Wednesday Watch

Evening Headlines 

Bloomberg:

• China Faces Parlous Path Toward Yuan and Capital Liberalization. President Xi Jinping’s military parade marking the 70th anniversary of the end of World War II in early September showcased China’s latest fighter jets, missiles and rising military prowess. China hopes a super-sized yuan will someday do the same thing in the economic realm. Xi’s first five-year plan since becoming Chinese President in March 2013, expected out as soon as this year, will chart the path for the second-largest economy’s further global integration. A key part of the effort is promoting the yuan as a rival currency of choice to the U.S. dollar, euro, pound and yen for trade and investment and the gradual opening of China’s closed capital account.

• Bill Gurley: What the China Slowdown Could Mean for Tech. (video)

• No Escape for China Hedge Funds Overwhelmed by Stocks Collapse. It’s about to get even uglier for China’s hedge funds. The newfangled industry, short on expertise and ways to protect itself from market declines, has seen almost 1,300 funds liquidate amid China’s $5 trillion stocks selloff, and a similar number may be at risk, according to Howbuy Investment Management Co. Now, a government crackdown on short selling and other hedging strategies have made prospering in a bear market difficult. 

• Wages Below China Spark Russian Dreams of Manufacturing Revival. It’s taken a currency crisis and the biggest collapse in wages under President Vladimir Putin to put Russian workers on a more level playing field. The decline in nominal salaries has probably pushed them below Chinese earnings in dollar terms, according to Renaissance Capital and Bank of America. Data set to be released this week will show that Russian wages adjusted for inflation plummeted for a 10th month, falling 9 percent in August and weighing on retail sales, according to the median estimates in Bloomberg surveys. 

• Copying China Bailout Fund Is Great Way to Lose Money in Stocks. It looked like the perfect target for copycat investors in China: a state-run agency armed with more than $400 billion to prop up share prices. When the filings came in -- showing China Securities Finance Corp. had taken major stakes in companies as part of its market-rescue effort -- traders jumped to buy what they dubbed on social media as “the King’s favorite concubines.” Unfortunately for the copycats, an endorsement from the equity market’s savior has done nothing to ensure outsized returns. In fact, it’s just the opposite -- the stock picks have trailed the broader market. The 46 companies that reported the agency as a top 10 shareholder in the past two months lost an average 29 percent since the announcement, versus a 21 percent drop for the Shanghai Composite Index.

• European Bankers Can't Catch a Break as Firings Keep Coming. Seven years after the collapse of Lehman Brothers Holdings Inc., Europe’s largest banks are poised for more bloodletting. New management teams at Deutsche Bank AG, Barclays Plc and Standard Chartered Plc are among executives contemplating reorganizations that could involve thousands of job reductions. Deutsche Bank, which runs Europe’s biggest investment bank, may trim 8,000 positions across its businesses, a person familiar with the matter said this week.

• Asian Stocks Follow U.S. Equities Higher as Consumer Shares Gain. Asian stocks rose, following a rally in U.S. equities, as investors sifted through the latest data on the world’s biggest economy before the Federal Reserve’s decision on interest rates. The MSCI Asia Pacific Index climbed 1 percent to 127.90 as of 9:08 a.m. in Hong Kong, with consumer and industrial shares leading gains. 

• The Doomsayer's Guide to the Fed, Rates and What Could Go Wrong. It’s the most closely dissected and highly anticipated decision on U.S. interest rates in recent memory. Traders and analysts alike have had years to prepare. So if the Federal Reserve finally does raise rates this week, what could possibly go wrong? Plenty it seems. Some market watchers such as former U.S. Treasury Secretary Larry Summers are warning that financial markets still aren’t ready and could easily be caught off-guard. As Summers and others have pointed out, futures traders are pricing in just a 28 percent chance of an increase this week, based on the assumption that the effective fed funds rate will average 0.375 percent after liftoff.

• Hewlett-Packard(HPQ) to Cut Up to 30,000 More Jobs in Restructuring. Hewlett-Packard Co., the technology company splitting into two separate entities, said it will cut as many as 33,300 more jobs as Chief Executive Officer Meg Whitman tries to refashion the business for a rapidly changing technology market.

