Evening Headlines
Bloomberg:
- China Money Rate Jumps Most in Two Months as Cash Injections End. The
seven-day repurchase rate rose 65 basis points, the biggest increase
since July 29, to 4.67 percent, according to a daily fixing by the
National Interbank Funding Center. The overnight repo rate increased 27
basis points, or 0.27
percentage point, to 4.07 percent, after surging 70 basis points
yesterday. The yield on the 4.08 percent bonds due August 2023
increased five basis points to 4.2 percent.
- Asian Stocks Pare Drop as Aussie Rallies With Oil, Silver.
Asian stocks pared losses, while commodity currencies rallied with oil
and metals as China’s manufacturing beat estimates, signaling the
recovery may be accelerating in the world’s second-largest economy. The MSCI Asia Pacific Index lost 0.1 percent by 11:22 a.m. in Tokyo, trimming a 0.5 percent drop.
- Rebar Falls Amid Concern China to Introduce New Property Curbs.
Steel reinforcement-bar futures in Shanghai fell for a third day amid
concern that China will curb property prices, reducing demand for the
building material. Rebar for delivery in May, the most-actively
traded contract by volume on the Shanghai Futures Exchange, dropped as
much as 0.9 percent to 3,601 yuan ($592) a metric ton and was at
3,617 yuan at 10:15 a.m. local time.
- Volcker Rule Hedging Exemption Said Disputed by Gensler, Stein. Officials
at two of the agencies
charged with writing the Volcker rule banning U.S. banks from trading
for their own accounts are insisting on strengthening a key provision.
Gary Gensler, chairman of the Commodity Futures Trading Commission, and
Kara Stein, a Democrat on the Securities and Exchange Commission, want
to make it more difficult for banks to
classify such trading as legitimate hedging activity, according
to three people familiar with the negotiations. The dispute
could make it harder for the five agencies drafting the rule to
meet a White House-imposed year-end deadline for completing the
regulation.
- Cancer Radiation Rates Grow When Urologists Reap Profit.
A study published today in the New England Journal of Medicine suggests
that profits urologists make from referring patients to their own
radiation facilities play an outsized role in the treatment decisions.
One third of men whose doctors own
radiation equipment get the therapy at a cost of about $35,000
per treatment course. The same doctors prescribed the therapy
for just 13 percent of their patients before they had their own
equipment and could profit directly.
Wall Street Journal:
- Henninger: Obama's Credibility Is Melting. Here and abroad, Obama's partners are concluding they cannot trust him.
The collapse of ObamaCare is the tip of the iceberg for the magical
Obama presidency. From the moment he emerged in the public eye with his
2004 speech at the Democratic Convention and through his
astonishing defeat of the Clintons in 2008, Barack Obama's calling card
has been credibility. He speaks, and enough of the world believes to
keep his presidency afloat. Or used to. All of a sudden, from Washington
to Riyadh, Barack Obama's credibility is melting.
Fox News:
- Second-graders taught labor politics in Core Curriculum-aligned lesson plan. A textbook company contracted to produce materials under the Common
Core State Standards is trying to teach students as young as second
grade about economic fairness by praising unions, protests and labor
leader Cesar Chavez, according to an education watchdog group.
Zaner-Bloser, which is based in Columbus, Ohio, is distributing a
lesson plan aimed at teaching second-graders about “equality” by
highlighting labor issues, according to Education Action Group
Foundation, a non-partisan organization that looks to promote education
reform.
CNBC:
Zero Hedge:
Business Insider:
The Blaze:
- Blaze Sources: Obama Purging Military Commanders. Nine senior commanding generals have been fired by the Obama
administration this year, leading to speculation by active and retired
members of the military that a purge of its commanders is underway.
Reuters:
- Boston Scientific(BSX) says to cut up to 1,500 jobs. Medical
device maker Boston Scientific Corp plans to cut up to 1,500 jobs in
its latest restructuring effort that aims to save $150 million to $200
million in operating expenses by the end of 2015, the company announced
in a regulatory filing.
- DOJ probes nine banks on mortage-backed securities -FT. At least nine
banks face probes by the U.S. Department of Justice into their sales of
mortgage-backed securities as part of an effort by the task force that
reached the $13 billion agreement with JPMorgan Chase & Co, the
Financial Times reported.
Evening Recommendations
Night Trading
- Asian equity indices are -.75% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 134.0 +2.0 basis points.
- Asia Pacific Sovereign CDS Index 101.75 +1.0 basis point.
- NASDAQ 100 futures +.25%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- The Trade Deficit for August is estimated to widen to -$39.4B versus -$39.1B in July.
- Initial Jobless Claims are estimated to fall to 340K versus 358K the prior week.
- Continuing Claims are estimated to rise to 2870K versus 2859K prior.
8:58 am EST
- The Preliminary Markit US PMI for October is estimated at 52.5.
10:00 am EST
- JOLTs Job Openings for August are estimated to rise to 3765 versus 3689 in July.
11:00 am EST
- Kansas City Fed Manufacturing Activity for Oct. is estimated at 2.0 versus 2.0 in September.
Upcoming Splits
Other Potential Market Movers
- The Eurozone PMI data, Japan CPI, weekly Bloomberg Consumer Comfort Index and the weekly EIA natural gas inventory report could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and financial 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.
Broad Equity Market Tone:
- Advance/Decline Line: Lower
- Sector Performance: Most Sectors Declining
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 13.59 +1.95%
- Euro/Yen Carry Return Index 139.83 -.85%
- Emerging Markets Currency Volatility(VXY) 8.34 +1.71%
- S&P 500 Implied Correlation 37.81 -3.58%
- ISE Sentiment Index 108.0 -8.47%
- Total Put/Call .85 +2.41%
Credit Investor Angst:
- North American Investment Grade CDS Index 71.98 +2.62%
- European Financial Sector CDS Index 120.22 +.85%
- Western Europe Sovereign Debt CDS Index 70.73 -3.11%
- Emerging Market CDS Index 258.99 +.30%
- 2-Year Swap Spread 13.25 unch.
- TED Spread 20.75 -.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -4.5 +.25 basis point
Economic Gauges:
- 3-Month T-Bill Yield .03% unch.
- Yield Curve 219.0 -3 basis points
- China Import Iron Ore Spot $133.20/Metric Tonne -.08%
- Citi US Economic Surprise Index 18.20 -1.2 points
- Citi Emerging Markets Economic Surprise Index -9.10 +1.1 points
- 10-Year TIPS Spread 2.16 -2 basis points
Overseas Futures:
- Nikkei Futures: Indicating -81 open in Japan
- DAX Futures: Indicating +11 open in Germany
Portfolio:
- Higher: On gains in my medical/biotech/retail sector longs, index hedges and emerging markets shorts
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back
- Market Exposure: 50% Net Long
Bloomberg:
- Draghi Says ECB Won’t Hesitate to Fail Banks in Stress Tests. European
Central Bank President Mario Draghi said officials won’t hesitate to
fail banks in its stress test next year as the ECB sets out to prove its
vigilance in its new role of banking supervisor. “Banks
do need to fail” to prove the credibility of the exercise, Draghi said
in a Bloomberg Television interview with Francine Lacqua in Frankfurt,
after the ECB published plans for its bank-asset check. “If they do have
to fail, they have to fail. There’s no question about that.”
- ECB's
AQR Prompts 'Buy Sub CDS' on Italian Banks at Threadneedle. Investors
should buy protection on subordinated debt of Italian and Portuguese
banks, as well as on Commerzbank, Paul Smillie, an analyst at
Threadneedle, says in an interview. An accurate assessment of European
bank balance sheets will find capital shortfalls in Italy, Germany,
Portugal and potentially Spain.
- European Stocks Retreat as Orange, STMicro Sales Decline. European stocks declined, following the longest rally for the region’s equities in 40 months, as companies from Orange SA to STMicroelectronics NV (STM) reported lower quarterly sales. Orange retreated the most in more than two years as France’s largest telecommunications company also posted earnings
that dropped in the third quarter. STMicroelectronics slid the
most in three months after Europe’s biggest semiconductor maker
also reported a $142 million quarterly net loss.
The Stoxx Europe 600 Index retreated 0.6 percent to 318.99
at the close of trading.
- Crude Falls to Three-Month Low After Supply Report.
WTI for December delivery slid $1.52, or 1.6 percent, to $96.78 a
barrel at 12:23 p.m. on the New York Mercantile Exchange after falling
to $96.16, the lowest level since July 1. The volume of all futures
traded was 38 percent more than the
100-day average for the time of day.
Wall Street Journal:
- China Moves to Help Local Governments Roll Over Debt. Change Will Allow More Short-Term Debt Issues. China took a significant step Wednesday to deal with an explosion of
borrowing among local governments by allowing more of them to issue
short-term debt to help pay off maturing bonds and loans, according to a
person with direct knowledge of the matter. Economists estimate
local governments may have borrowed as much as $5 trillion in recent
years to fund projects and keep the economy humming as Beijing scaled
back the stimulus efforts it had undertaken following the global
financial crisis. Concerns are rising that the buildup of debt has been
too rapid and that local governments will be unable to pay the money
back. Beijing has warned, too, about the potential risks, and is trying
to understand and contain any potential problem.
Fox News:
- Boeing(BA) Boosts Outlook Amid 12% Profit Growth. Boeing’s
profit jumped 12% in the third quarter, as the aerospace giant’s
commercial aircraft unit outweighed softness at its defense business. The company also said Wednesday it raised its per-share earnings
guidance to between $6.50 and $6.65, up from a previous estimate of
$6.20 to $6.40. Boeing reaffirmed its outlook for revenue.
Zero Hedge:
Business Insider:
Mish's Global Economic Trend Analysis:
CBS:
- HealthCare.gov pricing feature can be off the mark.
CBS News has uncovered a serious pricing problem with HealthCare.gov.
It stems from the Obama administration's efforts to improve its health
care website. A new online feature can dramatically underestimate the
cost of insurance. The administration announced it would provide a new "shop and browse"
feature Sunday, but it's not giving consumers the real picture. In some
cases, people could end up paying double of what they see on the
website, CBS News' Jan Crawford reported Wednesday on "CBS This
Morning."
NY Post:
- ObamaCare's Other Tech Disaster. Dr. Nicholas DiNubile, a Philadelphia orthopedic surgeon, has a timely
reminder for everyone encountering the federal health-care-exchange
meltdown: “If you think signing up for ObamaCare is a nightmare, ask
your doctor how the EMR [electronic medical records] mandate is going.”
Reuters:
- Caterpillar(CAT) posts lower results, cuts outlook again. Caterpillar Inc posted a lower-than-expected quarterly profit on Wednesday and cut its
full-year forecast for the third time as weak demand from mining
customers continued to bedevil the heavy equipment maker.
The Peoria,
Illinois-based company also provided its first forecast for 2014 sales,
saying it expects essentially flat results to up or down 5 percent
compared with 2013. Caterpillar
said it had eliminated 3,000 jobs during the third quarter and warned
that further workforce reductions were possible.
- U.S. chip stocks drop as widespread weak demand worries investors. Shares of semiconductor
companies slumped on Wednesday after a host of underwhelming
quarterly revenue forecasts left Wall Street concerned about
lackluster demand in markets from industrial to smartphones.
The
Philadelphia Semiconductor Index was down 3.3 percent, with PC
chipmaker Intel Corp falling 1.7 percent and mobile heavyweight Qualcomm
Inc down 2.1
percent.
- METALS-Copper falls on worries over China tightening. Copper
slid more than 2 percent on Wednesday as fears of tighter monetary
policy in top metals user China outweighed speculation that tepid U.S.
jobs data will deter the Federal Reserve from tapering its stimulus this year.
Style Underperformer:
Sector Underperformers:
- 1) Semis -3.16% 2) Oil Service -2.20% 3) Gaming -2.0%
Stocks Falling on Unusual Volume:
- GIMO, GWRE, DTLK, ABAX, LAD, RPRX, PNRA, IRBT, CREE, FTI, ALTR, BRCM, ABG, EAT, COH, CAT, UIS, OCR, FFIV, PDCE, CXO, DNR, ARG, TPLM, CRUS, CBST, ARW, XEC, TUP, BCEI, FANG, JNPR, BLOX, OAS, SWKS, REXX, CAVM, XOOM and ABG
Stocks With Unusual Put Option Activity:
- 1) VWO 2) HUN 3) JNPR 4) XLB 5) SIRI
Stocks With Most Negative News Mentions:
- 1) CREE 2) TEX 3) DDD 4) MCD 5) MCD
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Homebuilding +1.30% 2) Road & Rail +.80% 3) Medical Equipment +.74%
Stocks Rising on Unusual Volume:
- APOL, COLE, GLW, FBC, MDVN, BCR, GNTX, FDML, LL, SWY, CP, BA, MTH, NSC, STRA, BBCN, ESI, BPI, HXL, LXP and DPS
Stocks With Unusual Call Option Activity:
- 1) NSC 2) COLE 3) GLW 4) RPRX 5) HRB
Stocks With Most Positive News Mentions:
- 1) NOC 2) ECA 3) BA 4) AAPL 5) GLW
Charts:
Evening Headlines
Bloomberg:
- Biggest China Banks Triple Debt Write-Offs to Brace for Defaults. China’s biggest banks tripled the
amount of bad loans written off in the first half, cleaning up
their books ahead of what may be a fresh wave of defaults. Industrial & Commercial Bank of China Ltd., the world’s
most profitable lender, and its four largest rivals expunged in
the first six months 22.1 billion yuan ($3.65 billion) of debt
that couldn’t be collected, up from 7.65 billion yuan a year
earlier, filings showed.
- Junk Rally Sparks Sales by Nikko Amid Bubble Risk: China Credit. Nikko
Asset Management Ltd. and GAM
Holding AG are trimming holdings of Chinese dollar-denominated junk
bonds amid their strongest rally in almost a year, concerned over a
surge in issuance and a possible asset bubble. Speculative-grade
securities in China gained 3 percent in September, the most since
November, beating the 1 percent advance for U.S. counterparts, according
to Bank of America
Merrill Lynch indexes. Nikko and GAM decreased holdings earlier
this month, while Morgan Stanley favors investment-grade Hong
Kong-based corporates as leverage among Chinese companies soars.
- Li’s Hong Kong Sales Signal Peak as European Growth Beckons.
Hong Kong billionaire Li Ka-shing made his fortune over a half-century
of well-timed bets on everything from property to power generation. His latest deals suggest he’s wagering the city’s era of fast growth may be drawing to an end. Asia’s richest man may raise as much as $18 billion selling stakes in his retail unit and Hong Kong’s second-largest power
supplier.
- China’s Stocks Fall as Small Companies Tumble on Money Rates. China’s
stocks fell for a second day, with the benchmark index for smaller
companies tumbling the most in three months, after money-market rates
surged. Leshi Internet Information & Technology (Beijing) Co.
(300104), the operator of online-video portal LeTV.com, plunged by the
10 percent daily limit for a second day. Dairy producer Inner Mongolia
Yili Industrial Group Co. (600887) declined by the most in three months.
Huaneng Power International Inc., the listed unit of China’s largest
power group, slumped 4.8 percent after earnings missed analysts’
estimates. The Shanghai Composite Index slid 1.2 percent to 2,183.45
at 11:25 a.m., heading for the lowest level since Sept. 30. The ChiNext index of small
companies plunged 3.8 percent, after a 3.6 percent loss
yesterday when trading volumes surged to a record. “The valuations of small-caps are too high and it looks
like the bubble has started to burst,” said Wang Weijun, a
strategist at Zheshang Securities Co. in Shanghai. “Even if
some companies fall by 50 percent, their valuations are still
very high as their earnings growth isn’t fast enough to catch
up with share-price gains.”
- Asian Stocks Climb as Won to Aussie Jump; Copper Retreats.
Asia’s benchmark stock index headed for the highest close in five years
and emerging-market currencies rose on bets the U.S. Federal Reserve
will hold off cutting stimulus until next year. Australia’s dollar
jumped after inflation data. The MSCI Asia Pacific Index added 0.5 percent by 11 a.m. in Tokyo, on course for the highest close since June 2008.
- Rubber Falls as Yen Rebounds on Weaker-Than-Expected Jobs Data.
Rubber dropped for the first time in
three days as Japan’s currency gained against the dollar after U.S.
employers added fewer jobs than estimated. A stronger yen weakens the
appeal of yen-based futures. The contract for March delivery lost as much as 0.8 percent
to 266.4 yen a kilogram ($2,716 a metric ton) on the Tokyo
Commodity Exchange and was at 267.8 yen by 10:53 a.m. local
time. The most-active contract fell 11 percent this year.
- Banking Balkanization Prevails in Europe on Eve of Review. As
the European Central Bank prepares to take its first big step toward a
banking union, the financial industry in the region remains as
fragmented as ever. Access to credit is choked off in the economies that
need
it most, banks are more dependent on government bonds of their
home countries, and European Central Bank reviews of the
region’s biggest lenders, intended to restore investor
confidence, may backfire. ECB supervision alone probably won’t reverse the fracturing
of lending along national lines that has driven up borrowing
costs in some countries and worsened the co-dependence between
indebted governments and their banks. As long as the bill for
rescuing or shuttering failing lenders rests with individual
states, regulators will be loath to relax their grip, according
to current and former banking supervisors and economists.
Wall Street Journal:
- Carl Icahn Sells Half of His Netflix(NFLX) Stake, Thanks Reed, Kevin.
Like some blockbuster movies, Netflix flew out of the gates only to
bomb when the reviews rolled in on Tuesday, and even hedge-fund titan
Carl Icahn took some profits, selling roughly half his stake in the
company. Netflix’s more than $66 a share price swing on Tuesday snapped a
four-day winning streak for the high-flying video distributor and
knocked it from its perch as the best performing stock in the S&P
500. The stock ended the day down 9.2%, losing $32.47 to $322.52, its
biggest dollar drop in two years and biggest percentage fall in one
year, according to data from WSJ’s Market’s group.
- ObamaCare 2016: Happy Yet? The website problems were finally solved. But the doctor shortage is a nightmare.
Three years after the disastrous launch of the Affordable Care Act,
most of the website troubles finally have been ironed out. People are
now able to log on to the government's ACA website and to most of the
state health-insurance exchanges. The public has grudgingly come to
accept higher insurance premiums, new taxes and increases in part-time
workers who were formerly full-time. But Americans are irate
anyway—because now they're seeing the health-care law's destructive
effect on the fundamental nature of the way their care is delivered. Even before the ACA's launch in 2013, many physicians—seeing the changes
in their profession that lay ahead—had begun talking their children out
of going to medical school. After the launch, compensation fell, while
nothing in the ACA stopped lawsuits and malpractice premiums from
rising. Doctors must now see many more patients each day to meet
expenses, all while dealing with the mountains of paperwork mandated by
the health-care law.
CNBC:
- Cerberus, others explore deal for Safeway(SWY) -sources.
A handful of buyout firms, including Cerberus Capital Management, are
exploring a deal for all or part of supermarket chain Safeway, according
to people familiar with the matter, in what could potentially shape up
to be one of the largest leveraged buyouts since the financial
crisis.
- China's factory sector may contract in October. China's manufacturing sector may have slipped into a contractionary
phase in October following two months of expansion, according to
Nomura. The bank forecasts HSBC's flash Purchasing Managers'
Index (PMI), which is due out on Thursday, slipped to 49.8 in October,
below the key 50-mark which separates expansion from contraction.
Zero Hedge:
Business Insider:
Washington Post:
NY Times:
- Apple(AAPL) Targets Microsoft Office With Free Apps. At an event meant to feature its latest iPad tablet computing devices,
Apple on Tuesday took aim at one of the biggest and seemingly
unassailable businesses of its rival Microsoft, its Office software for
tasks like word processing and spreadsheets.
The Detroit News:
- Obamacare's middle-class sticker shock. Last week I got news that my health insurance
costs are going up. A lot. In 2014 my monthly premium for a family of
four will increase 15 percent to $575, my deductible will double to
$3,000 and I will lose my drug coverage, adding another $100 a month to
my expenses. My story is typical for employees of Gannett, the Detroit
News’ parent company, and other businesses across the country. Obamacare
is not just creating havoc in state exchanges, it is roiling the larger
private health insurance market. Costs are skyrocketing thanks to the
expensive mandates, regulations and taxes buried in the Affordable Car
Act. Call it the Unaffordable Care Act.
The Atlantic:
- Samsung and Starbucks(SBUX) Are 'Bullying' Chinese Customers, Says China's State TV. Chinese
state media just took aim at another foreign company: Samsung, which
happens to make the most popular smartphones in the country. Late on
Oct. 21, China Central Television (CCTV) ran a segment lambasting the
South Korean company for charging Chinese customers for repairs of
defective phones. The aim is to “protect
domestic consumers from the bullying of foreign brands,” according to a
government consultant interviewed. CCTV said software in Samsung Note
and S series smartphones causes them to crash.
Reuters:
- Nabors(NBR) results hit by tough U.S. oil service market. Nabors Industries Ltd posted a quarterly loss on Tuesday and a decline in adjusted profit as the oilfield services and drilling company grappled with an
over-supplied North American market for certain services and
older rigs.
Financial Times:
- Boom-era credit deals raise fears of overheating. Eight
years since the Pik-toggle entered the market, companies are again
using the esoteric structures, along with a host of riskier borrowing
practices associated with the buyout boom that helped inflate the
2006-07 credit bubble.
China Securities Journal:
- China
May Seek New Property Curbs in 4Q. The central government may release
new property curbs in 4Q and "hot-spot" cities may intensively announce
finetune policies, citing an analyst familiar with the matter.
China Information News:
- China Local Govts Should Set Practical 2014 Goals. Local
governments should set practical 2014 growth targets and leave room for
economic transformation, according to a report posted on the statistics
bureau's website.
Evening Recommendations
Night Trading
- Asian equity indices are -1.0% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 132.0 -1.5 basis points.
- Asia Pacific Sovereign CDS Index 100.75 -2.25 basis points.
- NASDAQ 100 futures -.31%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Import Price Index for September is estimated to rise +.2% versus unch. in August.
9:00 am EST
- House Price Index for August to rise +.8% versus a +1.0% gain in July.
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,855,00 barrels versus a +3,999,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -695,000 barrels versus a -2,570,000 barrel decline the prior week. Distillate inventories are estimated to fall by -1,540,000 barrels versus a -1,801,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.2% versus a +.2% gain the prior week.
Upcoming Splits
Other Potential Market Movers
- The HSBC China Manufacturing PMI, Bank of Canada rate decision and the weekly MBA mortgage applications report could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and
industrial shares in the region. I expect US stocks to open
mixed and to weaken into the afternoon, finishing modestly lower. The
Portfolio is 50% net long heading into the day.
