Bull Radar

Style Outperformer:

• Mid-Cap Growth +.98%

Sector Outperformers:

• 1) Airlines +1.89% 2) HMOs +1.87% 3) Construction +1.83%
  

Stocks Rising on Unusual Volume:

• EDG, QIWI, CLNE, CREE, MYGN, TASR, JASO, XONE, LKQ, AREX, WAG, CRZO and ESI

Stocks With Unusual Call Option Activity:

• 1) IMMU 2) CLNE 3) EA 4) TSN 5) ABBV
  

Stocks With Most Positive News Mentions:

• 1) MRK 2) AYI 3) GD 4) NFLX 5) INTC
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Tuesday Watch

Evening Headlines 
Bloomberg: 

• Government Shutdown Begins As Deadlocked Congress Flails. The U.S. government began a partial shutdown at midnight for the first time in 17 years, putting as many as 800,000 federal employees out of work today, closing national parks and halting some government services after Congress failed to break a partisan deadlock. No further negotiations were immediately planned, raising concerns among some lawmakers that the shutdown could bleed into a fight economists consider even more consequential: how to raise the nation’s debt limit to avoid a first-ever default after Oct. 17. 

• Asian Stocks Pare Gains as U.S. Budget Deadline Passes. Asian stocks pared gains as a deadline to avert a shutdown of the U.S. government passed and a report showed confidence among large Japanese manufacturers increased before Prime Minister Shinzo Abe unveils plans for an economic-support package. The MSCI Asia Pacific Index rose 0.1 percent to 138.77 as of 1:01 p.m. in Tokyo, paring a gain of as much as 0.4 percent.

• Rubber Swings Near 1-Month Low on U.S. Budget Woes, Japan Survey. Rubber swung between gains and losses, trading near a one-month low, as investors weighed a potential shutdown of the U.S. government against better-than estimated manufacturer confidence in Japan. The contract for March delivery on the Tokyo Commodity Exchange was little changed at 265.6 yen a kilogram ($2,695 a metric ton) at 11:34 a.m. local time after trading between 267.1 and 264.4. Futures settled at 265.7 yen yesterday, the lowest close since Aug. 21.

• Biggest Raw-Materials Rally of Year Seen Stalling: Commodities. The biggest rally in commodities in a year may stall in the fourth quarter as supply of everything from copper to corn expands, tensions in the Middle East ease and the Federal Reserve refrains from tapering stimulus as it seeks more evidence of sustained growth. Six of 15 commodities will drop by the end of 2013, seven will gain and two will move less than 1 percent, according to the median of estimates from 144 analysts surveyed by Bloomberg News.

• Italy in Disarray as Draghi Pledge Keeps Nation From Brink. Italy’s government is on the verge of collapse and two of its most senior executives have lost the confidence of shareholders. Thanks to Mario Draghi’s promises, bond investors see the turmoil as more of a blip than a crisis. Yields barely budged yesterday even after Prime Minister Enrico Letta spent the weekend fighting Silvio Berlusconi’s efforts to topple his government. Intesa Sanpaolo SpA (ISP), Italy’s second biggest bank, replaced its chief executive officer and Telecom Italia SpA (TIT) CEO Franco Bernabe is preparing to resign.

• McCain Pressures Justice to Hold JPMorgan(JPM) Executives Accountable. U.S. Senator John McCain pressured the Justice Department to hold JPMorgan Chase & Co. executives individually accountable while they work to settle claims that the bank packaged and sold bad mortgage bonds to investors. “Will you seek to hold any top officer, director or key employees within JPMorgan personally accountable for the wrongdoing?” McCain, of Arizona, wrote in a letter today to Attorney General Eric Holder. McCain, the ranking Republican on a Senate subcommittee that probed JPMorgan’s record trading loss last year, criticized Holder’s Sept. 26 meeting with Chief Executive Officer Jamie Dimon, calling it “highly unusual.”

Wall Street Journal:

• White House: Agencies, Start Your Shutdowns. The White House directed federal agencies late Monday evening to implement their plans to partially shut down operations, after lengthy political maneuvers on Capitol Hill failed to produce an agreement to fund government services.

• Budget Battle: Live Updates.

• Europe's Car Makers Spin Their Wheels. Aging Populations, Driving-Habit Shifts Presage Lower Sales.

• Stock Investors See Slimmer Pickings. Stocks at Loftiest Levels in Years Compared With Profits. Some investors warn that the air is getting thinner for U.S. stocks, which head into the fourth quarter up 18% for the year and at their loftiest levels in years compared with corporate profits. The Dow Jones Industrial Average advanced 1.5% during the third quarter even as economic growth remained uneven. The resiliency of the stock market's rally prompted several Wall Street strategists to throw in the towel on negative forecasts.

