Thursday Watch

Evening Headlines

Bloomberg:

• Curse of Asia Witching Hour Haunts Currencies After Pound Crash. In the global currency market, the darkest hour comes just as dawn is breaking in Asia. Between the New York close and the start of trading in Tokyo, foreign-exchange volumes dwindle to just 2 percent of peak turnover, according to Aite Group, a consultant in Boston. As a result, any transaction in that two-hour window will hit the market disproportionately hard.
• Asia Shares Mixed Amid Earnings as Oil Holds Near Three-Week Low. Asian shares were mixed in early trading as investors assessed earnings reports from companies including Samsung Electronics Co. and Bank of China Ltd. following a pullback in oil prices and dollar gains. About the same number of shares rose as fell on the MSCI Asia Pacific Index, while U.S. and U.K. equity index futures declined. The MSCI Asia Pacific Index was down 0.2 percent as of 9:23 a.m. Tokyo time, headed for its lowest close in more than a week.
• Oil Trades Near 3-Week Low as U.S. Gulf, East Coast Supply Rises. Oil traded near a three-week low below $50 a barrel as U.S. East and Gulf coast crude stockpiles rose along with production.
• Recession Risk Is Rising, Deutsche’s Chief U.S. Economist Warns. Standard measures of the U.S. labor market look pretty good. The unemployment rate is low, and job growth has been steady. But one indicator is flashing signs of fragility. It's an important one, too: The Federal Reserve's Labor Market Conditions Index. After falling just three times from 2012 to 2015, the index has fallen every month of 2016 except for one, July. And in July the annual change in the LMCI, from July 2015, turned negative.

Fox News: 

• Fox News Poll: Clinton leads Trump by three points. (video)

CNBC:

• Julian Robertson says Clinton presidency is 'a tragedy that is going to happen'. (video)

Zero Hedge:

• RNC Chair Priebus Slams State's Failure As "Obama Cover-Up To Protect Hillary".
• 'It's Apocalyptic, Our Town Is Finished" - Two Quakes Strikes Italy, Collapsing Buildings And Causing Panic.
• "We Are Late In The Game": David Rosenberg On The Market's Flashing Red Signs.
• Bitcoin Soars As China Launches Crackdown On Wealth-Management Products. (graph)
• Tesla(TSLA) Earnings Smash Expectations After Dramatic Change In Reporting Methodology.
• ObamaCare Architect Admits "The Law Is Working As Designed" As Premiums Spike.
• Snapchat To Raise Up To $4 Billion In IPO, Valuing Company As Much As $40 Billion.
• Stocks Pump'n'Dump As Crude Crumbles To 3-Week Lows. (graph)

Business Insider:

• 'Things are not good': Republicans may be on the verge of losing their Senate majority.

Night Trading 

• Asian equity indices are -.25% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 112.25 -2.5 basis points. 
• Asia Pacific Sovereign CDS Index 33.5 -.25 basis point.
• Bloomberg Emerging Markets Currency Index 72.23 -.09%. 
• S&P 500 futures -.12%. 
• NASDAQ 100 futures -.09%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (AET)/2.03
• (APD)/1.98
• (ALXN)/1.17
• (MO)/.81
• (AMT)/1.31
• (BWA)/.77
• (BMY)/.65
• (CELG)/1.48
• (CBG)/.50
• (CLF)/.19
• (CME)/1.04
• (CL)/.73
• (COP)/-.69
• (DOW)/.79
• (F)/.21
• (LLL)/1.82
• (IP)/.93
• (HCA)/1.42
• (POT)/.08
• (TWTR)/.09
• (SUP)/.36
• (SWK)/1.62
• (SEE)/.69
• (RTN)/1.64
• (PX)/1.40
• (UPS)/1.44
• (AFL)/1.74
• (GOOG)/8.61
• (AMZN)/.81
• (AMGN)/2.79
• (BIDU)/1.11
• (DECK)/1.19
• (EXPE)/2.47
• (LNKD)/.91
• (MCK)/3.05
• (OII)/.16
• (WYNN)/.74
• (YRCW)/.50

Economic Releases
8:30 am EST

• Preliminary Durable Goods Orders for September are estimated unch. versus a +.1% gain in August.
• Preliminary Durables Ex Transports for September are estimated to rise +.2% versus a -.2% decline in August.
• Preliminary Cap Goods Orders Non-Defense Ex-Air for September are estimated to fall -.1% versus a +.9% gain in August. 
• Initial Jobless Claims are estimated to fall to 255K versus 260K the prior week.
• Continuing Claims are estimated to fall to 2052K versus 2057K prior.

