Morning Market Internals

NYSE Composite Index:

• Volume Running -11.7% Below 100-Day Average
• 5 Sectors Rising, 5 Sectors Declining
• 46.8% of Issues Advancing, 49.7% Declining
• 52 New 52-Week Highs, 17 New Lows
• 34.3% of Issues Above 200-day Moving Average
• Average 14-Day RSI 47.3
• Vix 15.22
• Total Put/Call .93
• TRIN/Arms 1.50

Monday Watch

Today's Headlines 

Bloomberg: 

• China Ponders Tool Deemed Too Risky Post 2008 to Cut Bad Loans. China is facing calls to bring back an instrument to fight bad loans it had deemed too dangerous after the global financial crisis: debt tied to failed assets. China Construction Bank Corp. said in August it’s exploring bad-debt securitization, in which lenders package soured loans into notes sold to investors. While a central bank official said in May such products are under study, regulators this month declined to comment on the plans. Only three Chinese firms have issued such bonds before a 2009 halt to all asset-backed securities that ended in 2012 with products tied only to performing assets. 

• Lackluster Global Economy Is Weighing on China, Xi Tells Reuters. A “sluggish” world economy is weighing on China’s growth, President Xi Jinping said in an interview with Reuters ahead of his visit to the U.K. and the publication of his nation’s third-quarter figures for gross domestic product. China isn’t immune to the lacklustre performance of the global economy, Xi said in a written question-and-answer. The nation has concerns about its own economy and is working hard to address them, he added.

• China's Selling Tons of U.S. Debt. Americans Couldn't Care Less. For all the dire warnings over China’s retreat from U.S. government debt, there is one simple fact that is being overlooked: American demand is as robust as ever. Not only are domestic mutual funds buying record amounts of Treasuries at auctions this year, U.S. investors are also increasing their share of the $12.9 trillion market for the first time since 2012, data compiled by Bloomberg show.

• Beyond the Headlines: Five Things to Watch in China’s GDP Report. (video)

• Won Retreats as Growth in Key Chinese Export Market Seen Slowing. The won retreated before data that may show economic growth in China, South Korea’s biggest export market, slowed last quarter. China’s gross domestic product increased 6.8 percent from a year earlier, compared with 7 percent in the previous three months, according to the median estimate in a Bloomberg survey before Monday’s report. The won rallied for a third week in the five days to Oct. 16, pushing the dollar’s 14-day relative-strength index below a key level that signaled the greenback was poised for a reversal. A report later in the week may show South Korea’s growth accelerated last quarter. The won fell 0.2 percent to 1,131.43 a dollar as of 9:59 a.m. in Seoul, data compiled by Bloomberg show.

• Asian Stocks Retreat From Two-Month High Before China GDP Report. Asian stocks slipped from an almost two-month high as investors awaited data on China’s economy. The MSCI Asia Pacific Index retreated 0.1 percent to 134.38 as of 9:03 a.m. in Tokyo after closing on Friday at the highest since Aug. 19. 

Wall Street Journal 

• Syrian Regime, Backed by Russia, Iran and Hezbollah, Expands Ground Offensive to Aleppo. Fighting began on southern outskirts of city. Syrian pro-regime forces backed by Russian airstrikes have expanded their ground offensive to the strategic city of Aleppo, one of the clearest signs yet of how Russia’s recent military intervention has emboldened President Bashar al-Assad and his loyalists. In the bitterly fought multi-sided war, Aleppo is among the most coveted prizes. Losing partial control of the city, which was once Syria’s largest and its commercial capital, was an embarrassment to the regime. But with the backing of Russian warplanes, Iranian... 

• Wave of Megadeals Tests Antitrust Limits in U.S. Analysis shows that in many industries, most firms are competing in highly concentrated markets. A growing number of industries in the U.S. are dominated by a shrinking number of companies. The past year has brought major mergers in many industries, from health insurers and food manufacturers to cable-TV providers. At the same time, many companies are focusing on narrower markets that they can more easily dominate.