• Climate of Uncertainty. A U.N. report can't explain the hiatus in global warming.

Fox News:

• Senate kills latest ObamaCare counteroffer, bill kicked back to House. The Senate voted for the second time Monday to kill a Republican counteroffer that would rein in ObamaCare while funding the government, kicking the bill back to the House with less than an hour left on the clock before the government begins to shut down. Lawmakers are facing a midnight deadline to reach an agreement on a government spending bill. Senate Democrats vow they will not accept any proposal that targets ObamaCare. The rhetoric was getting more heated as the deadline neared.

Zero Hedge:

• Q3 Earnings Warnings Second-Worst Since 2001. (graph)

• The Debt-Ceiling Fight "Could Get Ugly" - Key Dates And Implications.

• Senate Kills Latest House CR Proposal.

Business Insider:

• UH-OH: The Economic 'Canary In The Coal Mine' Looks Sickly. (graph)

• LIVE: Thousands Of Companies Around The World Are Revealing The Truth About The Economy.

• One Of The Top Hedge Fund Holders Of J.C. Penney(JCP) Stock Dumped Half Its Stake.

• The Current Job Market Is Shockingly Bad For 20-Something Men.

NY Times:

• Financial Watchdog With Bite to Depart His Agency. David Meister is waging legal battles against some of the biggest names in finance. There’s JPMorgan Chase, the nation’s largest bank. The CME Group, one of the world’s largest futures exchanges. And Jon S. Corzine, the former governor of New Jersey. But now, Mr. Meister is poised to step down from his role as head of the Commodity Futures Trading Commission’s enforcement unit, a move that may put the future of those cases in question.

Reuters:

• U.S. Postal Service defaults on $5.6 bln for future health benefits. The U.S. Postal Service on Monday defaulted yet again on a prepayment for the healthcare of its future retirees as its finances remain in the red and legislative reform remains elusive. The agency has blamed the payments, more than $5 billion a year as mandated by Congress to prefund the Postal Service's future retirees' healthcare, for contributing to annual losses of billions of dollars.

• Exclusive: JPMorgan settlement complicated by Washington Mutual - sources. JPMorgan Chase & Co's possible $11 billion settlement of government mortgage probes has been complicated by a dispute with the Federal Deposit Insurance Corp over responsibility for losses at the former Washington Mutual Inc, said people familiar with the matter. The dispute, between the largest U.S. bank and the FDIC, could leave the federal agency on the hook for billions the bank is expected to pay as part of the settlement and substantially reduce the amount of the penalty JPMorgan actually pays to the government, some analysts said.

• China manufacturing tepid in Sept, small firms struggle. China's manufacturing growth edged up only slightly in September, official data showed on Tuesday, with small firms struggling in the face of overcapacity and weak demand, adding to concerns a nascent economic recovery may be foundering. The official Purchasing Managers' Index (PMI) stood at 51.1 last month from August's 51.0, below expectations in a Reuters poll for a rise to 51.5, which would have been the highest in 17 months. Chinese factories have sent mixed signals on the extent of their latest rebound. A separate manufacturing PMI issued by HSBC on Monday showed manufacturing grew less than expected last month on soft domestic demand. "Although overall manufacturing is stable, development is not balanced," said Zhao Qinghe, senior statistician at the NBS in a comment accompanying the PMI.

• U.S. study says asset managers could pose systemic market risk. Some activities of asset managers could pose risks to the broader marketplace, according to a study released by the Treasury Department on Monday that boosted the likelihood the largest such firms would face tougher federal scrutiny. The report does not draw any conclusions about particular asset managers or whether any firms should be designated as potentially risky to the broader market.

Evening Recommendations 
BMO Capital Markets:

• Rated (JBHT) Outperform, target $86. 

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 156.50 +1.0 basis point.

• Asia Pacific Sovereign CDS Index 123.0 +3.75 basis points. 

• FTSE-100 futures +.15%.

• S&P 500 futures +.32%.

• NASDAQ 100 futures +.36%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (ATU)/.50

• (AYI)/1.02

• (WAG)/.73

• (RECN)/.11

• (GPN)/.95

• (TISI)/.36 

Economic Releases 
8:58 am EST

• Final Markit US PMI for September is estimated at 53.1.

 10:00 am EST

• Construction Spending for August is estimated to rise +.4% versus a +.6% gain in July.

• ISM Manufacturing for September is estimated to fall to 55.0 versus 55.7 in August.

• ISM Prices Paid for September is estimated to rise to 55.0 versus 54.0 in August.

Afternoon:

• Total Vehicle Sales for September are estimated to fall to 15.6M versus 16.02M in August.

