Tuesday Watch

Evening Headlines 
Bloomberg:

• Shanghai Glut Rises With Tallest Tower: Real Estate. When completed in 2015, the Shanghai Tower will be China’s tallest building. The 632-meter (2,074-feet) skyscraper will also deepen a glut of offices in the city, putting pressure on rents. The project, in the Lujiazui financial district, will add 220,000 square meters (2.4 million square feet) of office space, or more than 10 percent of the new supply forecast for the city in 2015, according to RET Property Consultancy Ltd. About 2 million square meters of grade-A offices will be added between 2014 and 2015, more than double the supply in the previous two years, according to broker Savills Plc. 

• North Korea Marking Kim’s Death Offers Post-Purge Insight. North Korean leader Kim Jong Un is set to commemorate the death of his father Kim Jong Il, an event that may give insight into the country’s new power lineup after the execution of his uncle and deputy for treason. The ouster of Jang Song Thaek came two years after Kim Jong Un inherited power from his father who died of a heart attack in December 2011. Believed to be about 30, the young leader has purged a series of senior officials, including Jang and former general chief staff Ri Yong Ho, since taking over the 24-million nation and its 1.2-million-strong army. North Korean troops rallied yesterday in Pyongyang, pledging to “become human bullets and bombs” protecting Kim Jong Un, the official Korean Central News Agency reported.

• InterDigital(IDCC) Says China Made Threats Over Patent Dispute. InterDigital Inc. (IDCC) Chief Executive Officer William Merritt said the Chinese government is threatening his company over its bid to collect patent royalties from phonemaker Huawei Technologies Co. China’s antitrust agency, the National Development and Reform Commission, said it “couldn’t guarantee the safety of people” sent on behalf of the CEO or the company’s U.S. lawyers to a meeting scheduled for later this week, Merritt said in a telephone interview. 

• China Swaps Climb Toward Six-Month High on Rate Liberalization. China’s one-year interest-rate swaps rose toward a six-month high on bets the nation’s move to free up borrowing costs will make funding more expensive. The People’s Bank of China said the price of money will settle at a relatively high level following rate liberalization because of large demand, Caijing reported yesterday, citing an interview with Governor Zhou Xiaochuan on Dec. 6. Raising caps on savers’ returns would be a key reform after the PBOC ended a floor on borrowing costs in July, according to Andy Ji, a foreign-exchange strategist at Commonwealth Bank of Australia.  

• China’s Stocks Fall for Sixth Day as Consumer Companies Decline. China’s stocks fell, sending the benchmark index towards a sixth day of losses, led by consumer companies reliant on economic growth. Qingdao Haier Co. and Gree Electric Appliances Inc. paced losses for consumer-discretionary companies with declines of more than 3 percent. Property developers China Vanke Co. and Gemdale Corp. retreated at least 1 percent. Tasly Pharmaceutical Group Co., a traditional Chinese medicine company, climbed 3 percent as drugmakers advanced. The Shanghai Composite Index (SHCOMP) slipped 0.6 percent to 2,148.06 at the 11:30 a.m. break. The measure, which is heading for its longest losing streak since June, fell the most in a month yesterday after a policy conference ended without announcing economic growth targets and a manufacturing index from HSBC Holdings Plc and Markit Economics unexpectedly slid. China’s one-month Shanghai Interbank Offered Rate rose the most in seven weeks today, surging 68 basis points to 6.2350 percent.

• Asian Stocks Rise as Index Rebounds From Three-Month Low. Asian stocks rose, with the regional benchmark index rebounding from a three-month low, as investors await the outcome of a Federal Reserve meeting after reports showed manufacturing growth accelerated in Europe and the U.S. Honda Motor Co. (7267), a Japanese carmaker that gets 80 percent of sales abroad, climbed 1.6 percent. Dai-ichi Life Insurance Co. (8750) rose 2.4 percent in Tokyo after Barclays Plc advised buying shares of the insurer. Daewoo Engineering & Construction Co. (047040) slumped 8.7 percent after South Korea’s financial services regulator began inspecting the Seoul-based engineering firm’s accounting processes. The MSCI Asia Pacific Index gained 0.5 percent to 137.72 as of 11:13 a.m. in Hong Kong, with nine of the 10 industry groups on the gauge rising.

• Rebar Swings as Investors Weigh Lower Output, Iron Ore Prices. Steel reinforcement-bar futures in Shanghai swung between gains and losses as a decline in iron ore prices countered output cuts from the nation’s steel mills. Rebar for May delivery on the Shanghai Futures Exchange was little changed at 3,672 yuan ($605) a metric ton at 10:15 a.m. local time, after gaining 0.4 percent and dropping 0.1 percent. The contract lost 0.7 percent last week, the first drop in four weeks.

