Thursday Watch

Evening Headlines 
Bloomberg:

• U.S. Says Russia May Be Directing Ukraine Rebel Offensive. (video) The U.S. said Russia may be directing a counteroffensive by separatist rebels in Ukraine as fighting in the battle-torn country’s easternmost regions spread to previously peaceful areas. Jen Psaki, the U.S. State Department spokeswoman, cited the reports of fresh fighting, telling reporters in Washington yesterday that “these incursions indicate a Russian-directed counter-offensive is likely under way in Donetsk and Luhansk.” Russian President Vladimir Putin’s spokesman, Dmitry Peskov, said “this information doesn’t correspond with reality.” The violence in Ukraine expanded a day after Putin met his Ukrainian counterpart, Petro Poroshenko, and hailed the talks as a step toward a political resolution. The government in Kiev said the fighting, which has claimed more than 2,000 lives according to the United Nations, has spread to the shores of the Sea of Azov, effectively opening a new front.
• Islamic State Entrenches in Syrian City as Obama Mulls Next Step. In the Syrian city of Raqqah on the banks of the Euphrates River, Islamic State militants are busy building a capital fit for their followers. Human rights observers say they have stoned women to death for adultery, while residents report that religious textbooks have been imported for schools and the market flooded with black cloaks for girls as young as 6 years old. Even as it wages war on multiple fronts, the group has had time to focus on the details, recruit thousands into its forces and celebrate victories by parading the heads of its enemies. 
• PBOC Resolve Tested as Shadow Banking Industry Sours. Rising stress in China’s $6 trillion shadow banking industry is testing central bank Governor Zhou Xiaochuan’s resolve to limit monetary easing as risks to the government’s growth target climb. In the past three months at least 10 trusts backed by assets spanning coal mines in Shanxi to forests in Fujian have struggled to meet payments, sparking protests by investors outside banks that distributed their products. A slump in new credit in July underscored strains on the industry that funded as much as half of China’s recent growth, presenting Zhou with a choice: ease policy to avert a slowdown, or hold the line.
• China Developer Debt Risk Rises as Sales Miss: Chart of the Day. China’s largest property developers risk missing their full-year sales targets as tighter credit and an economic slowdown cut demand for real estate, fueling concern the industry will struggle to repay debt. The CHART OF THE DAY shows the 13 biggest developers that provided full-year sales targets achieved 49 percent of those goals by the end of July, the weakest level in at least two years, according to data compiled by Bloomberg. The ratio of debt to equity on a Bloomberg Industry gauge of 84 Chinese property companies has climbed to 128 percent, the highest since at least 2005 and almost double the Bloomberg World Real Estate Index’s 76 percent.
• Asian Stocks Drop While Australian Bonds Climb With Gold. Asian stocks fell before data on Chinese industrial-company profits, while Australian and New Zealand bonds paced gains in U.S. Treasuries after slumping European rates fueled demand for higher yields. Gold climbed. The MSCI Asia Pacific Index lost 0.2 percent by 10:03 a.m. in Tokyo, declining for the second time this week as Japan’s Topix index slid 0.6 percent.

Wall Street Journal:

• Islamic State Fills Coffers From Illicit Economy in Syria, Iraq. Group Pirates Oil, Exacts Tribute From Locals, Making It Among World's Richest in Terror. The Islamic State runs a self-sustaining economy across territory it controls in Syria and Iraq, pirating oil while exacting tribute from a population of at least eight million, Arab and Western officials said, making it one of the world's richest terror groups and an unprecedented threat. That illicit economy presents a new picture of Islamic State's financial underpinnings. The group was once thought to depend on funding from Arab Gulf donors and donations from the broader Muslim world. Now, Islamic State—the former...
• FBI Probes Possible Hacking Incident at J.P. Morgan(JPM). Attack Appears to Have Been Caused By Malicious Computer Code. The Federal Bureau of Investigation is probing a computer-hacking attack on J.P. Morgan Chase & Co. and at least one other large bank, in what people familiar with the probe described as a significant breach of corporate computer security. The timing and extent of the hacking attacks wasn't immediately clear, though cybersecurity experts began probing the possible J.P. Morgan breach earlier this month, according to people...
• Are Stock Prices Headed for a Fall? Long-run equity returns from today's price levels are likely to be considerably lower than their 10% long-run average.

