Stocks Rising Slightly into Final Hour on Central Bank Hopes, Yen Weakness, Short-Covering, Road&Rail/Retail Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Slightly Higher
  

• Sector Performance: Mixed
  

• Volume: Slightly Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 14.19 +.14%

• Euro/Yen Carry Return Index 148.67 -.54%

• Emerging Markets Currency Volatility(VXY) 8.41 +2.94%

• S&P 500 Implied Correlation 47.04 -3.61%

• ISE Sentiment Index 104.0 +20.93%

• Total Put/Call .89 +1.14%

• NYSE Arms .89 +17.40% 

Credit Investor Angst:

• North American Investment Grade CDS Index 65.02 +.29%

• European Financial Sector CDS Index 66.50 -2.42%

• Western Europe Sovereign Debt CDS Index 31.23 -3.31%
• Asia Pacific Sovereign Debt CDS Index 64.05 +.83%

• Emerging Market CDS Index 266.80 +3.46%

• China Blended Corporate Spread Index 322.12 -.26%
• 2-Year Swap Spread 21.5 +.25 basis point

• TED Spread 21.25 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -12.0 -1.0 basis point

Economic Gauges:

• 3-Month T-Bill Yield .02% unch.

• Yield Curve 184.0 +2.0 basis points

• China Import Iron Ore Spot $75.38/Metric Tonne -1.41%

• Citi US Economic Surprise Index 16.20 +1.0 point
• Citi Eurozone Economic Surprise Index -31.40 -2.0 points

• Citi Emerging Markets Economic Surprise Index -13.10 +1.8 points

• 10-Year TIPS Spread 1.94 +1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating +168 open in Japan

• DAX Futures: Indicating +5 open in Germany

Portfolio: 

• Higher: On gains in my retail/biotech sector longs and emerging markets shorts

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

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:

• Ukraine Lurches Back Toward Open War on East Fighting. Ukraine’s east lurched back toward open war as the government in Kiev and pro-Russian rebels accused each other of starting major offensives in the region. The Ukrainian government said there were 26 outbreaks of fighting today between its forces and pro-Russian separatists in the east, while the rebels said the Kiev government’s troops had gone on the offensive there. The standoff is coming to a head after Ukraine and its allies accused separatists of undermining peace efforts with Nov. 2 elections in Donetsk and Luhansk. Russian President Vladimir Putin said yesterday that Ukraine’s “civil war” isn’t subsiding as cities continue to come under shelling and the civilian death toll rises. 

• Russia Reserves Decline $10.5 Billion, Most Since May. Russia’s international reserves, which have shrunk by a fifth since last year’s peak, are in the spotlight after the central bank shifted its currency intervention policy as the ruble plunged to a record. The value of the stockpile has declined for 11 straight weeks, losing $10.5 billion in the seven days through Oct. 31 to $428.6 billion, the largest drop since May, the central bank said today. The ruble weakened to a record low, depreciating 2.3 percent against the dollar as of 4:17 p.m. in Moscow.

• ECB Keeps Rates Unchanged as Draghi Tests Limits of Power. The European Central Bank kept interest rates unchanged at record lows as investors wait for signs from President Mario Draghi on whether he’ll push for more stimulus for the euro area. The 24-member Governing Council left the main refinancing rate at 0.05 percent at its meeting today in Frankfurt. The decision was predicted by all 55 economists in a Bloomberg News survey. The deposit rate remained at minus 0.2 percent and the marginal lending rate at 0.3 percent.

• German Factory Orders Rise Less Than Forecast as Growth Stalls. German factory orders (GRIORTMM) climbed less than forecast in a sign the euro area’s largest economy may struggle to grow in the second half of the year. Orders, adjusted for seasonal swings and inflation, rose 0.8 percent in September after a revised decline of 4.2 percent in August, data from the Economy Ministry in Berlin showed today. Economists predicted an increase of 2.3 percent, according to the median of 39 estimates in a Bloomberg News survey. Orders fell 1% on the year. 

• Lenovo Says ‘Hypergrowth’ in China Smartphones Ending. Chief Executive Officer Yang Yuanqing has expanded in computer servers and mobile phones, including the $2.91 billion purchase of Motorola Mobility, to help combat a shrinking personal-computer market. Growth in China is slowing amid intensifying competition from local smartphone producers, including Xiaomi Corp., which surpassed Lenovo and became the third-biggest global vendor in the quarter ending in September. 

• Most European Stocks Rise as Investors Weigh ECB Promise. Most stocks in Europe advanced as European Central Bank President Mario Draghi said policy makers are ready to implement further stimulus measures if needed to support the euro-region economy. The Stoxx Europe 600 Index increased 0.2 percent to 337.08 at the close of trading, after earlier gaining as much as 1 percent and dropping as much as 0.6 percent.

• Food Prices Drop a 7th Month in Longest Dip Since 2009. World food prices tracked by the United Nations fell for a seventh month in October, the longest slide since 2009, adding to falling energy costs in slowing inflation and making nutrition more accessible. An index of 55 food items fell 0.2 percent month-on-month to 192.3 points, the lowest since August 2010, the UN’s Rome-based Food & Agriculture Organization wrote in an online report today. The index is stabilizing, it said. 

• OPEC Cuts Most Demand Forecasts for Its Crude on U.S. Boom. OPEC, supplier of 40 percent of the world’s oil, cut forecasts for the amount of crude it will need to supply for most of the next two decades as the shale-energy boom in the U.S. lessens dependency on the group. Demand for crude from the Organization of Petroleum Exporting Countries may fall to a 14-year low of 28.2 million barrels a day in 2017, according to the group’s annual World Oil Outlook. That’s 600,000 a day less than last year’s report and 800,000 below the amount required this year. OPEC lowered every forecast for its crude through 2035 except next year, which will be higher than previously predicted. Still, Secretary-General Abdalla El-Badri predicted prices will rebound next year. 

• Oil Falls Fifth Day in Six as OPEC Cuts Demand Outlook. U.S. crude futures slid for a fifth time in six days after OPEC cut forecasts for the amount of oil it needs to supply and the dollar strengthened.

• Hedge Fund Manager Compensation Rises 8% to $2.4 Million. Money managers at hedge-fund firms that oversee more than $4 billion earned about $2.4 million this year, an increase of almost 8 percent, according to an industry survey. Pay for senior traders and analysts at large funds with average industry performance rose about 5 percent, partly driven by competition from private-equity firms and banks, according to a survey by Glocap Search LLC, a New York-based executive-search firm. Analysts earned about $372,000 in salary and bonus, Glocap said in an e-mailed statement.

Wall Street Journal:

• Oil Price at $70 a Barrel Would Likely Trigger Cut in OPEC Output Ceiling.

ZeroHedge: 

• The Magic Of CPI: Watch How Economists Transform A 400% Price Increase Into A 7.1% Decline. (graph)

• Former IMF Head's Hedge Fund Goes Bankrupt After Partner Suicide, Fraud.

• 3 Things Worth Thinking About.

• Bullard's "QE4" Stick Save Unleashes Biggest 16-Day Market Surge In History. (graph)

• "Saudis Have Good Reason To Be Concerned" Warns Ex-CIA Officer, As ISIS Enters World's Largest Oil Exporter.

• Record Equity ETF Creation In October.

• Ukraine Begins "Large-Scale" Offensive In Donetsk; "War Has Resumed" Rebel Leader Warns; Russian Stocks, Currency Crashing.

• Job Cuts Surge 68%, Most In 3 Years; Worst October Since 2009. (graph)

@Conflict_Report:

• Extreme shelling and fighting in #Donetsk tonight. Explosions of different volume EVERY 3 SECONDS!

@H3NPHLO:

• AAII % Bearish Lowest Since 2005. (graph)

The Times:

• Scientists create drug to replace antibiotics. Scientists have developed the first effective alternative to antibiotics in what is being hailed as a significant advance in the fight against drug-resistant infections. In a small patient trial, the drug was shown to be effective at eradicating the superbug MRSA. Scientists say it is unlikely that the infection could develop resistance against the new treatment, which is already available as a cream for skin infections. Researchers hope to develop a pill or injectable version of the drug within five years.

Bear Radar

Style Underperformer:

• Small-Cap Value -.10%

Sector Underperformers:

• 1) Oil Tankers -3.01% 2) Telecom -1.87% 3) Semis -1.31%

Stocks Falling on Unusual Volume:

• NSM, TNGO, WAC, WWWW, QCOM, SGM, BCOR, EPZM, PNK, WIX, CSOD, GNRC, TCAP, BAH, MWIV, AKRX, AAP, FOXF, AMRI, ANDE, PRGO, LCI, TNDM, GIL, TXTR, PAGP, OKS, DNOW, EVTC, BAH, UNM, RCAP, THOR, COUP, PRGO, Z, WMGI, PTC, KLIC, SGEN, GNRC, PDCE, BBG, AMRI, CTL, AES, FRGI, RGEN, PNK, HSC, LCI, MTRX, FMI, TCAP, FNHC, SSE

Stocks With Unusual Put Option Activity:

• 1) QCOM 2) GNW 3) WDC 4) Z 5) BTU

Stocks With Most Negative News Mentions:

• 1) PBR 2) OWW 3) QCOM 4) CTL 5) FRP
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Mid-Cap Growth +.55%

Sector Outperformers:

• 1) Gold & Silver +3.26% 2) Road & Rail +1.49% 3) Retail +1.09%
  

Stocks Rising on Unusual Volume:

• ACAS, PPO, SWIR, NDLS, NXTM, KATE, WFM, DATA, TSLA, AEGR, KERX, AAWW, HSP, LL, SLH, NLNK, BWC and IT

Stocks With Unusual Call Option Activity:

• 1) MCP 2) GNW 3) QCOM 4) VRX 5) ACAS

Stocks With Most Positive News Mentions:

• 1) WFM  2) DATA 3) ACT 4) EOG 5) TSLA
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Thursday Watch

Evening Headlines 
Bloomberg:

• Ukraine Truce Teeters as Kerry, Merkel Warn on Sanctions. Ukraine’s two-month-old truce is in peril amid new fighting as insurgents raised doubts about a cease-fire and the U.S. and Germany sounded warnings that Russia risked more sanctions over the conflict. A move by Ukrainian President Petro Poroshenko to revoke the special status of the rebel-held areas will scuttle the truce struck in Minsk, the breakaway regions said in a joint statement today. German Chancellor Angela Merkel urged the European Union to consider more sanctions, while U.S. Secretary of State John Kerry warned “pressure will increase” if the Sept. 5 agreement isn’t implemented. 

• BOJ Runs Into Critical Analysts After Kuroda Easing Shock. Hours after the Bank of Japan caught central-bank watchers off guard by boosting stimulus, officials were fending off complaints about its communications. A meeting on Oct. 31 with about 50 analysts and economists on the BOJ’s new outlook ran on for two hours -- twice the usual time -- as the discussion turned to how well Governor Haruhiko Kuroda and other officials telegraphed their views before the decision, said people who were present. The questions came like a torrent, with some complaining about the BOJ’s bond purchase plan and its communications with the market, according to analysts who asked not to be named as the gathering was private. 

• Billionaire Enclave Prices Drop on Singapore Property Curbs. Australian hedge-fund manager Stephen Fisher says he was lucky to have bought his luxury home on Sentosa, a Singapore resort island that has attracted the wealthy, in 2005, before property curbs kicked in. “I would be very wary of buying a second property in Singapore as I would have to pay higher taxes, which makes it less attractive,” Fisher, 50, chairman of First Degree Global Asset Management, said in a phone interview.

• Dollar Climbs on U.S. Economy; Japan Stocks Rise With Oil. The dollar rose, climbing to a seven-year high against the yen on signs of U.S. economic strength. Japanese stocks rose for a sixth day while oil extended gains. The greenback added 0.3 percent to 115.03 yen by 11:05 a.m. in Tokyo, the strongest level since November 2007. The U.S. currency rose to a 14-month high versus the Korean won and held gains against the euro with the Bloomberg Dollar Spot Index little changed at its highest level since 2009. The Topix index rose 0.2 percent, holding a six-year high.

• Yen to Rebound on Signs Drop to 115 Overdone: Technical Analysis. The yen’s plunge to a seven-year low has been too quick, trading patterns suggest, pointing to the risk of a rebound.

• Lead Falls to 17-Month Low as China Economic Growth Slows. Lead fell to a 17-month low in London after a private gauge of economic activity indicated growth slowed during October in China, the world’s biggest metals consumer. A composite index of Chinese services, manufacturing and construction fell for third third time in four months, Markit Economics said today. The Bloomberg Commodity Index (BCOM) of 22 raw materials dropped to the lowest since July 2009 as the dollar rose to a five-year high against a 10-currency basket. 

Wall Street Journal:

• U.S. Money-Laundering Probe Touches Putin’s Inner Circle. Federal Prosecutors Investigating Financial Transactions Involving Billionaire Gennady Timchenko. U.S. prosecutors have launched a money-laundering investigation of a member of Vladimir Putin’s inner circle, several people familiar with the efforts said, in a politically sensitive escalation of pressure on the Russian president’s cadre of billionaire supporters.

• Regulator Wants Greater Use of Bank Monitors. New York’s Lawsky Says Independent Monitors Enforcing Settlements Can Sniff Out Other Trouble. New York state’s top financial regulator plans to expand his scrutiny of banks and other firms using a tool previously reserved for companies that were in legal trouble.

• Democratic Coalition Frays Around Edges in Midterm Elections. Hispanic Support Weakens and Black Turnout Slides in Certain States.

• A Growth and Reform Congress. The GOP can’t ‘govern’ from Congress but it can showcase its agenda.

CNBC:

• Kudlow: Obama stirring a ‘rat’s nest’ of backlash. (video) After listening to recent comments from President Barack Obama, CNBC's Larry Kudlow said on his current track, the president was facing "a rat's nest" of troubles and woes that would end in arguments and disagreement.

Zero Hedge:

• What A Difference 2 Weeks Makes. (graph) The percentage of Bullish advisors surged by the most on record... and yet we keep being told how negative everyone is? 

• "If The Fed Was Truly Data-Dependent, They Would Have Tightened Already".

• Spain Moves Military Assets Into Catalonia Ahead Of Weekend's 'Illegal' Secession Vote.

• The Day After: An Interactive Sea Of Red. (map)

• Tesla(TSLA) Surges After Guiding Lower, Reporting Record Cash Burn: The Quarter In Charts.

• Contained? NYC Department Of Health Actively Monitoring 357 Individuals For Ebola.

• Obama May Have To Shut Down Government To Halt The Keystone Pipeline.

• Republicans Lay Out Agenda: Repeal ObamaCare, Authorize Keystone, Save The Children.

• Bernanke Warns It Will Be "Very Difficult" For The ECB To Do QE. 

• US Pension Plans Need Massive $110 Billion In 7 Years, Moodys Warns.

• Macau – A Canary In China's Coal Mine? (graph)

Business Insider:

• The First Polar Vortex Of The Season Is Coming Next Week.

LA Times:

• 357 people now being monitored for Ebola in New York.

NY Times:

• More Expensive Cars Are Leading to Longer-Term Loans. Six-year loans are now typical, and terms stretching as long as 96 months — eight years — are available at some lenders. The downside of longer loans, however, can be considerable. Longer loan terms are considered riskier for the lender, so they carry higher interest rates, which will increase the total cost of buying the car. If you’re paying off the car loan for seven or more years, you’re more likely to be tired of the vehicle and trade it in immediately for another one once it is paid off, starting the debt cycle again.

National Interest: 

• The Doomed Dragon: Is China's Economy Headed for a Crash Landing? "China is growing too slowly and accumulating debt too fast. Its leaders have rejected fundamental reform. They still have the power to delay a reckoning but seem helpless to change the direction of events." China, at the moment, is in fact growing in the low single digits, if it’s growing at all, and it is heading into one of the biggest debt crises in history, if not the biggest. The shock of a Chinese collapse will roil the global economy.

Reuters:

• Qualcomm(QCOM) sees more China trouble, faces probes in U.S., Europe. Qualcomm Inc warned on Wednesday that an antitrust investigation and problems collecting royalties could harm its business in China next year and it also disclosed new regulatory investigations in the United States and Europe. 

• Whole Foods(WFM) profit beats on market share gains. Upscale grocer Whole Foods Market Inc reported a better-than-expected quarterly profit as the company increased its market share and launched new products. Shares of the largest U.S. organic and natural food supermarket chain rose 8.1 percent in after-hours trading as it also gave an upbeat forecast for next year.

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 rateTripAdvisor profit sags as costs jump; shares slide

China Business News:

• China Unlikely to Cut Overall Rates Next Year. An across-the-board interest rate cut is unlikely, citing a person familiar with the matter. The person said the Chinese government held a meeting recently to discuss the 2015 growth target and overall policy.

Evening Recommendations

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 107.0 -2.0 basis points.

• Asia Pacific Sovereign CDS Index 63.5 -.75 basis point.

• FTSE-100 futures -.10%.

• S&P 500 futures -.24%.

• NASDAQ 100 futures  -.18%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AAWW)/.87

• (AOL)/.52

• (WEN)/.09

• (CECO)/-.58

• (AAP)/1.88

• (DTV)/1.30

• (APA)/1.38

• (DIS)/.88

• (CSC)/1.01

• (NVDA)/.35

• (IGT)/.30

• (FSLR)/.64

• (SLXP)/1.57

Economic Releases
8:30 am EST

• Initial Jobless Claims are estimated to fall to 285K versus 287K the prior week.

• Continuing Claims are estimated to fall to 2363K versus 2384K prior.

• Preliminary 3Q Non-Farm Productivity is estimated to rise +1.5% versus a +2.3% gain in 2Q.

• Preliminary 3Q Unit Labor Costs are estimated to rise +.5% versus a -.1% decline in 2Q.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Mester speaking, Fed's Evans speaking, Fed's Powell speaking, ECB rate decision, ECB's Draghi speaking, BoE rate decision, German Factory Orders report, weekly EIA natural gas inventory report, Challenger Job Cuts report for October, RBC Consumer Outlook Index for November, weekly Bloomberg Consumer Comfort Index, Raymond James Airline/Transport Conference, (FB) Q&A and the (EMN) investor day 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 25% net long heading into the day.

Stocks Higher into Final Hour on Election Optimism, Oil Bounce, Yen Weakness, Energy/Utility Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: About Even
  

• Sector Performance: Mixed
  

• Volume: Slightly Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 14.50 -1.95%

• Euro/Yen Carry Return Index 149.48 +.42%

• Emerging Markets Currency Volatility(VXY) 8.11 +1.76%

• S&P 500 Implied Correlation 50.02 -6.47%

• ISE Sentiment Index 77.0 -33.62%

• Total Put/Call .87 -2.25%

• NYSE Arms .71 -46.32% 

Credit Investor Angst:

• North American Investment Grade CDS Index 64.99 -.65%

• European Financial Sector CDS Index 67.75 -2.56%

• Western Europe Sovereign Debt CDS Index 32.30 -.19%
• Asia Pacific Sovereign Debt CDS Index 63.30 -1.14%

• Emerging Market CDS Index 256.18 +1.29%

• China Blended Corporate Spread Index 322.95 +.84%
• 2-Year Swap Spread 21.25 +.75 basis point

• TED Spread 21.25 -1.0 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -11.0 unch.

Economic Gauges:

• 3-Month T-Bill Yield .02% unch.

• Yield Curve 182.0 unch.

• China Import Iron Ore Spot $76.46/Metric Tonne -1.99%

• Citi US Economic Surprise Index 15.20 -1.2 points
• Citi Eurozone Economic Surprise Index -29.40 -1.4 points

• Citi Emerging Markets Economic Surprise Index -14.90 -.2 point

• 10-Year TIPS Spread 1.93 +1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating +157 open in Japan

• DAX Futures: Indicating -5 open in Germany

Portfolio: 

• Slightly Higher: On gains in my retail/medical sector longs and emerging markets shorts

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

• Market Exposure: Moved to 25% Net Long