Today's Headlines

Bloomberg:  

• Putin's Bombing of Syria's Moderates Must Stop Now, EU Says. European Union governments demanded Russia stop targeting moderate groups opposed to Syrian President Bashar al-Assad after days of aerial bombardment and cruise-missile attacks. Scrambling to come up with a unified response to Vladimir Putin’s intervention in the crisis, foreign ministers of the EU’s 28 nations demanded Russia bomb only Islamic State extremists and other recognized terrorists or risk extending a civil war that’s already in its fifth year. “The recent Russian military attacks that go beyond” Islamic State and target the moderate Syrian opposition “are of deep concern and must cease immediately,” the foreign ministers said in a statement from their meeting in Luxembourg. “This military escalation risks prolonging the conflict, undermining a political process, aggravating the humanitarian situation and increasing radicalization.” Putin is building up his military presence in Assad’s stronghold on the eastern Mediterranean Sea, has fired cruise missiles from the Caspian Sea and violated Turkish airspace during bombing raids. The air campaign came as a surprise to the U.S. and EU countries, which have been conducting their own bombardments of IS targets.  

• China Sausage Maker Says May Miss Bond Payment as Defaults Mount. A Chinese sausage maker said it’s not sure if it can repay a bond after its director was put under house arrest, the latest case in China mixing corporate governance and debt problems. Based in the eastern province of Jiangsu, Nanjing Yurun Foods Co. is suffering cash shortages and great risks in its finances and operations, it said in a statement posted on the Chinamoney website. The company, which sold 1.3 billion yuan ($206 million) of bonds at a yield of 5.49 percent in 2012, must repay 1.37 billion yuan in principal and interest due Oct. 18, according to the statement. As that’s a Sunday, the effective due date is the following day, it says. Investors are growing alarmed as slowing economic growth and a fight against corruption compound strains in China’s 42.2 trillion yuan bond market. There have been four defaults this year, including one by China National Erzhong Group Co., according to China International Capital Corp. Kaisa Group Holdings Ltd. became the first Chinese developer to renege on a debt obligation in the offshore bond market in April after founder Kwok Ying Shing resigned amid a corruption probe.

• Jim Chanos: Playing Shanghai Market Is Like a Casino. (video) 

• Chanos Sees Tesla(TSLA) as an Overpriced Carmaker Compared With BMW. (video)

• Jim Chanos Hints at Glencore Short, Questions Company's Strategy. (video) Glencore Plc bought assets at the top of the market and is now selling at the bottom, said Kynikos Associates LP founder Jim Chanos, hinting that he is short the stock. “We are not going to comment on our position in Glencore, but what I will say is we know the company pretty well,” Chanos said in an interview with Bloomberg Television in New York. “I’m a potential purchaser,” he added. “To close out a short position you have to buy stock.”

• One Way Emerging Markets Are Shooting Themselves in the Foot. The founder of research firm Ecstrat highlights a structural reason for the underperformance of the asset class. Emerging-market stocks and currencies have taken a beating in 2015, but underperformance in these assets is hardly novel. The MSCI Emerging Market index hit its post-recession peak in 2011 and has been trounced by its developed-market counterpart since 2010. Emerging markets are now abandoning the liberalization of corporate governance regimes in the wake of the financial crisis, he concludes, with several large countries instead regressing and moving to more authoritarian or hierarchical systems that are not friendly to minority shareholders. These backsliders have entered a "vicious cycle," according to Smith, in which poor corporate governance will foster rounds of weakness in both EM economies and currencies.  

• Pimco's Bear Case Only Gets Stronger as Emerging Currencies Jump. Pacific Investment Management Co. is sticking with its pessimistic outlook on emerging-market currencies, saying the biggest rally in 17 years has only bolstered the case for making bearish wagers. “These currencies look more interesting to be underweight from here than they were a week ago,” Luke Spajic, an emerging markets money manager at Pimco, whose developing-nation currency fund has outperformed 97 percent of peers during the past five years, said in a phone interview on Monday. Pimco, which oversees $1.52 trillion, said in an Oct. 1 report that it had short positions in currencies such as Malaysia’s ringgit, the Thai baht and the South Korean won.

• Car Industry Sounds Alarm as EU Weighs Tougher Pollution Tests. The European Union auto industry sounded a warning in the push to toughen pollution tests after Volkswagen AG’s diesel-engine deception, saying future EU checks need to be “realistic” so they don’t drive up car prices, weaken sales and cause job losses. The salvo by the European Automobile Manufacturers’ Association comes as EU governments prepare their verdict on the details of an inspection regime penciled in for September 2017 that will gauge emissions of smog-causing nitrogen oxides under real driving conditions as well as in laboratories. The EU, where most cars are powered by diesel, wants new models to be tested on the road because of evidence that real-driving emissions are 400 percent to 500 percent higher than in labs.

• European Stocks Decline, Ending Best Winning Streak Since July. European stocks fell for the first time in seven days as commodity producers reversed early gains and ended their longest rally since 2000. Glencore Plc slipped 6.2 percent, erasing an advance of 5.2 percent. Kynikos Associates LP founder Jim Chanos hinted that he is short the stock. Rolls-Royce Holdings Plc and Safran SA lost 3.9 percent or more after a report that European regulators have started a probe into whether airlines are being forced to enter anti-competitive service contracts. The Stoxx Europe 600 Index lost 0.3 percent to 361.79 at the close of trading, erasing an intraday gain of as much as 0.3 percent.

• Iron Ore Seen Weaker as BHP, Rio `Squeeze Out' High-Cost Miners. Iron ore will extend declines in 2016 on rising low-cost supplies from the world’s largest miners, weak demand growth in China and a stronger dollar, according to BMI Research, while Goldman Sachs Group Inc. repeated a forecast for lower prices. Prices will trade between $50 and $60 a metric ton over the remainder of this year, then drop to a range of $45 and $55 in 2016, BMI said in a report e-mailed Monday. Ore with 62 percent content delivered to Qingdao rose 1.1 percent on Monday to $56.61 a dry ton, according to Metal Bulletin Ltd. Iron ore has dropped 21 percent this year as Rio Tinto Group and BHP Billiton Ltd. in Australia and Brazil’s Vale SA boosted low-cost supplies to increase market share even as demand growth stalled in China. Steel consumption in China was seen shrinking by an average of 1.3 percent annually between this year and 2019, BMI said. “Global iron ore majors will continue to ramp up production to squeeze out higher-cost competitors,” BMI said. “BHP Billiton, Rio Tinto and Vale all reported record output in 2014 and will increase output further in the quarters ahead.”

• Lockhart Says Improving U.S. Job Market Supports Liftoff in 2015. (video) Federal Reserve Bank of Atlanta President Dennis Lockhart said an improving U.S. job market warrants an interest-rate increase this year, reinforcing the message from other officials in recent days that they remain on track for liftoff in 2015. “We are getting much closer to the finish line from the point of view of whatever you would consider full employment,” Lockhart told reporters Monday after a speech in Orlando, Florida. “I would expect to continue to make progress. So the beginning of normalization of interest rates I think is quite justifiable in the context of continuing progress of multiple measures of employment.”

• Dividend Stocks Under Pressure as Growth Slows. (video)

• Lilly(LLY) Halts Cholesterol Drug, Losing a Potential Blockbuster. (video) Eli Lilly & Co. said it will stop development of evacetrapib, an experimental cholesterol drug with blockbuster potential, because it failed to benefit patients with heart disease. Lilly shares fell 7.1 percent to $80.05 at 9:52 a.m. in New York. The drug’s failure builds on a series of disappointments for medications that inhibit a molecule known as CETP, which results in higher levels of HDL. Also called good cholesterol, HDL is known to ferry fatty lipids out of the arteries. Merck & Co., which is still developing a CETP inhibitor, slid 1.6 percent to $50.11.

• Dell(DELL) Faces $60 Billion in Total Debt With EMC Deal. (video)

Wall Street Journal: 

• Russia Steps Up Bombing Campaign in Syria. Russian President Vladimir Putin defends decision to send warplanes as aimed at political solution.