Wall Street Journal:

• Asset Managers Face Tough Choice If Rates Rise. An increase in interest rates would force many asset managers to make a hard decision: keep the extra money or pass it along to returns-starved clients. Few areas of finance have as much riding on the Federal Reserve’s interest-rate decision this week as the $2.7 trillion money-market-fund industry. While interest rates have been near zero, asset managers including Charles Schwab Corp. and Federated Investors Inc. have waived more than $30 billion worth of fees on their money funds over the past six years to keep expenses from eating up the funds’ yields and

• Extend and Pretend for Migrants. The European Union’s plan for immigration is as nonexistent as its plan for debt. In the immediate refugee crisis many Europeans are acting on their humanitarian instincts, and that’s laudable. Angela Merkel, Germany’s leader, has been beatified for spontaneously throwing open her country’s doors to an estimated 800,000 Middle Eastern immigrants.

Fox News:

• China reportedly compiling 'Facebook' of U.S. government employees. (video) A private industry IT security firm tells Fox News that personal data stolen over the span of several high-profile U.S. cyber breaches is being indexed by China's intelligence service into a massive Facebook-like network.

• Exclusive: Bill Clinton's office checked with State Dept. on paid speech to group with Tehran ties. An aide to Bill Clinton asked the State Department in 2012 about the former president potentially delivering a paid speech to an Iranian government-tied group that has pushed for an end to all U.S. sanctions against Tehran, according to an email exclusively obtained by Fox News.

MarketWatch.com:

• ‘The decision’ for Fed on interest rates could rock these 6 markets.

Zero Hedge:

• AsiaPac Quiet, Too Quiet: Aussie Leading Index Plunges, PBOC Devalues Yuan, & China's "$800,000 Dog" Bubble Bursts. (graph)

• Aussie Property Market Collapse Looms As Chinese Flee Amid Capital Controls. (graph)

• Putin Accuses World Of "Using Terrorist Groups" To Destabilize Governments.

• This Is Why Hewlett-Packard Just Fired Another 30,000. (graph)

• Bankers Will Be Jailed In The Next Financial Crisis.

• WTO's Stark Warning On Global Trade: "The Timing Belt On The Global Growth Engine Is Off".

• Separating Fed Delusion From Reality: The Environment Is Fraught With Risk.

• Explosive Allegation: Citigroup Leaked Central Bank Trading Activity.

• WTI Crude Jumps After API Reports Unexpected Inventory Draw. (graph)

• Destroying The "There Are No Signs Of An Imminent Recession" Meme In 4 Charts. (graph)

• Bonds Baumgartner'd As Bad Data Sparks Unhedged Panic-Buying In Stocks, VXX Limit Down. (graph)

Business Insider:

• The Fed's rate hike could set off a global squeeze. 

• A stronger dollar could wreak havoc on the rest of the world.

• The entry point to the EU for tens of thousands of migrants just slammed shut.

• North Korea warns US that its main nuclear complex is operational.

• The 'yuan bear' warns of a financial crisis in China.

Telegraph:

• Fed tightening 'threatens disaster for debt saturated global economy'. A rise in US interest rates may be justified by conditions in the domestic economy, but it could have profoundly destructive consequences for many emerging market economies.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are +.50% to +1.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 130.75 -2.75 basis points.

• Asia Pacific Sovereign CDS Index 82.5 -3.0 basis points.

• S&P 500 futures -.27%.

• NASDAQ 100 futures -.29%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (CBRL)/1.86

• (FDX)/2.46

• (MLHR)/.47

• (ORCL)/.52

Economic Releases

8:30 am EST

• The CPI for August is estimated to fall -.1% versus a +.1% gain in July.

• The CPI Ex Food & Energy for August is estimated to rise +.1% versus a +.1% gain in July.

• Real Avg. Weekly Earnings YoY for August.

10:00 am EST

• The NAHB Housing Market Index for September is estimated at 61.0 versus 61.0 in August.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory gain of +1,790,000 barrels versus a +2,570,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -361,560 barrels versus a +384,000 barrel gain the prior week. Distillate inventories are estimated to rise by +427,220 barrels versus a 952,000 barrel gain prior. Finally, Refinery Utilization is estimated to fall by -.55% versus a -1.9% decline prior.
  

4:00 pm EST

• Net Long-Term TIC Flows for July.
  

Upcoming Splits

• (MDVN) 2-for-1

Other Potential Market Movers

• The Eurozone CPI report, Japan Trade Balance data, weekly MBA Mortgage Applications report, Credit Suissee Basic Materials conference, Morgan Stanley Healthcare conference, BofA Merrill Healthcare conference, Goldman Sachs Communacopia conference, Deutsche Bank Technology conference, Barclays Financial Services conference, BofA Merrill Real Estate conference, Citi Industrials conference, CSFB Small/Mid-Cap conference, (PBI) analyst day, (UA) investor day, (DV) investor day and the (ETH) investor conference could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by consumer 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.