Stocks Rising Slightly into Final Hour on Less Pessimistic Economic Data, Short-Covering, Falling Energy Prices, Transports/Housing Sector Strength

Broad Market Tone:

• Advance/Decline Line: Lower
• Sector Performance: Mixed
• Volume: Below Average
• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• VIX 15.53 -1.15%
• ISE Sentiment Index 115.0 -24.68%
• Total Put/Call .94 +30.56%
• NYSE Arms .91 -21.56%

Credit Investor Angst:

• North American Investment Grade CDS Index 96.55 bps -1.8%
• European Financial Sector CDS Index 187.23 bps -4.09%
• Western Europe Sovereign Debt CDS Index 144.17 bps -.80%
• Emerging Market CDS Index 216.31 bps -.85%
• 2-Year Swap Spread 13.50 -.75 basis point
• TED Spread 26.5 -.25 basis point
• 3-Month EUR/USD Cross-Currency Basis Swap -26.0 +.75 basis point

Economic Gauges:

• 3-Month T-Bill Yield .09% unch.
• Yield Curve 138.0 unch.
• China Import Iron Ore Spot $104.20/Metric Tonne unch.
• Citi US Economic Surprise Index 17.40 +6.5 points
• 10-Year TIPS Spread 2.47 -1 basis point

Overseas Futures:

• Nikkei Futures: Indicating +43 open in Japan
• DAX Futures: Indicating -10 open in Germany

Portfolio:

• Higher: On gains in my Biotech/Medical/Retail/Tech sector longs
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and covered some of my (EEM) short, then added them back
• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• Global Services Weaken as Europe Slides Into Recession: Economy. Services industries from Asia to Europe cooled last month after the euro-area debt crisis pulled economies including Spain and Italy into recession and damped global growth prospects. The purchasing managers’ index fell to 53.7 in September from 56.3 in August, the National Bureau of Statistics and China Federation of Logistics and Purchasing in Beijing said today. That’s the lowest since at least March 2011. In the euro-area, a gauge slipped to 46.1 last month from 47.2 and a U.K. measure also fell. Readings below 50 indicate contraction.  
• BNP Is Coming Under Pressure With SocGen to Isolate Risk. French lenders’ trading assets have grown to almost match the size of the nation’s economy, making them vulnerable to government efforts to wall off banking risk. Investment-banking units of BNP Paribas SA (BNP), Societe Generale SA, Credit Agricole SA (ACA) and Natixis (KN) SA have 2.05 trillion euros ($2.64 trillion) in trading assets, including bonds, equities and derivatives, data compiled from the banks show. That’s a 21 percent jump in the 12 months to June and a two-year high, just shy of France’s $2.77 trillion gross domestic product.
• U.S. States Teetering on Brink of Fiscal Cliff, Ganeriwala Says. The possibility of automatic federal budget cuts threatens U.S. states’ well-being, even as their revenue recovers, said Manju Ganeriwala, the incoming president of the National Association of State Treasurers. “We’re approaching the cliff, and hopefully it’s a climbing down and not just jumping from the cliff,” Ganeriwala, Virginia’s treasurer, said today at the State & Municipal Finance Conference hosted by Bloomberg Link in New York.
• Oil Falls to Four-Day Low as U.S. Supply Increases, China Slows. Oil fell to its lowest in four days after U.S. crude stockpiles climbed for a fourth week and a measure of China’s economy declined, signaling fuel demand may be faltering in the world’s biggest users of the commodity. Brent oil for November settlement on the London-based ICE Futures Europe exchange dropped $1.28, or 1.2 percent, to $110.29 a barrel. 
• BlackRock(BLK) Leads Firms Poised to Win From Hedge Fund Ads. The firms most likely to benefit first from new rules that would allow hedge funds to conduct wide advertising campaigns aren’t hedge funds. 
• Hewlett-Packard(HPQ) Plunges as Whitman Projects Profit Drop. Hewlett-Packard Co. (HPQ) Chief Executive Officer Meg Whitman forecast fiscal 2013 profit that missed estimates and said a turnaround at the computer maker won’t happen any time soon, sending shares to a more than nine- year low. “The recent financial performance of HP has not been good,” Whitman said at a meeting with financial analysts today. “The single biggest challenge facing Hewlett-Packard has been the multiple changes in CEOs,” she said. “It’s going to take longer to right this ship than any of us would like.”

