“The Market Can Remain Irrational Longer Than You Can Remain Solvent” — John Maynard Keynes

1. Scotland’s Plan to Stay in European Single Market — in trying to avoid the “national disaster” of a “hard Brexit,” Scotland will publish proposals for how it can remain in the European single market after Britain leaves the EU. The plans are expected to outline new and substantial powers for the devolved parliament in Edinburgh, allowing for free movement of goods, services and people.
2. IMF Leadership in Question as Lagarde Found Guilty — IMF Managing Director Christine Lagarde won’t face punishment and will keep her job, despite being convicted of negligence charges relating to a state payment made during her time as French finance minister in 2008. The court ruled that Lagarde failed to contest a €400M award to billionaire tycoon Bernard Tapie, but decided against sentencing owing to her preoccupation with the 2008-09 financial crisis and strong international reputation.
3. Apple in Talks to Manufacture in India — Apple is discussing with the Indian government the possibility of manufacturing its products in the country. In a letter last month, the company outlined its plans and sought financial incentives to move ahead, the WSJ reported. Making goods such as iPhones locally would allow Apple (NASDAQ:AAPL) to open its own stores in India, helping build its brand in a country where it has just a tiny slice of less than 5% – of a booming smartphone market.
4. Italy/World Oldest Bank Monte dei Paschi Moves Closer to Collapse — Italy’s parliament has approved a government request for a 20 billion euro rescue loan to prop up the country’s ailing banking sector, including Banca Monte dei Paschi di Siena SpA. Italy third biggest Italian lender after it warned that it would run out of cash in 4 months. Monte dei Paschi had previously said that its 10.6 billion euro ($11.5 billion) liquidity position could last for 11 months.
5. U.S. GDP Growth Revised Up to 3.5% Rate in Third Quarter — the Commerce Department said the economy expanded at a seasonally adjusted 3.5% annualized rate in the third quarter. This is above the government’s prior estimate of 3.2% due to upward revisions in consumer spending and business investment. Consumer spending, which added 2 percentage points to GDP, rose at a 3% annual rate, up from the prior estimate of 2.8%. Business investments rose at a revised 1.4% rate, much stronger than the previous estimate of a 0.1% rise. The trade sector was a big positive for growth in the third quarter. Exports spiked 10% helped by a temporary boom in U.S. soybean shipments.
6. Deutsche Bank, Credit Suisse Settle U.S. Subprime Probes — the DOJ has reached a $7.2B provisional deal with Deutsche Bank (NYSE:DB) and a $5.3B agreement in principle with Credit Suisse (NYSE:CS). Barclays (NYSE:BCS) is also feeling the heat from U.S. federal prosecutors after the British lender balked at paying the amount the government sought in negotiations.
7. S&P 500 Index Broke-out of 2-Year Trading Range — chart below shows the S&P 500 Index broke out of a 2-year consolidation. Courtesy of BIG.

The week ahead — Economic data from Econoday.com:

“Buy when others are despondently selling and sell when others are greedily buying” — Mark Mobius

1. Saudis Eye Deeper Cuts While Non-OPEC Joins Deal — OPEC and non-OPEC producers signed their first deal to cut output since 2001. Led by Russia, non-OPEC nations agreed to reduce production by 558K barrels per day, falling just short of the 600K target envisioned by OPEC. But following the meeting in Vienna, the Saudi Energy minister Khalid Al-Falih said everyone is committed to making sure the levels are enforced.
2. Bill Gates Pushes Green Energy on Call With Trump, While Building $1 Billion Fund — Bill Gates starts a new investment fund he and other billionaires started called Breakthrough Energy Ventures. Gates has tapped his vast network of technology and energy bigwigs to raise more than $1 billion that will be at the fund’s disposal, starting in 2017. The goal is to increase investments in energy-related technologies that will reduce, if not eliminate, greenhouse gas emissions. Investors in Breakthrough Energy Ventures include Jeff Bezos, chief executive officer of Amazon.com Inc., Richard Branson, the founder of Virgin Group Ltd., and Michael Bloomberg, the founder of Bloomberg LP. There are also prominent venture capitalists like John Doerr and Vinod Khosla, who have pumped a lot of money into green tech companies in the past.
3. Fed Raises Rates, Boosts Outlook for Borrowing Costs in 2017 — Bloomberg, Federal Reserve officials raised interest rates for the first time this year and forecast a steeper path for borrowing costs in 2017, saying inflation expectations have increased “considerably” and suggesting the labor market is tightening. New projections show central bankers expect three quarter-point rate increases in 2017, up from the two seen in the previous forecasts in September, based on median estimates.
4. U.S. Challenges China’s Grain Import Quotas at WTO — the U.S. has launched a challenge to China’s use of tariff-rate quotas for rice, wheat and corn at the WTO, charging that China’s administration of the program breached its WTO commitments and hurt U.S. farm exports. The tariff-rate quotas for rice, wheat and corn were worth $7B-plus in 2015, and China would have imported up to an additional $3.5B of the crops last year if the quotas had been fully used, the Office of the U.S. Trade Representative said. It was the second challenge to China’s agricultural policies by the U.S. Trade Representative since September and the latest in an escalating number of trade disputes between the two countries.
5. Euro Currency Recorded a 13-year Low Versus the USD — the euro recorded a 13-year low, just above $101.51, but has remained above $1.0. The US rate premium is also consolidating. The US two-year premium rose this week above 200 bp for the first time since 2000. The Euro/USD is targeted to reach par in early 2017. Below is the weekly chart going back to Dec 2011 to Dec 16 2016.

