Today's Headlines

Bloomberg:

• Obama Says U.S. to Join EU in Tightening Russia Sanctions. The U.S. joined the European Union in stiffening sanctions on Russia over Ukraine, as the 28-member bloc offered to ease the restrictions once the Kremlin makes a good-faith effort to end the conflict. The U.S. will “deepen and broaden” measures against Russia’s financial, energy, and defense industries, President Barack Obama said in a statement today, adding that the sanctions will take effect tomorrow and details will be released then. The EU said it would also enact its latest round of economic restrictions tomorrow. Europe is acting against a peaceful solution in Ukraine, the Russian Foreign Ministry said. 
• China Auto Sales Grow at Slowest Pace in Five Months. Passenger-vehicle sales in China rose at the slowest pace since March as the economy slows and the government steps up anti-monopoly probes into foreign carmakers in the world’s biggest auto market. 
• Most European Stocks Decline as Investors Weigh Earnings. Most European stocks fell for a fifth day as investors weighed mixed earnings from companies including Ocado (OCDO) Group Plc and Next Plc, while the European Union said that new sanctions against Russia will be enacted tomorrow. Next slid the most since April after posting first-half profit that missed analyst predictions. Ocado gained after third-quarter sales grew more than analysts had estimated. Air France-KLM Group added 1.9 percent after saying it plans to increase earnings by as much as 10 percent a year between 2013 and 2017. The Stoxx Europe 600 Index fell 0.1 percent to 344.27 at the close of trading, paring earlier losses of as much as 0.6 percent.
• Commodities Fall to 5-Year Low With Plenty of Supplies. Commodities fell to a five-year low on speculation abundant supplies and slowing economic growth outside of the U.S. will curb demand for raw materials. The Bloomberg Commodity Index declined 1.2 percent by 5:06 p.m. in London to the lowest since July 2009. Brent oil traded at the cheapest since 2012, wheat, corn and soybeans retreated to four-year lows and gold slumped to a seven-month low.
• Auto-Loan Boom in U.S. Bringing More Bad Debt: Chart of the Day. Auto loans are in the midst of a U.S. boom that is coming to “the end of the road,” according to Pierre Lapointe, head of global strategy and research at Pavilion Global Markets. The amount borrowed has climbed for 15 consecutive quarters, the longest streak since 2005. The second quarter’s increase, 9.2 percent, was the biggest since 2002. “Credit quality is now deteriorating” as historically low interest rates and competition among lenders spur borrowing for car and truck purchases, Lapointe and a colleague, Alex Bellefleur, wrote in a report yesterday.
• Junk Blitz Making September Busiest Since 2008: Credit Markets. The riskiest borrowers are leading the busiest September in at least six years for speculative-grade bond sales in the U.S. as Moody’s Investors Service warns that protections in the debt are declining. J.C. Penney Co. (JCP), the retailer whose liquidity Goldman Sachs Group Inc. warned a year ago was under strain, is among issuers that have sold or are planning more than $17.5 billion in bonds this month, data compiled by Bloomberg show. AK Steel Holding Corp., which hasn’t posted an annual profit since 2008, is selling $430 million of notes. Clear Channel Communications Inc., the most leveraged U.S. broadcaster, raised $750 million. 

Wall Street Journal:

• Wilbur Ross: Deflation, Not Inflation, Is the Bigger Concern. He argued that governments–which have seen financing costs decline–have been the biggest beneficiary of QE, and not the private sector. Central banks have tended to be more focused on the dangers of inflation, he said, but with globalization, technology and a glut of government debt, “maybe deflation is what we should be fearing the most and combating the most.”

CNBC:

• A higher-ed bubble even bigger than student loans. (graph)

ZeroHedge:

• BofA(BAC) Warns "Everyone Should Pay Attention To Treasury Vol". (graph)
• Russia Responds To The Latest European Sanctions: "You Leave Us No Choice".
• Initial Jobless Claims Surge Most Since June. (graph)
• Ruble Plunges To Record Low As US Stocks Give Up Scotland "No" Poll Gains; Bond Yields Sliding. (graph)
• Ukraine Admits Resurgent Separatists Extend Control All The Way To Sea Of Azov.
• Obama's Broad Coalition Cracks - UK, Germany Won't Support Airstrikes In Syria.