Wall Street Journal:

• Obama, Romney Look to Win Over the Undecided. After jousting from afar for months, Barack Obama and Mitt Romney will meet Wednesday night in one of their last best chances to sway undecided voters and solidify support among the party faithful. For 90 minutes beginning at 9 p.m. EDT, the presidential candidates will share a stage at the University of Denver, laying out their ideas about domestic issues. The first of three televised presidential debates will heavily emphasize the economy, with both men trying to persuade voters that they understand their struggles and can improve the economic landscape in the next four years.
• Apple(AAPL) Suppliers Now Mass-Producing Tablets Smaller Than Existing iPad -Sources.  
• Tensions Rise as Syrian Shells Land in Turkey. Syrian mortar rounds landed in a Turkish border town on Wednesday, killing five people and wounding at least a dozen, opening a potentially dangerous new phase along the neighbors' increasingly tense shared border. Three Syrian shells fell on Akcakale, a Turkish town in the southern province of Sanliurfa, shortly after 3:30 p.m. local time, sending residents scattering to find cover, said Abdulhakim Ayhan, the town's mayor. 
• Dozens Killed in Syrian Suicide Blasts. Dozens of people were killed and wounded, many of them government soldiers, in multiple car bombings in the northern Syrian city of Aleppo. The attacks bore the hallmarks of al Qaeda-inspired or -linked jihadists, signaling a bloodier phase in the conflict in the city, where opposition rebels have been deadlocked in battle with the regime for nearly three months.

MarketWatch.com:

• Green-energy policy hurts America. Commentary: Environmental policies lead to less wealth.

CNBC:

• California Cities in 'Conga Line' For Fiscal Trouble. Then came Stockton. Mammoth Lakes. San Bernardino. Which California city will go bankrupt next? "There's a lot of them lined up in the conga line," said Marilyn Cohen, CEO of Envision Capital Management. Up next could be the city of Atwater, where civic leaders will vote Wednesday night on declaring a fiscal emergency. They may even lay off a quarter of the town’s 90-person workforce.   
• Fed Easing Has Little Impact So Far: Out of Bullets? "We've been range-bound as everyone digests the information," said Robert Laura, president of Synergos Financial Group in Brighton, Mich. "There's nothing that's going to take us any higher. The headwinds out there are too large for QE to overcome."
• There's Too Much Debt, Here's What to Do: Kyle Bass. Kyle Bass, who famously made a fortune shorting the subprime market before the housing market collapse, is worried that there's too much debt in the world. “We’ve never been here before,” said Bass, founder of hedge fund Hayman Capital, in an interview Wednesday on CNBC'S “Squawk on the Street.” “It has been the largest peacetime accumulation of debt in history.” And that makes investment decisions extremely difficult, Bass said.

Zero Hedge: 

• Noisy ADP Print Declines But Beats Expectations; Just 4000 Manufacturing Jobs Added. (graph) 
•  IMF Brings Good Tidings: Prepare For Another Lost Decade. 
• Services ISM Better Than Expected Even As Employment Slides, Prices Soar. (graph) 
• Ultraluxury NY Real Estate Market Cracking As Legendary 740 Park Duplex Sells 45% Below Original Asking Price.  
• Does Stimulus Spending Work? (video)

Business Insider: 

• These Charts Prove Biden Is Right About The Middle Class Being Buried Over The Last 4 Years. 
• Demand For Apartments Is Slowing As An 'Avalanche' Of Units Hit The Market.  
• South Africa Is On The Brink Of Total Chaos As Strikes Are Leading To Fuel And Cash Shortages.  
• Why You Should Be Outraged About The Ruling To Keep The NDAA Indefinite Detention Clause In Effect. That the NDAA is fully enforceable right now is scary enough, but the details of the ruling are truly bothersome to those that have been following the rulings in the case.  
• Why Everyone Is Losing Hope In Solar Power.   
• CONFIRMED: A Top Russian General Was Killed By Syrian Rebels While Advising Assad. 

WeKnowMemes: 

• The US Budget Explained In Simple English.

Reuters: 

• Copper falls as weak Europe, China data raises demand fears. Copper slipped on Wednesday, ending four days of gains, as weak data from Europe and China reinforced concerns about the outlook for industrial metal demand despite recent efforts by central banks to stimulate economic growth. 
• Greek hopes fade for quick deal on austerity cuts. Greece's hopes of striking a deal with its lenders before euro zone finance ministers meet next week dimmed on Wednesday, when officials admitted the two sides disagree on how much the economy will contract in 2013 - a key figure in their calculations. 
• Troika sees Greek economy slumping by 5 pct in 2013- Greek source.