• Drones Face New Regulatory Push. U.S. aims to issue final registration rules before Christmas, an unusually fast timeline.

• Clinton’s ‘Please Hack Me’ Server. Lawmakers this week should ask her about the potential damage.

Zero Hedge:

• "Good News" - China GDP Beats Expectation Leaving Fed 'Relieved', Stocks Disappointed. (graph)

• Clinton Considers Mandatory Gun "Buy-Backs" - Ignites Confiscation Concerns. 

• A Perilous Possibility: Weaponizing The Fed.

• "We Are Facing Social Unrest" - German Police Union Chief Demands Building Of Border Fence Around Germany.

• Global Debt And GDP: Spot The Odd One Out. (graph)

• Getting History Right - Saving Capitalism From Monetary Mismanagement.

• "We're Out Of Yellow Bricks". (cartoon)

• Scandal-Plagued Deutsche Bank Terminates Head Of I-Banking As Part Of Sweeping Restructuring.

• Saudis Poke The Russian Bear, Start Oil War In Eastern Europe.

• Denial Is Not A Trait Found Among Great Investors. (graph)

• The World Hits Its Credit Limit, And The Debt Market Is Starting To Realize That. (graph)

• "The Bankers Have Gone Through This Before. They Know How It Ends, And It’s Not Pretty".

• Trump Says Yellen Keeping Rates Low To Protect Obama.

Business Insider: 

• The new kind of notification that you never want to see on your Facebook(FB). Facebook just launched a new kind of notification that will warn users if it suspects their account has been targeted by an attacker working on behalf of a nation-state.

• No one pays full price anymore — and it's terrifying companies.

• The pillars of American finance are under attack.

• These are STRATFOR's disconcerting predictions for the end of 2015.

• Airstrikes haven't stopped ISIS' oil industry.

• PAUL SINGER: Developed countries are hopelessly and utterly insolvent. Speaking at the inaugural Tel Aviv Sohn Conference, Singer said that since the 2008 financial crisis developed, countries had been propped up by a "cult" of central bankers, according to tweets from Bloomberg TV's Elliott Gotkine. Singer said the balance sheets of developed economies were hopelessly and utterly insolvent once long-term entitlements were added in, according to the tweets. Singer has previously said prices of stocks and bonds have been "distorted" by central-bank monetary policy. And if central banks decide they need to do more — such as another round of stimulus through quantitative easing — Singer thinks everything will go to hell.

• Here's what 13 Wall Street pros are saying about Walmart's(WMT) bleak outlook and stock price plunge.

• 'They'd love to do damage': The FBI says ISIS wants to hack parts of the US power grid.

• Warning sign: Tech companies of all sizes and ages are starting to have layoffs.

• CREDIT SUISSE: Here's why the emerging markets rally may be about to end.

• A major Chinese state-owned steel trader may be about to default on its debts.

Reuters:

• Why Australia's IAG threw in the towel on China. When Insurance Australia Group , the country's largest general insurer, announced ambitious plans in June to ramp up its business in mainland China, several institutional investors including Jason Kim were seriously concerned. Kim, a portfolio manager at Nikko Asset Management which owns about A$143 million ($104 million) worth of IAG shares, asked the board to reconsider, arguing China, the world's fourth-largest insurance market, was difficult and high-risk. Between June and September, institutional shareholders held private discussions with senior executives at IAG, which is 3.7 percent owned by Warren Buffett's Berkshire Hathaway Inc , people familiar with the matter said. They expressed concerns about spending up to A$1 billion in a market where the chance of failure was high.

Financial Times:

• Oil explorers predict 10,000 more job losses in North Sea sector. Two of the biggest independent oil explorers in the North Sea have predicted a further 10,000 jobs will be lost from the sector, indicating a growing acceptance that oil prices are stuck in a prolonged slump.

Telegraph: 

• Russia retreats to autarky as poverty looms. Vladimir Putin is falling back on Soviet-era self-reliance as oil wealth evaporates and sanctions cut off vitally-needed technology. Vladimir Putin is falling back on Soviet-era self-reliance as oil wealth evaporates and sanctions cut off vitally-needed technology.