• Budget Deal Lauded by Lawmakers Belies U.S. Fiscal Rigors. Members of Congress are congratulating themselves on a budget accord set to win final passage this week. Business leaders aren’t celebrating, saying the deal leaves too much unfinished business. The budget plan doesn’t extend unemployment insurance for the chronically jobless. It doesn’t continue more than 50 tax breaks that will lapse on Dec. 31 including the research and development tax credit used by companies such as Intel Corp. (INTC). It won’t prevent the next debt limit fight after borrowing authority is set to lapse in February. And it does little to fix a broken process that hasn’t produced a formal budget in four years and has led the government to be funded primarily through stopgap spending bills since 2011.

• 'U.S. Banks Face New Stress-Test Hurdle as Fed, Firm Data at Odds. U.S. banks seeking regulatory approval to boost payouts to shareholders will face a new hurdle next year as the Federal Reserve begins making its own projections for lenders’ balance sheets in annual stress tests. The Fed, using its own model for how banks will fare in an economic slump, may project lower capital ratios for the nation’s largest lenders than what firms calculated, according to a letter issued today by the central bank. That’s because Fed estimates will rely on historical data showing industry assets rose in the last three recessions. In past tests, the examiners used bank estimates that typically predicted a drop in asset balances, according to the letter.

Wall Street Journal: 

• China's Sprawling Cities Bet Their Future on Getting Even Bigger. Local Governments Approve Steps Such as Cutting Down Hills to Open New Space.

• Judge Deals Blow to NSA Phone Spying. Says Program Is 'Almost Certainly' Unconstitutional. A federal judge ruled Monday that the National Security Agency's collection of phone records "almost certainly" violates the Constitution, setting up a larger legal battle over long-secret counterterrorism programs. U.S. District Judge Richard Leon's sharply worded opinion labeled as "almost Orwellian" the NSA's bulk phone-surveillance program, one of several shots the judge took at the spying and its legal justifications.

• CFTC Is Poised to Expand Its Reach Overseas. U.S. Agency Moving to Impose Swaps Rules on Foreign Financial Firms.

• Republicans Gird for Debt-Ceiling Fight. Budget Deal Nearly Done, Focus Turns to Next Flashpoint.

• Tech Firms Push to Control Web's Pipes. Google(GOOG), Facebook(FB) Raise Tensions With Telecoms in Power Struggle for Internet's Backbone.

Fox News:

• Small businesses claim U.S. government stealing their ideas. "They stole all my stuff and used taxpayer money to do it,"  John Hnatio, a Maryland small business owner, says of the U.S. government. Hnatio claims the government has put his company, FoodquestTQ, nearly out of business by stealing his firm's software that was designed to be licensed to the Food and Drug Administration to monitor food safety. The FDA "took our ideas, plagiarized my doctoral dissertation on which a patent was based, and then they infringed on our patent. The result was that it decimated our business," he adds.

MarketWatch.com:

• Obama won’t negotiate over debt ceiling, White House says.

CNBC: 

• Boeing(BA) announces $10 billion share buyback, boosts dividend. Boeing authorized a $10 billion share buyback, and said it would raise its dividend by 50 percent to 73 cents a share, the company said Monday. Shares jumped 1.83 percent in the after-hour trade after the announcement.

• Feds probe JPMorgan(JPM) interference in Madoff case. U.S. authorities are investigating whether JPMorgan Chase tried to impede their investigation of the Bernard Madoff Ponzi scheme, CNBC has learned. The bank is in the final stages of negotiating a $2 billion settlement involving a variety of allegations of misconduct in its role as Madoff's primary banker, according to sources. But before the settlement talks took hold in recent weeks, the bank was aggressively fighting regulators' requests for information.

• Is a 'panic taper' the real risk to markets? Markets have been obsessed with the timing of the dreaded 'taper' for most of 2013, but according to Wells Capital's Jim Paulsen, the real focus shouldn't be on timing, but on whether the Fed will conduct a controlled taper or a 'panic taper.'

Zero Hedge:

• VIX Up & Stocks Up As 3rd Hindenburg Omen Appears. (graph)

• 2014, A Bull Year? Of Course...But Maybe... (graph)

• Camden, New Jersey: One Of Hundreds Of U.S. Cities That Are Turning Into Rotting, Decaying Hellholes.

• Bitcoin Tumbles After PBOC Rumors Confirmed. (graph)

• 'Pacifist' Japan Launches "No Guts But All The War Spending Glory" Military Plan.

• Chart Of The Day: This Is What "Generational Theft" Looks Like. (graph)

NY Times: 

• Glaxo(GSK) Says It Will Stop Paying Doctors to Promote Drugs. The British drug maker GlaxoSmithKline will no longer pay doctors to promote its products and will stop tying compensation of sales representatives to the number of prescriptions doctors write, its chief executive said Monday, effectively ending two common industry practices that critics have long assailed as troublesome conflicts of interest.

