Friday Watch

Evening Headlines
Bloomberg:

• Crisis Gauge Flags China Cash Squeeze Followed by Growth Hit. Traders in China’s interest-rate swap market are bracing for a cash shortage as the central bank cools an overheated property market. Bond investors are preparing to benefit from the slower economic growth that may result. That’s how strategists are interpreting a blowout in the premium for the one-year swap rate over the similar-maturity sovereign bond yield to 50 basis points, the widest since July 2015. China’s version of the so-called TED spread, a gauge of financial stress that compares funding costs for banks and the government, is well below the 140 basis points reached during the trust finance crackdown of early 2014.
• Japan’s Consumer Prices Keep Falling, Household Spending Slips. Japan’s consumer prices fell for a seventh straight month and household spending slumped in September, underscoring the challenges Prime Minister Shinzo Abe and Bank of Japan Governor Haruhiko Kuroda face in trying to revive the world’s third-largest economy. The jobless rate was at the lowest since 1995.
• Bonds Selloff Deepens as Japanese Stocks Buoyed by Weaker Yen. 

Wall Street Journal:

• Chip Makers Cut Deals as Cars Get Smarter. Automotive industry is becoming more attractive as companies differentiate offerings.

Fox News:

• Podesta relative earned six-figure fees lobbying Clinton's State Dept. during his tenure there. Amid the tumult of the 2016 presidential campaign, John Podesta is best known as Hillary Clinton’s campaign chairman and the individual from whose private account WikiLeaks is presently publishing some 50,000 hacked emails.

CNBC:

• Baker Hughes(BHI) spikes on report that GE(GE) in talks to acquire it.
• Google(GOOG) parent Alphabet sees earnings, revenue beat and announces $7 billion buyback.

Zero Hedge:

• Jared Dillian: "The Fed Is More Hawkish Than You Think".
• Slumping Used Car Prices Spell Disaster For Subprime Auto Securitizations.
• Waking Up In Hillary Clinton's America.
• Caught On Tape: How Russian Soldiers Prepare For Nuclear War. (video)
• US Taxpayers Pay AT&T Millions A Year For The Privilege Of Being Spied Upon.
• Amazon(AMZN) Plunges After Missing Earnings, Guides Below Expectations.
• KKR Calls The Top: PE Giant Selling Distressed Debt It Bought Earlier This Year.
• Bond Bloodbath Sinks Stocks As Dollar Spikes To 9-Month Highs. (graph)

Telegraph:

• China capital flight flashes warning as authorities forced to prick property bubble.

Night Trading 

• Asian equity indices are -.75% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 115.5 +.75 basis point.

• Asia Pacific Sovereign CDS Index 33.75 +.25 basis point.

• Bloomberg Emerging Markets Currency Index 72.15 +.01%.

• S&P 500 futures +.12%.

• NASDAQ 100 futures +.18%.

Morning Preview Links 

Earnings of Note 

Company/Estimate

• (BUD)/.90
• (AN)/1.15
• (B)/.67
• (CBOE)/.56
• (CVX)/.39
• (XOM)/.60
• (GT)/1.16
• (HSY)/1.19
• (MA)/.98
• (PSX)/.88
• (RCL)/3.10
• (WY)/.22

Economic Releases

8:30 am EST

• The 3Q Employment Cost Index is estimated to rise +.6% versus a +.6% gain in 2Q.
• 3Q GDP is estimated to rise +2.5% versus a +1.4% gain in 2Q.
• 3Q Personal Consumption is estimated to rise +2.6% versus a +4.3% gain in 2Q.
• The 3Q GDP Price Index is estimated to rise +1.4% versus a +2.3% gain in 2Q.
• The 3Q Core PCE is estimated to rise +1.6% versus a +1.8% gain in 2Q.

10:00 am EST

• Final Univ. of Mich. Consumer Sentiment for October is estimated to rise to 88.2 versus 87.9 in September.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Eurzone GDP report could also impact trading today.

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

Stocks Falling into Final Hour on Fed Rate-Hike Fears, Earnings Outlook Worries, Rising Emerging Markets/US High-Yield Debt Angst, Homebuilding/Retail Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Above Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 14.83 +4.14%

• Euro/Yen Carry Return Index 119.86 +.69%

• Emerging Markets Currency Volatility(VXY) 9.52 +.42%

• S&P 500 Implied Correlation 48.71 +4.06%

• ISE Sentiment Index 112.0 -1.75%
  

• Total Put/Call .82 -8.89%

• NYSE Arms .49 -24.73% 

Credit Investor Angst:

• North American Investment Grade CDS Index 75.93 +1.27%
  

• America Energy Sector High-Yield CDS Index 581.0 +8.24%

• European Financial Sector CDS Index 95.31 -.31%

• Western Europe Sovereign Debt CDS Index 17.76 -3.53%

• Asia Pacific Sovereign Debt CDS Index 33.55 +.03%

• Emerging Market CDS Index 236.66 +1.8%
  

• iBoxx Offshore RMB China Corporate High Yield Index 132.51 -.03%

• 2-Year Swap Spread 22.25 -.25 basis point

• TED Spread 57.0 +1.75 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -46.0 -3.0 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.17 -.18%
• 3-Month T-Bill Yield .28% -4.0 basis points