MarketWatch.com:

• S&P downgrades Volkswagen and its subsidiaries by one notch to A-minus.

CNBC:

• Optimism turns negative among wealthy: Survey. (video)

• Market top? 2015 set to pass 2000 for M&A record.

• Tech bubble: This is ‘money in your mattress’ time.

• Dick Bove: US banks have been 'nationalized'. (video)

Zero Hedge: 

• Global Deflation Alert: Hidden EM Debts To China Could Be Immense. (graph)

• VIX Drops For 10th Day In A Row, Breaks Significant Technical Support. (graph)

• Deflation = Debt + Demographics + Disruption. (graph)

• Iran Openly Flouts Obama, Launches New Ballistic Missile.

• Glencore Production Cuts Backfire After World's Second Largest Miner Vows To Fill The Glencore Void. (graph)

• Oil Stumbles Below $49 As Goldman Warns "Lower For Even Longer". (graph)

Business Insider:

• CHANOS: We have a 'looming' oversupply problem.

• Here's Obama's strange response when he was told Putin was challenging his leadership. (video) Obama's reaction was stunning. He scowled and said, "In what way?"

• The 5 issues worrying investors with a potential train wreck looming in Washington.

• North Korea stages a massive military parade — and they say they're ready for war with 'US imperialists'. (video) 

• Apple(AAPL) is reportedly seeing 'disappointing' sales of the iPhone 6s. In a research note sent on Sunday, Pacific Crest says it believes the latest smartphone from Apple will sell well below analysts' expectations — 67 million iPhones versus consensus expectations of 76 million shipments throughout calendar Q4.

• One of the hottest debates in hedge funds is starting to boil over.

• GOLDMAN(GS): Welcome to the '3rd wave' of the financial crisis.

• A chart from the financial market's junkyard is 'flashing red'. (graph)

Reuters:

• Saudis tell Russia its actions in Syria will have 'dangerous consequences'. Moscow's military intervention in Syria will have "dangerous consequences", escalating sectarian war there and inspiring militants from around the world to join in, senior Saudi Arabian officials told Russia's leaders on Sunday, a Saudi source said. The message, twinned with a pledge of support for moderate foes of Syrian President Bashar al-Assad, Russia's ally, signals Saudi suspicions about Moscow's motives in entering a 4-1/2 year war in which some 250,000 people have been killed and some 11 million, or half the population, driven from their homes."The Russian intervention in Syria will engage them in a sectarian war," the source said on Monday, adding that the kingdom "warns of the dangerous consequences of the Russian intervention". "The Saudis will continue strengthening and supporting the moderate opposition in Syria," he added.

Bear Radar

Style Underperformer:

• Mid-Cap Value -.51%

Sector Underperformers:

• 1) Oil Service -3.62% 2) Gaming -2.25% 3) Road & Rail -2.09%

Stocks Falling on Unusual Volume:

• VMW, TWOU, LLY, CBPX, INFY, KYE, HYH, HTWR, FPL, CBA, EMO, TAP, SMCI, AAOI, MKTO, RJUS, AZZ, RDUS, ALDW, PTCT, WMGI, SHOP, KYN, JOY, AMID and RKUS

Stocks With Unusual Put Option Activity:

• 1) CVLT 2) CNX 3) FL 4) HOG 5) USO
  

Stocks With Most Negative News Mentions:

• 1) HOG 2) AA 3) CSX 4) CBPX 5) TWTR
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Growth +.09%

Sector Outperformers:

• 1) Airlines +1.68% 2) Utilities +.88% 3) HMOs +.77%
  

Stocks Rising on Unusual Volume:

• SKYW and BUFF

Stocks With Unusual Call Option Activity:

• 1) MAS 2) GRPN 3) NTAP 4) LLY 5) EMC
  

Stocks With Most Positive News Mentions:

• 1) ESPR 2) NOC 3) DGLY 4) EMC 5) FCAU
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running 8.1% Below 100-Day Average
• 5 Sectors Rising, 5 Sectors Declining
• 45.2% of Issues Advancing, 51.6% Declining
• 39 New 52-Week Highs, 7 New Lows
• 32.1% of Issues Above 200-day Moving Average
• Average 14-Day RSI 47.9
• Vix 17.3
• Total Put/Call 1.0
• TRIN/Arms 1.75

Monday Watch

Today's Headlines 

Bloomberg:  

• Slow-Gear World Economy Vexes Officials at Fed, China Crossroads. Global policy makers used nearly all their tools to get the world economy out of a stall six years ago. What’s vexing them now is how to shift into higher gear. The prospect of the world’s biggest economy being healthy enough for its central bank to raise interest rates for the first time in nearly a decade would usually be reason to cheer. So might efforts by the next-largest to move toward more balanced growth. A sluggish and uneven global recovery is making these turning points -- the Federal Reserve’s plan to raise rates and a slowing of China’s once high-flying economy -- harder to digest for central bankers and finance chiefs who met over the weekend in Lima. Clouding the picture is lackluster investment from companies sitting on cash, still too reluctant to deploy the capital that typically drives recoveries. "The world is not in crisis, but there’s a great sense of unease, and that sense of unease explains why globally, almost everywhere, private investment is much weaker than you would expect at this stage in the cycle," Singapore Deputy Prime Minister Tharman Shanmugaratnam said in the Peruvian capital at the International Monetary Fund’s annual meeting, which wrapped up Sunday.

• This Analyst Says China's Stock Rally-to-Rout Is About to Repeat. In August, Thomas Schroeder correctly predicted a rebound in Chinese stocks wouldn’t last. Now, he says, the benchmark equity gauge will plumb new lows as a bear-market rally fails. The Shanghai Composite Index will climb 29 percent to 4,100 in the next three months, before slumping as much as 41 percent to 2,400 in early 2016, Schroeder, the Bangkok-based founder and managing director of Chart Partners Group Ltd., said in an interview in Singapore.   

• China's Supertanker Traffic Jam Propels Global Shipping Rates. Supertankers hauling crude to China are contending with increased waiting times to unload as some on-land storage depots reach capacity amid an oil-buying binge by the world’s most populous nation. At least 19 two-million-barrel-capacity ships -- known as VLCCs -- were stationed off China’s coast for two weeks or more, according to vessel-tracking data compiled by Bloomberg on Oct. 9. In normal market conditions, most would normally arrive at a port and depart within a day, according to George Los, a New York-based analyst at shipbroker Charles R. Weber Co. As delays have increased, benchmark daily earnings for the tankers jumped above $100,000 this month for the first time since the global recession. This tanker traffic jam shows just how much crude the world’s second biggest importer is buying at a time when economic growth is forecast to slow to the lowest level in 25 years. China’s purchases have jumped almost 10 percent this year from 2014.

• Asia Stocks Climb After Biggest Weekly Rally Since December 2011. Asian stocks rose after posting their steepest weekly advance since December 2011, with technology and industrial shares leading gains. The MSCI Asia Pacific Excluding Japan Index climbed 0.2 percent to 425.16 as of 9:32 a.m. in Hong Kong, with Tokyo markets closed for a holiday.

• Fed’s Fischer Says Economy May Merit Liftoff Later This Year. Federal Reserve Vice Chairman Stanley Fischer said the U.S. economy may be strong enough to merit an interest-rate increase by year end, while cautioning that policy makers are monitoring slower domestic job growth and international developments in deciding the precise timing of liftoff. At the Federal Open Market Committee’s meeting in September, “most participants, myself included, anticipated that achieving these conditions would entail an initial increase in the federal funds rate later this year,” Fischer said Sunday in Lima, where attended the annual meeting of the International Monetary Fund. “Of course, that assessment was premised on the assumption of continued solid economic growth and further improvement in the labor market, which are key factors supporting our expectation that inflation will rise to our 2 percent objective,” he said in prepared remarks released by the Fed.

