Today's Headlines

Bloomberg:

• China Urged to Stop ‘Disappearing’ Officials in Graft Crackdown. A global rights advocacy group is calling on China to stop detaining Communist Party members indefinitely without charge, releasing a report criticizing the system on the unofficial anniversary of Xi Jinping’s four-year-old corruption crackdown. The practice, known as shuanggui, which the Communist Party uses to secure confessions from corruption suspects, lacks legal basis and perpetuates rights abuses, Human Rights Watch said in a report released Tuesday in Hong Kong. Such extrajudicial detentions are a key feature of Xi’s anti-graft campaign, which began on Dec. 6, 2012, with the investigation of Li Chuncheng, then a deputy party chief in the southwestern province of Sichuan.
• Asia’s New Tiger Economy Fears Currency Slide. Myanmar’s central bank is braced for a deeper slide in the nation’s currency and has little scope to tackle the decline after the kyat fell the most in Asia, according to one of the monetary authority’s top officials. The kyat has weakened about 10 percent against the dollar in the past six months, data compiled by Bloomberg show. The drop could deepen if the U.S. Federal Reserve increases interest rates this month as expected, said U Win Thaw, the director general of the foreign-exchange management department in the Central Bank of Myanmar.
• South Korean President ‘Ready’ to Face Friday Impeachment Vote. 
• SocGen's "Most Worrying Chart" Shows Markets Still Shrugging Off Political Risk. Credit spreads should be twice as wide.
• Goldman Sachs(GS) Slashes Indian Growth Estimates Amid Currency Crackdown. The impact of India's high-value cash ban is now showing up in the data.
• Rally in Banks Spurs More Gains in European Stocks Ahead of ECB. (video) European stocks capped their biggest back-to-back gains since the U.S. election as banks jumped ahead of this week’s European Central Bank meeting and utilities climbed on a German court ruling. The Stoxx Europe 600 Index climbed 1 percent at the close, with banks surging the most since June on optimism of more stimulus from the ECB. Italian lenders UniCredit SpA and Mediobanca SpA climbed 9.9 percent or more.
• Oil Falls From 16-Month High as OPEC Production Keeps on Rising. (video) Futures slid as much as 2.9 percent in New York after rising 15 percent over the previous four sessions. OPEC boosted production to 34.16 million barrels a day last month, according to a Bloomberg News survey, with Angola, Libya and Nigeria leading the gains. Attention is shifting to which non-OPEC producers will join Russia in reducing output when they meet in Vienna on Saturday. OPEC is hoping they will cut 300,000 barrels a day further than the 300,000 already promised by Russia. 
• Saks’ Owner HBC Tumbles as Department-Store Slump Crimps Sales. Hudson’s Bay Co. tumbled as much as 6.8 percent after third-quarter results missed estimates, a sign the owner of Saks Fifth Avenue and Lord & Taylor is struggling to cope with a moribund department-store industry. Excluding nonrecurring items, the company posted a third-quarter loss of 56 cents a share in the period, which ended Oct. 29. Analysts had projected a deficit of 22 cents, according to data compiled by Bloomberg. Sales and adjusted earnings also fell short of predictions.
• U.S. CEOs Become More Optimistic on Outlook for Sales, Jobs. Chief executive officers of some of the largest U.S. companies became more optimistic about their sales and hiring prospects in the weeks before and after last month’s presidential election, even as they pared plans for capital spending. The Business Roundtable’s CEO Economic Outlook Index -- a measure of expectations for revenue, capital spending and employment -- increased by 4.6 points to 74.2 in the fourth quarter, the highest since the second quarter of 2015, according to a survey released Tuesday. The gauge remains below its long-run average of 79.6. Readings above 50 indicate economic expansion.

Wall Street Journal:

• Fed May Struggle to Signal What Comes After December. Officials are likely to indicate they are sticking with their plan to raise rates gradually until the new government’s policies become clearer.

Fox News:

• Merkel calls for burqa ban in Germany. (video)
• Anti-Trumpers trying to sow chaos in Electoral College. (video)

CNBC:

• Trump says SoftBank will invest $50 billion in the US, aiming to create 50,000 jobs.
• These stocks could surge if Trump cuts corporate taxes. (graph)
• One really important group is not buying during the Trump rally: Corporate insiders.

