Stocks Slightly Lower into Final Hour on China Trade Deal Concerns, Profit-Taking, Technical Selling, Airline/Defense Sector Weakness

 Broad Equity Market Tone:

• Advance/Decline Line: Modestly Lower
  

• Sector Performance: Mixed
  

• Volume: Above Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 13.2 +3.1%

• Euro/Yen Carry Return Index 124.76 -.08%

• Emerging Markets Currency Volatility(VXY) 7.21 -.55%

• S&P 500 Implied Correlation 43.91 +3.37%

• ISE Sentiment Index 61.0 -24
  

• Total Put/Call 1.19 +17.8%

• NYSE Arms .49 -57.8%

Credit Investor Angst:

• North American Investment Grade CDS Index 52.85 +.36%
  

• America Energy Sector High-Yield CDS Index 585.0 +1.49%

• European Financial Sector CDS Index 58.95 -1.37%

• Italian/German 10Y Yld Spread 150.25 -4.5 basis points
  

• Asia Ex-Japan Investment Grade CDS Index 65.86 +.77%
  

• Emerging Market CDS Index 203.95 -.91%
  

• iBoxx Offshore RMB China Corporate High Yield Index 167.75 +.01%

• 2-Year Swap Spread -1.75 -.75 basis point

• TED Spread 34.0 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -11.75 -2.5 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 65.51 -.18%
• 3-Month T-Bill Yield 1.56% +1.0 basis point

• Yield Curve .17 unch.

• China Iron Ore Spot 85.13 USD/Metric Tonne +3.05%

• Citi US Economic Surprise Index -2.0 -.9 basis point

• Citi Eurozone Economic Surprise Index -15.50 +.4 point

• Citi Emerging Markets Economic Surprise Index -27.0 -.1 basis point

• 10-Year TIPS Spread 1.64 +2.0 basis points
• 19.3% chance of Fed rate cut at Jan. 29th meeting, 31.1% chance of cut at March 18th meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +77 open in Japan 
• China A50 Futures: Indicating +19 open in China

• DAX Futures: Indicating +34 open in Germany

Portfolio:

• Slightly Higher: On gains in my biotech/industrial sector longs and index hedges

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 100% Net Long

Thursday Watch

Evening Headlines

Bloomberg:      

• U.S.-China Trade Deal Inches Ahead, Shadowed by Failure Risk.

• Trump Expected to Sign Hong Kong Bill Despite China Threats.     

• China Risks Hurting Itself by Hitting U.S. Over Hong Kong Bill.  

• Singapore Sees Economic Recovery in 2020 as Growth Rebounds.

• LVMH and Tiffany Enter Talks After LVMH Boosts Offer.

• U.S. Stock Futures Slip on Hong Kong Bill Concern. American equity futures dipped and stocks in Asia opened with a cautious tone after support from the U.S. Congress for Hong Kong protesters set up the potential for further confrontation with China as investors await a trade deal. The yen, gold and Treasuries edged higher. S&P 500 futures fell as a person familiar with the matter said President Donald Trump is expected to sign the bill. Japanese and Australian shares slipped along with those in South Korea. U.S. shares dropped earlier after Reuters said that a pact between the two countries may be delayed. The developments came after China threatened to retaliate for the Senate’s passage of a bill that sought to support Hong Kong’s autonomy from Beijing. Japan’s Topix index slid 0.2% as of 9:05 a.m. in Tokyo. Futures on the S&P 500 Index lost 0.2%. The underlying gauge fell 0.4% on Wednesday. South Korea’s Kospi index dipped 0.2%. Australia’s S&P/ASX 200 Index slid 0.5%.    

• Five Things You Need to Know to Start Your Day.  

• Fed Frets Over Risk, Talks Inch Ahead, Special Report: Eco Day.

• OPEC’s Flaring Political Crises Add New Risk for Oil Supplies.

• Rich People Say Politics Are Spurring Them to Donate More Money.  

• Fed Fretted About Economic Risk While Shifting From Cuts to Hold.

Wall Street Journal:

• Amazon(AMZN) Has Become America’s CEO Factory.

• Progressives Ambush the Salvation Army.

• The Impeachment Kangaroo. 

• Best Tech Gifts 2019 

• Buttigieg, Health Care in Spotlight at Democratic Debate.

• Trump Blames Beijing for Lagging Trade Talks.

• Google(GOOG) to Restrict Political Ad Targeting on Its Platforms.

• Trump to Convene Meeting on Vaping.

• UPS(UPS) to Use Sensors That Can Track Medical Packages at All Times.

Fox News:

• Impeachment hearing produced this 'real bombshell,' Mark Meadows says.

• Matt Lauer, NBC's 'toxic culture' cloud Dem debate.

MarketWatch.com:    

• Trump says he’s ‘looking’ at exempting Apple(AAPL) from China tariffs.

CNBC:

• Congress passes Hong Kong rights bill as Trump tries to strike China trade deal.

• Apple’s(AAPL) Tim Cook and President Trump toured a Texas computer factory to tout US manufacturing.

• Markets more fearful about trade war, but still see chance for phase one deal and tariff rollback.

• Tesla(TSLA) and Uber draw scrutiny at Senate hearing on self-driving cars: ‘That’s not safe!’.

• Target(TGT) soars 14% on earnings—Jim Cramer and other pros on what to watch now.

• PayPal(PYPL) is buying deal-finding service Honey for $4 billion, its biggest acquisition ever.

• Stocks making the biggest moves after hours: Tiffany & Co., L Brands, Uber & more.

Zero Hedge:

• Futures Slide After House Joins Senate In Landslide Vote Backing Hong Kong Protesters; Trump Expected To Sign Bill.

• Leaked Ukrainian Indictment Claims $7.4 Billion Obama-Linked Laundering, Puts Biden Group Take At $16.5 Million.

• Uber To Record Audio During Rides Amid Spate Of Sexual Assaults.

• Governor Of Illinois, Home Of Nation's Worst Fiscal Crisis, Slams Door On Pension Reform.

• Is This What's Behind Pete Buttigieg's Tremendous Ascent In The Polls.

• Stocks & Bond Yields Tumble As China Trade Deal Hope Fades.

Night Trading 

• Asian equity indices are -1.25% to -.5% on average.

• Asia Ex-Japan Investment Grade CDS Index 66.0 +1.25 basis points.

• China Sovereign CDS 41.75 +3.0 basis points.

• Bloomberg Emerging Markets Currency Index  65.50 -.05%.

• FTSE 100 futures -.43%.

• S&P 500 futures -.26%.

• NASDAQ 100 futures -.32%.

Morning Preview Links

Earnings of Note 
Company/Estimate

Before the Open:

• (PLAN)/-.13

• (BJ)/.40

• (M)/-.01

After the Close:

• (GPS)/.51

• (INTU)/.25

• (JWN)/.64

• (POST)/1.05

• (ROST)/.98(SCVL)/.89

• (SPLK)/.55

• (WSM)/1.02

Economic Releases
8:30 am EST

• Philly Fed Business Outlook Index for Nov. is estimated to rise to 6.0 versus 5.6 in Oct.

• Initial Jobless Claims for last week are estimated to fall to 218K versus 225K the prior week.

• Continuing Claims are estimated at 1683K versus 1683K prior.

10:00 am EST

• The Leading Index for Oct. is estimated to fall -.2% versus a -.1% decline in Sept.

• Existing Home Sales for Oct. is estimated to rise to 5.49M versus 5.38M in Sept.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Japan CPI report, Bloomberg Economic Expectations Index for Nov., weekly Bloomberg Consumer Comfort index, weekly EIA natural gas inventory report, Cowen Chemicals/Metals/Mining Summit, Canaccord Medical/Tech/Diagnostics Forum and the (ENR) investor day could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by technology and industrial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Lower into Final Hour on China Trade Deal Concerns, Profit-Taking, Technical Selling, Transport/Retail Sector Weakness

 Broad Equity Market Tone:

• Advance/Decline Line: Modestly Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Above Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 13.2 +2.7%

• Euro/Yen Carry Return Index 124.83 unch.

• Emerging Markets Currency Volatility(VXY) 7.23 +.84%

• S&P 500 Implied Correlation 43.42 -1.3%

• ISE Sentiment Index 85.0 -10
  

• Total Put/Call 1.02 -5.6%

• NYSE Arms .87 -34.6%

Credit Investor Angst:

• North American Investment Grade CDS Index 52.98 +1.99%
  

• America Energy Sector High-Yield CDS Index 576.0 +4.78%

• European Financial Sector CDS Index 59.77 +1.04%

• Italian/German 10Y Yld Spread 154.75 -3.75 basis points
  

• Asia Ex-Japan Investment Grade CDS Index 65.50 +2.3%
  

• Emerging Market CDS Index 205.47 +1.03%
  

• iBoxx Offshore RMB China Corporate High Yield Index 167.73 -.09%

• 2-Year Swap Spread -1.0 unch.

• TED Spread 34.0 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -13.25 -1.0 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 65.51 -.18%
• 3-Month T-Bill Yield 1.56% +1.0 basis point

• Yield Curve .17 -2.0 basis points

• China Iron Ore Spot 82.90 USD/Metric Tonne -1.05%

• Citi US Economic Surprise Index -1.1 +.3 basis point

• Citi Eurozone Economic Surprise Index -15.90 +.4 point

• Citi Emerging Markets Economic Surprise Index -26.90 +.4 basis point

• 10-Year TIPS Spread 1.62 -2.0 basis points
• 22.9% chance of Fed rate cut at Jan. 29th meeting, 40.1% chance of cut at March 18th meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -18 open in Japan 
• China A50 Futures: Indicating -35 open in China

• DAX Futures: Indicating -29 open in Germany

Portfolio:

• Slightly Higher: On gains in my biotech sector longs and index hedges

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 100% Net Long