Tuesday Watch

Evening Headlines

Bloomberg:

• U.S. Sees ‘Four or Five’ Ways to Resolve North Korean Crisis. (video) The U.S. has gamed out four or five different scenarios for how the crisis with North Korea will be resolved, and “some are uglier than others,” National Security Adviser H.R. McMaster said as tensions remain high between the two countries. While McMaster said the threat from Pyongyang is “much further advanced” than anticipated and the Pentagon said the president has a “deep arsenal” to draw upon if needed, U.S. officials dismissed North Korean Foreign Minister Ri Yong Ho’s comment that President Donald Trump’s warnings to Pyongyang at the United Nations amounted to a declaration of war.
• China's Curbs, Debt Woes Bring Developers Crashing Back to Earth. The world’s most extreme stock rally is getting a reality check. After share price gains at Chinese property developers accelerated at a breathtaking pace in the past month, led by a 87 percent surge in Sunac China Holdings Ltd., the momentum has started to turn as authorities have taken a harder line on reining in financial risks. Six of the 10 best performers on the MSCI All-Country World Index in the one month through Sept. 21 were Chinese real estate firms. Since then, they’re among the worst performers.
• Stocks in Asia Dip as Haven Rally Subsides. (video) Financial markets showed signs of stabilizing after a fresh trigger from North Korea had sent money into haven assets, with focus returning to comments from central bank policy makers. Equities in Asia began Tuesday mixed as gains in gold and the yen petered out. North Korea had injected a note of caution to markets on Monday after its foreign minister declared that the nation can shoot down U.S. warplanes. Focus remains on Chinese property developers, as one of the world’s most extreme stock rallies gets a reality check. Japan’s Topix index was slightly lower as of 9:21 a.m. in Tokyo. South Korea’s Kospi index fell 0.3 percent and Australia’s S&P/ASX 200 Index added 0.1 percent. Hong Kong’s Hang Seng Index futures were down 0.4 percent.
• Five Things You Need to Know to Start Your Day. (video)
• ‘This Is Chaos’: Day 5 in Storm-Ravaged, Blacked-Out Puerto Rico. (video)

Wall Street Journal:

• Collins Becomes Third Republican to Oppose Graham-Cassidy Bill. Maine senator joins McCain and Paul in saying they won’t vote for health-care bill.

MarketWatch.com:

• Read this before making a First Amendment political protest on the job.

Fox News:

• Collins says no on ObamaCare repeal bill, effectively derailing Graham-Cassidy legislation.
• Sessions to declare free speech 'under attack' on campus, in broadside at political correctness. (video)

CNBC: 

• Commentary: Why I’m not getting worried about tech stocks — yet. (video)

Zero Hedge:

• Last Ditch Obamacare Repeal Bill Officially Dead After Collins Says No.
• Here Are The Congressional Aides That Traded On Insider Information Over The Past Year.
• Hurricane Maria Has Transformed Puerto Rico Into A "Cash Only" Economy.
• Leaked Descriptions Of Infamous "Russia Ads" Derail Collusion Narrative "They Showed Support For Clinton".
• Massive Hack At Deloitte: Entire Internal Email System Compromised, Client Emails Exposed.
• Techs Wrecked, Financials Falter As Korean Threats Spark Gold Gains. (video)

Business Insider:

• Australians are voting on same-sex marriage — and it's starting to get ugly.

Night Trading 

• Asian equity indices are -.5% to unch. on average.

• Asia Ex-Japan Investment Grade CDS Index 82.25 +1.75 basis points. 

• Asia Pacific Sovereign CDS Index 16.50 +.5 basis point.

• Bloomberg Emerging Markets Currency Index 74.17 unch.

• S&P 500 futures -.08%.

• NASDAQ 100 futures -.09%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CCL)/2.20
• (DRI)/.99
• (FDS)/1.89
• (CTAS)/1.31
• (MU)/1.84
• (NKE)/.48

Economic Releases 
9:00 am EST

• The July S&P CoreLogic CS 20-City MoM is estimated to rise +.2% versus a +.11% gain in June.
  

