Monday Watch

Weekend Headlines 
Bloomberg:   

• Japan’s Below-Forecast Growth Fuels Sales-Tax Debate: Economy. Japan’s economy slowed more than forecast in the second quarter as businesses cut investment, undermining gains in consumer and government spending that helped reduce deflationary pressures. Gross domestic product rose an annualized 2.6 percent from the three months through March, when it rose 3.8 percent, the Cabinet Office reported today in Tokyo. The median of 32 estimates was for a 3.6 percent gain. Unadjusted for price changes, nominal GDP (SGDPQOQ) growth accelerated to 2.9 percent. The report adds to the debate on whether Japan is strong enough to sustain a planned 3 percentage point bump in the sales tax in April, with Prime Minister Shinzo Abe deciding in coming months on whether to proceed. While consumers continue to propel Japan’s rebound, companies have yet to commit to the Abenomics project, paring capital spending for a sixth straight quarter.

• China Urbanization Push to Hit Roadblocks Amid Local Opposition. China’s plan to encourage hundreds of millions of rural residents to settle in cities to boost growth faces opposition from local governments, according to Li Tie, an official with the country’s top economic planning agency. Li spoke at an urbanization forum in Beijing where officials, researchers and company executives highlighted challenges. They cited the strain on local-government finances, the dangers of overbuilding and the cost of scrapping the hukou, or residence permit, system that denies migrants the welfare, health and education benefits of city dwellers. 

• China Poised to Gain Control as Shipyard Shakeout Looms: Freight. China grew into the world’s leading shipbuilder over the last decade as hundreds of private yards opened to compete with state-run companies. Now, the government is poised to regain control as the industry heads for consolidation. The number of shipyards in China has swollen to 1,647, contributing to a global capacity glut. To stabilize the industry, one third to a half of the yards will probably have to disappear through acquisitions and closings, according to executives and analysts.

• Singapore Cuts Export Forecast as China Slowdown Damps Recovery. Singapore lowered its forecast for exports this year as a slowing expansion in China crimps demand for the nation’s goods, even as services helped the economy grow more than initially estimated last quarter. Non-oil domestic exports may be unchanged or rise 1 percent this year, compared with a previous forecast of 2 percent to 4 percent, the trade promotion agency said in a statement today. 

• Auckland’s New York House Prices Prompt Lending Curbs: Mortgages. When it comes to buying a house, New Zealander Ginny Braun is finding that her home town of Auckland is rapidly catching up to New York City. “The market feels crazy, it feels like it’s out of control,” said the 40-year-old associate professor of psychology at the University of Auckland, who’s been looking for a house for more than three years. “I’ve heard people say it’s cheaper to buy in New York than in Auckland. Having lived in New York, that doesn’t seem an outrageous claim.”

• Indian Banks to Drop on Record Yield Inversion: Chart of the Day. India's banking stocks may extend their 26% plunge since mid-May as short-term bond yields exceed long-term rates for the longest period since 2008. The inversion of the bond gauge since May 22 is also the steepest since 2001, when Bloomberg began compiling the data. If the pattern from five years ago repeats, the share index will extend its retreat from the 2013 peak even after the yield curve's inversion ends.

• Asian Stocks Gain as Investors Buy ‘Cheap’ China Shares. Asian stocks rose, reversing earlier declines on the regional benchmark, as investors snapped up shares in China, now at the cheapest valuation of the world’s top 10 stock markets. Commodities companies climbed. Raw-materials suppliers led gains on the regional equities index, with BHP Billiton Ltd. (BHP), the world’s biggest miner, jumping 2.7 percent in Sydney. Bridgestone Corp. (5108), Japan’s No. 1 tiremaker, advanced 4.9 percent after raising its full-year profit forecast. GCL-Poly Energy Holdings Ltd. fell 2 percent in Hong Kong after the world’s largest producer of polysilicon forecast a wider loss. The MSCI Asia Pacific Index advanced 0.4 percent to 134.39 as of 10:59 a.m. in Hong Kong as seven of the 10 industry groups on the gauge rose.

• Rubber Gains to Highest in More Than Two Months on China Demand. Rubber rallied to the highest level in more than two months on optimism that China’s stabilizing economy would lead to higher demand from the top consumer of the commodity used in tires. Rubber for delivery in January on the Tokyo Commodity Exchange rose as much as 1.9 percent to 266.3 yen a kilogram ($2,769 a metric ton), the highest level for the most-active contract since May 29. 

• Rebar Advances to Highest in Four Months on China Demand Outlook. Steel reinforcement-bar futures in Shanghai rose for a ninth day to a four-month high on optimism that demand will pick up in China, the world’s largest producer and consumer. Rebar for January delivery on the Shanghai Futures Exchange climbed as much as 0.5 percent to 3,773 yuan ($617) a metric ton, the highest level for a most-active contract since April 17, and was at 3,766 yuan at 10:56 a.m. local time.

• Hedge Funds Trim Gold Bets on Stimulus Speculation: Commodities. Hedge funds cut bullish gold bets by the most since June amid speculation about whether the Federal Reserve will begin trimming its monthly bond purchases. Money managers cut their net-long position by 27 percent to 48,103 futures and options by Aug. 6, U.S. Commodity Futures Trading Commission data show. Holdings of short contracts rose 26 percent. Net-bullish bets across 18 U.S.-traded raw materials dropped 19 percent to the lowest since March and a measure of wagers across agricultural commodities turned negative for the first time on record. 

• Gold Advances to Highest Level This Month as SPDR Assets Expand. Bullion for immediate delivery rallied as much as 1.5 percent to $1,333.94 an ounce, the highest price since July 31, and traded at $1,329.92 at 11:16 a.m. in Singapore. Gold for December delivery climbed as much as 1.6 percent to $1,333 an ounce on the Comex in New York and was at $1,328.90.

• German Second-Quarter GDP Growth Said to Be Estimated 0.75%.

• Spurning 193% Credit Card Rates Undermines Growth: Brazil Credit. Brazilian consumers are taking out a record amount of salary-deductible loans to pay down costlier debt such as credit cards and check overdrafts, undermining government efforts to spur the economy by boosting spending. So-called payroll loans, which allow banks to deduct payments directly from paychecks and charge an average interest rate of 24.2%, rose 10.8% this year through June to an unprecedented $92 billion, almost double the 6% increase for standard consumer loans, according to the most recent data from the central bank. In the same span, purchases with credit cards, which carry the highest rates in Latin America at 193%, fell 1%.

• Obama Begins Vacation Golfing With Wall Street Supporter Wolf. U.S. President Barack Obama began his first full day of a vacation on Martha’s Vineyard in Massachusetts with a round of golf with Robert Wolf, a friend and top Wall Street backer of his 2012 re-election campaign. Obama is playing a midday round at Farm Neck Golf Club in Oak Bluffs with Wolf and presidential aide Marvin Nicholson and White House chef Sam Kass. Wolf, 51, the chief executive officer of 32 Advisors LLC and former UBS Americas chairman who served on the president’s jobs council, has been one of Obama’s chief Wall Street allies. Obama in June appointed Wolf to his Export Council.

• Two Ex-JPMorgan Traders Facing Arrest in London, NYT Says. Authorities plan to arrest two former JPMorgan Chase & Co. (JPM) employees on fraud charges related to their role in a trading loss last year, the New York Times reported, citing people briefed on the matter. Javier Martin-Artajo and Julien Grout, who worked in the bank’s London office, will probably be taken into custody in coming days, the newspaper reported. They are natives of other European countries and British authorities may not be able to locate them, according to the report. 

• Rockwell Collins to Buy Carlyle’s Arinc for $1.39 Billion. Rockwell Collins Inc. agreed to acquire Carlyle Group LP (CG)’s Arinc Inc., an aviation-information management company, for $1.39 billion to help expand the aerospace-equipment maker’s business outside the cockpit.

Wall Street Journal: 

• Emerging World Loses Growth Lead. Global-Trade Decline Dulls Developing Markets as Outlook Brightens in More-Established Economies. Momentum in the global economy is shifting to the developed world, away from the emerging economies that had led growth since the financial crisis. For the first time since mid-2007, the advanced economies, including Japan, the U.S. and Europe, together are contributing more to growth in the $74 trillion global economy than the emerging nations, including China, India and Brazil, according to an estimate by investment firm Bridgewater Associates LP.

• U.S. Probes Use of Antipsychotic Drugs on Children. Federal health officials are reviewing antipsychotic drug use on children in the Medicaid system. Federal health officials have launched a probe into the use of antipsychotic drugs on children in the Medicaid system, amid concern that the medications are being prescribed too often to treat behavioral problems in the very young.

• Circle Sept. 10 on Your Calendar for Apple’s(AAPL) Big iPhone Event. The launch comes at an important time for Apple, which continues to make a lot of money from the iPhone but has seen its global market share dip amid a growing wave of lower-cost Android devices as well as an intense battle with archrival Samsung.  

• Penney Board Assails Director. William Ackman Considered 'Rogue' After Releasing Deliberations.

• Deutsche Börse's News Service for Traders Draws Scrutiny of Investigators. A look at Need To Know News sheds light on growing concerns about data releases. Several times a month, the Labor Department invites news reporters to a sealed room for an early look at soon-to-be-released reports such as the unemployment rate. One organization attending in recent years stands out from the rest.

• The Dark Side of Higher Yields. Income-hungry investors have flocked to energy-focused master limited partnerships and MLP funds this year. Yet risks are rising, and taxes can be hazardous.

• Economists See Just Enough Growth for Fed to Pull Back. Analysts Don't See Much Chance of Recession or Above-Average Economic Performance. The U.S. economic growth outlook has been upgraded to decent from lousy—which, while some distance from good, is likely good enough for the Federal Reserve to pull back on its stimulus later this year.

• The Budget Sequester Is a Success. The Obama spending blitz is over and the deficit is heading below 4% of GDP.

Fox News:

• IRS scandal hits 3 month mark -- where's the accountability, Mr. Obama? In the past three months, we have learned that the Obama administration repeatedly tried to downplay this unlawful targeting scheme which is an unprecedented breach of the public’s trust by the IRS. We also know that the scandal continues to expand. And we know that the Obama administration is doing very little to get to the bottom of what happened, despite the president's promise to the American people that the administration would “hold the responsible parties accountable.”

• Sen. Ted Cruz Renews Call To Cut Off Funding For ‘Obamacare’.

CNBC: 

• Financials near to regaining S&P 500's top spot.

Zero Hedge:

• Fourth Hindenburg In Five Days Closes Dow Near Worst Week Of The Year. (graphs)

• Is China Doomed?

• Trickle Down Hunger. (graph)

• Visualizing The Collapse In US Job Security. (graph)

• Picturing The Plunge In Gun Crimes (As Gun Sales Surge). (graphs)

• The Ghost Of Inflation Future.

• Bill Black On The DoJ's Seven Biggest 'Fails' In The BofA Lawsuit.

• Radioactive Water Spills Over Fukushima Barrier, Flooding Surroundings.

• Obama's Full Take On Messrs. Summers And Yellen.

• Eurozone Funding Shortfall Rises To Over $4 Trillion, Increases By More Than $500 Billion In A Year. (graphs)

• Egypt To Begin Crackdown On Pro-Mursi Supporters Tonight, "A Move Which Could Trigger More Bloodshed".

• Internal Bundesbank Report Predicts New Greek Bailout In Early 2014, More Headaches For Merkel.

• Yen Surges As Japanese GDP Misses By Most In A Year.

• 'Sept-Taper' Odds Soar. (graph)

• Bridgewater's Ray Dalio Warns Eurocrisis Is Not Over.

Business Insider:

• Spain's Banking System Is Doomed To Collapse.

• 10 Things That Could Go Horribly Wrong In China.

• LEANING IN PAYS OFF: Sheryl Sandberg Clears $91 Million In Stock Sale. Facebook(FB) stock is finally above its IPO price of $38 per share. On Friday, COO Sheryl Sandberg took the opportunity to sell $91 million worth of stock, according to SEC filings.

• Japan's Debt Has Officially Passed ¥1,000,000,000,000,000 — No Problem.

• The Big Benefit From Easy Central Bank Policy Is Coming To An End.

• Obama's Approval Rating Has Plunged To Near All-Time Lows.

Wall Street All-Stars:

• Indicator Update: Time to ring the cash register?

New York Times: 

• Prosecutors Investigate JPMorgan Over Trading Losses. As federal authorities prepare to charge criminally two former JPMorgan Chase employees suspected of misrepresenting a multibillion-dollar trading loss last year, prosecutors in Manhattan are separately exploring ways to penalize the bank over the trading blowup that has come to be known as the “London Whale.”

• With I.P.O.’s on the Rise, Analysts Get New Scrutiny. The market for initial public offerings has made a comeback, surging to levels not seen since before the financial crisis. At the same time, concerns have resurfaced over the role of Wall Street research analysts in these lucrative deals.

Reuters: 

• GM(GM) plans gradual pullout of S.Korea as labor costs surge. General Motors Co. has begun gradually cutting its presence in South Korea after mounting labor costs and militant unionism triggered a rethink of its reliance on the country for a fifth of its global production, three individuals familiar with GM's thinking said.

USA Today:

• Wave of bombings in Iraq during holiday kills 69. This year's Ramadan was the most violent since 2007, with 671 people killed. A wave of car bombings targeting those celebrating the end of Ramadan across Iraq killed 69 people Saturday, a bloody reminder of the inability of Iraqi authorities to stop violence threatening to spiral out of control.

Telegraph:

• I warn you, Mr Carney – a housing bubble is coming. Like missing penalties, drinking tea and listening to The Archers, home ownership is a peculiarly British obsession that is hard to explain to outsiders.

• European banks need to sell £2.8 trillion of assets. Banks in Europe will need to slash €3.2 trillion (£2.8tn) of assets from their balance sheets over the next five years to meet new regulations designed to minimise the risk of further banking collapses in future.

Expansion:

• Roche Sees No Growth in South Europe in 2H. Roche doesn't forecast growth from its southern European business for the rest of the year or a big decline, and "in general" will meet predictions, CFO Alan Hippe says in interview. Roche still faces payment delays from Spanish public health system.

Xinhua:

• Chinese official warns of excessive "empty cities". Reckless expansion of cities in China has left many of them empty, according to a Chinese economic planning official. Qiao Runling, deputy director of the China Center for Urban Development under the National Development and Reform Commission, said local governments had relied on quick urbanization to stimulate economic growth and generate fiscal revenue. "Nearly every big or medium-sized city across China has plans to erect a new town," Qiao said, quoting the result of his research at a forum on urban development held in Jiangxi Province this week. According to the official, new towns are usually bigger than old ones and many cities are left empty as a result. "China now has an oversupply of cities, given the number of new urban districts that we have," Qiao said, adding that the excess of new urban districts are especially serious in medium and small-sized cities in central and western parts of the country. Qiao warned that China's modern urbanization should no longer be bolstered by investment or construction projects but focus on structural reform. Official statistics showed that land used for urban construction rose by 83.41 percent from 2000 to 2010, while the urban population saw an increase of 45.12 percent in the period.

China Securities Journal:

• Some Chinese Banks Raise Time-Deposit Rates. Some banks in Beijing and Guangzhou, including China Everbright Bank, Ping An Bank and Bank of Beijing, have raised 2-year, 3-year and 5-year timed-deposit rates to ceiling after similar moves by some banks in Shanghai, citing an investigation.

• China's Economy Rebound 'Too Early to Call'. A Chinese economic rebound is "too early to call," according to a front-page commentary written by reporter Ren Xiao. Expansion of total demand is weak, the commentary said. Outlook of capital outflow impact isn't optimistic, according to the commentary.

• China Should Start Property Tax in Small Cities. China should start property taxes in small cities and towns to bolster their "weak" fiscal revenue for development, citing Zhao Hui, an official at the Ministry of Housing and Urban-Rural Development.

Weekend Recommendations

Barron's:

• Bullish commentary on (HDS), (OUTR), (WPO) and (MON).

• Bearish commentary on (ISIS).

Night Trading

• Asian indices are -.25% to +1.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 142.0 -3.5 basis points.

• Asia Pacific Sovereign CDS Index 110.25 -.25 basis point.

• FTSE-100 futures +.30%.

• S&P 500 futures -.08%.

• NASDAQ 100 futures +.04%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (SYY)/.54

Economic Releases
 2:00 pm EST

• The Monthly Budget Deficit for July is estimated to widen to -$94.5B versus -$69.6B in June.

Upcoming Splits

• (COG) 2-for-1

• (CSWC) 4-for-1

Other Potential Market Movers

• The USDA Crop report, BoJ Meeting Minutes and the Jefferies Industrials conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by mining/metal and real estate shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the week.