Broad Market Tone:
- Advance/Decline Line: Higher
- Sector Performance: Most Sectors Rising
- Volume: Below Average
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- VIX 15.17 -.65%
- ISE Sentiment Index 154.0 +79.07%
- Total Put/Call .82 +9.33%
- NYSE Arms .86 +9.44%
Credit Investor Angst:
- North American Investment Grade CDS Index 93.19 bps -2.59%
- European Financial Sector CDS Index 170.03 bps -3.57%
- Western Europe Sovereign Debt CDS Index 121.62 bps -8.2%
- Emerging Market CDS Index 212.99 bps -1.28%
- 2-Year Swap Spread 9.25 -1.5 basis points
- TED Spread 23.25 unch.
- 3-Month EUR/USD Cross-Currency Basis Swap -24.50 +.5 basis point
Economic Gauges:
- 3-Month T-Bill Yield .09% -1 basis point
- Yield Curve 145.0 +4 basis points
- China Import Iron Ore Spot $112.60/Metric Tonne -.35%
- Citi US Economic Surprise Index 52.40 -3.1 points
- 10-Year TIPS Spread 2.46 -1 basis point
Overseas Futures:
- Nikkei Futures: Indicating +89 open in Japan
- DAX Futures: Indicating +4 open in Germany
Portfolio:
- Higher: On gains in my Retail, Medical, Biotech and Tech sector longs
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and then added them back
- Market Exposure: 50% Net Long
Bloomberg:
- Germany Open to Spanish Precautionary Credit, Lawmakers Say.
Germany is open to Spain seeking a precautionary credit line from
Europe’s rescue fund, two senior coalition lawmakers said, signaling a
reversal of Finance Minister Wolfgang Schaeuble’s public position.
The comments by Michael Meister, a deputy caucus leader of Chancellor
Angela Merkel’s Christian Democratic bloc, and Norbert Barthle, her
party’s budget spokesman, indicate a
rolling back of German resistance to a full sovereign bailout
for Spain. Schaeuble cautioned Spain against seeking aid on top
of its bank bailout as recently as last month.
- Schaeuble Risks U.K. Ire With EU Treaty Change Push for Euro. German Finance Minister Wolfgang Schaeuble said he wants legal changes to European Union treaties
as early as next year to strengthen the euro area’s ability to
enforce budgetary discipline, threatening to stoke tensions with
the U.K. and France. Schaeuble said the proposals, which he discussed with
Chancellor Angela Merkel, would give the EU’s monetary affairs
commissioner powers to reject national budgets and keep European
Parliament lawmakers from non-euro states such as the U.K. from
blocking decisions that only affect the euro region. “We must take bigger steps toward fiscal union now,”
Schaeuble told reporters today on his return flight from a
meeting of finance chiefs in Asia. “We could be ready by
December to call a convention” to prepare the treaty changes.
- Europe Auto Market Headed for Biggest Plunge in 19 Years. European car deliveries headed for
their biggest annual plunge in 19 years after the region’s
deliveries tumbled 11 percent in September. Registrations last month
dropped to 1.13 million vehicles from 1.27 million a year earlier, the
Brussels-based European Automobile Manufacturers’ Association, or ACEA,
said today.
Nine-month sales fell 7.2 percent. The market is now on track
to decrease as much as 10 percent in 2012, the worst sales slump since
the aftermath in 1993 of the region’s currency crisis, the ACEA
said. Renault SA (RNO) posted a European sales drop in September of 29
percent, while Fiat SpA (F) decreased 19 percent. Tiremaker Nokian
Renkaat Oyj (NRE1V) forecast second-half operating profit will fall on
weak demand. “We have seen the European market deteriorate, from an already weak level, rather than recover,” said Marc-Rene Tonn, a Hamburg-based Warburg Research analyst. “That is something
that is weighing on the shares.”
