Stocks Reversing Lower into Final Hour on Rising Global Growth Fears, Mid-East Unrest, Tech/Commodity Sector Weakness, Technical Selling

Today's Market Take:
 
Broad Market Tone:

• Advance/Decline Line: Lower
• Sector Performance: Mixed
• Volume: Below Average
• Market Leading Stocks: Underperforming

Equity Investor Angst:

• VIX 14.22 -2.13%
• ISE Sentiment Index 82.0 -37.4%
• Total Put/Call .90 +12.5%
• NYSE Arms 1.42 +116.35%

Credit Investor Angst:

• North American Investment Grade CDS Index 94.86 bps -.23%
• European Financial Sector CDS Index 178.79 bps -3.76%
• Western Europe Sovereign Debt CDS Index 137.77 bps -4.13%
• Emerging Market CDS Index 214.09 bps -1.53%
• 2-Year Swap Spread 14.0 +.75 basis point
• TED Spread 25.5 unch.
• 3-Month EUR/USD Cross-Currency Basis Swap -22.25 +.75 basis point

Economic Gauges:

• 3-Month T-Bill Yield .10% unch.
• Yield Curve 147.0 +5 basis points
• China Import Iron Ore Spot $104.20/Metric Tonne unch.
• Citi US Economic Surprise Index 43.50 +25.8 points
• 10-Year TIPS Spread 2.57 +2 basis points

Overseas Futures:

• Nikkei Futures: Indicating +29 open in Japan
• DAX Futures: Indicating -40 open in Germany

Portfolio:

• Slightly Higher: On gains in my Biotech/Retail sector longs and index hedges
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short
• Market Exposure: Moved to 25% Net Long

Today's Headlines

Bloomberg: 

• Metro Cuts Profit Forecast as Europe Slowdown Hurts Sales. Metro AG (MEO), Germany’s biggest retailer, cut its 2012 profit forecast, saying Europe’s sovereign-debt crisis is weighing on sales in the south and east of the region. Earnings before interest and taxes will decline to about 2 billion euros ($2.6 billion) in 2012, the Dusseldorf-based retailer said in a statement today. It had previously forecast earnings would be about the same as 2011’s 2.37 billion euros. The shares fell the most in about 10 months. “The European consumer environment has worsened further in recent weeks against the backdrop of rising unemployment, which has hit a new record high in the euro zone,” said the company, which owns Media Markt electronics stores. “This has also started to materially affect Metro Group’s business development, especially in southern Europe and parts of eastern Europe.” 
• Spain Deterred From Bailout Request as EU Questions Deficit Plan. Spain has been deterred from triggering the currency union’s rescue mechanisms because of concerns about how, and even whether, the process would work, Deputy Prime Minister Soraya Saenz de Santamaria said today. “We need to have all the elements on the table and also the certainty that it would materialize” before making a bailout request, Saenz said at press conference in Madrid following the government’s weekly Cabinet meeting. Her comments help explain why Spanish officials have sought to damp expectations of a bailout request amid rising criticism of their plans to tame the budget deficit. Prime Minister Mariano Rajoy has said he is considering a request for European Union bond buying to try to bring down borrowing costs that remain more than 100 basis points above their average for the last decade. EU deficit enforcer Olli Rehn and Spanish central bank governor Luis Maria Linde this week both questioned the math that the government says will deliver the country’s deficit- reduction commitments over the next 15 months. Spain’s high funding costs are complicating the debt-reduction effort. “There is a rising fear that the 2013 budget and the stress tests may have been some sort of window dressing to get European assistance,” Thomas Costerg, an economist at Standard Chartered Bank in London, said yesterday by e-mail.
• Merkel’s First Greek Crisis Visit May Mark Turning Point. German Chancellor Angela Merkel will travel to Athens for the first time since Europe’s financial crisis broke out there three years ago, a sign she’s seeking to silence the debate on pushing Greece out of the euro. Merkel’s visit to the Greek capital Oct. 9 to meet with Prime Minister Antonis Samaras underscores the shift in her stance since she held out the prospect last year of Greece exiting the 17-nation currency regime. 
• Al-Qaeda Affiliates Getting Stronger, Says U.S. Official. Terrorist groups in Mali and Yemen that are affiliated with al-Qaeda are “gaining strength,” in large part by taking hostages for ransom, a senior U.S. Treasury official said today. “The U.S. government estimates that terrorist organizations have collected approximately $120 million in ransom payments over the past eight years,” said Deputy Treasury Secretary David Cohen in a speech to the Royal Institute of International Affairs at Chatham House in London. U.S. intelligence officials are investigating whether the two main groups Cohen cited, al-Qaeda in the Islamic Maghreb and al-Qaeda in the Arabian Peninsula, may have played a role in the Sept. 11 attack on a U.S. diplomatic post in Benghazi, Libya, that killed Christopher Stevens, the American ambassador to Libya, and three other Americans.
• India’s NSE Says 59 Erroneous Orders Caused Index Plunge. The National Stock Exchange of India said 59 erroneous orders prompted a plunge in equities that briefly erased about $58 billion in value, underscoring growing global concern about the integrity of financial markets. Trading in the S&P CNX Nifty (NIFTY) Index and some individual companies stopped at 9:49 a.m. in Mumbai for 15 minutes after the 50-stock gauge tumbled as much as 16 percent. The volume of stocks in the benchmark index that were traded today almost doubled from the 100-day average, according to data compiled by Bloomberg. An index of Indian stocks traded in New York slipped as much as 1 percent. 
• Food Prices May Stay High in Next Six Months on Drought: FAO. Global food prices will probably stay high in the next six months after drought in the U.S. and Russia cut grain supplies, said the United Nations. The global market “will switch to a short supply mode” for the first time in two years, said Hiroyuki Konuma, the regional representative for Asia and Pacific at the UN’s Food & Agriculture Organization. “We will have to monitor it very cautiously,” he said in a phone interview on Oct. 3. 
• Oil Heads for Third Weekly Drop on Supply/Demand Worries. Futures are set to cap the longest run of weekly decreases since June after the Energy Department reported on Oct. 3 that U.S. crude output rose to 6.52 million barrels a day last week, the most since December 1996. Crude oil for November delivery fell $2.18, or 2.4 percent, to $89.53 a barrel at 1:49 p.m. on the New York Mercantile Exchange. The contract dropped as low as $89.01. Prices are down 2.9 percent this week. Brent oil for November settlement slipped 95 cents, or 0.8 percent, to $111.63 a barrel on the London-based ICE Futures Europe exchange.