• U.S. Oil Production Projected to Surge, Leading to Lower Prices at Gas Pump. Domestic oil production will continue to soar for years to come, the Energy Department predicted on Monday, scaling to levels not seen in nearly half a century by 2016.

The Blaze:

• Washington Post Releases 10 ‘Biggest Pinocchios’ of the Year…Guess How Many Belong to Obama. President Barack Obama netted three of the 10 “biggest Pinocchios of 2013” as judged by The Washington Post’s Fact Checker, including the assertion that “If you like your health care, you can keep it.” The other misleading statements from the president were over the Benghazi terrorist attack and the sequester.

Reuters:

• Australia sees 2013/14 budget deficit ballooning to A$47 bln. Australia's government forecast its budget deficit would swell to A$47 billion ($42 billion) in the year to June as a slowdown in mining investment saps tax revenues and other parts of the economy struggle to pick up the slack. The government now expects tepid gross domestic product growth of 2.5 percent persisting through 2014/15, a downgrade from forecasts of 3.0 percent just four months ago.

Telegraph:

• Bank of America(BAC) advises China default contracts to hedge debt storm. Chinese bond yields have already risen to the highest in a decade yet markets remain “complacent” about the implications. Bank of America has advised clients to take out default insurance against Chinese debt, warning that monetary tightening by China’s central bank risks setting off a bout of serious credit stress in 2014. Bin Yao, the bank’s credit strategist in Asia, said Chinese bond yields have already risen to the highest in a decade as the authorities seek to rein in rampant growth of the M2 money supply and excess credit, yet markets remain “complacent” about the implications. He recommends buying credit default swaps (CDS) on five-year Chinese debt as the easiest way to “hedge the China tail risk”. These contracts spiked to 266 after the Lehman crisis and again to 206 during the ‘hard-landing scare’ of late 2011. They have since settled down to stable levels, trading this week near 66. 

• Fresh recession risk in France threatens political crisis. The threat of recession is a major upset for President François Hollande, who has talked up recovery and confidently declared the crisis over. 

Sankei:

• Japan PM Abe's Cabinet Support Drops 9.3 Percentage Points to 47.4%. Prime Minister Shinzo Abe's cabinet support rate in December dropped 9.3 ppts to 47.4% from a month earlier, according to a survey conducted by Sankei and Fuji News Network Dec. 14-15.

People's Daily:

• Hebei to Cut Steel Capacity Even If It Hurts GDP. The northern Chinese province of Hebei will ensure the task of cutting steel overcapacity even if the province has to "sacrifice" GDP growth, People's Daily reports on front page, citing Zhou Benshun, the provincial party secretary, as saying.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.25% to +.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 128.5 -.5 basis point.

• Asia Pacific Sovereign CDS Index 101.50 -.5 basis point. 

• FTSE-100 futures -.10%.

• S&P 500 futures -.03%.

• NASDAQ 100 futures unch.

Morning Preview Links

Earnings of Note
Company/Estimate

• (FDS)/1.22

• (SAFM)/2.19

• (PAY)/.26

• (JBL)/.54

• (CTB)/.71

Economic Releases
 8:30 am EST

• The Consumer Price Index for November is estimated to rise +.1% versus a -.1% decline in October.

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

• The 3Q Current Account Deficit is estimated at -$100.2B versus -$98.9B in 2Q.

10:00 am EST

• The NAHB Housing Market Index for December is estimated to rise to 55.0 versus 54.0 in November.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Eurozone Inflation data, China Housing Price data, Germany ZEW Index, $32B 2Y T-Note auction, weekly retail sales reports, (AGCO) analyst meeting, (WY) investor meeting and the (HON) 2014 Outlook could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

Stocks Rising into Final Hour on Diminished Global Growth Fears, Stable Long-Term Rates, Short-Covering, Tech/Energy Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Almost Every Sector Rising
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 15.88 +.76%

• Euro/Yen Carry Return Index 147.81 -.10%

• Emerging Markets Currency Volatility(VXY) 9.07 -.11%

• S&P 500 Implied Correlation 53.15 -.37%

• ISE Sentiment Index 199.0 +53.08%

• Total Put/Call .80 -5.88%

• NYSE Arms .75 -37.48% 

Credit Investor Angst:

• North American Investment Grade CDS Index 69.30 -.95%

• European Financial Sector CDS Index 95.63 -1.61%

• Western Europe Sovereign Debt CDS Index 57.65 +2.28%

• Emerging Market CDS Index 275.64 -.56%

• 2-Year Swap Spread 9.5 -.75 basis point

• TED Spread 18.25 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap .75 -.25 basis point

Economic Gauges:

• 3-Month T-Bill Yield .06% unch.

