Stocks Falling into Final Hour on Soaring Eurozone Debt Angst, Rising Global Growth Fears, US "Fiscal Cliff" Concerns, Earnings Worries

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Most Sectors Declining
  
• Volume: Above Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 18.27 -3.64%
  
• ISE Sentiment Index 82.0 -28.70%
  
• Total Put/Call .94 unch.
  
• NYSE Arms 2.34 +108.20%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 109.39 bps +3.66%
  
• European Financial Sector CDS Index 278.22 bps +12.45%
  
• Western Europe Sovereign Debt CDS Index 262.09 +2.0%
  
• Emerging Market CDS Index 256.71 +3.61%
  
• 2-Year Swap Spread 21.25 +1.25 basis points
  
• TED Spread 35.50 +.5 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -46.25 -2.5 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .09% unch.
  
• Yield Curve 125.0 -4 basis points
  
• China Import Iron Ore Spot $117.10/Metric Tonne -.26%
  
• Citi US Economic Surprise Index -39.70 +.9 point
  
• 10-Year TIPS Spread 2.10 -3 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating -110 open in Japan
• DAX Futures: Indicating -17 open in Germany
  

Portfolio:

• Slightly Higher: On gains in my Retail sector longs, index hedges and emerging markets shorts
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short and then covered some of them
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades near session lows on soaring eurozone debt angst, high food prices, US "fiscal cliff" worries, earnings concerns and rising global growth fears. On the positive side, Alt Energy and Homebuilding shares are especially strong, rising more than +.75%. Oil is falling -1.8%, the UBS-Bloomberg Ag Spot Index is down -.8%, Lumber is rising +1.4% and Gold is down -.6%. On the negative side, Coal, Steel, Oil Service, I-Banking, Energy, Bank, Medical, Gaming and Education shares are especially weak, falling more than -1.5%. Financial shares have traded heavy throughout the day. Cyclicals are also underperforming. Copper is falling -2.3%. The 10Y Yld is falling -5 bps to 1.48%. Major Asian indices fell overnight, led down by a -.7% decline in Hong Kong. The Shanghai Property Stock Index fell -4.9% last night and is down -14.3% in less than a month. Major European indices fell sharply, led lower by a -5.2% plunge in Spanish shares. Spanish stocks are now down -25.6% ytd. The Bloomberg European Bank/Financial Services Index is falling -2.9% today. Brazilian equities are falling -1.4%. The German sovereign cds is gaining +1.1% to 71.44 bps, the France sovereign cds is gaining +4.1% to 165.28 bps, the Spain sovereign cds is jumping +7.4% to 572.85 bps, the Italy sovereign cds is jumping +6.8% to 519.78 bps, the UK sovereign cds is gaining +3.8% to 58.83 bps and the Russia sovereign cds is rising +4.0% to 179.0 bps. Moreover, the European Investment Grade CDS Index is gaining +8.5% to 168.50 bps, the Spain 10Y Yld is surging +6.4% to 7.17% and the Italian/German 10Y Yld Spread is soaring +11.8% to 509.95 bps. The UBS/Bloomberg Ag Spot Index is up +24.8% in about 2 months. The benchmark China Iron/Ore Spot Index is down -35.3% since 9/7/11. Moreover, the China Hot Rolled Steel Sheet Spot Index is also picking up downside steam. As well, despite their recent bounces off the lows, the euro, copper and lumber all continue to trade poorly given equity investor perceptions that global central bank stimuli will boost economic growth in the near future. US weekly retail sales have decelerated to a sluggish rate at +1.6%, which is the slowest since the week of Feb. 2, 2010. US Trucking Traffic continues to soften. Moreover, the Citi US Economic Surprise Index, while showing some improvement recently, is still around early-Sept. levels. Lumber is -3.0% since its March 1st high despite improving sentiment towards homebuilders and the broad equity rally ytd. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite investor perceptions of a big improvement in the nationwide housing market. The Baltic Dry Index has plunged around -60.0% from its Oct. 14th high and is now down around -50.0% ytd. Shanghai Copper Inventories have risen +90.0% ytd. Oil tanker rates have plunged recently, with the benchmark Middle East-to-US voyage down to 25.0 industry-standard worldscale points, which is the lowest since Oct. 2009. The CRB Commodities Index is now down -17.3% since May 2nd of last year despite the recent surge in food prices. The 10Y T-Note continues to trade too well. The AAII % Bulls rose to 30.5 this week, while the % Bears fell to 34.9. There still appears to be a fairly high level of complacency among US investors regarding the deteriorating macro backdrop. It remains unclear to me whether or not Germany will put its own balance sheet on the line to save the euro even as investors have been pricing this outcome into stocks. The Citi Eurozone Economic Surprise Index is at -70.90 points, which is near the lowest since mid-Sept. of last year. Massive tax hikes and spending cuts are still yet to hit in several key eurozone countries that are already in recession. A lack of competitiveness remains unaddressed. The European debt crisis is also really beginning to bite emerging market economies now, which will further pressure exports from the region and further raise the odds of more sovereign/bank downgrades. Uncertainty surrounding the effects on business of Obamacare, the "US fiscal cliff" and the election outcome uncertainty will likely become more and more of a focus for investors as the year progresses. Little if anything being discussed by global central bankers will actually boost global economic growth in any meaningful way, in my opinion. Thus, recent market p/e multiple expansion is creating an unstable situation for equities, which could become a big problem this fall unless a significant macro catalyst materializes soon. For this year's equity advance to regain traction, I would expect to see a resumption in European credit gauge improvement, a subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices, a US "fiscal cliff" solution and higher-quality stock market leadership. I expect US stocks to trade mixed-to-lower into the close from current levels on rising eurozone debt angst, profit-taking, high food prices, earnings worries, US "fiscal cliff" concerns and rising global growth fears.

