Monday Watch

Today's Headlines

Bloomberg:

• China Industrial Profits Keep Pace as Factory Inflation Holds. Chinese industrial firms maintained a profit surge, underscoring the economy’s resilience even amid slowing factory output and investment. Industrial profits increased 16.5 percent in July from a year earlier, versus the 19.1 percent pace a month earlier, the nation’s statistics bureau said Sunday.

• China Money Rate Confusion Shows How PBOC Keeps Traders on Edge. The capacity of China’s central bank to surprise markets is so great that, last week, it left investors chewing over whether a data error was a policy signal. A closely watched Chinese benchmark rate surged 55 basis points at the open on Wednesday. While the National Interbank Funding Center was cited as saying later that the outsized price move was a mistake, the confusion shows the downside to the monetary authority’s opaque use of interbank tools to adjust liquidity in the financial system.

• May Under Pressure From Labour and EU as Brexit Talks Resume. Brexit talks resume on Monday with Prime Minister Theresa May under pressure on two fronts: European negotiators are pushing her to reveal her hand, while the opposition Labour Party has made a bid to lure May’s critics to their side. Labour’s announcement on Sunday that it wants Britain to stay in the European Union’s single market and customs union for up to four years after it leaves the bloc -- a proposal that will delight business -- means it’s now worthwhile for Conservative lawmakers who want to maintain ties with Europe to rebel and seek cross-party deals. May, who wants to leave the single market in 2019, lacks a parliamentary majority.

• Dollar Extends Decline, Asian Equities Open Mixed. Asian stocks fluctuated at the open while the greenback extended its slide against major developed currencies after Federal Reserve Chair Janet Yellen dashed expectations on Friday that she would provide clues on monetary policy tightening. Benchmarks rose in Tokyo and Seoul after the S&P 500 Index surged to its best week in a month on tax-reform optimism. Investors will be weighing the wider impact after Tropical Storm Harvey inundated Texas and the heart of the U.S. oil and gas industry. Crude fell after initially jumping as much as 0.7 percent after a storm that hit Texas disrupted U.S. output. Japan’s Topix index climbed 0.2 percent as of 9:12 a.m. in Tokyo, while South Korea’s Kospi index was little changed. Australia’s S&P/ASX 500 Index fell 0.3 percent.

• Libya's Oil Disruptions Widen as Two More Fields Halt Output. Two more oil fields in Libya are being closed after an armed group took over pipelines to both deposits, further disrupting the OPEC nation’s plan to boost crude production. El Feel, or Elephant, stopped production, Wessam Al-Messmari, an office manager for the Petroleum Facilities Guard that is protecting the field, said Sunday by phone. State-run National Oil Corp. declared force majeure at the deposit, according to a person familiar with the situation who asked not to be identified because the information isn’t public.

• Cohn or Yellen? Bond Traders Say Same Difference. Bond traders are betting that no matter who’s leading the Federal Reserve come February, policy makers won’t stray from the path they’ve been laying out for months. With Janet Yellen coming off what may have been her final address as Fed chair at the central bank’s annual Jackson Hole gathering, investors are starting to look ahead to who might follow her. The clear front-runner, judging by a survey of economists: White House adviser Gary Cohn, whose fate roiled markets this month when rumors swirled that he’d resign over President Donald Trump’s response to a violent white-supremacist rally. Once it became clear he was staying put, markets settled down.

• Fed's Mester Says Keep Up the ‘Gradual’ Pace on Rate Hikes. Federal Reserve Bank of Cleveland President Loretta Mester urged her colleagues to look past recent weak inflation data and to stick to their gradual pace of lifting interest rates, with one more increase projected before the end of this year.

• Harvey's Cost Reaches Catastrophe as Modelers See Many Uninsured.

• Trump Prepares to Lift Limits on Military Gear for Police. The Trump administration is preparing to restore the flow of surplus military equipment to local law enforcement agencies under a program that had been sharply curtailed amid an outcry over police use of armored vehicles and other war-fighting gear to confront protesters.

Wall Street Journal:

• Hurricane Harvey Slams Into Texas: Live Coverage.

• China’s Markets Can’t Agree on How Good Nation’s Economy Is. Strong currency, stocks and commodities contrast with bond pessimism.

• Tapping Your Home Equity for Cash Is Big Again. Banks insist the increased borrowing doesn’t herald a return to housing-bubble days.

• Hurricane Harvey Threatens Largest Flood Insurer: The Government. A federally underwritten program, already roughly $25 billion in debt from earlier storms, faces huge new claims.

• Immelt Drops Out of Contention for Uber CEO Job. Former GE chief executive removed himself from consideration after observing disorder and divisions among different factions of Uber’s board.

• Chicago Exchange Sale Looks Shaky as China Tensions Rise. Less than 0.5% of U.S. stocks trade on the Chicago Stock Exchange, but selling a stake to a Chinese-led group would still be risky, critics say. 

• The Big Name in Coal’s Resurgence: China. American coal producers filling voids created by overseas producers shifting exports to China.

Fox News:

• Harvey causes 'catastrophic flooding' in Houston, shuts down airport. (video)

• Trump planning Texas visit, praises Harvey recovery efforts. (video)

• Hurricane Harvey victims: Here is what you can do to help.

CNBC: 

• Trump threatens to scrap NAFTA in Sunday morning tweet.

• Major refineries are shutting down in the wake of Harvey flooding, 22 percent of Gulf production affected.

• Houston could receive record 50 inches of rain, NWS says.

Zero Hedge:

• "It's Catastrophic, Unprecedented, Epic": 5 Dead As Houston Reels Under Historic Flooding.

• FEMA: "We're Going To Be There For Years" As Trump Visits Texas On Tuesday.

• Trump Reportedly Slams Administration's Globalists, Demands "Bring Me China Tariffs".

• Mexican Peso Tumbles As Trump Repeats Border Wall, NAFTA Threats.

• Gasoline Spikes To 7-Month Highs After Harvey; Heating Oil, Crude Jump. (graph)

• On The Coming Collapse Of China's Ponzi Scheme Economy.

• Uber Selects Expedia Chief Dara Khosrowshahi As Its Next CEO.

• Bernanke Flip-Flops: Will Be Keynote Speaker At Blockchain Conference.

• Carmageddon Continues - Dealers "Wildly Overweight" SUVs As Sales Slow. (graph)

• Houston: The "Surreal" Before And After Photo. (video)

• Gone With The Wind Banned From Memphis Theater.

• China Is Weaponizing Water.

• It's Can-Kicking Time Again In The Imperial City.

Business Insider:

• An influential group of investors refuses to give up hope that Trump will get something done.

• Wall Street still acts like it hasn't learned any lessons from the financial crisis.

• Fresh data shows millennials' favorite apps — and it's bad news for Snapchat(SNAP).

• Hollywood just had the worst box office weekend in 16 years.

Night Trading

• Asian indices are -.25% to +.50% on average.

• Asia Ex-Japan Investment Grade CDS Index 78.0 -3.0 basis points.

• Asia Pacific Sovereign CDS Index 19.75 -.5 basis point.

• Bloomberg Emerging Markets Currency Index 74.50 +.01%.

• S&P 500 futures -.10%.

• NASDAQ 100 futures -.10%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (PRXL)/.93

Economic Releases 
8:30 am EST

• Preliminary Wholesale Inventories MoM for July are estimated to rise +.3% versus a +.7% gain in June.

• The Advance Goods Trade Deficit for July is estimated at -$64.5B versus -$64.0B in June.
  

10:30 am EST

• Dallas Fed Manufacturing Activity for August is estimated to rise to 17.0 versus 16.8 in July.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Japan Jobless Rate, $26B 2Y T-Note auction and the $34B 5Y T-Note auction could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and industrial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the week.