Today's Headlines

Bloomberg:  

• Rousseff Rout Still Leaving Ibovespa Overvalued to UBS. For all the stock declines investors have seen in Brazil under President Dilma Rousseff, her re-election means there’s more losses in store before equities look attractive to UBS AG and USAA Investment Management Co. After Brazil entered a recession this year and inflation soared past the top end of policy makers’ target, the Ibovespa is trading at a seven-month low of 9.8 times forecast earnings. Stocks won’t be attractive until valuations fall to about 8 times, according to UBS and USAA. The Ibovespa lost 5 percent today at 11 a.m. in Sao Paulo, poised for the biggest drop since 2011 and leaving the index set to enter a bear market. 
• Petrobras Leads Emerging-Market Losses After Rousseff’s Win. Petroleo Brasileiro SA (PETR4) fell the most in six years as President Dilma Rousseff’s re-election dashed hopes of repealing price and project restrictions that have made it the world’s most-indebted oil producer. The shares tumbled 13 percent to 14.11 reais at 3:13 p.m. in Sao Paulo, leading losses on the MSCI Emerging Markets Index, which retreated 0.7 percent. Petrobras, as Rio de Janeiro-based Petroleo Brasileiro is known, now trades at 6.3 times its forecast earnings, the cheapest since March. “Today’s losses may get worse in the next few days,” Sandro Fernandes, a trader at brokerage firm Geraldo Correa, said in a phone interview from Belo Horizonte, Brazil. “Shares may move closer to 12 reais soon.”
• China Fake Invoice Evidence Mounts as HK Figures Diverge. The gap between China’s reported exports to Hong Kong and the territory’s imports from the mainland widened in September to the most this year, suggesting fake export-invoicing is again inflating China’s trade data. China recorded $1.56 of exports to Hong Kong last month for every $1 in imports Hong Kong registered, leading to a $13.5 billion difference, based on government data compiled by Bloomberg. Hong Kong’s imports from China climbed 5.5 percent from a year earlier to $24.1 billion, figures showed yesterday; China’s exports to Hong Kong surged 34 percent to $37.6 billion, according to mainland data on Oct. 13. 
• Europe Stocks Drop with Italian Lenders Amid ECB Stimulus. A slide in Italy’s lenders sent European stocks lower, after their best weekly jump of the year, as investors weighed stress-test results and central-bank stimulus measures. The Stoxx Europe 600 Index fell 0.6 percent to 325.1 at the close of trading in London, paring a decline of as much as 1.1 percent as the European Central Bank said it settled more than 1.7 billion euros ($2.2 billion) of covered-bond purchases last week. A gauge of lenders lost 1.7 percent, reversing a gain of 1.4 percent this morning, as Banca Monte dei Paschi di Siena SpA sank the most since at least 1999.
• Commodities Drop to Five-Year Low Led by Gasoline, Sugar. Commodities slumped to a five-year low led by gasoline and agriculture products grown in Brazil on speculation a slump in the country’s currency will fuel exports. The Bloomberg Commodity Index dropped 0.6 percent at 1:56 p.m. in London after falling to the lowest since July 2009. Raw sugar futures fell 1.6 percent and soybeans dropped 0.4 percent. Brazil is the biggest exporter of both commodities.
• Five-Year-Old Boy Being Tested for Ebola in New York; Has Fever, in Isolation. (video)
• IMF Sees Risk of Plunge in GCC Surplus Amid Oil Decline. Gulf Cooperation Council countries may see their current-account surplus decline by $175 billion next year if oil prices stay about $80 a barrel, according to the International Monetary Fund. The projected surplus for the six GCC countries may plunge from $275 billion to about $100 billion next year, Masood Ahmed, director of the Middle East and Central Asia department at the IMF, said in an interview in Dubai. The extended drop in prices would also “translate into an 8 percent reduction in the fiscal revenues of the GCC as a whole,” he said.
• Junk Market Stressed by Fed Stress Test as Banks Cut Debt. When the Federal Reserve examines the trading books of the world’s largest banks, regulators may find surprisingly little exposure to one risky market: junk bonds. Wall Street’s biggest debt dealers have been dumping speculative-grade securities at the fastest pace on record ahead of annual stress tests by the Fed. They reduced their holdings by 68 percent in the week ended Oct. 15 as the market posted losses of 1.5 percent that week alone, according to data released by the Fed last week.