Wall Street Journal: 

• Central Bankers Urge Fed to Get On With Interest-Rate Increase. Many officials at IMF meeting in Lima, Peru, say they would prefer certainty over agony of waiting. Talk of the Federal Reserve’s first rate increase in almost a decade tends to send many investors into a frenzy. For the world’s central bankers, it is increasingly likely to elicit sighs of resignation.

• Iran Test-Fires New Missile. Test threatens to complicate nuclear deal reached in July with world powers. Iran test-fired a new generation of surface-to-surface ballistic missiles on Sunday, its state news agency reported, a move that could complicate the implementation of the country’s July nuclear deal even as its parliament ratified the historic pact’s outlines.

• Profit Margins Take Spotlight in U.S. Earnings Season. Investors fret about companies’ stagnant revenues, lack of room for further cost cuts. As third-quarter U.S. corporate results roll out this week, many investors are putting an increased focus on profit margins as a sign of companies’ ability to propel earnings higher.

• Beijing’s Market Rescue Leaves China Stocks Stuck in the Doldrums. Chinese authorities succeeded in halting stocks’ downward spiral, but aggressive moves have scared off many investors.

CNBC:

• Afghan Taliban’s Reach Is Widest Since 2001, U.N. Says. The Taliban insurgency has spread through more of Afghanistan than at any point since 2001, according to data compiled by the United Nations as well as interviews with numerous local officials in areas under threat. In addition, the United Nations Assistance Mission in Afghanistan over the past two weeks has evacuated four of its 13 provincial offices around the country — the most it has ever done for security reasons — according to local officials in the affected areas.

Zero Hedge:

• Ruble, Lira, & Ringgit Tumble On USD, Yuan Gains As PBOC States "China Correction Nearly Over". (graph)

• Fed Quietly Revises Total US Debt From 330% To 350% Of GDP, After "Discovering" Another $2.7 Trillion In Debt. (graph)

• Japanese Firms Admit Abenomics Failed, Government Now "Left Trying To Redistribute Wealth". (graph)

• Obama Defends The Failure Of His Syria Policy Before A Beligerent 60 Minutes.

• The Mindless Stupidity Of Negative Interest Rates.

• The G-30 Group Of Central Bankers Warn They Can "No Longer Save The World".

• How 'ObamaTrade' Will Drive Up The Cost Of Medicine Worldwide.

• How Much Longer Can Our Unaffordable Housing Prices Last? (Spolier Alert: Not Much).

• Bernanke: The Courage To Print - Reading Between The Lies.

• The Failure To Act Responsibly Will Be The Addendum To Bernanke's Memoirs.

Business Insider:

• The Washington Post journalist held in Iran for over a year has been convicted.

• The bombing of a pro-Kurdish rally in Ankara highlights the 'dangerous cocktail' brewing in Turkey.

• It's time to start talking about a US recession.

Telegraph:

• Commodity contagion sparks second credit crisis as investors panic. Falling commodity prices have caused panic in credit markets and just like 2007 the contagion is spreading. 

• World cannot spend its way out of a slump, warns OECD chief. Angel Gurría says spendthrift countries are leaving themselves exposed to next shock as OECD secretary general warns both sides would lose if Britain left the EU.

Night Trading

• Asian indices are +.25% to +1.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 141.5 -1.0 basis point.

• Asia Pacific Sovereign CDS Index 79.25 -2.25 basis points.

• S&P 500 futures -.14%.

• NASDAQ 100 futures -.10%.

Morning Preview Links

Earnings of Note

Company/Estimate 

• (INFY)/14.11

Economic Releases 

• None of note
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Lockhart speaking, Fed's Evans speaking, Fed's Brainard speaking and the BoJ Minutes could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by real estate 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 25% net long heading into the week.

Weekly Outlook

Week Ahead by Bloomberg. 

Wall St. Week Ahead by Reuters.

Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on China bubble-bursting fears, Fed rate-hike worries, commodity weakness, rising European/Emerging Markets/US High-Yield debt angst, technical selling and earnings outlook concerns. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 25% net long heading into the week.