Friday Watch

Evening Headlines

Bloomberg:

• Is China Repeating Japan’s Missteps? Beijing may seem dynamic, but it’s heading down a path we’ve seen before. China and Japan may seem to inhabit alternative economic universes. After more than two decades of stagnation, Japan is a fading global power that can’t seem to revive its fortunes no matter what unorthodox gimmicks it tries. By contrast, China’s ascent to superpower status appears relentless as it gains wealth, technology, and ambition.
• IMF Knocks on Doors in Quest for Intelligence on Chinese Banks. As part of the International Monetary Fund’s biggest review of China’s banking system in half a decade, a top official recently did some detective work that didn’t involve an Excel spreadsheet. On a trip to the mega-city of Chongqing in the nation’s interior, Ratna Sahay, acting director of the IMF’s Monetary and Capital Markets Department, visited a property fair. Her objective was to learn more about typical real-estate sales transactions, amid rising risks of property bubbles across the world’s No. 2 economy. After talking with developers, she came away with mixed feelings.
• Billionaire Wang Purchases Dick Clark Productions for $1 Billion.
• It’s Not Just Trump Casting Political Cloud Over Southeast Asia. Foreign investors pulled out of Thailand stocks at the fastest pace this year in October. The Philippine peso has sunk close to levels last traded during the global financial crisis. Malaysia’s currency is also in a funk. The common denominator is heightened political risk -- from President Rodrigo Duterte’s stinging attacks on the U.S. and his violent crackdown on crime in the Philippines to the death of King Bhumibol Adulyadej in Thailand that’s removed an anchor of stability in the country. Malaysian Prime Minister Najib Razak, meanwhile, is embroiled in a funding scandal that’s being investigated by authorities around the world.
• Japanese Households in the Era of Abe and Kuroda. Equity holdings have grown but pay and consumption have stalled.
• Asian Stocks Extend Pre-Vote Slide as Crude Oil Trades Below $45. The MSCI Asia Pacific Index fell 0.7 percent as of 9:24 a.m. Tokyo time, with all 10 industry groups losing ground. Japan’s Topix index sank 1.3 percent from Wednesday’s close.

Wall Street Journal:

• Generic-Drug Makers’ Shares Drop on Report of Possible Probe. Endo, Teva, Mylan and others see stock fall after talk of possible price collusion.

Fox News:

• Fox News Electoral Scorecard: Key states tilting toward Trump after FBI's October surprise. (video)

CNBC:

• GoPro shares plunge more than 20% after brutal quarterly results. (video)
• Fitch puts Deutsche Bank(DB) rating on negative watch.

Zero Hedge:

• AP To Clinton Campaign: We Are Preparing To Report FBI Has Thumb Drive, But Can Be Steered Away.
• FBI Agents: Hillary Is The "Antichrist Personified".
• NYC Homelessness Surges To The "Highest Levels Since The Great Depression".
• Latest WikiLeaks Dump Includes Full List Of Fees From Clinton Global Initiative Donors.
• Goldman(GS) Launches ETF Replicating Top Hedge Fund Positions, There Is Just One Problem. (graph)
• Nigel Farage Warns Of Untold "Public Anger" After UK High Court Decision As Deutsche Now Sees 2017 Elections.
• 3 Things: Gross-ly Wrong, Math Of Loss, S&P Warning.
• "Someone Is Wrong" - Why The Quant War Means Vol Is Set To Soar.
•  VIXplosion Slams Stocks To Longest Losing Streak Since Lehman. (graph)

Business Insider: 

• The tide is starting to turn for Donald Trump in a state that looked lost.
• Starbucks(SBUX) jumps as revenue tops estimates.

Reuters:

• U.S. lawmakers call for probe of possible insulin price collusion. Two prominent U.S. lawmakers called on federal antitrust regulators on Thursday to probe whether Sanofi, Eli Lilly, Merck & Co and Novo Nordisk may have colluded to set the prices for insulin.

Night Trading 

• Asian equity indices are -1.25% to -.5% on average.
• Asia Ex-Japan Investment Grade CDS Index 118.75 +.25 basis point. 
• Asia Pacific Sovereign CDS Index 36.25 unch.
• Bloomberg Emerging Markets Currency Index 72.18 -.06%. 
• S&P 500 futures +.12%. 
• NASDAQ 100 futures +.07%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (AES)/.33
• (DUK)/1.58
• (HUM)/3.15
• (REGN)/2.70
• (SNH)/.46
• (WLH)/.34
• (BRK/B)/3056.76

Economic Releases
8:30 am EST

• The Trade Deficit for September is estimated at -$38.0B versus -$40.7B in August.   
• The Change in Non-Farm Payrolls for October is estimated to rise to 175K versus 156K in September.
• The Unemployment Rate for October is estimated to fall to 4.9% versus 5.0% in September.
• Average Hourly Earnings MoM for October is estimated to rise +.3% versus a +.2% gain in September.    

Upcoming Splits 

• (ICE) 5-for-1

Other Potential Market Movers

• The Fed's Fischer speaking, Fed's Lockhart speaking, Fed's Kaplan speaking, Eurozone Services PMI report and the (FAST) October sales report could also impact trading today.

BOTTOM LINE:  Asian indices are lower, weighed down by industrial and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

Stocks Reversing Lower into Final Hour on Election Uncertainty, Earnings Outlook Concerns, Oil Decline, Biotech/Gaming 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) 21.5 +11.1%

• Euro/Yen Carry Return Index 119.49 -.21%

• Emerging Markets Currency Volatility(VXY) 10.5 -.66%

• S&P 500 Implied Correlation 69.37 +8.04%

• ISE Sentiment Index 50.o +2.0%
  

• Total Put/Call 1.12 +16.42%

• NYSE Arms .79 -38.96% 

Credit Investor Angst:

• North American Investment Grade CDS Index 79.90 +.06%
  

• America Energy Sector High-Yield CDS Index 612.28 -.72%

• European Financial Sector CDS Index 99.23 -1.93%

• Western Europe Sovereign Debt CDS Index 19.05 -1.60%

• Asia Pacific Sovereign Debt CDS Index 36.37 +.55%

• Emerging Market CDS Index 251.75 -.51%
  

• iBoxx Offshore RMB China Corporate High Yield Index 132.59 +.04%

• 2-Year Swap Spread 23.75 +.5 basis point

• TED Spread 52.0 -1.25 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -45.0 +.25 basis point
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.22 +.1%
• 3-Month T-Bill Yield .37% +1.0 basis point

• Yield Curve 100.0 +2.0 basis points
  

• China Import Iron Ore Spot $65.46/Metric Tonne +.23%

• Citi US Economic Surprise Index -13.10 -3.1 points

• Citi Eurozone Economic Surprise Index 43.5 -1.9 points

• Citi Emerging Markets Economic Surprise Index -3.20 +1.7 points

• 10-Year TIPS Spread 1.69% -2.0 basis points
• 78.0% chance of Fed rate hike at Dec. 14 meeting, 79.4% chance at Feb. 1 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -135 open in Japan 
• China A50 Futures: Indicating -24 open in China

• DAX Futures: Indicating -17 open in Germany

Portfolio: 

• Slightly Higher: On gains in my medical sector longs, index hedges and emerging markets shorts

• Disclosed Trades: None

• Market Exposure: 25% Net Long

Today's Headlines

Bloomberg:

• China May Be Set for a Shock Fall in Foreign-Exchange Reserves. Brace yourself. Beijing was embroiled in a spate of frenzied dollar-selling last month as capital outflows and a depreciating yuan saw foreign-exchange reserves tumble by $80 billion, resuming 2015's sharp declines in the country's monetary war chest after a period of relative stability between February and September this year. 
• European Shares Close Unchanged After Worst Losing Run Since ’14. (video) European stocks suffered a late selloff but still manged to halt their longest losing streak in two years amid some better-than-expected earnings from the region’s banks, and as a U.K. ruling sparked optimism the nation’s split from the European Union won’t be as harsh as feared. The Stoxx Europe 600 Index closed virtually unchanged. The equity gauge earlier rose as much as 0.8 percent after judges decided the U.K. has to hold a vote in Parliament before starting the two-year countdown to Brexit, a decision that the government said it will appeal. Shares pared gains after data showed orders for U.S. business equipment fell in September by the most in seven months, and service industries expanded less than projected.
• Prepare for the North Sea Oil Flood. Oil producers in the North Sea, home to one of the world’s key crude-price benchmarks, are poised to ship the most crude in more than four years. The surge takes place just as OPEC tries to contain a global surplus with coordinated output cuts. Shipments of North Sea grades will increase 10 percent month-on-month to about 2.16 million barrels a day in December, according to data compiled by Bloomberg. If all the cargoes load as planned it would mark the most crude oil shipments from the region since May 2012. The increase just from September, when there was field maintenance, would be almost 360,000 barrels a day. The surge poses yet another challenge to the Organization of Petroleum Exporting Countries as it seeks to curb production to steady markets in a world with plenty of oil. 
• Kurds Reveal Oil Data as Iraq Output Row Threatens OPEC Deal. Iraq’s Kurds say their oil production in September was 290,000 barrels a day lower than the federal government’s figures for the semi-autonomous region, as OPEC’s second-biggest member tries to resolve accounting differences with the producer group over its output. Iraq’s central government says its crude oil output is several hundred thousand barrels a day higher than market analysts and the Organization of Petroleum Exporting Countries acknowledge. It published a rare breakdown of its September production data this week to support its figures. The disagreement over the figures, which would determine the size of any cuts by OPEC members, threatens to derail talks to limit the group’s output.
• Trump Gives Betting Markets That Brexit Feeling.

Wall Street Journal:

• China Slowdown Deepens Looming Pension Crisis. Shortfall most threatens struggling industrial areas, where retirees’ hopes are dimming.

Fox News:

• Sources: 99 percent chance foreign intel agencies breached Clinton server. (video)

CNBC:

• 'Fool's' monetary policy helped create Donald Trump, says ex-Fed president Fisher. Unconventional monetary policy that has squeezed the middle class helps explain Donald Trump's improbable political journey, according to former Dallas Fed President Richard Fisher. Looking at the current political situation causes Fisher to "weep for my country," the ex-central bank official said last week in a speech to the Urban Land Institute's fall conference.
• DOJ examining role of over 12 generic drug makers; Charges to be filed by year end: Report.

Zero Hedge:

• The FBI's White Collar Crime Unit Is Probing The Clinton Foundation.
• A Warning About Market Liquidity From Interactive Brokers.
• Equity Derivatives Flash Brexit-Like "Panic Signal". (graph)
• China Prepares To Impose Curbs, "Capital Controls" On Bitcoin.
• Secret Recordings Fueled Mutinous FBI Investigation of Clintons Despite DOJ Orders To "Stand Down".
• More Collusion With Donna Brazile Revealed As Hillary Campaign Sought Advice On Prepared Debate Answers.
• WTI Plunges Back To $44 Handle As CS Warns Of Contango "Big Red Flag". (graph)
• US Factory Orders Rise YoY For First Time In 2 Years, But Down 17% From Highs. (graph)
• US Services Economy Slips From August Spike: "Employment Growth Remains Weakest In 3 Years".
• Podesta Files Part 27: Wikileaks Releases Another 1,100 Emails, Total Is Now 44,218.
• Initial Jobless Claims Jump Most Since May To 3-Month Highs. (graph)
• US Productivity Prints Consecutive YoY Declines For First Time In 23 Years. (graph)
• More Signs Of The "Strong US Consumer" Emerge As Auto Repossessions Soar. (graph)
• BOE Keeps Rates Unchanged, Drops Guidance To Further Rate Cuts, GBP Jumps.

Business Insider:

• Report: FBI had secret recordings of suspect talking about alleged deals Clintons made.
• Elon Musk thinks we need a 'popular uprising' against the fossil fuel industry.
• One hedge fund laid out why the market feels so dangerous right now.
• The drug pricing debate is starting to hurt the entire pharmaceutical industry.
• Traders are seeing a big red flag for oil.

China Business News:

• China GDP Growth May Slow to 6.6% in 4Q, Researcher Says. GDP growth may slow due to property controls, citing Zhu Baoliang, researcher at State Information Center backed by NDRC.

Bear Radar

Style Underperformer:

• Large-Cap Growth -.5%

Sector Underperformers:

• 1) Gaming -2.8% 2) Alt Energy -1.4% 3) Restaurants -1.1%

Stocks Falling on Unusual Volume: 

• DPLO, THS, WING, AXL, FNHC, FSLR, HSTM, HTLF, ACIW, ONCE, SFM, AKRX, BLUE, ACLS, PRFT, PMC, XOXO, RXN, FB, CHD, ICPT, LIVN, CF, CTL, XEC, AGN, EEP, GDDY, PAA, PAGP, MPW, TCAP, RDUS, AIG, VWR, CTL, HII, BLUE, MUSA, ANSS, CLDT, ACIW, ACET, TPC, MGNX, ALNY, GBT, WYNN, ICPT, BEAT, RXN, ANIP, FSLR, PMC and ONCE

Stocks With Unusual Put Option Activity:

• 1) FSLR 2) XBI 3) XLK 4) EEM 5) FB

Stocks With Most Negative News Mentions:

• 1) FIT 2) RUBI 3) FSLR 4) CVS 5) TSLA

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Value -.1%

Sector Outperformers:

• 1) Gold & Silver +2.1% 2) Tobacco +1.1% 3) Computer Services +.7%

Stocks Rising on Unusual Volume:

• MPG, IQNT, MSCC, LOPE, ITRI, INOV, TTWO, TX, XPO, QGEN, HOLX, CCRN, CAR, PEGA, NXTM, WPX, FMC, MRO, IT, LPI, NGVT, COMM, KTWO and LNC

Stocks With Unusual Call Option Activity:

• 1) EA 2) OPK 3) FIT 4) THC 5) AIG

Stocks With Most Positive News Mentions:

• 1) ITRI 2) LC 3) TTWO 4) HOLX 5) QGEN

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +9.0% Above 100-Day Average
• 4 Sectors Rising, 6 Sectors Declining
• 53.7% of Issues Advancing, 42.7% Declining
• 14 New 52-Week Highs, 68 New Lows
• 45.4% of Issues Above 200-day Moving Average
• Average 14-Day RSI 32.5%
• Vix 19.43 +.57%
• Total Put/Call 1.17 -12.7%
• TRIN/Arms .65 -49.4%