Friday Watch

Evening Headlines

Bloomberg:              

• ‘Defiance’ Is Word of the Week as Fed and Xi Stand Their Ground.

• Short-Seller Targets China Stocks 'Where There Is Nothing Worth Saving'.

• Brexit Uncertainty Is Making the British Nervous to Spend.

• South Korea's Early December Trade Points to Softening Demand.

• Asia Stocks Drop After U.S. Slide; Yen Holds Gains. Asian stock markets were mostly lower Friday morning and Japanese equities fell deeper into a bear market, with regional shares on course to round out the worst week since October. U.S. futures slipped after shares fell overnight. The dollar sank with Treasuries. Equities fell in Japan and South Korea and Australian shares reversed earlier gains. Futures in China and Hong Kong pointed to a muted start. The Nasdaq Composite on Thursday extended its loss from a recent peak to almost 20 percent as the rising threat of a government shutdown in the U.S. added to a litany of concerns weighing on equities. Shares turned sharply lower after President Donald Trump hardened his demands in the showdown with Congress over funding the government. Oil headed for a 10 percent slide this week. Japan’s Topix index fell 0.9 percent at the open in Tokyo. Futures on Hong Kong’s Hang Seng were little changed overnight. Australia’s S&P/ASX 200 Index were flat. Futures on the S&P 500 fell 0.3 percent.   

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

• Powell's Fed Speak, 2019 Trade Downturn, China's Policy: Eco Day. 

• Shutdown Looms as House Backs Trump Border Funds Senate Opposes.

• Shades of 1987 and 2008 in Current Level of Stocks Getting Crushed.

• House Passes Year-End Tax Legislation That’s Seen as Doomed in Senate.

• Facebook Is Developing a Cryptocurrency for WhatsApp Transfers, Sources Say.   

• Death at Delta Sig: Heiress Wages a Million-Dollar War on Frats.

Wall St. Journal:

• Key Partner Thrown Into Disarray.

• Allies Vow to Carry Anti-ISIS Fight.

• Trump Orders Big Troop Reduction in Afghanistan.

• U.S. to Send Some Migrants to Mexico to Await Proceedings.

• A Booming Job Market Can’t Fill the Retirement Shortfall.

• De Blasio Backs Marijuana Legalization.

• Regulators Warn of ‘Living Will’ Shortcomings at Four Banks.

• Europe Faces Continuing Terror Threat, While Concerns in U.S. Ebb.

Fox News:

• Defense secretary to retire, says Trump deserves Pentagon chief with 'better aligned' views.

CNBC:    

• House advances spending bill with money for Trump’s border wall as shutdown looms.

• Cramer feels ‘powerless’ after Fed hike, tells investors to buy gold.

• Cramer: Fed chief Jerome Powell is Trump’s worst re-election nightmare.

• FDA weighs legalizing interstate sales of cannabis-based CBD in food and drinks.

• Nike(NKE) crushes earnings expectations, helped by strong online sales, shares surge.

• Stocks making the biggest moves after hours: Nike, CalAmp and more.

Zero Hedge:

• China Blasts "Baseless" Cyber-Spying Accusations, Warns Of "Serious Damage" To Relations.

• Mattis Quits: Defense Secretary Out After Tense Meeting With Trump.

• The Hedge Fund Manager's Dilemma...

• House Passes Stopgap Funding Bill With $5 Billion For Wall.

• Dems Target Trump's Pick For Attorney General Over Memo Critical Of Mueller.

• Mueller May Submit Russia Probe Report As Soon As February: NBC.

• The Five Most Politically-Biased College Courses In America.

• China Hacked IBM And HP, Then Went After Their Clients.

• An Inconvenient Truth For Al Gore: The Ice Is Still There.

• Democrats Posing As Russians Executed "Elaborate 'False Flag' Operation" Against Roy Moore.

• Soros Drops $1.35 Million On "Nonpartisan" Watchdog Group Hitting Trump With Lawsuits.

• Bill Dudley Admits Fed Is Hiking Until Something Breaks.

• Appeals Court Rules Colleges Must Censor, Block Online Services If They Offend Someone.

• Americans Are Worried About The Economy (Even If The Fed Isn't).

• Gatwick To Close "For Foreseeable Future" As British Army Struggles To Combat Drones.

• Shutdown Shudders Spark Dollar Dump As Powell Plunge Goes Global.

Telegraph:

• Powell Fed tells world to 'drop dead' with potent double-barreled tightening.

• Slowing world economy and Brexit nerves halt Bank of England interest rate hike.

Night Trading 

• Asian equity indices are -1.0% to -.5% on average.

• Asia Ex-Japan Investment Grade CDS Index 95.50 +3.0 basis points. 

• Asia Pacific Sovereign CDS Index 11.75 unch.

• Bloomberg Emerging Markets Currency Index 67.05 +.03%.

• FTSE 100 futures -.49%.

• S&P 500 futures -.23%.

• NASDAQ 100 futures -.34%.

Morning Preview Links

Earnings of Note
Company/Estimate
Before the Open:

• (KMX)/1.00

After the Close:

• None of note

Economic Releases

8:30 am EST

• Preliminary Durable Goods Orders for November are estimated to rise +1.6% versus a -4.3% decline in October.

