Market Week in Review

S&P 500 1,632.97 -1.84%*




The Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices

• S&P 500 1,632.97 -1.84%

• DJIA 14,810.30 -1.33%

• NASDAQ 3,589.86 -1.86%

• Russell 2000 1,010.90 -2.63%

• S&P 500 High Beta 25.62 -2.99%

• Value Line Geometric(broad market) 429.51 -2.54%

• Russell 1000 Growth 752.94 -1.57%

• Russell 1000 Value 829.06 -2.09%

• Morgan Stanley Consumer 992.17 -1.95%

• Morgan Stanley Cyclical 1,230.09 -2.10%

• Morgan Stanley Technology 772.38 -1.83%

• Transports 6,249.88 -3.55%

• Utilities 477.87 -1.05%

• Bloomberg European Bank/Financial Services 96.29 -4.02%

• MSCI Emerging Markets 38.44 -.55%

• HFRX Equity Hedge 1,105.92 -.75%

• HFRX Equity Market Neutral 933.48 -.41%

Sentiment/Internals

• NYSE Cumulative A/D Line 185,682 -.12%

• Bloomberg New Highs-Lows Index -28 -43

• Bloomberg Crude Oil % Bulls 43.24 +103.87%

• CFTC Oil Net Speculative Position 345,130 -.07%

• CFTC Oil Total Open Interest 1,855,284 +1.09%

• Total Put/Call 1.12 +41.77%

• OEX Put/Call 2.40 -45.08%

• ISE Sentiment 84.0 -22.2%

• NYSE Arms 1.10 +20.88%

• Volatility(VIX) 17.01 +21.67%

• S&P 500 Implied Correlation 54.59 +12.04%

• G7 Currency Volatility (VXY) 10.13 +3.47%

• Emerging Markets Currency Volatility (EM-VXY) 11.74 +9.51%

• Smart Money Flow Index 11,198.56 -.93%

• Money Mkt Mutual Fund Assets $2.644 Trillion +.24%

• AAII % Bulls 33.5 +15.8%

• AAII % Bears 30.8 -28.3%

Futures Spot Prices

• CRB Index 291.16 +.13%

• Crude Oil 107.65 +1.25%

• Reformulated Gasoline 289.01 +.73%

• Natural Gas 3.58 +2.90%

• Heating Oil 313.66 +1.20%

• Gold 1,395.80 -.06%

• Bloomberg Base Metals Index 188.72 -2.97%

• Copper 323.30 -3.58%

• US No. 1 Heavy Melt Scrap Steel 338.53 USD/Ton unch.

• China Iron Ore Spot 137.70 USD/Ton -.65%

• Lumber 318.90 +1.82%

• UBS-Bloomberg Agriculture 1,434.54 +1.14%

Economy

• ECRI Weekly Leading Economic Index Growth Rate 4.2% -30 basis points

• Philly Fed ADS Real-Time Business Conditions Index -.0822 +10.07%

• S&P 500 Blended Forward 12 Months Mean EPS Estimate 117.89 +.14%

• Citi US Economic Surprise Index 30.80 +2.3 points

• Citi Emerging Markets Economic Surprise Index -17.90 +6.7 points

• Fed Fund Futures imply 40.0% chance of no change, 60.0% chance of 25 basis point cut on 9/18

• US Dollar Index 82.09 +.89%

• Euro/Yen Carry Return Index 135.31 -1.80%

• Yield Curve 238.0 -6 basis points

• 10-Year US Treasury Yield 2.78% -3 basis points

• Federal Reserve's Balance Sheet $3.602 Trillion -.03%

• U.S. Sovereign Debt Credit Default Swap 22.22 -.22%

• Illinois Municipal Debt Credit Default Swap 184.0 +3.16%

• Western Europe Sovereign Debt Credit Default Swap Index 87.50 +2.34%

• Asia Pacific Sovereign Debt Credit Default Swap Index 131.01 +2.10%
  

• Emerging Markets Sovereign Debt CDS Index 255.0 +3.87%
  

• Israel Sovereign Debt Credit Default Swap 140.67 +6.57%

• Egypt Sovereign Debt Credit Default Swap 770.33 -1.87%

• China Blended Corporate Spread Index 385.0 unch.

• 10-Year TIPS Spread 2.11% -3 basis points

• TED Spread 23.75 unch.

• 2-Year Swap Spread 17.0 -2.5 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -9.75 -.25 basis point

• N. America Investment Grade Credit Default Swap Index 83.33 +4.61%
  

• European Financial Sector Credit Default Swap Index 150.21 +6.86%
  

• Emerging Markets Credit Default Swap Index 349.55 +8.55%
  

• CMBS AAA Super Senior 10-Year Treasury Spread  to Swaps 115.0 +10 basis points

• M1 Money Supply $2.537 Trillion -.05%

• Commercial Paper Outstanding 1,020.10 unch.

• 4-Week Moving Average of Jobless Claims 331,300 +800

• Continuing Claims Unemployment Rate 2.3% unch.

• Average 30-Year Mortgage Rate 4.51% -7 basis points

• Weekly Mortgage Applications 439.20 -2.49%

• Bloomberg Consumer Comfort -31.70 -2.9 points

• Weekly Retail Sales +3.70% +10 basis points

• Nationwide Gas $3.59/gallon +.05/gallon

• Baltic Dry Index 1,132 -2.24%

• China (Export) Containerized Freight Index 1,126.0 -.62%

• Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 20.0 unch.

