Stocks Falling into Final Hour on Fed Rate-Hike Fears, Global Growth Worries, Oil Decline, Retail/Metals & Mining Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 13.53 +4.56%

• Euro/Yen Carry Return Index 119.89 +.66%

• Emerging Markets Currency Volatility(VXY) 10.16 +.89%

• S&P 500 Implied Correlation 46.75 +2.57%

• ISE Sentiment Index 83.0 -23.15%
  

• Total Put/Call .95 +3.26%

• NYSE Arms 1.02 +101.09% 

Credit Investor Angst:

• North American Investment Grade CDS Index 71.21 -.09%
  

• America Energy Sector High-Yield CDS Index 678.0 -1.37%

• European Financial Sector CDS Index 88.0 -1.22%

• Western Europe Sovereign Debt CDS Index 25.44 +4.03%

• Asia Pacific Sovereign Debt CDS Index 42.10 +.96%

• Emerging Market CDS Index 243.99 +.74%
  

• iBoxx Offshore RMB China Corporate High Yield Index 131.81 -.02%

• 2-Year Swap Spread 24.5 +1.5 basis points

• TED Spread 51.75 -.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -40.25 -1.5 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.35 -.46%
• 3-Month T-Bill Yield .32% +1.0 basis point

• Yield Curve 77.0 +1.0 basis point
  

• China Import Iron Ore Spot $59.31/Metric Tonne +.29%

• Citi US Economic Surprise Index 12.1 +1.5 points

• Citi Eurozone Economic Surprise Index 6.0 -10.9 points

• Citi Emerging Markets Economic Surprise Index -5.9 -1.6 points

• 10-Year TIPS Spread 1.47% unch.
• 39.7% chance of Fed rate hike at Nov. 2 meeting, 58.6% chance at Dec. 14 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +115 open in Japan 
• China A50 Futures: Indicating +11 open in China

• DAX Futures: Indicating -12 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 25% Net Long

Bear Radar

Style Underperformer:

• Large-Cap Growth -.5%

Sector Underperformers:

• 1) Gold & Silver -4.2% 2) Steel -1.7% 3) Retail -1.6%

Stocks Falling on Unusual Volume: 

• ULTA, CHS, ANSS, ISLE, GEO, WATT, DSW, HSY, GIII, ANF, SCSC, BREW, YRD, FRED, LULU, TIS, CXW, YIN, RMD, AZO, ZOES, TCP, DG, MTB, VEEV and WB

Stocks With Unusual Put Option Activity:

• 1) EWJ 2) MOS 3) MU 4) PANW 5) GGP

Stocks With Most Negative News Mentions:

• 1) GPS 2) ANF 3) GIII 4) INSY 5) MRO

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth unch.

Sector Outperformers:

• 1) Airlines +1.5% 2) Agriculture +1.2% 3) I-Banks +.9%

Stocks Rising on Unusual Volume:

• RBA, AGU, BZUN, POT, MOS, GIMO, TECD, CF, UAL and CMCM

Stocks With Unusual Call Option Activity:

• 1) RIGL 2) IMPV 3) MNKD 4) HUN 5) MDLZ

Stocks With Most Positive News Mentions:

• 1) CUDA 2) FIT 3) AMBA 4) TECD 5) FTNT

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -18.9% Below 100-Day Average
• 3 Sectors Rising, 7 Sectors Declining
• 44.2% of Issues Advancing, 52.0% Declining
• 123 New 52-Week Highs, 3 New Lows
• 63.3% of Issues Above 200-day Moving Average
• Average 14-Day RSI 42.1%
• Vix 13.2 +1.9%
• Total Put/Call 1.02 +10.9%
• TRIN/Arms 1.05 +98.5%

Tuesday Watch

Evening Headlines

Bloomberg:

• China’s Credit Party Winds Down in Headwind for Economic Growth. Chinese companies’ borrowing costs have never been so low. That’s little consolation to firms cutting debt rather than investing amid a slowing economy. The amount of local yuan bond sales minus maturities fell 39 percent in August from a year earlier for non-financial firms to 124 billion yuan ($18.6 billion), data compiled by Bloomberg show. Net issuance since March 31 has slowed to 496 billion yuan after a record 810 billion yuan in the first quarter of 2016. Yields on AA+ and AA rated five-year securities dropped to record lows this month. The decline in bond financing and the lowest fixed-asset investment growth since 1999 suggest central bank monetary easing will have trouble reviving growth that’s forecast to slow through next year. China must balance cutting corporate debt, which more than doubled in five years to 111.7 trillion yuan at the end of 2015, with steps to revive the world’s second-biggest economy. 
• Yuan Bearish Bets Build Up on Fed Rate-Increase Signals: Chart.
• Asian Stocks Gain Amid U.S. Rebound While Japan Shares Retreat. Asian stocks rose, following a rebound in U.S. shares on signs of strength in the American economy, while equities in Japan slumped after the yen snapped a four-day slide. The MSCI Asia Pacific Index climbed 0.3 percent to 138.33 as of 9:16 a.m. in Tokyo.