Fox News:

• West Point report describes Islamic State threat as crisis 4 years in the making. (video) A new report from the West Point counterterrorism center challenges the notion that the Islamic State only recently became a major terror threat, describing the network's gains in Iraq as a crisis four years in the making. Meanwhile, Fox News has learned that top aides to President Obama expect the threat from the organization, also known as ISIS or ISIL, to outlast Obama's time in office.
• California drivers brace for costly new gas tax. (video) Californians already pay the nation's second highest gas tax at 68 cents a gallon -- and now it will go up again in January to pay for a first-in-the-nation climate change law.

MarketWatch.com:

• Guess(GES) cuts outlook as fall collection disappoints. Guess Inc. warned its fall retail collection hasn't seen the traction it expected with consumers, prompting the apparel retailer to lower its outlook for the year. Shares declined about 8% after hours.
• China’s falling real-estate prices trigger protests, clashes. The sharp drop in China’s housing prices has led to an outburst of anger among property owners, leading to violent clashes in some cases, according to local media reports Tuesday.

Zero Hedge:

• Saxo Bank CIO Warns "It's Time To Be Defensive... Very Defensive".
• 4 Years Until The Next Recession? Not Likely! (graph)
• Everyone's Fighting The Fed Now. (graph)
• The Nail In The Petrodollar Coffin: Gazprom Begins Accepting Payment For Oil In Ruble, Yuan.
• Another Keynesian Myth Refuted: Cold Winters Do Not Shrink The Economy.
• "Valuation Is The Market's Biggest Headwind". (graph)

Business Insider:

• Ukrainian Sergeant: 'This Is Now A War With Russia'.
• Russian Moves In Ukraine Highlight Critical Land Bridge To Crimea.
• A New, Probably Unrelated Ebola Outbreak Is Happening In Central Africa.
• ISIS Is Recruiting And Training Children To Fight.
  

Forbes:

• Obamacare's Death of a Thousand Rate Hikes. Get ready to pay more for health insurance next year, compliments of Obamacare. A new analysis from PricewaterhouseCoopers projects that average premiums for policies sold through Obamacare’s exchanges will increase 7.5 percent in 2015. In nearly one-third of the 29 states that PwC investigated, premiums will rise by double digits. In Indiana, the average increase will be 15.4 percent. In Kansas, it’s 13.6 percent. Florida’s insurance commissioner says premiums are set to climb 13.2 percent. For this latest round of premium shocks, consumers can thank Obamacare’s unwieldy mix of taxes, regulations, and mandates.

Evening Recommendations

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 96.50 -1.0 basis point.

• Asia Pacific Sovereign CDS Index 66.25 +1.25 basis points.

• FTSE-100 futures -.02%.

• S&P 500 futures -.03%.

• NASDAQ 100 futures  -.01%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (ANF)/.11
• (DG)/.83
• (FRO)/-.27
• (GCO)/.55
• (TD)/1.09
• (OVTI)/.53
• (SPLK)/-.02
• (ZOES)/.03

Economic Releases
8:30 am EST

• Initial Jobless Claims are estimated to rise to 300K versus 298K the prior week.
• Continuing Claims are estimated to rise to 2510K versus 2500K prior.
• 2Q GDP is estimated to rise +3.9% versus a +4.0% prior estimate.
• 2Q Personal Consumption is estimated to rise +2.4% versus a prior estimate of a +2.5% gain.
• 2Q GDP Price Index is estimated to rise +2.0% versus a prior estimate of a +2.0% gain.
• 2Q Core PCE is estimated to rise +2.0% versus a prior estimate of a +2.0% gain.

10:00 am EST

• Pending Home Sales for July are estimated to rise +.5% versus a -1.1% decline the prior week.

11:00 am EST

• The Kansas City Fed Manufacturing Index for August is estimated to fall to 7.0 versus 9.0 in July.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Eurozone Unemployment/Confidence/German CPI reports, Japan CPI/Industrial Production reports, 7Y $29B T-Note auction, weekly EIA natural gas inventory report, weekly Bloomberg Consumer Comfort Index, (IRM) analyst day and the (UHAL) analyst meeting could also impact trading today.

