Tuesday Watch

Evening Headlines 
Bloomberg:

• Charlie Hebdo To Print 3 Million Copies With Muhammad Cover. Charlie Hebdo will print 3 million copies of a special issue of the satirical magazine, depicting the Prophet Muhammad on the cover, a week after an attack at its headquarters left a third of its journalists dead. Publishers of the weekly magazine will put the copies on newsstands worldwide in 16 languages on Jan. 14. The issue will feature a cartoon of Muhammad, crying, on a green background, holding a board saying “Je suis Charlie” or “I am Charlie.” Above his image is written “All is Forgiven.”

• Chinese Car Dealers Find Days of ‘Printing Money’ Ending. China’s car dealers are in open revolt over industry practices that have slashed profits, threatening growth prospects for companies such as General Motors Co. and Volkswagen AG in the world’s biggest auto market. Retailers are banding together under the state-backed China Automobile Dealers Association to demand lower sales targets and a bigger share of profit from vehicle sales. Bayerische Motoren Werke AG’s agreement last week to pay 5.1 billion yuan ($820 million) to its dealers has emboldened distributors for VW and Toyota Motor Corp. to demand similar concessions. 

• China’s $300 Billion Errors May Mask Fund Outflows, Goldman Says. Growing error items in China’s balance of payments may reflect a pickup in hidden cash transfers from the nation and the central bank will likely favor a stable yuan to prevent outflows quickening, Goldman Sachs Group Inc. said. Net errors and omissions, an accounting fix used to plug the gap when official records of cross-border flows don’t balance, was negative by more than $300 billion since 2010, Goldman Sachs economists MK Tang and Maggie Wei wrote in a note today. That included a record $63 billion in the third quarter of 2014, a year in which yuan sentiment soured and President Xi Jinping’s anti-corruption drive widened. “Since such outflows may be harder to contain with regulations, a continuation of their recent acceleration could start posing tangible financial stability concerns,” Tang and Wei wrote in the note.

• Yen’s Top Forecaster Halts Sell Call as Oil Cuts Japan Deficit. The best forecaster on the yen says he hasn’t recommended selling the Japanese currency in a few months as lower oil prices provide solace for Japan’s deteriorating trade balance. Jens Nordvig, managing director of currency research at Nomura Holdings Inc., said the 45 percent slump in oil since the end of October will trim Japan’s trade deficit by around $500 million. The deficit was at 894 billion yen ($7.6 billion) in November, a 29th straight month of shortfall. “We’ve had a couple years where we’ve been very focused on trading the yen from the short side, but we actually haven’t been short for quite a few months,” Nordvig said in an interview today. Low “oil prices are positive for Japan’s trade balance.” 

• Japan Boosts Defense Spending to Counter China’s Island Claims. Japan will increase defense spending for a third straight year as Prime Minister Shinzo Abe seeks to counter China’s claims to remote islands in the East China Sea. The budget for the year starting April will be 4.98 trillion yen ($42 billion), up from 4.84 trillion yen in fiscal 2014, according to documents obtained by Bloomberg. Spending on defense will account for about 5 percent of the national budget, which is set to be approved by the cabinet tomorrow.

• Short Sellers Bet Korean Shipyards’ Misery to Deepen. South Korean shipbuilders, last year’s biggest stock-market losers, are the most popular target for short sellers in 2015 as falling crude hurts oil-rig demand. Bearish wagers used borrowed stock against Hyundai Mipo Dockyard Co. (010620) rose to 7.3 percent of shares outstanding on Jan. 8, the highest level on the Kospi index and up from 4.3 percent a year ago, according to data compiled by Bloomberg and Markit Group Ltd. Short interest in Daewoo Shipbuilding & Marine Engineering Co. and Hyundai Heavy Industries Co. (009540) has more than tripled in the past 12 months. 

• Draghi Faces Legal Test on Bond Buys as ECB Readies QE Plan. European Central Bank President Mario Draghi will get a legal readout tomorrow on a predecessor to the quantitative easing plan that he’s set to reveal later this month. An adviser to the EU Court of Justice will say whether the European Central Bank’s Outright Monetary Transactions program overstepped the law in a non-binding opinion that may signal whether QE must also be reined in. “If the opinion is favorable and the conditions attached are not too restrictive, it would open the way to QE by the ECB right now,” said Pierre-Henri Conac, a professor of financial-markets law at the University of Luxembourg.

• Global PC Shipments Fall 2.4% in Fourth Quarter, IDC Says. Worldwide personal-computer shipments dropped 2.4 percent in the fourth quarter as demand from businesses for new machines waned, market researcher IDC said. The decline was less than the 4.8 percent fall that IDC had projected for the quarter, the firm said today in a statement. PC sales totaled 80.8 million for the quarter, down from 82.2 million units a year earlier.

• Asian Stocks Decline as Oil Slumps, Yen Drags Japan Shares Lower. Asian stocks fell as oil at a 5 1/2 year low weighed on energy companies and a stronger yen and declines in U.S. equities dragged down Japanese shares as the market opened after a holiday. The MSCI Asia Pacific Index (MXAP) slipped 0.4 percent to 137.32 as of 9:01 a.m. in Tokyo, before markets opened in Hong Kong and China. 

• U.A.E. Sticks With Oil Output Boost Even as Prices Drop. The United Arab Emirates will stick with a plan to increase oil-production capacity to 3.5 million barrels a day in 2017 even as an oversupply pushed prices to the lowest in more than five years. “In this time of unstable oil prices, we are showing in Abu Dhabi and across the country that we remain dedicated to reach our long-term production goals,” Energy Minister Suhail Al Mazrouei said in a presentation in Abu Dhabi yesterday. “Our investments remain there.”

• Oil Extends Loss to Near $45 as U.S. Supply Seen Worsening Glut. West Texas Intermediate for February delivery decreased as much as 77 cents to $45.30 a barrel in electronic trading on the New York Mercantile Exchange and was at $45.45 at 12:57 p.m. Sydney time. 

• Fed’s Williams Says June Rate Rise ‘Reasonable’ Amid Labor Gains. Federal Reserve Bank of San Francisco President John Williams, who will vote on policy this year, said raising interest rates in June would be a close call amid “strong momentum” in the labor market and weaker wage gains. “I would expect by June that the argument pro and con for lifting off rates will be probably a close call” assuming that inflation doesn’t fall further, Williams said today in a telephone interview from his San Francisco office. “It’s a reasonable guess.”

Wall Street Journal:

• France Hunts for Attack Accomplices. Prime Minister Warns of Continued Threats After Attack on Charlie Hebdo and Other Violence. France dispatched thousands of police and troops to protect synagogues and Jewish schools as investigators searched for possible accomplices to the militants behind last week’s terror attacks and warned of more threats.

• As Oil Slips Below $50, Canada Digs In for Long Haul. Oil-Sands Operators, Seeing Long-Term Value, Aren’t Likely to Shut Off the Tap Any Time Soon. Even as oil prices settled below $50 a barrel Monday for the first time in nearly six years, those companies are unlikely to shut off the tap anytime soon thanks to those huge upfront costs, combined with long-term break-even points and lengthy production lives. Unlike shale oil, which requires constant drilling of new wells to maintain output levels, once an oil-sands site is developed it will produce tens or hundreds of thousands of barrels a day, steadily, for up to three decades.

• The Pension Sink Is Gulping Billions in Tax Raises. Remember that ‘temporary’ tax hike for California schools? Most is now going to public worker retirements.

• The Scandal of Free Speech. A year from now none but the unfeint of heart will still be with Charlie. 

Fox News:

• Paris attacks prompt fears France's Muslim 'no-go' zones incubating jihad. (video) In hundreds of French "no-go" zones  -- neighborhoods where neither tourists nor cops dare enter -- poor and alienated Muslims have intimidated the government into largely ceding authority over them, prompting fears that the kind of jihad that gave rise to last week's attack in Paris is festering unchecked.

MarketWatch.com:

• Wolverine Worldwide's(WWW) stock tumbles after downbeat profit outlook. Shares of Wolverine Worldwide, tumbled 8.9% in after-hours trade Monday, after the apparel and footwear company provided a downbeat profit outlook for 2015.

CNBC:

• Citadel beats markets with big year. In a year where many hedge funds posted unimpressive returns, Citadel, the Chicago money-management giant known for its swift movement and out-of-stock positions, generated more than 23 percent returns in its equity hedge fund and almost 18 percent in its multi-strategy flagship funds, Kensington and Wellington, according to someone who reviewed the numbers.

Zero Hedge:

• The 'Golden Age Of The Central Banker' Has Reached "The Cult Phase".

• Germany's Sinn Blasts Draghi: "Deflation Is Just A Pretext To Bailout Southern Europe". (graph)

• How Alcoa(AA) Just Smashed Earnings Expectations. (graph)

• Did The Fed Ignite The "Irresponsibility" Of US Oil Over-Supply? (graph)

• The Central Banks Still Appear To Be In Control (Or So They Think).

• When Even Bloomberg Makes Fun Of China's Stock Bubble.

Business Insider:

• This Will Be Charlie Hebdo's First Post-Attack Cover. (pic)

• MAULDIN: A Tsunami Of Change Is Coming To The Global Economy.

• Three On-Demand Taxi Startups Are Joining Forces To Take On Uber.

• RadioShack Just Got A $500 Million Lifeline.

• TOM LEE: These 8 Stocks Should Thrive When Oil Is Falling And The Dollar Is Rising.

Reuters:

• Cutting 'patient' from Fed guidance should signal hike near: Lacker. The Federal Reserve should stop talking about the need for a "patient" interest rate policy just before it thinks it will begin hiking rates, a top Fed policymaker said on Monday. Richmond Federal Bank President Jeffrey Lacker said in an interview with Reuters that the Fed's guidance in December that it would be patient with raising rates harkened back to a strategy employed in 2004.

• German anti-Islamist rally swells after attacks in France. A record 25,000 anti-Islamist protesters marched through the east German city of Dresden on Monday, many holding banners with anti-immigrant slogans, and held a minute's silence for the victims of last week's attacks in France. Chancellor Angela Merkel and other senior German politicians have called for people to stay away from rallies organised by PEGIDA, or Patriotic Europeans Against the Islamisation of the West - people who Merkel has said have "hatred in their hearts".

• United Airlines considers outsourcing jobs at 28 U.S. airports. United Airlines is assessing whether to outsource jobs at airports around the country in a cost-cutting effort that could impact some 2,000 workers. The Chicago-based carrier informed employees Monday that jobs up for review included baggage handlers and gate and customer service agents at 28 airports that are not hubs, ranging from Atlanta to Anchorage. It has yet to make any decisions.

• Nasdaq says short interest down 3.8 pct in late Dec. As of Dec. 31, short interest fell to about 8.125 billion shares, compared with 8.442 billion shares as of Dec. 15.

Liquidity crunch a catalyst for big China slowdown – analysts The mini liquidity crunch is the early warning sign of a substantial economic correction long overdue, amid rising leverage and a broken growth model, say bearish analysts.


While we want you to share, we ask you use the functions on-site rather than copy/paste. See T's & C's for details. http://www.euromoney.com/Article/3222433/Liquidity-crunch-a-catalyst-for-big-China-slowdownanalysts.html?copyrightInfo=true

Evening Recommendations 

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 120.0 +2.0 basis points.

• Asia Pacific Sovereign CDS Index 74.75 +1.0 basis point.

• S&P 500 futures +.11%.

• NASDAQ 100 futures  +.14%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (IHS)/1.55

• (KBH)/.57

• (CSX)/.49

• (LLTC)/.49

Economic Releases
9:00 am EST

• The NFIB Small Business Optimism Index for December is estimated to rise to 98.5 versus 98.1 in November. 

10:00 am EST

• The IBD/TIPP Economic Optimism Index for January is estimated to rise to 48.7 versus 48.4 in December. 

• JOLTS Job Openings for November are estimated to rise to 4850 versus 4834 in October. 

2:00 pm EST

• The Monthly Budget Statement for December is estimated at $3.0B.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Kocherlakota speaking, $21B 10Y T-Note auction, UK CPI report, US weekly retail sales reports, Needham Growth Conference, Deutsche Bank Auto Conference, BMO Energy Forum, JPMorgan Healthcare Conference and the (MNST) business update could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by consumer and retail shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 25% net long heading into the day.