Stocks Higher into Final Hour on Central Bank Hopes, Buyout Speculation, Yen Weakness, Biotech/Healthcare Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 13.56 -3.07%

• Euro/Yen Carry Return Index 153.03 +.93%

• Emerging Markets Currency Volatility(VXY) 7.96 -2.21%

• S&P 500 Implied Correlation 35.62 -7.48%

• ISE Sentiment Index 94.0 -17.54%

• Total Put/Call .94 +9.30%

• NYSE Arms .74 -6.31% 

Credit Investor Angst:

• North American Investment Grade CDS Index 66.70 +.4%

• European Financial Sector CDS Index 68.06 +1.98%

• Western Europe Sovereign Debt CDS Index 30.92 -1.87%
• Asia Pacific Sovereign Debt CDS Index 63.64 -.33%

• Emerging Market CDS Index 283.88 -1.57%

• China Blended Corporate Spread Index 323.40 -.11%
• 2-Year Swap Spread 21.25 unch.

• TED Spread 21.75 -1.0 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -9.25 unch.

Economic Gauges:

• 3-Month T-Bill Yield .01% unch.

• Yield Curve 182.0 -1.0 basis point

• China Import Iron Ore Spot $71.80/Metric Tonne -4.37%

• Citi US Economic Surprise Index 10.50 +2.1 points
• Citi Eurozone Economic Surprise Index -15.70 +8.3 points

• Citi Emerging Markets Economic Surprise Index -2.20 +.7 point

• 10-Year TIPS Spread 1.86 -1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating +105 open in Japan

• DAX Futures: Indicating +23 open in Germany

Portfolio: 

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

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg: 

• Russia, Ukraine Dispute Truce Format as NATO Sees Buildup. Ukraine and Russia clashed over how to move toward a new cease-fire agreement, after President Petro Poroshenko said his country is ready for “total war” with Vladimir Putin’s forces. As NATO Secretary General Jens Stoltenberg criticized Russia for staging a “serious military buildup” and sending troops and weapons across its western border, Ukrainian Prime Minister Arseniy Yatsenyuk advocated new “Geneva format” talks including the U.S. to de-escalate the crisis. Russia said that framework, which followed April talks in the Swiss city that excluded pro-Russian separatists, would skirt a process that led to a Sept. 5 cease-fire in Minsk, Belarus. 
• Russia Sees Recession Next Year If Oil Price Falls to $60. Russia’s economy will sink into a recession next year if the price of oil slumps to $60 a barrel and the U.S. and its allies tighten sanctions over the conflict in Ukraine, Finance Minister Anton Siluanov said. The economy of the world’s largest energy exporter won’t grow faster than 1 percent in 2015 even if oil prices hold steady and the severity of sanctions remains unchanged, Siluanov said in an interview in Singapore yesterday. The price of Brent has slumped by almost a third this year to below $80 a barrel.
• Four Killed in Palestinian Attack at Jerusalem Synagogue. Palestinians armed with butcher’s cleavers and a gun killed four worshipers at a synagogue in Jerusalem in an attack that escalated months of violence in the city. Three of the victims had dual U.S. and Israeli citizenship, and the fourth was an Israeli and British citizen. The two assailants, both from east Jerusalem, were shot and killed, and a Palestinian group claimed responsibility. Public Security Minister Yitzhak Aharonovitch urged soldiers and security guards to start carrying their weapons even when off-duty.
• ECB Plans ‘Intrusive’ Probe of Banks’ Risk-Weight Models. The European Central Bank plans to clamp down on the complex models lenders use to gauge the risk of their assets, as it works to restore trust in the euro area’s financial system. The ECB, newly installed as the euro area’s single supervisor, plans to scrutinize lenders’ models and eliminate variations across the currency bloc, top policy makers have said. The Frankfurt-based central bank didn’t look at the way banks calculate asset risk in its year-long balance-sheet probe, completed last month. 
• ECB Must Weaken Euro to Aid France and Italy, Ex-BOE’s King Says. (video) Euro-area stagnation poses the largest threat to the global economy and Mario Draghi should weaken the euro to help boost the flagging economies of France and Italy, according to former Bank of England Governor Mervyn King. “The euro area is the biggest risk because I don’t think the leaders in the euro area actually have a true vision of how to cope with the problem,” King said in an interview yesterday with Bloomberg Television’s Olivia Sterns in Naples, Florida.
• Europe Stocks Advance as German Investor Confidence Gains. European stocks rose for a second day as a report showed German investor confidence advanced for the first time this year. The Stoxx Europe 600 Index climbed 0.6 percent to 339.3 at the close of trading in London.
• Iron Ore Bear Market Deepens as China Home Prices Add to Concern. Iron ore extended a tumble to the lowest level in more than five years as declining home prices in China added to concern that an economic slowdown in the biggest buyer will deepen, exacerbating an oversupply. Ore with 62 percent content delivered to Qingdao, China, retreated 4.4 percent to $71.80 a dry ton, the lowest level since June 2009, according to data from Metal Bulletin Ltd. yesterday. It’s 47 percent lower this year, heading for the biggest annual drop in data going back to 2009.
• Oil Drops as Investors Weigh Likelihood of OPEC Cutback. WTI for December delivery fell $1.08, or 1.4 percent, to $74.56 a barrel at 12:58 p.m. on the New York Mercantile Exchange. The more-active January future slipped $1.12, or 1.5 percent, to $74.54. The volume of all contracts traded was 1.7 percent below the 100-day average for the time of day.
• Moody’s Joins Fitch Slamming Subprime Auto Bonds. The booming market for securities backed by subprime car loans is riskier than their ratings imply, say two of the biggest assessors of bond credit quality. Moody’s Investors Service (MCO) and Fitch Ratings analysts said in interviews that the grades their competitors have assigned to a crop of new issuers -- most of which are backed by private-equity firms -- are too high. The lenders lack a track record in the bond market proving their underwriting acumen and ability to handle the specialized task of collecting on soured debt during a downturn, according to the analysts.

ZeroHedge: 

• Hugh Hendry: "I Believe Central Bankers Are Terrified".
• Japan’s Last Stand - Portent Of Keynesian Collapse.
• Greek Bonds Tumble As Bailout Talks Stall On $3bn Troika 'Savings' Demands. (graph)
• The Biggest Beneficiary Of Mario Draghi's ABS-Purchasing Plan Has Been Revealed.
• Don't Show The Exuberant Homebuilders These 2 Charts. (graph)
• Wholesale Inflation Heats Up Due To Jump In Car, Food Costs, New Calculation Method. (graph)
• US Equity-Credit Divergence: A Warning. (graph)

Business Insider: 

• Brazil's Massive State-Owned Oil Company Has Become A National Nightmare. 
• Russia Is Tumbling Toward Its Economic Catastrophe Scenario.

Susan Lund:

• China credit bubble? It accounts for half of new private sector debt worldwide since 2007 - growth of $10T. (graph)

Telegraph:

• For believes in monetary voodoo, try this for a spin. too much On Thursday, British MPs are to debate money creation, including so-called "helicopter money". This is supposedly the first time parliament has debated such matters since 1844. Back then, it didn't work out so well. 
• CB entering 'very dangerous territory' warns S&P. “The risk of a triple-dip recession have increased. The ECB has one last arrow and that is quantitative easing of €1 trillion," said the credit rating agency. 

Bear Radar

Style Underperformer:

• Large-Cap Value +.47%

Sector Underperformers:

• 1) Steel -1.40% 2) Social Media -1.03% 3) Computer Services -.86%

Stocks Falling on Unusual Volume:

• PF, OME, CQP, IPAR, URBN, TJX, MC, CLDX, SC, DKS, MTLS, A, KOF, KEX, CLF, TX, HD, YOKU, CEO, AGTC, LXFT, TSN, TDW, ESNT and LOGM

Stocks With Unusual Put Option Activity:

• 1) MPC 2) SMH 3) HD 4) JNK 5) XLE

Stocks With Most Negative News Mentions:

• 1) F 2) WFC 3) URBN 4) A 5) TJX
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +.63%

Sector Outperformers:

• 1) Gold & Silver +2.29% 2) Hospitals +2.23% 3) Biotech +1.73%
  

Stocks Rising on Unusual Volume:

• ABGB, ACT, SUNE, TERP, POT, AMBA and GNRC

Stocks With Unusual Call Option Activity:

• 1) MOS 2) TJX 3) SUNE 4) AVP 5) DNKN

Stocks With Most Positive News Mentions:

• 1) REV  2) NOC 3) THOR 4) DISCA 5) MDT
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Tuesday Watch

Evening Headlines 
Bloomberg: 

• EU Skips Wider Russia Sanctions While Targeting Rebels. European Union governments held off on further economic sanctions against the Kremlin for fomenting rebellion in eastern Ukraine, while agreeing to blacklist more pro-Russia separatists there. EU foreign ministers decided to impose additional travel bans and asset freezes in response to the Nov. 2 elections in the rebel-held regions of Donetsk and Luhansk. The names will be released by the end of the month.
• Disappointment Becomes Norm for Global Growth as Japan Contracts. Group of 20 leaders pledged over the weekend to do everything they can to boost the global recovery. Japan’s descent into a recession is the latest reminder of how elusive that goal is proving to be. Less than 24 hours after heads of state gathering in Brisbane, Australia, agreed to take measures that would boost their economies by a collective $2 trillion by 2018, the Cabinet Office delivered news in Tokyo that Japan’s gross domestic product unexpectedly shrank an annualized 1.6 percent in the three months through September, the second straight contraction.

• Abe Set to Call Election, Delay Tax Hike Amid Recession. Japanese Prime Minister Shinzo Abe is set to call early elections as part of a trio of measures today in a gambit to secure his political future and fortify the “three arrows” of his economic policy after the nation sank into recession. Abe will postpone an unpopular sales tax increase, scheduled for October 2015, for 18 months, people familiar with the discussions said last week. He’ll probably call an early election for Dec. 14, according to people with knowledge of the ruling party strategy. Abe will announce both steps at a press conference today, public broadcaster NHK said, well as ordering new stimulus measures.

• Beijing Home Prices Drop for First Time in 2 Years on Discounts. Beijing home prices fell for the first time in almost two years as China’s property slowdown deepened, prompting developers to offer discounts to cut inventories. New-home prices dropped in October in 67 cities of 70 tracked by the government from a year earlier, and in 69 from September, the National Bureau of Statistics said today. Prices in Beijing declined 1.3 percent, the first annual decrease since November 2012 and a reversal from the 14.7 percent jump in January from the previous year. 

• Lopsided Link Shows Chinese Rejection of Hong Kong Stocks. Chinese investors failed to show up for some of Hong Kong’s foremost companies on the first day of the exchange link with the mainland, confounding the predictions of Deutsche Bank AG, BNP Paribas SA and Goldman Sachs Group Inc. 

• China Stocks Drop for Fourth Day as Data Shows Home-Price Slump. Chinese stocks dropped, with the benchmark index declining for a fourth day, as falling home prices added to concerns that an economic slowdown will deepen and enthusiasm toward an exchange link with Hong Kong faded. Poly Real Estate Group Co. (600048) and China State Construction Engineering Corp. slumped at least 1.8 percent. New-home prices decreased in all but one city monitored by the government last month as developers offered discounts to cut inventories. Hong Kong Exchanges and Clearing Ltd. slid 2.8 percent, extending yesterday’s 4.5 percent drop, as mainland investors used less than 4 percent of their 10.5 billion yuan ($1.7 billion) quota in Hong Kong this morning. The Shanghai Composite Index (SHCOMP) fell 0.4 percent to 2,463.76 at the noon-time break, while the Hang Seng China Enterprises Index slid 1 percent.

• Asian Stocks Rise as Abe Poised to Add Stimulus, Call Election. Asian stocks rose as investors await a decision by Japanese Prime Minister Shinzo Abe to put off a sales-tax increase, add stimulus and call an election, after data yesterday showed the economy entered recession. The MSCI Asia Pacific Index (MXAP) gained 0.4 percent to 140.29 as of 9:00 a.m. in Tokyo, after slumping by the most in more than a month yesterday.

• Goldman Cuts Copper Price Forecast on Rising Dollar, Falling Oil. Copper prices will fall next year as a strengthening U.S. dollar and weaker oil prices push down marginal production costs, according to Goldman Sachs Group Inc. The bank lowered its 2015 price outlook to $6,217 a metric ton from $6,400, analysts including Max Layton said in a report yesterday. Marginal production cost will fall to between $5,600 and $6,300 a ton next year, according to the report.

Wall Street Journal: 

• President Orders Review of U.S. Hostage Policies. Move Follows Criticism Surrounding Beheading Cases In Syria. The Obama administration is undertaking a review of how it handles cases of U.S. citizens held captive by extremists abroad, according to a letter from a top Pentagon official made public Monday, a move that follows criticism from some relatives of slain Americans.

• Small Towns Go to Bat for Wall Street Banks. Fed Bid to Limit Banks’ Commodities Activities Imperils Local Gas Contracts, Mayors Argue. A Federal Reserve plan that could stop big banks from owning oil pipelines, metals warehouses and other physical-commodity assets is sounding alarm bells hundreds of miles from Wall Street.

• Federal Private-Pension Safety Net Running $62 Billion Deficit. Pension Benefit Guaranty Corp. Report Warns of Problems with Multiemployer Pension Plans. The federal government’s safety-net program for private pensions is running a near $62 billion long-term deficit, largely due to long-standing problems in a type of pension plan that is common in transportation, construction and some other industries, according to a new report. The problems are likely to bankrupt the federal safety-net program for so-called multiemployer pension plans within the next decade, perhaps in the next few...

• Falling Commodity Prices Hammer Malaysia. Economy of Asia’s Largest Oil-and-Gas Exporter Hit.

• The Fed Needs Governors Who Aren’t Wall Street Insiders by Elizabeth Warren and Joe Manchin. With two vacancies to fill, Obama should pick nominees who will look out for Main Street, not the big banks.

• A Mystifying Obama Climate Slap at a U.S. Ally. In Brisbane, the president went out of his way to undermine Australian Prime Minister Tony Abbott. Why?
  

Fox News:

• Controversial economist Gruber has earned millions from taxpayers at federal, state levels. (video) “My job was just to see if the numbers added up,” Dr. Jonathan Gruber, the controversial architect of ObamaCare, told PBS two years ago. And add up the numbers did – at least in terms of Gruber’s consulting fees. A Fox News review of state and federal websites, as well as published reports, finds the MIT economist and his firm have secured millions in federal and state contracts stretching back over the last fifteen years.

CNBC:

• Japan proves QE doesn't work: Expert. (video)

• Why a Santa rally might not be in the cards. (video) Many traders expect stocks to rally into the year-end, but the current complacency may be signaling that a late year Santa rally is not in the cards. "We're a little concerned by the fact that investors' memories have become so short that volatility has just completely collapsed to multiyear lows a month away from an incredibly frightening roller-coaster ride. The bearish readings have slipped," said Julian Emanuel, equity strategist at UBS.

Zero Hedge:

• Carl Icahn: "One Day You'll See A Break Like A Few Weeks Ago But The Market Won't Come Back".

• GruberGate: "Senator" Obama Vs "President" Obama. (video)

• "Godfather" Of Abenomics Admits Japanese Policy "Is A Ponzi Game... Taxpayers May Revolt".

• The Fed's "Baffle 'Em With Bullshit" Strategy In 1 Simple Chart. (graph)

• What The Fed Has Wrought. (graph)

• Anti-HFT Revulsion Grows: IEX Ties For Fourth In Dark Pool Trading Thanks To World's Largest Wealth Fund. (graph)

• Missouri Governor Declares State Of Emergency, Activates National Guard Ahead Of Michael Brown Shooting Verdict.

• Polar Vortex 2.0 Arrives - All 50 States Will Freeze Tonight.

• Illinois Pension Debt Soars To $111 Billion.

• Fed Inflation Barometer Tumbles To Lowest Since 2008. (graph)

Business Insider:

• ELON MUSK: You Have No Idea How Close We Are To Killer Robots.

• As ISIS Continues To Gain Ground, Here's What The Militants Have In Their Arsenal.

• Russia And China Outmaneuvered Obama In Asia.

Reuters: 

• Urban Outfitters(URBN) profit falls due to increased markdowns. Apparel retailer Urban Outfitters Inc reported a lower-than-expected quarterly profit, hurt by increased markdowns and expenses related to marketing and technology. The company's shares fell 4.9 percent in extended trading.

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 slid

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.50% to +.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 106.50 -.5 basis point.

• Asia Pacific Sovereign CDS Index 63.75 unch.

• FTSE-100 futures n/a.

• S&P 500 futures -.03%.

• NASDAQ 100 futures  +.01%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (DKS)/.41

• (HD)/1.13

• (MDT)/.96

• (TJX)/.85

• (JACK)/.53

• (PETM)/.95

Economic Releases
8:30 am EST

• PPI Final Demand for October is estimated to fall -.1% versus a -.1% decline in September.

• PPI Ex Food and Energy for October is estimated to rise +.1% versus unch. in September.

10:00 am EST

• The NAHB Housing Market Index for November is estimated to rise to 55.0 versus 54.0 in October..

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Kocherlakota speaking, UK CPI report, Net Long-Term TIC Flows for September, US weekly retail sales reports, Stifel Healthcare Conference, UBS Tech Conference, Morgan Stanley Consumer/Retail Conference, (NOV) analyst day, (SYNA) investor meeting and the (ZTS) investor day could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by industrial 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.

Stocks Slightly Higher into Final Hour on Central Bank Hopes, Yen Weakness, Short-Covering, Healthcare/Utility Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 14.05 +5.56%

• Euro/Yen Carry Return Index 151.44 -.44%

• Emerging Markets Currency Volatility(VXY) 8.12 -.25%

• S&P 500 Implied Correlation 38.54 -4.51%

• ISE Sentiment Index 109.0 -30.57%

• Total Put/Call .83 -7.78%

• NYSE Arms .85 +3.46% 

Credit Investor Angst:

• North American Investment Grade CDS Index 66.34 +1.27%

• European Financial Sector CDS Index 66.83 -.58%

• Western Europe Sovereign Debt CDS Index 31.51 +.32%
• Asia Pacific Sovereign Debt CDS Index 64.25 +.97%

• Emerging Market CDS Index 288.32 +2.35%

• China Blended Corporate Spread Index 323.75 -.06%
• 2-Year Swap Spread 21.25 -.5 basis point

• TED Spread 22.75 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -9.25 unch.

Economic Gauges:

• 3-Month T-Bill Yield .01% unch.

• Yield Curve 183.0 +2.0 basis points

• China Import Iron Ore Spot $75.08/Metric Tonne -.52%

• Citi US Economic Surprise Index 8.40 -7.0 points
• Citi Eurozone Economic Surprise Index -24.0 +2.4 points

• Citi Emerging Markets Economic Surprise Index -2.90 +2.2 points

• 10-Year TIPS Spread 1.87 -3.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating +226 open in Japan

• DAX Futures: Indicating +14 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 50% Net Long