Tuesday Watch

Evening Headlines 
Bloomberg:

• Bernanke Taper Delay Clouds Kuroda Inflation Fight: Japan Credit. The Federal Reserve’s surprise decision to delay tapering stimulus as inflation remains subdued suggests Bank of Japan Governor Haruhiko Kuroda faces an uphill battle to stoke price increases with quantitative easing. Japan’s implied forward yield, which indicates bond investor expectations of the two-year note rate in 2015, has fallen to the lowest since April 4 when Kuroda began unprecedented stimulus, at 0.24 percent last week. That suggests the market doesn’t expect inflation pressure to push up yields for at least two years. The equivalent rate in the U.S. declined to a month low of 1.8 percent on Sept. 18.

• Rupiah Falls to Lowest Since April 2009 as Companies Buy Dollars. Indonesia’s rupiah weakened to the lowest level since April 2009 on speculation local companies increased dollar purchases after the currency had its best week since November 2012. Government bonds fell. The rupiah advanced 0.5 percent last week as the Federal Reserve refrained from reducing the stimulus that has spurred demand for emerging-market assets. Indonesia’s trade shortfall surged to a record $2.3 billion in July, weighing on the current account that has remained in deficit for a seventh straight quarter through June. The government will release trade data for August on Oct. 1. 

• China Reforms Face Headwinds at Home and Abroad. Rapid growth has come at the expense of significant distortions in interest rates, wages, currency and legal structures, along with political capture of the benefits of growth. An almost inevitable result has been a very distorted national balance sheet, marked by burgeoning debt and decreasing ability to finance that debt. It is now clear that China must come to terms with these distortions and reverse them, and that this task will prove difficult.

• China’s Stocks Drop After Biggest Gain in Two Weeks; Vanke Falls. China’s stocks fell after the benchmark index climbed the most in two weeks yesterday. China Vanke Co. and Poly Real Estate Group Co. dropped more than 2 percent after the China Securities Journal reported the government is accelerating a property-tax trial expansion. Ping An Bank Co. paced declines among lenders, losing 4.5 percent. Apple Inc. suppliers, including GoerTek Inc., jumped after a record number of iPhones were sold in the week-end debut. The Shanghai Composite Index slipped 0.8 percent to 2,203.25 as of 10:04 a.m. local time.

• Asia Stocks Fall as Copper to Aussie Drop; Gold Rebounds. Asian stocks dropped, dragging down the benchmark gauge from a four-month high, as Japanese exporters retreated on a stronger yen. Australia’s dollar declined with copper prices, while precious metals rebounded. The MSCI Asia Pacific Index lost 0.8 percent at 11:44 a.m. in Tokyo. Japan’s Topix Index dropped 0.9 percent, the most this month.

• Rubber Declines for Second Day as Oil Extends Losses, Yen Gains. Rubber fell for a second day as weakening crude oil prices and a stronger yen cut its appeal. The contract for February delivery on the Tokyo Commodity Exchange lost as much as 2.3 percent to 277.3 yen a kilogram ($2,825 a metric ton) and traded at 278.80 yen at 11:18 a.m.

• Rebar Falls as Li Says China Has Chosen Steady Monetary Policy. Steel reinforcement-bar futures fell in Shanghai after Premier Li Keqiang said the government has chosen steady monetary policy, damping speculation for more economic stimulus. Rebar for delivery in January on the Shanghai Futures Exchange fell 0.4 percent to 3,641 yuan ($595) a metric ton at 10:49 a.m. local time. Futures have lost 2.9 percent this month.

• Citigroup(C) to Cut 1,000 Jobs in Mortgage Business. Citigroup Inc. (C), the fifth-biggest U.S. mortgage originator last year, is cutting about 1,000 jobs in its home-lending business. The job reductions will come in mortgage sales, underwriting, fulfillment and default roles, primarily in Las Vegas and Irving, Texas, the New York-based company said today in an e-mailed statement. 

• Fisher Says White House Mishandled Fed Chairman Succession. Richard Fisher, president of the Federal Reserve Bank of Dallas, said the White House botched the nomination for Chairman Ben S. Bernanke’s successor by allowing an unprecedented public debate over who would be the best choice. “The White House has mishandled this terribly,” Fisher said today in response to a question from the audience after giving a speech in San Antonio, Texas. “This should not be a public debate,” he said, adding that the Fed “must never be a political instrument.”

Wall Street Journal:

• U.S. Readies Civil Suit Against J.P. Morgan on Mortgages. Flurry of Negotiations Take Place. Justice Department officials are preparing to file a civil lawsuit against J.P. Morgan Chase & Co. over the bank's handling of residential mortgage-backed securities before the financial crisis, according to people familiar with the matter. Government lawyers had notified the bank that they planned to file the lawsuit as early as Tuesday, but a flurry of renewed discussions Monday could change that schedule, according to a person familiar with the talks. Even as they prepare a civil case against the bank, federal prosecutors are weighing whether to bring any criminal charges stemming from the case, according to a person familiar with the case.

• BlackBerry(BBRY) Strikes Preliminary Go-Private Deal for $4.7 Billion. Fairfax Financial Owns 10% of BlackBerry Shares; Due Diligence, Go-Shop Period Lasts Six Weeks.

• Kenya Says It Believes All Hostages Are Free. Security Forces Comb Through Upscale Mall to Search for Any Remaining Survivors, Attackers After Raid. The remaining hostages held by Islamic militants in an upscale Nairobi mall during a three-day siege appeared to have been freed, Kenyan officials said early on Tuesday, as security forces continued to conduct operations in the building. The declaration came after the security forces mounted a major assault on Monday afternoon in an effort to free the remaining people Kenyan officials still believed to be inside. Gunfire and explosions erupted as the operation started, accompanied by a black plume of smoke billowing into the air.

• Bennett and Beach: The Hypocrisy Of Congress's Gold-Plated Health Care. Special subsidies for Hill workers trample on the Founders' code of equal application of the law.

Fox News:

• One man's ObamaCare nightmare. Andy and Amy Mangione of Louisville, Ky. and their two boys are just the kind of people who should be helped by ObamaCare. But they recently got a nasty surprise in the mail.

Zero Hedge:

• Kenyan Foreign Minister Confirms Mall Attack Was By Al-Qaeda.

• JPMorgan(JPM) Brings The Second Public Coming Of Chrysler.

• One Pre-FOMC Link That Seems To Explain Everything.

• A Baby-Boomer's Apology: "What Were We Thinking?" (video)

• QE Worked For The Weimar Republic For A Little While Too. (graph)

• Housing "Recovery" Endgame Escalates.

• What Shadow Banking Can Tell Us About The Fed's "Exit-Path" Dead End.

NY Times:

• Asia at Risk as Economies Put Off the Inevitable. Economists say the Federal Reserve’s decision to keep pumping money into the American economy is only a temporary reprieve for Asia — one that could tempt policy makers in the region to put off the structural changes they believe are essential to improve long-term growth prospects across the region.

Reuters:

• Linux distributor Red Hat's(RHT) billings growth disappoints. Red Hat Inc, the world's largest commercial distributor of the Linux operating system, reported a slower growth in billings than analysts had expected. The company's shares fell nearly 8 percent after markets closed.

Telegraph:

• How corporate hoarding could kill off the bull market in asset prices. For financial markets, October is by tradition the cruellest month. Most of the truly awesome stock market crashes have happened at or around this fated time of the year, so for those of a superstitious frame of mind, it is invariably approached with trepidation.

China Daily:

• Some China Local Govts Overuse Finance Vehicles. Some local Chinese governments overused financing vehicles to borrow money for city construction and created "relatively large scale" of debt, according to an article written by Wang Baoan. China should change the model that residents can only buy properties from developers, Wang wrote.

China Securities Journal:

• China to Start New Round of Property Tax Training. China will start 2nd round of property tax training for those working in taxation system next month, signaling acceleration of property tax trial expansion, citing people familiar with the matter.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -1.0% to -.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 149.50 +8.5 basis points.

• Asia Pacific Sovereign CDS Index 100.25 +2.0 basis points.

• FTSE-100 futures -.08%.

• S&P 500 futures -.15%.

• NASDAQ 100 futures -.07%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (KMX)/.57

• (CCL)/1.29

• (KBH)/.21

• (LEN)/.45

• (CPRT)/.40

Economic Releases 
9:00 am EST

• The S&P/CS 20 City MoM SA for July is estimated to rise +.8% versus a +.89% gain in June.

• The House Price Index for July is estimated to rise +.8% versus a +.7% gain in June.

 10:00 am EST

• The Richmond Fed Manufacturing Index for Sept. is estimated to fall to 12.0 versus 14.0 in August.

• Consumer Confidence for September is estimated to fall to 80.0 versus 81.5 in August.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's George speaking, Fed's Pianalto speaking, weekly retail sales reports, Goldman Sachs Communacopia Conference, BofA Merrill Power/Gas Conference, (VAR) investor meeting, (PDCO) investor day, (MCO) investor day and the (INTU) investor day could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by real estate and technology 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.