Stocks Lower into Final Hour on Tax Reform Worries, Yen Strength, Profit-Taking, Retail/Healthcare Provider Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Mixed
  

• Volume: Above Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 10.4 +6.4%

• Euro/Yen Carry Return Index 137.29 -.23%

• Emerging Markets Currency Volatility(VXY) 8.13 -1.22%

• S&P 500 Implied Correlation 15.8 +4.9%

• ISE Sentiment Index 101.0 -31.3%
  

• Total Put/Call .89 +3.49%

• NYSE Arms 1.02 -6.5%

Credit Investor Angst:

• North American Investment Grade CDS Index 53.01 -.04%
  

• America Energy Sector High-Yield CDS Index 393.0 -.77%

• European Financial Sector CDS Index 52.89 -2.02%

• Western Europe Sovereign Debt CDS Index 4.26 -10.5%

• Asia Pacific Sovereign Debt CDS Index 15.26 -1.93%

• Emerging Market CDS Index 174.44 +.19%
  

• iBoxx Offshore RMB China Corporate High Yield Index 144.79 +.02%

• 2-Year Swap Spread 22.5 -.25 basis point

• TED Spread 28.75 +.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -41.75 +.25 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.54 -.04%
• 3-Month T-Bill Yield 1.10% +1.0 basis point
  

• Yield Curve 79.0 -4.0 basis points

• China Import Iron Ore Spot $58.75/Metric Tonne -2.21%

• Citi US Economic Surprise Index 40.50 +2.3 points

• Citi Eurozone Economic Surprise Index 66.40 +6.9 basis points

• Citi Emerging Markets Economic Surprise Index 20.70 -.6 point

• 10-Year TIPS Spread 1.88 -2.0 basis points
  
• 84.9% chance of Fed rate hike at Dec. 13 meeting, 85.5% chance at Jan. 31 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -89 open in Japan 
• China A50 Futures: Indicating -29 open in China

• DAX Futures: Indicating -8 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg:

• Catalan Leader Abandons Party Chiefs Without Warning. (video) Ousted Catalan leader Carles Puigdemont fled for Brussels without warning senior members of his party, leaving them struggling to define their next moves in his absence, according to a party official. Puigdemont is in Belgium with key members of his former government where they are expected to seek asylum, according to the person, who was present at a meeting of senior party officials today. Puigdemont left no guidance as to whether the party should take part in the elections called by Prime Minister Mariano Rajoy, according to the person.

• Your Evening Briefing.

• Homes Are Getting Snapped Up at the Fastest Pace in 30 Years. The typical U.S. home lasted just three weeks on the market, according to a new report.

Wall Street Journal:

• What to Know About the Charges Against Manafort and Gates. Overview of accusations in the 31-page indictment announced by Special Counsel Robert Mueller.

• The Trump Deregulatory Juggernaut Is Rolling. Tax reform and infrastructure spending haven’t happened, but a rollback of regulations pleases business.

• Google’s(GOOGL) Dominance in Washington Faces a Reckoning. Search giant is battered from all sides amid a populist turn against Silicon Valley and reaction to Russian meddling.

• Strayer Education(STRA) and Capella(CPLA) Education to Merge. Capella shareholders to get premium in stock-for-stock deal and own about 48% of combined company.

Fox News:

• Trump, GOP lawmakers: Manafort charges no relation to campaign, alleged 'collusion'. (video)

• Brother of Clinton campaign chair steps down from lobbying firm amid reports of scrutiny from special counsel. (video)

• Las Vegas shooting: Jesus Campos to get subpoena to testify, report says. (video)

CNBC:

• Sprint(S), T-Mobile(TMUS) struggling over governance and pricing issues in talks, sources say.

• Quietly, the stock market just passed a major milestone, and is close to making a new one. (video)

• Intel(INTC) shares to surge more than 30% as chipmaker’s profitability rises, analyst predicts.

• Here’s what to expect going into another big week for tech earnings.

• Alphabet(GOOGL) has a 60-person division called Jigsaw that's helping to fight fake news.

• Europe closes on a mixed note amid latest earnings batch; Spain's IBEX jumps 2.44%.

Zero Hedge:

• Paul Manafort Indicted On 12 Counts In Mueller Probe, Surrenders To FBI.

• Tony Podesta Resigns As Head Of Podesta Group Amid Mueller Probe.

• Why Goldman Just Downgraded GM To Sell.

• Stocks, Bond Yields Tumble On Disappointing 'Gradual' Tax Cut Headlines.

• The House Will Reveal Its Tax Bill On Wednesday: Here's What's At Stake.

• President Trump Responds To Manafort Indictment.

• European Bond Yields Are Crashing. (graph)

• "Bond Bears Have Had Their Fun": Why One Trader Expects A Sharp Move Lower In Yields Next.

• Another Hollywood Bombshell: Kevin Spacey Confesses To Sexual Assault Of A Child, Comes Out As Gay.

• US Savings Rate Crashes To 10 Year Lows As Spending Surges Most Since 'Cash For Clunkers'. (graph)

• Trump To Make Fed Chair Announcement On Thursday: Politico.

