Stocks Lower into Final Hour on US Election Recount Concerns, Less Economic Optimism, Yen Strength, Energy/Healthcare Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Below Average

• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• Volatility(VIX) 12.85 +4.1%

• Euro/Yen Carry Return Index 124.18 -.78%

• Emerging Markets Currency Volatility(VXY) 11.0 -1.96%

• S&P 500 Implied Correlation 53.48 -.07%

• ISE Sentiment Index 75.0 -34.78%
  

• Total Put/Call .88 +11.4%

• NYSE Arms 1.03 unch.

Credit Investor Angst:

• North American Investment Grade CDS Index 73.36 +.15%
  

• America Energy Sector High-Yield CDS Index 621.0 +1.24%

• European Financial Sector CDS Index 111.0 +2.05%

• Western Europe Sovereign Debt CDS Index 23.39 -.36%

• Asia Pacific Sovereign Debt CDS Index 44.24 -.15%

• Emerging Market CDS Index 268.64 -.86%
  

• iBoxx Offshore RMB China Corporate High Yield Index 132.94 +.04%

• 2-Year Swap Spread 20.75 +1.0 basis point

• TED Spread 45.0 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -61.25 -6.0 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 69.36 +.35%
• 3-Month T-Bill Yield .46% -3.0 basis points

• Yield Curve 122.0 -2.0 basis points
  

• China Import Iron Ore Spot $80.83/Metric Tonne +1.53%

• Citi US Economic Surprise Index 11.60 +2.3 points

• Citi Eurozone Economic Surprise Index 66.0 +2.5 points

• Citi Emerging Markets Economic Surprise Index -4.4 +1.2 points

• 10-Year TIPS Spread 1.88% -5.0 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 -46 open in Japan 
• China A50 Futures: Indicating -13 open in China

• DAX Futures: Indicating -1 open in Germany

Portfolio: 

• Lower: On losses in my medical/biotech/retail sector longs and emerging markets shorts

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 25% Net Long

Today's Headlines

Bloomberg:

• China to Curb Megadeals as Regulators Tame Record Overseas Spree. (video) China is planning sweeping curbs on its companies’ overseas acquisitions, including barring most foreign investments of $10 billion or more, people with knowledge of the matter said, as it seeks to tame a record dealmaking spree that’s alarmed officials from Washington to Berlin. The government will generally suspend several categories of deals while still leaving room for some strategic transactions to be executed, the people said, asking not to be identified because the information is private. It will restrict overseas investments of at least $1 billion in industries outside a buyer’s core business, as well as foreign property deals of $1 billion or more by state-owned enterprises, according to the people.
• China Cites ‘The Art of War’ as Trump Signals Trade Battle. (video) There’s a Chinese saying that stems from the philosophy in Sun Tzu’s ancient text “The Art of War”: You can kill 1,000 enemies, but you would also lose 800 soldiers. Centuries later, the proverb is suddenly apt again, being mentioned frequently in discussions around Beijing. Now, it highlights the potential damage U.S. President-elect Donald Trump could inflict if he makes good on his threat to start a trade war with China, the world’s second-biggest economy.
• Investor Who Backed Brexit Sees Euro Breaking Up Within 5 Years. Jim Mellon stood out among investors in 2016 as a rare, public backer of Britain’s exit from the European Union. Now, the chairman of the Burnbrae Group is forecasting another breakup. Mellon, who was cited as a supporter of the “Leave” campaign by pro-Brexit lawmaker Michael Gove, predicts the euro will become a future casualty of a rising anti-establishment tide, causing the currency union to splinter within the next five years.
• OECD Lifts Global Growth Forecasts on Expected Trump Stimulus. (video) The OECD lifted its global growth forecasts for 2017 and predicted expansion in 2018 will reach its fastest pace in half a decade as Donald Trump’s planned fiscal stimulus provides a boost to major economies. World gross domestic product will now expand 3.3 percent next year, up by 0.1 percentage point from September’s forecast, the Organization for Economic Cooperation and Development said in a semi-annual report. The Paris-based organization sees the global economy expanding 3.6 percent in 2018, the fastest pace since 2011.
• Draghi Warns U.K. Likely to Suffer Most If Hard Brexit Hits.
• Italian Lenders Slide on Vote Worries to Drag Down Europe Stocks. (video) Italian lenders declined on rising concerns about risks to their financial stability from the upcoming referendum, bringing an end to a three-week rally in European shares. Banca Monte dei Paschi di Siena SpA, the lender burdened by bad loans and under pressure to raise fresh money, tumbled 14 percent. UniCredit SpA and Intesa Sanpaolo SpA fell at least 3.2 percent, dragging the FTSE MIB Index to one of the worst performances in western-European markets. The Financial Times reported yesterday that as many as eight Italian banks risk failing if Renzi loses the vote. The Stoxx Europe 600 Index declined 0.8 percent at the close in London, with the volume of shares changing hands about 17 percent lower than the 30-day average.
• OPEC’s Last Cut Shows Oil Market Could Get a Whole Lot Messier. (video) Anyone planning to trade the outcome of this week’s OPEC meeting might consider the lessons of the group’s last production cut. Then take a deep breath. In December 2008, as oil demand and prices slumped during the global financial crisis, the Organization of Petroleum Exporting Countries, announced a record output reduction. What was supposed to stabilize the market initially sowed more confusion as the group’s statement bundled together previously announced supply curbs and omitted a breakdown of how much each member would cut -- details of which leaked out days later. While the deal did eventually halt the slide in prices, the Chicago Board Options Exchange Crude Oil Volatility Index, a common measure of market turbulence, stayed near a record over the following two months amid doubts that OPEC members would comply with their new targets.
• Trump Says He May ‘Terminate’ Relaxing of Cuba Restrictions. (video) 
• Google(GOOG), Facebook(FB) Leave Rivals Struggling for Digital ‘Nirvana’.

