Stocks Slightly Higher into Final Hour on Central Bank Hopes, Less European/Emerging Markets Debt Angst, Yen Weakness, Utility/REIT Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: About Even
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• Volatility(VIX) 15.58 +1.43%

• Euro/Yen Carry Return Index 119.92 +.35%

• Emerging Markets Currency Volatility(VXY) 10.39 -.29%

• S&P 500 Implied Correlation 45.09 +1.10%

• ISE Sentiment Index 96.0 +65.52%
  

• Total Put/Call 1.02 -8.11%

• NYSE Arms 1.0 -13.18% 

Credit Investor Angst:

• North American Investment Grade CDS Index 75.89 +.47%
  

• America Energy Sector High-Yield CDS Index 609.0 +.08%

• European Financial Sector CDS Index 98.88 -1.24%

• Western Europe Sovereign Debt CDS Index 20.90 +.05%

• Asia Pacific Sovereign Debt CDS Index 34.23 +2.24%

• Emerging Market CDS Index 237.31 -1.13%
  

• iBoxx Offshore RMB China Corporate High Yield Index 132.38 +.07%

• 2-Year Swap Spread 22.75 -.5 basis point

• TED Spread 52.50 -3.5 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -39.50 +.5 basis point
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.21 -.11%
• 3-Month T-Bill Yield .34% +1.0 basis point 

• Yield Curve 91.0 +2.0 basis points
  

• China Import Iron Ore Spot $57.16/Metric Tonne -.90%

• Citi US Economic Surprise Index -7.80 -2.6 points

• Citi Eurozone Economic Surprise Index 22.8 +.6 point

• Citi Emerging Markets Economic Surprise Index -13.70 -1.8 points

• 10-Year TIPS Spread 1.65% unch.
• 67.6% chance of Fed rate hike at Dec. 14 meeting, 70.3% chance at Feb. 1 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +155 open in Japan 
• China A50 Futures: Indicating +17 open in China

• DAX Futures: Indicating +6 open in Germany

Portfolio: 

• Slightly Lower: On losses in my biotech sector longs

• Disclosed Trades: None

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• Analysts’ Perfect Stock Plunges as China Property Risks Grow. For a perfect stock, China Resources Land Ltd. is taking a beating. Shares of the property developer have plummeted 17 percent from this year’s high on Sept. 9, the fastest pace on the city’s benchmark equity gauge. All 33 analysts tracked by Bloomberg have a buy rating on the company, giving a consensus score of 5 out of 5. That’s the highest of any constituent of the Hang Seng Index. While Mizuho Securities Asia Ltd. says the company’s earnings outlook remains buoyant, investor sentiment toward the Hong Kong-based developer and its peers has soured as China rolls out measures to cool the nation’s real estate market. Barings Asset Management (Asia) Ltd. says the shares, which are valued at $17 billion, will probably extend their rout. “This is a very volatile sector,” said Khiem Do, Hong Kong-based head of multi-asset strategy at Barings, which oversees $275 billion globally. If history is any guide, “the correction could continue and could be quite severe,” he said.
• Shearing: Emerging Market One-Off Growth Factors Are Done. (video)
• Europe Stocks Fall Amid Investor Anxiety Over Earnings, Stimulus. (video) European stocks retreated for a second day amid investor concern about corporate earnings and the implications of an expected tightening of U.S. monetary policy. Ericsson AB dragged technology shares to the worst performance on the Stoxx Europe 600 Index, tumbling 20 percent, the most in nine years, after reporting a slump in third-quarter sales and profitability. Finnish peer Nokia Oyj dropped 5.1 percent. Glencore Plc led commodity producers to the biggest gains on the European equity benchmark as metals prices climbed. The Stoxx 600 fell 0.5 percent to 338.56 at the close of trading.
• OPEC Faces Half-Million-Barrel Dispute With Members on Cuts. (video) The scale of the internal differences OPEC must resolve before securing a deal to cut supply was revealed Wednesday as the group’s latest output estimates showed a half-million-barrel difference of opinion over how much two key members are pumping. Venezuela and Iraq’s own figures on how much crude they produced in September were 565,000 barrels a day higher than estimates compiled by the Organization of Petroleum Exporting Countries from so-called secondary sources. The two nations are disputing the data, which could determine the production target for each country when caps on members’ output are decided next month.
• Libya’s Oil Production Set to Reach Three-Year High by December. Libya’s oil production is set to reach a three-year high by December as fields restart and ports reopen after five years of armed conflict crippled sales. Output is now 540,000 barrels a day and will reach 900,000 barrels by the end of the year, Libya’s National Oil Corp. Chairman Mustafa Sanalla said Wednesday in Istanbul. That would be the highest production since June 2013, according to data compiled by Bloomberg.
• Greatest Skeptics of Coal Surge May Be the Miners Themselves. Surging coal prices have been a surprise blessing for mining companies this year. Few of them seem to believe it will last. The rally has been driven by Chinese policy changes that curbed production rather than any pickup in demand. That means producers who sought to survive a downturn by shuttering mines aren’t yet ready to buy into it. Coking coal, used to make steel, has almost tripled this year while thermal, used to generate electricity, is up 56 percent. The biggest miners such as BHP Billiton Ltd. and Teck Resources Ltd. remain cautious on how long the rally will last. While Glencore Plc this week said it plans to restart a small mine, exports will be unchanged.
• Inside the Fed’s September Minutes: The Annotated Meeting.
• Clinton’s Tax Plan Seen Costing 697,000 Jobs Amid Lower Wages. Hillary Clinton’s proposed tax increases on people with high incomes and on businesses would constrain economic growth, leading to lower wages and about 697,000 fewer jobs. The Democratic presidential nominee’s tax plan, which includes proposals to raise taxes on multimillionaires and impose a “financial risk fee” on banks, would change economic behavior enough to reduce U.S. gross domestic product by 2.6 percent over the long run, according to a study prepared by the Washington-based Tax Foundation. In that slightly smaller economy, wages would be 2.1 percent lower, the report said.

Wall Street Journal:

• Germany’s Banking Problem Is Bigger Than Deutsche Bank. Too many banks are fighting in the same space, while political and legislative hurdles make consolidation difficult.

CNBC:

• Fed minutes: Hawks worry that delay in rate hike could cause recession. Federal Reserve officials who favor hiking interest rates worry that waiting too long could send the country into recession. At an unusually divisive Federal Open Market Committee meeting in September, hawkish members said history holds a worrisome lesson for a central bank that has kept a historically accommodative monetary policy in place for the past eight years.
• Major mall operator to close 72 shopping centers on Thanksgiving.
• Samsung will lose, but not to Apple(AAPL): Experts. (video)

Zero Hedge:

• "We Just Got A Tip" - Email Leak Reveals More Collusion Between State Department And Hillary Campaign.
• EU Exit "Only Way Out" From Greece's "Occupying Force" Of Refugees.
• Stocks Slide As ECB Hints At Delaying Additional Asset-Buying Decision. (graph)
• Wikileaks Releases Another 673 Podesta Emails In Part 5 Of Data Dump.
• Consumer Spending Deteriorates In September; BofA Finds No iPhone 7-Linked Sales Jump. (graph)
• Germany To Cut Off Welfare Benefits For EU Citizens.
• Kuroda Defends BOJ Credibility, Mocks Fed And IMF Economists.
• Yellen Will Not Be Pleased: Job Openings Miss Most On Record, Tumble To 2015 Levels. (graph)
• Political Risk Strikes US Equities. (graph)
• Even More OPEC Confusion: Unclear Who Cuts First, If Anyone, As Production Hits New Record High. (graph)
• British Bond Bloodbath Despite 'Softening' Brexit Sterling Bounce. (graph)
• Deutsche Bank(DB) Sells Another $1.5 Billion In Debt At Junk Bond Terms.

Business Insider:

• Why Mercedes plans to let its self-driving cars kill pedestrians in dicey situations.
• President Obama: We'll be debating unconditional free money 'over the next 10 or 20 years'.
• RED ALERT — Get ready for a 'severe fall' in the stock market, HSBC says.

Caixin:

• China Jan.-Sept. Railway Cargo Volume Falls -6.3% on Year. Railway cargo volume fell to 1.92b tons in Jan.-Sept., citing China Railway Corp.

Bear Radar

Style Underperformer:

• Small-Cap Growth -2.1%

Sector Underperformers:

• 1) Oil Tankers -2.2% 2) Biotech -2.2% 3) Networking -1.3%

Stocks Falling on Unusual Volume: 

• FTNT, TBPH, BBH, HUM, LPLA, CLSD, AA, IMAX, NVS, SNDX, CAVM, TPIC, COMM, ILMN, NOW, PANW, AET, NANO, HCSG, UBNT, HBI, CAB, IDTI, XLNX, FAST and NTLA

Stocks With Unusual Put Option Activity:

• 1) BX 2) LOW 3) CSX 4) ILMN 5) JNPR

Stocks With Most Negative News Mentions:

• 1) FTNT 2) CGI 3) ODP 4) LRCX 5) AA

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value +.3%

Sector Outperformers:

• 1) Gold & Silver +1.6% 2) Hospitals +1.0% 3) REITs +.9%

Stocks Rising on Unusual Volume:

• CUDA, HAWK, CXW and MWA

Stocks With Unusual Call Option Activity:

• 1) HUM 2) WY 3) KR 4) KMI 5) GME

Stocks With Most Positive News Mentions:

• 1) AMD 2) KR 3) MHK 4) STX 5) MRVL

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -17.7% Below 100-Day Average
• 5 Sectors Rising, 5 Sectors Declining
• 52.8% of Issues Advancing, 44.6% Declining
• 23 New 52-Week Highs, 26 New Lows
• 552% of Issues Above 200-day Moving Average
• Average 14-Day RSI 367%
• Vix 15.8 +2.9%
• Total Put/Call .89 -19.8%
• TRIN/Arms 1.1 -4.0%

Wednesday Watch

Evening Headlines
Bloomberg:

• China Cities Face End of Fairy Tale as Local Default Risks Rise. Finance firms that help keep cash flowing to China’s towns, cities and provinces face rising risks of landmark bond defaults just as they turn to global markets for funds. China’s economic slowdown is weighing on revenue at regional governments, hampering their ability to support the 5.3 trillion yuan ($789 billion) of outstanding onshore notes from local-government financing vehicles, which have yet to suffer nonpayments. Such issuance fell 18 percent last quarter as regulators curbed sales, forcing some to seek funds overseas. Financing units in provinces including Hunan, Jiangsu, Hubei and Sichuan are considering or planning U.S. currency notes, people familiar with the matters have said.
• Asian Stocks Fall for Fourth Day as Yen Weighs on Japan Shares. Asian stocks headed for a fourth day of declines after U.S. markets slumped on disappointing earnings, volatility spiked, and a stronger yen weighed on Japanese shares. The MSCI Asia Pacific Index lost 0.4 percent to 139.25 as of 9:08 a.m. in Tokyo, while Japan’s Topix index sank 0.7 percent.
• More Americans Falling Behind on Car Loan Payments, S&P Says. Subprime borrowers are falling behind on their car loan payments at the highest rate in more than six years, and some bonds backed by these loans are vulnerable to getting downgraded, according to S&P Global Ratings. Competition has spurred lenders to loosen standards and resulted in more delinquencies and default by people with weak credit, the ratings firm said. Subprime borrowers were behind by more than 60 days on about 4.85 percent of auto loans in August, the highest level since January 2010. The rate was 4.14 percent in August of last year, S&P said. For prime loans, delinquencies in August rose to 0.5 percent from 0.41 percent in the same month in 2015. The figures apply to loans that have been bundled into bonds.
• U.S. Consumer Debt Stings as Delinquency Chances Increase: Chart.
• PC Shipments Drop 3.9% as Declines Slow Before Holiday Shopping. Shipments of personal computers fell 3.9 percent in the third quarter, a narrower decline from earlier this year as the industry tries to free itself from a multiyear slump, market researcher IDC said. PC makers shipped 68 million machines globally in the period, down from 70.7 million a year earlier, IDC said Tuesday in a statement. The report follows a worldwide decline of 4.1 percent in the second quarter. Unit sales in the U.S. rose 1.7 percent, a second consecutive quarterly gain.
• Earnings Season Arrives With Thud After Stock Investors Cut Risk. Investors who plowed money into an exchange-traded fund designed to weed out companies with the shakiest profits looked prescient Tuesday when U.S. stocks staged one of their worst starts to an earnings season since the bull market began. The S&P 500 Index dropped 1.2 percent to 2,136.73, the fourth-biggest decline recorded since 2009 on the day after Alcoa Inc. reported results that fell short of analysts’ estimates. Shares of the 128-year-old aluminum maker led the slide, plunging more than 11 percent, while companies reporting or warning of disappointing results from Illumina Inc. to Seagate Technologies and Fastenal Co. tumbled as well.

