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Wednesday, August 27, 2014

Thursday Watch

Posted by Gary .....at 11:46 PM
Evening Headlines 
Bloomberg:
  • U.S. Says Russia May Be Directing Ukraine Rebel Offensive. (video) The U.S. said Russia may be directing a counteroffensive by separatist rebels in Ukraine as fighting in the battle-torn country’s easternmost regions spread to previously peaceful areas. Jen Psaki, the U.S. State Department spokeswoman, cited the reports of fresh fighting, telling reporters in Washington yesterday that “these incursions indicate a Russian-directed counter-offensive is likely under way in Donetsk and Luhansk.” Russian President Vladimir Putin’s spokesman, Dmitry Peskov, said “this information doesn’t correspond with reality.” The violence in Ukraine expanded a day after Putin met his Ukrainian counterpart, Petro Poroshenko, and hailed the talks as a step toward a political resolution. The government in Kiev said the fighting, which has claimed more than 2,000 lives according to the United Nations, has spread to the shores of the Sea of Azov, effectively opening a new front.
  • Islamic State Entrenches in Syrian City as Obama Mulls Next Step. In the Syrian city of Raqqah on the banks of the Euphrates River, Islamic State militants are busy building a capital fit for their followers. Human rights observers say they have stoned women to death for adultery, while residents report that religious textbooks have been imported for schools and the market flooded with black cloaks for girls as young as 6 years old. Even as it wages war on multiple fronts, the group has had time to focus on the details, recruit thousands into its forces and celebrate victories by parading the heads of its enemies. 
  • PBOC Resolve Tested as Shadow Banking Industry Sours. Rising stress in China’s $6 trillion shadow banking industry is testing central bank Governor Zhou Xiaochuan’s resolve to limit monetary easing as risks to the government’s growth target climb. In the past three months at least 10 trusts backed by assets spanning coal mines in Shanxi to forests in Fujian have struggled to meet payments, sparking protests by investors outside banks that distributed their products. A slump in new credit in July underscored strains on the industry that funded as much as half of China’s recent growth, presenting Zhou with a choice: ease policy to avert a slowdown, or hold the line.
  • China Developer Debt Risk Rises as Sales Miss: Chart of the Day. China’s largest property developers risk missing their full-year sales targets as tighter credit and an economic slowdown cut demand for real estate, fueling concern the industry will struggle to repay debt. The CHART OF THE DAY shows the 13 biggest developers that provided full-year sales targets achieved 49 percent of those goals by the end of July, the weakest level in at least two years, according to data compiled by Bloomberg. The ratio of debt to equity on a Bloomberg Industry gauge of 84 Chinese property companies has climbed to 128 percent, the highest since at least 2005 and almost double the Bloomberg World Real Estate Index’s 76 percent.
  • Asian Stocks Drop While Australian Bonds Climb With Gold. Asian stocks fell before data on Chinese industrial-company profits, while Australian and New Zealand bonds paced gains in U.S. Treasuries after slumping European rates fueled demand for higher yields. Gold climbed. The MSCI Asia Pacific Index lost 0.2 percent by 10:03 a.m. in Tokyo, declining for the second time this week as Japan’s Topix index slid 0.6 percent.
Wall Street Journal:
  • Islamic State Fills Coffers From Illicit Economy in Syria, Iraq. Group Pirates Oil, Exacts Tribute From Locals, Making It Among World's Richest in Terror. The Islamic State runs a self-sustaining economy across territory it controls in Syria and Iraq, pirating oil while exacting tribute from a population of at least eight million, Arab and Western officials said, making it one of the world's richest terror groups and an unprecedented threat. That illicit economy presents a new picture of Islamic State's financial underpinnings. The group was once thought to depend on funding from Arab Gulf donors and donations from the broader Muslim world. Now, Islamic State—the former...
  • FBI Probes Possible Hacking Incident at J.P. Morgan(JPM). Attack Appears to Have Been Caused By Malicious Computer Code. The Federal Bureau of Investigation is probing a computer-hacking attack on J.P. Morgan Chase & Co. and at least one other large bank, in what people familiar with the probe described as a significant breach of corporate computer security. The timing and extent of the hacking attacks wasn't immediately clear, though cybersecurity experts began probing the possible J.P. Morgan breach earlier this month, according to people...
