Stocks Falling into Final Hour on Global Growth Fears, Rising Emerging Markets/European Debt Angst, Technical Selling, Commodity/Homebuilding Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Every Sector Declining
  

• Volume: Slightly Above Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 13.82 +14.12%

• Euro/Yen Carry Return Index 145.81 -.20%

• Emerging Markets Currency Volatility(VXY) 7.40 +1.47%

• S&P 500 Implied Correlation 51.64 +15.35%

• ISE Sentiment Index 57.0 -29.63%

• Total Put/Call 1.07 +30.48%

• NYSE Arms 1.13 +24.04% 

Credit Investor Angst:

• North American Investment Grade CDS Index 58.23 +3.75%

• European Financial Sector CDS Index 57.94 +2.43%

• Western Europe Sovereign Debt CDS Index 26.52 -1.03%

• Asia Pacific Sovereign Debt CDS Index 63.23 +1.0%

• Emerging Market CDS Index 223.28 +.90%

• China Blended Corporate Spread Index 305.21 -.05%

• 2-Year Swap Spread 24.50 +.5 basis point

• TED Spread 22.25 -.75 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -10.25 +1.0 basis point

Economic Gauges:

• 3-Month T-Bill Yield .00% -1.0 basis point

• Yield Curve 202.0 unch.

• China Import Iron Ore Spot $79.80/Metric Tonne -2.33%

• Citi US Economic Surprise Index 21.0 +1.0 point

• Citi Emerging Markets Economic Surprise Index -21.80 -.2 point

• 10-Year TIPS Spread 1.99 -4.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating -95 open in Japan

• DAX Futures: Indicating -12 open in Germany

Portfolio: 

• Slightly Lower: On losses in my retail/biotech/tech sector longs

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 25% Net Long

Today's Headlines

Bloomberg:

• Obama’s Words on Islamic Militants Come Back to Haunt Him. For criticism of President Barack Obama’s offensive against Islamic State, look no farther than the president’s own words. In January, he dismissed the Islamic militants as “a jayvee team,” amateurs who posed little threat. In August, he derided the Syrian rebels who now will be key allies as “former doctors, farmers, pharmacists” with less capacity to fight than needed.
• World Bank Says Ebola’s Spread May Have Catastrophic Cost. The World Bank warned that the economic costs of the Ebola outbreak in West Africa will escalate to “catastrophic” proportions if the virus spreads, while Ghanaian President John Dramani Mahama criticized the international response to the disease.
• Weak Yen Puts Japan at Risk, Says Ex-BOJ Deputy Iwata. Japan is in danger of falling into a recession as the yen’s decline reduces the purchasing power of households and squeezes corporate profits, said a former deputy governor of the Bank of Japan. “The current yen weakness is slightly excessive,” Kazumasa Iwata, the deputy from 2003-2008, said in an interview on Sept. 19 in Tokyo. “Abenomics entails the risk of ‘beggar thyself’ consequences and signs are already emerging.” 
• Most Influential 50 Are the Bankers, Investors Who Move Markets.
• Tesco Starts Accounting Probe of Inflated Profit Forecast. (video) Tesco Plc started a probe of accounting practices and suspended four executives, including its U.K. chief, after overstating its first-half profit estimate. The shares plunged as much as 12 percent to their lowest in more than a decade after the biggest British supermarket chain said that some income was booked before being earned and costs were recognized later than incurred.
• Brazil Growth Slowing as Lula China Policy Sows Doubts. In 2004, Brazil’s then-President Luiz Inacio Lula da Silva and 400 executives went on a six-day trip to China. The mission was simple: Encourage companies to strengthen ties with the Asian nation to bolster growth at home. A decade later, ties between Brazil and China have never been stronger. Growth at home is stagnant. 
• Emerging Stocks Fall to 15-Week Low on China as Ibovespa Drops. Emerging-market stocks fell to the lowest in 15 weeks after China’s finance minister damped speculation that the government will boost stimulus in the world’s second-largest economy. The MSCI Emerging Markets Index dropped 1.3 percent to 1,040.01 at 11:04 a.m. in New York. PetroChina Co. (857) led a gauge of Hong Kong-traded Chinese shares to a two-month low. OAO Alrosa, Russia’s largest diamond producer, decreased 3 percent after its chief executive officer stepped down. Iron-ore producer Vale SA, whose top export market is China, fell to the lowest since December 2008 as Brazil’s Ibovespa declined the most among the world’s equity benchmarks.
• European Stocks Fall Amid China Concern as Tesco Slides. European stocks fell the most in more than three weeks as China’s finance minister damped speculation his government will boost economic stimulus. Commodities producers dropped the most among 19 industry groups. Tesco Plc slumped to its lowest price since 2003 as it started an investigation into its accounting practices after overstating its guidance for first-half earnings by about 250 million pounds ($408 million). Cermaq ASA jumped the most since May 2013 after Mitsubishi Corp. offered to buy it. Merck KGaA rose 4.4 percent after agreeing to purchase Sigma-Aldrich Corp. The Stoxx Europe 600 Index declined 0.5 percent to 346.69 at the close of trading in London after earlier paring losses to 0.2 percent.
• Brent Declines on Concern China Growth Slowing; WTI Drops. Brent for November settlement slipped $1.83, or 1.9 percent, to $96.56 a barrel on the London-based ICE Futures Europe exchange at 12:02 p.m. New York time. The volume of all futures traded was about 26 percent below the 100-day average for the time of day.
• Subprime Lending. Not that many years ago, subprime loans almost brought down the global economy. The financial world collectively vowed to never again go overboard advancing money to people considered unlikely to pay it back. But in the U.S., some forms of subprime are on the rise again, primarily in auto loans and also in small-business lending.
• Dudley Says Financial Stability Definitely on Fed’s Radar. The Federal Reserve is on the lookout for signs of asset-price bubbles, and financial stability is a necessary condition for effective monetary policy, said William C. Dudley, president of the Federal Reserve Bank of New York. “I think we do need to try to identify asset bubbles in real time,” Dudley said today at the Bloomberg Markets Most Influential Summit in New York. “You can’t have an effective monetary policy if you have financial instability.”
• Tiger’s Robertson Says Bond Bubble to End in ’Very Bad Way’. Julian Robertson, the billionaire founder of Tiger Management LLC, said there’s a bubble in bonds that will end “in a very bad way.” “Bonds are at ridiculous levels,” Robertson said today at the Bloomberg Markets Most Influential Summit in New York. “It’s a worldwide phenomenon that governments are buying bonds to keep their countries moving along economically.”
• Insider Buying Dries Up Defying $275 Billion of Buybacks. American companies have seldom spent more money than they are now buying back shares. The same can’t be said for their executives. A total of 7,181 insiders bought their own stock this year through Sept. 12 and 23,323 sold shares, according to data compiled by Bloomberg and Washington Service. The ratio of buys to sells is near the lowest since 2000. At the same time, corporate repurchases reached $275 billion in the first half of the year, the second busiest since S&P Dow Jones Indices began tracking the data in 1998. 
• Small-Cap Selloff Leaves Fewer Stocks Shouldering Rally. The biggest tumble for smaller companies in seven weeks underscored weakening breadth in the American bull market two weeks after its 5 1/2-year birthday. Shares tracked by the Russell 2000 Index (RTY) slid 1.5 percent, bringing the decline since Sept. 18 to 2.6 percent, the largest retreat since Aug. 1. While the Russell 3000 Index touched an intraday record at the end of last week, fewer than 55 percent of its components traded above their 200-day moving average, a combination that hasn’t happened since the peak of the dot-com bubble, according to MKM Partners LLC.

Wall Street Journal:

• Kurds, Islamic State Fight for Control of Syrian City. Number of Syrians Fleeing the Heavy Fighting Into Turkey Reaches 130,000.

CNBC: 

• Time to worry? Russell 2000 hits 'death cross'.
• Market a little bit tired, investing pro says.

ZeroHedge:

• BofAML Repeats Art Cashin's Concerns Of A September Seasonal Slump. (graph)
• China's Economy Slams On The Brakes: 30% Of Coal Miners Unable To Pay Employees On Time. (graph)
• US Stocks Give Up "Dovish FOMC" Gains As Russell 2000 Completes "Death Cross". (graph)
• Albert Edwards Presents "The Most Important Chart For Investors". (graph)
• Where The Housing "Recovery" Is, In One Chart. (graph)
• Existing Home Sales Drop Most Since Jan; Biggest Miss Since Nov 2013. (graph)
• This Is How Italy "Fixes" Its Unsustainable Debt Problem.