• Rail Freight Carloads 257,080 +.24%

Best Performing Style

• Large-Cap Growth -1.6%

Worst Performing Style

• Small-Cap Value -3.1%

Leading Sectors

• Biotech +.3%

• Energy -.2%

• Utilities -1.0%

• Telecom -1.2%

• Gaming -1.3%

Lagging Sectors

• Networking -3.8% 

• Steel -4.1%

• Banks -4.2%

• Coal -5.1%

• Gold & Silver -7.1%

Weekly High-Volume Stock Gainers (15)

• ZLC, MEI, HITK, EGAN, LRN, INSM, TMS, AKRX, CARB, MOV, TLYS, GES, EXPR, DSW and CRUS

Weekly High-Volume Stock Losers (8)

• ADSK, CLVS, RGS, OVTI, SAFM, SEAS, GCO and TFM

Weekly Charts
ETFs

• High-Volume Gainers

• High-Volume Losers

Stocks

• High-Volume Gainers

• High-Volume Losers

*5-Day Change

Stocks Falling into Final Hour on Syria Concerns, Rising Eurozone Debt Angst, Technical Selling, Homebuilding/Transport Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Light

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 17.20 +2.32%
• Euro/Yen Carry Return Index 135.20 -.45%
• Emerging Markets Currency Volatility(VXY) 11.74 +.17%
• S&P 500 Implied Correlation 55.27 -.16%

• ISE Sentiment Index 90.0 unch.

• Total Put/Call 1.12 +16.67%

• NYSE Arms 1.04 -.28% 

Credit Investor Angst:

• North American Investment Grade CDS Index 83.81 +1.62%

• European Financial Sector CDS Index 150.21 +2.28%

• Western Europe Sovereign Debt CDS Index 87.50 +2.34%

• Emerging Market CDS Index 349.54 +2.14%

• 2-Year Swap Spread 17.25 unch.

• TED Spread 24.0 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -9.75 unch.

Economic Gauges:

• 3-Month T-Bill Yield .02% unch.

• Yield Curve 238.0 +3 bps

• China Import Iron Ore Spot $137.70/Metric Tonne -.43%

• Citi US Economic Surprise Index 30.80 +.2 point
• Citi Emerging Markets Economic Surprise Index -17.90 +4.5 points

• 10-Year TIPS Spread 2.11 -1 bp

Overseas Futures:

• Nikkei Futures: Indicating -65 open in Japan

• DAX Futures: Indicating +6 open in Germany

Portfolio: 

• Slightly Lower: On losses in my biotech/retail/tech/medical sector longs and emerging markets shorts
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back
• Market Exposure: 25% Net Long

Today's Headlines

Bloomberg:

• Obama Left With France as Ally in Syria Fight. France signaled it might act as the principal U.S. ally in a military strike against Syria, filling a hole left by Britain’s unexpected desertion of President Barack Obama late yesterday. Hours after British lawmakers pulled the U.K. out of a mission to punish Syria’s use of chemical weapons, French President Francois Hollande said he still favors delivering a targeted blow, bypassing a stalemated United Nations Security Council if necessary. “There are few countries with the capacity to mete out a sanction using appropriate means,” Hollande said in an interview with Le Monde newspaper published today. “France is among them and is ready.” 

• Attacking Syria Makes Less Sense Than the Iraq War by Ramesh Ponnuru.

• European Stocks Decline as Stoxx 600 Erases Monthly Gain. European stocks fell, extending a weekly loss, as oil and gas companies dropped, outweighing better-than-expected euro-area economic confidence data. BP Plc and Royal Dutch Shell Plc each slipped at least 1 percent as crude declined after the U.K. parliament rejected a motion for military action against Syria. Royal KPN (KPN) NV slid 3.4 percent after America Movil SAB said it may withdraw its takeover bid if opposed by the company’s independent foundation. Hermes International SCA climbed 2.1 percent after reporting operating profit that surpassed analysts’ estimates. The Stoxx Europe 600 Index dropped 0.9 percent to 297.32 at the close of trading, its lowest level since July 17. The gauge fell 2.4 percent this week, its second weekly decline, for a 0.8 percent monthly loss, amid concern that the U.S. and its allies will take military action against Syria.

• Indian Growth Slows to Four-Year Low as Rupee Dims Outlook. India’s economy expanded at the weakest pace since 2009 last quarter, adding pressure on Prime Minister Manmohan Singh to stem a plunge in the rupee that led the central bank to raise interest rates. Gross domestic product rose 4.4 percent in the three months through June from a year earlier, compared with 4.8 percent in the prior quarter, the Statistics Ministry said in New Delhi today. The median of 44 estimates in a Bloomberg News survey was for a 4.7 percent gain.

• India’s 10-Year Bonds Poised for Third Monthly Drop on Rupee. India’s 10-year government bonds dropped for a third month, poised for the longest run of losses in three years, as the rupee’s plunge to a record stoked concern inflation will accelerate even as economic growth slows. The currency has tumbled 9.7 percent this month and touched an unprecedented 68.8450 per dollar on Aug. 28, increasing costs for the nation that imports about 80 percent of its oil. Wholesale prices rose 5.79 percent in July, compared with 4.86 percent the previous month, official data show. The yield on the 7.16 percent notes due May 2023 jumped 67 basis points this month, or 0.67 percentage point, data complied by Bloomberg show. The stretch of losses is the longest since August 2010. The rate touched 9.23 percent on Aug. 19, the highest for a benchmark 10-year note since August 2008. It rose seven basis points today to 8.84 percent as of 10:24 a.m. in Mumbai, prices from the central bank’s trading system show. 

• Rupee Seen on Slippery Path as Volatility Highest: India Credit. India’s rupee is seen swinging the most among global currencies as Westpac Banking Corp. (WBC) and Credit Agricole CIB say government efforts to buoy the currency by boosting offshore borrowing are misguided. Three-month implied volatility, a measure of expected moves in the exchange rate used to price options, jumped 649 basis points this quarter to 19.14 percent, the highest among 48 global currencies tracked by Bloomberg. The rupee has plummeted 18 percent this year in Asia’s worst performance.

