Stocks Surging into Final Hour on Central Bank Hopes, Less Eurozone/Emerging Markets Debt Angst, Short-Covering, Commodity/Tech 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) 12.37 -7.62%

• Euro/Yen Carry Return Index 143.43 +.79%

• Emerging Markets Currency Volatility(VXY) 9.32 -.85%

• S&P 500 Implied Correlation 53.52 -2.27%

• ISE Sentiment Index 83.0 +48.21%

• Total Put/Call .53 -56.91%

• NYSE Arms .39 -73.25% 

Credit Investor Angst:

• North American Investment Grade CDS Index 73.55 -2.1%

• America Energy Sector High-Yield CDS Index 1,882.0 +2.30%

• European Financial Sector CDS Index 74.06 -3.28%

• Western Europe Sovereign Debt CDS Index 22.49 +.02%

• Asia Pacific Sovereign Debt CDS Index 64.75 -.77%

• Emerging Market CDS Index 329.71 -2.0%
  

• iBoxx Offshore RMB China Corporates High Yield Index 121.23 +.20%

• 2-Year Swap Spread 25.25 +.5 basis point

• TED Spread 25.0 -3.0 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -19.25 +1.25 basis points

Economic Gauges:

• 3-Month T-Bill Yield .07% +1.0 basis point

• Yield Curve 151.0 +6.0 basis points

• China Import Iron Ore Spot $56.40/Metric Tonne n/a

• Citi US Economic Surprise Index -5.9 +2.3 points

• Citi Eurozone Economic Surprise Index 15.9 +.9 point

• Citi Emerging Markets Economic Surprise Index -5.8 -2.3 points

• 10-Year TIPS Spread 1.70 unch.
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 4.39 -.23

Overseas Futures:

• Nikkei 225 Futures: Indicating +107 open in Japan 
• China A50 Futures: Indicating -76 open in China

• DAX Futures: Indicating -3 open in Germany

Portfolio: 

• Slightly Lower: On losses in my index hedges and emerging markets shorts 

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg: 

• Ukraine Tells Allies East Situation Worsens as Attacks Rise. Ukraine said pro-Russian rebels increased the intensity of shelling to the highest in weeks, prompting the administration in Kiev to inform its allies about the deteriorating situation in the war-torn east. Pro-Russian separatists violated a truce 127 times in the past 24 hours, the military said on Monday. The heaviest fighting occurred near the village of Starognativka in the Donetsk region this morning, leaving “many casualties” among rebels, it said. One Ukrainian serviceman was killed and 16 wounded overnight, Oleksandr Turchynov, head of the National Defense and Security Council, said in an e-mailed statement. Tensions are building after more than a year of fighting, which has killed at least 6,700 people, according to the United Nations. Ukraine needs the war to end as it seeks to rebuild an economy crippled by recession, renegotiate its foreign debt and restore confidence in the hryvnia, this year’s third-worst-performing currency against the dollar. 

• China’s Economic Data May Point to Hard Landing. (video)

• Here are the S&P 500 Stocks With the Highest Exposure to China. Wynn Resorts(WYNN), YUM! Brands(YUM), Intel(INTC), and more. In new research, Kostin and his group take a look at the China exposure of S&P 500 companies. Overall, the analysts say, some $168 billion of S&P 500 revenue comes explicitly from China, according to company disclosures. That's a relatively low amount, equivalent to just 2 percent of total sales in the overall index, but the topline figure masks some large variations between sectors and firms.

• Russian GDP Plunges 4.6%. Russia’s economy shrank the most since 2009 after a currency crisis jolted consumer demand, while a selloff in oil threatens to drag the country into a deeper recession. Gross domestic product contracted 4.6 percent in the second quarter from a year earlier after a 2.2 percent decline in the previous three months, the Federal Statistics Service in Moscow said on Monday, citing preliminary data. That was worse than the median forecast for a 4.5 percent slump in a Bloomberg survey of 18 analysts. The Economy Ministry had projected that output shrank 4.4 percent in the period, calling it “the lowest point” for Russia.  

• Negative Yields on $1.5 Trillion of Euro Bonds Show Flat Economy. Negative bond yields, unthinkable before Europe’s debt crisis, have become a fact of life as the euro region shows few signs of growth. More than four months after the European Central Bank started its bond-buying program to funnel money into the economy, $1.5 trillion of securities issued by governments in the region pay less than zero, according to data compiled by Bloomberg. That’s equivalent to 23 percent of that market. 

• European Stocks Advance as Technology, Resource Companies Rally. European stocks advanced as technology and resource companies rebounded, while investors speculated on the possibility of Chinese stimulus. BHP Billiton Ltd. and Rio Tinto Group rose at least 1.5 percent, leading commodity producers to the best performance of the 19 industry groups on the Stoxx 600. ASML Holding NV added 2.7 percent, pushing technology stocks to the second-largest gain. Statoil ASA and Royal Dutch Shell Plc weighed on oil-and-gas shares even as oil rose from the lowest level in almost five months. The Stoxx Europe 600 Index climbed 0.7 percent to 399.82 at the close of trading, reversing earlier losses of as much as 0.7 percent.

• Watch Out for a Deeper Credit Selloff as Commodity Pain Spreads. It’s getting harder to find U.S. credit investments that are insulated from the pain of slumping commodity prices. U.S. companies have generally been reporting lower quarterly earnings, even those outside an oil industry that’s been rocked by the almost 60 percent plunge in crude since last year’s peak. And revenues at most U.S. companies are positively correlated to metal prices, which have sagged in response to cooling growth from Asia to South America, according to Deutsche Bank AG analysts. Those aren’t great signs for investors who’ve bought $9 trillion of dollar-denominated corporate bonds since the end of 2008. But perhaps a worse omen is that investment-grade companies are piling on debt at the fastest pace in at least a decade, boosting such obligations by 17.1 percent versus last year, the analysts wrote in an Aug. 7 report. This suggests that companies are depending more on the global economy to accelerate at a time when it doesn’t seem like that’s happening. And it doesn’t bode well for investors now sitting on the biggest pile of U.S. corporate bonds ever.

• S&P Flouts History in Break With Bonds That Often Ends Badly. As far as credit markets are concerned, U.S. stock investors have lost touch with reality. That’s seen in the extra yield bond investors demand over Treasuries. The spread has expanded by 0.48 percentage point from a year ago, the most since 2012, even as the Standard & Poor’s 500 Index rallied. While not without precedent, instances when anxiety in bonds didn’t seep into equities are rare. More than 70 percent of the time since 1996, as spreads widened as much as they have since April, the S&P 500 has fallen, with the average decline exceeding 10 percent, data compiled by Bloomberg show.

• Twitter(TWTR) Shares Climb on NFL Deal, Executive Stock Purchases. Twitter Inc.’s stock rose 8.2 percent on Monday after it unveiled a content deal with the National Football League and executives said they’re buying shares in the company. Twitter was trading at $29.23 at 1:57 p.m. in New York.

CNBC: 

• Retail investors bet on Apple, market rebound: TD. Small investors were net buyers of U.S. stocks for a third straight month in July, according to data gleaned from 6 million TD Ameritrade accounts, keeping up their summer buying spree despite a market trading frustratingly sideways.

Zero Hedge:

• EPA Admits Spilling Millions Of Gallons Of Toxic Waste Into Colorado River - Stunning Aerial Footage.

• Four Economic Myths That Perpetuate The Euro Crisis. (video)

• Beware 1200 On The Russell - Breadth Breakdown Is Big Risk To Small Caps, BofA Warns. (graph)

• ACA 2.0? Hillary Clinton Rolls Out $350 Billion College Affordability "Fix".

• Did The Apolitical Fed Just Admit It May Not Be Raising Rates Before The Election?

• Dollar Dumped As Fed's Lockhart Fails To Mention Word "September". (graph)

• Iran's Ayatollah Trolls Obama's Human Rights "Flag Bearing". (pic)

• Forget The Fake Statistics: China Is A Tinderbox.

• The World's Largest Sovereign Wealth Fund Is About To Become A Seller. (graph)

• Technical Analysts Warn "Sell Stocks", "Get Defensive", As Momo Weakens And Breadth Breaks Down. (graph)

• Lois Lerner Emails Released: "Lincoln Should Have Let The South Go..."

Business Insider:

• China's massive economic advantage over the world is about to disappear.

• One pharmaceutical stock is up an insane 280% and has been halted 6 times today.

• Commodities are re-entering a 'deflationary vortex'.

• 3 warning signs any owner of stocks should be worried about.

• Nobody believes China's growth figures — and the truth could be much worse.

NBC:

• China Read Emails of Top U.S. Officials. China's cyber spies have accessed the private emails of "many" top Obama administration officials, according to a senior U.S. intelligence official and a top secret document obtained by NBC News, and have been doing so since at least April 2010. The email grab -- first codenamed "Dancing Panda" by U.S. officials, and then "Legion Amethyst" -- was detected in April 2010, according to a top secret NSA briefing from 2014. The intrusion into personal emails was still active at the time of the briefing and, according to the senior official, is still going on.

Reuters:

• OPEC has no plan for emergency meeting on oil price drop -delegates. The Organization of the Petroleum Exporting Countries has no plan to hold an emergency meeting to discuss the drop in oil prices before its next scheduled gathering in December, two OPEC delegates said on Monday. Earlier on Monday, Algerian Energy Minister Salah Khebri was reported by state news agency APS as saying discussions about holding such a meeting were ongoing.

Telegraph:

• Former Fed chief Alan Greenspan warns of bond market bubble. Alan Greenspan describes bond market as 'unstable' as he warns oil prices have further to fall. 

• Greek stocks rise on bail-out hopes but Germans say they will shun a 'bad' deal. Germany seeks to split loans into smaller tranches to gain more 'leverage' if Greeks to not fulfill promises.

Bear Radar

Style Underperformer:

• Small-Cap Growth +.96%

Sector Underperformers:

• 1) Restaurants -.54% 2) Utilities -.44% 3) REITs -.07%

Stocks Falling on Unusual Volume:

• DF, ICON, KPTI, CAPL, NWHM, TUBE, JD, STMP, XPO, IMG, BLUE, IPXL, JMBA, IPAR, HRTG, VAC, SAFT, NGVC, XON, LHCG, OSTK, TANH, DXPE, BBSI, OLED and XPO

Stocks With Unusual Put Option Activity:

• 1) CJES 2) CREE 3) CSCO 4) WBA 5) SBUX
  

Stocks With Most Negative News Mentions:

• 1) CAPL 2) INTU 3) JD 4) TUBE 5) WHR
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Mid-Cap Value +1.24%

Sector Outperformers:

• 1) Gold & Silver +6.1% 2) Oil Service +3.96% 3) Steel +3.51%
  

Stocks Rising on Unusual Volume:

• PCP, AQXP, RNF, SYA, SLH, AEL, RBA, MMP, BCRX, PDCE, POST, FCX, DVAX, TWTR, SEMG and EPD

Stocks With Unusual Call Option Activity:

• 1) SYY 2) RMD 3) ED 4) COG 5) S
  

Stocks With Most Positive News Mentions:

• 1) LYB 2) CPK 3) TXN 4) TWTR 5) AAPL
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running 3.6% Above 100-day average
• 9 Sectors Rising, 1 Sector Declining
• 53.2% of Issues Advancing, 46.8% Declining
• 67 New 52-Week Highs, 59 New Lows
• 37.8% of Issues Above 200-day Moving Average
• Average 14-Day RSI 39.2
• Vix 12.7
• Total Put/Call .91
• TRIN/Arms .39

Monday Watch

Today's Headlines 

Bloomberg:

• Greece Seeks Resolution to Aid Deal as Creditor Talks Progress. The Greek government is seeking to conclude talks on a rescue program by Tuesday, leaving enough time for national parliaments to assess the deal so funds can be disbursed for an Aug. 20 payment to the European Central Bank. The four institutions representing Greece’s creditors -- the ECB, the International Monetary Fund, the European Commission and the European Stability Mechanism -- made progress over the weekend on the details of a plan that would make as much as 86 billion euros ($93 billion) available to Greece, according to three people with knowledge of the discussions.   

