Thursday Watch

Evening Headlines
Bloomberg:

• Draghi Risks Market Wrath as ECB Intervention Pressure Grows. Whatever Mario Draghi does today, economists say doing nothing is not an option. Investors are looking for the European Central Bank President to make good on his promise to do whatever is needed to protect the euro, interpreted by most as a signal that the ECB will intervene in bond markets. Should Draghi fail to overcome the objections of Germany’s Bundesbank to such action, the disappointment could spark a selloff. He holds a press conference at 2:30 p.m. in Frankfurt. “If Draghi just comes out with a do-nothing, markets are going to react extremely badly and the ECB will have a full- blown crisis on their hands,” said James Nixon, chief European economist at Societe Generale SA in London. “I can’t see what form of words Draghi can come up with that would replace concrete intervention.” Investors and politicians are clamoring for ECB action to quell Europe’s sovereign debt crisis, which is threatening to cripple Spain and Italy and tear the 17-nation euro area apart. While Draghi’s commitment in London last week to do what’s needed fueled a global market rally, some economists cast doubt on his ability to build the consensus needed to deliver a game changer.
• Spain Bond Pressure as $2 Trillion Sees ECB Failing: Euro Credit. Money managers with $2 trillion say the ECB won't be able to sustain the reduction in Spain's borrowing costs. Spain auctions as much as 3 billion euros of debt today as its 10-year bonds yield 536 bps more than Germany's. Draghi's comments last week prompted a rally in Spanish and Italian bonds, even as German policy makers and politicians continue to urge the central bank to stick to the rules that prevent it from saving struggling governments. "We'd expect anything less than a marked expansion of the ECB balance sheet to be disappointing for the markets," said Stephanie Kretz, a strategist at Lombard Odier Darier Hentsch, which manages $175 billion. "Even if the ECB meets investor expectations, as long as the underlying solvency and structural debt issues aren't tackled, it will be short-lived and difficult to time, and it's not the kind of rally we like to play."
• Germany Retains Stable AAA Outlook at S&P After Moody’s Cut. Germany retained a stable outlook for its top credit rating at Standard & Poor’s just over a week after Moody’s Investors Service warned that the nation’s Aaa grade was at risk. The long-term debt sovereign rating for Europe’s largest economy was maintained at AAA, S&P said in a statement today.
• Fiat Suspends New Investments in Italy Because of Europe Crisis. Fiat SpA (F) Chief Executive Officer Sergio Marchionne temporarily stopped new investments in Italy as Europe’s debt crisis causes sales in the region to plunge. “For the time being, the economic crisis and current difficulties in the European auto market prevent the company from being able to give any indications concerning future investments,” the Italian carmaker said today in an e-mailed statement, adding that Fiat will give its new plan for Italian factories at the end of October, when it will releases third- quarter results. Marchionne, who has been spearheading an industrywide effort to cut excess assembly lines in Europe, has vowed to close a second Italian factory, after shuttering one last year, unless he finds a way to export cars to the U.S.
• China Slowdown Forcing Discounting at Gome to McDonald’s(MCD). For years, China’s increasing affluence fueled surging sales for consumer companies. That boom is waning as slower spending translates into inventory overloads, discounting and losses for some brands. To lure increasingly price-sensitive shoppers, companies from electronics retailers to footwear makers are being forced to offer discounts that are hurting margins and driving down earnings. Even McDonald’s Corp. (MCD), the world’s largest restaurant chain, has introduced a value dinner starting from 15 yuan ($2.40) and reported slower same-store sales growth. China’s second-largest electronics retailer, Gome Electrical Appliances Holding Ltd. (493), in July forecast a first- half loss even as its website offered discounts of as much as 50 percent. I.T Ltd. (999), a department store that sells brands including Levi’s and Puma in Greater China, cited discounting for narrower gross profit margins in the year ended February. Slower sales have left Nike Inc. (NKE) with too much inventory in China, its second-largest market after the U.S. The discounting and weaker sales reflect the escalating pressure on local and global brands in China, where two years of economic growth of more than 9 percent encouraged companies to expand. International brands have relied on Asia to offset a spending slump in the U.S. and Europe. “Maybe previously, a PRC consumer didn’t even need to ask the price and just bought the product,” said Eugene Mak, an analyst at Core Pacific-Yamaichi International Hong Kong Ltd. “Now they’re more price sensitive.”
• Factory Slowdown Means China Silver Need Drops: Chart of the Day. Silver purchases by China, the top user of the metal in electronics, may continue to drops as a global slowdown crimps demand for television sets and mobile phones, Standard Bank Plc said. Imports by China decreases for three months through June, the longest stretch since October 2010, as the nation's exports of electronics products slumped. Global industrial demand, mostly from makers of electronics, accounts for 55% of silver consumption, said Marc Ground, a commodities strategist at Standard Bank in Johannesburg said. "Demand remains lackluster and there is little evidence of this picking up," Ground said. "Since China has amassed stockpiles, it needs to destock first.
• Most Chinese Stocks Drop on Economic Growth Concern as ECB Meets. A gauge tracking property developers slid 1.4 percent, led by Poly Real Estate Group Co. China Railway Construction Corp. fell 1.2 percent after agreeing to buy a 15 percent stake in Inter Milan, an Italian soccer club, according to people familiar with the talks. The Shanghai Composite has fallen 14 percent from this year’s high on March 2 amid concern the economic slowdown is deepening and Europe’s debt crisis is worsening. Europe is China’s largest export market, making up 18 percent of the nation’s overseas sales, according to Shenyin & Wanguo Securities Co.
• India Blackout Underscores Grid Vulnerabilities, Regulators Say. A series of failures and excessive demand on the national grid knocked out power for 640 million people in northern and central India on July 31, a day after a separate blackout left 360 million in seven states without lights. A three-member committee appointed by India’s government is investigating.
• Your 119 Billion Google(GOOG) Searches Now a Central Bank Tool.