Bear Radar

Style Underperformer:

• Small-Cap Value -1.1%

Sector Underperformers:

• 1) Retail -1.8% 2) Steel -1.7% 3) Healthcare Providers -1.4%

Stocks Falling on Unusual Volume: 

• VST, MRK, CTB, AMD, FDC, HTLD, M, BCOR and CENX

Stocks With Unusual Put Option Activity:

• 1) UA 2) K 3) MOS 4) W 5) PFE

Stocks With Most Negative News Mentions:

• 1) ODP 2) JCP 3) CENX 4) MRK 5) M

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth -.1%

Sector Outperformers:

• 1) Education +4.4% 2) Oil Service +1.6% 3) Gold & Silver +1.2%

Stocks Rising on Unusual Volume:

• ENZY, AAAP, CAA, DYN, MHO, ADMS, JP, MMYT, ALDW, GBT, MCY, MAT, BEDU, CIFS, FSLR, FARO, HUN, OSTK, MEOS, EFII, CNA, CYOU, OMER, AMAN, CELG, ADMS, OMER, ORI and SWKS

Stocks With Unusual Call Option Activity:

• 1) HST 2) MET 3) UAA 4) MA 5) OAS

Stocks With Most Positive News Mentions:

• 1) ADMS 2) FARO 3) VR 4) MBII 5) AGN

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +10.8% Above 100-Day Average
• 5 Sectors Rising, 5 Sectors Declining
• 43.8% of Issues Advancing, 53.0% Declining
• 87 New 52-Week Highs, 27 New Lows
• 46.8% of Issues Above 200-day Moving Average
• Average 14-Day RSI 37.8%
• Vix 10.1 +3.4%
• Total Put/Call .73 -15.1%
• TRIN/Arms .88 -19.3%

Monday Watch

Today's Headlines

Bloomberg:

• A Missing Piece of the Global Growth Jigsaw Starts to Fall Into Place. A missing piece in the global growth jigsaw appears to be falling into place. Spurred by higher profits and buoyant stock markets, some of the world’s best known companies from Amazon.com Inc. to Volkswagen AG are ramping up spending on new plants and equipment after years of caution. For an international economic expansion already gathering speed, that could prove a boon. The thinking is that capital investment, or capex, will stoke not just demand, but ultimately higher wages and inflation. That’s a positive for central banks and governments yearning to see profits trickle into workers’ pockets. Employers have been reluctant to spend even amid an economic upswing spanning 75 percent of the globe.

• China Puts the Global Economy’s Health at Risk. It used to be that when America sneezed, the world caught a cold. This time around, it’s the risk of a poorly China that poses a bigger risk. The world’s second-largest economy is now trying to ward off the sniffles. While output is still growing at a pace that sees gross domestic product double every decade, the problem remains that much of that has been fueled by a massive buildup of credit. Total borrowing climbed to about 260 percent of the economy’s size by the end of 2016, up from 162 percent in 2008, and will hit close to 320 percent by 2021 according to Bloomberg Intelligence estimates. Economy-wide debt levels are on track to rank among "the highest in the world," according to Tom Orlik, BI’s Chief Asia Economist.

• Japan Retail Sales Rise for 11th Consecutive Month.

• Spanish Envoy: Catalan Leader Out of a Job "No Matter What". Catalonia's deposed leader is now out of a job "no matter what he says" but could run in December's early regional election if he hasn't been imprisoned by then, Spain's foreign minister said Sunday. Alfonso Dastis told The Associated Press that Catalonia's civil servants won't recognize former regional leader Carles Puigdemont's authority if he ignores the Spanish government's orders and tries to come back to work on Monday.

• Taliban Kill 28 Afghan Police as Attacks Escalate Nationwide. Taliban militants stormed police checkpoints late Saturday and before dawn Sunday in three provinces of Afghanistan, killing 28 policemen in the latest in a series of attacks across the country. Tens of heavily equipped insurgents, including holders of night-vision rifles, initially began sporadic shooting at three police checkpoints and two army bases on the highway leading to Khan Abad district in northern Kunduz province, said Hayatullah Amiri, the governor of the district, by phone. At about 3 a.m. local time, they stormed one of the police checkpoints, killing all 13 officers stationed there except one who fled.

• Anti-Muslim Party Poised for Success in Queensland Snap Election. A snap election in Australia’s Queensland is poised to show a surge in support for populists in the traditionally conservative state. Premier Annastacia Palaszczuk asked the state’s acting governor to dissolve parliament on Sunday before announcing a Nov. 25 vote. The election is likely to be tight, with the balance of power potentially going to Pauline Hanson’s anti-Muslim immigration party One Nation: its estimated 18 percent support state-wide may be even higher among disaffected voters in regional areas.

