Today's Headlines

Bloomberg:  

• Putin Talks of Sending Russian Combat Troops to Syria. (video)
• Brazil Meltdown Dims Outlook for Mexican Companies Like Slim's. Mexican companies including billionaire Carlos Slim’s America Movil SAB are becoming the latest victims of Brazil’s woes. America Movil, as well as bottler Coca-Cola Femsa SAB and petrochemical Mexichem SAB, have expanded into Brazil in search of growth beyond their home market. Now they’re feeling the pain as South America’s largest economy heads for its worst recession since the 1930s, causing middle-class families to scale back consumption on everything from soft drinks to pay-TV packages. Brazil’s fast-growing middle class had appealed to Mexican companies, especially America Movil, which has been facing penalties set by regulators in Mexico for its dominance. 
• Europe Faces Even Bigger Refugee Crisis Ahead, Denmark Says. Denmark’s foreign minister, Kristian Jensen, says Europe needs to change its approach in handling the refugee crisis or risk an even bigger human catastrophe. After suffering criticism for its limited intake of asylum seekers compared with neighboring Sweden, Denmark’s government is now trying to defend its policies. Speaking in a phone interview on Thursday, Jensen said the migration wave currently overwhelming Europe can only be dealt with if governments in the region devote more resources to improving conditions in the countries being fled. He says failure to do so will lead to a bigger crisis as the mass exodus spreads to Jordan and other countries bordering Syria.
• Catalan Independence Push Close to Majority, Pollster Says. Junts pel Si, the ad-hoc platform pushing for Catalan independence, is set to win more than 40 percent of the vote in this month’s election, putting it within reach of an outright majority in the regional assembly, said Narciso Michavila, chairman of polling company GAD3. Support for the campaign is growing as regional President Artur Mas and his allies pull in most of the votes they won on separate party tickets in 2012, Michavila, whose firm is conducting several quantitative and qualitative studies on the election, said in a telephone interview Wednesday. Spanish electoral law benefits the most popular parties so it’s possible to win a majority with less than 50 percent of the vote. Mas and ally Oriol Junqueras’s Esquerra Republicana controlled 71 of the 135 seats in the Catalan parliament before the president called early elections on Sept. 27 to seek a mandate for his plan to break away from Spain. “In 2012, about 45 percent of the vote went to pro-independence parties, ” said Michavila, whose firm has Prime Minister Mariano Rajoy’s People’s Party among its clients. “I clearly see them retaining the vote they got in the previous elections.” Should Mas and Junqueras fail to reach the 68 seats they need for a majority, they could still turn to the Popular Unity Candidacy, or CUP, to get over the line. 
• Siemens Falls After Goldman Sachs Downgrade on Outlook Risks. Siemens AG fell the most in two weeks after Goldman Sachs Group Inc. said it no longer recommended buying shares in Europe’s largest engineering company given a risk of further profit disappointments. The company, based in Munich, is facing increasing challenges as the economies of both Germany and China slow, Goldman Sachs said in a report outlining why it downgraded its rating on Siemens stock to “neutral” from “buy.” Last year’s $9 billion spend on acquisitions has failed to spur the stock, it said. The shares fell as much as 2.2 percent.
• Two Mistakes the Fed Made in Holding Rates Steady. (video)
• RBS’s Gallo Says Fed Decision Wrong for Global Markets. (video)
• OMFIF’s Desai Says the Federal Reserve Made a Mistake. (video)
• Dollar Will Rise to Parity With Euro, Principal Global Says. The dollar is poised to strengthen to parity with the euro in the next 12 months as the Federal Reserve is still on course to raise interest rates, even after deciding not to act this week, according to Principal Global Investors. The U.S currency will likely appreciate to 125 yen during the same period, said Jim McCaughan, chief executive officer of Principal, which manages about $350 billion. The Fed decided at its meeting Thursday against raising its benchmark amid financial market turmoil and rising risks of a global economic slowdown. “It would require a much greater shock than I see to the world or U.S. economy to see rates not go up,” New York-based McCaughan said in an interview in Singapore. “The dollar will not be held back by the dovish monetary policy for an awful lot longer.”  
• Brazil's Stocks Slump as Political Turmoil Eclipses Fed Decision.
  Brazilian stocks missed out on the gains in most emerging markets amid speculation President Dilma Rousseff will fail to shore up the budget and revive Latin America’s largest economy.
  The benchmark equity gauge trimmed the best weekly rally in five months, countering an advance in stocks from developing nations that was spurred by the Federal Reserve’s decision to keep interest rates on hold. The Ibovespa has plunged 17 percent from this year’s peak in May as the government struggles to boost its finances and Brazil heads toward the longest recession since the 1930s amid a widening graft probe. "A lot has been said by the government about plans to put the country back on track, but we must urgently move from talk to action," Adeodato Volpi Netto, the head of capital markets at the equity research firm Eleven Financial, said from Sao Paulo. "The economy is falling to pieces, and we need signals that things can improve before this year ends." The Ibovespa gauge dropped 0.8 percent to 48,166.63 at 12:58 p.m. in Sao Paulo.
• European Stocks Fall With Carmakers as Fed Inaction Boosts Euro. European stocks fell the most in two weeks after the Federal Reserve’s decision to keep rates unchanged stoked global-growth concerns and a stronger euro weighed on export-dependent companies. Daimler AG, Volkswagen AG and BMW AG dragged automakers to a 3.3 percent drop, and Germany’s DAX Index led declines among western-European markets with a 3.1 percent slide. The inverse correlation between the Stoxx Europe 600 Index and the single currency reached levels not seen since 2003. The Stoxx 600 slid 1.8 percent to 354.77 at the close of trading, for a 0.3 percent weekly retreat.
• U.S. Shale Drillers Are Drowning in Debt. As much as 400,000 barrels a day of oil production is at risk as U.S. shale companies like Samson Resources Co. run out of money and are forced to slow drilling. Total debt for half of the companies in a Bloomberg index of more than 60 producers has risen to a level that represents 40 percent of their enterprise value. It’s a sign of distress that shows equity values falling in the face of oil’s crash, said Rob Thummel, a managing director and portfolio manager at Tortoise Capital Advisors LLC who helps manage $15.6 billion.  
• Market Addiction to Liquidity May Have Delayed Fed, Natixis Says. (video) Financial markets may have been more of a factor than the economy in the Federal Reserve’s decision to leave interest rates near zero, in a cause for concern, according to Patrick Artus, chief economist at French investment bank Natixis SA. “Something that really worries me is that the delay by the Federal Reserve was not a reaction to the economy, even the global economy, it was a reaction to the fact that the financial community has an addiction to liquidity,” Artus said in an interview with Bloomberg Television. “This addiction to liquidity is very difficult to break.”
• One Sign That Manhattan's Super-Luxury Condo Market Is Over. (video) Manhattan’s growing inventory of ultra-luxury condominiums has another big developer seeing signs of a glut. Toll Brothers Inc.(TOL), the largest U.S. luxury-home builder, is zeroing in on smaller apartments with lower prices in Manhattan after watching expensive units sit on the market, said David Von Spreckelsen, the New York division president of the company’s City Living unit. Its latest project, at 55 W. 17th St. in Chelsea, will have an average asking price per square foot less than at new buildings in the rest of the borough.
• U.S. Looking at Chicago Trader as Probe Over Fake Orders Widens. Federal prosecutors are investigating whether a Chicago trader placed fake orders in an attempt to manipulate prices, said two people familiar with the matter, as the Justice Department broadens its effort to police the $30 trillion U.S. futures market. A grand jury is hearing testimony in Chicago about possible commodities-market manipulation and in particular about the actions of Igor Oystacher, one of the people said. This comes on top of a regulatory probe and concerns raised in the past year by two exchanges about Oystacher, the co-founder of proprietary trading firm 3Red.
• Business-Jet Slump Damps Rockwell Collins(COL) 2016 Forecast. The slowdown in business-jet production is starting to weigh on aerospace suppliers such as Rockwell Collins Inc. The maker of aviation electronics forecast a 2016 profit Friday that was short of analysts’ estimates, citing “weak market conditions” for corporate aircraft. Projected revenue for the fiscal year starting in October also lagged behind estimates. Rockwell Collins’s outlook underscored the challenges for airframe manufacturers and their partsmakers amid questions about slowing global economic growth. After jet deliveries rose in 2014, signaling optimism that the industry was emerging from the slump that followed the financial crisis, first-half shipments fell 4.1 percent this year.

