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

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Above Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 14.83 +4.14%

• Euro/Yen Carry Return Index 119.86 +.69%

• Emerging Markets Currency Volatility(VXY) 9.52 +.42%

• S&P 500 Implied Correlation 48.71 +4.06%

• ISE Sentiment Index 112.0 -1.75%
  

• Total Put/Call .82 -8.89%

• NYSE Arms .49 -24.73% 

Credit Investor Angst:

• North American Investment Grade CDS Index 75.93 +1.27%
  

• America Energy Sector High-Yield CDS Index 581.0 +8.24%

• European Financial Sector CDS Index 95.31 -.31%

• Western Europe Sovereign Debt CDS Index 17.76 -3.53%

• Asia Pacific Sovereign Debt CDS Index 33.55 +.03%

• Emerging Market CDS Index 236.66 +1.8%
  

• iBoxx Offshore RMB China Corporate High Yield Index 132.51 -.03%

• 2-Year Swap Spread 22.25 -.25 basis point

• TED Spread 57.0 +1.75 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -46.0 -3.0 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.17 -.18%
• 3-Month T-Bill Yield .28% -4.0 basis points

• Yield Curve 96.0 +4.0 basis points
  

• China Import Iron Ore Spot $63.04/Metric Tonne -.05%

• Citi US Economic Surprise Index -12.6 -1.7 points

• Citi Eurozone Economic Surprise Index 35.8 +.3 point

• Citi Emerging Markets Economic Surprise Index -15.10 +.8 point

• 10-Year TIPS Spread 1.73% unch.
• 72.5% chance of Fed rate hike at Dec. 14 meeting, 74.2% chance at Feb. 1 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +138 open in Japan 
• China A50 Futures: Indicating +5 open in China

• DAX Futures: Indicating -18 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 25% Net Long

Today's Headlines

Bloomberg:

• A Bearish View of European Banking Sector. (video)
• OPEC Can’t Succeed Alone as Cuts Would Barely Drain Surplus. Even if OPEC defies a skeptical market by implementing output cuts in full, it still won’t drain the ocean of surplus oil already pumped from the ground. The Organization of Petroleum Exporting Countries aims to shrink the world’s bloated oil inventories with its first production cut in eight years, according to Secretary-General Mohammed Barkindo. Yet the bloc’s own data show that even the maximum reduction under consideration would barely dent record stockpiles next year. That makes securing help from competitors -- chiefly Russia -- critical to ending the glut.
• Growth Rebound in U.S. Masks Less-Bright Picture of Demand. The U.S. economy’s third-quarter scorecard on Friday will probably show a notable pickup in growth following a sluggish first half. The caveat: It occurred without an acceleration in consumer and business demand. Gross domestic product rose at a 2.6 percent annualized rate, according to the median estimate in a Bloomberg survey, after averaging 1.1 percent in the previous six months. With the biggest part of the economy -- consumer spending -- moderating, much of the projected pickup stems from a narrower trade deficit and a rebuilding of inventories. While a report Wednesday showed a gain in merchandise exports last month, a broad-based drop in imports indicated domestic demand weakened as the quarter drew to a close.
• Clothing Keeps Getting Cheaper, and Factory Workers Are Paying the Price. Three years after the Rana Plaza disaster, work conditions are still substandard.

Wall Street Journal:

• Grocers Feel Chill From Millennials. Younger shoppers spread purchases across many new options, including online services.

Fox News:

• 'Make Soros happy': Inside Clinton team's mission to please billionaire VIP. (video)

CNBC:

• Hacked Memo Reinforces Worst Perception of the Clintons. (video)
• Sell Tesla(TSLA) as earnings report is 'not as good as it looks,' JPMorgan says.
• Read the hacked memo detailing part of 'Bill Clinton, Inc'.

Zero Hedge:

• Even The New York Times Is Bashing Obamacare - "It Has Not Worked All That Well".
• Our Landfill Economy.
• Bank Jog: Deutsche Bank's Demand Deposits Tumble By 13% In Q3. (graph)
• "Recession Risk Is Rising" Fast, Deutsche Bank Warns "Outlook Remains Fragile". (graph)
• "This Is About Whiteness" UC Berkeley Students Segregate Campus, Block Bridge With Human Wall. (video)
• French 'Shocked' As Power Prices Spike To 8-Year Highs On Nuclear Reactor Probe Shutdown. (graph)
• Iran Takes More Hostages: What Did The US Expect?
• US Real Estate Stocks Plunge To 7 Month Lows As Rate Hike Odds Soar. (graph)
• Small Stocks Threaten Breakdown – Can They Hang On? (graph)
• RBC: "That Is VaR Crushing DV01 Destruction At Its Finest".
• Pending Home Sales Growth Disappoints As Post-Summer Slump Accelerates. (graph)
• Ugly! "Failure Almost Guaranteed" Regardless Of Who Wins The Election.
• Oil Spikes On OPEC Cut Headline (Misses Russian Refusal Headline). (graph)
• Thursday Humor: Jobless 'Claims'. (graph)
• Podesta Part 20: Wikileaks Releases Another Batch Of Emails; Total Is Now 34,197.
• Top Republican Congressman Says He'll Vote For Trump Weeks After Dropping His Support.
• Qualcomm(QCOM) Buys NXP For $47 Billion: Biggest Semiconductor Deal Ever.

The Telegraph:

• China capital flight flashes warning as authorities forced to prick property bubble.

Morning Market Internals

NYSE Composite Index:

• Volume Running +27.4% Above 100-Day Average
• 4 Sectors Rising, 6 Sectors Declining
• 29.8% of Issues Advancing, 67.2% Declining
• 53 New 52-Week Highs, 57 New Lows
• 52.1% of Issues Above 200-day Moving Average
• Average 14-Day RSI 36.5%
• Vix 14.9 +4.3%
• Total Put/Call .98 +8.9%
• TRIN/Arms .56 -12.7%

Thursday Watch

Evening Headlines

Bloomberg:

• Curse of Asia Witching Hour Haunts Currencies After Pound Crash. In the global currency market, the darkest hour comes just as dawn is breaking in Asia. Between the New York close and the start of trading in Tokyo, foreign-exchange volumes dwindle to just 2 percent of peak turnover, according to Aite Group, a consultant in Boston. As a result, any transaction in that two-hour window will hit the market disproportionately hard.
• Asia Shares Mixed Amid Earnings as Oil Holds Near Three-Week Low. Asian shares were mixed in early trading as investors assessed earnings reports from companies including Samsung Electronics Co. and Bank of China Ltd. following a pullback in oil prices and dollar gains. About the same number of shares rose as fell on the MSCI Asia Pacific Index, while U.S. and U.K. equity index futures declined. The MSCI Asia Pacific Index was down 0.2 percent as of 9:23 a.m. Tokyo time, headed for its lowest close in more than a week.
• Oil Trades Near 3-Week Low as U.S. Gulf, East Coast Supply Rises. Oil traded near a three-week low below $50 a barrel as U.S. East and Gulf coast crude stockpiles rose along with production.
• Recession Risk Is Rising, Deutsche’s Chief U.S. Economist Warns. Standard measures of the U.S. labor market look pretty good. The unemployment rate is low, and job growth has been steady. But one indicator is flashing signs of fragility. It's an important one, too: The Federal Reserve's Labor Market Conditions Index. After falling just three times from 2012 to 2015, the index has fallen every month of 2016 except for one, July. And in July the annual change in the LMCI, from July 2015, turned negative.

Fox News: 

• Fox News Poll: Clinton leads Trump by three points. (video)

CNBC:

• Julian Robertson says Clinton presidency is 'a tragedy that is going to happen'. (video)

Zero Hedge:

• RNC Chair Priebus Slams State's Failure As "Obama Cover-Up To Protect Hillary".
• 'It's Apocalyptic, Our Town Is Finished" - Two Quakes Strikes Italy, Collapsing Buildings And Causing Panic.
• "We Are Late In The Game": David Rosenberg On The Market's Flashing Red Signs.
• Bitcoin Soars As China Launches Crackdown On Wealth-Management Products. (graph)
• Tesla(TSLA) Earnings Smash Expectations After Dramatic Change In Reporting Methodology.
• ObamaCare Architect Admits "The Law Is Working As Designed" As Premiums Spike.
• Snapchat To Raise Up To $4 Billion In IPO, Valuing Company As Much As $40 Billion.
• Stocks Pump'n'Dump As Crude Crumbles To 3-Week Lows. (graph)

Business Insider:

• 'Things are not good': Republicans may be on the verge of losing their Senate majority.