Wall Street Journal:

• Food Price Deflation Cheers Consumers, Hurts Farmers, Grocers and Restaurants. Farm Belt cutbacks hit more businesses even as consumers save big at the grocery store.
• EU Set to Rule Apple Tax Deals With Ireland Illegal. Decision likely to aggravate trans-Atlantic tensions over the bloc’s probes into tax deals secured by U.S. companies. 
• Traders Bet Dollar Will Keep Climbing. The U.S. currency hit its highest level in three weeks on Monday, reflecting expectations that the Federal Reserve could increase short-term interest rates as soon as next month.

Zero Hedge:

• HuffPo "Revoked Publishing Access" Of Journalist After 'Hillary Health' Story: "It's Orwellian...I'm Scared".
• Chicago Records "Most Violent Month In 20 Years".
• Germans "Lose Faith In Banks", Rush To Buy Safes.
• Japanese Government Now The Largest Shareholder Of 474 Big Companies.
• Will The Election Be Hacked: FBI Finds "Foreigners" Breached Two State Election Databases.
• As Vancouver's Housing Market Implodes, Furious Chinese Envoy Slams Real Estate Tax. (graph)
• The "Devastating" Truth Behind America's Record Household Net Worth.
• Recent Surge In Inner-City Heroin Overdoses "Unlike Anything We've Seen Before".
• Why A Record Number Of College Grads Are Working Minimum Wage Jobs.
• Mission Creep - How The Fed Will Justify Maintaining Its Excessive Balance Sheet.
• Hershey(HSY) Plunges After Mondelez Pulls Offer To Buy Company.
• Risk-Parity Panic Looms As Bonds, Stocks, Gold Rally; Reject Fed Hawkish Chatter. (graph)

Business Insider:

• Epi-Pen isn’t the only emergency medicine skyrocketing in price.

Financial Times:

• Mexico spends $1bn to lock in oil export prices for 2017. Hedge of $42 a barrel is part of move to protect public finances as economy faces further pressure.

Night Trading 

• Asian equity indices are -.25% to +.5% on average.
• Asia Ex-Japan Investment Grade CDS Index 113.25 -.5 basis point.
• Asia Pacific Sovereign CDS Index 41.75 +1.25 basis points.
• Bloomberg Emerging Markets Currency Index 72.65 -.05%. 
• S&P 500 futures -.02%. 
• NASDAQ 100 futures -.02%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (ANF)/-.21
• (CBK)/-.06
• (DSW)/.30
• (FRED)/-.20
• (GIII)/.18
• (ISLE)/.30
• (AVAV)/-.16
• (HRB)/-.54
• (PANW)/.49

Economic Releases  
9:00 am

• The S&P CoreLogic CS 20-City Composite is estimated to fall -.1% versus a -.05% decline in May. 

10:00 am EST

• The Consumer Confidence Index for August is estimated to fall to 97.0 versus 97.3 in July.

Upcoming Splits 

• (CHD) 2-for-1

Other Potential Market Movers

• The Japan Industrial Production report, weekly retail sales reports and the Jefferies Semi/Hardware/Communications Infra Summit could also impact trading today.

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

Stocks Higher into Final Hour on Lower Long-Term Rates, Technical Buying, Short-Covering, Metals & Mining/Financial Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Almost Every Sector Rising
  

• Volume: Light

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 12.99 -4.84%

• Euro/Yen Carry Return Index 119.18 +.13%

• Emerging Markets Currency Volatility(VXY) 10.17 +.79%

• S&P 500 Implied Correlation 45.19 -2.16%

• ISE Sentiment Index 145.0 +64.77%
  

• Total Put/Call .91 -12.5%

• NYSE Arms .42 -63.79% 

Credit Investor Angst:

• North American Investment Grade CDS Index 71.07 -1.12%
  

• America Energy Sector High-Yield CDS Index 688.0 -.05%

• European Financial Sector CDS Index 89.15 -.11%

• Western Europe Sovereign Debt CDS Index 24.47 -.69%

• Asia Pacific Sovereign Debt CDS Index 41.70 +3.55%

• Emerging Market CDS Index 241.88 -.47%
  

• iBoxx Offshore RMB China Corporate High Yield Index 131.84 +.11%

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

• TED Spread 52.0 +1.0 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -41.75 -2.5 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.67 -.24%
• 3-Month T-Bill Yield .31% -1.0 basis point

• Yield Curve 76.0 -1.0 basis point
  

• China Import Iron Ore Spot $59.14/Metric Tonne +.02%

• Citi US Economic Surprise Index 10.6 -.5 point

• Citi Eurozone Economic Surprise Index 16.9 -4.3 points

• Citi Emerging Markets Economic Surprise Index -4.3 -.7 point

• 10-Year TIPS Spread 1.47% -4.0 basis points
• 41.5% chance of Fed rate hike at Nov. 2 meeting, 59.9% chance at Dec. 14 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -12 open in Japan 
• China A50 Futures: Indicating +11 open in China

• DAX Futures: Indicating +12 open in Germany

Portfolio: 

• Slightly Lower: On losses in my biotech sector longs and emerging markets shorts

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

• Market Exposure: Moved to 50% Net Long