10:00 am EST

• New Home Sales for August are estimated to rise to 585K versus 571K in July.
• The Conference Board Consumer Confidence Index is estimated to fal to 120.0 versus 122.9 in August. 
• The Richmond Fed Manufacturing Index for September is estimated to fall to 13.0 versus 14.0 in August.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Yellen speaking, Fed's Mester speaking, Fed's Brainard speaking, Fed's Bostic speaking, $26B 2Y T-Note auction, France CPI report, US weekly retail sales reports, BofA Merrill Banking/Insurance Conference and the Ladenburg Thalmann Healthcare Conference 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 lower and to rally into the afternoon, finishing mixed.  The Portfolio is 75% net long heading into the day.

Stocks Lower into Final Hour on Geopolitical Tensions, Diminished Healthcare Reform Hopes, Profit-Taking, Tech/Gaming Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Lower
  

• Sector Performance: Mixed
  

• Volume: Around Average

• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• Volatility(VIX) 10.84 +13.0%

• Euro/Yen Carry Return Index 137.87 -1.19%

• Emerging Markets Currency Volatility(VXY) 7.90 +.25%

• S&P 500 Implied Correlation 24.55 +9.11%

• ISE Sentiment Index 91.0 +40.0%
  

• Total Put/Call .68 -29.17%

• NYSE Arms .95 -11.24%

Credit Investor Angst:

• North American Investment Grade CDS Index 60.0 +.35%
  

• America Energy Sector High-Yield CDS Index 434.0 +.31%

• European Financial Sector CDS Index 60.14 +.58%

• Western Europe Sovereign Debt CDS Index 5.12 +1.09%

• Asia Pacific Sovereign Debt CDS Index 16.46 +2.65%

• Emerging Market CDS Index 191.32 +1.41%
  

• iBoxx Offshore RMB China Corporate High Yield Index 141.95 +.08%

• 2-Year Swap Spread 25.75 -1.0 basis point

• TED Spread 31.0 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -32.75 -2.25 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 74.19 -.52%
• 3-Month T-Bill Yield 1.02% unch.
  

• Yield Curve 79.0 -3.0 basis points

• China Import Iron Ore Spot $63.06/Metric Tonne -.79%

• Citi US Economic Surprise Index -8.70 +.1 point

• Citi Eurozone Economic Surprise Index 40.80 -8.6 points

• Citi Emerging Markets Economic Surprise Index 15.20 -1.3 basis points

• 10-Year TIPS Spread 1.85 unch.
  
• 65.4% chance of Fed rate hike at Dec. 13 meeting, 66.1% chance at Jan. 31 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -182 open in Japan 
• China A50 Futures: Indicating -58 open in China

• DAX Futures: Indicating -37 open in Germany

Portfolio: 

• Slightly Lower: On losses in my medical/tech sector longs

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

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg:

• North Korea Claims Right to Down U.S. Jets Outside Airspace. (video) North Korea can shoot down U.S. strategic warplanes in international airspace as part of its right to self-defense under the United Nations charter, Foreign Minister Ri Yong Ho said in New York as tensions between the nations remain high. “The UN Charter acknowledges member states’ right of self-defense,” Ri said outside a hotel near the international body’s headquarters on Monday. “As the United States has declared a war, even though its strategic bombers don’t cross our border, we will come to own all rights to respond for self-defense including shooting down its planes at any time.”

• Draghi Pledges Euro Area Will Get All the ECB Support It Needs. (video) Mario Draghi said the European Central Bank will keep as much stimulus as the euro-area economy needs when policy makers decide to adjust their 2.3 trillion-euro ($2.7 trillion) bond-buying program later this year. Speaking in Brussels on Monday, the ECB President pointed to uncertainties about the medium-term outlook for inflation as he presented an upbeat picture of economic recovery after 17 consecutive quarters of growth and unemployment at the lowest level in eight years. He stressed there was no pre-set size for the central bank’s balance sheet, which depended on the instruments the central bank was using and the state of the economy.

• Rough Seas Slow Crude Deliveries to U.S. East Coast Refineries. (video)

• Rowan(RDC) Is Said in Talks to Acquire Maersk's Drilling Business.

• Your Evening Briefing.

• Cash Is in Short Supply in Storm-Ravaged Puerto Rico. (video) In post-hurricane San Juan on Monday, commerce picked up ever so slightly. With a little effort, you could get the basics and sometimes more: diapers, medicine, or even a gourmet hamburger smothered in fried onions and gorgonzola cheese. But almost impossible to find was a place that accepted credit cards.

• Steeler Who Stood for Anthem Now Has Best-Selling NFL Jersey.

Wall Street Journal:

• North Korean Official Says U.S. Has Declared War. Country’s foreign minister says Pyongyang is justified to down U.S. planes in international airspace.

• U.S. Has Options as Tension With North Korea Escalates. Experts say there are paths the Trump administration could take to try to contain Pyongyang’s nuclear advances. 

• Revised GOP Health Bill Targets Wavering Senators. New text trumpets more benefits for certain states, more leeway to waive insurer benefits.

• Merkel Faces Big Challenges in Forming Government. German chancellor is likely to seek a three-way coalition that has never been tested at the federal level.

• Target(TGT) to Boost Minimum Wages in Battle for Store Workers. Retail chain to start pay at $11 an hour, pledges to increase to $15 an hour within three years.

MarketWatch.com:

• European stocks ring up small gain after German election. The Stoxx Europe 600 index SXXP, +0.18% added 0.2% to close at 383.90. On Friday, the index ended up by 0.1% and marked a weekly advance of 0.7%.

Fox News:

• North Korea's 'gruesome' murder of Kim's brother meant to 'horrify world,' new report says.

CNBC:

• Here's what we know about the Republican tax reform plan so far. (video)

• Amazon(AMZN) can't compete with off-price retailers, JPMorgan says.

• McCain calls brain cancer prognosis 'very poor'.

• China steel production cuts set to take effect.

• China Blocks WhatsApp, Broadening Online Censorship.

• Fed needs to see prices rise before next rate hike, Evans says.

• Navistar(NAV), VW will collaborate on electric truck, connectivity.

Zero Hedge:

• North Korea Says "Trump Declared War", Threatens To Shoot Down US Jets.

• Angry NFL Fans Lash Out, Burn Jerseys Over Protests: "You Can Take Your NFL And Shove It".

• "Sunday Night Football" Ratings Slide Following Day Of Player Protests.

• FANG Stocks Plunge Most In 3 Months, AAPL Nears Correction. (graph)

• Trump Escalates War With NFL In Early Tweetstorm.

• Anthony Weiner Sentenced To 21 Months In Prison For Sexting A 15-Year-Old Girl.

• Brent Crude Spikes To Highest Since July 2015. (graph)

• "People Are Going To Start Dying" - Puerto Rico's Battered Hospitals On Verge Of Failure.

• Turkey, Iraq Threaten "Military Intervention" As Iraqi Kurds Hold Independence Referendum.

• Dallas Fed Surges Near 10-Year Highs Despite Every Respondent Complaining About Hurricane Damage.

• Republicans Scramble To Revise Obamacare Repeal Bill As Defeat Looms.

Bear Radar

Style Underperformer:

• Large-Cap Growth -.8%

Sector Underperformers:

• 1) Social Media -3.0% 2) Hospitals -2.5% 3) Steel -2.0%

Stocks Falling on Unusual Volume: 

• TCMD, DGX, CATM, BEDU, EVTC, SQM, TRIP, NLNK, ATSG, FB, TSS, MX, TTWO, FSLR and BABA

Stocks With Unusual Put Option Activity:

• 1) TRIP 2) OPK 3) EPD 4) PF 5) LITE

Stocks With Most Negative News Mentions:

• 1) CATM 2) TRIP 3) DGX 4) SNAP 5) ALB

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Value +.4%

Sector Outperformers:

• 1) Oil Service +2.7% 2) Energy +1.4% 3) Gold & Silver +1.1%

Stocks Rising on Unusual Volume:

• SECO, OUT, ICPT, GPC, VERI, RGNX, AAAP, CIR, PLSE, VYGR, SODA, AIMT, CMP, UNIT, FINL, PBA, UFI, ASND, CRE, PTCT, KRC, GM, CL, EXXI, CREE, GPRO and APTS

Stocks With Unusual Call Option Activity:

• 1) UPS 2) RHT 3) OPK 4) CCL 5) DRI

Stocks With Most Positive News Mentions:

• 1) AGN 2) RIG 3) PDLI 4) STAA 5) ESV

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +.2% Above 100-Day Average
• 8 Sectors Rising, 2 Sectors Declining
• 59.4% of Issues Advancing, 36.1% Declining
• 99 New 52-Week Highs, 8 New Lows
• 45.3% of Issues Above 200-day Moving Average
• Average 14-Day RSI 39.7%
• Vix 9.9 +3.2%
• Total Put/Call .41 -57.3
• TRIN/Arms .86 -19.4%