Business Insider:

• Deutsche Bank Just Released A 104-Page Report On What May Be The World's Last Mega-Bubble.
• Yazidi Girl Tells Of Horrific Ordeal As An ISIS Sex Slave.
• Obama Now Owns A War He Helped Create.
• The Commodity Currencies Are Rolling Over Again. (graph)
• The New Map Of The Ukraine Conflict Is Alarming.

Reuters:

• Special Report: Scots warm to the power of Yes. In late August, Gordon Brown and Alistair Darling shared the stage as part of the push to keep Scotland in the United Kingdom. The two Scotsmen, Britain’s prime minister and finance minister between 2007 and 2010, often fought each other in office. Darling once described his old boss as “brutal and volcanic.” Brown reportedly wanted to sack Darling during the financial crisis. But now here was Brown waxing lyrical about Darling, who heads the “Better Together” campaign that is trying to convince Scots to reject independence.

Bear Radar

Style Underperformer:

• Large-Cap Growth -.50%

Sector Underperformers:

• 1) Biotech -1.51% 2) Gold & Silver -1.12% 3) Airlines -.94%

Stocks Falling on Unusual Volume:

• EOPN, INVE, VNET, MW, BRC, RH, PEIX, CROX, MBUU, GPRE, TRUE, BITA, USLA, SDRL, CCIH, MDVN, APD, REX, CBPX, ADS, CMRX, GPRO, MTDR, LEJU and MEP

Stocks With Unusual Put Option Activity:

• 1) NFX 2) S 3) RH 4) ULTA 5) IYR
  

Stocks With Most Negative News Mentions:

• 1) TSLA 2) VALE 3) ESRX 4) TIF 5) CROX
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Mid-Cap Value -.13%

Sector Outperformers:

• 1) Hospitals +1.67% 2) Gaming +1.36% 3) Retail +.57%
  

Stocks Rising on Unusual Volume:

• LULU, JDSU, WB, FNSR, AUXL, TIVO, GOGO, DGLY and LE

Stocks With Unusual Call Option Activity:

• 1) ADSK 2) KR 3) TIVO 4) OREX 5) IP

Stocks With Most Positive News Mentions:

• 1) LULU 2) BBRY 3) FB 4) HOG 5) JLL
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Thursday Watch

Evening Headlines 
Bloomberg:

• Islamic State Talked of Entering U.S. Through Mexico. Islamic State extremists have discussed infiltrating the U.S. through its southern border with Mexico, a U.S. official said. Francis Taylor, under secretary for intelligence and analysis at the Department of Homeland Security, told a Senate committee today that the Sunni militants have been tracked discussing the idea on social-media sites such as Twitter Inc. (TWTR) “There have been Twitter and social-media exchanges among ISIL adherents across the globe speaking about that as a possibility,” Taylor said in response to a question from Senator John McCain, an Arizona Republican. Islamic State is also known by the acronyms ISIL and ISIS.

• British Business Leaders Join Last-Ditch Effort to Save the U.K. Some of Britain’s best-known companies, including BP Plc (BP/), Standard Life Plc and Kingfisher Plc (KGF), made their strongest intervention yet in the battle against Scottish independence, lending support to the efforts of Prime Minister David Cameron to save the union. Ian Cheshire, chief executive officer of retailer Kingfisher, which employs 3,000 people in Scotland, urged voters not to make a mistake in a “once-in-a-lifetime decision,” arguing that independence would mean higher prices and lower investment. He predicted that other chief executives will make similar statements ahead of the vote on Sept. 18.