Today's Headlines

Bloomberg:

• Draghi Says ECB Works on Bond Plan Amid German Concerns. European Central Bank President Mario Draghi said the ECB may wade forcefully into bond markets in tandem with Europe’s rescue fund, stepping up its crisis response despite the reservations of Germany’s Bundesbank. The euro declined and Spanish bond yields rose on disappointment that Draghi didn’t signal imminent ECB action. While Draghi said the Bundesbank has reservations about ECB bond purchases, and the details of the plan still need to be hammered out, the proposal nevertheless signals a new chapter in the battle against the debt crisis. Draghi left open the question of whether the ECB would print new money by refraining from sterilizing asset purchases
• Monti Warns Italy Risks Anti-Euro Shift Without Action on Spread. Italy risks a public backlash that could lead to an anti-euro government in the region’s third- biggest economy should European policy makers fail to bring down borrowing costs, said Prime Minister Mario Monti. Monti made the remarks in Finland during a three-nation tour aimed at challenging his European Union colleagues to back his fight to lower the extra yield investors are imposing on Italian and Spanish government debt. Spain and Italy are now in focus as they suffer contagion from the debt crisis that erupted in Greece almost three years ago. “If the spread in Italy remains at this level for some time, then you’re going to see a non-EU oriented, non-euro oriented, non-fiscal discipline oriented government in Italy,” Monti said in a speech in Helsinki.
• Credit-Default Swaps Rise in Europe as Draghi Plan Disappoints. The cost of insuring corporate and sovereign debt rose after ECB President Mario Draghi failed to flesh out plans to bring down borrowing costs for Italy and Spain and bolster the economy. The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield ratings rose as much as 20 basis points to 640 before being quoted at 632 at 3:20 pm in London. "At the end of the day, Draghi's comments were much to do about nothing," Adrian Miller, director of global markets strategy at GMP Securities LLC in New York, wrote in a note. "Bold statements of support from the ECB and EU policy makers in the past has historically been followed by disappointing results." The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers jumped 17.5 basi spoints to 264 and the subordinated index climbed 18 basis points to 430. Credit default swaps on Italy increased 24 basis points to 510 while Spain soared 30 to 566. The Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments rose 9 basis points to 264.
• The Shanghai Property Stock Index fell -4.86% overnight. (graph)
• Knight(KCG) Has 'All Hands On Deck' After $440 Million Bug. Knight Capital Group Inc. (KCG) has “all hands on deck” and is in close contact with creditors, clients and counterparties as it tries to weather trading errors that cost it $440 million, Chief Executive Officer Thomas Joyce said. Joyce said it’s “hard to comment” on discussions with creditors as Knight stock extended a two-day plunge to 70 percent and the firm explored strategic and financial alternatives following a loss almost four times its annual profit. The problems were triggered by what Joyce called “a bug, but a large bug” in software as the company, one of the largest U.S. market makers, prepared to trade with a New York Stock Exchange program catering to individual investors.
• Consumer Comfort in U.S. Falls on Concern Over Growth: Economy. Consumer confidence in the U.S. dropped last week to the lowest level in two months on mounting concern over the state of the economy. The Bloomberg Consumer Comfort Index fell to minus 39.7 in the week ended July 29 from minus 38.5 in the previous period. Americans’ views on the economy slumped to a five-month low. Other reports showed claims for jobless benefits increased and factory orders dropped. A rebound in gasoline prices and rising food costs caused by drought in parts of the Midwest may curb the household spending that accounts for about 70 percent of the economy.
• Orders to U.S. Factories Unexpectedly Declined 0.5% in June. Orders placed with U.S. factories unexpectedly declined in June, reflecting less demand for business equipment and the biggest decrease in bookings for non- durable goods in more than three years. The 0.5 percent drop in bookings followed a revised 0.5 percent increase in the prior month, the Commerce Department said today in Washington. The median forecast of economists in a Bloomberg News survey called for a 0.5 percent gain. June orders for durable goods climbed 1.3 percent, revised from the 1.6 percent surge reported last week. Demand for non-durable items, reported today for the first time, slumped 2 percent, the biggest drop since March 2009.
• Jobless Claims in U.S. Climbed. Jobless claims climbed by 8,000 to 365,000 in the week ended July 28, Labor Department figures showed today in Washington. The median forecast of 47 economists surveyed by Bloomberg News called for an increase to 370,000. Starting next week, the data should be clear of any influence from the annual auto plant retooling closures that make it difficult to adjust the data for seasonal variations, a Labor Department spokesman said as the report was released to the press.
• Intense Drought spreads, Midwest to Dry Through October. The most extreme forms of drought spread last week in the lower 48 states, and moderate or worse conditions are expected to persist in the Midwest through October, according to U.S. monitors. Extreme and exceptional drought, the two worst categories on a four-step scale, increased to 22.3 percent of the region in the week ended July 31, up from 20.6 percent, and expanded to 18.6 percent of the U.S. as a whole, up from 17.2 percent in the previous period, said the Drought Monitor in Lincoln, Nebraska.
• San Bernardino, California, Files Chapter 9 Bankruptcy. San Bernardino, California, filed for municipal bankruptcy after disclosing a $46 million shortfall in the city’s budget, the third California city to seek court protection from creditors since June 28. California cities from the Mexican border to San Francisco Bay are confronting rising pension costs as they contend with growing unemployment and declining property- and sales-tax revenue. The costs stem from decisions made when stock markets were soaring and retirement funds were running surpluses.
• Amtrak Food Service Lost $834 Million in 10 Years, Mica Says. Amtrak lost $84.5 million selling food and beverages last year and $833.8 million over 10 years, House Transportation and Infrastructure Chairman John Mica said, calling for a “better way” to run those operations. It costs taxpayers $3.40 for each can of soda the U.S. passenger railroad sells on its trains, and Amtrak charges $2.00, the Florida Republican said at a hearing today.
• Facebook(FB) Slump Continues After Two Senior Executives Exit. Facebook Inc. (FB) dropped as much as 4.7 percent to a record low, the fifth straight day of declines after the world’s largest social-networking service reported earnings that showed slowing growth.

