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Morning Call For Tuesday, January 2

OVERNIGHT MARKETS AND NEWS

Mar E-mini S&Ps (ESH18 +0.31%) this morning are up +0.21% on signs of strength in China's economy that is positive for global growth after a gauge of Chinese manufacturing activity unexpectedly expanded last month. European stocks are down -0.69% at a 3-1/2 month low as strength in EUR/USD undercuts European exporter stocks. EUR/USD climbed to a 3-3/4 month high and the 10-year German bund yield rose to a 2-1/4 month high of 0.462% on hawkish comments from ECB Executive Board member Coeure who said the ECB's current extension of stimulus may be the last. Asian stocks settled mostly higher: Japan closed for holiday, Hong Kong +1.99%, China +1.24%, Taiwan +0.64%, Australia -0.06%, Singapore +0.80%, South Korea +0.39%, India unchanged. China's Shanghai Composite rose to a 1-1/4 month high and the Chinese yuan climbed to a 3-3/4 month high against the dollar after the China Dec Caixin manufacturing PMI unexpectedly rose +0.7 to a 4-month high of 51.5, which bolsters confidence in China's economic outlook.

The dollar index (DXY00 -0.44%) is down -0.38% at a 3-1/4 month low. EUR/USD (^EURUSD) is up +0.42% at a 3-3/4 month high on hawkish comments from ECB Executive Board member Coeure. USD/JPY (^USDJPY) is down -0.40% at a 2-week low.

Mar 10-year T-note prices (ZNH18 -0.15%) are down -6.5 ticks.

ECB Executive Board member Coeure said, "given what we see in the economy, I believe there is a reasonable chance that the extension of our asset purchase program decided in Oct can be the last."

The China Dec Caixin (flash) manufacturing PMI unexpectedly rose +0.7 to 51.5, stronger than expectations of -0.1 to 50.7 and the fastest pace of expansion in 4 months.

U.S. STOCK PREVIEW

Key U.S. news today includes: (1) revised-Dec Markit manufacturing PMI expected unrevised at 55.0 (prelim-Dec +1.1 to 55.0), (2) USDA weekly grain export inspections.


Notable Russell 1000 earnings reports today include: Southern Co (consensus $0.46).

U.S. IPO's scheduled to price today: none.

Equity conferences this week: Wolfe Oil & Gas Refiners Conference on Wed, Goldman Sachs Health Care Conference on Thu.

OVERNIGHT U.S. STOCK MOVERS

Disney (DIS -0.24%) was upgraded to 'Outperform' from 'Neutral' at Macquarie with a price target of $125.

Netflix (NFLX -0.39%) was upgraded to 'Outperform' from 'Neutral' at Macquarie with a price target of $220.

Johnson & Johnson (JNJ -0.60%) was downgraded to 'Neutral' from 'Overweight' at JP Morgan Chase.

Abbott Laboratories (ABT -0.68%) was upgraded to 'Overweight' from 'Equal-Weight' at Morgan Stanley with a price target of $67.

L Brands (LB -1.31%) was upgraded to 'Outperform' from 'Neutral' at Baird with a price target of $70.

International Paper (IP +0.19%) was upgraded to 'Buy' from 'Neutral' at Bank of America/Merrill Lynch with a price target of $66.

Allstate (ALL -0.19%) was downgraded to 'Underperform' from 'Market Perform' at Keefe, Bruyette & Woods with a price target of $93.

Genesco (GCO unch) was upgraded to 'Buy' from 'Hold' at Jeffries.

Lennar (LEN -0.91%) may move higher this morning after GAMCO reported an 11.76% stake in the company after the close of trading on Friday.

RCI Hospitality (RICK -1.89%) said it sees preliminary Q4 revenue of $39.2 million, better than consensus of $38.1 million, but said it needs more time to file a 10-K to resolve two non-cash accounting issues.

vTv Therapeutics (VTVT +8.09%) rallied nearly 6% in after-hours trading after it rallied 45% on Thursday and Friday when shareholder Ron Perelman, who owns more than 10% of the company, reported that he bought an additional 50,000 shares of the company's common stock at an average price of $4.03 on December 26.


