Wednesday Watch

Evening Headlines
Bloomberg: 

• Emerging Markets Warned of Capital Drought as Fed Nears Liftoff. A sudden capital drought in emerging markets could undermine the fragile global expansion, World Bank economists said in a report Tuesday that questions whether the international lender’s main poverty-reduction target is achievable given the bleaker outlook. Now in its sixth year, the slowdown in developing economies is the broadest since the 1980s, World Bank economists said in a research paper released on Tuesday. While emerging nations are better prepared for shocks than they were in the 1980s and 1990s, the recent "rough patch" could signal a new era of slow growth, according to the Washington-based development bank. Even worse, a surge in financial turbulence could cause capital flows into emerging markets to dry up, the World Bank said. Net capital flows in emerging markets have been declining since last year and stalled to zero in the first half of 2015.
• East Asia Is Growing Old at a Record Pace, World Bank Says. China and other middle-income countries in east Asia are getting old before they are getting rich, requiring overhauls of health and pension systems, according to the World Bank. East Asia is home to a third of people aged 65 and over and is aging faster than any region in history, according to a report released Wednesday. Developing countries from China to Indonesia to Vietnam that have neither the wealth of Japan nor the youth of the Philippines will have to increasingly rely on people working longer, the report finds. 
• Climate Diplomats Have 940 Decisions to Make in Three Days. With three days left in their marathon negotiating sessions and 940 decisions still to be made, envoys at the United Nations climate summit are advancing toward a deal that would limit fossil fuel pollution everywhere. The talks that began Nov. 30 in Paris have drawn a record 150 world leaders and celebrities from Alec Baldwin to Arnold Schwarzenegger in support of the biggest agreement on global warming since 1997.
• Korea's Won Trades Near Two-Month Low Before BOK Reviews Policy. South Korea’s won traded near a two-month low as traders await signals from the Bank of Korea on next year’s monetary policy outlook amid the prospect of higher U.S. interest rates. Financial regulators met Wednesday to review markets before a Federal Reserve policy meeting next week, at which futures contracts show a 80 percent probability of an increase in borrowing costs. The BOK reports household lending for November at 12 p.m. in Seoul. Such debt climbed to an unprecedented level in October and is being monitored by the authority. South Korea’s central bank will keep its benchmark rate at a record low of 1.5 percent for a sixth month on Thursday, according to all 17 economists surveyed by Bloomberg. The won was little changed at 1,178.53 a dollar as of 10:17 a.m. in Seoul, data compiled by Bloomberg show. The currency fell to 1,184 earlier, the weakest since Oct. 2, and has declined 6.7 percent this year. The dollar’s 14-day relative strength index versus the won was at 63.1 on Tuesday, compared with the 70 level that signals the greenback may have climbed too fast, too soon.
• Chinese Stocks Fall for Fifth Day in Hong Kong as Yuan Weakens. Chinese stocks trading in Hong Kong fell to the lowest level since September after the release of inflation data and China’s central bank cut the yuan’s reference rate to the weakest level in four years. The Hang Seng China Enterprises Index slid for a fifth day, losing 0.9 percent to 9,575.95 at 10:13 a.m. local time, dragged down by industrial companies. China’s consumer inflation rose more than estimated while factory-gate deflation extended declines to 45 months. The yuan slipped to the lowest level against the dollar since August 2011. The Shanghai Composite Index added 0.1 percent after swinging between gains and losses.  
• Asian Stocks Head for Two-Month Low Before China Inflation Data. Asian stocks fell ahead of China inflation data, with the regional benchmark index headed for a two-month low, as the cheapest iron-ore prices on record weighed on commodity producers. The MSCI Asia Pacific Index fell 0.4 percent to 130.14 as of 9:01 a.m. in Tokyo, poised for the lowest close since Oct. 6. The gauge extended its 2015 drop to 5.6 percent as oil lingered near its lowest level since 2009 and the decline in iron ore compounded concerns about slowing growth in China.
• Don't Let China Iron Ore Buying Fool You: Xie Says Demand Is Bad. Don’t be fooled into thinking China’s surging iron ore imports are a proxy for the health of demand in the biggest user. They’re masking an industry in trouble, according to the analyst who accurately forecast the price slump below $40 a metric ton. “It’s totally wrong to just look at the China import number to measure demand strength -- a lot of people were talking about that, I saw -- that’s a market mistake,” said Andy Xie, an independent economist who predicted in February that iron ore prices would sink into the $30s this year. “There’s no aggregate increase in demand even if China is importing more because it’s just translating” into steel exports, he said.
• Troy Carter on Possible Tech Bubble: Winter Always Comes. (video)