  • Are Stock Prices Headed for a Fall? Long-run equity returns from today's price levels are likely to be considerably lower than their 10% long-run average.
Fox News:
  • West Point report describes Islamic State threat as crisis 4 years in the making. (video) A new report from the West Point counterterrorism center challenges the notion that the Islamic State only recently became a major terror threat, describing the network's gains in Iraq as a crisis four years in the making. Meanwhile, Fox News has learned that top aides to President Obama expect the threat from the organization, also known as ISIS or ISIL, to outlast Obama's time in office.
  • California drivers brace for costly new gas tax. (video) Californians already pay the nation's second highest gas tax at 68 cents a gallon -- and now it will go up again in January to pay for a first-in-the-nation climate change law.
MarketWatch.com:
  • Guess(GES) cuts outlook as fall collection disappoints. Guess Inc. warned its fall retail collection hasn't seen the traction it expected with consumers, prompting the apparel retailer to lower its outlook for the year. Shares declined about 8% after hours.
  • China’s falling real-estate prices trigger protests, clashes. The sharp drop in China’s housing prices has led to an outburst of anger among property owners, leading to violent clashes in some cases, according to local media reports Tuesday.
Zero Hedge:
  • Saxo Bank CIO Warns "It's Time To Be Defensive... Very Defensive".
  • 4 Years Until The Next Recession? Not Likely! (graph)
  • Everyone's Fighting The Fed Now. (graph)
  • The Nail In The Petrodollar Coffin: Gazprom Begins Accepting Payment For Oil In Ruble, Yuan.
  • Another Keynesian Myth Refuted: Cold Winters Do Not Shrink The Economy.
  • "Valuation Is The Market's Biggest Headwind". (graph)
Business Insider:
  • Ukrainian Sergeant: 'This Is Now A War With Russia'.
  • Russian Moves In Ukraine Highlight Critical Land Bridge To Crimea.
  • A New, Probably Unrelated Ebola Outbreak Is Happening In Central Africa.
  • ISIS Is Recruiting And Training Children To Fight.
Forbes:
  • Obamacare's Death of a Thousand Rate Hikes. Get ready to pay more for health insurance next year, compliments of Obamacare. A new analysis from PricewaterhouseCoopers projects that average premiums for policies sold through Obamacare’s exchanges will increase 7.5 percent in 2015. In nearly one-third of the 29 states that PwC investigated, premiums will rise by double digits. In Indiana, the average increase will be 15.4 percent. In Kansas, it’s 13.6 percent. Florida’s insurance commissioner says premiums are set to climb 13.2 percent. For this latest round of premium shocks, consumers can thank Obamacare’s unwieldy mix of taxes, regulations, and mandates.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -.50% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 96.50 -1.0 basis point.
  • Asia Pacific Sovereign CDS Index 66.25 +1.25 basis points.
  • FTSE-100 futures -.02%.
  • S&P 500 futures -.03%.
  • NASDAQ 100 futures  -.01%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (ANF)/.11
  • (DG)/.83
  • (FRO)/-.27
  • (GCO)/.55
  • (TD)/1.09
  • (OVTI)/.53
  • (SPLK)/-.02
  • (ZOES)/.03
Economic Releases
8:30 am EST
  • Initial Jobless Claims are estimated to rise to 300K versus 298K the prior week.
  • Continuing Claims are estimated to rise to 2510K versus 2500K prior.
  • 2Q GDP is estimated to rise +3.9% versus a +4.0% prior estimate.
  • 2Q Personal Consumption is estimated to rise +2.4% versus a prior estimate of a +2.5% gain.
  • 2Q GDP Price Index is estimated to rise +2.0% versus a prior estimate of a +2.0% gain.
  • 2Q Core PCE is estimated to rise +2.0% versus a prior estimate of a +2.0% gain.
10:00 am EST
  • Pending Home Sales for July are estimated to rise +.5% versus a -1.1% decline the prior week.
11:00 am EST
  • The Kansas City Fed Manufacturing Index for August is estimated to fall to 7.0 versus 9.0 in July.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Eurozone Unemployment/Confidence/German CPI reports, Japan CPI/Industrial Production reports, 7Y $29B T-Note auction, weekly EIA natural gas inventory report, weekly Bloomberg Consumer Comfort Index, (IRM) analyst day and the (UHAL) analyst meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and industrial 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.

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