• EU Frets Over Russia Sanctions Amid Fragile Ukraine Truce. European Union nations are struggling to agree on a trigger for extra sanctions against Russia over its encroachment in Ukraine as a cease-fire and troop withdrawal bolster the case for holding off. EU ambassadors are due to resume deliberations on the matter today in Brussels after failing to reach a verdict yesterday. The 28-nation bloc on Sept. 8 put on hold for at least a “few days” a second package of economic penalties to assess the viability of the truce without risking further trade retaliation by the Kremlin.

• Japan Leads Asian Stock Gains as Kiwi Retreats With Wheat. Asian stocks rose, with Japan’s Topix (TPX) index extending a six-year high as the yen held losses. New Zealand’s dollar fell after the central bank said it was still unjustifiably strong, while wheat extended declines. The MSCI Asia Pacific Index added 0.1 percent by 9:51 a.m. in Tokyo, with the Topix up 0.4 percent in a fourth day of gains.

Wall Street Journal: 

• U.S. Will Lead Coalition Against Islamic State, Obama Says. President Is Authorizing Start of Airstrikes in Syria, Expanding Bombing Campaign in Iraq. President Barack Obama is authorizing the start of airstrikes in Syria and expanding the monthlong bombing campaign in Iraq to "degrade and ultimately destroy" Islamist militants who recently beheaded two Americans, he told the nation Wednesday evening. The decisions, detailed in a prime-time address on the eve of the 13th anniversary of the Sept. 11 terror attacks, would considerably deepen U.S. military involvement in the Middle East and mark an acknowledgment by Mr. Obama that the intensity of the...

• Live Scrolling Twitter Chatter: President Obama Speaks on ISIS Strategy.

• Washington Trading Probe Broadens to Hedge Funds. SEC Examines Communications Between Investors and Height Securities After Alert on Health-Insurance Policy Shift.

• Regulators Weighing New Rules for Private Trading Venues. Regulators Also Looking at Registration for Algorithmic Trading Developers. Market regulators are considering imposing additional steps to require greater transparency and disclosures by private trading platforms and heightened oversight of computerized trading strategies. The Financial Industry Regulatory Authority will weigh a new set of rules at its Sept. 19 meeting, including a proposal that would require trading platforms, including so-called dark pools, to provide additional details about buy...

• A New Threat Grows Amid Shades of 9/11. The nation remains largely unaware of the potential for disaster from cyberattacks. 

Fox News:

• Obama authorizing US airstrikes in Syria. President Obama is authorizing U.S. airstrikes in Syria, senior administration officials say, as the president used a prime-time address to the nation Wednesday to call for a comprehensive campaign to wipe out Islamic State terrorists “wherever they exist.”

Zero Hedge: 

• How The China Boom Unravels: One Person At A Time.

• Why Rates Will Stay Low (Or What Happens When You Cry "Recovery" For 5 Years In A Row).

• On The Cusp Of Exposing The Full Iceberg.

• Fear Of Terror Attack Soars to 9/11 High.

• For 90% Of Americans: There Has Been No Recovery.

• Deutsche Bank: The Bubble Must Go On To Sustain The "Current Global Financial System".

• What Petrodollar: Russia, China To Create SWIFT Alternative.

• The Era Of Widespread Biometric Indentification And Microchip Implants Is Here.

Business Insider:

• Ebola Fears Hit Australia.

NY Times:

• Short-Seller Carson Block Says He’s Wary of Alibaba. In the world of the short-seller Carson Block, any Chinese company could be a fraud. Even Alibaba. “If Alibaba wanted to defraud investors, it absolutely could,” Mr. Block, the founder of Muddy Waters Research, told an audience of accounting students and aspiring investors at Baruch College in Manhattan on Wednesday.

Financial Times: 

• Majority in China expect war with Japan. China and Japan are heading towards military conflict, according to a majority of Chinese surveyed on ties between the Asian powers in a Sino-Japanese poll. The Genron/China Daily survey found that 53 per cent of Chinese respondents – and 29 per cent of the Japanese polled – expect their nations to go to war. The poll was released ahead of the second anniversary of Japan’s move to nationalise some of the contested Senkaku Islands in the East China Sea.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.25% to +.50% on average.