Zero Hedge:

• Time Urges 65 Million Americans Who Voted For Hillary Not To Pay Taxes.
• Bill Gross Reveals The "Global Establishment's Overall Plan" In Eight Simple Steps.
• Oil’s Most Popular Trading Products May Soon Be Shut Down.
• "China Has Run Off The Cliff So Fast, People Seem To Think They’ll Make It To The Other Side".
• Trump Sold All His Stocks In June.
• The Dramatic Impact Of Surging Rates On Housing And Refis In One Chart.
• Supreme Court Rules On Insider Trading For First Time In 20 Years: Why It Matters.
• Boeing Responds To Trump.
• Fitch Cuts Outlook For Italian Banks To Negative Due To High Bad Debt, Referendum Vote Risks.
• Core Durable Goods Orders Contract For 22nd Straight Month - Longest Non-Recessionary Streak In US History. (graph)
• Factory Orders Surged Most In 16 Months (Before The Election). (graph)
• Trade Deficit Grows More Than Expected As Stronger Dollar Pressures Exports. (graph)
• US Productivity Suffers First Two-Quarter Annual Decline Since 1993. (graph)

Business Insider: 

• Turkey is hosting a new round of peace talks between Russia and Syrian rebels — and it looks like the US wasn't invited.
• A $3.5 billion firm backed by investing legend Julian Robertson is shutting down one of its hedge funds.

The Telegraph:

• There's nothing the UK can do to save the eurozone from its own folly.
• The 'Trump bump' in the markets is powered by a welcome cut in corporate taxes.
• Mark Carney warns Britain is suffering first lost decade since 1860 as people across Europe lose trust in globalisation. (video)

Xinhua:

• Researcher Says China Property, Financial Risks Increase. Monetary policy should better support the real economy and prevent risks, citing Wang Yiming, vice president of Sate Council Development Research Center.

Bear Radar

Style Underperformer:

• Large-Cap Growth unch.

Sector Underperformers:

• 1) Social Media -.7% 2) Gold & Silver -.7% 3) Oil Service -.6%

Stocks Falling on Unusual Volume: 

• SBSI, MIK, STWD, SNCR, FET, CMG, OMCL, TEVA, BNED, MTDR, RCII, HMST, AGIO, GBT, COT, AMCX, JUNO, AKRX, SCSS, LPLA and BLCM

Stocks With Unusual Put Option Activity:

• 1) TOL 2) SPWR 3) EWT 4) XME 5) GLW

Stocks With Most Negative News Mentions:

• 1) RCII 2) SPWR 3) JUNO 4) SCSS 5) ABM

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Value +.5%

Sector Outperformers:

• 1) Airlines +2.3% 2) Homebuilders +1.9% 3) Gaming +1.5%

Stocks Rising on Unusual Volume:

• IL, ZG, FRAN, BOBE, CONN, ING, TOL, UBS, CS, TLYS, CAVM, HSBC, DB, FCE/A and BWA

Stocks With Unusual Call Option Activity:

• 1) WPX 2) Z 3) TOL 4) LNKD 5) SWKS

Stocks With Most Positive News Mentions:

• 1) IDTI 2) BKE 3) PLUG 4) IDTI 5) BA

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running -.7% Below 100-Day Average
• 3 Sectors Rising, 7 Sectors Declining
• 54.3% of Issues Advancing, 42.2% Declining
• 159 New 52-Week Highs, 19 New Lows
• 55.8% of Issues Above 200-day Moving Average
• Average 14-Day RSI 44.8%
• Vix 11.8 -2.6%
• Total Put/Call .90 +4.7%
• TRIN/Arms 1.07 +29.7%

Tuesday Watch

Evening Headlines

Bloomberg:

