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 50% net long heading into the week.

Today's Headlines

Bloomberg: 

• Bulgaria, Romania, Serbia Ready to Close Borders for Migrants. Bulgaria, Romania and Serbia are concerned that possible closing of borders for migrants by some European Union countries may cause a bottleneck stranding millions of refugees on their territory, forcing the three states to close their borders as well. Bulgarian Prime Minister Boyko Borissov met Romanian and Serbian counterparts Victor Ponta and Aleksandar Vucic in Sofia Saturday to coordinate their policies before EU leaders gather on Sunday to forge plans to control the region’s worst migrant crisis since World War II. “If Germany and Austria or other states close their borders for migrants, we won’t allow our countries to become a buffer zone for millions of migrants stranded between Turkey and the new barriers that may follow,” Borissov told reporters in Sofia. “We’re also prepared to close our borders immediately.”

• The Fed's Next Big Decision May Not Be About Rates. Bond investors looking to the Federal Reserve next week for hints about when it will be ready to lift interest rates for the first time since 2006 may be missing a bigger question. With policy makers seemingly making little progress on their path to raising rates, they’re also delaying resolving how they approach the $215 billion of Treasuries poised to mature and roll off the Fed’s balance sheet next year, and almost $800 billion through 2018. That’s creating uncertainty about a less-publicized issue for the central bank: how it plans to reinvest proceeds from holdings of government bonds amassed since the financial crisis, and whether it may do so in a way that addresses rising bond-market volatility.

• Hurricane Patricia Leaves No Major Damage, Deaths. Hurricane Patricia hit Mexico’s west coast in an area between commercial centers and rapidly broke down into a tropical depression, sparing Latin America’s second-biggest economy from a feared catastrophe. Mexico has suffered “no major incidents” from the storm, Communications and Transportation Minister Gerardo Ruiz Esparza told reporters in Guadalajara, Jalisco, the state most affected. Evacuations and security measures put in place ahead of the hurricane helped spare lives and infrastructure, he said.

Wall Street Journal: 

• Obama Calls for Capping Class Time Devoted to Standardized Tests. Education Department to make it easier for states to satisfy federal mandates.

• Obama’s Tragic Let ’em Out Fantasy. The president leads the charge to cut the prison population, but mass incarceration isn’t the problem. Rising crime is. President Obama paid a media-saturated visit in July to a federal penitentiary in Oklahoma. The cell blocks that he toured had been evacuated in anticipation of his arrival, but after talking to six prescreened inmates he drew some conclusions about the path to prison. “These are young people who made mistakes that aren’t that different than the mistakes I made and the mistakes that a lot of you guys made,” the president told the waiting journalists. The implication was that anyone who had smoked marijuana and tried cocaine (as Mr. Obama had) could land in a place like the El Reno Federal...

Fox News: 

• 3 dead, 34 injured in crash at OSU parade; woman taken into custody for DUI. Three people were killed Saturday and 34 others injured when a car being driven by a suspected drunk driver crashed into a large crowd of spectators at the Oklahoma State University homecoming parade. Police said the driver of the vehicle, Adacia Chambers, 25, of Stillwater, Okla., was taken into custody on suspicion of driving under the influence.

Zero Hedge:

• The Three Things Goldman's Clients Were Most Worried About This Week.

• Icelandic Bankers Are Not Too Big To Jail: Face 74 Years In Prison As US Bankers Bask In Bailouts.

• Why The Chinese Rate Cut Will Do Nothing To Slow China's Economic Decline. (graph)

• Russia Takes Over The Mid-East: Moscow Gets Green Light For Strikes In Iraq, Sets Up Alliance With Jordan.

• Here's What Happens When Central Banks Go Broke.

• How The U.S. Government "Covers Up" 72% Inflation Before Your Very Eyes.

• DOJ Closes Lois Lerner Investigation Without Charges.

• "The International Buyer Has Been Absent" Unsold Hamptons' Mansions Pile-Up As Bubble Bursts.

• Three Chinese Warships To Dock In Florida Port.

• We Now Have An ETA When The Biggest Bond Bubble In The World Will Burst. (graph)

• Weekend Reading: Compelling Intellection.

• Crude Crashes & Stocks Soar As Global Central Bankers Hit Panic Button. (graph)

Business Insider:

• China's companies are a snake eating its own tail. Profits are falling, in part because of the costs of paying back debt. They are responding by adding more debt, making the matter worse.

• MORGAN STANLEY: The 7 biggest risks to the global economy.

