Friday Watch

Evening Headlines
Bloomberg:

• Hollande’s Business Policies Slammed by French Corporate Leaders. French corporate leaders criticized Socialist President Francois Hollande’s government for policies they say hurt companies already battered by a slowing economy and decades of business-unfriendly practices. “Each week, steps voted in parliament are slowing public and private actions,” Guillaume Poitrinal, chief executive officer of Unibail-Rodamco SE (UL), Europe’s largest publicly traded property owner, said yesterday at a conference organized by the French employers’ group Medef on the outskirts of Paris. “We have a frenzy of regulations. In an accelerating world, we need more flexibility for companies, more flexibility on labor, and we need quicker public action.”
• Germany Plays Bad Cop as Irish Chase Bank Debt Help: Euro Credit. Economic sovereignty is coming at a price for Ireland as borrowing costs in the bond market exceed the interest on bailout loans and Germany signals resistance to helping reduce the bill for rescuing its banks. Faced with repaying maturing bonds in 18 months, the country's debt agency last week sold 1 billion euros of amortizing bonds with a weighed yield of 5.91%. Last month, it re-entered long-term international credit markets for the first time in almost two years, selling 4.2 billion euros of bonds with an average yield of about 6%. Ireland pays about 3.8% for its bailout funds.
• Italians Squeezed by $9.50-a-Gallon Gas Face Costly Drive Home. Giovanni Cimmino filled up his Fiat Multipla in Croatia before returning to Italy after his summer holiday, avoiding Europe’s highest gasoline prices. “You need a smart strategy to save on gas,” said Cimmino, 37, who manages a metals trading company near Milan. With pump prices at a record in Italy, “I tend to use more public transportation and avoid driving when it’s not necessary.”
• Cap Bankers’ Bonuses at Their Pay Level, Schaeuble Urges in FT. Cash bonuses for European bankers should not exceed their fixed pay, German Finance Minister Wolfgang Schaeuble wrote in the Financial Times. He also urged that shareholders should have the final say on bank executives’ long-term pay awards if they exceed a given level. “A truly effective European banking supervisor” is needed to oversee the sector, enforcing “a robust single rule book,” Schaeuble wrote. The supervisor, who Schaeuble said is expected to be housed at the European Central Bank, should focus on those banks that can pose a systemic risk at a Europe-wide level, he wrote. The new oversight system must not be “just a facade,” he wrote, adding that the new supervisor must be endowed with “real and clearly defined responsibilities, coercive powers and adequate resources.”
• China’s Stocks Head for Longest Monthly Losing Streak Since 2004. China’s benchmark stock index fell, heading for a fourth month of losses, after declining earnings at companies from Citic Securities Co. (600030) to Sany Heavy Industry Co. showed the impact of the nation’s economic slowdown. Citic Securities, the nation’s biggest listed brokerage, dropped 0.4 percent and Sany Heavy sank to its lowest level since October 2010. Industrial & Commercial Bank of China Ltd., the nation’s biggest lender, slipped 0.5 percent after earnings growth slowed. Qingdao Haier Co., the largest refrigerator maker, climbed 3.7 percent after first-half profit rose. Signs that China’s economic slowdown is deepening have dragged the Shanghai Composite down 2.5 percent in August, a fourth straight month of declines. That’s the longest streak since August 2004, according to data compiled by Bloomberg. Macquarie Group Ltd. lowered China equities to neutral from overweight, citing the deteriorating outlook for banks amid a “disturbingly” widespread weakness in the economy, according to a note dated yesterday.
• China’s Growing Economic Crisis.
• Korea Industrial Production Slides as Europe Hits Exports. South Korea’s industrial production fell for a second month in July as a global slowdown undermines growth in Asia’s fourth-largest economy. Output fell 1.6 percent from June when it dropped 0.6 percent, Statistics Korea said today. The median estimate of 12 economists in a Bloomberg News survey was for a 0.9 percent decline.
  
• H.K. to Boost Home Sales, Favor Locals as Prices Surge. Hong Kong will boost the supply of homes and give preference to local buyers as it seeks to cool housing prices that have surged to the world’s most expensive, fueled by record-low interest rates and Chinese investment. Chief Executive Leung Chun-ying announced a 10-point package yesterday that included speeding up the approval of permits for private project sales, selling public units that were originally intended for rent, and drafting policies that will give preference to local buyers. The measures are the toughest since the government in June last year increased down-payment requirements, and the strongest move yet to quell concerns about a surge in non-local purchases, particularly by mainland investors that account for a third of new home buying in the city and helped drive prices up 85 percent since the beginning of 2009. The measures don’t go far enough, said Wong Leung-sing, associate research director at Centaline Property Agency Ltd.
• Buffett Railroad Sees Economy Sapping Pre-Holiday Peak: Freight. North American railroads from Warren Buffett's Burlington Northern Santa Fe to CSX Corp. are bracing for limited increases in pre-holiday shipments as weak consumer sentiment exacerbated shrinking corn and coal loads. BNSF, which moves imported Asian consumer goods from West Coast ports, hasn't seen a measurable gain in holiday-realated volumes, Chief Marketing Officer John Lanigan said this week.
  
