Thursday Watch

Evening Headlines 
Bloomberg: 

• Islamic State Oil in Syria Said to Be Hit by U.S. Strikes. U.S. and Arab warplanes struck small oil refineries in eastern Syria controlled by Islamic State to reduce the extremist Sunni group’s revenue and impede its mobility, the Pentagon said. Thirteen strikes by the U.S., Saudi Arabia and the United Arab Emirates used manned aircraft and drones to attack 12 “modular” refineries used by Islamic State in its oil-smuggling operations, U.S. Central Command said today in an e-mailed statement. Initial indications were that the strikes succeeded, the command said.

• Japan Steps Up Russia Sanctions, Protests Island Visit. Japan announced new sanctions on Russia, and lodged a protest after a senior official visited an island claimed by both nations, adding to tensions that have delayed a visit by Russian President Vladimir Putin to Tokyo. 

• China Steel Mills Hawk Rebar on Alibaba to Export Surplus. A glut in the world’s biggest steel-making country means that prices for basic products like rebar used in construction have collapsed, so Tangshan Donghua is targeting buyers outside China who pay more. The company now ships as much as 40 percent of its output everywhere from Southeast Asia to South America to the Middle East, and wants to expand exports even further.

• Goldman(GS) Sees Japan Stocks Dropping as Abe Runs Out of Tools. Japan Prime Minister Shinzo Abe is running out of policy options to extend a rally that sent stocks to a six-year high, according to Goldman Sachs Group Inc. Investors have largely factored in more share-buying by the nation’s $1.2 trillion Government Pension Investment Fund and further fiscal and monetary stimulus to counter the deepest economic contraction in five years, Kathy Matsui, chief Japan strategist at the brokerage, said in an interview in Tokyo on Sept. 19. Goldman Sachs cut Japanese equities to underweight for the next three months on Sept. 5, projecting the Topix index will slide 5.7 percent from yesterday’s close in the period.

• Vietnam Growth Worst Since 1980s Seen on Credit Crunch: Economy. 

• Asian Stocks Outside Japan Fall as Kiwi Plunges With Gold. Asian stocks outside Japan slipped and the dollar climbed after a four-year high as surging U.S. new-home sales signaled improvement in the world’s biggest economy. Gold retreated and New Zealand’s dollar slid after the central bank said again that its strength is unjustified. The MSCI Asia Pacific excluding Japan Index dropped 0.3 percent at 12:18 p.m. in Tokyo, as Chinese shares in Hong Kong dropped after the country’s foreign exchange watchdog said it uncovered $10 billion of trade fraud.

• BlackRock Junk-Bond ETF Sinks as Debt Yield Spikes. A slump in the U.S. junk-bond market stretched into a third day as the biggest exchange-traded fund that buys the debt fell toward the lowest level this year and yields climbed to the highest since October. 

Wall Street Journal:

• Authors Group Will Ask Justice Department to Probe Amazon(AMZN). A group of authors protesting Amazon.com ongoing contract negotiation with publisher Hachette Book Group plans to ask the Justice Department to investigate the retailer’s business practices.

• As Doctors Lose Clout, Drug Firms Redirect the Sales Call. At Big Hospital Systems, Salespeople Woo Administrators to Get on 'Formulary'.

• Deal With Saudis Paved Way for Syrian Airstrikes. Talks With Saudi Arabia Were Linchpin in U.S. Efforts to Get Arab States Into Fight Against Islamic State. 

• Junk-Bond Investors Start to See Warning Signs. Some Pare Riskiest Holdings as They Gird for Long-Running Rally to Falter. Brian Kloss isn't letting buoyant markets and U.S. economic expansion dull his sense of danger. Mr. Kloss, a portfolio manager who helps oversee junk bonds at Brandywine Global Investment Management, has been selling bonds from companies with some of the lowest ratings and highest levels of debt, or leverage. He's doing so despite a long-running rally in so-called junk bonds at a time when many analysts forecast that U.S. growth...

• The Big Money Democrats. The liberal superrich may save the Senate for Harry Reid. Harry Reid and his fellow Democrats have made a campaign fetish of denouncing the Koch brothers and other rich conservative donors for allegedly buying elections. This turns out to be one of the great misdirection plays of all time because big money might save the Democratic Senate majority in November.

Fox News:

• Climate change? China rebuts Obama. While President Obama challenged China at the United Nations to follow the U.S. lead in pushing for drastic reductions in national carbon emissions to save the planet from “climate change,” it appears that China has dramatically different ideas. As in: no.