• Asia Ex-Japan Investment Grade CDS Index 90.0 -1.0 basis point.

• Asia Pacific Sovereign CDS Index 63.50 +.5 basis point.

• FTSE-100 futures +.12%.

• S&P 500 futures -.15%.

• NASDAQ 100 futures  -.10%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (KR)/.69

• (ULTA)/.83 

Economic Releases
8:30 am EST

• Initial Jobless Claims are estimated to fall to 300K versus 302K the prior week.

• Continuing Claims are estimated to rise to 2490K versus 2464K prior.

2:00 pm EST

• The Monthly Budget Statement for August is estimated at -$130.0B.

Upcoming Splits

• (CLR) 2-for-1

Other Potential Market Movers

• The ECB bulletin, $13B 30Y T-Bond auction, USDA's WASDE report, weekly EIA natural gas inventory report, Bloomberg Sept. US Economic Survey, weekly Bloomberg Consumer Comfort Index, (ZU) analyst day, (BBT) investor day and the (COO) analyst day could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by real estate 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 Rising into Final Hour on Diminishing Scotland Independence Fears, Yen Weakness, Short-Covering, Biotech/Tech Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Higher
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 13.06 -3.26%

• Euro/Yen Carry Return Index 143.94 +.33%

• Emerging Markets Currency Volatility(VXY) 7.10 +1.43%

• S&P 500 Implied Correlation 49.58 -2.57%

• ISE Sentiment Index 88.0 +10.0%

• Total Put/Call .92 +4.55%

• NYSE Arms 1.0 -11.63% 

Credit Investor Angst:

• North American Investment Grade CDS Index 58.79 -1.20%

• European Financial Sector CDS Index 59.08 +.64%

• Western Europe Sovereign Debt CDS Index 28.56 +2.49%
• Asia Pacific Sovereign Debt CDS Index 63.63 +.78%

• Emerging Market CDS Index 247.61 -.16%

• China Blended Corporate Spread Index 308.22 +.39%
• 2-Year Swap Spread 22.75 +1.0 basis point

• TED Spread 21.25 -1.0 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -15.25 +.75 basis point

Economic Gauges:

• 3-Month T-Bill Yield .02% +1.0 basis point

• Yield Curve 197.0 +3.0 basis points

• China Import Iron Ore Spot $82.20/Metric Tonne -1.20%

• Citi US Economic Surprise Index 38.40 -.1 point

• Citi Emerging Markets Economic Surprise Index -12.60 -.9 basis point

• 10-Year TIPS Spread 2.11 -1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating +127 open in Japan

• DAX Futures: Indicating +33 open in Germany

Portfolio: 

• Higher: On gains in my medical/biotech/tech sector longs and emerging markets shorts

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

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:

• Ukraine Sees Russian Pullback as EU, U.S. Mull Sanctions. Ukrainian President Petro Poroshenko said Russia has withdrawn more than two-thirds of its troops from his country as the U.S. and the European Union prepare their toughest sanctions yet against the Kremlin. “According to the latest information from our intelligence unit, 70 percent of Russia’s troops have been recalled across the border,” Poroshenko said in Kiev. “This gives more hope the peace initiatives have good prospects.”
• Cheney Says Obama’s Policies Spurred Rise of Terrorists. President Barack Obama’s “disengaged” foreign policy has contributed to the rise of Islamic State militants in the Middle East and Russian aggression against Ukraine, former Vice President Dick Cheney said today. “There’s a connection between these problems, between a disengaged president and some very volatile situations abroad,” Cheney, a Republican, said during a speech to the American Enterprise Institute, a Washington-based policy research group. “We’re nearing a crisis in the decline of American military power,” he added. “It has to be addressed, and right away.”
• Europeans Once Keen on Obama Now Desert Him, Poll Shows. Europeans once keen on Barack Obama as the bringer of an era of multinational good feelings are having second thoughts about the U.S. president, a poll found. Obama’s European approval rating dropped to 64 percent, sliding for the fifth straight year from 85 percent when he took office, according to a poll released today in Brussels by the German Marshall Fund of the United States. The falling-out was most pronounced in Germany, due to outrage at National Security Agency snooping on Chancellor Angela Merkel. Obama’s numbers also slipped in France and Italy, and were unchanged in Britain.
• Barclays Cuts Euro Forecast to Most Bearish on Economy Slowdown. Barclays Plc lowered its one-year euro forecast to the most bearish of Wall Street banks as the currency union’s economy deteriorates and as increasingly aggressive monetary policy signals further depreciation.
• European Stocks Little Changed as Investors Weigh ECB. Lingering questions about whether the European Central Bank’s stimulus measures will kickstart the region’s stagnant economy outweighed prospects for peace in Ukraine, keeping investors in European stocks on the sidelines. The benchmark Stoxx Europe 600 Index slipped less than 0.1 percent to 344.7 at the close, after falling as much as 0.6 percent in intra-day trading. The gauge has declined 1.2 percent since reaching a two-month high on Sept. 4.
• Commodities Fall to 8-Month Low as Brent Stays Below $100. Commodities dropped to an eight-month low as signs of abundant supplies and slowing economic growth curbed demand for raw materials. The Bloomberg Commodity Index of 22 raw materials fell 0.3 percent by 3:24 p.m. in London after earlier declining 0.4 percent to 122.9665, the lowest since Jan. 10. The gauge declined 2.1 percent this year. Brent oil traded below $100 a barrel for a third day.
• Top LBO Fund Investors Pile on Leverage to Boost Returns. Some of the world’s biggest investors in leveraged-buyout funds are themselves using unprecedented levels of debt to boost returns. “Leverage is a double-edged sword,” said Oliver Gottschalg, a professor at French business school HEC Paris. “It can boost the performance on the upside and rapidly eat into capital on the downside. The more leverage you apply, the more extreme the outcome will be for the investor.”
• Profit-Margin Peak Points to U.S. Stock Shift: Chart of the Day. (graph) Profitability at U.S. companies may have reached its peak for the current economic expansion, according to Sean Darby, Jefferies Group Inc.’s chief global equity strategist. 
• BofA(BAC) Trading Executives Leave Firm as Job Cuts Loom. Bank of America Corp. trading executives David Moore and David Hartney departed as the firm prepares to eliminate fixed-income and equities jobs worldwide, according to people with knowledge of the moves. 

Wall Street Journal:

• Emerging-Market Currencies Slide on Fed Rate Jitters. Investors Brace For Potential Rise in U.S. Interest Rates in 2015.

Barron's:

• Will Hedge Funds Advertise?

ZeroHedge: 

• Russian Retaliation Begins: Gazprom "Limiting EU Gas", Cuts Poland Supplies By 24% In Past Two Days.
• Scotland De-Escalation: Stocks Jump As Latest Poll Reveals Majority "No" Vote.
• Islamic State's Ultimate Goal: Saudi Arabia's Oil Wells.
• Germany Openly Hostile To Putting Frenchman In Charge Of European Financial Affairs.
• Rates Rise By The Tiniest Amount, And This Happens... (graph)
• There Goes GDP: Wholesale Inventories Miss, Weakest Since May 2013. (graph)

Business Insider: 

• Wall Street's Big Brazil Trade Is A Total Farce.
• Another Top Wall Street Strategist Abandons Her Bearish Stock Market Call.

Reuters:

• U.S. mortgage applications fall to lowest since Dec 2000 -MBA. Applications for U.S. home mortgages fell last week to the lowest since December 2000 as interest rates rose for the first time in four weeks, an industry group said on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 7.2 percent in the week ended Sept. 5. The MBA's seasonally adjusted index of refinancing applications dropped 10.7 percent to the lowest since November 2008, while the gauge of loan requests for home purchases, a leading indicator of home sales, fell 2.6 percent.