• Crop Traders Extend Bull Run as Rain Comes Too Late: Commodities. Corn and soybean traders extended their longest bullish outlook in at least 11 months on speculation rain in the U.S. will come too late to revive crops after the worst drought in a half century. Seventeen analysts surveyed by Bloomberg said corn will climb next week. A further six were bearish and four were neutral. Twenty expect gains in soybeans, four saw a drop and four predicted little change. The 19th straight bullish outlook is the longest run for corn since September and for soybeans since June 2011. Hedge funds’ bets on a rally in corn are the most in 16 months and near the largest for soybeans since at least 2006, U.S. Commodity Futures Trading Commission data show.
• Steel Slump Sees Aussie Dropping Toward Parity: Chart of the Day. Australia's dollar may fall to parity with the greenback for the first time since June after China's stock gauge and benchmark steel prices plunged to three-year lows, adding to concern that demand for commodities such as iron ore and coal will slump. "There's a risk the Aussie will fall to $1," said Masashi Murata, a currency strategist in Tokyo at Brown Brothers Harriman & Co. "We expect China's growth to slow toward year-end, and once economic data confirms that, it'll be a selling catalyst for the Australian dollar."
• Melbourne Hasn’t Seen Worst of Housing Drop as Glut Builds. Melbourne, where home prices have fallen more than in any other major Australian city, may see further declines as a record number of new developments approved in the boom years hit the market. Home values in the capital of Victoria state lost 6.6 percent in the year ended in June, the biggest drop among the eight state capitals, according to researcher RP Data. Building work started on a record 47,293 homes in Melbourne in the 12 months ended June 2011, compared with estimated demand of 32,334, according to figures from researcher BIS Shrapnel.

Wall Street Journal:

• Romney Promises to 'Restore' U.S. Mitt Romney took the stage at the Republican National Convention at the Tampa Bay Times Forum and formally accepted the nomination to be the party's presidential candidate in a speech that sought to draw a sharp contrast between Mr. Romney and President Barack Obama.
• J.P. Morgan(JPM) Rankled by Risk. Bank Seeks to Dial Back Some Dealings With Brokerages; the Knight Aftermath. J.P. Morgan Chase & Co. is seeking to reduce its risks in a business that provides crucial plumbing for Wall Street's money flows. The nation's largest bank by assets, a major player in providing clearing and settlement services to other financial firms, is reviewing its dealings with dozens of brokerages that use the bank to settle trades, according to people familiar with the bank.
• Justice Department Closes Probe of CIA Prison Deaths. The Justice Department said Thursday it won't bring charges in the deaths of two prisoners who allegedly were interrogated by the Central Intelligence Agency, closing a chapter in a nearly decade-old debate about the CIA's counterterrorism programs. The department had already dropped most of the cases stemming from accusations that the CIA and other agencies committed abuses against detainees held by the U.S. after the Sept. 11, 2001, terrorist attacks. But Attorney General Eric Holder last year ordered a criminal investigation into two detainee deaths, one in Iraq and one in Afghanistan, saying new evidence was available. On Thursday, Mr. Holder said that remaining investigation also would be dropped. "The admissible evidence would not be sufficient to obtain and sustain a conviction beyond a reasonable doubt," he said.
• The Romney Opportunity. The times fit the man, if the politician can meet the moment.

MarketWatch:

• China manufacturing seen close to contraction. China's manufacturing activity likely registered zero growth in August, and instead teetered on the brink of contractionary territory where it hasn't been since November, signalling there is still some way ahead before for the world's second-largest economy bottoms out. The official manufacturing Purchasing Managers Index was likely 50.0 in August compared with 50.1 in July, according to the median forecast of 11 economists polled by Dow Jones Newswires.
• Cheap Chinese steel threatens Japan mills: report. Japanese steel mills are suffering as Chinese competitors ramp up production, even as prices fall, Japan's Nikkei business daily reported Friday. Steel prices have fallen sharply, with hot-rolled coil at a 19-month low, and the influx of inexpensive Chinese steel has forced some Japanese producers to take asset-impairment charges for their mills, the Nikkei said. The report cited problems for Nippon Steel Corp. JP:5401 -4.38% NISTF -14.80% and Sumitomo Metal Industries Ltd. JP:5405 -3.42% SMMLF -1.04% -- which are due to merge in October -- which plan to book a combined 240 billion yen ($3.1 billion) extraordinary charge for April-September and are expected to post losses wider than their previous outlooks.

Business Insider:

• Here's The Full Text Of Mitt Romney's Convention Speech.
• CONVENTION BOUNCE: Mitt Romney Swings 6 Points And Leads Obama In A New Poll.
• Here's The Chart That Romney Should Bludgeon Obama With.
• The Mayor Of A French Town Wants The Army Deployed To Take Down Kalashnikov-Wielding Gangs. François Hollande on Thursday faced calls from the Socialist mayor of a tough Marseille neighborhood to send in the army to tackle the city's gang warfare.