- Citigroup(C) Board Said to Oust Pandit After Multiple Setbacks. Citigroup
Inc. (C) directors ousted Chief Executive Officer Vikram Pandit after
concluding his mismanagement of operations caused setbacks with
regulators and cost credibility with investors, a person with
knowledge
of the discussions said. Episodes that led the board to replace Pandit
with Michael Corbat included the rejection by regulators in March of a
plan to boost shareholder payouts, said the person, who requested
anonymity because board deliberations are private. Citigroup’s $2.9
billion writedown on the Smith Barney brokerage unit and a two-level cut
of its credit rating by Moody’s Investors Service also contributed, the
person said.
- U.S. Consumer Prices Rose in September on Cost of Fuel. The cost of living in the U.S. rose
in September for a second month, reflecting a jump in energy
expenses that failed to trickle through to other goods and
services. The consumer-price index increased 0.6 percent for a second
month, the Labor Department reported today in Washington.
Economists surveyed by Bloomberg had forecast a 0.5 percent
advance.
- Oil-Tanker
Glut at Six-Week High Before November Cargoes Arrive. A glut of the
largest oil tankers available in the Persian Gulf is poised to reach a
six-week high, a Bloomberg News survey showed, as owners await an influx
of cargoes to load for November. There are 21% more VLCCs for hire over
the next 30 days than there are likely cargoes, according to the median
estimate in a survey of six shipbrokers and owners today. That's a 1.5
percentage-point gain from last week and the biggest excess since Sept.
5. There are about 14 cargoes remaining for October, according to an
e-mailed report from Marex Spectron Group. Still, the global supertanker
fleet will expand 6.7% this year, about double forecast demand growth
of 3.4%, according to Clarkson Research Services Ltd.
Wall Street Journal:
Fox News:
- Rio Tinto(RIO) Iron Ore Output Unabated Despite China Concern. Rio Tinto PLC (RIO) continues to deliver record volumes of iron ore
undeterred by price volatility and concerns over China's appetite for
the steelmaking raw ingredient. The Anglo-Australian company,
the world's second-largest producer of iron ore after Brazil's Vale SA
(VALE), Tuesday maintained a production target of 250 million metric
tons this year after its mines lifted output 5% on the year in the third
quarter. Production outpaced sales of the commodity as the company
prepared itself for the next stage in capacity growth, Rio Tinto said in
its latest quarterly operations report.
CNBC:
- Credit Clips Homebuilder Confidence. After
a summer of significant monthly jumps in confidence among the nation’s
home builders, fall appears to be bringing in a chill.
- US Industrial Production Rises 0.4%.
The Federal Reserve said U.S. industrial production rose 0.4 percent in
September after a 1.4 percent decline in August. The August decline
partly reflected precautionary shutdowns before Hurricane Isaac hit the
Gulf Coast. Manufacturing output, the most important component of
industrial production, edged up only 0.2 percent in September. For
the July-September quarter, factory output fell at an annual rate of 0.9
percent, its first quarterly decline since the spring of 2009.
- Iran Plotting to Spill Oil in Strait of Hormuz, Magazine Claims. Iran is secretly planning to spill oil into the Strait of Hormuz as revenge for Western sanctions, according to Der Spiegel.
Zero Hedge:
Business Insider:
New York Times:
- Obama-Backed Green Electric Battery Maker Files for Bankruptcy. An electric car battery maker that President Obama touted as part of a
vanguard of a new American electric car industry has filed for
bankruptcy and is selling its major assets, the company announced on Tuesday. A123
Systems(AONE), which produces lithium ion batteries for the electric car
maker Fisker and the truck manufacturer Navistar, received a $249
million Department of Energy grant that was financed by Mr. Obama’s
stimulus program. The company has been struggling as electric vehicles
have failed to gain a foothold in the American domestic car market.
Another battery maker that received federal support, Ener1, filed for
bankruptcy earlier this year. The company’s troubles could provide
new ammunition for Mitt Romney, the Republican presidential nominee,
who has criticized the Obama administration’s green energy grant and
loan programs as a distortion of the marketplace and rife with political
favoritism. Mr. Obama called
A123’s chief executive, David Vieau, and Jennifer Granholm, then
Michigan’s governor, in September 2010 to celebrate the opening of a
battery manufacturing plant in Livonia, Mich., that was built partly
with federal funds.
Washington Times:
- Crowley Says She Will 'Cull' Town-Hall Questions. CNN's Candy Crowley, moderator for the second presidential debate, said Monday
that she and a small team of assistants will "cull" questions from a
town-hall audience in advance to decide which queries are posed to
President Obama and Republican nominee Mitt Romney.
9to5Mac:
Reuters:
- Bin Laden driver's conviction reversed by court. A
U.S. appeals court on Tuesday overturned the conviction of Osama bin
Laden's former driver and bodyguard, Salim Hamdan, on charges of
supporting terrorism, in a long-running case emerging from the American
military trials at Guantanamo Bay, Cuba. The U.S. Court of Appeals for
the District of Columbia Circuit concluded that providing support for
terrorism was not a war crime at the time of Hamdan's alleged conduct
from 1996 to 2001 and therefore could not support a conviction. Human rights activists hailed the ruling as a blow to the legitimacy of the military commission system.
- US gasoline demand dips as prices rise. Gasoline demand last week fell 3.9 percent from a year
earlier, on top of its 2.4 percent decline, year-over-year, in
the previous week, MasterCard's report showed. On average, demand over the two weeks ending Oct. 12 fell
3.1 percent lower than a year ago. The average price of a gallon rose 4.00 cents-a-gallon to
$3.82, 11.7 percent higher than in the same week last year.
- Overcapacity to edge out 180 solar panel makers by 2015 - report. Overcapacity in the solar industry is
likely to result in at least 180 panel makers either going bust
or being acquired by 2015, according to a research report
released on Tuesday. GTM Research estimates that global solar products supply
will exceed demand by 35 gigawatts on average annually over the
next three years. The largest number of casualties will occur in
high-cost manufacturing markets such as the United States,
Europe and Canada, GTM said.
- Greek leftist party leader says doesn't accept troika demands. "The troika demands feed recession and galloping
unemployment," said Fotis Kouvelis, leader of the Democratic Left party, after a meeting among party leaders. He said Greece needed more time to impose a new austerity package demanded by the
so-called troika of International Monetary Fund, European Commission and
European Central Bank lenders in exchange for funds to keep Athens
afloat.
- Omnicom cautious on looming fiscal cliff, China transition. Omnicom
Group Inc, the largest U.S.
advertising company, said the looming "fiscal cliff" in the United
States and the leadership transition in China are creating uncertainty
among clients, making it difficult to forecast the next few quarters. However, the company said it was benefiting as customers
spread their advertising budgets among fewer agencies. "With China being off a little bit, Europe not solved yet
and the uncertainty with the fiscal cliff as people await the
election, there's conservatism," Chief Executive John Wren said
on a conference call with analysts. "We're not certain yet what the outcome is going to be in
the fourth quarter or into the first quarter of next year."
- China's Cui warns of risks from U.S. stimulus. The U.S. Federal Reserve's
latest round of quantitative easing is adding to financial
market instability and inflationary pressure in emerging
markets, China's Vice Foreign Minister Cui Tiankai warned on
Tuesday. The frank remarks, directed at the U.S. central bank's
announcement of a fresh round of bond-buying to stimulate the
economy, dubbed QE3, is the latest in a round of increasingly
pointed criticism between China and the U.S of the other's
economic policy. Speaking to reporters at a briefing in Brussels, Cui spelt
out his concerns about the programme that will see $40 billion
of mortgage debt purchased each month until the outlook for jobs
improves substantially. "We are affected by the external environment," Cui said. "We
are feeling the pain brought about by the situation in the
United States and in Europe." "For instance, the recent so-called QE3, I think, is adding
to the instability on the international financial markets, is
adding to the imported inflationary pressure for developing
economies, including China, and is adding to the uncertainty in
the commodity market and this would in turn affect food security
for many countries.
Bild:
- Germany to Lower Economic Growth Forecast for 2013. GDP growth next year forecast to be 1%, down from forecast earlier this year of 1.6%, government officials say. The German Economy Minister Philipp Roesler will present new forecasts tomorrow.
Expansion:
- Deputy Bank of Spain Governor Fernando Restoy says there's "very limited" scope for a solution for retail investors who lost money buying preferred shares in banks. The European Commission is imposing "very rigorous demands" for the recapitalization of banks, and haircuts demanded will be "very substantial."
La Vanguardia:
- The contraction of Spain's economy will be similar in 3Q as in 2Q, citing comments by Economy Minister Luis de Guindos.
DigiTimes:
- Apple(AAPL) Supply Chain Looking to Raise Prices. Apple's upstream supply chain partners including Foxconn Electronics
(Hon Hai Precision Industry) and Foxlink, have reportedly demanded the brand
vendor accept a price rise, as their labor costs in China have been rising,
according to sources from the upstream supply chain.
ShanghaiDaily.com:
- Investment Slows. Fixed-asset investment in Shanghai expanded 5.2 percent from a year
earlier to 337.9 billion yuan (US$53.6 billion) in the first three
quarters, with the growth pace slowing 0.3 percentage point from the
first eight months, the Shanghai Statistics Bureau said. Investment in
urban infrastructure construction dropped 6.9 percent during the period,
but investment in property jumped 12.2 percent, buoying the total
volume together with investment in the manufacturing sector which rose
1.2 percent.
Style Underperformer:
Sector Underperformer:
- 1) Oil Tankers -1.61% 2) HMOs -.75% 3) Banks -.30%
Stocks Faling on Unusual Volume:
- BPI, NRP, TVL, ANR, DISH, VIP, PNC, CBSH, CMRE, RATE, GOV, ISIS,
WAC, SDT, SPLK, DBD, BRO, GWW, CASY, ALR, BPT, FRX, CQP, GEVA, RDEN,
ENSG, DGX, OMC, CYN, TUMI and ADES
Stocks With Unusual Put Option Activity:
- 1) HUM 2) NRG 3) OSG 4) ECA 5) JNPR
Stocks With Most Negative News Mentions:
- 1) F 2) FRX 3) PVH 4) UTIW 5) SBUX
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Steel +2.95% 2) Oil Service +1.82% 3) Coal +1.39%
Stocks Rising on Unusual Volume:
- ACI, MUR, CLMT, STT, DB, DPZ, MSCI, VALE, FOSL, CLF, AEGR and QCOR
Stocks With Unusual Call Option Activity:
- 1) A 2) MAT 3) ASNA 4) ITB 5) PSX
Stocks With Most Positive News Mentions:
- 1) JEC 2) GPS 3) YHOO 4) HPQ 5) HCA
Charts:
Evening Headlines
Bloomberg:
- Rajoy Delay Marks Bet Renewed Turmoil Makes Bailout Terms Easier. Spanish
Prime Minister Mariano Rajoy’s equivocation on seeking a European
bailout amounts to a bet that another bout of market turmoil will enable
him to broker better terms over German resistance. In Rajoy’s thinking,
“the worse it gets, the better for Spain,” said Jose Garcia-Montalvo, a
former Harvard University
economist who teaches at Pompeu Fabra University in Barcelona.
“That would make the Germans think more deeply about the cost
of letting the southern countries sink. But it’s a very risky
strategy.”
- Libor Rate Conspiracy Seen in Home-Loan Borrowers’ Suit. JPMorgan
Chase & Co. (JPM), Bank of America Corp. and 10 other lenders were
sued by a group of U.S. homeowners who claim the banks conspired to
manipulate the benchmark Libor rate, driving up the cost of mortgage
loans. Libor, or the London interbank offered rate, is based on a
British Bankers’ Association-commissioned daily survey that asks
lenders to estimate how much it would cost to borrow money from
each other for various periods in 10 different currencies. The
figures are used to set interest rates for more than
$300 trillion of securities and loans worldwide.