Upcoming Splits

• None of note

Other Potential Market Movers

• The German retail sales report, Eurozone Unemployment Rate/PMI data, weekly retail sales reports, (PCL) investor meeting and the BofA Merrill could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by consumer and automaker 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.

Stocks Falling into Final Hour on US Debt Ceiling/Govt Shutdown Worries, Rising European/Emerging Markets Debt Angst, Technical Selling, Energy/REIT Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 16.59 +7.31%

• Euro/Yen Carry Return Index 138.50 -.02%

• Emerging Markets Currency Volatility(VXY) 10.10 +.10%

• S&P 500 Implied Correlation 50.0 +5.46%

• ISE Sentiment Index 63.0 -18.18%

• Total Put/Call 1.09 +15.96%

• NYSE Arms 1.39 +10.78% 

Credit Investor Angst:

• North American Investment Grade CDS Index 81.98 +1.11%

• European Financial Sector CDS Index 147.59 +1.62%

• Western Europe Sovereign Debt CDS Index 87.93 +3.56%

• Emerging Market CDS Index 292.98 -.33%

• 2-Year Swap Spread 13.25 -.75 basis point

• TED Spread 24.25 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -7.0 -.5 basis point

Economic Gauges:

• 3-Month T-Bill Yield .00% -1 basis point

• Yield Curve 230.0 +1 basis point

• China Import Iron Ore Spot $131.40/Metric Tonne -.38%

• Citi US Economic Surprise Index 50.5 +4.0 points

• Citi Emerging Markets Economic Surprise Index 6.20 +2.0 points

• 10-Year TIPS Spread 2.19 +1 basis point

Overseas Futures:

• Nikkei Futures: Indicating +125 open in Japan

• DAX Futures: Indicating +9 open in Germany

Portfolio: 

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

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back

• Market Exposure: 25% Net Long

Today's Headlines

Bloomberg: 

• Banks’ Off-Balance-Sheet Risks Come Under Basel Scrutiny. Banks are set to face a broad international leverage limit that will catch off-balance sheet risks and prevent them from hiding their debt, according to the head of the Basel Committee on Banking Supervision. The Basel group is seeking to put a ceiling on indebtedness that will prove robust no matter how complicated a bank’s business model, Stefan Ingves, its chairman, said in an interview. 

• European Stocks Retreat as U.S. Government Shutdown Looms. European stocks declined the most in a month, trimming the best quarter in four years, as the U.S. faced the first government shutdown in 17 years and Italian Prime Minister Enrico Letta fought to save his administration. UniCredit SpA and Intesa Sanpaolo SpA (ISP), Italy’s biggest banks, dropped more than 1 percent as the nation’s benchmark FTSE MIB Index slid 1.2 percent. Rio Tinto Group led mining companies lower after a measure of Chinese manufacturing missed a preliminary estimate. Aryzta AG rallied the most in six months as the Swiss supplier of bakery products reported results that topped projections. The Stoxx Europe 600 Index fell 0.6 percent to 310.46 at the close of trading, the biggest drop since Aug. 30.

• Abe Bets It’s Different This Time With Sales Tax Rise. It’s different this time. The four most dangerous words in markets, according to former U.S. Treasury Secretary Larry Summers. With Japan set to raise its sales tax for the first time since 1997, Prime Minister Shinzo Abe’s political future rides on a different outcome than last time -- when the nation slid into a recession and the premier lost his job.

• Corn Slumps to Three-Year Low on Rising Inventory; Soybeans Drop. Corn futures plunged to a three-year low after the U.S. Department of Agriculture boosted its inventory estimate by 25 percent. Soybeans dropped to the cheapest in five weeks as supplies topped analyst estimates by 11 percent.

Wall Street Journal: 

• Budget Battle: Streaming Coverage.

• Shutting Down Emerging Markets. The Real Fallout From Washington's Impasse Could Be Felt Overseas.

Fox News:

• When clock strikes midnight, does the government really shut down? Maybe not. Washington is bracing for the clock to strike midnight, with a government shutdown expected if Congress cannot strike a budget deal -- but despite the frenzy, the government might not turn into a pumpkin right away. Everybody is talking about a midnight deadline, because that is the official time that all discretionary spending (which is the portion that Congress controls) halts as the federal government rolls over from fiscal 2013 to fiscal 2014 on Oct. 1. That doesn't mean that everything stops immediately, however.

• Director nixes Hillary documentary for CNN after pressure from Clinton aides.

CNBC: 

• Market has more to worry about than the shutdown. The U.S. government can't stay closed forever, so by definition its threat to financial markets is temporary. Other headwinds, though, could present more lasting damage. At least three and as many as five challenges face investors once the smoke clears from the bruising Washington battle over funding the government.

