Broad Equity Market Tone:
- Advance/Decline Line: Modestly Lower
- Sector Performance: Mixed
- Market Leading Stocks: Underperforming
Equity Investor Angst:
- Volatility(VIX) 13.29 +1.53%
- Euro/Yen Carry Return Index 140.51 +.22%
- Emerging Markets Currency Volatility(VXY) 7.83 -2.37%
- S&P 500 Implied Correlation 38.45 +3.31%
- ISE Sentiment Index 182.0 +102.22%
- Total Put/Call .77 -16.30%
Credit Investor Angst:
- North American Investment Grade CDS Index 71.84 +.15%
- European Financial Sector CDS Index 122.37 -2.40%
- Western Europe Sovereign Debt CDS Index 69.33 +.48%
- Emerging Market CDS Index 260.25 -.54%
- 2-Year Swap Spread 12.75 -.25 basis point
- TED Spread 21.5 +.75 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -4.0 -.25 basis point
Economic Gauges:
- 3-Month T-Bill Yield .02% -1 basis point
- Yield Curve 221.0 +1 basis point
- China Import Iron Ore Spot $131.80/Metric Tonne -1.13%
- Citi US Economic Surprise Index 11.4 -5.6 points
- Citi Emerging Markets Economic Surprise Index -4.70 +.9 point
- 10-Year TIPS Spread 2.19 unch.
Overseas Futures:
- Nikkei Futures: Indicating -71 open in Japan
- DAX Futures: Indicating +3 open in Germany
Portfolio:
- Slightly Higher: On gains in my medical/retail sector longs and index hedges
- Market Exposure: 50% Net Long
Bloomberg:
- European Stocks Fall After Three-Week Rally as Fiat Drops.
European stocks declined, snapping a three-week rally for the Stoxx
Europe 600 Index, as U.S. factory production and home sales missed
economists’ forecasts. Fiat SpA (F) retreated 3.2 percent as JPMorgan
Chase & Co. downgraded automakers. Volvo AB slid 4.3 percent as
Natixis SA cut its rating on the Swedish truck producer. TNT Express NV,
the Dutch package-delivery company, rallied 4.3 percent after releasing
results. Mediobanca SpA (MB) climbed 3.3 percent as the
Italian investment bank reported increased profit. The Stoxx 600 slipped 0.2 percent to 319.49 at the close of
trading, erasing an earlier gain of 0.3 percent.
- Five Killed as Jeep Rams Into Crowd at Beijing’s Tiananmen. A Jeep crashed into a crowd by
Beijing’s Tiananmen Square close to where the portrait of Mao Zedong hangs, killing five people and injuring 38.
Three people in the vehicle were killed, along with tourists from the
Philippines and Guangdong province, the official Xinhua News Agency
said, citing the police. The injured included tourists from Japan and
the Philippines, it said.
- WTI Crude Rises for Third Day as Libyan Production Falls. WTI for December delivery gained 40 cents, or 0.4 percent, to $98.25 a barrel at 12:47 p.m. on the New York Mercantile Exchange. Futures touched $95.95 on Oct. 24, the lowest intraday level since June 27. The volume of all futures traded was 25
percent below the 100-day average.
- Corn Drops to Three-Year Low on Beneficial U.S. Weather. Corn futures fell to the lowest in
more than three years as dry weather improved harvest prospects
for a U.S. crop that the government estimates will be the
world’s biggest ever. Farmers probably have completed 50 percent of
the harvest
as of yesterday, up from 39 percent a week earlier, according Prime
Agricultural Consultants Inc. The U.S. Department of Agriculture will
issue its update on crop conditions later today. The agency has forecast
that output will increase 28
percent this season from last year, when drought damaged fields
across the Midwest.
MarketWatch:
- The Mother Of All Surprises. By not addressing the pace of stock-market gains, falling inflation
expectations, and the growing disconnect between asset markets and the
economy, the Fed is risking the embarrassment of potentially causing
another bubble.
CNBC:
Zero Hedge:
Business Insider:
Forbes:
- In China There's Not One City Sans Terrifying Stretches Of Empty Houses. Over the last two years of traveling constantly in China, I can say that
I have not seen a single city, town, or hamlet without massive empty
housing stock. A colleague, on two trips crossing about 1,500 kilometers
overland, said that he was not out of sight of empty buildings even
once. Up by the Siberian border, the town of Manzhouli has decided to
become a tourist resort and built thousands of empty “villa”
developments. In the southern mountains of Yunnan, a colleague took
video footage of 15 kilometers unbroken of empty highrises. The ghost
developments stretch along Beijing’s southern Fourth Ring and through
Shanghai’s Pudong and Xuhui. The East District Zhengzhou looks like a
post-apocalyptic landscape. The new districts of Harbin could earn some
revenue as sets for a remake of I Am Legend.
