Today's Headlines

Bloomberg:

• Puerto Rico's Economic Crisis Grows in Maria's Wake. Hurricane Maria is Puerto Rico’s worst in nearly a century, a double blow as it follows the destructive Hurricane Irma by just two weeks. The costs, both human and financial, have only begun to come into view. This much is certain: the U.S. territory, bankrupted by runaway debt, now confronts an even deeper economic crisis. Four months after the island’s government sought protection from creditors in the nation’s largest municipal insolvency, the odds of a speedy resolution now appear to be dimming. President Donald Trump said Thursday he plans to visit the island and declared Puerto Rico a disaster zone, which helps clear the way for federal assistance.

• S&P Cuts China’s Credit Rating, Citing Risk From Debt Growth. (video)

• China's Credit Party Rolls On Despite S&P's Downgrade. (video)

• Your Evening Briefing.

• Take the Fed's Dot Plot Forecast in Stride, Deutsche Bank Says. (video) The bond market needs to take a chill pill when it comes to the dot plot -- the Federal Reserve’s quarterly outlook for policy rates, which was updated Wednesday. That’s what Torsten Slok, chief international economist at Deutsche Bank AG, says given that with Vice Chairman Stanley Fischer attending his final FOMC meeting this week, four of the seven board seats will be empty. “For markets, this might not seem important here and now, but it is pretty clear that dramatic changes are coming to the Fed before the end of the year, which has significant implications” including on the leadership’s outlook for inflation, wrote Slok in a note. “It almost makes you wonder if the dot plot and forecasts the Fed released yesterday have any value for markets.”

• What CEOs Are Saying About the Impact of Hurricanes Harvey, Irma and Maria. (video)

• Mercedes Plots Tesla Attack With $1 Billion U.S. Electric Push. (video)

• The Supreme Court Gets Its First Test of Gay Rights Since 2015.

Wall Street Journal:

• The Republicans Who May Save ObamaCare. Start with Rand Paul. Can he vote ‘no’ on Graham-Cassidy after voting ‘yes’ in July?

• With Timing Tight for GOP’s Health-Law Repeal Effort, Opponents Rush to Mobilize. Critics step up attacks on latest bill amid narrow window for Senate vote.

• Puerto Rico Braces for More Flooding as Maria Dumps More Rain. The most powerful storm to hit the U.S. territory in almost a century has knocked out power across the entire island.

• Amazon(AMZN) Puts Whole Foods on Fast Track to Conventional Supermarket. Specialty grocer will no longer allow ‘brand advocates’ in stores, a potential blow to local sellers.

MarketWatch.com:

• Household net worth climbs by $1.7 trillion as stock market rises.

• Nvidia(NVDA) investors should ‘ignore the noise’ about a Tesla(TSLA)-AMD(AMD) partnership. 
• Banks lead European stocks higher after Fed hints at rate hike. The Stoxx Europe 600 index SXXP, +0.24% rose 0.2% to 382.88, closing at its highest level since July 20. On Wednesday, the benchmark closed fractionally lower as investors marked time before the highly anticipated Fed policy announcement.

Fox News:

• China banks reportedly to halt business with North Korea as South Korea sends $8 million. (video)

• Hurricane Maria leaves Puerto Rico powerless, at least 15 dead on Dominica. (video)

CNBC:

• Stocks could rally 10% into year's end thanks to the Trump effect, says longtime bull Jeremy Siegel. (video)

• Halloween spending slated to hit record $9.1 billion, NRF says.

• Art Cashin: The Fed projects 3 rate hikes for 2018, but Trump could change that. (video)

• Google(GOOGL) agrees to buy part of HTC for $1.1 billion, boosting its hardware business. (video)

• Jim Chanos is betting against burger stocks because of McDonald’s(MCD) resurgence.

• Janet Yellen is suddenly in a dead heat with Kevin Warsh to lead The Fed—Here's one reason why.

Zero Hedge:

• 1 In 5 Students Endorse Violence To 'Prevent' Controversial Speakers.

• "Whole Towns Have Been Wiped Out" Hurricane Maria Devastates Tiny Caribbean Island Of Dominica. (video)

• Albert Edwards: "Citizen Rage" Will Soon Be Directed At "Schizophrenic" Central Banks.

• Trump To Impose More Sanctions On North Korea Today.

• South Korea Unexpectedly Approves Aid To Pyongyang As North Korea Calls Trump "Barking Dog".

• SEC Admits US Public Filing System Was Hacked, "May Have Resulted" In Countless Illegal Profits.

• Metals Massacre - Iron Ore Enters Bear Market, Copper Collapses To 1-Month Lows. (graph)

• Bay Area Sues Big Oil For Billions.

• What Catalyst Could Trigger A Credit Risk-Off Event? Here's The UBS Answer.

