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Wednesday, October 15, 2014

Wednesday Watch

Posted by Gary .....at 12:07 AM
Evening Headlines 
Bloomberg: 
  • Airstrikes Fail to Stop Gains by Islamist Terrorists. President Barack Obama will try to shore up a coalition against Islamic State forces today as airstrikes have failed to stop the extremist Sunni group from gaining territory in Iraq and Syria. With questions growing about a plan that lacks effective ground forces, Obama and the top U.S. military officer will meet with defense ministers from more than 20 allied countries to bolster support for a strategy that even former administration officials say is foundering. 
  • Ebola Outbreak Boosts Odds of Mutation Helping It Spread. The Ebola virus circulating in West Africa is already different from previous strains. While scientists don’t fully understand what the changes mean, some are concerned that alterations in the virus that occur as that pathogen continues to evolve could pose new dangers. Researchers have identified more than 300 new viral mutations in the latest strain of Ebola, according to research published in the journal Science last month. They are rushing to investigate if this strain of the disease produces higher virus levels -- which could increase its infectiousness.
  • China’s NDRC Said to Suspend Company Bond Assents Amid Probe. China’s top economic planning agency is said to have suspended approvals this week for the sale of corporate bonds, deepening a crackdown on corruption and irregularities in the bond market. It’s not clear when approvals will resume as the National Development and Reform Commission may issue stricter regulations for corporate bond sales, according to people familiar with the matter. They asked not to be identified because the suspension hasn’t been made public. The 21st Century Business Herald also reported the suspension yesterday.
  • China Factory-Gate Price Drop Ties Asian-Crisis Record. China’s factory-gate prices fell in September for a record-tying 31st month while consumer inflation eased to the slowest since January 2010, adding to signs of tepid demand in the world’s second-largest economy. The producer-price index dropped 1.8 percent from a year earlier, the National Bureau of Statistics said in Beijing today, compared with the median projection of a 1.6 percent decline in a survey of analysts by Bloomberg News. The consumer-price index rose 1.6 percent, below estimates for a 1.7 percent gain, after August’s 2 percent increase.
  • Bank of Korea Cuts Rate to 4-Year Low to Bolster Demand. The Bank of Korea cut its benchmark interest rate to the lowest level since 2010 to bolster demand and price gains in Asia’s fourth-largest economy. Governor Lee Ju Yeol and his board lowered the seven-day repurchase rate to 2 percent from 2.25 percent, the central bank said in a statement in Seoul today. Twelve of 22 economists surveyed by Bloomberg News forecast the move, while nine projected no change.
  • Rio Tinto(RTP) Iron Ore Output Climbs 13% Into Price Slump. Rio Tinto Group(RIO), the world's second-biggest iron ore exporter said third-quarter production rose 13 percent, adding to a global glut of the steelmaking material that’s pushed prices to five-year lows. Output was 60.4 million metric tons in the three months to Sept. 30, compared with 53.4 million tons a year earlier, London-based Rio said today in a statement. That’s put it on track to produce a total of 300 million tons, including third party tons, this year, close to 2013 output at Vale SA (VALE), the biggest exporter.
  • Treasury Yield Gap Narrowest in 16 Months on Global Growth Woes. The extra yield on Treasury 10-year notes over two-year securities shrank to the narrowest in 16 months amid concern global growth and inflation are slowing. Treasuries have returned 1.7 percent this month, set for the biggest gain since January, amid speculation the Federal Reserve will delay interest-rate increases. Thirty-year yields were near the least since May 2013 after China’s data showed inflation in the world’s second-largest economy moderated in September and before a U.S. report that economists said will show retail sales fell for the first time in eight months. U.S. inflation expectations were the lowest in more than a year.
  • Dollar Rises Amid Signs of Global Weakness; Won Slips. The dollar gained as signs of global weakness drove investors toward the relative strength of the U.S. economy, while West Texas Intermediate oil was little changed following its biggest drop in two years. The won weakened after the Bank of Korea cut key interest rates. The Bloomberg Dollar Spot Index climbed 0.2 percent by 10:41 a.m. in Tokyo as the slowest inflation in four years in China sent commodity currencies lower and the euro weakened. Japan’s Topix (TPX) gauge increased 0.2 percent.
  • Oil and Junk Don’t Mix as Worst Bonds Sink as Much as 19%. If you’re wondering why junk bonds keep selling off, consider this: Oil prices are tanking and energy companies now account for a record proportion of the below investment-grade market. Debt of high-yield energy companies has tumbled 4.6 percent since August, leading the market down as the price of Brent crude futures plummeted to the lowest in about four years. Some securities have fared much worse, like the 19 percent plunge in oil and gas producer Samson Investment Co.’s bonds.
Wall Street Journal: 
  • European Policy Makers At Odds As Eurozone’s Economic Woes Deepen. ECB Concerned Bolder Monetary Policy Won’t Work Without Government Moves to Revive Recovery. A standoff among the European Central Bank, Germany and other eurozone governments is holding back Europe’s quest to revive its flagging economic recovery. The tensions, brewing for months, have sharpened this month as eurozone economic data have deteriorated and threaten to prevent a coherent policy response as Europe’s economy slides toward a third recession in six years. A growing number of policy makers and advisers...
  • Hong Kong Clashes Erupt as Police Clear Protesters. Democracy Movement Dealt Setback as Police Take Down Barricades. Protests here reached a new phase of conflict as police and students clashed over territory in districts that have been paralyzed by pro-democracy rallies for more than 2½ weeks. Students and police clashed overnight in a confrontation over a tunnel near the city’s government headquarters after police demolished barricades that had blocked a key road in the city’s main business district.
  • Global Oil Glut Sends Prices Plunging. U.S.-Led Wave of Crude Threatens Stability of Some Countries While Providing Lift to Others. Oil prices posted their biggest one-day drop in nearly two years Tuesday as a U.S.-led wave of crude has crashed into weak global demand, threatening the stability of some countries and providing an economic lifeline to others. Tuesday’s slide of 4.5% by U.S. crude oil to $81.84 a barrel on the New York Mercantile Exchange left the price down 20% since the start of June. That was the lowest closing price since June 2012, and some...

