Friday Watch

Evening Headlines 
Bloomberg:   

• Japan Limps Out of Recession With December Production Gain. Japan’s industrial production snapped two quarters of decline, signaling the world’s third-largest economy may have limped out of recession. Output rose 1.8 percent in the three months through December from the third quarter, the trade ministry said Friday. While household spending fell and inflation slowed in December, the labor market continued to tighten, with the ratio of jobs to applicants rising to the highest in more than two decades and the unemployment rate falling to the lowest since August 1997. 

• Top Economist Says BOJ Doesn’t Need More Stimulus: Japan Credit. Japan’s top-rated economist says the central bank doesn’t need more stimulus, defying the consensus. Ryutaro Kono, chief Japan economist in Tokyo at BNP Paribas SA, voted No. 1 by Nikkei Veritas magazine in six of the past seven years, says lower oil prices will stimulate growth and policy makers will favor yen stability. Twenty-six of 33 of economists in a Bloomberg News survey forecast the Bank of Japan will accelerate asset purchases by the end of October to meet a 2 percent inflation target. Ten-year inflation swaps slid to a two-year low of 0.74 percent this week, Meitan Tradition data showed.

• Taiwan’s GDP Growth Misses Economists Estimate in Fourth Quarter. Taiwan’s economy grew slower than economists estimated last quarter after a food scandal weighed on demand. Gross domestic product rose 3.17 percent from a year earlier in the three months through December, according to preliminary data the statistics bureau released in Taipei Friday. That missed the 3.25 percent median estimate in a Bloomberg survey of analysts and declined from 3.63 percent in the prior quarter. The economy expanded 3.51 percent in 2014.  

• Asian Stocks Advance to Extend First Monthly Gain Since October. Asian stocks rose, with the regional benchmark index extending its firstly monthly gain since October, as Japanese shares climbed after the yen weakened against the dollar on a drop in U.S. jobless claims. The MSCI Asia Pacific Index added 0.3 percent to 140.91 as of 9:01 a.m. in Tokyo.

• Plunging Oil Prices Felt Across Japan’s Industrial Base. The plunge in crude oil prices is taking its toll across Japan’s industrial base. Forecasts from Nippon Steel & Sumitomo Metal Corp., Japan Marine United Corp. and Komatsu Ltd. show the extent to which lower crude prices are eroding the outlooks for industrial companies with businesses linked to oil and gas.  

• Iron Ore Set for Monthly Loss as ABN’s Crystal Ball Shows No Joy. Iron ore is heading for the biggest monthly loss since May, signaling that the bear market that began last year has further to run as steel mills in China curtail output before a national holiday and major producers add supply. Ore with 62 percent content delivered to Qingdao, China, was at $63.27 a dry metric ton on Thursday, 11.2 percent lower this month, according to Metal Bulletin Ltd. The raw material fell to $63.09 on Wednesday, the lowest price on record going back to May 2009, and is poised for a third monthly drop.

• Hillary Clinton Faces Scrutiny for Use of Private Jets. Hillary Clinton took more than 200 privately chartered flights at taxpayer expense during her eight years in the U.S. Senate, sometimes using the jets of corporations and major campaign donors as she racked up $225,756 in flight costs.

Wall Street Journal:

• Underground Terror Network Said to Benefit Would-Be Jihadists in Europe. Officials Say Wife of Paris Gunman Used Resources to Reach Islamic State Territory in Syria. When a young Frenchwoman showed up early this month at an Islamic State border checkpoint in northern Syria, the extremists controlling that arid expanse were expecting her.

• Falling Prices Spread Pain Far Across The Oil Patch. Companies Plan to Slash Spending Along With Thousands of Jobs. Rumor became reality here last week when dozens of workers lost their jobs at Laredo Petroleum Inc. The Oklahoma-based energy outfit said it closed its regional office to cope with plunging oil prices.

• Mexico Prepares to Cut Spending as Oil-Price Drop Hits Revenue. By Reducing Spending, Government Signals It Aims to Continue Lowering Deficit.

• Former Hedge-Fund Managers Hit the Comeback Trail. Veteran Stock Pickers Michael Karsch, Adam Weiss Plan New Funds. It can be tough to start over in the hedge-fund world. The $2.8 trillion industry is strewed with tales of managers who, after shutting down large funds, relaunched only to limp along or close again. Undaunted, veteran stock pickers Michael Karsch and Adam Weiss plan to launch new funds less than two years after closing their old firms, according to Mr. Karsch and people familiar with Mr. Weiss’s plans.

• Obama Budget Proposes 7% More in Spending Above Sequestration Caps.

• America’s Strategy Deficit. A haphazard foreign policy makes a complicated world more dangerous. Something is going on here. On Tuesday retired Gen. James Mattis, former head of U.S. Central Command (2010-13) told the Senate Armed Services Committee of his unhappiness at the current conduct of U.S. foreign policy. He said the U.S. is not “adapting to changed circumstances” in the Mideast and must “come out now from our reactive crouch.” Washington needs a “refreshed national strategy”; the White House needs to stop being consumed by specific, daily occurrences that leave it “reacting” to events as if they were...

