Tuesday Watch

Evening Headlines 

Bloomberg:

• Sex Slaves Sold by Islamic State, the Younger the Better. A senior United Nations official says Islamic State is circulating a slave price list for captured women and children, and that the group’s ongoing appeal and barbarity pose an unprecedented challenge. The official, Zainab Bangura, said that on a trip to Iraq in April she was given a copy of an Islamic State pamphlet, which included the list, showing that captured children as young as one fetch the highest price. The bidders include both the group’s own fighters and wealthy Middle Easterners. 

• In Cash-Starved Greece, Plastic Casts Light Into Shadow Economy. Greece’s banking crisis is having at least one positive outcome, and it’s made of plastic. In a country where cash is king and undeclared transactions still make up about a quarter of the economy, about 1 million debit cards have been issued by banks since the government closed lenders for three weeks and imposed controls on euro bills. Emergency measures that some officials warned might spur the black market are showing signs of doing the opposite. 

• Gold Declines as Copper Nears Bear Market; China Stocks Swing. Gold fell and copper neared a bear market amid concern over slackening demand for commodities and as the U.S. interest-rate outlook buoyed the dollar. China’s stocks fluctuated after authorities stepped up efforts to halt a rout. Bullion lost 0.3 percent as of 11:08 a.m. in Tokyo, while palladium slid to its lowest since 2012. Copper extended losses and Brent crude traded below $50 a barrel. A gauge of the greenback’s strength climbed to the highest level since March, while Australia’s dollar traded near a six-year low before a monetary policy review. The MSCI Asia Pacific Index of shares fell 0.1 percent and the Shanghai Composite was down 0.4 percent, after climbing as much as 1.1 percent.

• Asian Stocks Decline as Commodities Rout Sends Crude Oil Lower. Asian stocks dropped after Brent crude slid below $50 a barrel for the first time since January, dragging commodity producers lower. The MSCI Asia Pacific Index declined 0.3 percent to 140.70 as of 9:05 a.m. in Tokyo.  

• Rubber Set for Bear Market as China Slowdown Worsens Oversupply. Rubber is poised to enter a bear market as a slowdown in China, the world’s largest consumer, is worsening a global glut amid rising shipments from producers. Futures have dropped 20 percent from a 16-month high reached June 1. The contract for January delivery fell 1.2 percent to 195 yen a kilogram ($1,572 a metric ton) on the Tokyo Commodity Exchange by 11:07 a.m. in Tokyo. A drop of 20 percent or more from this year’s closing peak will meet the common definition of a bear market.

• Gas Is Just Another Fossil-Fuel Loser in Obama’s Power Plan. Natural gas, once seen as a clear winner in President Barack Obama’s push for cleaner power, wasn’t looking like much of a champ on Monday. That so-called bridge that gas was supposed to be, leading America away from dirtier fossil fuels such as coal and toward renewable power, just got a lot shorter under the final Clean Power Plan released by the U.S. Environmental Protection Agency. The agency will reward early investments in wind and solar power to get the nation generating 28 percent of its power using renewables by 2030, up from an initial proposal of 22 percent.

• Bull market losing biggest supporter as Apple(AAPL) caps 10 percent retreat. The bull market's base just lost another brick. Amid a collapse in breadth and the threat of falling earnings, add a correction in Apple shares to the concerns facing investors. The iPhone maker slipped 2.4 percent to $118.44 Monday, extending its decline since February to 11 percent and dropping below another chart threshold, its 200-day moving average, for the first time since 2013.

Wall Street Journal:

• Impact of EPA’s Emissions Rule on Industry to Vary. Federal regulation will boost outlook for some regions and companies while biting others. A sweeping federal rule intended to slash carbon-dioxide emissions from power plants will have an uneven impact on the energy industry, boosting the outlook for some regions and companies while biting others.

• Climate-Change Putsch. States should refuse to comply with Obama’s lawless power rule. Rarely do American Presidents display the raw willfulness that President Obama did Monday in rolling out his plan to reorganize the economy in the name of climate change. Without a vote in Congress or even much public debate, Mr. Obama is using his last 18 months to dictate U.S. energy choices for the next 20 or 30 years. This abuse of power is regulation without representation.

• Oil-and-Gas Debt Deals Sting Investors. Funds face paper losses on substantial investments this year in exploration-and-production companies.

• Citadel’s Ken Griffin Leaves 2008 Tumble Far Behind. Hedge-fund firm that nearly collapsed during the financial crisis is thriving again and expanding as aggressively as ever.

MarketWatch.com: 

• The chart that shows the worst may be yet to come for Chinese stocks. (graph)

• Danger mounts as China’s equity bust resumes.

CNBC:

• Apple's(AAPL) no longer the top smartphone maker in China. After dipping for two quarters, Xiaomi reclaimed its spot as the top smartphone maker in China during the second quarter, beating Apple and Huawei, an analyst firm said Monday.

• Oil craters, set to retest lows. (video) Oil prices have now broken below many Wall Street targets and look set to test the year's lows and beyond, before finding a bottom. Led by international bench mark Brent crude, futures were slammed Monday on concerns about new supply coming on the market and worries about contracting demand from China.

Zero Hedge:

• First Default By U.S. Commonwealth In History: Puerto Rico Fails To Make Required Debt Payment.

• Pictures Worth A Thousand Words: Coafeidian, The Chinese Eco-City That Became A Ghost Town.

• Breaking Down China's $23 Trillion Debt Pile. (graph)

• Obama's Climate Fascism Is Another Nail In The Coffin For The U.S. Economy.

• Fed Finally Figures Out Soaring Student Debt Is Reason For Exploding College Costs. (graph)

• Fed Admits Economy Can't Function Without Bubbles.

• "This Is The Largest Financial Departure From Reality In Human History". (graph)

• "The Worldwide Credit Boom Is Over, Now Comes The Tidal Wave Of Global Deflation". (graph)

• The Rent is Too Damn High: San Fran Residents Pay $1,000/Mth To Live In Shipping Containers.

• Why The Commodity Carnage Matters (In 1 Simple Chart). (graph)

• Despite VIX Flash-Crash, Stocks Slammed As Crude Crashes To 5-Month Lows. (graph)

Business Insider:

• It is getting ugly in Canada. (graph)

• The Department of Justice has launched a criminal probe against Deutsche Bank due to Russian 'mirror trades'. 

• Budget guru: The odds of a government shutdown just surged.

• China's stock market regulator is now targeting high-frequency traders.

Reuters:

• Brazil auto sales tumble 23 pct in July from year ago. New auto sales in Brazil remained weak in July as rising interest rates and unemployment eroded consumer confidence, contributing to a deepening crisis in the industry responsible for a fifth of the country's industrial output. Sales of cars, trucks and buses fell 23 percent from a year earlier to 227,621 vehicles last month, national dealership association Fenabrave said on Monday. An extra two working days lifted sales from June by 7 percent, but the daily pace of sales slipped below 10,000 vehicles, making it the slowest July since 2007. Brazil is one of the world's five biggest auto markets, with major operations for Fiat Chrysler Automobiles NV, Volkswagen AG, General Motors Co and Ford Motor Co, whose earnings have suffered in the slump. Sales are unlikely to pick up in the months ahead, Fenabrave President Alarico Assumpção Júnior said in a statement accompanying the monthly data, affirming the group's forecast of a roughly 20 percent drop in sales this year. 

• Commodity currencies under pressure, USD marks time. The Canadian dollar languished at 11 year lows early on Tuesday after slipping along with other commodity currencies following a selloff in oil prices, stealing the focus from a subdued U.S. dollar that heald steady against the euro and yen. The loonie last traded at C$1.3154 per USD, not far from a low of C$1.3175 set overnight - a level not seen since August 2004. Trading was light with Canadian markets shut for a public holiday on Monday.

Telegraph:

• Greece news live: Bank shares collapse by 30pc in first day of trading in five weeks. Athens Stock Exchange falls by 22.8pc with banks taking a battering on first day of trading in over a month.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.75% to +.50% on average.

• Asia Ex-Japan Investment Grade CDS Index 113.25 +2.0 basis points.

• Asia Pacific Sovereign CDS Index 64.75 +1.75 basis points.

• S&P 500 futures -.07%.

• NASDAQ 100 futures -.10%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (AET/1.82

• (ADM)/.67

• (BZH)/.41

• (COH)/.29

• (CVS)/1.20

• (EXPD)/.54

• (HCP)/.76

• (H)/45

• (K)/.92

• (ML)/160

• (MDC)/.38

• (GM/.10

• (MOS)/.90

• (ODP)/06

• (PH)/1.88

• (REGN)/2.78

• (VSH)/.23

• (VMC)/.61

• (ZTS)/.38

• (ATVI)/.08

• (MDRX)/.10

• (CERN)/.52

• (DVN)/.43

• (FSLR)/.08

• (NBR)/-.09

• (PZZA)/.49

• (DIS)/1.42

• (Z)/-.26

Economic Releases

9:45 am EST

• The ISM New York for July. 
  

10:00 am EST

• Factory Orders for June are estimated to rise +1.8% versus a -1.0% decline in May.

• The IBD/TIPP Economic Optimism Index for August is estimated to fall to 47.8 versus 48.1 in July.

Upcoming Splits

• None of note

Other Potential Market Movers

• The RBA rate decision, weekly US retail sales reports, Needham Interconnect Conference, (NTCT) investor day and the (NATI) investor conference 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 modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 25% net long heading into the day.