Wall Street Journal:

• Tesla(TSLA) Unveils Lower-Cost Lease Program. Electric-Car Maker Looks to Lift Sagging U.S. Sales Through New Incentives. Tesla Motors Inc. is offering sales incentives on its $71,000 and up Model S electric sedan, promising to lower the lease price of the sedan by 25% and to give buyers 90 days to return a vehicle if they are unhappy with it. The move comes amid a sales decline in the U.S. for the Palo Alto, Calif.-based Tesla. The auto maker sold 10,335 Model S sedans through September, down 26% from the first nine months in 2014, according to WardsAuto.com, an industry publication that closely tracks sales and production.
• UBS Executive: Sanctions Pain on Russia Has Only Just Begun. There’s been little progress resolving the Ukraine crisis, and Russia’s pain from sanctions could be just beginning. Russian President Vladimir Putin and Western leaders are trading blame over continued bloodshed in Eastern Ukraine. And German Chancellor Angela Merkel said Friday that sanctions against Russia would stay in place.

CNBC: 

• Short this ‘cult stock’? Trader's case against Tesla(TSLA). (video)
• Cheap mortgages could fuel credit bubble: Ex-Bear Stearns CEO. Moves to boost the U.S. housing market could fuel the next credit bubble, warned Alan Schwartz, the former head of Bear Stearns, which collapsed during the 2008 subprime mortgage crisis.

ZeroHedge:

• Can't Find Any Inflation? Here's A Place To Start. (graph)
• In Historic Shift, NATO-Member Poland Is Moving Thousands Of Troops To Its Eastern Border.
• Copper Surges After Report Mysterious London Buyer Has Cornered Up To 90% Of Market. (graph)
• Pentagon To Quarantine Troops Returning From West Africa For 21 Days.
• We Don't Have One Problem - We Have Three Interlocking Sets Of Problems.
• ECB Bought Just EUR1.7 Billion Covered-Bonds Last Week.
• Pending Home Sales Disappoint As 15% of Realtors Report Clients Unable To Obtain Financing. (graph)
• Service PMI Slides To 6 Month Low, Implies Slide In Q3 GDP To 2.5%; Ebola, Ukraine Blamed. (graph)
• When Stress Tests Fail - Italian Banks Are Collapsing. (graph)

Business Insider:

• Obama Is Getting Slammed For His 'Goldilocks Approach' To ISIS And Syria.

Telegraph: 

• Why Germany's households are more fragile than you think. Stress tests on Europe's households show a severe economic shock would hurt Germany more than France. 
• Stock markets threatened by collapse in Chinese consumer demand. A shocking slump in Chinese consumer demand will undermine World economic growth and stock markets. 

Market Business News:

• German business sentiment plunges to 2 year low, says Ifo Institute. Business sentiment in Germany hit a nearly two-year low after sliding for six consecutive months. The prestigious Munich-based think tank, the Ifo Institute, reported on Monday that its Ifo Business Climate Index for industry and trade in Germany slid in October to 103.2 points, compared to 104.7 in September. The news put a dampener on the initial surge in European bank share prices on Monday following Sunday’s publication of the ECB and EBA stress test results. Not only did expectations of the current business situation in the country fall, but predictions for the next six months turned more negative too. “The outlook for the German economy deteriorated once again,” Ifo wrote.

Channel News Asia:

• Australia suspends immigration from Ebola-hit nations.

Bear Radar

Style Underperformer:

• Small-Cap Growth -.62%

Sector Underperformers:

• 1) Steel -4.01% 2) Oil Service -3.70% 3) Oil Tankers -3.43%

Stocks Falling on Unusual Volume:

• TSLA, AKBA, SRPT, VNDA, TEN, PBR, HLSS, CVTI, LYB, ITUB, JONE, CVLT, BBD, SODA, BYI, ASPS, CPL, FTK, BLUE, WLK, SNY, B, FI, SLB, OXY, SN, OXY, WTW, FET, NOG and MXWL

Stocks With Unusual Put Option Activity:

• 1) TGT 2) COH 3) M 4) BWLD 5) TWTR

Stocks With Most Negative News Mentions:

• 1) TSLA 2) SRPT 3) BAC 4) HAL 5) PTEN
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Growth -.41%

Sector Outperformers:

• 1) Airlines +.38% 2) Computer Hardware +.33% 3) Restaurants +.28%
  

Stocks Rising on Unusual Volume:

• RNA and RGLS

Stocks With Unusual Call Option Activity:

• 1) RMD 2) SRPT 3) SGMS 4) GME 5) MRK

Stocks With Most Positive News Mentions:

• 1) WMB  2) T 3) STX 4) GOOG 5) RGLS
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Monday Watch

Weekend Headlines 
Bloomberg:

• Israel’s Lapid Says Relations With U.S. in ‘Crisis'. Israeli Finance Minister Yair Lapid told a gathering in Tel Aviv today that relations between Israel and the U.S. are in a “crisis.” The administration of President Barack Obama blocked some senior officials, including Vice President Joe Biden, from meeting with Israeli Defense Minister Moshe Ya’alon during his recent visit to the U.S., Ynet website reported yesterday. The decision was meant to signal displeasure with Ya’alon’s criticism of U.S. efforts to reach an Israeli-Palestinian peace agreement and Obama’s policy on Iran, the website reported. “There is a crisis with the Americans and it has to be treated like a crisis,” Lapid said, according to comments relayed in an e-mail by his spokesman. “Relations with the U.S. are critical and important to Israel, and everything must be done to resolve the crisis and restore good ties.” Lapid didn’t mention Ya’alon in his comments.

• Rousseff Re-Elected on Call to Save Brazil’s Social Gains. Brazil’s President Dilma Rousseff won re-election and stretched her Workers’ Party’s rule to a record 16 years by convincing voters her opponent threatened social gains she pledged to expand in her second term. Rousseff, who has maintained record-low unemployment even as the economy posted the slowest growth under any Brazilian president in more than two decades, had 52 percent of the vote with 99.99 percent of ballots counted by the electoral court in Brasilia. Senator Aecio Neves, a former governor of Minas Gerais state, had 48 percent. The result was the closest presidential election since the return of democracy in 1985.

• Brazil Stock ETF Tumbles in Tokyo on Rousseff’s Victory. An exchange-traded fund investing in Brazilian equities plunged the most in three years in Tokyo after President Dilma Rousseff won re-election, damping speculation for a change in policies that have wiped out $553 billion of stock market value and left the economy in recession. The NEXT FUNDS Ibovespa Linked ETF (1325) dropped 6.3 percent at 10:06 a.m. in Tokyo, heading for the biggest drop since September 2011.

• Iran Hangs Woman at Center of Amnesty Group Campaign. Iranian authorities executed a woman found guilty of murder despite a campaign by rights group Amnesty International to have her sentence overturned on grounds that the investigation had been “deeply flawed.” Reyhaneh Jabbari, 26, was hanged yesterday, state-run Islamic Republic News Agency reported, citing Tehran’s prosecutor’s office.

• EU Stress Test Shows How Capital Rules Give Room to Hide. The European Union’s toughest-ever stress test was meant to leave banks with nowhere to hide. The results show how the bloc’s capital rules got in the way. A total of 24 lenders failed the European Banking Authority’s stress test with a capital shortfall of 24.6 billion euros ($31.2 billion). The EBA used EU rules as applicable over the three-year horizon of the test. These give national supervisors scope to allow banks to count instruments whose eligibility as core capital will be gradually eliminated over the next four years.

• Italy Banks Emerge as Biggest Losers in ECB Health Check. Italian banks showed the largest combined capital shortfall in the European Central Bank’s review of the region’s lenders as the country struggles to emerge from its third recession in six years. Banca Monte dei Paschi di Siena SpA, Italy’s third-largest lender, emerged with a capital gap of 2.1 billion euros ($2.7 billion) while Banca Carige SpA (CRG) must replenish 814 million euros of capital after taking into account funds raised this year, the ECB said in a statement today. Of the nine Italian banks that failed a stress test, four still showed holes after measures they took this year, according to the ECB’s report.

• Pro-EU Parties Set to Dominate New Ukrainian Parliament. Pro-European parties are set to control Ukraine’s parliament and form a coalition government after trouncing the Russian-leaning political forces popular in the nation’s war-torn east.

• Russia Brain Drain Saps Talent as Sanctions Hit Financing. “Russian venture-capital funds want to invest their money only in Russia, but we want to build an international business and they won’t support us,” Kulizhnikov, a former analyst at investment firm Alor SPB, said at a forum at Moscow’s Digital October center on Oct. 10. “We don’t need that much. Maybe $5 million to $10 million, to hire engineers, specialists, etc.” 

• China Stocks Head for Longest 2014 Losing Streak on Link Delay. China’s stocks fell for a fifth day, sending the benchmark index toward its longest losing streak this year, amid concern the delay to the start of the Hong Kong-Shanghai bourse link will sap demand for shares. Citic Securities Co. and Haitong Securities Co., the nation’s biggest-listed brokerages, dropped more than 2 percent in Shanghai and Hong Kong. Hong Kong Exchanges & Clearing Ltd. plunged 4.6 percent after Charles Li, the chief executive officer of the bourse operator, said he had no idea when authorities will give the green light to proceed on the link. Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. slid to a three-month low after third-quarter profit dropped. The Shanghai Composite Index (SHCOMP) slid 0.7 percent to 2,285.66 at 9:53 a.m., while the Hang Seng China Enterprises Index (HSCEI) declined 1 percent.