Wall Street Journal:

• Samsung to Permanently Discontinue Galaxy Note 7 Smartphone. Move halts production and sale of defective premium phone; investors digest possibility smartphone giant could abandon Galaxy Note series.

Fox News:

• Republicans claim 'collusion' after email appears to show DOJ, Clinton campaign contact. (video) Republicans accused the Hillary Clinton campaign and Obama Justice Department of “collusion” on Tuesday after an email surfaced from the latest WikiLeaks document dump indicating the Clinton camp got a heads-up from the DOJ about one of the former secretary of state’s court cases.

CNBC:

• Assets at Leon Cooperman’s Omega shrink 25%. (video)
• OPEC is ‘manipulating sentiment, not supply’ with oil deal, says former WH aide. (video)

Zero Hedge:

• First Post-Debate Poll Gives Hillary A Significant Lead... And A Familiar Problem Emerges.
• Can The Price Of Oil Hold Above $50 Per Barrel?
• Sterling Surges After UK PM May Appears To Back Away From 'Hard' Brexit. (graph)
• "Investment Returns Will Be Very Low Going Forward" Ray Dalio Says Gold Could Prove Preferable. (graph)
• House Judiciary Committee Calls For Inspector General Probe Into FBI "Special Treatment Of Clinton Insiders".
• Quant Qrash Slams Stocks, Batters Bonds. (graph)

Business Insider:

• Russia to the US: If you want a confrontation, 'you'll get one everywhere'.
• 'This is obviously a huge deal': US Navy ship fires 3 missiles in defense after being targeted near Yemen.
• A large chunk of Americans think their healthcare is getting worse.

Night Trading 

• Asian equity indices are -.75% to -.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 116.50 -.5 basis point.

• Asia Pacific Sovereign CDS Index 33.5 +.25 basis point.

• Bloomberg Emerging Markets Currency Index 72.27 -.03%.

• S&P 500 futures +.11%.

• NASDAQ 100 futures +.09%.

Morning Preview Links 

Earnings of Note 

Company/Estimate

• (CSX)/.45

Economic Releases

10:00 am EST

• JOLTS Job Openings for August are estimated to fall to 5775 versus 5871 in July.

2:00 pm EST

• US Fed releases minutes from Sept. 20-21 FOMC meeting.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's George speaking, Fed's Dudley speaking, Eurozone Industrial Production report, Australian inflation data, OPEC monthly update, USDA WASDE Report, weekly MBA Mortgage Applications report, $24B 3Y T-Note auction and the $20B 10Y T-Note auction could also impact trading today.

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