Stocks Rising into Final Hour on Less Eurozone/Emerging Markets Debt Angst, Short-Covering, Yen Weakness, Tech/Alt Energy Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 14.21 -9.89%

• Euro/Yen Carry Return Index 142.75 -.05%

• Emerging Markets Currency Volatility(VXY) 6.87 -2.0%

• S&P 500 Implied Correlation 54.55 -5.44%

• ISE Sentiment Index 104.0 +28.40%

• Total Put/Call .72 -32.71%

• NYSE Arms 1.08 +72.01% 

Credit Investor Angst:

• North American Investment Grade CDS Index 62.62 -3.09%

• European Financial Sector CDS Index 71.62 -6.70%

• Western Europe Sovereign Debt CDS Index 36.84 -5.54%
• Asia Pacific Sovereign Debt CDS Index 75.08 -2.11%

• Emerging Market CDS Index 285.30 -3.34%

• China Blended Corporate Spread Index 322.18 +.08%
• 2-Year Swap Spread 23.5 -.25 basis point

• TED Spread 21.25 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -12.5 -.75 basis point

Economic Gauges:

• 3-Month T-Bill Yield .03% +1.0 basis point

• Yield Curve 199.0 +1.0 basis point

• China Import Iron Ore Spot $95.30/Metric Tonne -.42%

• Citi US Economic Surprise Index 4.10 +1.1 points

• Citi Emerging Markets Economic Surprise Index 2.0 -.9 point

• 10-Year TIPS Spread 2.24 unch.

Overseas Futures:

• Nikkei Futures: Indicating +45 open in Japan

• DAX Futures: Indicating -10 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:  

• Ukraine Says It Is Near End of Operation to Surround Rebels. Russia said it will go ahead with an aid mission to east Ukraine as the U.S. and Europe repeated warnings to President Vladimir Putin that such a convoy must not be used as a front for military action to support rebels. While Russia said it agreed with Ukraine on the details of extending humanitarian assistance to people in the mainly Russian-speaking Donetsk and Luhansk regions, there was no confirmation of a deal from Ukraine’s government or the Red Cross. The mission may start soon under the aegis of the International Red Cross, a step to which the Ukrainian government has also agreed, Russian Foreign Minister Sergei Lavrov said today.

• Russian Economy Stalls as Putin Reprisal Risks Spillovers. Russia’s economic growth slumped to the weakest in five quarters, underlining the risks to a recovery in the region as President Vladimir Putin retaliates after penalties imposed over the deepening conflict in Ukraine. Gross domestic product advanced 0.8 percent in the second quarter from a year earlier after 0.9 percent growth in the first three months of the year, the Federal Statistics Service said today in an e-mailed statement, citing preliminary data. The Economy Ministry in Moscow had projected 1.1 percent expansion. GDP growth in Poland, Hungary and the Czech Republic probably slowed in the April-June period on a quarterly basis, according to analysts surveyed by Bloomberg.

• Al-Abadi Asked to Form Iraq Government to Replace Maliki. Iraq’s President Fouad Masoum asked the deputy speaker of parliament to try to form a new cabinet and end a three-month political stalemate that’s helped Islamist insurgents seize large swaths of the country. While the U.S. quickly backed Masoum’s designation of Haidar al-Abadi, embattled Prime Minister Nouri al-Maliki rejected Masoum’s move, setting the stage for further political deadlock and potentially a confrontation after Maliki sent troops into the streets of Baghdad early today. 

• China Probes Threaten to Squeeze Foreign Profits. China’s antitrust crackdown signals a new era of regulatory scrutiny in the country and threatens to end the days when products from Audi sedans to Starbucks lattes generate fatter profits in Beijing than in London or New York.

• War Risks Slow Company Bond Sales to Least Since July ’13. Risks from conflicts in the Middle East and Ukraine are combining with concerns credit markets may have become too frothy to curb corporate bond sales. Just $53.6 billion of notes were sold globally in the first eight days of August, data compiled by Bloomberg show. That’s the slowest start to a month since July 2013 after then Federal Reserve Chairman Ben S. Bernanke discussed a timetable for scaling back central bank stimulus, spurring investors to sell riskier assets in an episode dubbed the taper tantrum.