MarketWatch.com: 

• Brace for worst earnings since recession rebound. S&P 500 firms slated to report earnings drop; low-balling is typical. This earnings season threatens to be one of the roughest since U.S. companies started to pull themselves out of the Great Recession — even if, as usual, results don’t live up to the worst of the gloom-and-doom forecasts. Revenue streams are drying up as China’s growth slows and Europe reels from crisis to crisis. Companies are finding fewer places to cut costs. 
• QE3 was a sign of failure. When Federal Reserve Chairman Ben Bernanke announced a new round of unconventional monetary stimulus last month, he couched it in the language of grim necessity, saying:

CNBC: 

• Spain Finance Minister’s ‘No Bailout’ Remark Sparks Laughter. 
• Zynga(ZNGA) Is in Trouble...And That’s Not Great for Facebook(FB).

Zero Hedge: 

• NFP Prints 114K, On Top Of Expectations Of 115K; Unemployment Rate Tumbles To 7.8% On Expectations Of 8.2%. (graphs) 
• Reason For Today's Unemployment Rate Plunge: Part-Time Jobs For Economic Reasons Surge Most Since QE1 Announcement. (graph)
• Meanwhile, In Bahrain... (pics) 
• Hostilities Between Turkey And Syria Resume As Two Countries Exchange Fire. 

Business Insider: 

• JACK WELCH: Obama Is Manipulating The Jobs Numbers Because His Debate Performance Was Awful.
• Professor Explains Why Aleppo And Damascus Are Doomed. 
• Today's 'Good' Jobs Report Was Actually Terrible.  
• STUDY: Electric Cars May Be Twice As Bad For Global Warming As Regular Cars.
• Lawyers Are Being Forced To Compete 'Hunger Games' Style For Jobs.  
• The Incredibly Ballooning Bailout Of Cyprus.  
• Why California's Gas Price Nightmare Could Last For Weeks.  
• ROSENBERG: I Don't Believe In Conspiracy Theories, But I Don't Believe In Today's Jobs Report Either. 