• LARRY SUMMERS: The global economy is facing a 'dangerous' situation. "I would suggest that the defining financial development of the last year is likely to push things towards more secular stagnation," Summers said this week at the HSBC seminar. "It is the substantial reduction in capital inflows to developing countries, and the substantial increase in capital outflows from developing countries." Here's the chart from Summers' presentation, which shows the decline in money coming into emerging markets.

• We're seeing the first signs of trouble in San Francisco's red-hot real-estate market.

• Russia is the king of Arctic oil.

• Banks are seriously discussing negative interest rates for normal peoples' savings. The concept of earning interest on money in the bank is so deeply ingrained into economic life that few people even know that the opposite can happen too: Banks can take a percentage of cash from your account in the form of negative interest rates, under certain conditions.

Financial Times: 

• Wall Street takes a more cynical view of Fed stimulus. “We see another round of QE as one of the biggest risks to equities, suggesting $4.5tn was not enough to prop up the economy,” analysts at Bank of America Merrill Lynch wrote, adding that they were downgrading prospects both for the stock market and economic growth. “What if there is a QE 4 and the market sells off?” asks one Singapore-based hedge fund manager. “There is no ammunition left. The Fed is out of bullets.” 

Market Week in Review

• S&P 500 2,075.15 +2.1%*

The Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices

• S&P 500 2,075.15 +2.1%

• DJIA 17,646.70 +2.5%

• NASDAQ 5,031.86 +3.0%

• Russell 2000 1,166.06 +.3%

• S&P 500 High Beta 31.39 +1.3%

• Goldman 50 Most Shorted 112.16 -2.29% 

• Wilshire 5000 21,462.39 +1.7%

• Russell 1000 Growth 1,007.79 +2.3%

• Russell 1000 Value 989.9 +1.3%

• S&P 500 Consumer Staples 520.80 +2.1%

• Solactive US Cyclical 128.75 +3.9%

• Morgan Stanley Technology 1,097.52 +3.4%

• Transports 8,295.98 +2.7%

• Utilities 594.41 -.43%

• Bloomberg European Bank/Financial Services 106.99 +1.54%

• MSCI Emerging Markets 35.89 +.1%

• HFRX Equity Hedge 1,149.92 -.18%

• HFRX Equity Market Neutral 1,037.05 +1.42%

Sentiment/Internals

• NYSE Cumulative A/D Line 233,917 +.57%

• Bloomberg New Highs-Lows Index 141.0 +246

• Bloomberg Crude Oil % Bulls 55.0 +168.16%

• CFTC Oil Net Speculative Position 264,992 n/a

• CFTC Oil Total Open Interest 1,645,951 n/a

• Total Put/Call .78 -8.24%

• OEX Put/Call .68 +70.0%

• ISE Sentiment 108.0 +20.0%

• NYSE Arms .98 -22.83%

• Volatility(VIX) 14.41 -3.99%

• S&P 500 Implied Correlation 57.63 -6.26%

• G7 Currency Volatility (VXY) 9.81 +6.51%

• Emerging Markets Currency Volatility (EM-VXY) 10.87 -1.18%

• Smart Money Flow Index 17,742.83 +1.09%

• ICI Money Mkt Mutual Fund Assets $2.699 Trillion +.03%

• ICI US Equity Weekly Net New Cash Flow -$1.445 Billion

• AAII % Bulls 34.8 +2.0%

• AAII % Bears 24.0 -11.5%

Futures Spot Prices

• CRB Index 193.71 -2.87%

• Crude Oil 44.68 -5.42%

• Reformulated Gasoline 130.10 -1.88%

• Natural Gas 2.29 -5.65%

• Heating Oil 145.44 -2.91%

• Gold 1,164.70 -1.01%

• Bloomberg Base Metals Index 148.63 -.99%

• Copper 235.10 -2.10%

• US No. 1 Heavy Melt Scrap Steel 152.33 USD/Ton -19.69%

• China Iron Ore Spot 51.62 USD/Ton -3.98%

• Lumber 261.0 +1.63%

• UBS-Bloomberg Agriculture 1,058.40 -.86%

Economy

• ECRI Weekly Leading Economic Index Growth Rate -2.7% -50.0 basis points

• Philly Fed ADS Real-Time Business Conditions Index -.1942 +6.37%

• S&P 500 Blended Forward 12 Months Mean EPS Estimate 125.28 -.22%

• Citi US Economic Surprise Index -.1 +14.7 points

• Citi Eurozone Economic Surprise Index 22.2 +16.1 points

• Citi Emerging Markets Economic Surprise Index -13.4 +3.3 points

• Fed Fund Futures imply 94.0% chance of no change, 6.0% chance of 25 basis point hike on 10/28
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 6.68 -3.05%