• European Stocks Advance After Russia Calls End to Drills. European stocks rose the most in more than three months after a report that Russian war planes have finished military exercises near Ukraine. Balfour Beatty Plc added 2.5 percent after rejecting a revised merger proposal from Carillion Plc. Banco Popolare SC surged 8.2 percent after the Italian lender unexpectedly posted a profit in the second quarter. Bayerische Motoren Werke AG and Daimler AG each rose more than 2 percent, contributing the most to gains by a gauge of auto-related stocks. The Stoxx Europe 600 Index rallied 1.4 percent to 329.36 at the close as more than 15 stocks climbed for every one that dropped.

• BuzzFeed Gets $50 Million Financing From Andreessen Horowitz. BuzzFeed Inc., the online home of quizzes, lists and, increasingly, serious news, got a $50 million investment reported to value the company at $850 million -- or about half the New York Times Co.’s market capitalization.

• Colgate Total Ingredient Linked to Hormones, Cancer Spotlights FDA Process. The chemical triclosan has been linked to cancer-cell growth and disrupted development in animals. Regulators are reviewing whether it’s safe to put in soap, cutting boards and toys. Consumer companies are phasing it out. Minnesota voted in May to ban it in many products.

Wall Street Journal:

• Russia to Join International Relief Effort as Ukraine Presses Fight. Suffering Among Civilians Rises as Fighting Targets Donetsk, Luhansk.

CNBC:

• All this 'chaos' has Roger McNamee bearish. (video)

ZeroHedge: 

• Putin Defies Western Warning, Will Send "Aid Convoy" To East Ukraine.

• WHO Warns "No End In Sight" As 170 Ebola Healthcare Workers Now Infected.

• Ferguson, St.Louis Violence Continues: Protesters Warn "The Revolution Won't Be Televised". (video)

• Bonds Don't Believe It's All Over. (graph)

• US Postal Service: Over $47 Billion In Losses In The Past Decade And Counting. (graph)

• "Dead Broke" – Meet the Clintons' $100,000 3-Week Hampton Rental.

• Ukraine Says 45,000 Russian Troops On Border With Tanks, Missiles, Warplanes And Attack Helicopters.

• De-escalation Delayed: NATO Chief Warns Again "High Probability" Of Russian Intervention In Ukraine.

Business Insider:

• This Stanford Economist Has Obama's Attention — And It's Causing A Wall Street Freak-Out. Her solution is to "make banks behave more like other companies by forcing them to reduce sharply their reliance on borrowed money," according to The Times article. She says "large banks should be required to raise at least 30 percent of their funding in the form of equity" — which is "six times more than the current average for the largest American banks."

• Islamic State Beheads And Crucifies To Consolidate Grip On Syria's East.

Bear Radar

Style Underperformer:

• Large-Cap Value +.29%

Sector Underperformers:

• 1) HMOs -.82% 2) Utilities -.43% 3) Banks -.42%

Stocks Falling on Unusual Volume:

• WBAI, DF, WAC, AIRM, GTIV, OMED, GOGO, VOLC, LEAF, PETX, FOSL, ICE, SSP, SRI, DEO, AEGR, AWR, RLYP, PRSC, BCPC, CPA, TOUR, GEVA, KING and SM

Stocks With Unusual Put Option Activity:

• 1) BSX 2) MNKD 3) MET 4) RAX 5) BID
  

Stocks With Most Negative News Mentions:

• 1) WMT 2) TDW 3) DF 4) CI 5) APA
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +1.46%

Sector Outperformers:

• 1) Alt Energy +2.27% 2) Construction +1.97% 3) Oil Tankers +1.93%
  

Stocks Rising on Unusual Volume:

• KMR, KMP, EPB, KMI, TKMR, CQB, OSIR, MFRM, ATHM, PCLN, OME, PWRD, TD, MWE, TYG, KNDI, TOO, KKD, RPTP, MFRM, INSY, KKD, MPAA, REXX, VNDA, TSLA and RPTP

Stocks With Unusual Call Option Activity:

• 1) KMI 2) BSX 3) DF 4) GOGO 5) MNKD
  

Stocks With Most Positive News Mentions:

• 1) KMI 2) PCLN 3) PWR 4) GTAT 5) MNKD
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Monday Watch

Weekend Headlines 
Bloomberg: 

• Ukraine Rebuffs Rebels’ Cease-Fire Call; Sanctions Mulled. Ukraine’s military demanded that pro-Russian rebels surrender and dismissed their offer of a cease-fire, as lawmakers prepared to consider new sanctions that may cut Russian shipments of natural gas to Europe. “If there is an initiative, it should be implemented by practical means, not only with words -- by raising white flags and putting down weapons,” Andriy Lysenko, a spokesman for the country’s military, told reporters in Kiev yesterday. “In that case no one will shoot at them.” Ukraine is trying to dislodge separatists from strongholds in Donetsk and Luhansk as Russia raises the pressure on its western neighbor to halt the campaign and allow immediate assistance. President Vladimir Putin, who has been blamed by Ukraine and its U.S. and European allies of stoking the conflict, has said the fighting is creating a humanitarian disaster and offered to provide aid.