• Italy Faces New Elections and Economic Turmoil. (video)

Zero Hedge: 

• Boehner On Delaying Obamcare: "It's What The People Want". (video)

• Chicago PMI Jumps To 4-Month High Even As Employment Tumbles To 5-Month Low. (graph)

• Meanwhile In Italy...

• The Fed Gave Congress A Bottle Of Whiskey And The Car Keys.

• Blackstone's(BX) Private Equity Head Warns: "We Are In The Middle Of An Epic Credit Bubble".

Reuters:

• Unilever warns slowdown in emerging markets has accelerated. Anglo-Dutch consumer goods company Unilever warned on Monday that a slowdown in its emerging markets had accelerated in the third quarter and it now expects underlying sales growth of 3 to 3.5 percent in the period. Developed markets remained flat to down, it said, and overall Unilever said it was on track to meet its 2013 priorities. It attributed the emerging markets slowdown to a significant currency weakening. "We continue to grow ahead of our markets and expect underlying sales growth to improve in quarter four," Chief Executive Paul Polman said.

• Brazil central bank sees inflation high despite weak growth. Inflation in Brazil will remain stubbornly high well into 2015 even as the economy struggles to gain steam, the central bank said on Monday, raising market bets for higher borrowing costs in the future. In its quarterly inflation report, the bank lowered its 2013 inflation forecast to 5.8 percent from 6 percent previously. However, it revised its inflation view for 2014 to 5.7 percent from 5.4 percent previously and said it expects inflation at 5.5 percent in the third quarter of 2015. The bank also revised down its estimate for economic growth to 2.5 percent for this year from a previous 2.7 percent forecast. The bank sees growth keeping that pace until the second quarter of 2014.

• CBOE to increase VIX trading hours in late October.

Valor Economico:

Restructuring: Flowers slams Europe over inaction


While we want you to share, we ask you use the functions on-site rather than copy/paste. See T's & C's for details. http://www.euromoney.com/Article/3211790/CurrentIssue/88924/Restructuring-Flowers-slams-Europe-over-inaction.html?copyrightInfo=true

• Brazil to See Credit Squeeze as Public Banks Retreat.

Echoing fears that European policymakers remain in a state of cognitive dissonance – recognizing the need for root-and-branch overhaul of peripheral banks, but backtracking on joint liability plans – Christopher Flowers, the legendary FIG investor who now runs the £2.3 billion ($3.5 billion) private equity group JC Flowers, sounded the alarm over the negative sovereign-bank feedback loop. In a shot across the bows of market bulls, who cite the return of capital flows to weaker eurozone states, Flowers issued a stark warning: "There is a scenario where we have a Lehman-type event: we wake up some Thursday and a big country is in trouble. "And the ECB will have to decide to support banks x, y, z. And then the ECB will, in fact, decide to own bank x, y, z.


While we want you to share, we ask you use the functions on-site rather than copy/paste. See T's & C's for details. http://www.euromoney.com/Article/3211790/CurrentIssue/88924/Restructuring-Flowers-slams-Europe-over-inaction.html?copyrightInfo=true

The Daily Reckoning:

• A Coming Emerging Market Crisis?

Haaretz:

• Official: Netanyahu to urge Obama not to lift sanctions on Iran. With diplomatic track gaining momentum, conversation will center on keeping up pressure on Iranian regime, in departure from usual focus on military option.

Bear Radar

Style Underperformer:

• Large-Cap Value -.54%

Sector Underperformers:

• 1) Energy -1.22% 2) REITs -1.03% 3) Agriculture -.88%

Stocks Falling on Unusual Volume:

• END, BP, PTR, RJET, AFOP, EGHT, ANGI, PNRA, CLVS, RP, SSI and ZINC

Stocks With Unusual Put Option Activity:

• 1) ACHN 2) MPC 3) CAR 4) FDO 5) XLB
  

Stocks With Most Negative News Mentions:

• 1) APC 2) XOM 3) MON 4) ORCL 5) DAL
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Growth -.62%

Sector Outperformers:

• 1) Medical Equipment +.14% 2) Oil Tankers +.09% 3) Hospitals +.06%
  

Stocks Rising on Unusual Volume:

• SOHU, KONG, HNR, REMY, RDA, FINL, CERN, HALO, NKE, NVDQ, TFSL, TSL, SWIR and BERY

Stocks With Unusual Call Option Activity:

• 1) ZIOP 2) FDO 3) IP 4) SH 5) NFX
  

Stocks With Most Positive News Mentions:

• 1) INTC 2) JCP 3) AAPL 4) M 5) FB
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume