Stocks Surging into Final Hour on Diminishing US Govt Shutdown Fears, Short-Covering, Techniical Buying, Biotech/Healthcare Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Almost Every Sector Gaining
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 16.74 -5.26%

• Euro/Yen Carry Return Index 137.71 -.31%

• Emerging Markets Currency Volatility(VXY) 9.77 -.31%

• S&P 500 Implied Correlation 49.10 -5.56%

• ISE Sentiment Index 132.0 +41.94%

• Total Put/Call .88 -8.33%

• NYSE Arms .90 -27.41% 

Credit Investor Angst:

• North American Investment Grade CDS Index 79.29 -1.85%

• European Financial Sector CDS Index 135.91 -3.59%

• Western Europe Sovereign Debt CDS Index 82.66 +.43%

• Emerging Market CDS Index 286.22 -2.54%

• 2-Year Swap Spread 13.25 -.5 basis point

• TED Spread 22.25 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -6.0 -.25 basis point

Economic Gauges:

• 3-Month T-Bill Yield .02% unch.

• Yield Curve 232.0 +3 basis points

• China Import Iron Ore Spot $131.40/Metric Tonne unch.

• Citi US Economic Surprise Index 44.70 -.2 point

• Citi Emerging Markets Economic Surprise Index .80 +1.7 points

• 10-Year TIPS Spread 2.21 +1 basis point

Overseas Futures:

• Nikkei Futures: Indicating +190 open in Japan

• DAX Futures: Indicating +23 open in Germany

Portfolio: 

• Higher: On gains in my tech, biotech, medical/retail sector longs 

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg:

• Real’s Turnaround Seen Fleeting as Brazil Bewilders: Currencies. For the world’s biggest foreign-exchange trader, the Brazilian real’s 11 percent rally from a 4 1/2-year low is just another reason to sell one of the “bad apples” of emerging-market currencies. Deutsche Bank AG says a possible credit-rating downgrade and Brazil’s biggest current-account deficit in 11 years will cause the real to reverse recent gains. Speculators agree, with bearish bets on the currency doubling in a month on Latin America’s main stock exchange to a record $20 billion this week. 

• Swiss Regulators Probing Alleged Currency Manipulation. Swiss authorities said they’re investigating several banks for allegedly colluding to manipulate the $5.3 trillion-a-day foreign exchange market. The Swiss Financial Market Supervisory Authority “is coordinating closely with authorities in other countries as multiple banks around the world are potentially implicated,” it said in a statement today. Separately, the competition commission said it opened a preliminary probe on Sept. 30 after receiving allegations of collusion among banks to manipulate some foreign-exchange rates.

• Europe Stocks Post Second Weekly Drop Amid U.S. Shutdown. European stocks posted a second week of losses as a standoff between U.S. lawmakers led to the first government shutdown in 17 years for the world’s biggest economy. Unilever led food and beverage stocks lower, falling 3.7 percent, after posting a slowdown in quarterly sales growth. Nokian Renkaat Oyj tumbled the most in almost a year after cutting its earnings forecast. Mediobanca SpA and Banca Popolare di Milano Scarl led a rally in Italian banks as Prime Minister Enrico Letta won a confidence vote. The Stoxx Europe 600 Index fell 0.7 percent to 309.89 this week, after declining 0.6 percent in the previous five days. 

• Crude Rises as Tropical Storm Karen Curbs Gulf Output. “The market is paying respect to the storm,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “It’s not going to be a hurricane, but you can’t totally dismiss the storm. It could definitely impact production. People are still worried about the budget standoff.” WTI crude for November delivery increased 19 cents to $103.50 a barrel at 1:53 p.m. on the New York Mercantile Exchange. The volume of all futures traded was about 44 percent below the 100-day average. Prices are up 0.6 percent this week and 13 percent this year. 

• Gold Falls on Bets U.S. Deadlock Will Be Settled Soon. Gold futures for December delivery fell 0.4 percent to $1,312.30 an ounce at 10:46 a.m. on the Comex in New York. Trading was 28 percent below the average in the past 100 days for this time, data compiled by Bloomberg showed. Earlier, the price swung between gains and losses, climbing as much 0.6 percent.

• Al-Shabaab Terrorists in Kenya Attack Seen as U.S. Threat. Al-Shabaab, the Somali terrorist group behind a four-day attack on a Nairobi shopping mall, threatens U.S. embassies and interests in Africa and potentially on U.S. soil as well, counterterrorism analysts told Congress.

Wall Street Journal:

• White House's Hard Line on Shutdown, Debt Ceiling Has Risks Attached. President Barack Obama is sticking to his stance that he won't negotiate with Republicans over the government shutdown or the higher-stakes fight over the federal debt ceiling. The question, for Republicans and White House allies alike: How long will that resolve last?

CNBC:

• Washington baits, Wall St. doesn't bite on panic. (video) Washington's efforts to scare Wall Street haven't come to much so far.

Zero Hedge:

• Europe Exuberant At US Government Shutdown. (graph)

• Have We Reached Peak Federal Reserve?

• TWTRQ Halted To Protect Idiots From Themselves.

Business Insider:

• BOEHNER UNLOADS: 'THIS ISN'T SOME DAMN GAME'.

• Have Police Explained Why They Shot And Killed An Unarmed Driver At The Capitol Yesterday?

The Daily Caller: 

• Washington hoards government jobs to maximize pain of ‘shutdown’. The nation’s capital has managed to spare itself many of the supposed troubles of the partial government shutdown.

The Washington Times:

• Obamacare phones? Tennesseans offered smartphones for health care registration. Community Health Alliance, Tennessee’s Obamacare health insurance co-op, is offering free smartphones to those who register, as long as they “pledge to stay connected for better health,” the Nashville Business Journal reported.

NBC News:

• Woman in DC chase may have thought Obama was stalking her, sources say. Carey, 34, was a dental hygienist living in Stamford, Conn. Details of her background began to emerge in the hours after the episode. Dr. Barry Weiss, a dentist, told NBC Connecticut that Carey was working for him in January 2012 when she suffered a fall and missed two to three weeks. He said that she appeared increasingly stressed after an unplanned pregnancy. Relatives have said that she may have suffered postpartum depression.

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 Globe and Mail:

• 'Zero' Risk Weighting on Euro Zone Debt is a Charade. The rules encourage banks to load up on debt from the weakest sovereigns, which lets those governments spend beyond their means. The risk of overspending is universal, but most of them can introduce enough inflation to keep away nominal default. Euro zone members do not have that escape route. But the more euro zone debt banks hold, the more damage any government default will do to their balance sheets – and the greater the temptation will be for a euro zone bailout of troubled states and banks. It is an unsatisfactory arrangement.

The Daily Star:

• Special arms for Syria rebels fall into Nusra hands. Some Saudi Arabian-supplied anti-tank missiles intended for mainstream Syrian rebels have inadvertently landed in the hands of the Al-Qaeda linked Nusra Front, throwing plans to arm moderates via neighbor Jordan into question. The failure of the pilot plan has forced Western and Arab opposition backers to reconfigure efforts to arm and vet moderate opposition types, and shift these efforts to the northern, Turkish border, The Daily Star has learned. Senior Free Syrian Army and Jordanian sources, along with video evidence, have confirmed that European-made anti-tank missiles were obtained, and in some cases sold, to the hard-line Nusra Front after being supplied to vetted Free Syrian Army battalions across the Jordanian border.

Bear Radar

Style Underperformer:

• Large-Cap Value +.34%

Sector Underperformers:

• 1) Homebuilders -2.01% 2) Road & Rail -.32% 3) REITs -.15%

Stocks Falling on Unusual Volume:

• TS, FST, VIV, LCI, XRTX, RCII, TASR, ALGN, QIWI, VIPS, ENDP, MHO, KBH, CVRR, TS and Z

Stocks With Unusual Put Option Activity:

• 1) TIVO 2) MOS 3) HK 4) SNDK 5) JWN
  

Stocks With Most Negative News Mentions:

• 1) TASR 2) GS 3) LEN 4) PBR 5) IP
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +.79%

Sector Outperformers:

• 1) HMOs +1.52% 2) Coal +1.52% 3) Networking +1.39%
  

Stocks Rising on Unusual Volume:

• CAMP, STJ, KKD, FTNT, SN, NCLH, LIN, LPI, DWRE, CODE and HRB

Stocks With Unusual Call Option Activity:

• 1) FTNT 2) AGN 3) MHR 4) GPOR 5) BKS

Stocks With Most Positive News Mentions:

• 1) LMT 2) GOOG 3) ADBE 4) PAYX 5) STZ
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Friday Watch

Evening Headlines 
Bloomberg: 

• BOJ Refrains From More Stimulus as Business Confidence Rises. The Bank of Japan refrained from adding to unprecedented monetary stimulus after business confidence surged and Prime Minister Shinzo Abe decided the economy was strong enough to weather a sales-tax increase. Governor Haruhiko Kuroda’s board retained a goal of expanding the monetary base by 60 trillion to 70 trillion yen ($720 billion) a year, the central bank said in Tokyo today. Thirty-five of 36 economists in a Bloomberg News survey forecast no change in policy, while one predicted more purchases of real-estate investment trusts.

• Asia Stocks Fall as Treasury Warns of U.S. Impasse Impact. Asian stocks fell, with the regional index heading for its first weekly loss in more than a month, as concern grew that the U.S. political impasse could lead to the government defaulting on its debt. Blumont Group Ltd. slumped 56 percent in Singapore before trading was suspended after it agreed to buy an unnamed overseas coal producer. Digital Garage Inc. (4819) lost 6 percent after a Twitter Inc. filing failed to mention the Tokyo-based company as a shareholder. GS Yuasa Corp. (6674), a Japanese battery producer, slumped 4.8 percent as its rating was cut at Mitsubishi UFJ Morgan Stanley Securities Co. The MSCI Asia Pacific Index lost 0.3 percent to 139.09 at 12:18 p.m. in Tokyo as all but one of the 10 industry groups on the gauge fell.

• Rubber Set for Worst Week Since May as U.S. Impasse Boosts Yen. Rubber headed for the biggest weekly loss since May as concern that the U.S. political impasse could lead to a recession boosted the Japanese currency and cut the appeal of yen-denominated futures. The contract for March delivery on the Tokyo Commodity Exchange fell as much as 1.2 percent to 253.9 yen a kilogram ($2,615 a metric ton), the lowest level since Aug. 8. Futures traded at 254.5 yen at 10:07 a.m. and lost 5.8 percent this week, the worst performance since the five days through May 24. 

• Gold Swings Above $1,300 as Investors Assess U.S. Economy, Debt. Gold fluctuated above $1,300 an ounce, heading for a weekly loss, as investors weighed the prospect of slower U.S. economic growth as a partial government shutdown entered a fourth day and lawmakers wrangled over the debt limit. Bullion for immediate delivery traded little changed at $1,315.41 an ounce at 11:25 a.m. in Singapore after rising 0.5 percent and losing 0.2 percent. Bullion declined to an eight-week low of $1,277.15 on Oct. 2 before rebounding as investors assessed the government closure and its impact on the outlook for monetary stimulus from the U.S. Federal Reserve.

• Twitter Said to Plan to Make S-1 Public Today. (video) Twitter plans to make its S-1 regulatory filing for its initial offering public today, said people with knowledge of the process. Cory Johnson and Jon Erlichman report on Bloomberg Television's "Street Smart."

• Harvard Won’t Divest From Fossil Fuels, Faust Says. Harvard University, the world’s richest school, won’t sell its investments in fossil-fuel companies amid pressure from students, President Drew Faust said in a letter released today. “I do not believe, nor do my colleagues on the Corporation, that university divestment from the fossil fuel industry is warranted or wise,” Faust said in the letter, referring to Harvard Corporation, the school’s governing board. “The endowment is a resource, not an instrument to impel social or political change.” 

Wall Street Journal: 

• GOP Begins Search for Broad Deal on Budget. Senior Republicans in Congress, frustrated over their inability to strike a deal to reopen the government, began shifting from their drive to undercut the 2010 health-care law, which has been the central element of the dispute, toward a broader budget deal.