• Emerging Market Crisis Echoes Grow Louder. Everyone who covers emerging markets has heard the mantra: Yes, there's a lot of debt but, unlike the late 1990s, sovereign balance sheets are fine. Corporations are the ones to worry about, and they are hardly ever sources of systemic risk. That may have been true five years ago. It isn't any longer, if the companies that specialize in assessing credit strength are to be believed.
• Asian Stocks Join Italy Relief Rally as Swings Ease; Crude Drops. Asian stocks joined the global relief rally, as investors switched their focus back to the outlook for U.S. monetary policy following the defeat of Italy’s constitutional referendum. The Korean won climbed, while bonds and crude oil retreated. Mining and bank shares led the Asian equity benchmark higher, with Japanese stocks rising for the first time in three days following the Dow Jones Industrial Average’s return to a record. The won increased for the first time in three days, and the euro was near its strongest level since mid-November after wiping out an initial slump Monday on the Italian premier’s resignation. The Australian dollar was close to a more than two-week high, while the nation’s bonds fell with debt in the region amid expectations interest rates will be held in a review. Oil snapped a four-day climb as the yen and gold tried to rally. The MSCI Asia Pacific Index jumped .9% as of 9:57 a.m. Tokyo time, with Japan's Topix index rising .9% as well.
• Trump’s ‘Retribution’ Tax Stirs Questions, GOP Resistance. Donald Trump’s threats to use taxes as “retribution” against U.S. companies that move jobs overseas are legally dubious, tax specialists say -- and they’re prompting resistance from some Republican leaders who fear a coming era of economic protectionism or international trade wars. “There’s other ways to achieve what the president-elect is talking about,” House Majority Leader Kevin McCarthy told reporters Monday, arguing that changing the tax code is the way to entice companies to create jobs and keep them in the U.S. “I don’t want to get into some type of trade war,” McCarthy said. Implementing large tariffs like those Trump proposed had little apparent support in the Senate either, where most Republicans have long backed deals lowering trade barriers, not raising them.
• The Pessimist's Guide to 2017. 
• Why U.S. Stocks May Be Poised for a Correction. (video) 

Wall Street Journal:

• For Europe’s Unity, 2017 Will Be a Year of Reckoning. Mainstream parties are feeling pressure from populist politicians, setting up votes next year in several core European nations that will help determine fate of open borders and the euro.
• Italian Prime Minister Matteo Renzi Resigns, Ushering in Period of Uncertainty. President accepts resignation but asks premier to stay until 2017 budget gets Senate approval.
• Harsh Political Winds Test Euro’s Stability and Future. Some question how long the common currency can survive amid repeated tests, political and economic, across the Continent.
• Donald Trump Picks Ben Carson to Head Housing Agency. The one-time political rival would be the first African-American appointed to a senior position so far during the transition.
• Donald Trump Shuffles the Ideological Deck. The president-elect’s moves so far don’t adhere to strict conservative or outsider themes.

Fox News:

• Ellison's bid to lead DNC complicated by calls to relinquish House seat. (video)

CNBC:

• Five tools that would let Trump follow through on his tariff threats. (video)
• Amazon Go is the first of 3 or more new Amazon food store formats, reports say. (video)
• Tech giants to cooperate on removal of extremist content.
• Apple(AAPL) Watch shipments plunge 70% as consumers favor simpler wearables, IDC says.
• Pacific Crest says don't expect year-end Apple(AAPL) rally, seeing weaker-than-expected iPhone 7 demand.

Zero Hedge:

• The First Defection: Republican Elector Writes In NYT Op-Ed Why He Won't Be Voting For Trump.
• Website Raising Money To Fund Assassinations Of Trump, Pence Uncovered On "Dark Web".
• Mark Carney Defends The Bank of England: "We Are Not Robbing The Poor To Pay The Rich".
• Morgan Stanley(MS) Set To Slash 2017 Broker Bonuses With 10% Increase In "Pay Grid" Thresholds.
• Carrier & The Slippery Slope.
• What Happens Next? (graph)
• As Rome Burns... Investors Dump Gold, Send US Equity Markets To Record Highs.