- Vivendi, STMicro Revamp Poised to Face French Scrutiny Over Jobs. Vivendi
SA (VIV) and STMicroelectronics SA (STM), each considering a
reorganization to boost their competitiveness, face a hurdle as French
President Francois Hollande struggles to keep an election pledge on job
creation. Industry Minister Arnaud Montebourg will today host
Vivendi Chairman Jean-Rene Fourtou and STMicroelectronics’s Didier
Lombard separately at Bercy, the sprawling 1980’s government complex in
eastern Paris. The meetings will emphasize strategic discussions as
Europe’s biggest media-to-telecommunications
group and chipmaker evaluate options ranging from divestments to
a break-up, people with knowledge of the matter said, asking not
to be named because the gatherings are private. The meetings highlight the challenges for French companies
under Hollande, who campaigned on the promise of “social
justice” and whose government has opposed job cuts from
drugmaker Sanofi to auto manufacturer PSA Peugeot Citroen.
- Yuan Forwards Fall as Slowing GDP Growth Damps Appreciation Bets. China’s
yuan forwards declined, halting a three-day gain, before a government
report that may show economic growth slowed for a seventh straight
quarter. Economic fundamentals and capital flows don’t support yuan appreciation, the China Securities Journal reported in a commentary today. Opponents of President Barack Obama contend that China keeps
its currency undervalued to boost exports, putting counterparts
in the U.S. at a disadvantage.
- Soros Says China Growth Slowing on Consumption Share Drop. Billionaire investor George Soros said China’s growth is slowing because household spending as a percentage of the world’s second largest economy is waning. “The growth model which has worked is running out of steam
because consumption as a percentage of GDP has fallen” to one-
third of output from half, Soros said at a National Association
for Business Economics conference in New York today. Central
bankers “will have to modify the growth model and somehow allow
the household sector to have a bigger share of the total.”
Wall Street Journal:
- Clinton Accepts Blame for Benghazi. U.S. Secretary of State Hillary Clinton said she takes responsibility
for security at the American diplomatic outpost in Benghazi, Libya,
where Ambassador Chris Stevens and three other Americans died in an
attack last month. "I take responsibility," Mrs. Clinton said in a recent interview in
her office. "I'm the Secretary of State with 60,000-plus employees
around the world. This is like a big family…It's painful, absolutely
painful." On Monday, in Lima, Peru, she also told television interviewers that
she accepts the blame, adding that security at America's diplomatic
missions overseas is her job, not that of the White House. Her comments
come as Republicans, including presidential candidate Mitt Romney,
criticize the Obama administration for its handling of the security
before the attack by extremists and its explanations afterward.
- Romney, Obama Hone Their Debate Messages. President Barack Obama and his Republican rival, Mitt Romney, enter
their debate Tuesday night with different goals than the last time they
met: Mr. Romney will try to build on growing strength among centrist
voters that arose from his performance in the first debate, while Mr.
Obama will aim to portray Mr. Romney as more conservative than his
opponent has recently suggested. Mr. Obama, who was preparing here Monday, has said he knows he has to do better in the second debate.
- Home Loans May Get Shield. Proposal Would Give Banks Protection in Cases Involving Top-Quality Mortgages. Federal regulators are considering giving mortgage lenders protection
from certain lawsuits, according to people familiar with the matter, a
move designed to encourage lending to well-qualified borrowers. The potential move, which would be a partial victory for mortgage
lenders, is part of a broader effort to write new rules for the U.S.
housing market in the wake of the mortgage meltdown. The proposal for
the first time would establish a basic national standard for loans,
known as a "qualified mortgage."
- In Reversal, Cash Leaks Out of China. China, once a catch basin for the world's money, is now watching cash stream out. Wealthy Chinese citizens are buying beachfront condos in Cyprus, paying
big U.S. tuition bills for their children and stocking up on luxury
goods in Singapore, frequently moving cash secretly through a
flourishing network of money-transfer agents. Chinese companies, for
their part, are making big-ticket foreign acquisitions, buying up
natural resources and letting foreign profits accumulate overseas.
- Once a Darling, Australian Dollar Loses Favor. China's economic slowdown is creating a new hierarchy in the currency market. The Australian dollar, once sought after because of the country's big
iron-ore and coal exports to China, is falling out of favor with some
investors. Instead, they are turning to the Canadian and New Zealand
dollars, two currencies they say still stand to benefit from steady
demand for their commodity exports even as China slows.