• Yield Curve 255.0 +1.0 basis point

• China Import Iron Ore Spot $134.90/Metric Tonne -.81%
  

• Citi US Economic Surprise Index 35.40 +3.3 points

• Citi Emerging Markets Economic Surprise Index -15.3 -.3 point

• 10-Year TIPS Spread 2.18 +2 basis points

Overseas Futures:

• Nikkei Futures: Indicating +307 open in Japan

• DAX Futures: Indicating -5 open in Germany

Portfolio: 

• Slightly Higher: On gains in my biotech/tech/retail/medical sector longs

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

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg: 

• EU Banks Shrink Assets by $1.1 Trillion as Capital Ratios Rise. European Union banks have shed more than $1.1 trillion of assets since the end of 2011 in a shift away from risky investments such as asset-backed debt as regulators push lenders to shore up their balance sheets. Lenders reduced assets weighted for risk by 817 billion euros ($1.1 trillion) between December 2011 and June 2013, the European Banking Authority, the bloc’s top banking regulator, said in a report today. Banks’ core Tier 1 capital ratios, a measure of how well they can absorb losses, rose to 11.7 percent from 10 percent over the time period. The quality of EU retail and corporate debt on banks’ books has worsened since 2011, during a period of government cutbacks and an economic contraction of 0.4 percent in 2012. Defaulted assets as a percentage of total holdings rose to 3.8 percent from 3 percent overall, the EBA said, with private companies hitting a bad debt ratio of 6.9 percent.

• Draghi Says European Bank Resolution Plan May Be Too Complex. European Central Bank President Mario Draghi criticized plans by euro-area governments on how to deal with failing banks, saying current proposals might be too complicated to work properly. “I am concerned that decision-making may become overly complex and financing arrangements may not be adequate,” Draghi said during a hearing at the European Parliament in Brussels today. “We should not create a Single Resolution Mechanism that is single in name only.”

• European Stocks Rise Most in Two Months on Manufacturing. European stocks climbed the most in two months after a gauge of manufacturing in the euro area rose more than forecast and as investors awaited a Federal Reserve meeting starting tomorrow to gauge the timing of stimulus cuts. Aggreko Plc (AGK) rallied the most since March after saying net debt will decline. Deutsche Telekom AG advanced 3.8 percent after a report said Sprint Corp. is considering a bid for T-Mobile US Inc. Moncler SpA surged 47 percent on the first trading day for the Italian luxury skiwear maker. UBM Plc (UBM) fell 3.7 percent after Kepler Cheuvreux said its 2014 margin forecast for the events business fell below some analysts’ estimates. The Stoxx Europe 600 Index advanced 1.3 percent to 313.64 at the close of trading in London.    

• Euro Increases as Manufacturing Expands; Dollar Falls Before Fed. The euro rose 0.1 percent to $1.3759 at 2:07 p.m. New York time. The 17-nation common currency slipped 0.1 percent to 141.69 yen, while the dollar dropped 0.2 percent to 102.98 yen after rising to 103.92 yen on Dec. 13, the strongest level since October 2008.

• China Money Rates Climb as PBOC Predicts Higher Borrowing Costs. China’s benchmark money-market rate rose from near a one-month low on concern demand for cash will increase as year-end approaches and as the central bank forecast market reforms will lead to higher borrowing costs. The seven-day repo rate, a gauge of funding availability in the banking system, increased 14 basis points, or 0.14 percentage point, to 4.45 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center.

• Attack on Police in Western China Kills 16, Tianshan Reports. Sixteen people were killed when rioters attacked police as they were detaining suspects in China’s restive northwest province of Xinjiang, according to a news portal controlled by the local government. Two police and 14 rioters were killed, the article on Tianshannet.com.cn said without citing anyone. Two suspects were detained in the attack, which occurred in Shufu county of Xinjiang’s Kashgar region, according to the article.

• Kerry Rejects China Zone, Urges South China Sea Stability. Secretary of State John Kerry said U.S. military operations won’t be affected by China’s air defense identification zone in the East China Sea and said there should be no moves to replicate the zone farther south. 

• India Inflation Exceeding Estimates Adds Rate-Rise Pressure. India’s wholesale inflation was faster than economists estimated in November, reaching a 14-month high and adding pressure for a further increase in the benchmark interest rate this week to quell price pressures. The wholesale-price index rose 7.52 percent from a year earlier, compared with 7 percent in October, the Commerce Ministry said in New Delhi today. The median estimate in a Bloomberg News survey of 37 analysts was 7 percent.

• Mexico Ending Monopoly Seen Drowning North America in Crude. The flood of North American crude oil is set to become a deluge as Mexico dismantles a 75-year-old barrier to foreign investment in its oil fields. Plagued by almost a decade of slumping output that has degraded Mexico’s take from a $100-a-barrel oil market, President Enrique Pena Nieto is seeking an end to the state monopoly over one of the biggest crude resources in the Western Hemisphere. The doubling in Mexican oil output that Citigroup Inc. said may result from inviting international explorers to drill would be equivalent to adding another Nigeria to world supply, or about 2.5 million barrels a day.