• Asia Stocks Rise as ECB Stress Tests Ease Europe Concern. Asian stocks rose, after the regional benchmark gauge capped its first weekly advance in seven weeks, as a stress test passed by most European banks added to signs of recovery in the region. The MSCI Asia Pacific Index (MXAP) gained 0.5 percent to 138.22 as of 9:01 a.m. in Tokyo, the highest intraday level since Oct. 10, before markets opened in Hong Kong and China.

• Goldman(GS) Cuts Brent, WTI Forecast as Production to Outpace Demand. Goldman Sachs Group Inc. (GS) cut its forecasts for Brent and West Texas Intermediate crude prices next year and said OPEC was losing its pricing power as U.S. shale oil output increases. Brent will average $85 a barrel in the first quarter, down from a previous forecast of $100 a barrel, and WTI will sell for $75 a barrel in the period, from an earlier estimate of $90 a barrel, analysts including Jeffrey Currie wrote in a report. 

• Copper to Nickel Drop on Concern China’s Demand Remains Subdued. Copper retreated for a second day and nickel extended its longest weekly slump in 13 years on concern that demand will remain weak in China, the world’s biggest consumer of industrial metals. Copper in London fell as much as 0.5 percent and nickel slid as much as 0.7 percent. China’s economic growth will slow to 7.2 percent in the current quarter, Song Guoqing, an academic member of the People’s Bank of China monetary policy advisory committee, said on Oct. 25. The second-biggest economy in the world may expand 7.3 percent next year, according to Song. China set the 2014 growth target at 7.5 percent.

• S&P 500 Rising at Five Times GDP Shows Recovery Priced In. For almost six years, one of the most powerful bull markets on record has coexisted with the weakest economic recovery since World War II. This month’s selloff in stocks shows how much investors want that to change. In the latest fit of nerves, market volatility soared to a three-year high and the Standard & Poor’s 500 Index dropped as much as 9.8 percent in the 26 days ending Oct. 15. Everything from Ebola to Europe and the Federal Reserve were blamed for the retreat, the fourth to exceed 3 percent this year. Another explanation is that investors are finding their patience taxed after waiting five years for economic growth to catch up with the market. From March 2009 through June 2014, the S&P 500 has increased 4.7 percent a quarter, about five times faster than gross domestic product, data compiled by Bloomberg show. That’s the biggest gap since at least 1947.

• Apple(AAPL) Pay Face Challenge as CVS, Rite Aid Reject System. Apple Inc. (AAPL)’s bid to replace the consumer wallet with its mobile payment system ran into a roadblock as CVS Health Corp. (CVS) and Rite Aid Corp. (RAD) disabled the technology in their drugstores.

Wall Street Journal: 

• Christie Defends Mandatory Ebola Quarantine for Health-Care Workers. But Administration’s Fauci Says Quarantines Send Wrong Message. The White House pushed back against the governors of New York, New Jersey, Illinois and other states that instituted procedures to forcibly quarantine medical workers returning from West Africa, deepening an emotional debate brought on by recent Ebola cases in the U.S. A senior administration official said Sunday that new federal guidelines under development would protect Americans from imported cases of the disease but not interfere with the flow of U.S. health workers to and from West Africa to fight the epidemic there.

• New Alarm Sounds in U.S. Over ‘Lone Wolf’ Attacks. New York Hatchet Attack Shows Danger of Self-Radicalized Terrorists. New York City’s top counterterrorism official went to Florida last week to warn a group of police chiefs about the growing threat of self-radicalized terrorists. Back home in New York on Thursday, a 32-year-old man provided Exhibit A, attacking two police officers with a hatchet before he was shot and killed by police. At first glance, the attack outside a Queens department store seemed simply the act of a deranged man acting alone. But to a growing number of local and national law-enforcement officials, the attack...

• Darker Global Outlook Has Bond Bears Hibernating. Weak Data Lead Investors to Rethink Likelihood of Bond-Market Downturn. 

• The Incredibility Infection. The White House objects to the state quarantines its own failures invited. So the Obama Administration is pressuring the Governors of New York and New Jersey behind the scenes to reverse their decision on Friday to impose a mandatory quarantine on health workers returning from treating Ebola patients in West Africa. Well, if it weren’t for the Administration’s incompetence in handling Ebola risks on U.S. soil, maybe the state leaders wouldn’t have felt they had to take matters into their own hands.