Fox News:

• Official: Gitmo prisoner traded for Bergdahl reaching out to Taliban. (video) One of the five Taliban fighters traded last year for Sgt. Bowe Bergdahl is trying to make contact with the Taliban once again, Fox News has learned. A U.S. official confirmed to Fox News that the former Guantanamo prisoner has been intercepted making telephone calls to the Taliban. The development comes amid rising concerns over former Guantanamo detainees returning to the battlefield, and over the nature of the Bergdahl-Taliban trade itself last year, which was negotiated with the involvement of the Qatari government.

CNBC:

• Amazon(AMZN) earnings: 45 cents a share, vs. expected EPS of 17 cents. Amazon.com blew past Wall Street's earnings expectations on Thursday as holiday sales climbed some 15 percent, sending the company's shares rallying 14 percent in after-hours trading.

• Google(GOOG) misses on earnings, blames strong dollar. (video) Google reported quarterly earnings and revenue that missed analysts' expectations, as foreign exchange and falling ad prices weighed on the company.

• Visa(V) offers 4-for-1 stock split, beats on top and bottom. Visa reported earnings on Thursday that beat on both the top and bottom line and also announced a four-for-one stock split. The stock rose more than 4 percent in after-hours trade.

Zero Hedge:

• The Wreck Of The Monetary Hesperus.

• Janet Yellen Now Advises Democrats What The Fed's Monetary Policy Plans Are.

• After VISA's(V) Stock Split, The Most Important Company In The Dow Jones "Industrial" Average Is...

• 3 Things - Fed Mistake, ECB QE, Housing. (graph)

• According To Citi(C), Small Hedge Funds May Have No Choice But To Become Paper Traders On Twitter. (graph)

• The Biggest "Hamilton Oil Shock" In History. (graph)

• The Next War In The Middle East Has Begun And Israel Vows "To Act Powerfully On All Fronts".

• Occupied By Wall Street – The Latest TARP Taxpayer Screw-Job Is Revealed.

Business Insider:

• Greece Is Quickly Turning Into Europe's Worst Nightmare.

• Shake Shack IPO Prices Way Higher Than Expected.

• Expert: The US Strategy In Syria Is A Complete Mess.

• Alibaba's(BABA) Fairy-Tale Ascent Is Being Threatened By 2 Major Risks.

• The US Is Running Out Of Intelligence In Yemen.

Reuters:

• U.S.-based stock funds attract $2.8 bln over week -Lipper.

• Deckers cuts full-year forecast as demand for UGG shoes slows. Outdoor footwear and apparel manufacturer and retailer Deckers Outdoor Corp cut its full-year forecast as demand for its UGG Australia branded sheepskin shoes slows in the United States. The company's shares fell 13.7 percent in after-market trading on Thursday.

• Chinese banks back risky stock margin finance in face of regulator crackdown. Chinese banks seeking to profit from the country's stock market frenzy have bought into the recent surge in margin finance, foiling regulatory efforts to reduce debt-fueled speculation and amplifying the risk if the rally turns into a rout. Although regulators are cracking down on credit flows into the stock market, financial industry insiders say they still have not closed loopholes that allow banks to channel credit into the stock market via brokerages.

Telegraph:

• The game is up. It’s time for Greece to leave the eurozone and move on. The stand-off between Greece and the rest of the eurozone will escalate, neither side will blink and the country will default.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.25% to +.50% on average.

• Asia Ex-Japan Investment Grade CDS Index 110.0 -2.0 basis points.

• Asia Pacific Sovereign CDS Index 69.0 -.25 basis point.

• S&P 500 futures -.30%.

• NASDAQ 100 futures +.09%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AXL)/.54

• (AON)/1.86

• (CBOE)/.66

• (FLIR)/.48

• (MMC)/.66

• (MCO)/.95

• (CCJ)/.31

• (D)/.83 

Economic Releases 
8:30 am EST

• The 4Q Employment Cost Index is estimated to rise +.6% versus a +.7% gain in 3Q.

• Advance 4Q GDP is estimated to rise +3.0% versus a +5.0% gain in 3Q.

• Advance 4Q Personal Consumption is estimated to rise +4.0% versus a +3.2% gain in 3Q.

• Advance 4Q Core PCE is estimated to rise +1.1% versus a +1.4% gain in 3Q.

9:00 am EST

• ISM Milwaukee for January is estimated to rise to 58.0 versus 57.61 in December.

9:45 am EST

• Chicago Purchasing Manager for January is estimated to fall to 57.5 versus 58.3 in December.

10:00 am EST

• Final Univ. of Mich. Consumer Sentiment for January is estimated at 98.2 versus a prior estimate of 98.2.
  

Upcoming Splits

• (SMBC) 2-for-1

Other Potential Market Movers

• The Fed's Rosengren speaking, Fed's Tarullo speaking and the Eurozone Unemployment Rate call could also impact trading today.

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