Stocks Lower into Final Hour on Global Growth Fears, Surging European/Emerging Markets/US High-Yield Debt Angst, Earnings Worries, Transport/Healthcare Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 23.0 +3.89%

• Euro/Yen Carry Return Index 140.62 +.1%

• Emerging Markets Currency Volatility(VXY) 13.17 +3.86%

• S&P 500 Implied Correlation 64.13 +2.94%

• ISE Sentiment Index 67.0 +26.42%

• Total Put/Call 1.02 unch.

• NYSE Arms .65 -59.41% 

Credit Investor Angst:

• North American Investment Grade CDS Index 86.19 +2.52%

• America Energy Sector High-Yield CDS Index 995.0 +1.72%

• European Financial Sector CDS Index 91.71 +4.55%

• Western Europe Sovereign Debt CDS Index 21.21 +.62%

• Asia Pacific Sovereign Debt CDS Index 86.86 +5.27%

• Emerging Market CDS Index 376.06 +.58%
  

• iBoxx Offshore RMB China Corporates High Yield Index 119.68 +.01%

• 2-Year Swap Spread 10.5 +.75 basis point

• TED Spread 32.5 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -24.25 +.25 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 70.44 +.35%
• 3-Month T-Bill Yield .00% -1.0 basis point

• Yield Curve 144.0 -1.0 basis point

• China Import Iron Ore Spot $55.30/Metric Tonne n/a

• Citi US Economic Surprise Index -27.5 +.7 point

• Citi Eurozone Economic Surprise Index 16.9 +2.4 points

• Citi Emerging Markets Economic Surprise Index -24.5 -1.1 point

• 10-Year TIPS Spread 1.49 -4.0 basis points
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 5.62 -.13

Overseas Futures:

• Nikkei 225 Futures: Indicating -99 open in Japan 
• China A50 Futures: Indicating -36 open in China

• DAX Futures: Indicating +111 open in Germany

Portfolio: 

• Slightly Higher: On gains in my index hedges and emerging markets shorts

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

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:  

