Stocks Slightly Lower into Final Hour on Global Growth Fears, Emerging Markets Debt Angst, Oil Decline, Commodity/Gaming Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Slightly Lower
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 15.07 +.13%

• Euro/Yen Carry Return Index 141.33 -.26%

• Emerging Markets Currency Volatility(VXY) 11.23 +2.09%

• S&P 500 Implied Correlation 60.63 -1.16%

• ISE Sentiment Index 119.0 +32.22%

• Total Put/Call .91 +7.06%

• NYSE Arms 1.41 +10.92% 

Credit Investor Angst:

• North American Investment Grade CDS Index 81.15 -.71%

• America Energy Sector High-Yield CDS Index 1,054.0 +.44%

• European Financial Sector CDS Index 75.25 -3.22%

• Western Europe Sovereign Debt CDS Index 21.11 -.61%

• Asia Pacific Sovereign Debt CDS Index 74.80 -.37%

• Emerging Market CDS Index 330.19 +.82%
  

• iBoxx Offshore RMB China Corporates High Yield Index 121.54 +.02%

• 2-Year Swap Spread 11.75 -.25 basis point

• TED Spread 32.25 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -24.25 -.75 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.91 -.44%
• 3-Month T-Bill Yield -.01% unch.

• Yield Curve 143.0 +1.0 basis point

• China Import Iron Ore Spot $53.74/Metric Tonne n/a

• Citi US Economic Surprise Index -11.30 +3.5 points

• Citi Eurozone Economic Surprise Index 6.8 +.7 point

• Citi Emerging Markets Economic Surprise Index -18.10 -1.4 points

• 10-Year TIPS Spread 1.46 -3.0 basis points
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 6.50 -.39

Overseas Futures:

• Nikkei 225 Futures: Indicating +179 open in Japan 
• China A50 Futures: Indicating -5 open in China

• DAX Futures: Indicating -10 open in Germany

Portfolio: 

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

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• Putin Officials Said to Admit Real Syria Goal Is Far Broader. As Russia’s air war in Syria nears its fourth week, officials now admit that Moscow’s aim is far broader than the publicly announced fight against terrorist groups. The Kremlin’s real goal is to help Syrian President Bashar al-Assad retake as much as possible of the territory his forces have lost to opponents, including U.S.-backed rebels, Russian officials told Bloomberg News. Moscow’s deployment of several dozen planes, as well as ships in the Black and Caspian Seas, could last a year or more, one official said. President Vladimir Putin is willing to run the risk of falling into the kind of quagmire that helped sink the Soviet Union a generation ago for the chance to roll back U.S. influence and demonstrate he can dictate terms to Washington.

• Assad's march on Aleppo raises fears of new refugee exodus. With Russian warplanes in the air and Iranian special forces on the ground, an emboldened Syrian President Bashar al-Assad is turning back to the biggest trophy in his country's civil war, and this time Europe is also on the front line. As his troops head toward Aleppo, Syria's former commercial hub and largest city, helicopters are dropping warnings to residents to vacate areas. Should Aleppo and other Sunni towns fall to Assad's forces, the potential for another, larger, wave of refugees would be nightmarish, according to one official in a European government.   

• The Great Ball of China Money Rolls Into Bonds. Bringing leverage and distortion in its wake. China's markets resemble nothing if not a great rolling ball of money that moves from asset class to asset class, constantly searching for the next source of sizable returns. After shifting away from stocks this summer, when the value of the Shanghai Composite Index almost halved in a dramatic market selloff, the Great Ball of China seems to have found a new home: bonds sold by Chinese corporates.

• China's New Economy Won't Pack the Same Punch for Global Growth. The data showed President Xi Jinping’s government is making headway transforming the $10 trillion-plus economy from one driven by debt-fueled investment and exports into a more sustainable one led by consumer spending and services. The not-so-great news: policy makers and investors hoping a resurgent China will revert back to its role as global-growth turbocharger are set to be disappointed.

• Is China Disguising a Hard Landing? (video)

• Brazil's Economy Is Under Pressure. (video)

• Radicals gaining ground in Catalonia send warning to bond market. After failing to win a majority in the region's assembly with a mainstream separatist alliance on Sept. 27, acting President Artur Mas is trying to keep his position as leader of the drive for independence from Spain by bringing the more radical CUP into the process. The party is demanding Mas pursues "non-reversible acts of disobedience" toward Spain before starting talks on whether to support him remaining president. At stake is the future of a region that makes up a fifth of Spain's economy, and Mas's post-electoral strategy is doing nothing to assuage concerns. In the run-up to last month's vote, Catalan bonds maturing in February 2020 dropped, with the yield jumping to a level four times that of Spanish debt of a similar maturity. Tension between Madrid and Barcelona was among the reasons cited by Standard & Poor's to cut Catalonia's debt rating on Oct. 9 to BB-, three steps below investment grade.

