Friday Watch

Evening Headlines 
Bloomberg:

• Pivot Pledge Wearing Thin on Hagel Trip as China Sway Rises. President Barack Obama’s emphasis this week on restricting the use of the military abroad risks an unintended consequence: deepening concern about fading U.S. engagement among Asian nations locked in disputes with China. 

• Investing for a China Crisis. China's growing list of problems, including a slowing economy, rising militarism, messy corruption crackdown and increasingly troubled shadow banking sector, could provoke a major financial crisis. In the "never waste a crisis" spirit, a number of investment opportunities present themselves: -- Short Chinese stocks. The Shanghai Composite Index is down 67 percent from its October 2007 peak. Even though Chinese stocks may seem inexpensive -- the price-to-earnings ratio for the Shanghai index over the last 12 months is 9.8, compared with 17.3 for the far more costly S&P 500 -- there is no obvious floor. If China has a financial crisis, the risk to Chinese equities is considerable. Bank stocks may be especially vulnerable. Investors who lack direct access to mainland Chinese stocks can use Hong Kong-listed equities and exchange-traded funds. -- Sell commodities. Industrial and agricultural commodity prices took off in 2002, right after China joined the World Trade Organization. As manufacturers in Europe and North America shifted production to China, its thirst for commodities kept growing. Many producers of industrial materials, including base metals, iron ore and coal, also increased capacity as prices leaped.

• Asian Stocks Rise on Faster Japan Inflation, U.S. Outlook. Asian stocks rose, with the regional benchmark index heading for its biggest monthly advance since September, as a report showed Japanese inflation accelerated and investors speculated the U.S. economy is recovering from its first contraction in three years. Toyota Motor Corp. (7203), the world’s biggest carmaker, added 1.1 percent in Tokyo. Envestra Ltd. gained 1.1 percent in Sydney as billionaire Li Ka-shing’s Cheung Kong Group agreed to buy the Australian gas supplier for A$2.4 billion ($2.2 billion). Lynas Corp., which spent $930 million on a rare-earths processing plant in Malaysia, tumbled 16 percent in Sydney after completing a share placement and as debt-restructuring talks continue. The MSCI Asia Pacific Index (MXAP) added 0.2 percent to 142.35 as of 10:04 a.m. in Hong Kong, heading for its highest close since November.

• Iron Ore Heads for Record Losing Streak as Goldman Eyes Supply. Iron ore is heading for a sixth straight monthly decline in the longest losing streak on record as increasing supplies from Australia and Brazil spur a global surplus just as demand growth in China slows. Ore with 62 percent content delivered to Tianjin was at $95.70 a dry ton yesterday, 9.2 percent lower this month, according to data from The Steel Index Ltd. The steel-making raw material, which is at a 20-month low, has dropped every month since December in the longest run of monthly losses since the data series began in November 2008.

• Food Replacing Oil as China M&A Commodity of Choice: Commodities. After spending the past decade and more than $200 billion acquiring mines and oilfields from Australia to Argentina, China’s attention is turning to food. The world’s most populous nation is confronting a harsh reality: For every additional bushel of wheat or pound of beef the world produces, China will need almost half of that to keep its citizens fed.

• Beware of Exotic ETFs Bearing Credit-Default Swaps. If you’ve always wanted to bet your savings on risky credit derivatives, now’s the time. In May regulators signed off on a plan to allow trading in eight exchange-traded funds (ETFs) created by ProShares that will hold credit-default swaps—the derivatives that helped bring on the global credit crisis in 2008.

Wall Street Journal: 

• China Hacking Is Deep and Diverse, Experts Say. Intruders Often Work As Hackers For Hire, According to Officials. China's Internet espionage capabilities are deeper and more widely dispersed than the U.S. indictment of five army officers last week suggests, former top government officials say, extending to a sprawling hacking-industrial complex that shields the Chinese government but also sometimes backfires on Beijing. Some of the most sophisticated intruders observed by U.S. officials and private-sector security firms work as hackers for hire and at makeshift defense contractors, not the government, and aren't among those named in...

• Borrowers Tap Their Homes at a Hot Clip. Helocs Jumped 8% in the First Quarter. A rebound in house prices and near-record-low interest rates are prompting homeowners to borrow against their properties, marking the return of a practice that was all the rage before the financial crisis. Home-equity lines of credit, or Helocs, and home-equity loans jumped 8% in the first quarter from a year earlier, industry newsletter Inside Mortgage Finance said Thursday. The $13 billion extended was the most for the start of a...

• The VA Scandal Is a Crisis of Leadership. Obama's inattention to managing the government may kill the progressive project. The Veterans Administration scandal involves charges of manipulation and falsification of medical waiting lists and systemwide rigging to hide delayed or inadequate treatment, which may have caused the deaths of some of those waiting for care. There are whistle-blowers, allegations of local coverups, and the possibility of criminal charges. Also becoming clearer are two motives for those involved in what appears to have been a racket: their compensation and their career trajectories. This scandal won't go away as others...
  

CNBC:

• Calls for end to crude oil export ban are getting louder. The United States could create nearly a million jobs and lower its domestic energy bills if it ended its crude oil export ban, two reports said on Thursday.

Zero Hedge:

• A Quarter Of Europeans Are At Risk Of Poverty. (graph)

• Ballmer Baller: Former Microsoft CEO To Buy Clippers For $2 Billion: 2nd Highest Price Paid For Any US Sport Team Ever.

• 3 Charts. (graph) 

• As Primary Dealers And Banks Bash Treasurys, Here Is What They Are Really Doing. (graph)

• Dear Japanese Pensioners: You Are The New Proud Owners Of Global Junk Bonds. (graph)

• China's Housing Bubble Desperation In Six Words: "Buy One Floor, Get One Free".

• Abenomics Suffers Crippling Blow: Economy Sputters As Inflation Soars, BOJ QE Delayed Indefinitely. (graph)

Business Insider:

• World Bank Sounds Alarm On Sharp Rise In Global Food Prices.

• Pro-Russian Rebel Factions Are Now Fighting Each Other In Donetsk.

• Michael Bloomberg Blasts Ivy League For Liberal 'Censorship'. Former New York City Mayor Michael Bloomberg accused the entire Ivy League of liberal political bias during a particularly fiery commencement address at Harvard University Thursday. "It is just a modern form of McCarthyism," Bloomberg said of university "censorship" of conservatives. "Think about the irony: In the 1950s, the right wing was attempting to repress left wing ideas. Today, on many college campuses, it is liberals trying to repress conservative ideas even as conservative faculty members are at risk of becoming an endangered species" "And that is probably nowhere more true than it is here in the Ivy League," declared Bloomberg.

Reuters:

• Japan consumer spending, factory output skid after sales tax hike. Japan's household spending in April fell at the fastest rate in three years in a sign that consumption could be slow to recover from an increase in the nationwide sales tax, raising questions over the pace of economic recovery. Japanese household spending fell 4.6 percent in April from a year ago, more than the median market forecast for a 3.2 percent annual decline. That marked the fastest annual decline since March 2011, when an exceptionally powerful earthquake triggered a nuclear disaster. Compared to the previous month, spending tumbled by a record 13.3 percent in April, more than the 13.0 percent decline expected by economists. Government data published with the new figures show that household spending fell further after the April 1 sales tax hike than it did after the 3 percent sales tax in was imposed in 1989, and when it raised the tax to 5 percent in 1997.

• Siemens to eliminate 11,600 positions - Bloomberg.

Obama takes on coal with first-ever carbon limits
Read more at http://www.philly.com/philly/news/politics/20130919_ap_0f857b20e0c144a5a1e1b9dddc9f9d72.html#YRThyDOhArykUeYy.99

Financial Times:

• IMF warns ‘rising’ African nations on sovereign debt risks. The International Monetary Fund has warned African nations issuing billions of dollars in sovereign bonds that they could overload their economies with too much debt and derail the best economic period for the region in a generation.

Telegraph:

• US money slump flashes warnings as economy contracts. The US seems caught in a Japan-style trap, endlessly masking the effect by stealing a little extra growth from the future with artificial stimulus.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.50% to unch. on average.

• Asia Ex-Japan Investment Grade CDS Index 110.0 -.5 basis point.

• Asia Pacific Sovereign CDS Index 80.25 unch.

• FTSE-100 futures -.02%.

• S&P 500 futures -.10%.

• NASDAQ 100 futures  -.11%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (ANN)/.32

• (BIG)/.44 

Economic Releases
8:30 am EST

• Personal Income for April is estimated to rise +.3% versus a +.5% gain in March.

• Personal Spending for April is estimated to rise +.2% versus a +.9% gain in March.

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

9:00 am EST

• The ISM Milwaukee for May is estimated to rise to 52.0 versus 47.26 in April.
  

9:45 am EST

• The Chicago Purchasing Manager for May is estimated to fall to 61.0 versus 63.0 in April.
  

9:55 am EST

• Final Univ. of Mich. Consumer Confidence for May is estimated to rise to 82.5 versus a prior estimate of 81.8.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Plosser speaking, Fed's Lacker speaking, Fed's Pianalto speaking, Canada gdp report and the ASCO Meeting could 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 mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.