Friday Watch

Evening Headlines

Bloomberg:

• Earliest China Readings Signal Weakening Business Sentiment. China’s stabilizing economy showed a few more cracks this month as policy makers hold back from additional stimulus, the earliest private indicators suggest. Three readings based on private surveys declined, suggesting weaker sentiment in August at large and small firms. It’s not all bad news, though: A gauge of the steel market continued to rebound and a satellite index of factory activity edged up. China’s policy makers have refrained from across-the-board monetary stimulus in recent months and switched to reining in risks emerging in the bond and property markets. The government this week also announced a range of measures, such as plans to open more sectors to private and foreign investors, suggesting longer-term reforms are back in focus. Here’s what the earliest private indicators show:
• China’s Biggest Cities Said to Plan Curbs to Tame Property Boom. China’s biggest cities aren’t done trying to tame their soaring property markets. Shanghai, where prices of new homes jumped 27 percent in July, is preparing to discuss a fresh round of curbs including potential restrictions on mortgages and loans to developers, according to people familiar with the matter. Beijing and Tianjin are also contemplating new measures to rein in prices, according to three of the people. China’s top leaders, after a Politburo meeting led by President Xi Jinping last month, pledged to curb asset bubbles amid a renewed focus on financial stability. 
• Japan’s CPI Falls for 5th Month, Raising Pressure on Kuroda. Consumer prices in Japan fell for a fifth straight month, underscoring the central bank’s struggle to spur inflation to its 2 percent target. Friday’s figures are the last reading on this key measure before Governor Haruhiko Kuroda and his board consider a possible policy revamp at their next meeting on Sept. 20-21.
• Shadow-Rate Gauge Signals BOJ Impact Waning Before Policy Review. As Bank of Japan officials prepare to review the effectiveness of more than three years of unprecedented stimulus next month, at least one gauge suggests they are losing clout. The so-called shadow rate, which takes into account sovereign bond yields to measure the impact of unconventional policy tools like quantitative easing, hasn’t fallen as rapidly as that in Europe, according to a model created by Reserve Bank of New Zealand researcher Leo Krippner. While Krippner says the introduction of negative policy rates and Japan’s flat yield curve has made it harder to calculate, the measure suggests Governor Haruhiko Kuroda is falling behind European Central Bank peer Mario Draghi in efforts to do whatever it takes to boost growth and stoke inflation.
• Asian Stocks Drop as Investors Avoid Risk Before Yellen Speech. Asian stocks fell, led by shares in Japan, as investors showed a reluctance to take on risk before Federal Reserve Chair Janet Yellen’s speech later Friday. The MSCI Asia Pacific Index dropped 0.3 percent to 138.50 as of 9:10 a.m. in Tokyo. The gauge is set for its second week of declines, its longest weekly losing streak since June. Japan’s Topix index lost 0.6 percent as the yen traded at 100.51 to the dollar. A rally in equities lost steam this month as investors pulled back risk before a speech by Yellen that may provide clues on when the world’s largest economy will raise interest rates. Odds that the Fed will boost rates in September has jumped to 32 percent from 18 percent at the end of July, while traders are betting there’s a 57 percent chance of tightening in December.
• Iraq Seeks Formal Deal With Kurds to Protect New Oil Exports. Iraq’s resumption last week of oil shipments through a Kurdish-controlled pipeline bumped up its export capacity by five percent almost overnight. Now OPEC’s second-biggest producer is seeking a formal deal with the self-ruling Kurds to ensure it can maintain the increased flows. The central government in Baghdad has been locked in a dispute with the semi-autonomous Kurdistan Regional Government in the north of Iraq since 2014, when the Kurds began selling their oil independently. In March, Iraq’s state-run North Oil Co. stopped using its only export route, the KRG’s pipeline to Turkey, for crude it pumped in Kirkuk province. The Oil Ministry ordered a restoration of these exports last week.
• Chalco ‘Not Optimistic’ on Aluminum Market After Boosting Profit. Aluminum Corp. of China warned that prices for the metal may retreat, after the country’s biggest state-owned producer posted higher first-half profits. Oversupply pressure in China “may mount again” in the second half as new and idled capacity is brought online, the company said in a statement late Thursday. “The market situation is still not optimistic,” it said. The group, known as Chalco, posted net income of 57.4 million yuan ($8.6 million) in the first six months of the year, compared with 1.54 million yuan a year earlier, according to the statement. Sales fell 25 percent to 49.7 billion yuan. Profit was helped by cost-cutting, the company said, while aluminum prices in Shanghai rallied 16 percent over the half.

Fox News:

•  Clinton, Trump battle over 'racist' charge. (video) Hillary Clinton returned to the campaign trail Thursday to try pinning a racist tag on Donald Trump, accusing him of “taking hate groups mainstream” -- while Trump accused his opponent of "lies" and "smears," and labeling "decent Americans as racists."

CNBC:

• Judge orders US State Dept. to look for new Clinton emails, release by Sept. 13. A judge on Thursday ordered the U.S. State Department to determine whether it has found any new emails between Hillary Clinton and the White House from the week after the 2012 attack in Benghazi, Libya, and to release any such documents by Sept. 13.
• Mylan can lower EpiPen price today, Express Scripts says. (video) Mylan CEO Heather Bresch's contention that the so-called middlemen are responsible for higher drug prices couldn't be "farther from the truth," Express Scripts' chief medical officer said Thursday.

Zero Hedge:

• FBI Admits Clinton Used Software Designed To "Prevent Recovery" And "Hide Traces Of" Deleted Emails.
• At least 1 Dead, Multiple Injured In Major Explosion At Belgian Sports Complex.
• Restaurants In D.C. Slash Jobs After Minimum Wage Hike.
• The Disgusting Silence Fueling Crony Capitalism.
• "Things Are Worse" - Dollar Stores' Startling Admission: Half Of US Consumers Are In Dire Straits. 
• Chart Of The Day: Which Socialist Utopia Has Seen Car Sales Drop 99%? (graph)
• "The End Will Be Very Painful" Massive European Pension Fund "Single Biggest Concern" Is "Central Bank Pumping". (graph)
• 'Last Economist Standing' John Taylor Urges "Less Weird Policy" At Jackson Hole. (graph)
• Treasury Vol Crashes To 2016 Lows. (graph)
• "The Great Unraveling" - Hilsenrath Slams The Fed: "Years Of Fed Missteps" Foster US Populism, Disillusion.
• Subprime Auto Delinquencies Jump 17% In July, Net Losses Soar 28%. 
• EpiPen-demonium Drags Stocks To Worst Drop Since Brexit. (graph)

Business Insider:

• A flood of opioid overdoses has overwhelmed Ohio, Indiana, Kentucky, and West Virginia.
• US Navy ship fires warning shots after multiple ships 'harassed' by Iranian attack craft.
• Chilling video shows American ISIS hostage Kayla Mueller shortly after she was kidnapped. A never-before-seen video published Thursday shows 25-year-old Kayla Mueller pleading for help after she was kidnapped by the terrorist group ISIS.
• Ryan Lochte reportedly charged over false robbery claim and summoned back to Rio.
• World trade keeps falling.
• US oil has a problem.
• Something odd is going on in the market, and it could be setting us up for a fall.

Night Trading 

• Asian equity indices are -.50% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 113.75 +1.5 basis points.
• Asia Pacific Sovereign CDS Index 40.5 +.75 basis point.
• Bloomberg Emerging Markets Currency Index 73.17 +.08%. 
• S&P 500 futures +.02%. 
• NASDAQ 100 futures +.03%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (BIG)/.46

Economic Releases  
8:30 am

• Advance Goods Trade Balance for July is estimated at -$63.0B versus -$63.3B in June.
• Preliminary Wholesale Inventories MoM for July is estimated to rise +.1% versus a +.3% gain in June.
• 2Q GDP is estimated to rise +1.1% versus a prior estimate of a +1.2% gain. 
• 2Q Personal Consumption is estimated to rise +4.2% versus a prior estimate of a +4.2% gain.
• 2Q Core PCE QoQ is estimated to rise +1.7% versus a prior estimate of a +1.7% gain. 

10:00 am EST

• Final Univ. of Mich. Consumer Sentiment for August is estimated to rise to 90.8 versus 90.4 in July.

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed's Yellen speaking, Jackson Hole Fed Conference day 2, UK GDP report, (INFY) analyst meeting and the (LFC) analyst briefing 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 mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.