Friday Watch

Evening Headlines 
Bloomberg:

• Casualties From Swiss Shock Spread From New York to New Zealand. Casualties mounted from the Swiss currency shock as a U.S. online brokerage said client debts threatened to push it out of compliance with capital rules and a New Zealand-based dealer went out of business. FXCM Inc., a New York-based company that offers foreign exchange trading services over the Internet, said clients suffered significant losses when the Swiss National Bank’s decision to abandon the franc’s cap against the euro roiled global markets. Global Brokers NZ Ltd. said the impact on its business is forcing it to shut down. “Due to unprecedented volatility in EUR/CHF pair after the Swiss National Bank announcement this morning, clients experienced significant losses, FXCM said in a statement dated Jan. 15. That ‘‘generated negative equity balances owed to FXCM of approximately $225 million.’’

• SNB Officials Eating Words Risk Lasting Investor Indigestion. Switzerland’s central bank officials have just eaten their words, risking lingering indigestion in financial markets. Just three days after Swiss National Bank (SNBN) Vice President Jean-Pierre Danthine called the franc cap a “pillar” of monetary policy, the SNB yesterday dropped the minimum exchange rate of 1.20 per euro. The shock abandonment of the SNB’s primary policy of the past three years may now leave investors warier of taking officials’ words at face value, according to economists including Karsten Junius, chief economist at Bank J. Safra Sarasin AG in Zurich. By scrapping one tool, the franc cap, SNB President Thomas Jordan risks blunting the effects of another. “The SNB’s credibility has suffered a bit,” said Junius, a former economist at the International Monetary Fund. “Statements will get read in the future with a bit more caution. Verbal interventions will hardly work any more.” 

• Russia Seen Keeping Option of Capital Controls If Outflows Mount. Russian capital outflows probably doubled last year and the government may resort to currency restrictions if the pace doesn’t ease in 2015, according to a Bloomberg survey of economists. Capital controls are likely if private money leaves at a $240 billion annualized rate in 2015, or $60 billion this quarter, according to the median estimate of 14 economists. Outflows more than tripled to $48 billion in the fourth quarter from the previous three months, pushing last year’s total to $133.3 billion, according to the survey. That’s the most since in 2008 and compares with $61 billion in 2013. Russia last had inflows in 2007, according to central bank data.

• Ukraine Faces Default Specter as Russia Puts Neighbor on Notice. The economic pressure being applied by Russia is threatening to push Ukraine to the brink of default, putting the burden on the U.S. and its allies to keep the war-ravaged nation afloat. The risk of Russia calling a $3 billion bond payment, which Prime Minister Dmitry Medvedev this week said will “soon” be decided, is pushing the government in Kiev toward debt-restructuring talks with other creditors, according to economists from London to New York. Such a request by the Kremlin would trigger a sovereign default for Ukraine, said Regis Chatellier, a strategist at Societe Generale SA (GLE) in London. 

• This is Asia's 'Undisputed Loser' From Oil and Fiscal Cuts are Looming. The plunge in oil prices that spurred a currency crisis in Russia and endangered Venezuela’s leadership is also roiling markets in Malaysia, a net oil exporter in Southeast Asia. Economists say it’s not time to panic, yet. For one thing, Malaysia’s oil and gas products account for about 22 percent of its exports, compared with more than 70 percent for Russia’s energy. For another, Prime Minister Najib Razak is buying some fiscal breathing room by abolishing decades-old energy subsidies and introducing a 6 percent goods and services tax in April, according to Nomura Holdings Inc. That would allow Najib to keep close to his budget goals even as declining investor confidence pushed the currency this week to its lowest level since April 2009 and boosted the cost of insuring the nation’s debt.

• Asian Stocks Slide With U.S. Futures, Bonds Climb on SNB. Asian shares dropped with U.S. index futures as the market turmoil sparked by Switzerland abandoning the franc’s cap extended into a second day. Sovereign bonds rallied and gold traded near a four-month high. The MSCI Asia Pacific Index fell 1 percent by 12:15 p.m. in Tokyo, while Standard & Poor’s 500 Index futures slid 0.7 percent following a five-day drop. The franc was near parity with the euro after trading at 1.20096 per euro immediately before the Swiss National Bank announcement. Yields (GACGB10) on 10-year Australian and Japanese debt declined to records. Copper is heading for its biggest weekly loss in three years, while oil is set for the longest weekly losing streak since 1986.

• The Cruel Oil-Market Math Conspiring Against ETF Bulls. The $2.3 billion that has poured into funds that track oil since December would seem like a logical enough investment. After crude dropped about 50 percent to a five-year low, the thinking goes, prices are due for a rebound. There’s just one problem. And it’s a big problem. 

• Oil Heads for Longest Weekly Losing Streak Since 1986 Amid Glut. Oil headed for the longest run of weekly declines since March 1986 as OPEC forecast weaker demand for its crude, adding to signs that a global supply glut that spurred last year’s price collapse may persist. Futures swung between gains and losses in New York and are set for an eighth weekly drop. Demand for oil from the Organization of Petroleum Exporting Countries will average 28.8 million barrels a day, the lowest in 12 years, the group said in a report on Jan. 15. Venezuela, one of OPEC’s 12 members, is seeking to coordinate a plan to calm prices, according to President Nicolas Maduro.

• Copper Poised for Biggest Weekly Fall in Three Years After Rout. Copper headed for the biggest weekly drop in more than three years after a rout driven by lower energy costs and fears that demand will weaken in China, the world’s largest metals user. The metal fell 7.8 percent this week after tumbling to the lowest since 2009. Copper is the worst performing metal so far this year on the Bloomberg Commodity Index (BCOM), which tumbled to the lowest in 12 years this week amid the World Bank cutting its forecast for global growth, citing economic slowdown in Europe and China. Industrial production in the U.S., the second-biggest consumer, fell 0.1 percent in December from the previous month, according to a Bloomberg survey before data due Friday. 

• Judge Puts BP's(BP) Top Fine at $13.7 Billion for Gulf Oil Disaster; U.S. Sought $18 Billion. BP Plc (BP) faces a maximum fine of $13.7 billion after a U.S. judge ruled that the company dumped 3.2 million barrels of oil into the Gulf of Mexico in 2010 -- about a quarter less than the U.S. had calculated. The government’s 4.2 million barrel estimate of the spill size was rejected today by U.S. District Judge Carl Barbier, decreasing the potential maximum fine from $18 billion. BP estimated the flow at 2.45 million barrels. The maximum possible fine would still be the largest U.S. pollution penalty.

• Schlumberger Records Charge, Cuts Jobs After Oil Collapse. Schlumberger Ltd. (SLB), the world’s biggest oilfield-services company, took a $1.77 billion charge in the fourth quarter as it prepares for an “uncertain environment” after the collapse in oil prices. Net income dropped to $302 million, or 23 cents a share, from $1.66 billion, or $1.26, a year earlier, Houston- and Paris-based Schlumberger said in a statement today. The company will cut about 9,000 jobs, 7.1 percent of its workforce, as it anticipates lower spending by customers in 2015. 

Wall Street Journal:

• Belgium Antiterror Raid Leaves Two Suspects Dead. Move Disrupts Imminent Terrorist Plot, Belgian Authorities Say. Belgian police killed two people in a firefight on Thursday evening, disrupting what authorities called an imminent terrorist plot just a week after Islamist extremists set Europe on edge with massacres in Paris.

• Satellite Images Show Boko Haram Massacre in Nigeria. (pic) Amnesty International Says Aerial Photos Reveal Scale of Destruction From This Month’s Attacks.

• How Spending Sapped the Global Recovery. The Obama-Lew lobby is urging Europe to ramp up stimulus spending. Emerging markets would beg to differ.

Fox News: 

• Obama takes heat for terror approach, Gitmo releases as threat spreads. (video) The Obama administration drew fire Thursday from a growing list of frustrated lawmakers over the release of more Guantanamo detainees -- this time Yemeni terrorists to the volatile Arabian Peninsula -- as concerns mount over the spreading threat of Islamic terrorism, and the administration's refusal to publicly call out Islam's radical elements. The Department of Defense announced Wednesday that five Yemeni terror suspects held at Guantanamo Bay were released -- with four of the five heading for Oman, Yemen's neighbor. The release comes despite knowledge that one of the two assassins who carried out the Charlie Hebdo massacre in Paris traveled to Yemen in 2011, and met with the radical American cleric Anwar al-Awlaki.

CNBC:

• Why oil is in more trouble than you think. (video)

Zero Hedge:

• The Greek Bank Runs Have Begun: Two Greek Banks Request Emergency Liquidity Assistance.

• Swissnado Stuns Stocks, Bonds & Bullion Bid. (graph)

• Another Turkish Shocker: "Netanyahu And The French Terrorists Are The Same", PM Says.

• US Macro Data Surprises Are The Worst In Over 10 Years, Post-Thanksgiving. (graph)

• Ukraine President Signs Mobilization Decree: 50,000 To Be Drafted.

• 2 FX Brokers Suffer "Significant Losses" After SNB Surprise, "In Breach Of Regulatory Capital Requirements".

• Why Our Central Planners Are Breeding Failure.

Business Insider:

• Chinese President Xi Jinping Just Took His War On Corruption To A Whole New Level.

• This Chart Makes It Look Like It's All Over In Venezuela.

