Thursday Watch

Evening Headlines 
Bloomberg: 

• Local $1.6 Trillion Debt Pile Impedes Rate Freedom: China Credit. Chinese local governments’ $1.6 trillion in bank borrowings are a major obstacle to the freeing up of interest rates in the world’s second-largest economy, according to BNP Paribas SA and Capital Economics Ltd. The financing arms of municipal authorities owed lenders 9.7 trillion yuan ($1.6 trillion), or 14 percent of all loans, in mid-2013, according to China Banking Regulatory Commission figures. Most have weak credit profiles, Moody’s Investors Service said in a Nov. 5 report, noting that only 53 percent of 388 such companies it surveyed in June had enough cash to cover estimated debt payments and interest this year without refinancing.

• China Banks Pay Most for State Funds in Six Months; Swaps Rise. Chinese lenders paid the highest rate of interest since June to borrow government funds today, a sign cash supply in the banking system is waning. The seven-day repurchase rate, a gauge of funding availability in the banking system, climbed 44 basis points, or 0.44 percentage point, to 4.18 percent as of 10:44 a.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. It reached 4.50 percent earlier, the highest level since Nov. 1.

• Nomura’s Akedo Sees Stock Drop Unless Investors Convinced. Japan’s Nikkei 225 Stock Average could fall to 12,000 if the government doesn’t do more to persuade global investors that efforts to boost the economy will succeed, Nomura Holdings Inc. (8604)’s head of Japan equities said. “Worldwide investors are breathlessly watching the future of Japan,” Norikazu Akedo, who oversees equity sales and trading at the nation’s largest brokerage, said in a Nov. 12 interview. 

• Australia Faces Debt Ceiling Impasse as Hockey Warns of Cuts. Australia faces “massive” public spending cuts if the upper house Senate blocks government efforts to increase the nation’s debt ceiling to A$500 billion ($468 billion), Treasurer Joe Hockey said. The Liberal-National coalition government says the current A$300 billion limit will be breached next month, and is seeking Senate approval for the increase after legislation was approved by the lower house yesterday. The opposition Labor party has indicated it will block the law, saying an increase to A$400 billion is sufficient. “If Labor prevents an increase in the debt limit, there is no choice but to have massive cuts to government expenditure,” Hockey said in an Australian Broadcasting Corp. interview today. “The government is running on borrowed money.” 

• Asian Stocks Gain With Metals on Yellen as Yen Declines. Asian stocks climbed the most in a month while metals gained after Federal Reserve chairman nominee Janet Yellen signaled stimulus will be maintained until the U.S. economy improves. The yen dropped for the fourth time in five days against the dollar. The MSCI Asia Pacific Index added 1.1 percent at 1 p.m. in Tokyo as Japan’s Topix Index rose to a three-week high.

• Rebar Declines for Second Day in Shanghai as Spot Trading Slows. Steel reinforcement-bar futures in Shanghai fell for the second day amid waning trading in the spot market and as construction slowed because of winter weather in northern China. Rebar for May delivery, the most-active contract on the Shanghai Futures Exchange, fell as much as 0.7 percent to 3,620 yuan ($594) a metric ton and traded at 3,628 yuan at 10:57 a.m. local time.

• Gold Advances After Yellen Backs Easing Until Economy Improves. Bullion for immediate delivery rose as much as 0.4 percent to $1,287.01 an ounce, and was at $1,284.66 at 8:49 a.m. in Singapore. Prices rose 1.1 percent yesterday, the most since Oct. 22, as the Bloomberg U.S. Dollar Index lost 0.4 percent.

Wall Street Journal: 

• Yellen: Economy Still Needs Fed Aid. The U.S. economy has grown "significantly stronger" since the 2008 financial crisis and ensuing recession, and but it still needs help from the Federal Reserve as it continues to mend, Janet Yellen will tell senators Thursday. Ms. Yellen, who has been nominated to be the Fed's next leader, is set to speak before the Senate Banking Committee in her confirmation hearing. "We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession," Ms. Yellen, the Fed vice chairwoman, will say in her opening statement, according to her prepared remarks released Wednesday.

• Fundraising Rules Murky Despite JOBS Act. Ban on Ads Ends, but Small Firms Hold Back. When U.S. securities regulators lifted a long-standing ban on advertising to wealthy investors in September, Smári Ásmundsson hoped it would clear the way for him to pitch investments in his Icelandic yogurt company on Facebook and his own website.

• Obama Open to Health-Law Change. Democrats Raise Pressure as New Figures Show Enrollment Far Short of Forecasts; House Vote Due Friday. The government released numbers Wednesday showing that far fewer Americans had enrolled in private insurance plans under the new health law than expected and, in a marked shift, the Obama administration signaled it was open to legislation to fix the troubled rollout. The move came as the administration faced mounting dissatisfaction from Democrats over the law's implementation. New administration figures showed that only 26,794 people nationwide had enrolled in a private health plan through the balky online federal marketplace in its first month—far short of projections.

Fox News: 

• Details emerge about Americans badly injured in Benghazi attack. In addition to the four Americans killed in the Benghazi terror attack last year, at least two other Americans were severely injured in the fighting that night, Fox News has learned. The injuries were sustained by U.S. personnel after mortars struck the CIA annex rooftop they were defending. Fox News is told that one former government contractor -- who is expected to testify this week along with four other contractors in classified sessions on Capitol Hill -- has had multiple surgeries since the attack and has still not regained full use of one arm.

CNBC: 

• Expect taper in the next couple of months: Morgan Stanley(MS). (video) A tapering in the U.S. Federal Reserve's massive stimulus is the right thing to do against the backdrop of a recovery economy and a scaling back of the stimulus program can be expected in the next couple of months, Morgan Stanley Chairman and CEO James Gorman told CNBC on Thursday.

Zero Hedge:

• Something Is Very Wrong With This Picture. (graph) Just because very few actually understood the severity of the Cisco earnings guidance, in which the company forecast an 8-10% drop (let's call it 9%) in quarterly revenues when Wall Street was expecting a 4% increase, we have compiled and presented in chart form the historical and projected quarterly revenue data for CSCO to show today's preannouncement in all its gruesome context. A few points: 

• NY Fed Compares The Current Reach-For-Yield To South Sea Bubble Of 1720.

• "It Is High Time That Central Banking Is Recognized For The Disease It Is". (graph)

• QE Whistleblower Warns "We Are Eerily Similar To 2008".

• Japanese Q3 Growth Tumbles As Abenomics Cracks Following Slide In Consumption And Exports. (graph)

• What An Ex-FOMC Governor Really Wants To Tell You About The Fed.

Business Insider: 

• JPMorgan(JPM) Is Taking Questions From Twitter And Getting Thoroughly Trolled.

• Facebook(FB) CFO David Ebersman Sold $43 Million Of Facebook Shares.

NY Post: 

• Got ObamaCare? Too bad for you. Uncle Sam will spend $2.6 trillion on ObamaCare over the next 10 years, according to the Congressional Budget Office. What’s remarkable is how few people this will leave better off. The middle class is a clear loser: It gets squeezed, since these people earn too much to qualify for adequate subsidies, but too little to afford the needlessly pricey exchange coverage.

Reuters:

• Not so happy birthday: Abenomics ages, challenges remain. A year after Prime Minister Shinzo Abe took financial markets by storm with promises to revive the moribund Japanese economy, data showed growth slowed sharply and that his "Abenomics" policy mix is yet to secure a durable recovery. Growth in the world's third-biggest economy decelerated in the third quarter after leading the Group of Seven industrial powers in the first half of the year, as capital spending, personal consumption and exports moderated. GDP expanded at an annualised clip of 1.9 percent in the July-September quarter, slightly faster than expected by markets but still sharply slower than 3.8 percent growth in April-June and 4.3 percent in the first quarter. 

• Federal spending concerns weigh on NetApp(NTAP) forecast. Data storage equipment maker NetApp Inc forecast current-quarter revenue below analysts' expectations, flagging concern around the U.S government's spending cuts. NetApp shares fell almost 3 percent after the bell.

• Cisco(CSCO) warns of big second quarter revenue drop, shares fall. Network equipment maker Cisco Systems Inc warned that its revenue would decline between 8 percent and 10 percent in its second fiscal quarter, sending its shares down almost 10 percent in late trade. Chief Executive John Chambers blamed weak demand in emerging markets such as China, saying companies there have become more hesitant to buy Cisco products due because of political repercussions from leaks about the United States spying on foreign governments.

Obama takes on coal with first-ever carbon limits
Read more at http://www.philly.com/philly/news/politics/20130919_ap_0f857b20e0c144a5a1e1b9dddc9f9d72.html#YRThyDOhArykUeYy.99

Financial Times: 

• ECB's Draghi Was Wrong to Reduce Rates, Ifo's Sinn Writes. ECB should aim to offset deflation in Greece, Spain, Portugal by inflating northern euro area, Hans-Werner Sinn, head of German economic institute Ifo, writes in FT opinion piece. Restraint needed rather than activism to achieve that. More conventional monetary policy may give markets better change of fixing imbalances, Sinn writes.

Evening Recommendations

•  None of note
  

Night Trading

• Asian equity indices are +.50% to +1.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 138.0 -1.0 basis point.

• Asia Pacific Sovereign CDS Index 111.50 +.5 basis point. 

• FTSE-100 futures +.66%.

• S&P 500 futures +.23%.

• NASDAQ 100 futures -.10%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (WMT)/1.13

• (VIAB)/1.44

• (DDS)/1.05

• (KSS)/.85

• (A)/.76

• (JWN)/.66

• (AMAT)/.18

Economic Releases
8:30 am EST

• Initial Jobless Claims are estimated to fall to 330K versus 336K the prior week.

• Continuing Claims are estimated to rise to 2870K versus 2868K prior.

• Preliminary 3Q Non-farm Productivity is estimated to rise +2.2% versus a +2.3% gain in 2Q.

• Preliminary 3Q Unit Labor Costs are estimated to fall -.1% versus unch. in 2Q.

• The Trade Deficit for September is estimated to widen to -$39.0B versus -$38.8B in August.

11:00 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +595,000 barrels versus a +1,577,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -550,000 barrels versus a -3,755,000 barrel decline the prior week. Distillate inventories are estimated to fall by -947,000 barrels versus a -4,899,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise +.6% versus a -.5% decline the prior week.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Yellen speaking, Fed's Plosser speaking, UK retail sales, EuroGroup meetings, Eurozone Q3 GDP, Italy 10Y bond auction, 30Y bond auction, weekly EIA natural gas inventory report, Canaccord Med Tech Conference, Goldman Emerging/SMID Cap Growth Conference, (FFIV) analyst meeting, (ALK) investor day and the (ROK) investor meeting could also impact trading today.

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