Bear Radar

Style Underperformer:

• Large-Cap Growth -.1%

Sector Underperformers:

• 1) Steel -1.9% 2) Oil Service -1.1% 3) Tobacco -.6%

Stocks Falling on Unusual Volume: 

• XLRN, SCHL and ICPT

Stocks With Unusual Put Option Activity:

• 1) FINL 2) GIS 3) FITB 4) RHT 5) TRV

Stocks With Most Negative News Mentions:

• 1) ICPT 2) TNTR 3) JD 4) JAKK 5) VALE

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth +.3%

Sector Outperformers:

• 1) Hospitals +1.1% 2) Disk Drives +.8% 3) Energy +.6%

Stocks Rising on Unusual Volume:

• CCC, BECN, VAC, TPRE, VERI, XOMA, ALNY, PNK, MATX, APC, RDY, CRTO, ALOG, AMPH, BP, FDS, MBUU, NTLA, DSLV, FOLD, EBIX, IPXL, HIMX, GPRO, EXAS, SUPN and PSTG

Stocks With Unusual Call Option Activity:

• 1) SMH 2) SPB 3) TXN 4) HON 5) GRPN

Stocks With Most Positive News Mentions:

• 1) RYES 2) GRPH 3) MANU 4) ALNY 5) SEE

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -6.9% Below 100-Day Average
• 5 Sectors Rising, 5 Sectors Declining
• 46.2% of Issues Advancing, 50.4% Declining
• 90 New 52-Week Highs, 7 New Lows
• 44.7% of Issues Above 200-day Moving Average
• Average 14-Day RSI 39.6%
• Vix 9.8 +.1%
• Total Put/Call .81 -5.8%
• TRIN/Arms 1.41 +57.7%

Thursday Watch

Evening Headlines

Bloomberg:

• Ten Cities Tell the Tale of China's Spreading Real-Estate Risk. Beijing and Shanghai are now well known for their ballooning house prices -- double-digit gains last year prompted more regulatory tightening. But the the risk factors that could decide the fate of China’s property boom can be found well beyond the capital and biggest city. A close look at the available economic data of ten cities reveals big differences in the factors that can inflate, and deflate, property bubbles, including population growth, income gains and the ratio between house prices and pay.

• Why Sanctions Against North Korea Are Causing Pain in China. Along China’s border with North Korea, residents are more worried about feeding their families than the possibility of nuclear war. In Hunchun, a city of about 230,000 people near China’s shared frontier with North Korea and Russia, protests briefly broke out last month after the United Nations Security Council approved sanctions banning exports of seafood and other goods from Kim Jong Un’s regime. Dozens of wholesale stores were shuttered, dealing a blow to the packagers, distributors, drivers and restaurateurs who depend on the trade.

• Soaring Food Prices Spice Up Asia's Inflation Outlook. Radish prices jumped 71 percent from a year earlier in South Korea last month. In India, prices for tomatoes and onions have doubled from a year ago. Japan’s squid prices rose 17 percent in July from a year earlier. And in China, egg prices have surged at least 62 percent since April at Beijing’s Xinfadi, the nation’s largest agriculture wholesale market. With exports across Asia faring better than just about anyone expected and domestic demand in most markets robust, could this be the start of a long-anticipated inflation breakout?

• Yen Falls as Dollar Jumps on Fed's Hawkish Tone. The yen maintained losses in early Asian trading after the dollar surged and Treasuries tumbled as the Federal Reserve struck a more hawkish tone than markets anticipated. Asian equity-index futures signaled a mixed start. The yen was weaker for a fifth day after Bloomberg’s dollar index rose with the central bank setting an October start for shrinking its balance sheet and maintaining a forecast for another rate increase this year. The 10-year Treasury yield approached 2.30 percent. A slump in Apple Inc. dragged tech shares lower. Oil advanced above $50 a barrel and gold was steady. Contracts on the Nikkei 225 Stock Average rose, while they fell on the Kospi index and were little change on the Australian benchmark.

• Five Things You Need to Know to Start Your Day.

• Managers of $3 Trillion Buy Dollars After Worst Slide in Decade. The dollar has been mired in its worst slump in a decade, battered by political drama in Washington and shifting bets on central-bank policy. Managers of $3 trillion say the carnage has gone on long enough. Mellon Capital Management Corp., State Street Global Advisors and UBS Asset Management are wagering that the greenback will recoup some of its 9 percent slide in 2017 as traders embrace a scenario that was all but written off a few weeks ago: a December rate hike by the Federal Reserve. That view gained traction Wednesday after policy makers stuck to their forecast for another increase this year. The dollar surged on the announcement.

Wall Street Journal:

• Hackers Entered Equifax Systems(EFX) in March. Equifax previously disclosed data was potentially accessed in May.

• Fed to Start Paring Holdings, Keeps December Rate Rise on the Table. The central bank in October will begin slowly shrinking its $4.5 trillion portfolio.

• Tax Reform Progress. A Senate budget deal creates more space for cutting tax rates.