Wall Street Journal: 

• Breaking: Pentagon says Russia has moved its first tactical fighter jets to base in Syria.

CNBC:

• Johnson Controls(JCI) to cut 3,000 jobs in 2 years. 
• This bank just slashed its S&P earnings outlook to zero.
• Chart experts fear Fed whiff means back to lows. 
• The Fed has to deal with its own zombie apocalypse. (video) One reason that hasn't gotten much attention is the need for the Fed to keep rates low both for government debt and the corporations that now have $12.5 trillion in debt. Among the prime beneficiaries of zero interest rates have been low-rated companies that have been able to borrow money at rates often in the 5 to 6 percent range.

Zero Hedge:

• Chinese Propaganda Full Retard: Burst Stock Bubble Declared A Good Thing. (graph)
• Census Data Confirms: There Was No Economic Recovery Unless You Were Already Rich.
• US Oil Rig Count Drops For 3rd Week To 2-Month Lows. (graph)
• In Thrall To The Federal Reserve.
• Hawks, Doves & Chickens.
• Buiter: Migrant Crisis "May Signal The Beginning Of The End" For EU.
• "S&P < 1870 Until QE4 Or China QE1" - Seven Observations On The Fed's "Shocking" Announcement.
• Martin Armstrong Warns: The Fed Just Made The Same Mistake As It Did In 1927.
• Gold & Silver Pumping, Crude & Copper Dumping. (graph)
• Greece Heads Back To The Polls: Full Sunday Election Preview.

Business Insider:

• The IRS says Coke owes $3.3 billion.
• There's no way around it: Brazil is a disaster.
• 'Bad news on ISIS wasn't welcome': We know more about how US officials reportedly cooked ISIS intel.
• Greece's election race is neck and neck — and Athens could still drag Europe into another crisis.

San Diego Union Tribune:

• Qualcomm(QCOM) Cuts 1,300 Jobs in San Diego. Qualcomm eliminates 1,314 full-time jobs in San Diego and hundreds elsewhere as it revamps amid slower growth in smartphone market, citing company.

Financial Times:

• German banks at risk of ‘alarming’ profit fall. German banks are at risk of suffering an “alarming” fall in profits in the next four years because Europe’s persistently low interest rates are wiping out their income, the country’s financial watchdogs warned on Friday.

Telegraph: 

• Fed is riding the tail of a dangerous global tiger. Janet Yellen had to hold fire this week, but risks an even nastier crunch later if inflation forces the Fed has to slam on the brakes suddenly.

Bear Radar

Style Underperformer:

• Large-Cap Value -1.56%

Sector Underperformers:

• 1) Oil Service -3.53% 2) Banks -2.62% 3) Computer Hardware -2.42%

Stocks Falling on Unusual Volume:

• LQ, PE, CLC, ITCI, AERI, DATA, APOG, IRBT, PVTB, MRK, NRG, MAR, PEB, AMTD, WWW, GS, EUFN, TRV, LLY, WFC, ETN, ABAX, MMM, HST, BITI, BOH, HST and IMGN

Stocks With Unusual Put Option Activity:

• 1) COF 2) CREE 3) IEF 4) KBH 5) AA
  

Stocks With Most Negative News Mentions:

• 1) PBR 2) WWW 3) LQ 4) XOM 5) FCX
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Growth -.86%

Sector Outperformers:

• 1) Gold & Silver +.57% 2) REITs +.32% 3) Utilities -.03%
  

Stocks Rising on Unusual Volume:

• TTPH and TRVN

Stocks With Unusual Call Option Activity:

• 1) HRTX 2) AMD 3) RPTP 4) MDCO 5) OVTI
  

Stocks With Most Positive News Mentions:

• 1) TXN 2) ADBE 3) JWN 4) IDA 5) INTU
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running 55.5% Above 100-Day Average
• 1 Sector Rising, 9 Sectors Declining
• 30.4% of Issues Advancing, 66.3% Declining
• 8 New 52-Week Highs, 66 New Lows
• 26.9% of Issues Above 200-day Moving Average
• Average 14-Day RSI 43.1
• Vix 22.9
• Total Put/Call 1.28
• TRIN/Arms 2.10

Friday Watch

Evening Headlines 

Bloomberg:

• Was China a Major Factor in the Fed's Decision? (video)

• Alibaba's(BABA) Wipeout Leaves Investors Questioning What Comes Next. Alibaba Group Holding Ltd. looked like a sure thing a year ago when it pulled off the largest initial public offering ever. It had a lock on China e-commerce as the economy was surging and consumer spending was steadily rising. Shares soared 76 percent from the IPO price in just two months. Then it all crumbled. Alibaba came under fire from a China government agency, it cut deals that baffled investors and it replaced its chief executive as growth slowed. Most important, China’s economy turned wobbly, jeopardizing the rise in consumer spending Alibaba needed. Its stock slid down, down, down to the IPO price and then below. The sure thing was no such thing.What now? Investors who watched $128 billion in market value disappear shouldn’t expect a reprieve any time soon. 

• Abe's Pension Cuts May Backfire on Japan. Austerity policy to cut debt reduces spending by the elderly. More than a year after a sales-tax increase tipped Japan into a recession, efforts to clamp down on soaring pension payments are suppressing a recovery in consumer spending. The problem highlights how difficult it has been forPrime Minister Shinzo Abe to generate a sustained economic rebound for an economy with an aging and shrinking population -- amid efforts to rein in a world-record debt load. Welfare payments are more and more important to people's income and pensions comprise about 80 percent of cash social security benefits in Japan. 

• Abe Close to Enacting Bills to Bolster Role of Japan's Military. After facing down rowdy protests both inside and outside parliament, Prime Minister Shinzo Abe is poised to secure passage of controversial bills to expand the role of the Japanese military that critics say could end seven decades of pacifism. The changes allow Japan to defend an ally under attack and take a bigger role in international peacekeeping, which are currently barred by the country’s postwar, pacifist constitution. Abe has argued they improve deterrence and help protect the nation from growing regional threats, while opponents say they risk drawing Japan into U.S.-led conflicts.

• Debt-Strapped Japan Planning a No-Frills Olympics. Tokyo’s 2020 Olympic Games will be the first of a leaner type of competition that will limit spending on big-ticket venues to avoid alienating the public, Chief Executive Officer Toshiro Muto said, two months after debt-ridden Japan canceled plans for a futuristic main stadium. The International Olympic Committee last year set out a new agenda that favors existing venues over purpose-built stadiums, as concerns mount in potential host countries over the burden of holding the event. Public anger over the cost of Tokyo’s flagship stadium swelling to $2 billion damped initial euphoria over the Games, prompting Prime Minister Shinzo Abe to scrap the design and seek new bids after trimming the budget by more than a third. 

• Most Asian Stocks Fall as Fed Holds Rates; Japanese Shares Slide. Most Asian stocks fell as the Federal Reserve’s decision not to raise interest rates fueled concerns about the strength of the global economy. Japan’s Topix index retreated. About two shares dropped for each that climbed on the MSCI Asia Pacific Index, which traded little changed at 129.39 as of 9:03 a.m. in Tokyo. The measure is heading for a 1.6 percent gain this week.

