Friday Watch

Evening Headlines

Bloomberg:

• France’s Chaotic Election Could Put the Future of Europe at Risk. France’s 2017 presidential election is set to be like no other in the modern era. As supporters of the center-right Republican party prepare to vote in their primary next month, there are at least 12 declared candidates, with President Francois Hollande and his former Economy Minister Emmanuel Macron shaping up to join the fray. Though not all of the contenders will make it to April, the race is wide open with far-right leader Marine Le Pen making the running with her attacks on the European Union as voters’ satisfaction with the bloc plummets. For the first time since Charles de Gaulle’s return to power in 1958 ushered in the Fifth Republic, both France’s two main political parties are holding primary contests, and Hollande is the first incumbent to reach such depths of unpopularity.
• Bromance Between Xi and Putin Grows as U.S. Spats Escalate. Chinese President Xi Jinping and his Russian counterpart, Vladimir Putin, will have more than vodka shots and gifts of ice cream to show for their warming relationship when they meet this weekend on the sidelines of a developing nations’ summit in India. Recent months have seen greater security cooperation between Russia and China as they find common ground against the U.S. The neighboring giants last month held their first joint naval drill in the South China Sea and both have condemned U.S. plans to deploy a U.S. missile shield in South Korea. A Russian general said this week the military was working with China to counter an expansion of U.S. missile defenses, which they see as upsetting the balance between the three nuclear powers.
• China Builder Debt Risks Rise on Double-Blow From Regulators. China’s developers are reeling from a double blow of cooling measures on home sales and curbs on their access to the bond market. At least 21 cities have introduced purchase restrictions and toughened mortgage lending limits since late September, while people familiar with the matter said last month that the Shanghai Stock Exchange is considering barring builders rated below AA from selling exchange-traded notes. The average yield on Asian dollar-denominated high-yield notes, most of which are from Chinese developers, has jumped to a more than three-week high of 6.4 percent, according to JPMorgan Chase & Co.’s indexes.
• Singapore’s Economy Contracts Annualized 4.1% in Third Quarter. Singapore’s economy contracted in the third quarter from the previous three months, according to an advanced estimate from the government, more signs that the Southeast Asian financial and trading hub is struggling in the face of a global slowdown. Gross domestic product fell an annualized 4.1 percent on a quarter-on-quarter basis, compared with a revised 0.2 percent expansion in the second quarter, the Ministry of Trade and Industry said in a statement Friday.
• Turkish Lira Weakens to Record as Rising Fed Bets Add to Risks. Turkey’s lira depreciated to an all-time low and its stock and bond markets sold off as expectations the U.S. will raise interest rates this year added to concern about the nation’s economic outlook. The currency lost as much as 0.8 percent per dollar to record 3.1131, before trimming losses to 0.2 percent as of 4:28 p.m. in Istanbul. The Borsa Istanbul 100 Index headed for the longest losing streak in three months and the yield on the government’s 10-year bonds exceeded 10 percent for the first time since July.
• Asian Stocks Set for Weekly Decline Before China Inflation Data. Asian stocks headed for their biggest weekly loss in four as investors waited for Chinese inflation data after disappointing export figures. Thailand’s market will be closely watched following the death of King Bhumibol Adulyadej, the world’s longest-reigning monarch. The MSCI Asia Pacific Index fell 0.1 percent to 137.81 as of 9 a.m. in Tokyo, taking its loss this week to 2 percent, amid more than a six in ten chance of a U.S. interest-rate increase before year-end. After digesting the export data that missed estimates, eyes are on consumer and producer prices to be released later on Friday.
• Oil Rebound’s Dirty Little Secret Threatens U.S. Gas Bulls. One of the biggest threats to an extended rally in U.S. natural gas prices is lurking in the oil patch. Gas production in most of the country has dropped amid cost-cutting. Not so in the Permian Basin, the nation’s biggest crude reservoir and one of the few places where drilling has remained profitable. Permian drillers led by Occidental Petroleum Corp. and Pioneer Natural Resources Co. are pumping more oil as prices rise, pushing natural gas extracted as a byproduct from the West Texas play to almost 7 billion cubic feet a day, Bloomberg Intelligence data show. That’s about 8 percent of U.S. supply.

Wall Street Journal:

• The Press Buries Hillary Clinton’s Sins. As reporters focus on Trump, they miss new details on Clinton’s rotten record. If average voters turned on the TV for five minutes this week, chances are they know that Donald Trump made lewd remarks a decade ago and now stands accused of groping women. 

MarketWatch:

• The stock market is turning into a sloppy, ugly mess — and it could get worse.

CNBC:

• Treasury takes its latest step to keep corporate taxes in the US. (video) The Treasury Department announced regulations Thursday that it hopes will keep corporate taxes in the United States by making it more difficult for companies to take advantage of tax inversions.
• HP(HPQ) Inc to cut 3,000 to 4,000 jobs over next three years.
• Here’s how Trump damage could hand Democrats control of the House. (video)

Zero Hedge:

• Subprime Auto Securitizations Show Signs Of Cracking As Delinquencies Rise. (graph)
• Goldman(GS) Warns "Much More Downside" To Come For Pound Sterling.
• Democratic Minnesota Gov. Blasts Obamacare: "Affordable Care Act Is No Longer Affordable".
• Singapore Economy Crashes In Q3. (graph)
• Leaked Emails Reveals Clinton Campaign Plotted Supreme Court Threat Over Obamacare.
• Global Elites Are Getting Ready To Blame You For The Coming Financial Crash.
• US Debt Soars To $19.7 Trillion. (graph)
• NIRP Has Failed: European Savings Rate Hits 5 Year High.
• Remember Ray Dalio's "Depression" Warning: This Is Where We Stand Now.
• Bundesbank Says 'Nothing To See Here' As Deutsche Bank Stock Slumps. (graph)
• Hillary's Speech To Deutsche Bank: "The People Are Angry, She Isn't".
• VIX-Slam Saves Stocks From China Turmoil As Copper Crashes. (graph)

Business Insider:

• Iran sends warships to Yemen after the US struck Iranian-backed Houthi radar sites.
• Chinese property owners are going to have have a rude awakening.
• The next recession will end capitalism as we know it. (graph)

Nikkei Asian Review:

• Peer-to-peer lending inflates China property bubble. The rapid growth of online lending is contributing to China's surging housing prices, giving borrowers a way around government efforts to control a potentially dangerous bubble. Borrowing for real estate investment through online platforms totaled 125.6 billion yuan ($18.6 billion) this year through August, roughly double the year-earlier figure, data from Chinese research firm Yingcan Zixun shows. Growth likely continued at the same pace in September. This year's total "has definitely reached 140 billion yuan," vice managing director Yu Baicheng said.

Night Trading 

• Asian equity indices are -.25% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 113.75 -3.0 basis points. 
• Asia Pacific Sovereign CDS Index 34.5 +.25 basis point.
• Bloomberg Emerging Markets Currency Index 72.22 +.03%. 
• S&P 500 futures +.06%. 
• NASDAQ 100 futures +.08%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (C)/1.16
• (DFRG)/.05
• (INFY)/15.33
• (JPM)/1.39
• (PNC)/1.78
• (WFC)/1.01

Economic Releases
8:30 am EST

• Retail Sales Advance MoM for September are estimated to rise +.6% versus a -.3% decline in August.
• Retail Sales Ex Autos MoM for September are estimated to rise +.5% versus a -.1% decline in August.
• Retail Sales Ex Autos and Gas MoM for September is estimated to rise +.3% versus a -.1% decline in August. 
• PPI Final Demand MoM for September is estimated to rise +.2% versus unch. in August.
• PPI Ex Food and Energy MoM for September is estimated to rise +.1% versus a +.1% gain in August.  

10:00 am EST

• Preliminary Univ. of Mich. Consumer Sentiment for October is estimated to rise to 91.9 versus 91.2 in September.

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed's Yellen speaking, Fed's Rosengren speaking, Eurozone retail sales report and the (SAFM) investor conference could also impact trading today.

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

Stocks Slightly Lower into Final Hour on Global Growth Fears, Earnings Outlook Concerns, Yen Strength, Financial/Homebuilding Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Slightly Below Average

• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• Volatility(VIX) 16.55 +4.02%

• Euro/Yen Carry Return Index 119.51 -.23%

• Emerging Markets Currency Volatility(VXY) 10.41 +.03%

• S&P 500 Implied Correlation 48.0 +3.76%

• ISE Sentiment Index 62.0 -35.42%
  

• Total Put/Call 1.01 -3.81%

• NYSE Arms .93 +.72% 

Credit Investor Angst:

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

• America Energy Sector High-Yield CDS Index 602.0 -.66%

• European Financial Sector CDS Index 100.89 +2.03%

• Western Europe Sovereign Debt CDS Index 20.96 +.29%

• Asia Pacific Sovereign Debt CDS Index 34.53 +.89%

• Emerging Market CDS Index 237.01 +.1%
  

• iBoxx Offshore RMB China Corporate High Yield Index 132.37 -.01%

• 2-Year Swap Spread 23.0 +.25 basis point

• TED Spread 53.75 +1.25 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -42.75 -3.25 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.20 +.02%
• 3-Month T-Bill Yield .28% -8.0 basis points 

• Yield Curve 90.0 -1.0 basis point
  

• China Import Iron Ore Spot $56.67/Metric Tonne -.86%

• Citi US Economic Surprise Index -6.60 +.8 point

• Citi Eurozone Economic Surprise Index 22.6 -.2 point

• Citi Emerging Markets Economic Surprise Index -17.70 -4.0 points

• 10-Year TIPS Spread 1.64% -1.0 basis point
• 65.1% chance of Fed rate hike at Dec. 14 meeting, 67.2% chance at Feb. 1 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +25 open in Japan 
• China A50 Futures: Indicating -10 open in China

• DAX Futures: Indicating +33 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 50% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Value -1.1%

Sector Underperformers:

• 1) Steel -3.0% 2) Banks -2.4% 3) Homebuilders -1.9%

Stocks Falling on Unusual Volume: 

• CVTI, VAC, CUB, EFII, DECK, MELI, CLSD, FRC, BANC, SGEN, MYCC, UL, ISCA, UN, RACE, SIMO, TSM, FCAM, PAG, KWEB, YNDX, BZUN, AIA, SYT, NXST, BW and DDD

Stocks With Unusual Put Option Activity:

• 1) BX 2) IYR 3) KRE 4) FXI 5) CSX

Stocks With Most Negative News Mentions:

• 1) DECK 2) AKS 3) ETFC 4) WFC 5) JWN

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Value -.4%

Sector Outperformers:

• 1) Hospitals +1.8% 2) Utilities +1.6% 3) Airlines +1.4%

Stocks Rising on Unusual Volume:

• ULTA, ESPR, THC and NTLA

Stocks With Unusual Call Option Activity:

• 1) THC 2) PVH 3) HBAN 4) DNKN 5) RAD

Stocks With Most Positive News Mentions:

• 1) GWR 2) ULTA 3) WFC 4) AKS 5) SYMC

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +3.2% Above 100-Day Average
• 1 Sector Rising, 9 Sectors Declining
• 22.6% of Issues Advancing, 74.4% Declining
• 15 New 52-Week Highs, 39 New Lows
• 56.7% of Issues Above 200-day Moving Average
• Average 14-Day RSI 37.7%
• Vix 17.6 +10.5%
• Total Put/Call 1.12 +6.67%
• TRIN/Arms 1.29 +41.7%

Thursday Watch

Evening Headlines

Bloomberg:

• China's Cooling Property Market May Risk Economic Growth. Actions by China’s policy makers to rein in property prices in the bubble-prone nation may prove so effective that the economy’s growth rate could be affected next year. At least 21 cities have introduced purchase restrictions and toughened mortgage lending since late September, reversing two years of easing to support home buyers. Goldman Sachs Group Inc. says more tightening is likely to follow if prices keep soaring, while Citigroup Inc. estimates shrinking demand may lead sales volume to contract in the fourth quarter. 
• Asian Stocks Retreat as Commodity Shares Drop While Japan Gains. Asian stocks outside Japan fell for a third day as a stronger dollar weighed on commodity producers, while a weakening yen buoyed the Topix index. The MSCI Asia Pacific Index excluding Japan dropped 0.2 percent to 448.07 as of 8:07 a.m. in Hong Kong. Japan’s Topix index advanced 0.6 percent after the yen fell 0.7 percent on Wednesday.
• OPEC-Russia Roadshow Heads to Vienna for Crucial Oil-Cuts Talks. (video) OPEC’s effort to secure cooperation of non-members in a global deal to curb crude output will roll on from Istanbul to Vienna, with Russia on board but growing internal differences over sharing the burden of cuts. Russia is ready to participate in a “technical exchange” to set a road map for oil production levels in the Austrian capital on Oct. 29, Energy Minister Alexander Novak told reporters Wednesday. Talks in Istanbul were positive and cooperation between members of the Organization of Petroleum Exporting Countries and other producers is now well established, said Qatar’s Energy Minister Mohammed Al Sada.

