Tuesday Watch

Evening Headlines 
Bloomberg:

• Ukraine Truce Threatened by Clashes as NATO Holds Drills. Ukraine traded accusations with pro-Russian separatists over the biggest outbreak of hostilities since a truce was signed 11 days ago. The airport in Donetsk, the biggest city in the conflict zone, was shelled all day, with government troops attacked near 13 villages and towns, military spokesman Andriy Lysenko said at briefing in Kiev yesterday, adding that the Ukrainian army was observing the cease-fire. The assertions were contradicted by separatist authorities in Donetsk, which said their forces held fire while their positions were shelled more than 40 times during the past 24 hours, killing 20 people.

• Pro-Iraq Coalition Challenged to Turn Talk Into Action. The U.S. has assembled an unlikely coalition of more than 40 nations with a shared stake in defeating Islamic State, an effort that’s counting on Iraqi troops and moderate Syrian rebels to retake and hold territory the extremists have seized. That’s something they haven’t done well in the recent past.

• Cameron Says Scots Independence Dream Risks Painful Split. Prime Minister David Cameron made a final plea to Scotland’s voters, urging them to step back from an illusory “dream” of risk-free independence and avoid the irreversible breakup that would come with a “yes” vote. 

• China FDI Slides to Four-Year Low as Anti-Monopoly Probes Widen. Foreign direct investment into China, a gauge of external confidence, slumped to a four-year low amid widening antitrust probes into multinational companies. Inbound investment was $7.2 billion in August, down 14 percent from a year earlier, the Ministry of Commerce said on its website today in Beijing after a 17 percent drop in July. It was the first back-to-back decline of more than 10 percent since 2009, based on previously reported data compiled by Bloomberg.

• Bad Loans Could Bust China. The risk of what Nobel laureate Paul Krugman calls "Japanification" -- a semipermanent economic funk -- has haunted China for at least a couple of years now. Last week a Bank of America Merrill Lynch report again asked, "Will China Repeat Japan’s Experience?" Let's dispense with the suspense: Yes, China very likely will. And the outcome will have far more serious global implications than Krugman's main worry, which focuses on the chances of stagnation in Europe.

• Default Risk Haunts Top 100 on Debt-Fueled Growth: Asean Credit. Southeast Asia’s 100 largest publicly traded companies are becoming more vulnerable to default as their debt surges and profitability weakens. Debt-to-earnings ratios rose last year at the fastest pace since 2011, as average return on capital at the biggest firms by market value fell for the first time since 2008, according to data compiled by Bloomberg. In the past four years, their debt rose 89 percent to the equivalent of $501 billion.

• RBA Monitors House Price Risks as Rate Stability Reaffirmed. Australia’s central bank said it will monitor risks from rising property prices as policy makers reiterated a period of stability in record-low interest rates. “Housing prices were continuing to increase in the larger cities and members considered that the risks associated with this trend warranted ongoing close observation,” the central bank said in minutes today of its Sept. 2 meeting, where it kept the cash rate at 2.5 percent. “On the other hand, the exchange rate remained above most estimates of its fundamental value, particularly given the declines in key commodity prices.” 

• Alibaba Boosts Possible IPO to $21.8 Billion Amid Demand. Alibaba Group Holding Ltd. (BABA) raised the amount it’s seeking in its initial public offering to as much as $21.8 billion, coming a step closer to breaking a global fundraising record after investors showed strong interest in the shares.

• Asia Stocks Fall Ninth Day; Dollar Slips, Bonds Climb. Asian stocks fell, with the regional index headed for its longest losing streak in a decade, the dollar weakened against most major peers and government bonds climbed before the Federal Reserve reviews interest rates. Metals rebounded. The MSCI Asia Pacific Index (MXAP) fell 0.2 percent by 12:37 p.m. in Tokyo, falling a ninth day.

Wall Street Journal:

• U.S. Efforts to Build Coalition Against Islamic State Hampered by Sectarian Divide. Russia Warns Against Strikes on Syria Without Regime's Consent.

• Companies' Stock Buybacks Help Buoy the Market. Share Repurchases Are at Fastest Clip Since Financial Crisis.

• The Dual Threats to Western Values. The Islamic State and Vladimir Putin's Russia are enemies of liberty, democracy and the rule of law. 

Fox News:

• US launches first offensive strikes against ISIS in Iraq. (video) The U.S. military launched airstrikes against the Islamic State militants in Iraq Monday in its first move in the newly broadened mission authorized by President Obama to go on the offensive against the terror group. The U.S. Central Command said in a press release that the strikes were conducted to provide  support for Iraqi security forces fighting the militants southwest of Baghdad.

Zero Hedge:

• Bank Of America(BAC) Has A Message For Its European Depositors: "We May Charge You".

• Newsflash To Fed: 122 Billion Bottles Of Beer On The Wall Is About Asset Bubbles, Not Jobs.

• Why China's Latest Mini-Stimulus Failed Again, In One Chart. (graph)

• Asia-Pac Stocks Head For Worst Losing Streak In 12 Years. (graph)

• Minimum-Wage Blowback; The De-Humanization Of Fast-Food Has Begun.

• Record Beheadings And The Mass Arrest Of Christians – ISIS? Or Saudi Arabia!

• Global Un-Warming? Antarctic Sea-Ice Reaches Record High Levels.

Business Insider:

• The US Just Expanded Its War Against ISIS In A Huge Way.

• One Of The Most Important Investors In The World Is Entirely Done With Hedge Funds.

NY Times:

• ISIS Draws a Steady Stream of Recruits From Turkey. Having spent most of his youth as a drug addict in one of the poorest neighborhoods of Turkey’s capital, Can did not think he had much to lose when he was smuggled into Syria with 10 of his childhood friends to join the world’s most extreme jihadist group.

Bild:

• German Economists Warn Against Euro Devaluation. Clemens Fuest, president of the Center for European Economic Research, or ZEW, says there is a risk of a devaluation race with other central banks and a loss of purchasing power. Fuest says it is "questionable" whether other central banks will passively accept a further euro depreciation. Says effect of devaluation often overestimated and more expensive imports will cut consumer purchasing power. Allianz Chief Economist Michael Heise also warns of a further euro depreciation, says "it's a dangerous way to lead the euro zone out of the crisis and to ensure more growth."

Liquidity crunch a catalyst for big China slowdown – analysts The mini liquidity crunch is the early warning sign of a substantial economic correction long overdue, amid rising leverage and a broken growth model, say bearish analysts.


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Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.50% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 95.0 +3.5 basis points.

• Asia Pacific Sovereign CDS Index 66.50 +2.25 basis points.

• FTSE-100 futures +.21%.

• S&P 500 futures -.02%.

• NASDAQ 100 futures  -.02%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (FDS)/1.31

• (ADBE)/.26

• (APOG)/.33

• (PAHC)/.27

Economic Releases
8:30 am EST

• PPI Final Demand for August is estimated unch. versus a +.1% gain in July.

• PPI Ex Food and Energy for August is estimated to rise +.1% versus a +.2% gain in July.

4:00 pm EST

• Net Long-Term TIC Flows for July are estimated at $25.0B versus -$18.7B in June.

Upcoming Splits

• (CYT) 2-for-1

Other Potential Market Movers

• The German ZEW Index, UK CPI, weekly US retail sales reports, CSFB Chemicals/Ag Science Conference, CSFB Small/Mid-Cap Conference, CSFB Basic Materials Conference, RBC Financials Conference and the BofA Media/Communications/Entertainment Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and technology shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.