Evening Headlines
Bloomberg:
- Islamic State Funds Caliphate With Mosul Dam as Terror Spreads. Islamic
State militants who last week captured the Mosul Dam, Iraq’s largest,
had one demand for workers: Keep it going. Arriving in their Toyota
pickup trucks, armed with Kalashnikov assault rifles and wearing a
patchwork of military uniforms, robes and turbans,
jubilant militants from the al-Qaeda breakaway group told workers hiding
in management offices they would get their salaries as long as the dam
continued to produce electricity for the region under their control,
according to a technician who was at the dam when nearly 500 militants
drove off Kurdish troops. Islamic State’s rampage through
northern Iraq has inspired terror as stories spread of beheadings and
crucifixions. At the same time, its fighters are capturing the strategic
assets needed to fund the Islamic caliphate it announced in June and
strengthen its grip on the territory already captured.
- Ukraine Says It Is Near End of Operation to Surround Rebels. The Red Cross said it’s working on getting aid to rebel-held areas of
east Ukraine, where government forces have encircled major cities, as
the U.S. warned Russia not to use the mission to send in troops. The
situation in the city of Luhansk and other areas “is critical --
thousands of people are reported to be without access to water,
electricity and medical aid,” Laurent Corbaz, the head of the
International Committee of the Red Cross’s operations for Europe, said
in an e-mailed statement late yesterday. Still, “the practical details
of this operation need to be clarified
before this initiative can move forward.”
- China’s Trust Asset Growth Slows Amid Shadow Banking Crackdown.
China’s trust assets expanded at the slowest pace in two years as the
government cracks down on shadow banking and investors reassess the
risks of the high-yield investments. Trust companies had 12.5
trillion yuan ($2 trillion) of assets under management as of June 30, up
6.4 percent from three months earlier, the China Trustee Association
said in a
statement yesterday. That’s the slowest growth since the first
quarter of 2012.
- Asian Stocks Extend Gains With Dollar as Wheat Declines. Asian stocks rose, with the regional index extending gains after its biggest one-day jump since June, while the dollar climbed against the euro, Swiss franc and yen. Credit risk in the region declined with wheat.
The MSCI Asia Pacific Index added 0.3 percent by 10:45 a.m.
in Tokyo.
Wall Street Journal:
- Iraqi Political Leaders Clash Over Prime Minister Post. Figure From Prime Minister's Party Nominated to Succeed Him; Islamist Militants Clock New Gains. Iraq's president appointed a candidate to
replace Prime Minister
Nouri al-Maliki
but the longtime leader refused to step aside, setting up a
confrontation as the government struggles to combat a rapidly advancing
Sunni insurgency. President
Fuad Masum
designated
Haider al-Abadi,
a member of Mr. Maliki's Shiite Islamist Dawa party, to form the
next government. Mr. Maliki, who was vying for a third four-year term,
angrily rejected the nomination in two televised appearances on Monday
and vowed to challenge a decision he called a subversion of the
constitution and a betrayal of the public will.
Zero Hedge:
Reuters:
- Nuance(NUAN) 4th-qtr forecast misses expectations. Speech recognition software maker Nuance Communications Inc forecast current-quarter adjusted
revenue and profit below expectations as the company continues
to struggle from its transition to a subscription-based business
model.
Evening Recommendations
Night Trading
- Asian equity indices are -.25% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 106.50 -2.5 basis points.
- Asia Pacific Sovereign CDS Index 75.0 -1.75 basis points.
- NASDAQ 100 futures +.15%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
7:30 am EST
- NFIB Small Business Optimism for July is estimated to rise to 96.0 versus 95.0 in June.
10:00 am EST
- JOLTS Job Openings for June are estimated to fall to 4600 versus 4635 in May.
2:00 pm EST
- The Monthly Budget Statement for June is estimated at -$96.0B.
Upcoming Splits
Other Potential Market Movers
- The German ZEW Index, BoJ Minutes, Japan GDP report, USDA's WASDE report, 3Y $27B T-Note auction, weekly US retail sales reports, (CRL) investor meeting, JPMorgan Auto Conference, Wedbush Life Sciences Conference and the Oppenheimer Tech/Internet/Communications Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.
Broad Equity Market Tone:
- Advance/Decline Line: Substantially Higher
- Sector Performance: Most Sectors Rising
- 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%
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
- 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
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.
Wall Street Journal:
CNBC:
ZeroHedge:
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."
Style Underperformer:
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:
Style Outperformer:
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:
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.
- 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:
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:
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.
Business Insider:
Wall Street All-Stars:
Washington Post:
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.
- NASDAQ 100 futures +.25%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
Upcoming Splits
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.
