Friday Watch

Evening Headlines

Bloomberg:

• May Faces Questions on Economic Crime Review as SFO Awaits Fate. U.K. Prime Minister Theresa May is facing questions on the progress of a wide-ranging review of Britain’s economic crime agencies that could result in the dismantling of the Serious Fraud Office. Nicky Morgan, the chair of Parliament’s Treasury Committee, wrote to May in July for an update on the review after the prime minister failed to respond to inquiries from another lawmaker earlier this year. The letter, published Friday, follows a proposal in the Conservative manifesto to wrap the SFO into the National Crime Agency.
• Asian Stocks Set to Advance on Growth Optimism. Asian stocks are poised to advance after American and Chinese economic data lifted equities on Wall Street and before U.S. jobs numbers ahead of a long weekend. The dollar slumped after Steven Mnuchin said a weaker currency is “somewhat better” for trade. Futures suggested higher opens for equity markets in Japan, Australia and South Korea after the MSCI Asia Pacific Index completed its eighth straight month of gains. The dollar declined on weak inflation data, while 10-year Treasury yields slipped to 2.12 percent. Gasoline continued its march upwards to its highest level in more than two years amid the impact of Harvey. Futures on the Nikkei 225 Stock Average advanced less than 0.1 percent as of 7:21 a.m. Tokyo time and they were up 0.2 percent on the Kospi index in South Korea and 0.1 percent higher on Australia’s main gauge.
• Five Things You Need to Know to Start Your Day.
• Lululemon(LULU) Soars After Shrugging Off Athletic-Industry Woes.

Wall Street Journal:

• 5 Things to Watch in the August Jobs Report.
• Trump’s Winning Tax Argument. The President’s critics will need to raise their game to stop reform.

MarketWatch.com:

• These 2 simple indicators say stocks are headed up.

Fox News:

• Harvey scams abound as crooks prey on disaster victims and altruistic Americans. (video)

CNBC:

• Mnuchin: We have a 'very detailed' tax plan ready. (video)
• Bitcoin's nearly five-fold climb in 2017 looks very similar to tech bubble surge. (video)
• Here are 4 top semiconductor stock ideas for the next year: Jefferies. (video)

Zero Hedge:

• Thursday Humor? How The Media Controls Your Mind.
• New Evidence Reveals Comey Exonerated Hillary Before Key Witness Interviews.
• Harvey's Destruction "May Have Solved The Auto Industry's Inventory Problem".
• Bitcoin Surges To New Record High, Overtakes Paypal & Netflix, Nears Morgan Stanley's Market Cap. (graph)
• Did China's Bronze Swan Just Arrive? Copper Inventories Crash Most In History. (graph)
• Peso Tumbles After Mexico Hints May Balk On NAFTA, "Preparing Alternatives".
• Gold Pops, S&P Stops, And Bonds Have Best Month Since Brexit. (graph)

Business Insider:

• The Trump administration just chose four companies to build prototypes of its 30-foot tall border wall.
• Trump is pledging $1 million in personal funds to Harvey relief, White House says.

Night Trading 

• Asian equity indices are unch. to +.5% on average.

• Asia Ex-Japan Investment Grade CDS Index 76.0 -.75 basis point. 

• Asia Pacific Sovereign CDS Index 18.25 unch.

• Bloomberg Emerging Markets Currency Index 74.48 -.02%.

• S&P 500 futures +.08%.

• NASDAQ 100 futures +.14%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note

Economic Releases 
8:30 am EST

• The Change in Non-Farm Payrolls for August is estimated at 180K versus 209K in July.
• The Unemployment Rate for August is estimated at 4.3% versus 4.3% in July.
• Average Hourly Earnings MoM for August is estimated to rise +.2% versus a +.3% gain in July.

10:00 am EST

• ISM Manufacturing for August is estimated to rise to 56.5 versus 56.3 in July.
• ISM Prices Paid for August is estimated at 62.0 versus 62.0 in July.
• Final Univ. of Mich. Consumer Confidence for August is estimated to fall to 97.5 versus a prior estimate of 97.6.
• Construction Spending MoM for July is estimated to rise +.5% versus a -1.3% decline in June.
  

Afternoon

• Total Vehicle Sales for August is estimated to fall to 16.6M versus 16.7M in July.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Japan Auto Sales report could also impact trading today.

BOTTOM LINE:  Asian indices are mostly higher, boosted by pharmaceutical and technology shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher.  The Portfolio is 100% net long heading into the day.