• Kurds issue desperate plea from Syrian border town as ISIS closes in. Even as U.S. airstrikes continued to pound Islamic State positions in Syria, Kurdish fighters told FoxNews.com the terror organization was advancing on the Syrian town of Kobani, where as many as 400,000 residents and refugees are holed up. “Tell the world what is happening” said Rooz Bahjat, a senior Kurdish military officer said Wednesday by phone. “This could be a massacre if no help arrives.”

Zero Hedge: 

• The Chart No Fed-Loving Equity Bull Wants You To See. (graph)

• Meet The World's Largest Subprime Debtor. (graph)

• Forget The "Alibaba Top" - This Is The Chart Everyone Is Watching. (graph)

• What The Fed's "Crystal Ball" Says Is The Reason For The Worst Recovery Ever. (graph)

• The PunchLine: Dislocation, Dislocation, Dislocation.

Business Insider:

• Expectations For Inflation Have Tumbled To Multi-Year Lows. (graph)

• NYSE Margin Debt Is Drifting Higher Again. (graph)

Reuters:

• Your medical record is worth more to hackers than your credit card. Your medical information is worth 10 times more than your credit card number on the black market. Last month, the FBI warned healthcare providers to guard against cyber attacks after one of the largest U.S. hospital operators, Community Health Systems Inc, said Chinese hackers had broken into its computer network and stolen the personal information of 4.5 million patients.

Financial Times:

• ‘Supranationals’ borrow at record levels. The effects of the global financial crisis have pushed “supranational” organisations such as the World Bank to issue record levels of debt to international investors. Pan-national borrowers such as the European Investment Bank, World Bank and Inter-American Development Bank have raised $219bn on global debt markets so far this year – the largest sum ever raised at this point in the year, according to data from Dealogic.

Voice of Russia:

• Xi Says China Won't Support Russia Sanctions. President Xi Jinping said China will never support nor participate in sanctions against Russia no matter how much pressure China faces, citing Russian Federation Council Chairman Valentina Matviyenko, who made comments to reporters after meeting Xi Sept. 23.

Evening Recommendations

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 95.0 -1.0 basis point.

• Asia Pacific Sovereign CDS Index 63.75 -1.25 basis points.

• FTSE-100 futures unch.

• S&P 500 futures -.10%.

• NASDAQ 100 futures  -.10%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (SCHL)/-.84

• (NKE)/.88

• (DMND)/.15

• (MU)/.81

Economic Releases
8:30 am EST

• Initial Jobless Claims are estimated to rise to 296K versus 280K the prior week. 

• Continuing Claims are estimated to rise to 2440K versus 2429K prior.

• Durable Goods Orders for August are estimated to fall -18.0% versus a +22.6% gain in July.

• Durables Ex Transports for August are estimated to rise +.6% versus a -.8% decline in July.

• Cap Goods Orders Non-Defense Orders Non-Defense Ex Air for  August are estimated to rise +.4% versus a -.5% decline in July.

9:45 am EST

• Preliminary Markit US Services PMI is estimated to fall to 59.2 versus 59.5 in August.

11:00 am EST

• Kansas City Fed Manufacturing Activity for September is estimated to rise to 6.0 versus 3.0 in August.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Lockhart speaking, Japan CPI, $29B 7Y T-Note auction, weekly Bloomberg Consumer Comfort Index and the weekly EIA natural gas inventory report could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and financial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 50% net long heading into the day.

Stocks Surging into Final Hour on Central Bank Hopes, Less Eurozone/Emerging Markets Debt Angst, Short-Covering, Retail/Biotech Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Almost Sector Rising
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 13.57 -9.11%

• Euro/Yen Carry Return Index 145.47 -.39%

• Emerging Markets Currency Volatility(VXY) 7.27 -1.62%

• S&P 500 Implied Correlation 48.57 -12.02%

• ISE Sentiment Index 110.0 +50.68%

• Total Put/Call .83 -17.82%

• NYSE Arms .70 -37.59% 

Credit Investor Angst:

• North American Investment Grade CDS Index 58.92 -2.93%

• European Financial Sector CDS Index 58.35 -2.19%

• Western Europe Sovereign Debt CDS Index 27.83 -1.64%
• Asia Pacific Sovereign Debt CDS Index 64.72 -.54%

• Emerging Market CDS Index 249.51 -2.37%

• China Blended Corporate Spread Index 310.22 +.77%
• 2-Year Swap Spread 21.75 -3.0 basis points

• TED Spread 23.0 +.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -8.5 -.25 basis point

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.