• Putin Pushes Talks Over Karabakh Amid Discord Near Russia. Talks between the leaders of Armenia and Azerbaijan yielded nothing after Russian President Vladimir Putin brokered their first meeting in nine months following the deadliest clashes between the ex-Soviet republics in 20 years. The meeting between the Azeri and Armenian leaders, Ilham Aliyev and Serzh Sargsyan, was “useful,” with both presidents reaffirming their commitment to “seeking a solution exclusively on the basis of a peaceful approach,” Russian Foreign Minister Sergei Lavrov told reporters in the Black Sea resort of Sochi. Two days of talks at the Russian leader’s retreat were marked by another fatality on the frontlines of the disputed border region of Nagorno-Karabakh, with an Azeri soldier killed last night by Armenian fire, according to the Defense Ministry in Baku. That brought the death toll to 24 since July 26. 

• Maliki Deploys Tanks in Baghdad as U.S. Backs President. Iraqi Prime Minister Nouri al-Maliki deployed troops and tanks on the streets of Baghdad as he resists U.S. President Barack Obama’s push for a more inclusive Iraqi government. Iraqi soldiers, security forces and tanks poured into Baghdad yesterday, many concentrated around the Green Zone, where government buildings and the U.S. embassy are located, CNN reported. The move came after the parliament adjourned until Aug. 19 without designating a prime-minister candidate after inconclusive elections in April. U.S. air strikes against Islamic militants ravaging the north of the country continued yesterday. Before leaving for a vacation on Martha’s Vineyard over the weekend, Obama said that greater U.S. assistance in pushing back Islamic State forces would only come if a more inclusive government was formed that didn’t marginalize Sunni and other minorities.

• China Thwarts U.S. Effort at Easing Tensions in South China Sea. China’s refusal to refrain from “provocative” actions in the South China Sea is undermining U.S. efforts to ease territorial disputes and hampering the establishment of a code of conduct for one of the world’s busiest shipping lanes. At a regional security meeting this weekend, China rebuffed a U.S. proposal for nations involved in disputes to voluntarily cease activities that inflame tensions. The proposal, and a similar measure by the Philippines at the Asean Regional Forum in Myanmar, were aimed at breathing life into stalled talks on a code of conduct. “They are not going anywhere because the Chinese don’t see any value in it,” said Richard Bitzinger, a senior fellow at the S. Rajaratnam School of International Studies in Singapore. “Their argument is increasingly there is no reason to do this stuff. In their mind it’s a settled issue.”  

• China Loosens Monetary Conditions in Test of Credit Power. China loosened monetary conditions last quarter at the fastest pace in almost two years, a Bloomberg LP gauge showed, testing the waning effectiveness of credit in supporting economic growth. Bloomberg’s new China Monetary Conditions Index -- a weighted average of loan growth, real interest rates and China’s real effective exchange rate -- rose 6.71 points to 82.81 in the second quarter from the previous three months. That’s the biggest jump since the July-September period of 2012, with May and June’s numbers the first back-to-back readings above 80 since January 2012. New yuan loans in July will be a record high for that month, according to a Bloomberg News survey of analysts before data due by Aug. 15, suggesting officials are keeping the credit spigot open even as debt risks mount. Total debt reached 251 percent of gross domestic product as of June, up from 234 percent in 2013 and 160 percent in 2008, according to Standard Chartered estimates.

• Property Defaults Seen as Financing Stresses Mount: China Credit. China’s slumping property market is fueling speculation the industry is set for a shakeout as small developers face difficulty raising funds to pay off debt. Yield premiums on Chinese real-estate bonds denominated in dollars have jumped 35 basis points this month to 582 basis points over Treasuries, the sharpest increase among emerging Asian countries, according to Bank of America Merrill Lynch indexes. That compares with a 19 basis-point advance for Indonesian builders. Moody’s Investors Service and Standard & Poor’s said some smaller Chinese developers may default in the second half amid falling sales and shrinking access to credit.