• Republicans Get One Last Chance on ObamaCare Reform. Graham-Cassidy is not perfect, but it creates a competition of ideas and gives power back to states.

MarketWatch.com:

• Toys ‘R’ Us bankruptcy could push retail loan default rate past 10% by year-end: Fitch.

Fox News:

• Samantha Power sought to unmask Americans on almost daily basis, sources say. (video)

• Hurricane Maria destroys hundreds of homes, knocks out power across Puerto Rico. (video)

CNBC:

• Tesla(TSLA) is working with AMD(AMD) to develop its own A.I. chip for self-driving cars, says source. (video)

• Amazon(AMZN) is taking on the drug supply chain, says report.

• Obamacare repeal bill will head to vote in Senate next week, GOP leader says.

Zero Hedge:

• Prosecutors Unveil Full Details Of Anthony Weiner's Pedophilia.

• Sharyl Attkisson Rages "Looks Like Obama Spied On Trump, Just Like He Did To Me".

• Hurricane Maria Floods San Juan, Knocks Out Power Across Puerto Rico.

• This $700 Billion Public Employee Ticking Time Bomb Is Only 6.7% Funded; Most States Are Under 1%.

• What, No Hurricane Bounce? Ford(F) Idles 5 North American Plants In Wake Of Slumping Car Sales.

• 'Hawkish' Fed Fail? Yield Curve Flattens Most Since 2016 As Dollar Spikes. (graph)

Night Trading 

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

• Asia Ex-Japan Investment Grade CDS Index 78.75 +7.0 basis points. 

• Asia Pacific Sovereign CDS Index 15.50 -2.5 basis points.

• Bloomberg Emerging Markets Currency Index 74.46 -.06%.

• S&P 500 futures -.02%.

• NASDAQ 100 futures -.07%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (SCHL)/-1.29

Economic Releases 
8:30 am EST

• Initial Jobless Claims for last week are estimated to rise to 300K versus 284K the prior week.

• Continuing Claims are estimated to rise to 1975K versus 1944K prior.

• Philly Fed Business Outlook for September is estimated to fall to 17.1 versus 18.9 in August.

9:00 am EST

• The FHFA House Price Index MoM for July is estimated to rise +.4% versus a +.1% gain in June.
  

10:00 am EST

• The Leading Index for August is estimated to rise +.3% versus a +.3% gain in July.
  

12:00 pm EST

• 2Q Household Change in Net Worth.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The BoJ rate decision, weekly Bloomberg Consumer Comfort Index, Bloomberg Economic Expectations Index for September, weekly EIA natural gas inventory report and the (RMBS) financial analyst day could also impact trading today.

BOTTOM LINE:  Asian indices are slightly lower, weighed down by commodity and technology shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher.  The Portfolio is 100% net long heading into the day.

Stocks Slightly Lower into Final Hour on More Hawkish FOMC Commentary, Apple(AAPL) Worries, Profit-Taking, Tech/Homebuilding Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Higher
  

• Sector Performance: Mixed
  

• Volume: Above Average

• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• Volatility(VIX) 10.0 -1.77%

• Euro/Yen Carry Return Index 139.27 -.26%

• Emerging Markets Currency Volatility(VXY) 7.73 +.39%

• S&P 500 Implied Correlation 22.77 -2.3%

• ISE Sentiment Index 52.0 -11.9%
  

• Total Put/Call .88 +14.3%

• NYSE Arms .91 -8.1%

Credit Investor Angst:

• North American Investment Grade CDS Index 58.95 +6.8%
  

• America Energy Sector High-Yield CDS Index 425.0 +2.87%

• European Financial Sector CDS Index 57.18 +23.3% (new series)

• Western Europe Sovereign Debt CDS Index 4.48 -5.19%

• Asia Pacific Sovereign Debt CDS Index 15.59 -13.29%

• Emerging Market CDS Index 191.15 +9.14%
  

• iBoxx Offshore RMB China Corporate High Yield Index 141.65 +.01%

• 2-Year Swap Spread 25.75 -.25 basis point

• TED Spread 29.25 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -25.5 unch.

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 74.53 -.09%
• 3-Month T-Bill Yield 1.03% unch.
  

• Yield Curve 83.0 -1.0 basis point

• China Import Iron Ore Spot $68.85/Metric Tonne +1.16%

• Citi US Economic Surprise Index -17.40 +.1 point

• Citi Eurozone Economic Surprise Index 22.30 +1.1 points

• Citi Emerging Markets Economic Surprise Index 15.50 +.1 basis point

• 10-Year TIPS Spread 1.86 -2.0 basis points
  
• 67.1% chance of Fed rate hike at Dec. 13 meeting, 67.7% chance at Jan. 31 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -5 open in Japan 
• China A50 Futures: Indicating +15 open in China

• DAX Futures: Indicating +32 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 100% Net Long