Tuesday Watch

Evening Headlines 
Bloomberg: 

• U.S. Conducts First Airstrikes in Syria on Islamic State. The U.S. conducted its first airstrikes in Syria, a barrage of attacks joined by partner nations in a major expansion of President Barack Obama’s effort to “degrade and ultimately destroy” Islamic State. “U.S. military and partner nation forces are undertaking military action against ISIL terrorists in Syria using a mix of fighter, bomber and Tomahawk Land Attack Missiles,” Rear Admiral John Kirby, the Pentagon press secretary, said tonight in an e-mailed statement. While Kirby said he couldn’t provide any details because “these operations are ongoing,” the partner nations joining in the attacks were Saudi Arabia, Jordan, the United Arab Emirates and Bahrain, the Washington Post said, citing two U.S. defense officials it didn’t identify.
• China Beige Book Shows Economy Stuck in Low Gear. China’s economy remained stuck in “low gear” this quarter, with struggling retail and residential real-estate industries countering improvements in manufacturing and transportation, a private survey showed. Growth in investment slowed further, borrowing costs rose and the share of firms applying for and getting bank loans remained at “rock bottom levels,” according to the China Beige Book, a report published quarterly by New York-based China Beige Book International. In contrast, hiring picked up and corporate profit margins improved, suggesting widespread government efforts to reignite growth are unlikely, it said.
• China Police Equipment Aids Rights Violations: Amnesty. More than 130 Chinese companies are making and selling equipment that can be used for torture, fueling human-rights violations across Africa and Asia, according to a report by Amnesty International and the Omega Research Foundation. The number of companies involved in the production and trade of potentially dangerous law enforcement equipment has risen from 28 a decade ago, according to the report, entitled “China’s Trade in Tools of Torture and Repression.”
• Asia Stocks Pare Drop as Copper Rises on China Flash PMI. Asian stocks pared declines, with a regional index near a four-month low, and copper climbed as a preliminary gauge of Chinese manufacturing unexpectedly climbed. The price of insuring Asian bonds against default increased. The MSCI Asia Pacific excluding Japan Index was little changed by 10:19 a.m. in Hong Kong, trimming a drop of as much as 0.3 percent.
• Commodities Drop Signals Global Growth Concern: Chart of the Day. The slump in commodity prices to a five-year low signals investors are cautious about the strength of the global economy even as U.S. equities rise to a record. The CHART OF THE DAY shows the Bloomberg Commodity Index of 22 raw materials slipped 5.6 percent this year. Brent crude is down 12 percent and touched a two-year low last week, while iron ore at the Qingdao port in China plunged 41 percent to the lowest since 2009.

Wall Street Journal: 

• Obama Resists Linkage of Mideast Goals. U.S., Some Allies See Signs Tehran Seeking to Link Nuclear Talks and Combating Islamic State. The Obama administration's primary objectives in the Middle East—containing the Islamic State militant group and countering Iran's nuclear program—are coming into conflict with each other, U.S., European and Arab officials say. The White House has insisted that the two issues are entirely separate. But while the U.S. is seeking a role for Iran in the fight against the Islamic extremists, Tehran is chafing at what it...
• New Level of Smartphone Encryption Alarms Law Enforcement. Moves by Apple(AAPL) and Google(GOOG) Are Latest Fallout From Snowden's Disclosures. Moves by Apple Inc. and Google Inc. to put some smartphone data out of the reach of police and the courts are raising alarms inside U.S. law-enforcement agencies, current and former officials say. Several officials in Washington said they were bracing for a confrontation with Silicon Valley on the issue, the latest fallout from the revelations by former National Security Agency contractor Edward Snowden about government...
• A Pro-Family, Pro-Growth Tax Reform by Mike Lee and Marco Rubio. Two simple income-tax brackets: 15% and 35%. End the marriage penalty and increase the child tax credit. Too many Americans believe the American dream is slipping away for them and their children. They see their cost of living rise while their paychecks remain stagnant. They see an economy that benefits stockbrokers but not stock clerks.

Fox News:

• US launches first wave of bombing strikes over Syria. The United States launched its first wave of bombing attacks over Syria early Tuesday against an expected 20 to 25 Islamic State targets, U.S. officials said. The operation, expected to last several hours, involved planes launched from U.S.destroyers in the Persian Gulf and Red Sea. Planes from five Arab countries also participated in the strikes. The first explosions from Tomahawk missiles were heard in northern Syria. Targets were expected to include command and control centers, training camps and weapons depots.

MarketWatch.com: 

• The iron ore industry is headed for a brutal shakeout as prices collapse. A bloodbath in iron-ore prices could get much uglier before things turn around. And it’s not all China’s fault, either. While Chinese demand, a major force in the market, has slowed, big iron ore producers, including Brazil’s Vale, BHP Billiton, Rio Tinto  and Fortescue plan to boost production and shipments despite the glut. Australian producers BHP Billiton, Rio Tinto and Fortescue aim to boost output by 170 million tons this year, equal to around 7% of 2013 global supply and 11% of global production outside China, notes Capital Economics. Vale and Anglo-American are also looking to increase output, too. Why are they boosting production in the face of falling demand?

CNBC:

• Treasury takes actions to combat tax inversions. The Treasury and the Internal Revenue Service took action against tax inversions Monday. The issue of what are known as tax inversions—when a company buys a foreign firm to switch its tax domicile to a country with lower rates—has been a major policy point for President Barack Obama over the past few months. 
• NY regulator warns against looming cyber 9/11.
• Despite airstrikes, ISIS appears to hold its ground in Iraq. After six weeks of American airstrikes, the Iraqi government's forces have scarcely budged Sunni extremists of the Islamic State from their hold on more than quarter of the country, in part because many critical Sunni tribes remain on the sidelines.

Zero Hedge:

• They Do Ring A Bell At The Top: Alibaba Proves Wall Street Is Off Its Rocker.
• Ukraine Introduces Capital Controls. (graph)
• "Smart Money" BTFATH At Most Furious Pace In Over A Year, 2Y Short-Squeeze Possible. (graph)
• Facebook(FB) Fraud 2.0: Academic Study Exposes "Like Farms".

Business Insider:

• CHINESE MANUFACTURING SLIGHTLY RISES.

Reuters: 

• Brazil cuts 2014 GDP growth forecast, keeps fiscal goal. Brazil cut its economic growth forecast to 0.9 percent in 2014 but maintained its key annual fiscal goal for the year, according to a government report published on Monday. The government had previously expected the economy to expand 1.8 percent this year. The downward revision remains above market forecasts for growth of 0.30 percent in 2014.
• Some U.S. hedge fund advisers run afoul of advertising rules -SEC. Some newly registered U.S. hedge fund advisers are "cherry-picking" investments to showcase their performance and improperly changing how they value securities, an agency official said on Monday. 
• AutoZone(AZO) sales disappoint as customers prefer new cars to repairs. AutoZone Inc reported weaker-than-expected quarterly revenue as a strengthening U.S. economy encouraged consumers to buy new vehicles instead of repairing existing ones, sending the auto parts retailer's shares down as much as 5 percent.

Obama takes on coal with first-ever carbon limits
Read more at http://www.philly.com/philly/news/politics/20130919_ap_0f857b20e0c144a5a1e1b9dddc9f9d72.html#YRThyDOhArykUeYy.9Brazil cuts 2014 GDP growth forecast, keeps fiscal goal

China Securities Journal:

• China Should Cut Reliance on Property Sector. The country should accept GDP growth of about 7-7.5%, citing IMF Deputy Managing Director Zhu Min. To maintain sustainable growth, China shouldn't overly rely on monetary or fiscal policies to boost economy.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.50% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 95.0 +4.5 basis points.

• Asia Pacific Sovereign CDS Index 63.50 +1.0 basis point.

• FTSE-100 futures +.04%.

• S&P 500 futures +.03%.

• NASDAQ 100 futures  -.02%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (KMX)/.67
• (BBBY)/1.14
• (CPRT)/.41
• (SCS)/.23
• (AIR)/.38
• (CCL)/1.44

Economic Releases
9:00 am EST

• FHFA House Price Index for July is estimated to rise +.5% versus a +.4% gain in June.
  

9:45 am EST

• Preliminary Markit US Manufacturing PMI for September is estimated to rise to 58.0 versus 57.9 in August.
  

10:00 am EST

• The Richmond Fed Manufacturing Index for September is estimated to fall to 10 versus 12 in August.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Bullard speaking, Fed's Powell speaking, Fed's George speaking, Eurozone PMI, $29B 2Y T-Note auction, weekly US retail sales reports, (URBN) investor day and the (NSC) analyst conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by retail and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.