Wall Street Journal:

• Electronic Trading Glitches Hit Market. An electronic-trading glitch roiled trading in nearly 150 stocks early Wednesday, sparking confusion among traders and investors and further undermining confidence in the basic machinery of financial markets. As U.S. markets opened for the day, many stocks began to show unusual price moves and trading volume surged. Most of the affected companies were tiny, but insurance giant Berkshire Hathaway Inc. saw more trading in the opening hour than it does in a typical day. Bank of America Corp. and General Electric Co. also gyrated.
• Fracking Opponents Put Pressure on NY Governor. Opponents of shale gas drilling using high-volume hydraulic fracturing, or "fracking," are asking Gov. Andrew Cuomo's top campaign contributors to pressure the governor to ban the practice everywhere in New York.
• S&P Lowers Cyprus Rating. Standard & Poor's Ratings Services lowered its rating on Cyprus one notch further into junk territory and placed the island nation's rating on watch for further possible downgrade, noting its government will remain in a weak fiscal position because the country's banking system has been unable to cope without government support as a result of its exposure to Greek customers. S&P downgraded Cyprus's rating to double-B, two levels into junk territory, from double-B-plus. The firm last cut Cyprus rating in January and had cut its rating three times in 2011.
• Executions Reported as Syria Civilian Crisis Looms. The Syrian government and opposition fighters alike have conducted summary executions, witnesses said Wednesday, as continuing fighting in Aleppo compounded the humanitarian crisis in Syria's most-populous city. Neighborhoods of Aleppo, which has been consumed by 12 days of fighting between Syrian and opposition forces, were under fire from government helicopters and shells, residents said. International observers also saw warplanes targeting rebels in the city, the spokesman for the U.N. mission in Syria said.
• U.S. Oil Reserves Jumped in 2010. U.S. energy officials estimate that oil and natural-gas reserves jumped in 2010 by the highest margin in at least three decades, lending weight to the idea that the U.S. can meet more of its own energy demand. The Energy Information Administration said in its annual report that proven reserves of crude oil jumped by 13%, with the highest increases seen in Texas, North Dakota and the Gulf of Mexico. Proven reserves of natural gas rose by 12%.
• Small Firms See Pain in Health Law. Retail and Restaurant Franchisees Brace for Higher Costs; 'I Don't Have the Profit Margin,' Says One. Randall Tabor, who owns two Quiznos sandwich restaurants in Virginia Beach, Va., once aspired to triple the number of outlets he owns. But after the federal health-care overhaul passed in 2010, Mr. Tabor says, he shelved those plans. The law requires that employers with 50 or more full-time workers provide health insurance to employees by 2014 or pay a penalty. Mr. Tabor, who employs 36 people at his two Quiznos shops and another restaurant, wants to stay small so he doesn't trigger the requirement.