• Dubai Property Seen too Expensive to Get Iran Sanctions Bounce. Dubai homes are 4.4 times more expensive for Iranians using local currency than they were five years ago, meaning a lifting of sanctions against the Islamic republic would have little short-term effect on the emirate’s slumping real estate market, according to Phidar Advisory. “This is simply a matter of economics,” Phidar Managing Director Jesse Downs said by phone Monday. “The rial will take time to appreciate and until that happens, Dubai property will be very expensive for Iranian buyers.” 

• Currency Rally Sows Seeds of Own Destruction in Policy Paradox. This month’s rally in higher-yielding currencies is in danger of snuffing itself out. The Australian dollar to the South African rand have strengthened in the past three weeks after the Federal Reserve held off raising interest rates in September, citing global market turmoil. The decision preserved their yield advantage over the U.S., fueling the currencies’ recoveries from this year’s lows. Here’s the catch: Those gains are starting to contribute to the sort of calm policy makers would like to see before they act. That may rekindle the threat of a Fed liftoff. And such a prospect risks derailing the recovery, whipping up volatility, and starting the cycle afresh.

• Europe Stocks Rise on Earnings as Deutsche Bank Up on Reshuffle. A gain in Deutsche Bank AG and positive earnings reports helped push European stocks to a two-month high. The German lender rose 3.7 percent as it’s undertaking the biggest management reshuffle in more than a decade and splitting up its investment bank. Danone and Metro AG advanced after earnings, while miners fell as data showed China’s economy expanded at the slowest pace since 2009. The Stoxx Europe 600 Index added 0.3 percent to 364.25 at the close of trading in London, with the volume of shares changing hands 34 percent below the 30-day average.

• Iran Sees No OPEC Output Change as Country Seeks $70-$80 Oil. Iran’s oil minister sees no imminent change in OPEC’s output strategy even as he urged fellow members of the group to cut their collective production to buoy crude to a range of $70 to $80 a barrel. Iran is preparing to ramp up its own output once world powers remove sanctions on its economy, regardless of any decisions by the Organization of Petroleum Exporting Countries, Oil Minister Bijan Namdar Zanganeh told reporters Monday at an industry conference in Tehran.

• Halliburton(HAL) Cuts More Jobs as Fracking Hit Worst in Oil Downturn. Halliburton Co. cut another 2,000 jobs in the past month as the worst oil market slump in decades saps demand for work at the world’s largest provider of fracking services. The Houston-based company said the first quarter of next year may represent the lowest point for its North American profit margin as customers start fresh with new spending budgets for 2016 and tap Halliburton’s pressure-pumping expertise to start new wells. The comments came after the company reported a third-quarter loss of $54 million.

• Copper Sags Most in Three Weeks as China Woes Dim Demand Outlook. Copper declined the most in more than three weeks as signs of slowing manufacturing added to demand concerns in China, the world’s biggest metals consumer. China’s industrial output in September climbed 5.7 percent from a year earlier, compared with a 6.1 percent gain in August and economists’ median estimate of 6 percent, government data showed. A separate report showed the slowest quarterly growth in the economy since 2009. Shares of mining companies fell, with Anglo American Plc dropping the most this month in London trading.

• Morgan Stanley(MS) Misses Estimates on Drop in Bond Trading Revenue. (video) Morgan Stanley reported profit that missed analysts’ estimates as fixed-income trading revenue tumbled and investment-management fees dropped by more than half on an Asian private-equity loss. The stock dropped 5.7 percent in early trading. Third-quarter net income fell to $1.02 billion, or 48 cents a share, from $1.69 billion, or 83 cents, a year earlier, the New York-based company said Monday in a statement. Excluding an accounting gain and legal expenses, profit was 42 cents a share, missing the 63-cent average estimate of 23 analysts surveyed by Bloomberg.