• Freight-Drone Dream Has U.S. States Vying for Test Sites. The idea of drones buzzing the skies, delivering packages and spreading seeds, has set off a race among 24 U.S. states to win permission to open testing facilities to see whether unmanned aircraft can co-exist with passenger jets. States from Massachusetts to California are seeking to build and run centers where private researchers will study how to operate drones without crashing into planes or houses.

CNBC: 

• Cubist Pharma(CBST) on the front lines of superbug war.

ZeroHedge: 

• Industrial Production Surges Due To Cold Weather Boost For Utility Demand. (graph)

• Big Dog, Wild Cat And Cheetah: Meet Google's Brand New Robotic Zoo. (video)

• Japan's 2014 Budget To Approach Record 100 Trillion Yen.

• Why The US Capex Drought Will Continue: Archer Daniels' CEO Explains.

• US Officials To Meet With Syrian Extremist Rebels, Including Al Qaeda Forces.

• Judge Rules NSA's "Indiscriminate & Arbitrary" Invasion Of Privacy Likely Unconstitutional.

Business Insider:

• The EPA’s Highest-Paid Employee Pretended To Be A CIA Agent For 13 Years.

• The 'Doom Loop' Tying European Banks To Governments Has Been Reinforced.

• Early Release Of Thousands Of California Prisoners Tied To Spike In Property Crimes.

• The Insanely Complicated Volcker Rule Is A Joke.

• HUSSMAN: Stocks Are Priced To Return 0% Over The Next 7-10 Years.

• ROSENBERG: The Way Corporations Are Moving Their Money Around Is A 'Disconcerting Risk'.

Reuters:

• All equity funds nab $20.1 bln in November, best Nov on record -Lipper.

• Italy could be racked by violent unrest, president warns. President Giorgio Napolitano warned on Monday that Italy could be plunged into violent social unrest unless the government swiftly introduced reforms to help struggling citizens, following a week of protests in cities across the country. 

Telegraph:

• France on brink of recession in two-speed eurozone. Economists fear there is a real danger of France slipping back in recession.

Bear Radar

Style Underperformer:

• Mid-Cap Growth +.38%

Sector Underperformers:

• 1) Telecom -.66% 2) Airlines -.06% 3) HMOs -.05%

Stocks Falling on Unusual Volume:

• TROX, EC, TMUS, CCI, SXT, ADUS, MANU, GNMK, WSO, TXI, APOG, ADBE, AHL, TLLP, ALKS, IEP, LULU, MPAA, PRGO, JAZZ, PETX, SHLD, RH, IFF, EBS, TMUS, GNMK and VEEV

Stocks With Unusual Put Option Activity:

• 1) AGN 2) ORCL 3) ADBE 4) XLP 5) WDC
  

Stocks With Most Negative News Mentions:

• 1) PNC 2) HUM 3) LULU 4) CMG 5) JCP
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Value +.69%

Sector Outperformers:

• 1) Computer Services +1.54% 2) Semis +1.52% 3) Disk Drives +1.21%
  

Stocks Rising on Unusual Volume:

• LSI, AER, AVGO, YRCW, YPF, CBST, HIMX, AFSI, TASR, FII, HFC and GNTX

Stocks With Unusual Call Option Activity:

• 1) KKR 2) NLY 3) NS 4) YRCW 5) CAG

Stocks With Most Positive News Mentions:

• 1) R 2) ZMH 3) LMT 4) GOOG 5) XOM
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Monday Watch

Weekend Headlines 
Bloomberg: 

• Japan Tankan Signals Limited Spending as Headwind for Abe. Large Japanese businesses pared their projections for capital spending this fiscal year, signaling headwinds for Abenomics as a sales-tax increase looms in April. Big companies plan to boost spending by 4.6 percent in the year ending March 2014, a quarterly Bank of Japan report showed today. That compared with a 5.1 percent projection three months earlier.

• China Manufacturing Index Unexpectedly Drops. A Chinese manufacturing index unexpectedly fell to a three-month low as output gains eased and employment weakened, suggesting the world’s second-largest economy is vulnerable to a slowdown. The preliminary reading of 50.5 for a Purchasing Managers’ Index (EC11CHPM) released today by HSBC Holdings Plc and Markit Economics compares with a final figure of 50.8 in November and the 50.9 median estimate in a Bloomberg News survey of 11 analysts. 

