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Daily Agenda: Glencore and Volkswagen Spook Equity Markets

Crises at two former high-fliers weigh on market sentiment in Europe and the U.S.; a bigger-than-anticipated India rate cut; Yahoo! plans for an Alibaba spin-off advance.

After the early September market swoon over Federal Reserve policy, a slowdown in China and other macro factors, investors find themselves facing more selling pressure in equity markets, this time driven by turmoil at firms in once high-flying sectors. Baar, Switzerland-based global mining giant Glencore saw its share price cut by nearly a third in trading Monday before staging a single-digit percentage comeback Tuesday on speculation that it might return to private ownership. Like many commodity players in recent years, the firm has amassed debts that are difficult to remove from the balance sheet now that buyers are scarce for mining assets after the collapse of metals prices. Meanwhile, an expanding scandal at Wolfsburg, Germany-based Volkswagen, recently the biggest global carmaker by sales, has threatened equity values across automotive sector. As the dust settles from yesterday’s sharp declines, the near-term question for investors is whether the selloff has bottomed for now.

India slashes rates. The Reserve Bank of India caught markets off guard with a cut to benchmark rates that exceeded consensus forecasts among economists. Bank governor Raghuram Rajan and his colleagues announced a 75 basis point reduction in the repurchase rate, bringing it to 6.75 percent, the lowest level since May 2011. The move to boost domestic demand on the subcontinent comes as stalling commodity prices have tempered inflation and external demand has slackened.

Pipeline operators to merge. On Monday, Dallas-based Energy Transfer Equity announced an agreement to acquire Tulsa, Oklahoma’s Williams Companies for $33 billion in stock and assumed debt. The deal will integrate the two companies’ networks of natural gas pipelines. In a sign of pressures squeezing the natural-gas industry because of low energy commodity prices, the deal was struck roughly a third below an offer by Energy Transport that was rejected by Williams’ board in June.

Germany reduces pace of new debt issues. For the second time in 2015, the German Federal Finance Agency announced a reduction in government-debt security issuance as tax revenues expand at a rate higher than forecast and low-interest rates reduce the cost of debt service. Despite cutting full-year issuance of bonds by 11 billion euros ($12.29 billion), the German cabinet pressed ahead today with plans to deploy nearly $8 billion in aid for refugees fleeing Syria for Europe.

Yahoo! moves ahead with Alibaba spin-off. On Monday, Yahoo! confirmed plans to offload its nearly 15 percent stake in Hangzhou, China’s Alibaba Holding Group in a filing with regulators regardless of a decision by the Internal Revenue Service not to weigh in on the tax implications of the proposed transaction for shareholders. The position, valued at approximately $22 billion, will be separated into a new entity called Aabaco Holdings, which will also include Yahoo!’s small business unit and be listed on the Nasdaq.

European confidence improves for September. Sentiment data compiled by the European Commission registered gains in September with measures of confidence among business leaders rising more than forecast. The business climate index for the common currency region rose to 0.34 versus expectations of 0.20, while the economic sentiment indicator combining business and consumer surveys rose to 105.6.

Portfolio Perspectives: Preparing for a Further Pullback in U.S. Stocks

With the market trading below the pivotal 200-day moving average for about a month now, I look for continued trading to the downside tomorrow but with a smaller range than today. There are two key economic releases scheduled for later this week, of which anticipation should reduce volatility on Tuesday.

Jason Rotman is a managing partner of Lido Isle Advisors in Newport Beach, California.

In the short-term, stocks are still stuck in no-man’s land, credit traders are bearish, while credit investors are continuing to buy, but with one eye on the equity market in case there is one more round of panic ahead. We think that the fact that every stock rally continues to be aggressively sold makes the potential for the next move in stocks to be down slightly, more likely than not.

Brian Reynolds is chief market strategist of New Albion Partners in New York.

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