Friday Watch

Evening Headlines 

Bloomberg: 

• Lagarde Push for Greece Debt Relief Sets Up Showdown With Merkel. Now that Greece is eligible again for loans from the IMF, getting any more money from the fund may hinge on a test of wills between Christine Lagarde and Angela Merkel. The bailout of as much as 86 billion euros ($95 billion) proposed by European leaders this month assumes financing from the International Monetary Fund and is conditional on Greece seeking a new loan program from the IMF once the current one expires in March. The Washington-based IMF, which requires borrowers to have sustainable debt, has made clear it won’t ask its 187 other member nations to approve a deal until euro-area states significantly ease terms on existing loans. 

• Former Chinese Regulator Criticizes Government Stock Rescue. Gao Xiqing, an architect of China’s stock market and a former top regulator, said policy makers helped inflate equity prices and then mishandled the response to a collapse that wiped out $4 trillion in less than a month. “I don’t see so much of a problem in the reduction of the market value,” Gao, former vice chairman of the China Securities Regulatory Commission, said at a panel discussion at the Council on Foreign Relations in New York. “I worry a lot more about the way it happened and how you deal with it.” 

• The Meaning of China’s Stock Market Intervention. The government’s decision to prop up slumping markets may well signal a comeback for centralization. The spectacle of the stock market meltdown in China has led many analysts and investors to see an upside to the downturn. The slump is “the most serious crisis” facing President Xi Jinping “since he came to power,” China commentator Willy Lam told an audience of academics in Vancouver on July 10. “It will require a lot to restore people’s confidence in the regime.” Volatility might force the state to clean up the unregulated loans fueling stock purchases and to intervene less in equity markets and the broader economy. The drop might even foster massive discontent with the Communist Party and support for real political reform. That’s because in China, unlike other major nations where large institutions dominate the markets, retail investors—90 million or so individuals, most of them belonging to the urban elite—do most of the investing. 

• Abe Battles to Prevent Support Slipping Toward Danger Zone. Spending hours defending his security policies on television, scrapping a $2 billion Olympic stadium plan and playing up concerns about China, Japanese Prime Minister Shinzo Abe is battling to claw back a slide in support. His approval rating plunged below 40 percent in polls taken after he pushed bills through parliament last week to expand the role of Japan’s military. While he’s at no immediate risk of being ousted, he must avoid dropping into the danger zone around the 20 percent mark at which successive premiers have been toppled at the ballot box or by their party. 

• Aussie Drops to Six-Year Low as Kiwi Falls After China Flash PMI. The Australian dollar dropped to a six-year low and the New Zealand dollar also retreated after a gauge of Chinese manufacturing activity unexpectedly slipped to the weakest in more than a year. The Aussie weakened at least 0.4 percent against its 10 major developed peers after the Caixin Media and Markit Economics’ flash manufacturing purchasing managers’ index showed a greater-than-expected slump in July. China is a key export market for both South Pacific nations.

• Chinese Stocks Slump in Hong Kong as PMI Spurs Growth Concerns. Chinese stocks dropped in Hong Kong, with the benchmark index falling for a sixth week, after a private gauge of manufacturing in the nation unexpectedly declined to the lowest level in 15 months. The Hang Seng China Enterprises Index slumped 1.3 percent to 11,678.54 at 10:56 a.m. local time, extending its retreat this week to 1.4 percent.

• Asian Stocks Fall as Global Shares Trace Losses by Commodities. Asian stocks fell, with the regional benchmark index extending its weekly decline, as the commodities rout deepened with oil entering a bear market. The MSCI Asia Pacific Index fell 0.2 percent to 143.38 as of 9:11 a.m. in Tokyo.

• Supply Is Sustained Downward Pressure on Oil: Evan Lucas. (video)

• Oil Turning Back to Bear Erases $100 Billion From Shale Drillers. Oil slipped back into a bear market Thursday, disappointing U.S. shale drillers that pinned their hopes on higher prices. West Texas Intermediate, the benchmark U.S. contract, tumbled 21 percent since June 10 to $48.45 a barrel, erasing more than $100 billion in market value from the companies in the Bloomberg Intelligence North America Independent Explorers and Producers Index. 

• Copper Goes From Bad to Worse as Prices Tumble to Six-Year Low. A bad week for copper just got worse as futures tumbled to a six-year low in New York and Goldman Sachs Group Inc. forecast prices will drop another 15 percent by years end. The rout is driving down share prices and increasing pressure on miners to trim costs. Freeport-McMoRan Inc., the biggest publicly traded producer of the metal, fell the most in six months after an earnings conference call left investors uncertain on the company’s direction.

• Retailers’ Answer to Apple(AAPL) Pay Is Said to Hit Stores in August. After almost three years in development, the retail industry’s answer to Apple Pay is finally getting off the ground. A mobile payment application developed by Merchant Customer Exchange -- a company founded in August 2012 with funding from Wal-Mart Stores Inc., Target Corp. and Best Buy Co. -- has been tested by employees of the retailers and will get a limited trial run next month in stores, according to three people familiar with the situation. That means shoppers will soon be able to use the technology, called CurrentC, to pay for items with their phones.

• Dunkin’ Donuts Slams New York Regulators Over Wage Increase. Dunkin’ Brands Group Inc., the owner of Dunkin’ Donuts, upbraided New York regulators over a plan to boost fast-food wages to $15 an hour, a move the company said could lead to price increases. A wage board formed by Governor Andrew Cuomo arrived at the decision without involvement from the restaurant industry, Dunkin’ Chief Executive Officer Nigel Travis said on a conference call Thursday.

Wall Street Journal: 

• Turkey to Let U.S. Military Use Its Base to Launch Strikes Against Islamic State. Agreement allows U.S. to operate manned, unmanned planes from air base near Syrian border. Turkey agreed to allow the U.S. to use air bases there to launch strikes against Islamic State forces in neighboring Syria, a major shift long sought by Washington and sealed hours before a deadly clash between Turkish forces and militants across the border.

• Unlucky Emerging Markets Don’t Get Lift From Weak Currency. The bright side of a currency decline is supposed to be rising exports. But in key emerging markets around the world, that isn’t happening. The bright side of a currency decline is supposed to be rising exports. But in key emerging markets around the world, that isn’t happening. Currencies in some countries are hitting new lows, down as much as 30% in the past 2½ years. Meanwhile, emerging-market export growth has fallen to its lowest levels in more than half a decade. Exports themselves fell 14.3% year over year in the three months...

• Senators Voice Skepticism on Iran Nuclear Deal. Republican in tense committee hearing says Obama administration had been ‘fleeced’. Lawmakers sharply clashed with Obama administration officials Thursday over the landmark nuclear agreement with Iran in a hearing that marked the start of and set the tone for two months of heated political debate.

Fox News: 

• Gunman opens fire at La. movie theater, reportedly injuring six before killing self. DEVELOPING: A gunman opened fire Thursday in a La. movie theater, injuring six before killing himself, a local paper reported. City Marshal Brian Pope told The Daily Advertiser that the gunman opened fire at the Grand Theatre in Lafayette, La, before turning the gun on himself.

• ISIS Netted Up to $1B in Cash After Taking Over Mosul, US Official Says. ISIS netted between $500 million and $1 billion in cash when it took over Iraq’s second largest city in 2014, a top Obama administration official said Thursday. Daniel Glaser, the U.S. Treasury’s assistant secretary for terror financing, told participants at the Aspen Security Forum that when ISIS swept through the city of Mosul in northern Iraq, it took the reserves of over 90 banks, estimated to be between $500 million and $1 billion.

MarketWatch.com: 

• The true cost of China’s multibillion-dollar market intervention. Beijing estimated to have spent 10% of GDP to support market. As the Shanghai Composite Index dove and panic sales spread, the Chinese government spent billions of dollars to soothe battered sentiment and shore up the stock market. But China may eventually end up paying a much higher price from delayed reforms and a distorted stock market, analysts say.

