Broad Equity Market Tone:
- Advance/Decline Line: Lower
- Sector Performance: Almost Every Sector Declining
- Market Leading Stocks: Outperforming
Equity Investor Angst:
- Volatility(VIX) 17.89 +11.33%
- Euro/Yen Carry Return Index 138.69 -.54%
- Emerging Markets Currency Volatility(VXY) 8.88 -1.33%
- S&P 500 Implied Correlation 50.41 +12.25%
- ISE Sentiment Index 68.0 -26.88%
- Total Put/Call 1.01 +14.77%
Credit Investor Angst:
- North American Investment Grade CDS Index 77.35 +.74%
- European Financial Sector CDS Index 120.71 -5.77%
- Western Europe Sovereign Debt CDS Index 73.0 +.69%
- Emerging Market CDS Index 268.33 -2.62%
- 2-Year Swap Spread 12.75 -1.0 basis point
- TED Spread 14.75 -4.25 basis points
- 3-Month EUR/USD Cross-Currency Basis Swap -8.0 +1.25 basis points
Economic Gauges:
- 3-Month T-Bill Yield .10% +4 basis points
- Yield Curve 237.0 +4 basis points
- China Import Iron Ore Spot $133.60/Metric Tonne n/a
- Citi US Economic Surprise Index 30.90 -1.7 points
- Citi Emerging Markets Economic Surprise Index -8.80 +1.4 points
- 10-Year TIPS Spread 2.21 unch.
Overseas Futures:
- Nikkei Futures: Indicating +7 open in Japan
- DAX Futures: Indicating -17 open in Germany
Portfolio:
- Slightly Higher: On gains in my index hedges and emerging markets shorts
- Disclosed Trades: Added to my my (IWM)/(QQQ) hedges
- Market Exposure: 25% Net Long
Bloomberg:
- Bodies Double as Cash Machines With U.S. Income Lagging: Economy. Hair, breast milk and eggs are
doubling as automated teller machines for some cash-strapped
Americans such as April Hare. Out of work for more than two years and facing eviction
from her home, Hare recalled Louisa May Alcott’s 19th-century
novel and took to her computer.
Wall Street Journal:
- Health Law Stirs Lending Worries for Small Business. Small businesses are griping that the new U.S. health-care law is
difficult to understand. Now some may have another complaint: If they
don’t have a handle on the law’s cost and impact, they may have a harder
time getting a loan.
Fox News:
- White House, Dems preemptively blast House GOP budget plan before it's introduced.
The White House and its Democratic allies in Congress moved to shoot
down an emerging House Republican budget proposal before it even left
the ground, blasting the late-breaking plan as a "partisan" product that
would imperil efforts to meet the looming debt-ceiling deadline. Senate Democratic Leader Harry Reid turned a deaf ear, declaring categorically that it "won't pass the Senate."
Zero Hedge:
Mish's Global Economic Trend Analysis:
9to5Google:
Reuters:
- Bank of Italy examines loan books of top two banks - sources. The Bank of Italy is examining the loan books of the country's top lenders UniCredit and Intesa
Sanpaolo, three banking sources said on Tuesday, in its push to
tidy their balance sheets before next year's sector check-up by
the European Central Bank (ECB).
Yonhap News:
- N. Korea ready to make another nuke test anytime: S. Korean envoy. North Korea has "very serious nuclear capabilities" and it is able to conduct
another round of nuclear tests "any time," South Korea's nuclear envoy said
Tuesday. The communist country has restarted a nuclear reactor at its Yongbyon nuclear
center, a provocative move that would provide Pyongyang with enough plutonium to
build one atomic bomb a year, according to Seoul's spy agency.
Style Underperformer:
Sector Underperformers:
- 1) Homebuilders -2.10% 2) Defense -1.96% 3) Networking -1.55%
Stocks Falling on Unusual Volume:
- TDC, FLIR, CVLT, IVZ, WCC, CZR, ATLS, DPZ, APL, MSTR, ETH, INFA, NVS, CTXS, QLIK, RL, APEI, VRNT, ORB, BRO, ZMH, UTEK, VFC, CHKP, ABG, APL and CZR
Stocks With Unusual Put Option Activity:
- 1) ANV 2) KMX 3) OPK 4) WFM 5) X
Stocks With Most Negative News Mentions:
- 1) BA 2) JCP 3) FLIR 4) TDC 5) JPM
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Steel +1.98% 2) Gaming +1.08% 3) Alt Energy +.92%
Stocks Rising on Unusual Volume:
- VISN, OPK, NOAH, INSM, SCHW, PXD, BBY, FDX, AMCC, ECYT, ESI, ATI, X, AMTD, DXCM and BBY
Stocks With Unusual Call Option Activity:
- 1) NUS 2) PXD 3) SYNA 4) RSH 5) FU
Stocks With Most Positive News Mentions:
- 1) SCHW 2) BA 3) JNJ 4) KBH 5) AAPL
Charts:
Evening Headlines
Bloomberg:
- Asian Stocks Rise Amid Signs U.S. May Broker Deal on Debt.
Asian stocks rose, with the regional index heading for a five-month
high, as Senate leaders said they’re optimistic they will forge a deal
to reopen the U.S. government and avoid a breach of the debt limit this
week. James Hardie Industries SE, a maker of building materials that
gets about 70 percent of sales from the U.S., increased 1.5 percent in
Sydney. Mazda Motor Corp. (7261) jumped 3.3 percent in Tokyo after
Macquarie Group Ltd. and BNP Paribas raised ratings on the carmaker.
Hankook Tire Co., South Korea’s No. 1 tiremaker, advance 1.8percent
after announcing plans to build its first
factory in the U.S. The MSCI Asia Pacific Index gained 0.5 percent to 141.57 as
of 11:07 a.m. in Tokyo, with almost three shares rising for each
that fell.
- Rebar Little Changed as Investors Weigh Steel Output, Iron Ore. Steel reinforcement-bar futures in
Shanghai were little changed as China’s steel output climbed and
iron ore prices increased. Rebar for delivery in January on the
Shanghai Futures Exchange was at 3,628 yuan ($594) a metric ton at 10:21
a.m. local time from 3,625 yuan yesterday.
- Coal Slump Leaves Australia Port Half-Used, Bank Lenders at Risk. Australia
& New Zealand Banking Group Ltd. (ANZ) and Westpac Banking Corp.
are among lenders risking losses on $3 billion of loans backing a coal
port in Australia that will be twice its required size. Wiggins
Island Coal Export Terminal Pty, the group comprising the unfinished
project’s owners, including Glencore Xstrata Plc (GLEN) and Wesfarmers
Ltd. (WES), in 2011 borrowed the debt from 19 banks, according to data
compiled by Bloomberg. When the port in the state of Queensland begins
shipping in early 2015, only about half of its 27 million metric tons of
initial annual export capacity will be used after a slump in coal
demand, forecaster Wood Mackenzie Ltd. estimates.
- China Challenges CME to SGX With Iron-Ore Futures Contract. China’s
Dalian Commodity Exchange
will start trading the country’s first iron-ore futures for physical
delivery this week, challenging index-backed contracts by CME Group Inc.
and Singapore Exchange Ltd. (SGX) Trading will begin Oct. 18 after
the securities regulator approved the plan last week, the bourse in the
northeastern port city said in a statement on its website yesterday. Chinese
steelmakers, the world’s biggest iron-ore buyers, earlier this year
questioned the reliability of a price index provided by Platts that became a benchmark after producers including Vale SA (VALE) and Rio Tinto (RIO) Group scrapped annual contract
price talks in 2010. China started its own spot-trading platform
last year, introducing a weighted average daily price in March.
- S&P Subpoenas Federal Reserve Board as Part of U.S. Suit. McGraw
Hill Financial Inc. (MHFI)’s Standard & Poor’s unit seeks
information from the board of governors of the Federal Reserve to
bolster its defense against U.S. claims it misled investors in
mortgage-backed securities. The credit rating company said it served
subpoenas on the Federal Reserve board as well as the Federal Open
Market Committee and the Federal Reserve Bank of New York, according to
a filing today in federal court in Santa Ana, California.
- Fed Gets Bigger in Markets as QE Prompts New Tools. The
Federal Reserve is getting more involved in debt markets as it tries to
compensate for the impact of its almost $4 trillion balance sheet on
short-term interest rates. Policy makers are testing a new tool intended to improve their control of near-term borrowing costs. The facility would
allow banks, broker-dealers, money-market funds and some
government-sponsored enterprises to lend the Fed unlimited
amounts of cash overnight at a fixed rate in exchange for
borrowing Treasuries in so-called reverse repo transactions.