Zero Hedge:

• The Election: It's The Food-Stamps, Stupid!
• Charting The Unprecedented 'HFT-Driven' Rise In Intraday-Trading Volatility.
• "Don't Count Your Hahnchen": 40% Chance German Court Does Not Ratify ESM.

Sober Look:

• Canada's Consumer Leverage Growth Is Not Going To End Well. (graph)
  

Reuters:

• SPECIAL REPORT-China Inc's debacle in the Outback. In 2006, foreign mining giants were jacking up prices of the iron ore needed by China's voracious steel industry. At the urging of Beijing, Yung and CITIC Pacific negotiated the rights to exploit a vast deposit of low-grade ore in the red-rock landscape of Australia's remote northwest Pilbara region. The multibillion-dollar deal seemed to be a coup for China's resource-hungry economy. But Yung and Beijing are now paying a heavy price. A few kilometres down a dirt track off the North West Coastal Highway, beside a towering pile of red tailings, the company has dug itself into what increasingly looks like a bottomless pit. The original $2.47 billion budget for the massive open-cut mine and processing complex has blown out to $8 billion and it is more than two years behind schedule. Senior company managers won't rule out a $10 billion price tag for one of China's flagship offshore resource investments. "It has the potential to be a company killer, that's for sure," says Clinton Dines, a former president of mining giant BHP Billiton in China.
• Japan July industrial output falls, warning signs grow. Japan's industrial output unexpectedly fell in July as a slowdown in exports to China and Europe led electronics and semiconductor markers to trim output in a troubling sign that Japan's broad economy is weakening. The 1.2 percent decline in output in July compares with a median estimate for a 1.7 percent increase, according to a Reuters poll and follows a 0.4 percent gain in June. In a further sign of trouble ahead, the purchasing managers index for August showed manufacturing activity languished at the lowest level since last year's earthquake as domestic and external demand suffer.Manufacturers said they expect output to rise only modestly in August and then fall again in September, which could increase the chance that the economy will contract in the third quarter. "Exports to China and the European Union have been decreasing, so electronics parts makers are cutting back on production to adjust inventories," said Seiji Adachi, senior economist at Deutsche Securities.
• Japan eyes suspending state spending as money runs out.
• EPA raises fines on non-compliant Navistar(NAV) engines. U.S. environmental regulators on Thursday almost doubled the fines that truck maker Navistar International Corp has to pay for each engine that does not comply with emissions rules, according to a ruling provided by the company. The penalties, of up to $3,775 per non-compliant engine, mark a near-doubling from the $1,919 fines Navistar had been paying for each engine that does not meet current emissions standards.
• Moody's review of Spain's Baa3 rating to continue until end of Sept.

Telegraph:

• Financial crisis: the printing press has reached its limits. Central bankers may have averted outright disaster, but they are powerless to do more.
• China’s fears grow over eurozone crisis. China has expressed deep alarm at the escalating crisis in Europe and warned against austerity overkill as Europe's crumbling demand sends shock waves through Asia.

Sydney Morning Herald:

• Iron-Ore Optimism May Just Be Wishful Thinking. FORTESCUE Metals chief executive Nev Power yesterday insisted that a startling slide in iron ore prices from $US134 a tonne at the end of June to $US117 a tonne at the end of July and $US90.30 a tonne yesterday was an aberration. Quite a lot is hanging on whether he is right or wrong. Australian iron ore exports rose from $58.5 billion to $63 billion in the year to June 30, when the iron ore spot prices averaged $150 a tonne. The spot price is now 40 per cent lower after falling by 10 per cent in just two days, and the descent will translate to a $25 billion-plus export revenue loss if it is not reversed. The hit if sustained will undermine Australia's trade balance, savage federal government tax revenue, and make the argument that Australia's resources boom still has strong long-term foundations harder to sustain.

China Securities Journal:

• China's 2,453 publicly traded companies' combined 1H average EPS fell 28% y/y to .1749 yuan, citing the newspaper's own statistics. 1H combined inventory rose 18.6% y/y to 4.67t yuan, according to the report.

Evening Recommendations
Wells Fargo:

• Rated (GRMN) Outperform.

Night Trading

• Asian equity indices are -1.0% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 158.0 +6.5 basis points.
• Asia Pacific Sovereign CDS Index 127.50 unch.
  
• FTSE-100 futures -.17%.
  
• S&P 500 futures +.09%.
  
• NASDAQ 100 futures +.11%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note
  

Economic Releases
9:45 am EST

• Chicago Purchasing Manager for August is estimated to fall to 53.2 versus 53.7 in July.

9:55 am EST

• Final Univ. of Michigan Consumer Confidence for August is estimated at 73.6 versus a prior estimate of 73.6.
  

10:00 am EST

• Factory Orders for July are estimated to rise +2.0% versus a -.5% decline in June.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Bernanke speaking, Eurozone Unemployment Rate, China PMI and the NAPM- Milwaukee report for August could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.