Business Insider: 

• Everything We Know About The Mysterious Fake Cell Towers Across The US That Could Be Tapping Your Phone.
• China's Scotch Indicator Is Signaling Disaster. The Scotch Whisky Association published its global figure for the first half of this year, and consumption is way down in China. Exports to Singapore and China are down 46% according to the organization. They were declined 19.2% in the second half of 2013.
• Shi'ite Rebels Have Taken Over Yemen's Capital, As Another Middle East Country Implodes.

Bear Radar

Style Underperformer:

• Small-Cap Growth -1.72%

Sector Underperformers:

• 1) Steel -3.11% 2) Gaming -3.01% 3) Homebuilders -2.33%

Stocks Falling on Unusual Volume:

• CRR, TRS, E, IGA, AZO, INVN, YHOO, WATT, UBNT, FINL, CAF, WTS, NMM, WBK, VALE, TRP, TARO, CFX, PBA, BHP, FNV, VNR, VNOM, CLF, TNXP, RLGY, PIR, TRIP, REXX, ZINC and SCCO

Stocks With Unusual Put Option Activity:

• 1) XLB 2) XRT 3) JOY 4) XLP 5) FCX
  

Stocks With Most Negative News Mentions:

• 1) CRR 2) AZO 3) GM 4) LVS 5) FINL
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Value -.70%

Sector Outperformers:

• 1) Tobacco -.34% 2) Drugs -.38% 3) HMOs -.51%
  

Stocks Rising on Unusual Volume:

• SIAL, CLX, ADHD, THOR, TKMR and LCI

Stocks With Unusual Call Option Activity:

• 1) GDP 2) UBNT 3) EMC 4) MAT 5) CL

Stocks With Most Positive News Mentions:

• 1) T 2) EMC 3) DRC 4) SIAL 5) BOBE
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Monday Watch

Weekend Headlines 
Bloomberg:

• Ukraine Clashes Test Truce as Russian Oppositon Protests. Ukraine’s truce was tested by battles between government forces and separatists as Russia’s opposition held a peace march to protest President Vladimir Putin’s policy in the neighboring country. The government in Kiev and the rebels traded accusations of cease-fire violations even after they agreed to create a buffer zone to strengthen the pact. In Moscow and St. Petersburg, the demonstrations ended without serious incident. Estimates about the size of the crowd in the Russian capital ranged from 5,000 people, according to police, to 100,000, cited by Boris Nemtsov, a protest leader.

• Global Finance Chiefs Said to Warn of Growing Economic Risks. Group of 20 finance chiefs will warn that risks to the global economy have increased in recent months, an official said, citing the latest draft of a communique due to be released today. Finance ministers and central bank governors meeting in Cairns, Australia, will acknowledge in the statement that the outlook is uneven among countries, the official from a G-20 nation said yesterday, asking not to be identified because the document hasn’t been made public. G-20 economies today will also commit to taking growth-boosting measures to spur recovery.

• Asia May Need to Sacrifice Growth to Cope With Fed, Basri Says. Asia’s developing nations may have to sacrifice some growth next year and focus on keeping their economies stable amid potential fallout from higher U.S. interest rates, Indonesian Finance Minister Chatib Basri said. Capital outflows are a threat facing emerging markets as the prospect of the Federal Reserve lifting rates lures funds, Basri said in an interview yesterday in Cairns, Australia, where Group of 20 finance chiefs met. In Indonesia, where the benchmark rate is already at its highest since 2009, policy makers may have to tighten further to preserve the nation’s relative appeal to investors, he said.

• Nikkei Crash a Risk Seen by Posen If Abe Blinks on Tax-Rise Plan. On the wall of economist Adam Posen’s Washington office hangs a framed poster of Akira Kurosawa’s 1954 film classic, “Seven Samurai.” The memento speaks to Posen’s love of Japan, born in his days as a student and since manifested in his career, through books on the nation’s economic woes and trips to Tokyo to advise its policy makers. In a study published in June 2010, he even blended cultural and economic analysis to show what lessons “Seven Samurai” carries for central bankers.

• Weidmann Says Governments Must Take Lead Amid ECB Policy Limits. European Central Bank Governing Council member Jens Weidmann said monetary policy can only play a limited role in fostering growth, encouraging governments to press ahead with structural reforms. European countries with high debt levels should focus on a “credible path toward sustainable public finances” and restructure their economies to increase competitiveness, Weidmann told Bloomberg News in Cairns, Australia, where he is attending a Group of 20 meeting of finance chiefs. “Monetary policy should not be overburdened and asked to do tricks it cannot deliver,” Weidmann said. It “should also not be expansionary for longer than necessary to ensure price stability as we should not forget that the loose monetary policy also creates risks and comes with side effects,” he said.