Night Trading

• Asian indices are -.25% to +.50% on average.

• Asia Ex-Japan Investment Grade CDS Index 139.0 +.5 basis point.

• Asia Pacific Sovereign CDS Index 75.0 -.25 basis point.

• S&P 500 futures -.16%.

• NASDAQ 100 futures -.14%.

Morning Preview Links

Earnings of Note

Company/Estimate 

• (GPC)/1.24

• (HAL)/.28

• (HAS)/1.53

• (MTB)/2.00

• (MS)/.63

• (VRX)/2.69

• (BMI)/.63

• (BXS)/.37

• (BRO)/.47

• (FLEX)/.25

• (IBM)/3.30

• (IEX)/.89

• (SONC)/.42

• (STLD)/.23

• (ZION)/.42

Economic Releases 
10:00 am EST

• The NAHB Housing Market Index for October is estimated at 62.0 versus 62.0 in September.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Brainard speaking, Fed's Lacker speaking and the RBA Minutes could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by real estate and consumer 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.

Weekly Outlook

Week Ahead by Bloomberg. 

Wall St. Week Ahead by Reuters.

Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week mixed as buyout speculation, short-covering and central bank hopes offset global growth fears, commodity weakness and rising European/Emerging Markets/US High-Yield debt angst. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 50% net long heading into the week.

Today's Headlines

Bloomberg:   

• Iran Nuclear Deal Adoption Starts Clock on Oil Sanctions Relief. World powers and Iran set the clock ticking on a landmark accord placing limits on the Islamic Republic’s nuclear work in return for access to oil and financial markets. Sunday’s adoption of the deal means that all sides will have to begin implementing the pledges they made three months ago. For Iran, that means mothballing thousands of centrifuges, eliminating 95 percent of its enriched-uranium stockpile and retrofitting a reactor. The U.S. and Europe will make preparation to lift sanctions, which will only occur once the Iranian measures are in place.

• Japan's Finance Minister Says BOJ Unlikely to Expand Easing Now. Japan’s central bank is unlikely to expand its unprecedented economic stimulus for now, Japanese Finance Minister Taro Aso said, citing a surplus of money in the economy and weak domestic demand. “At this point, the government is not thinking about anything like that, and probably the Bank of Japan will not undertake additional monetary easing right now,” Aso said in an interview with public broadcaster NHK that aired Friday evening in Tokyo. The comments were confirmed by a Finance Ministry official who asked not to be identified.

• Credit Suisse Says Euro Set to Drop With Draghi Close to More QE. Look for euro weakness next week, according to Credit Suisse Group AG. That’s because Mario Draghi, the European Central Bank president, is expected to signal further monetary easing by the central bank at its Oct. 22 meeting in Malta, according to Credit Suisse, the top major currency forecaster for the four quarters ended June 30, according to Bloomberg rankings. The shared currency stalled last week after gaining for the previous two amid growing speculation that the U.S. Federal Reserve won’t increase interest rates any time soon. 

• German Politician Stabbed With Refugee Crisis Seen as Motive. A mayoral candidate in Cologne who advocates tolerance for refugees was stabbed and seriously injured by a man who cited xenophobic motives, just as Chancellor Angela Merkel insists that Germany needs to be open to people arriving on its soil. Henriette Reker, an independent, was attacked by a knife-wielding man at a campaign event Saturday and taken to the hospital for emergency surgery, Bild newspaper reported. Four other people were wounded and a 44-year-old suspect was taken into custody, Cologne police said on their website. Reker was stabbed in the neck, the Rheinische Post newspaper said.

• U.S. Cancels Remaining Arctic Oil Lease Sales Under Obama. The U.S. Interior Department effectively halted drilling off Alaska’s coast for the remainder of President Barack Obama’s term by canceling two sales of Arctic oil and gas leases. The decision comes less than a month after Royal Dutch Shell Plc said it would indefinitely cease exploration in the region as the company didn’t find sufficient quantities of oil or gas in a Chukchi Sea drilling zone.

