Wednesday Watch

Evening Headlines 
Bloomberg:

• China Beige Book Shows Slowdown, Opposite Official Data. China’s economy slowed this quarter as growth in manufacturing and transportation weakened in contrast with official signs of an expansion pickup, a private survey showed. Increases in business-investment and real estate revenue also slowed, while service industries picked up and employees became tougher to find, the survey from New York-based China Beige Book International said yesterday. The report is based on responses from 2,000 people from Aug. 12 to Sept. 4 as well as 32 in-depth interviews conducted later in September. The quarterly report, modeled on the U.S. Federal Reserve’s Beige Book business survey, diverges from government figures showing faster July and August gains in factory production that have spurred analysts from Citigroup Inc. to Deutsche Bank AG to upgrade expansion estimates. Nomura Holdings Inc. is among banks skeptical that any rebound will be sustained next year. The results “show the conventional wisdom of a renewed, strong economic expansion in China to be seriously flawed,” China Beige Book President Leland Miller and Craig Charney, research and polling director, said in a statement. The data “reveal weakening gains in profits, revenues, wages, employment and prices, all showing slipping growth on-quarter -- no disaster, but certainly not the powerful expansion suggested by the consensus narrative.”    

• Party Will Pay the Price for China’s Rebalancing. We need to keep the impact of financial repression in mind in understanding the Chinese growth model. It is a fundamental cause of China’s rapid expansion and its extraordinary imbalances. State-owned enterprises, like other large-scale investors, have benefited from artificially low interest rates, and it is quite easy to prove that over the past decade they have beStudies done by the mainland research organization Unirule Institute of Economics suggest that more than 100 percent, and perhaps much closer to 200 percent, of theaggregate profitability of state-owned enterprises in China over the past decade can be explained by monopoly pricing and direct subsidies. Without these subsidies, according to Unirule, state-owned enterprises earned a negative return on equity equal to 6 percent to 7 percenten value destroyers on a very significant scale. .

• Asian Stocks Fall Second Day as U.S. Confidence Declines. Asian stocks fell for a second day, paring the best monthly advance since January 2012 for the regional benchmark index, after U.S. consumer confidence slumped in September to a four-month low. Mitsui Chemicals Inc. lost 4.8 percent in Tokyo, leading materials producers lower. NTT Data Corp., a Japanese network-services company, slumped 7.5 percent, pacing a retreat in technology firms. Tokyo Electron Ltd. surged 14 percent after Applied Materials Inc., the largest chipmaking-equipment supplier, agreed to buy the company for $9.39 billion in stock. The MSCI Asia Pacific Index fell 0.2 percent to 140.20 as of 10:24 a.m. in Hong Kong, with six of the 10 industry groups on the gauge declining.

• Rebar Trades Near Lowest in 11 Weeks as Producers Reduce Prices. Steel reinforcement-bar futures traded near the lowest level in 11 weeks after some Chinese steel producers cut prices, increasing concern that inventories are rising as supply outpaces demand. Rebar for delivery in January on the Shanghai Futures Exchange fell as much as 0.3 percent to 3,617 yuan ($591) a metric ton and traded at 3,619 yuan at 10:45 a.m. The most-active contract declined to 3,612 yuan on Sept. 23, the lowest since July 10. Futures have lost 3.6 percent this month.

• Lew Says Investors May Be Too Hopeful on Debt-Limit Debate. U.S. Treasury Secretary Jacob J. Lew said investor confidence that a deal can be struck to raise the debt limit is “a bit greater than it should be” and the government probably will have less than $50 billion in cash by mid-October. Lew, who spoke at the Bloomberg Markets 50 Summit in New York today, repeated that President Barack Obama won’t negotiate with congressional Republicans on increasing the $16.7 trillion ceiling on the nation’s borrowing authority.

