Friday Watch

Evening Headlines 

Bloomberg:

• Was China a Major Factor in the Fed's Decision? (video)

• Alibaba's(BABA) Wipeout Leaves Investors Questioning What Comes Next. Alibaba Group Holding Ltd. looked like a sure thing a year ago when it pulled off the largest initial public offering ever. It had a lock on China e-commerce as the economy was surging and consumer spending was steadily rising. Shares soared 76 percent from the IPO price in just two months. Then it all crumbled. Alibaba came under fire from a China government agency, it cut deals that baffled investors and it replaced its chief executive as growth slowed. Most important, China’s economy turned wobbly, jeopardizing the rise in consumer spending Alibaba needed. Its stock slid down, down, down to the IPO price and then below. The sure thing was no such thing.What now? Investors who watched $128 billion in market value disappear shouldn’t expect a reprieve any time soon. 

• Abe's Pension Cuts May Backfire on Japan. Austerity policy to cut debt reduces spending by the elderly. More than a year after a sales-tax increase tipped Japan into a recession, efforts to clamp down on soaring pension payments are suppressing a recovery in consumer spending. The problem highlights how difficult it has been forPrime Minister Shinzo Abe to generate a sustained economic rebound for an economy with an aging and shrinking population -- amid efforts to rein in a world-record debt load. Welfare payments are more and more important to people's income and pensions comprise about 80 percent of cash social security benefits in Japan. 

• Abe Close to Enacting Bills to Bolster Role of Japan's Military. After facing down rowdy protests both inside and outside parliament, Prime Minister Shinzo Abe is poised to secure passage of controversial bills to expand the role of the Japanese military that critics say could end seven decades of pacifism. The changes allow Japan to defend an ally under attack and take a bigger role in international peacekeeping, which are currently barred by the country’s postwar, pacifist constitution. Abe has argued they improve deterrence and help protect the nation from growing regional threats, while opponents say they risk drawing Japan into U.S.-led conflicts.

• Debt-Strapped Japan Planning a No-Frills Olympics. Tokyo’s 2020 Olympic Games will be the first of a leaner type of competition that will limit spending on big-ticket venues to avoid alienating the public, Chief Executive Officer Toshiro Muto said, two months after debt-ridden Japan canceled plans for a futuristic main stadium. The International Olympic Committee last year set out a new agenda that favors existing venues over purpose-built stadiums, as concerns mount in potential host countries over the burden of holding the event. Public anger over the cost of Tokyo’s flagship stadium swelling to $2 billion damped initial euphoria over the Games, prompting Prime Minister Shinzo Abe to scrap the design and seek new bids after trimming the budget by more than a third. 

• Most Asian Stocks Fall as Fed Holds Rates; Japanese Shares Slide. Most Asian stocks fell as the Federal Reserve’s decision not to raise interest rates fueled concerns about the strength of the global economy. Japan’s Topix index retreated. About two shares dropped for each that climbed on the MSCI Asia Pacific Index, which traded little changed at 129.39 as of 9:03 a.m. in Tokyo. The measure is heading for a 1.6 percent gain this week.

• Fed Angst Gives Stock Traders More Reason to Doubt Profit Bounce. They didn’t raise rates. Do they know something? Among U.S. stock investors, imaginations are racing over whether the Federal Reserve’s refusal to boost interest rates says more about their view of the world economy than they are letting on. While equity bulls are happy for more months of zero-percent stimulus, a bigger issue is whether inaction bespeaks deeper concern about global growth at a time when corporate earnings have stopped going up in the U.S. In typically frenetic trading, the Standard & Poor’s 500 Index ended Thursday with a loss, declining 0.3 percent to 1,990.2 and erasing a rally that reached 1.3 percent at the beginning of Janet Yellen’s press conference. Gains evaporated as the Fed chair spoke about the potential for stress in emerging markets to spill into the U.S.

• Yellen May Emulate Taper Template and Raise Rates in December. Federal Reserve Chair Janet Yellen shows signs of taking a page out of her predecessor’s policy playbook as she inches toward the central bank’s first interest rate increase in nine years: Delay action in September only to move in December. While the Fed on Thursday opted to keep rates pinned near zero for now, Yellen told a press conference that most policy makers still expect to raise rates this year. She highlighted the strength of the U.S. economy, tying the decision to delay liftoff to fresh uncertainty about the outlook abroad and to financial market turbulence over the past month. “I do not want to overplay the implications of these recent developments, which have not fundamentally altered our outlook,” she said. “The economy has been performing well, and we expect it to continue to do so.”

