Stocks Falling into Afternoon on Fed Rate Hike Fears, European/US High-Yield Debt Angst, Earnings Outlook Worries, Tech/Telecom Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Slightly Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 16.15 -2.24%

• Euro/Yen Carry Return Index 137.64 -.53%

• Emerging Markets Currency Volatility(VXY) 10.83 -.37%

• S&P 500 Implied Correlation 55.93 -1.51%

• ISE Sentiment Index 89.0 +5.95%

• Total Put/Call 1.03 -7.21%

• NYSE Arms 1.34 +17.78% 

Credit Investor Angst:

• North American Investment Grade CDS Index 81.36 +.78%

• America Energy Sector High-Yield CDS Index 1,119.0 -1.69%

• European Financial Sector CDS Index 71.74 +1.21%

• Western Europe Sovereign Debt CDS Index 20.38 +5.51%

• Asia Pacific Sovereign Debt CDS Index 70.15 -.77%

• Emerging Market CDS Index 322.51 -1.49%
  

• iBoxx Offshore RMB China Corporate High Yield Index 123.66 +.18%

• 2-Year Swap Spread 9.25 +.25 basis point

• TED Spread 26.5 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -40.5 -.25 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 70.92 -.01%
• 3-Month T-Bill Yield .13% +5.0 basis points

• Yield Curve 146.0 -1.0 basis point

• China Import Iron Ore Spot $48.24/Metric Tonne n/a

• Citi US Economic Surprise Index .9 +.3 point

• Citi Eurozone Economic Surprise Index 23.7 +.3 point

• Citi Emerging Markets Economic Surprise Index -4.1 -.5 point

• 10-Year TIPS Spread 1.60 -1.0 basis point
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 2.8 -.11

Overseas Futures:

• Nikkei 225 Futures: Indicating -7 open in Japan 
• China A50 Futures: Indicating -133 open in China

• DAX Futures: Indicating +17 open in Germany

Portfolio: 

• Slightly Higher: On gains in my medical sector longs, index hedges and emerging markets shorts

• Disclosed Trades: None

• Market Exposure: 25% Net Long

Bear Radar

Style Underperformer: 

• Small-Cap Growth -.55%

Sector Underperformers: 

• 1) Alt Energy -3.61% 2) Disk Drives -2.61% 3) Computer Hardware -2.05%

Stocks Falling on Unusual Volume:

• AYA, TXTR, BBSI, SYF, AEGR, EQM, W, DTSI, CSIQ, OSTK, STNR, RDY, STRP, COMM, FRC, ZAYO, RNET, PRSC, CALL, NEWR, RMTI, MNK, PCL, JMBA, SWIR, GIII, FL, EWBC, VSAT, TRCO, GPS, CKEC, VSLR, ENV, TMUS, NEWR, ROK, GIMO, COMM, PRAA, NSAM, ALR, AMBC, NGL, FSLR, ZBRA, ACET, BID, PBYI and TERP

Stocks With Unusual Put Option Activity: 

• 1) EWT 2) BID 3) FL 4) SUNE 5) FIT

Stocks With Most Negative News Mentions: 

• 1) TXTR 2) CYBR 3) VRX 4) SWKS 5) W

Charts:

• ETFs Falling on Unusual Volume 
• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Value +.16%

Sector Outperformers: 

• 1) Homebuilders +2.52% 2) HMOs +.71% 3) REITs +.45%

Stocks Rising on Unusual Volume: 

• NVRO, BLCM, RAX, TAL, ATW, DHI, SCLN, ICPT, OPK and LGF

Stocks With Unusual Call Option Activity: 

• 1) MDR 2) RAX 3) RMBS 4) CAG 5) SUNE

Stocks With Most Positive News Mentions: 

• 1) RAX 2) JEC 3) TTI 4) TRS 5) CPN

Charts: 

