Tuesday Watch

Evening Headlines 
Bloomberg:

• BOJ Struggles to Convince on 2% as Abenomics Shine Fades. Half a year after Bank of Japan Governor Haruhiko Kuroda unleashed record monetary easing, economists see the bank failing to meet its inflation target, underscoring the case for stronger steps to revive the economy. While the median estimate of BOJ board members released last week showed the bank expects consumer prices to rise 1.9 percent in the 2015 fiscal year -- in line with a 2-percent-in-two-years goal laid out in April -- just two of 34 analysts surveyed by Bloomberg News seethe target met in that timeframe. 

• JGBs Declared Dead by Mizuho as Kuroda Hides Risks: Japan Credit. Mizuho Securities Co. said Bank of Japan dominance has killed the nation’s sovereign bond market, leaving it unable to reflect either the success of stimulus policies or fiscal risks. Monthly trading of Japanese government bonds among the biggest holders including banks and insurers shrank to 37.9 trillion yen ($385 billion) last quarter, the least on record going back to 2004, according to Japan Securities Dealers Association data. Totan Research Co. and Spiro Sovereign Strategy also said BOJ monetary stimulus is cutting the tie between economic fundamentals and bonds, which yield 0.6 percent for 10 years, the least in the world.

• Japan Watchdog Begins Probe of Megabanks Amid Crime Loan Scandal. Japan’s financial regulator started inspecting the nation’s three largest banks today after finding Mizuho Financial Group Inc. failed to end loans to gangsters. The probe covers Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc., Japan’s biggest and second-largest lenders, as well as Mizuho, which last week submitted a plan to the Financial Services Agency outlining measures to improve internal controls.

• Double Whammy Widens Bank Spreads Most Since 2011: China Credit. Chinese banks' borrowing costs are climbing at the fastest pace in two years as competition for deposits hurts earnings at a time of increasing bad loans. The extra yield investors demand to hold five-year AAA bonds instead of similar-maturity sovereigns increased 31 basis points to 1.55 percentage points in September and October, the biggest two-month jump since a 48 basis point urge in the period through September 2011. The average yield on the lenders' debt advanced 34 basis points last month, the most since August 2012, to a two-year high of 5.62%. That compares with 4.1% for top-rated U.S. banks. 

• China Is Choking on Its Success By William Pesek. China’s pollution bubble is no laughing matter, and tourists tell the story.

• Asia Stocks Drop as China Shares Fall; Copper Rebounds. Asia’s benchmark stock index fell for a fourth day as Chinese shares retreated and the yen gained. Copper snapped three days of losses while Australia’s dollar weakened and precious metals advanced. The MSCI Asia Pacific Index slid 0.2 percent by 12:33 p.m. in Tokyo, after rising as much as 0.5 percent. Hong Kong’s Hang Seng Index dropped 0.8 percent and the Shanghai Composite Index slid 0.7 percent.

• Rebar Falls on Concern China Property Controls May Reduce Demand. Steel reinforcement-bar futures in China fell for the first time in three days on concern that the government may step up property curbs, reducing demand for the building material. Rebar for May delivery, the most-active contract by volume on the Shanghai Futures Exchange, declined as much as 0.6 percent to 3,654 yuan ($599) a metric ton before trading at 3,667 yuan at 11:19 a.m. local time.

• Cotton Slumping as Glut Expands Record China Hoard: Commodities. China is hoarding a record amount of cotton to aid farmers as global production exceeds demand for a fourth consecutive year, increasing the risk of a supply surge that would tip prices into a bear market. The biggest producer and user will have 12.7 million metric tons in inventory by July 31, 62 percent of the global total and enough to make about 71 billion t-shirts, the U.S. Department of Agriculture estimates. The government may end its stockpiling program the following season, Macquarie Group Ltd. says. Prices will drop 10 percent to 69.5 cents a pound in a year, according to the median of 12 analyst estimates compiled by Bloomberg. 

• Treasuries Recover From Bottom Rank as Surprise Index Declines. Treasuries rebounded over the past two months from their rank as the world’s worst-performing bonds as a measure of U.S. economic data showed figures are falling short of expectations by the most since July. Debt due in 10 years and more gained 4.1 percent in the period, No. 34 of 144 indexes complied by the European Federation of Financial Analysts Societies and Bloomberg. The securities are the biggest losers for 2013 with a 9.2 percent loss. The Citigroup Economic Surprise Index fell to negative 3.8 yesterday as economic data trailed analysts’ estimates by the most since July 30.

• Report: BlackBerry(BBRY) May Stop Making Phones. (graph)

Wall Street Journal:

• Young Avoid New Health Plans. Early Buyers of Coverage Are Older Than Expected, Raising Expense Concerns. Early Buyers of Coverage Are Older Than Expected, Raising Expense Concerns.

• Microloans Catch On in Europe, Too. Idea Spreads Beyond Developing World to Help Jobless Europeans, as Traditional Credit Dries Up. Microloans, a lifeline usually associated with the world's poorest countries, are growing across Europe, giving tens of thousands of people like Fátima Fernández a chance to start small businesses and avoid falling into poverty.

• Stephens: Does Environmentalism Cause Amnesia? Climate-change alarmists warn us about coming food shortages. They said the same in 1968. 

• Shultz and Smith: Making the Most of the U.S. Energy Boom. A new national consensus to reduce oil dependence should be possible without having to solve every political dispute.

Fox News:

• Gunman opens fire inside popular New Jersey mall. A gunman reportedly dressed in black body armor opened fire inside the Garden State Plaza Mall in Paramus, N.J. Monday night, New Jersey State Police reported. Paramus Mayor Richard LaBarbiera said no injuries were reported and the mall was being swept for the gunman. Police and SWAT teams swarmed the scene.

CNBC:

• Dennis Gartman sees possible demise of solar energy. (video)

Zero Hedge:

• Healthcare In America: Countless Layers Of Grift And Counter-Grift.

• "Just When Consensus Thinks Europe Is Exiting The Crisis" Or Why You Can't Handle The Truth About Europe.

• The US Economy In Pictures. (graph)

• Greek Companies Unable To Pay Taxes Explode From 182K To Over Half A Million In One Month.

• Why Is An Epidemic Of Thievery Sweeping America?

• Ken Rogoff Warns Wealth-Taxes Aren't Enough.

Business Insider:

• Parents On Welfare Are Bequeathing A Culture Of Welfare Unto Their Children. 

• CITI(C): We See A 'Clear Warning Sign Of Substantial Complacency'. (graph)

Reuters:

• AIG(AIG) may sue Morgan Stanley(MS) over mortgage securities-SEC filing. American International Group Inc may file a lawsuit against Morgan Stanley related to $3.7 billion worth of mortgage securities that the investment bank sponsored or underwrote from 2005 to 2007, and which AIG purchased, according to a regulatory filing on Monday. 

• CF Industries(CF) profit falls 42 pct as nitrogen sales slip. U.S. fertilizer producer CF Industries reported a 42 percent drop in quarterly profit on Monday as nitrogen sales and prices slipped, due to weak global fertilizer markets. Lower fertilizer prices, combined with buyer expectations that they will fall further, and competition from a high volume of Chinese nitrogen exports, resulted in a weaker quarter year-over-year, the company said.

• U.S. officials offer few concessions on NSA spying to privacy board. The U.S. government is open to some changes to how it conducts its phone and Internet surveillance programs as long as they do not undermine the programs' effectiveness, U.S. officials told a privacy oversight board on Monday.

Evening Recommendations 

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 137.0 +3.0 basis points.

• Asia Pacific Sovereign CDS Index 107.75 +4.25 basis points. 

• FTSE-100 futures +.24%.

• S&P 500 futures -.03%.

• NASDAQ 100 futures unch.

Morning Preview Links

Earnings of Note
Company/Estimate

• (MOS)/.73

• (HCA)/.79

• (DTV)/1.00

• (BDX)/1.46

• (ENR)/1.32

• (AMG)/2.15

• (REGN)/1.90

• (EMR)/1.11

• (CVS)/1.02

• (ZTS)/.34

• (ICE)/1.83

• (D)/.90

• (RDC)/.40

• (AOL)/.51

• (COCO)/-.07

• (CHRW)/.73

• (ODP)/.06

• (SSS)/.97

• (RGR)/1.21

• (OPEN)/.41

• (FOSL)/1.36

• (Z)/-.08

• (TSLA)/.10

• (MYGN)/.46

• (RRGB)/.29

Economic Releases
10:00 am EST

• The ISM Non-Manufacturing Composite for October is estimated to fall to 54.0 versus 54.4 in September.

• The IBD/TIPP Economic Optimism Index for Nov. is estimated to rise to 42.0 versus 38.4 in October.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Lacker speaking, Fed's Williams speaking, Australia trade report, BoJ minutes, weekly retail sales reports and the (UTEK) analyst day could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology 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 50% net long heading into the day.