Friday Watch

Evening Headlines 
Bloomberg:  

• Obama Authorizes Air Strikes as U.S. Drops Food in Iraq. President Barack Obama said he authorized air strikes against militants in Iraq if they threaten U.S. personnel and dispatched planes to drop food and water for trapped civilians. Obama said the U.S. will strike Islamic State militants if they move toward the Kurdish city of Erbil, where the U.S. has diplomatic personnel. U.S. aircraft today dropped supplies to Iraqis threatened by fighters from the Islamic State extremist group near Sinjar, a city close to the border of Syria. All of the planes safely left the airspace.

• Israel Says Gaza Cease-Fire Is Violated as Rockets Hit in South. Israel said a cease-fire with Hamas forces in Gaza was violated hours before it was due to expire, following a failure by negotiators from the two sides to reach a longer-term deal. “Moments ago, 2 rockets fired from Gaza hit southern Israel,” Israel Defense Forces said in post on its Twitter feed. “Terrorists have violated the cease-fire.” The charge followed threats from both sides before the end of a 72-hour truce that was scheduled to run until 8 a.m. local time today. A spokesman for the armed wing of Hamas, which is classified as a terrorist organization by Israel, the U.S. and European Union, told al-Jazeera there would be no extension unless Israel lifted an eight-year blockade of land crossings and its port. Hamas official Mushir al-Masri told a Gaza rally the “battle is not over yet” and “our fingers are on the trigger, and our rockets are trained at Tel Aviv.”

• RBA Lowers Growth, Inflation Forecasts; Says Rates on Hold. The Reserve Bank of Australia cut its growth and inflation forecasts amid a steeper drop in mining investment and reiterated interest rates will remain on hold. The outlook reflects “the opposing forces of the decline in mining investment and ongoing fiscal consolidation on the one hand, and the strong growth in resource exports and the support from very low interest rates on the other,” the RBA said in its quarterly monetary policy statement in Sydney today. “The unemployment rate is likely to remain elevated for some time.” 

• Asian Stocks Drop to June Low as U.S. OKs Iraq Air Strike. Asian stocks dropped, with the regional benchmark index heading for a seven-week low, as U.S. President Barack Obama authorized an air strikes in Iraq. Nikon Corp. slumped 8.1 percent in Tokyo after the camera maker reduced its full-year profit forecast. Taiyo Yuden Co. plunged 8.5 percent as the Japanese maker of electronic components cut its first-half profit target and posted a quarterly loss. Neptune Orient Lines Ltd. fell 1.6 percent in Singapore after the cargo carrier posted a wider second-quarter net loss. The MSCI Asia Pacific Index (MXAP) fell 0.9 percent to 144.82 as of 9:48 a.m. in Hong Kong, on course for a 2 percent loss this week and the lowest close since June 25. 

• U.S. Junk Bond Funds Post Record $7.1 Billion Weekly Outflow. U.S. high-yield bond funds posted a record $7.1 billion outflow in the week ended Aug. 6, according to Lipper. The withdrawal came after the debt tumbled 1.3 percent in July, its first monthly loss since August 2013, according to Bank of America Merrill Lynch index data. It surpasses the $4.6 billion that was pulled in the week ended June 5, 2013, and brings year-to-date net outflows to $9.75 billion, Lipper data show. Investors also pulled $1.5 billion from U.S. funds that buy leveraged loans for the largest weekly outflow since $2.1 billion in the week ended Aug. 17, 2011, according to Lipper. That brings this year’s loan-fund net outflows to $2.3 billion. 

• Copper Heads for Second Weekly Drop Ahead of China Data. Copper headed for a second weekly decline before trade data that’s forecast to signal a slowdown in imports by China, the biggest user of industrial metals. The contract for delivery in three months on the London Metal Exchange fell 0.3 percent to $6,981 a metric ton at 9:53 a.m. in Tokyo. The metal touched $6,951.75 on Aug. 6, the lowest since June 30. Prices are down 1.3 percent this week.

Wall Street Journal:

• U.S. Approves Airstrikes on Iraq, Airdrops Aid. Bid to Protect Refugees Fleeing Extremists. The Obama administration was preparing plans late Thursday for airstrikes against Islamist militants in northern Iraq, and began an emergency airdrop of water and food to members of a religious minority trapped in the mountains by advancing Islamist militants, U.S. officials said.