• ETFs Rising on Unusual Volume 
• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running +2.2% Above 100-Day Average
• 3 Sectors Rising, 7 Sectors Declining
• 45.9% of Issues Advancing, 51.8% Declining
• 17 New 52-Week Highs, 68 New Lows
• 33.4% of Issues Above 200-day Moving Average
• Average 14-Day RSI 42.0
• Vix 16.3
• Total Put/Call 1.07
• TRIN/Arms 1.30

Tuesday Watch

Evening Headlines
Bloomberg:

• Asia's Rapid Debt Buildup Tops Developing Markets, IIF Says. Debt in developing markets is estimated to have reached $58.6 trillion at the start of 2015, with credit in China, Hong Kong, India, Indonesia, Malaysia, Singapore, South Korea and Thailand exceeding that of Latin America, emerging Europe and the Middle East, according to the Institute of International Finance. Emerging-market debt has grown $28 trillion since 2009, according to the IIF, which on Monday introduced a database tracking 18 developing markets. Global debt has soared $50 trillion during the period to surpass a total of $240 trillion, or 320 percent of gross domestic product, in early 2015. While credit has increased for almost all countries included in the new monitor over the past decade, debt-to-GDP ratios in developing Asia for non-financial corporate, household and financial corporate sectors have risen the most. Debt in Asia topped all categories except in the public sector, which has “limited” exposure across emerging nations compared with developed markets, the report said. Non-financial corporate sector debt in emerging markets has risen $13 trillion since 2009, increasing more than five-fold over the past decade to surpass $23.7 trillion in the first quarter of 2015. The advance has been most concentrated in emerging Asia, where it rose to 125 percent of GDP.
• China's Big Banks Have Longest Road to Meet Loss-Absorbing Needs. China’s giant banks got a nine-year breather to issue the securities they need to meet standards for loss absorbency laid down by the Financial Stability Board, an acknowledgment of the challenge this implies for the largely deposit-funded lenders. The country’s four lenders on the FSB’s list of the world’s too-big-to-fail banks have until 2025 to reach total loss-absorbing capacity of 16 percent of risk-weighted assets, six more years than their peers from developed markets.  
• Le Pen Draws Inspiration From Cameron on Euro Exit Referendum. Marine Le Pen has a new role model: David Cameron. The head of France’s far-right National Front party wants to take a leaf out of the U.K. leader’s playbook and use the threat of an exit from the European Union as a bargaining chip to win concessions for her country. “I am so happy to see David Cameron doing in the U.K. what I want to do for France,’’ Le Pen said in a telephone interview. “He’s using the months ahead of the referendum to get what he wants for his country, and we want that too, more sovereignty for France and more freedom.”
• VW Struggles to Keep Dealers Happy as Scandal Widens Worldwide. Volkswagen AG’s goodwill offer of $1,000 to the owners of cars caught in the emissions scandal comes as the company wages a behind-the-scenes effort to soothe another powerful constituency: its U.S. dealers.
• Europe's Quiet Currency War Besets Nations Losing Inflation Grip. Draghi’s bonanza of cheap cash is depressing financial returns in the euro area and driving investment flows into neighboring countries, pushing up their currencies and defeating their efforts to hit their own inflation targets. Looser monetary policy is in the cards even in countries where economic growth is strong and asset markets are overheating.
• Korean Won Near One-Month Low as Exporters Seen Selling Dollars. South Korea’s won traded near a one-month low on speculation exporters are selling dollars to pay bills as the end of the year approaches. The currencyrose 0.1 percent to 1,156.90 a dollar as of 10:26 a.m. in Seoul, data compiled by Bloomberg show, near the 1,157.78 level reached on Monday that was the weakest since Oct. 9. The won lost 2.2 percent over the last three days, paring its gain this quarter to 2.4 percent.
• Asian Stocks Join Global Selloff on Fed Concern Before China CPI. Asian stocks joined a global selloff amid concern that U.S. policy makers will next month end an unprecedented era of record-low borrowing costs, and as investors awaited a Chinese inflation report. Material and technology shares led declines. The MSCI Asia Pacific Index dropped 0.4 percent to 133.16 as of 9:00 a.m. in Tokyo as Japan’s Topix index slid from an 11-week high.
• Oil Price Drop Threatens Industries That Help Cut Global Warming. The plunge in oil prices risks undermining efforts to reduce the pollution blamed for global warming, especially projects designed to wring more from each barrel of oil, the International Energy Agency concluded in its annual assessment of markets. If the cost of crude remains near $50 a barrel until the end of the decade, cheaper conventional fuels would hold back the development of electric cars and biofuels that are helping curb carbon emissions, IEA said. It also estimated about $800 billion of efficiency improvements in cars, trucks and airplanes would be lost.
• Rout-Proof Oil Dividends Under Scrutiny as Small Companies Crack. Europe’s biggest energy companies are doing everything they can to keep paying dividends. If their smaller peers are anything to go by, they’re fighting a losing battle. Companies such as Royal Dutch Shell Plc, Total SA and BP Plc have reduced spending, sold assets and even issued scrip dividends in lieu of cash to keep shareholders happy in the midst of the worst oil rout in over a decade. While the larger operators have largely succeeded in keeping payouts intact, smaller players are starting to show the strain.
• Gundlach Says December Rate Increase a Threat to Stocks, Bonds. A December interest rate increase would threaten U.S. stock and bond markets while potentially driving up the value of the dollar to the point where it weakens the economy, according to Jeffrey Gundlach, chief executive officer of DoubleLine Capital. “I have a hard time believing a Fed tightening will help the economy,” Gundlach, whose Los Angeles-based company manages about $80 billion, said Monday on a conference call with investors. “I think volatility will increase and the economy will weaken.”