• Fed Angst Gives Stock Traders More Reason to Doubt Profit Bounce. They didn’t raise rates. Do they know something? Among U.S. stock investors, imaginations are racing over whether the Federal Reserve’s refusal to boost interest rates says more about their view of the world economy than they are letting on. While equity bulls are happy for more months of zero-percent stimulus, a bigger issue is whether inaction bespeaks deeper concern about global growth at a time when corporate earnings have stopped going up in the U.S. In typically frenetic trading, the Standard & Poor’s 500 Index ended Thursday with a loss, declining 0.3 percent to 1,990.2 and erasing a rally that reached 1.3 percent at the beginning of Janet Yellen’s press conference. Gains evaporated as the Fed chair spoke about the potential for stress in emerging markets to spill into the U.S.

• Yellen May Emulate Taper Template and Raise Rates in December. Federal Reserve Chair Janet Yellen shows signs of taking a page out of her predecessor’s policy playbook as she inches toward the central bank’s first interest rate increase in nine years: Delay action in September only to move in December. While the Fed on Thursday opted to keep rates pinned near zero for now, Yellen told a press conference that most policy makers still expect to raise rates this year. She highlighted the strength of the U.S. economy, tying the decision to delay liftoff to fresh uncertainty about the outlook abroad and to financial market turbulence over the past month. “I do not want to overplay the implications of these recent developments, which have not fundamentally altered our outlook,” she said. “The economy has been performing well, and we expect it to continue to do so.”

• Ferguson Lowered to Junk by Moody's With City Facing Insolvency. Ferguson, Missouri, the St. Louis suburb that became a center of protests against racial injustice by police, had its credit rating cut to junk by Moody’s Investors Service because of “severe and rapid” deterioration of its finances. 

Wall Street Journal:

• U.S. Administration Rethinks Syria Strategy. Officials consider scrapping efforts to create a large-scale rebel force to fight Islamic State. The Obama administration is considering scrapping its effort to create a large-scale Syrian force to fight Islamic State as it searches for alternatives to prevent the American-led effort from collapsing, officials said.

• Central Banks’ Lesson: Easy Money Alone Isn’t a Growth Salve. Global economy continues slow expansion as governments stalled on policy overhauls. Central bankers have injected roughly $8 trillion into the global economy since the financial crisis. In return, the world has remained in a low-growth rut. The Federal Reserve cited market turmoil and a weak economic picture overseas in deciding Thursday not to back off from one of the most aggressive global monetary policies in decades. Whenever the Fed moves to raise interest rates, one lesson remains: Cheap money alone can’t... 

• Banks Warn of Cost Cuts Ahead. Fed’s move to keep interest rates near zero could continue to crimp revenue. No news was bad news for the country’s banks on Thursday. After years of having their profits pinched by low interest rates, banks—and their investors—had been itching for the Federal Reserve to make a move. Now that the Fed decided to stand pat, some lenders are warning they could have to cut expenses further to compensate for the revenue that would have come in if rates had ticked upward.

• Defaults Mount in Beleaguered Energy Industry. Default rate accelerates among U.S. oil and gas companies. The well is running dry for deeply indebted energy companies. Samson Resources Corp. became the latest, and largest, victim of an industry downturn, as it filed for chapter 11 protection late Wednesday. Industry experts say more oil-and-gas companies are poised to follow the Tulsa, Okla., company into bankruptcy as oil prices...

• The Card Carly Doesn’t Play. Most political women pander to gender, but Fiorina wants to make it on the merits.

Fox News:

• States move to ban aborted fetal tissue from medical research. (video) Lawmakers in states like California and Wisconsin, which are deliberating whether to make their state laws even tougher than federal restrictions, say ending the practice of harvesting organs from aborted fetuses is a moral and ethical imperative.

CNBC:

• Fed dovishness may have stopped soothing market. (video)

Zero Hedge: 

• Japanese Stocks/USDJPY Plunge As China Cracks Down On Aggressive-Buying By "Sinister Stock Squads". (graph)

• This Is What Yellen Said About Negative Rates Coming To The US.