• US Dollar Index 97.16 +2.53%

• Euro/Yen Carry Return Index 139.56 -1.42%

• Yield Curve 145.0 +3.0 basis points

• 10-Year US Treasury Yield 2.08% +5.0 basis points

• Federal Reserve's Balance Sheet $4.463 Trillion -.07%

• U.S. Sovereign Debt Credit Default Swap 24.0 +37.14%

• Illinois Municipal Debt Credit Default Swap 267.0 +3.50%

• Western Europe Sovereign Debt Credit Default Swap Index 18.82 -11.39%

• Asia Pacific Sovereign Debt Credit Default Swap Index 71.92 -4.20%
  

• Emerging Markets Sovereign Debt CDS Index 166.57 +1.1%
  

• Israel Sovereign Debt Credit Default Swap 72.0 +5.69%

• Iraq Sovereign Debt Credit Default Swap 825.23 +5.31%

• Russia Sovereign Debt Credit Default Swap 293.53 +1.36%

• iBoxx Offshore RMB China Corporates High Yield Index 121.99 +.40%

• 10-Year TIPS Spread 1.52% +3.0 basis points

• TED Spread 32.25 unch.

• 2-Year Swap Spread 12.50 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -29.25 -5.5 basis points

• N. America Investment Grade Credit Default Swap Index 79.22 -3.24%

• America Energy Sector High-Yield Credit Default Swap Index 1,071.0 +2.10%

• European Financial Sector Credit Default Swap Index 68.83 -12.39%
  

• Emerging Markets Credit Default Swap Index 324.01 -1.32%
  

• CMBS AAA Super Senior 10-Year Treasury Spread  to Swaps 126.50 +1.5 basis points

• M1 Money Supply $3.015 Trillion -2.11%

• Commercial Paper Outstanding 1,062.90 +1.40%

• 4-Week Moving Average of Jobless Claims 263,250 -1,750

• Continuing Claims Unemployment Rate 1.6% unch.

• Average 30-Year Mortgage Rate 3.79% -3.0 basis points

• Weekly Mortgage Applications 432.70 +11.81%

• Bloomberg Consumer Comfort 43.70 -1.7 points

• Weekly Retail Sales +1.20% +10.0 basis points

• Nationwide Gas $2.22/gallon -.06/gallon

• Baltic Dry Index 786.0 +4.24%

• China (Export) Containerized Freight Index 752.21 -1.65%

• Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 37.50 -21.0%

• Rail Freight Carloads 275,160 unch.

Best Performing Style

• Large-Cap Growth +2.4%

Worst Performing Style

• Small-Cap Growth -.1%

Leading Sectors

• Software +5.6%

• Semis +4.7%

• Internet +4.0%

• Networking +3.4%

• Defense +3.4%

Lagging Sectors

• Oil Tankers -3.9% 

• HMOs -4.5%

• Education -6.1%

• Hospitals -14.1%

• Coal -14.5%

Weekly High-Volume Stock Gainers (10)

• WTW, KLAC, SWI, BABY, TBI, SNDK, TTS, DBD, LRCX and MPAA

Weekly High-Volume Stock Losers (23)

• KRC, MYCC, NTRI, SLGN, EAT, ABG, PII, CMG, WWW, KSU, HOG, SAVE, GNC, CAB, PTCT, PWR, EVHC, EROS, VRX, CYH, RLYP, CEMP and ENTA

Weekly Charts

ETFs

• High-Volume Gainers

• High-Volume Losers

Stocks

• High-Volume Gainers

• High-Volume Losers

*5-Day Change

Stocks Surging into Final Hour on Central Bank Hopes, Earnings Optimism, Diminished Global Growth Fears, Healthcare/Technology Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Slightly Above Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 14.35 -.69%

• Euro/Yen Carry Return Index 139.62 -.31%

• Emerging Markets Currency Volatility(VXY) 10.83 +1.21%

• S&P 500 Implied Correlation 57.09 -4.56%

• ISE Sentiment Index 113.0 +8.65%

• Total Put/Call .81 -10.0%

• NYSE Arms 1.04 -5.36% 

Credit Investor Angst:

• North American Investment Grade CDS Index 77.50 -3.81%

• America Energy Sector High-Yield CDS Index 1,074.0 +9.93%

• European Financial Sector CDS Index 67.69 -5.0%

• Western Europe Sovereign Debt CDS Index 18.82 -1.75%

• Asia Pacific Sovereign Debt CDS Index 71.70 -3.54%

• Emerging Market CDS Index 323.95 -1.49%
  

• iBoxx Offshore RMB China Corporates High Yield Index 121.99 +.16%

• 2-Year Swap Spread 12.5 +.25 basis point

• TED Spread 32.25 -.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -29.0 -.5 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.13 -.29%
• 3-Month T-Bill Yield .00% unch.