• Budget Battle: Streaming Coverage.

• Noonan: To Lead Is to Negotiate. A veteran of shutdowns and divided government reflects on today's Washington.

Fox News:

• Fox News Poll: Voters support delaying Obamacare, but oppose defunding it. While voters oppose defunding the health care law, they say implementation should be delayed, and a majority wants all or part of the law repealed.

• Veterans Affairs accused of 'double-speaking' on impact of budget impasse. As the partial government shutdown drags on, the Department of Veterans Affairs may be changing its tune about the severity of the cutbacks.

CNBC:

• Here's how much stock Twitter execs own.

• What happened to a weak yen?

Zero Hedge: 

• Jamie Dimon No Longer Chairman Of JPM's Primary Banking Subsidiary. 

• What Will Happen To The US Credit Rating?

• The Rise And Fall Of Monetary Policy Coordination.

• Wall Street Headhunter: "I Haven't Seen Morale This Bad Since The Titanic".

• Government Shutdown? 36 Facts Which Prove That Almost Everything Is Still Running.

• About The "Europe Is Recovering" Meme. (graph)

• Picturing The Dangers Of An All-Powerful Federal Reserve.

Business Insider: 

• Tropical Storm Karen Set To Hit Florida Gulf Coast.

Reuters: 

• Obama cancels visits to Indonesia, Brunei due to U.S. government shutdown.

• Adobe(ADBE) says customer data, source code accessed in cyber attack. Adobe Systems Inc said on Thursday it was the victim of sophisticated cyber attacks on its networks by hackers who accessed data belonging to millions of customers along with the source code to some of its popular software titles.

Korea Economic Daily:

• IMF to Cut South Korea Growth Forecast. Fund to cut forecast for 2014 to 3.7% from 3.9%, citing officials at investment banks and international institutions.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.50% to unch. on average.

• Asia Ex-Japan Investment Grade CDS Index 153.0 +1.0 basis point.

• Asia Pacific Sovereign CDS Index 120.0 +1.0 basis point. 

• FTSE-100 futures -.04%.

• S&P 500 futures +.04%.

• NASDAQ 100 futures +.11%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note

Economic Releases 

• None of note

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Kocherlakota speaking, Fed's Lacker speaking, Fed's Stein speaking, Fed's Dudley speaking, Fed's Fisher speaking, BoJ decision and the Eurozone inflation data could also impact trading today.

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

Stocks Falling into Final Hour on Global Growth Fears, US Debt Ceiling/Shutdown Worries, Technical Selling, Homebuilding/REIT Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 17.49 +5.36%

• Euro/Yen Carry Return Index 138.17 +.23%

• Emerging Markets Currency Volatility(VXY) 9.85 -.81%

• S&P 500 Implied Correlation 51.21 +5.13%

• ISE Sentiment Index 94.0 -22.96%

• Total Put/Call .96 +.28%

• NYSE Arms .94 +61.63% 

Credit Investor Angst:

• North American Investment Grade CDS Index 80.53 +1.05%

• European Financial Sector CDS Index 140.96 +.80%

• Western Europe Sovereign Debt CDS Index 82.31 +1.0%

• Emerging Market CDS Index 293.50 +.08%

• 2-Year Swap Spread 13.75 +.5 basis point

• TED Spread 22.25 -.75 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -5.75 -.25 basis point

Economic Gauges:

• 3-Month T-Bill Yield .02% unch.

• Yield Curve 229.0 -1 basis point

• China Import Iron Ore Spot $131.40/Metric Tonne unch.

• Citi US Economic Surprise Index 44.90 -6.9 points

• Citi Emerging Markets Economic Surprise Index -.90 -.8 point

• 10-Year TIPS Spread 2.20 -1 basis point

Overseas Futures:

• Nikkei Futures: Indicating +28 open in Japan

• DAX Futures: Indicating +28 open in Germany

Portfolio: 

• Lower: On losses in my tech, biotech, medical sector longs 

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them

• Market Exposure: 50% Net Long