 24/7 Wall St.: 

• Federal Employment Set to Tumble Off Fiscal Cliff. About 14% of the total federal government workforce could lose their jobs if U.S. lawmakers cannot figure out a way to avoid the looming fiscal cliff. That’s 277,000 non-military jobs, of which 48,000 would be lost to civilian defense workers and 229,000 would be lost to non-defense workers.

DailyFX: 

• Decline in German Factory Orders Dissapoints Expectations. German manufacturing orders dropped by 1.3% in August (seasonally adjusted), disappointing expectations for a 0.5% drop, and a reverse from July’s revised 0.3% rise in factory orders. Manufacturing orders were 4.8% less than August 2011, according to the Economy Ministry.
  

HedgeEye.com:

• Jobs Report: Fuzzy Math? (graphs)

Reuters:  

• US stuck with 'extraordinary' level of vacant homes-Fed's Duke. The U.S. housing bust has saddled the country with an "extraordinary" level of abandoned properties, inflicting heavy costs on the wider community which may warrant government aid to ease the problem, a top U.S. central banker said on Friday. "In order to see the robust economic recovery we all want, we need to deal effectively with the large volume of vacant and distressed properties throughout the country," said Federal Reserve Board Governor Elizabeth Duke. 
• VW cuts output target, halts German Passat plant. Volkswagen halted production in Germany of its Passat cars this week as part of a wider move to cut its group output target for the year by about 300,000 vehicles because of the European market slump, company sources said. The global production target for the VW group, which includes luxury division Audi, has been cut to 9.4 million cars this year, up on last year's output of 8.5 million but short of the goal originally set for this year of about 9.7 million, the sources said on Friday. 
• California gasoline prices jump 17 cents a gallon overnight. California gas prices rose 17 cents a gallon overnight due to supply disruptions at some refineries and seasonally low inventories, bringing the one-week increase in the Golden State to nearly 36 cents. The average retail price of gasoline was $4.486 on Friday morning, up from $4.315 on Thursday and $4.131 a week ago, according to AAA data. The average price was $3.818 a year ago. The average price is just 12 cents below the highest recorded statewide price of $4.61, which was reached in June of 2008. "It's insane," said Matt Hurd, 35, who works in real estate. "Especially with this thing," he added, motioning toward his white SUV. "It's going to cost triple digits to fill it up."

Handelsblatt:

• IMF Reduces German Economic Growth Forecast. The IMF expects the German economy to grow .9% each year in 2012 and 2013, lower than the respective 1% and 1.4% rates forecast in July, citing the fund's World Economic Outlook to be published Oct. 9.

Bear Radar

Style Underperformer:

• Large-Cap Growth -.20%

Sector Underperformer:

• 1) HMOs -1.0% 2) Coal -.90% 3) Software -.70%
  

Stocks Faling on Unusual Volume:

• FFIV, AAPL, MRCY, SABA, SPSC, WLP, TM, IQNT, FSLR, IMOS, MBT, MVO, SRPT, NUVA, ASPS, LQDT, PNRA, MAR, BRLI, CMG, FTK, IMOS, CAKE, BJRI, CHUY, CTXS, SPLK, INFY, CALM, GMCR, PRXL, EZA and MDCO
  

Stocks With Unusual Put Option Activity:

• 1) XLY 2) RSX 3) ZNGA 4) FSLR 5) EWA
  

Stocks With Most Negative News Mentions:

• 1) MRCY 2) CAKE 3) MAR 4) BHI 5) EBAY
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value +.75%

Sector Outperformers:

• 1) Homebuilding +1.65% 2) Education +1.49% 3) Airlines +1.09%
  

Stocks Rising on Unusual Volume:

• TQNT, SAND, ALJ, ETP, INFA, PAY, AVP, OI, STZ and  PBY

Stocks With Unusual Call Option Activity:

• 1) LINE 2) OCN 3) AVP 4) VRNG 5) ACAD
  

Stocks With Most Positive News Mentions:

• 1) OI 2) TMO 3) STZ 4) LMT 5) XOM

Charts:

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

Friday Watch

Evening Headlines
Bloomberg: 