The week ahead — Economic data from Econoday.com:

“Michael Marcus taught me one other thing that is absolutely critical: You have to be willing to make mistakes regularly; there is nothing wrong with it. Michael taught me about making your best judgment, being wrong, making your next best judgment, being wrong, making your third best judgment, and then doubling your money.” – Bruce Kovner

1. Renzi Quits as Italy Referendum Defeat Deepens Europe’s Turmoil — with virtually all the ballots counted, 59.6% of Italians voted to block the Prime Minister’s constitutional reform plans in a closely-watched referendum. Among the biggest winners of the referendum is the anti-establishment 5 Star Movement, which has called for a nonbinding plebiscite on Italy’s euro membership and might favor printing a parallel currency. The nation has already seen 63 governments in just 70 years.
2. AT&T Starts 5G Business Customer Trial — AT&T (NYSE:T) has started testing the technology inside of one of Intel’s (NASDAQ:INTC) offices in Austin, TX. The company is particularly interested in how the new network will stand up to streaming 4K video, but will also test a wide variety of uses, including VPN, VoIP, “unified communications applications” and good old internet access. However, AT&T stated that 5G and its multi-gigabit cellular speeds probably won’t hit the market until 2020.
3. China’s Forex Reserves Fell to New Lows — another blow to China’s foreign exchange reserves fell for a fifth straight month in November, tumbling $69.06B to $3.052T – the lowest since March 2011. Authorities struggled to shore up the sliding yuan in the face of a relentlessly rising dollar. Adding to pressure on the currency, President-elect Trump has vowed to label China a currency manipulator on his first day in office and threatened to impose huge tariffs on Chinese goods.
4. Moody’s Affirms Italy’s Rating at ‘Baa2’, Revises Outlook To Negative — Moody’s Investors Service affirmed Italy at Baa2 but revised down the outlook on the country’s rating to negative from stable after Italian voters rejected a referendum on constitutional changes over the weekend. Moody’s cited “the slow and halting progress on economic and fiscal reform in Italy, the prospects for which have diminished further following the ‘no’ vote in Sunday’s constitutional referendum” as the main driver behind its decision. The ratings agency also expressed concerns that Italy may be exposed to “unforeseen shocks” for an extended period due to its tepid growth outlook and the recent deterioration in its fiscal position.
5. U.K. Parliament Backs Timetable To Trigger Article 50 (process of leaving the EU) — British MPs have voted in favor of government plans to trigger Article 50 by March 31, 2017, meaning Britain will formally initiate the process of leaving the EU before that date. However, both the government and opposition said the motion didn’t affect a case at the Supreme Court over whether the government has the authority to start negotiations without legislation in parliament.
6. Microsoft Chip Pact with Qualcomm Expands Efforts in Mobile — Microsoft is working with Qualcomm to spawn a new breed of tablets and notebooks that promise to diversify the software giant’s tech base and give the chip maker access to new markets. The partnership will result in an update of Windows 10 (NASDAQ:MSFT) that runs on a chip in Qualcomm’s (NASDAQ:QCOM) widely used Snapdragon line of processors, the first Windows 10-Snapdragon pairing.
7. S&P 500 Index Overbought — chart below shows the S&P500 weekly is overbought. Pullback in the index is expected.

The week ahead — Economic data from Econoday.com:

“Letting losses run is the most serious mistake made by most investors.” – William O’Neil

1. Trump Responds to Recount Efforts — the Clinton campaign is backing Green Party candidate Jill Stein’s efforts to take a fresh look at voting results, stating it planned be a participant in recounts in Wisconsin, Pennsylvania, and Michigan. President-elect Donald Trump called the decision a “scam” and “nothing would change,” claiming he won the popular vote as well as the electoral college if “the millions of people who voted illegally” were deducted.
2. Cyber Monday 2016 Looks to Break Records — U.S. online sales gained momentum on Cyber Monday and looked set to surpass initial expectations by hitting a record $3.39B, which would mark the nation’s largest online sales day in history.
3. OPEC Reaches Deal to Cut Oil Production — OPEC group has agreed to lower output by 1.2 million barrels a day to 32.5 million barrels per day. If OPEC can agree on a cut, it will be its first since 2008. The production deal will last six months, according to Iraqi Oil Minister Jabbar al-Luaibi. He hopes the accord will push prices to over $55 per barrel. However, such an outcome would spur U.S. shale companies to produce more, eventually adding more supply to global markets and weighing on oil prices again.
4. EU Plans €5B Defense Fund — the EU plans to boost its defense budget to its highest level in over a decade, setting up a €5B fund and sending a signal to Donald Trump that it intends to pay for its own security. “This is not about an EU army,” European Commission Vice President Jyrki Katainen said. “We face multiplying threats and we must act.”
5. Iran Threaten U.S. Extension of Sanctions Violates Nuclear Deal — threatening to retaliate, Iran has called the U.S. Senate’s vote to extend the Iran Sanctions Act (ISA) for another decade a violation of the 2015 deal with six major powers that curbed its nuclear program. ISA was first adopted in 1996 to punish investments in Iran’s energy industry and deter its pursuit of nuclear weapons.
6. BP Approves $9B “Mad Dog” Project, First in Gulf of Mexico Since 2010 Spill — BP is planning to press ahead with a major deep water project in the Gulf of Mexico – the latest evidence oil companies are tentatively wading back into big-ticket projects amid signs a two-year crude market slump is ending. BP said it reduced the cost of phase 2 development of Mad Dog – as the project is known – to $9B, compared with an initial $20B estimate in 2013.
7. S&P500 Broken-Out — the SPX has broken out to the upside after a nearly two-year consolidation (See chart below).

The week ahead — Economic data from Econoday.com: