Tuesday Watch

Evening Headlines

Bloomberg:

• Yuan Liquidity Choke Bad for Stocks. (video) 
• Yield Hunters Become the Hunted as Japan Long Debt Loses 9%. In Japan, the yield hunters have become the hunted. Investors who refused to swallow negative yields to hold Japan’s shorter-dated bonds are suffering, as an index of sovereign debt maturing in 20 years or more has lost 9 percent this quarter. The yield on 2036 bonds climbed to the highest since March 16 as BOJ Governor Haruhiko Kuroda noted last week that low long-term yields hurt returns on pension and insurance investments, even as he signaled there would be no reduction in easing with a policy review due Sept. 21. Bonds of the maturity are due for auction Tuesday.
• Dollar Holds Loss as Traders Scale Back Fed Hike Odds; Won Gains. The greenback remained weaker against most of its 16 major counterparts as the futures-based probability of a U.S. rate hike on Sept. 21 dropped to 22 percent Monday from 30 percent at the end of last week. Brainard’s comments Monday in Chicago were the last before the Fed enters its quiet period, during which officials abstain from publicly speaking about monetary policy in the run-up to their Sept. 20-21 policy meeting. 
• Asian Stocks Join U.S. Rebound as Fed Outlook Weighs on Dollar. The MSCI Asia Pacific Index rose 0.6 percent as of 9:15 a.m. Tokyo time, after a 1.9 percent slide in the last session that marked its steepest loss since June. Japan’s Topix index added 0.6 percent, while Australia’s S&P/ASX 200 Index added 1.1 percent and South Korea’s Kospi index rallied 0.9 percent.
• Safety Trade Leaves S&P 500 on Knife’s Edge as Valuations Soar. (video) The U.S. equity market’s biggest winners from the first half of 2016 are back in the spotlight, for all the wrong reasons. Utilities, consumer staples makers and phone companies -- sectors that usually do well when the economy isn’t -- plunged at least 2.8 percent Friday, worse than the broader market. It’s an abrupt change for companies that were among the few winners at the start of the year and are often labeled by Wall Street as safety sectors. The S&P 500 Index rebounded Monday, adding 1.5 percent to 2,159.04 as of 4 p.m. in New York, helping the groups recoup some of their losses. But the valuation of defensive equities remain one of the market’s bigger pressure points. Shares of consumer staples stocks trade at 22 times annual earnings, 25 percent higher than the average multiple over the last decade, more than any other group. Utilities companies are 19 percent higher than their 10-year average.

Wall Street Journal:

• Divided Federal Reserve Is Inclined to Stand Pat. Low inflation leaves central bankers with little sense of urgency to boost interest rates.
• ‘Safest’ Shares Prove Anything But. Investors in dividend-paying stocks could be in for a rude awakening.

Fox News:

• Trump denounces Clinton for 'deplorables' comment, calls on her to 'retract' remarks. (video)

Zero Hedge:

• Supervisor Of "Massive Fraud" At Wells Fargo Leaves Bank With $125 Million Bonus.
• Angry Secret Service Denies It "Broke Protocol" With Sloppy Handling Of Hillary's Rushed Exit.
• Recovery Rates In E&P Bankruptcies Hit "Catastrophic" Levels: Moody's.
• Wells Fargo Scandal Is Just The Beginning; Here's What Else They're Hiding...
• 8 Reasons Why One Hedge Fund Is Keeping A Long VIX Position On.
• What Happens If Hillary Clinton Has To Drop Out?
• Diversify At Your Own Risk.
• Stocks Soar Most In 2 Months After Brainard Warns "Not Compelling" To Raise Rates. (graph)

Business Insider:

• Watch out Wall Streeters: Your jobs are moving to Mumbai.
• There are signs of a contagious bubble in the US.
• Negative interest rates are crushing growth.

The Verge:

• Twitter's(TWTR) new, longer tweets are coming September 19th.

Night Trading 

• Asian equity indices are -.25% to +.5% on average.
• Asia Ex-Japan Investment Grade CDS Index 106.5 -. basis point.
• Asia Pacific Sovereign CDS Index 38.25 unch.
• Bloomberg Emerging Markets Currency Index 72.61 +.07%. 
• S&P 500 futures -.22%. 
• NASDAQ 100 futures -.20%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• None of note

Economic Releases
6:00 am EST

• The NFIB Small Business Optimism Index for August is estimated to rise to 94.8 versus 94.6 in July.
  

2:00 pm EST

• The Monthly Budget Statement for August is estimated to widen to -$107.0B versus -$64.4B in July.

Upcoming Splits 

• (BIP) 3-for-2
• (BMI) 2-for-1

Other Potential Market Movers

• The German ZEW Index, UK CPI report, $12B 30Y bond auction, weekly US retail sales reports, CSFB Basic Materials conference, BofA Real Estate conference, Deutsche Bank Tech conference, BofA Media/Communications/Entertainment conference and the (SFLY) analyst meeting could also impact trading today.

BOTTOM LINE:  Asian indices are mostly higher, boosted 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 50% net long heading into the day.