• Yield Curve 198.0 -2.0 basis points

• China Import Iron Ore Spot $79.40/Metric Tonne unch.

• Citi US Economic Surprise Index 26.90 +5.8 points

• Citi Emerging Markets Economic Surprise Index -17.10 +1.5 points

• 10-Year TIPS Spread 2.04 +2.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating +135 open in Japan

• DAX Futures: Indicating +20 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg:

• A Month of Bombs Dropped in One Night of Strikes on Syria. The U.S. continued to drop bombs and missiles on Islamic State positions in Syria today as the munitions used in a few days rivaled the total in the first month of attacks on the extremist group in Iraq. Five airstrikes using attack, bomber and fighter aircraft were conducted late yesterday and today, destroying eight vehicles in Syria northwest of Al Qa’im as well as armed vehicles and a weapons cache near Baghdad and fighting positions southeast of Erbil, according to a statement from U.S. Central Command. 
• French Hostage Beheaded by Algerian Kidnappers, Hollande Says.
• Russia Threatens Foreign Media Ownership With New Rules. Russian lawmakers gave preliminary approval to a bill that would restrict foreign ownership of media, increasing pressure on independent publications in an industry where state control has grown under Vladimir Putin. The State Duma, the lower house of parliament, yesterday backed a first reading of the law, which would cut the limit for foreign ownership to 20 percent, by 434 votes to 1. Forbes Russia and the Vedomosti newspaper are among publications that would have to change ownership or close by 2017.
• German Business Confidence Drops for Fifth Month. German business confidence fell more than analysts forecast in September as economic and political risks in the euro area increase. The Ifo institute’s business climate index, based on a survey of 7,000 executives, dropped to 104.7 from 106.3 in August. Economists predicted a decline to 105.8, according to the median of 36 estimates in a Bloomberg survey. The index is now at its lowest since April 2013.
• European Stocks Climb as Merck, Rio Tinto Shares Advance. European stocks rose, following the biggest drop in 11 weeks, as investors assessed the health of the euro-area economy and the prospects for European Central Bank stimulus after German business confidence fell for a fifth month.
  Merck KGaA and Rio Tinto Group climbed as brokerages recommended buying the shares. TNT Express NV lost the most in 20 months after dropping its 2015 profitability forecast. Adecco SA slipped 0.8 percent after saying Germany and France experienced weaker growth than normal this month. The Stoxx Europe 600 Index added 0.7 percent to 344.35 at the close of trading, extending gains in the final 30 minutes.

CNBC: 

• Fed's Mester calls for key 'considerable time' language to be reformulated.
• Tesla(TSLA) stock 'grossly overvalued': Former GM exec. (video)

ZeroHedge:

• Whatever You Do, Don't Look At Goldman's Latest Swirlogram, But If You Must... (graph)
• Global Trade Collapses: One Of World's Largest Logistics Companies Slashes Forecast; Blames Europe, US Trade. (graph)
• New Home Sales Explode Higher Thanks To... Record High Average New Home Prices? (graph)
• "Get To Work Mr. Chinese Chairman": China Set To Fire Its Central Bank Head, Unleash The Liquidity Floodgates.
• Obamacare Architect Says Society Would Be Better Off If People Died At 75.
• Bank Of Japan Buys A Record Amount Of Equities In August.

Business Insider:

• The Euro Meltdown Just Crossed An Ugly Milestone. (graph)

Telegraph:

• Germany's Ukip threatens to paralyse eurozone rescue efforts. Alternative für Deutschland has swept through Germany like a tornado, winning 12.6pc of the vote in Brandenburg and 10.6pc in Thuringia.

Bear Radar

Style Underperformer:

• Small-Cap Value +.13%

Sector Underperformers:

• 1) Gold & Silver -1.01% 2) Coal -.94% 3) Homebuilders -.80%

Stocks Falling on Unusual Volume:

• GLOP, MMLP, EVHC, AIR, EVDY, SDLP, CPRT, SKX, KBH, BGC, BSFT, SLXP, NVGS, PBA, ENPH, CTRX, CNQ, CRS, VOC, BNS, CNI, TDW, ERJ, MTN, TRS, KN, TDW and ENPH

Stocks With Unusual Put Option Activity:

• 1) ABT 2) BBBY 3) XLNX 4) SMH 5) JNPR
  

Stocks With Most Negative News Mentions:

• 1) AFL 2) PRU 3) SHLD 4) CA 5) MS
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +.90%

Sector Outperformers:

• 1) Biotech +2.12% 2) Oil Tankers +1.11% 3) Restaurants +1.08%
  

Stocks Rising on Unusual Volume:

• ACOR, GDOT, ZSPH, BBBY, HSNI, SLXP, STRZA, SCTY, SCS, PKX, SUNE, BBL, NBIX, PAYX, HCLP, BOBE, GPRO, VRX, BCRX, SYY, CMCM, PHG, RDUS, KEP, YHOO, INO, TRUE, NBIX and HAS

Stocks With Unusual Call Option Activity:

• 1) BBBY 2) SUNE 3) MNK 4) BBT 5) SLXP

Stocks With Most Positive News Mentions:

• 1) GILD 2) MCD 3) BA 4) WMT 5) SBUX
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Wednesday Watch

Evening Headlines 
Bloomberg: 

• Massive Aid Needed for Ebola Outbreak as Outlook Worsens. (video) Massive amounts of supplies and additional health workers are still needed in Liberia, Sierra Leone and Guinea to help control the Ebola outbreak there that may grow to more than 1 million infections under one worst-case scenario, according to aid agencies. Curbing the virus will require 1,000 more international medical personnel as well as 20,000 local residents who know the area well and can work as doctors, nurses, communication specialists, burial teams, contact tracers and trainers, said Dan Epstein, a spokesman for the World Health Organization. 

• Ukrainian Unrest Eases as NATO Says Russia Cuts Presence. NATO said Russia has embarked on a “significant” withdrawal of its forces from Ukraine, adding to signs that a truce is taking hold between the government in Kiev and separatist groups. “There has been a significant pullback of Russian conventional forces from inside Ukraine,” Lieutenant-Colonel Jay Janzen, chief of media operations at the North Atlantic Treaty Organization, said in an e-mailed statement yesterday. “Some Russian troops still remain.”

• China Stocks Drop After Goldman Sachs Cuts Growth Target. China’s stocks fell after Goldman Sachs Group Inc. cut its forecast for China’s economic growth and a logistics company said its unit defaulted. Wanhua Chemical Group Co. paced declines by industrial companies. Goldman Sachs reduced its 2015 target to 7.1 percent from 7.6 percent, while keeping this year’s estimate unchanged at 7.3 percent. Anhui Wanjiang Logistics Group Co. said its unit had debts of 2.1 billion yuan ($337 million) of debts due. Shares in the company are suspended. The Shanghai Composite Index (SHCOMP) lost 0.1 percent to 2,306.94 at 9:45 a.m., while the Hang Seng China Enterprises Index climbed 0.3 percent from a two-month low.

• Asian Stocks Extend Losses Amid Yen Advance; Kiwi Rallies. Asian stocks fell, with the regional index headed for its lowest close in more than three months, as the yen rallied following a Japanese holiday and after a selloff in U.S. equities. New Zealand’s dollar rose from a one-year low amid a smaller-than-estimated trade deficit. The MSCI Asia Pacific Index lost 0.2 percent by 9:57 a.m. in Tokyo, dropping a third day as Japan’s Topix index retreated 0.3 percent from its Sept. 22 close. 

• Iron Ore Price Outlook Cut Again by Australia on Supply Jump. Australia’s state commodity forecaster cut its iron ore price estimates for this year and 2015, pruning its outlook again as surging production in the world’s largest supplier outpaces demand growth in China. The commodity will average about $94 a metric ton this year from $105 a ton forecast in June, the Bureau of Resources and Energy Economics said in a quarterly report today. Prices may be $94 a ton in 2015 from $97 estimated in June, it said.

• Cross-Border Swap Dispute Risks Trade War, CFTC’s Giancarlo Says. U.S. and European regulators risk a permanent breakdown in financial markets if they can’t end a dispute over transatlantic oversight of the $700 trillion swaps industry, a Commodity Futures Trading Commission member said. J. Christopher Giancarlo, in his first speech since joining the CFTC in June, said the U.S. agency should retract some of its overseas policies to boost coordination with Europe and prevent a trade war that would imperil economic growth.

Wall Street Journal: 

• U.S. Reports Significant Damage in First Wave of Syria Strikes. American, Arab Warplanes Hit Targets Around Iraq-Syria Border. The first U.S.-led airstrikes on extremist groups in Syria hit militant leaders, training camps and control centers, U.S. officials said, promising this was only the start of a long campaign. The attacks were conducted with the aid of Arab allies, but the U.S. carried the bulk out of the raids. After the first wave of strikes, the U.S. said it conducted follow-on attacks during the day Tuesday that hit two Islamic State...