• Indonesia Faces Rupiah Test With Rate Move on Record Deficit. Indonesia’s surprise interest-rate increase yesterday boosted the rupiah, stemming the currency’s biggest monthly decline in almost five years. To drive a sustained revival, the government needs to curb the country’s record current-account gap. 

• Aluminum Reaches Three-Week Low on Prospects for Larger Surplus.

• Aluminum Industry Seen by JPMorgan Unprofitable on LME Rule. Two-thirds of aluminum producers would be losing money because of lower premiums paid on top of exchange benchmarks if the world’s biggest metals bourse approves rules to cut waiting times at its warehouses, according to JPMorgan Chase & Co.

• Carney Says He’s Alert to Bubble Danger for House Prices. Bank of England Governor Mark Carney said policy makers will act if signs of a property bubble emerge as new data points to continuing strength in the housing market. “We are watching it closely and we will as appropriate make our views known in terms of the degree of this risk and the potential action that should be taken to address it,” Carney said in an interview with the Daily Mail published today. 

• S&P 500 Extends Worst Month Since May 2012. U.S. stocks extended the worst monthly drop since May 2012 as investors weighed a smaller-than-forecast increase in consumer spending and prospects for military action against Syria. European shares dropped and Portuguese bond yields surged amid concern the nation will struggle to meet its deficit target. The Standard & Poor’s 500 Index lost 0.3 percent to 1,634.07 at 12:29 p.m. in New York to extend its loss for August to more than 3 percent. The Stoxx Europe 600 Index retreated 0.9 percent while the MSCI Emerging Markets Index gained 0.8 percent. Portuguese yields jumped to the highest level in more than a month. Ten-year Treasury yields were little changed at 2.75 percent, with the benchmark note poised for a fourth month of losses. West Texas Intermediate oil slipped 1.2 percent to $107.51 a barrel and silver and gold retreated.

• Nasdaq Says Succession of Errors Led to Three-Hour Stock Freeze. A confluence of computer mishaps culminating in the failure of Nasdaq OMX Group Inc. backup systems led to last week’s three-hour stock halt, the second- biggest U.S. exchange operator said. Exchange computers were flooded Aug. 22 with inaccurate data before flawed software disabled systems that should have prevented the malfunction from snowballing, according to a statement released yesterday. The challenges were “clearly within the control of Nasdaq OMX,” the company said. Thousands of stocks stopped trading around the country and officials from President Barack Obama to Treasury Secretary Jacob J. Lew were alerted as the exchange worked to address the breakdown. The disruption underscored how quickly the integrity of the U.S. market, which has a value of about $20 trillion, can be subverted as orders to buy and sell shares are matched on more than 50 exchanges and alternative electronic venues.

Wall Street Journal:

• The Syria Conflict: Streaming Coverage.

Fox News: 

• Kerry says 'no doubt' Assad regime used chemical weapons, intel findings released. The Obama administration cranked up its call for intervention in Syria on Friday, releasing portions of an intelligence report on last week's chemical weapons attack as Secretary of State John Kerry said there's "no doubt" the Assad regime was behind this "crime against humanity." President Obama, shortly afterward, said he has not yet made a decision about military intervention but is considering a "limited" action. Kerry issued a robust call for action in Syria, despite British lawmakers voting a day earlier not to get involved. He cited the findings of an intelligence assessment that was released shortly after he began speaking, saying there's clear evidence chemical weapons were used by the Assad regime last week. 

• The Chicago way? Illinois officials under fire for ObamaCare contracts.

MarketWatch:

• U.S. third-quarter-growth forecasts get a haircut.

• France: Syria strike could come by Wednesday.

CNBC: 

• After the crisis, new grads face rough jobs road. (video) Cashin: Comments from Fed's Lacker ‘hit me like a 2-by-4’. Art Cashin, director of floor operations at UBS Financial Services, told CNBC on Friday that several under-the-radar comments from the Federal Reserve on Thursday created anxiety in the market and investors shouldn't overlook the implications of what was said.

Zero Hedge: 

• European Unemployment Remains At All Time High: Ranges From 4.8% To 27.6%. (graph)

• Personal Income, Spending Miss; Employee Compensation Plunges. (graph)

• The Fed Owns 31.89% Of The Bond Market: Up 0.3% In One Week. (graph)

• Chicago PMI Prints As Expected, Employment Component Drops To Four Month Low. (graph)

• Europe Collapses To 2nd Worst Week In 11 Months. (graphs)

Business Insider:

• Why David Cameron's Syria Defeat Is A Historic Humiliation.

• SoCal Realtor: People Are Flipping Homes Like Crazy, And The Least Informed Buyers Are Making The Market.

New York Times:

• Forecast Darkens for Indian Economy. India’s economy slowed in early summer to its weakest pace since the bottom of the global economic downturn in 2009, government statistics released on Friday evening showed, and evidence is piling up that the economic performance as autumn approaches may be even worse.

Washington Post:

• Shamed into war by Charles Krauthammer?

StockTwits:

• NYSE Margin Debt near all-time high. (graph)

Reuters: 

• Muni bonds sales turn in weakest August since 2000. Sales of U.S. municipal bonds saw their weakest August in more than a decade, as cities, states and authorities brought $20.57 billion of debt to market, according to preliminary Thomson Reuters estimates released on Friday. That was the smallest issuance for August since 2000, when borrowers only sold $16.59 billion in bonds, according to Thomson Reuters data.

• METALS-Copper falls on firm dollar, on Fed tapering concerns. Copper fell to a three-week low on Friday, pressured by a stronger dollar and expectations that U.S. stimulus would be withdrawn starting next month, which could hamper growth and crimp the flow of money invested in commodities. The metal closed the week down 3.5 percent, the biggest weekly loss since mid-June. 

