Monday Watch

Today's Headlines

Bloomberg:   

• West Slams Russia Over Aleppo Bombings at UN Security Council. Western powers traded barbs with Russia during an acrimonious emergency meeting of the UN Security Council to halt intensive bombing of Aleppo, the center of opposition to the government of Syria’s Bashar al-Assad, without reaching agreement. UN special envoy Staffan de Mistura said Sunday that nearly 2 million people in Aleppo, Syria’s largest city and former commercial center, are without running water following an escalation in fighting over the past few days. At least 231 civilians have been killed in violence in Aleppo and its outskirts since a truce collapsed this week, according to the Syrian Observatory for Human Rights, a monitoring organization. 
• Contagion Risks Rise as China Banks Fund Each Others’ Loans. China’s smaller banks have never been more reliant on each other for funding, prompting rating companies to warn of contagion risks in any crisis. Wholesale funds, including those raised in the interbank market, accounted for a record 34 percent of small- and medium-sized bank financing as of June 30, compared with 29 percent on Jan. 31 last year, Moody’s Investors Service estimated in an Aug. 29 note that analyzed central bank data. Shanghai Pudong Development Bank Co.’s first-half earnings showed its short-term borrowings and repurchase agreements surged by 75 percent in the past three years, while its consumer deposits rose just 24 percent.
• China Warns on City Bank Risks as Regulator Cites Global Crisis. China’s banking regulator told the nation’s city banks to learn the lesson of the global financial crisis and get back to their traditional businesses, building pressure for the lenders to curb opaque shadow financing. “City commercial banks should change as soon as possible the situation of allocating more funds into investing than lending, and developing their off-balance-sheet businesses too fast,” Shang Fulin, the chairman of the China Banking Regulatory Commission, said in a transcript posted on the agency’s website.
• China's Runaway Housing Market Poses Latest Challenge for Yuan. Here's the latest uncertainty facing China's currency: sky high house prices. A runaway boom in the largest cities will push investors to look for cheaper alternatives overseas, draining money out of China and putting downward pressure on the yuan in the process, according to analysis by Harrison Hu, Chief Greater China Economist at Royal Bank of Scotland Group Plc. in Singapore. An "enlarged differential between domestic and foreign asset prices will lead to capital outflows and depreciation, until parity is restored,” Hu wrote in a note. He said that the 30 percent year-on-year price gain in Tier 1 and leading Tier 2 cities implies a 25 percent rise in dollar terms, which far outpaces the 5 percent gain in major U.S. cities. That ratio is here in red: 
• Communist China Looks for Independent Thinking as Problems Loom. The southern Chinese manufacturing hub of Dongguan’s decision to lure elite workers with cash payments of up to $3,000 owed much to a think tank founded in late 2013 after President Xi Jinping urged a greater role for research houses in policy making. Dongguan Talent Institute submitted a report early last year to local officials that showed the region’s nascent robotics industry was craving new talent. Months later, measures were unveiled to attract top brains, including payments of 6,000 yuan for graduates and up to 20,000 yuan for doctoral students.
• Citi Warns on Gold as Bank Boosts Odds of Trump Win to 40%. Gold may be in for a bumpy ride in the final quarter as Republican candidate Donald Trump now has a 40 percent chance of winning the presidential election and investors will be preparing for the possibility of higher U.S. interest rates, according to Citigroup Inc.
• Asian Stocks Drop With Japan as Yen Firms; Energy Shares Decline. Asian stocks fell as Japanese shares declined with a stronger yen, while commodity shares dropped after Saudi Arabia said it doesn’t anticipate any decision on supply at an OPEC meeting later this week. The MSCI Asia Pacific Index fell 0.1 percent to 141.83 as of 9:01 a.m. in Tokyo. The Topix index lost 0.3 percent as the yen rose 0.2 percent against the dollar before a speech by Bank of Japan Governor Haruhiko Kuroda. Energy shares fell after Saudi Arabia, the world’s largest oil exporter and the leading member for the Organization of Petroleum Exporting Countries, said a meeting in Algiers will be consultative and unlikely to reach a firm decision.
• Saudi Arabia Injects $5.3 Billion in Bank System Amid Crunch. Saudi Arabia’s central bank stepped up efforts to support lenders in the Arab world’s biggest economy as they grapple with the effects of low oil prices. The Saudi Arabian Monetary Agency, as the central bank is known, said it decided to give banks about 20 billion riyals ($5.3 billion) in the form of time deposits “on behalf of government entities.” It’s also introducing seven-day and 28-day repurchase agreements, as part of its “supportive monetary policy.”

Wall Street Journal:

• Fiscal Constraints Await the Next President. Either Hillary Clinton or Donald Trump would have little latitude to spend money.
• Police Videos Fail to Quiet Protests in Charlotte. Civil-rights advocates say questions remain about justification for fatal shooting; chief says evidence shows officers acted appropriately.
• Presidential Debates Will Be a Major Influence for a Third of Voters, Poll Says. Some 34% say matchups between Hillary Clinton and Donald Trump will be very important in picking a candidate to support.

CNBC:

• Past is prologue? Why one trader sees a post-election recession on the horizon. (video)

Zero Hedge:

• "Home Prices Are Out Of Hand Again".
• "You're An Idiot & A Lunatic if You Question 'Safe Spaces' Or 'Microaggression'" - President Of Northwestern. 
• Eric Peters: "In The End, Central Banking Monetary Magic Is All Nonsense, Empty Formulas, Illusions".
• Merkel Caves To Pressure On Migrant Policy: "Germany Has Done Enough", As Support For AfD Hits All Time High.
• Bond Risk Crashes To 2-Year Lows As VIX Shorts Fold. (graph)
• Saudis Offer To Cut Production By 500,000 Barrels: "The Oil Market Situation Is Much More Critical".
• Washington Mall Shooter Caught: Suspect Is 20 Year Old Turkish Immigrant.

Business Insider:

• Here's everything you need to know about OPEC's big meeting this week.
• Italy's banking crisis could bring disastrous consequences.

Night Trading

• Asian indices are -1.0% to -.5% on average.
• Asia Ex-Japan Investment Grade CDS Index 118.75 +3.0 basis points.
• Asia Pacific Sovereign CDS Index 31.0 unch.
• Bloomberg Emerging Markets Currency Index 72.75 -.15%.
• S&P 500 futures -.28%.
• NASDAQ 100 futures -.23%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (CALM)/-.41
• (CCL)/1.88
• (THO)/1.33
• (MTN)/-1.65
• (SNX)/1.55

Economic Releases
10:00 am EST

• New Home Sales for August are estimated to fall to 600K versus 654K in July.

10:30 am EST

• The Dallas Fed Manufacturing Activity Index for September is estimated to rise to -3.0 versus -6.2 in August.

Upcoming Splits

• None of note

Other Potential Market Movers

• The First Presidential debate, Fed's Kaplan speaking, Fed's Tarullo speaking, BoJ Minutes and the German IFO Business Climate Index could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by financial 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 week.