Wall Street Journal:

• Brazil’s Economic Crisis Beats the Emerging Middle Class Back Down. Rising inflation, taxes and unemployment threaten to derail progress in reducing country’s income gap.
• Valeant(VRX) to Offer Business Update Tuesday. Embattled pharmaceutical company to discuss transition from specialty pharmacy Philidor.
• University of Missouri System President Tim Wolfe Resigns. Departure comes amid criticism over handling of racial issues; chancellor also steps down.
• The Climate Agenda Behind the Bacon Scare. The widely publicized warning about meat isn’t about health. It’s about fighting global warming. Headlines blaring that processed and red meat causes cancer have made this steak-and-bacon-loving nation collectively reach for the Rolaids. Vegans are in full party mode, and the media is in a feeding frenzy. But there is more to this story than meets the (rib)eye. With United Nations climate talks beginning in a few weeks in Paris, the cancer warning seems particularly well timed. Environmental activists have long sought to tie food to the fight against global warming. Now the doomsayers who want to take on modern agriculture, a considerable source of greenhouse-gas emissions, can employ an additional scare tactic: Meat production sickens the planet; meat consumption sickens people. Late last month, the International Agency for Research on Cancer (IARC)—part of the World Health Organization, an arm of the U.N.—concluded that red meat, like beef and pork, is “probably carcinogenic” to humans, and that processed meat is an even greater cancer threat. The IARC placed foods like bacon, sausage and hot dogs in the same carcinogen category as cigarettes and plutonium. The working group assessed “more than 800 epidemiological studies that investigated the association of cancer with consumption of red meat or processed meat in many countries.” But support for the IARC’s sweeping conclusion is flimsy at best. The working group even admits in the same paper that “there is limited evidence for the carcinogenicity of the consumption of red meat” and “no clear association was seen in several of the high quality studies.” Despite this, the agency placed red meat in its second-highest carcinogen category, alongside DDT and the human papillomavirus, HPV. A doctor with the IARC acknowledged in a news release announcing the findings that “for an individual, the risk of developing colorectal cancer because of their consumption of processed meat remains small.” But that statement—widely overlooked in most media coverage—didn’t stop the agency from putting processed meat in its highest category of carcinogens, alongside mustard gas and formaldehyde.
• ObamaCare’s Failure Contagion. The collapse of the co-ops is punishing other insurers. The majority of ObamaCare’s insurance co-ops—12 of 23—have now folded, and their $1.24 billion in federal loans has all but vaporized. More will fail, nearly a million Americans may lose coverage, and now the contagion from their failures is spreading. The co-ops are government-sponsored nonprofits that were supposed to increase competition, but instead they’re causing the greatest insurance disruption in decades. The co-ops aren’t merely jilting their displaced members or the taxpayers who supplied...

