Broad Equity Market Tone:
- Advance/Decline Line: Lower
- Sector Performance: Mixed
- Market Leading Stocks: Performing In Line
Equity Investor Angst:
- Volatility(VIX) 14.72 +4.92%
- Euro/Yen Carry Return Index 148.29 +.91%
- Emerging Markets Currency Volatility(VXY) 7.92 +2.46%
- S&P 500 Implied Correlation 54.12 +.48%
- ISE Sentiment Index 86.0 unch.
- Total Put/Call .81 +6.58%
Credit Investor Angst:
- North American Investment Grade CDS Index 64.11 +.20%
- European Financial Sector CDS Index 66.88 -.30%
- Western Europe Sovereign Debt CDS Index 31.87 +.22%
- Asia Pacific Sovereign Debt CDS Index 63.30 -.46%
- Emerging Market CDS Index 245.54 +3.30%
- China Blended Corporate Spread Index 322.35 -1.39%
- 2-Year Swap Spread 20.75 -1.25 basis points
- 3-Month EUR/USD Cross-Currency Basis Swap -10.5 -.75 basis point
Economic Gauges:
- 3-Month T-Bill Yield .00% unch.
- Yield Curve 183.0 -1.0 basis point
- China Import Iron Ore Spot $78.63/Metric Tonne -1.21%
- Citi US Economic Surprise Index 22.10 +4.1 points
- Citi Eurozone Economic Surprise Index -28.80 +4.4 points
- Citi Emerging Markets Economic Surprise Index -15.30 +2.0 points
- 10-Year TIPS Spread 1.93 unch.
Overseas Futures:
- Nikkei Futures: Indicating +1,016 open in Japan
- DAX Futures: Indicating +2 open in Germany
Portfolio:
- Slightly Higher: On gains in my tech sector longs and emerging markets shorts
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 25% Net Long
Bloomberg:
- Russia Threatened With More Sanctions After Backing Vote. Russia backed yesterday’s rebel-held
votes in eastern Ukraine, prompting officials from Germany to
warn the government in Moscow of stronger sanctions. The Russian Foreign Ministry said today it “respected”
the ballot, which provided a “mandate to the elected
representatives to solve practical tasks and restore normal life
in the regions.” Germany denounced the vote and the Ukrainian
authorities in Kiev said it poses a threat to the peace process. Russia is on a collision course with the U.S. and its
allies over the one-day ballot held by separatists in the
regions of Donetsk and Luhansk a week after they boycotted
national parliamentary elections.
- Ruble Weakens as Ukraine Rebel Elections Spur Sanctions Concern. The ruble weakened in thin holiday
trading as elections organized by pro-Russian rebels in eastern
Ukraine threatened to undermine a fragile peace in the region. The currency slid 0.8 percent to 48.3501 versus the central
bank’s dollar-euro basket by 6:00 p.m. in Moscow, when the
central bank stops market operations, after dropping 7.7 percent
last month. Volume in dollar-ruble trade via the Moscow Exchange
dropped 96 percent from Oct. 31 as Russia has public holidays today and
tomorrow.
- U.S. Crude Oil Futures Decline to Lowest Since June 2012.
U.S. crude oil futures dropped as much as 1.7 percent in New York
trading, while Brent retreated 0.8 percent. West Texas Intermediate slid
as much as $1.40 to $79.13, the lowest intraday price since June 2012,
as of 2:26 p.m. in New York. Brent crude futures fell 71 cents to
$85.15. Earlier, Saudi Arabian Oil Co., the world’s largest crude
exporter, increased the cost of oil sales to Asia and Europe and reduced
them for the U.S.
- Italian Bonds Drop Before ECB Meet; Cannata Doubts QE Usefulness. Italian government bonds dropped for
the first time in five days amid speculation the European
Central Bank will refrain from adding to its stimulus program at
a policy meeting this week. Spanish securities also declined, with the 10-year yield
rising the most since Oct. 20. The ECB, which last month
implemented a new round of stimulus to ward off deflation by
buying covered bonds, is scheduled to meet on Nov. 6. The
benefits of the central bank extending its purchases to
sovereign bonds is unclear, Italian debt chief Maria Cannata
said in Brussels today.
- Vicious Circle of Bad Loans Ensnaring Italian Companies. Italian borrowers are becoming
trapped in a vicious circle. As bank loans turn sour at the rate
of about 2 billion euros ($2.5 billion) a month, corporate
lending is dwindling to the least in more than a decade. Lenders are
sitting on a total 174 billion euros of non-performing loans, an
increase of 62 percent from three years ago, according to the latest
data from Bank of Italy. New corporate lending dropped in August to 21
billion euros, the
lowest since at least 2003, the data show.
- Euro Manufacturing Remains Near Stagnation as Italy Contracts. European manufacturing barely grew last month as factory output in France and Italy shrank. A
final reading of a Purchasing Managers’ Index for the industry stood at
50.6 in October, London-based Markit Economics said today. While that’s
up from a 14-month low of 50.3 in September, it’s below a 50.7 estimate
released on Oct. 23 and barely above the mark of 50 signaling expansion.
- European Stocks Drop as Holcim, PostNL Fall on Earnings. European stocks fell, after this year’s biggest weekly rally, as investors weighed disappointing earnings from PostNL NV and Holcim Ltd.
The Stoxx Europe 600 Index slid 0.8 percent to 334.25 at
the close of trading as Italian utilities declined.
- Record Short VIX Notes Is Sounding Alarm to Deutsche Bank. Securities that usually gain value as
the U.S. stock market gets calmer have never been more popular
with investors. That concerns strategists at Deutsche Bank AG. A
combination of investor inflows and declining equity volatility has
pushed the market value of the VelocityShares Daily Inverse VIX
Short-Term ETN to about $1.2 billion and sent the ProShares Short VIX
Short-Term Futures ETF (SVXY) to $564 million, data compiled by
Bloomberg show. Both reached records last week.
- Those V-Shaped Stock Charts Are Still Being Dissected.
The jagged V-shaped chart of the Standard & Poor’s 500 Index
and many individual stocks in the past six weeks caused Carter Worth to
search for the right word to describe the whiplash. In Worth’s opinion,
the initial selling “was the thoughtful, wise act,” and the rebound was
the impetuous part. The recent volatility “is a harbinger of things
to come,” he warned. “Sharp breaks in trend followed by sharp rebounds
is not healthy,” he
wrote. “Large and important institutional players were and continue to
act impetuously. This is not the kind of behavior indicative of
conviction and confidence and staying power. We are sellers of the
market here on this rebound right back to the scene of the crime.”
- New Junk-Bond Derivatives Are Hot as Traders Get Creative.
When it gets tough to maneuver in the junk-bond market, traders can
either give up or get creative. Plenty of them seem to be opting for
creativity this time around. There’s been a surge in demand for a relatively new index of derivatives that aims to replicate the risk and return of
high-yield bonds. As volatility soars to the most in more than a
year, trading in a total-return swaps index reached a record $4
billion in September from almost nothing in May, according to
data compiled by Morgan Stanley.
MarketWatch.com:
CNBC:
ZeroHedge:
Business Insider:
Style Underperformer:
Sector Underperformers:
- 1) Steel -1.60% 2) Agriculture -.77% 3) Road & Rail -.62%
Stocks Falling on Unusual Volume:
- LH, ARCPP, RCAP, FNHC, SNY, CKEC, MMYT, OPWR, GVA, HNT, WBK, DGX, ACHC, SAP, CLB, BLL, PKX, ATW, EGOV, WMGI, LRE, PSMT, NVDQ, RSG and TSU
Stocks With Unusual Put Option Activity:
- 1) ARCP 2) HCA 3) TRIP 4) MMM 5) TSO
Stocks With Most Negative News Mentions:
- 1) LH 2) PG 3) SLXP 4) NOV 5) DF
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Networking +1.09% 2) Computer Hardware +1.06% 3) Hospitals +1.05%
Stocks Rising on Unusual Volume:
- SAPE, CVD, AMRE, ANIP, SPR, GPRO, YELP, AMBA and RGLD
Stocks With Unusual Call Option Activity:
- 1) CBS 2) NRG 3) RMD 4) UUP 5) NUS
Stocks With Most Positive News Mentions:
- 1) CCL 2) SAPE 3) IHS 4) AA 5) YELP
Charts:
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...
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.
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.
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:
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.
- NASDAQ 100 futures -.09%.
Morning Preview Links
Earnings of Note
Company/Estimate
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
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.
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.