• Ferguson Lowered to Junk by Moody's With City Facing Insolvency. Ferguson, Missouri, the St. Louis suburb that became a center of protests against racial injustice by police, had its credit rating cut to junk by Moody’s Investors Service because of “severe and rapid” deterioration of its finances. 

Wall Street Journal:

• U.S. Administration Rethinks Syria Strategy. Officials consider scrapping efforts to create a large-scale rebel force to fight Islamic State. The Obama administration is considering scrapping its effort to create a large-scale Syrian force to fight Islamic State as it searches for alternatives to prevent the American-led effort from collapsing, officials said.

• Central Banks’ Lesson: Easy Money Alone Isn’t a Growth Salve. Global economy continues slow expansion as governments stalled on policy overhauls. Central bankers have injected roughly $8 trillion into the global economy since the financial crisis. In return, the world has remained in a low-growth rut. The Federal Reserve cited market turmoil and a weak economic picture overseas in deciding Thursday not to back off from one of the most aggressive global monetary policies in decades. Whenever the Fed moves to raise interest rates, one lesson remains: Cheap money alone can’t... 

• Banks Warn of Cost Cuts Ahead. Fed’s move to keep interest rates near zero could continue to crimp revenue. No news was bad news for the country’s banks on Thursday. After years of having their profits pinched by low interest rates, banks—and their investors—had been itching for the Federal Reserve to make a move. Now that the Fed decided to stand pat, some lenders are warning they could have to cut expenses further to compensate for the revenue that would have come in if rates had ticked upward.

• Defaults Mount in Beleaguered Energy Industry. Default rate accelerates among U.S. oil and gas companies. The well is running dry for deeply indebted energy companies. Samson Resources Corp. became the latest, and largest, victim of an industry downturn, as it filed for chapter 11 protection late Wednesday. Industry experts say more oil-and-gas companies are poised to follow the Tulsa, Okla., company into bankruptcy as oil prices...

• The Card Carly Doesn’t Play. Most political women pander to gender, but Fiorina wants to make it on the merits.

Fox News:

• States move to ban aborted fetal tissue from medical research. (video) Lawmakers in states like California and Wisconsin, which are deliberating whether to make their state laws even tougher than federal restrictions, say ending the practice of harvesting organs from aborted fetuses is a moral and ethical imperative.

CNBC:

• Fed dovishness may have stopped soothing market. (video)

Zero Hedge: 

• Japanese Stocks/USDJPY Plunge As China Cracks Down On Aggressive-Buying By "Sinister Stock Squads". (graph)

• This Is What Yellen Said About Negative Rates Coming To The US.

• Assad Goes On Offense, Bombs ISIS "Capital", Deploys New Russian Weapons.

• "We Will Have A Downturn", Dalio Warns, Return To QE Inevitable. (graph)

• Yellen Responds To Allegations The Fed Is Responsible For America's Record Wealth Gap.

• Eye In The Sky? 60 U.S. Police Departments Have Asked For Drone Certification.

• 2Y Yields Collapse Most Since 2009 As December Rate-Hike Odds Crater. (graph)

• Maxine Waters Congratulates Yellen On Not Hiking Rates, Says ZIRP Is Precisely What "Minorities" Need.

• Fed Credibility Crushed - The Aftermath. (graph)

Business Insider:

• A giant of the private equity industry just got smoked on a big energy bet. 

• Canada's household debt is ballooning.

• Leaving the Euro is back on the agenda in Greece.

• Automakers in China are squeezing every dollar to make up for the economic slowdown.

• The Fed is losing credibility by not raising rates now.

Reuters:

• U.S.-based stock ETFs attract $14.3 bln ahead of Fed -Lipper.

• Texas Instruments(TXN) sets $7.5 bln buyback plan, raises dividend.

Economic Information Daily:

• China Regulates Margin Funding to Avoid Financial Risk. Regulating off-market stock margin financing accounts will help stabilize the stock market and avoid financial risks, according to a commentary by Tan Haojun.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.25% to +.5% on average.

• Asia Ex-Japan Investment Grade CDS Index 128.50 -.5 basis point.

• Asia Pacific Sovereign CDS Index 78.0 -2.25 basis points.

• S&P 500 futures +.04%.

• NASDAQ 100 futures +.15%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (ZAYO)/.04

Economic Releases

10:00 am EST

• The Leading Index for August is estimated to rise +.2% versus a -.2% decline in July.

12:00 pm EST

• Household Change in Net Worth for 2Q.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The BoJ meeting, Canadian CPI report and the (IMGN) investor day could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by real estate and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.