• Preliminary Durables Ex Transports for November are estimated to rise +.3% versus a +.2% gain in October.

• Cap Goods Orders Non-Defense Ex Air for November are estimated to rise +.2% versus unch. in October.

10:00 am EST

• Personal Income for November is estimated to rise +.3% versus a +.5% gain in October.

• Personal Spending for November is estimated to rise +.3% versus a +.6% gain in October.

• The PCE Core MoM for November is estimated to rise +.2% versus a +.1% gain in October.

11:00 am EST

• The Kansas City Fed Manufacturing Activity Index for Dec. is estimated to fall to 13.0 versus 15.0 in November.

Upcoming Splits

• None of note

Other Potential Market Movers

• The UK GDP report and partial US govt funding deadline could also impact trading today.

BOTTOM LINE:  Asian indices are lower, weighed down by technology and commodity shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed.  The Portfolio is 50% net long heading into the day.

Stocks Lower into Final Hour on Fed Policy Mistake Worries, Govt Shutdown Concerns, Global Growth Fears, Energy/Restaurant Sector Weakness

 Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Heavy

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 29.6 +15.6%

• Euro/Yen Carry Return Index 132.48 -.43%

• Emerging Markets Currency Volatility(VXY) 9.54 -.93%

• S&P 500 Implied Correlation 51.48 +1.3%

• ISE Sentiment Index 56.0 -52.9%
  

• Total Put/Call 1.92 +53.6%

• NYSE Arms .82 -36.8%

Credit Investor Angst:

• North American Investment Grade CDS Index 88.97 +4.46%
  

• America Energy Sector High-Yield CDS Index 758.0 +4.28%

• European Financial Sector CDS Index 108.22 +5.53%

• Italian/German 10Y Yld Spread 221.0 -2.25 basis points
  

• Asia Pacific Sovereign Debt CDS Index 11.62 unch.

• Emerging Market CDS Index 204.24 +1.61%
  

• iBoxx Offshore RMB China Corporate High Yield Index 151.09 +.10%

• 2-Year Swap Spread 14.75 +1.25 basis points

• TED Spread 40.5 -3.0 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -3.5 +11.25 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 67.04 +.17%

• 3-Month T-Bill Yield 2.38% unch.

• Yield Curve 12.0 -1.25 basis points

• China Iron Ore Spot 70.43 USD/Metric Tonne +.43%

• Citi US Economic Surprise Index -10.6 -.9 point

• Citi Eurozone Economic Surprise Index -74.60 +.4 point

• Citi Emerging Markets Economic Surprise Index -3.7 -.3 point

• 10-Year TIPS Spread 1.76 -4.0 basis points

• 21.3% chance of Fed rate hike at March 20th meeting, 27.0% chance at May 1st meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -167 open in Japan 

• China A50 Futures: Indicating -47 open in China

• DAX Futures: Indicating -79 open in Germany

Portfolio: 

• Slightly Lower: On losses in my tech/biotech sector longs and emerging market shorts

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my emerging market shorts

• Market Exposure: Moved to 75% Net Long

Bear Radar

Style Underperformer:

• Large-Cap Growth -2.5%

Sector Underperformers:

• 1) Oil Service -4.8% 2) Alt Energy -4.2% 3) Restaurants -3.3%

Stocks Falling on Unusual Volume: 

• GTHX, ECC, IMMU, GEF, MTLS, SQM, HQL, ETB, PCI, BNFT, DFP, HPS, THQ, PDT, THW, FOF, ACP, HYC, PRFZ, RNP, LDP, DESP, ALB, CNXM, AINV, CI, MIC, LADR, WK, STWD, APLS, PI, APU, KYN, ATNX, BPT, AIR, TWTR, HIIQ, CRC, CAG, ATU, AXGN, OII and APOG

Stocks With Unusual Put Option Activity:

• 1) OPK 2) EXAS 3) CL 4) AET 5) HYG

Stocks With Most Negative News Mentions:

• 1) PIR 2) NKTR 3) NCS 4) ESV 5) EB

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value -1.1%

Sector Outperformers:

• 1) Gold & Silver +4.9% 2) Utilities +.3% 3) Drugs +.1%

Stocks Rising on Unusual Volume:

• RCII, AIMT, CE, FGEN, BVN, SAFM, AU and AEM

Stocks With Unusual Call Option Activity:

• 1) PAYX 2) EVRI 3) ALLY 4) PTLA 5) CAG

Stocks With Most Positive News Mentions:

• 1) XPO 2) V 3) FDX 4) PBYI 5) X

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +31.1% Above 100-Day Average
• 6 Sectors Rising, 4 Sectors Declining
• 44.9% of Issues Advancing, 52.4% Declining
• 4 New 52-Week Highs, 690 New Lows
• 14.0% of Issues Above 200-day Moving Average
• Average 14-Day RSI 33.7%
• Vix 26.4 +2.9%
• Total Put/Call 1.70 +36.0%
• TRIN/Arms .80 -40.0%