Stocks Reversing Higher into Final Hour on Central Bank Hopes, Lower Long-Term Rates, Short-Covering, Homebuilding/Metals & Mining Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Slightly Below Average

• Market Leading Stocks: Outperforming

Equity Investor Angst:

• Volatility(VIX) 13.51 -8.16%

• Euro/Yen Carry Return Index 139.56 +.16%

• Emerging Markets Currency Volatility(VXY) 8.54 -2.73%

• S&P 500 Implied Correlation 38.81 -7.81%

• ISE Sentiment Index 81.0 unch.

• Total Put/Call .90 -3.23%

• NYSE Arms 1.33 +107.29% 

Credit Investor Angst:

• North American Investment Grade CDS Index 71.34 -3.06%

• European Financial Sector CDS Index 124.15 +3.16%

• Western Europe Sovereign Debt CDS Index 70.53 +.76%

• Emerging Market CDS Index 264.42 +.26%

• 2-Year Swap Spread 13.50 unch.

• TED Spread 20.75 +5.75 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -6.25 +1.25 basis points

Economic Gauges:

• 3-Month T-Bill Yield .04% -6 basis points

• Yield Curve 227.0 -7 basis points

• China Import Iron Ore Spot $134.40/Metric Tonne +.52%

• Citi US Economic Surprise Index 24.0 -2.8 points

• Citi Emerging Markets Economic Surprise Index -8.60 -1.4 points

• 10-Year TIPS Spread 2.17 -2 basis points

Overseas Futures:

• Nikkei Futures: Indicating +18 open in Japan

• DAX Futures: Indicating +14 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg:   

• China’s Dagong Cuts U.S. Credit Rating After Debt Limit Raised. China’s Dagong Global Credit Rating Co. cut its sovereign rating for the U.S. hours after President Barack Obama signed legislation raising the federal debt limit. Dagong, one of China’s four biggest credit rating companies, downgraded the local and foreign currency credit ratings of the U.S. to A- from A, maintaining a negative outlook, the company said in an e-mailed statement yesterday. That’s below Dagong’s rating of Botswana, which has a A rating, and puts the U.S. on par with Brazil.

• China Companies Rank Lowest in Survey of Transparency Reporting. Chinese companies ranked the lowest in a survey of public reporting practices in emerging markets, underscoring concern that the government’s anti-corruption campaign may not take root in the corporate sector. The 33 Chinese multinationals surveyed averaged a score of 2 out of 10 points in Berlin-based Transparency International’s “Transparency in Corporate Reporting” survey, released yesterday. Chery Automobile Co., the closely held carmaker based in Wuhu, China, joined one other company among the 100 surveyed with a score of zero across the three categories measured.

• Iron Ore Futures Debut in Dalian as China Seeks Pricing Power. Iron ore futures for physical delivery debut on the Dalian Commodity Exchange today as China takes greater control of price setting in the biggest seaborne commodity trade after oil. 

• Gold Jumps Most in Four Weeks on Dollar Slump, Stimulus. Gold futures jumped the most in four weeks as the dollar slumped and speculation mounted that the Federal Reserve will hold off on scaling back monetary stimulus, boosting demand for the metal as an alternative investment. Gold futures for December delivery rose 3.2 percent to settle at $1,323 an ounce at 1:41 p.m. on the Comex in New York, the biggest gain for a most-active contract since Sept. 19. Trading was 31 percent above average for the past 100 days for this time, data compiled by Bloomberg showed. 

• Crude Drops as API Reports Increase in U.S. Inventories. Prices slid 1.6 percent. Supplies climbed by 5.94 million barrels, according to the American Petroleum Institute yesterday. Jobless claims reached 358,000 last week, the Labor Department said. WTI rose 1.1 percent yesterday before Congress voted to end the government shutdown and raise the debt limit.

• European Stocks Erase Their Decline as U.S. Equities Rise. European stocks erased their decline in the final half an hour of trading, leaving the Stoxx Europe 600 Index at a five-year high, as U.S. equities rebounded after Congress agreed to extend the American government’s debt limit. SABMiller Plc rose 4.2 percent after posting an unexpected increase in lager volumes. Sulzer dropped 4.4 percent as the Swiss pump maker cut its full-year sales forecast for a second time. Outotec slid the most in almost five years after the supplier of smelters to mining companies reduced its guidance for 2013. Royal KPN (KPN) NV plunged 7.9 percent after America Movil SAB withdrew its $9.7 billion takeover offer for the company. The Stoxx 600 added 0.1 percent to 315.98 at the close, rebounding from a decline of as much as 0.6 percent.