Wall Street Journal:

• How to Kill the Volcker Rule? Don’t Enforce It. Big banks hoping a Trump administration will defang one of Dodd-Frank’s most-controversial pieces.
• China’s New Tool for Social Control: A Credit Rating for Everything. Beijing wants to give every citizen a score based on behavior such as spending habits, turnstile violations and filial piety, which can blacklist citizens from loans, jobs, air travel.
• How Iran, Russia Could Derail Oil-Production Deal. OPEC members engage in a last-minute blitz of diplomacy ahead of a meeting on Wednesday.

Fox News: 

• One suspect dead, 9 injured after attack at Ohio State University involving car, butcher knife. (video)

CNBC:

• Eight EU countries warned over vulnerable property market - ESRB. The residential property market is at risk of overheating in eight European Union countries, including Britain, partly due to the unintended effects of ultra low interest rates, the EU's financial risk watchdog said on Monday.
• OPEC could see 'punishing outcome' if talks fail in Vienna.
• A simple market measure monitored by Warren Buffett says stocks may be overvalued.

Zero Hedge:

• Trump Reportedly "Furious" Over Kellyanne Conway's "Rogue" Comments About Mitt Romney.
• Ohio State Attack Suspect Is 20-Year-Old Somali Refugee; Terror Motive Investigated. (video)
• Jill Stein Officially Files Recount Petition In Pennsylvania.
• OPEC Releases Schedule For Nov. 30 Meeting; Fails To Agree On Anything Else.
• Portugal Bond Yields Hover Near Brexit Highs As Bank Bosses Quit Ahead Of Bailout.
• The Market's Next Headache: China's (Not So) Stealth Tightening.
• Stein Vows To Launch Recounts In More States To Ensure "Election Integrity".
• Trump Victory Leads To Biggest Surge In Dallas Fed "Hope" In Past Decade. (graph)
• David Petraeus To Meet With Trump As Possible Secretary Of State Pick.
• Italian Bond Risk Spikes To 30-Month Highs As Referendum Fear Batters Banks. (graph)
• Is This The Democrats' Real Strategy In Launching Recounts?

Business Insider:

• Wisconsin elections commission: Recount expected to uphold Trump's win.
• Top Iranian general: Iran may seek naval bases in Yemen or Syria.
• Canada's banks could see 'significant losses' if the housing market turns.
• 4 charts that show China's accelerating debt problem.