- The Solyndra Memorial Tax Break. How Energy passed out tax-loss credits that mean taxpayers will pay twice for failure. Perhaps you thought the Solyndra scandal amounted to a $535 million
government loan that will never be repaid. No such luck. In the latest
twist, Solyndra's investors could be rewarded for their failure, thanks to a tax benefit the Administration handed out in a bid to evade political accountability.
Zero Hedge:
Business Insider:
USA Today:
- Likely Swing State Voters: Romney 50%, Obama 46%. Women push Romney into lead.
Mitt Romney leads President Obama by four percentage points among likely
voters in the nation's top battlegrounds, a USA TODAY/Gallup Poll
finds, and he has growing enthusiasm among women to thank.
Reuters:
- TEXT-S&P Takes Various Rtg Action On Spanish Banks On Sov Downgrade.
- Microchip Technology(MCHP) warns on revenue. Chipmaker Microchip Technology Inc
said second-quarter revenue was likely below its
earlier estimates due to soft demand in the chipmaking industry. "The overall global economic outlook continues to be poor
and is adversely impacting our business as well as the rest of
the semiconductor industry," Chief Executive Steve Sanghi said
in a statement. The company estimates second-quarter adjusted revenue of
$407 million to $408 million, down from its earlier forecast of
between $412 million and $430 million.
- Bankrate(RATE) issues profit warning, shares slide. Bankrate Inc (RATE.N), which operates personal finance websites, warned its quarterly earnings would fall well short of Wall
Street expectations due to declining insurance referrals, sending its
shares tumbling 25 percent.
Financial Times:
- Fears over US mortgages dominance. Dominance
of the mortgage market by a few big banks is undermining monetary
policy, said a senior policy maker at the US Federal Reserve, in
comments that may herald greater scrutiny of lenders such as Wells Fargo
and JPMorgan Chase.
Telegraph:
- French business erupts in fury against "disastrous" Hollande. France is sliding into a grave economic crisis and risks a full-blown
“hurricane” as investors flee rocketing tax rates, the country’s business
federation has warned. “The situation is very serious. Some business leaders are in a state of
quasi-panic,” said Laurence Parisot, head of employers’ group MEDEF. “The pace of bankruptcies has accelerated over the summer. We are seeing a
general loss of confidence by investors. Large foreign investors are
shunning France altogether. It’s becoming really dramatic.” MEDEF, France’s equivalent of the CBI, said the threat has risen from “a storm
warning to a hurricane warning”, adding that the Socialist government of
François Hollande has yet to understand the “extreme gravity” of the crisis. The immediate bone of contention is Article 6 of the new tax law, which raises
the top rate of capital gains tax from 34.5pc to 62.2pc. This
compares with
21pc in Spain, 26.4pc in Germany and 28pc in Britain. “Let’s be clear,
Article 6 is not acceptable, even if modified. We will not be
complicit in a disastrous economic mistake,” Mrs Parisot told Le
Figaro.
NHK:
- Seven Chinese navy vessels were seen near Yonaguni Island in the western edge of Japan's Okinawa prefecture, citing Japan's Defense Ministry. The ships were about 200 kilometers south from the disputed islands in the East China Sea and were heading north.
China Securities Journal:
- State
Economist Says No China RRR Cut Needed. Fan Jianping, chief economist
at the State Information Center, says it's not necessary nor possible
for China to cut interest rates or the reserve requirement for
commercial banks. Fan cites pace of M2 and M1 money supply growth as
reasons for why rate and reserve ratio cuts not needed. Rushed monetary
loosening may lead to inflation in the future, he said. Current economic policy is focusing on stabilizing growth and controlling property prices and adjusting economic structure, Fan is cited as saying.
- China
4Q economic growth may see a "technical" rebound because last year's 4Q
growth was relatively lower and there may be a restocking of inventory,
according to a front-page commentary by Cao Shuishui, a researcher for the newspaper.
