Thursday Watch

Evening Headlines 
Bloomberg: 

• Germany Calls for Ukraine Peace Efforts as Tensions Mount. German Foreign Minister Frank-Walter Steinmeier said mounting tensions in eastern Ukraine raised the risk of a “major military confrontation.” Speaking after a day of shuttle diplomacy that took him to Moscow and Kiev, Steinmeier said yesterday he used his meeting with Russian President Vladimir Putin “for an exchange of views, which seriously differ” on Ukraine. 

• Medicine and Meat Out of Reach Amid Ukrainian Price Shock. From Lviv, near the Polish border, to Kharkiv, 1,000 kilometers (650 miles) east in Russia’s shadow, Ukrainians are grappling with the world’s worst-performing currency, inflation that’s rocketed to 20 percent and the worst recession in five years. The plight of Zhytomyr’s 270,000 residents shows how bailout-mandated austerity and the strains of an eight-month insurgency are playing out in everyday life.

• Distressed Debt in China? You Ain’t Seen Nothing Yet, Buyers Say. Bad debts in China are well underestimated because authorities persist in propping up weak companies and bailing out local investors, according to DAC Management LLC. The Chicago-based asset management and advisory firm, which focuses on distressed credit and special situations in China, says the worst is yet to come, and that means lots of opportunities for the world’s biggest distressed debt traders.

• China Wages Policy Backfires as Costs Prompt Sock-City Blues. Wages at Chen Fengying’s sock factory on China’s east coast have soared almost sixfold in seven years. The 20 percent increase she expects in 2015 may doom her seven-year-old company as profit and revenue fall. “If things go on like this, we’ll just close down,” said Chen from Zhuji in Zhejiang province, the so-called Sock City that produces 17 billion pairs annually, more than 35 percent of global production. “Many factories have already died.”

• Asian Stocks Retreat on Fed Minutes; Japan Shares Climb on Yen. Asian stocks fell a second day after Federal Reserve minutes showed some U.S. policy makers were concerned about low inflation. Shares in Japan gained as the yen weakened past 118 per dollar. The MSCI Asia Pacific Index (MXAP) lost 0.1 percent to 139.54 as of 9:04 a.m. in Tokyo after dropping 0.7 percent yesterday.

• Codelco Seen Trimming 2015 China Copper Premium Amid Surplus. Codelco, the world’s biggest copper producer, will reduce the fee it charges Chinese buyers by 4 percent next year amid waning demand and rising supplies, according to an executive at the country’s largest non-state trader of the metal. The charge for long-term supplies from the Chilean miner added to prices for immediate delivery on the London Metal Exchange will fall to $133 a metric ton from this year’s $138, Luo Shengzhang, vice president of Maike Metals Group, said yesterday at a conference in Shanghai. The spot premium for shipments to Shanghai, including insurance and freight, is now $60 a ton, compared with $135 in May and a record $210 in August 2013, according to data from SMM Information & Technology Co.

• Goldman(GS), Morgan Stanley(MS) Commodities Heyday Gone as Units Faulted. Congressional scrutiny of Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS)’s commodities businesses is another strain for units that already saw revenue drop by two-thirds from peak years.

Wall Street Journal: 

• Obama Sets Immigration Rollout for This Week. Moves, to Be Announced in Thursday Night Speech, Expected to Protect Millions From Deportation. President Barack Obama will lay out sweeping changes to the immigration system in a speech Thursday night, offering new protections to millions of people in the country illegally and sparking a bitter fight with Republicans.

• As Yen Slides, Investors Shun Other Asian Currencies. Regional Officials Fear Weaker Japanese Currency Could Hurt Competitiveness of Their Economies. Investors are shedding holdings of Korean won, Singapore dollars and other Asian currencies, in a bet the yen’s fall against the dollar will reverberate through the region’s foreign-exchange markets.

• Obama: The Hangover. The Gruber technocracy is a green sludge consuming the Democratic Party. Who can forget the Obama acceptance speech in 2008 on a football field in Denver, the nominee standing amid Greek columns and scrolling through a long list of goals to 84,000 Democrats? That was the high. Six years later, the Democrats get the hangover.

MarketWatch.com:

• Strains in Japan could put focus on debt. Naysayers have long worried the whole “Abenomics” experiment would end in tatters. And now Abe’s decision to delay the hike and call a snap election following the Japanese economy’s fall back into recession in the third quarter, has some observers worried of a possible strain between Kuroda and Abe.