Wall Street Journal:

• Iran, U.S. Seek Deal to Send Enriched Uranium to Kazakhstan. The plan could ease sanctions relief for Tehran. The U.S. is helping Iran with an arrangement to send part of its nuclear fuel stockpile to the Central Asian nation of Kazakhstan, a step that would ease swift sanctions relief for Tehran, according to people involved in the discussions.
• House Votes to Restrict Travel by Foreigners Who Visited Iraq, Syria. Measure passed 407-19; expected to be wrapped into spending bill and become law. The House overwhelmingly approved legislation Tuesday to limit certain travel privileges granted to citizens of 38 friendly foreign countries, the first step in what lawmakers expect will be a larger response to an evolving terrorist threat.
• Dow Chemical(DOW) and DuPont(DD) Are in Advanced Talks to Merge. Deal could be announced in coming days and be precursor to three-way split. Dow Chemical Co. and DuPont Co. are in advanced talks to merge, in a tie-up that would cap off the strongest year ever for takeovers and would come amid a surge of deal activity in the agriculture industry.
• Bernie’s Climate Honesty. The Senator’s energy plan shows where Democrats want to go. Bernie Sanders has no chance to win the Democratic presidential nomination, but the breathtaking details of the climate-change plan he released this week are still worth noting. They show where the Democratic Party is headed.

Fox News:

• 'Spinning up as we speak': Email shows Pentagon was ready to roll as Benghazi attack occurred. (video) As the attack on the U.S. consulate in Benghazi was unfolding, a high-ranking Pentagon official urgently messaged Secretary of State Hillary Clinton’s top deputies to offer military help, according to an email obtained by Judicial Watch. The revelation appears to contradict testimony Defense Secretary Leon Panetta gave lawmakers in 2013, when he said there was no time to get forces to the scene in Libya, where four Americans were killed, including U.S. Ambassador to Libya Christopher Stevens.
• Investigators looking into possibility Tashfeen Malik was ‘an operative’. (video) Officials investigating the San Bernardino, Calif. terror attack are looking very strongly into the possibility that Tashfeen Mailk, the wife accused in the shootings, was “an operative,” an official told Fox News on Tuesday. A law enforcement official said authorities are certain Malik was radicalized before she came to the United States, and are looking very closely at her family overseas as also being radicalized.

CNBC:

• Yahoo(YHOO) will not move forward with Alibaba spinoff: Sources. (video) Yahoo will not move forward with a spinoff of its stake in Alibaba, and instead examine a deal involving its core business, sources told CNBC on Tuesday. 
• Oil-producing states clobbered by fall in price of crude. (video) Though it ranks fifth among oil-producing states, nearly 90 cents of every dollar of Alaska's operating revenue comes from the oil industry. It's not alone in taking a hit.

Zero Hedge:

• China Fixes Yuan At Weakest Since August 2011 After 45th Consecutive Month Of Deflation. (graph)
• Oil Producer's Currencies Are Collapsing As Brent Breaks Below $40. (graph)
• Meet The Peer 2 Peer Lending Website That Funded The San Bernardino Shooters.
• Here Are HSBC's Top Risks For 2016.
• Jeff Gundlach's Most Bearish Presentation Yet: The Complete Slide Pack.
• "It Finally Happened": Millennials Surpass Boomers As Largest Share Of US Voters. (graph)
• Did Merrill Lynch Just Cancel Christmas?
• What The Charts Say: "Things Are Far From Well". (graph)
• It Will Take 10 Years To Recapture Mosul From ISIS, US Army Officer Says.
• Crude Pops As API Reports Surprise Inventory Draw After 10 Weeks Of Builds. (graph)
• Overflowing Global Oil Storage Leads To Soaring Supertanker Rates. (graph)
• Why The Plunge In Manufacturing ISM Matters. (graph)
• The Largest US Pipeline Operator Is Plunging After It Just Cut Its Dividend By 74%. (graph)
• Trannies Turmoil Amid Crude Chaos As Credit Crashes To 6 Year Lows. (graph)

Business Insider:

• The smart money is getting out of real estate.
• Parents in China aren't letting their kids go outside. (video)
• Smith & Wesson(SWHC) just reported another great quarter for gun sales.
• Donald Trump fires warning shot at Republicans attacking his plan to stop Muslims from entering the US. "A new poll indicates that 68% of my supporters would vote for me if I departed the GOP & ran as an independent," Trump wrote on Twitter and Facebook. The implied threat comes as a wide swath of Republicans, state-party chairs, and others have criticized his new proposal to suspend all Muslimtravel to the US, including immigrants and tourists.
• ISIS is successfully recruiting foreigners into Syria and Iraq.

Reuters:

• Oil's plunge hammers U.S. funds, humbles even savviest investors. The plunging price of crude oil is causing pain at every kind of U.S. mutual fund this year, humbling even the industry's best portfolio managers as their mistimed bets in the energy sector continue to cause losses for investors. The $11 billion Energy Select Sector SPDR ETF, used by mutual funds and hedge funds alike, is off 10 percent in the past month.

Financial Times: 

• Oil price plunge revives fears of dividend cuts. Not for the first time this year, executives at the world’s biggest oil companies are wondering how much worse the news can get. This week crude prices slid to their lowest levels since the 2008-09 financial crisis — triggered by a rancorous Opec meeting that failed to tackle a global supply glut. The fall has revived investor fears that dividends could be shelved or cut.

Telegraph: 

• The junk bond market's early warning signs are all flashing red. Bankers report that investors are now turning their noses up at those securities issued by the very riskiest triple-C-rated companies. 

Evening Recommendations 

• None of note

Night Trading 

• Asian equity indices are -1.0% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 133.75 +1.25 basis points.
• Asia Pacific Sovereign CDS Index 71.50 +1.5 basis points.
• Bloomberg Emerging Markets Currency Index 69.87 -.02%.
• S&P 500 futures +.24%.
• NASDAQ 100 futures +.21%.

Morning Preview Links 

Earnings of Note 
Company/Estimate

• (KFY)/.52
• (LULU)/.37
• (VRA)/.20
• (MW)/.50 

Economic Releases
10:00 am EST

• Wholesale Inventories for October are estimated to rise +.2% versus a +.5% gain in September.
• Wholesale Sales for October are estimated to rise +.2% versus a +.5% gain in September. 

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +730,000 barrels versus a +1,177,000 barrel build the prior week. Gasoline supplies are estimated to rise by +1,790,000 barrels versus a +135,000 barrel gain the prior week. Distillate inventories are estimated to rise by +1,770,000 barrels versus a +3,051,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise +.48% versus a +2.5% gain the prior week.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Australia Employment report, New Zealand Central Bank decision, USDA Wasde Crop report, $21B 10Y T-Note auction, weekly MBA mortgage applications report, BofA Merrill Paper/Packaging/Builders conference, (TSO) analyst day, (NUVA) investor day and (FSLR) 2016 Financial Guidance 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 mixed. The Portfolio is 50% net long heading into the day.