• Asian Stocks Nudge Higher on Global Growth Outlook. Asian stocks rose as better-than-expected U.S. growth data added to evidence of improving global economic health, with investors awaiting key earnings results and an announcement on who will helm the Federal Reserve. Equities in Australia and South Korea climbed and Japan’s Topix index hovered around the highest since 2007 following another record for the S&P 500 Index Friday. Profit reports due this week from some of the world’s largest companies may show if there’s enough juice in the earnings season to propel another leg higher for global shares. Bond and currency markets continue to be gripped by speculation around who U.S. President Donald Trump will choose as the next Fed chair, with Governor Jerome Powell said to be the front-runner. Japan’s Topix index was flat as of 9:18 a.m. in Tokyo. South Korea’s Kospi index gained 0.4 percent. Australia’s S&P/ASX 200 Index rose 0.1 percent. Futures on Hong Kong’s Hang Seng Index gained 0.3 percent in most recent trading.

• Five Things You Need to Know to Start Your Day. (video)

• Three Crucial Things We Still Don't Know About the Aramco IPO. The financiers and corporate chieftains gathered for Saudi Arabia’s ‘Davos in the Desert’ heard the same message again and again. From the crown prince down, Saudi leaders wanted no room for doubt: the initial public offering of oil giant Aramco is "on track" for 2018.

• Everyone's a Metals Bull as the Global Economic Engine Fires Up. Global growth is on a tear, and that can only be positive for metals prices. That’s the message coming from the industry ahead of LME Week. For the first time in years, optimism is widespread among traders, smelters, miners and brokers gathering in London, buoyed by a combination of strong growth across the world’s key demand centers, supply curbs in China and a return of investor interest. "The global economy looks much better than it has done probably since the crisis, maybe before that," said Saad Rahim, chief economist at Trafigura Group Pte, the second-largest metals trader. "I’m pretty bullish."

Wall Street Journal:

• Businesses Push Workers to Mobilize Before Tax Revamp. Companies and trade groups turn their tax wish-lists into talking points as federal tax overhaul looms.

• Stuck in Place, U.S. Homeowners Hunker Down as Housing Supply Stays Tight. More choose to stay where they are and renovate, making it harder for renters to enter market. 

• Why Are Markets Rising Everywhere? Investors Can’t Stop Buying Every Dip. Markets around the globe are surging to records, reflecting growing optimism about the world economy and fueling an increasing eagerness by investors to step in and buy assets whenever prices dip.

• Foreign Companies in China Get a New Partner: the Communist Party. Newly assertive party members arrange lectures, proudly display hammer-and-sickle insignia at their desks and are praised as exemplary workers.

• GOP Plan for a Speedy Tax Overhaul Faces Uncertain Road. After the bill is proposed, a sweeping passage is possible, but a compromise or a total collapse could happen just as easily.

Fox News:

• Trump says claims about Clinton camp spending millions on 'fake dossier' has GOP 'united & angry'. (video)

• Doctors prepare for deep dive into Las Vegas shooter's brain. (video)

• Houston Texans kneel during anthem in protest of Bob McNair comments.

CNBC:

• Iraq positions itself for growth after Kurdish referendum, ISIS rout.

• OPEC who? US oil producers are moving into the Asian market.

Zero Hedge:

• Roger Stone Banned From Twitter For Attacking CNN.

• Trump Heralds GOP "Anger, Unity" As WSJ Warns Dems "The Russian Dossier Dam Is Breaking".

• FX Weekly Preview: All Eyes On Yellen, Trump And The Yield Curve.

• Bitcoin Just Hit A New Record High At $6300 - Up Over 550% YTD. (graph)

• Why Cities All Across America Are Suddenly Buying Up Trailer Parks.

• Manhattan Office Bubble Fizzles Without Big Chinese Buyers.

• Visualizing $63 Trillion Of World Debt.

• "This Is A Big Problem" - North Korea Nuclear Test Site Headed For A Devastating Collapse.

• "The World's Largest Sovereign Wealth Fund Is Investing With No Valuation Model".

Night Trading

• Asian indices are -.25% to +.5% on average.

• Asia Ex-Japan Investment Grade CDS Index 74.75 +1.0 basis point.

• Asia Pacific Sovereign CDS Index 15.50 -.5 basis point.

• Bloomberg Emerging Markets Currency Index 72.63 +.08%.

• S&P 500 futures -.20%.

• NASDAQ 100 futures -.08%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (CNA)/.49

• (DO)/.20

• (D)/1.02

• (IPI)/-.03

• (L)/.19

• (AVB)/2.17

• (CBI)/.53

• (CGNX)/1.03

• (MDLZ)/.54

• (RCII)/-.02

• (VNO)/.52

Economic Releases 
8:30 am EST

• Personal Income for September is estimated to rise +.4% versus a +.2% gain in August.

• Personal Spending for September is estimated to rise +.8% versus a +.1% gain in August.

• The PCE Core MoM for September is estimated to rise +.1% versus a +.1% gain in August.

10:30 am EST

• The Dallas Fed Manufacturing Activity Index for October is estimated to fall to 21.0 versus 21.3 in September.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Eurozone Industrial Production report, German CPI report and the Japan Jobless Rate report could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and technology shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher.  The Portfolio is 100% net long heading into the week.