TheStreet.com:
Powerline:
- The Truth of Obamacare. Hundreds of thousands of Americans have already lost their health insurance due to Obamacare, and soon millions will have lost it. Conservative commentators have noted that, from all that appears, more
people have lost their health insurance than have signed up for plans in
health insurance exchanges.
Reuters:
Financial Times:
- China-Japan relations take turn for worse. When
Prime Minister Shinzo Abe told Japanese troops on Sunday that Tokyo
opposed the use of force to change the status quo in Asia, his real
audience was in Beijing. The Chinese foreign ministry responded on Monday by accusing Japan’s leaders of “repeatedly making provocative remarks” and
displaying “wild arrogance”. The Global Times, a nationalistic Communist
party mouthpiece, said the chance that friction between the powers
would “escalate into military clashes is growing”.
Telegraph:
Style Underperformer:
Sector Underperformers:
- 1) Papers -2.82% 2) Alt Energy -1.81% 3) REITs -1.16%
Stocks Falling on Unusual Volume:
- RNF, CYOU, AMCX, SDR, SOHU, NS, ROP, RIG, PER, JKS, CLVS, ADUS, EW, BITA, NOAH, YY, CSIQ, AXDX, SYNA, CROX, QIHU, DNKN, TSL, NTES, MEOH, HWAY, FSLR, SBGI and MEI
Stocks With Unusual Put Option Activity:
- 1) DOLE 2) CNX 3) BIIB 4) LYB 5) MMM
Stocks With Most Negative News Mentions:
- 1) CP 2) AMN 3) CAT 4) RIG 5) DOW
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Gold & Silver +1.69% 2) Semis +.38% 3) Agriculture +.36%
Stocks Rising on Unusual Volume:
- FRM, BMY, FIO, PBR and VNTV
Stocks With Unusual Call Option Activity:
- 1) MAS 2) PEP 3) DNDN 4) MDLZ 5) GLUU
Stocks With Most Positive News Mentions:
- 1) BKC 2) BMY 3) CF 4) MCD 5) WMT
Charts:
Weekend Headlines
Bloomberg:
- Abe Warns China on Island Spat as Japan Dispatches Fighter Jets. Prime
Minister Shinzo Abe warned he
wouldn’t permit China to use force to resolve territorial spats, as the
renewed presence of Chinese aircraft near disputed islands prompted the
dispatch of fighter jets from Japan. Japan sent up fighter jets for a third day yesterday after Chinese aircraft flew between its southern islands without
entering Japanese airspace, the Self-Defense Forces said on
their website. Abe said yesterday the country would not allow
any shift in the status quo regarding islands both governments
claim in the East China Sea. Abe made similar comments in an
interview with the Wall Street Journal on Oct. 25.
- China Seen Losing Sheen for IBM(IBM) to Nike(NKE) as Hurdles Mount. Companies
from IBM to Starbucks are struggling with new obstacles in
China as Communist Party officials tussle over the direction and depth
of economic reforms. China’s state-controlled media last week accused
Starbucks Corp. with charging too much for coffee and said Samsung
Electronics Co.’s smartphones don’t work properly. International
Business Machines Corp. IBM’s China revenue slipped 22 percent in the
third quarter, contributing to the first-ever sales decline in the
company’s
growth-markets division, as state-owned companies started delaying
orders, including mainframes and servers.
- Hong Kong Home Prices to Drop 30% by 2015-End, Barclays Says. Hong
Kong home prices will drop 30 percent by the end of 2015 as growth in
household income and rents slow while housing supply increases,
according to Barclays Plc. The bank is assigning a “negative” rating on the Hong
Kong property sector, analysts Paul Louie and Zita Qin wrote in
a report today. They also forecast office prices to fall 20
percent and retail property prices to remain unchanged over the
period, according to the report.
- Asian Stocks Post Weekly Decline on China Bank Rates, Earnings. Asian
stocks posted the biggest weekly decline since August after forecasts
from Canon Inc. to Japan Exchange Group Inc. disappointed investors and
money-market rates in China surged. Japan Exchange sank 5.8 percent in Tokyo this week after the main bourse operator in the world’s second-largest equity
market failed to boost full-year profit guidance as analysts had
expected.
