Tuesday Watch

Evening Headlines

Bloomberg:

• China's Risk Crackdown Is Giving Giant Bank Stocks a Big Boost. China’s top banks -- the biggest in the world -- traded below the value of their assets on concern over rising bad debt and falling profitability. That’s starting to change, and quickly.

• Asian Junk Bond Deluge Spurs Concerns About Investor Protection.

• Japan Boosts M&A War Chest With Record Bond Sales Abroad.

• U.K. Consumer Confidence Increases.

• Japan Consumer Spending Softens, Labor Market Remains Tight. (video)

• Asia Stocks Follow U.S. Drop as Bond Slump Extends. (video) Stocks in Japan, South Korea, Hong Kong and Australia retreated after the S&P 500 Index declined from a record high. Treasuries extended a drop that’s taken yields to the highest since early 2014 as traders gear up for a hectic week of economic data and the last Federal Reserve policy decision with Janet Yellen at the helm. German five-year bond yields broke above zero percent for the first time since December 2015 after a policymaker said there isn’t a single reason anymore to continue with quantitative easing. Japan’s Topix index lost 0.7 percent as of 10:37 a.m. in Tokyo. South Korea’s Kospi index fell 0.3 percent and Australia’s S&P/ASX 200 Index retreated 0.5 percent. Hong Kong’s Hang Seng Index dropped 0.4 percent. Futures on the S&P 500 Index were little changed after its 0.7 percent slide Monday, when the VIX index soared 25 percent. The MSCI All-Country World Index sank 0.6 percent Monday, the most since August. 

• Five Things You Need to Know to Start Your Day. (video)

• Bullish Dilemma for Equity Analysts.

Wall Street Journal:

• Global Bonds Swoon as Investors Bet on Inflation, Growth. Government debt fell around the world amid signs of economic expansion and declining central bank support.

• With Stocks Surging, Americans Are Saving at 12-Year Low. Shift away from saving could leave consumers exposed if stocks or other assets take a sudden turn for the worse.

• Cleaning Up Comey’s FBI. Director Wray needs to restore the bureau’s fallen reputation.

• Wal-Mart(WMT) Tightens Delivery Windows for Suppliers. Large suppliers will soon need to meet one- or two-day windows 85% of the time, or be fined, executive says.

• U.S. to Resume Admitting Refugees From 11 Countries. Admissions from those nations deemed security risks will involve more vetting.

MarketWatch.com

• 13 stocks these winning stockpickers recommend now.

• Bitcoin prices slide as Japan cracks down on Coincheck after hack.

• Blame bitcoin’s crash on these sharp new players.

Fox News:

• FBI's McCabe, now stepping down, suspected in leak against White House. (video)

CNBC:

• Japanese chipmaker Renesas is in talks to acquire Maxim(MXIM); Renesas denies the talks. (video)

• Stocks making the biggest moves after hours: Metlife, Revlon & more.

• A key Tesla(TSLA) engineer who helped design batteries has left the company.

• Here's why Democrats face a tough Senate campaign this year.

• Exxon Mobil(XOM) announces $35 billion in new US investments over 5 years, citing tax reform. (video)

• Facebook(FB) says its news feed changes will promote more local news.

• An economic indicator is signaling paychecks could get significantly bigger this year. (video)

• JP Morgan(JPM) says Jamie Dimon will continue to serve as CEO for five more years. (video)

• JPMorgan(JPM) raises oil price forecast to $70, topping many Wall Street targets, citing strong demand. (video)

Zero Hedge:

• House Intel Votes To Make "Shocking" FISA Memo Public.

• Is Texas Set For Another Oil Boom?

• "Financing A War" With Whom? Balance Sheet Expansion Reaches Unchartered Territory. (graph)

• Canada Risks Popping Marijuana Bubble As Prices Dive Before Legalization.

• 'Golden Boy' Robert Mueller's Forgotten Surveillance Crime Spree.

• Kunstler: "The 'Resistance' Is Dragging The Country Into Dangerous Madness".

• FBI Texts Discuss "Destroying Evidence", Scramble To Find Hard Drives: Report.

• These Are The 6 Traders Who Were Just Arrested For Manipulating The Gold Market.

• Bond Bloodbath Sparks Biggest Stock Drop Since September. (graph)

Business Insider:

• A crypto startup that vanished and changed its website to the word ‘penis’ allegedly stole the identities of its team.

• We went to Victoria's Secret to see the risque photos in stores that moms of teenage girls are freaking out about — here's what we found.

Telegraph:

• Blockchain boom could quickly turn to bust.

Night Trading 

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

• Asia Ex-Japan Investment Grade CDS Index 63.5 unch. 

• Asia Pacific Sovereign CDS Index 10.75 +.25 basis point.

• Bloomberg Emerging Markets Currency Index 76.06 -.12%.

• S&P 500 futures +.04%.

• NASDAQ 100 futures +.11%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AET)/1.17

• (AKS)/-.13

• (ALV)/1.76

• (EAT)/.71

• (GLW)/.47

• (DHR)/1.16

• (HOG)/.45

• (HCA)/1.87

• (MCD)/1.59

• (NUE)/.55

• (PCAR)/1.12

• (PFE)/.56

• (PII)/1.47

• (PHM)/.85

• (SAP)/1.55

• (SMG)/-.93

• (ZBH)/2.10

• (AMD)/.05

• (BXP)/1.46

• (CA)/.59

• (CB)/2.30

• (EA)/2.20

• (ILMN)/1.21

• (JNPR)/.52

• (RHI)/.63

• (SYK)/1.95

Economic Releases

9:00 am EST

• The S&P CoreLogic CS 20-City MoM for November is estimated to rise +.6% versus a +.7% gain in October.

10:00 am EST

• The Conference Board Consumer Confidence Index for January is estimated to rise to 123.0 versus 122.1 in December.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The President's SOTU address, President's infrastructure plan release, Q4 Eurozone GDP report, weekly US retail sales reports and the FCC open meeting could also impact trading today.

BOTTOM LINE:  Asian indices are lower, weighed down by energy and consumer 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 Profit-Taking, Rising Long-Term Rates, Oil Decline, Homebuilding/Energy Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Mixed
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 13.1 +17.9%

• Euro/Yen Carry Return Index 140.57 -.08%

• Emerging Markets Currency Volatility(VXY) 8.29 +.97%

• S&P 500 Implied Correlation 32.39 -3.14%

• ISE Sentiment Index 90.0 -30.2%
  

• Total Put/Call .71 -10.13%

• NYSE Arms .61 +23.4%

Credit Investor Angst:

• North American Investment Grade CDS Index 45.82 +.56%
  

• America Energy Sector High-Yield CDS Index 294.0 +.15%

• European Financial Sector CDS Index 41.20 -.05%

• Italian/German 10Y Yld Spread 133.25 -4.5 basis points
  

• Asia Pacific Sovereign Debt CDS Index 10.66 -.42%

• Emerging Market CDS Index 115.80 +2.15%
  

• iBoxx Offshore RMB China Corporate High Yield Index 146.53 +.06%

• 2-Year Swap Spread 19.50 +1.0 basis point

• TED Spread 35.75 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -29.0 -2.5 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 76.18 -.39%
• 3-Month T-Bill Yield 1.40% -1.0 basis point
  

• Yield Curve 57.75 +3.75 basis points

• China Iron Ore Spot 73.50 USD/Metric Tonne +1.18%

• Citi US Economic Surprise Index 35.50 -2.0 points

• Citi Eurozone Economic Surprise Index 55.40 -1.0 basis point

• Citi Emerging Markets Economic Surprise Index 1.5 +1.0 basis point

• 10-Year TIPS Spread 2.09 unch.
  
• 88.8% chance of Fed rate hike at March 21 meeting, 89.3% chance at May 2 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -39 open in Japan 
• China A50 Futures: Indicating -61 open in China

• DAX Futures: Indicating -7 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 100% Net Long

Today's Headlines

Bloomberg:

• Crypto Investors Risk ‘Total Loss,’ Deutsche Warns. (video) Deutsche Bank AG’s Wealth Management currently does not advise to invest in crypto-currencies, according to Markus Mueller, Global Head of Chief Investment Office. Problematic issues include high volatility, possible price manipulation and data loss or data theft, he told Bloomberg News in an interview. "We do not recommend that. It’s only for investors who invest speculatively," he said. "There is a realistic risk of total loss." According to Mueller, recent price increases reflect a lot of imagination, driven by the current situation in the market. There is hardly any return scope left in other asset classes such as fixed income, he said.

• Nomura Adds Bankers From BofA, UBS, Jefferies in U.S. Expansion. Nomura Holdings Inc. hired 15 investment bankers in the U.S. from firms including Credit Suisse Group AG, Bank of America Corp. and Jefferies Group LLC as the Japanese lender builds out its North American business. The additions, which took place over the past year, were for the bank’s leveraged finance, equity capital markets, consumer, health-care, financial institutions, industrials and technology and M&A groups, Nomura said Monday in a statement.

• Wynn(WYNN) Tumbles After Macau Government Adds to Harassment Scrutiny. (video)

• Top Norway Fund Manager Is Betting on Rigs for 200% Return. After more than 3 years of taking a hammering, drillers are set to rise. “They will rise 100 to 200 percent -- a real surge,” Martin Molsaeter, portfolio manager and partner at First Fondene, said in an interview in Oslo on Wednesday. Oil service companies suffered as crude prices fell in 2014, with explorers and producers slashing spending to weather the downturn. But as oil companies start to increase investments with crude back over $70 dollar a barrel, revenue is likely to rise for rig companies and other suppliers.

• Exxon(XOM) Cites $50 Billion Spending Bonanza But Details Are Scarce. Exxon Mobil Corp. is planning a $50 billion building spree over the next half decade. But the details so far are scant. U.S. Representative Kevin Brady, the Texas Republican whose district is home to Exxon’s largest corporate campus, tweeted on Monday that the oil explorer is set to announce a $50 billion, five-year domestic investment program. Exxon CEO Darren Woods confirmed the spending plan in blog post, citing the U.S. income tax overhaul as a significant contributor to the program.

• Goldman Gauge of Market Health Flashing Green for Economy Growth. Goldman Sachs Group Inc.’s index of financial conditions broke through its internet bubble trough to reach a record low Monday, signaling that the economy may be poised to pick up steam. The index tracks changes in interest rates, credit spreads, equity prices, and the value of the greenback, with a lower reading suggesting expansion lies ahead.

• Sectors to Watch in Trump’s State of Union Speech.

Wall Street Journal:

• What About Social-Media Neutrality? Facebook’s(FB) algorithms have outsize power, both culturally and economically.

• China’s Xi Looks to Ally to Fix U.S. Relations. President considers enlisting Wang Qishan, known as the ‘fireman’ for crisis postings, as tensions rise.

• Chemotherapy, a Trusty Weapon Against Cancer, Falls Out of Favor. Breast-cancer doctors are at odds over whether some patients should get less chemo—or none at all.

MarketWatch.com:

• Here are the Trump tax cuts’ hidden stock-market winners.

• Lower-income households spend more when the stock market is rising.

• Wage increases reported by highest number of companies in 18 years, survey finds.

• Technical charts signal a faster march to S&P 3,000.

Fox News:

• FBI Deputy Director Andrew McCabe 'removed' from the bureau. (video)

CNBC:

• Dell is considering a sale to VMware(VMW) in what may be tech's biggest deal ever. (video)

• Stocks are doing something they haven’t done in more than 60 years. (video)

• A robot ETF that has taken in $650 million in cash this month.

• K-Cup maker Keurig bets big on beverages, buying Dr Pepper Snapple(DPS). (video)

• Goldman(GS), these other Dow stocks may win if rates keep shooting higher.

• Conventions could avoid Wynn(WYNN) hotels, killing a sizable source of revenue for the company, gaming analyst warns. (video)

• NAFTA negotiators remain divided but see some progress in trade talks.

• Gabelli says merger activity makes him optimistic about the market over the next six to nine months.

• Boeing(BA) buys stake in battery start-up to study electric flights.

Zero Hedge:

• Fitness Tracking App Accidentally Reveals Secret US Military Bases, CIA "Black" Sites.

• FBI Deputy Director McCabe Has Stepped Down Effective Today.

• How Companies Are Spending Their Tax Reform Windfall. (graph)

• Chart Of The Day: Bitcoin Trust Spikes On Stock-Split. (graph)

• Hillary Clinton Mocks Trump In Tasteless Grammys Sketch.

• This Should Make President Trump Happy. (graph) Despite consensus GDP growth for Q1 at around 2.5%, The Atlanta Fed's latest GDPNow forecast for Q1 economic growth has started at an impressive 4.2%.

• Dallas Fed: "We May Not Like The Division In The Country But Trump's Policies Are Working". (graph)

• ECB Officials Said To Assume QE Ends With Short Taper, Euro Slides.

• 2018 Grammys Had The Lowest Ratings Ever As Award Show Turns Political.