Bear Radar

Style Underperformer:

• Small-Cap Growth -.9%

Sector Underperformers:

• 1) Hospitals -2.0% 2) Biotech -1.3% 3) Road & Rail -1.1%

Stocks Falling on Unusual Volume: 

• KANG, IIIN, AIRG, KT, SYT, LLY, CEQP, CRH, AQMS, OPHT, VWR, VMC, AAAP, OCUL, LOGM, SPGI, YY, TMO, PANW, HRB, ALDR, BZUN, EW, URBN and FOSL

Stocks With Unusual Put Option Activity:

• 1) TIF 2) FITB 3) NBR 4) IYR 5) DAL

Stocks With Most Negative News Mentions:

• 1) HRB 2) TUP 3) RF 4) HAS 5) AVID

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth -.3%

Sector Outperformers:

• 1) Gold & Silver +2.7% 2) Utilities +1.7% 3) Steel +1.2%

Stocks Rising on Unusual Volume:

• TIME, SCMP, MBI, CTSH, HIIQ, CDEV, SINA, FNSR and WB

Stocks With Unusual Call Option Activity:

• 1) HRTX 2) SMH 3) PDLI 4) TIF 5) WMB

Stocks With Most Positive News Mentions:

• 1) COP 2) FNSR 3) SWN 4) NTES 5) LNN

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -8.9% Below 100-Day Average
• 3 Sectors Rising, 7 Sectors Declining
• 36.5% of Issues Advancing, 60.5% Declining
• 102 New 52-Week Highs, 8 New Lows
• 57.8% of Issues Above 200-day Moving Average
• Average 14-Day RSI 46.3%
• Vix 13.2 +7.1%
• Total Put/Call .77 -2.5%
• TRIN/Arms .98 -5.36%

Monday Watch

Today's Headlines

Bloomberg:

• China's Bad Banks Serve Zombies, Not Investors.
• Fillon Wins French Republicans’ 2017 Presidential Nomination. Former Prime Minister Francois Fillon was nominated as the French Republicans’ candidate for next year’s presidential election, as voters on the right picked a figure promising tough economic reforms and unabashedly embracing traditional values to lead their party back to power. With about half the vote counted and Fillon leading by almost 40 percentage points, his rival Alain Juppe conceded and called on his supporters to rally behind the winner. Fillon led by 67 percent to 33 percent with almost all the polling stations having reported.
• Oil Slump Sinks Asian Stocks Before OPEC as Yen Takes on Dollar. Sliding oil prices weighed on Asian energy stocks amid concern over the outcome of this week’s OPEC meeting, while the dollar retreated versus major peers, including the yen, as haven assets rallied. Oil and gas producers led equity declines in Asia, with U.S. crude sinking toward a two-week low after Saudi Arabia suggested the world’s biggest producers didn’t need to reduce output. Japan’s Topix index fell for the first time in 12 days, slipping from a 10-month high as the yen rallied a second day against the dollar. The Korean won and and South African rand led a rebound in developing-nation currencies as the so-called Trump trade -- which has buoyed the dollar since the U.S. election -- took a breather. Gold climbed along with Treasuries, as 10-year bond yields from Japan to Australia fell.
• Even If OPEC Gets a Deal, It Risks Reviving Battered Oil Rivals. Three days from a crucial meeting, OPEC’s deal to curb oil production and end years of global oversupply hangs in the balance. But even if ministers hash out a meaningful accord on Wednesday, there are dangers for the oil-exporter club. For two years, OPEC tried to bury a growing army of upstart producers by flooding the markets with crude. Reversing course might hand a lifeline to the battered survivors like Premier Oil Plc who are rushing to reap the rewards. The London-listed company, whose 60,000 barrels a day of output amounts to a rounding error for OPEC, expects to use hedges to lock in 2017 prices of at least $50 a barrel, a level Brent has only touched briefly this year. That means Premier Oil has adapted well enough to the assault to at least break even at half the price it received on the futures market in 2015.
• OPEC Pushes for Oil Deal as Saudis Open Door for No Output Cut. OPEC is embarking on a last-ditch diplomatic push to reach a production cut, with ministers flying to Russia for talks, as Saudi Arabia for the first time suggested the oil-club doesn’t necessarily need to curb output. The Organization of Petroleum Exporting Countries will meet on Wednesday in Vienna to try finalize the terms of its first production decrease in eight years. Yet the group remains divided about how to share the curbs internally and Khalid Al-Falih, the Saudi oil minister, has opened the door to leave the group’s production unchanged.
• China’s Ball of Money Is Rolling Back to Commodities. In China, money flow is tightly controlled and capital markets are relatively underdeveloped, meaning the economy works like squeezing a balloon. You press it in one place, and it bulges in another. Policy-maker moves to cool one expansion only serve to inflate another. Now that "gyration of bubbles," according to Société Générale SA’s chief China economist Wei Yao, has been heating up the commodities market again.
• Black Friday Shoppers Curb Spending as They Chase Discounts. Holiday shoppers spent less money over the Black Friday weekend than in 2015, another sign that U.S. consumers remain wary about opening their wallets without deep discounts. Shoppers spent an average of $289.19 over the four-day weekend, including both online and offline purchases, the National Retail Federation said on Sunday, citing a survey conducted by Prosper Insights & Analytics. Consumers shelled out $299.60 in 2015, the trade group found. The weekend was characterized by heavy markdowns and a shift toward e-commerce, meaning there were smaller crowds at the mall. Forty-four percent of consumers did their shopping online, compared with 40 percent at brick-and-mortar stores. In either case, many of them were looking for just one thing: a good deal.