• Fed’s Evans Sees QE Tapering Postponed After Data Shutdown. Federal Reserve Bank of Chicago President Charles Evans, an outspoken advocate of pressing on with Fed stimulus, said the central bank should not begin reducing the pace of asset purchases as the data used to gauge the economy’s health stopped during the government shutdown.

• Treasury Yields Fall to Lowest in 2 Weeks on Fed-Buying Wagers. Treasury 10-year note yields fell to the lowest level in two weeks on speculation the Federal Reserve will maintain its bond-buying program into next year after the government shutdown weighed on economic growth. 

• EBay(EBAY), Ellison Embrace Microgrids in Threat to Utilities. Oracle Corp. Chief Executive Officer Larry Ellison plans to build one to power the Hawaiian island he bought last year. EBay Inc. (EBAY) has one to run a data center. The University of California at San Diego and the federal government have invested tens of millions of dollars in the technology.

Wall Street Journal:

• Attention Likely to Shift to Health Law. After Budget Distraction, Measure Could Become Focus of Greater Scrutiny. The end of Washington's budget showdown is likely to shift attention back to President Barack Obama's health law and its rocky rollout, news of which was sometimes submerged in the past 16 days of struggle. 

• Prosecutors and SAC Head Toward a Possible Record-Breaking Settlement. Potential Deal in SAC's Insider-Trading Case Could Top $1.2 Billion. 

• Goldman Sachs(GS) Revenue Drops as Fixed-Income Slumps. Investment Bank Raises Quarterly Dividend to 55 Cents. 

• UnitedHealth(UNH) Reports Muted Profit Growth, Cautious Outlook. Company Expects Funding Cuts From Federal Health Law.

Fox News:

• With budget ‘deal,’ national debt free to soar again. The good news: The national parks are open, furloughed federal workers are back on the job, and the country will not cut off benefit payments because it can't borrow. The bad news: The national debt is back on course to hit $17 trillion any day now, with no deal in sight to ever reverse the climb.  The latest increase in the debt cap is the sixth since President Obama took office, when the debt was $10.6 trillion.

MarketWatch:

• Individual policy pricing skyrockets under Obamacare, broker site says. If you want to see what will happen to individual health policies next year once Obamacare takes effect, you might take an online trip through the eHealth Inc. web site.

CNBC: 

• Signs of a new credit bubble emerge in business lending. The Federal Reserve's latest economic report raises the prospect that credit standards in loans to businesses may be slipping. "The Philadelphia, Cleveland, Richmond, Chicago, and Dallas Districts reported intense competition on pricing and terms for commercial and industrial loans. In addition, contacts in Philadelphia and Chicago expressed concern about an easing of credit standards on these loans," the Fed reported in its Beige Book summation of regional Fed activity.

Zero Hedge: 

• "Idiotic" Initial Claims "Rise Above" As Made Up California Numbers Continue Trickling In.

• It's Always Funny In Philadephia: Philly Fed Optimism Soars To Second Highest Ever. (graph)

• Fonzie Or Ponzi? One Theory On The Limits To Government Debt.

• Chart Of The Day: Entitlement Nation, Now And Forever.

• Ten Things to Expect from Obamacare in 2014.

Business Insider:

• GUNDLACH ON TESLA(TSLA): There's Something Wrong With This Picture.

• 50 Charts That Every Gold Investor Will Love.

• GUNDLACH: Interest Rates Will Stay Low 'For As Long As The Eye Can See'.

Foreign Policy:

•  Meet China's Beverly Hillbillies. The absurdity of the Middle Kingdom's Bentley-driving, blinged-out nouveau riche.

Real Clear Politics:

• Rubio: "There Is Going To Be An All-Out Revolt" Over Obamacare In 2014. (video)

Telegraph:

• Diageo reports lower-than-expected first quarter sales. Drinks giant Diageo sees slower growth in emerging markets as it report lower-than-expected first quarter sales.