• Draghi Says Next Move Not His as Spain Resists Bailout. European Central Bank President Mario Draghi signaled European governments can’t expect much more help from him until they make the next move. Draghi said nine times during a 54-minute press conference in Slovenia yesterday that the ECB won’t start intervening in bond markets until governments like Spain request a bailout and agree to conditions. He also ruled out allowing the ECB to take losses in any further Greek debt restructuring and damped speculation of another ECB interest-rate cut. “Draghi’s message to governments was that he’s not going to do any more for the time being,” said Jacques Cailloux, chief European economist at Nomura International Plc in London. “The ECB is ready, if needed, but their preference is probably not to have to intervene at all.”
• EU Doubts on Deficit Cutting May Hinder Spain’s Path to Bailout. European officials’ concern over’s Spain’s ability to reach its 2013 deficit-reduction target may obstruct Prime Minister Mariano Rajoy’s path toward a possible bailout. Olli Rehn, the European commissioner in charge of policing budget rules, told Spanish officials their plans to reduce the shortfall to 4.5 percent of gross domestic product next year are based on excessively optimistic assumptions about economic growth, two people familiar with the issue said. Central bank governor Luis Maria Linde, who met Rehn on his Oct. 1 visit to Madrid, echoed that view in comments to lawmakers yesterday. There’s “a potential slowdown in Spain’s application for a European program,” Thomas Costerg, an economist at Standard Chartered Bank in London, said yesterday by e-mail. “There is a rising fear that the 2013 budget and the stress tests may have been some sort of window dressing to get European assistance.”
• Spain Sees Divorce Driving Breakup of Towns as Recession Deepens. At 10 a.m. on a hot Friday, Antonio Rodriguez Alvarez and his brother, Francisco, sit outside a bar in Ecija, Spain, drinking an anise liquor with water. Unemployed laborers, they visit the job center daily at 9 a.m. in search of work. When there is none, they repair to the bar and worry. Antonio, 44, is divorced and living with his mother. He split with his wife partly because of constant fights about money and his lack of a job. He now weighs going to France, where he heard there is work picking fruit. His 22-year-old daughter is planning a move to the Canary Islands to work in the tourism industry. He said he doesn’t blame her. “Young people are leaving this town,” he said. “There’s no hope, no jobs. Days are long. You wake up, it’s the crisis. You go to bed, it’s the crisis. It’s always the same around here.”
• Bullard Says Investors Doubt Fed to Hold Inflation to 2%. Federal Reserve Bank of St. Louis President James Bullard said measures of inflation expectations indicate bond holders have doubts the central bank will hold price increases within its 2 percent goal. “Distant inflation expectations from the TIPS market seem to suggest that investors do not completely trust the Fed to deliver on its 2 percent inflation target,” Bullard said today in a speech in Memphis, Tennessee, referring to Treasury Inflation-Protected Securities. Bullard’s comments echoed Dallas Fed President Richard Fisher’s concern about rising expectations following the Federal Open Market Committee’s decision last month to start an asset purchase program. Policy makers said they could change the size of the central bank’s monthly asset purchases to reduce any risks from the program, including higher inflation or a disruption to financial markets, according to minutes of the Sept. 12-13 meeting released today. The five-year, five-year forward break-even rate, which projects the pace of price increases starting in 2017, rose to 2.88 percent on Sept. 14, the day after the FOMC announced a third round of quantitative easing. That was up half a percentage point from July 26. It dropped to 2.77 percent on Oct. 2. Bullard, who doesn’t vote on monetary policy this year, said inflation “is sometimes seen as a way to partially default on existing nominal debts,” and said that approach would hurt savers, mostly older U.S. households, in his prepared remarks to the Economic Club of Memphis. “A partial default today through higher inflation would be paid for via higher inflation premiums in future borrowing,” he said. “This type of policy would likely impair U.S. credit markets for many years.” 
• Mazda China Sales Tumble to 19-Month Low on Anti-Japan Protests. Mazda Motor Corp. (7261)’s deliveries in China tumbled to the lowest in 19 months as anti-Japan protests flared in the world’s largest vehicle market, fueling concern larger automakers such as Toyota (7203) Motor Corp. will follow suit. Mazda saw deliveries in China drop 35 percent to 13,258 vehicles last month, the automaker said on its website yesterday. That’s the fewest deliveries since February 2011, meaning the company couldn’t even match its sales during the aftermath of last year’s earthquake-triggered tsunami in Japan and floods in Thailand.
• California Refiners Ration Gasoline as Prices Near Record. Exxon Mobil Corp. (XOM) and Valero Energy Corp. (VLO) are rationing fuel deliveries to customers in California as refinery outages cut into the state’s supplies, driving pump prices toward record highs. Valero halted spot sales of gasoline in Southern California and is allocating the rest of deliveries to customers. Exxon is also rationing fuel to customers at West Coast terminals. Retail prices in California jumped to $4.315 a gallon Oct. 3, according to AAA, the nation’s biggest motoring organization. The shortage caused Los Angeles-area gasoline station owners, including Costco Wholesale Corp., to run out of supplies, shut pumps and, in some cases, charge their highest prices ever. Spot gasoline in California, already home to some of the most expensive fuel in the nation because of state blending requirements, has surged $1 a gallon this week to a record. “We’re really sort of shell-shocked,” said Tom Robinson, president of Santa Clara, California-based Robinson Oil Corp., which operates 34 Rotten Robbie convenience stores. “If you’ve been in California long enough, you know how volatile our market can be. But to see prices go up $1 a gallon since Monday -- I’ve never seen that before.”
• Zynga(ZNGA) Cuts Bookings Forecast, Citing Diminished Game Demand. Zynga Inc. cut its forecast for full- year bookings, a predictor of sales, citing lower demand for Web games such as “The Ville” and delayed introduction of other titles. Shares tumbled as much as 22 percent. Bookings this year will be $1.085 billion to $1.1 billion, compared with an earlier forecast for $1.15 billion to $1.225 billion, San Francisco-based Zynga said today in a statement. The company also wrote down the value of its acquisition of OMGPop Inc., maker of the “Draw Something” game, and sliced its forecast for a closely watched measure of profitability.
• Gold Traders More Bullish as Holdings Reach Record: Commodities. Gold traders are the most bullish in three weeks as investors’ bullion holdings expanded to a record after central banks pledged to do more to spur economic growth. Twenty of 32 analysts surveyed by Bloomberg expect prices to rise next week, nine were bearish and three were neutral. Investors are holding the most metal ever through gold-backed exchange-traded products after buying 85.4 metric tons last month, the most since July 2011. Hedge funds’ bets on a rally are the biggest in seven months, U.S. Commodity Futures Trading Commission data show.

Wall Street Journal: 

• FBI Team Reaches Libya Attack Site. Federal Bureau of Investigation agents visited the burned-out U.S. Consulate in Benghazi for the first time on Thursday, more than three weeks after Ambassador to Libya Christopher Stevens and three other Americans were killed in an attack there on Sept. 11. The agents collected evidence for about 12 hours with protection from U.S. military personnel and perimeter security from Libyan personnel, then left the city because of security concerns, officials said; the visit was kept secret to avoid any strike by militants while agents were there.
• Turkey Strikes Syria, Adds War Powers. Syria Accuses Neighbor of Fueling Conflict As Ankara Shells Positions for Second Day. Turkey attacked targets inside Syria for a second day Thursday and its parliament authorized military offensives into foreign countries, deepening the threat of sustained conflict along the neighbors' 565-mile common border. Syria, at the United Nations, castigated its neighbor for policies it said were fueling the conflict. Ankara's military and legislative moves came a day after Syrian shells landed in the Turkish border town of Akcakale, killing five people and spurring Turkish retaliatory strikes.  
• Natural Gas Glut Pushes Exports.
• Investors Jump Off the 'Junk' Pile. The massive "junk"-bond boom is raising alarm bells among some large money managers, who warn the market is showing signs of overheating. So much money has flooded into the junk-bond market from yield-hungry investors that weaker and weaker companies are able to sell bonds, they say. Credit ratings of many borrowers are lower and debt levels are higher, making defaults more likely. And with yields near record lows, they add, investors aren't being compensated for that risk. Also worrying money managers is that some new sales have similar hallmarks to those that preceded the financial crisis in 2008.
• Foreign Firms Flood Into U.S. Debt Market. "Go Yankees" isn't just an October refrain in baseball. Foreign borrowers' U.S. dollar-denominated debt, or "Yankee bonds," are offering investors a chance to pick up higher yields and diversify their portfolios. Banks in Spain and France, plus corporate borrowers in Chile, Russia and the U.K., all brought bonds to market Thursday, selling at least $8.15 billion combined. The internationalization of the U.S. bond market means investors can diversify portfolios without having to take on much currency risk. And often, foreign companies offer higher yields than U.S. counterparts.
• Higgins and Heath: Informed Independents Cool to ObamaCare. Presenting facts about even popular aspects of the health-care law had a side effect: increasing support for Mitt Romney.
• The Obama Matrix. Romney's triumph came from exposing the President's campaign illusions.

Fox News: 

• Exclusive: Credit Suisse probed by U.S. over mortgages - sources. U.S. federal and state authorities are investigating Credit Suisse AG over mortgage-backed securities packaged and sold by the bank, people familiar with the probe said on Thursday. The Justice Department and the New York Attorney General are among those probing Credit Suisse's actions, according to the sources, who spoke on condition of anonymity.

Zero Hedge:

• Who Really Calls The Shots In Europe.  
• Artemis Capital "Modern Financial Markets Are A Game Of Impossible Objects".

Business Insider:

• Two Carrier Groups Are Now Operating In The China Sea.
• China Wants To Wean Itself Off The Dollar, But Risks Destroying Chinese Wealth.
• Obama Administration Offers To Bankroll Legal Fees For Defense Firms. The automatic defense cuts associated with the fiscal cliff, and the notifications that would be required if defense firms plan to lay off employees, has created an election concern for the Obama administration. So, the administration has decided to offer to bankroll the legal fees that these companies may incur if they opt not to notify employees 60 days prior to the layoffs, as the law stipulates.
• CHARTS: Social Media Analysis Reveals Just How Badly Mitt Romney Trounced Obama Last Night.

NY Times: 

• Glut of Solar Panels Poses a New Threat to China. China in recent years established global dominance in renewable energy, its solar panel and wind turbine factories forcing many foreign rivals out of business and its policy makers hailed by environmentalists around the world as visionaries. But now China’s strategy is in disarray. Though worldwide demand for solar panels and wind turbines has grown rapidly over the last five years, China’s manufacturing capacity has soared even faster, creating enormous oversupply and a ferocious price war.

LA Times: 

• LAPD stance on illegal immigration puts Chief Beck in hot seat. Los Angeles Police Chief Charlie Beck stepped into the national immigration debate Thursday, announcing that hundreds of illegal immigrants arrested by his officers each year in low-level crimes would no longer be turned over to federal authorities for deportation. The new rules, which are expected to affect about 400 people arrested each year, mark a dramatic attempt by the nation's second-largest police department to distance itself from federal immigration policies that Beck says are unfair to undocumented immigrants suspected of committing petty offenses.

CNN:

• Work from home soars 41% in 10 years. The number of Americans working from home has soared 41% in the last decade. About 13.4 million people currently work from home in the United States, according to a Census Bureau report out Thursday. That's about four million more Americans since 1999.

Reuters:

• Actress Daryl Hannah arrested in Keystone pipeline protest. Actress Daryl Hannah was arrested in Texas on Thursday after she stood in front of an earth-moving machine clearing ground for the construction of the controversial Keystone XL pipeline, her representative said. The protest took place outside Winnsboro, Texas, about 80 miles (130 km) east of Dallas, said Hannah's agent, Paul Bassis. Hannah, 51, a longtime environmental activist, was arrested last year outside the White House in another protest against the pipeline. The Keystone XL pipeline, a project of TransCanada Corp, would ship more than half a million barrels a day of oil sands-derived crude to the Texas Gulf Coast from Canada. 
• Facebook(FB) IPO lawsuits to be heard in New York. Dozens of lawsuits against Facebook Inc , the NASDAQ exchange and various underwriters will be consolidated before a federal judge in New York, who must sort through the legal aftermath of Facebook's botched initial public offering. 
• Obama-Romney debate draws 67.2 million TV viewers. More than 67 million Americans tuned in to Wednesday's first presidential debate between President Barack Obama and Mitt Romney, ranking the match-up among the top 10 of the past 30 years. Final Nielsen data on Thursday showed that 67.2 million people across 11 TV networks watched Obama and Romney go head to head on the economy - a 28 percent increase on the 52.4 million who saw the first 2008 debate between Obama and Republican John McCain.

Financial Times:   

• Morgan Stanley(MS) chief warns on Wall St pay. Morgan Stanley is preparing to wield its axe again with more job cuts and smaller bonuses planned for next year as the investment bank attempts to boost shareholder returns. In the latest sign of the pressure Wall Street is under to cut costs and address high pay levels, James Gorman, chief executive, said that staff and remuneration would have to be sacrificed as banks cope with lower profits.

Telegraph:

• QE3 could lead to excessive risk taking, Fed minutes show. America could become addicted to loose monetary policy, with an extended period of QE3 leading to excessive risk-taking by some investors, policymakers at the Federal Reserve have warned.

Les Echos:

• France's INSEE Sees No Pickup in Economy Through Year End. Institut de la Statistique et des Etudes Economiques said 2H growth will be +.2% GDP, down from +.4% forecast in June. INSEE forecasts unemployment will reach 10.2% by year end, 10.6% including overseas territories. French purchasing power will drop -.5%, the most since 1984, according to INSEE.

Yomiuri:

• Toyota Sept. China Sales Dropped 50% From Previous Month. China sales in September plunged 50% compared with August. Toyota plans to reduce China production this month. The co.'s August China sales declined 15% from a year earlier.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.25% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 129.50 -2.5 basis points.
• Asia Pacific Sovereign CDS Index 110.0 -4.25 basis points.
• FTSE-100 futures +.43%.
• S&P 500 futures +.10%.
• NASDAQ 100 futures +.14%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (STZ)/.54

Economic Releases
8:30 am EST

• The Change in Non-farm Payrolls for September is estimated at 115K versus 96K in August.
• The Unemployment Rate for September is estimated to rise to 8.2% versus 8.1% in August.
• Average Hourly Earnings for September is estimated to rise +.2% versus unch. in August.

3:00 pm EST

• Consumer Credit for August is estimated to rise to $7.250B versus -$3.276B in July.

Upcoming Splits

• (VXX) 1-for-4
  

Other Potential Market Movers

• The Fed's Duke speaking, Eurozone Factory Orders report and the BoJ rate decision could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and financial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

Stocks Rising into Final Hour on Euro Bounce, Presidential Debate, Short-Covering, Financial/Commodity Sector Strength

Broad Market Tone:

• Advance/Decline Line: Higher
• Sector Performance: Most Sectors Rising
• Volume: Below Average
• Market Leading Stocks: Underperforming

Equity Investor Angst:

• VIX 15.04 -2.53%
• ISE Sentiment Index 126.0 +14.55%
• Total Put/Call .89 -4.30%
• NYSE Arms .80 -1.66%

Credit Investor Angst:

• North American Investment Grade CDS Index 95.11 bps -.86%
• European Financial Sector CDS Index 185.86 bps -.63%
• Western Europe Sovereign Debt CDS Index 143.78 bps -1.05%
• Emerging Market CDS Index 217.55 bps +1.02%
• 2-Year Swap Spread 13.25 -.25 basis point
• TED Spread 25.5 -1.0 basis point
• 3-Month EUR/USD Cross-Currency Basis Swap -23.0 +3.0 basis point

Economic Gauges:

• 3-Month T-Bill Yield .10% +1 basis point
• Yield Curve 142.0+4 basis points
• China Import Iron Ore Spot $104.20/Metric Tonne unch.
• Citi US Economic Surprise Index 17.70 +.3 point
• 10-Year TIPS Spread 2.55 +7 basis points

Overseas Futures:

• Nikkei Futures: Indicating +27 open in Japan
• DAX Futures: Indicating +17 open in Germany

Portfolio:

• Slightly Higher: On gains in my Biotech/Medical/Retail/Tech sector longs
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and covered some of my (EEM) short, then added them back
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades higher despite rising global growth fears, rising food/energy prices, earnings worries, growing Mid-east unrest, China/Japan tensions and US "fiscal cliff" worries. On the positive side, Coal, Steel, Bank, I-Banking and Education shares are especially strong, rising more than +1.25%. (XLF) has traded well throughout the day. Cyclicals are outperforming. The 10Y Yld is rising +5 bps to 1.67%. Major Asian indices were mostly higher overnight, led by a +1.0% gain in India. The Germany sovereign cds is falling -3.0% to 52.92 bps, the Portugal sovereign cds is down -3.9% to 475.90 bps, the Ireland sovereign cds is falling -4.9% to 301.20 bps and the UK sovereign cds is down -2.9% to 51.35 bps. On the negative side, Computer, Defense, Networking, Computer Service, Hospital, REIT, Gaming and Airline shares are lower on the day. Lumber is falling -.54%, Oil is surging +4.1% and Gold is up +.74%. Major European indices are mostly lower, led down by a -.23% decline in Germany. The Bloomberg European Bank/Financial Services Index is up +.44% today. Brazil is -.3% today and down -2.7% over the last 5 days. The Spain 10Y Yld is rising +1.6% to 5.90% and the Italian/German 10Y Yld Spread is gaining +2.6% to 368.75 bps. The US sovereign cds is gaining +3.1% to 40.67 bps(+25.0% in 5 days) and the Israel sovereign cds is gaining +1.9% to 149.33 bps. The UBS/Bloomberg Ag Spot Index is up +22.7% since 6/1. The benchmark China Iron/Ore Spot Index is down -42.4% since 9/7/11. The China Hot Rolled Steel Sheet Spot Index also continues to trend lower despite the recent bounce. As well, copper, oil and lumber continue to trade poorly given equity investor perceptions that the Eurozone has successfully kicked-the-can, housing has hit a major bottom and global central bank stimuli will boost economic growth in the near future. US weekly retail sales have decelerated to a sluggish rate at +2.4%. The Philly Fed ADS Real-Time Business Conditions Index has shown meaningful deceleration since early July. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite investor perceptions of a big improvement in the nationwide housing market. The Baltic Dry Index has plunged around -65.0% from its Oct. 14th high and is now down around -55.0% ytd. Shanghai Copper Inventories have risen +336.0% ytd. Oil tanker rates have plunged, with the benchmark Middle East-to-US voyage down to 22.50 industry-standard worldscale points, which is very near the lowest since May, 2009. The 10Y T-Note continues to trade too well despite today's pullback. There still appears to be a fairly high level of complacency among US investors regarding the deteriorating macro backdrop. It remains unclear to me whether or not Germany will destroy its own balance sheet or allow the ECB to monetize debt in a major way in an attempt to "save" the euro even as investors continue to price this outcome into stocks. Massive tax hikes and spending cuts have still yet to hit in several key eurozone countries that are already in recession. A lack of economic competitiveness and growth incentives remain unaddressed problems. The European debt crisis is also really affecting emerging market economies now, which will further pressure exports from the region and further raise the odds of more sovereign/bank downgrades after the US election. I continue to believe that China's problems are much larger than commonly perceived and cannot be solved with another massive stimulus package given their real estate bubble, rising food prices/labor costs, massive overcapacity in certain key parts of the economy and growing bad loans problem. Little being done by global central bankers will actually boost global economic growth to an extent that overcomes the growing macro headwinds over the intermediate-term, in my opinion. Over the intermediate-term the Fed's recklessness greatly increases the chances of hard-landings in key emerging markets and of a serious global stock swoon, in my opinion. Moreover, uncertainty surrounding the effects on business of Obamacare, the "US fiscal cliff" and rising election outcome uncertainty will likely become more and more of a focus for US investors into the fourth quarter. The Mid-east continues to unravel at an alarming rate, as well. The quality of the stock rally off the June lows remains poor as breadth, volume, leadership, lack of big volume/gainers and copper/lumber/transports relative weakness all continue to be concerns. Thus, recent market p/e multiple expansion on global central bank stimulus/action hopes, is creating an unstable situation for equities, which could become a big problem unless a significant macro catalyst materializes soon. For this year's equity advance to regain traction, I would expect to see further European credit gauge improvement, a subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower food/energy prices, a US "fiscal cliff" solution, a calming in Mid-east and China/Japan tensions and higher-quality stock market leadership. I expect US stocks to trade modestly lower into the close from current levels on rising global growth fears, earnings worries, Japan/China/Mideast tensions, more shorting, profit-taking and US "fiscal cliff" concerns.