• Chinese H Shares Fall to Two-Month Low as PetroChina Leads Slump. A gauge of Chinese stocks traded in Hong Kong fell, heading for its lowest close in two months, led by a retreat in energy shares. PetroChina Co. and China Petroleum & Chemical Corp. both slumped 2.1 percent in the city. China Galaxy Securities Co., a Hong Kong-listed broker part-owned by China’s sovereign wealth fund, tumbled 4.3 percent after saying its fixed-income chief Dai Xu and two other employees are cooperating with the nation’s judicial authority. Agile Property Holdings Ltd. plunged 7.1 percent after announcing a rights offer. The Hang Seng China Enterprises Index dropped 1.6 percent to 10,612.95 at 9:46 a.m. in Hong Kong. The MSCI China Index slid 1.4 percent, while the Shanghai Composite Index (SHCOMP) fell 1 percent.

• Most Asian Stocks Fall as SoftBank Slides; Kiwi Advances. Most Asian stocks fell, as SoftBank Corp. drove Japan’s Nikkei 225 Stock Average lower after Alibaba (BABA) Group Holding Ltd’s U.S. trading debut. New Zealand’s shares and currency gained after the government was returned in an election, while Brent crude fell with copper. The MSCI Asia Pacific Index dropped 0.1 percent by 9:59 a.m. in Tokyo, with the Nikkei 225 declining the first time in three days as SoftBank, Alibaba’s biggest shareholder, slid the most in a month.

• Corn Declines With Soybeans to 2010 Lows on Increasing Supplies. Corn and soybeans extended a slump to the lowest levels since 2010 on expectations that harvests in the U.S., the world’s biggest grower of the crops, will reach records. Wheat rebounded from a four-year low. Corn for December delivery lost 0.4 percent to $3.3025 a bushel on the Chicago Board of Trade, the lowest for a most-active contract since June 2010. Soybean futures for November dropped as much as 1 percent to $9.4725 a bushel, the lowest since July 2010, and were at $9.485 by 9:30 a.m. in Singapore.

Wall Street Journal:

• EMC(EMC) Weighs Merger, Other Options. Pressed by Activist and With CEO Expected to Retire, Data-Storage Giant Reaches Crossroad.

• Financial Elite's Offspring Start Their Own Hedge Funds.

• People's Climate Demarche. The anticarbon campaign stalls even at the United Nations.

CNBC:

• Blackstone(BX) to pull out of Russia. US private equity group Blackstone is "giving up on Russia", highlighting how even well-connected western investors are shying away from doing business in the country.

Zero Hedge:

• Citi(C) Asks "Who Is Levering Up?", Answers "Everyone" And Finds Median Leverage Has Never Been Higher. (graph)

• Algos Gone Wild: BABA "Glitch" Halted 7 Seconds, "100s Of Flash Crashes" Into Close. (graph)

• 5 Things To Ponder: The Fed.

• First CalPERS, Now Texas Teachers Cut Hedge Fund Exposure.

• Quantitative Proof The Fed Is Destroying The Middle Class. (graph)

• Exponential: Ebola Cases Now Double Every 3 Weeks; CDC Warns As Many As Half A Million May Be Infected Soon.

• Military Plant In East Ukraine Devastated By Massive Explosion; Kiev Accuses Russia Of Using Tactial Nuke.

• AP Reveals 8 Ways Obama's "Most Transparent Administration Ever" Blocks Information.

• Meanwhile, Here's What The "Super-Rich" Are Rushing To Buy.

• Greenspan's "Irrational Exuberance" Warning In Context. (graph)

• USDJPY Opens At 6-Year Highs, Extreme 'Relative Strength' Signals 30% Drop Potential. (graph)

• The US Ponzi Economy. (graph)

• Global Leading Indicator Plunges To Economic "Slowdown", Goldman Warns. (graph)

• We Are Living In A State Of Keynesian "Bliss".

Business Insider:

• Another Huge Middle Eastern Country With An Al Qaeda Franchise Is On The Verge Of Exploding.

• 6 Russian Fighter Jets Were Intercepted Near Alaska.

• Catalonian Separatists Aren't Fazed By Scotland's 'No' Vote.

• Alibaba Is Already The Fourth Most Valuable Technology Company In The World.

• China Is Trying To Build A New World Order.

