Thursday Watch

Evening Headlines

Bloomberg:

• Japan’s Trade Recovery Powers Ahead With Strong September Growth. (video) Japanese exports grew by double digits for a third straight month in September, as a trade recovery underway this year showed no signs of letting up.

• Australian Unemployment Unexpectedly Drops on East-Coast Hiring. (video) Australian unemployment unexpectedly dropped in September after a burst of hiring in the two most populous states.

• Profits Buoy Equities as Bonds Drop, Dollar Swings. A solid U.S. earnings season is coinciding with higher chances of the Federal Reserve lifting borrowing costs by the end of this year. More than 80 percent of the 52 members of the S&P 500 Index that have already reported earnings for the most recent quarter beat analysts’ forecasts. Fed funds futures indicate a roughly 80 percent chance that U.S. policy makers will raise rates at their December meeting, up from 72 percent Friday. By then, President Donald Trump may have announced his choice for the next Fed chair, a decision that’s expected in the next two weeks. Japan’s Topix index rose 0.3 percent as of 9:18 a.m. in Tokyo. Australia’s S&P/ASX 200 Index added 0.2 percent as did South Korea’s Kospi index. Contracts on Hong Kong’s Hang Seng Index were 0.3 percent higher.

• Five Things You Need to Know to Start Your Day. (video)

• Iraq Turmoil Threatens Billions in Oil Trader Deals With Kurds. The crisis unfolding around the Iraqi city of Kirkuk has left some of the world’s largest commodity trading houses worried the country’s autonomous Kurdish region will struggle to repay billions of dollars in cash-for-oil loans. The approximately $3.5 billion in debts were going to be met with the roughly 500,000 to 600,000 barrels a day of crude that the northern region of Iraq was pumping, according to people familiar with the information, asking not to be named discussing private information. But output has now collapsed to about half that level after the federal government in Baghdad recaptured some oilfields that the Kurds seized in 2014.

• Alcoa(AA) Sees Aluminum Market Balancing as China Cuts Start to Bite. Alcoa Corp. sees Chinese cuts in aluminum production returning the global market to “relative balance” as the Asian nation’s supply-side reforms begin to bite. The largest U.S. aluminum producer reduced its global surplus forecast for the lightweight metal this year as China appears to be holding to its promise to curb capacity to meet pollution-control targets.

• JPMorgan(JPM) Executive Is Named to Run SEC Trading and Markets Unit. A JPMorgan Chase & Co. executive was picked to run the Securities and Exchange Commission unit that regulates U.S. stock markets and Wall Street brokerages. Brett Redfearn, head of market structure at the New York-based bank, will oversee the SEC’s trading and markets division, according to a statement from the regulator Wednesday. Bloomberg News broke the news earlier. The position has been open since January.

Wall Street Journal:

• For ISIS, Losing Territory Means Losing Revenue. The terror group’s ability to make money from taxes and oil sales is taking a hit with its battlefield defeats.

Fox News:

• Sanders slams Dem rep's criticism of Trump call to Army widow: 'Appalling and disgusting'. (video)

• George Soros transfers $18 billion to his liberal philanthropic foundation.

CNBC:

• Tax reform failure could cost the market anywhere from 4 to 10 percent, strategist says. (video)

• 'Everyone should stand for the national anthem,' NFL Commissioner Goodell says.

• Gilead(GILD) gains 4% after FDA approves lymphoma drug.

• GE(GE) expected to release plan to cut thousands of corporate-level jobs: WSJ.

• American Express(AXP) earnings: $1.50 per share vs $1.48 EPS expected. (video)

• Adobe(ADBE) shares jump more than 5 percent on 2018 profit forecast.

Zero Hedge:

• FBI Informant "Threatened" After Offering Details Linking Clinton Foundation To Russian Bribery Case.

• "Doing Better Each Day" - Missing Vegas Massacre Security Guard Resurfaces... 

• "This Is Very Rare" - Apple Slashes iPhone 8 Supplier Orders By 50% As Demand Dries Up.

• LAPD Gets Approval To Unleash Drone Program As Protesters Take To The Streets.

• FBI Reports 61% Surge In "Felonious" Cop Killings Year Over Year.

• The Scandalous Truth About Obamacare Is Laid Bare.

• Catalan Leader Vows To Declare Independence If Spain Triggers "Nuclear Option".

• Big Blue Blasts Dow To (Another) New Record High As Chinese Yield Curve Inverts. (graph)

Night Trading 

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

• Asia Ex-Japan Investment Grade CDS Index 76.25 -1.0 basis point. 

• Asia Pacific Sovereign CDS Index 16.25 unch.

• Bloomberg Emerging Markets Currency Index 73.67 +.01%.

• S&P 500 futures unch.

• NASDAQ 100 futures -.05%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (ADS)/5.04

• (BBT)/.78

• (BX)/.55

• (BK)/.92

• (DHR)/.95

• (DOV)/1.12

• (GPC)/1.28

• (KEY)/.35

• (NUE)/.79

• (NVR)/36.07

• (PM)/1.38

• (POOL)/1.16

• (PPG)/1.53

• (DGX)/1.36

• (SAP)/1.01

• (SNA)/2.42

• (TSM)/3.41

• (TXT)/.62

• (TRV)/.37

• (VZ)/.98

• (ETFC)/.51

• (ISRG)/1.99

• (MXIM)/.56

• (PYPL)/.43

• (WERN)/.32

Economic Releases 
8:30 am EST

• Initial Jobless Claims for last week are estimated to fall to 240K versus 243K the prior week.

• Continuing Claims are estimated to rise to 1890K versus 1889K prior.

• The Philly Fed Business Outlook Index for October is estimated to fall to 22.0 versus 23.8 in September.

10:00 am EST

• The Leading Index for September is estimated to rise +.1% versus a +.4% gain in August.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Australia Unemployment report, China GDP/Retail Sales/Industrial Production reports, Bloomberg Economic Expectations Index for October, 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 industrial and technology shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher.  The Portfolio is 100% net long heading into the day.

Stocks Higher into Final Hour on Tax Reform Hopes, Earnings Optimism, Yen Weakness, Tech/Retail Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• Volatility(VIX) 10.03 -2.72%

• Euro/Yen Carry Return Index 138.92 +.93%

• Emerging Markets Currency Volatility(VXY) 8.02 -1.72%

• S&P 500 Implied Correlation 15.02 -9.35%

• ISE Sentiment Index 109.0 -5.2%
  

• Total Put/Call .91 +8.3%

• NYSE Arms 1.07 +15.1%

Credit Investor Angst:

• North American Investment Grade CDS Index 53.60 -.78%
  

• America Energy Sector High-Yield CDS Index 388.0 +.15%

• European Financial Sector CDS Index 59.45 +1.48%

• Western Europe Sovereign Debt CDS Index 5.06 -1.17%

• Asia Pacific Sovereign Debt CDS Index 16.17 -.49%

• Emerging Market CDS Index 174.65 -.66%
  

• iBoxx Offshore RMB China Corporate High Yield Index 144.44 +.02%

• 2-Year Swap Spread 24.75 -.75 basis point

• TED Spread 26.75 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -38.0 +1.0 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 73.70 -.05%
• 3-Month T-Bill Yield 1.09% +1.0 basis point
  

• Yield Curve 78.0 +3.0 basis points

• China Import Iron Ore Spot $62.72/Metric Tonne unch.

• Citi US Economic Surprise Index .20 -6.1 points

• Citi Eurozone Economic Surprise Index 53.90 -.1 point

• Citi Emerging Markets Economic Surprise Index 18.20 +.3 basis point

• 10-Year TIPS Spread 1.86 +3.0 basis points
  
• 83.9% chance of Fed rate hike at Dec. 13 meeting, 84.5% chance at Jan. 31 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +112 open in Japan 
• China A50 Futures: Indicating +19 open in China

• DAX Futures: Indicating +3 open in Germany

Portfolio: 

• Higher: On gains in my retail/tech/medical sector longs

• Disclosed Trades: None

• Market Exposure: 100% Net Long

Today's Headlines

Bloomberg: 

• Xi Skips Old Growth Pledge as China Seeks Quality, Not Quantity. (video) Chinese President Xi Jinping has quietly dropped a commitment made by his predecessor to double the size of his nation’s economy. In 2012, former President Hu Jintao pledged China will "double its 2010 gross domestic product and per capita income for both urban and rural residents" by 2020, which dictated a roughly 6.5 percent annual growth pace through that decade. Today, instead of re-iterating that goal, Xi has replaced it with a much vaguer commitment that China will stick to previous requirements, which included building a "moderately prosperous society" by 2020.

• Hours After Xi’s Speech, It Looks Like China Is Buying Stocks. (video) The Shanghai Composite Index ended 0.3 percent higher, despite almost three stocks falling for each that rose. The gauge reached its session high in the final five minutes of trading as the two largest-weighted members -- Industrial & Commercial Bank of China Ltd. and PetroChina Co. -- extended gains to more than 2 percent. Late-afternoon buying in large-cap companies during events of national importance has been a hallmark of suspected government intervention in recent years.

• Party On, Chinese Consumers.

• This Company’s Robots Are Making Everything—and Reshaping the World.

• Your Evening Briefing.

• No. 3 GOP Senator Joins Those Opening Door to Tax Revamp in 2018. (video) Senator John Thune, the third-ranking Republican and a member of the tax-writing Finance Committee, said complicated rules and procedures in his chamber could delay a tax bill until 2018. “The Senate is a very unpredictable place,” Thune said Wednesday during a Bloomberg TV interview. “One thing I can tell you is whether it gets done at the end of the year or sometime into next year, it will be done in this congressional cycle.”

Wall Street Journal:

• Trump Signals Opposition to Bipartisan Health-Care Deal. President’s tweet comes after he called Sen. Alexander to voice encouragement.

• Machines Took Over the Stock Market. Next Up, Bonds. Banks unleash new trading software systems in effort to pick up share of $6 trillion corporate-debt market.

• China’s Xi Feeds Expectations for a Lengthy Reign. In opening speech at twice-a-decade party congress, 64-year-old president sets fresh goal for 2035.

• Most U.S. States Aren’t Prepared For the Next Recession. Just 16 states have adequate backup money on hand, according to a new Moody’s Analytics analysis.

Fox News:

• Maryland shooting: 3 dead, 2 in critical condition in 'targeted attack'.

• Sessions clashes with Franken over Russia claim: 'Give me a break'. (video)

CNBC:

• US economy hums along, still few signs of pickup in inflation: Fed.

• Back to the future: A visual tour of the Dow 30 index.

• Watch: NFL Commissioner Roger Goodell holds a press conference amid national anthem controversy. (video)

• The NFL ratings drop is worth it for the players' right to protest, says a top sports agent. (video)

• Trump pitches GOP tax cuts to reluctant Democrats. (video)

• European markets close higher as third-quarter earnings roll in; Rio Tinto down 3%.

Zero Hedge:

• Missing Vegas Massacre Security Guard Resurfaces...

• Senate Launches Probe Into Russian Nuclear Bribery Case That Netted Clintons Millions.

• Is Bitcoin A Tower Of Monetary Babel?

• The 7 Key Takeaways From Xi Jinping's Vision For "A New Era" In China.

• The State Of Illinois Is "Past The Point Of No Return".

• Trump Dossier Creators 'Plead Da Fif' During House Intel Hearings.

• WTI/RBOB Slide After US Crude Production Crashes Most In Over 5 Years. (graph)

• Bitcoin Tumbles Most In A Month On CFTC ICO Anxiety, South Korea Tax Concerns.

• US-German Bond Spread Surges To Highest Since 1999. (graph)

• Housing Starts, Permits Collapse In September (Spoiler Alert: It Wasn't Just The Storms). (graph)

• Small-Caps Seeing Historic Squeeze. (graph)

• In Tweetstorm, Trump Slams Comey Who "Lied And Leaked And Protected Hillary Clinton", Rips NFL, Democrats.

• Head of MI5: UK Facing Most Severe Terrorist Threat Ever. (video)

• Mnuchin: "Extraordinary" If Tax Reform Gets Done This Year; "No Question" Market Drops If Bill Fails. (video)

The Telegraph:

• German court threatens QE as plans die for euro fiscal union.

Bear Radar

Style Underperformer:

• Mid-Cap Value +.2%

Sector Underperformers:

• 1) Oil Service -1.4% 2) Gold & Silver -.5% 3) Biotech -.5%

Stocks Falling on Unusual Volume: 

• XRF, SVU, FOGO, AGN, ADTN, BEDU, SNCR and VIRT

Stocks With Unusual Put Option Activity:

• 1) HBI 2) DYN 3) IBM 4) EA 5) ABT

Stocks With Most Negative News Mentions:

• 1) MOBL 2) AGN 3) CMG 4) ULTA 5) MGM

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value +.7%

Sector Outperformers:

• 1) Computer Services +4.7% 2) Alt Energy +1.2% 3) Retail +.9%

Stocks Rising on Unusual Volume:

• RXDX, SPPI, CREE, IBM, SCSS, NSM, BOLD, JP, NTRS, SSYS, MZOR, CP, ECA, AIZ, SFNC, IBKR, IPXL, GDS, GWW, WAAS, LRCX, UFPI, ESRX, VERI and RDUS

Stocks With Unusual Call Option Activity:

• 1) IBM 2) EA 3) KMB 4) CREE 5) OLED

Stocks With Most Positive News Mentions:

• 1) RXDX 2) IBM 3) LRCX 4) EBAY 5) PYPL

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -1.3% Below 100-Day Average
• 6 Sectors Rising, 4 Sectors Declining
• 47.9% of Issues Advancing, 47.9% Declining
• 103 New 52-Week Highs, 9 New Lows
• 47.8% of Issues Above 200-day Moving Average
• Average 14-Day RSI 38.6%
• Vix 10.0 -2.6%
• Total Put/Call .95 +13.1%
• TRIN/Arms .97 +5.8%