• Americans in Poll Doubt Economy Rebound. Fewer people anticipate improvement in the economy’s strength over the next year than in the last survey in June, with 27 percent saying the expansion will be more robust, down from 39 percent who expected improvement three months earlier. Forty-four percent of poll respondents say they expect the economy, which has expanded for nine consecutive quarters, to remain about the same, while 28 percent see it weakening. “We’re still in a recession; I don’t know why they say it’s over,” says Chris Sams, 28, a disabled Navy veteran from Daingerfield, Texas. “It may be over in Washington, D.C., where the per capita income is higher than anywhere else, but down here the minimum wage is the highest wage.”

Wall Street Journal:

• Iran Applies Brakes to U.S. Mideast Plans. Tehran Decides Against Meeting of President at U.N. President Barack Obama argued the U.S. case before world leaders for resolving the Middle East's deepest conflicts, but pushback from Iran dimmed hopes that had been building for a rapid leap forward. Iranian President Hasan Rouhani's decision against meeting Mr. Obama—or even exchanging a handshake—at the U.N. General Assembly in New York on Tuesday soured what American and European officials had hoped would mark an advancement in efforts to wind down tensions. Mr. Rouhani followed that rebuff with an address to the U.N. in which he aired his hopes for reconciliation while holding firm on Iran's right to enrich uranium and criticizing some aspects of American foreign policy, including economic sanctions on Tehran.

• iPhone ‘Teardown’ Shows Apple’s(AAPL) Strong Margins. Apple is holding the line with strong margins on sales of its smartphones, including the lower-end iPhone 5C model, according to data provided by the research firm IHS iSuppli. Apple earns about $450 on its 16 gigabyte iPhone 5S, minus the component costs and assembly for the device, which sells for $649 without a contract. Those costs of the components and manufacturing make up about 30% of the price, similar to that of last year’s iPhone 5 and the new iPhone 5C, which sells for about $100 less.

• Copart(CPRT) 4th-Quarter Net Down 8%; Won't Pursue REIT Conversion. Copart Inc.'s (CPRT) shares fell Tuesday after the car auctioneer reported a weaker-than-expected fiscal fourth-quarter profit due to higher expenses. Though revenue growth topped analysts' expectations, the bottom line surprisingly fell 8% from a year ago as Copart's expenses--including yard operation and vehicle sale costs--jumped from the prior year. Shares slid 11% to $30.35 in after-hours trading.

• M.B.A. Applications Rebound.

• Prosecutors Pursue Big SAC Settlement.

• Cashing Out After Post-Fed Rally. The stock market's surge is pushing some investors to cash in a few of their chips. Even as shares climbed to new highs in recent weeks, some money managers pared their equity holdings. Their reasons: after such a strong run, the rally may be losing steam and the Federal Reserve will soon begin withdrawing the massive monetary stimulus it has been injecting into the economy since the financial crisis. Contributing to the shift out of stocks are valuations that many investors are finding less attractive and jitters about the renewed brinkmanship in Washington, D.C., over upcoming budget battles. To be sure, the fund managers say they are not turning bearish on stocks. Rather, they're deciding that a dose of defense is warranted.

• Al Qaeda's African Surge Threatens the U.S. The affiliate that attacked the shopping mall in Kenya includes young Muslim recruits from Minnesota.

Fox News:

• Cruz vows to speak against ObamaCare until unable 'to stand,' as vote looms. The Texas Republican senator declared Tuesday afternoon that he intends to speak in opposition to ObamaCare "until I am no longer able to stand." "ObamaCare isn't working," he said. "There are politicians in this body who are not listening to the people."

Zero Hedge:

• From The Tip Box: "The Fed Made It Possible For Many People To Leak It".

• An Alternative View Of Why The Fed Did Not (and Will Not) Taper.

• French Court Orders Flagship Sephora Store Not To Work So Much.

• Goldman Warns Fed Chair Nomination Could Take 3 Months.

• The Other Reason The Fed Is Terrified Of A Government Shut Down.

