Tuesday Watch

Evening Headlines 
Bloomberg:

• Stagflation Risk Seen Holding Back BOJ on Yen Drop: Japan Credit. Bank of Japan Governor Haruhiko Kuroda faces resistance to faster monetary easing as politicians and businessmen lament the waning buying power of the yen. The yen’s effective exchange rate against a basket of currencies was at 77.2 at the end of August, lower than its 10-year average of 92.93 and near a more than two-decade low of 74.91 reached in January. Its nominal rate broke above 110 per dollar last week for the first time since 2008.
• North and South Korea Navies Trade Warning Fire Near Border. Naval boats of North Korea and South Korea exchanged warning fire near their disputed sea border in the Yellow Sea, days after high-ranking officials from both countries agreed to seek better relations. South Korea’s navy fired warning shots at a North Korean patrol boat that crossed the Northern Limit Line that serves as the de facto maritime border between the two countries, South Korea’s defense ministry said today. Both sides exchanged fire before the North Korean boat retreated to its own territorial waters. No casualties or damage were inflicted on the South’s navy, which fired about 90 shots in total, the ministry said. 
• RBA Holds Rates at Record Low to Spur Growth in Slowing Economy. The Reserve Bank of Australia kept its key interest rate at a record low to spur hiring in an economy struggling to expand outside the property market. The overnight cash rate target was held at 2.5 percent for a 14th month, Governor Glenn Stevens said in a statement today following an RBA board meeting in Sydney. The decision was predicted by all 26 economists surveyed by Bloomberg News and markets had priced in almost no chance of a move.
• China Removes Phantom Staff, Government Vehicles to Cut Spending. The Chinese government removed staff who receive salaries without working and cut government car use amid an austerity drive by President Xi Jinping. A total of 162,629 so-called “phantom employees” have been cleared out of central and provincial governments, state-controlled financial companies and universities as of Sept. 25, the official People’s Daily reported yesterday. The country also disposed of 114,418 vehicles, about 95 percent of a planned cut, it said in a separate report.
• Pockets of Hong Kong Protesters May Defy Student Leaders. With Hong Kong’s student-led protests dwindling and rally leaders in talks to end their 12-day campaign, a small number of demonstrators are threatening to ignore any call to abandon their posts. Pro-democracy protesters still on the streets of central Hong Kong increasingly don’t answer to the leaders from various student groups. As people drift back to school and jobs, those who remain pose a challenge to police under pressure to remove blockades and open roadways.
• Samsung Earnings Slump as Galaxy Smartphones Struggle. Samsung Electronics Co. (005930) posted its biggest drop in quarterly profit since at least 2009 as the world’s largest smartphone maker loses ground to Apple Inc. and Chinese competitors. Operating profit fell 60 percent to 4.1 trillion won ($3.8 billion) in the three months ended September from a year earlier, the Suwon, South Korea-based company said in a regulatory filing today. The shares rose on expectations fourth-quarter earnings will improve on new devices.
• Hockey Says Falling Commodity Prices to Hurt Australia’s Budget. Falling commodity prices will hurt Australian government efforts to rein in its budget deficit, spurring possible new savings measures, according to Treasurer Joe Hockey. “Lower commodity prices in iron ore and coal are going to have an impact on our budget bottom line,” Hockey said in an interview in New York yesterday. “There are many variables at play but there will be a negative impact.”
• Asian Stocks Advance Second Day as Rio Tinto Advances. Asian stocks headed for a two-day gain as information-technology and materials companies advanced, with Rio Tinto Group surging amid optimism for a merger with Glencore Plc. The MSCI Asia Pacific Index (MXAP) added 0.2 percent to 139.43 as of 9:04 a.m. in Tokyo before markets open in Hong Kong.
• Cotton Glut Eroding Cost for Gap Jeans as China Buys Less. Cotton inventories in the U.S., the world’s top exporter, are heading for the biggest increase since 1986 as growers across the South store more crops that, for some, are worth less than they cost to produce.

Wall Street Journal:

• Islamic State Battles Kurdish Fighters in Syrian Border City for First Time. Black Flag Is Raised as Fears Grow of Imminent Fall of City to Extremist Group. Islamic State militants waged fierce battles with Kurdish fighters on the outskirts of Kobani, raising fears the Syrian city would fall to the extremist group despite U.S.-led airstrikes aimed at halting the latest advance. Islamic State has captured more than 300 Syrian Kurdish villages around the city, also known as Ayn al-Arab, over the past three weeks. But Monday was the first time the group entered the outskirts of the...
• Hong Kong Pops the China Bubble. The protesters know that what’s hailed in the West as ‘the China dream’ is a hoax. Whatever comes next with the demonstrations in Hong Kong, they’ve already performed a historic service. To wit, they remind us of the silliness of the China infatuation so prevalent among pundits and intellectuals who don’t live in China.

Fox News:

• Biden comment shakes US-Arab alliance against ISIS. This time, Joe Biden’s gaffes are causing an international fracas. The vice president has apologized twice now for suggesting last week that key U.S. allies inflamed the situation in Syria by sending arms and money to extremists opposed to Bashar Assad. The fallout over Biden’s remarks is perhaps unprecedented – his verbal miscues typically cause headaches for the White House, but otherwise are diplomatically harmless.

CNBC:

• Party's coming to a close for high-debt companies. Companies that have used cheap money to load up on debt and boost earnings have been the market darlings for the past two years, but it's a trade that is getting old. With tightening conditions—particularly a rising dollar and upward pressure on interest rates—companies with weak, high-debt balance sheets would be the big losers as that trend plays itself out.

Zero Hedge:

• Doctor Who Discovered Ebola In 1976 Fears "Unimaginable Tragedy".
• The Reason For GT Advanced Technologies Shocking Bankruptcy: "Severe Liquidity Crisis".
• Gross PIMCO Exit Sparks Record Liquidations In Short-End Of Yield Curve.
• Stephen King Fears "The World Is Starting To Look Like Orwell's 1984".
• China In One Chart. (graph)
• Chart Of The Day: Why Every Corporate Bond Manager Is Freaking Out. 
• Treasury Yields Sliding Back In Line With Taper. (graph)

Business Insider:

• These Images Show How Terrifying It Is On The Front Lines Of the Fight Against Ebola.
• The Container Store(TCS) Is Crashing.
• The EU Is Probing Amazon For Allegedly Dodging Taxes. 

Reuters:

• White House urges U.S. regulators to rein in Wall Street risk-taking. U.S. President Barack Obama is urging the country's top financial market regulators to find additional ways to "prevent excessive risk-taking across the financial system," White House spokesman Josh Earnest said on Monday. Obama spoke about his concerns in a closed-door meeting convened earlier with the heads of regulators at the Federal Reserve, Securities and Exchange Commission, Commodity Futures Trading Commission and Consumer Financial Protection Bureau, among others.

Obama takes on coal with first-ever carbon limits
Read more at http://www.philly.com/philly/news/politics/20130919_ap_0f857b20e0c144a5a1e1b9dddc9f9d72.html#YRThyDOhArykUeYy.9Brazil cuts 2014 GDP growth forecast, keeps fiscal goa

Telegraph:

• France's stagnation is tragic to watch. For all its reformist talk, France’s government will merely rearrange the deckchairs.

Nikkei:

• Japan Needs Sales Tax Increase, Economist Ito Says. The planned increase to 10% from 8% next October is necessary to reduce the nation's fiscal deficit, economic professor Takatoshi Ito said in a speech in New York. Ito advocates >10% rate, warning of potential fiscal crisis.

Evening Recommendations

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 115.0 new series.

• Asia Pacific Sovereign CDS Index 69.0 -2.75 basis points.

• FTSE-100 futures +.15%.

• S&P 500 futures -.02%.

• NASDAQ 100 futures  +.04%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (ISCA)/.00
• (YUM)/.83

Economic Releases
10:00 am EST

• JOLTS Job Openings for August are estimated to rise to 4700 versus 4673 in July. 
• IBD/TIPP Economic Optimism Index for October is estimated to fall to 45.1 versus 45.2 in September.

3:00 pm EST

• Consumer Credit for August is estimated to fall to $20.0B versus $26.0B in July.
  

Upcoming Splits

• (PHX) 2-for-1
• (APH) 2-for-1

Other Potential Market Movers

• The Fed's Kocherlakota speaking, Fed's Dudley speaking, HSBC China Services PMI, UK industrial production/gdp data, $27B 3Y T-Note auction, weekly US retail sales reports, (CDE) investor day, (VRA) analyst day and the (ACN) analyst conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and commodity 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.