Thursday Watch

Evening Headlines 

Bloomberg:   

• Is Xi's Economy More Distorted Than Mao's? Goldman's Ha Says Yes. By one measure, it’s the Greater Leap Forward. China’s economy is more imbalanced than half a century ago when Mao Zedong’s policies led to an economic crash, said Ha Jiming, a China vice chairman at Goldman Sachs Group Inc., at a conference Wednesday in New York. Fixed asset investment last year in the world’s second-biggest economy amounted to an unprecedented 46 percent of gross domestic product. That, according to Ha, is more than in 1958, when Mao initiated the Great Leap Forward movement that among other things urged the Chinese people to melt down utensils, cooking pots and door handles to raise the nation’s steel output. Eventually, it also resulted in a famine that killed millions. “The economy is more distorted and imbalanced than the Great Leap Forward,” said Ha, also the chief investment strategist at Goldman Sachs’s private wealth unit in China, at the event hosted by Caixin Magazine. 

• Insurance Australia Abandons Plan for More Investment in China. Insurance Australia Group Ltd. scrapped plans for further investment in China and will instead seek growth in other Asian markets, in a sign that Australia’s hopes of boosting services exports to the world’s second-largest economy may be difficult to achieve. The insurer took the decision after assessing the possibilities available in China, Chief Executive Officer Mike Wilkins said in a statement. Insurance Australia agreed to buy 20 percent of Tianjin-based Bohai Property Insurance Pty in 2011 for about A$100 million ($73 million). “After completing significant work on assessing the opportunities available, IAG has determined not to pursue further investment in China,” he said.  

• Australian Jobs Unexpectedly Fall in September; Aussie Drops. Australian employers unexpectedly cut jobs in September, signaling record-low interest rates are yet to put the economy on a sustainable footing and offset a slump in mining investment.

• Yen Gain to 100 Seen by Strategist Who Called Two Bond Rallies. Japan’s currency will surge to 100 yen per dollar and benchmark yields will drop to a record by March, according to an analyst who foresaw the bond market’s last two major rallies. Kazuhiko Sano, the chief bond strategist at Tokai Tokyo Securities Co., said 10-year yields will fall past the all-time low of 0.195 percent in the first quarter of 2016 as the Bank of Japan’s unprecedented bond purchases squeeze market supply. Sano, who has been ranked among the top 10 strategists by Nikkei Veritas magazine for at least the past decade, said the BOJ will likely forgo expanding stimulus just as slowing global economic growth forces traders to pare bets on Federal Reserve interest rate increases. 

• Defensive Stocks Not the Safe Bets You Think in Emerging Markets. A word of advice for emerging-market investors looking for refuge as China’s economy sours and U.S. rates are heading up. Don’t just go down the route of defensive stocks, says Joe Gubler, who oversees $2 billion at Causeway Capital Management in Los Angeles. Here’s why: The price-to-earnings ratio of stocks that tend to hold up better in an economic downturn -- such as food and beverage companies as well as health-care providers -- traded at a 91 percent premium to their cyclical peers on the MSCI Emerging Markets Index in September, the biggest gap since 2008. 

• Ringgit Leads Asia Currency Rally as Fed Rate Odds Dip Further. Malaysia’s ringgit led an advance in Asian currencies as odds of a U.S. interest-rate increase this year diminished further, giving a reprieve to emerging-market assets. Asian currencies are rallying in October as futures show just a 33 percent chance of a rate hike by the Federal Reserve, compared with 61 percent at the start of the month. Exchange rates in the region have come under pressure this year as prospects for U.S. monetary tightening fueled concern that demand for local assets would recede.

• Most Asian Stocks Fall as Stronger Yen Weighs on Japanese Shares. Most Asian stocks dropped, tracking declines in U.S. shares, as a stronger yen dragged down Japanese equities. About two shares fell for each that rose on the dollar-denominated MSCI Asia Pacific Index, which added 0.2 percent to 131.73 as of 9:03 a.m. in Tokyo.

• HCA Leads Hospital Stocks Lower on More Uninsured Patients. HCA Holdings Inc. shares dropped in late trading after the biggest U.S. hospital chain reported preliminary third-quarter earnings that missed analysts’ estimates, raising concerns across the industry of an increase in uninsured patients who can’t pay their bills. The company expects to report net income of $1.17 a share for the quarter, Nashville, Tennessee-based HCA said Wednesday in a statement. The average estimate of analysts surveyed by Bloomberg was $1.22 a share. The shares slumped as much as 11 percent, and the stocks of hospital chains Community Health Systems Inc. and Tenet Healthcare Corp. also tumbled. Patients without insurance rose to 8 percent of total visits, from 7.3 percent a year earlier, HCA said. Since HCA’s size makes it a bellwether for the industry, the results suggest an increase in unpaid bills for hospitals across the country, said Ana Gupte, an analyst with Leerink Partners in Boston. Meanwhile, the growth of patient volumes from the expansion of coverage under the Patient Protection and Affordable Care Act appears to be slowing, Gupte said. 

• Boeing(BA) Plunges as Delta Sees `Bubble' of Used Wide-Body Jets. Boeing Co. tumbled the most in almost a year after Delta Air Lines Inc. Chief Executive Officer Richard Anderson said there was a surge of wide-body models coming off lease, creating investor concern that the planemaker faces pressure on pricing for new aircraft. A used-jet glut would pinch Boeing on planes like the twin-aisle 777, one of the company’s biggest sources of profit, said George Ferguson, senior air transport analyst with Bloomberg Industries. Boeing may also find it tougher to generate 777 sales needed to sustain output at 8.3 jets per month as it transitions to an upgraded model known as the 777X, he said.

