Tuesday Watch

Evening Headlines 
Bloomberg: 

• Hong Kong Protesters Block Roads as Leaders Set Deadline. Tens of thousands of protesters filled streets in Hong Kong through the night to press for open elections and the resignation of Chief Executive Leung Chun-ying, as student leaders set an Oct. 1 deadline for their demands to be met. While their numbers had thinned this morning, demonstrators remained in the main protest area near government headquarters in the Admiralty district, as well as in Causeway Bay and Mong Kok. Main roads through the central business district remain closed and some bus routes have been suspended, the government said in a statement late yesterday.

• Islamic State Shells Hit Turkey Amid Syria Border Fight. Turkish tanks deployed along the border with Syria as shells fired by Islamic State militants landed inside Turkey, injuring five people including two soldiers. One of the mortar shells hit near the border crossing of Mursitpinar, close to a group of journalists and Turkish security forces, CNN-Turk said. Another shell landed near a refugee camp, about a kilometer inside Turkey. Regular explosions and gunfire could be heard from Turkish territory as Turkish troops returned fire, state-run Anadolu Agency said. 

• China Factory Gauge Falls From Initial Reading as Growth Slows. A Chinese manufacturing gauge fell from an initial reading a week ago as a property slump weighs on the world’s second-largest economy. The Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics for September was at 50.2, lower than the flash reading of 50.5 and unchanged from August. Numbers above 50 signal expansion.

• Japan’s Output Unexpectedly Slumps as Retail Sales Rise. Japan’s output unexpectedly fell while stronger retail sales and an improving job market showed resilience in the world’s third-biggest economy as Prime Minister Shinzo Abe weighs another sales-tax increase. Industrial production declined 1.5 percent in August from July, compared with the median estimate of 31 economists surveyed by Bloomberg News for a 0.2 percent gain. Retail sales increased 1.9 percent from the previous month, as the jobless rate slid to 3.5 percent.

• Asian Stocks Slide on Hong Kong as Kiwi Drops With Crude. Asian stocks fell, with the regional index headed for its biggest monthly drop since May last year amid concern over tensions in Hong Kong and after an unexpected decline in Japanese factory output. New Zealand’s dollar dropped to near a one-year low as crude oil declined. The MSCI Asia Pacific Index slipped 0.6 percent by 10:01 a.m. in Tokyo, pushing it down 5.1 percent in September. Japan’s Topix (TPX) index lost 0.9 percent, trimming its quarterly gain.

• Iron Ore Heads for Record Run of Quarterly Losses as Glut Builds. Iron ore will complete a third straight quarterly decline today to post the longest losing run on record as a slowdown in China’s economy curbs demand growth in the largest buyer and worsens a global surplus. Ore with 62 percent content delivered to Qingdao, China lost 17 percent this quarter to $77.97 a dry metric ton, the lowest price since September 2009, according to data from Metal Bulletin Ltd. That follows a 19 percent drop between April and June and 13 percent retreat in the first three months. Thesteel-making ingredient is headed for the longest stretch of quarterly losses since the data series began in 2009.

• Gluts Spur Investor Exit Signaling Prolonged Price Slumps. Investors are betting that the worst isn’t over for commodity prices that already are the lowest in five years. About $873 billion was pulled from U.S. exchange-traded products backed by raw materials this month, the most since April, data compiled by Bloomberg show. Expanding surpluses, a surging dollar and slowing growth in China helped send the Bloomberg Commodity Index to the lowest since 2009, reversing first-half gains fueled by a polar vortex and dead pigs in the U.S., and escalating tensions in Ukraine and the Middle East.

Wall Street Journal:  

• China President Xi Jinping Faces Stark Choices Over Hong Kong Protests. Beijing Wary of Conjuring Memories of Tiananmen Square. Massive democracy rallies in Hong Kong have offered Chinese President Xi Jinping stark choices between concession and crackdown, either of which pose problems for his government—and his own political standing. Throughout the weekend and into Monday, protesters, mostly students, confronted police and halted business activity in parts of Hong Kong, and as dawn broke Tuesday remained spread along major thoroughfares. Police fired tear gas and pepper spray to disperse the thousands of students gathered outside government headquarters on Sunday, but the protesters regrouped and re-emerged in greater numbers, choking off roadways in the heart of the city.

• Iraqi Christians' Dilemma: Stay or Go? With ISIS Threat, Thousands of Chaldeans Face an Agonizing Decision.

• Fed Rate Policies Aid Foreign Banks. Lenders Pocket a Spread by Borrowing Cheaply, Parking Funds at Central Bank.

• Pimco Is in a Race to Keep Investors After Bill Gross Exits. Traders Look to Profit and Rivals Look to Poach Amid Turmoil at Bond Fund.

• The Obama-Military Divide. What should senior officers do if experience tells them that the president's plan to defeat ISIS is unworkable without U.S. combat troops?

• Head Off a Tiananmen Massacre in Hong Kong. Tear gas and pepper spray hint at worse to come. The White House must issue a clear warning to Beijing.

CNBC:

• Ford(F) shares screeching on investor-day news.

Zero Hedge:

• The Last Time Traders Were This Short 2Y Notes, Rates Collapsed. (graph)

• China Housing Bubble Bursts: Q3 Land Sales Crater 50%. (graph)

• The Goldman(GS) Tapes And Why The Delusion Of Macro-Prudential Regulation Means The Next Crash Is Nigh.

• The Hong Kong Protest: What It's All About.

Business Insider: 

• Even With Sanctions, Putin Is Still Getting Exactly What He Wants In Ukraine.

• Now It Sounds Like Japanese Giant SoftBank Won't Buy DreamWorks After All.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -1.25% to unch. on average.

• Asia Ex-Japan Investment Grade CDS Index 101.50 +2.5 basis points.

• Asia Pacific Sovereign CDS Index 73.25 +4.0 basis points.

• FTSE-100 futures -.02%.

• S&P 500 futures -.03%.

• NASDAQ 100 futures  -.04%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (WAG)/.74

Economic Releases
9:00 am EST

• ISM Milwaukee for September is estimated to rise to 61.0 versus 59.63 in August.

• S&P/CS 20 City MoM for July is estimated unch. versus a -.2% drop in June. 

9:45 am EST

• Chicago Purchasing Manager for September is estimated to fall to 62.0 versus 64.3 in August.

10:00 am EST

• Consumer Confidence for September is estimated to rise to 92.5 versus 92.4 in August.

Upcoming Splits

• None of note

Other Potential Market Movers

• The China Manufacturing PMI, German Unemployment Change, weekly US retail sales reports, (INTU) investor day, (MCO) investor day and the (TK) investor day 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 modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.