• Portuguese yields jump on blow to austerity drive. Portugal's bond yields jumped on Friday after its constitutional court rejected a labour bill that would have allowed public sector workers to be fired, in a blow to the austerity programme set out under Lisbon's bailout. The ruling raised concerns about Portugal's ability to meet conditions to receive its next aid tranche and alarmed investors by suggesting the court could throw out more of the government's planned savings measures. Short-dated bond yields rose faster than longer-dated ones, in a sign that investors were pricing in higher credit risk. This flattened the yield curve and narrowed the spread between the two to its tightest since July, when the country suffered a government crisis. "It raises the probability of the (next) tranche not being disbursed in time. It's not the baseline scenario but it raises the probability and hence you have to discount it into your bond pricing," Alessandro Tentori, global head of rates strategy at Citi said. Ten-year yields rose 15 basis points on the day to 6.82 percent, but were still some way off levels above 8 percent hit in July. Two-year yields rose 35 bps to 5.57 percent and five-year yields were 22 bps higher at 6.54 percent.

• Brazil to monitor prices as currency tumbles - Mantega. The Brazilian government will keep a close eye on inflation to make sure a sharp depreciation of the local currency is not stoking prices, Finance Minister Guido Mantega said on Friday.

• Canada's economy slows in 2nd quarter, shrinks in June. Canada's economy shifted into lower gear in the second quarter and contracted in June for the first time in six months, hurt by a Quebec construction strike and flooding in Alberta. Gross domestic product grew by 1.7 percent on an annualized basis in the quarter, Statistics Canada said on Friday. The growth was largely powered by consumer spending while business investment, inventories and exports dragged on growth. The expansion slowed from a 2.2 percent clip in the first quarter, revised down from the 2.5 percent rate initially reported. 

• Investors pull $2 bln out of emerging market bond funds. Investors worldwide pulled $2 billion out of emerging market debt funds in the latest week, the 14th straight week of outflows and the biggest withdrawals since June, a Bank of America Merrill Lynch Global Research report said on Friday.

Bear Radar

Style Underperformer:

• Small-Cap Value -1.21%

Sector Underperformers:

• 1) Homebuilders -2.13% 2) I-Banks -1.78% 3) Hospitals -1.50%

Stocks Falling on Unusual Volume:

• NTES, HBC, TM, TI, SFUN, TSU, OVTI, KKD, AMAP, SHOS, CARB, GCO, SCVL, SNY, NVO, UVV, MKTO, FNV, SI, SNP, XOOM, CRUS, HEI, LUX, GLNG, FN, Z, OII, TYG and ECOM

Stocks With Unusual Put Option Activity:

• 1) OVTI 2) HYG 3) CIEN 4) GT 5) KRE
  

Stocks With Most Negative News Mentions:

• 1) NTES 2) SOHU 3) OVTI 4) JOY 5) GS
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Value -.18%

Sector Outperformers:

• Ag +.12% 2) Airlines +.05% 3) Software +.03%
  

Stocks Rising on Unusual Volume:

• APA, CRM, SPLK, JKS and RDN

Stocks With Unusual Call Option Activity:

• 1) CRM 2) KKD 3) OVTI 4) SPLK 5) NUAN
  

Stocks With Most Positive News Mentions:

• 1) HES 2) LMT 3) JOY 4) LOW 5) BIG
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Friday Watch

Evening Headlines 
Bloomberg: 

• Al-Qaeda Links Cloud Syrian War as U.S. Seeks Clarity on Rebels. More than two years into Syria’s civil war, radical Sunni Islamists are emerging as the prevalent force seeking to topple President Bashar al-Assad, according to military analysts in Europe and the Middle East. Their influence is among the biggest challenges facing the U.S. and allies such as Saudi Arabia as they decide which anti-Assad forces to back and how. “Two of the most powerful insurgent factions in Syria are al-Qaeda factions,” Evan Kohlmann, senior partner at Flashpoint Partners in New York, said by telephone. “Even were the Assad regime to fall and there be some kind of takeover by rebels, there’s not a clear understanding that everyone here will be able to agree and form any kind of government.”

• Historic Vote Sees Cameron Defeated by Lawmakers on Syria. David Cameron’s plan for strikes against Syria was defeated as he became the first British prime minister in at least 150 years to lose a parliamentary vote on military action, once again demonstrating his weakness in the face of his own Conservative Party. Minutes after the defeat in the House of Commons last night by 285 votes to 272 of his already watered-down motion seeking authorization in principle for military strikes, the prime minister told lawmakers the U.K. will play no part in any response to the alleged use of chemical weapons by President Bashar Al-Assad against his own people. Coalition lawmakers joined the opposition to defeat the proposal. “The British Parliament, reflecting the views of the British people, does not wish to see British military action,” Cameron said. “I get that and the government will act accordingly.”  

• Indonesia Rupiah Set for Worst Month Since 2008 on Fund Outflows. Indonesia’s rupiah headed for the worst month since the global financial crisis of 2008 on concern the U.S. will start cutting stimulus that has buoyed emerging-market assets as early as September. The currency pared its losses after Bank Indonesia raised its benchmark interest rate yesterday to a four-year high in an unscheduled move to stem exchange-rate weakness. The reference rate was boosted by 50 basis points to 7 percent, before a Sept. 2 report that economists predict will show faster inflation. Global funds pulled 1.02 trillion rupiah ($91 million) from local sovereign debt thismonth through Aug. 28 and a net $577 million from stocks through yesterday, official data show. 

• Record $100 Billion Debt Due as Sales Plunge 44%: Korea Markets. Corporate bond sales in South Korea are falling to a six-year low just as companies face a record debt bill and credit-rating downgrades raise borrowing costs. Companies from SK Telecom, the country's largest mobile phone operator, to POSCO, Asia's fourth-biggest steelmaker, have almost $100 billion of won-denominated bonds and loans due before March 31, data compiled by Bloomberg show. Hanwha Investment Securities Co. says the "maturity wall" is hitting records in both 2013 and 2014. Local-currency note sales plunged 44% this year to $18.6 billion. South Korea industries are paying for a 57% jump in borrowing after the 2008 financial crisis when the government ensured easy credit to help create jobs.

• Asia Stocks Swing From Loss to Gain; Energy Shares Fall. Asian stocks swung between gains and losses, with energy producers leading declines as the price of oil fell after the U.K parliament voted against military strikes on Syria. Japanese utilities rose. Inpex Corp., Japan’s No. 1 energy explorer, dropped 2.2 percent. Hokkaido Electric Power Co. added 4.3 percent in Tokyo as the utility forecast a smaller-than-expected net loss. Ping An Insurance (Group) Co., China’s second-largest insurer, gained 0.8 percent in Hong Kong after saying first-half profit rose. Shanghai Industrial Holdings Ltd., a shopping-mall operator, lost 1.6 percent in Hong Kong after reporting first-half profit fell 34 percent. The MSCI Asia Pacific Index was little changed at 129.77 as of 11:50 a.m. in Tokyo, having swung between gains of as much as 0.5 percent and losses of 0.1 percent. The gauge is down 1.2 percent this week, a second week of losses, while it has dropped 1.9 percent this month.

• Real Free Fall Freezes Junk Market as Debt Surges: Brazil Credit. The plunge in the Brazilian real is extending the drought in the country's junk-bond market to the longest in two years as borrowing costs and leverage surge. Speculative-grade Brazilian companies haven't sold debt abroad since May 7, the longest stretch since the period ended June 2011, while no borrower regardless of rating issued debt in August, according to data compiled by Bloomberg. At 7.2%, average yields on Brazilian corporate debt are the highest in four years and one percentage point above the average in emerging markets, the biggest premium since 2005, data compiled by JPMorgan Chase show.

• Gold Trade Most Bullish Since March on Syria Crisis: Commodities. Gold traders are the most bullish in five months as mounting concern about military action in Syria drove prices into bull market territory. Twenty-three analysts surveyed by Bloomberg expect prices to rise next week, six were bearish and five neutral, the highest proportion of bulls since March 8. Hedge funds and other speculators have the biggest bet on higher prices in six months and holdings of metal in exchange-traded products expanded in the past two weeks, data compiled by Bloomberg show.

• Rebar Heads for Third Monthly Gain on Iron Ore, Lower Inventory. Steel reinforcement-bar futures in Shanghai advanced toward a third monthly gain, supported by lower inventory and higher prices for iron ore. Rebar for January delivery rose as much as 0.4 percent to 3,765 yuan ($615) a metric ton and traded at 3,757 yuan at 10:05 a.m. local time. Futures have gained 3.1 percent this month.

• PIMCO Sees Taper in Worst MBS Slump Since 1999: Credit Markets. U.S. government-backed mortgage bonds are heading toward their longest monthly slump since 1999 as concern mounts that the Federal Reserve will begin paring its debt purchases even as the steepest rise ih home-loan rates in at least 40 years slows the housing rebound. Securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae lost .53% through Aug. 28, heading for their fourth month of declines and bringing losses since April to 2.97 percent, according to Bank of America Merrill Lynch index data. For almost a year, the Fed has been adding $40 billion of bonds to its balance sheet each month from the more than $5 trillion market. It expanded the purchases in January to include $45 billion of Treasuries.

Wall Street Journal: 

• U.S. Prepares for Solo Strike On Syria After Britain Balks. The Obama administration laid the groundwork for unilateral military action in Syria, a shift officials said reflected the U.K.'s abrupt decision not to participate and concerns that President Bashar al-Assad was using the delayed Western response to disperse his military assets. The push for a quick international strike to punish Syria for what the U.S. said was a chemical-weapons attack appeared in disarray on Thursday, after British lawmakers defeated a government motion in support of military action. But President Barack Obama is prepared to act without Britain, officials said, noting that unlike U.S. involvement in the 2011 military operation in Libya, the options under consideration in Syria are smaller-scale and wouldn't require a coalition to be effective.

• The Syria Conflict: Streaming Coverage. 

• In Turmoil, Emerging Markets Raise Rates. Move by Indonesia Follows Brazil, Turkey; Trend Threatens to Deepen Slowdown. Major emerging-market central banks are moving to raise interest rates in an effort to stem an exodus of cash, in a trend that threatens to intensify an economic slowdown across the developing world. Indonesia raised its benchmark rate by half a percentage point on Thursday, one day after a half-point increase by Brazil and a week after a rate increase by Turkey. Other developing economies are under mounting pressure to tighten credit to support their weakening currencies. Brazil's central bank hinted at further increases to come. 

• U.S. Overseas Hiring Probe Has Wide Net. Scrutiny Goes Beyond Probe Disclosed by J.P. Morgan(JPM).

• Apache(APA) to Sell Stake in Egypt Business to Sinopec for $3.1 Billion. Apache Corp. (APA) struck a deal with China Petroleum & Chemical Corp. (0386.HK, 600028.SH, SNP), or Sinopec, under which the U.S. exploration and production company will sell a 33% stake in its Egypt oil and gas business for $3.1 billion. Shares were up 3.1% at $81.09 after hours. Through the close, the stock is down 6.7% over the past three months. Apache said will continue to operate its Egypt upstream oil and gas business. The partnership is expected to close in the fourth quarter. 