Fox News:

• Sources: Vocal supporter of sanctuary cities on short list to be next head of Border Patrol. (video) A former San Francisco police chief and vocal supporter of a sanctuary cities policy is on a short list of candidates to become the new chief of the Border Patrol, according to sources.

MarketWatch.com:

• Americans over 30 are more miserable than they’ve ever been. 
• Caesars(CZR) shares tumble 13% on sizable quarterly losses.
• Banana Republic slide hurts Gap(GPS) outlook. Gap Inc. forecast weaker-than-expected results for its recently completed quarter as the retailer's sales continued declining in October, particularly at Banana Republic. Shares declined 5.1% after hours.
• Fed’s Rosengren sees possible bubble in commercial real estate.

CNBC:

• Another drug stock tanks on Citron short threat. Shares of Mallinckrodt PLC(MNK) fell as much as 25 percent and trading was halted multiple times due to volatility after Citron Research tweeted the company had more downside than Valeant Pharmaceuticals at these levels.

Zero Hedge:

• As Q3 Earnings Season Winds Down, A Summary Of Where We Stand And The 4 Main Themes From Conference Calls. (graph)
• About That Surge In Retail & Construction Jobs. (graph)
• Obama's Trade Deal Will Bankrupt Canada's Farming Industry "Overnight", Expert Says. (graph)
• Shares Of World's Largest Miner Plunge To Seven-Year Low After Massive Toxic Mudslide Engulfs Brazilian Village. (graph)
• Venezuela Default Countdown Begins: After Selling Billions In Gold, Caracas Raids $467 Million In IMF Reserves. 
• EM Exodus: Emerging Economies See Half Trillion In Capital Flight. (graph)
• The Courage To Print Money. “The greatest trick the Devil ever pulled was convincing the world he didn’t exist.”
• How Many Government Workers Does It Take To Send A "Presidential" Tweet?
• Three Trains Derail Just Days After Buffett's BNSF Beats Back Railroad Regulations.
• The End Of The Fed's Self-Deluding Feedback Loop Of False Information.
• 'Rate-Hike-Loving' Investors Suddenly Dump Stocks, Commodities As Growth Reality Sinks In. (graph)

Business Insider:

• The bottom is falling out of San Francisco's luxury home market.
• Things might get even worse for iron and coal.
• Facebook(FB) is now scanning your camera's photos to make sure you send them to your friends.
• 'Merger mania' is coming back to bite companies.

Reuters:

• Arch Coal(ACI) expects to file for bankruptcy protection within months. Arch Coal, the second largest coal miner in the United States, said on Monday that it could follow its smaller peers into bankruptcy in the near term, even if current talks with creditors yield a restructuring agreement. Missouri-based Arch Coal, struggling under strict regulation and plummeting coal prices, reported a $2 billion third-quarter net loss on Monday and said it could have trouble servicing $5.1 billion of debt in a stubbornly challenging environment.

Financial Times: 

• Oil glut to swamp demand until 2020. The oil market will remain oversupplied until the end of the decade as an unstoppable push for cleaner fuels and greater efficiency offsets the effect of lower prices, the world’s leading energy forecaster said.