• Yield Curve 144.0 +1.0 basis point

• China Import Iron Ore Spot $51.62/Metric Tonne -1.07%

• Citi US Economic Surprise Index -.1 +5.2 points

• Citi Eurozone Economic Surprise Index 22.2 +13.5 points

• Citi Emerging Markets Economic Surprise Index -13.40 +2.0 points

• 10-Year TIPS Spread 1.52 +4.0 basis points
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 6.68 +.35

Overseas Futures:

• Nikkei 225 Futures: Indicating +385 open in Japan 
• China A50 Futures: Indicating +258 open in China

• DAX Futures: Indicating +48 open in Germany

Portfolio: 

• Higher: On gains in my tech/biotech/medical sector longs

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg: 

• Is China's Economy Weaker Than Data Suggests? (video) 
• China Cuts Interest Rates as Policy Divergence With U.S. Widens. (video) China stepped up monetary easing with its sixth interest-rate cut in a year to combat deflationary pressures and a slowing economy, moving ahead of anticipated fresh stimulus by central banks from Europe to Japan and possible tightening in the U.S. The one-year lending rate will be cut to 4.35 percent from 4.6 percent effective Saturday the People’s Bank of China said on its website on Friday, while the one-year deposit rate will fall to 1.5 percent from 1.75 percent. Reserve requirements for all banks were lowered by 50 basis points, with an extra 50 basis point reduction for some institutions.
• Government Debt in France and Italy Swells to Euro-Era Highs. Government debt in France and Italy expanded to euro-era highs in the second quarter, as nations in the currency bloc grappled with weak growth while pushing through budget cuts and economic reforms. France, the second-largest economy in the euro area, saw its debt swell to 97.7 percent of gross domestic product in the second quarter of 2015, the European Union’s statistics agency said in a report on Friday. Debt in Italy, the bloc’s third-biggest economy, rose to 136 percent of GDP. The figures are the highest for both countries since the euro debuted in 1999. The figures underscore the fragilities of the euro-area recovery as the European Central Bank signals it is preparing for more stimulus. The inflation rate dropped below zero last month, hit by a rising currency as an emerging-market slowdown drags on global trade.
• German Manufacturing Takes a China Hit. (video) German manufacturing grew the least in five months in October, reflecting a slowdown in emerging markets that’s threatening the global outlook. The latest Purchasing Managers’ Index from Markit Economics showed a factory index fell to 51.6 from 52.3 in September. Economists had forecast a decline to 51.7. New orders grew at the slowest pace since July, with companies citing softer demand in markets including Russia and China.
• Ericsson Sales Miss Estimates on China 4G Spending Slowdown. Ericsson AB reported third-quarter profitability and sales that missed analysts’ estimates as business in Japan, Russia and Brazil slumped and spending slowed in China on fourth-generation networks that power smartphones and tablets. The shares fell the most in six months in Stockholm. The gross margin, or the percentage of sales left after subtracting production costs, was 34.5 percent excluding some items, the network-equipment maker said on Friday. Analysts predicted 35.3 percent, the average of estimates compiled by Bloomberg. Sales rose about 3 percent to 59.2 billion kronor ($7 billion), missing the average estimate of 60.7 billion kronor. 
• Credit Suisse Exiting Dealer Role Rings Alarm in Debt Market. Credit Suisse Group AG shook Europe’s bond markets by deciding to drop its role as a primary dealer across the continent, the latest signal that some the world’s biggest banks are scaling back in one of their key businesses. The move is part of Chief Executive Officer Tidjane Thiam’s overhaul of the lender’s trading and advisory services to help cut costs in a strategy update announced on Oct. 21. The Zurich-based lender will withdraw from the U.K primary-dealer market on Friday, the nation’s Debt Management Office said. It’s the first time a gilt primary dealer -- which buys sovereign debt directly from the government -- walked away since December 2011, when State Street Corp.’s European division withdrew.
• Billions in Cheap Loans Show Why Brazil's Losing Inflation Fight. Brazil’s state development bank is making the nation’s fight against inflation even more difficult. The key lending rate for BNDES’s $170 billion loan portfolio is 7 percent, below inflation and less than half the central bank’s Selic overnight rate of 14.25 percent. The cheap cash is flowing at a time when monetary policy makers are desperately trying to restrain credit growth. High lending has helped stoke a surge in consumer-price increases to a 12-year high of 9.77 percent even as Brazil suffers its worst recession in a quarter century. 
• Dollar on Longest Winning Streak in 10 Months on China Rate Cut. The dollar is enjoying its longest winning streak in 10 months as foreign central banks’ efforts to curb slowing global growth buoy demand for assets denominated in the U.S. currency. A measure of the greenback reached its highest level this month as investors viewed the People’s Bank of China’s decision to lower its benchmark lending rate as an effort to address recent turmoil in emerging markets. The moves came one day after European Central Bank President Mario Draghi said policy makers may continue their quantitative easing program until September or beyond if economic weakness persists.
• China Stimulus, ECB Optimism Send Europe Stocks to 2-Month High. European stocks rallied to a two-month high after China increased stimulus, adding to optimism that central banks around the world will do what’s needed to support the global economy.Equities posted the biggest two-day gain since July after also getting a boost from European Central Bank President Mario Draghi, who hinted at additional stimulus measures yesterday. The Stoxx Europe 600 Index added 2 percent at the close of trading.
• Oil at $50 Is Driving Norway to Zero as Recession Risk Soars. (video) Western Europe's biggest crude producer may need more than a weak currency to stay afloat. With oil prices still wobbling around $50, Norway is in danger of a recession that could drive its benchmark interest rates, already at a record low, to zero. That’s what economists at Svenska Handelsbanken AB in Oslo say as they warn that “recessionary risks are significant.” The central bank in September cut rates to 0.75 percent and signaled more than a 50 percent chance for a third reduction since the drop in oil prices accelerated, about a year ago. Handelsbanken sees three cuts next year, bringing the benchmark to zero by the end of 2016.
• Iron Ore Is Buckling Again as Supply Jumps, China Demand Sags. Iron ore is showing signs of buckling again. Prices slumped to the lowest level in three months as the top producers announced increases in low-cost supply while data and comments from China pointed to further weakness in demand. “All of this extra production out of ‘the big three’ will keep a lid on prices,” said Gavin Wendt, founding director and senior resource analyst at MineLife Pty Ltd. in Sydney. “China demand remains tepid and its steel industry is hurting under margin pressures.” Iron ore is headed for a third year of losses, and the recent decline risks tugging prices below the trading range of $50 to $60 a metric ton that’s held since July, according to Westpac Banking Corp. Rio Tinto Group, BHP Billiton Ltd. and Vale SA, the three largest suppliers, all announced increases in quarterly output this month.

CNBC:

• Companies' mad dash for debt hitting record levels. (video) U.S. companies not only are issuing more debt than ever. They're also extending it to durations never seen before. The end result could be a good deal for the issuers but not as great for investors.
• Maersk cuts profit forecast, hit by weak shipping market. A.P. Moller-Maersk cut its 2015 profit forecast by 15 percent on Friday, blaming a slowdown in the container shipping market that suggests a weakening global economy. The Danish conglomerate operates Maersk Line, the world's largest container shipping company which transports roughly 20 percent of all goods on the busiest routes between Asia and Europe, making it a key bellwether of global trade. Analysts said Maersk's problems were also due to overcapacity in the shipping industry, which appears to be worse than previously anticipated and is driving down freight rates.
• Technician: Market top could last a decade. (video)

Zero Hedge: 

• The Central Bankers' Death Wish.
• Oil Hovers Near Crucial Technical Level As Rig Count Decline Slows, China Inventory Soars. (graph)
• U.S. Shale Drillers Running Out Of Options, Fast.
• IMF Seen Approving Yuan As "Reserve Currency".
• Dec Rate Hike Looms: Despite Job Cuts, Survey Collapses, US Manufacturing PMI Surges To May Highs. (graph)
• This Is What It Took To Get The S&P 500 "Back To Even" For 2015. (graph)
• Commodities, Precious Metals Are Tumbling - Give Up China Rate-Cut "Hope" Gains & More.
• Reactions To China Rate Cut Trickle In: "China Is Getting More And More Desperate".

RIA Novosti:

• Russian Oil Companies Ready to Compete with OPEC. Russian oil producers are prepared to compete with OPEC should it raise output, citing Russian Energy Minister Alexander Novak speaking on state television.

Interfax:

• Bank of Russia Pessimistic Forecast Uses Oil Below $40/Bbl. Central bank assumes oil "considerably" below $40/bbl in its pessimistic forecast, citing 1st Deputy Governor Dmitry Tulin.