Friday Watch

Evening Headlines

Bloomberg:

• Easing China’s Housing Bubble Has Unintended Side Effects. In China’s two-speed property market, prescriptions for deflating big-city bubbles are having unintended side-effects in smaller towns. Soaring prices in megacities Beijing and Shanghai both snapped 20 months of gains in November after authorities tightened restrictions to reduce excessive speculation. Meanwhile, real estate in the northwestern rust belt cities of Jilin and Harbin also declined, posting their first drops in four months. Signs that prices stopped rising is good news for major cities as it shows policies are having the desired effect, but they’re less welcome in smaller towns still battling to fill millions of empty homes that weigh on prices. That disparity poses a new challenge for policy makers just as they pledge to ensure stability and step up the fight against speculation.
• Scissors: U.S. Will Win Trade War With China. (video)
• Why China's Maritime Disputes Could Lead to War. (video)
• Japan Wants Its "Overworked" Citizens to Start Weekends Early. Government wants 3pm clock-off on last Friday of each month.
• Euro Climbs Along With Oil as Japan Stocks Decline. Japan’s Topix fell 0.6 percent and is set for a 2.4 percent decline in 2016. The Nikkei 225 index was down 0.7 percent on Friday. Australia’s S&P/ASX 200 Index dropped 0.5 percent, while New Zealand’s S&P/NZX 50 was off by 0.2 percent. FTSE China A50 futures gained 0.3 percent, as did futures for Korea’s Kospi gauge. Hang Seng Index futures slid 0.1 percent in most recent trading.
• Get Set for the Year Ahead: Here’s Your QuickTake Guide to Navigating 2017.
• Tillerson Climate-Change Testimony Set Before Trump Sworn In. Lawyers for teenagers claiming the U.S. government failed to protect the environment from global warming plan to question under oath President-elect Donald Trump’s pick for secretary of state on his knowledge of climate change.

Wall Street Journal:

• U.S. Sanctions Russia Over Election Hacking; Russia Threatens to Retaliate. Sanctions follow U.S. assessment Russia used cyberattacks to interfere with election.
• Syrian Rebel Group Rejects Cease-Fire Hours Before Its Start. Fragile truce engineered by Russia and Turkey goes into effect but is already thrown into doubt.
• Snap’s IPO Roadshow Message: We’re the Next Facebook, Not the Next Twitter. Virtual-messaging service’s pitch designed to convince investors that platform can evolve into a content powerhouse.
• The VA Hooked Veterans on Opioids, Then Failed Them Again.
• The War on Israel Never Ends. Settlements aren’t the issue. Many of the Jewish state’s enemies don’t even believe in its right to exist.

Fox News:

• Obama orders sanctions against Russia, expels operatives, in response to hacking. (video)
• Best pictures of the year.

Zero Hedge:

• Mainstream Media Is Now Whining About The "Fake News" Hysteria It Created.
• Trump Responds To Obama's Russian Sanctions: "Time To Move On".
• Central Bankers Are Losing Faith In Their Own Alchemy.
• Anthony Bourdain Slams "Privileged" Liberals For Their "Utter Contempt" Of Working-Class America.
• GWU Eliminates U.S. History As A Requirement For History Majors.
• Obama's Vacation Costs Expected To Top $90 Million Over 8 Years.
• Inside Another Record-Setting Streak For The S&P 500.
• 3 Things: Records Are Records For A Reason. (graph)
• Bonds & Bullion Bounce But Banks Bruised As Dollar Dumps. (graph)

Business Insider:

• Russia responds to US sanctions: 'If Washington takes new hostile steps, it will receive an answer'.
• Russia expert: New US sanctions 'clearly meant to throw a wrench into' Trump's dealings with Moscow.
• Homebuyers are feeling the heat as mortgage rates rise.

Night Trading 

• Asian equity indices are -.50% to -.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 121.75 +.5 basis point.
• Asia Pacific Sovereign CDS Index 37.75 unch.
• Bloomberg Emerging Markets Currency Index 69.97 +.26%. 
• S&P 500 futures +.04%. 
• NASDAQ 100 futures +.08%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note

Economic Releases
9:45 am EST

• Chicago Purchasing Manager for December is estimated to fall to 57.0 versus 57.6 in November.     

Upcoming Splits 

• None of note

Other Potential Market Movers

• The China Current Account Balance report could also impact trading today.

BOTTOM LINE:  Asian indices are mostly lower, weighed down by industrial and financial 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 Lower into Afternoon on Yen Strength, Technical Selling, Profit-Taking, Financial/Tech Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Mixed
  

• Volume: Light

• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• Volatility(VIX) 13.59 +4.94%

• Euro/Yen Carry Return Index 127.60 +.09%

• Emerging Markets Currency Volatility(VXY) 11.32 -.61%

• S&P 500 Implied Correlation 49.78 +.95%

• ISE Sentiment Index 92.0 -13.21%
  

• Total Put/Call .91 +1.11%

• NYSE Arms 1.12 -21.03%

Credit Investor Angst:

• North American Investment Grade CDS Index 68.03 +1.08%
  

• America Energy Sector High-Yield CDS Index 454.0 -.03%

• European Financial Sector CDS Index 95.02 +.93%

• Western Europe Sovereign Debt CDS Index 20.50 +.59%

• Asia Pacific Sovereign Debt CDS Index 37.75 +.21%

• Emerging Market CDS Index 241.06 -.46%
  

• iBoxx Offshore RMB China Corporate High Yield Index 133.19 +.01%

• 2-Year Swap Spread 25.0 +1.5 basis points

• TED Spread 53.0 +5.5 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -54.0 +23.75 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 69.83 +.45%
• 3-Month T-Bill Yield .45% -6.0 basis points

• Yield Curve 126.0 +1.0 basis point
  

• China Import Iron Ore Spot $80.43/Metric Tonne -.31%

• Citi US Economic Surprise Index 23.90 -.4 point

• Citi Eurozone Economic Surprise Index 54.10 +.4 basis points

• Citi Emerging Markets Economic Surprise Index 17.90 +7.3 points

• 10-Year TIPS Spread 1.96% -3.0 basis points
• 31.3% chance of Fed rate hike at March 15 meeting, 43.5% chance at May 3 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -105 open in Japan 
• China A50 Futures: Indicating +38 open in China

• DAX Futures: Indicating -12 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 25% Net Long

Bear Radar

Style Underperformer:

• Large-Cap Value -.1%

Sector Underperformers:

• 1) Steel -1.4% 2) Banks -1.3% 3) Semis -1.0%

Stocks Falling on Unusual Volume: 

• LIVE, MPET, NVDA, HIIQ, SHG, WGP, ZYNE, BITA and ICPT

Stocks With Unusual Put Option Activity:

• 1) MNK 2) FITB 3) KEY 4) EWG 5) NVDA

Stocks With Most Negative News Mentions:

• 1) RCII 2) NVDA 3) PII 4) TGT 5) CERN

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth +.1%

Sector Outperformers:

• 1) Gold & Silver +5.6% 2) REITs +.9% 3) Utilities +.9%

Stocks Rising on Unusual Volume:

• PHH, MBLY, SLW, ABX, AU, GG, AEM and NEM

Stocks With Unusual Call Option Activity:

• 1) JBLU 2) ETFC 3) NUGT 4) RGLD 5) DUST

Stocks With Most Positive News Mentions:

• 1) BAS 2) FIRT 3) RTN 4) XON 5) KATE

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -43.2% Below 100-Day Average
• 6 Sectors Rising, 4 Sectors Declining
• 66.1% of Issues Advancing, 30.0% Declining
• 37 New 52-Week Highs, 7 New Lows
• 56.4% of Issues Above 200-day Moving Average
• Average 14-Day RSI 40.6%
• Vix 13.1 +15.9%
• Total Put/Call 1.0 +11.1%
• TRIN/Arms 1.22 -14.4%

Thursday Watch

Evening Headlines

Bloomberg:

• China Fault Lines: Where Economic Turbulence Could Erupt in 2017. China’s balancing act isn’t getting any easier. Policy makers are grappling with how to attack excessive borrowing and rein in soaring property prices while maintaining rapid growth. They’re also battling yuan depreciation and capital outflow pressures as U.S. interest rates rise, while on the horizon looms the risk of confrontation with America’s President-elect Donald Trump on trade and Taiwan. It’s a high-wire act with the potential to produce shocks, like the one erupting in the bond market as tighter liquidity threatens financing for small companies. President Xi Jinping told top officials he’s open to growth below the 6.5 percent target to 2020 if it carries too much risk, a person familiar with the situation said last week. Leaders have pledged to reduce hazards for 2017.
• S.Korea Government Cuts 2017 Growth Projection to 2.6% From 3%.
• Asian Stocks Set to Follow U.S. Lower, Dollar Firm: Markets Wrap. Nikkei 225 index futures dropped 0.7 percent in Osaka and Singapore. MSCI Taiwan futures and futures on Korea’s Kospi 200 were 0.3 percent lower. FTSE China A50 futures were little changed.

Wall Street Journal:

• John Kerry Defends U.S. Approach to Israel After U.N. Vote on Settlements. Secretary of state warns that two-state solution is ‘in jeopardy’.
• Aluminum Billionaire Planning Escape From China: Lawyer. Giant aluminum stockpile in Mexico and Vietnam may represent an effort to get wealth out of China by Liu Zhongtian, chairman of China Zhongwang Holdings.
• Electric Cars: Still Unpopular with Buyers and Unprofitable for Sellers. Auto makers face hurdles to widespread adoption despite rollout of midpriced vehicles.

Fox News:

• Netanyahu slams Kerry's speech defending UN vote as 'unbalanced'. (video)

CNBC:

• Citron Research's Andrew Left says the market simply got ahead of itself on Nvidia(NVDA).
• Market rally is in seventh or eighth inning, expert says. (video)

Zero Hedge:

• Trump Announces Sprint Bringing 5,000 Jobs Back To US, Says UN Might Be "Waste Of Time & Money".
• It's The Dollar, Stupid!
• HuffPo Turns On Obama: He Presided Over The "Destruction Of The Democratic Party".
• More Bad News For NYC Real Estate As Luxury Co-Op Contracts Collapse 25%.
• Is 100% Of "US Warming" Due To NOAA Data Tampering?
• How Government Regulation Makes Us Poorer.
• House Flipping Makes A Comeback As 2016 Volume Soars To Highest Since 2007. (graph)
• Oil Slides After Biggest Inventory Build In 6 Weeks. (graph)
• George Soros Conjures Hitler In Attack On 'Ascendant Populists', Warns "Democracy Is Now In Crisis".
• Bank EPS Misses On Deck: Rising Rates Lead To Biggest Bank Portfolios Losses Since The "Taper Tantrum". (graph)
• Rebalance Rout: Stocks Slump Most Since October As Bonds, Bullion Bounce. (graph)

Night Trading 

• Asian equity indices are -.75% to -.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 121.25 +8.0 basis points.
• Asia Pacific Sovereign CDS Index 37.75 +.5 basis point.
• Bloomberg Emerging Markets Currency Index 69.55 +.04%. 
• S&P 500 futures +.04%. 
• NASDAQ 100 futures -.02%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note

Economic Releases
8:30 am EST

• Advance Goods Trade Balance for November is estimated at -$61.6B versus -$61.9B in October.
• Preliminary Wholesale Inventories MoM for November are estimated to rise +.2% versus a -.4% decline in October.
• Initial Jobless Claims are estimated to fall to 265K versus 275K the prior week.
• Continuing Claims are estimated to fall to 2027K versus 2036K prior.     

11:00 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,266,670 barrels versus a +2,256,000 barrel gain the prior week. Gasoline supplies are estimated to rise by +155,560 barrels versus a -1,309,000 barrel decline the prior week. Distillate supplies are estimated to rise by +733,330 barrels versus a -2,420,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.25% versus a +1.0% gain prior. 

Upcoming Splits 

• None of note

Other Potential Market Movers

• The $28B 7Y T-Note auction, weekly EIA natural gas inventory report and the weekly Bloomberg Consumer Comfort Index could also impact trading today.

BOTTOM LINE:  Asian indices are lower, weighed down 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 25% net long heading into the day.