• Japan: China’s Islands’ Air Zone Is Unjust. (video)

• Baidu(BIDU) Forced to Add Warnings as Regulators Focus on China Stocks. U.S. and Hong Kong stock market regulators are demanding that Chinese companies provide investors more warnings about the risks of a legal structure commonly used to list those shares overseas. The scrutiny follows some little noticed legal developments in China over the past 18 months that show the contracts behind the foreign listings may not hold up in court. It also casts a spotlight on the risks inherent in some of the world’s most sought-after investments just as Alibaba Group Holding Ltd. prepares for what could be the biggest foreign listing of a Chinese Internet company. The U.S. Securities and Exchange Commission has pressed Beijing-based Baidu Inc. (BIDU), China’s No. 1 search engine, to make additional disclosures about its corporate structure, citing the potential for foreign owners to lose control.

• Asian Stocks Decline Fourth Day Before Fed Policy Meeting. Asian stocks fell for a fourth day, poised for a three-month low, after a gauge of Chinese manufacturing fell and as investors awaited a Federal Reserve meeting starting tomorrow to gauge the timing of stimulus cuts. Toyota Motor Corp., Asia’s largest carmaker, slid 1.6 percent, leading losses among consumer-discretionary firms as the yen advanced against the dollar. Senex Energy Ltd. sank 7.8 percent after its A$752 million ($674 million) initial takeover proposal for AWE Ltd. was rejected by the oil and gas explorer. AWE shares surged 7.2 percent. Tokyo Electric Power Co. gained 1.4 percent on a report the government plans to double interest-free loans to the utility. The MSCI Asia Pacific Index lost 0.6 percent to 137.13 as of 11:40 a.m. in Hong Kong, heading for its lowest close since Sept. 9.

• Aussie Falls Before RBA’s Stevens Speaks, Fed Meets This Week. Australia’s dollar fell ahead of Dec. 18 testimony from its central bank chief and a decision by the U.S. Federal Reserve on trimming stimulus. The Aussie dropped last week after Reserve Bank of Australia Governor Glenn Stevens marked out 85 U.S. cents as a level he’d prefer for the currency. Minutes of the RBA’s last policy meeting are due tomorrow and Stevens testifies at a parliamentary economics committee the following day. New Zealand’s currency gained versus Australia’s as a gauge of consumer confidence in the smaller nation rose to the highest level since 2009. 

• Yen Gains From 5-Year Low Before Fed Starts Meeting; Euro Climbs. “We suspect that the best of the gains in dollar-yen from sub-80 up to above-100 are probably behind us,” Ray Attrill, the global co-head of currency strategy at National Australia Bank Ltd. in Sydney, said in an interview with Bloomberg Television.

• Copper Drops From 6-Week High on China Data Before Fed Meeting. Copper fell for the first time in seven days as manufacturing data for China missed estimates and before a two-day Federal Reserve meeting starting tomorrow amid speculation that the U.S. central bank will cut stimulus. Metal for delivery in three months on the London Metal Exchange declined as much as 0.3 percent to $7,232.25 a metric ton and traded at $7,234.75 at 10:51 a.m. in Tokyo. The price touched $7,265.25 on Dec. 13, the highest intra-day level since Nov. 1. 

• Rebar Rises First Time in Three Days as Steel Mills Cut Output. Steel reinforcement-bar futures in Shanghai advanced for the first time in three days as mills in China, the world’s biggest producer, reduced output. Rebar for May delivery on the Shanghai Futures Exchange rose as much as 0.5 percent to 3,694 yuan ($608) a metric ton, before trading at 3,693 yuan at 10:54 a.m. local time. The contract lost 0.7 percent last week.

• Speculators Most Bullish Since October Before Drop: Commodities. Speculators got the most bullish on commodities since October, buying more gold, cotton and soybeans, before prices fell the most in six weeks on signs of surplus supply. The net-long position across 18 U.S.-traded commodities rose 8.9 percent to 677,505 futures and options in the week ended Dec. 10, the highest since Oct. 29, U.S. Commodity Futures Trading Commission data show. Gold wagers rose for the first time in six weeks. The Standard & Poor’s GSCI Spot Index of 24 raw materials fell 1.3 percent last week, the most since Nov. 1.

• White House Slowed Rules in Election Year, Advisory Body Says. The Obama administration last year took longer than normal to clear rules ranging from environment protection to food safety, a shift that an advisory body says may have been politically motivated. The Office of Information and Regulatory Affairs, which reviews significant federal rules before they are enacted, took an average 79 days to complete assessments in 2012 and 140 days in the first half of 2013, according to a report by the Administrative Conference of the United States, an independent federal agency dedicated to improving government operations. That compares with an average review period of 50 days for the 1994-2011 period, the agency said. “Several of the senior agency employees indicated that OIRA reviews took longer in 2011 and 2012 because of concerns about the agencies issuing costly or controversial rules prior to the November 2012 election,” according to the report, which cited interviews of 14 people at 11 cabinet departments and agencies that have experienced review delays.