• Yield Curve 96.0 +4.0 basis points
  

• China Import Iron Ore Spot $63.04/Metric Tonne -.05%

• Citi US Economic Surprise Index -12.6 -1.7 points

• Citi Eurozone Economic Surprise Index 35.8 +.3 point

• Citi Emerging Markets Economic Surprise Index -15.10 +.8 point

• 10-Year TIPS Spread 1.73% unch.
• 72.5% chance of Fed rate hike at Dec. 14 meeting, 74.2% chance at Feb. 1 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +138 open in Japan 
• China A50 Futures: Indicating +5 open in China

• DAX Futures: Indicating -18 open in Germany

Portfolio: 

• Slightly Higher: On gains in my biotech longs, index hedges and emerging markets shorts

• Disclosed Trades: None

• Market Exposure: 25% Net Long

Today's Headlines

Bloomberg:

• A Bearish View of European Banking Sector. (video)
• OPEC Can’t Succeed Alone as Cuts Would Barely Drain Surplus. Even if OPEC defies a skeptical market by implementing output cuts in full, it still won’t drain the ocean of surplus oil already pumped from the ground. The Organization of Petroleum Exporting Countries aims to shrink the world’s bloated oil inventories with its first production cut in eight years, according to Secretary-General Mohammed Barkindo. Yet the bloc’s own data show that even the maximum reduction under consideration would barely dent record stockpiles next year. That makes securing help from competitors -- chiefly Russia -- critical to ending the glut.
• Growth Rebound in U.S. Masks Less-Bright Picture of Demand. The U.S. economy’s third-quarter scorecard on Friday will probably show a notable pickup in growth following a sluggish first half. The caveat: It occurred without an acceleration in consumer and business demand. Gross domestic product rose at a 2.6 percent annualized rate, according to the median estimate in a Bloomberg survey, after averaging 1.1 percent in the previous six months. With the biggest part of the economy -- consumer spending -- moderating, much of the projected pickup stems from a narrower trade deficit and a rebuilding of inventories. While a report Wednesday showed a gain in merchandise exports last month, a broad-based drop in imports indicated domestic demand weakened as the quarter drew to a close.
• Clothing Keeps Getting Cheaper, and Factory Workers Are Paying the Price. Three years after the Rana Plaza disaster, work conditions are still substandard.

Wall Street Journal:

• Grocers Feel Chill From Millennials. Younger shoppers spread purchases across many new options, including online services.

Fox News:

• 'Make Soros happy': Inside Clinton team's mission to please billionaire VIP. (video)

CNBC:

• Hacked Memo Reinforces Worst Perception of the Clintons. (video)
• Sell Tesla(TSLA) as earnings report is 'not as good as it looks,' JPMorgan says.
• Read the hacked memo detailing part of 'Bill Clinton, Inc'.

Zero Hedge:

• Even The New York Times Is Bashing Obamacare - "It Has Not Worked All That Well".
• Our Landfill Economy.
• Bank Jog: Deutsche Bank's Demand Deposits Tumble By 13% In Q3. (graph)
• "Recession Risk Is Rising" Fast, Deutsche Bank Warns "Outlook Remains Fragile". (graph)
• "This Is About Whiteness" UC Berkeley Students Segregate Campus, Block Bridge With Human Wall. (video)
• French 'Shocked' As Power Prices Spike To 8-Year Highs On Nuclear Reactor Probe Shutdown. (graph)
• Iran Takes More Hostages: What Did The US Expect?
• US Real Estate Stocks Plunge To 7 Month Lows As Rate Hike Odds Soar. (graph)
• Small Stocks Threaten Breakdown – Can They Hang On? (graph)
• RBC: "That Is VaR Crushing DV01 Destruction At Its Finest".
• Pending Home Sales Growth Disappoints As Post-Summer Slump Accelerates. (graph)
• Ugly! "Failure Almost Guaranteed" Regardless Of Who Wins The Election.
• Oil Spikes On OPEC Cut Headline (Misses Russian Refusal Headline). (graph)
• Thursday Humor: Jobless 'Claims'. (graph)
• Podesta Part 20: Wikileaks Releases Another Batch Of Emails; Total Is Now 34,197.
• Top Republican Congressman Says He'll Vote For Trump Weeks After Dropping His Support.
• Qualcomm(QCOM) Buys NXP For $47 Billion: Biggest Semiconductor Deal Ever.

The Telegraph:

• China capital flight flashes warning as authorities forced to prick property bubble.

Morning Market Internals

NYSE Composite Index:

• Volume Running +27.4% Above 100-Day Average
• 4 Sectors Rising, 6 Sectors Declining
• 29.8% of Issues Advancing, 67.2% Declining
• 53 New 52-Week Highs, 57 New Lows
• 52.1% of Issues Above 200-day Moving Average
• Average 14-Day RSI 36.5%
• Vix 14.9 +4.3%
• Total Put/Call .98 +8.9%
• TRIN/Arms .56 -12.7%