Telegraph:

• Multiplying Europe's fiscal suicide (technical).
• Portugal to raise taxes to meet austerity targets. Portugal has announced a raft of new cuts designed to reduce the country's debt load, as finance minister Vitor Gaspar unveiled sweeping changes that will see the average income tax rate rise by 2pc.

Bear Radar

Style Underperformer:

• Large-Cap Value -.11%

Sector Underperformer:

• 1) Education -2.52% 2) Oil Service -2.03% 3) Computer -1.85%
  

Stocks Faling on Unusual Volume:

• QLIK, CBEY, MRCY, DELL, HPQ, SSL, RNF, CAJ, ARI, PCS, BGS, HPY, RNF, SSL, PCL, FIRE, HII, ISIS, PSSI, ERJ, MON, SUSS, KRA, EXXI, KSU, SYT, BJRI, POT, CLB, ESI, DX, FNP and SPN
  

Stocks With Unusual Put Option Activity:

• 1) HCA 2) PCS 3) HPQ 4) GPS 5) CCJ
  

Stocks With Most Negative News Mentions:

• 1) POT 2) XRTX 3) DELL 4) XOM 5) PBR
  

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Growth +.36%

Sector Outperformers:

• 1) Homebuilders +2.87% 2) Airlines +2.24% 3) Tobacco +.98%
  

Stocks Rising on Unusual Volume:

• SRPT, OCN, BKD, NFLX, LCC, ALR, ARUN, SPW, DAL and FDO

Stocks With Unusual Call Option Activity:

• 1) DLPH 2) PCS 3) SRPT 4) LNC 5) EWY
  

Stocks With Most Positive News Mentions:

• 1) JBLU 2) LCC 3) ITRI 4) STX 5) NFLX

Charts:

• ETFs Rising on Unusual Volume 
• Stocks Rising on Unusual Volume

Wednesday Watch

Evening Headlines
Bloomberg: 