• Goldman(GS) Goes Medieval On JCPenney(JCP): Shorts Bonds; Slams Liquidity; Expects Default Risk Surge.

• Peter Boockvar: "There Is 0% Chance That This Ends Smoothly".

ValueWalk:

• Jim Chanos: China’s Housing Near 400% of GDP [VIDEO].

Business Insider:

• 'Obama's Favorite General' Stripped Of Security Clearance Amid Leak Investigation.

• GARRY KASPAROV: Vladimir Putin Had A Weak Poker Hand, But Obama Fell For His Bluff.

• MORGAN STANLEY(MS) PRESENTS: 'The Fragile Five' — The Most Troubled Currencies In Emerging Markets.

Reuters:

• Fighting in Syria between moderate rebels, al Qaeda intensifies -U.S. Moderate Syrian rebels are engaged in their fiercest fighting to date with al Qaeda-affiliated fighters on Syria's northern and eastern borders, a senior U.S. State Department official said on Tuesday. "There is a real firefight," the official said of battles between al Qaeda's Islamic State of Iraq and the Levant (ISIL) and the Free Syrian Army led by Salim Idriss, a more moderate group of rebels trying to oust Syrian President Bashar al-Assad.

• Netanyahu says Rouhani speech 'cynical', Iran buying time. Israeli Prime Minister Benjamin Netanyahu said on Wednesday that Iranian President Hassan Rouhani's U.N. address was "cynical" and Tehran was stalling for time in order to develop nuclear arms. "It was a cynical speech full of hypocrisy," Netanyahu said in a statement after Rouhani addressed the annual gathering of world leaders at the United Nations General Assembly.

Evening Recommendations 
Keefe Bruyette:

• Raised (CME) to Outperform, target $89. 

Night Trading

• Asian equity indices are -.75% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 151.0 +1.5 basis points.

• Asia Pacific Sovereign CDS Index 116.0 +15.75 basis points. (new series)

• FTSE-100 futures -.13%.

• S&P 500 futures -.04%.

• NASDAQ 100 futures +.09%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AZO)/10.34

• (JBL)/.54

• (BBBY)/1.15

• (FUL)/.67

• (WOR)/.58

• (THO)/.96

Economic Releases 
8:30 am EST

• Durable Goods Orders for August are estimated to fall -.2% versus a -7.3% decline in July.

• Durables Ex Transports for August are estimated to rise +1.0% versus a -.6% decline in July.

• Cap Goods Orders Non-defense Ex Air for August are estimated to rise +2.0% versus a -3.3% decline in July.

 10:00 am EST

• New Home Sales for August are estimated to rise +1.5% versus a -1.5% decline in July.
  

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,000,000 barrels versus a -4,368,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -750,000 barrels versus a -1,627,000 barrel decline the prior week. Distillate supplies are estimated to fall by -925,000 barrels versus a -1,079,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall by -.88% versus unch. the prior week.

Upcoming Splits

• (WST) 2-for-1

• (TSCO) 2-for-1

Other Potential Market Movers

• The Eurozone GFK Confidence report, Germany Import/Export Prices reports, 5-Year T-Note auction, weekly MBA mortgage applications report, 2Q Household Networth Change and the KBW Insurance 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 mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

Stocks Slightly Lower into Final Hour on Debt Ceiling Worries, Emerging Markets Debt Angst, Technical Selling, REIT/Financial Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 13.90 -2.87%

• Euro/Yen Carry Return Index 138.80 -.19%

• Emerging Markets Currency Volatility(VXY) 9.77 +.51%

• S&P 500 Implied Correlation 48.17 -4.16%

• ISE Sentiment Index 98.0 +48.48%

• Total Put/Call .84 -15.15%

• NYSE Arms 1.16 -24.02% 

Credit Investor Angst:

• North American Investment Grade CDS Index 78.97 -1.94%

• European Financial Sector CDS Index 137.14 -1.92%

• Western Europe Sovereign Debt CDS Index 86.0 -1.15%

• Emerging Market CDS Index 273.72 +2.80%

• 2-Year Swap Spread 15.25 +.75 basis point

• TED Spread 24.0 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -3.75 +1.75 basis points

Economic Gauges:

• 3-Month T-Bill Yield .01% +1 basis point

• Yield Curve 232.0 -5 basis points

• China Import Iron Ore Spot $132.70/Metric Tonne +.23%

• Citi US Economic Surprise Index 46.20 +.3 point

• Citi Emerging Markets Economic Surprise Index 5.10 +1.5 points

• 10-Year TIPS Spread 2.20 -6 basis points

Overseas Futures:

• Nikkei Futures: Indicating +23 open in Japan

• DAX Futures: Indicating -1 open in Germany

Portfolio: 

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

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• Merkel’s Cold Embrace Leaves SPD Wary of Coalition Talks. At the end of Angela Merkel’s first term, her Social Democratic coalition partner recorded its worst election result since World War II. The phenomenon was repeated two days ago when the Free Democrats, the German chancellor’s second-term ally, were bounced out of parliament for the first time since 1949. The SPD, the second-place finishers in the Sept. 22 vote, may be reluctant to try again, picking up what its chairman suggested yesterday was a poisoned chalice. 

• European Stocks Rise as Telecommunication Companies Climb. European stocks advanced, following a two-day decline, as telecommunications companies climbed, outweighing U.S. consumer confidence and regional manufacturing reports that trailed economists’ estimates. Telecom Italia SpA gained 1.7 percent as Telefonica SA agreed to increase its stake in the phone operator. Nokia Oyj added 2.4 percent after a U.S. judge found that HTC Corp. violated two of its patents. Total SA climbed 2.6 percent after Barclays Plc raised its rating on the oil producer. Burckhardt Compression Holding AG slid 7.3 percent after saying fiscal first-half net income will decline from the year-earlier period. The Stoxx Europe 600 Index added 0.2 percent to 313.2 at the close in London.

• Copper Falls Most in a Week on U.S. Economy, Budget Concern. Copper futures for delivery in December slid 1.3 percent to settle at $3.2565 a pound at 1:14 p.m. on the Comex in New York, the biggest drop since Sept. 12.

• Five Reasons Not to Trust Iran on Nukes.

• Debt Disaster Seen Unless VAT Rises to 20% by 2020: Japan Credit. Japan must raise its sales tax to at least 20 percent by the time the Olympics come to Tokyo in 2020 to avert a “disaster” in its bond market, according to the head of a panel advising the world’s biggest pension fund. 

• Chinese Cities Hooked on Land Revenue Fuel Housing Costs. Chinese cities, addicted to the money they raise by selling land to developers, are undermining the government’s multiyear campaign to contain housing costs. Municipal residential land deals, measured by area, rose 26 percent in the first eight months of the year from the same period in 2012, according to China Investment Securities Co. The average price per square meter jumped 43 percent, pushing proceeds up 80 percent to 816.5 billion yuan ($133 billion).

• Indonesia Seeks to Boost Bilateral Swaps as Rupiah Slumps. Indonesia said it will seek to enlarge bilateral swap agreements with its north Asian neighbors as Southeast Asia’s biggest economy battles a slumping currency. The country plans to boost swap arrangements to almost $40 billion by signing deals with China and South Korea and increasing an existing agreement with Japan, Industry Minister M.S. Hidayat told reporters in Jakarta after meeting with the central bank today. It may sign an agreement with China next month when President Xi Jinping visits Indonesia, he said.

