Wednesday Watch

Evening Headlines
Bloomberg:

• Templeton Fund Embracing Debt as Rally Makes India Stocks Pricey. Franklin Templeton Investments may increase exposure to bonds in its Indian fund if the highest stock valuations in 15 months aren’t backed by growth in company profits. “The biggest risk to Indian equities is if earnings growth remains below par,” Anand Radhakrishnan, chief investment officer at Franklin Templeton India, said in an interview. “We have shifted money from equity to bonds in the past six months in our dynamically-managed fund. We can go all the way to 90:10” in favor of bonds if earnings growth doesn’t pick up, he said. Indian stocks and bonds have rallied as Asia’s third-largest economy benefits from the gush of money flowing into emerging markets amid a renewed wave of global policy easing. Valuations for India’s key equity gauge are now at levels that have presaged losses in the past, while the appeal of local debt has been burnished by the prospect of interest-rate cuts.
• Seoul Says North Korea Has Fired a Ballistic Missile Into the Sea. North Korea has fired another ballistic missile into the sea, South Korea's military said Wednesday. The Joint Chiefs of Staff said in a statement that the missile was launched toward the waters off the North's east coast. North Korea routinely conducts missile and other weapons tests, but Wednesday's launch came after North Korea made angry threats against a U.S. plan to deploy an advanced missile defense system in South Korea by the end of next year.
• Currency Traders Ensnared by Volatility See 2016 Losses Deepen. Money managers trading in the $5.3-trillion-a-day currency market can’t catch a break. The investors have endured a five-month slump, their longest losing streak in foreign exchange since 2013. What was shaping up as the first monthly gain since February turned into yet another bust, after a rough stretch last week left the Citi Parker Global Currency Manager Index down 0.9 percent in July and on pace for a second straight annual drop. 
• Asian Stocks Drop After Yen Jumps on Abe Stimulus Disappointment. Asian stocks fell for a second day, following declines in global equities, as Japanese shares led losses after the yen gained on disappointment over Prime Minister Shinzo Abe’s stimulus steps. The MSCI Asia Pacific Index dropped 0.9 percent to 135.71 as of 9:04 a.m. in Tokyo. The Topix index slid 1.8 percent after Japan’s currency climbed 1.5 percent against the dollar Tuesday following the government’s announcement of 4.6 trillion yen ($45 billion) in extra spending for the current fiscal year. 

Wall Street Journal:

• Anxiety Weighs on U.S. Corporate Earnings. Profits are expected to fall for fourth straight quarter—down 2.6% from a year earlier. America’s biggest companies logged a fourth straight quarter of shrinking profits and tepid sales, as weakness from energy companies and lower business investment more than offset U.S. consumer strength.
• Regulators Ask Big Banks to Give More Details About Trading Activity. Push could give investors more details about a major and volatile source of Wall Street revenue. Regulators are asking big banks to provide investors with more-detailed disclosures about their trading businesses, a push that could peel back the curtain on a huge and volatile source of Wall Street revenue, according to people familiar with the matter.

Fox News:

• Heads roll at DNC: 3 top officials out after email hack. (video) The Democratic National Committee’s CEO and two other top officials have resigned in the wake of the leaked email controversy that marred the start of the party’s convention last week – in the latest shake-up at party headquarters. According to a DNC statement, CEO Amy Dacey; chief finance officer Brad Marshall; and communications director Luis Miranda left their jobs on Tuesday.

CNBC:

• Fed's Lockhart says he isn't ruling out a rate hike before year-end. (video)
• Investors to central banks: We aren't listening anymore. (video) "Under no circumstances should you listen to the Fed. Cover your ears and maybe hold your nose," says a money manager.
• CVS Health to replace higher-cost drugs on covered medication list for 2017.

Zero Hedge:

• Something Strange Emerges When Looking At A Congresswoman's Daytrading Records.
• Hidden In Today's Revised Personal Income Data, A Troubling Trend For The US Consumer. (graph)
• D-Day For Australia's Real Estate Bubble?
• 65 Million Americans Would Like To Work But Can't Risk Losing Their Entitlements.
• July U.S. Auto Sales - The Good, The Bad, & The Downright Ugly. (graph)
• "It Takes A Village To Maintain A Dangerous Financial System".
• White House Caught Secretly Airlifting $1.7 Billion US Taxpayer Cash To Tehran To Ensure Iran Nuclear Accord Success.
• There Is No Asset Bubble? (graph)
• Global Trade Is Not Growing Slowly... It's Not Growing At All! (graph)
• Welfare Is The New Work. (graph)
• Fitch Sees $3.8 Trillion Of Losses For "Investment-Grade" Sovereign Bond Investors. (graph)
• Oil Bounces On Unexpected Cushing Inventory Draw. (graph)
• Stocks Slump Most Since Brexit Amid Creditnado, Oilmageddon, Yenplosion. (graph)

Business Insider:

• A huge part of the economy is hitting a wall.
• Donald Trump declines to endorse Paul Ryan: 'I'm just not quite there yet'.
• San Francisco housing prices are now above previous bubble levels.
• Millennials are ringing the register on their homes.
• Sturm, Ruger & Co.(RGR) reports a 19% jump in sales and greater demand for guns.
• IBM's(IBM) day of reckoning is near.
• Rio's architecture and infrastructure are collapsing days before the Olympics.

NBC News: 

• New Counterterrorism 'Heat Map' Shows ISIS Branches Spreading Worldwide. (video) As the U.S. launched more airstrikes Tuesday against ISIS targets in Libya — representing an expansion of the U.S. military operations beyond Iraq and Syria — NBC News has exclusively obtained a map showing the global expansion of the terror group. The map is part of a classified briefing document received by the White House dated "August 2016" and prepared by the National Counterterrorism Center. It shows a stunning three-fold increase in the number of places around the globe where ISIS is operating. U.S. State Department documents indicated that in 2014, when the U.S. military began its campaign to destroy the extremists, there were only seven nations in which the fledgling state was operating.

Night Trading 

• Asian equity indices are -1.25% to -.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 121.25 +2.5 basis points.
• Asia Pacific Sovereign CDS Index 48.0 +.25 basis point.
• Bloomberg Emerging Markets Currency Index 72.36 -.07%. 
• S&P 500 futures -.02%. 
• NASDAQ 100 futures -.02%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (DDD)/.06
• (CLX)/1.28
• (DLPH)/1.55
• (D)/.71
• (HUM)/2.28
• (ICE)/3.37
• (OXY)/-.19
• (ODP)/.06
• (TWX)/1.16
• (ZTS)/.44
• (AGU)/4.08
• (CF)/.67
• (FSLR)/.55
• (HLF)/1.21
• (JACK)/.87
• (MRO)/-.25
• (MET)/1.35
• (PRU)/2.50
• (TSLA)/-.65
• (TSO)/1.77
• (RIG)/-.02

Economic Releases 
8:15 am EST

• ADP Employment Change for July is estimated to fall to 170K versus 172K in June. 

9:45 am EST

• Final US Markit Services PMI for July are estimated to rise to 51.0 versus a prior estimate of 50.9.

10:00 am EST

• ISM Non-Manufacturing Composite for July is estimated to fall to 55.9 versus 56.5 in June.
  

Upcoming Splits 

• (BF/B) 2-for-1

Other Potential Market Movers

• The Eurozone Services PMI report, Australia Retail Sales report and the weekly MBA Mortgage Applications report could also impact trading today.

BOTTOM LINE:  Asian indices are lower, weighed down by technology and commodity 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.