• Merkel Emulates Kohl German Unity Turning Euro Crisis Into Votes. Three days before East and West Germany reunited in 1990, Angela Merkel made an acquaintance that was to put her on the path to power. An East German scientist propelled into politics by the fall of the Berlin Wall and the communist regime’s collapse, Merkel wangled an audience with Helmut Kohl at a party event in Hamburg. Within four months, Kohl had ridden German reunification to a landslide third election victory and Merkel secured a post in his Cabinet. Just as Kohl knew what Germans on both sides of the border wanted when they united 22 years ago today, Merkel is tuned in to voters who balk at paying the price of the united Europe Kohl brought about. While her peers in France, Italy and Spain have been voted out in the three years since the debt crisis emerged in Greece, Merkel’s ability to channel domestic public opinion paired with a still-expanding economy led polling company Forsa to conclude that she looks unbeatable before 2013 elections. “The crisis makes people rally behind Merkel,” Gerd Languth, a historian and professor of politics at the University of Bonn whose 2005 biography of the chancellor documents her meeting with Kohl, said by phone. “People see her as being on top of the issues and the only one who can solve the problems.” 
• European Bank Capital Results Overtaken by Tougher Global Rules. The Europe Union’s top bank regulator will release figures today detailing how lenders met a 114.7 billion-euro ($148.5 billion) capital target, as the bloc is criticized for failing to properly implement tougher global standards. European banks boosted their capital reserves by 94.4 billion euros by a June deadline, the European Banking Authority has said in July. The increase is part of a plan to boost investor confidence in the bloc’s financial system and protect lenders from the decline in value of sovereign bonds.
• ADB Cuts Developing Asia’s Growth, Inflation Forecasts on China. The Asian Development Bank cut the region’s inflation and growth forecasts for this year and next, as Europe’s sovereign debt crisis and fiscal contraction in the U.S. reduces expansions from China to India. The Manila-based lender forecast Asia excluding Japan will expand 6.1 percent this year, according to the Asian Development Outlook 2012 Update report released today, compared with a July estimate of 6.6 percent and an April prediction of 6.9 percent. It also reduced the region’s inflation projection to 4.2 percent from 4.4 percent. “Deceleration in the region’s two giants -- the People’s Republic of China and India -- and in other major exporting economies is tempering earlier optimism,” the ADB said. “The ongoing sovereign debt crisis in the euro area and the looming fiscal cliff in the U.S. pose major risks to the outlook.”
• Iron Ore Heads for Longest Bear Market in 20 Years: Commodities. Iron ore, the commodity most leveraged to China’s growth and Australia’s biggest export earner, is heading for the longest bear market in 20 years. Vale SA (VALE3), Rio Tinto Group and BHP Billiton Ltd. (BHP), which control about two-thirds of seaborne iron ore supply, are spending about $47 billion on new and bigger iron ore mines from Brazil to Australia. The new cargoes are set to reach the global market just as China changes gear to lower growth expectations, following what may become its weakest performance since 1990. “We’re already seeing the beginning of the end of the first phase of economic development in China,” Alberto Calderon, chief commercial officer of Melbourne-based BHP, which is spending about $1 billion a month on its ore mines in Australia, said last month at a conference in Canberra. “The pace of demand for iron ore from China has slowed down by more than half.” 
• JPMorgan(JPM) Rivals Face Billions in Damages After MBS Case. JPMorgan Chase & Co. (JPM)’s rivals may face government lawsuits claiming tens of billions of dollars in damages tied to investor losses on mortgage bonds after New York’s attorney general filed a fraud lawsuit against the nation’s biggest bank by assets. A state-federal task force set up this year to investigate misconduct in the bundling of mortgage loans into securities will bring other cases, according to New York Attorney General Eric Schneiderman. Investor losses in the JPMorgan case alone will be “substantially more” than the $22.5 billion cited in his complaint, he said. “We do expect this to be a matter of very significant liability, and there are others to come that will also reflect the same quantum of damages,” Schneiderman said in an interview yesterday with Bloomberg Television’s Erik Schatzker. “We’re looking at tens of billions of dollars, not just by one institution, but by quite a few.” 
• Samsung Targets iPhone 5 in Latest Patent Lawsuit. (video) 
• Nickel Surplus May Expand to Five-Year High on New Mine Projects. A global nickel surplus may expand for a third year to the highest level since 2008 as supply from new mining projects outweighs China’s demand growth, Japan’s top producer said. Supply will likely exceed demand by 60,000 metric tons in 2013, said Toru Higo, Sumitomo Metal Mining Co. (5713)’s general manager of nickel sales and raw materials. Supply outstripped demand by 40,000 tons this year and 22,000 tons in 2011, he said.  
• U.S. Casinos Won’t Get Macau Licenses, Caesars CEO Says. The government of Macau won’t issue any licenses for new U.S. companies to operate casinos in the world’s largest gambling market, Gary Loveman, chief executive officer of Caesars Entertainment Corp. (CZR), predicted. Loveman, in a presentation yesterday to analysts and investors in Las Vegas, said he has spoken at length with Chinese officials and that his company was unlikely to obtain a concession to operate a casino in Macau, the only part of China where casino gambling is legal.

Wall Street Journal: 

• How ECB Chief Outflanked German Foe in Fight for Euro.  
• Lawmakers Say Libya Security Pleas Were Rejected.
• Freddie's Foreclosure Plan Hits Roadblock.
• Agricultural Bank of China is among big Chinese lenders that have canceled plans to participate in World Bank and IMF meetings in Tokyo next week amid tensions between the Asian neighbors. 
• Romney's Middle-Class Tax Sale. How the Republican can win the debate he's now losing by default.

 CNBC: 

• China Services PMI Falls to 53.7 as New Orders Soften. China's normally robust services sector weakened sharply in September, as slow growth in manufacturing finally began to feed through to the rest of the economy, an official survey showed on Wednesday. The official purchasing managers' index (PMI) for the services sector fell to 53.7 in September from 56.3 in August, weighed by lackluster new orders, according to the latest survey from the National Bureau of Statistics. 
• The ‘Fiscal Cliff’—the Grinch That Steals Christmas?

Zero Hedge:

• Global Manufacturing PMI, Global Stocks. (graph) 
• US Debt Soars To $16,159,487,013,300.35, +$93 Billion; Or How To Kick Off Fiscal 2013 With A Bang. (graph)
• European Banks Still Treat Their Sovereign Debt Holdings As Risk-Free, BIS Finds.
• Troika Target Of Truculence As Greek Tax Evaders Terrified.