Evening Recommendations
Barclays:
- Rated (AUY) Overweight, target $25.
- Rated (NEM) Overweight, target $73.
- Rated (GG) Overweight, target $62.
Night Trading
- Asian equity indices are +.25% to +.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 125.0 -3.0 basis points.
- Asia Pacific Sovereign CDS Index 104.5 -2.0 basis points.
- FTSE-100 futures +.42%.
- S&P 500 futures +.15%.
- NASDAQ 100 futures +.16%.
Morning Preview Links
Earnings of Note
Company/Estimate
- (WWW)/.73
- (UNH)/1.46
- (MAT)/.99
- (PNC)/1.66
- (OMC)/.72
- (STT)/.96
- (GS)/2.28
- (DPZ)/.41
- (KO)/.51
- (JNJ)/1.22
- (FRX)/.04
- (CREE)/.26
- (INTC)/.50
- (CSX)/.43
- (APOL)/.49
- (ISRG)/3.49
- (IBM)/3.61
- (LLTC)/.45
- (URI)/1.13
Economic Releases
8:30 am EST
- The Consumer Price Index for September is estimated to rise +.5% versus a +.6% gain in August.
- The CPI Ex Food & Energy for September is estimated to rise +.2% versus a +.1% gain in August.
9:00 am EST
- Net Long-Term TIC Flows for August are estimated to fall to $48.0B versus $67.0B in July.
9:15 am EST
- Industrial Production for September is estimated to rise +.2% versus a -1.2% decline in August.
- Capacity Utilization for September is estimated to rise to 78.3% versus 78.2% in August.
- Manufacturing Production for September is estimated to rise +.3% versus a -.7% decline in August.
10:00 am EST
- The NAHB Housing Market Index for October is estimated to rise to 41.0 versus 40.0 in September.
Upcoming Splits
Other Potential Market Movers
- The Fed's Raskin speaking, Spain 10Y Bond Auction, Eurozone Inflation/Trade data, German ZEW Economic Sentiment, UK inflation data and the weekly retail sales could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and consumer staple 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.
Broad Market Tone:
- Advance/Decline Line: Slightly Higher
- Sector Performance: Mixed
- Volume: Light
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- VIX 15.48 -4.09%
- ISE Sentiment Index 91.0 +4.60%
- Total Put/Call .76 -26.21%
- NYSE Arms .95 -45.49%
Credit Investor Angst:
- North American Investment Grade CDS Index 96.42 bps -.89%
- European Financial Sector CDS Index 176.38 bps -1.09%
- Western Europe Sovereign Debt CDS Index 132.58 bps -2.72%
- Emerging Market CDS Index 216.47 bps -1.97%
- 2-Year Swap Spread 10.75 -.5 basis point
- TED Spread 23.25 -.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -25.0 unch.
Economic Gauges:
- 3-Month T-Bill Yield .10% unch.
- Yield Curve 141.0 +1 basis point
- China Import Iron Ore Spot $113.0/Metric Tonne -1.31%
- Citi US Economic Surprise Index 55.50 +6.1 points
- 10-Year TIPS Spread 2.47 unch.
