Wednesday Watch

Evening Headlines 
Bloomberg:

• Mud and Loathing on Russia-Ukraine Border.

• Global Economic Recovery Remains Difficult. China Vice Premier Zhang Gaoli warns downside risks of global recovery at a speech at the finance minister meeting of APEC in Beijing. China's economic growth is within a reasonable range in the first three quarters, Zhang said.

• BHP(BHP) First-Quarter Iron Ore Output Rises 17% Amid Surplus. BHP Billiton Ltd. (BHP), the world’s biggest mining company, said first-quarter iron ore output rose 17 percent as it continues to expand production in the face of tumbling prices. Production of the steelmaking material was 57.1 million metric tons in the three months ended Sept. 30, from 49 million tons a year earlier, Melbourne-based BHP said today in a statement. That was in line with the 56.5 million ton median estimate of five analysts surveyed by Bloomberg.

• Asia Stocks Extend Global Rebound as Bond Risk Drops. Asian stocks rose, extending a global equity rebound, and credit risk fell to a three-week low amid speculation Europe will expand its economic stimulus. Australian bonds pared a decline after inflation slowed more than estimated. The MSCI Asia Pacific Index climbed 0.8 percent by 10:48 a.m. in Tokyo, as Japan’s Topix index added 1.6 percent and the Hang Seng Index increased 0.5 percent. 

• Fed Can Back Up Tough Talk on Bank Behavior With Action. The Federal Reserve has plenty of power to follow through on regulatory threats made yesterday to top bank executives aimed at curbing misbehavior on Wall Street, even if it can’t order firms to break up. “The Fed has a powerful bully pulpit that should not be underestimated,” Mike Mayo, an analyst at CLSA Ltd. in New York, said. “It has the authority to approve or disapprove the ability of banks to return capital to shareholders.”

• Loan Market Losing on All Fronts as CLO Rule Change Looms. The $800 billion U.S. leveraged-loan market is losing mutual-fund investors just as it’s about to need them more than ever. Regulators are approving new rules this week making it more expensive to create funds that are the biggest source of demand for the below investment-grade debt: collateralized loan obligations. Managers of the funds will be required to retain 5 percent of the debt they package or sell, or banks underwriting CLOs will have to hang on to a piece. 

Wall Street Journal:

• Companies Try to Escape Health Law’s Penalties. Some Employers Seek to Shift Employees to Medicaid; Others Plan to Offer ‘Skinny’ Benefit Plans.

• Global Growth Woes Threaten to Beset U.S. Economy. Five-Year Recovery Faces Latest Test of Resiliency as External Shocks Mount. The specter of deflation in Europe and a slowdown in China and other emerging markets are threatening to hobble the U.S. economy at a time when the world could use a reliable growth engine.

Fox News:

• Pakistani court upholds death sentence for Christian woman accused of insulting Islam. Asia Bibi was harvesting berries in Pakistan five years ago when she took the drink of water that could cost her her life. A Christian in the Muslim-dominated and increasingly intolerant nation, the mother of five was quickly assailed by the other women working the field in a tiny village in the Punjab province. First they said they would not drink from the same water bucket as a Christian. Later, they told police Bibi had insulted the Muslim Prophet Mohammad. The crime, blasphemy, is punishable by death.

CNBC:

• Icahn: 'Quite concerned that something is going to happen' with stock market. (video) The high-yield market is in a bubble, according to Carl Icahn.

• Yahoo(YHOO) needs more than just an earnings beat, say analysts. (video) 

Zero Hedge:

• VIX Has Never Done This Before... Ever. (graph)

• 19 Surprising Facts About The Messed Up State Of The US Economy.

• How Japanese Hyperinflation Starts (In 1 Chart).

• Ebola 2014 Is Mutating As Fast As Seasonal Flu. (graph)

• 113 Federal Reserve Staff Members Make $250,000 Annually.

• Chicago Hospitals Monitoring 2 Sick Passengers From Liberia, CDC Not Testing For Ebola.

• The Hedge Fund Industry's 25 Favorite ETFs.

Business Insider:

• These Two Maps Explain ISIS's Chokehold Over Iraq.

• Daimler Just Made Almost $800 Million By Selling Off Its Tesla(TSLA) Stake.

• DAVID TEPPER: Short The Euro.

• NATO Intercepts Russian Jets Over Baltic Sea.

Reuters:

• Faulty airbags warning expanded to 6.1. million U.S. cars -NHTSA. The U.S. highway safety regulator, NHTSA, expanded its warning on Tuesday about faulty airbags made by Japanese auto-part maker Takata to 6.1 million vehicles in the United States. 

• Quiet critic of Kuroda's 'monetary shamanism' turns up the volume. Izuru Kato is a soft-spoken and bookish economist, but his dismissal of the Bank of Japan's stimulus policy as "monetary shamanism" is ringing loud in the ears of bank Governor Haruhiko Kuroda. 

• VMware(VMW) forecasts weak 4th-qtr revenue, shares fall. Software maker VMware Inc forecast current-quarter revenue largely below Wall Street's estimates due to a delay in the closing of a large U.S. government deal and lower bookings in Germany, Russia and Japan in the third quarter. The company's shares fell as much as 6 percent in after-market trade on Tuesday.

• Intuitive Surgical(ISRG) 3rd-quarter sales top Wall St estimates. Intuitive Surgical Inc on Tuesday showed signs of bouncing back from a difficult first half of the year as sales of its da Vinci robotic surgical systems increased in the third quarter, as did procedures using the company's high-priced machines. 

• Broadcom's(BRCM) third-quarter revenue exceeds expectations. Broadcom posted higher third-quarter revenue on Tuesday that exceeded Wall Street's expectations as the chipmaker focused on networking and broadband chips, sending its shares 4 percent higher.

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 goaFed's Williams: Can't wait too long to raise rates

Financial Times:

• Russia slaps conditions on Ukraine gas deal. Russia has raised further conditions for resuming gas supplies to Ukraine, dashing hopes that a deal to safeguard Europe’s energy supply this winter would be agreed on Tuesday.

China Securities Journal:

• China Shouldn't Be Scared of Slowing Growth. China has taken measures to prevent systemic risks including initiatives on the local govt debt problem, according to a front-page commentary written by reporter Gu Xin.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are +.75% to +1.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 113.50 -4.5 basis points.

• Asia Pacific Sovereign CDS Index 68.25 -5.0 basis points.

• FTSE-100 futures +.33%.

• S&P 500 futures -.08%.

• NASDAQ 100 futures  -.06%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (DOW)/.67

• (SPG)/1.86

• (BA)/1.97

• (USB)/.78

• (ABT)/.60

• (NTRS)/.87

• (BIIB)/3.49

• (GD)/1.91

• (KNX)/.27

• (PII)/2.02

• (SWK)/1.44

• (IR)/1.03

• (NOC)/2.13

• (BSX)/.26

• (LL)/.68

• (OC)/.48

• (R)/1.63

• (NSC)/1.83

• (EMC)/.46

• (CA)/.62

• (CAKE)/.57

• (VAR)/1.21

• (T)/.64

• (TSCO)/.50

• (SLG)/1.45

• (LRCX)/.93

• (YELP)/.03

• (ORLY)/1.95

Economic Releases
8:30 am EST

• The CPI for September is estimated unch. versus a -.2% decline in August.

• The CPI Ex Food & Energy for September is estimated to rise +.1% versus unch. in August.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,800,000 barrels versus a +8,923,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -1,560,000 barrels versus a -3,995,000 barrel decline the prior week. Distillate inventories are estimated to fall by -1,110,000 barrels versus a -1,518,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall by -.01% versus a -1.2% decline the prior week.

Upcoming Splits

• None of note

Other Potential Market Movers

• The BoE Minutes and the weekly MBA Mortgage Applications report could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by industrial and technology 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 Surging into Final Hour on Central Bank Hopes, Diminishing Ebola Fears, Earnings Optimism, Healthcare/Energy Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Almost Every Sector Rising
  

• Volume: Slightly Below Average

• Market Leading Stocks: Outperforming

Equity Investor Angst:

• Volatility(VIX) 16.63 -10.45%

• Euro/Yen Carry Return Index 141.97 -.71%

• Emerging Markets Currency Volatility(VXY) 8.27 -4.50%

• S&P 500 Implied Correlation 61.13 -7.45%

• ISE Sentiment Index 94.0 -31.39%

• Total Put/Call 1.01 +16.09%

• NYSE Arms 1.08 +21.96% 

Credit Investor Angst:

• North American Investment Grade CDS Index 65.88 -4.96%

• European Financial Sector CDS Index 70.17 -7.35%

• Western Europe Sovereign Debt CDS Index 33.30 -4.30%
• Asia Pacific Sovereign Debt CDS Index 68.36 -6.77%

• Emerging Market CDS Index 262.02 -.20%

• China Blended Corporate Spread Index 344.71 unch.
• 2-Year Swap Spread 25.5 -.75 basis point

• TED Spread 22.75 +2.25 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -8.25 +1.5 basis points

Economic Gauges:

• 3-Month T-Bill Yield .01% -1.0 basis point

• Yield Curve 186.0 +3.0 basis points

• China Import Iron Ore Spot $81.83/Metric Tonne +.28%

• Citi US Economic Surprise Index 20.80 -.4 point
• Citi Eurozone Economic Surprise Index -54.7 -.6 point

• Citi Emerging Markets Economic Surprise Index -20.60 +1.0 point

• 10-Year TIPS Spread 1.91 unch.

Overseas Futures:

• Nikkei Futures: Indicating +259 open in Japan

• DAX Futures: Indicating +13 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg:

• Rwanda Worries About Ebola From U.S., Spain. An Ebola-free nation seeking to prevent the spread of the virus said today it would require arrivals from two countries with known cases to report to authorities every day for three weeks. The country doing the requiring: Rwanda. The countries whose visitors face the reporting requirement: Spain and the U.S., some of whose embassy personnel are affected.

• Russia, Ukraine Seek Interim Gas Accord at Brussels Talks. Russia is optimistic about setting out a temporary agreement to help resolve a natural gas pricing dispute with Ukraine at talks today, according to Energy Minister Alexander Novak. “Expectations are positive,” Novak told reporters today in Brussels, according to the Russian energy minister’s press service. Russia expects to “formalize” issues agreed on in Italy last week, he said before a meeting with Ukrainian Energy Minister Yuri Prodan, brokered by European Union Energy Commissioner Guenther Oettinger.

• European Stocks Rise as Actelion, Swedbank Earnings Beat. European stocks advanced after companies including Actelion Ltd. and Swedbank AB posted better-than-estimated earnings, while the European Central Bank was said to have bought Italian covered bonds. Actelion added 3 percent after increasing its full-year prediction for a second time. Swedbank rose 4.7 percent after announcing job cuts and posting net income that beat estimates. Reckitt Benckiser Group Plc lost 2.1 percent after saying full-year sales growth will be at the lower end of its forecast. The Stoxx Europe 600 Index climbed 2.1 percent to 323.74 at the close of trading.

• Bears Target Tech Rebound Amid $8.3 Billion ETF Outlow. Traders are betting a recovery in technology stocks will fizzle on concern global economic growth fails to justify valuations. While the Nasdaq 100 Index climbed 2.8 percent in two days, after reaching a four-month low, the rebound followed six weeks in which investors pulled $8.26 billion from an exchange-traded fund tracking companies from Google Inc. to EBay Inc. Bearish options on the ETF cost the most in more than two years relative to bullish bets, data compiled by Bloomberg show. Nasdaq 100 stocks traded at the highest prices relative to earnings since March 2010 last month. That, plus concern that a stronger dollar will lower revenue for U.S. companies, makes technology shares more vulnerable to a selloff, according to Notz, Stucki & Cie.’s Pierre Mouton, who is reducing holdings of Microsoft Corp. and Intel Corp.

Wall Street Journal:

• They’re Tracking When You Turn Off the Lights. Municipal Sensor Networks Measure Everything From Air Pollution to Pedestrian Traffic; Building ‘a Fitbit for the City’.

ZeroHedge: 

• Russia Deploys Troops, Robots Along Entire "2nd Middle East" Arctic Belt.

• Subprime Bubble Pop 2.0? Department Of Financial Services Slams America's Largest Subprime Servicer.

• In Uncharted Waters. (graph)

• The Magic Number Is Revealed: It Costs Central Banks $200 Billion Per Quarter To Avoid A Market Crash. (graph)

• Existing Home Sales Jump To Highest Since Sept 2013. Midwest Tumbles 5.3%. (graph)

• And The NYSE Breaks...

Business Insider:

• Here Is What The Turkish Border Looks Like While ISIS Besieges Syrian Border Town Kobani.

• The Chinese Property Market Is In A Nosedive.

CNN:

• The poor pose election risk, says Hong Kong's leader. Hong Kong's top official has offered a controversial defense of Beijing's plan for elections in the financial capital, warning that a free vote would give the city's poorest residents too much power.

Reuters:

• China may let local govts replace current debt with muni bonds - sources. A draft document circulated by China's Ministry of Finance on local government debt proposes letting them issue bonds to replace borrowings taken through opaque financing vehicles, according to people who have seen the draft. If such issuance were to be allowed, it could require a massive expansion of the country's fledgling municipal bond market.

Bear Radar

Style Underperformer:

• Small-Cap Value +1.3%

Sector Underperformers:

• 1) Computer Services -1.70% 2) Restaurants -1.01% 3) Utilities +.12%

Stocks Falling on Unusual Volume:

• TLLP, QEPM, SUSP, OCN, NSM, ASPS, RCII, IBM, CMG, ARMH, XRS, GPK, EAT, OMER, ESI, KALU, KO, RESI, GLF, CAKE, ENTA, HLSS, RMBS, AMAG, LMT, ABG and LL

Stocks With Unusual Put Option Activity:

• 1) IP 2) AMTD 3) OCN 4) IBM 5) CMG

Stocks With Most Negative News Mentions:

• 1) ESI 2) QEP 3) RCII 4) LL 5) RNO
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Mid-Cap Growth +1.88%

Sector Outperformers:

• 1) Airlines +2.81% 2) Hospitals +2.59% 3) HMOs +2.36%
  

Stocks Rising on Unusual Volume:

• LXK, WAT, HOG, PKG, ILMN, TRN, RCL, HLX, SAVE, AAL, MTZ, KS, CE, EWBC, CCL, LUV, SNV, UAL, HUN, MYGN and SNDK

Stocks With Unusual Call Option Activity:

• 1) CCI 2) TWC 3) CL 4) OREX 5) JBLU

Stocks With Most Positive News Mentions:

• 1) OMC  2) AAPL 3) WAT 4) A 5) YHOO
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Tuesday Watch

Evening Headlines 
Bloomberg:

• Ukraine Fighting Batters Truce Before Gas Talks Begin. Fighting shook the east of Ukraine a day before its government begins three-way talks with Russian and European Union officials in Brussels to negotiate the resumption of natural-gas deliveries which were halted in June. The cease-fire in Ukraine’s easternmost regions, sealed Sept. 5, was broken several times during the past 24 hours, with two soldiers and 14 rebels killed, the military said yesterday. Ukraine’s state energy company NAK Naftogaz Ukrainy said the government in Kiev and the European Commission reached a “consensus” before the talks today. German Chancellor Angela Merkel said she wants the gas deal clinched and that a bridge loan for Ukraine may be needed to end the spat. 

• CDC Urges Stricter Ebola Protections for Health Workers. Health workers caring for Ebola patients shouldn’t have any skin exposed, must undergo rigorous training and be supervised by a qualified monitor, the Centers for Disease Control and Prevention said. Separately, the agency also is revising its recommendations about how to track the health of people who have been exposed to the Ebola virus and when they should be allowed to travel to prevent the spread of the disease.

• Hong Kong Court Bans Street Occupations as Police Warn of ‘Riot'. Hong Kong’s High Court issued an interim injunction banning protesters from occupying a road in Mong Kok district as the police said assembly at the site may veer into “a riot.” 

• Triple Whammy Looms for China’s Oil Refiners as Crude Plunges. Crude oil’s steepest crash in almost six years is throwing up a new challenge for China’s refiners -- a plunge in the value of their stockpiles.

• RBA Says Aussie Still High as Period of Rate Stability Repeated. Australia’s central bank repeated that the nation’s currency is still too strong to help rebalance the economy and discussed the need for banks to maintain high lending standards. The RBA noted that while the currency had declined against the U.S. dollar, it remained around levels seen earlier in the year. The bank said borrowing costs have fallen further as competition increased and “members discussed the importance of lenders maintaining strong lending standards.”

• Asia Stocks Fall as Investors Weigh Earning Before Data. Asian stocks fell, paring gains after yesterday rising the most in two years, as investors awaited a slew of Chinese economic data and weighed U.S. corporate earnings. The MSCI Asia Pacific Index (MXAP) slid 0.1 percent to 136.49 as of 10:06 a.m. in Tokyo.

Wall Street Journal:

• Ebola Study Projects Spread of Virus. Up to 3 Infected People Could Fly Overseas Every Month From Most-Affected African Nations. Up to three Ebola-infected people could embark on overseas flights every month from the three most-affected African countries, according to a new study that projected travel patterns based on infection rates and recent flight schedules. The findings, published Monday in the journal Lancet, suggest that Ebola cases could be spread overseas by unwitting travelers from the worst-hit countries—Guinea, Liberia and Sierra Leone.

• SEC Is Steering More Trials to Judges It Appoints. Unpublished Figures Show ‘Win’ Rate for Cases Heard by Administrative Law Judges. The Securities and Exchange Commission is increasingly steering cases to hearings in front of the agency’s appointed administrative judges, who found in its favor in every verdict for the 12 months through September, rather than taking them to federal court. The winning streak comes amid a marked shift at the agency toward trying cases that are more complex before its administrative law judges. Historically, the SEC had more often turned to these judges for relatively straightforward legal actions, such as barring...

• Misery Widespread at Hedge Funds. Market Turmoil Inflicts Losses in Industry’s Worst Period Since 2011. 

• Fed to Banks: Shape Up or Risk Breakup. Closed-Door Event Included Executives, Law-Enforcement Officials. Federal Reserve officials sent a warning shot across Wall Street on Monday, telling bank executives they must do more to curb excessive risk-taking and improve employee behavior at their firms or face stiff repercussions, including being broken into smaller pieces.

CNBC:

• The ugly number in Apple's(AAPL) earnings. (video) Despite beating expectations in its fourth quarter and impressive iPhones sales, the company is still struggling to sell iPads.

Zero Hedge:

• Obama's Latest Speech About The Economic "Recovery" Results In Mass Audience Exodus.

• The Crocodile Jaws Spring Open Again, Preparing To Bite. (graph)

• The Fed's Comfort Zone (In 1 Simple Chart). (graph)

• Apple(AAPL) Beats Top And Bottom Line, Repurchases Record $45 Billion In Stock In Fiscal 2014. (graph)

• Going Into Q3, Hedge Funds Have Never Been More Bullish. (graph)

• Do You Believe In Chinese Miracles? GDP, Industrial Production Beat; Retail Sales Miss. (graph)

• Top Scientist Warns This Version Of Ebola Looks Like "A Very Different Bug".

Business Insider:

• Sweden’s Submarine Hunt Is An Ominous Sign Of Growing Tension Between Russia And Northern Europe.

• Separatist 'Prime Minister': The Ceasefire In Ukraine Is Over.

• CEO Of French Oil Giant Total Dies In Moscow Plane Accident.

Reuters:

• China-backed hackers may have infiltrated Apple's iCloud -blog. Apple Inc's iCloud storage and backup service in China was attacked by hackers trying to steal user credentials and other information, a cybersecurity blog charged on Monday, saying it believes the country's government is behind the campaign. 

• Chipotle(CMG) stock dips as sales growth forecasts come down. Chipotle Mexican Grill Inc on Monday reported another acceleration in quarterly restaurant sales growth, but shares in the popular burrito seller tumbled almost 5 percent after it signaled that such momentum can't last forever. 

• Hedge fund manager Chanos says betting against Petrobras at conference.

China Business News:

• China May Set Lower GDP Growth Target for 2015. Improvement in employment outlook provides room for China to set a lower GDP growth target for next year, citing people close to authorities. China may set a lower target to achieve long-term growth, the report says.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.75% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 118.0 +1.0 basis point.

• Asia Pacific Sovereign CDS Index 73.25 -.5 basis point.

• FTSE-100 futures +.02%.

• S&P 500 futures -.33%.

• NASDAQ 100 futures  -.19%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (KMB)/1.54

• (APOL)/.27

• (MAN)/1.50

• (RF)/.21

• (LXK)/.91

• (OMC)/.90

• (UTX)/1.81

• (HOG)/.59

• (LMT)/2.72

• (KO)/.53

• (MCD)/1.37

• (EAT)/.50

• (TRV)/2.26

• (VZ)/.90

• (WAT)/1.29

• (ITW)/1.23

• (CREE)/.34

• (RHI)/.58

• (ETFC)/.22

• (SONC)/.33

• (YHOO)/.30

• (BRCM)/.84

• (ISRG)/3.81

• (VMW)/.83

Economic Releases
10:00 am EST

• Existing Home Sales for September are estimated to rise to 5.1M versus 5.05M in August.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Australian CPI, (UNFI) analyst day and weekly US retail sales reports could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and technology 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.