• Emerging Markets Are Facing a Big Foreign FX Debt Bill. All that hard-currency borrowing is coming back to haunt emerging economies. The extent of emerging markets' foreign-currency borrowing binge is laid bare in new number-crunching from CreditSights. With EM currencies down a collective 15 percent since the start of the year, the cost of repaying debt and loans denominated in foreign currencies, such as the U.S. dollar and the euro for EM countries, is likely to increase.
• Countries Looking to Devalue Their Way to Growth Have a Big Problem, HSBC Says. Currency depreciations just don't have the impact they used to. Economists at HSBC have a message for monetary policymakers who are hoping their stimulus will help devalue their local currencies and spur exports: Good luck with that. According to HSBC Global Chief Economist Janet Henry and Economist James Pomeroy, a depreciating currency just doesn't pack the same punch it used to. Since the 2008 global financial crisis, "there has so far been little evidence that any major region has benefited from a weaker exchange rate for any significant period," write the economists. "A World Bank study of developed and emerging economies recently found that even for the devaluing countries the currency declines between 2004 and 2012 were only half as effective at boosting exports as they had been in the previous eight-year period."
• These Charts Tell the Story of Brazil's Economic Turmoil. (graph) The selloff in Brazilian assets has picked up pace as President Dilma Rousseff fends off impeachment speculation less than a year into her second term and struggles to win lawmakers’ support for measures to shore up the nation’s accounts. “What is really amazing about it is the speed of the deterioration since the election,” says Geoffrey Dennis, the head of global emerging-market strategy at UBS Securities. “All the sources of growth in Brazil have disappeared.”
• Brazil Bank Turns Into Money Pit for Former Steel Billionaires. The Steinbruchs, a family of former Brazilian billionaires who own Banco Fibra SA, have already injected about 1.4 billion reais ($336 million) into the company to cover losses since 2010, more than its book value. The tally is likely to get higher later this year. “They will do what’s necessary so the bank will stay above minimal capital requirements,” Chief Executive Officer Luis Felix Cardamone Neto said in an interview in Sao Paulo, where the company is based. He declined to say how much will be needed, though he said the family is “completely committed to keeping the bank financially healthy.” 
• ECB Loan Offer Meets Weak Demand in Sign of Recovery Risks. The European Central Bank attracted just 15.5 billion euros ($17.4 billion) of demand from lenders for the latest round of its long-term loan program, in a sign that weak investment may hinder the euro-area recovery. The take-up was lower than all the estimates in a Bloomberg News survey, which ranged from 35 billion euros to 120 billion euros. Banks borrowed 74 billion euros in a similar operation in June. The euro area is struggling to boost investment as its fragile recovery runs into the headwinds of a China-led emerging-market slowdown. The TLTROs are an indication of banks’ willingness to bet on Europe’s economic upswing.
• Canada Dollar on Worst Losing Streak Since 2013 as Growth Slows. The Canadian dollar is in the midst of its worst losing streak in more than two years as global economic growth looks set to derail the country’s plan for an export-led recovery. The currency plunged to an 11-year low after Norway, another large oil exporter, unexpectedly cut interest rates and said it may ease monetary policy even further. Signs that economic growth in China, the world’s biggest commodity consumer, is slowing down have sent prices for everything from oil to copper plunging and prompted speculation demand won’t be quick to recover.
• Germany's DAX Falls to Lowest This Year as Emission Woes Spread. The fallout from Volkswagen AG’s emissions-cheating scandal spurred a selloff in shares that dragged Germany’s DAX Index to its lowest level of the year. BMW AG dropped 5.2 percent as Autobild reported that diesel emissions from an X3 model exceeded European Union limits by as much as 11 times in a real-world road test. That helped push a regional gauge of automakers to its lowest level since November. The DAX retreated 1.9 percent today, taking its losses since Volkswagen admitted the deception to 4.9 percent. The Stoxx Europe 600 Index fell 2.1 percent and closed at its lowest level since January.
• Goldman(GS) Says Copper Bear Market to Last Years as Gluts Build. Copper will slump as the U.S. Federal Reserve starts to raise interest rates, demand growth stalls in China and stockpiles surge, according to Goldman Sachs Group Inc., which stood by a year-end forecast that signals the biggest annual drop since the global financial crisis. Copper prices will probably drop to $4,800 a metric ton by the end of December and $4,500 at the end of next year, analysts including Max Layton and Jeffery Currie wrote in a report. The metal fell 0.8 percent to $5,015 by 1:22 p.m. in London. Separately, the bank cut the target price for Glencore Plc shares, citing a weaker commodities outlook. The miner and trader’s stock dropped as much as 8.7 percent. “We see a long list of potential catalysts for copper’s next major move lower,” Layton, Currie and Yubin Fu wrote in the note received on Thursday. Of particular importance for copper has been the weakness in China, which points to a hard landing for commodities demand during 2015, they said. A drop to Goldman Sachs’s end-2015 target implies a full-year retreat of 24 percent, the most since the 54 percent plunge in 2008. 
• Goldman Cuts Coal Forecast as Indian Demand Seen Following China. The shrinking need for imports by two of the world’s largest coal consumers is undermining the fuel’s outlook, according to Goldman Sachs Group Inc., which cut price forecasts through 2018. Imports by India, which overtook China as the main driver of seaborne thermal coal demand, may slow as the country increases domestic production, analysts including New York-based Christian Lelong wrote in a Sept. 22 report. Prices will also be pressured by a 30 percent drop in marginal production costs over two years through 2016, according to the note. The bank cut its price forecast for Newcastle coal, a benchmark in Asia, by 17 percent to $54 a metric ton for next year.
• Caterpillar(CAT) Cutting 10,000 Jobs, Sales Forecast. (video) 
• Economist: The Fed Would've Hiked Rates Already If It Went Back to Its Old Measure of Inflation. The Federal Reserve doesn't have a deflation problem: It has a measurement problem. So says Joe Lavorgna, chief U.S. economist at Deutsche Bank, who reckons that the Fed should go back to the days of using the Consumer Price Index rather than Personal Consumption Expenditures, as it did prior to the dawn of the new millennium. One measure could make a big difference.  
• Junk Deals Get Wary Welcome as Investors Put Off by Fed Inaction. Junk-rated borrowers are finding it harder to convince bond investors to overlook the global growth concerns that pushed the Federal Reserve to maintain its zero-interest rate policy. Billionaire Patrick Drahi’s Altice NV and chemicals manufacturer Olin Corp. are among companies sweetening terms on debt offerings as investors grow more cautious, according to people with knowledge of the matter.
• Clinton's `Price Gouging' Tweet Sends Drugmaker Hedges Surging. Biotechnology is being singled out by options investors as the sick sibling of the health-care family. Losses for U.S. biotech stocks have accelerated in the three days since Democratic presidential hopeful Hillary Clinton suggested there may be “price gouging” in the market for prescription pills. The high-flying industry, which has surged more than 450 percent during the six-year bull market, is now finding less favor among investors than its more staid older cousins that include Aetna Inc. and HCA Holdings Inc. Implied volatility on an exchange-traded fund tracking biotechnology companies is at its highest in 16 months versus an ETF that mirrors a broader universe of health companies including insurers and hospitals.