• Al Sharpton Calls For Emergency Meeting To Address 'Appalling' All-White Oscar Nominees. "The movie industry is like the Rocky Mountains, the higher you get, the whiter it gets," Sharpton quipped in a statement released later in the afternoon.

• Trust Is The Lynchpin Of The Capital Markets — The Swiss National Bank Just Broke It.

• Macau's Casinos Just Took Another Huge Hit.

• Intel's(INTC) Mobile Group Lost More Than $4 Billion Last Year.

Reuters:

• Greece euro exit would be 'extremely dangerous' - ECB's Nowotny. A Greek exit from the euro zone would be an "extremely dangerous" move for the country and a danger for the rest of Europe as well, European Central Bank policymaker Ewald Nowotny said. Greek leftist opposition party Syriza holds a steady lead over ruling conservatives with little over a week of campaigning left for Prime Antonis Samaras to try to close the gap before a snap election on Jan. 25. Financial markets are nervous a Syriza victory could trigger a standoff with EU/IMF lenders that results in Greece leaving the euro zone.

• Intel(INTC) forecasts disappointing revenue; shares fall. Chipmaker Intel Corp forecast revenue and gross margins for this quarter that disappointed investors, sending its shares down 2.7 percent in extended trading. 

• U.S.-based stock funds post $4.1 bln outflows in week -Lipper.

• Target's(TGT) exit from Canada to pressure commercial property market. Target Corp's abrupt decision to withdraw from Canada is troubling news for many mall owners, as the most obvious potential buyer of property assets - Wal-Mart - is expected to cherry-pick from Target's 133 locations. 

• Hedge funds, speculators face big losses on Swiss franc rally. Currency speculators and global macro hedge funds with large short positions in the Swiss franc are staring massive losses in the face after the Swiss National Bank shocked markets on Thursday by removing a three-year-old cap on the currency.

AFP:

• Ukraine warns of Russian military build-up. Ukraine on Thursday renewed accusations of a Russian military build up on its border and approved fresh troop mobilisations as a wave of violence threatened all-out conflict in the country's war-torn east. A national day of mourning was held for 13 people killed on Tuesday when a rocket exploded near a commuter bus travelling towards the Ukrainian city of Donetsk, the worst loss of civilian life since a September truce that only partially halted the violence.

Financial Times:

• Exporters fear Swiss franc ‘tsunami’. The Swiss federation of trade unions said the move would put “massive” pressure on jobs and wages among exporters, while Nick Hayek, chief executive of Swatch Group, one of Switzerland’s leading manufacturers, said: “Jordan is not only the name of the SNB president, but also of a river . . . and today’s SNB action is a tsunami — for the export industry and for tourism, and finally for the entire country.” 

• China funds bring Chaos to metals markets. Shanghai Chaos Investment Co is one of a coterie of funds exercising a growing impact on global metals markets, where the price of everything from aluminium drinks cans to lead batteries is set.

FAZ:

• Merkel Says Russia Sanctions to Remain in Force. German Chancellor Angela Merkel strongly opposes lifting sanctions against Russia, citing interview. Sanctions aren't an end in themselves and can only be lifted if the reasons for them have been eliminated. The annexation of Crimea and events in eastern Ukraine are flagrant violations of international law "shared values". Tells German critics of sanctions it must be clear you have to react when a common understanding of territorial integrity is no longer respected. Political isolation of Moscow will continue and she doesn't count on President Vladimir Putin's participation in the G-7 summit in Bavaria in June.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -1.50% to unch. on average.

• Asia Ex-Japan Investment Grade CDS Index 123.0 +4.5 basis points.

• Asia Pacific Sovereign CDS Index 75.0 -.75 basis point .

• S&P 500 futures -.75%.

• NASDAQ 100 futures -1.0%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (SCHW)/.24

• (CMA)/.77

• (GS)/4.32

• (PNC)/1.73

• (STI)/.81

• (WIT)/8.78

Economic Releases
8:30 am EST

• The CPI for December is estimated to fall -.4% versus a -.3% decline in November.

• The CPI Ex Food and Energy for December is estimated to rise +.1% versus a +.1% gain in November. 

9:15 am EST

• Industrial Production for December is estimated to fall -.1% versus a +1.3% gain in November.

• Capacity Utilization for December is estimated to fall to 79.9% versus 80.1% in November.

• Manufacturing Production for December is estimated to rise +.2% versus a +1.1% gain in November. 

10:00 am EST

• Preliminary Univ. of Mich. Consumer Sentiment for January is estimated to rise to 94.1 versus 93.6 in December.

4:00 pm EST

• Net Long-Term TIC Flows for November.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Bullard speaking, Fed's Williams speaking, Fed's Kocherlakota speaking, Eurzone Final CPI and the (CAMP) analyst day could also impact trading today.

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