Wall Street Journal:

• Oil Industry Anticipates Day of Reckoning. Prospect of ‘peak demand’ prompts debate and long-term planning by global producers.
• Tug of War Delays Some of Donald Trump’s Key Hires. Secretary of state choice slows the president elect’s filling of other posts.
• Death of Fidel Castro May Pressure Donald Trump on Cuba Promises. President-elect could face pushback from some companies regarding his Cuba policies.

MarketWatch.com:

• Everything Goldman Sachs predicts for 2017 — in one chart.

Fox News:

• Clinton joining vote recount appears to test fragile truce with Trump. (video) Donald Trump and Hillary Clinton’s truce and efforts to “come together” after their bitter White House race appeared to fray this weekend when Clinton joined in a vote-recount effort, then a top Trump adviser hedged about a criminal probe into Clinton’s emails. In the weeks since Trump’s win, the Republican president-elect has said that he’s not focused on pursing another criminal probe into Clinton’s use of a private email server as secretary of state, despite suggesting on the campaign trail Clinton “has to go to jail” over the issue, amid crowd cheers of “lock her up.”

Zero Hedge: 

• Trump Tweets: "Millions" Voted Illegaly For Hillary Clinton.
• Trump quotes Hillary Clinton, rages against Wisconsin recount effort in hours-long tweetstorm.
• Losers Who Won't Lose: What Are The Odds Of A Successful Hillary Recount? 
• Up To Eight Italian Banks May Fail If Renzi Loses Referendum.
• WTI Crude Opens At 2-Week Lows As OPEC Deal Hope Fades. (graph)
• China Escalates Tensions In Asia's Water Wars.
• Trump And Draghi May Bring A Return Of The "European Solvency Crisis": Barclays.
• Francois Fillon Wins French Republican Primary, Trouncing Alain Juppe.
• US Housing Market In Peril As "Increase In Mortgage Rates Has Shocked Consumers".
• Black Friday Sales Slump As Retail Tracker Admits Holiday Season "Off To A Slow Start", Blames Warm Weather.
• Today 1.5 Million Chinese Candidates Compete For 20,700 Civil Service Jobs.
• OPEC Deal Disintegrates After Iran Press Accuses Saudi Arabia Of "Reneging" On Agreement.
• Juppe And Fillon Clash For Republican Nomination As France Picks Marine Le Pen's Opponent.
• Glenn Greenwald Condemns Washington Post's "Cowardly Group Of Anonymous Smear Artists".
• India's Modi Admits Plan Shifting Nation To "Cashless Society".
• Who Pays What Taxes In The US. (graph)
• Trump Slams Recount: "Nothing Will Change", Bernie Sanders Agrees.

Business Insider:

• Tesla(TSLA) is entering the solar business at a terrible time.
• New Orleans shooting in the French Quarter leaves 1 dead, 9 injured.
• 5 innovations in radiology that could impact everything from the Zika virus to dermatology.
• This is what Europe's biggest bank expects from Italy's crucial referendum.
• An OPEC deal won't fix the oil glut.

Telegraph:

• Italy needs reform and a euro exit is inevitable.
• Mark Carney to warn EU bureaucrats they face messy divorce if they fail to adapt to Brexit. 

Night Trading

• Asian indices are -.25% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 127.0 -.75 basis point.
• Asia Pacific Sovereign CDS Index 44.25 +.75 basis point.
• Bloomberg Emerging Markets Currency Index 69.24 +.17%.
• S&P 500 futures -.24%.
• NASDAQ 100 futures -.17%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (SFUN)/-.08
• (SCVL)/.55
• (THO)/1.23

Economic Releases
10:30 am EST

• The Dallas Fed Manufacturing Activity Index for November is estimated to rise to 1.5 versus -1.5 in October.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Japan Retail Sales report, Japan Unemployment Rate and the CSFB Tech/Media/Telecom Conference could also impact trading today.

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