- Asia Stocks Rise on Fed Bets.
Asian stocks rose, with the regional equities gauge rebounding from
last week’s decline, after weaker than forecast U.S. consumer confidence
spurred bets the Federal Reserve will maintain stimulus. CSL Ltd.
(CSL), a maker of blood-derived therapies that gets more than a third of
its sales in the U.S., advanced 2.9 percent in Sydney. Toyota Motor
Corp. gained 1 percent in Tokyo as the yen weakened against the dollar,
boosting the earnings outlook for Asia’s largest carmaker. Kingsgate
Consolidated Ltd. fell 4.7 percent in Sydney as the gold miner reported
an 18 percent drop
in quarterly output. The MSCI Asia Pacific Index gained 0.7 percent to 142.36 as
of 10:49 a.m. in Tokyo, with all 10 industry groups on the gauge
rising.
- Rebar Swings as Investors Weigh China Inventory, Winter Demand.
Steel reinforcement-bar futures in Shanghai swung between gains and
losses today as investors weighed a decline in inventory against weaker
winter demand. Rebar for delivery in May, the most-active contract by
volume on the Shanghai Futures Exchange, was little changed at
3,584 yuan ($589) a metric ton at 10:15 a.m. local time, after
gaining 0.3 percent and losing 0.2 percent.
- Copper Declines Before U.S. Output Data as China Credit Tightens.
Copper dropped before industrial output data from the U.S. and on
concern that credit is tightening in China. Lead and zinc fell for the
first time in three days. The contract for copper delivery in three
months on the London Metal Exchange dropped 0.2 percent to $7,171.25 a
metric ton at 11:47 a.m. in Tokyo. Futures lost 0.8 percent last week and are down 1.8 percent this month. Lead fell 0.5 percent to
$2,193.50 a ton and zinc slid 0.3 percent to $1,948.75 a ton.
- Euro Jobless Fault Line Festers as Italy Scars Recovery. Euro-area
jobless numbers this week may lay bare a fault line scarring the
region’s recovery as evidence of Germany’s employment muscle contrasts
with the scourge of political quagmire destroying work in Italy. While
the currency bloc’s longest-ever recession has ended, unemployment held
at 12 percent in September, according to the median of 36 forecasts
in a Bloomberg survey of economists. Within that data lies a rift
between two of its largest economies, with Italy’s rate seen by
economists to have reached 12.3 percent, the highest since records began
in 1977 -- and more than double Germany’s comparable level. Italy
will “critically determine the fate of the euro area” and the region
won’t prosper if that country can’t restore economic growth, European
Central Bank Executive Board member Joerg Asmussen said last week. Italian officials predict joblessness in the euro zone’s third-biggest economy will keep rising, against a backdrop of a fragmented coalition jeopardized by the legal woes of former premier Silvio Berlusconi. “We
are still in a very discouraging situation for most of the euro area,”
said Anatoli Annenkov, an economist at Societe Generale SA in London. “That’s particularly true for Italy,
where politics has come to a rest and necessary structural
reforms are not kicking in at all.”
- Fed Loan Warning May Hurt Riskiest Borrowers, Trade Group Says. Recommendations by top banking
regulators that lenders strengthen underwriting standards for
leveraged loans may decrease funding to the neediest borrowers,
according to Loan Syndications and Trading Association. The Federal Reserve and the Office of the Comptroller of
the Currency sent letters to some of the biggest U.S. banks
asking them to avoid arranging debt that may be classified by
regulators as having some deficiency that may result in a loss,
according to nine people with knowledge of the communication.
Wall Street Journal:
- Big Banks Are Padding Profits With 'Reserve' Cash. As Revenue Slows, Some Banks Increasingly Use Loan-Loss Reserves to Boost Income.
Federal regulators have warned banks to be careful about padding their
profits with money set aside to cover bad loans. But some of the
nation's biggest banks did more of it in the third quarter than earlier
this year. J.P. Morgan Chase JPM +0.55% & Co., Wells Fargo WFC
+0.40% & Co., Bank of America Corp. BAC +0.64% and Citigroup
Inc., C -0.18% the nation's largest banks by assets, tapped a total of
$4.9 billion in loan-loss reserves in the third quarter, up by about a
third from both the second quarter and the year-ago quarter after
adjustments.