• Fraudulent Transactions Surface in Wake of Home Depot(HD) Breach. Banks See Attempts to Use Credit- and Debit-Card Information From Hacking of Retailer.

Fox News:

• Al Qaeda-linked target of strikes in Syria obsessed with next 9/11. (video) The U.S.-led coalition airstrikes in Syria put a spotlight on the shady terrorist group known as Khorasan, a small but potent Al Qaeda offshoot whose sole objective is pulling off another 9/11 terror attack.

MarketWatch.com:

• How tax-inversion rules may stall mergers. 

Zero Hedge:

• GaveKal Goes Looking For Black Swans, Finds A Soaring Skew. (graph)

• When The New Normal Fails: The "Problem With Traditional Economics" In A Bizarro, Centrally-Planned World.

• BBBuYbacks. (graph)

• How The Fed 'Broke' The Markets (In 2 Simple Charts). (graph)

• The Fed's Credit Channel Is Broken And Its Bathtub Economics Has Failed.

• Earnings Charts. (graph)

• The Fed Kills Emerging Markets For Profit. (graph)

• On The Market's Central-Bank-Induced Bipolar Disease. (graph)

Business Insider:

• CLIFF ASNESS: Hedge Funds Aren't Really 'Hedge' Funds. Asness said hedge funds aren't, "diversifying as they should be... So I will tell you, I think hedge funds don't hedge enough... They don't fully hedge, which makes them less of a diversifier and less of a good deal." 

• Corn Has Been Getting Crushed.

• Most Americans Believe We're Still In A Recession.

Reuters:

• Yen rises after Abe reportedly says watching impact of yen weakness. The dollar fell to as low as 108.46 yen from around 108.75 yen on Wednesday after the Jiji news service reported Japanese Prime Minister Shinzo Abe saying he would carefully watch the impact of the yen's recent weakness on Japanese regional economies. 

• Canadian fertilizer companies brace for fall in U.S. crop prices. Canadian fertilizer companies Potash Corp of Saskatchewan and Agrium Inc are bracing for a pullback in demand from U.S. farmers due to sliding crop prices, but say any slump is unlikely to be severe. 

• Risky leveraged loans may affect banks in stress test - FT. The U.S. Federal Reserve is warning banks that lending for deals that load up companies with too much debt could impact its assessment of banks' loan loss rates in the next stress test, the Financial Times reported.

Obama takes on coal with first-ever carbon limits
Read more at http://www.philly.com/philly/news/politics/20130919_ap_0f857b20e0c144a5a1e1b9dddc9f9d72.html#YRThyDOhArykUeYy.9Brazil cuts 2014 GDP growth forecast, keeps fiscal goal

Australian Financial Review:

• Fees on foreign property buyers could raise $400m. Hitting foreign property buyers with a modest application fee could generate more than $400 million to fund a crackdown on illegal purchases blamed for pricing locals out of the market. A government-dominated parliamentary committee is actively considering whether to impose fees of as much as $1500 per purchase. The Reserve Bank of Australia will publish its official six-monthly financial stability review on Wednesday, which is expected to lay out official concerns about the property market.

21st Century Business Herald:

• China Halts LGFV Private Bond Registration. Chinese regulator has suspended registration for private placement of bonds from local government financing vehicles, citing a person familiar with the matter.

Evening Recommendations

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 96.0 +1.0 basis point.

• Asia Pacific Sovereign CDS Index 65.0 +1.5 basis points.

• FTSE-100 futures -.32%.

• S&P 500 futures +.09%.

• NASDAQ 100 futures  +.08%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (PAYX)/.46

• (KBH)/.41

• (JBL)/.00

• (FUL)/.76

• (WOR)/.64

Economic Releases
10:00 am EST

• New Home Sales for August are estimated to rise to 430K versus 412K in July.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +470,000 barrels versus a +3,673,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -154,550 barrels versus a -1,635,000 barrel decline the prior week. Distillate Supplies are estimated to rise by +731,820 barrels versus a +279,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.54% versus a -.9% decline the prior week.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Evans speaking, Fed's Loretta speaking, German IFO Business Climate Index, weekly MBA Mortgage Applications report, $35B 5Y T-Note auction and the (NWL) analyst day could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by real estate and technology 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 day.