Wall Street Journal: 

• Investors Are Hungry for U.S. Corporate Bonds. Small Interest-Rate Spreads Compared With Treasurys Shows Confidence in Economy. Bond investors are showing the most confidence in corporate America since the financial crisis, underscoring expectations that the U.S. economy will keep rolling as the Federal Reserve prepares to trim monetary stimulus. Purchasers of corporate debt are demanding the smallest interest-rate premium to comparable government bonds since 2007. Demand has also put sales of new junk-rated corporate bonds in the U.S. on pace to surpass last year's record. Sales of investment-grade bonds in the U.S. this year are already at the highest ever, according to data provider Dealogic.

• Saudi Royal Blasts U.S.'s Mideast Policy. A leading Saudi prince demanded a place for his country at talks with Iran, assailing the Obama administration for working behind Riyadh's back and panning other recent U.S. steps in the Middle East. Prince Turki al-Faisal, an Arab royal and a brother of Foreign Minister Saud al-Faisal, said Saudi Arabia and other Gulf states were stunned by the secret American-Iranian diplomacy that led to the breakthrough deal between Iran and other world powers last month. His comments in an interview with The Wall Street Journal, rare in their bluntness, came on the sidelines of a security conference here at which he publicly blistered the U.S. for its role in Syria and in the region. The Arab royal said the failure by Washington and the United Nations to take decisive steps to end the violence in Syria—which has claimed over 130,000 lives—bordered on "criminal negligence." 

• Tough Question for Fed: Time to Act? Officials Could Decide This Week Whether to Begin Pulling Back on Bond Purchases.

• Profit Warnings Send a Message. Ratio of Negative Guidance to Positive Is Highest Since 2006. Never accuse Wall Street analysts of being negative Nellies. From buy recommendations to earnings forecasts, they routinely set the bar too high when predicting outcomes far in the future. With the passage of time, though, it usually is lowered enough to keep the good cheer flowing after the fact, too. Three times as many companies produce positive earnings "surprises" as negative ones.

• ObamaCare's Troubles Are Only Beginning. Be prepared for eligibility, payment and information protection debacles—and longer waits for care.  The White House is claiming that the Healthcare.gov website is mostly fixed, that the millions of Americans whose health plans were canceled thanks to government rules may be able to keep them for another year, and that in any event these people will get better plans through ObamaCare exchanges. Whatever the truth of these assertions, those who expect better days ahead for the Affordable Care Act are in for a rude awakening. The shocks—economic and political—will get much worse next year and beyond. Here's why:

Marketwatch.com:

• China bubble fears return. Commentary: Watch for rise in shadow-bank lending. Last month’s Communist Party Plenum promised that Beijing was ready to introduce market forces. This might already be having an impact, albeit an unintended one. A combination of a rebound in shadow-bank lending, as well as renewed hot-money inflows, suggest capital is now responding to China’s market reforms.

Fox News:

• Kerry comments add to mystery about rogue CIA agent missing in Iran. The intrigue over the rogue CIA agent last seen six years ago in Iran intensified Sunday with an accusation about a cover-up, Secretary of State John Kerry rejecting allegations the United States has abandoned the search and Iran distancing itself from the mystery.

• Ryan defends budget compromise before final Senate vote set for this week. House Budget Committee Chairman Paul Ryan on Sunday defended his compromise budget deal that avoids another potential government shutdown but suggested congressional Republicans will be more demanding of Democrats during the upcoming debit-limit talks.

CNBC: 

• Why Fed could rock market no matter what it does. No matter what the Federal Reserve does, traders expect a volatile week ahead. At its meeting Tuesday and Wednesday, the Fed is expected to discuss removing some of the extreme stimulus it has provided because the economy is improving and its continuous asset purchases may no longer be helping.

• Ukrainians mass for new rally as EU halts trade deal. Thousands massed on Sunday for a rally against President Viktor Yanukovich just days before he heads for a meeting at the Kremlin which the opposition fears will slam the door on integration with the European mainstream.

Zero Hedge:

• Safe-Havens Sought As Stocks Stumble To Worst Run In 4 Months. (graph)

• China Slams Abe's "Malicious Slander"; Warns Japan Is "Doomed To Failure".

• 5 Things To Ponder This Weekend - The Risk Edition.

• Spanish Debt-To-GDP Surges To New Record High. (graph)

• US, Chinese Warships "Nearly Collide" In South China Sea.

• 9 Key Considerations To Protect Deposits From Coming Bail-Ins.

• Russia Stations Tactical, Nuclear-Capable Missiles Along Polish Border.

• Archaea Capital's "Five Bad Trades To Avoid Next Year" And Annual Report.

• Why QE Isn't Working: Bridgewater Explains.

• Obamacare's Next Hurdle: Getting People To Pay.

• Another German Steps Down From The ECB As Joerg Asmussen Leaves For Deputy Labor Minister Post.