CNBC: 

• None of the three networks plan to air Obama speech. President Barack Obama plans a major speech on immigration reform Thursday night, and none of the three major networks plan to cover it.

• Goldman(GS) accused of exploiting aluminum storage rules. (video) In a voluminous new report reflecting two years of research, an influential Senate panel accuses Goldman Sachs of manipulating aluminum storage rules in order to line its own pockets, even as manufacturers and customers suffered.

Zero Hedge:

• Santelli Goes Ballistic: "I Feel Like I'm Living In A Cartoon". (video)

• Japanese Trade Deficit Streak Hits Record 44 Months, Yen & Stocks Decoupling. (graph)

• 21 Facts That Prove That Government Dependence Is Out Of Control In America.

• Why Japan’s Money Printing Madness Matters. (graph)

• Why Japan Needs A 'Strong' Yen. (graph)

• Fed Warning Sends Small Caps Red For 2014. (graph)

• Is This The Chart That The World Should Be Watching Closest? (graph)

• The Eurozone's QE Problem.

• China Manufacturing PMI Misses, Slides To 6 Month Lows. (graph)

Business Insider:

• Firefox Dumps Google For Yahoo(YHOO).

• Russia Is Moving Combat Aircraft To The Ukrainian Border.

NY Times: 

• Arizona Sues G.M. for $3 Billion Over Recalls. The attorney general of Arizona said on Wednesday that the state had filed suit against General Motors, claiming that the automaker had defrauded the state’s consumers of an estimated $3 billion.

Reuters: 

• Salesforce(CRM) 2016 revenue forecast misses market estimates. Cloud software company Salesforce.com Inc forecast revenue for the current quarter and full year 2016 that fell short of market expectations, hurt by a strong dollar. Shares of Salesforce, which gets about 30 percent of its revenue from outside Americas, were down 4.5 percent in extended trading on Wednesday. The world's biggest maker of online sales software said it expected revenue of $6.45 billion to $6.5 billion for the year ending January 2016, missing analysts' average estimate of $6.66 billion.

• More U.S. borrowers fall behind on their car loans in 3rd qtr. The amount of U.S. borrowers that were at least two months behind on their car loan payments jumped sharply in the third quarter, according to a report on Wednesday from Experian Automotive. The 60-day delinquency rate for U.S. auto loans rose nearly 9 percent to 0.62 percent in the third quarter from the same period in 2013.

Financial Times:

• China and Russia in naval co-operation vow. China and Russia have vowed to strengthen bilateral military co-operation and hold joint naval exercises to counter US influence in the Asia-Pacific region as a growing chorus of voices warns of a looming “new cold war”.

Shanghai Securities News:

• China Should Cut 'Excessive' Expansion of Investment. China should reduce "excessive" expansion of investments and improve their efficiency to ensure sustainable economic growth, according to an article written by Xu Ce and Wang Yuan from the National Development and Reform Commission. China should reform performance assessment of local govts and reduce shadow banking, the article said.

Evening Recommendations

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 105.50 unch.

• Asia Pacific Sovereign CDS Index 64.5 +1.0 basis point.

• FTSE-100 futures -.16%.

• S&P 500 futures -.20%.

• NASDAQ 100 futures  -.12%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (DLTR)/.64

• (PDCO)/.51

• (PLCE)/1.80

• (BBY)/.25

• (ROST)/.87

• (GPS)/.73

• (ZOES)/.03

• (ADSK)/.22

• (GME)/.61

• (INTU)/-.20

• (TFM)/.28

• (SPLK)/.00 

Economic Releases
8:30 am EST

• The CPI for October is estimated to fall -.1% versus a +.1% gain in September.

• The CPI Ex Food & Energy for October is estimated to rise +.1% versus a +.1% gain in September.

• Initial jobless Claims are estimated to fall to 284K versus 290K the prior week.

• Continuing Claims are estimated to fall to 2370K versus 2392K prior.

9:45 am EST

• Preliminary Markit US Manufacturing PMI for November is estimated to rise to 56.3 versus 55.9 in October.

10:00 am EST

• Philly Fed for November is estimated to fall to 18.5 versus 20.7 in October.

• Existing Home Sales for October are estimated to fall to 5.15M versus 5.17M in September.

• The Leading Index for October is estimated to rise +.6% versus a +.8% gain in September.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Williams speaking, Fed's Tarullo speaking, weekly EIA natural gas inventory report, Bloomberg Economic Expectations Index for November, weekly Bloomberg Consumer Comfort Index, Canaccord Medical Tech/Diagnostics Forum, Goldman Emerging/SMID-Cap Growth Conference and the (INTC) investor meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and industrial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

Stocks Lower into Final Hour on Global Growth Fears, Fed Rate Hike Concerns, Technical Selling, Technology/Healthcare Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 14.29 +3.1%

• Euro/Yen Carry Return Index 154.27 +.86%

• Emerging Markets Currency Volatility(VXY) 8.0 +.6%

• S&P 500 Implied Correlation 39.85 +7.69%

• ISE Sentiment Index 87.0 -17.14%

• Total Put/Call .95 +9.2%

• NYSE Arms .86 +13.09% 

Credit Investor Angst:

• North American Investment Grade CDS Index 67.05 -.2%

• European Financial Sector CDS Index 67.58 -.5%

• Western Europe Sovereign Debt CDS Index 32.17 +4.38%
• Asia Pacific Sovereign Debt CDS Index 64.15 +.81%

• Emerging Market CDS Index 277.96 -2.35%

• China Blended Corporate Spread Index 325.50 +.65%
• 2-Year Swap Spread 21.25 unch.

• TED Spread 21.75 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -9.25 unch.

Economic Gauges:

• 3-Month T-Bill Yield .01% unch.

• Yield Curve 183.0 +1.0 basis point

• China Import Iron Ore Spot $70.20/Metric Tonne -2.23%

• Citi US Economic Surprise Index 10.60 +.1 point
• Citi Eurozone Economic Surprise Index -15.0 +.7 point

• Citi Emerging Markets Economic Surprise Index -1.10 +1.1 points

• 10-Year TIPS Spread 1.84 -2.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating +115 open in Japan

• DAX Futures: Indicating +2 open in Germany

Portfolio: 

• Slightly Higher: On gains in my retail sector longs and index hedges

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

• Market Exposure: Moved to 25% Net Long

Today's Headlines

Bloomberg:

• Russia deflects Ukraine blame after Germany pushes for talks. Russia's foreign minister Wednesday blamed the conflict in Ukraine on other countries' efforts to increase their security since the collapse of the Soviet Union. A day after Russia and Ukraine clashed over how to move toward a new cease-fire agreement, Russian Foreign Minister Sergei Lavrov said the United States and the European Union had repeatedly "torpedoed" peace efforts. Ukraine, the European Union and the U.S. blame President Vladimir Putin for supporting pro-Russian separatists and stoking a conflict that has killed more than 4,100 people, according to United Nations estimates. "Throughout the Ukrainian crisis our country has consistently sought to help Ukraine to overcome this difficult period in its history," Lavrov said in the Russian lower house of parliament. "Russia can't stand by and watch what's happening in a neighboring fraternal country."

• As Ruble Falls Even Teeth Cost Too Much to Fix. In Rostov-on-Don, a Russian port city of 1.1 million people just east of the Ukrainian border, signs of the fallout from the ruble’s collapse are everywhere.

• Kuroda Says Onus on Lawmakers to Tackle Debt After Abe Tax Delay. Bank of Japan chief Haruhiko Kuroda emphasized the onus is on the government to strengthen its finances after Prime Minister Shinzo Abe postponed a sales-tax hike and outlined plans to boost fiscal stimulus.

• Iron Ore Extends Bear Market as Miner Says ‘We Are Price Takers’. Iron ore tumbled to the lowest in more than five years as declining home prices in China added to concern a slowdown in the top buyer will deepen, exacerbating a glut. Producers’ shares fell in London, and Australia’s BC Iron Ltd. (BCI) said that miners had to take the prices on offer.

• European Stocks Are Little Changed as Miners Fall. European stocks slipped from a seven-week high, with commodity producers falling and Greek shares rising, before the release of minutes from the Federal Reserve’s last policy meeting. The Stoxx Europe 600 Index slipped less than 0.1 percent to 339.15 at the close of trading, after sliding as much as 0.3 percent and gaining 0.3 percent earlier. Miners fell posted the biggest declines among 19 industry groups, while Greece’s ASE Index rallied 4.2 percent, the most in almost a month, for the biggest increase among 18 western-European markets.

• Junk-Bond Banking Boom Peaks as Firms Drop off Deal List. The explosion of brokers plowing into the lucrative junk-bond underwriting business may be fading. The number of firms managing U.S. high-yield bond sales isn’t growing for the first year since 2008, according to data compiled by Bloomberg. The ranks will likely thin in upcoming years as yields rise, making it more expensive for speculative-grade companies to borrow, according to Charles Peabody, a banking analyst at research firm Portales Partners LLC in New York. “You’re going to see fewer and fewer deals,” he said in a telephone interview. “Underwriting volumes are probably going to decline from here and you’re going to see more of a consolidation or exodus.”

Wall Street Journal:

• With Wary Eye on Global Tumult, Fed Opted to Stay on Policy Path for Now. Minutes Show Officials Conflicted Over Domestic Economic Improvement and Troubles Abroad. Federal Reserve officials were preoccupied at an October policy meeting with tumult in financial markets, weak economic conditions abroad and risks that low inflation could drift lower. But they forged ahead with a decision to end the central bank’s bond-buying program because the domestic economy and labor market appeared to be on course for further improvement.

ZeroHedge:

• Stunning Photos Of Record Snow Covering Upstate New York: 100 Total Inches Of Snow Expected.

• America Throws Up Over Obama's Immigration Executive Action Even Before It Is Announced.

• President Obama To Dictate Immigration Executive Order In Vegas On Friday.

• Bank Of Japan Warns Abe Over "Fiscal Responsibility" While Monetizing All Its Debt.

• Homebuilder Hope Hammered As Housing Starts Tumble. (graph)

• Crashing Steel Prices Lead To Largest Chinese Bankruptcy, "Will Be Followed By Others". (graph)

• Fed Hints It Won't Bail Out Stocks Next Time.

Business Insider:

• POLL: Just 38% Of Americans Want Obama To Take Executive Action On Immigration.

Washington Examiner:

• $weet dreams: Obama billed taxpayers $295,227 to fly home to 'sleep in his own bed'. In what a taxpayer watchdog group called an unusual abuse, President Obama’s decision over Labor Day to fly home from New York to sleep in his own bed instead of overnighting and then attending the New York wedding of his chef cost Americans $295,227.

Newsweek:

• Tiny Baltic States Prepare to Hit Back at Mighty Russia.

Reuters:

• S&P sounds warning on Chinese property sector, Russian banks. Credit rating agency Standard and Poor's said on Wednesday that China's over-priced and over-supplied property market and capital-starved Russian banks were likely to face further downgrades in the coming years. In two new emerging market-focused reports, S&P said Chinese property ratings were likely to be hit more than other large markets in Asia, while like in Russia banks in Turkey, South Africa and Brazil also faced difficulties. S&P said in the property report that ratings in Asia would have "a negative bias" next year because of an expected fall in Chinese and Hong Kong house prices. The property sector accounts for more than 15 percent of China's annual economic output, banks provide much of the financing for building and buying, so a prolonged downturn poses possibly the biggest risk to the world's second-largest economy. "Continuing sluggish sales, rising financing cost, and declining access to funding will hit smaller (Chinese) regional players...as a result, we may see further downgrades, and even defaults, at the lower end of our rating spectrum," S&P said.

MNI:

• Chinese Govt Against Benchmark Interest Rate Cut. Government is reluctant to cut rates, prefers to use current strategy of lowering financing costs through "undercover" market operations, citing person with knowledge of the matter. Leadership's policy tone is "targeted," aiming to maintain growth in reasonable range, the person said.

Bear Radar

Style Underperformer:

• Small-Cap Value -.93%

Sector Underperformers:

• 1) HMOs -1.65% 2) Steel -1.58% 3) Computer Hardware -1.21%

Stocks Falling on Unusual Volume:

• CSTM, CLVS, LEJU, SNCR, VIPS, BHI, OME, BTE, HAL, DG, RCAP, INXN, VRTU, ICUI, KFY, MOV, SWIR, BBL, EZCH, CLD, GLT, IMOS, BBW, AEIS, BOKF and AEIS

Stocks With Unusual Put Option Activity:

• 1) KMX 2) DISH 3) MET 4) HYG 5) MCD

Stocks With Most Negative News Mentions:

• 1) BBRY 2) TOO 3) SNCR 4) TSLA 5) CLF
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Value -.52%

Sector Outperformers:

• 1) Retail +.64% 2) Foods +.23% 3) Biotech +.18%
  

Stocks Rising on Unusual Volume:

• OPLK, DL, DISH, AGIO, SSI, TGT, SPLS, RCPT, MAC, Z, LOW, CLDX, RUBI, TGT, LZB, NGL, IPI, TRLA and RCPT

Stocks With Unusual Call Option Activity:

• 1) DGX 2) K 3) SIRI 4) MYL 5) MDLZ
  

Stocks With Most Positive News Mentions:

• 1) PETM  2) LOW 3) DSW 4) MOS 5) TGT
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume