Wednesday Watch

Evening Headlines

Bloomberg:         

• China Says ‘Stay Tuned’ for Retaliation Over U.S. Tech Blacklist.

• The U.S.-China Relationship Is Swiftly Deteriorating by the Day.    

• Chinese AI Project Is Under Review at MIT After U.S. Blacklists Company.  

• Trouble Is Brewing in the Darkest Corner of China’s Shadow Banking.

• Stocks Drop as Trade Tensions Ramp Up Before Talks. Asian stocks dropped Wednesday after a slump on Wall Street spurred by escalating U.S.-China trade tensions, though declines were more modest than in the U.S. Japan’s benchmark Topix in early trading was down by about half the 1.6% drop in the S&P 500 Index overnight, continuing the pattern of outperformance seen last month. U.S. futures were little changed, as was the dollar. Ten-year Treasury yields were flat, not far from their lowest levels in a month. Crude oil dipped toward $52 a barrel in New York. Japan’s Topix index dropped 0.7% as of 9:21 a.m. in Tokyo. Australia’s S&P/ASX 200 Index declined 0.8%. Futures on the S&P 500 Index rose 0.2%.  

• Five Things You Need to Know to Start Your Day.

• Repo Rout Didn’t Have to Happen. Powell Is Trying to Avoid Rerun.

Wall Street Journal:

• FBI Use of Surveillance Database Violated Privacy Rights, Court Ruled.

• Impeachment in Secret.

• J&J Hit With $8 Billion Jury Award Over Antipsychotic Drug.

• U.S. to Restrict Visas for Chinese Officials Linked to Abuse of Muslim Minorities .

• In Syria, Kurdish Fighters Prepare to Battle Turkey as Residents Fret.

• California Governor Signs Rent Law Amid Rising Housing Costs, Homelessness.

• Sleepovers Have Parents Worried About Gadget Use.

Fox News:

• WH hits Dems with bombshell letter refusing to comply with 'illegitimate' impeachment inquiry.

MarketWatch.com:   

• California utilities may cut power to 800,000 customers due to fire risk.

CNBC:

• China ‘strongly urges’ US to remove sanctions and stop accusing it of human rights violations.

• China’s heavy-handed reaction to the NBA is just the wake-up call the world needed.

• US puts visa restrictions on Chinese officials over abuses of Muslims in Xinjiang.

• Powell says the Fed will start expanding its balance sheet ‘soon’ in response to funding issues.

Zero Hedge:   

• Full Turkish Assault On NE Syria Coming "Next 24 Hours" As Kurds Make Late Night Appeal.

• Chinese Citizens Will Be Required To Scan Their Faces To Use The Internet.

• 800,000 Californians To Lose Power After Midnight.

• Fed Announces QE4 One Day After BIS Warns QE Has Broken The Market.

• CIA Whistleblower 'Professionally Tied' To 2020 Candidate.

• Trudeau Rumored To Be In Talks To Suppress Potentially Career-Ending Sex Scandal.

• Extinction Rebellion: Climate Change Protests Aim To Crash Global Economy To Usher In MMT.

• Trump Demands Vote As White House Rejects Democrats' "Constitutionally Invalid" Impeachment 'Inquiry'.

• SoftBank Damaged After WeWork Implosion, Losses Could Exceed $5 Billion.

• Death Toll In Iraq Soars As Pro-Iran Gunmen Start 'Shooting Protesters'.

• WTI Rebounds After Earlier Flash-Crash On Major Product Inventory Draws.

• Stocks Drop, Gold Pops As Powell Promises (Not)QE & Trump Dumps On Xi.

Night Trading 

• Asian equity indices are -.75% to -.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 79.5 +1.0 basis point.

• China Sovereign CDS 49.5 -.75 basis point.

• Bloomberg Emerging Markets Currency Index  65.19 -.02%.

• FTSE 100 futures -.06%.

• S&P 500 futures +.22%.

• NASDAQ 100 futures +.23%.

Morning Preview Links 

Earnings of Note 
Company/Estimate

Before the Open:

• None of note

After the Close:

• None of note

Economic Releases
10:00 am EST

• JOLTS Job Openings for Aug. are estimated to rise to 7250 versus 7217 in July.

• Wholesale Trade Sales MoM for Aug.
  

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory gain of +1,438,300 barrels versus a +3,104,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -418,000 barrels versus a -228,000 barrel decline the prior week. Distillate inventories are estimated to fall by -2,031,500 barrels versus a -2,418,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise +.16% versus a -3.4% decline prior.
  

2:00 pm EST

• FOMC Meeting Minutes for Sept. 18.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Powell speaking, $24B 10Y T-Note auction and the weekly MBA Mortgage Applications report could also impact trading today.

BOTTOM LINE: Asian indices are 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.

Stocks Lower into Final Hour on Rising China Trade Tensions, FOMC Commentary, Technical Selling, Tech/Medical Sector Weakness

 Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Around Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 18.9 +6.3%

• Euro/Yen Carry Return Index 121.92 -.20%

• Emerging Markets Currency Volatility(VXY) 8.19 +.24%

• S&P 500 Implied Correlation 45.70 +5.0%

• ISE Sentiment Index 78.0 -5.1%
  

• Total Put/Call .96 -11.11%

• NYSE Arms 1.17 -5.7%

Credit Investor Angst:

• North American Investment Grade CDS Index 61.84 +1.48%
  

• America Energy Sector High-Yield CDS Index 503.0 +1.82%

• European Financial Sector CDS Index 69.50 +2.7%

• Italian/German 10Y Yld Spread 143.75 +1.0 basis point
  

• Asia Ex-Japan Investment Grade CDS Index 79.05 +.73%
  

• Emerging Market CDS Index 214.86 +.35%
  

• iBoxx Offshore RMB China Corporate High Yield Index 166.27 +.04%

• 2-Year Swap Spread 3.0 +.25 basis point

• TED Spread 34.25 +.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -24.5 -.75 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 65.21 -.11%
• 3-Month T-Bill Yield 1.68% -2.0 basis points

• Yield Curve .09 -4.0 basis points

• China Iron Ore Spot 89.35 USD/Metric Tonne -.38%

• Citi US Economic Surprise Index 19.0 -1.9 points

• Citi Eurozone Economic Surprise Index -77.30 +.4 point

• Citi Emerging Markets Economic Surprise Index -11.0 -.2 point

• 10-Year TIPS Spread 1.48 -3.0 basis points
• 90.8% chance of Fed rate cut at Dec. 11th meeting, 95.6% chance of cut at Jan. 29th meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -177 open in Japan 
• China A50 Futures: Indicating -143 open in China

• DAX Futures: Indicating +5 open in Germany

Portfolio:

• Slightly Lower: On losses in my biotech/tech/retail/medical/industrial sector long

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my emerging market shorts

• Market Exposure: Moved to 25% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Growth -1.3%

Sector Underperformers:

• 1) Medical Equipment -2.2% 2) Semis -2.0% 3) Gaming -2.0%

Stocks Falling on Unusual Volume: 

• IPG, PD, OKTA, ZM, PZZA, EWBC, AVYA, ARLP, PKI, AXTA, ZYXI, TMO, EHTH, BSX, AKCA, AZZ, BSX, LAUR, BIO, ARVN, JAZZ, PKI, ANDE, AMEH, SE, WAT, ANDE, NTLA, AMBA and NKTR

Stocks With Unusual Put Option Activity:

• 1) ARNC 2) CBS 3) CHK 4) OPK 5) COST

Stocks With Most Negative News Mentions:

• 1) QGEN 2) NKTR 3) SDC 4) PBYI 5) JMIA

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth -.8%

Sector Outperformers:

• 1) Gold & Silver +1.4% 2) Homebuilding +.7% 3) Airlines +.6%

Stocks Rising on Unusual Volume:

• HA, DPZ and CYRX

Stocks With Unusual Call Option Activity:

• 1) DPZ 2) AMBA 3) XEC 4) RRC 5) APC

Stocks With Most Positive News Mentions:

• 1) NIO 2) DPZ 3) SSY 4) LXRP 5) TGT

Charts:

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

Mid-Day Market Internals

NYSE Composite Index:

• Volume Running -2.8% Below 100-Day Average
• 0 Sectors Rising, 11 Sectors Declining
• 22.7% of Issues Advancing, 75.4% Declining
• 56 New 52-Week Highs, 83 New Lows
• 51.3% of Issues Above 200-day Moving Average
• Average 14-Day RSI 44.2%
• Vix 19.5 +9.1%
• Total Put/Call 1.07 -.9%
• TRIN/Arms 1.27 +2.4%

Tuesday Watch

Evening Headlines

Bloomberg:        

• U.S. Blacklists Eight Chinese Tech Companies on Rights Violations.