MarketWatch.com:

• China’s GDP at 6.9%? Try 3%: Analysts react to latest growth figures. “We don’t believe them at all. It’s not just that they come in suspiciously close to the target, which is pre-set. They’re produced remarkably quickly and rarely revised. And our own estimate — which is based on Premier Li’s advice, which is that the GDP data are untrustworthy, that we should use alternative measures to gauge the level of activity in China like electricity use, credit growth and other domestic indicators — we combine those and we get a number closer to 3%. Not 7.3 – three!” —Danny Gabay, co-director at Fathom Consulting, in an interview with BBC Radio 4 (starting around the 17:00 mark)

Zero Hedge:

• WalMart(WMT) Suppliers Brace For The Coming Storm: "Now We Know Why They Have Been Pushing So Hard".

• "The Squeeze Has Run Its Course" - According To BofA "The Rally Needs Central Bank Action To Continue". (graph)

• Freddie Mac Launches "Three Percent Down" Mortgages To Lure Millennials.

• VIX Plunges To 14 Handle - Erases Post-China-Devaluation "Fear". (graph)

• Oil Market Showdown: Can Russia Outlast The Saudis?

• The Truth Behind China's GDP Mirage: Economic Growth Slows To 1999 Levels. (graph) 

• Homebuilder Sentiment Surges To Highest In 10 Years On "Hope" Of Future Sales. (graph)

• WTI Crude Tumbles To $45 Handle. (graph)

• China's Glencore: State-Owner Miner And Steel Trader Avoids Default With Last Minute Bailout. (graph)

Business Insider:

• Steve Wynn got a lashing from the Macau government, and his stock is getting creamed.

• Deutsche Bank(DB) handed a hedge fund $6 billion on a 'fat finger' error.

• We're flirting with another recession.

• Britain's steel industry is in meltdown.

• Bernie Sanders is surging in a fresh batch of new polls.

Wolf Street:

• Pummeled by Lousy Global Demand and Rampant Overcapacity, China Containerized Freight Index Collapses to Worst Level Ever. (graph) The CCFI, operated by the Shanghai Shipping Exchange and sponsored by the Chinese Ministry of Communications, is not being beautified in the manner that more publicly visible statistics, such as GDP growth, are subject to. It is allowed to get very ugly. And it got very ugly. The index plunged below 800 in early July for the first time in its history (it was set at 1,000 in 1998). It then recovered to a smidgen above 800, but now re-collapsed to even lower levels. The latest weekly reading dropped another 2.3% from the prior week to 764.84, a new all-time low:

Daily Caller:

• Democratic Congressman Says Joe Biden Is Running For President.

Reuters:

• Exclusive: Clinton urges U.S. regulators to examine Daraprim price hike. Democratic presidential candidate Hillary Clinton on Monday urged U.S. regulators to determine how to bring lower-cost generic drugs to market more swiftly and combat anticompetitive practices in the pharmaceutical industry. Clinton's requests to the Food and Drug Administration and the Federal Trade Commission were prompted by what she called the "egregious actions of Turing Pharmaceuticals," according to letters reviewed by Reuters.

• China Sept power output falls 3.1 pct on yr -stats bureau. China generated 454.8 billion kilowatt-hours (kWh) of power in September, down 3.1 percent from the same month last year, the country's statistics bureau said on Monday, with industrial demand still under pressure as the economy slows.

Bear Radar

Style Underperformer:

• Large-Cap Value -.62%

Sector Underperformers:

• 1) Gaming -5.22% 2) Coal -4.65% 3) Steel -3.22%

Stocks Falling on Unusual Volume:

• BLUE, NTRI, ATTU, HAS, MS, CRS, VRX, MSCC, ASCMA, PN, KMPH, STRP, MYRG, KSU, FPRX, GWW, HBI, MTB, MSM, SCTY, BIB, NGL, STLD, PTCT, BOFI, WYNN and PTCT

Stocks With Unusual Put Option Activity:

• 1) PPC 2) IYR 3) GE 4) EWW 5) MS
  

Stocks With Most Negative News Mentions:

• 1) VRX 2) VALE 3) STX 4) SCTY 5) MS
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Growth +.01%

Sector Outperformers:

• 1) HMOs +.87% 2) Airlines +.64% 3) Telecom +.58%
  

Stocks Rising on Unusual Volume:

• WTW, PMCS, ZFGN and DBD

Stocks With Unusual Call Option Activity:

• 1) CME 2) SYF 3) SIRI 4) TMUS 5) KR
  

Stocks With Most Positive News Mentions:

• 1) NKE 2) WTW 3) ANF 4) DRI 5) BWLD
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

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.