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

Stocks Slightly Lower into Final Hour on Russia-Ukraine Tensions, Global Growth Fears, Eurozone Debt Angst, Financial/Gaming Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Mixed
  

• Volume: Light

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 11.86 +1.98%

• Euro/Yen Carry Return Index 143.12 +.03%

• Emerging Markets Currency Volatility(VXY) 6.42 -1.83%

• S&P 500 Implied Correlation 51.33 +2.97%

• ISE Sentiment Index 106.0 +20.45%

• Total Put/Call .92 +!6.46%

• NYSE Arms .94 -4.76% 

Credit Investor Angst:

• North American Investment Grade CDS Index 56.02 +.35%

• European Financial Sector CDS Index 59.52 +1.99%

• Western Europe Sovereign Debt CDS Index 29.47 +2.13%
• Asia Pacific Sovereign Debt CDS Index 66.05 +.17%

• Emerging Market CDS Index 271.80 -1.44%

• China Blended Corporate Spread Index 311.46 +.58%
• 2-Year Swap Spread 20.25 -2.0 basis points

• TED Spread 21.25 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -14.50 -.5 basis point

Economic Gauges:

• 3-Month T-Bill Yield .03% unch.

• Yield Curve 185.0 -4.0 basis points

• China Import Iron Ore Spot $88.20/Metric Tonne -.79%

• Citi US Economic Surprise Index 27.80 +.5 point

• Citi Emerging Markets Economic Surprise Index -13.70 -.3 point

• 10-Year TIPS Spread 2.14 -1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating -60 open in Japan

• DAX Futures: Indicating -17 open in Germany

Portfolio: 

• Slightly Lower: On losses in my retail/biotech sector longs and emerging markets shorts

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• Putin’s Good Cop Claim Hollow in Kiev as Rebels Widen War. Hours after Vladimir Putin hailed “positive” talks over the war in Ukraine, new accusations of Russian aggression were already being voiced in Kiev. While the Russian president reiterated a pledge early today to do all he can to bring peace to the war-torn Donetsk and Luhansk regions, officials in Ukraine said he was doing just the opposite. Russian soldiers have joined rebel fighters in mounting a counterattack, opening a new front against Ukrainian troops who are being shelled “intensively” from across the border, military spokesman Andriy Lysenko said. The pattern has become a familiar one: Putin annexed the Black Sea peninsula of Crimea after saying he had no intension of doing so; a promise in Switzerland to help bring the separatists to heel preceded more intense fighting. The aim is to muddy the waters and reduce the risk of more penalties from the U.S. and Europe, according to Otilia Dhand, an analyst at Teneo Intelligence in London who specializes in eastern Europe.
• French Manufacturing Confidence Falls to 13-Month Low. French factory confidence fell to the lowest in 13 months in August, adding to signs that the economy may struggle to grow after a stagnant first half. A manufacturing-sentiment index slipped to 96, the lowest since July 2013, from 97 the previous month, the French national statistics office INSEE said today in Paris. That matched the median forecast of economists in a Bloomberg News survey. A separate business-confidence index also declined. 
• European Stocks Little Changed as Telecom Italia Gains. European stocks were little changed, following their biggest two-day advance since April, as signs of progress in talks between Russia and Ukraine offset worse-than-projected German confidence data. Telecom Italia SpA gained 3.2 percent after Brazil’s Oi SA said it may buy an $8 billion stake in Tim Participacoes SA, a group company of Telecom Italia. Portugal Telecom SGPS SA, which is merging with Oi, jumped 6.3 percent. Asos Plc rallied the most in a decade amid takeover speculation. Marine Harvest ASA (MHG) dropped 2.7 percent after posting an unexpected quarterly loss. United Utilities Group Plc fell 1.3 percent after analysts downgraded the U.K.’s largest publicly traded water company. The Stoxx Europe 600 Index added 0.1 percent to 343.33 at close of trading, reaching a one-month high.
• Nickel Retreats as European Growth Concerns Dim Outlook. Nickel for delivery in three months declined 0.5 percent to settle at $18,850 a metric ton at 5:50 p.m. on the London Metal Exchange.

CNBC:

• VCs 'partying like it's 1999,' says McNamee. (video)

ZeroHedge:

• Feeling Worthless? The 10 Majors Most Likely To Lead To Underemployment. (table)
• No Bubble At All: Jessica Alba's Diaper-Delivery Startup Is Valued At $1 Billion, Prepares For IPO.
• Get Back To Work Mr. Hollande; French Jobseekers Surge To Record High. (graph)
• Art Cashin Warns Bulls: "History" Not On Their Side. (graph)
• CBO "Revises" Its 2014 GDP Forecast, Hilarity Ensues (As Always). (graph)
• ECB Hires Blackrock For ABS-Buying Advice; Crushes Idea Of Upcoming QE.
• The DSKing Of Christine Lagarde: IMF Head Formally Charged In Fraud Probe.

Business Insider:

• Apple's(AAPL) Smartwatch Will Debut On September 9.
• Warren Buffett Singlehandedly Undermined Democrats' Main Argument Against Inversions.
• Government Bond Yields Around The World Are Making New Lows Day In And Day Out.
• Ukraine Says More Tanks Roll In From Russia Despite Talks.
• Obama Is Pursuing A 'Sweeping' International Climate Agreement — And He's Doing It Without Congress.

Telegraph:

• France continues to struggle as German confidence erased in 'one fell swoop'. (graph) Outlook for French business remains bleak, while a key consumer gauge in Germany suggests Europe's biggest economy will "shift down a gear or two at least".

Bear Radar

Style Underperformer:

• Small-Cap Growth -.32%

Sector Underperformers:

• 1) I-Banks -1.01% 2) Gaming -.73% 3) Banks -.64%

Stocks Falling on Unusual Volume:

• THI, BKW, SWHC, SLH, ATHM, TITN, BWS, RGR, DGLY, BITA, ADI, AMWD, HAL, CHS, QIHU, ICE, BOBE, SDRL, LEJU, SUSP, MOV, HTWR, EFC, EJ and HUBG

Stocks With Unusual Put Option Activity:

• 1) CIEN 2) BKW 3) TIF 4) BX 5) MGM
  

Stocks With Most Negative News Mentions:

• 1) CCJ 2) SWHC 3) SLH 4) CHS 5) BKW
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Value +.04%

Sector Outperformers:

• 1) Utilities +.43% 2) Telecom +.41% 3) Foods +.31%
  

Stocks Rising on Unusual Volume:

• MPAA, ARUN, EXPR, BDSI, BBY, TSU, CZZ, PEIX, RCII and AEGR

Stocks With Unusual Call Option Activity:

• 1) INFN 2) ARUN 3) ATVI 4) GALE 5) EXPR
  

Stocks With Most Positive News Mentions:

• 1) TIF 2) EXPR 3) AMZN 4) SSYS 5) HLF
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Wednesday Watch

Evening Headlines 
Bloomberg: 

• Putin Says Ukraine Talks Positive, Political Deal Mulled. Russian President Vladimir Putin said talks with his Ukrainian counterpart over separatist fighting that’s killed more than 2,000 people were “positive” as the parties began discussions for a political resolution. “Russia, for its part, will do everything for this peace process,” Putin said today after meeting Ukrainian President Petro Poroshenko at a summit of the Customs Union trading bloc in Minsk that also included the leaders of Kazakhstan and Belarus and European Union foreign-policy chief Catherine Ashton. “In our opinion, it should start as soon as possible.” Poroshenko said on Twitter after the talks that Russia, Belarus and Kazakhstan backed a Ukrainian peace strategy to stem battles between the army and pro-Russian insurgents who have sought to break off the Donetsk and Luhansk regions in the nation’s east. He didn’t elaborate on what the plan entailed and Putin didn’t mention it as he addressed reporters.

• Asian Stocks Climb on U.S. Confidence, Durable Goods Data. Asian stocks rose after U.S. data on durable goods and consumer confidence boosted optimism in the strength of the world’s largest economy. Boral Ltd. (BLD) surged 6.2 percent as profit at the Australian producer of building materials topped estimates. Kawasaki Kisen Kaisha Ltd., Japan’s third-biggest shipper, rose 3.7 percent on a report it will target a return on equity of 10 percent in five years. Flight Centre Travel Group Ltd. sank 2.7 percent in Sydney after reporting profit in line with its target. The MSCI Asia Pacific Index (MXAP) gained 0.2 percent to 148.69 as of 9:39 a.m. in Hong Kong, with the gauge trading within 1 percent of a six-year high.

