Tuesday Watch

Evening Headlines 
Bloomberg:

• Islamic State Seizes Iraq Base Amid Concern for Baghdad. Islamic State came closer to gaining full control of Iraq’s Anbar province after it seized a military base to the west of Baghdad that had been one of the government’s few remaining outposts there. Militants seized the base, located near the town of Hit and a major highway from Baghdad to the Syrian border, after heavy fighting with soldiers, according to Ahmed al-Dulaimi, a Sunni tribal leader. Its capture increases the threat to Ramadi, Anbar’s capital, and to Iraq’s second-largest dam at Haditha. The insurgent group has declared a caliphate that stretches across much of northern Syria and Iraq, prompting the U.S. to launch a bombing campaign backed by European and Arab allies to halt the advance. The group’s recent gains to the west of Baghdad have sparked concern it’s preparing to attack the capital.

• Hong Kong Police Use Chain Saws to Shrink Democracy Protest Site. Hong Kong police used chain saws to clear more barricades erected by pro-democracy demonstrators in the city’s business district, after Chief Executive Leung Chun-ying signaled he’s losing patience with protesters. Hundreds of police officers rushed the make-shift barriers blocking Queensway, a key road heading into Central, removing tents and bamboo obstacles. Tensions escalated yesterday when truck and cab drivers sought to tear down barricades built by student protesters near the city’s business district. Talks seeking to resolve Hong Kong’s worst political crisis since China regained sovereignty 17 years ago have broken down, leaving a polarized city facing a third week of demonstrations. 

• Dedicated Ebola Hospitals Sought After Nurse’s Infection. U.S. and local health officials want to set up dedicated hospitals in each state for Ebola patients, part of a new emphasis on safety for health-care workers after a nurse caring for an infected patient in Dallas tested positive for the virus. The U.S. Centers for Disease Control and Prevention is also reconsidering its existing infection control protocols and will boost health-worker training with a series of calls and online seminars, officials said today.

• Ebola Alarms Spread With Crews, Fliers on Illness Alert. The Ebola virus’s arrival in the U.S. is stirring anxiety across the airline industry as flight crews and passengers fret that a fever or upset stomach on board could be a sign of the deadly disease. False alarms are becoming routine at U.S. airports. Crews surrounded an Emirates Airline jet in Boston today after fliers showed flu-like symptoms, three days after a similar rush to isolate a Delta Air Lines Inc. (DAL) plane in Las Vegas because of an Ebola scare. “If there’s any vomiting, we’re getting calls about it,” said T.J. Doyle, medical director of Pittsburgh-based STAT-MD, a consultant that serves airlines. “It’s not that we weren’t getting these calls before. It’s just that there’s a heightened sense because of Ebola.”

• Draghi’s ‘Whatever It Takes’ Plan Faces Trial at EU Court. European Central Bank President Mario Draghi’s pledge to do “whatever it takes” with a bond-buying plan to save the euro-area goes on trial before the European Union’s top judges today. The Court of Justice, the bloc’s highest court, will weigh whether Draghi’s ECB overstepped its powers in 2012 with the mechanism to buy the debt of stressed countries if needed. While Germany’s own top court earlier this year expressed doubts about the plan’s legality, the EU tribunal’s 15-judge panel is unlikely to overturn it, according to legal scholars.

• Asian Stock Index Retreats Amid Rout in Global Equities. Asian stocks fell, with the regional benchmark index heading for a six-month low, extending a rout in global equities after the Standard & Poor’s 500 Index capped its biggest three-day loss since 2011. The MSCI Asia Pacific Index (MXAP) fell 0.6 percent to 135.60 as of 9:04 a.m. in Tokyo before markets in China and Hong Kong open. The gauge dropped 8.8 percent from its year high in July through yesterday.

• Too-Big-to-Fail Banks Face Up to $870 Billion Capital Gap. Too big to fail is likely to prove a costly epithet for the world’s biggest banks as regulators demand they increase debt securities to cover losses should they collapse. The shortfall facing lenders from JPMorgan Chase & Co. (JPM) to HSBC Holdings Plc could be as much as $870 billion, according to estimates from AllianceBernstein Ltd., or as little as $237 billion forecast by Barclays Plc.

Wall Street Journal:

• CDC Director Calls for Rethinking Approach to Ebola Infection Control. Obama Administration Shifts Emphasis Toward Focusing on Lapses in Texas Cases. The director of the U.S. Centers for Disease Control and Prevention said Monday the agency is rethinking its approach to Ebola infection control after a Dallas nurse became infected with the disease.

• Study Bolsters View That San Francisco Area Is Due for Big Earthquake. Sections of San Andreas Fault Zone Running Beneath Bay Area ‘Are Locked and Loaded,’ but Timing Is Impossible to Predict, Scientist Says.

• Bears Stalk the ‘Goldilocks’ Stock Market. As Five-Year Rally Falters, the Dow Loses All Its 2014 Gains.

CNBC:

• Kudlow: The Chinese are not our friends. (video)

• Four drags on global markets. (video)

Zero Hedge:

• This Is What Happens When Someone Is Desperate To Sell $750 Mil

• The Fed's 2% Inflation Target: The Ultimate Keynesian Con Job.

• Is This The Real Growth Scare That Markets Fear? (graph)

• The Defining Problem Of Our Times (In 1 Simple Chart).

• Peter Thiel Warns Of "Government Bubble Of Massive Size". (video)

Business Insider:

• Here Are The Countries Where Ebola Is Most Likely To Show Up Next.

• Selling The Waldorf To Chinese Investors Raises Concerns Of Spying On US Diplomats.

• Ireland Is Looking To Close Apple's Favorite Tax Loophole.

• Face Mask And Hazmat Suit Companies' Shares Explode Higher On Monday.

• REPORT: ISIS Used Chemical Weapons Against Kurds In Syria.

Reuters:

• France faces euro zone peer pressure to tighten spending plans. France faced intensifying pressure from euro zone peers on Monday to tighten spending next year amid a growing rift over its plans to flout European budget rules. The dispute with France over its planned 2015 budget is a test of new euro zone powers to police public finances and is complicated by a wider debate about how to use government money to help the stagnating European economy.

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 goaFed's Williams: Can't wait too long to raise rates

Financial Times:

• Ebola virus threatens state failure, World Health Organisation warns. The Ebola outbreak is threatening “state failure” in west Africa, the World Health Organisation warned, as the US said it needed to overhaul its management of the virus following the infection of an American nurse.

Telegraph:

• The great Lira revolt has begun in Italy. The biggest single party in the Italian parliament by votes has thrown down the gauntlet, calling for a euro referendum to end depression and save democracy, writes Ambrose Evans-Pritchard.

Evening Recommendations

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 120.75 +1.75 basis points.

• Asia Pacific Sovereign CDS Index 73.0 +1.75 basis points.

• FTSE-100 futures -.36%.

• S&P 500 futures +.50%.

• NASDAQ 100 futures  +.49%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (WWW)/.59

• (JPM)/1.39

• (DPZ)/.61

• (JNJ)/1.44

• (WFC)/1.02

• (C)/1.12

• (CSX)/.47

• (INTC)/.65

• (LLTC)/.59

• (JBHT)/.85

• (COCO)/.10 

• (BRO)/.47

Economic Releases
7:30 am EST

• The NFIB Small Business Optimism Index for September is estimated to fall to 95.9 versus 96.1in August.

Upcoming Splits

• FLIC (3-for-2)

Other Potential Market Movers

• The China CPI, UK inflation data, German ZEW Index and the US weekly retail sales reports could also impact trading today.

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