Business Insider:

• The manufacturer that Trump convinced to keep 1,000 jobs in the US is raising prices.
• A second major drugmaker just committed to limiting price increases.
• The market may have shrugged at Italy's 'No' vote, but the drama is just getting started.
• NY TIMES PUBLIC EDITOR: Some tweets from our politics reporters 'outrageous' and there 'ought to be some kind of consequence'.
• Al Gore just had an 'extremely interesting conversation' with Trump on global warming. "I had a lengthy and very productive session with the President-elect," Gore said, according to a pool report. "It was a sincere search for areas of common ground. I had a meeting beforehand with Ivanka Trump," he added. "The bulk of the time was with the President-elect, Donald Trump. I found it an extremely interesting conversation, and to be continued, and I'm just going to leave it at that." 
• Apple(AAPL) is urging the US government to speed up self-driving cars.

Telegraph:

• Italy's ailing banks now have to wade through the referendum quagmire to secure a rescue.

Night Trading 

• Asian equity indices are +.25% to +1.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 124.50 -1.5 basis points.
• Asia Pacific Sovereign CDS Index 40.5 -1.0 basis point.
• Bloomberg Emerging Markets Currency Index 69.69 +.03%. 
• S&P 500 futures unch. 
• NASDAQ 100 futures +.10%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (AZO)/9.32
• (BOBE)/.45
• (MIK)/.43
• (TOL)/.99
• (AVAV)/-.08

Economic Releases 
8:30 am EST

• The Trade Deficit for October is estimated to widen to -$42.0B versus -$36.4B in September.
• Final 3Q Non-Farm Productivity is estimated to rise +3.3% versus a prior estimate of a +3.1% gain.
• Final 3Q Unit Labor Costs are estimated to rise +.3% versus a prior estimate of a +.3% gain.

10:00 am EST

• Factory Orders for October are estimated to rise +2.6% versus a +.3% gain in September.
• IBD/TIPP Economic Optimism for December is estimated to rise to 52.0 versus 51.4 in November.

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Australia GDP report, German Factory Orders report, US weekly retail sales reports, Goldman Financial Services Conference, (PBI) Analyst Day, (ADSK) Investor Day and the Cowen Energy/Natural Resources Conference could also impact trading today.

BOTTOM LINE:  Asian indices are higher, boosted by commodity 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 50% net long heading into the day.

Stocks Rising into Final Hour on Less European/Emerging Markets/US High-Yield Debt Angst, Short-Covering, Yen Weakness, Energy/Homebuilding Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Almost Every Sector Rising
  

• Volume: Slightly Below Average

• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• Volatility(VIX) 12.47 -11.69%

• Euro/Yen Carry Return Index 127.85 +1.11%

• Emerging Markets Currency Volatility(VXY) 10.92 -.27%

• S&P 500 Implied Correlation 51.73 -2.85%

• ISE Sentiment Index 92.0 +12.2%
  

• Total Put/Call .82 -10.87%

• NYSE Arms .74 -25.81%

Credit Investor Angst:

• North American Investment Grade CDS Index 72.14 -1.15%
  

• America Energy Sector High-Yield CDS Index 500.0 -9.07%

• European Financial Sector CDS Index 107.63 +2.75%

• Western Europe Sovereign Debt CDS Index 23.50 +1.38%

• Asia Pacific Sovereign Debt CDS Index 40.51 -2.33%

• Emerging Market CDS Index 266.42 -2.35%
  

• iBoxx Offshore RMB China Corporate High Yield Index 133.0 +.04%

• 2-Year Swap Spread 21.75 +1.25 basis points

• TED Spread 48.5 +1.0 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -58.25 +2.75 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 69.69 +.51%
• 3-Month T-Bill Yield .46% -1.0 basis point

• Yield Curve 127.0 -2.0 basis points
  

• China Import Iron Ore Spot $78.62/Metric Tonne +1.07%

• Citi US Economic Surprise Index 28.70 +4.0 points

• Citi Eurozone Economic Surprise Index 58.90 -2.5 points

• Citi Emerging Markets Economic Surprise Index 3.6 +2.1 points

• 10-Year TIPS Spread 1.97% +2.0 basis points
• 100.0% chance of Fed rate hike at Feb. 1 meeting, 100.0% chance at March 15 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +136 open in Japan 
• China A50 Futures: Indicating +46 open in China

• DAX Futures: Indicating +8 open in Germany

Portfolio: 

• Slightly Lower: On losses in my index hedges and emerging markets shorts

• Disclosed Trades: None

• Market Exposure: 25% Net Long