Stocks Rising into Final Hour on Tax Reform Hopes, Buyout Speculation, Oil Gain, Biotech/Homebuilding Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Almost Every Sector Rising
  

• Volume: Below Average

• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• Volatility(VIX) 10.45 -6.86%

• Euro/Yen Carry Return Index 136.50 -.08%

• Emerging Markets Currency Volatility(VXY) 7.54 -.4%

• S&P 500 Implied Correlation 32.58 -6.51%

• ISE Sentiment Index 114.0 +10.7%
  

• Total Put/Call 1.02 +37.8%

• NYSE Arms .86 -32.06%

Credit Investor Angst:

• North American Investment Grade CDS Index 58.47 -2.47%
  

• America Energy Sector High-Yield CDS Index 470.0 -.20%

• European Financial Sector CDS Index 53.34 -2.84%

• Western Europe Sovereign Debt CDS Index 5.85 +1.56%

• Asia Pacific Sovereign Debt CDS Index 18.18 -.79%

• Emerging Market CDS Index 180.58 -1.50%
  

• iBoxx Offshore RMB China Corporate High Yield Index 141.10 +.01%

• 2-Year Swap Spread 20.75 -.25 basis point

• TED Spread 31.75 +2.25 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -25.25 +1.5 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 74.46 +.10%
• 3-Month T-Bill Yield .99% -2.0 basis points
  

• Yield Curve 79.0-2.0 basis points

• China Import Iron Ore Spot $78.91/Metric Tonne +3.72%

• Citi US Economic Surprise Index -23.10 -1.9 points

• Citi Eurozone Economic Surprise Index 28.0 -1.8 points

• Citi Emerging Markets Economic Surprise Index 16.30 -2.3 basis points

• 10-Year TIPS Spread 1.77 +1.0 basis point
  
• 15.6% chance of Fed rate hike at Nov. 1 meeting, 39.1% chance at Dec. 13 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +50 open in Japan 
• China A50 Futures: Indicating +34 open in China

• DAX Futures: Indicating +12 open in Germany

Portfolio: 

• Higher: On gains in my tech/biotech/medical/retail sector longs 

• Disclosed Trades: None

• Market Exposure: 100% Net Long

Bear Radar

Style Underperformer:

• Large-Cap Value +.5%

Sector Underperformers:

• 1) Foods -.6% 2) Networking -.4% 3) Tobacco unch.

Stocks Falling on Unusual Volume: 

• CIEN, GCO, CPB, FIVE, LE, DG and ABEO

Stocks With Unusual Put Option Activity:

• 1) SN 2) OIL 3) RSX 4) DBC 5) NBR

Stocks With Most Negative News Mentions:

• 1) DRYS 2) BKE 3) TDG 4) FRTA 5) BKE

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +1.1%

Sector Outperformers:

• 1) Biotech +2.7% 2) Hospitals +2.7% 3) Gaming +2.0%

Stocks Rising on Unusual Volume:

• SCVL, ASND, BSFT, SGH, HESM, BLUE, RXDX, CLLS, CMD, MSG, GILD, JUNO, WDAY, SBAC, TEGP, NVS, MTCH, AVAV, CORT, MOMO, IPXL, PHI, ALEX, KEM and UBIO

Stocks With Unusual Call Option Activity:

• 1) MNKD 2) STZ 3) BMY 4) VRTX 5) OLED

Stocks With Most Positive News Mentions:

• 1) SCVL 2) OC 3) COST 4) GILD 5) ANF

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running -7.4% Below 100-Day Average
• 10 Sectors Rising, 0 Sectors Declining
• 70.2% of Issues Advancing, 26.0% Declining
• 89 New 52-Week Highs, 14 New Lows
• 39.0% of Issues Above 200-day Moving Average
• Average 14-Day RSI 34.5%
• Vix 10.7 -4.4%
• Total Put/Call 1.1 +48.7%
• TRIN/Arms 1.09 -13.7%

Thursday Watch

Evening Headlines

Bloomberg:

• North Korean ICBM Technology Still Falls Short, Top General Says. (video) While North Korea is maintaining its torrid pace of weapons tests, there are at least three key hurdles Kim Jong Un’s regime still needs to overcome before it can field a nuclear-tipped intercontinental ballistic missile capable of threatening the U.S. mainland. The threat from Pyongyang is growing, but it isn’t yet imminent, according to General Paul Selva, the No. 2 U.S. military official. Selva, vice chairman of the Joint Chiefs of Staff, offered his thoughts in a statement to Bloomberg before North Korea launched an intermediate-range missile early Tuesday local time over Japan.

• As Harvey Raged, Workers Slept on Cots to Keep Nuclear Power On. As Hurricane Harvey bore down on them, workers remained at the controls of Texas’s biggest nuclear power plant, keeping the lights on for 2 million customers even while some of their own homes were flooded. Teams of employees have been stationed at the South Texas Project power plant since early Friday. While the site is 90 miles (145 kilometers) southwest of Houston and avoided the worst of the deadly storm, it had to cope with heavy rain and flooding on nearby roads that made it difficult for people to get around.

• China Factory Gauge Signals Economic Output Resilient in August. The manufacturing purchasing managers index increased to 51.7 in August, compared with the 51.3 forecast in a Bloomberg survey of economists, and the 51.4 reading in July.

• Japan Post Bank Waits to Plow 100 Billion Yen Into Stocks. Japan Post Bank Co. plans to spend an initial 100 billion yen ($916 million) directly buying stocks -- when it finds the right opportunities. The nation’s second-largest bank by deposits, which currently invests in equities only through passive investments in funds, is eventually aiming to boost active stock holdings to several hundred billion yen in the next five to 10 years, said Katsunori Sago, executive vice president at the Tokyo-based company.

• Asia Stocks Set to Open Mixed on U.S. Data, Korea. Futures on equity indexes in Japan were flat with those in Australia. Contracts on South Korea’s Kospi index were slightly lower after a Twitter post on North Korea from U.S. President Donald Trump that caused a brief dip in U.S shares. U.S. stocks rose for a fourth day, with the S&P 500 Index pushing above its average price for the past 50 days. The dollar strengthened from the lowest in more than two years against most major peers, while gasoline advanced as Harvey continued to pound the energy-rich Gulf coast. Futures on the Nikkei 225 Stock Average were slightly higher as of 7:17 a.m. Tokyo time as were those in Australia. They dipped 0.1 percent on the Kospi index.

• Oil Traders Grab Gasoline Tankers to Replenish Harvey-Hit U.S. (video) Oil traders are rushing to book tankers to haul European gasoline across the Atlantic Ocean as Hurricane Harvey transforms the global market for refined fuels. Traders booked 20 tankers to load European fuels to the U.S. since Harvey made landfall on Aug. 26, according to charter lists compiled by Bloomberg. The rate of bookings is about double the average for August. Most cargoes are 37,000 metric tons each. Shipbrokers said cargo flows to New York will be the highest since November, when a pipeline blast curbed inflows from the Gulf of Mexico.

• Five Things You Need to Know to Start Your Day.

• BlackRock Finds More Risk Assets at Insurers Than '08.

Wall Street Journal: 

• Weakened Harvey Douses Louisiana: Live Coverage.

• Trump Urges Bipartisan Support for Corporate Tax Cut, Code Simplification. President says moves will help middle-class workers; GOP hopes to pass bill before midterms while Democrats decry policies.

MarketWatch.com:

• Economist who nailed the cost of Katrina thinks the final bill for Harvey could be larger.

Fox News:

• Harvey's death toll climbs in Texas; at least 23 killed. (video)

CNBC:

• Flood levels drop across much of Houston; airports to reopen. (video)

• These stocks will get a boost as Texas rebuilds after Harvey. (video)

• Trump on tax reform: 'I don't want to be disappointed by Congress'. (video)

• Trump's focus on jobs could give him a tax reform win. (video)

• Trump's hope for 3% growth no longer looks so far-fetched. (video)

• How Apple's(AAPL) market cap could reach $1 trillion. (video)

Zero Hedge: 

• Arkema CEO: "No Way To Prevent Imminent Explosion" At Flooded Texas Chemical Plant.

• 10 Hurricane Harvey Stories That Will Give You Hope For America.

• Warren Buffett Reveals His Biggest Fear.

• Mo' Momo, Mo' Worries - Quants Fear Hedge Funds' "Outsized Exposure" To Market Momentum. (graph)

• Global Outrage After Japan Finance Minister Said "Hitler Had Right Motives".

• Korean Missiles, Killer Storm, & Kuroda Spark Biggest Buying-Panic In Tech Stocks Since Election. (graph)

Business Insider:

• A cancer treatment that one expert called the 'most exciting thing I've seen in my lifetime' just got approved.

• One chart shows Netflix's dramatic 20 year rise. (graph)

• Hurricane Harvey is the worst rainfall disaster in US history.

Night Trading 

• Asian equity indices are .unch to +.5% on average.

• Asia Ex-Japan Investment Grade CDS Index 76.75 -2.5 basis points. 

• Asia Pacific Sovereign CDS Index 18.25 -.75 basis point.

• Bloomberg Emerging Markets Currency Index 74.38 -.01%.

• S&P 500 futures +.12%.

• NASDAQ 100 futures +.22%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CPB)/.55

• (CIEN)/.49

• (DG)/1.09

• (GCO)/-.08

• (LE)/-.09

• (TITN)/-.01

• (TD)/1.36

• (COO)/2.58

• (LULU)/.35

• (OXM)/1.43

• (PANW)/.79

• (RH)/.47

• (TECD)/2.05

Economic Releases 
7:30 am EST

• Challenger Job Cuts YoY for August.

8:30 am EST

• Initial Jobless Claims for last week are estimated to rise to 238K versus 234K the prior week.

• Continuing Claims are estimated to fall to 1951K versus 1954K prior.

• Personal Income for July is estimated to rise +.3% versus unch. in June.

• Personal Spending for July is estimated to rise +.4% versus a +.1% gain in June.

• The PCE Core MoM for July is estimated to rise +.1% versus a +.1% gain in June.
  

9:45 am EST

• Chicago Purchasing Manager for August is estimated to fall to 58.5 versus 58.9 in July.

10:00 am EST

• Pending Home Sales MoM for July is estimated to rise +.4% versus a +1.5% gain in June.

Upcoming Splits

• None of note

Other Potential Market Movers

• The China Manufacturing PMI report, Eurozone CPI report, weekly EIA natural gas inventory report, weekly Bloomberg Consumer Comfort Index and the (LB)/(FRED)/(CATO)/(BKE) monthly sales releases could also impact trading today.

BOTTOM LINE:  Asian indices are higher, boosted by industrial and technology shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher.  The Portfolio is 100% net long heading into the day.