• Asian Stocks Rebound From Biggest Decline Since May. Asian stocks rose, with the benchmark index rebounding from the steepest drop since May, as Japanese shares led gains. Mitsui Mining & Smelting Co., a maker of lead and copper alloys, jumped 7.4 percent in Tokyo after raising its full-year profit forecast. Japan Tobacco Inc. gained 3.1 percent, providing the biggest boost to the Topix index. Malaysian Airline System Bhd. soared 8.3 percent after sovereign wealth fund Khazanah Nasional Bhd. offered to take the carrier private. SK Hynix Inc., a South Korean maker of semiconductors, gained 1.7 percent after Eugene Investment & Securities Co. said higher estimated chip prices will boost second-half earnings. The MSCI Asia Pacific Index (MXAP) advanced 0.8 percent to 145.26 as of 10:32 a.m. in Tokyo. The measure sank 1.4 percent Aug. 8, its biggest drop since May 7.

• Europe’s Growth Engine Stutters as Spain Beats Germany. Germany probably underperformed Spain last quarter for the first time in more than five years as the euro-area recovery almost ground to a halt. After leading the currency bloc out of its longest-ever recession last year, Europe’s largest economy contracted in the three months through June, according to a Bloomberg News survey. The downturn in the region’s powerhouse highlights the fragility of a revival that European Central Bank President Mario Draghi has described as modest and uneven.

• Canadian Banks’ Rating Outlooks Downgraded to Negative by S&P. Canada’s six biggest banks including Toronto-Dominion Bank (TD) and Royal Bank of Canada had their outlooks cut to negative from stable by Standard & Poor’s because of regulatory changes that could affect bondholders. 

• Leveraged Loans Pulled Amid Biggest Retreat Since 2011. At least three companies failed to get deals completed in the market for speculative-grade corporate loans as investors stage the biggest retreat since 2011.

• Billionaire Rich Kinder Streamlines Empire For Spree. Houston billionaire Richard Kinder is consolidating his pipeline empire to strengthen it for growth as the U.S. shale drilling boom opens up $1.5 trillion in potential purchases and expansion projects. Kinder Morgan Inc. (KMI) plans to acquire all of Kinder Morgan Energy Partners LP (KMP), Kinder Morgan Management LLC (KMR) and El Paso Pipeline Partners LP (EPB) in a series of transactions valued at about $44 billion, according to a statement yesterday.

Wall Street Journal:

• Kurdish Forces Reverse Militant Gains as U.S. Continues Airstrikes in Iraq. U.S. Warplanes Hit Targets for a Third Day. Islamist extremists who have overrun swaths of Iraq made a rare retreat in an area hit by U.S. airstrikes and gave up some territory they had won from Kurdish forces, in an early sign of impact from the three-day-old American campaign.

• Decline in 'Slack' Helps Fed Gauge Recovery. U.S. Factories that Were Idled During the Recession Are Now Humming with Activity.

• WHO Declares Ebola Virus Outbreak Public Health Emergency. Epidemic in West Africa Requires Extraordinary Response to Stop Its Spread, Agency Says.

• A Presidency of Missed Opportunities. Unlike Nixon in the wake of Vietnam, Obama has failed to offset retrenchment with a strategic initiative.

MarketWatch.com:

• Obama's Jaw-Dropping Iraq Claim. Conservatives react quickly to president's claim that it wasn't his decision to withdraw U.S. troops from Iraq. In a Saturday morning address, before departing on a two-week vacation, President Barack Obama gave an update on the progress of air strikes against Islamic militants in Iraq and the dropping of supplies to the starving Yazidi people. He also took questions from reporters, and one response in particular drew attention. The president was asked whether he regretted withdrawing troops from the country given how swiftly the Islamic State group, alternately called ISIS and ISIL, has taken parts of the country. “What I just find interesting is the degree to which this issue keeps on coming up, as if this was my decision,” Obama said.

Fox News:

• Graham: Islamic State will attack on US soil, Obama must stop terror group’s rise. Sen. Lindsey Graham sounded the alarm Sunday about the growing threat of the Islamic State, the militant group formerly known as ISIS, launching an attack on American soil unless President Obama takes more decisive action to stop the terror group’s surge across Iraq and Syria.

• Clinton critical of Obama foreign policy, says 'failure' to act in Syria created vacuum for jihad.

CNBC:

• Back-to-School Costs Soar, Burdening the Poor. From binders and backpacks to USB drives and other gadgets, ballooning back-to-school supply lists are pinching poor families' budgets and creating what some see as a have and have-not public education system.

Zero Hedge:

• This Is How Putin's Advisor Sees The Ukraine Crisis Playing Out.

• Former Obamacare Boss Admits She Deleted Emails Sought By Congress.

• 5 Things To Ponder: Buy The Dip Or Market Correction.

• Obama Wines & Dines Some Of The World's Most Brutal Dictators At US-Africa Summit.

• "By Printing Money," Marc Faber Warns "The Fed Has Delayed The Inevitable 'Cleaning' Process".

• Guinea Closes Borders With Liberia & Sierra Leone As Ebola Death Count Nears 1000.

• This Is The Longest Streak Of High-Yield Outflows On Record (And Why It May Get Worse). (graph)

• Japan Prepares To Release Thousands Of Tons Of Fukushima Groundwater Into The Pacific.

• BofA(BAC) Warns "Wealth Effect" Spending Muted, Consumers Cautious.

• "The Train Wreck Is Coming," David Stockman Warns, "All Hell Will Break Loose".

• Hundreds Of Yazidis Found In ISIS Mass Grave, Many Buried Alive.

• Retail Investors About To Get Fleeced Again. (graph)

• Military Coup In Iraq: Prime Minister Maliki Refuses To Step Down; Security Forces On Alert, Encircle Presidential Palace.

• Hussman On "The Greatest Risk That Investors Face Here".

• Ukraine Fighting Rages On As Russia Calls For Another Ceasefire: Ukraine Demands Total Surrender.

Business Insider:

• The Iraqi Government Just Provided Ammo To Kurds Who Are Trying To Break Away.

• Jeff Gundlach Warned Us Rates Could Fall, And They Did — Here's What He's Saying Now.

• Judge Deals Huge Blow To NCAA's Notion Of 'Amateur' Athletes.

• The Corporate Bond Market Will Have A Tough Time Going Forward.

• Obama's Foreign Policy Justifications Are Coming Apart At The Seams.

• World Health Organization Officially Declares Ebola A Global Emergency.

• Shadowy Wealth Management Products Are Sucking The Juice Out Of China's Property Market.

• This Video Shows The Terrifying Way The Islamic State Indoctrinates Children.

• JOHN MCCAIN: Obama's Strikes In Iraq Show A 'Fundamental Misunderstanding Of The Threat'.

• Everything Is Coming Apart In Europe.

• GM(GM) Must Face Suit Claiming It Covered Up Ignition-Switch Defect.

• The Crisis Of Iraqi Yezidis Fleeing ISIS Is Even Worse Then We Thought.

• Iraq Says ISIS Killed 500 Yazidis And Buried Some Victims Alive.

Wall Street All-Stars:

• Indicator Update: Current Crises and Market Effects.

Washington Post:

• Fighters abandoning al-Qaeda affiliates to join Islamic State, U.S. officials say.

Reuters:

• Islamic State militants tell 300 Yazidi families: convert or die. Islamic State militants have threatened to kill more than 300 families from Iraq's Yazidi ethnic minority unless they convert to Islam, witnesses and a Yazidi lawmaker told Reuters on Saturday. The families in the villages of Koja, Hatimiya and Qaboshi are surrounded by the Sunni militants who are mounting an offensive through northern Iraq which has sent tens of thousands of Yazidis and Christians fleeing for their lives, prompting international outrage.

China Securities Journal:

• China 2H Monetary Loosening May Be Weaker Than 1H. China monetary policy loosening in 2H might not be as strong as in 1H, according to a front-page commentary written by reporter Ren Xiao.

Weekend Recommendations

Barron's:

• Bullish commentary on (TWX), (COV), (SHPG), (TMUS), (TEX), (INTC), (URI), (STL) and (WAG).

• Bearish commentary on (Z).

Night Trading

• Asian indices are +.50% to +1.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 109.0 -6.5 basis points.

• Asia Pacific Sovereign CDS Index 76.75 unch.

• FTSE-100 futures +.52%.

• S&P 500 futures +.20%.

• NASDAQ 100 futures +.25%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (SYY)/.50

• (DF)/-.05

• (PCLN)/12.02

• (MTZ)/.40 

• (ICPT)/.12

• (RAX)/.16

Economic Releases

• None of note

Upcoming Splits

• None of note

Other Potential Market Movers

• The German Wholesale Price Index, Japan Industrial Production and the Jefferies Industrials Conference could also impact trading today.

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

Weekly Outlook

Week Ahead by Bloomberg. 
Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly higher on diminished Ukraine-Russia tensions, less emerging markets/European debt angst, technical buying, lower energy prices/interest rates and bargain-hunting. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 75% net long heading into the week.