Wall Street Journal:

• Spanish Markets Pummeled Over ECB Disappointment. Spanish stocks and bonds bore the brunt of investor disappointment with European Central Bank President Mario Draghi and the absence of fresh, concrete policy measures to fight the euro zone's debt crisis. Madrid's IBEX 35 stock index closed down 5.2% at 6373.40, while the yield on its benchmark 10-year government bond surged 0.44 percentage point to 7.13%, according to Tradeweb, putting it back above a level that economists say can't be sustained. The euro slid to $1.2152 in midday New York trading from the day's high of $1.2406. Italian markets also suffered, with the FTSE MIB stock benchmark falling 4.6% to 13282.55. Yields on 10-year Italian government bonds rose 0.39 percentage point to 6.30%,
  

CNBC.com:

• 'Knight-mare': Trading Glitches May Just Get Worse.
• Tax Scam: IRS Pays Out Billions in Fraudulent Refunds. The IRS is paying out billions of dollars in fraudulent tax refunds to identity thieves; a problem that the tax service’s inspector general told CNBC is a “growing problem” involving numbers that are increasing “exponentially.”

Business Insider:

• The 50 Stocks Hedge Funds Love The Most.
• GASPARINO: A $5 Billion Trade That Was Supposed To Happen Over 5 Weeks Is What Doomed Knight Capital(KCG).
• THE DEATH OF TV: It's Not Just Comcast; DirecTV and Time Warner Cable Lost Thousands Of Subscribers, Too.
• The 'Bread And Peace Model' Says Obama Is Toast In November.

Zero Hedge:

• European Bonds Give Up ALL Draghi "Believe" Gains In Worst Day In Over A Decade. (graphs)
• BNP Furious That Draghi "Jumped The Gun". Ken Wattret who is chief Euroarea economist for BNP is quite furious with Draghi: the reason? Precisely what we warned last week: that Draghi is posturing and attempting to bluff the Bundesbank into accepting his "conditions." End result, Buba called the bluff and the ECB blew it in a fashion so spectacular that Draghi actually had to defend himself from reporters who were mocking him and the ECB with questions if the ECB won't get its inflation call wrong "again."
• Investors are piling into income-generating stocks at the fastest pace seen in decades. (graph)
  

CNET:

• Facebook(FB): 8.7 percent are fake users.

LA Times:

• Chick-fil-A 'appreciation' sales make for a 'record-setting day'. Chick-fil-A appears to have set a company record in sales on Wednesday, a day on which Americans were encouraged to show their support for the fast-food restaurant whose leadership has drawn both criticism and praise in recent weeks for its opposition to same-sex marriage. The privately held company declined to give specific sales figures but released a statement to the Los Angeles Times confirming that frenzied sales of chicken sandwiches and cross-cut waffle fries had made for a record-setting day."We are very grateful and humbled by the incredible turnout of loyal Chick-fil-A customers on August 1 at Chick-fil-A restaurants around the country," said Steve Robinson, executive vice president of marketing, in the statement.

Gallup:

• U.S. Unadjusted Unemployment Rate Increases in July. Underemployment declines to 17.1%. (graph)
  

Reuters:

• Spain arrests al Qaeda suspects planning European attacks. Three people linked to al Qaeda have been arrested in the south of Spain, one in possession of explosives they planned to use in attacks in either the Iberian country or other European nations, Interior Minister Jorge Fernandez Diaz said on Thursday.
• Fears of new property curbs sink shares in China, Hong Kong. China shares resumed their downward spiral on Thursday, hurt by steep losses for property developers that dragged down on the Hong Kong market, after state-run media reported there could be fresh curbs, which would hit the sector. Poly Real Estate, one of the mainland's biggest developers, dived 9.2 percent in Shanghai -- its worst daily loss since April 19, 2010, right after Beijing announced a clampdown on the sector. Thursday's decline was onshore Chinese markets' third in four days. The CSI300 Index of the top Shanghai and Shenzhen listings shed 1 percent. The Shanghai Composite Index slipped 0.6 percent, hovering near 41-month lows.
• S&P cuts ArcelorMittal(MT) TO 'BB+'.
• Copper falls as dollar rises, ECB disappoints.
• Sony slashes profit outlook, Sharp cuts jobs first time in 60 years. Sony Corp (6758.T) slashed its forecast for 2012/13 operating profit and lowered its sales expectations for key products including its handheld PSP and PS Vita devices as new boss Kazuo Hirai battles to revive the fortunes of the electronics giant. Sony said April-June operating profit fell a much steeper-than-expected 77 percent to 6.28 billion yen ($80 million) compared with a year earlier, blaming a strong yen and weak economies. Analysts had penciled in a 36 percent fall. Rival Sharp Corp (6753.T) announced a 94 billion yen operating loss ($1.2 billion) for the June quarter and plans its first job cuts in more than 60 years as Japan's electronics industry scrambles to keep up with foreign competitors.
• European stocks slide after ECB disappoints. "Draghi put himself in such a difficult position that he had to deliver today and he has not. There has been a swift change in rhetoric from 'we will' last week to 'we may' today," Joshua Raymond, chief market strategist at City Index, said. Investors, who had pushed stocks higher before Draghi's comments on hopes of some concrete policy support, rushed to dump equities, with the FTSEurofirst 300 index closing 1.2 percent lower at 1,055.34 points, Spain's IBEX slumping 5.2 percent and Italy's FTSE MIB falling 4.6 percent, the biggest one-day decline in nearly four months. "And even though he hints towards bond purchases, all he has done is kick the can down the road. It would appear the ground continues to be laid for ECB action, but this action is not going to come this week and leaves a taste of disappointment." Euro zone banks, which are exposed to several highly-indebted countries in the region, suffered the most, with the index slipping 6.4 percent and Spain's Banco Santander falling 6.7 percent.
• U.S. retailers' July same-store sales review.
• Monster Worldwide(MWW) forecasts weak quarter, shares hit life low. Monster Worldwide Inc's second-quarter profit more than halved from a year earlier and the online recruitment firm forecast weak results for the current quarter due to soft demand in Europe, sending its shares down 20 percent to a record low. The company did not provide an update on the strategic review it announced five months ago except to say that it was proceeding as planned. "Over the second quarter, the situation (in Europe) did deteriorate further in that more countries slowed down," Chief Executive Sal Iannuzzi said on a call with analysts. "The issue and the slowdown or the caution has spread to the entire continent."
• Spain, Italy say any talk on seeking EU aid premature. Spain and Italy said on Thursday it was premature to say if they will seek the activation of EU mechanisms to buy their debt and bring down their borrowing costs. Such a request, which would entail negotiating a memorandum of understanding with other euro zone countries and would likely bear strong conditionality, is required to trigger a coordinated intervention of the European Central Bank, its president Mario Draghi said on Thursday. But asked at a joint news conference following a meeting in Madrid if they would consider taking this step, the Spanish and Italian Prime Ministers Mariano Rajoy and Mario Monti insisted it was not on their agenda at the moment.

Telegraph:

• Mario Draghi's speech: what the analysts say. Spanish borrowing costs rise and stock markets fall - with the Madrid bourse dropping sharply - after ECB president Mario Draghi said the bank may act independently in markets but announced no specific measures. Here is what some top analysts said.

ABC:

• Spain's Industry Ministry may cut subsidies for renewable energy, citing government officials.
  

Xinhua:

• Shanghai property curbs are in a crucial period, citing a special team from the State Council checking the implementation of property curb policies. Shanghai should "unswervingly" implement the control policies and prevent home prices from rebounding. Shanghai should increase supplies of normal housing especially small and medium-sized housing, the team said.

Bear Radar

Style Underperformer:

• Mid-Cap Value -1.70%

Sector Underperformers:

• 1) I-Banks -5.60% 2) Coal -3.11% 3) Education -3.03%

Stocks Falling on Unusual Volume:

• KCG, DB, BCS, INT, SM, NTLS, BMY, TI, E, ARO, ANF, CHE, DISH, SBGI, KGC, SKS, LPSN, INCY, ACTG, ZUMZ, MASI, CNQR, VPHM, DRIV, MANT, TRLG, THOR, NTLS, NICE, CYOU, XRAY, ALLT, TRMB, ADVS, ADNC, LPLA, EWG, OIH, GOV, KBW, VNR, DRIV, BWP, PH, RGR, FCN, BBG, SGY, HOS, WTW, SM, INT, RXN and SEE
  

Stocks With Unusual Put Option Activity:

• 1) KCG 2) ANF 3) DELL 4) HPQ 5) GPS
  

Stocks With Most Negative News Mentions:

• 1) AMGN 2) AGU 3) GM 4) RDN 5) ARO
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth -.70%

Sector Outperformers:

• 1) Homebuilders +.59% 2) Hospitals -.33% 3) Gold & Silver -.34%

Stocks Rising on Unusual Volume:

• FSLR, GPS, TSO, HK, MDAS, GMCR, GILD, CAVM, WMGI, SNCR, ITRI, CAR and ANSS
  

Stocks With Unusual Call Option Activity:

• 1) KCG 2) ETFC 3) TSO 4) WTW 5) BMY
  

Stocks With Most Positive News Mentions:

• 1) M 2) LSI 3) CCUR 4) ROST 5) GRMN
  

Charts:

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

Thursday Watch

Evening Headlines
Bloomberg:

• Draghi Risks Market Wrath as ECB Intervention Pressure Grows. Whatever Mario Draghi does today, economists say doing nothing is not an option. Investors are looking for the European Central Bank President to make good on his promise to do whatever is needed to protect the euro, interpreted by most as a signal that the ECB will intervene in bond markets. Should Draghi fail to overcome the objections of Germany’s Bundesbank to such action, the disappointment could spark a selloff. He holds a press conference at 2:30 p.m. in Frankfurt. “If Draghi just comes out with a do-nothing, markets are going to react extremely badly and the ECB will have a full- blown crisis on their hands,” said James Nixon, chief European economist at Societe Generale SA in London. “I can’t see what form of words Draghi can come up with that would replace concrete intervention.” Investors and politicians are clamoring for ECB action to quell Europe’s sovereign debt crisis, which is threatening to cripple Spain and Italy and tear the 17-nation euro area apart. While Draghi’s commitment in London last week to do what’s needed fueled a global market rally, some economists cast doubt on his ability to build the consensus needed to deliver a game changer.
• Spain Bond Pressure as $2 Trillion Sees ECB Failing: Euro Credit. Money managers with $2 trillion say the ECB won't be able to sustain the reduction in Spain's borrowing costs. Spain auctions as much as 3 billion euros of debt today as its 10-year bonds yield 536 bps more than Germany's. Draghi's comments last week prompted a rally in Spanish and Italian bonds, even as German policy makers and politicians continue to urge the central bank to stick to the rules that prevent it from saving struggling governments. "We'd expect anything less than a marked expansion of the ECB balance sheet to be disappointing for the markets," said Stephanie Kretz, a strategist at Lombard Odier Darier Hentsch, which manages $175 billion. "Even if the ECB meets investor expectations, as long as the underlying solvency and structural debt issues aren't tackled, it will be short-lived and difficult to time, and it's not the kind of rally we like to play."
• Germany Retains Stable AAA Outlook at S&P After Moody’s Cut. Germany retained a stable outlook for its top credit rating at Standard & Poor’s just over a week after Moody’s Investors Service warned that the nation’s Aaa grade was at risk. The long-term debt sovereign rating for Europe’s largest economy was maintained at AAA, S&P said in a statement today.
• Fiat Suspends New Investments in Italy Because of Europe Crisis. Fiat SpA (F) Chief Executive Officer Sergio Marchionne temporarily stopped new investments in Italy as Europe’s debt crisis causes sales in the region to plunge. “For the time being, the economic crisis and current difficulties in the European auto market prevent the company from being able to give any indications concerning future investments,” the Italian carmaker said today in an e-mailed statement, adding that Fiat will give its new plan for Italian factories at the end of October, when it will releases third- quarter results. Marchionne, who has been spearheading an industrywide effort to cut excess assembly lines in Europe, has vowed to close a second Italian factory, after shuttering one last year, unless he finds a way to export cars to the U.S.
• China Slowdown Forcing Discounting at Gome to McDonald’s(MCD). For years, China’s increasing affluence fueled surging sales for consumer companies. That boom is waning as slower spending translates into inventory overloads, discounting and losses for some brands. To lure increasingly price-sensitive shoppers, companies from electronics retailers to footwear makers are being forced to offer discounts that are hurting margins and driving down earnings. Even McDonald’s Corp. (MCD), the world’s largest restaurant chain, has introduced a value dinner starting from 15 yuan ($2.40) and reported slower same-store sales growth. China’s second-largest electronics retailer, Gome Electrical Appliances Holding Ltd. (493), in July forecast a first- half loss even as its website offered discounts of as much as 50 percent. I.T Ltd. (999), a department store that sells brands including Levi’s and Puma in Greater China, cited discounting for narrower gross profit margins in the year ended February. Slower sales have left Nike Inc. (NKE) with too much inventory in China, its second-largest market after the U.S. The discounting and weaker sales reflect the escalating pressure on local and global brands in China, where two years of economic growth of more than 9 percent encouraged companies to expand. International brands have relied on Asia to offset a spending slump in the U.S. and Europe. “Maybe previously, a PRC consumer didn’t even need to ask the price and just bought the product,” said Eugene Mak, an analyst at Core Pacific-Yamaichi International Hong Kong Ltd. “Now they’re more price sensitive.”
• Factory Slowdown Means China Silver Need Drops: Chart of the Day. Silver purchases by China, the top user of the metal in electronics, may continue to drops as a global slowdown crimps demand for television sets and mobile phones, Standard Bank Plc said. Imports by China decreases for three months through June, the longest stretch since October 2010, as the nation's exports of electronics products slumped. Global industrial demand, mostly from makers of electronics, accounts for 55% of silver consumption, said Marc Ground, a commodities strategist at Standard Bank in Johannesburg said. "Demand remains lackluster and there is little evidence of this picking up," Ground said. "Since China has amassed stockpiles, it needs to destock first.
• Most Chinese Stocks Drop on Economic Growth Concern as ECB Meets. A gauge tracking property developers slid 1.4 percent, led by Poly Real Estate Group Co. China Railway Construction Corp. fell 1.2 percent after agreeing to buy a 15 percent stake in Inter Milan, an Italian soccer club, according to people familiar with the talks. The Shanghai Composite has fallen 14 percent from this year’s high on March 2 amid concern the economic slowdown is deepening and Europe’s debt crisis is worsening. Europe is China’s largest export market, making up 18 percent of the nation’s overseas sales, according to Shenyin & Wanguo Securities Co.
• India Blackout Underscores Grid Vulnerabilities, Regulators Say. A series of failures and excessive demand on the national grid knocked out power for 640 million people in northern and central India on July 31, a day after a separate blackout left 360 million in seven states without lights. A three-member committee appointed by India’s government is investigating.
• Your 119 Billion Google(GOOG) Searches Now a Central Bank Tool.

Wall Street Journal:

• Electronic Trading Glitches Hit Market. An electronic-trading glitch roiled trading in nearly 150 stocks early Wednesday, sparking confusion among traders and investors and further undermining confidence in the basic machinery of financial markets. As U.S. markets opened for the day, many stocks began to show unusual price moves and trading volume surged. Most of the affected companies were tiny, but insurance giant Berkshire Hathaway Inc. saw more trading in the opening hour than it does in a typical day. Bank of America Corp. and General Electric Co. also gyrated.
• Fracking Opponents Put Pressure on NY Governor. Opponents of shale gas drilling using high-volume hydraulic fracturing, or "fracking," are asking Gov. Andrew Cuomo's top campaign contributors to pressure the governor to ban the practice everywhere in New York.
• S&P Lowers Cyprus Rating. Standard & Poor's Ratings Services lowered its rating on Cyprus one notch further into junk territory and placed the island nation's rating on watch for further possible downgrade, noting its government will remain in a weak fiscal position because the country's banking system has been unable to cope without government support as a result of its exposure to Greek customers. S&P downgraded Cyprus's rating to double-B, two levels into junk territory, from double-B-plus. The firm last cut Cyprus rating in January and had cut its rating three times in 2011.
• Executions Reported as Syria Civilian Crisis Looms. The Syrian government and opposition fighters alike have conducted summary executions, witnesses said Wednesday, as continuing fighting in Aleppo compounded the humanitarian crisis in Syria's most-populous city. Neighborhoods of Aleppo, which has been consumed by 12 days of fighting between Syrian and opposition forces, were under fire from government helicopters and shells, residents said. International observers also saw warplanes targeting rebels in the city, the spokesman for the U.N. mission in Syria said.
• U.S. Oil Reserves Jumped in 2010. U.S. energy officials estimate that oil and natural-gas reserves jumped in 2010 by the highest margin in at least three decades, lending weight to the idea that the U.S. can meet more of its own energy demand. The Energy Information Administration said in its annual report that proven reserves of crude oil jumped by 13%, with the highest increases seen in Texas, North Dakota and the Gulf of Mexico. Proven reserves of natural gas rose by 12%.
• Small Firms See Pain in Health Law. Retail and Restaurant Franchisees Brace for Higher Costs; 'I Don't Have the Profit Margin,' Says One. Randall Tabor, who owns two Quiznos sandwich restaurants in Virginia Beach, Va., once aspired to triple the number of outlets he owns. But after the federal health-care overhaul passed in 2010, Mr. Tabor says, he shelved those plans. The law requires that employers with 50 or more full-time workers provide health insurance to employees by 2014 or pay a penalty. Mr. Tabor, who employs 36 people at his two Quiznos shops and another restaurant, wants to stay small so he doesn't trigger the requirement.

Barron's:

• Green Mountain(GMCR) Falls Hard on Disappointing Guidance. Green Mountain Coffee Roasters beat earnings expectations, but projected disappointing results ahead, sending the stock sharply lower after-hours. Trading was initially halted; the stock fell 12% after it resumed at 4:20.

MarketWatch:

• China property shares dive on price-curb fears.

Business Insider:

• PHOTOS: Chick-Fil-As Across The Country Were Absolutely Jam-Packed.
• Watch: This Robot Is Poised To Change Surgery Forever.

Zero Hedge:

• Macquarie Sees $176 Billion In Lieborgate Losses, $88 Billion Hit To Libor Panel Banks.
• NYSE To Cancel Trades Beyond 30% Band From Opening Price In Various Stocks, Knight(KCG) To Foot Bill For Balance?
• Is The Chinese Juggernaut Losing Steam?
• Hyper Mario And Germany On Verge Of All Out Warfare.

CNBC:

• Hopes Run High for Action From Europe's Central Bank. Market expectations are running so high for the European Central Bank’s meeting Thursday, that it can only disappoint.
• Fiscal Policy Clouds Housing Outlook: Owens Corning(OC) CEO. Budding signs of recovery in the housing market are filtering through to the bottom line, but uncertainty over the government’s fiscal policies could delay investment decisions, Owens Corning CEO Michael Thaman told CNBC Wednesday.

IBD:

• Hibbett Sports(HIBB) Has Small Town Shoppers Running Light.

Sacramento Bee:

• California Fiscal Analyst: 'Hundreds of millions' at risk from Facebook(FB) Slide. The state's Legislative Analyst's Office said Wednesday that "hundreds of millions" of dollars in assumed tax revenues may never materialize due to the continued slide in Facebook's stock price. Menlo Park-based Facebook closed Wednesday trading at $20.88 per share, a new low 45 percent below the initial price. The state Department of Finance assumed the social media giant would trade at $35 by November, while the Analyst's Office believed it would trade at $42 at that time. The November marker is significant because another wave of insiders becomes eligible to sell shares at that point.

Read more here: http://blogs.sacbee.com/capitolalertlatest/2012/08/fiscal-analyst-hundreds-of-millions-at-risk-from-facebook-slide.html#storylink=cpy

Washington Post:

• White House Analyst Warned Saving Solyndra Could Cost More Than Letting It Fail. As the Obama administration moved last year to bail out Solyndra, the embattled flagship of the president’s initiative to promote alternative energy, a White House budget analyst calculated that millions of taxpayer dollars might be saved by cutting the government’s losses, shuttering the company immediately and selling its assets, according to a congressional investigation. Even so, senior officials in the White House’s Office of Management and Budget did not discourage the Energy Department from proceeding with its plan to restructure a federal loan to Solyndra — a move that put private investors ahead of taxpayers for repayment if the company closed, the investigation by Republicans on the House Energy and Commerce Committee found.

Forbes:

• A Game-Changing Study Finds Half Of Global Warming Is Fictitious.

Chicago Tribune:

• 136 U.S. Reps Seek to Halt Use of Ethanol in Gas. Nearly one-third of U.S. representatives want the government to reduce the requirement to use corn-based ethanol in gasoline in light of tight corn supplies and rising prices in the face of the worst drought in more than half a century. Lawmakers will hold a news conference Thursday to criticize the so-called Renewable Fuels Standard, or RFS, which they blame for driving up corn prices. One hundred thirty-six of the 435 House members signed the letter, said a staff worker. The letter, without being specific, calls for a "meaningful nationwide adjustment" in the mandate. This year gasoline refiners will use some 13.2 billion gallons of ethanol, which will consume some 40 percent of the corn crop. "We urge you to adjust the RFS mandate for 2012 to account for the anticipated severe shortage in corn," says the letter.
  

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows Mitt Romney attracting 47% of the vote, while President Obama earns support from 44%. Four percent (4%) prefer some other candidate, and five percent (5%) are undecided.

Reuters:

• Abercrombie(ANF) sees profit below forecasts, shares drop. Teen clothing retailer Abercrombie & Fitch Co estimated quarterly profit at about half what analysts expected after sales in stores open at least a year fell 10 percent. Abercrombie shares fell almost 15 percent to $29 in after-hours trading on Wednesday.
• Coal, iron ore, steel prices ominous indicators. Many shipping firms and bulk commodities traders have a piece of advice for anyone who thinks the world economy may be headed for an upturn soon, led by Chinese industry. Take a sober look at the slide in iron ore, steel and coal prices. For markets reeling from the euro zone crisis, sluggish economic prospects in the United States and worries over China's growth, trends in dry bulk commodities trade look ominous. Iron ore and steel are leading indicators as they detail the expected pattern of industrial demand in vital sectors such as construction and carmaking, while coal highlights power usage, especially in factories. "It is troubling for the market that demand for the two main commodities - coal and iron ore - is sliding now and has done so for some time now," said Peter Sand, chief shipping analyst with trade association BIMCO. "The key importer, China has seen declining steel prices drop more sharply in the past one and half months. This is bad for steel demand and thus also for iron ore and coking coal imports, which are not expected to rebound any time soon."
• GM(GM) wants to double car output in Venezuela - Chavez. U.S. automaker General Motors Co wants to more than double its production of cars and auto parts in Venezuela, President Hugo Chavez said on Wednesday. Hailing it as one of the first examples of benefits from Venezuela joining the Mercosur regional trade bloc on Tuesday, Chavez said he was presented with a plan by senior GM executives while he was in Brazil for the ceremony.
• Monsanto(MON) awarded $1 bln in patent infringement case against DuPont(DD).

Telegraph:

• European Manufacturing PMIs: in graphs.
• Competitiveness is improving but Europe urgently needs growth. If it wasn’t already obvious, it is now. Europe, with Britain in tow, is sliding ever more inescapably back towards the economic cliff edge.

The Economic Times

• BlackBerry Maker Research in Motion(RIMM) Agrees to Hand Over Its Encryption Keys to India. Research in Motion's four-year standoff with the Indian government over providing encryption keys for its secure corporate emails and popular messenger services is finally set to end.
  

The Australian:

• BHP(BHP) to Postpone its $19Bn Port Plan. THE head of BHP Billiton's iron ore division has told thousands of his staff that the mining giant is reviewing its growth plans in the Pilbara amid mounting speculation it has decided to delay a $US20 billion ($19bn) expansion of its Port Hedland harbour for at least two years.

Financial News:

• China Economic Fundamentals Are 'Good'. China should increase flexibility of monetary policies under the circumstances that its "prudent" stance doesn't change, a front page commentary said. Some factors that induced inflation haven't been eliminated and product prices that were "suppressed" earlier may rise, the commentary said.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.50% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 158.0 -2.0 basis points.
• Asia Pacific Sovereign CDS Index 130.0 unch.
  
• FTSE-100 futures +.15%.
  
• S&P 500 futures +.20%.
  
• NASDAQ 100 futures +.18%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (STE)/.45
• (MWW)/.06
• (BDX)/1.53
• (RDC)/.49
• (GM)/.75
• (CI)/1.41
• (LEA)/1.29
• (CAH)/.72
• (DTV)/1.14
• (SEE)/.35
• (K)/.84
• (APA)/2.53
• (CLX)/1.26
• (FLR)/.92
• (PBI)/.49
• (MHK)/1.13
• (AIG)/.60
• (LNKD)/.16
• (ATVI)/.12
• (OPEN)/.37
• (MCHP)/.48
• (JOE)/-.02
• (PSA)/1.51

Economic Releases
8:30 am EST

• Initial Jobless Claims are estimated to rise to 370K versus 353K the prior week.
• Continuing Claims are estimated to rise to 3288K versus 3287K prior.
  

10:00 am EST

• Factory Orders for June are estimated to rise +.5% versus a +.7% gain in May.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The ECB rate decision, ECB's Draghi speaking, BoE rate decision, China Services PMI, ICSC Chain Store Sales for July, Challenger Job Cuts report for July, ISM New York for July, RBC Consumer Outlook Index for August, weekly Bloomberg Consumer Comfort Index and the weekly EIA natural gas inventory data could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and real estate shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.