• Schneiderman Calls Traders With Early Data Growing Threat. Elite investors with high-speed trading systems who gain early access to sensitive information are a growing threat to the integrity of U.S. financial markets, New York Attorney General Eric Schneiderman said at a conference. Schneiderman said today at the Bloomberg Markets 50 Summit in New York that that his office is looking at combating the advantages won by securing early access to market-moving data. Calling the issue “Insider Trading 2.0,” Schneiderman said that the combination of high-speed trading and early data access unfairly sets up a small group of investors to reap enormous profits.

• Lennar(LEN) Quarterly Profit Beats Estimates as Prices Climb. Lennar Corp., the third-largest U.S. homebuilder by revenue, reported a jump in quarterly earnings that beat analyst estimates as the company sold more homes and raised prices. Net income climbed to $120.7 million, or 54 cents a share, in the three months through August from $87.1 million, or 40 cents, a year earlier, the Miami-based company said in a statement today. Analysts expected Lennar to earn 45 cents, the average of 18 estimates compiled by Bloomberg.

• Twitter Said to Lean Toward NYSE for IPO Listing. Twitter Inc., the microblogging service that plans an initial public offering, is leaning toward listing its shares on the New York Stock Exchange, a person with knowledge of the matter said. A final decision hasn’t yet been made, said the person, who asked not to be identified because the deliberations are private.

• Carnival(CCL) Forecasts Possible Quarterly Loss Amid Lower Bookings. Carnival Corp., the world’s largest cruise-ship operator, forecast fourth-quarter results that trailed analysts’ estimates amid a decline in advance bookings and higher fuel prices. The shares slumped. The company said it expects that excluding some items, its fourth-quarter results will range from a loss of 3 cents a share to profit of 3 cents, according to a statement. That compared with the 9-cent average of analysts’ estimates, according to data compiled by Bloomberg.

Wall Street Journal: 

• Obama Sets Stage for Shift With Iran. President, in U.N. Address, Weighs In on Syria Resolution. President Barack Obama told world leaders that an agreement with Iran to contain its nuclear program should be achievable and offered Tehran improved diplomatic relations, setting the stage for heightened efforts this week to forge a rapprochement between Washington and Tehran.

• More Manufacturers Moving Operations Back to U.S.

Fox News: 

• Kerry to sign UN arms treaty, despite senators' opposition.

CNBC: 

• Malls mulling security boosts after Nairobi attack. The deadly assault on a luxury Nairobi mall Saturday has sent shock waves around the world, raising concerns about security at shopping centers amid fears of copycat violence or other terror attacks, according to industry officials and other experts.

• No handshake: Iran leader skips lunch with Obama.

Zero Hedge:

• July Case-Shiller Housing Index Misses For Third Month In A Row, Pace Of Increase At 10 Month Lows. (graph)

• Consumer Confidence Drops Most In 6 Months To 4 Month Low. (graph)

• Political Dis-Unity, Fed Dis-Credited, And Market Dysphoria.

• Treasury Yields Plunge To 7-Week Lows. (graph)

• JPMorgan's Mortgage Settlement May Reach $20 Billion.

Business Insider: 

• REPORT: Some Traders Got News Of Last Week's Fed Shocker Before Everyone Else. 

• Kenya President: Mall Siege Over, 72 Dead.

• BABY BOOMERS: Yeah, We’re Leaving The Labor Force Alright — Because We Can't Get Back In It.

• The Single Reason Why JP Morgan Stays Untouchable.

• Two 'Triple Bearish Divergences' Are Simultaneously Hitting The Stock Market Right Now.

• Richmond Fed Manufacturing Data Plunges To Zero.

New York Times:

• Vote for Merkel Seen as Victory for Austerity.

Reuters:

• Applied Materials(AMAT) to buy Tokyo Electron as chip gear sector slows. Applied Materials Inc in a deal valued at more than $9 billion, combining the No.1 and No.3 makers of chipmaking gear as demand for their products slow and it gets tougher to turn a profit. 

• New Italian targets show lack of progress since Berlusconi's fall. Italy's latest economic forecasts reveal how little progress has been made to fix its finances and restore growth since Silvio Berlusconi was forced from office at the height of the euro zone debt crisis in November 2011.

Telegraph:

• Eurozone still poses risk to global recovery, says OECD. The eurozone economy will not grow until 2014 and could still shatter the global recovery, the Organisation for Economic Cooperation and Development (OECD) has warned.

Der Spiegel: 

• Warming Plateau? Climatologists Face Inconvenient Truth. Data shows global temperatures aren't rising the way climate scientists have predicted. Now the Intergovernmental Panel on Climate Change faces a problem: publicize these findings and encourage skeptics -- or hush up the figures.

Caixin: 

• Northern Chinese City Shijiazhuang's Debt Ratio at 241%. Debt ratio of northern Chinese city of Shijiazhuang was 241% at end-June 2012, highest among all 11 prefecture-level cities in Hebei province, citing a report by the Hebei office of the Ministry of Finance. Debt ratios of six of Heibei's 11 prefecture-level cities were more than 100%.

Bear Radar

Style Underperformer:

• Large-Cap Value +.12%

Sector Underperformers:

• 1) Coal -1.35% 2) Gold & Silver -.73% 3) Software -.40%

Stocks Falling on Unusual Volume:

• CLMT, TLK, CY, RHT, CCL, CUK, RCL, SFUN, SWI, ALDW, NSR, ATHN, UL, AEPI, CTXS, MNRO, CLMT, PTCT, SA, SRCL, FFIV, CRAY, TLK, WAG, DO and NSM

Stocks With Unusual Put Option Activity:

• 1) ESRX 2) CTL 3) AMAT 4) CCL 5) RHT
  

Stocks With Most Negative News Mentions:

• 1) WFC 2) BBRY 3) JCP 4) T 5) MSFT
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Value +.61%

Sector Outperformers:

• 1) Homebuilders +2.89% 2) Airlines +1.27% 3) Oil Tankers +1.12%
  

Stocks Rising on Unusual Volume:

• KNDI, RGEN, CBEY, TSU, PAM, GWAY, AMAT, DQ, BOBE, LRCX, KMX, BNNY, ABMD, TSU, CNC, TTWO, BEAT, CLDX, LEN, JNY, FB, KBH and CBST

Stocks With Unusual Call Option Activity:

• 1) ABBV 2) VRNG 3) IRM 4) CCL 5) RCL
  

Stocks With Most Positive News Mentions:

• 1) LMT 2) MSFT 3) NEOG 4) RGEN 5) GLD
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Tuesday Watch

Evening Headlines 
Bloomberg:

• Bernanke Taper Delay Clouds Kuroda Inflation Fight: Japan Credit. The Federal Reserve’s surprise decision to delay tapering stimulus as inflation remains subdued suggests Bank of Japan Governor Haruhiko Kuroda faces an uphill battle to stoke price increases with quantitative easing. Japan’s implied forward yield, which indicates bond investor expectations of the two-year note rate in 2015, has fallen to the lowest since April 4 when Kuroda began unprecedented stimulus, at 0.24 percent last week. That suggests the market doesn’t expect inflation pressure to push up yields for at least two years. The equivalent rate in the U.S. declined to a month low of 1.8 percent on Sept. 18.

• Rupiah Falls to Lowest Since April 2009 as Companies Buy Dollars. Indonesia’s rupiah weakened to the lowest level since April 2009 on speculation local companies increased dollar purchases after the currency had its best week since November 2012. Government bonds fell. The rupiah advanced 0.5 percent last week as the Federal Reserve refrained from reducing the stimulus that has spurred demand for emerging-market assets. Indonesia’s trade shortfall surged to a record $2.3 billion in July, weighing on the current account that has remained in deficit for a seventh straight quarter through June. The government will release trade data for August on Oct. 1. 