• Apple(AAPL) Said to Prepare New 12.9-Inch IPad for Early 2015. 

Wall Street Journal: 

• Russia-Ukraine Talks Yield Little Progress on Ending Conflict. Putin Promises Support but Focuses on Trade Issues in Peace Talks With Poroshenko. Face-to-face talks between the Russian and Ukrainian presidents failed to produce a breakthrough for ending the conflict over eastern Ukraine, as Kiev released videos of captured Russian soldiers and rebels pushed toward a government-held city. The one-on-one session, which Ukraine's President Petro Poroshenko described as "tough and complex," ended early Wednesday after a day of talks on the crisis in the Belarusian...

• Islamists in Iraq Rely on Mines, Booby Traps in Battlefield Strategy. Opposing Kurdish Forces Say Islamic State Militants Patient, Willing to Take Losses. Islamic State insurgents have planted land mines and other explosives to stall a Kurdish push to retake this town, an unfolding battlefield strategy that foes describe as built on patience, the element of surprise and a willingness to take losses. The fighters borrowed the tactic from their predecessors, al Qaeda in Iraq, who used improvised explosive devices, or IEDs, to prevent U.S. forces from retaking ground during...

• Warren Buffett's Tax Whopper. Obama's business front man finances 'corporate deserters.' 

• Helping Ukraine Is a U.S. Imperative. A good relationship with Russia is important, but not if it can break solemn promises with impunity. 
  

Fox News:

• Lawmakers demand vote on US military action against ISIS. President Obama and military leaders are weighing a host of factors as they consider expanding airstrikes into Syria, including the Assad regime’s demand to seek permission first and warnings that the strikes could trigger ISIS retaliation. But they soon could face another complication: Congress.

CNBC: 

• What's worrying millionaire investors? The Middle East. (video)

Zero Hedge:

• China Industrial Commodities Collapse As Sentiment Tumbles To 15-Month Lows. (graph)

• Treasury Curve Collapse Signals Multiple Expansion Exuberance Is Over. (graph)

• Europe: Stagnation, Default, Or Devaluation. (graph)

• Investor Net Worth Drops To New All Time Low, NYSE Reveals. (graph)

• Why Isn't Monetary Pumping Helping the Economy? (graph)

• The Retail Trader Lockout - Today's 'Market' "Issues" Were Worse Than The Flash Crash.

• Forget Geopolitical De-Escalation - Here's The Real Reason Why Oil Is Tumbling. (graph)

Business Insider: 

• Just 6% Of Stocks On The S&P Have 'Sell' Ratings.

• Snapchat Is Now A $10 Billion Dollar Company.

• Dozens Of 'Men In Green' With Russian Accents Have Showed Up In East Ukraine.

Financial Times:

• Evidence of direct Moscow military involvement in Ukraine grows. Kiev published videos on Tuesday of what it said were 10 Russian paratroopers captured inside Ukraine, in the strongest evidence yet of the increasingly overt presence of Russian forces in the east of the country.

Evening Recommendations

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 97.50 -1.5 basis points.

• Asia Pacific Sovereign CDS Index 65.0 -1.5 basis points.

• FTSE-100 futures -.20%.

• S&P 500 futures -.02%.

• NASDAQ 100 futures  +.01%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (DCI)/.47

• (TIF)/.85

• (BWS)/.35

• (CHS)/.26

• (BF/B)/.72

• (WDAY)/-.14

• (GES)/.29

• (BYI)/1.12

• (WSM)/.53

Economic Releases
10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -944,440 barrels versus a -4,474,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -1,435,000 barrels versus a +585,000 barrel gain the prior week. Distillate supplies are estimated to fall by -343,100 barrels versus a -960,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall by -.49% versus a +1.8% gain the prior week.

Upcoming Splits

• (RKT) 2-for-1

Other Potential Market Movers

• The 5Y $35B T-Note auction, German GFK Confidence report, weekly MBA Mortgage Applications report and the (HMY) investor day could also impact trading today.

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