereign CDS Index 74.5 -.25 basis point.

• S&P 500 futures +.19%.

• NASDAQ 100 futures  +.14%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (NAV)/.00

• (FDS)/1.32

• (DRI)/.27

Economic Releases
8:30 pm EST

• Housing Starts for November are estimated to rise to 1040K versus 1009K in October.

• Building Permits for November are estimated to fall to 1065K versus 1080K in October.
  

9:45 am EST

• Preliminary Markit US Manufacturing PMI for December is estimated to rise to 55.2 versus 54.8 in November.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Eurozone Manufacturing PMI, Germany ZEW Index, US weekly retail sales reports, (BLMN) investor day, (MMM) outlook and the (GE) investor meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and technology shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 25% net long heading into the day.