Fox News:
  • Feds warn of possible ISIS-inspired attacks on police, government officials, media. (video) Federal officials are warning U.S. law enforcement about the threat of Islamic State-inspired terror attacks against police officers, government workers and “media figures” in the U.S. In a joint intelligence bulletin sent to law enforcement and confirmed by Fox News, the FBI and Department of Homeland Security warned about the Islamic State's calls on social media forums for violence.
CNBC: 
  • Hedge funds feel the pain, particularly in energy. There is a lot of pain in hedge-fund land. Imagine how these guys feel. First, they have underperformed all year because most funds run a book of long stocks versus a book of short stocks. Because shorts have underperformed most of the year, they have underperformed the market. Again. Now, they are getting killed because of how they are positioned: 1) long U.S. market, and 2) long growth stocks. Growth has gotten hit hard: Semis (XSD) down 15 percent this month, Internet (FDN) and Biotech (IBB) down 7 percent. But a particularly painful example is energy. The Street has been heavily involved in exploration and production stocks, particularly smaller-cap shale plays, which have been dramatically growing earnings. The SPDR Oil & Gas Exploration ETF (XOP), a basket of E&P stocks, is down 20 percent this month.
  • Intel(INTC) shares jump as profits, revenue top estimates. Intel delivered quarterly earnings and revenue that surpassed analysts' expectations on Tuesday, as PC sales rose about 9 percent from a year ago. Shares rose modestly after the bell.
Zero Hedge: 
  • FBN Warns Not All Pullbacks Are Created Equal. (graph)
  • Cliff Asness Warns On QE-Blowback "Nothing Is Over Yet", Slams "Mostly Dishonest" Krugman.
  • Bob Janjuah Targets S&P 1770, Says "Markets Are Now Collectively Reconsidering Reality".
  • Is This The Fed's "Hidden" Buy Signal? (graph)
  • Argentina Becomes Venezuela With The Passage Of This Law.
  • On The Precipice Of A Breakdown In Confidence.
  • After Central Bank Financial Bubbles, Comes Liquidation And Industrial Deflation. (graph) 
  • French Nobel-Prize Winning Economist Slams "Big State" Socialism: "Not Enough Money To Pay For It".
Business Insider:
  • Another Exec At Apple's Sapphire Supplier Sold Tons Of Stock Before The Company Went Bankrupt.
  • Its Been Six Months Since Boko Haram Kidnapped 300 Schoolgirls In Nigeria.
Reuters:
  • Intel's(INTC) quarterly results underscore challenge in mobile. Intel's mobile and communications group took in a scant $1 million in revenue in the third quarter, underscoring the challenge the top chipmaker faces expanding into smartphones and tablets.
  • U.S. TIPS breakeven rates fall on oil market selloff. U.S. bond market gauges on inflation expectations fell sharply on Tuesday as tumbling oil prices stoked worries about flagging domestic price growth that would hurt the U.S. economy. Oil prices in London ended near $85 a barrel, falling nearly $4, which was its biggest single-day decline in more than two years. The yield spread between five-year Treasury Inflation-Protected Securities and regular five-year Treasuries or five-year TIPS breakeven rate fell to 1.52 percent late Tuesday, down 8 basis points from late on Friday. The breakeven rate on 10-year TIPS and 10-year nominal Treasuries fell 5 basis points to 1.92 percent, near a 16-month low set recently.
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
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -.25% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 120.75 unch.
  • Asia Pacific Sovereign CDS Index 73.25 +.25 basis point.
  • FTSE-100 futures -.28%.
  • S&P 500 futures -.04%.
  • NASDAQ 100 futures  +.01%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (ADTN)/.24
  • (PNC)/1.70
  • (KEY)/.26
  • (BLK)/4.66
  • (BAC)/.32
  • (STJ)/.96
  • (SCHW0/.25
  • (NFLX)/.91
  • (LVS)/.82
  • (KMP)/.63
  • (URI)/2.08
  • (EBAY)/.67
  • (AXP)/1.37
  • (BGG)-.38
  • (OMC)/.90
Economic Releases
8:30 am EST
  • Empire Manufacturing for October is estimated to fall to 20.25 versus 27.54 in September.
  • Retail Sales Advance for September are estimated to fall -.1% versus a +.6% gain in August.
  • Retail Sales Ex Autos and Gas for September is estimated to rise +.4% versus a +.5% gain in August.
  • PPI Final Demand for September is estimated to rise +.1% versus unch. in August.
  • PPI Ex Food and Energy for September is estimated to rise +.1% versus a +.1% gain in August.
10:00 am EST
  • Business Inventories for August are estimated to rise +.4% versus a +.4% gain in July.
11:00 am EST
  • The Monthly Budget Statement for September is estimated at $90.0B versus $75.1B in August.
2:00 pm EST
  • Fed's Beige Book.
Upcoming Splits
  • FLIC (3-for-2)
Other Potential Market Movers
  • The weekly MBA mortgage applications report, Canaccord Resources Conference, (MELI) investor day and the (SFE) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly 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 25% net long heading into the day.

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