Bear Radar

Style Underperformer:

• Mid-Cap Growth +.20%

Sector Underperformers:

• 1) Computer Services -4.34% 2) Road & Rail -2.49% 3) HMOs -2.24%

Stocks Falling on Unusual Volume:

• PTLA, ANW, ATLS, SCSS, OSTK, UTEK, TZOO, IBM, SWK, CCK, UNH, EBAY, CKH, DOV, XLNX, POOL, UNP, PHMD, BGG, TPX, FXCM, PETM, GS, HUM, MTB, NUS, WMGI and MFRM

Stocks With Unusual Put Option Activity:

• 1) IBM 2) PRKR 3) LINE 4) XLNX 5) OIH
  

Stocks With Most Negative News Mentions:

• 1) IBM 2) GS 3) WLP 4) UNH 5) TGE
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Mid-Cap Value +.60%

Sector Outperformers:

• 1) Gold & Silver +4.58% 2) Disk Drives +2.26% 3) Homebuilding +1.46%
  

Stocks Rising on Unusual Volume:

• KERX, SFUN, SNDK, BITA, SCTY, WGO, CLB, PVTB, IRE, LHO, JKS, CGEN, BTU, NQ, BVN, NTCT, INSY, DHR, STLD, CAMP, VZ, AMBA, AXP, PPG, HBI, SPLK, ABT and HALO

Stocks With Unusual Call Option Activity:

• 1) SVU 2) HRB 3) BHI 4) MNST 5) XLNX

Stocks With Most Positive News Mentions:

• 1) VZ 2) PPG 3) SNDK 4) BTU 5) SCTY
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Thursday Watch

Evening Headlines 
Bloomberg: 

• Asia’s Waning Competitiveness Seen in Trade Disconnect. Asia’s exporters are failing to benefit from a recovery in advanced nations, putting the onus on policy makers to shift reliance to domestic demand as a driver of economic growth. China’s exports unexpectedly fell last month, while overseas shipments from Taiwan and South Korea also declined. Asia’s export-led growth engine is showing “signs of serious defects,” according to Frederic Neumann, Hong Kong-based co-head of Asian economics at HSBC Holdings Plc, who says the region’s trade data has disappointed over the past couple of years and may be evidence of a loss in competitiveness.

• BlackRock(BLK) Cuts Hong Kong Investment Seeing Drop in Prices. BlackRock Inc. (BLK) is reducing its investment in Hong Kong, betting the city’s equity and property markets will trail other Asian countries as growth slows in the world’s two biggest economies. Hong Kong stocks may underperform as the U.S. pares stimulus and China tightens credit, said Andrew Swan, head of Asian equities at BlackRock, which manages $3.86 trillion as of June 30. Home values in the city may fall more than 10 percent into 2014 amid government measures to curb prices and rising U.S. interest rates, he said.

• Asian Stocks Gain as Congress Passes Deal to End Shutdown. Honda Motor Co., which gets about 46 percent of its car sales from North America, gained 1.3 percent in Tokyo. Kansai Electric Power Co. added 2.6 percent after the Japanese utility reported an unexpected first-half profit. Boral Ltd. advanced 5.9 percent after USG Corp. agreed to pay the Australian company as much as $575 million to create a jointly owned building-materials business spanning Asia and the Middle East. The MSCI Asia Pacific Index gained 0.7 percent to 142.06 as of 11:34 a.m. in Tokyo, with more than three shares rising for each that fell.

• Rebar Rises for First Time in Three Days on China Capacity Cuts. Steel reinforcement-bar futures in Shanghai rose for the first time in three days as China said it would cut steel capacity. Rebar for delivery in January on the Shanghai Futures Exchange gained as much as 0.5 percent to 3,586 yuan ($588) a metric ton, before trading at 3,569 yuan at 10:42 a.m. local time. The most-active contract closed at the lowest level in more than three months yesterday.

• Rubber Rises to Three-Week High on U.S. Debt Deal as Yen Drops. Rubber rallied to a three-week high as U.S. lawmakers reached a deal to raise the debt ceiling, easing concern of a default in the world’s biggest economy. The contract for March delivery gained as much as 2.3 percent to 276 yen a kilogram ($2,795 a metric ton) on the Tokyo Commodity Exchange, the highest level since Sept. 27, before trading at 273.2 yen at 11:24 a.m. local time.

• Record Copper Output in China Seen by Antaike on Smelter Fees. Copper output in China is set to remain at record levels for the rest of 2013 as high treatment fees encourage smelters in the biggest producer to run at full capacity. Monthly production in the fourth quarter may be about 560,000 metric tons, matching an all-time high in August and above average output of 534,112 tons for the first eight months, said Yang Changhua, an analyst at Beijing Antaike Information Development Co. 