Zero Hedge:

• Chinese Military Personnel, "Aerial Assets" Allegedly En Route To Syria.
• A Desperate Wal-Mart Demands Suppliers Pass Along Yuan Devaluation Savings.
• Materials Stocks Are Testing Critical Support Levels. (graph)
• Q2 Earnings Decline Exposes The Illusion Of Profitability. (graph)
• Inflation Watch - Butter Prices Hit All-Time Record High. (graph)
• Dutch Commodity Trading Firm Suffers Massive Loss, Blames It On "Rogue Trader". 
• French Joblessness Surges To Record High. (graph)
• Currency Carnage: The Global FX Heatmap Is A Bloodbath. (graph)
• DAX Crash Continues - Closes Below Black Monday At 10-Month Lows. (graph)
• Recession Countdown: Durable Goods Orders Drop Most Since March, Shipments Tumble. (graph)
• Another Regional Fed Survey Collapses - Chicago Activity Index Hits 6-Month Lows. (graph)
• New Home Sales Surge To Highest Since Feb 2008 (As Existing Home Sales Plunge). (graph)
• Dow Drops 800 Points From Fed Euphoria, Bond Yields & Black Gold Plunge. (graph)

AFP:

• NATO Head Concerned by 'Substantial' Russian Syria Build-Up. NATO head urges Russia to play "constructive" Syria role, citing an interview.

Bear Radar

Style Underperformer:

• Mid-Cap Growth -1.62%

Sector Underperformers:

• 1) Coal -4.74% 2) Hospitals -3.83% 3) Biotech -3.22%

Stocks Falling on Unusual Volume:

• SIEN, SMLP, CAT, UBIO, THRM, CNCE, YPF, TEN, SOXX, HRTX, WES, TNC, PAG, PCTY, HZNP, ETE, XPO, DGI, DE, MGA, LNG, HQH, VRX, GNTX, GLOG, LDOS, AMPH, SPWH, AMAG, SPW, ETE, TWOU, PCRX, CNCE and ZFGN

Stocks With Unusual Put Option Activity:

• 1) AMJ 2) DE 3) LRCX 4) LNG 5) MON
  

Stocks With Most Negative News Mentions:

• 1) CAT 2) TWTR 3) DGI 4) GBX 5) COL
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Value -.53%

Sector Outperformers:

• 1) Gold & Silver +5.9% 2) Steel +.58% 3) Utilities +.06%
  

Stocks Rising on Unusual Volume:

• VBLT, SNCR, AEM and DMND

Stocks With Unusual Call Option Activity:

• 1) KHC 2) HZNP 3) EPD 4) ARWR 5) LGF
  

Stocks With Most Positive News Mentions:

• 1) MNST 2) RL 3) MAR 4) ASEI 5) ARWR
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running 9.0% Above 100-Day Average
• 0 Sectors Rising, 10 Sectors Declining
• 15.9% of Issues Advancing, 81.3% Declining
• 2 New 52-Week Highs, 320 New Lows
• 22.8% of Issues Above 200-day Moving Average
• Average 14-Day RSI 37.4
• Vix 24.8
• Total Put/Call .89
• TRIN/Arms 1.65

Thursday Watch

Evening Headlines 

Bloomberg: 

• China’s Economic Growth Not at Rate GDP Suggests. (video)
• China Commodity Deluge Extends to Diesel as Glut Shrinks Profits. Add diesel to the commodities flooding global markets from China. The nation exported a record volume of the fuel last month after already shipping unprecedented amounts of steel and aluminum overseas. The weakest economic growth since 1990 is sapping domestic demand for commodities, while refineries, mills and smelters grapple with excess capacity after years of expansion. “A lot of it has to do with slowing demand at a time when companies had plans for much a better demand environment, so capacities had been increased,” said Ivan Szpakowski, a commodities strategist at Citigroup Inc. in Hong Kong. “As demand slows, that’s led to an overcapacity in the domestic market and producers have sought to export the surplus.” 
• Latin American Currencies Lead Emerging-Market Selloff on China. Latin American currencies led by the Brazilian real fell to their lowest on record, posting the steepest two-day decline in two years, after Chinese economic data showed the world’s second-biggest economy is slowing. The Brazilian central bank’s offer of $4 billion in foreign-exchange credit lines wasn’t enough to keep the real from tumbling 2.9 percent to a fresh record low as of 4:40 p.m. in New York. The Chilean peso breached 700 per dollar for the second time in a decade, falling 0.9 percent to 703.88 per dollar. Mexico’s peso slide 1.4 percent to 17.1227 per dollar even after the central bank sold dollars for a third straight day. The Colombian peso has weakened 4.8 percent in the past week, its steepest decline since 2009.
• Asian Stocks Decline as Japanese Markets Open After Holiday. Asian stocks fell, dragged down by a retreat in Japanese shares as the nation’s markets opened after a three-day holiday. Energy and material companies led losses. The MSCI Asia Pacific Index dropped 0.2 percent to 125.49 as of 9:01 a.m. in Tokyo. 

Wall Street Journal: 

• Cyber Sleuths Track Hacker to China’s Military. The story of a Chinese military staffer’s alleged involvement in hacking provides a detailed look into Beijing’s sprawling state-controlled cyberespionage. machinery. 
• Energy Lending Caught in a Squeeze. Banks run up against regulatory review of loans to oil and gas firms. Banks are clashing with regulators over loan reviews that could crimp the flow of new credit to the oil patch.
• Total Faces U.S. Probe Over Gas Market Trades. CFTC probe comes as the French oil company faces similar allegations from FERC.
• A Politicized Pope. The battlegrounds of secular politics may undermine Francis’ moral authority. In the past two years, the plight of Christians in the Middle East has gone from persecution to slaughter. Decades of Vatican diplomacy there for the world’s most at-risk Christians has produced very little. Soon there may be nothing left to protect. On Friday, the pope reportedly will address the U.N. about climate change. A jeremiad against Christian extermination would be welcome this week, too.

Fox News:

• Fox News Poll: Outsiders rule 2016 GOP field, support for Biden nearly doubles. (video) Most Republicans feel betrayed by their party -- and show their displeasure by supporting outsiders over establishment candidates in the GOP presidential race.
• Fuel fraud: Stealing millions from taxpayers at the pump.

Barron's:

• Bears Are Back in Charge as Charts Flash Danger. Now that the Fed rate decision has been digested, the bears are on the prowl looking for more prey.

CNBC:

• Brazil real tumbles despite central bank support of currency. The Brazilian real tumbled on Wednesday as the central bank's increased intervention in the currency market failed to offset fears of deteriorating government finances, a mounting political crisis and weaker Chinese demand for raw materials.m As the real plunged to an all-time low of 4.14 per dollar, the central bank called extraordinary auctions to sell currency swaps and dollars with repurchase agreements, joining an array of emerging-market policymakers struggling to support their currencies.

Zero Hedge: 

• Japanese Stocks Tumble After Holiday, China Default Risk Hits 2 Year Highs As Yuan Weakens For 4th Day. (graph)
• Is Volkswagen About To Unleash The Next Deflationary Wave? (graph)
• Endgame: Putin To Bomb ISIS With Or Without Obama. "The Government Is Literally Paying Itself" - Citi Calls For Money Paradrops.
• "The Government Is Literally Paying Itself" - Citi Calls For Money Paradrops.
• Government Shutdown & Debt Limit Questions Answered.
• The Colossal Failure Of Central Bank 'Trickledown'. (graph)
• Is The Bank Of Spain Quietly Pulling Its Gold From Catalonia Ahead Of This Weekend's Vote? (graph)
• Petrobras Default Looms Under $90B Dollar-Denominated Debt. (graph)
• Dear Janet: Here Is The Circle Jerk You Have Created Explained In 54 Words.
• Stocks Slide On Dreary Draghi, Crude Clobbering, & Brazilian Battering. (graph)

Business Insider:

• CHANOS: Here's why China got so bad in 2015.
• The Fed has locked the US in a 'doom loop' to another disaster.
• There's a lot of overhead supply in biotech and healthcare stocks.

Reuters:

• Exclusive: Wal-Mart(WMT) presses suppliers to share benefits of cheaper yuan. Wal-Mart Stores Inc (WMT.N) is seeking price cuts from suppliers that produce goods in China, saying the retailer should share in the savings generated by China's devaluation of the yuan, people with knowledge of the matter said. Wal-Mart managers in recent weeks have contacted more than 10,000 suppliers in various countries, all of which have manufacturing facilities in China, seeking cost cuts of 2 percent to 6 percent on mainly general merchandise including home furnishings, apparel, health and beauty products, appliances, electronics and toys, according to a consultant who advised Wal-Mart on the move and spoke on condition of anonymity to protect his relationship with the retailer. 
• Rising copper output in Peru to offset price slump -central bank. Peru, the world's third-largest copper producer, will withstand slumping copper prices thanks to rising output from new projects and low operating costs that keep mining profitable, the head of country's central bank said on Wednesday. "There's no need to be dramatic," Governor Julio Velarde said in response to questions about the impacts of copper prices. The low cost of mining in Peru will keep copper miners here, even with the current price dip, he added. "Companies can still offset their costs by leaps and bounds," Velarde said. "That's why miners, despite current prices, still want to roll out projects."
• INSIGHT-China consumers tighten belts, a red flag for the global economy. Terry Xu considers himself one of the lucky ones. The 32-year-old father-of-one invested 10 percent of his savings earlier this year in Chinese stocks. Now, with markets down around 40 percent since mid-June, he's selling off his portfolio at a loss. Painful, but not a catastrophe - he says his colleagues lost more, and he earns well above the average wage. But the equity market turmoil, coupled with signs the economy is slowing means Xu, and millions of other middle class Chinese consumers like him, is scaling back his spending in an ominous sign for China's policymakers and the global economy.

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 148.5 -2.25 basis points.

• Asia Pacific Sovereign CDS Index 82.50 +1.0 basis point.

• S&P 500 futures -.01%.

• NASDAQ 100 futures -.02%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (ACN)/1.12
• (KBH)/.22
• (SCHL)/-1.51
• (AIR)/.23
• (BBBY)/1.21
• (CTAS)/.90
• (JBL)/.44
• (NKE)/1.19
• (PIR)/.07

Economic Releases

8:30 am EST

• Chicago Fed National Activity Index for August is estimated to fall to .24 versus .34 in July.
• Initial Jobless Claims are estimated to rise to 272K versus 264K the prior week.
• Continuing Claims are estimated to rise to 2240K versus 2237K prior.
• Durable Goods Orders for August are estimated to fall -2.3% versus a +2.0% gain in July.
• Durables Ex Transports for August are estimated to rise +.1% versus a +.6% gain in July.
• Cap Goods Orders Non-Defense Ex Air for August are estimated to fall -.1% versus a +2.2% gain in July.

10:00 am EST

• New Home Sales for August are estimated to rise to 515K versus 507K in July.
  

11:00 am EST

• The Kansas City Fed Manufacturing Activity Index for September is estimated to rise to -6.0 versus -9.0 in August.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Yellen speaking, Germany IFO Business Climate Index, Japan inflation data, $29B 7Y T-Note auction, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report and the (TTWO) general meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted 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 25% net long heading into the day.