• Assad Goes On Offense, Bombs ISIS "Capital", Deploys New Russian Weapons.

• "We Will Have A Downturn", Dalio Warns, Return To QE Inevitable. (graph)

• Yellen Responds To Allegations The Fed Is Responsible For America's Record Wealth Gap.

• Eye In The Sky? 60 U.S. Police Departments Have Asked For Drone Certification.

• 2Y Yields Collapse Most Since 2009 As December Rate-Hike Odds Crater. (graph)

• Maxine Waters Congratulates Yellen On Not Hiking Rates, Says ZIRP Is Precisely What "Minorities" Need.

• Fed Credibility Crushed - The Aftermath. (graph)

Business Insider:

• A giant of the private equity industry just got smoked on a big energy bet. 

• Canada's household debt is ballooning.

• Leaving the Euro is back on the agenda in Greece.

• Automakers in China are squeezing every dollar to make up for the economic slowdown.

• The Fed is losing credibility by not raising rates now.

Reuters:

• U.S.-based stock ETFs attract $14.3 bln ahead of Fed -Lipper.

• Texas Instruments(TXN) sets $7.5 bln buyback plan, raises dividend.

Economic Information Daily:

• China Regulates Margin Funding to Avoid Financial Risk. Regulating off-market stock margin financing accounts will help stabilize the stock market and avoid financial risks, according to a commentary by Tan Haojun.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.25% to +.5% on average.

• Asia Ex-Japan Investment Grade CDS Index 128.50 -.5 basis point.

• Asia Pacific Sovereign CDS Index 78.0 -2.25 basis points.

• S&P 500 futures +.04%.

• NASDAQ 100 futures +.15%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (ZAYO)/.04

Economic Releases

10:00 am EST

• The Leading Index for August is estimated to rise +.2% versus a -.2% decline in July.

12:00 pm EST

• Household Change in Net Worth for 2Q.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The BoJ meeting, Canadian CPI report and the (IMGN) investor day could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by real estate and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

Stocks Reversing Lower into Final Hour on China Bubble-Bursting Fears, Oil Decline, Global Growth Worries, Financial/Tech Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Slightly Higher
  

• Sector Performance: Mixed
  

• Volume: Slightly Above Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 19.67 -7.87%

• Euro/Yen Carry Return Index 142.94 +.53%

• Emerging Markets Currency Volatility(VXY) 12.05 +1.01%

• S&P 500 Implied Correlation 61.07 -.87%

• ISE Sentiment Index 83.0 -7.87%

• Total Put/Call .92 -23.97%

• NYSE Arms 1.51 +325.94% 

Credit Investor Angst:

• North American Investment Grade CDS Index 75.91 -1.84%

• America Energy Sector High-Yield CDS Index 1,928.0 +.63%

• European Financial Sector CDS Index 76.74 -3.25%

• Western Europe Sovereign Debt CDS Index 21.11 +.38%

• Asia Pacific Sovereign Debt CDS Index 80.11 -.22%

• Emerging Market CDS Index 325.48 -3.0%
  

• iBoxx Offshore RMB China Corporates High Yield Index 118.91 +.19%

• 2-Year Swap Spread 13.75 +2.75 basis points

• TED Spread 27.75 -.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -19.0 +7.5 basis points

Economic Gauges:

• 3-Month T-Bill Yield .01% -4.0 basis points

• Yield Curve 152.0 +3.0 basis points

• China Import Iron Ore Spot $57.37/Metric Tonne +.28%

• Citi US Economic Surprise Index -27.3 -3.8 points

• Citi Eurozone Economic Surprise Index 15.3 -.6 point

• Citi Emerging Markets Economic Surprise Index -24.2 -1.2 points

• 10-Year TIPS Spread 1.59 +2.0 basis points
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 3.23 -.29

Overseas Futures:

• Nikkei 225 Futures: Indicating -42 open in Japan 
• China A50 Futures: Indicating -135 open in China

• DAX Futures: Indicating -33 open in Germany

Portfolio: 

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

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

• Market Exposure: 50% Net Long