Wednesday, September 30, 2015

Thursday Watch

Evening Headlines 
  • Putin's Syria Gamble Stokes Fears His Real Goal Is Aiding Assad. (video) Russia President Vladimir Putin’s sudden escalation of airstrikes inside Syria is forcing the world to confront his latest military adventure, against a backdrop of deep distrust over whether defeating the Islamic State is his only goal. While the U.S. and its allies want to see the extremists crushed, Putin’s actions -- the U.S. said he bombed an area where the terror group doesn’t operate -- fueled fears that he really just wants to prop up ally President Bashar al-Assad, who Western leaders say should step aside. It also raises the odds of high-stakes accidents as Russian and U.S. jets share the same air space but potentially different missions. 
  • ETF Investors Exit Emerging-Market Stock Bets as China Falters. Traders dumped exchange-traded funds tracking emerging-market stocks at the fastest pace in over a year last quarter amid concerns over the slowdown in China, a selloff in commodities and the prospect of higher interest rates in the U.S. Investors pulled $6.1 billion from U.S.-traded ETFs that offer exposure to a basket of developing-nation equities in the three months through September, the most since the first quarter of 2014, according to data compiled by Bloomberg. Exchange-traded funds that invest in both emerging-market stocks and debt as well as individual countries saw outflows in 12 out of 13 weeks ending Sept. 25, with losses totaling $12 billion, the data show. 
  • Japan Inc.'s Confidence Is Waning as Headwinds Hit Abenomics. Weakness in the Japanese economy and the slowdown in Asia are chipping away at the nation’s business confidence, with the latest survey from the central bank showing sentiment among large manufacturers worsening. The Tankan index for large manufacturers fell to 12 in September from 15 in June, the Bank of Japan said Thursday, lower than the median estimate of 13 in a Bloomberg survey of economists. The index is forecast to drop to 10 in December. There’s growing concern that Japan’s economy may have contracted in the quarter that’s just ended, which would tip the nation into its second recession since Japanese Prime Minister Shinzo Abe took office in 2012. Large companies that have benefited from the weak yen and rising profits under Abe have yet to make a significant commitment to expanding domestic investment.
  • Strategist Known as Mad Dog Says Yen Can Climb to 100 per Dollar. The yen has already hit bottom and could strengthen to 100 per dollar next year as Bank of Japan Governor Haruhiko Kuroda’s unprecedented monetary easing is proving ineffective for the economy, said Eishi Wakabayashi, a former currency trader who twice forecast the yen’s surge to record highs. “The dollar is destined to decline against the yen because it’s been supported forcibly,” meaning that the yen’s 2015 low of 125.86 per dollar was an excessive depreciation, New York-based Wakabayashi said in a Sept. 25 interview in Tokyo.  “The quantitative easing worked only psychologically on asset prices, weakening the yen and lifting stocks while failing to boost inflation. That’s become clear and we will see the repercussion from these shock therapies.” 
  • Singapore's Home Prices Match Longest Losing Streak in 2002. Singapore home prices dropped for an eighth quarter, matching the longest losing streak in 13 years, as tighter mortgage curbs cooled demand in Asia’s second-most expensive housing market. An index tracking private residential prices fell 1.3 percent in the three months ended Sept. 30 from the previous quarter, according to preliminary data from the Urban Redevelopment Authority on Thursday. The slump was the most since June 2009, in the aftermath of the global financial crisis.
  • Asian Stocks Track U.S. Advance as Investors Await China Data. Asian stocks followed U.S. shares higher, after the regional benchmark index posted its worst quarter since 2011, as investors awaited Chinese factory data. The MSCI Asia Pacific Index advanced 0.2 percent to 124.09 as of 9:01 a.m. in Tokyo.
  • America's Oil Output Refuses to Collapse. Here's One Reason Why. Somewhere amid the maze of wells that Murphy Oil Corp. has scattered across Texas’s sprawling Eagle Ford shale formation, Brett Pennington is carrying out a little experiment. What will happen, the exploration chief wants to know, when he jams huge quantities of sand down the narrow mouth of one of these wells. Will more crude seep out? Or, rather, will he smother the opening and choke off the flow?
  • Vale(VALE) Gain Is Iron Market Pain as Giant Project Ahead of Schedule. The world’s top iron-ore producer has some bad news for the oversupplied market: its biggest project is running ahead of schedule. S11D, part of the Carajas mining complex in northern Brazil, is on track to beat a targeted December 2016 start date, Vale SA Chief Financial Officer Luciano Siani said in an interview Wednesday. The project -- the industry’s largest and, according to Vale, the most profitable -- will add 90 million metric tons of annual capacity to global supply, although Vale intends to control the speed at which it hits the market, Siani, 45, said in Toronto, where he is holding meetings with investors and analysts. “We will manage the ramp up in order to preserve the premium for this high grade ore,” he said.
  • Wal-Mart(WMT) Said to Plan Hundreds of Job Cuts at Headquarters. Wal-Mart Stores Inc. is planning job cuts at its headquarters that could involve hundreds of workers, including senior managers, according to people familiar with the situation. The cuts are expected to begin in the next week, said the people, who asked not to be identified because the deliberations are private.