Telegraph:

• World flirts with global recession as trade growth slows, warns OECD. Organisation for Economic Co-operation and Development trims global growth forecasts amid a "deeply concerning" slowdown in global trade and slower growth in emerging markets as economists urge the Chancellor to rethink cuts.

Evening Recommendations 

• None of note

Night Trading 

• Asian equity indices are -1.25% to -.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 127.75 +3.25 basis points.
• Asia Pacific Sovereign CDS Index 70.75 +1.5 basis points.
• Bloomberg Emerging Markets Currency Index 70.94 +.03%.
• S&P 500 futures +.10%.
• NASDAQ 100 futures +.01%.

Morning Preview Links 

Earnings of Note 
Company/Estimate

• (BZH)/.85
• (CSIQ)/.29
• (DHI)/.63
• (ROK)/1.78
• (ZBRA)/1.23
• (DOX)/.82
• (CTRP)/.27  

Economic Releases 

6:00 am EST

• The NFIB Small Business Optimism Index for October is estimated to rise to 96.4 versus 96.1 in September.

8:30 am EST

• The Import Price Index for October is estimated to fall -.1% versus a -.1% decline in September. 

10:00 am EST

• Wholesale Inventories for September are estimated to rise +.1% versus a +.1% gain in August. 
• Wholesale Trade Sales for September are estimated to rise +.1% versus a -1.0% decline in August. 

Upcoming Splits

• None of note

Other Potential Market Movers

• The China CPI/PPI report, Australian Consumer Confidence report, weekly US retail sales reports, Wasde Crop report, $24B 10Y T-Note auction, RBC Tech/Internet/Media/Telecom conference, Stephens Investment Conference, Wells Fargo Tech/Media/Telecom Conference, (MCD) investor meeting, (CMI) analyst day, (IRBT) analyst day and the (AVID) investor day could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down 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.

Stocks Falling into Final Hour on Fed Rate Hike Fears, Rising European/Emerging Markets/US High-Yield Debt Angst, Emerging Markets Currency Worries, Homebuilding/Retail Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 16.75 +16.89%

• Euro/Yen Carry Return Index 138.38 +.15%

• Emerging Markets Currency Volatility(VXY) 10.89 +.93%

• S&P 500 Implied Correlation 57.20 +2.12%

• ISE Sentiment Index 78.0 -18.75%

• Total Put/Call 1.12 +9.80%

• NYSE Arms .97 +24.12% 

Credit Investor Angst:

• North American Investment Grade CDS Index 81.32 +3.04%

• America Energy Sector High-Yield CDS Index 1,137.0 +1.03%

• European Financial Sector CDS Index 70.88 +3.85%

• Western Europe Sovereign Debt CDS Index 19.32 +4.66%

• Asia Pacific Sovereign Debt CDS Index 69.10 -2.36%

• Emerging Market CDS Index 327.42 +3.37%
  

• iBoxx Offshore RMB China Corporate High Yield Index 123.43 +.02%

• 2-Year Swap Spread 9.0 unch.

• TED Spread 26.5 -3.0 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -40.25 -5.0 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 70.92 -.35%
• 3-Month T-Bill Yield .08% unch.

• Yield Curve 147.0 +3.0 basis points

• China Import Iron Ore Spot $48.24/Metric Tonne +.06%

• Citi US Economic Surprise Index .6 +.6 point

• Citi Eurozone Economic Surprise Index 23.4 +1.3 points

• Citi Emerging Markets Economic Surprise Index -3.6 +.9 point

• 10-Year TIPS Spread 1.61 +2.0 basis points
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 2.99 -.52

Overseas Futures:

• Nikkei 225 Futures: Indicating -237 open in Japan 
• China A50 Futures: Indicating -159 open in China

• DAX Futures: Indicating -18 open in Germany

Portfolio: 

• Slightly Higher: On gains in my biotech sector longs, index hedges and emerging markets shorts

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short

• Market Exposure: Moved to 25% Net Long