Wall Street Journal:

• Fed Doubts Grow on 2015 Rate Hike. Weakness in retail sales, inflation data raises concerns about economic outlook. The chances of a Federal Reserve interest-rate increase in 2015 are diminishing amid new signs of anemic economic activity, a disappointing development for central bank officials who have been hoping to move this year after a prolonged period of easy-money policies. Lackluster readings on consumer spending, inflation and jobs have virtually eliminated...

• Democrats Say the Economy Stinks. The candidates agree the middle class is suffering after seven Obama years. The end of a two-term Presidency is typically a time for taking credit, celebrating achievements and promising to continue successful policies. So what happened to the Obama Democrats? At Tuesday night’s Democratic debate, not one of the five candidates even attempted to defend the results of President Obama’s economic policies. Instead their blistering critiques of the status quo showed they all agree on at least one point: Today’s...

Fox News:

• Fox News Poll: Voters say Obama has no Syria plan, Putin 'strong and shrewd'. (video) Most American voters say the Obama administration doesn’t have a clear plan in Syria, and few are buying the president’s assertion that Russia is intervening there out of weakness. The latest Fox News poll also finds that a 61-percent majority now says what happens in Syria is important for U.S. national security.  That’s up from 48 percent who felt that way two years ago.

• Top Cuban general, key forces in Syria to aid Assad, Russia, sources say.

Zero Hedge: 

• Illinois To Delay Pension Payments Amid Budget Woes: "For All Intents And Purposes, We Are Out Of Money Now".

• Whose FX Reserves Suffered The Most During The "China Tantrum"? Goldman Has The Answer.

• World's Largest Leveraged ETF Halts Orders, Citing "Liquidity Constraints".

• Moral Hazard, "Supernormal" VIX Swings, And Why August 2015 Was Just An Appetizer.

• Has The "Opening Pump" Replaced The "330 Ramp"? (graph)

• WTI Crude Plunges Back To $45 Handle After API Reports Biggest Inventory Build In 6 Months. (graph)

• NFLX(NFLX) Plunges After Missing Sales, Subs And Earnings; Cuts Forecast; Burns Quarter Billion Dollars. (graph)

• Bonds & Bullion Jump As Stocks Dump After Post-Payrolls-Pump. (graph)

• A Third Of All Containers Shipped From Long Beach Port Are Empty. (graph)

Business Insider: 

• Actually, voters think Bernie Sanders won last night's debate. (video)

• In a huge reversal, Obama may leave a lot of US troops in Afghanistan. (video)

• One signal of the 'real economy' has sunk to it's worst showing in 5 years. (graph)

• These are the first photos of an underground Iranian missile base. (pic)

Financial Times: 

• Isis Inc: how oil fuels the jihadi terrorists. Jihadis’ oil operation forces even their enemies to trade with them. Oil is the black gold that funds Isis’ black flag — it fuels its war machine, provides electricity and gives the fanatical jihadis critical leverage against their neighbours.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are +.25% to +1.0% on average.

• Asia Ex-Japan Investment Grade CDS Index 141.0 -3.25 basis points.

• Asia Pacific Sovereign CDS Index 81.0 -.25 basis point.

• S&P 500 futures +.43%.

• NASDAQ 100 futures +.63%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (BBT)/.69

• (BX)/-.29

• (SCHW)/.26

• (C)/1.28

• (FCS)/.20

• (GS)/3.09

• (KEY)/.27

• (LNN)/.55

• (MTB)/2.00

• (PM)/1.11

• (PPG)/1.60

• (TSM)/2.86

• (USB)/.81

• (UNH)/1.64

• (WGO)/.47

• (AMD)/-.12

• (MAT)/.80

• (SLB)/.77

• (WDFC)/.81

• (WYNN)/.87

Economic Releases

8:30 am EST

• Initial Jobless Claims for last week are estimated to rise to 270K versus 263K the prior week.

• Continuing Claims are estimated to fall to 2200K versus 2204K prior.

• Empire Manufacturing for October is estimated to rise to -8.0 versus -14.67 in September.

• The CPI MoM for September is estimated to fall -.2% versus a -.1% decline in August.

• The CPI Ex Food and Energy MoM for September is estimated to rise +.1% versus a +.1% gain in August.

• Real Avg. Weekly Earnings YoY for September.
  

10:00 am EST

• Philly Fed Business Outlook Index for October is estimated to rise to -2.0 versus -6.0 in September.
  

11:00 am EST

• The Monthly Budget Statement for September is estimated at $95B versus $105.8B in August.

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,355,300 barrels versus a +3,073,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -940,000 barrels versus a +1,910,000 barrel gain the prior week. Distillate inventories are estimated to fall by -544,000 barrels versus a -2,458,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall by -.48% versus a -2.3% decline prior.

Upcoming Splits

• (SKX) 3-for-1

Other Potential Market Movers

• The Fed's Mester speaking, Fed's Bullard speaking, Fed's Dudley speaking, RBA Financial Stability Review, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, (TD) Retail Investor Day and the (SYT) sales and revenue call could also impact trading today.

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