Wall Street Journal:
  • Russian Airstrike in Syria Targeted CIA-Backed Rebels, U.S. Officials Say. One area hit was location primarily held by rebels receiving funding, arms, training from CIA and allies. A Russian airstrike Wednesday targeted an area in western Syria primarily held by rebel forces backed by the Central Intelligence Agency and allied spy services, U.S. officials said.
  • Hillary Clinton Emails Had a Two-Month Gap. Archive of messages turned over to officials begins weeks into the start of her tenure. About two months of emails from the start of Hillary Clinton’s tenure as secretary of state are missing, and federal officials haven’t been able to recover them.
Fox News:
  • Russia-linked hackers tried to access Clinton's email server. (video) Hackers linked to Russia attempted at least five times to gain access to Hillary Clinton’s private email account while she was secretary of state, according to emails released Wednesday. Clinton originally received the infected emails, disguised as speeding tickets, over four hours on the morning of Aug. 3, 2011. The infected emails instructed recipients to print the attached tickets, which would have allowed hackers to take control of their computers.
Zero Hedge: 
Business Insider:
  • Chinese SMEs are struggling. (graph) “A key factor weighing on the headline index was a sharper contraction of manufacturing output in September,” said Markit. “According to panelists, worsening business conditions and subdued client demand had led firms to cut their production schedules. Weaker customer demand was highlighted by a further fall in total new orders placed at Chinese goods producers in September. “Furthermore, the rate of reduction was the steepest seen for just over three years. Data suggested that the faster decline in total new business partly stemmed from a sharper fall in new export work. The latest survey showed new orders from abroad declined at the quickest rate since March 2009." In what will no doubt raise questions over China’s economic transitions from an industrial to services economy, there was also worrying news on activity across the nation’s services sector. The separate Caixin services PMI gauge dipped to 50.5 in September from 51.5, falling to the lowest level in 14-months.
  • Chinese firms are bearing up on the economy. Based on the latest quarterly survey of banks, companies and households conducted by the People’s Bank of China – a report that captures the views of 20,000 urban households, 5,000 businesses and 3,100 banks – sentiment towards the economy deteriorated sharply despite relative stability in business profits, orders and labor market conditions. “The business survey for Q3 makes for gloomy reading,” said Chang Liu and Mark Williams, economists at Capital Economics in a research note released overnight. “The headline index on firms’ confidence in the state of the economy fell to its lowest since the trough in 2009. Firms’ sentiment about their own circumstances deteriorated too, with this index falling below 50 for the first time since 1999″.
  • The next shoe to drop. Here’s how the junk-bond debacle bleeds into stocks. Part of the fuel that powered stocks to such vertiginous heights over the last few years was the M&A boom. Companies bid for each other with huge premiums over the already inflated stock prices. These deals were mostly funded with shares, of which companies could print an unlimited amount, and with debt, of which even over-indebted junk-rated companies could issue nearly unlimited amounts, thanks to the Fed’s policies that drove yield investors to near-insanity.
  • Express Scripts(ESRX) says Praluent, Repatha will not be "budget busters". Express Scripts Holding Co said on Wednesday two costly new potent cholesterol fighters will not be "budget busters" for its clients and that most prescriptions for the drugs have been rejected because patients did not meet required medical criteria. "We're seeing a lot of patients who either don't qualify or their physicians are not providing (needed) information," said Everett Neville, a vice president of Express Scripts, whose company is the largest pharmacy benefit manager in the United States.
Financial Times:
  • Brazil central bank vows to do what it takes to control inflation. Brazil’s central bank is willing to do whatever is necessary to control inflation while the country grapples with the thorny issue of how to rebalance the nation’s public finances, a senior official has said. Tony Volpon (pictured), head of international affairs at the central bank, said that while tax increases to balance the budget could raise prices, monetary policy would be adapted to ensure that inflation eventually converged to the official target of 4.5 per cent.
  • ‘Fragile’ economy threatens oil oversupply rebalance, says energy expert. A fragile global economy threatens the progress of rebalancing an oversupplied oil market, says Gary Ross, executive chairman of Pira Energy Group, the research company. Cuts in oil production were happening more slowly than expected after crude prices collapsed in the past year, said Mr Ross. Even with oil companies pulling the plug on big projects and deploying fewer rigs to drill for oil, supply remains robust.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are +.25% to +1.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 160.50 -4.5 basis points.
  • Asia Pacific Sovereign CDS Index 92.5 -1.75 basis points.
  • S&P 500 futures +.49%.
  • NASDAQ 100 futures +.73%.

Earnings of Note
  • (MKC)/.87
  • (CAMP)/.26
  • (MU)/.33
  • (prgs)/.37
Economic Releases
7:30 am EST
  • Challenger Job Cuts for September.
8:30 am EST
  • Initial Jobless Claims for last week are estimated to rise to 271K versus 267K the prior week.
  • Continuing Claims are estimated to fall to 2230K versus 2242K prior.
9:45 am EST
  • Final Markit US Manufacturing PMI for September is estimated at 53.0 versus 53.0 in August.
10:00 am EST
  • Construction Spending for August is estimated to rise +.5% versus a +.7% increase in July.
  • ISM Manufacturing for September is estimated to fall to 50.6 versus 51.1 in August.
  • ISM Prices Paid for September is estimated to rise to 40.0 versus 39.0 in August.
  • Wards Total Vehicle Sales for September are estimated to fall to 17.6M versus 17.72M in August.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Williams speaking, ECB's Draghi speaking, Eurozone Manufacturing PMI, BoE Minutes, Australian Retail Sales report, Japan Unemployment report, Bloomberg weekly Consumer Comfort Index, weekly EIA natural gas inventory report, (F) September conference call and the (CLX) analyst day could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by technology and commodity shares in the region. I expect US stocks to open modestly higher and to maintain gains into the afternoon. The Portfolio is 75% net long heading into the day.

Stocks Surging into Final Hour on Central Bank Hopes, Quarter-End Window-Dressing, Short-Covering, Biotech/Tech Sector Strength

Broad Equity Market Tone:
  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Almost Every Sector Rising
  • Volume: Above Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • Volatility(VIX) 25.14 -8.3%
  • Euro/Yen Carry Return Index 139.91 -.58%
  • Emerging Markets Currency Volatility(VXY) 12.41 -3.87%
  • S&P 500 Implied Correlation 64.39 +1.13%
  • ISE Sentiment Index 60.0 -14.29%
  • Total Put/Call .77 -43.48%
  • NYSE Arms .53 -11.06% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 92.88 -.50%
  • America Energy Sector High-Yield CDS Index 1,095.0 -1.35%
  • European Financial Sector CDS Index 95.62 -1.16%
  • Western Europe Sovereign Debt CDS Index 21.47 -3.37%
  • Asia Pacific Sovereign Debt CDS Index 90.65 -1.96%
  • Emerging Market CDS Index 386.53 -3.99%
  • iBoxx Offshore RMB China Corporates High Yield Index 119.62 +.02%
  • 2-Year Swap Spread 11.75 +1.25 basis points
  • TED Spread 32.75 +.75 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -28.0 -2.25 basis points
Economic Gauges:
  • Bloomberg Emerging Markets Currency Index 70.64 +.51%
  • 3-Month T-Bill Yield -.01% -1.0 basis point
  • Yield Curve 142.0 +1.0 basis point
  • China Import Iron Ore Spot $56.32/Metric Tonne +.48%
  • Citi US Economic Surprise Index -20.50 -.1 point
  • Citi Eurozone Economic Surprise Index 33.0 -2.8 points
  • Citi Emerging Markets Economic Surprise Index -25.2 +.4 point
  • 10-Year TIPS Spread 1.42 +2.0 basis points
  • # of Months to 1st Fed Rate Hike(Morgan Stanley) 5.85 +.26
Overseas Futures:
  • Nikkei 225 Futures: Indicating +152 open in Japan 
  • China A50 Futures: Indicating -53 open in China
  • DAX Futures: Indicating -28 open in Germany
  • Higher: On gains in my biotech/tech/retail/medical sector longs 
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short
  • Market Exposure: Moved to 75% Net Long

Today's Headlines

  • Russia Launches Syrian Air Strikes to Back Putin Ally Assad. Russia is deploying armed forces in the Middle East for the first time in more than three decades after launching air strikes to defend President Vladimir Putin’s beleaguered ally Bashar al-Assad. Russia carried out its first air attacks against Islamic State targets in Syria, hitting arms and ammunition stores and transport and communication equipment, Russian Defense Ministry spokesman Major-General Igor Konashenkov said by phone. Syrian state-run TV cited an unnamed military source as saying Russian jets struck several Islamic State targets in Syria’s central Homs and Hama provinces. U.S. and French officials questioned whether Russia hadn’t instead targeted other opposition groups fighting Assad.
  • Decade of Gulf bond-market growth fading as borrowers hold back. Issuance from the six-nation Gulf Cooperation Council dropped 31% to $20.4b this year through Wednesday, while $23.5b of securities are due to mature in 2015. Dubai: Unless Gulf bond sales pick up in the fourth quarter, the market will shrink this year for the first time in a decade. And the prospects aren’t looking good.
  • Canada’s corporate bonds are worst among peers with room to drop. Renewed turmoil in global commodity markets is hammering Canada’s corporate bonds, pushing them to the worst performance in the industrialized world -- with little relief in sight. Investors in Canadian corporate debt lost 1.1 per cent during the third quarter, compared with an average return of 0.12 per cent among Group of 10 countries, according to data from the Bank of America Merrill Lynch Global Corporate Index. The plunge came amid a collapse in commodity prices as China faces its slowest pace of expansion in 25 years.  
  • German Unemployment Unexpectedly Rises in Sign of Economic Risks. German unemployment unexpectedly rose in September in a sign that Europe’s largest economy is not immune to risks from slowing growth in emerging markets. Joblessness increased a seasonally adjusted 2,000 to 2.795 million, the Federal Labor Agency in Nuremberg said on Wednesday. Economists had predicted a drop of 5,000. The unemployment rate remained unchanged at 6.4 percent, the lowest level since German reunification. 
  • Ringgit's Slide Spurs Worst Quarterly Bond Losses in Six Years. A slide in Malaysia’s ringgit spurred the biggest quarterly loss in the nation’s bonds since 2009 and drove up the cost to insure the debt by the most in four years. The ringgit’s weakness, slowing Chinese growth, slumping commodity prices and a looming U.S. interest-rate increase prompted global investors to pull funds from Malaysian stocks and bonds. Reports this month from the Wall Street Journal and New York Times over money laundering and overseas property purchases relating to 1Malaysia Development Bhd. and Prime Minister Najib Razak also weighed on sentiment.
  • Health Care Does Harm as Canada Stocks Approach Bear Market. Canadian stocks, running out of legs to stand on, are now lurching toward a bear market. Losses among equities in the Standard & Poor’s/TSX Composite Index, already hampered by a rout in commodities, have accelerated in September as health-care stocks joined the fray, led by a 30 percent plunge in Laval, Quebec-based Valeant Pharmaceuticals International Inc. 
  • European Stocks Rise. Glencore Plc led commodity producers higher, adding 14 percent as metal prices rose and investors accepted reassurances that it can withstand current market conditions. PSA Peugeot Citroen paced gains in auto-related stocks, rising 6.4 percent, as China said it would halve purchase tax on certain vehicles. Volkswagen AG, which has lost more than a third of its value since admitting to cheating on emission tests, increased 2.7 percent. J Sainsbury Plc led an advance in retailers, soaring 14 percent after saying full-year profit may beat consensus estimates. Tesco Plc rose 7 percent. The Stoxx Europe 600 Index jumped 2.5 percent to 347.77 at the close of trading. Shares slid yesterday, as concern over a slowdown in Asia and uncertainty over the Federal Reserve’s actions continued to weigh on investor sentiment and stoke volatility.
  • Shanghai's Biggest Brokers Switch to Net-Short Copper Position. The 20 largest brokers on the Shanghai Futures Exchange ranked by open interest held a combined net-short position of 535 contracts as of Wednesday from a net-long position of 3,747 lots on Sept. 25, according to Bloomberg calculations based on exchange data.
  • More Shocks Seen Roiling Commodities After Worst Drop Since 2008. Commodities are set for their worst quarter since the 2008 global financial crisis and Morgan Stanley warns that more losses may be ahead. Returns from 22 raw materials tracked by Bloomberg have shrunk about 14 percent, the most since the last quarter of 2008, amid forecasts for the slowest economic growth since 1990 in China, the biggest user of energy, metals and grains. Oil has led the collapse as OPEC producers pump near record levels while everything from copper to wheat are also down more than 10 percent on speculation that supplies are outpacing demand.
  • Worst Quarter in Four Years Heralds Yet More Pain for Junk Bonds. Junk-bond investors are closing the books on their worst quarter in four years. And there’s no sign the pain will end. Investors who helped companies from Valeant Pharmaceuticals International Inc. to Cheniere Energy Inc. raise a record $1.7 trillion of new speculative-grade bonds in the past five years are now bracing for the end of the credit boom as debt-laden businesses grapple with lackluster earnings. For the first time in more than 20 years, U.S. speculative-grade bonds are set to post a fourth straight month of losses, Bank of America Merrill Lynch Indexes show. What started as a decline in commodities-related debt with the collapse in oil prices last year is spilling out to industries including retail, media and telecommunications. More than half the sectors in the market have reported losses for five months, a streak not seen since the 2008 financial crisis, according to Bank of America Corp. analysts.
Fox News:
  • Russia launches airstrikes in northern Syria, senior military official says. (video) Russian warplanes began bombarding Syrian opposition targets in the war-torn nation's north Wednesday, following a terse meeting at which a Russian general asked Pentagon officials to clear out of Syrian air space and was rebuffed, Fox News has learned. A U.S. official said Russian airstrikes targeted fighters in the vicinity of Homs, located roughly 60 miles east of a Russian naval facility in Tartus, and were carried out by a "couple" of Russian bombers. The strikes hit targets in Homs and Hama, but there is no presence of ISIS in those areas, a senior U.S. defense official said. These planes are hitting areas where Free Syrian Army and other anti-Assad groups are located, the official said.
Zero Hedge:

Bear Radar

Style Underperformer:
  • Small-Cap Value +.28%
Sector Underperformers:
  • 1) Oil Service -1.21% 2) Education -.61% 3) Homebuilders -.35%
Stocks Falling on Unusual Volume:
Stocks With Unusual Put Option Activity:
  • 1) XME 2) TXN 3) ZOES 4) XBI 5) NVDA
Stocks With Most Negative News Mentions:
  • 1) GPS 2) LVS 3) FL 4) TOL 5) SLB

Bull Radar

Style Outperformer:
  • Large-Cap Growth +.89%
Sector Outperformers:
  • 1) Computer Hardware +3.17% 2) Biotech +3.15% 3) Semis +2.84%
Stocks Rising on Unusual Volume:
Stocks With Unusual Call Option Activity:
  • 1) AMLP 2) ALLY 3) GPS 4) ALLY 5) EPD
Stocks With Most Positive News Mentions:
  • 1) LMT 2) WDC 3) PAYX 4) MNK 5) RL

Morning Market Internals

NYSE Composite Index:

Tuesday, September 29, 2015

Wednesday Watch

Evening Headlines 
  • Asian Currencies Set for Worst Quarter Since 1997 on Fed, China. Asian currencies are headed for their biggest quarterly loss since the Asian financial crisis, having been battered by China’s surprise devaluation of the yuan and the prospect of a U.S. interest-rate increase. The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies outside of Japan, has dropped 4.4 percent in its worst performance since 1997. Malaysia’s ringgit led the rout with a 15 percent slide as oil prices retreated and Prime Minister Najib Razak was caught up in a corruption investigation. The yuan fell the most in 1 1/2 years as an economic downturn worsened in China. Federal Reserve Chair Janet Yellen said Thursday the central bank remains likely to boost interest rates this year.
  • China Stocks Head for Worst Quarter Since '08 on Growth Slowdown. China’s stocks headed for the biggest quarterly loss since the depths of the global financial crisis in 2008 as unprecedented state intervention and monetary easing failed to bolster equities and the economy. The Shanghai Composite Index has slumped 29 percent in the third quarter, dragged down by technology companies and commodity producers. The benchmark index rose 0.6 percent to 3,056.70 at 9:34 a.m. local time on Wednesday, with trading volumes plunging 59 percent below the 30-day average. China’s markets will be shut from Oct. 1-7 for the National Day holidays.
  • Alibaba Slumping a Fourth Month as 12 Analysts Cut Estimates. Alibaba Group Holding Ltd. is heading for the fourth straight monthly decline in its stock price as analysts cut their revenue estimates for the most important quarter of the year. Twelve analysts have cut sales predictions for the Chinese e-commerce company in the past four weeks for both this quarter and the next as the country’s economy cools. Alibaba shares have dropped 13 percent in September, bringing the market value decline since the end of May to about $75 billion. 
  • Glencore Faces Yet Another Debt Challenge With Credit Due by May. Add another looming problem to the list for Glencore Plc, the commodity group that’s lost almost $45 billion in market value this year. A quarter of the beleaguered firm’s bonds and credit lines are due for refinancing by next May, compared with 9 percent for its peers, according to data compiled by Bloomberg. Glencore may have options for delaying the deadline for part of that $13.8 billion in lifeblood financing, but given that some of its debt is already trading like junk as the stock plummets, any bond refinancings will probably be pricey.
  • Japanese Industrial Output Unexpectedly Drops for 2nd Month. Japan’s industrial output unexpectedly fell, raising concern that the economy may have fallen back into its second recession since Prime Minister Shinzo Abe took government. The slump in production is likely to intensify debate on the need for Abe’s administration to increase spending and for the central bank to boost its already unprecedented monetary stimulus. Falling prices, weak consumer spending and a slowdown in key export market China are weighing on Japanese businesses, which are holding back investment and building up inventories in warehouses.
  • Asia Stocks Advance to Pare Worst Quarter Since Financial Crisis. Asian stocks rose on the final day of the quarter, tracking a late rally in U.S. shares, as the regional benchmark index headed for its worst three months since the financial crisis. The MSCI Asia Pacific Index gained 0.3 percent to 121.40 as of 9:00 a.m. in Tokyo. The measure has slumped 17 percent since the end of June, on course for the biggest drop since the quarter ended September 2008. It’s down 6.6 percent for the month.
  • Copper Poised for Worst Quarter Since 2011 Amid China Slowdown. Copper is set for its biggest quarterly decline in four years as an economic slowdown in China, the world’s biggest metals consumer, spurs concerns over demand and damps the price outlook. The metal used in pipes and wires has lost 14 percent in the past three months and fell 21 percent this year. Prices pared losses on Wednesday, gaining 0.3 percent to $4,983 a metric ton by 9:09 a.m. Shanghai time.
  • World's Biggest Iron Ore Exporter Predicts Lower Prices on Glut. Iron ore will probably extend losses next year as global supplies increase and steel production in China shrinks further, according to the Australian government, which predicts prices will recover from 2017. The raw material will average $51.20 a metric ton next year compared with a June estimate of $52.10, the Department of Industry & Science said in a quarterly outlook Wednesday. Iron ore will average $52.90 a ton this year from $54.40 forecast in June, the department said. Prices will recover to $60.40 in 2017 and rise every year through 2020 to $75.30 , it said. Iron ore, the country’s biggest export earner, lost 21 percent this year as BHP Billiton Ltd. and Rio Tinto Group invested billions of dollars to boost production, betting on sustained demand growth from China even as economic expansion in the world’s biggest buyer slowed. New supply from Gina Rinehart’s Roy Hill mine will contribute to a slump below $40 next year, according to Citigroup Inc., which said lower steel output in China would also hurt the raw material. “China’s steel production is forecast to contract further in 2016 while an additional 42 million tons of iron ore is forecast to be delivered to the seaborne market,” the department wrote. “A net increase in the supply of iron ore is expected to keep downward pressure on prices in the seaborne market in the short term.”
  • Fed's Caution Over Growth Reins in Treasury Selloff Forecasts. Treasury-market analysts predicting a selloff in the final quarter of the year are being forced to temper estimates after a cautious Federal Reserve and tumbling equities around the world drove 10-year yields to the lowest in a month. Benchmark yields will climb to 2.45 percent by the end of 2015 after closing at 2.05 percent on Tuesday, based on Bloomberg surveys of economists with the most recent forecasts given the heaviest weightings. Analysts have lowered their projections for four straight weeks, down from 2.56 percent at the end of August.
  • All Eyes on Crowdfunded Loans Tucked Into Commercial Real Estate Bonds. Morgan Stanley points to crowdfunding in CMBS deals. Morgan Stanley analyst Richard Hill has been digging around in the monthly remittance reports that accompany bonds backed by commercial real estate loans, known as commercial mortgage-backed securities, and he's found something interesting. Three loans worth a collective $71 million, which were made to real estate investment firm Colony Hills Capital and underpin two CMBS deals, have found their way to special servicing. (That's structured-finance-speak for something unusual has happened to them). Commentary from the servicer "indicates that the transfers were due to a pledge of interest to a restricted party," Morgan Stanley said.  
Wall Street Journal:
  • Arabs Spurn Military Push by Moscow Inside Syria. Saudis’ strong stance highlights Obama’s dilemma, with some allies supporting Russian role and others opposing one. Saudi Arabia and other leading Arab states ruled out any cooperation with an emerging Russian military alliance operating inside Syria and vowed to dial up their support for rebels seeking to overthrow Moscow ally President Bashar al-Assad.
  • Taliban Offensive in Afghanistan Tests U.S. Surge by militants adds fuel to arguments that Obama administration should rethink troop withdrawal. Afghan troops backed by U.S. forces struggled to recapture a provincial capital following an alarming Taliban attack that renewed questions about the Obama administration’s plan to withdraw most American military forces next year. 
  • A Clintonian Misdirection on Drug Prices. The high drug prices she decries are not the result of market forces gone wild, but rather bad regulation. Hillary Clinton’s prescription to soothe the economic hangover consumers have from ObamaCare’s regulatory binge is a single ingredient: more regulation.
Fox News:
  • US failing to stop most people trying to join ISIS, report finds. (video) A congressional study released Tuesday said the Obama administration has largely failed to stop more than 250 Americans who have traveled overseas since 2011 to join -- or try to join -- terror groups including the Islamic State, describing the flow of fighters as the largest global convergence of jihadists in history. Republicans and Democrats on the House Homeland Security Committee conducted an extensive six-month review to assess the severity of the threat from those leaving home to join jihadist groups and to identify potential security gaps.
  • Chesapeake cuts 15% of workforce on oil slump. Chesapeake Energy said on Tuesday it has cut about 15 percent of its workforce, or 740 jobs, as depressed oil and gas prices force deeper cost cutting at the U.S. No. 2 natural gas producer. The company, which now has about 4,000 workers, has already slashed capital spending this year by about 40 percent and cut operating costs as well as its dividend as crude prices that make drilling unprofitable linger for months. 
  • Fed-in-a-box: Will there ever be a good time? (video) Reduced expectations for economic growth, corporate earnings and stock market gains hardly seem the ideal climate for raising interest rates, but such is the box in which the Federal Reserve finds itself.
Zero Hedge: 
  • Insolvency on Brazil electricity market grows - traders. Insolvency on the Brazilian electric energy market has spread to critical levels, energy traders said on Tuesday, as hydroelectric generators balk at hefty bills for which the local regulator says they are on the hook.
  • U.S. biotech bloodbath hits hedge funds but some bargains emerge. A seven-day selloff of U.S. biotechnology stocks has hit sector investors - especially hedge funds - hard. But some managers say it was overdone and are already eyeing bargains such as Gilead Sciences Inc and Amgen Inc. The Nasdaq Biotechnology index has fallen 18.7 percent over the last seven sessions as investors took flight after Hillary Clinton, front-runner to be the Democratic nominee in next year's U.S. presidential election, vowed on Sept. 21 to take steps to curb high drug prices. Since its July 20 high, the index has fallen around 27 percent.
Financial Times:
  • Equities on course for worst quarter since 2011. US and global equities are heading for their worst quarterly performance since 2011, with investors rattled by China’s economic slowdown, uncertainty over Federal Reserve policy and growing pessimism about corporate earnings. Adding to investors’ unease, the International Monetary Fund on Tuesday warned that corporate failures were likely to jump in the developing world, after a borrowing binge in the past decade.
  • US junk bonds cracking after debt binge. After the debt binge comes the bill, and that is the grim message for investors looking at the present performance of the US corporate bond market. As the third quarter draws to a close, slowing global economic activity threatens the earnings power of many US companies, which have amassed $7.8tn in debt. Years of easy monetary policy that kept borrowing costs low, a wave of mergers and acquisitions and the spectre of shareholder activism have all contributed to an erosion of balance sheet quality.
Economic Information Daily:
  • China Shipbuilders' New Orders Fall 68% y/y in Jan.-Aug. New orders in the first 8 months were 15.05m dead-weight tonnage in capacity, citing data from China Association of the National Shipbuilding Industry.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -.25% to +1.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 165.0 +1.5 basis points.
  • Asia Pacific Sovereign CDS Index 92.5 +1.0 basis point.
  • S&P 500 futures +.40%.
  • NASDAQ 100 futures +.50%.

Earnings of Note
  • (PAYX)/.51
Economic Releases
8:15 am EST
  • The ADP Employment Change for September is estimated at 190K versus 190K in August.
9:00 am EST
  • The ISM Milwaukee for September is estimated to rise to 48.5 versus 47.67 in August.
9:45 am EST
  • Chicago Purchasing Manager for September is estimated to fall to 53.0 versus 54.4 in August.
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory decline of -100,000 barrels versus a -1,925,00 barrel decline the prior week. Gasoline supplies are estimated to fall by -80,000 barrels versus a +1,369,00 barrel gain the prior week. Distillate inventories are estimated to fall by -322,220 barrels versus a -2,088,000 barrel decline the prior week. Finally, Refinery Utilization is expected to fall by -.34% versus a -2.2% decline the prior week.
Upcoming Splits
  • (BTU) 1-for-15
Other Potential Market Movers
  • The Fed's Yellen speaking, Fed's Brainard speaking, Fed's Bullard speaking, Fed's Dudley speaking, China PMI data, German Unemployment report, weekly MBA Mortgage Applications report and the (BOX) analyst day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by consumer and commodity shares in the region. I expect US stocks to open modestly higher and to maintain gains into the afternoon. The Portfolio is 50% net long heading into the day.