Wednesday Watch

Evening Headlines

Bloomberg:

• Japan’s Industrial Production Rises Slightly in October. Japan’s industrial production was slightly stronger than economists forecast in October, as exports compensated for continued weak domestic spending. 
• Crude Near Two-Week Low as OPEC Deal Founders; Asian Stocks Rise. Oil remained below $46 a barrel ahead of the make-or-break OPEC meeting on stabilizing the crude market, as gains in Asian property shares outweighed losses among commodity producers. The dollar trimmed its steepest monthly advance since May. Crude bounced off a two-week low reached Tuesday, when 10 hours of technical talks failed to resolve differences between oil-producing nations ahead of Wednesday’s formal meeting in Vienna. While miners and energy shares drove Australian stocks lower, Japan’s Topix index rose with equities in South Korea. The New Zealand dollar led currency gains in Asia along with the Korean won, as the Bloomberg Dollar Spot Index maintained declines. Gold rose amid the pre-OPEC talks jitters, while copper futures extended losses. The MSCI Asia Pacific Index added .3% as the Topix rose .2%, while the Kospi jumped .3%.
• Treasuries Having Worst Month Since 2009 on Trump Ripple Effect. Treasuries are having their worst month since 2009 after investors pulled money from the U.S. bond market on speculation Donald Trump’s victory in the presidential election will pave the way for increased fiscal stimulus. A Bloomberg Barclays index that tracks the Treasuries market has lost 2.5 percent this month through Nov. 28. Meanwhile, benchmark 10-year yields have soared the most in back-to-back months since the 2013 taper tantrum as investors shifted into assets such as stocks, which they expect to benefit should Trump succeed in pushing through his proposals.
• Carrier Reaches Deal With Trump on Indiana Jobs, CNBC Says. Carrier agreed to keep about 1,000 factory jobs at its furnace plant in Indiana, CNBC reported, handing President-elect Donald Trump a victory on an issue that had become a rallying cry in his campaign. A deal between Trump and Carrier, a division of United Technologies Corp., includes new inducements from the state, CNBC reporter David Faber said on Twitter. Vice President-elect and Indiana Governor Mike Pence spearheaded the negotiating effort and Trump will travel to the factory on Thursday to announce the agreement, Faber said.

Wall Street Journal:

• Donald Trump to Name Wilbur Ross as Commerce Secretary, Transition Official Says. Businessman known for cutting jobs and legacy costs to put mills back on their feet.
• Donald Trump Signals Big Health Policy Changes Are Coming. Picks of Tom Price, Seema Verma suggest full speed ahead for dismantling Affordable Care Act, transforming Medicare and Medicaid.

Fox News:

• Trump to nominate Steven Mnuchin for Treasury Secretary, sources say. (video) President-elect Donald Trump will nominate former Goldman Sachs banker Steven Mnuchin to be his Treasury Secretary, two sources close to the transition told Fox News late Tuesday.  One source told Fox that a formal announcement of Mnuchin's nomination could come as early as Wednesday. Mnuchin had long been considered a favorite for the Treasury position. Two weeks ago, businessman and close Trump associate Carl Icahn tweeted that Trump was considering Mnuchin for the post. Mnuchin, 53, was appointed Trump's campaign finance chair this past May. He previously worked at Goldman Sachs for 17 years, eventually rising to run the firm's technology division. According to the Wall Street Journal, Mnuchin left Goldman in 2002 and was later hired to run a credit fund set up by liberal billionaire George Soros.

CNBC:

• Canada PM Trudeau approves Kinder Morgan pipeline.

Zero Hedge

• Trump Picks Former Goldman Banker Steven Mnuchin As Treasury Secretary.
• Jill Stein Delivers $3.5MM For Wisconsin Recount.
• China To Launch "Social Credit System" To Monitor Everything From Jaywalking To Internet Shopping Activity.
• $495K To Study Medieval Smells - Senator Releases 100 Examples Of Extreme Government Waste.
• US Financial Stocks Are Set For Their Greatest Monthly Gain Ever. (graph)
• Jill Stein's Recount Effort Gets 12 Times More Coverage From ABC, CBS, NBC Than Her Entire Campaign.
• Declaration Of War? Erdogan Says Turkish Forces Are In Syria To End Assad's Rule.
• Druckenmiller Joins Gundlach In Predicting 6% Yields; Expects Market Correction As Rates Rise.
• WTI Crude Shrugs Despite Biggest Cushing Inventory Build In 21 Months. (graph)
• "Pause That Refreshes" Sparks Stock-Buying-Spree...But Ends Badly. (graph)

Business Insider:

• There's a long list of reasons people might not like Donald Trump's pick for Treasury Secretary. Mnuchin spent 17 years with Goldman Sachs, and his father worked at the bank for 30 years in stock trading. He was head of the mortage department in the early days of collateralized debt obligations and credit default swaps, instruments that many have argued had a part to play in the financial crisis. He then set up an investment fund with George Soros. During the depths of the financial crisis in 2009, a group led by Mnuchin bought the troubled housing lender IndyMac. The buyer group included Soros, hedge fund billionaire John Paulson, former Goldman Sachs executive Chris Flowers, and tech billionaire Michael Dell. After renaming the company OneWest, Mnuchin served as chairman until selling it to CIT Group in 2015.
• Allergy treatments might be entering a new era.
• Canada's housing bubble could get ugly.
• Russia wants China's help building its own a 'Great Firewall' for censorship.
• There's finally a sign of trouble with auto loans.

China Securities Journal:

• More Chinese Cities May Introduce Property Curbs. More cities will likely introduce curbs following Shenzhen, Hangzhou, Shanghai and Tianjin, according to a front-page commentary. Curbs aim to prevent asset bubbles and risks in mid-to-long term rather than a short-term remedy to control property prices, the commentary said.

Night Trading 

• Asian equity indices are -.25% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 126.0 -1.5 basis points 
• Asia Pacific Sovereign CDS Index 43.5 -.75 basis point.
• Bloomberg Emerging Markets Currency Index 69.33 unch. 
• S&P 500 futures +.02%. 
• NASDAQ 100 futures +.05%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (AEO)/.41
• (TITN)/.06
• (GES)/.14
• (LZB)/.38
• (PVH)/2.40
• (SMTC)/.36
• (SNPS)/.77

Economic Releases 
8:15 am EST

• The ADP Employment Change for November is estimated to rise to 170K versus 147K in October. 

8:30 am EST

• Personal Income for October is estimated to rise +.4% versus a +.3% gain in September.
• Personal Spending for October is estimated to rise +.5% versus a +.5% gain in September. 
• The PCE Core MoM for October is estimated to rise +.1% versus a +.1% gain in September. 

9:45 am EST

• The Chicago Purchasing Manager Index for November is estimated to rise to 52.5 versus 50.6 in October.
  

10:00 am EST

• Pending Home Sales MoM for October are estimated to rise +.1% versus a +1.5% gain in September.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +677,780 barrels versus a -1,255,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +1,194,890 barrels versus a +2,317,000 barrel gain the prior week. Distillate inventories are estimated to rise by +1,454,220 barrels versus a +327,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise by +.51% versus a +1.6% gain prior.

2:00 pm EST

• US Fed Beige Book release.
  

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed's Powell speaking, Fed's Kaplan speaking, Fed's Mester speaking, OPEC meeting, weekly MBA Mortgage Applications report, China Manufacturing PMI report, Eurozone CPI report and German Unemployment Rate could also impact trading today.

BOTTOM LINE:  Asian indices are mostly higher, boosted by industrial and technology shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

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.