Barron's:

• Hedge Funds’ Assets Rise, Even as Gains Fall. One hope for the industry: mutual funds that invest in hedge funds.

Fox News:

• Report details torture of ISIS hostages before beheadings. (video)

Zero Hedge:

• Putin Warns Of Risk Of Major Conflict, Says Dollar Losing Reserve Currency Status.

• The Farce Of European Stocks (In 1 Simple Chart).

• 5 Things To Ponder: To QE Or Not To QE.

• Deutsche Bank Lawyer And Former SEC Enforcement Attorney Found Dead In Apparent Suicide.

• "Whatever We Decide Is A Disaster For Us" France Admits Putin Is Winning, Europe "Blinked". (video)

• On The Coming Collapse Of Copper.

• New York Fed's Conference Evokes Violent Thoughts Against Wall Street.

• NYC Ebola Patient's Condition Worsens As Fiancee Returns Home.

• On Europe (Or The 28 Stooges).

• The Growing Concern Of Home-Grown Terrorists.

• The Failure Of The Fed's 'Wealth Creation' Mandate (In 1 Simple Chart).

• Hillary: "Business Does Not Create Jobs", Washington Does.

• ECB Announces Stress Test Results: Here Are The 25 Banks That Failed.

• "They Just Want The Money!" The IRS Can Now Seize Accounts On Suspicion Alone.

• Are We Ready For The Fall Of Baghdad?

• The Scariest Number Revealed Today: $1.114 Trillion In Eurozone Bad Debt.

• The Chart That Crushes All Credibility Of The ECB's Latest Stress Test.

Business Insider:

• Larry Page Is Taking A Big Step Back At Google(GOOG) To See The 'Bigger Picture,' And Sundar Pichai Is Getting A Lot More Responsibility.

• The Single Most Important Risk To Stock Market Investors.

• There Are Now 10,000 People Who Have Been Sickened By Ebola. The death toll from the Ebola epidemic rose to 4,922 out of 10,141 known cases in eight countries through Oct. 23, the World Health Organization (WHO) said on Saturday.

• The Earnings Outlook For America's Energy Giants Has Collapsed.

• Investors Aren't Buying The Amazon(AMZN) Fairy Tale Anymore.

• 7 Things The Middle Class Can't Afford Anymore.

• 13 European Banks Don't Have Enough Money To Survive A Financial Crisis.

• Harvard Study: Here's Why The Chinese Economy Can't Defy The Odds Forever.

• REALITY CHECK: Eurozone Debt Looks Unsustainable.

• Russia Will Be Plunged Into A Recession If Oil Prices Fall Further.

Spiegel:

• Merkel Annoyed by CEOs Wanting to Ease Russia Sanctions. German Chancellor Angela Merkel is "irritated" by DAX CEOs calling to try to loosen EU sanctions against Russia, citing people close to the events.

Financial News:

• China Won't Loosen Monetary Policy Comprehensively. Overall monetary policy easing is not an option for the central government now as the debt problem could hinder economic restructuring, according to a commentary written by reporter Xu Shaofeng.

Night Trading

• Asian indices are -.50% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 115.0 unch.

• Asia Pacific Sovereign CDS Index 67.75 -.25 basis point.

• FTSE-100 futures +.44%.

• S&P 500 futures +.09%.

• NASDAQ 100 futures +.19%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AWI)/.78

• (MRK)/.88

• (STX)/1.25

• (ADVS)/.36

• (AMGN)/2.11

• (AVB)/2.13

• (BWLD)/1.07

• (CLF)/.02

• (HIG)/.83

• (MSTR)/-.26

• (TWTR)/.01

Economic Releases
9:45 am EST

• The Preliminary Markit US Services PMI for October is estimated to fall to 57.8 versus 58.9 in September.

10:00 am EST

• Pending Home Sales for September are estimated to rise +1.0% versus a -1.0% decline in August.

10:30 am EST

• Dallas Fed Manufacturing Activity for October is estimated to rise to 11.0 versus 10.8 in September.

Upcoming Splits

• None of note

Other Potential Market Movers

• The German IFO and the (SCHW) business update 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 higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the week.

Weekly Outlook

Week Ahead by Bloomberg. 
Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on Ebola fears, global growth worries, rising European/Emerging Markets debt angst, technical selling, profit-taking and yen strength. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 50% net long heading into the week.