• Strassel: A Test of GOP Resolve on ObamaCare. Congress begged for a White House handout and got one. Republicans ought to reject it. Republicans are busy debating what gives them the most "leverage" in their fight to get rid of ObamaCare. One powerful tool, it happens, is an issue that few of them so far have wanted to talk about. The issue is the White House's recent ObamaCare bailout for members of Congress and their staffs. The GOP has been largely mute on this blatant self-dealing. The party might use what's left of its summer recess to consider just how politically potent this handout is, and what—were they to show a bit of principle—might be earned from opposing it.

Fox News:

• Any US strike on Syria likely to extend beyond Damascus, sources say. The impending U.S. military action in Syria is likely to extend beyond the capital city of Damascus, and would be focused on the delivery systems for the Syrian regime's chemical weapons arsenal, sources told Fox News. These systems, and the U.S. military strikes against them, would accordingly include both command-and-control facilities located in the capital but also Syria's short-range missile launchers and artillery positions, which are said to be located in mountainous areas outside of the city.

CNBC:

• If August was bad for stocks, September may be worse. Traders close the books Friday on the worst month for the Dow and S&P 500 in more than a year, and are likely to be cautious ahead of the long Labor Day weekend.

Zero Hedge: 

• Fast-Food Workers Of The World, Unite: The McStrike Epidemic Spreads, Coming To A City Near You.

• Economic Darwinism And The Next Financial Crisis.

• "This" Has Never Happened Outside Of A Recession. (graph)

• Citi Asks "How High Can Gold Ultimately Go?" (graph)

• As Syria Distracts, Here’s What's Happening While No One Is Looking.

• Two Months And Counting To The Real Debt Ceiling D-Day.

• It's The Consumer, Stupid!

ValueWalk:

• ‘Newsflow’ Indicates Downturn in Emerging Markets Will Worsen: SocGen. (graphs)

Reuters: 

• Japan finmin: economic data show favourable trend for sales tax hike. Japanese Finance Minister Taro Aso said on Friday that a series of economic data issued earlier in the day presented a favourable economic trend towards a sales tax hike planned for next April. Japan's core consumer inflation rate accelerated to its highest in nearly five years in July and factory output rebounded smartly, suggesting that government and central bank efforts to end deflation are making some progress. "Taken together, these data suggest the economy is in an uptrend, and the numbers will affect environment for the sales tax hike," Aso told a news conference after a cabinet meeting. Aso also said failure to raises the sales tax would be seen as that Japan has no intention of proceeding with fiscal consolidation and therefore could lead to a plunge in share prices and government bonds.

• Investors pull less cash from U.S.-based stock funds -Lipper.

• Salesforce's(CRM) raised outlook reassures, lifts shares. Salesforce.com Inc raised its fiscal 2014 sales outlook after reporting better-than-expected revenue and earnings on Thursday, reassuring jittery investors that the cloud software company will continue its red-hot growth. The company raised its full-year revenue guidance to between $4 billion and $4.025 billion, in line with Wall Street expectations of roughly $4 billion. The forecast sent shares 8 percent higher after the bell to $47.

• Outlook for PC shipments worsens - IDC. The outlook for the struggling personal computer industry is worse than was previously believed, according to market research firm IDC, which on Thursday cut its 2013 forecast for global PC shipments for at least the second time. Worldwide shipments of PCs are likely to fall 9.7 percent this year as consumers continue to favor mobile gadgets, IDC said in a report. That is much worse than IDC's prediction in March that PC shipments would fall 1.3 percent this year and below its forecast in May of an 7.8 percent annual drop. 

• Campbell Soup(CPB) sales disappoint, shares fall. Campbell Soup Co, the world's largest soup maker, reported quarterly revenue that fell short of analysts' expectations as sales in its core U.S. soup business slowed, sending its shares down 3 percent. 

• Omnivision's(OVTI) forecast disappoints as competition rises. Chipmaker Omnivision Technologies Inc forecast current-quarter adjusted profit largely below expectations as rising competition and a slowdown of U.S. smartphone sales led to an inventory pile-up, sending its shares down 10 percent in extended trading.

AP: 

• Fed's IG says central bank violated document rules. The Federal Reserve's inspector general says the Fed violated its own rules for handling sensitive material when it inadvertently issued the minutes of a policy meeting a day before the scheduled release. The IG's report Thursday recommended procedural changes after the Fed minutes were sent a day early to more than 100 congressional staffers and financial industry lobbyists. The recipients of the March minutes included congressional staffers and employees of JPMorgan Chase, Goldman Sachs Group, Wells Fargo and other large banks.

The Daily Star:

• Strike on Syria will burn Israel: Iran army chief. Any military action against Syria will have consequences beyond the region and leave Israel in flames, Iran’s army chief of staff General Hassan Firouzabadi said in remarks reported Thursday. “Any new [military] operation in the region will leave behind a lot of damage, which will be of interest to no one except the Zionists,” he said, warning that the fallout from the conflict would not be limited to the region. His remarks echoed those of Iranian officials in recent days. “The U.S. intervention will be a disaster for the region,” supreme leader Ayatollah Ali Khamenei, the Islamic Republic’s most powerful authority, said Wednesday. “The region is like a gunpowder depot. [Its] future cannot be predicted” in case of any military strikes against Syria.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.25% to +.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 160.50 -4.5 basis points.

• Asia Pacific Sovereign CDS Index 128.0 -4.75 basis points.

• FTSE-100 futures -.12%.

• S&P 500 futures +.31%.

• NASDAQ 100 futures +.29%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (BIG)/.24

Economic Releases
8:30 am EST

• Personal Income for July is estimated to rise +.2% versus a +.3% gain in June.

• Personal Spending for July is estimated to rise +.3% versus a +.5% gain in June.

• The PCE Core for July is estimated to rise +.2% versus a +.2% gain in June.

9:00 am EST

• ISM Milwaukee for August is estimated to rise to 53.0 versus 52.43.

9:45 am EST

• Chicago Purchasing Manager for August is estimated to rise to 53.0 versus 52.3 in July.
  

9:55 am EST

• Final Univ. of Michigan Consumer Confidence for August is estimated to rise to 80.5 versus a prior estimate of 80.0.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Bullard speaking and the Italian cpi report could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted 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.

Stocks Slightly Higher into Final Hour on Stable Long-Term Rates, Lower Energy Prices, Short-Covering, Homebuilding/Biotech Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Light

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 16.62 +.79%

• Euro/Yen Carry Return Index 135.66 -.12%

• Emerging Markets Currency Volatility(VXY) 11.84 -2.07%

• S&P 500 Implied Correlation 555.19 +.97%

• ISE Sentiment Index 90.0 -53.61%

• Total Put/Call .95 +18.75%

• NYSE Arms 1.06 +14.62% 

Credit Investor Angst:

• North American Investment Grade CDS Index 82.48 -1.08%

• European Financial Sector CDS Index 146.86 -1.39%

• Western Europe Sovereign Debt CDS Index 85.50 unch.

• Emerging Market CDS Index 340.79 -1.21%

• 2-Year Swap Spread 17.25 +1.0 bp

• TED Spread 24.0 +1.0 bp

• 3-Month EUR/USD Cross-Currency Basis Swap -9.75 unch.

Economic Gauges:

• 3-Month T-Bill Yield .02% -1 bp

• Yield Curve 235.0 -3 bps

• China Import Iron Ore Spot $138.30/Metric Tonne -.14%

• Citi US Economic Surprise Index 30.60 +5.2 points

• Citi Emerging Markets Economic Surprise Index -22.40 +.6 point

• 10-Year TIPS Spread 2.12 -5 bps

Overseas Futures:

• Nikkei Futures: Indicating +65 open in Japan

• DAX Futures: Indicating -30 open in Germany

Portfolio: 

• Slightly Higher: On gains in my biotech/retail/tech sector longs and emerging markets shorts

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back

• Market Exposure: 25% Net Long

Today's Headlines

Bloomberg:

• Israelis Rush for Masks Fearing Retaliation for Syria Strike. Israelis thronged to distribution centers to pick up government-issued gas masks, afraid their country will be targeted in retaliation if the U.S. attacks Syria. The Israel Postal Service, which is distributing the masks, announced on its website that the centers would extend their hours until evening “due to extraordinary demand.” In Haifa, the biggest city closest to the northern border with Lebanon and Syria, people waited in line for hours, Israel Radio said. Some centers ran out of masks.

• Assad’s Syria Chides Bread Lines as Civilians Brace for Hit. Syrians are forming bread lines and stocking up on other food as they brace for a possible U.S.-led attack on their soil. The Syrian government called the hoarding of bread “unjustified,” state-run news agency Sana reported today, citing Minister of Internal Trade and Consumer Protection Samir Amin. The government is ready to provide more flour to meet the increased demand, he said.

• Egypt’s Muslim Brotherhood Gears Up for Rallies Amid Crackdown. The embattled Muslim Brotherhood called on Egyptians to take to the streets tomorrow in protest against the military-installed government, looking to regain footing amid a crackdown on the group. The interim government is going after the Brotherhood as it tries to move ahead with plans to return to elected rule. It has arrested hundreds of its members and killed hundreds of its supporters, and warned today that it would use live fire if protests against the military’s July 3 toppling of Islamist President Mohamed Mursi turn violent. In a recorded statement aired late last night, Essam El-Erian, one of the few top Brotherhood leaders yet to be arrested, called for protests against what he described as “the bloody, brutal, fascist military coup that has hijacked people’s will and halted the path of democracy.” 

• Rupee Dip Risks Economic Nosedive in India, Billionaire Says. India needs to immediately use its foreign exchange reserves to arrest the rupee’s record plunge as the weakening currency has the potential to send the economy into a “nosedive,” billionaire Adi Godrej said. “The whole economy will suffer dramatically -- there will be huge inflation, which will lead to high interest costs and a whole vicious cycle will be created,” Godrej, chairman of the soaps-to-real estate Godrej group, said in a phone interview yesterday. “I’m very surprised that the government and the Reserve Bank of India are not intervening sufficiently to prevent the volatility.”

• Indonesia Faces Rupiah Test After Rate Move on Record Deficit. Indonesia’s interest-rate increase yesterday helped the rupiah climb for the first time this week. To sustain that gain, the country needs to curb a record current-account gap that’s making it vulnerable to persistent pressure on emerging-market currencies. Bank Indonesia increased the benchmark reference rate to 7 percent from 6.5 percent, it said, after a meeting in Jakarta yesterday that came before the next scheduled policy review. It also raised the deposit facility rate by half a percentage point to 5.25 percent, and extended a bilateral swap deal with the Bank of Japan valued at $12 billion that will allow the two to borrow from each other’s foreign-exchange reserves.

• El-Erian Says Emerging Market Woes to Create U.S. Headwinds. Weakening emerging-market growth and spiraling currencies risk creating headwinds for a recovering U.S. economy, according to Pacific Investment Management Co.’s Mohamed El-Erian. “Longer term, we should care due to the feedback loop to the U.S.,” El-Erian, chief executive and co-chief investment officer of the world’s biggest manager of bond funds, said in a radio interview today on “Bloomberg Surveillance” with Tom Keene. “You will see a tightening of financial conditions to markets. You will see growth more challenged and the ability of U.S. companies to get topline growth from emerging markets is going to be less going forward.” 

• European Stocks Rise, Erase Monthly Drop; Vodafone Surges. European stocks rose, erasing their monthly loss, as Vodafone Group Plc surged to an 11-year high while data showed the U.S. economy grew faster than forecast in the second quarter and a drop in jobless claims beat estimates. Vodafone jumped 8.2 percent after saying Verizon Communications Inc. is in talks to acquire its stake in their Verizon Wireless venture. Carrefour SA rallied the most in seven months after posting an increase in first-half profit. Zurich Insurance Group AG declined 2.5 percent as Chairman Josef Ackermann resigned. The Stoxx Europe 600 Index added 0.8 percent to 300.13. The gauge lost 2.2 percent in the past three days, closing yesterday at a six-week low, on concern the U.S. will take military action against Syria.

• Gold Falls From 3-Month High as Data May Bolster Tapering. Gold retreated the most in more than two weeks as better-than-expected U.S. economic data reinforced the case for the Federal Reserve to slow stimulus measures. Gold futures for December delivery fell 0.4 percent to settle at $1,412.90 an ounce at 1:55 p.m. on the Comex in New York, the biggest drop since Aug. 13.

• Fed’s Lacker Says Central Banks’ Future Hinges on Role as Lender. Federal Reserve Bank of Richmond President Jeffrey Lacker said the future of global central banks will be shaped partly by a debate over the extent of their role as a lender of last resort. Lacker said central banks should avoid channeling credit to specific segments of the economy through rescues or asset-purchase programs. Still, “some writers” say central bank mandates provide a large role in financial stability, “in which all available tools, both monetary and credit policy, are used to minimize financial system ‘disruptions,’” he said. “Aggressive use of a central bank’s asset portfolio to channel credit to particular economic sectors or entities threatens dragging the central bank into distributional politics and places that governance arrangement at risk,” Lacker said today in Newport News, Virginia.

• Consumer Comfort in U.S. Declines to a More Than Four-Month Low. Consumer confidence fell for a third straight week to the lowest level in more than four months as Americans’ views on the economy, finances and spending soured. The Bloomberg Consumer Comfort Index declined to minus 31.7 for the period ended Aug. 25, its weakest reading since April 7, from minus 28.8 a week earlier. The gauge has dropped 8.2 points in the three weeks since reaching a more than five-year high. “Households are estimating possible reductions in disposable income due to rising gasoline prices and interest rates,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York, adding that consumers have their eye on political strife in Syria and Egypt. “The way it translates into the U.S. pocketbook is rising gas prices.”

• Fast-Food Strikes Expand Across U.S. to 50 Cities. Fast-food workers in 50 U.S. cities plan to walk off the job today in an attempt to ratchet up pressure on McDonald’s Corp. and Wendy’s Co. to raise wages. Protests that began in New York last year are spreading to cities including Boston, Chicago, Denver, San Diego and Indianapolis, according to the Service Employees International Union, which is advising the strikers. About 200 workers showed up at the two-story Rock N Roll McDonald’s store in Chicago’s River North neighborhood this morning chanting: “Hey hey, ho ho, poverty wages gotta go!” 

• U.S. Banks Earned Record $42.2 Billion in 2nd Quarter, FDIC Says. U.S. banks reported record net income of $42.2 billion for the second quarter on broad gains from trading revenue, the Federal Deposit Insurance Corp. said. Banks’ earnings for the three months ending June 30 marked a second consecutive record quarter, the FDIC said today in its Quarterly Banking Profile. After the second-most profitable year on record in 2012, the boom has continued in the first half of this year as some of the largest banks scored trading success that outpaced analyst expectations.

Wall Street Journal:

• Daniel Henninger: ObamaCare for Everything. First health, then finance and now higher ed gets a federal fix.

Fox News:

• Aetna(AET) Pulls Out of NY Health Exchange. Aetna Inc, the No. 3 U.S. health insurer, said on Thursday it has decided not to sell insurance on New York's individual health insurance exchange, part of the country's healthcare reform. New York is the fifth state where Aetna has pulled its application to sell the plans that go on sale on October 1 and into effect on January 1, 2014. It has also reversed course in Maryland, Ohio, Georgia, and Connecticut, where it is based.

• Any US strike on Syria likely to extend beyond Damascus, sources say. The impending U.S. military action in Syria is likely to extend beyond the capital city of Damascus, and would be focused on the delivery systems for the Syrian regime's chemical weapons arsenal, sources told Fox News. 

MarketWatch:

• Why short sellers love China’s tall buildings. When the ‘world’s tallest building’ goes up, markets come down.

CNBC: 

• US claims, growth beat estimates; stir new taper speculation. The number of Americans filing new claims for unemployment benefits fell as expected last week, suggesting a strengthening in job gains in August after a slight pullback the prior month. Meanwhile, the U.S. economy accelerated more quickly than expected in the second quarter thanks to a surge in exports, bolstering the case for the Federal Reserve to wind down a major economic stimulus program. 

Zero Hedge: 

• America's Social Recession: Five Years and Counting.

• Gundlach's Year End Bond Forecast, Revised. (video)

• NASDARK Admits "Software Flaws"; Blames NYSE.

Business Insider: 

• ALBERT EDWARDS: We've Heard The Final Tweet Of The Global Canary In The Coalmine.

• Eliot Spitzer Completely Collapses In New Poll.

• GUNDLACH: The Housing Market Is The Achilles Heel Of The Economy, And It Looks Vulnerable.

Reuters: 

• Facebook(FB) considers adding profile photos to facial recognition. Facebook Inc is considering incorporating most of its 1 billion-plus members' profile photos into its growing facial recognition database, expanding the scope of the social network's controversial technology. 

• Russia sends warships to Mediterranean as Syria tension rises. Russia is sending two warships to the east Mediterranean, Interfax news agency said on Thursday, but Moscow denied this meant it was beefing up its naval force there as Western powers prepare for military action against Syria.