10:00 am EST

• Pending Home Sales MoM for September are estimated to rise +1.1% versus a -2.4% decline in August. 

11:00 am EST

• Kansas City Fed Manufacturing Activity for October is estimated to fall to 3.0 versus 6.0 in September.
  

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Japan's Core CPI report, $28B 7Y T-Note auction, weekly Bloomberg Consumer Comfort Index and the weekly EIA natural gas inventory report could also impact trading today.

BOTTOM LINE:  Asian indices are mostly higher, boosted by consumer and metals & mining 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 Slightly Lower into Final Hour on Rising European/Emerging Markets/US High-Yield Debt Angst, Earnings Outlook Worries, Oil Decline, Transport/Medical Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Slightly Above Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 14.55 +8.1%

• Euro/Yen Carry Return Index 119.07 +.44%

• Emerging Markets Currency Volatility(VXY) 9.42 +.21%

• S&P 500 Implied Correlation 47.83 +13.42%

• ISE Sentiment Index 105.0 unch.
  

• Total Put/Call .90 -8.16%

• NYSE Arms .70 -42.48% 

Credit Investor Angst:

• North American Investment Grade CDS Index 75.29 +1.31%
  

• America Energy Sector High-Yield CDS Index 537.0 +2.28%

• European Financial Sector CDS Index 95.61 +1.17%

• Western Europe Sovereign Debt CDS Index 18.41 +1.74%

• Asia Pacific Sovereign Debt CDS Index 33.55 +.12%

• Emerging Market CDS Index 233.68 +1.65%
  

• iBoxx Offshore RMB China Corporate High Yield Index 132.55 +.02%

• 2-Year Swap Spread 22.50 -.5 basis point

• TED Spread 55.25 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -43.0 +1.0 basis point
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.28 -.44%
• 3-Month T-Bill Yield .32% -1.0 basis point

• Yield Curve 92.0 +1.0 basis point
  

• China Import Iron Ore Spot $63.07/Metric Tonne +1.79%

• Citi US Economic Surprise Index -10.9 +2.2 points

• Citi Eurozone Economic Surprise Index 35.5 -.2 point

• Citi Emerging Markets Economic Surprise Index -15.90 +1.5 points

• 10-Year TIPS Spread 1.73% +3.0 basis points
• 70.9% chance of Fed rate hike at Dec. 14 meeting, 72.7% chance at Feb. 1 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -11 open in Japan 
• China A50 Futures: Indicating -3 open in China

• DAX Futures: Indicating -31 open in Germany

Portfolio: 

• Slightly Higher: On gains in my index hedges and emerging markets shorts

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:

• Losses Accelerate for Europe Stocks on Earnings Disappointments. (video) European shares slid for a third day on growing worries about the health of the region’s companies as energy producers suffered from declines in oil prices. Losses worsened in the Stoxx Europe 600 Index, which dropped the most in more than a week, as firms from Bayer AG to builder Vinci SA reported disappointing earnings. Antofagasta Plc led miners down after forecasting a slide in copper production next year, while energy producers including BP Plc and Royal Dutch Shell Plc slipped with oil. Real estate companies fell the most since Oct. 6, and other bond proxies suffered, as debt yields climbed. Most industry groups in the Stoxx 600 fell, with the gauge dropping as much as 0.9 percent before closing down 0.4 percent as oil pared its losses.
• Oil Retreats Below $50 on OPEC Output Deal Concerns. (video)
• Big Oil Braces for Profit Pain as Refining Safety Net Slips. The world’s biggest oil companies, supported during crude’s collapse by a buoyant refining business, have lost that buffer as brimming fuel stockpiles swamp demand. Profits from turning oil into gasoline and diesel contracted 42 percent last quarter from a year earlier to an average $11.60 a barrel, the weakest for the time of year since 2010, industry data from BP Plc show. The impact of that will be apparent as earnings for the period roll in over the coming weeks.
• Wall Street CEO Could Become Unwanted Job If Watchdog Gets Way. If a U.S. government watchdog has her way, Wall Street banks could find it very difficult to persuade anyone to sit in the chief executive officer’s chair. Christy Goldsmith Romero, the special inspector general of the Troubled Asset Relief Program, wants Congress to require chiefs of the largest U.S. banks to sign an annual pledge promising that no criminal or civil fraud has occurred under their watch. If after learning about fraud at their banks CEOs still sign the pledge, they could more easily face consequences such as going to prison. That pledge would ostensibly eliminate protections that top executives typically enjoy because they may not know what happens at lower levels of the bank, and would make it easier for law enforcement to prove criminal intent when misconduct occurs, according to Romero’s proposal. It’s unlikely a divided Congress would approve such an aggressive approach.

Wall Street Journal:

• Fed’s Harker Shows Willingness to Challenge Prevailing Views. Philadelphia Fed leader will have a vote on the U.S. central bank’s rate-setting committee next year.

Fox News:

• 'Bill Clinton Inc.': Email details how top aides helped make ex-president rich. (video) One of Bill Clinton’s closest confidants outlined in a lengthy 2011 memo how he and another aide helped secure at least $50 million in speaking fees and other ventures for the former president – in addition to raising “the bulk” of funds for the controversial Clinton Foundation. The 12-page memo from Doug Band, released Wednesday by WikiLeaks, was designed to highlight the crucial role he – and his global strategy company Teneo – played in procuring money for the ex-president and Clinton’s namesake foundation.

CNBC:

• Hillary Clinton's Victory Prize: Congressional Investigations. (video)
• Bank of America Merrill Lynch downgrades General Motors(GM) on 'peak auto' fears.

Zero Hedge:

• Is Britain Destroying Its Military To Appease Enemies?
• Chinese Bank Liabilities Rise Above 200 Trillion Yuan For The First Time. (graph)
• Indiana Voter Database "Riddled With Errors" Including 1,000s Of Dead Voters And Duplicate Registrations.
• Rents Are Too Damn High: NYC Retail Vacancies Soar As Commercial Rents Start To Rollover.
• Earnings 'Magic' Exposed.
• Bank of England Asks UK Banks To Detail Their Exposure To Deutsche And Italian Banks.
• The Boredom Before The Storm. (graph)
• Deutsche Bank(DB) Probing "Misstated" Derivative Valuations After Finding "Divergences".
• Clinton Campaign Chair Had Dinner With Top DOJ Official One Day After Hillary's Benghazi Hearing.
• New Home Sales Rise But Miss After Dramatic Downward Revision. (graph)
• Services PMI Spikes To 11-Month Highs But Employers Remain "Cautious On Hiring". (graph)
• "Obama Calls Obamacare Disaster 'A Starter Home', Republicans Should Be The Bulldozer".
• Wall Street Reacts To Apple's(AAPL) Disappointing Earnings.
• Wikileaks Celebrates Hillary Clinton's Birthday By Releasing Another 1,500 Podesta Emails; Total Is Now 33,042.
• Wholesale Inventories Growth Weakest Since 2010 Even As Auto Stocks Soar. (graph)

Business Insider:

• Donald Trump is leading in a new poll in Florida for the first time in almost a month.
• Here's how much Obamacare premiums are going up in every state.
• A former hedge fund quant is exposing the dark side of our growing dependence on algorithms.
• The ruble is diving.

Bear Radar

Style Underperformer:

• Small-Cap Growth -1.2%

Sector Underperformers:

• 1) Coal -3.6% 2) Hospitals -3.3% 3) Medical Equipment -2.5%

Stocks Falling on Unusual Volume: 

• IART, EW, ABMD, NUVA, DPLO, ABAX, LUV, COLL, DY, BTI, UA, CMG, WOOF, PNRA, CYNO, AVY, EXAS, LH, RMD, GRUB, INGN, CNI, ALLY, P, SPG, CY, MASI, HES, PTC, POL, RRC, QTS, PZZA, ALLY, RNG, DYN, WYN, AMP, AVY and WMGI

Stocks With Unusual Put Option Activity:

• 1) COG 2) SWN 3) BSX 4) SHLD 5) IEF

Stocks With Most Negative News Mentions:

• 1) NUVA 2) CHK 3) CMG 4) UA 5) LOW

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value -.1%

Sector Outperformers:

• 1) Computer Hardware +2.3% 2) Networking +1.8% 3) Defense +1.1%

Stocks Rising on Unusual Volume:

• LOGI, AKAM, DXPE, IRBT, NCR, UIS, OI, JNPR, LEA, FLIR, TSS, HBAN and ROL

Stocks With Unusual Call Option Activity:

• 1) LUV 2) MJN 3) GRPN 4) EXC 5) ETE

Stocks With Most Positive News Mentions:

• 1) AKAM 2) NCR 3) JNPR 4) VMC 5) STLD

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +14.8% Above 100-Day Average
• 4 Sectors Rising, 6 Sectors Declining
• 44.5% of Issues Advancing, 52.0% Declining
• 37 New 52-Week Highs, 30 New Lows
• 54.3% of Issues Above 200-day Moving Average
• Average 14-Day RSI 37.4%
• Vix 13.9 +3.3%
• Total Put/Call .84 -14.3%
• TRIN/Arms .72 -39.6%