• Pilots Say U.S. Failed to Assess Ukraine Threat. U.S. pilot union leaders alleged that federal agencies failed to promptly assess and publicize potential threats posed to airliners flying over eastern Ukraine before the downing of Malaysia Airlines Flight 17 last month.

• FICO Recalibrates Its Credit Scores. Changes Could Lead to More Bank Lending, Easier Credit for Some Consumers. A change in how the most widely used credit score in the U.S. is tallied will likely make it easier for tens of millions of Americans to get loans. Fair Isaac Corp. said Thursday that it will stop including in its FICO credit-score calculations any record of a consumer failing to pay a bill if the bill has been paid or settled with a collection agency. The San Jose, Calif., company also will give less weight to unpaid medical bills..

• The Jihadist March in Iraq. Only the U.S. can prevent a humanitarian and strategic disaster.
  

• Putin's Campaign Continues—So Does Ukraine's by Olexander Motsyk. We welcome support from the international community and hope it expands as we move against Russia's aggression.

Fox News:

• Ukraine’s Donetsk becomes ghost town as national forces shell separatists. (video) Residents of this eastern Ukrainian city are fleeing in droves as national forces step up mortar attacks aimed at dislodging the pro-Russian separatists who are clinging to control of a city once populated by 1 million people.

MarketWatch.com:

• Lululemon(LULU) shares surge as Advent buys stake for $845 million

CNBC: 

• Is the Russian economy on the verge of collapse? Ten months ago, before anyone ever dreamed that Russia's President Vladimir Putin would invade Crimea and stir unrest in eastern Ukraine, the oligarch, who keeps a low profile and asked not to be named, was very concerned. "The economy is so unstable and will not survive at the current pace. And Russia does not make anything on its own," he said.

• Sheila Bair: What if banks fail now? (video)

• Gundlach reveals 2020 vision for bond market. 

Zero Hedge: 

• If You Like Your Exemption, Keep It: 90% Of Uninsured Won't Pay Obamacare Penalties.

• First BRICS Bank, Now BRICS Food Bank.

• 70% Of Americans Believe Illegal Immigrants Threaten Way Of Life.

• Martin Armstrong Warns Italy's Recession Means "The End Of Democracy". (graph)

• Checkers Vs Chess: The Reason Europe Is Imploding On "Russian" Sanctions.

Business Insider:

• BLACKROCK(BLK): The US Deleveraging Story Is A Lie. Tell a lie often enough and people start to believe it. For several years, media headlines have been filled with references to a “deleveraging,” or a reduction in the level of U.S. debt. Consider the following three points:  1. U.S. household debt remains high. 2. Fueled by cheap credit, corporations have been adding new debt. 3. Federal government debt has exploded.  

• Liberia's Health System Is Collapsing As Ebola Spreads.

• Russia And Iran Reportedly Signed A Huge Oil Deal — But No One Knows The Details.

Reuters:

• Nvidia's(NVDA) 3rd-qtr revenue outlook exceeds expectations.

• Chinese banks get serious about risk of bad debts swell. Chinese banks are scrambling to get on top of bad debts they have downplayed for years, cutting off riskier borrowers, further tightening lending terms and, in one case, deploying teams of investigators to assess the risk of loan defaults.

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

Shanghai Securities News:

• China Finds Potential Risks in Some Trust Products. China's insurance regulator found potential risks in some trust products insurers invested in, citing a person familiar with the matter. Risks are due to debt problems, operation difficulties, frequent or large scale of financing.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -1.50% to . on average.

• Asia Ex-Japan Investment Grade CDS Index 115.50 +5.5 basis points.

• Asia Pacific Sovereign CDS Index 76.75 +2.5 basis points.

• FTSE-100 futures -.70%.

• S&P 500 futures -.54%.

• NASDAQ 100 futures  -.56%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CHH)/.28

• (EBIX)/.38

• (MGA)/2.22

• (BID)/1.46

Economic Releases 
8:30 am EST

• Preliminary 2Q Non-Farm Productivity is estimated to rise +1.6% versus a -3.2% decline in 1Q.

• Preliminary 2Q Unit Labor Costs are estimated to rise +1.1% versus a +5.7% gain in 1Q.

10:00 am EST

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

• Wholesale Trade Sales for June are estimated to rise +.7% versus a +.7% gain in May.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The German trade balance report could also impact trading today.

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