Friday Watch

Night Trading

• Asian equity indices are -.75% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 103.50 +.5 basis point.

• Asia Pacific Sovereign CDS Index 71.5 +.75 basis point.

• FTSE-100 futures +.15%.

• S&P 500 futures +.06%.

• NASDAQ 100 futures  -.01%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (FAST)/.44
• (WFC)/1.01
• (INFY)/46.44

Economic Releases
2:00 pm EST

• The Monthly Budget Statement for June is estimated at $79.0B.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Evans speaking, Fed's Plosser speaking, USDA WASDE report and Canadian unemployment report could impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and financial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 25% net long heading into the day.

Stocks Falling into Final Hour on Rising European/Emerging Markets Debt Angst, Escalating Mideast Turmoil, Global Growth Worries, Financial/Retail Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 12.43 +6.70%

• Euro/Yen Carry Return Index 143.84 -.64%

• Emerging Markets Currency Volatility(VXY) 5.89 +1.20%

• S&P 500 Implied Correlation 50.81 +3.74%

• ISE Sentiment Index 124.0 +12.73%

• Total Put/Call 1.06 +26.19%

• NYSE Arms .95 +48.48% 

Credit Investor Angst:

• North American Investment Grade CDS Index 58.05 +1.70%

• European Financial Sector CDS Index 71.57 +3.36%

• Western Europe Sovereign Debt CDS Index 36.40 +4.0%
• Asia Pacific Sovereign Debt CDS Index 71.47 +1.02%

• Emerging Market CDS Index 226.76 +3.30%

• China Blended Corporate Spread Index 300.05 -.40%
• 2-Year Swap Spread 16.75 +2.25 basis points

• TED Spread 21.75 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -11.75 unch.

Economic Gauges:

• 3-Month T-Bill Yield .02% unch.

• Yield Curve 208.0 +3.0 basis points

• China Import Iron Ore Spot $96.90/Metric Tonne +.31%

• Citi US Economic Surprise Index -12.60 +1.4 points

• Citi Emerging Markets Economic Surprise Index -6.0 -1.4 points

• 10-Year TIPS Spread 2.27 +1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating -140 open in Japan

• DAX Futures: Indicating +21 open in Germany

Portfolio: 

• Slightly Lower: On losses in my biotech/retail sector longs

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 25% Net Long

Today's Headlines

Bloomberg:

• Israel Mobilizes 20,000 Troops for Possible Gaza Invasion. Israel is mobilizing 20,000 soldiers for a possible ground invasion of the Gaza Strip to halt rocket bombardments on its south, as regional and world leaders appealed for an end to the violence. The Palestinian death toll from three days of stepped-up Israeli air strikes climbed past 80. “Where is this leading, is it leading to a ground force incursion? I can’t confirm that,” Israel army spokesman Lieutenant-Colonel Peter Lerner said today in a phone briefing. “I can confirm we are making all the necessary preparations to be ready for that.” Earlier this week, the military was authorized to call up as many as 40,000 reserve troops.

• IMF Says Spain Needs to Raise Taxes After Election-Year Cuts. Spanish Prime Minister Mariano Rajoy will have to take action to increase government revenue to compensate for the cost of tax cuts announced last month, the International Monetary Fund said. “What we’ve seen so far is revenue losing,” James Daniel, head of the IMF’s Spain mission, said during a telephone conference from Washington today. “That will need to be compensated by further measures in the future.”

• VIX Jumps as Portugal Bank Concern Fuels Stock Losses. A measure of European stock-market volatility rose the most in four months and the U.S. VIX jumped as concern over Portugal’s banks spurred a rout in equities. Europe’s VStoxx Index increased 12 percent to 16.85 as of 3:27 p.m. in London, heading for the biggest advance since March. The Chicago Board Options Exchange Volatility Index climbed 7.8 percent to 12.56. The gauges track the cost of options and are considered measures of investor fear. Both are up more than 22 percent this week. “This could just be a catalyst for a market correction,” Andrew Wilkinson, chief market analyst at Interactive Brokers LLC, said in a phone interview from Greenwich, Connecticut. “You’d have to see a sustained period of selling, back-to-back losses of 1 to 1.5 percent into next week, before people will start piling on the protection.”

• French Stocks Seen Extending Losses on Economy Concern. Options traders are betting declines in French stocks aren’t over as concern grows that President Francois Hollande will fail to revive the economy. Bearish contracts on the benchmark CAC 40 Index (CAC) cost the most since April 2013 relative to those on the Euro Stoxx 50 Index, data compiled by Bloomberg show. Puts protecting against a 3.7 percent decline in the gauge are the most owned. French shares have fallen 6.2 percent to their lowest level since March from their high last month, compared with the 4.6 percent decline for the euro-area index.Germany Expels U.S. Intelligence Envoy Amid Spying Spat

• Germany Expels U.S. Intelligence Envoy Amid Spying Spat. German Chancellor Angela Merkel’s government expelled the top U.S. intelligence official in Berlin over allegations of espionage, escalating a conflict that one of her aides said has caused “grave” political harm. The U.S. embassy official was asked to leave Germany after the Federal Prosecutor began investigating spying practices, according to the statement from Merkel’s Chancellery today.

• Greece Cites Market Conditions as Bond Sale Misses Target. Portugal’s bonds led a selloff in securities from the region’s so-called periphery nations this week on instability in that nation’s banks. Greece’s transaction went ahead “despite very unfavorable conditions in international markets and especially in periphery, today and yesterday,” the Finance Ministry in Athens said in a statement. “It points at a fragile position of the issuer in terms of being able to secure a reliable market access,” said Gianluca Ziglio, executive director of fixed-income research at Sunrise Brokers LLP in London. Greece had to “accept halving its initial issuance target despite being a syndicated offer, and also had to accept a higher guidance than was initially thought,” he said.

• European Stocks Drop as Portugal, Italy Banks Fall. European stocks fell for a fifth day as a gauge of lenders declined to its lowest level this year and equities in the so-called peripheral nations tumbled. Banks in Portugal, Italy and Spain sank, sending an industry gauge to the fourth slump in five days. Fugro NV plunged the most since 2003 after predicting a drop in profit margin and a write-off of as much as 350 million euros ($477 million). Gerresheimer AG and Tryg A/S climbed after posting quarterly earnings that exceeded analysts’ estimates. The Stoxx Europe 600 Index fell 1.1 percent to 336.37 at the close of trading in London, extending its five-day decline to 3.6 percent, the most since March. Investors are weighing valuations near the highest levels since 2009, while concern is rising over signs that the euro-area recovery remains fragile. “We’ve seen a lot of money go into the periphery earlier this year, and banks have a fairly big weighting in those regions,” said Veronika Pechlaner, who helps oversee $2.3 billion at Jersey, Channel Islands-based Ashburton Ltd. “As investors revisit their positions, sentiment can turn quite quickly. A gauge of lenders in the region sank 1.7 percent, falling the second most among 19 industry groups. Banco Espirito Santo SA plunged 17 percent to 50.9 euro cents before the Portuguese securities regulator suspended the shares.

• Gold Reaches 16-Week High as Portugal Spur Haven Buying. On the Comex, gold futures for August delivery rose 1.1 percent to $1,338.80 an ounce at 12:02 p.m. in New York, after touching $1,346.80, the highest for a most-active contract since March 19. Trading was 50 percent higher than the 100-day average for this time, according to data compiled by Bloomberg.

• Bank of Korea Lowers Growth Outlook as Lee Holds Key Rate. 

• China Said to Probe Alleged Bank of China Money Launder. China’s central bank and currency regulator are investigating a state media report that alleged Bank of China Ltd. broke rules on transferring money overseas, two government officials familiar with the matter said.

• China’s Copper Imports Fall as Financing Deals Unwind. China’s copper imports dropped to the lowest since April last year as demand for the metal as collateral to obtain credit eased amid a probe at Qingdao Port. Inbound shipments of unwrought copper and copper products fell to 350,000 tons in June, a 7.9 percent decline from the previous month, according to data released by customs today. Weaker demand from China, the world’s biggest user, may weigh on benchmark copper futures in London, which have retreated 3.3 percent this year. Prices will slide during the next six to 12 months as production costs drop, China’s property sector weakens and commodity financing unwinds following the investigation at Qingdao, Goldman Sachs Group Inc. said July 8.