Barron's:

• Green Mountain(GMCR) Falls Hard on Disappointing Guidance. Green Mountain Coffee Roasters beat earnings expectations, but projected disappointing results ahead, sending the stock sharply lower after-hours. Trading was initially halted; the stock fell 12% after it resumed at 4:20.

MarketWatch:

• China property shares dive on price-curb fears.

Business Insider:

• PHOTOS: Chick-Fil-As Across The Country Were Absolutely Jam-Packed.
• Watch: This Robot Is Poised To Change Surgery Forever.

Zero Hedge:

• Macquarie Sees $176 Billion In Lieborgate Losses, $88 Billion Hit To Libor Panel Banks.
• NYSE To Cancel Trades Beyond 30% Band From Opening Price In Various Stocks, Knight(KCG) To Foot Bill For Balance?
• Is The Chinese Juggernaut Losing Steam?
• Hyper Mario And Germany On Verge Of All Out Warfare.

CNBC:

• Hopes Run High for Action From Europe's Central Bank. Market expectations are running so high for the European Central Bank’s meeting Thursday, that it can only disappoint.
• Fiscal Policy Clouds Housing Outlook: Owens Corning(OC) CEO. Budding signs of recovery in the housing market are filtering through to the bottom line, but uncertainty over the government’s fiscal policies could delay investment decisions, Owens Corning CEO Michael Thaman told CNBC Wednesday.

IBD:

• Hibbett Sports(HIBB) Has Small Town Shoppers Running Light.

Sacramento Bee:

• California Fiscal Analyst: 'Hundreds of millions' at risk from Facebook(FB) Slide. The state's Legislative Analyst's Office said Wednesday that "hundreds of millions" of dollars in assumed tax revenues may never materialize due to the continued slide in Facebook's stock price. Menlo Park-based Facebook closed Wednesday trading at $20.88 per share, a new low 45 percent below the initial price. The state Department of Finance assumed the social media giant would trade at $35 by November, while the Analyst's Office believed it would trade at $42 at that time. The November marker is significant because another wave of insiders becomes eligible to sell shares at that point.

Read more here: http://blogs.sacbee.com/capitolalertlatest/2012/08/fiscal-analyst-hundreds-of-millions-at-risk-from-facebook-slide.html#storylink=cpy

Washington Post:

• White House Analyst Warned Saving Solyndra Could Cost More Than Letting It Fail. As the Obama administration moved last year to bail out Solyndra, the embattled flagship of the president’s initiative to promote alternative energy, a White House budget analyst calculated that millions of taxpayer dollars might be saved by cutting the government’s losses, shuttering the company immediately and selling its assets, according to a congressional investigation. Even so, senior officials in the White House’s Office of Management and Budget did not discourage the Energy Department from proceeding with its plan to restructure a federal loan to Solyndra — a move that put private investors ahead of taxpayers for repayment if the company closed, the investigation by Republicans on the House Energy and Commerce Committee found.

Forbes:

• A Game-Changing Study Finds Half Of Global Warming Is Fictitious.

Chicago Tribune:

• 136 U.S. Reps Seek to Halt Use of Ethanol in Gas. Nearly one-third of U.S. representatives want the government to reduce the requirement to use corn-based ethanol in gasoline in light of tight corn supplies and rising prices in the face of the worst drought in more than half a century. Lawmakers will hold a news conference Thursday to criticize the so-called Renewable Fuels Standard, or RFS, which they blame for driving up corn prices. One hundred thirty-six of the 435 House members signed the letter, said a staff worker. The letter, without being specific, calls for a "meaningful nationwide adjustment" in the mandate. This year gasoline refiners will use some 13.2 billion gallons of ethanol, which will consume some 40 percent of the corn crop. "We urge you to adjust the RFS mandate for 2012 to account for the anticipated severe shortage in corn," says the letter.
  

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows Mitt Romney attracting 47% of the vote, while President Obama earns support from 44%. Four percent (4%) prefer some other candidate, and five percent (5%) are undecided.