Wall Street Journal:

• Regional Discord Fuels Islamic State’s Rise in Mideast. Competition among major players for influence trumps defeating extremists. Pretty much everyone in the Middle East is supposed to be fighting against Islamic State. Yet, the Sunni extremist group retains large swaths of Syria and Iraq and is spreading elsewhere in the region. This isn’t because of its military might or strategic sophistication. The explanation is different: For most of the major players in the complicated conflicts ravaging the Middle East, the defeat of Islamic State remains a secondary... 

• Four Palestinians Killed in Israel After Allegedly Carrying Out Attacks. Wave of violence continues in Israel, Palestinian territories. Four Palestinians were killed and one injured after carrying out five separate knife attacks in Israel on Saturday, the Israeli military said, a day after Jerusalem Mayor Nir Barkat urged licensed Israeli gun owners to carry their weapons and help defend civilians.

• Brazil Bet Burned Fortress Investment Group. Hedge fund run by Michael Novogratz lost $100 million from investments in South American country. The smart money is having a hard time navigating global markets.

• U.S. Cancels Sale of Two Arctic Oil and Gas Leases. Interior Department cites low petroleum prices and lack of company interest.

• A Path Out of the Middle East Collapse by Henry A. Kissinger. With Russia in Syria, a geopolitical structure that lasted four decades is in shambles. The U.S. needs a new strategy and priorities.

• The Clintons and the Emirates. Secretary Clinton’s top aide was paid to negotiate a private deal. This week the Washington Post reported that Cheryl Mills, who served as Hillary Clinton’s chief of staff at the State Department, was simultaneously being paid by a private organization to negotiate with a foreign government. And that foreign government has been particularly generous to the Clintons.

Barron's:

• Had bullish commentary on (JPM), (AMT), (CCI), (SBAC), (FITB) and (TRCO).

Fox News: 

• Violent attacks continue in Israel as tensions increase. (video) Palestinian assailants carried out five stabbing attacks in Jerusalem and the West Bank on Saturday, authorities said, as a month-long outburst of violence showed no signs of abating. The unrest came despite new security measures that have placed troops and checkpoints around Palestinian neighborhoods in east Jerusalem.

Zero Hedge:

• China Officially Sold A Quarter Trillion Treasurys In The Past Year (Unofficially Much More) And What This Means.

• NIRP Goes To Nippon: Japan Auctions 1 Year Paper At Most Negative Yield On Record.

• Obamacare's Latest Casualty: Largest Health Insurer On Colorado Exchange Abruptly Collapses.

• Mapping And Cataloguing The History Of ISIS-Inspired Attacks Across The Globe.

• Dollar Moves Shake The World: "Federal Reserve Could Start A Currency War".

• UCLA Unleashes Absurd, Anti-Intellectual & Dangerous Attack On Campus Free Speech.

• "Its Not The Economy Stupid, It's The Dollar". (graph)

• "Shadow" Short Convexity: If You Short 'Fear', Be Prepared For 'Horror'.

• Germany Faces "National Disaster" Over Refugee Crisis As Hungary Slams Shut Border With Croatia.

• Weekend Reading: Weighed, Measured And Found Wanting. (graph)

• "In Fed We Trust" Is Back: Risk Soars On Hopes Economy Collapses. (graph)

Business Insider:

• One of Silicon Valley's top investors just eviscerated the 'subprime unicorn' boom in tech.

• The housing-market bulls could have the story wrong.

• Hillary Clinton's biggest problem isn't going away yet.

• Match, the company that owns Tinder, has filed to go public.

• Apple(AAPL) ordered to pay $234 million to the University of Wisconsin over patent-infringement case.

• The US is 'deeply concerned' about Iran's latest ballistic missle test.

• Federal investigators are going after the fantasy sports industry's main trade association.

• REPORT: Russian hackers stole trading information from Dow Jones.

• 21 signs you're a narcissist.