• Euro Capitals Tighten Fiscal Leash as EU Starts Austerity Police. In Madrid, the government is paring spending on roads and rails. In Rome, state property is to be sold off. In The Hague, lawmakers agreed to the second set of extraordinary cuts in two years. Even with the 17-nation euro area projecting economic expansion next year for the first time since 2011, policy makers are keeping a fiscal leash on growth by maintaining austerity policies born in the fight to save the euro.

• EBay(EBAY) Holiday Quarter Forecast Trails Analysts’ Estimates. EBay Inc. (EBAY) issued sales and profit forecasts that fell short of analysts’ estimates ahead of the key holiday shopping season, citing “dramatically decelerating U.S. e-commerce growth.” Fourth-quarter sales will be $4.5 billion to $4.6 billion, the operator of the largest online marketplace said in a statement today. Analysts on average were projecting revenue of $4.64 billion, according to data compiled by Bloomberg. EBay forecast profit excluding some items of 79 cents to 81 cents a share for the period, below analysts’ prediction of 83 cents.

Wall Street Journal: 

• Congress Passes Debt, Budget Deal. Bill to Reopen Government Through Jan. 15, Lift Debt Ceiling Until Feb. 7. 

• House Conservatives Gird for Next Budget Battles. After enduring weeks of barbs by Democrats and even some fellow Republicans for picking a fight with President Barack Obama over the health law, some of the assembled conservatives were eager to return fire.

• Stockbroker Requests to Scrub Complaints Are Often Granted. Study Shows Brokers' Requests to Strike Complaints Granted in Vast Majority of Cases.

• Fed Weighs Surcharge on Banks' Physical Commodity Businesses. Fee Could Spur Firms to Pare Involvement in the Sector.

• ObamaCare's Black Box. Why the exchanges are worse than even the critics imagined. This isn't some coding error, or even the Health and Human Service Department's usual incompetence. The failures that have all but disabled ObamaCare are the result of deliberate political choices, which HHS and the White House are compounding with secrecy and stonewalling.

Barron's: 

• Nike(NKE) CEO Sells on Heels of Record High. Four Nike insiders, including the chief executive, sold 181,734 shares for $13,289,735, an average of $73.13 each, from Oct. 1 through 15 through options exercises and open-market selling.

Fox News: 

• Congress approves bill to end partial shutdown, raise debt ceiling. The House voted Wednesday to approve a short-term bill ending the partial government shutdown and raising the debt ceiling, sending the deal to the president’s desk and capping one of the most bitter and brutal political fights in recent memory. The bill cleared the House on a 285-144 vote, lifted over the finish line by a large chunk of Democrats. All House Democrats voted in favor of the bill and 87 Republicans did as well. 144 Republicans voted against it.

• Iran turns on the charm for international audience as its bloody clampdown continues at home.

CNBC:

• As US debt grows, here are 23 debt-free companies.

• Bernanke won't have to testify in AIG(AIG) case—for now. Federal Reserve Chairman Ben Bernanke does not have to testify in the multibillion-dollar lawsuit by the former chief of American International Group against the United States over the insurer's 2008 bailout, a federal appeals court said on Wednesday.

Zero Hedge: 

• With A Final 285-144 Vote, Mission "Raise The Debt Ceiling" Is Accomplished: See You All Again In February.

• IBM(IBM) Craters To 2 Year Low On Massive Revenue Miss, Asia-Pac, BRIC Sales Both Plunge 15%.

• How HFT Minted Money During the Financial Crisis.

• The T-Bill Market Is Beginning To Brace For The "Hard" March Debt Ceiling. (graph)

• The Gravity Of Our Situation. (cartoon)

Business Insider: 

• Citi(C) Summarizes The Post-Deal State Of The Markets In One Brutally Sobering Paragraph. (graph) One cannot respectably believe that things truly have turned for the better as opposed to averting the worst. The long-term growth of non-discretionary government spending can still prove to be an overwhelming liability and it has not been the primary focus for legislators.

Washington Post:  

• Documents reveal NSA’s extensive involvement in targeted killing program. It was an innocuous e-mail, one of millions sent every day by spouses with updates on the situation at home. But this one was of particular interest to the National Security Agency, and contained clues that put the sender’s husband in the cross hairs of a CIA drone.