Night Trading 

• Asian equity indices are -.25% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 112.25 -2.5 basis points. 
• Asia Pacific Sovereign CDS Index 33.5 -.25 basis point.
• Bloomberg Emerging Markets Currency Index 72.23 -.09%. 
• S&P 500 futures -.12%. 
• NASDAQ 100 futures -.09%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (AET)/2.03
• (APD)/1.98
• (ALXN)/1.17
• (MO)/.81
• (AMT)/1.31
• (BWA)/.77
• (BMY)/.65
• (CELG)/1.48
• (CBG)/.50
• (CLF)/.19
• (CME)/1.04
• (CL)/.73
• (COP)/-.69
• (DOW)/.79
• (F)/.21
• (LLL)/1.82
• (IP)/.93
• (HCA)/1.42
• (POT)/.08
• (TWTR)/.09
• (SUP)/.36
• (SWK)/1.62
• (SEE)/.69
• (RTN)/1.64
• (PX)/1.40
• (UPS)/1.44
• (AFL)/1.74
• (GOOG)/8.61
• (AMZN)/.81
• (AMGN)/2.79
• (BIDU)/1.11
• (DECK)/1.19
• (EXPE)/2.47
• (LNKD)/.91
• (MCK)/3.05
• (OII)/.16
• (WYNN)/.74
• (YRCW)/.50

Economic Releases
8:30 am EST

• Preliminary Durable Goods Orders for September are estimated unch. versus a +.1% gain in August.
• Preliminary Durables Ex Transports for September are estimated to rise +.2% versus a -.2% decline in August.
• Preliminary Cap Goods Orders Non-Defense Ex-Air for September are estimated to fall -.1% versus a +.9% gain in August. 
• Initial Jobless Claims are estimated to fall to 255K versus 260K the prior week.
• Continuing Claims are estimated to fall to 2052K versus 2057K prior.

10:00 am EST

• Pending Home Sales MoM for September are estimated to rise +1.1% versus a -2.4% decline in August. 

11:00 am EST

• Kansas City Fed Manufacturing Activity for October is estimated to fall to 3.0 versus 6.0 in September.
  

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Japan's Core CPI report, $28B 7Y T-Note auction, weekly Bloomberg Consumer Comfort Index and the weekly EIA natural gas inventory report could also impact trading today.

BOTTOM LINE:  Asian indices are mostly higher, boosted by consumer and metals & mining 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 Slightly Lower into Final Hour on Rising European/Emerging Markets/US High-Yield Debt Angst, Earnings Outlook Worries, Oil Decline, Transport/Medical Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Slightly Above Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 14.55 +8.1%

• Euro/Yen Carry Return Index 119.07 +.44%

• Emerging Markets Currency Volatility(VXY) 9.42 +.21%

• S&P 500 Implied Correlation 47.83 +13.42%

• ISE Sentiment Index 105.0 unch.
  

• Total Put/Call .90 -8.16%

• NYSE Arms .70 -42.48% 

Credit Investor Angst:

• North American Investment Grade CDS Index 75.29 +1.31%
  

• America Energy Sector High-Yield CDS Index 537.0 +2.28%

• European Financial Sector CDS Index 95.61 +1.17%

• Western Europe Sovereign Debt CDS Index 18.41 +1.74%

• Asia Pacific Sovereign Debt CDS Index 33.55 +.12%

• Emerging Market CDS Index 233.68 +1.65%
  

• iBoxx Offshore RMB China Corporate High Yield Index 132.55 +.02%

• 2-Year Swap Spread 22.50 -.5 basis point

• TED Spread 55.25 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -43.0 +1.0 basis point
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.28 -.44%
• 3-Month T-Bill Yield .32% -1.0 basis point

• Yield Curve 92.0 +1.0 basis point
  

• China Import Iron Ore Spot $63.07/Metric Tonne +1.79%

• Citi US Economic Surprise Index -10.9 +2.2 points

• Citi Eurozone Economic Surprise Index 35.5 -.2 point

• Citi Emerging Markets Economic Surprise Index -15.90 +1.5 points

• 10-Year TIPS Spread 1.73% +3.0 basis points
• 70.9% chance of Fed rate hike at Dec. 14 meeting, 72.7% chance at Feb. 1 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -11 open in Japan 
• China A50 Futures: Indicating -3 open in China

• DAX Futures: Indicating -31 open in Germany

Portfolio: 

• Slightly Higher: On gains in my index hedges and emerging markets shorts

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

• Market Exposure: Moved to 50% Net Long