Wednesday Watch

Evening Headlines 
Bloomberg:

• China Beige Book Shows Slowdown, Opposite Official Data. China’s economy slowed this quarter as growth in manufacturing and transportation weakened in contrast with official signs of an expansion pickup, a private survey showed. Increases in business-investment and real estate revenue also slowed, while service industries picked up and employees became tougher to find, the survey from New York-based China Beige Book International said yesterday. The report is based on responses from 2,000 people from Aug. 12 to Sept. 4 as well as 32 in-depth interviews conducted later in September. The quarterly report, modeled on the U.S. Federal Reserve’s Beige Book business survey, diverges from government figures showing faster July and August gains in factory production that have spurred analysts from Citigroup Inc. to Deutsche Bank AG to upgrade expansion estimates. Nomura Holdings Inc. is among banks skeptical that any rebound will be sustained next year. The results “show the conventional wisdom of a renewed, strong economic expansion in China to be seriously flawed,” China Beige Book President Leland Miller and Craig Charney, research and polling director, said in a statement. The data “reveal weakening gains in profits, revenues, wages, employment and prices, all showing slipping growth on-quarter -- no disaster, but certainly not the powerful expansion suggested by the consensus narrative.”    

• Party Will Pay the Price for China’s Rebalancing. We need to keep the impact of financial repression in mind in understanding the Chinese growth model. It is a fundamental cause of China’s rapid expansion and its extraordinary imbalances. State-owned enterprises, like other large-scale investors, have benefited from artificially low interest rates, and it is quite easy to prove that over the past decade they have beStudies done by the mainland research organization Unirule Institute of Economics suggest that more than 100 percent, and perhaps much closer to 200 percent, of theaggregate profitability of state-owned enterprises in China over the past decade can be explained by monopoly pricing and direct subsidies. Without these subsidies, according to Unirule, state-owned enterprises earned a negative return on equity equal to 6 percent to 7 percenten value destroyers on a very significant scale. .

• Asian Stocks Fall Second Day as U.S. Confidence Declines. Asian stocks fell for a second day, paring the best monthly advance since January 2012 for the regional benchmark index, after U.S. consumer confidence slumped in September to a four-month low. Mitsui Chemicals Inc. lost 4.8 percent in Tokyo, leading materials producers lower. NTT Data Corp., a Japanese network-services company, slumped 7.5 percent, pacing a retreat in technology firms. Tokyo Electron Ltd. surged 14 percent after Applied Materials Inc., the largest chipmaking-equipment supplier, agreed to buy the company for $9.39 billion in stock. The MSCI Asia Pacific Index fell 0.2 percent to 140.20 as of 10:24 a.m. in Hong Kong, with six of the 10 industry groups on the gauge declining.

• Rebar Trades Near Lowest in 11 Weeks as Producers Reduce Prices. Steel reinforcement-bar futures traded near the lowest level in 11 weeks after some Chinese steel producers cut prices, increasing concern that inventories are rising as supply outpaces demand. Rebar for delivery in January on the Shanghai Futures Exchange fell as much as 0.3 percent to 3,617 yuan ($591) a metric ton and traded at 3,619 yuan at 10:45 a.m. The most-active contract declined to 3,612 yuan on Sept. 23, the lowest since July 10. Futures have lost 3.6 percent this month.

• Lew Says Investors May Be Too Hopeful on Debt-Limit Debate. U.S. Treasury Secretary Jacob J. Lew said investor confidence that a deal can be struck to raise the debt limit is “a bit greater than it should be” and the government probably will have less than $50 billion in cash by mid-October. Lew, who spoke at the Bloomberg Markets 50 Summit in New York today, repeated that President Barack Obama won’t negotiate with congressional Republicans on increasing the $16.7 trillion ceiling on the nation’s borrowing authority.

• Americans in Poll Doubt Economy Rebound. Fewer people anticipate improvement in the economy’s strength over the next year than in the last survey in June, with 27 percent saying the expansion will be more robust, down from 39 percent who expected improvement three months earlier. Forty-four percent of poll respondents say they expect the economy, which has expanded for nine consecutive quarters, to remain about the same, while 28 percent see it weakening. “We’re still in a recession; I don’t know why they say it’s over,” says Chris Sams, 28, a disabled Navy veteran from Daingerfield, Texas. “It may be over in Washington, D.C., where the per capita income is higher than anywhere else, but down here the minimum wage is the highest wage.”

Wall Street Journal:

• Iran Applies Brakes to U.S. Mideast Plans. Tehran Decides Against Meeting of President at U.N. President Barack Obama argued the U.S. case before world leaders for resolving the Middle East's deepest conflicts, but pushback from Iran dimmed hopes that had been building for a rapid leap forward. Iranian President Hasan Rouhani's decision against meeting Mr. Obama—or even exchanging a handshake—at the U.N. General Assembly in New York on Tuesday soured what American and European officials had hoped would mark an advancement in efforts to wind down tensions. Mr. Rouhani followed that rebuff with an address to the U.N. in which he aired his hopes for reconciliation while holding firm on Iran's right to enrich uranium and criticizing some aspects of American foreign policy, including economic sanctions on Tehran.

• iPhone ‘Teardown’ Shows Apple’s(AAPL) Strong Margins. Apple is holding the line with strong margins on sales of its smartphones, including the lower-end iPhone 5C model, according to data provided by the research firm IHS iSuppli. Apple earns about $450 on its 16 gigabyte iPhone 5S, minus the component costs and assembly for the device, which sells for $649 without a contract. Those costs of the components and manufacturing make up about 30% of the price, similar to that of last year’s iPhone 5 and the new iPhone 5C, which sells for about $100 less.

• Copart(CPRT) 4th-Quarter Net Down 8%; Won't Pursue REIT Conversion. Copart Inc.'s (CPRT) shares fell Tuesday after the car auctioneer reported a weaker-than-expected fiscal fourth-quarter profit due to higher expenses. Though revenue growth topped analysts' expectations, the bottom line surprisingly fell 8% from a year ago as Copart's expenses--including yard operation and vehicle sale costs--jumped from the prior year. Shares slid 11% to $30.35 in after-hours trading.

• M.B.A. Applications Rebound.

• Prosecutors Pursue Big SAC Settlement.

• Cashing Out After Post-Fed Rally. The stock market's surge is pushing some investors to cash in a few of their chips. Even as shares climbed to new highs in recent weeks, some money managers pared their equity holdings. Their reasons: after such a strong run, the rally may be losing steam and the Federal Reserve will soon begin withdrawing the massive monetary stimulus it has been injecting into the economy since the financial crisis. Contributing to the shift out of stocks are valuations that many investors are finding less attractive and jitters about the renewed brinkmanship in Washington, D.C., over upcoming budget battles. To be sure, the fund managers say they are not turning bearish on stocks. Rather, they're deciding that a dose of defense is warranted.

• Al Qaeda's African Surge Threatens the U.S. The affiliate that attacked the shopping mall in Kenya includes young Muslim recruits from Minnesota.

Fox News:

• Cruz vows to speak against ObamaCare until unable 'to stand,' as vote looms. The Texas Republican senator declared Tuesday afternoon that he intends to speak in opposition to ObamaCare "until I am no longer able to stand." "ObamaCare isn't working," he said. "There are politicians in this body who are not listening to the people."

Zero Hedge:

• From The Tip Box: "The Fed Made It Possible For Many People To Leak It".

• An Alternative View Of Why The Fed Did Not (and Will Not) Taper.

• French Court Orders Flagship Sephora Store Not To Work So Much.

• Goldman Warns Fed Chair Nomination Could Take 3 Months.

• The Other Reason The Fed Is Terrified Of A Government Shut Down.

• Goldman(GS) Goes Medieval On JCPenney(JCP): Shorts Bonds; Slams Liquidity; Expects Default Risk Surge.

• Peter Boockvar: "There Is 0% Chance That This Ends Smoothly".

ValueWalk:

• Jim Chanos: China’s Housing Near 400% of GDP [VIDEO].

Business Insider:

• 'Obama's Favorite General' Stripped Of Security Clearance Amid Leak Investigation.

• GARRY KASPAROV: Vladimir Putin Had A Weak Poker Hand, But Obama Fell For His Bluff.

• MORGAN STANLEY(MS) PRESENTS: 'The Fragile Five' — The Most Troubled Currencies In Emerging Markets.

Reuters:

• Fighting in Syria between moderate rebels, al Qaeda intensifies -U.S. Moderate Syrian rebels are engaged in their fiercest fighting to date with al Qaeda-affiliated fighters on Syria's northern and eastern borders, a senior U.S. State Department official said on Tuesday. "There is a real firefight," the official said of battles between al Qaeda's Islamic State of Iraq and the Levant (ISIL) and the Free Syrian Army led by Salim Idriss, a more moderate group of rebels trying to oust Syrian President Bashar al-Assad.

• Netanyahu says Rouhani speech 'cynical', Iran buying time. Israeli Prime Minister Benjamin Netanyahu said on Wednesday that Iranian President Hassan Rouhani's U.N. address was "cynical" and Tehran was stalling for time in order to develop nuclear arms. "It was a cynical speech full of hypocrisy," Netanyahu said in a statement after Rouhani addressed the annual gathering of world leaders at the United Nations General Assembly.

Evening Recommendations 
Keefe Bruyette:

• Raised (CME) to Outperform, target $89. 

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 151.0 +1.5 basis points.

• Asia Pacific Sovereign CDS Index 116.0 +15.75 basis points. (new series)

• FTSE-100 futures -.13%.

• S&P 500 futures -.04%.

• NASDAQ 100 futures +.09%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AZO)/10.34

• (JBL)/.54

• (BBBY)/1.15

• (FUL)/.67

• (WOR)/.58

• (THO)/.96

Economic Releases 
8:30 am EST

• Durable Goods Orders for August are estimated to fall -.2% versus a -7.3% decline in July.

• Durables Ex Transports for August are estimated to rise +1.0% versus a -.6% decline in July.

• Cap Goods Orders Non-defense Ex Air for August are estimated to rise +2.0% versus a -3.3% decline in July.

 10:00 am EST

• New Home Sales for August are estimated to rise +1.5% versus a -1.5% decline in July.
  

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,000,000 barrels versus a -4,368,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -750,000 barrels versus a -1,627,000 barrel decline the prior week. Distillate supplies are estimated to fall by -925,000 barrels versus a -1,079,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall by -.88% versus unch. the prior week.

Upcoming Splits

• (WST) 2-for-1

• (TSCO) 2-for-1

Other Potential Market Movers

• The Eurozone GFK Confidence report, Germany Import/Export Prices reports, 5-Year T-Note auction, weekly MBA mortgage applications report, 2Q Household Networth Change and the KBW Insurance Conference could also impact trading today.

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