Washington Times: 

• Captain America battles right-wing conservatives in new comic. In the latest issue of Marvel’s revamped Captain America, the iconic superhero takes on a group of right-wing conservatives trying to stop illegal immigrants from crossing the border. Marvel Comics is owned by Disney(DIS) and has recently begun a new process of reinventing itself, changing the race and gender of many of its iconic superheroes.

Reuters:

• Exclusive: Lockheed eyes overhead cuts of up to 30 percent. Lockheed Martin Corp (LMT), the Pentagon's No. 1 supplier, has launched a review aimed at cutting corporate overhead costs by as much as 30 percent, according to two sources familiar with the initiative. Lockheed would already reduce overhead substantially as part of an announced plan to sell or spin off an array of services businesses with revenue of $6 billion. The move will eliminate one of the $45 billion company's five current business divisions.

Telegraph:

• Oil nations feel the strain of  Opec’s continuing price war. Crisis-hit Venezuela to press for change in policy, reports Andrew Critchlow.

• Inside the murky world of China's official economic numbers. Analysts have long dimissed Beijing's 'manipulated' growth statistics. But what do we really know about what's going on in the world's second largest economy?

Market Week in Review

• S&P 500 2,033.11 +.90%*

The Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices

• S&P 500 2,033.11 +.90%

• DJIA 17,215.97 +.77%

• NASDAQ 4,886.68 +1.16%

• Russell 2000 1,162.31 -.26%

• S&P 500 High Beta 30.98 -.83%

• Goldman 50 Most Shorted 114.79 -3.0% 

• Wilshire 5000 21,104.17 +.78%

• Russell 1000 Growth 985.16 +.79%

• Russell 1000 Value 976.89 +.74%

• S&P 500 Consumer Staples 510.15 +.40%

• Solactive US Cyclical 123.87 -.78%

• Morgan Stanley Technology 1,061.14 +.36%

• Transports 8,078.61 -2.11%

• Utilities 596.98 +2.34%

• Bloomberg European Bank/Financial Services 105.37 -.55%

• MSCI Emerging Markets 35.83 +.12%

• HFRX Equity Hedge 1,151.98 -.42%

• HFRX Equity Market Neutral 1,022.51 -.51%

Sentiment/Internals

• NYSE Cumulative A/D Line 232,595 +.21%

• Bloomberg New Highs-Lows Index -105 -66

• Bloomberg Crude Oil % Bulls 20.5 -47.4%

• CFTC Oil Net Speculative Position 264,992 +2.61%

• CFTC Oil Total Open Interest 1,645,951 -1.77%

• Total Put/Call .81 -5.81%

• OEX Put/Call .41 -90.85%

• ISE Sentiment 88.0 -7.53%

• NYSE Arms 1.17 +60.0%

• Volatility(VIX) 15.52 -10.9%

• S&P 500 Implied Correlation 62.35 +5.41%

• G7 Currency Volatility (VXY) 9.21 +.11%

• Emerging Markets Currency Volatility (EM-VXY) 11.0 -3.17%

• Smart Money Flow Index 17,551.63 -.02%

• ICI Money Mkt Mutual Fund Assets $2.698 Trillion +.35%

• ICI US Equity Weekly Net New Cash Flow -$1.312 Billion

• AAII % Bulls 34.1 -9.2%

• AAII % Bears 27.1 -3.7%

Futures Spot Prices

• CRB Index 199.45 -.92%

• Crude Oil 47.30 -4.44%

• Reformulated Gasoline 133.22 -5.79%

• Natural Gas 2.43 -3.65%

• Heating Oil 149.69 -5.63%

• Gold 1,180.10 +2.12%

• Bloomberg Base Metals Index 150.11 -1.79%

• Copper 240.35 -.68%

• US No. 1 Heavy Melt Scrap Steel 189.67 USD/Ton -4.69%

• China Iron Ore Spot 53.74 USD/Ton -4.05%

• Lumber 258.1 +6.48%

• UBS-Bloomberg Agriculture 1,067.55 -.34%

Economy

• ECRI Weekly Leading Economic Index Growth Rate -2.2% -110.0 basis points

• Philly Fed ADS Real-Time Business Conditions Index -.0890 n/a

• S&P 500 Blended Forward 12 Months Mean EPS Estimate 125.55 -.14%

• Citi US Economic Surprise Index -14.80 +11.5 points

• Citi Eurozone Economic Surprise Index 6.1 -2.9 points

• Citi Emerging Markets Economic Surprise Index -16.7 +2.2 points

• Fed Fund Futures imply 94.0% chance of no change, 6.0% chance of 25 basis point hike on 10/28
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 6.89 +22.8%

• US Dollar Index 94.63 -.35%

• Euro/Yen Carry Return Index 141.75 -.57%

• Yield Curve 142.0 -3.0 basis points

• 10-Year US Treasury Yield 2.03% -6.0 basis points

• Federal Reserve's Balance Sheet $4.466 Trillion +.41%

• U.S. Sovereign Debt Credit Default Swap 17.50 -7.89%

• Illinois Municipal Debt Credit Default Swap 258.0 -.78%

• Western Europe Sovereign Debt Credit Default Swap Index 21.25 +1.55%

• Asia Pacific Sovereign Debt Credit Default Swap Index 74.59 -6.01%
  

• Emerging Markets Sovereign Debt CDS Index 164.80 -4.23%
  

• Israel Sovereign Debt Credit Default Swap 65.73 -1.15%

• Iraq Sovereign Debt Credit Default Swap 783.62 -2.37%

• Russia Sovereign Debt Credit Default Swap 289.25 -8.55%

• iBoxx Offshore RMB China Corporates High Yield Index 121.51 +.78%

• 10-Year TIPS Spread 1.49% -4.0 basis points

• TED Spread 32.25 +.5 basis point

• 2-Year Swap Spread 12.0 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -23.75 -.5 basis point

• N. America Investment Grade Credit Default Swap Index 81.88 +1.04%

• America Energy Sector High-Yield Credit Default Swap Index 1,050.0 +3.95%

• European Financial Sector Credit Default Swap Index 78.57 -2.92%
  

• Emerging Markets Credit Default Swap Index 327.82 -.64%
  

• CMBS AAA Super Senior 10-Year Treasury Spread  to Swaps 125.0 -1.5 basis points

• M1 Money Supply $3.080 Trillion +.83%

• Commercial Paper Outstanding 1,048.40 +.40%

• 4-Week Moving Average of Jobless Claims 265,000 -2,500

• Continuing Claims Unemployment Rate 1.6% unch.

• Average 30-Year Mortgage Rate 3.82% +6.0 basis points

• Weekly Mortgage Applications 387.0 -27.56%

• Bloomberg Consumer Comfort 45.20 +.4 point

• Weekly Retail Sales +1.10% unch.

• Nationwide Gas $2.28/gallon -.04/gallon

• Baltic Dry Index 766.0 -5.31%

• China (Export) Containerized Freight Index 764.84 -2.29%

• Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 47.50 -9.52%

• Rail Freight Carloads 275,160 -2.43%

Best Performing Style

• Large-Cap Growth +.5%

Worst Performing Style

• Small-Cap Value -.5%

Leading Sectors

• Semis +3.3%

• Gaming +2.9%

• Utilities +2.2%

• I-Banks +2.1%

• Drugs +2.0%

Lagging Sectors

• Hospitals -3.5% 

• Disk Drives -3.6%

• Oil Service -4.4%

• Road & Rail -4.6%

• Coal -5.2%

Weekly High-Volume Stock Gainers (8)

• FPRX, WPP, LTRPA, TRIP, NBBC, SWI, FCS and MXIM

Weekly High-Volume Stock Losers (15)

• AMSG, HAWK, BCOR, WMT, VMW, VAC, BOFI, HTWR, TWOU, SMCI, ETSY, CPHD, LDRH, IMPR and ZFGN

Weekly Charts

ETFs

• High-Volume Gainers

• High-Volume Losers

Stocks

• High-Volume Gainers

• High-Volume Losers

*5-Day Change