Wall Street Journal:

• Future of Banking Looks Dark—Why That’s a Problem. Institutions’ sagging profitability poses wider threats to economic growth.
• America’s Dazzling Tech Boom Has a Downside: Not Enough Jobs. The discontent driving Donald Trump’s campaign stems partly from the dashed employment promises of the late 1990s; $7-an-hour robots.
• Biggest Economic Risk to Europe Lies in the Politics. Some policy makers say the potential for another shock to the eurozone is alarmingly high, Simon Nixon writes.

Fox News:

• FBI, DOJ roiled by Comey, Lynch decision to let Clinton slide by on emails, says insider. (video) The decision to let Hillary Clinton off the hook for mishandling classified information has roiled the FBI and Department of Justice, with one person closely involved in the year-long probe telling FoxNews.com that career agents and attorneys on the case unanimously believed the Democratic presidential nominee should have been charged.

MarketWatch:

• Why China’s banks may eventually need a nearly $2 trillion capital infusion.

CNBC:

• Earnings up next for markets with Fed believed to be still aiming for December. (video)
• A Democratic sweep is a realistic possibility, conservative scholar says. (video)

Zero Hedge:

• Will Eliminating Cash Save The Economy? (Spoiler Alert: Don't Be Stupid!).
• Steve Cohen Boosts Bonuses For Top Traders, But... (graph)
• The Beer Goggles Stock Market.
• Wells Fargo CEO John Stumpf To Retire Effective Immediately.
• Oil Tumbles After Biggest Crude Inventory Build In 6 Months. (graph)
• Stocks Steady After Fed Despite JOLTS Slump, Crude Dump, VIX Jump. (graph)

Business Insider:

• Multiple women say Donald Trump made inappropriate sexual advances on them.
• Challenging Iran is 'the last thing' Obama wants to do — even as Iran-backed militants fire on US Navy ships.
• There has been a big shift inside the Federal Reserve. In the minutes for the central bank's Federal Open Markets Committee September meeting, several higher-ups at the Fed hinted that the policy of historically low interest rates was doing more harm than good to the economy.
• New email suggests DNC chair had exact CNN town hall question in advance.
• The economic outlook is gloomy, and this time the government can't help.

Telegraph:

• If Europe insists on a hard Brexit, so be it.

Night Trading 

• Asian equity indices are -.5% to +.5% on average.
• Asia Ex-Japan Investment Grade CDS Index 116.75 +5.75 basis points. 
• Asia Pacific Sovereign CDS Index 34.25 +1.25 basis points.
• Bloomberg Emerging Markets Currency Index 72.71 -.07%. 
• S&P 500 futures -.06%. 
• NASDAQ 100 futures -.03%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (DAL)/1.66
• (LNN)/.41
• (PGR)/.33
• (TSM)/3.68
• (WGO)/.49

Economic Releases
8:30 am EST

• The Import Price Index MoM for September is estimated to rise +.1% versus a -.2% decline in August.
• Initial Jobless Claims for last week are estimated to rise to 253K versus 249K the prior week.
• Continuing Claims are estimated to fall to 2050K versus 2058K prior.   

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed's Harker speaking, ECB Decision, ECB press conference, $12B 30Y T-Bond auction, China CPI report, Bloomberg US Economic Survey for October, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, (HPQ) analyst meeting, (ULTA) investor day and the (SAFM) investor conference could also impact trading today.

BOTTOM LINE:  Asian indices are mostly 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.