• China Reforms Face Headwinds at Home and Abroad. Rapid growth has come at the expense of significant distortions in interest rates, wages, currency and legal structures, along with political capture of the benefits of growth. An almost inevitable result has been a very distorted national balance sheet, marked by burgeoning debt and decreasing ability to finance that debt. It is now clear that China must come to terms with these distortions and reverse them, and that this task will prove difficult.

• China’s Stocks Drop After Biggest Gain in Two Weeks; Vanke Falls. China’s stocks fell after the benchmark index climbed the most in two weeks yesterday. China Vanke Co. and Poly Real Estate Group Co. dropped more than 2 percent after the China Securities Journal reported the government is accelerating a property-tax trial expansion. Ping An Bank Co. paced declines among lenders, losing 4.5 percent. Apple Inc. suppliers, including GoerTek Inc., jumped after a record number of iPhones were sold in the week-end debut. The Shanghai Composite Index slipped 0.8 percent to 2,203.25 as of 10:04 a.m. local time.

• Asia Stocks Fall as Copper to Aussie Drop; Gold Rebounds. Asian stocks dropped, dragging down the benchmark gauge from a four-month high, as Japanese exporters retreated on a stronger yen. Australia’s dollar declined with copper prices, while precious metals rebounded. The MSCI Asia Pacific Index lost 0.8 percent at 11:44 a.m. in Tokyo. Japan’s Topix Index dropped 0.9 percent, the most this month.

• Rubber Declines for Second Day as Oil Extends Losses, Yen Gains. Rubber fell for a second day as weakening crude oil prices and a stronger yen cut its appeal. The contract for February delivery on the Tokyo Commodity Exchange lost as much as 2.3 percent to 277.3 yen a kilogram ($2,825 a metric ton) and traded at 278.80 yen at 11:18 a.m.

• Rebar Falls as Li Says China Has Chosen Steady Monetary Policy. Steel reinforcement-bar futures fell in Shanghai after Premier Li Keqiang said the government has chosen steady monetary policy, damping speculation for more economic stimulus. Rebar for delivery in January on the Shanghai Futures Exchange fell 0.4 percent to 3,641 yuan ($595) a metric ton at 10:49 a.m. local time. Futures have lost 2.9 percent this month.

• Citigroup(C) to Cut 1,000 Jobs in Mortgage Business. Citigroup Inc. (C), the fifth-biggest U.S. mortgage originator last year, is cutting about 1,000 jobs in its home-lending business. The job reductions will come in mortgage sales, underwriting, fulfillment and default roles, primarily in Las Vegas and Irving, Texas, the New York-based company said today in an e-mailed statement. 

• Fisher Says White House Mishandled Fed Chairman Succession. Richard Fisher, president of the Federal Reserve Bank of Dallas, said the White House botched the nomination for Chairman Ben S. Bernanke’s successor by allowing an unprecedented public debate over who would be the best choice. “The White House has mishandled this terribly,” Fisher said today in response to a question from the audience after giving a speech in San Antonio, Texas. “This should not be a public debate,” he said, adding that the Fed “must never be a political instrument.”

Wall Street Journal:

• U.S. Readies Civil Suit Against J.P. Morgan on Mortgages. Flurry of Negotiations Take Place. Justice Department officials are preparing to file a civil lawsuit against J.P. Morgan Chase & Co. over the bank's handling of residential mortgage-backed securities before the financial crisis, according to people familiar with the matter. Government lawyers had notified the bank that they planned to file the lawsuit as early as Tuesday, but a flurry of renewed discussions Monday could change that schedule, according to a person familiar with the talks. Even as they prepare a civil case against the bank, federal prosecutors are weighing whether to bring any criminal charges stemming from the case, according to a person familiar with the case.

• BlackBerry(BBRY) Strikes Preliminary Go-Private Deal for $4.7 Billion. Fairfax Financial Owns 10% of BlackBerry Shares; Due Diligence, Go-Shop Period Lasts Six Weeks.

• Kenya Says It Believes All Hostages Are Free. Security Forces Comb Through Upscale Mall to Search for Any Remaining Survivors, Attackers After Raid. The remaining hostages held by Islamic militants in an upscale Nairobi mall during a three-day siege appeared to have been freed, Kenyan officials said early on Tuesday, as security forces continued to conduct operations in the building. The declaration came after the security forces mounted a major assault on Monday afternoon in an effort to free the remaining people Kenyan officials still believed to be inside. Gunfire and explosions erupted as the operation started, accompanied by a black plume of smoke billowing into the air.

• Bennett and Beach: The Hypocrisy Of Congress's Gold-Plated Health Care. Special subsidies for Hill workers trample on the Founders' code of equal application of the law.

Fox News:

• One man's ObamaCare nightmare. Andy and Amy Mangione of Louisville, Ky. and their two boys are just the kind of people who should be helped by ObamaCare. But they recently got a nasty surprise in the mail.

Zero Hedge:

• Kenyan Foreign Minister Confirms Mall Attack Was By Al-Qaeda.

• JPMorgan(JPM) Brings The Second Public Coming Of Chrysler.

• One Pre-FOMC Link That Seems To Explain Everything.

• A Baby-Boomer's Apology: "What Were We Thinking?" (video)

• QE Worked For The Weimar Republic For A Little While Too. (graph)

• Housing "Recovery" Endgame Escalates.

• What Shadow Banking Can Tell Us About The Fed's "Exit-Path" Dead End.

NY Times:

• Asia at Risk as Economies Put Off the Inevitable. Economists say the Federal Reserve’s decision to keep pumping money into the American economy is only a temporary reprieve for Asia — one that could tempt policy makers in the region to put off the structural changes they believe are essential to improve long-term growth prospects across the region.

Reuters:

• Linux distributor Red Hat's(RHT) billings growth disappoints. Red Hat Inc, the world's largest commercial distributor of the Linux operating system, reported a slower growth in billings than analysts had expected. The company's shares fell nearly 8 percent after markets closed.

Telegraph:

• How corporate hoarding could kill off the bull market in asset prices. For financial markets, October is by tradition the cruellest month. Most of the truly awesome stock market crashes have happened at or around this fated time of the year, so for those of a superstitious frame of mind, it is invariably approached with trepidation.

China Daily:

• Some China Local Govts Overuse Finance Vehicles. Some local Chinese governments overused financing vehicles to borrow money for city construction and created "relatively large scale" of debt, according to an article written by Wang Baoan. China should change the model that residents can only buy properties from developers, Wang wrote.

China Securities Journal:

• China to Start New Round of Property Tax Training. China will start 2nd round of property tax training for those working in taxation system next month, signaling acceleration of property tax trial expansion, citing people familiar with the matter.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -1.0% to -.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 149.50 +8.5 basis points.

• Asia Pacific Sovereign CDS Index 100.25 +2.0 basis points.

• FTSE-100 futures -.08%.

• S&P 500 futures -.15%.

• NASDAQ 100 futures -.07%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (KMX)/.57

• (CCL)/1.29

• (KBH)/.21

• (LEN)/.45

• (CPRT)/.40

Economic Releases 
9:00 am EST

• The S&P/CS 20 City MoM SA for July is estimated to rise +.8% versus a +.89% gain in June.

• The House Price Index for July is estimated to rise +.8% versus a +.7% gain in June.

 10:00 am EST

• The Richmond Fed Manufacturing Index for Sept. is estimated to fall to 12.0 versus 14.0 in August.

• Consumer Confidence for September is estimated to fall to 80.0 versus 81.5 in August.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's George speaking, Fed's Pianalto speaking, weekly retail sales reports, Goldman Sachs Communacopia Conference, BofA Merrill Power/Gas Conference, (VAR) investor meeting, (PDCO) investor day, (MCO) investor day and the (INTU) investor day could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by real estate 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 50% net long heading into the day.