All the banks except Citigroup showed significant increases compared
with the second quarter.
Fox News:
- 'Grand Day of Death to America' rally planned in Iran. Militant factions in Iran are reportedly planning a sweeping rally
titled, “Grand Day of Death to America,” to coincide with the 24th
anniversary of the storming of the U.S. Embassy there. According to The National, Brigadier General Masoud Jazayeri is
saying the planned Nov. 4 convocation outside the long-shuttered and
now-graffiti-covered diplomatic institution in the capitol city of
Tehran will be organized by a newly created bureaucratic body called the
“Death to the U.S. Committee.”
CNBC:
- Hilsenrath to Wall Street: You don’t know Fed.
Investors may be right to anticipate that no bombshells will emerge
from the Federal Reserve meeting this week—but as they look into next
year, it will be very difficult to predict when the Fed will begin to
taper its quantitative easing program, Jon Hilsenrath told "Futures
Now."
Business Insider:
American Thinker:
Washington Post:
- Wave of attacks hits Baghdad and northern Iraq, killing at least 66 in series of assaults. A series of attacks including car bombings in Baghdad, an explosion
at a market and a suicide assault in a northern city killed at least 66
people Sunday across Iraq, officials said, the latest in a wave of
violence washing over the country. Coordinated bombings hit Iraq multiple times each month,
feeding a spike in bloodshed that has killed more than 5,000 people
since April. The local branch of al-Qaida often takes responsibility for
the assaults, although there was no immediate claim for Sunday’s
blasts.
The Blaze:
Reuters:
USA Today:
- Israel issues warning on report on Iran bomb.
A new report that says Iran may need as little as a month to produce
enough uranium for a nuclear bomb is further evidence for why Israel
will take military action before that happens, an Israeli defense
official said Friday. "We have made it crystal clear – in all
possible forums, that Israel will not stand by and watch Iran develop
weaponry that will put us, the entire Middle East and eventually the
world, under an Iranian umbrella of terror," Danny Danon, Israel's
deputy defense minister told USA TODAY. Iran is developing and
installing new and advanced centrifuges that enable Iran to enrich even
low-enriched uranium to weapons grade uranium needed for nuclear weapons
within weeks, Danon said. "This speedy enrichment capability
will make timely detection and effective response to an Iranian nuclear
breakout increasingly difficult," he said. "Breakout" refers to the
time needed to convert low-enriched uranium to weapons-grade uranium. On
Thursday, the Institute for Science and International Security issued a
report stating that Iran could reach that breakout in as little as one
month based in part on Iran's own revelations about its nuclear program.
"If they use all their centrifuges ... and their stockpiles of low-
and medium-enriched uranium, that would take one to 1.6 months," said
David Albright, president of the institute and a former inspector for
the U.N. International Atomic Energy Agency.
Focus:
- Schaeuble Says Debt, Taxes Can't Rise With New Government. No
additional debt, no increase in taxes core to financial policy of
Chancellor Angela Merkel's bloc, German Finance Minister Wolfgang
Schaeuble said in an interview.
Weekend Recommendations
Barron's:
- Bullish commentary on (FRM), (WAG) and (KSS).
- Bearish commentary on (STP) and (MCD).
Night Trading
- Asian indices are unch. to +.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 133.0 -2.0 basis points.
- Asia Pacific Sovereign CDS Index 100.25 -.5 basis point.
- NASDAQ 100 futures +.36%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
9:15 am EST
- Industrial Production for September is estimated to rise +.4% versus a +.4% gain in August.
- Capacity Utilization for September is estimated to rise to 78.0% versus 77.8% in August.
- Manufacturing Production for September is estimated to rise +.3% versus a +.7% gain in August.
10:00 am EST
- Pending Home Sales for September are estimated unch. versus a -1.6% decline in August.
10:30 am EST
- Dallas Fed Manufacturing Activity for October is estimated to fall to 9.0 versus 12.8 in September.
Upcoming Splits
Other Potential Market Movers
- The China Leading Indicators report and the 2Y T-Note auction could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and industrial
shares in the region. I expect US stocks to open modestly higher and
to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the week.
Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.
BOTTOM LINE: I expect US stocks to finish the week modestly lower on rising global
growth fears, profit-taking, technical selling, rising
eurozone/emerging markets debt angst, more shorting and earnings
concerns. My intermediate-term trading indicators are giving neutral
signals and the Portfolio is 50% net long heading into the week.