• "Money For Nothing" And The Survival Of The Fattest. (video)

ValueWalk:

• John Hussman On The Coming Retreat in Corporate Earnings.

Business Insider:

• The Execution Of Kim Jong-Un's Powerful Uncle Leaves China In A Very Delicate Position.

• Nearly Unbelievable: A Full-Scale Riot In Obedient Singapore.

• One 'Undeniable' Statistic Shows How Al Qaeda Is Chewing Up Iraq.

• Google(GOOG) Just Bought A Company That Builds Crazy Walking Robots For The Military.

• Jeff Gundlach Takes A Contrarian Stance On Fed Policy In This Sweeping Presentation.

• New Poll Shows Obama's Approval Rating Is Slipping Among Younger Voters.

• Paul Ryan Says There Will Be A Debt Ceiling Fight.

Wall Street All-Stars:

• Indicator Update: A Crossroads for the Fed?

Consumer Reports: 

• Are too many kids taking antipsychotic drugs? Use is climbing despite questions about how safe the drugs are and how well they work.

Reuters:

• Europe faces moment of truth on banks, with flawed defences. Europe's banks face a moment of truth next year when health checks will spell out the repairs they need. The trouble is that fixing them could require cash-strapped governments to borrow more, often from the very banks that need their help. The European Union's efforts to break this "doom loop", in which frail banks and penurious states recycle the same money to prop each other up, are falling short.

AP:

• Agriculture the most promising market for drones. Idaho farmer Robert Blair isn't waiting around for federal aviation officials to work out rules for drones. He and a friend built their own, outfitting it with cameras and using it to monitor his 1,500 acres. Under 10 pounds and 5 feet long nose to tail, the aircraft is the size of a turkey and Blair uses it to get a birds-eye view of his cows and fields of wheat, peas, barley and alfalfa.

Telegraph:

• Welcome back to the eurozone nightmare. Talk of eurozone turmoil may have been temporarily stilled by a fanfare over 'solidarity’, but the monetary union remains as flawed as ever.

Journal du Dimanche:

• France Must Pursue Structural Reforms, ECB's Draghi Says. French competitiveness remains weak, recovery of public finances can no longer rely on tax increases, ECB President Mario Draghi says in an interview. France needs to regain fiscal stability for businesses to start investing again.

ABC:

• Spanish Opposition Leader Rejects Catalonia Vote. Alfredo Perez Rubalcaba, leader of Spain's main opposition Socialists, said his party will oppose the Catalan government's decision to hold a referendum on independence next year. "There is no right to self-determination, which is exactly what is being proposed with this vote," citing Rubalcaba.

CTV:

• Canada's antitrust regulators poised to formally investigate Google's search dominance. Government regulators in Canada are poised to open a formal investigation into whether Google is abusing its dominance of the Internet search market to stifle competition and drive up digital advertising prices.

Yonhap News:

• South Korea Monitors Financial Markets Amid North Korea Risks. South Korean authorities will take steps to stabilize financial markets if sudden changes in North Korea's situation hurt domestic markets, citing a financial authority.

Sina:

• China Official Says Local Govt Property Push Is Worrying. China local governments' push for property market expansion is worrying, citing Li Tie, head of National Development and Reform Commission's China Center for Urban Development. Local governments placing their hopes on "cashing out" on property may lead to bubbles in third and fourth tier cities, Li said.

Weekend Recommendations

Barron's:

• Bullish commentary on (EBAY).

• Bearish commentary on (HLT).

Night Trading

• Asian indices are -1.25% to -.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 129.0 -1.0 basis point.

• Asia Pacific Sovereign CDS Index 102.0 +.5 basis point.

• FTSE-100 futures -.48%.

• S&P 500 futures -.49%.

• NASDAQ 100 futures -.45%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note

Economic Releases 
8:30 am EST 

• Empire Manufacturing for December is estimated to rise to 5.0 versus -2.21 in November.

• Final 3Q Non-Farm Productivity is estimated to rise +2.8% versus a +1.9% gain in 2Q.

• Final 3Q Unit Labor Costs are estimated to fall -1.4% versus a -.6% decline in 2Q.

8:58 am EST

• Preliminary Markit US PMI for December is estimated to rise to 55.0 versus a reading of 54.3 in November.
  

9:00 am EST

• Net Long-Term TIC Flows for October are estimated to rise to $40.0B versus $25.5B in September.

  9:15 am EST

• Industrial Production for November is estimated to rise +.6% versus a -.1% decline in October.

• Capacity Utilization for November is estimated to rise to 78.4% versus 78.1% in October.

• Manufacturing Production for November is estimated to rise +.4% versus a +.3% gain in October.
  

Upcoming Splits

• (MDSO) 2-for-1

• (BWA) 2-for-1

• (FISV) 2-for-1

Other Potential Market Movers

• The Eurozone Manufacturing PMI could also impact trading today.

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