• Chicago Fed Calls for Curbs on High-Frequency Trading. The Federal Reserve Bank of Chicago entered the debate over whether financial markets are fair, proposing limits on high-frequency trading firms and incentives to bring more buying and selling into public view.

Wall Street Journal: 

• Slowing Customer Traffic Worries U.S. Retailers. Optimism Clouded by Weaker Sales; Container Store Cites a 'Funk'.

CNBC: 

• Contagion fears spook Street, says Art Cashin. (video)

• I'm selling 6 times more than buying: Wilbur Ross. (video)

• Here's what's happening in Portugal. (video)

ZeroHedge:

• Genius: IMF Pronounces Bulgaria's Banks "Safe" Just 2 Weeks Before Bank Run.

• Pure Madness: Revenueless, Assetless CYNK Soars Over $5Bn; Bigger Than GameStop, Cablevision, Jabil Circuit. (graph)

• Some Recent Euphoric Comments About Portugal.

• Europe Tumbles As Banks Lose All 2014 Gains. (graph)

• Q2 GDP Hopes Fade As Wholesale Inventories Miss By Most In 2014. (graph)

• Russell 2000 Tumbles To Negative Year-To-Date. (graph)

Business Insider:

• Someone Is Launching Airstrikes On Iraq, But No One Knows Who.

• Iranian-Backed Militias Are Now The Strongest Force On Iraq's Side Right Now.

• Housing Economist Warns That The US Home Price Slowdown Is Here To Stay.

• The World's Next Big Global Showdown Is Already Simmering In The South China Sea [GRAPHIC].

• China's Central Bank Has Stimulated The Economy Right Into Deflation. (graph)

Reuters:

• Carbon import tariffs could torpedo global climate deal- EU official. A move by the European Union to impose duties on carbon-intensive imports would scupper the chances of striking a global agreement to tackle climate change next year, the bloc's top climate official said on Thursday. European leaders have agreed to decide by October whether to set a 2030 goal to cut carbon emissions as the EU contribution to a global pact to tackle climate change, due to be signed in Paris in late 2015 and take effect from 2020.

Bear Radar

Style Underperformer:

• Small-Cap Growth -1.13%

Sector Underperformers:

• 1) Oil Service -1.40% 2) I-Banking -1.31% 3) Retail -1.22%

Stocks Falling on Unusual Volume:

• EROS, MEMP, MIC, SRPT, LL, PBPB, TTS, CBS, TSCO, SYT, SIR, GOV, CUK, MHK, NTI, FOXF, WDFC, TREX, PRSC, NTT, STCK, PHG, CSTE, DEST, CNS, TROW, TSRO, GEOS, NDLS and LQDT

Stocks With Unusual Put Option Activity:

• 1) CIEN 2) XLB 3) XLF 4) HD 5) EWT
  

Stocks With Most Negative News Mentions:

• 1) LL 2) BAC 3) HOG 4) HD 5) XOM
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Mid-Cap Value -.50%

Sector Outperformers:

• 1) Computer Hardware +1.27% 2) Gold & Silver +1.09% 3) Airlines +.78%
  

Stocks Rising on Unusual Volume:

• AMRE, TRW, CRAY and UAL

Stocks With Unusual Call Option Activity:

• 1) LNG 2) RDN 3) SRPT 4) LL 5) GPRO

Stocks With Most Positive News Mentions:

• 1) LMT 2) AA 3) BA 4) BBRY 5) GOOG
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Thursday Watch

Evening Headlines 
Bloomberg:

• Gaza Rockets Threaten Nuclear Plant as Israel Vows Force. Palestinian militants extended their rocket barrage against Israel to threaten its Dimona nuclear plant as Prime Minister Benjamin Netanyahu promised to ratchet up the military assault on Hamas in the Gaza Strip. The Palestinian death toll neared 70 since July 8 from Israeli air raids and a firefight with Palestinian commandos who infiltrated across Gaza’s border through the Mediterranean Sea.Netanyahu hinted at a possibleground incursion to stop the hail of more than 300 rockets from the coastal territory. 

• Ukraine Pushes Offensive as Russia Says Rebels Seek Talks. Ukrainian President Petro Poroshenko dismissed Russia’s claim that rebels want peace talks as he pressed on with an offensive to regain territory near the frontier, where skirmishes have left hundreds dead. Poroshenko toldFrench President Francois Hollande and German Chancellor Angela Merkel in a joint phone call yesterday that Ukraine is ready for dialogue with pro-Russian separatists and international observers but “the other side” has shown no willingness, according to his website. Russian Foreign Minister Sergei Lavrov said earlier the militias in eastern Ukraine are ready for talks, but “ultimatums and pre-conditions” must not stand in the way of peace efforts.

• Asia Stocks Rise Before China Data as Oil Slumps 10th Day. Asian stocks climbed before Chinese trade data, while the U.S. oil benchmark-contract slipped toward its longest-ever stretch of declines amid rising supplies and sagging consumption. Indonesia’s rupiah jumped. The MSCI Asia Pacific Index gained 0.1 percent by 10:36 a.m. in Tokyo after dropping by the most in two months yesterday. West Texas Intermediate crude for August delivery lost 0.3 percent to $102.02 a barrel, its 10th declining day and the longest slump since trading began in 1983. Japan’s Topix index fell 0.3 percent after the biggest-ever drop in machinery orders.

• Fed’s Bullard Says Unemployment Drop to Push Inflation. Federal Reserve Bank of St. Louis President James Bullard said a surprisingly fast drop in unemployment will fuel inflation, bolstering his case for an interest-rate increase early next year. “I think we are going to overshoot here on inflation,” Bullard said today in a telephone interview from St. Louis. He predicted an inflation rate of 2.4 percent at the end of 2015, “well above” the Fed’s 2 percent target.

• Fed Moves Closer to Choosing Main Stimulus-Exit Tool. Federal Reserve officials moved closer to deciding on the main tool they will use to tighten monetary policy when the time comes, most likely next year. Most participants at the Federal Open Market Committee’s June meeting agreed that the interest rate on excess reserves banks keep on deposit at the Fed “should play a central role” in the exit from extraordinary monetary stimulus, according to minutes released today in Washington. Another tool, known as the overnight reverse repurchase facility, “could play a useful supporting role,” according to the minutes. The tool could be used to set the lowest rate at which holders of cash would be willing to lend.

Wall Street Journal:

• Gaza Rockets Reaching Deeper Into Israel. Airstrikes on Palestinian Territory Aim to Degrade Hamas's Arsenal. Over the past two days, Gaza militants have sent rockets deeper into Israel than ever before, raising the stakes of Israel's own air campaign against the territory's Hamas leadership. Israel launched its most aggressive airstrikes in 20 months on Tuesday, attacking at least 486 targets over the past two days in an effort to degrade Hamas's arsenal, the military said. Palestinians have fired recently acquired... 

• CEO David Pyott Says Allergan Looking at Potential Sizable Acquisitions. Company Fighting $53 Billion Hostile Offer From Valeant and Investor William Ackman.

• Companies Selling Stocks at Record Pace This Year. Offerings of Stock and Similar Securities Have Raised $510 Billion in 2014 Around the World. Companies world-wide are selling stocks at a record pace, capitalizing on investors' appetite for riskier assets at a time of low returns on safer bets. Offerings of stock and stock-linked securities have raised $510.1 billion in 2014 through Tuesday, according to data provider Dealogic. That beats out the previous record for that time period, $498.9 billion in 2007. While many deals still originate with growing companies... 

• The Fundraiser in Chief. Since taking office, President Obama has attended almost 400 events to hit up donors. As de facto party leader, presidents raise political money. Since he makes time for it no matter how pressing world or national affairs are, President Obama apparently likes raising campaign funds. He has attended 34 fundraisers so far this year. What is unusual is how much time he devotes to it, his timing and his lack of judgment. For example, the afternoon following the Sept. 11, 2012, murder of Ambassador Christopher Stevens in...
  

Fox News:

• ISIS destroys shrines and mosques, may be targeting Mecca. ISIS is leaving a path of destroyed churches, shrines and mosques in its wake as it storms across Syria and Iraq, and has even set its sights on Mecca -- Islam's holiest site.

MarketWatch.com:

• ‘Rotten rotation’ could signal bull market living on borrowed time. 

• PC sales record slight world-wide growth. Gartner results show two years of declining shipments coming to an end -- but just barely.

CNBC: 

• Holder won't meet with BofA CEO as mortgage talks stall. U.S. Attorney General Eric Holder has formally refused to meet with Bank of America Chief Executive Brian Moynihan to hammer out a multibillion-dollar deal, as talks to resolve probes into shoddy mortgage securities sold by the bank and its units remain at a standstill, according to people familiar with the matter.

• Pentagon plans new tactics to deter China in South China Sea. The US is developing new military tactics to deter China's slow but steady territorial advances in the South China Sea, including more aggressive use of surveillance aircraft and naval operations near contested areas.

Zero Hedge:  

• It's Beyond A Bubble: Median LBO Multiple Soars To Mindblowing 11.6x. (graph)

• ISIS Has Seized 88 Pounds Of Uranium In Northern Iraq.

• Japocalypse Now - Machine Orders Crater 19.5%, Biggest Monthly Drop On Record. (graph)

• Undisputable Bubble Insanity: No Revenue, No Assets Company Up Over $1 Billion (+110%) Today On 57K Shares Traded. (graph)

• Why Killing The Ex-Im Bank Is Crucial To The Future Of Capitalism.

• Germany Blesses "Bail-In" Deposit Confiscation Plan For Failing EU Banks.

• The Difference Between Bubbles And Panic: Mario Draghi Explains.

Business Insider: 

• A Retailer That's Closely Tied To The Housing Market Is Crashing After A Profit Warning Due To The Economy.

Reuters: 

• U.S.-based stock fund outflows biggest since start of 2013 -ICI.

Obama takes on coal with first-ever carbon limits
Read more at http://www.philly.com/philly/news/politics/20130919_ap_0f857b20e0c144a5a1e1b9dddc9f9d72.html#YRThyDOhArykUeYy.99

Financial Times:

• Pentagon plans new tactics to deter China in South China Sea. The US is developing new military tactics to deter China’s slow but steady territorial advances in the South China Sea, including more aggressive use of surveillance aircraft and naval operations near contested areas.

Liquidity crunch a catalyst for big China slowdown – analysts The mini liquidity crunch is the early warning sign of a substantial economic correction long overdue, amid rising leverage and a broken growth model, say bearish analysts.


While we want you to share, we ask you use the functions on-site rather than copy/paste. See T's & C's for details. http://www.euromoney.com/Article/3222433/Liquidity-crunch-a-catalyst-for-big-China-slowdownanalysts.html?copyrightInfo=true

Financial Review:

• Keeping watch for the next subprime timebomb. Fears are growing of another subprime crisis, but this time it won’t be because of mortgage-backed securities. Rather, junk bonds and high-risk government debt might be the culprits.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are unch. to +.50% on average.

• Asia Ex-Japan Investment Grade CDS Index 103.0 +.5 basis point.

• Asia Pacific Sovereign CDS Index 70.75 unch.

• FTSE-100 futures +.04%.

• S&P 500 futures -.13%.

• NASDAQ 100 futures  -.08%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (PGR)/.49

• (FDO)/.89

• (PSMT)/.70

• (JOEZ)/-.03

Economic Releases
8:30 am EST

• Initial Jobless Claims are estimated at 315K versus 315K the prior week.

• Continuing Claims are estimated to fall to 2565K versus 2579K prior.
  

10:00 am EST

• Wholesale Inventories for May are estimated to rise +.6% versus a +1.1% gain in April.

• Wholesale Sales for May are estimated to rise +.9% versus a +1.3% gain in April.
  

Upcoming Splits

• (ACIW) 3-for-1

Other Potential Market Movers

• The Fed's George speaking, 30Y $13B T-Bond auction, weekly EIA natural gas inventory report, Bloomberg July US Economic Survey, weekly Bloomberg Consumer Comfort Index and the (CVX) earnings update could impact trading today.

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