• Retired Head Of Marine Corps: Obama’s ISIS Strategy Doesn’t Have ‘A Snowball’s Chance In Hell Of Succeeding’.

• Nude Photos Of Kim Kardashian, Hope Solo Leak In Massive Second Release From Hackers.

• Ukraine Is On The Brink Of Total Economic Collapse.

• Fleckenstein Goes After CNBC Anchor And Her Rabid Colleagues For Talking Up A Happy Future 'When There's No Shot That That Happens'.

• ISIS Militants Are Rampaging Through Kurdish Towns On The Syria-Turkey Border.

• French And German Visions For Europe Are On A Crash Course.

NY Times:

• China and Iran to Conduct Joint Naval Exercises in the Persian Gulf.

Reuters:

• Siemens near deal to buy Dresser-Rand: Sources. The German industrial conglomerate Siemens AG is near an agreement to acquire U.S. oilfield equipment maker Dresser-Rand Group for all cash, people familiar with the matter said on Sunday. A deal for Dresser-Rand, which has a market capitalization of more than $6 billion, could come as soon as Monday, some of them said.

• Alibaba(BABA) issues additional shares to raise IPO total to $25 billion-report.

• Short sellers target China, this time from the shadows. Short-sellers who profit from stock price declines have resumed targeting Chinese companies after a three-year lull, but many of the researchers who instigate the strategy are now cloaked in anonymity, shielding themselves from angry companies and Beijing's counter-investigations.

Financial Times: 

• China risks ‘balance-sheet recession’ as stimulus impact wanes. China has launched a fresh effort to boost its flagging economy with cash injections by the central bank, but signs are mounting that monetary stimulus is losing its effectiveness as debt-ridden companies lose their appetite for borrowing even at low rates. 

• Europe groups fear being caught in US tax crackdown. European multinationals have launched a rearguard effort in Washington to prevent them becoming unintended victims of a US crackdown on tax-driven international mergers.

Telegraph:

• Europe will never be the same after Scot vote, nor will British euroscepticism. Scottish nationalism has lit the blue touch paper beneath Europe's separtist fault lines.

• The solution to Italy’s woes is quite simple – leave the euro. Unless something big starts to change soon, Italy is on course for the mother and father of a sovereign default.

• 10 warning signs of global financial meltdown. Stock markets and investors around the world have enjoyed record gains but the clouds are gathering.  

Sueddeutsche Zeitung:

• German Industry Group Cuts Economy Growth Forecast. German economy to grow 1.5% rather than 2% as projected earlier, citing Ulrich Grillo, president of Federation of German Industry. Crises in Ukraine, Middle East hurt German economy, citing Grillo. Growth to become increasingly volatile because of German economy's international ties, he said. Russian sanction and countersanctions "really hurt" German companies, Grillo said.

Wirtschaftswoche:

• ECB Not Currently Planning Quantitative Easing, Noyer Says. ECB not currently planning to loosen its stability policy or to buy government bonds, citing ECB Governing Council member Christian Noyer. ECB to to monitor financial market reaction, including lending and effect of new interest rates, to monetary policy measures taken in June and Sept. before even considering QE, Noyer said. Noyer agrees with Bundesbank's Weidmann's criticism of asset-backed security program; ECB has to verify quality of loan securitizations before purchase. Noyer doesn't see deflation in euro zone.

Night Trading

• Asian indices are -1.0% to unch. on average.

• Asia Ex-Japan Investment Grade CDS Index 90.5 -.5 basis point.

• Asia Pacific Sovereign CDS Index 62.50 -1.0 basis point.

• FTSE-100 futures -.33%.

• S&P 500 futures -.44%.

• NASDAQ 100 futures -.44%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AZO)/11.26

Economic Releases
8:30 am EST

• The Chicago Fed National Activity Index for August is estimated to fall to .33 versus .39 in July.

10:00 am EST

• Existing Home Sales for August are estimated to rise to 5.2M versus 5.15M in July.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Kocherlakota speaking, Fed's Dudley speaking, Fed's George speaking, HSBC China Manufacturing PMI, (TOT) investor day and the Citi Industrial Conference could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by technology and financial shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the week.

Weekly Outlook

Week Ahead (audio) by Bloomberg. 
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 Russia-Ukraine/Mideast tensions, rising European/Emerging Markets debt angst, global growth worries, Fed rate hike concerns, profit-taking and technical selling. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 50% net long heading into the week.