Business Insider:

• 3 Huge Risks For Equities In Q4.
• California Has A PMI Report And It Just Took A Horrifying Nose Dive. California has its own manufacturing PMI, the Inland Empire Report on Business, sponsored by San Bernardino and Riverside Counties in Southern California, commonly called the Inland Manufacturing Index. After the recent high of 60.8 in March—above 50 indicating growth—it zigzagged down to 52 in August, and then in September, it crashed to 43.4—the lowest level since September 2009. All five key components were weak. And three fell off a cliff: Production tumbled from 55 in August to 37.5 in September; New Orders—a harbinger of pain to come—fell from 52 to 37, and Exports fell from 51.1 to 35.7. “Disturbing,” the report called it. 
• Court Says Obama Administration Can Still Detain Anybody Indefinitely. 
• Obama Administration Says It's Legal To Track Citizens' Every Movement Without A Warrant.

TheBlaze: 

• Oops: Biden Admits Middle Class Has Been Buried ‘Over the Last Four Years’. (video)

National Journal:

• Obama, Romney Tied Among Likely Voters. President Obama and Mitt Romney are deadlocked among likely voters as they prepare to square off in their first presidential debate, according to the latest United Technologies/National Journal Congressional Connection Poll. Obama and Romney each pulled in 47 percent support in the poll among likely voters.

Reuters: 

• U.S. had early indications Libya attack tied to organized militants. Within hours of last month's attacks on U.S. diplomatic facilities in Benghazi, Libya, President Barack Obama's administration received about a dozen intelligence reports suggesting militants connected to al Qaeda were involved, three government sources said. Despite these reports, in public statements and private meetings, top U.S. officials spent nearly two weeks highlighting intelligence suggesting that the attacks were spontaneous protests against an anti-Muslim film, while playing down the involvement of organized militant groups.

MNI:

• China's consumer sentiment declined in September from August, amid a slowing economy and a lack of stimulus measures from govt. The index dropped for a third consecutive month. Consumers' aggregate view of current conditions fell to 91.3 in September from 95.0 in August.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.50% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 133.50 -3.0 basis points.
• Asia Pacific Sovereign CDS Index 114.25 unch.
• FTSE-100 futures -.07%.
• S&P 500 futures -.24%.
• NASDAQ 100 futures -.13%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (FDO)/.75
• (RPM)/.64
• (MON)/-.43
• (MAR)/.40

Economic Releases
8:15 am EST

• The ADP Employment Change for September is estimated at 140K versus 201K in August.

10:00 am EST

• ISM Non-Manufacturing for September is estimated to fall to 53.4 versus 53.7 in August.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,500,000 barrels versus a -2,446,000 barrel decline the prior week. Distillate supplies are expected to fall by -400,000 barrels versus a -482,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -500,000 barrels versus a -481,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.1% versus a -1.5% decline the prior week.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The weekly MBA mortgage applications report, Eurozone services PMI, Eurozone Retail Sales, (HPQ) analyst day and the CSFB Credit Products Conference could also impact trading today.

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

Stocks Slightly Lower into Final Hour on Rising Global Growth Fears, US Fiscal Cliff Worries, Earnings Jitters, Restaurant/Retail Sector Weakness

Broad Market Tone:

• Advance/Decline Line: Lower
• Sector Performance: Most Sectors Declining
• Volume: Below Average
• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• VIX 16.39 +.43%
• ISE Sentiment Index 154.0 +4.76%
• Total Put/Call .69 -20.69%
• NYSE Arms 1.31 +30.60%

Credit Investor Angst:

• North American Investment Grade CDS Index 98.18 -.21%
• European Financial Sector CDS Index 195.33 bps -2.73%
• Western Europe Sovereign Debt CDS Index 145.32 -.19%
• Emerging Market CDS Index 218.45 -.07%
• 2-Year Swap Spread 14.25 +1.0 basis point
• TED Spread 26.75 -.75 basis point
• 3-Month EUR/USD Cross-Currency Basis Swap -26.75 +.75 basis point

Economic Gauges:

• 3-Month T-Bill Yield .09% +1 basis point
• Yield Curve 138.0 unch.
• China Import Iron Ore Spot $104.20/Metric Tonne unch.
• Citi US Economic Surprise Index 10.90 -.1 point
• 10-Year TIPS Spread 2.48 +6 basis points

Overseas Futures:

• Nikkei Futures: Indicating -13 open in Japan
• DAX Futures: Indicating -3 open in Germany

Portfolio:

• Slightly Higher: On gains in my Biotech/Medical sector longs
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and covered some of my (EEM) short
• Market Exposure: Moved to 50% Net Long