Reuters:

• Asia-Pacific Sovereigns Face Growing Pressure on Credit Profiles. Asia-Pacific Sovereign Overview Q313HONG KONG, October 16 (Fitch) Sovereigns in the Asia-Pacific face rising pressure on their credit profiles due to a structural slowdown in many economies. 

• SanDisk(SNDK) results top estimates as memory chip prices rebound. SanDisk Corp more than tripled its quarterly profit, beating analysts' estimates, after a fire at a rival chip maker increased prices at a time when Apple Inc and other users of its flash memory chips were launching new products. 

• Xilinx(XLNX) forecasts weak revenue from industrial, aerospace businesses. Chipmaker Xilinx Inc forecast current-quarter revenue largely below Wall Street's estimates as it expects lower revenue at its industrial and aerospace businesses. Xilinx shares fell 4.5 percent after the company said it expects current-quarter revenue to be up or down 2 percent sequentially.

Telegraph: 

• Europe's debt crisis credibility hangs on thin Irish thread. Whether Ireland or any other EMU victim state can claw its way back to viability depends on the actions of the ECB.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are +.25% to +.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 132.0 -4.0 basis points.

• Asia Pacific Sovereign CDS Index 104.25 -2.25 basis points. 

• FTSE-100 futures -.06%.

• S&P 500 futures -.03%.

• NASDAQ 100 futures +.03%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (MTB)/2.09

• (BBT)/.70

• (DGX)/1.02

• (BX)/.56

• (PPG)/2.34

• (CY)/.11

• (NUE)/.39

• (BTU)/-.03

• (ADS)/2.66

• (BGG)-.29

• (DHR)/.83

• (UNH)/1.53

• (FITB)/.41

• (PM)/1.43

• (WGO)/.27

• (BAX)/1.19

• (VZ)/.74

• (GS)/2.47

• (UNP)/2.47

• (CMG)/2.78

• (SYK)/.99

• (COF)/1.81

• (ISRG)/3.39

• (LVS)/.76

• (GOOG)/10.36

• (VMI)/2.44

Economic Releases
8:30 am EST

• Initial Jobless Claims are estimated to fall to 335K versus 374K the prior week. 

• Continuing Claims are estimated to rise to 2915K versus 2905K prior.

10:00 am EST

• Philly Fed Business Outlook for October is estimated to fall to 15.0 versus 22.3 in September.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Fisher speaking, Fed's Evans speaking, Fed's George speaking, Fed's Kocherlakota speaking, China GDP/Industrial Production/Retail Sales, weekly EIA natural gas inventory report, Bloomberg Economic Expectations for Oct., weekly Bloomberg Consumer Comfort Index, (PETM) analyst day, (SAFM) investor conference and the UK retail sales could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by financial and industrial 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 Surging into Final Hour on US Debt Ceiling/Shutdown Deal, Lower Long-Term Rates, Short-Covering, Biotech/Homebuilding Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Almost Every Sector Rising
  

• Volume: Below Average

• Market Leading Stocks: Outperforming

Equity Investor Angst:

• Volatility(VIX) 15.51 -18.81%

• Euro/Yen Carry Return Index 139.29 +.57%

• Emerging Markets Currency Volatility(VXY) 8.80 -1.35%

• S&P 500 Implied Correlation 43.34 -16.89%

• ISE Sentiment Index 81.0 unch.

• Total Put/Call .96 -4.0%

• NYSE Arms .64 -29.94% 

Credit Investor Angst:

• North American Investment Grade CDS Index 73.85 -4.21%

• European Financial Sector CDS Index 120.35 -.30%

• Western Europe Sovereign Debt CDS Index 70.0 -4.1%

• Emerging Market CDS Index 262.66 -2.0%

• 2-Year Swap Spread 13.50 +.75 basis point

• TED Spread 15.0 +.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -7.50 +.5 basis point

Economic Gauges:

• 3-Month T-Bill Yield .10% unch.

• Yield Curve 234.0 -3 basis points

• China Import Iron Ore Spot $133.70/Metric Tonne +.07%

• Citi US Economic Surprise Index 26.80 -4.1 points

• Citi Emerging Markets Economic Surprise Index -7.20 +1.6 points

• 10-Year TIPS Spread 2.19 -2 basis points

Overseas Futures:

• Nikkei Futures: Indicating +213 open in Japan

• DAX Futures: Indicating -7 open in Germany

Portfolio: 

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

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short, added to my tech/biotech sector longs

• Market Exposure: Moved to 75% Net Long