Reuters:

• Abercrombie(ANF) sees profit below forecasts, shares drop. Teen clothing retailer Abercrombie & Fitch Co estimated quarterly profit at about half what analysts expected after sales in stores open at least a year fell 10 percent. Abercrombie shares fell almost 15 percent to $29 in after-hours trading on Wednesday.
• Coal, iron ore, steel prices ominous indicators. Many shipping firms and bulk commodities traders have a piece of advice for anyone who thinks the world economy may be headed for an upturn soon, led by Chinese industry. Take a sober look at the slide in iron ore, steel and coal prices. For markets reeling from the euro zone crisis, sluggish economic prospects in the United States and worries over China's growth, trends in dry bulk commodities trade look ominous. Iron ore and steel are leading indicators as they detail the expected pattern of industrial demand in vital sectors such as construction and carmaking, while coal highlights power usage, especially in factories. "It is troubling for the market that demand for the two main commodities - coal and iron ore - is sliding now and has done so for some time now," said Peter Sand, chief shipping analyst with trade association BIMCO. "The key importer, China has seen declining steel prices drop more sharply in the past one and half months. This is bad for steel demand and thus also for iron ore and coking coal imports, which are not expected to rebound any time soon."
• GM(GM) wants to double car output in Venezuela - Chavez. U.S. automaker General Motors Co wants to more than double its production of cars and auto parts in Venezuela, President Hugo Chavez said on Wednesday. Hailing it as one of the first examples of benefits from Venezuela joining the Mercosur regional trade bloc on Tuesday, Chavez said he was presented with a plan by senior GM executives while he was in Brazil for the ceremony.
• Monsanto(MON) awarded $1 bln in patent infringement case against DuPont(DD).

Telegraph:

• European Manufacturing PMIs: in graphs.
• Competitiveness is improving but Europe urgently needs growth. If it wasn’t already obvious, it is now. Europe, with Britain in tow, is sliding ever more inescapably back towards the economic cliff edge.

The Economic Times

• BlackBerry Maker Research in Motion(RIMM) Agrees to Hand Over Its Encryption Keys to India. Research in Motion's four-year standoff with the Indian government over providing encryption keys for its secure corporate emails and popular messenger services is finally set to end.
  

The Australian:

• BHP(BHP) to Postpone its $19Bn Port Plan. THE head of BHP Billiton's iron ore division has told thousands of his staff that the mining giant is reviewing its growth plans in the Pilbara amid mounting speculation it has decided to delay a $US20 billion ($19bn) expansion of its Port Hedland harbour for at least two years.

Financial News:

• China Economic Fundamentals Are 'Good'. China should increase flexibility of monetary policies under the circumstances that its "prudent" stance doesn't change, a front page commentary said. Some factors that induced inflation haven't been eliminated and product prices that were "suppressed" earlier may rise, the commentary said.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.50% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 158.0 -2.0 basis points.
• Asia Pacific Sovereign CDS Index 130.0 unch.
  
• FTSE-100 futures +.15%.
  
• S&P 500 futures +.20%.
  
• NASDAQ 100 futures +.18%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (STE)/.45
• (MWW)/.06
• (BDX)/1.53
• (RDC)/.49
• (GM)/.75
• (CI)/1.41
• (LEA)/1.29
• (CAH)/.72
• (DTV)/1.14
• (SEE)/.35
• (K)/.84
• (APA)/2.53
• (CLX)/1.26
• (FLR)/.92
• (PBI)/.49
• (MHK)/1.13
• (AIG)/.60
• (LNKD)/.16
• (ATVI)/.12
• (OPEN)/.37
• (MCHP)/.48
• (JOE)/-.02
• (PSA)/1.51

Economic Releases
8:30 am EST

• Initial Jobless Claims are estimated to rise to 370K versus 353K the prior week.
• Continuing Claims are estimated to rise to 3288K versus 3287K prior.
  

10:00 am EST

• Factory Orders for June are estimated to rise +.5% versus a +.7% gain in May.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The ECB rate decision, ECB's Draghi speaking, BoE rate decision, China Services PMI, ICSC Chain Store Sales for July, Challenger Job Cuts report for July, ISM New York for July, RBC Consumer Outlook Index for August, weekly Bloomberg Consumer Comfort Index and the weekly EIA natural gas inventory data could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and real estate 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.