• Trump Whipsaws on Turkey as Threat Follows Green Light on Syria.  

• Boris Johnson Preparing for Brexit Talks to Collapse: Spectator.

• World Bank Joins Warning About Dimming Global Growth Prospects.

• Asia Stocks Look Mixed as China Trade Talks Near. Asian stocks look likely to trade mixed after a weak U.S. session as investors mulled the upcoming U.S.-China trade talks. Treasuries slipped and the dollar gained. Futures in Japan pointed higher and were little changed in South Korea. S&P 500 contracts were little changed in early Asian trading. Investor focus will be on Chinese markets, which reopen after a weeklong holiday, as well as those in Hong Kong after escalating violence in the city. U.S. stocks ended the day lower after bouncing between small gains and losses in light volume. After the close of New York markets, the U.S. placed eight Chinese technology companies on a blacklist because of alleged human-rights violations, a move that may add to tensions between the countries. Nikkei 225 futures fell 0.2% in Chicago. Australia’s S&P 200 Index contracts rose 0.4%. S&P 500 futures were flat as of 8:11 a.m. in Tokyo.

• Five Things You Need to Know to Start Your Day 

• Trump’s Turkey Threat, U.S.-China Talks, Embracing MMT: Eco Day

• Crude Steady as Nerves Set In Ahead of U.S.-China Trade Talks

• Boeing Sued by Southwest Pilots on ‘Rush’ to Sell Unsafe Max.

• Hedge Funds Post the Best Performance This Year Since 2013.

• Juul Accused by School Districts of Creating Vaping ‘Nuisance’.

Wall Street Journal:

• Teens Ignored Vaping Warnings for Years. Now, Some Are Scared.

• McConnell Urges Trump to Keep Syria Troops as Bipartisan Criticism Mounts.

• Houston, We Have a China Problem.

• The NBA Responded. U.S. Politicians Roared. Now It’s China’s Move.

Fox News:

• IG couldn't explain window between Ukraine call and whistleblower complaint, sources reveal.

• Dem congresswoman on why official vote on impeachment hasn't happened.

CNBC:

• Researchers find e-cigarettes cause lung cancer in mice in first study tying vaping to cancer.

• Charles Schwab says he would never buy the money-losing companies going public these days.

• Senators pile on the NBA for yielding to China over Rockets GM’s pro-Hong Kong tweet.

• Trump’s updated China blacklist slams shares of chipmaker Ambarella.

• Stocks making the biggest moves after hours: American Airlines, Qiagen, Ambarella and more.

Zero Hedge:   

• China De-Dollarization Pushes Into Hyperdrive, Adds 100 Tons Of Gold Amid Trade War Chaos.

• Student, Car Loans Surge Most In Three Years.

• Willie Brown Stiffs Kamala Harris; Says Hillary Clinton The Only One Who Can Beat Trump.

• Erdogan's Syria Invasion Begins: Turkish Jets Filmed Bombing Kurdish Targets.

• Taibbi Trounces Ukraine-Gate Protagonist As "Insult To Real Whistleblowers".

• FBI Data Shows 5 Times More People Killed By Knives Than Rifles Last Year.

• Stocks Chop On Repo Ramp, Kudlow Comments, Trade Trouble, & Warren Woosh.

Night Trading 

• Asian equity indices are -.5% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 78.5 -.25 basis point.

• China Sovereign CDS 50.25 +1.25 basis points.

• Bloomberg Emerging Markets Currency Index  65.27 -.02%.

• FTSE 100 futures n/a.

• S&P 500 futures -.02%.

• NASDAQ 100 futures +.03%.

Morning Preview Links 

Earnings of Note 
Company/Estimate

Before the Open:

• (AZZ)/.56

• (DPZ)/2.08

• (HELE)/1.96

After the Close:

• (LEVI)/.28

Economic Releases
6:00 am EST

• The NFIB Small Business Optimism Index for Sept. is estimated to fall to 102.0 versus 103.1 in Aug.

8:30 am EST

• The PPI Final Demand MoM for Sept. is estimated to rise +.1% versus a +.1% gain in Aug.

• PPI Ex Food and Energy MoM for Sept. is estimated to  rise +.2% versus a +.3% gain in Aug.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Powell speaking, China Loan Data report, $38B 3Y T-Note auction, weekly US retail sales reports, (FEYE) analyst day and the (STZ) investor presentation 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.