Overseas Futures:
- Nikkei Futures: Indicating +56 open in Japan
- DAX Futures: Indicating +26 open in Germany
Portfolio:
- Slightly Higher: On gains in my Retail, Medical, Biotech and Tech sector longs
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, added them back, then covered some again
- Market Exposure: Moved to 50% Net Long
BOTTOM LINE: Today's
overall market action is mildly bullish as the
S&P 500 trades higher despite rising global growth fears, eurozone debt angst, high food/energy prices,
earnings worries, growing Mid-east unrest, China/Japan
tensions, rising US election uncertainty and US "fiscal cliff" worries. On
the positive side, Semi, Drug, Homebuilding and Tobacco shares are
especially strong, rising more than +1.0%. (XLF) has also outperformed throughout the day. Oil is falling -.05%, gold is down -.96% and the UBS-Bloomberg Ag Spot Index is down -1.2%. Major European indices are mostly higher,
led by a +.9% gain in France. The Bloomberg European Bank/Financial
Services Index is rising +1.0%. Brazil is rising +.75%. The Germany sovereign cds is falling -8.0% to 44.37 bps, the France sovereign cds is down -3.3% to 94.67 bps and the UK sovereign cds is plunging -8.1% to 42.37 bps. The Italian/German 10Y Yld Spread is falling -.8% to 350.91 bps. On
the negative side, Coal, Alt Energy, Oil Tanker, Ag, Disk Drive, Networking, Telecom, Road & Rail and Education shares are all lower on the day. Lumber is falling -.1% and Copper is falling -.05%. The 10Y Yld is unch. at 1.6%. The Spain 10Y Yld is rising +3.4% to 5.82%. The UBS/Bloomberg Ag Spot Index is up +18.0% since 6/1. The benchmark China Iron/Ore Spot Index is down -37.6% since 9/7/11. The China Hot Rolled Steel Sheet Spot Index
also continues to trend lower despite the recent bounce. As well,
copper, oil and lumber continue to trade poorly given equity investor
perceptions that the Eurozone has successfully kicked-the-can, housing
has hit a major bottom and global central bank stimuli will boost
economic growth in the near future. US weekly retail sales have decelerated to a very sluggish rate at +1.6%. The Philly Fed ADS Real-Time Business Conditions Index has shown meaningful deceleration since early July. Moreover,
the weekly MBA Home Purchase Applications Index has been around the
same level since May 2010 despite investor perceptions of a big
improvement in the nationwide housing market. The Baltic Dry Index has
plunged around -60.0% from its Oct. 14th high and is now down around
-50.0% ytd. Shanghai Copper Inventories have risen +496.7% ytd. Oil tanker rates have plunged, with the benchmark Middle East-to-US voyage down to 22.50 industry-standard worldscale points, which is very near the lowest since May, 2009.
The 10Y T-Note continues to trade too well during the recent equity rally. There still appears to be a fairly high level of complacency among US investors regarding the deteriorating macro backdrop. It remains unclear to me whether or not Germany will destroy its own balance sheet or allow the ECB to monetize debt in a
major way in an attempt to "save" the euro even as investors continue to price this outcome into stocks. Massive tax hikes and spending cuts have still yet to hit in several key eurozone countries that are already in recession. A lack of economic competitiveness and growth incentives remain unaddressed problems. The European debt crisis is also really affecting emerging market economies now, which will further pressure exports from the region and further raise the odds of more sovereign/bank downgrades after the US election. I continue to believe that China's problems are much larger than commonly perceived
and cannot be solved with another massive stimulus package given their
real estate bubble, rising food prices/labor costs, massive
overcapacity in certain key parts of the economy and growing bad loans
problem. Little being done by global central bankers will actually boost global economic growth to an extent that overcomes the growing
macro headwinds over the intermediate-term, in my opinion. As well, over the intermediate-term the Fed's recklessness
greatly increases the chances of hard-landings in key emerging markets
and of a serious global stock swoon, in my opinion. Moreover,
uncertainty surrounding the effects on business of Obamacare, the "US
fiscal cliff" and rising election outcome uncertainty will likely become
more and more of a focus for US investors into the fourth quarter. The Mid-east continues to unravel at an alarming rate, as well.
The quality of the stock rally off the June lows remains poor as
breadth, volume, leadership, lack of big volume/gainers and
copper/lumber/transports relative weakness all continue to be concerns. Thus,
recent market p/e multiple expansion on global central bank
stimulus/action hopes, has created an unstable situation for equities,
which could become a big problem unless a significant macro
catalyst materializes soon. For this year's equity advance to regain
traction, I would expect to see further European credit gauge
improvement, a subsiding of hard-landing fears in key emerging markets,
a rising 10-year yield, better volume, stable-to-lower food/energy
prices, a US "fiscal cliff" solution, a calming in Mid-east and
China/Japan tensions, less US election uncertainty and higher-quality
stock market leadership. I
expect US stocks to trade modestly higher into the close from
current levels on less eurozone debt angst, short-covering, lower food/energy prices and bargain-hunting.