Xunlei Ltd (XNET +5.05%) rose almost 3% in after-hours trading after Morgan Stanley reported a 5.1% passive stake in the company.

Vintage Capital raised its stake in Vitamin Shoppe (VSI +1.15%) to 12.4% from 9.9% reported Dec 15.

New York REIT (NYRT -0.51%) may move higher this morning after Davidson Kempner reported a new 7.1% passive stake in the company after the close of trading on Friday.

Kadmon Holdings (KDMN +4.02%) fell 3% in after-hours trading after it failed to sell a $150 million mixed securities shelf.

MARKET COMMENTS

Mar S&P 500 E-mini stock futures (ESH18 +0.31%) this morning are up +5.75 points (+0.21%). Friday's closes: S&P 500 -0.52%, Dow Jones -0.48%, Nasdaq -0.70%. The S&P 500 on Friday posted a 1-week high early but then moved lower the rest of the day and dropped to a 2-week low. Stocks were undercut by negative carry-over from a slide in European stocks to a 3-1/2 month low after EUR/USD climbed to a 3-1/4 month high and undercut European exporter stocks. Energy stocks rallied after crude oil prices rallied +0.97% to a 2-1/2 year high.

Mar 10-year T-note prices (ZNH18 -0.15%) this morning are down -6.5 ticks. Friday's closes: TYH8 +6.50, FVH8 +3.00. Mar 10-year T-notes on Friday closed higher on the decline in stocks and on quarter-end buying by bond fund managers of longer-term government debt to increase the duration of their bond portfolios.

The dollar index (DXY00 -0.44%) this morning is down -0.346 (-0.38%) at a 3-1/4 month low. EUR/USD (^EURUSD) is up +0.0051 (+0.42%) at a 3-3/4 month high and USD/JPY (^USDJPY) is down -0.45 (-0.40%) at a 2-week low. Friday's closes: Dollar Index -0.478 (-0.52%), EUR/USD +0.0062 (+0.52%), USD/JPY -0.18 (-0.16%). The dollar index on Friday slumped to a 3-month low and closed lower on strength in EUR/USD after German Dec CPI rose more than expected and after the 10-year bund yield climbed to a 2-month high, which improved the euro's interest rate differentials. Weakness in stocks undercut USD/JPY and pushed it to a 1-1/2 week low on increased safe-haven demand for the yen.


Feb crude oil (CLG18 +0.07%) this morning is down -2 cents (9-0.03%) and Feb gasoline (RBG18 -0.08%) is -0.0012(-0.07%). Friday's closes: Feb WTI crude +0.58 (+0.97%), Feb gasoline +0.0012 (+0.07%). Feb crude oil and gasoline on Friday closed higher with Feb crude at a 2-1/2 year high. Crude oil prices were boosted by the slide in the dollar index to a 3-month low and by carry-over support from Thursday's EIA data that showed U.S. crude inventories fell for a sixth week to a 2-year low and crude supplies at Cushing fell to a 2-3/4 year low. Crude oil prices were undercut by carry-over weakness from Thursday's news that U.S. Oct crude production rose to a 46-year high of 9.64 million bpd.

Metals prices this morning are mixed with Feb gold (GCG18 +0.30%) +2.8 (+0.21%) at a 3-1/2 month high, Mar silver (SIH18 -0.17%) -0.040 (-0.23%) and Mar copper (HGH18 -0.42%) -0.018 (-0.55%). Friday's closes: Feb gold +12.1 (+0.93%), Mar silver +0.222 (+1.31%), Mar copper 0.0080 (-0.24%). Metals on Friday settled mixed with Feb gold at a 3-month nearest-futures high and Mar silver at a 1-month high. Metals prices were supported by the fall in the dollar index to a 3-month low and by increased inflation expectations that boosted demand for gold as an inflation hedge after the 10-year T-note breakeven inflation rate jumped to an 8-1/2 month high. Copper prices fell after China's weekly Shanghai copper inventories rose +10,278 MT.


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