Monday Watch

Weekend Headlines 
Bloomberg: 

• Ukraine Says Rebel-Held Elections Pose Threat to Peace. Russian-backed rebels held elections in their self-proclaimed people’s republics in eastern Ukraine, a move that the government in Kiev said poses a threat to the peace process. Rebels organized the ballots in the territory of Donetsk and Luhansk a week after boycotting Oct. 26 national parliamentary elections. The one-day ballot, designed to pick a head of government as well as local parliament, was only backed by Russia and defied governments from Kiev to Washington.

• Ruble’s Two-Minute Rally Shows Russia Guessed Wrong. The Russian central bank’s gambit worked for all of about two minutes yesterday. That’s how long the ruble rallied after policy makers surprised investors by ratcheting up the benchmark interest rate 1.5 percentage points to 9.5 percent this afternoon. After that, it was right back to declines for the world’s worst-performing currency, with losses swelling to as much as 3.6 percent against the dollar, the biggest drop in three years. 

• Abducted Nigerian Schoolgirls ‘Married Off’ by Boko Haram. School girls abducted by Nigeria’s Boko Haram group have converted to Islam and been “married off” to militants, according to a new video message. A man claiming to be the Islamist group’s leader, Abubakar Shekau, appeared in the 13-minute video and denied that a truce had been agreed with the government or that Boko Haram had started talks to free the abducted schoolgirls. The Nigerian military has repeatedly said it killed Shekau in its operations against Boko Haram.

• Pacific Air Force Chief Says Wary of Risky Flying by China Jets. The U.S. is concerned Chinese jets may engage in further risky intercepts of its military aircraft, even after starting talks aimed at avoiding such encounters, the new commander of U.S. air forces in the Pacific said. A Chinese fighter jet flew within 20 feet of a U.S. P-8 Poseidon aircraft flying at more than 400 miles an hour near Hainan Island -- China’s gateway to the contested South China Sea -- on Aug. 19, an encounter that the Pentagon described as “unsafe and unprofessional.” “I never say never,” General Lori Robinson, 55, said when asked if talks meant such behavior would cease. “What’s important is that we do start the dialogue and that we do come to an understanding of what a traditional intercept is.”

• Hedge Funds Cut Bullish Oil Bets on Rising Global Output. Hedge funds cut bullish holdings in crude as record U.S. output added to a global supply glut, spurring the longest losing streak in prices in six years. Money managers reduced net-long positions in West Texas Intermediate by 2.3 percent in the week ended Oct. 28, U.S. Commodity Futures Trading Commission data show. Long positions retreated to the lowest level in 17 months. 

• Dollar Nears 7-Year High Versus Yen on U.S; Gold Slides. The dollar jumped to an almost seven-year high versus the yen and gold fell as slowing Chinese manufacturing growth and the Bank of Japan’s unexpected stimulus highlighted the diverging growth outlook for the U.S. and Asian economies. The Bloomberg Dollar Spot Index advanced 0.3 percent by 11:33 a.m. in Hong Kong, heading for a level last seen in June 2010 as the greenback bought 112.73 yen, the most since December 2007. Gold fell 0.4 percent to $1,167.73 an ounce in the spot market and silver sank 1.3 percent. South Korea’s won slid 0.7 percent as the yen’s slump heightened intervention speculation. Standard & Poor’s 500 Index futures were little changed as Asia’s benchmark share index slid 0.5 percent.

Wall Street Journal:

• What Bubble? Silicon Valley’s Younger Set Exhibits Optimism. There’s a generation gap in Silicon Valley, and it’s over a great deal more than who is using Snapchat versus who is still sending emails. In tech, the psychological dividing line is whether you were in the game the last time it all came crashing down. “I remember the bubble bursting, but only just; I was 14,” says Sam Altman, president...

• Publicis Groupe Said in Talks to Acquire Sapient. French Advertising Giant Seeks to Bounce Back From Failed Merger with Omnicom Group.

• European Central Bank’s Bond Conundrum. ECB Faces a Tougher Road in Emulating Fed, Bank of Japan.

• WSJ/NBC Poll Finds Wide Support for Quarantining Health Workers. Nearly Three in Four Say Doctors, Nurses Returning from Ebola Area Need to Be Kept in Isolation.

• Missing the Prime Suspect in the Global Slowdown. World-wide debt as a percentage of GDP has jumped 36% since 2008, to a record high of 212%.

MarketWatch.com:

• China faces trap in currency war. Japan’s latest monetary easing puts China’s policy makers in bind, forcing them to pick between two tough choices, writes Craig Stephen.

Zero Hedge:

• The Story Changes: Ebola Is Now "Aerostable" And Can Remain On Surfaces For 50 Days.

• A Massive FX Quake Hits Japan: This Is What It Looked Like. (graph)

• Who Will Suffer From A Leveraged Credit Shakeout?

• Meanwhile, The French Are Revolting... (pics)

• The BoJ Jumps The Monetary Shark - Now The Machines, Madmen And Morons Are Raging.

• "Troubling Trend" NATO Warns Russian Military Aircraft Incursions Worst Since Cold War.

• 5 Things To Ponder: "Spooky" Things.

• QE Added $9 Trillion In "Equity Wealth" Or 32% Of The Current S&P500 Level, JPMorgan Finds.

• Japan: QE As Morphine For A Terminal Patient.

• Something Doesn't Add Up. (graph)

• China's Economy Goes From Bad To Worse, In Charts. (graph)

• Canada Suspends Visa Applications From Ebola-Affected Nations.

• Did QE Work? (graph)

• ISIS May Be Weaponizing Ebola, Spanish Government Warns.

• Chart Of The Day: "It's Not About Earnings" Edition. (graph)

• There Is No Stable Monetary Policy "Risk Channel". (graph)

• "Globalization Is Turning In On Itself And It Is Each Man For Himself".

• Keynesian Shangri-La From Myth To Reality.

• FBI To Probe Accounting Fraud At Multi-Billion REIT.

Business Insider:

• China Wobbled Again. China's manufacturing PMI missed expectations, coming in at 50.8 rather than 51.1. This is also down from September's read of 51.2.

• Why Kobane Is A Crucial Front In The Fight Against ISIS. 

• Here's What Lies Behind Vladimir Putin's Biggest Anti-American Rant Yet.

• The Bank Of Japan Is Battling An Entrenched 'Deflation Mindset'.

• Ukraine Rattled By 'Intensive' Russian Troop Movements As Separatists Vote.

• Deutsche Bank(DB) Is In Trouble.

New York Times:

• Cracks in the Stress Tests of European Banks. The sigh of relief was almost audible last week when the European Central Bank published its long-awaited safety and soundness report on 130 banks in 19 countries in the region. Many investors seemed comforted that just 13 banks had failed the comprehensive exam. But there is much more to the report than a pass/fail grade for Europe’s banks. And some of the findings should trouble any investor interested in the accuracy and comparability of European banks’ financial statements.

Financial Times:

• China’s growth in danger of slowing more sharply. China’s cooling economy has already roiled global commodity markets and prompted slowdowns in places such as Latin America, Australia and Germany that had been big beneficiaries of the Chinese boom. The Chinese economy grew at its slowest pace since the depths of global financial crisis last quarter and is almost certain this year to register its weakest annual growth rate since 1990.

Telegraph:

• History will surely see QE as a major mistake. QE has boosted equity prices, while hammering ordinary savers and pensioners while handing a massive wealth transfer to bailed-out banks.

Welt:

• German Government Sees 1,000 Potential Islamist Terrorists. Federal Criminal Office head Joerg Ziercke warns of possible Islamic State terrorist attacks by fanatical individuals or small groups in Germany, citing an interview.

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 108.0 -2.0 basis points.

• Asia Pacific Sovereign CDS Index 63.5 -2.0 basis points.

• FTSE-100 futures +.26%.

• S&P 500 futures -.09%.

• NASDAQ 100 futures -.09%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AMG)/2.71

• (SYY)/.51

• (L)/.68

• (CNA)/.78

• (VNO)/1.22

• (HLF)/1.51

• (S)/-.06

• (THC)/.09

• (MRO)/.59

• (TDW)/1.06

Economic Releases
9:45 am EST

• The Final Markit US Manufacturing PMI for October is estimated at 56.2 versus a prior estimate of 56.2.

10:00 am EST

• ISM Manufacturing for October is estimated to fall to 56.2 versus 56.6 in September.

• ISM Prices Paid for October is estimated to fall to 58.0 versus 59.5 in September.

• Construction Spending for September is estimated to rise +.7% versus a -.8% decline in August.

Afternoon:

• Total Vehicle Sales for October are estimated to rise to 16.4M versus 16.34M in September.

Upcoming Splits

• (SYNT) 2-for-1

Other Potential Market Movers

• The Fed's Fisher speaking, Fed's Evans speaking, Eurozone PMI data and the RBA rate decision could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity 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 week.

Weekly Outlook

Week Ahead 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 global growth worries, rising European/Emerging Markets debt angst, technical selling, more shorting and profit-taking. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 50% net long heading into the week.

Market Week in Review

• S&P 500 2,018.05 +2.72%*

The Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices

• S&P 500 2,018.05 +2.72%

• DJIA 17,390.50 +3.48%

• NASDAQ 4,630.74 +3.28%

• Russell 2000 1,173.51 +4.88%

• S&P 500 High Beta 34.01 +3.69%

• Wilshire 5000 20,999.40 +2.84%

• Russell 1000 Growth 944.52 +2.78%

• Russell 1000 Value 1,005.97 +2.60%

• S&P 500 Consumer Staples 480.90 +1.77%

• Solactive US Cyclical 137.16 +2.14%

• Morgan Stanley Technology 976.41 +4.35%

• Transports 8,755.51 +2.18%

• Utilities 596.93 +2.27%

• Bloomberg European Bank/Financial Services 106.88 +.28%

• MSCI Emerging Markets 42.17 +3.09%

• HFRX Equity Hedge 1,169.83 +1.12%

• HFRX Equity Market Neutral 986.12 +.43%

Sentiment/Internals

• NYSE Cumulative A/D Line 227,686 +1.64%

• Bloomberg New Highs-Lows Index -77 +131

• Bloomberg Crude Oil % Bulls 36.70% +14.1%

• CFTC Oil Net Speculative Position 267,304 -4.57%

• CFTC Oil Total Open Interest 1,476,289 +1.12%

• Total Put/Call .76 -13.64%

• OEX Put/Call .59 -38.54%

• ISE Sentiment 86.0 -31.75%

• NYSE Arms .71 -12.34%

• Volatility(VIX) 14.03 -12.91%

• S&P 500 Implied Correlation 53.86 -15.82%

• G7 Currency Volatility (VXY) 7.84 +6.52%

• Emerging Markets Currency Volatility (EM-VXY) 7.73 -2.28%

• Smart Money Flow Index 17,158.11 +2.21%

• ICI Money Mkt Mutual Fund Assets $2.628 Trillion +.23%

• ICI US Equity Weekly Net New Cash Flow +$4.696 Billion

• AAII % Bulls 49.4 -.6%

• AAII % Bears 21.1 -6.4%

Futures Spot Prices

• CRB Index 271.96 +.64%

• Crude Oil 80.54 -.94%

• Reformulated Gasoline 214.78 +.13%

• Natural Gas 3.87 +6.66%

• Heating Oil 251.09 +1.04%

• Gold 1,171.60 -4.84%

• Bloomberg Base Metals Index 196.22 +2.78%

• Copper 304.70 +.23%

• US No. 1 Heavy Melt Scrap Steel 341.33 USD/Ton unch.

• China Iron Ore Spot 79.59 USD/Ton -1.11%

• Lumber 324.10 -3.66%

• UBS-Bloomberg Agriculture 1,250.51 +2.87%

Economy

• ECRI Weekly Leading Economic Index Growth Rate -1.2% -220 basis points

• Philly Fed ADS Real-Time Business Conditions Index .3029 -5.90%

• S&P 500 Blended Forward 12 Months Mean EPS Estimate 127.59 -.11%

• Citi US Economic Surprise Index 18.0 +.8 point

• Citi Eurozone Economic Surprise Index -32.40 +4.4 points

• Citi Emerging Markets Economic Surprise Index -17.30 +.3 point

• Fed Fund Futures imply 38.0% chance of no change, 62.0% chance of 25 basis point cut on 12/17

• US Dollar Index 86.92 +1.41%

• Euro/Yen Carry Return Index 146.95 +2.73%

• Yield Curve 184.0 -4.0 basis points

• 10-Year US Treasury Yield 2.34% +7.0 basis points

• Federal Reserve's Balance Sheet $4.445 Trillion +.41%

• U.S. Sovereign Debt Credit Default Swap 18.86 +14.25%

• Illinois Municipal Debt Credit Default Swap 172.0 unch.

• Western Europe Sovereign Debt Credit Default Swap Index 31.80 -.62%

• Asia Pacific Sovereign Debt Credit Default Swap Index 63.59 -6.28%
  

• Emerging Markets Sovereign Debt CDS Index 219.03 -3.65%
  

• Israel Sovereign Debt Credit Default Swap 77.50 -2.52%

• Iraq Sovereign Debt Credit Default Swap 354.60 -1.30%

• Russia Sovereign Debt Credit Default Swap 244.50 -2.66%

• China Blended Corporate Spread Index 326.90 -.85%

• 10-Year TIPS Spread 1.93% +3.0 basis points

• TED Spread 23.25 +.5 basis point

• 2-Year Swap Spread 22.0 -4.25 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -9.75 -2.0 basis points

• N. America Investment Grade Credit Default Swap Index 64.0 -3.03%
  

• European Financial Sector Credit Default Swap Index 67.08 -.03%
  

• Emerging Markets Credit Default Swap Index 237.71 -6.88%
  

• CMBS AAA Super Senior 10-Year Treasury Spread  to Swaps 85.0 -3.0 basis points

• M1 Money Supply $2.863 Trillion +.80%

• Commercial Paper Outstanding 1,064.40 +.20%

• 4-Week Moving Average of Jobless Claims 281,000 unch.

• Continuing Claims Unemployment Rate 1.8% unch.

• Average 30-Year Mortgage Rate 3.98% +6 basis points

• Weekly Mortgage Applications 386.10 -6.56%

• Bloomberg Consumer Comfort 37.2 -.5 point

• Weekly Retail Sales +4.10% +20 basis points

• Nationwide Gas $3.00/gallon -.07/gallon

• Baltic Dry Index 1,424 +19.5%

• China (Export) Containerized Freight Index 1,018.25 -.27%

• Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 25.0 unch.

• Rail Freight Carloads 278,767 +2.28%

Best Performing Style

• Mid-Cap Growth +5.1%

Worst Performing Style

• Large-Cap Value +2.6%

Leading Sectors

• Airlines +7.1%

• Computer Hardware +6.1%

• I-Banking +5.2%

• HMOs +5.0%

• Coal +5.0%

Lagging Sectors

• Oil Tankers +.3% 

• Homebuilders -.9%

• Steel -2.4%

• Hospitals -2.9%

• Gold & Silver -14.6%

Weekly High-Volume Stock Gainers (28)

• RCPT, ESBF, DRIV, OMER, ABMD, USNA, VDSI, RGLS, CMCO, MDBX, ADPT, GIMO, CALX, BGFV, HVB, VNDA, SAPE, MMSI, MRCY, SPNC, ZLTQ, AMED, INGN, HMTV, MSG, SWI, RUBI and RGC

Weekly High-Volume Stock Losers (15)

• MSM, CVLT, IMS, CRUS, WTW, PGI, ORB, EPIQ, RCAP, ATK, PRXL, XOOM, INVN, SRPT and AKBA

Weekly Charts
ETFs

• High-Volume Gainers

• High-Volume Losers

Stocks

• High-Volume Gainers

• High-Volume Losers

*5-Day Change

Stocks Rising into Final Hour on Central Bank Hopes, Yen Weakness, Short-Covering, Tech/Healthcare Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Slightly Above Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 14.51 -.07%

• Euro/Yen Carry Return Index 146.92 +2.07%

• Emerging Markets Currency Volatility(VXY) 7.73 +3.48%

• S&P 500 Implied Correlation 54.88 -1.83%

• ISE Sentiment Index 72.0 -14.29%

• Total Put/Call .74 -22.92%

• NYSE Arms .87 -15.34% 

Credit Investor Angst:

• North American Investment Grade CDS Index 64.04 -2.69%

• European Financial Sector CDS Index 67.08 -3.48%

• Western Europe Sovereign Debt CDS Index 31.80 -4.42%
• Asia Pacific Sovereign Debt CDS Index 63.59 -2.71%

• Emerging Market CDS Index 238.44 -1.27%

• China Blended Corporate Spread Index 326.90 -.33%
• 2-Year Swap Spread 22.0 +.75 basis point

• TED Spread 22.75 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -9.75 -.75 basis point

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.

• Yield Curve 184.0 +1.0 basis point

• China Import Iron Ore Spot $79.59/Metric Tonne -.29%

• Citi US Economic Surprise Index 18.0 -.8 point
• Citi Eurozone Economic Surprise Index -32.40 -2.7 points

• Citi Emerging Markets Economic Surprise Index -17.30 -1.3 points

• 10-Year TIPS Spread 1.93 +2.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating +641 open in Japan

• DAX Futures: Indicating +1 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg: 

• Ukraine Deal Gives Little Relief as War Set to Rumble On. Within hours of Ukraine’s gas deal with Russia, fighting flared up in the country’s easternmost regions, highlighting the challenges in bringing peace to the country after a year of upheaval. While the pact brokered by the European Union is designed to keep homes warm through the winter, rebels still hold large chunks of the country’s east and are planning a controversial election for Nov. 2. Crimea remains under Russian control and the Kremlin, bristling at an EU agreement Ukraine signed this year, is testing NATO with daily airspace violations.
• Russia’s Surprise Rate Increase Fails to Stem Ruble Drop. The ruble headed for the biggest drop since 2009 after a larger-than-forecast increase of Russia’s key interest rate failed to ease concern that the economy will remain hobbled by sanctions and capital flight. The Bank of Russia raised its key rate to 9.5 percent percent from 8 percent, according to a website statement. That surprised all 31 economists surveyed by Bloomberg. The ruble stayed lower, extending its worst month in more than two years. 
• Falling Bank Deposits Add to China Economy Warning Signs. Chinese bank deposits dropped following a crackdown on lenders manipulating their numbers and “illicit” means of attracting money, threatening to weigh on credit growth and hinder efforts to reignite the economy. Four of the five biggest banks, led by Industrial & Commercial Bank of China Ltd. (601398), posted a drop in deposits as they reported third-quarter earnings this week. Central bank data showed it was the first quarterly decline for the nation’s banking industry since at least 1999.
• WPP Revenue Growth Slows as U.S. Ad Business Slackens. WPP Plc (WPP) reported slowing sales growth at the world’s largest advertising company in the third quarter, and said the end of the year wouldn’t be much better as business in North America and the U.K. cools. 
• European Stocks Rally After Bank of Japan Boosts Stimulus. (video) European stocks rose to a four-week high amid optimism the Bank of Japan’s stimulus will fill some of the gap left by the end of Federal Reserve bond buying. The Stoxx Europe 600 Index gained 1.8 percent to 336.8 at the close of trading, boosting its weekly advance to 2.9 percent, the most this year. Barclays Plc and BNP Paribas SA led lenders higher, as all 19 industry groups on the gauge climbed. The equity benchmark dropped 1.8 percent in October, the most since June 2013, amid concern the European Central Bank’s asset purchases won’t be enough to revive the region’s economy.
• Brent Set for Longest Run of Weekly Losses Since 2002. Brent crude headed for a sixth weekly loss, the longest losing streak since 2002, as OPEC boosted production to a 14-month high amid a global surplus. West Texas Intermediate was on track for its biggest monthly decline in more than two years.
• OPEC in ‘Price War’ as Iraq Says Members Fight for Market. Members of OPEC, the group that supplies 40 percent of the world’s oil, are engaged in an internal price war as they seek to preserve their share of an oversupplied market, Iraqi Oil Minister Adel Abdul Mahdi said. “There is a price war within OPEC,” Abdul Mahdi told an evening session of the parliament in Baghdad yesterday, which was broadcast on state-run television. “The market’s fundamentals have changed, with an extra 3 million barrels a day of crude entering the market at a time when growth in China and India has slowed.” 
• Copper Declines After Freeport Workers Cancel Strike. Copper futures declined for the second straight day as workers called off a strike at Freeport-McMoRan Inc.’s site in Indonesia, the world’s second-largest mine for the metal.

ZeroHedge: 

• The Next Time The BIS Wants To Warn About Monetary Kool-Aid, Bubbles, Lack Of Liquidity Or Complacency...
• Whatever You Do, Ignore These Signs.
• Starting Off Strong: Goldman Slashes Q4 GDP Estimate From 3.0% To 2.2%.
• Despite Plunge In Spending, Consumer Confidence Jumps To 7-Year High. (graph)
• Chicago PMI Smashes Expectations, Jumps To 12-Month High. (graph)
• Where Is The "Low Gas Price Spending Spree": Consumer Spending Tumbles At Fastest Rate Since October 2009. (graph)
• Goldman On BOJ's Banzainomics: "We Highlight The Potential For Harsh Criticism Of Further Cost-Push Inflation".

Business Insider:

• Virgin Galactic Spacecraft Crashes During Test Flight.

Reuters:

• China growth to slow to 5 percent over next year or so: London consultancy. China’s economic growth will slow sharply to 5 percent over the next year or so rather than close to 7 percent suggested by forecasts based on official statistics, according to a new indicator of growth momentum published by Fathom, a London-based consultancy.“Before he became premier, Li Keqiang had described GDP figures as unreliable. He suggested some alternative indicators to gauge the true health of the overall economy,” wrote Yiannis Koutelidakis and Laura Eaton, analysts at Fathom. “We have taken him at his word and put together our own China Momentum Indicator (CMI). It does not look good. It has dropped sharply, suggesting that growth is heading towards 5 percent over the next year or so. Indeed, it may already be there.”

Channel News Asia: 

• NATO warns Russia over Ukraine rebel polls. NATO chief Jens Stoltenberg warned Russia on Friday (Oct 31) against recognising elections staged by pro-Kremlin rebels in eastern Ukraine, saying Moscow continues to destabilise the country instead of backing peace efforts.