Tuesday, September 30, 2014

Stocks Slightly Lower into Final Hour on Rising Emerging Markets Debt Angst, Global Growth Fears, Technical Selling, Energy/Hospital Sector Weakness

Broad Equity Market Tone:
  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Almost Every Sector Declining
  • Volume: Around Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • Volatility(VIX) 16.07 +.56%
  • Euro/Yen Carry Return Index 144.59 -.30%
  • Emerging Markets Currency Volatility(VXY) 8.16 -.49%
  • S&P 500 Implied Correlation 56.91 +2.89%
  • ISE Sentiment Index 72.0 -20.0%
  • Total Put/Call 1.14 +29.55%
  • NYSE Arms 1.22 -31.07% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 64.59 -3.56%
  • European Financial Sector CDS Index 63.42 -6.13%
  • Western Europe Sovereign Debt CDS Index 30.17 -.89%
  • Asia Pacific Sovereign Debt CDS Index 71.42 -2.45%
  • Emerging Market CDS Index 285.87 +1.92%
  • China Blended Corporate Spread Index 318.07 +2.19%
  • 2-Year Swap Spread 24.75 unch.
  • TED Spread 22.75 unch.
  • 3-Month EUR/USD Cross-Currency Basis Swap -10.50 -.5 basis point
Economic Gauges:
  • 3-Month T-Bill Yield .02% +2.0 basis points
  • Yield Curve 192.0 unch.
  • China Import Iron Ore Spot $77.50/Metric Tonne -.26%
  • Citi US Economic Surprise Index 17.90 -7.0 basis points
  • Citi Emerging Markets Economic Surprise Index -20.30 -6.0 points
  • 10-Year TIPS Spread 1.97 +2.0 basis points
Overseas Futures:
  • Nikkei Futures: Indicating +22 open in Japan
  • DAX Futures: Indicating -30 open in Germany
Portfolio: 
  • Slightly Lower: On losses in my biotech/medical/retail sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges
  • Market Exposure: Moved to 25% Net Long

Today's Headlines

Bloomberg:
  • Russia Weighs Capital Controls in Case Net Outflows Intensify. Russia’s central bank is weighing the introduction of temporary capital controls if the flow of money out of the country intensifies, according to two officials with direct knowledge of the discussions. Such measures would be preventative and used only if net outflows rise significantly, the people said, who asked not to be identified because no decision has been made. They didn’t give a timeline or a level that may force such a move, saying they are looking at all possible scenarios. The ruble weakened to a record low today, breaching the level where the regulator steps in to support the currency.
  • Russia Loan Market Shut Down by Sanctions Squeeze Funding. Russian companies are facing a squeeze in funding as sanctions targeting industries smother lending to all borrowers, including those that aren’t blacklisted. “As long as those sanctions measures remain in force, one anticipates there will be very little international lending,” Philip Hanson, an associate fellow at the Chatham House research group in London, said yesterday by telephone. “They’d rather just play safe and avoid the risk.” Syndicated loans plunged 53 percent this quarter from a year earlier to $2.68 billion, the lowest level in at least five years, according to data compiled by Bloomberg. Coal miner Siberian Anthracite’s $250 million deal was the only international one signed this month, the smallest number for any September since at least 2008.
  • Oops Japan Did It Again? Sales-Tax Spurs Recession Debate. Weak industrial production data from Japan today raises concern that the world’s third-largest economy may be back in recession, challenging Prime Minister Shinzo Abe’s growth strategy. Output -- a key component of the Coincident Index (JNCICCOI) that’s used by the Cabinet Office to determine peaks and troughs in the business cycle -- unexpectedly fell in August. It’s now dropped in three of the five months since an increase in the sales tax in April
  • German Unemployment Unexpectedly Rises as Risks Increase. German unemployment unexpectedly rose for a second month as seasonal factors combined with economic risks from the Ukraine crisis to a faltering euro-area recovery. The number of people out of work climbed a seasonally adjusted 12,000 to 2.92 million in September, the Nuremberg-based Federal Labor Agency said today. Economists forecast a decline of 2,000, according to the median of 27 estimates in a Bloomberg News survey.
  • Commodities Head for Biggest Quarterly Loss Since 2008. Corn futures tumbled to a five-year low, gold is the cheapest since January and copper extended this year’s decline as raw materials headed for their worst quarter since 2008. The Bloomberg Commodity Index fell as much as 1.4 percent today, the biggest intraday loss since June 2013. U.S. corn inventories before the start of this year’s harvest were bigger than analysts forecast, the government said today. Holdings in bullion-backed exchange-traded products are near the lowest in five years amid waning investor demand.
  • Euro’s Worst Quarter Since 2010 Leaves It at Two-Year Low. The euro dropped to the lowest level in two years against the dollar as slowing inflation boosted the case for the European Central Bank to add further monetary stimulus to avert deflation. The 18-nation currency headed for its worst quarter since 2010 amid the ECB’s moves to swell its balance sheet and cut borrowing costs to spur growth. Russia’s ruble slumped after Bloomberg News reported the central bank is weighing capital controls, and the Canadian dollar weakened as the nation’s economy stalled. The U.S. dollar has climbed this quarter as the Federal Reserve considers raising interest rates.
ZeroHedge: 
Business Insider:
@fxmacro:
Reuters:
Telegraph: 

Bear Radar

Style Underperformer:
  • Small-Cap Growth -1.12%
Sector Underperformers:
  • 1) Hospitals -2.24% 2) Gold & Silver -2.21% 3) Alt Energy -1.90%
Stocks Falling on Unusual Volume:
  • PGP, WAC, PDFS, FDUS, WPPGY, CNW, DWA, THRM, ST, LANC, BWA, AMBA, TEL, USLV, AGIO, WTI, DLPH, HTWR, MGA, IRM, SGEN PNK, LPL, ALV, AAOI, ELGX, HAR, CAR and WAC
Stocks With Unusual Put Option Activity:
  • 1) DHR 2) ZQK 3) FSL 4) LYB 5) F
Stocks With Most Negative News Mentions:
  • 1) TEL 2) MOS 3) CHTR 4) THRM 5) ADBE
Charts:

Bull Radar

Style Outperformer:
  • Large-Cap Value +.17%
Sector Outperformers:
  • 1) Computer Hardware +1.04% 2) Utilities +.79% 3) Internet +.72%
Stocks Rising on Unusual Volume:
  • MOVE, TK, AMAG, VIMC, EBAY, CTAS, CENX and INVN
Stocks With Unusual Call Option Activity:
  • 1) MTH 2) CORN 3) OWW 4) EBAY 5) DHR
Stocks With Most Positive News Mentions:
  • 1) JNJ 2) CNP 3) MOVE 4) AAPL 5) GOOG
Charts:

Tuesday Watch

Evening Headlines 
Bloomberg: 
  • Hong Kong Protesters Block Roads as Leaders Set Deadline. Tens of thousands of protesters filled streets in Hong Kong through the night to press for open elections and the resignation of Chief Executive Leung Chun-ying, as student leaders set an Oct. 1 deadline for their demands to be met. While their numbers had thinned this morning, demonstrators remained in the main protest area near government headquarters in the Admiralty district, as well as in Causeway Bay and Mong Kok. Main roads through the central business district remain closed and some bus routes have been suspended, the government said in a statement late yesterday.
  • Islamic State Shells Hit Turkey Amid Syria Border Fight. Turkish tanks deployed along the border with Syria as shells fired by Islamic State militants landed inside Turkey, injuring five people including two soldiers. One of the mortar shells hit near the border crossing of Mursitpinar, close to a group of journalists and Turkish security forces, CNN-Turk said. Another shell landed near a refugee camp, about a kilometer inside Turkey. Regular explosions and gunfire could be heard from Turkish territory as Turkish troops returned fire, state-run Anadolu Agency said. 
  • China Factory Gauge Falls From Initial Reading as Growth Slows. A Chinese manufacturing gauge fell from an initial reading a week ago as a property slump weighs on the world’s second-largest economy. The Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics for September was at 50.2, lower than the flash reading of 50.5 and unchanged from August. Numbers above 50 signal expansion.
  • Japan’s Output Unexpectedly Slumps as Retail Sales Rise. Japan’s output unexpectedly fell while stronger retail sales and an improving job market showed resilience in the world’s third-biggest economy as Prime Minister Shinzo Abe weighs another sales-tax increase. Industrial production declined 1.5 percent in August from July, compared with the median estimate of 31 economists surveyed by Bloomberg News for a 0.2 percent gain. Retail sales increased 1.9 percent from the previous month, as the jobless rate slid to 3.5 percent.
  • Asian Stocks Slide on Hong Kong as Kiwi Drops With Crude. Asian stocks fell, with the regional index headed for its biggest monthly drop since May last year amid concern over tensions in Hong Kong and after an unexpected decline in Japanese factory output. New Zealand’s dollar dropped to near a one-year low as crude oil declined. The MSCI Asia Pacific Index slipped 0.6 percent by 10:01 a.m. in Tokyo, pushing it down 5.1 percent in September. Japan’s Topix (TPX) index lost 0.9 percent, trimming its quarterly gain.
  • Iron Ore Heads for Record Run of Quarterly Losses as Glut Builds. Iron ore will complete a third straight quarterly decline today to post the longest losing run on record as a slowdown in China’s economy curbs demand growth in the largest buyer and worsens a global surplus. Ore with 62 percent content delivered to Qingdao, China lost 17 percent this quarter to $77.97 a dry metric ton, the lowest price since September 2009, according to data from Metal Bulletin Ltd. That follows a 19 percent drop between April and June and 13 percent retreat in the first three months. Thesteel-making ingredient is headed for the longest stretch of quarterly losses since the data series began in 2009.
  • Gluts Spur Investor Exit Signaling Prolonged Price Slumps. Investors are betting that the worst isn’t over for commodity prices that already are the lowest in five years. About $873 billion was pulled from U.S. exchange-traded products backed by raw materials this month, the most since April, data compiled by Bloomberg show. Expanding surpluses, a surging dollar and slowing growth in China helped send the Bloomberg Commodity Index to the lowest since 2009, reversing first-half gains fueled by a polar vortex and dead pigs in the U.S., and escalating tensions in Ukraine and the Middle East.
Wall Street Journal:  
  • China President Xi Jinping Faces Stark Choices Over Hong Kong Protests. Beijing Wary of Conjuring Memories of Tiananmen Square. Massive democracy rallies in Hong Kong have offered Chinese President Xi Jinping stark choices between concession and crackdown, either of which pose problems for his government—and his own political standing. Throughout the weekend and into Monday, protesters, mostly students, confronted police and halted business activity in parts of Hong Kong, and as dawn broke Tuesday remained spread along major thoroughfares. Police fired tear gas and pepper spray to disperse the thousands of students gathered outside government headquarters on Sunday, but the protesters regrouped and re-emerged in greater numbers, choking off roadways in the heart of the city.
  • The Obama-Military Divide. What should senior officers do if experience tells them that the president's plan to defeat ISIS is unworkable without U.S. combat troops?
CNBC:
Zero Hedge:
Business Insider: 
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -1.25% to unch. on average.
  • Asia Ex-Japan Investment Grade CDS Index 101.50 +2.5 basis points.
  • Asia Pacific Sovereign CDS Index 73.25 +4.0 basis points.
  • FTSE-100 futures -.02%.
  • S&P 500 futures -.03%.
  • NASDAQ 100 futures  -.04%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (WAG)/.74
Economic Releases
9:00 am EST
  • ISM Milwaukee for September is estimated to rise to 61.0 versus 59.63 in August.
  • S&P/CS 20 City MoM for July is estimated unch. versus a -.2% drop in June. 
9:45 am EST
  • Chicago Purchasing Manager for September is estimated to fall to 62.0 versus 64.3 in August.
10:00 am EST
  • Consumer Confidence for September is estimated to rise to 92.5 versus 92.4 in August.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The China Manufacturing PMI, German Unemployment Change, weekly US retail sales reports, (INTU) investor day, (MCO) investor day and the (TK) investor day 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 50% net long heading into the day.