CNBC:

• As crude gets crushed, traders play for $40 oil. (video)

• Starbucks stock pops on earnings beat, buyback news. (video) The coffee chain reported quarterly earnings and revenue that beat analysts' expectations on Thursday. Starbucks posted fiscal third-quarter earnings of 42 cents per share on $4.88 billion in revenue. Analysts forecast Starbucks would report earnings of 41 cents a share on $4.86 billion in revenue, according to a consensus estimate from Thomson Reuters. After the earnings announcement, the company's shares rose more than 5 percent in extended-hours trading. The coffee giant is trading well above its $57 all-time high at current extended-hours levels. 

Zero Hedge:

• US Recession Imminent - World Trade Slumps By Most Since Financial Crisis. (graph)

• Hoisington On Bond Market Misperceptions: "Secular Low In Treasury Yields Still To Come".

• Gold "Flash-Crashes" Again Amid Continued Commodity Liquidation As China Manufacturing Slumps To 15-Month Lows. (graph)

• The World Economy Visualized.

• How Monsanto(MON), Exxon Mobil(XOM), & Microsoft(MSFT) Lobbyists Are Bundling Funds For Hillary.

• China Furious Over Rig Pictures: "What Japan Did Provokes Confrontation". (graph)

• Commodity Carnage Contagion Crushes Stocks & Bond Yields. (graph)

• The Hard Truth: For Retail Investors, The NYSE Is Always Out Of Service. (graph)

• What's The Real Reason The Fed Is Raising Rates? (Hint: It's Not Employment) (graph)

• Amazon(AMZN) Just Became Bigger Than Walmart: Here's Why.

• Is The Echo Housing Bubble About To Burst? (graph)

• China Electricity Consumption Grows At Slowest Pace In 30 Years.

• 3 Things: Steel, Sentiment, & Productivity. (graph)

Business Insider:

• Amazon(AMZN) rockets up more than 18% on earnings beat. 

• NASA just discovered 'Earth 2.0'.

• Millennials are thinking hard about leaning out. A survey of Harvard Business School alumni, released as part of the school’s new gender initiative, found that 37 percent of millennial women and 42 percent of those already married planned to interrupt their career for family. That compared with 28 percent of Generation X women and 17 percent of baby boomers.

• NATO will not establish a permanent military base in Poland amid tensions with Russia.

• Report: Teen use of the morning-after pill is climbing. More than 1 in 5 sexually active teen girls have used the morning-after pill - a dramatic increase that likely reflects that it's easier now for teens to buy the emergency contraceptive. A report released Wednesday shows teen use of the morning-after pill rose steadily from a decade earlier, when it was 1 in 12. Now, all teens can buy it without a prescription.

Reuters:

• U.S.-based commodities, precious metals funds bleed $779 mln - Lipper.

• Caterpillar(CAT) sees end of good times, moves into cost-cutting mode. Caterpillar Inc rode the boom markets in China, Brazil and piggybacked the oil industry to rich profits, but the world's biggest construction and mining equipment company effectively declared the good times over on Thursday, warning of an extended period of retrenchment. Facing slowdowns in developing markets, a static oil industry and a strong U.S. dollar suppressing overseas earnings, Caterpillar said it was pruning operations and cutting costs to adapt.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -1.0% to -.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 108.0 +2.0 basis points.

• Asia Pacific Sovereign CDS Index 59.5 +.5 basis point.

• S&P 500 futures -.02%.

• NASDAQ 100 futures +.06%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (AAN)/.45

• (AAL)/2.60

• (B)/.61

• (BIIB)/4.10

• (COG)/.03

• (ECA)/-.15

• (FLIR)/.37

• (JCI)/.90

• (LEA)/2.48

• (MCO)/1.22

• (COL)/1.30

• (SPG)/2.38

• (SAVE)/1.01

• (STT)/1.37

• (VFC)/.36

• (VTR)/1.16

Economic Releases

9:45 am EST

• Preliminary Markit US Manufacturing PMI for July is estimated at 53.6 versus 53.6 in June.
  

10:00 am EST

• New Home Sales for June are estimated to rise to 548K versus 546K in May.

Upcoming Splits

• (ETE) 2-for-1

• (AZN) 2-for-1

Other Potential Market Movers

• The Eurozone PMI report and the (SCHW) business update could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by commodity 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 25% net long heading into the day.