- Saudi Aramco Plans ‘Massive’ Spending to Extend Field Life. Saudi Arabia, the world’s largest
crude exporter, is making “massive investments” as it seeks a
production buffer to guard against swings in global oil prices while addressing a decline in output from its older fields.
Saudi Arabian Oil Co., the state-owned producer known as Saudi Aramco,
plans to maintain spare output capacity of more than 2 million barrels a
day, according to Chief Executive Officer Khalid Al-Falih. The
Dhahran-based company raised its annual capital budget tenfold to $40
billion over the last decade and, in the past two years, has adjusted
its daily production by more than 1.5 million barrels, he said.
Wall Street Journal:
- Senate Leaders in Striking Distance of a Deal. White House Meeting Delayed to Give Talks More Time to Progress. Top Senate leaders said they were within striking distance of an
agreement Monday to reopen the federal government and defuse a looming
debt crisis just days before the U.S. could run out of money to pay its
bills.
Fox News:
MarketWatch.com:
- Teradata(TDC) shares fall after outlook cut.
Shares of Teradata fell 12% to $46.17 on heavy volume after the company
said it now expects adjusted full-year earnings of $2.70 to $2.80 a
share. Analysts surveyed by FactSet expect earnings of $2.85 a share.
CNBC:
- Nobel prize winner warns of 'bubbly' home prices. One of three American economists who won the 2013 economics Nobel
prize on Monday for research into market prices and asset bubbles
expressed alarm at the rapid rise in global housing prices. Robert
Shiller, who shared the 8 million Swedish crown ($1.25 million) prize
with fellow laureates Eugene Fama and Lars Peter Hansen, said the U.S.
Federal Reserve's economic stimulus and growing market speculation were
creating a "bubbly" property boom.
Zero Hedge:
Business Insider:
Washington Post:
- NSA collects millions of e-mail address books globally. The
National Security Agency is harvesting hundreds of millions of contact
lists from personal e-mail and instant messaging accounts around the
world, many of them belonging to Americans, according to senior intelligence officials and top secret documents provided by former NSA contractor Edward Snowden. The
collection program, which has not been disclosed before, intercepts
e-mail address books and “buddy lists” from instant messaging
services as they move across global data links.
Reuters:
- Brazil, worried over debt, to lend less to BNDES, states. Brazil
will inject less money next year into the country's development bank
BNDES, its leading source of long-term corporate loans, to focus more on
infrastructure financing as concerns mount over public debt. The National Treasury has a target of phasing out annual
capital injections into BNDES "within a few years," Finance
Minister Guido Mantega said on Monday.
China Securities Journal:
- China May Face Greater Inflation Pressure in 2014. China may face
greater inflationary pressures next year if global economic recovery
accelerates, according to a commentary published on its front page,
written by its reporter Gu Xin.
- China 2H Inflation May
Face More Upward Pressure. China may face greater upward inflationary
pressure in 2H, as compared with 1H, citing Hu Chi, researcher at the
State-owned Assets Supervision and Administration Commission's research
center.
Evening Recommendations
Night Trading
- Asian equity indices are unch. to +.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 139.0 -1.0 basis point.
- Asia Pacific Sovereign CDS Index 109.5 -.25 basis point.
- NASDAQ 100 futures +.18%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Empire Manufacturing for October is estimated to rise to 7.0 versus 6.29 in September.
Upcoming Splits
Other Potential Market Movers
- The Fed's Fisher speaking, Fed's Williams speaking, Fed's Dudley speaking, weekly retail sales reports, Germany ZEW Index, UK Inflation, (WMT) Investment Community Meeting and the (WWW) Investor Day could also impact trading today.
BOTTOM LINE: Asian
indices are higher, boosted by technology and commodity shares in
the region. I expect US stocks to open modestly higher and to
weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.
Bloomberg:
- Lew Vow Not to Shift on Debt Frustrates Incredulous Republicans. He’s
“an implacable negotiator” who is “ideologically committed to
protecting every big-government gain,” Senator Jeff Sessions, an Alabama
Republican, said in an interview. Administration officials “can all go and play a round of golf, and they know he’s not going to agree to anything.” Lew’s approach to the debt limit has focused on a few basic ideas. He
has scrapped, temporarily, the traditional Treasury secretary role of
cheering up financial markets and is making it clear he thinks investors
should be worried about the possibility the U.S. won’t make all its payments on time.
“The calm out there,” he said in a discussion with Bloomberg View’s Al
Hunt on Sept. 24, “is a bit greater than it should be.” Senator Ron
Johnson, a Wisconsin Republican, said at an Oct. 11 Bloomberg breakfast
that the administration should try “to calm the markets, not scare
them.” “Responsible leadership wouldn’t be going out there going, ‘There’s going to be catastrophe coming,’” Johnson said, referring to comments by Obama and
Lew warning of dire consequences if the U.S. can’t make all its
payments.
- India Inflation Reaching Seven-Month High Adds Rate Pressure. Indian inflation unexpectedly
accelerated to a seven-month high in September, adding to the case for a further increase in the benchmark interest rate. The wholesale-price index rose 6.46 percent from a year earlier, compared with a 6.1 percent advance in August,
the Commerce Ministry said in New Delhi today. The median of 33
estimates in a Bloomberg News survey was for a 6 percent climb. Governor
Raghuram Rajan, who took over at the Reserve Bank of India last month,
raised the repurchase rate to 7.5 percent after vowing to tame
inflation, which was almost 10 percent in
September based on a separate gauge of consumer prices released
today. The cost of living is jumping even as economic growth
slows, stoked by food prices and weakness in the rupee that
makes imports more expensive.
- China-to-India Price Jump Risks Growth as World Outlook Dims. Higher food costs from China to
India are raising prices for a third of the world’s people,
adding to the challenge of sustaining the global economic
recovery as the growth outlook dims. Consumer prices in China rose 3.1 percent last month as food costs advanced the most since May 2012, statistics bureau
figures showed today in Beijing, while India’s Commerce Ministry
said inflation unexpectedly accelerated to a seven-month high.
Both gauges increased more than economists had estimated.
Wall Street Journal:
Fox News:
- Rollback of cuts fuels claims that government inflated impact of partial shutdown. Two weeks into the partial government shutdown, the Obama
administration is increasingly easing off some of its most painful cuts
-- fueling the perception among critics that the government initially
imposed visible, but ultimately unnecessary, cutbacks as a way to
pressure Republicans. The Department of the Interior late last week agreed to let states
use their own money to reopen some national parks. Defense Secretary
Chuck Hagel also determined football and other sports could continue at
service academies through October. Following outrage from military groups, the Pentagon contracted with a
charity to provide death benefits to the families of fallen soldiers,
before President Obama abruptly signed legislation to do just that.
Earlier, the Pentagon also announced most of its 350,000 furloughed
civilian military personnel would return to their jobs. And CIA Director
John Brennan said he would begin bringing back employees deemed
necessary to the agency's core missions.
CNBC:
- DC wants Dow to drop 1,000: Bove. Financial analyst Dick Bove thinks gridlocked politicians are asking for a market sell-off. "What do they think will convince the American public that they as our
leaders must act? It is becoming very clear that what they want is
panic in the equity markets. They want to see the Dow drop 1,000
points," Bove wrote in a note to Rafferty Capital Markets clients
Monday.
Zero Hedge:
Business Insider:
Reuters:
- Franco-German divisions cloud efforts to fix broken banks. The
euro zone debated on Monday how to prop up banks likely to be declared
unstable next year, but France's blunt criticism of Germany before the
meeting
laid bare the tensions surrounding the far-reaching financial reform. Bank health checks by the European Central Bank are a
critical step in establishing a single banking framework for the
euro zone, giving credibility to ECB supervision and paving the
way for the bloc to cooperate on saving bust banks.
Telegraph:
- Time to take bets on Frexit and the French franc? We have a minor earthquake in France. A party committed to withdrawal
from the euro, the restoration of French franc, and the complete
destruction of monetary union has just defeated the establishment in the
Brignoles run-off election. It is threatening Frexit as well, which rather alters the political chemistry of Britain's EU referendum.
Pais:
- Italy, France, Germany Push For Easier Bank Tests. Countries pushing to soften the criteria of ECB bank stress tests, citing people familiar with the matter. Germany and France are pressurizing ECB and other institutions so that the criteria of stress tests least damaging as possible for interests of their banks. Italy wants to avoid shareholders and junior debtholders being hit if a bank needs to be recapitalized with public funds, citing a minister in euro group.
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.
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