Friday Watch

Evening Headlines
Bloomberg: 

• Let's Just Hope Shipping Isn't Telling the Real Story of China. (graph) Investors betting that China’s near-insatiable appetite for industrial raw materials will drive global economic growth may want to skip the shipping news. For the first time in at least a decade, combined seaborne imports of iron ore and coal -- commodities that helped fuel a manufacturing boom in the world’s second-largest economy -- are down from a year earlier. While demand next year may be a little better, slower-than-anticipated growth in 2015 has led to almost perpetual disappointment for shippers, after analysts’ predictions at the end of 2014 for a rebound proved wrong.
• No Near-Term Upside for China Stock Market, Says Lygh Hedge Fund. China’s stock market won’t see much upside during the first half of next year as the nation’s reforms of initial public offerings will spur a new supply of shares, and earnings growth will remain subdued, according to Singapore-base fund manager Lygh Capital Pte. “I am cautious about this new supply coming to the market,” Grace Lu, managing director at Lygh and portfolio manager of the GH China Century Fund, said in an interview. “Stock markets will go sideways at best over the first half,” said Lu, who previously worked at a unit of Singapore’s state-owned investment firm Temasek Holdings Pte.  
• Fosun Bonds Fall, Stock Halted After Report Chairman Guo Missing. Fosun International Ltd. bonds plunged by a record and the company suspended its shares in Hong Kong after Caixin magazine reported that billionaire Chairman Guo Guangchang had gone missing. Closely held Fosun Group, which controls Fosun International, has “lost contact” with Guo, 48, the magazine said, citing people it didn’t identify.
• Hong Kong Property on the Brink as Developers Offer Stealthy Price Cuts. Kowloon Development Co.’s Upper East project in Hong Kong’s Hung Hom area is offering a raft of rebates and hidden discounts that can reduce the cost to a buyer as much as 14 percent, and it will throw in a second mortgage too. "After 12 years of a bull market, Hong Kong property is at an inflection point," said Spencer Leung, a Hong Kong strategist at UBS Group AG. "Property developers are trying hard not to paint a picture that things are going down."  
• Won Slides This Week as Oil Damps Risk With Fed Poised to Hike. South Korea’s won headed for the biggest weekly loss since September as a slump in oil prices and an impending U.S. interest-rate increase damped risk appetite, driving up the nation’s bonds. Global investors have pulled a net $1.4 billion from South Korean shares this month and the country is set to see its first annual outflow in four years, stock exchange data show.
• China's Stocks Extend Weekly Decline Before Economic Reports. China’s benchmark stock index fell, extending losses this week, before industrial production and retail sales data this weekend. The Shanghai Composite Index slid 0.6 percent to 3,434.28 at 9:31 a.m. local time. Fosun International Ltd. the publicly traded arm of Chinese billionaire Guo Guangchang’s holding company, was suspended in Hong Kong after Caixin magazine reported that he had gone missing. The Shanghai gauge has fallen 2 percent this week after trade data signaled a deepening slowdown in the nation’s economy and sinking crude prices dragged on oil companies.  
• Asia Stocks Set for Worst Week Since September Before China Data. Asia’s benchmark stock gauge headed for its biggest weekly drop since September as investors awaited data on Chinese retail sales and industrial production over the weekend. The MSCI Asia Pacific Index was little changed at 129.75 as of 9:07 a.m. in Tokyo, on course for a 1.8 percent decline this week, a third weekly drop. The gauge is down 5.9 percent this year as a rout in commodities and slowing Chinese growth weighs on the earnings outlook for companies from Sydney to Tokyo, before a Federal Reserve decision next week on whether to raise U.S. interest rates.
• Oil Heads for Worst Week Since March as OPEC Seen Fueling Glut. Oil headed for the biggest weekly decline since March amid speculation OPEC’s decision to effectively scrap production targets will keep the market oversupplied. Futures fell as much as 0.9 percent in New York and have dropped 8.8 percent this week. Prices are down for a sixth day, the longest losing streak in almost nine months, since the Organization of Petroleum Exporting Countries chose not to curb output at its Dec. 4 meeting. Production rose to a three-year high in November, the group said in a report Thursday, as surging Iraqi volumes more than offset a pullback by Saudi Arabia. 
• Commodity Rout Surprises BHP as Global Gloom Adds to China Woe. The extent of the commodities rout that’s pushed raw material prices to 16-year-lows is more severe than anticipated and isn’t chiefly the fault of weaker growth in China, according to the head of the world’s largest mining company. Some price declines “have been a lot more dramatic than probably we thought they would be at the start of the year,” BHP Billiton Ltd. Chief Executive Officer Andrew Mackenzie told Australian Broadcasting Corp. radio in an interview broadcast Friday. “I would say it’s wrong to see a prolonged period of lower prices as entirely a product of China moving more into a services-based economy.”
• U.S. Household Wealth Fell $1.23 Trillion in Third Quarter. Americans’ wealth declined in the third quarter by the most in four years, reflecting a slump in stock prices that have since recovered. Net worth for households and non-profit groups decreased by $1.23 trillion from July through September, or 1.4 percent, from the previous three months to $85.2 trillion, the Federal Reserve said Thursday in its financial accounts report, previously known as the flow of funds report.
• Ford(F) to Invest $4.5 Billion in Electrified Vehicles by 2020. Ford Motor Co. said it’s investing $4.5 billion in electrified vehicles, responding to regulatory pressure with a bet on technologies that have struggled to attract buyers in the U.S. as fuel prices stay low. The automaker will add 13 electric cars and hybrids by 2020, rising to 40 percent of its lineup from 13 percent now, Chief Executive Officer Mark Fields said Thursday at a press conference in Dearborn, Michigan. The plans include a new Focus Electric car with fast-charge capability, Ford said.

Wall Street Journal: 

• Compromises Make Global Climate Deal More Possible. New draft shows breakthrough on emissions cuts, but developing countries remain at odds with EU, U.S. on other issues. Nations moved closer to a global climate deal that has eluded them for more than 20 years, as compromise emerged on some of the most controversial issues facing negotiators at a summit here, even as other problems remain unresolved.
• Junk Fund’s Demise Fuels Concern Over Bond Rout. Third Avenue Focused Credit Fund takes rare step, seeking an orderly liquidation as junk-bond market swoons. A firm founded by legendary vulture investor Martin Whitman is barring investor withdrawals while it liquidates its high-yield bond fund, an unusual move that highlights the severity of the monthslong junk-bond plunge that has swept Wall Street. The decision by Third Avenue Management LLC means investors in the $789 million Third Avenue Focused Credit Fund may not receive all their money back for months, if not more.
• Cheap Oil Gives Little Help to U.S. Spending. Experts expected the drop in gasoline and oil prices would jolt spending by U.S. consumers and businesses. It hasn’t turned out that way.  
• A Rash Leader in a Grave Time. Trump could bridge the divide between the elites and GOP voters. Instead, he’s deepening it.
• Call Islamic Terrorism by Its Name. Why ignoring the religious beliefs behind the threat is foolish—and dangerous.

Fox News:

• Conflicted portrait emerges of SoCal terrorists' pal, as possible charges loom. (video) The friend who allegedly supplied the Southern California jihadist couple with the guns used in last week's terror attack - and who sources said could soon be charged in connection with the case - presented himself to friends as “laid back” but seemed to be in constant personal conflict. Enrique Marquez was married, but didn’t live with his wife. He had converted to Islam but confided in a mosque worker that he wanted to become a Buddhist. He could be witty and laugh at himself, but often posted dejected missives on Facebook.

MarketWatch.com:

• 4 reasons crude-oil prices are in a nasty death spiral—again.

Zero Hedge:

• FT Shocker: EU Unveils Standing Border Force That Will Act "Even If A Government Objects".
• Credit Suisse Warns On China: "Some Companies Are Having To Borrow To Pay Staff Salaries". (graph)
• Playing Chess With Putin. “What’s it like playing chess with Obama?” asks a top aid of Russian president Vladimir Putin. Putin replies, “It’s like playing chess with a pigeon. First it knocks over all the pieces, then it shits on the board, and finally it struts around like it won.”    
• Texas Police Chief Warns Obama Of "Approaching Revolution", Urges Citizens To Arms Themselves. (video)
• This Is The Scariest Chart For Angela Merkel. (graph)
• The Next Leg Of The Junk Bond Crisis: Third Avenue "Focused Credit Fund" Liquidates, Gates Redemptions. (graph)
• The Fed's Painted Itself Into The Most Dangerous Corner In History - Why There Will Soon Be A Riot In The Casino. (graph)
• "Let's Just Hope Shipping Isn't Telling the Real Story of China". (graph)
• Brazil Faces Disastrous Downgrade Debacle: Here's What You Need To Know.
• With One Week Left Until The Fed's Rate Hike, Nobody Knows If The Fed Can Actually Do It.
• 3 Things: Recession, Retail-less, Stupidity.
• Markets 'Bounce' As Oil Margin-Call-Plunge Sparks Buying-Panic In Energy Stocks. (graph)

Business Insider:

• GOP power brokers are reportedly preparing for an 11th-hour floor fight to defeat Donald Trump.
• Lawmakers are getting ready to strike a final blow one of Obamacare's most hated provisions.
• Everything is going wrong for China's steel industry.
• Protesters aren't accepting Chicago Mayor Rahm Emanuel's apology over police shooting.
• DEUTSCHE BANK: This corner of the stock market is a 'trap'.

Evening Recommendations 

• None of note

Night Trading 

• Asian equity indices are -1.0% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 137.25 +2.25 basis points.
• Asia Pacific Sovereign CDS Index 73.0 +1.25 basis points.
• Bloomberg Emerging Markets Currency Index 69.63 -.03%.
• S&P 500 futures +.26%.
• NASDAQ 100 futures +.26%.

Morning Preview Links 

Earnings of Note 
Company/Estimate

• None of note

Economic Releases
8:30 am EST

• Advance Retail Sales MoM for November are estimated to rise +.3% versus a +.1% gain in October.
• Advance Retail Sales Ex Autos MoM for November are estimated to rise +.3% versus a +.2% gain in October.
• Retail Sales Ex Autos and Gas for November are estimated to rise +.4% versus a +.3% gain in October.
• PPI Final Demand MoM for November is estimated unch. versus a -.4% decline in October. 
• PPI Ex Food and Energy MoM for November is estimated to rise +.1% versus a -.3% decline in October.  

10:00 am EST

• Business Inventories for October are estimated to rise +.1% versus a +.3% gain in September.
• Preliminary Univ. of Mich. Consumer Sentiment for December is estimated to rise to 92.0 versus 91.3 in November. 

Upcoming Splits

• (EW) 2-for-1

Other Potential Market Movers

• The Italian Unemployment Rate, (MDT) annual meeting, (GWW) sales release and the (MET) investor call could also impact trading today.

BOTTOM LINE: Asian indices are mostly 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.