• Chinese Spurn Unprecedented Car Discounts Amid Slowdown. Consumers like Shen represent the biggest threat to China’s new-vehicle market, which overtook the U.S. in 2009 to become the world’s biggest. With the Chinese economy flagging, and government curbs on car registrations and stock market volatility deterring would-be car buyers, the auto industry is pulling out unprecedented offers to drum up sales.

• China's Slumping Car Sales Push Bitauto to Eighth Weekly Decline. Bitauto Holdings Ltd. fell for an eighth straight week, the longest slump on record, amid deepening concern that a slowdown in Chinese auto sales is eroding the car-listing website operator’s revenue growth. The American depositary receipts tumbled 22 percent to $30.64 in New York last week. It was the worst performance on the Bloomberg China-U.S. Equity Index, which gained 1.7 percent.

• Australian Property Market Seen Easing as Banks Rebuff Borrowers. Last month, Australian banks raised interest rates for property investors and introduced tougher loan-to-value standards in response to a move by regulators to rein in the riskier corners of the country’s house price boom. With interest rates stuck at record lows due to the slowdown in the wider economy, the central bank and the Australian banking regulator have been grappling with ways to prevent a property price bubble. 

• China’s Falling Exports Put Aussie, Kiwi Dollars on Back Foot. The currencies of Australia and New Zealand retreated following gains of at least 1 percent Friday, after disappointing trade data in China deepened concern that demand for commodities will weaken in their biggest export market. Australia’s dollar had the steepest decline among major currencies against the greenback on Monday, after reports in China over the weekend showed exports shrank five times more than economists estimated and producer prices fell by the most in almost six years. The Aussie and kiwi had dropped last month as commodities plunged and bets increased that the Federal Reserve will raise interest rates next month.

• Malaysian Stocks Set for Correction as Scandal Spurs Outflows. Malaysian stocks fell, with the benchmark gauge poised to enter a technical correction, as investors pulled funds amid concern about the political scandal enveloping Prime Minister Najib Razak and the worsening economic outlook. The FTSE Bursa Malaysia KLCI Index slid 1.3 percent to 1,661.41 at 10:04 a.m. local time, on course for the lowest close since March 2013. The measure has lost more than 10 percent from its April 21 peak. The ringgit was little changed at its lowest level since 1998. 

• Asian Stocks Retreat on China Data, Bets for U.S. Rate Increase. Asian stocks fell after China reported bigger-than-expected slides in exports and producer prices and U.S. jobs data boosted trader expectations for a Federal Reserve interest-rate increase next month. The MSCI Asia Pacific Index declined 0.1 percent to 140.89 as of 9:01 a.m. in Tokyo. 

• China Steel Flood Deepens as Mills Face Slowing Local Demand. China is shipping ever more steel into world markets as its economy slows, leading to lower prices, reduced earnings at global producers and more trade disputes. Mills in the country that produces half the world’s steel are maintaining output as domestic demand falters, exporting the surplus. Overseas sales surged 9.5 percent to 9.73 million metric tons in July, the highest level in six months, customs data released on Saturday showed. Exports expanded 27 percent to 62.13 million tons in the first seven months, the highest ever for the period, according to data compiled by Bloomberg. 

• Copper Bears Keep ‘Stranglehold’ on Market as Stockpiles Rise. Hedge funds are betting that the worst is yet to come for copper. Prices for the metal used in everything from homes to cars to appliances are stuck in the worst slump in more than two years. Stockpiles jumped 11 percent in Shanghai last week. With China’s economy showing little signs of recovery, money managers are increasing wagers that copper will fall further, pushing their net-short position to the most bearish since April 2013, U.S. government data show. Speculators held a net-short position in copper of 33,547 futures and options contracts as of Aug. 4, according to Commodity Futures Trading Commission data released three days later. That compares with 25,746 a week earlier.

• Weak Copper Outlook Bellwether for Commodities: Pervan. (video)

• Carly Fiorina Says Donald Trump's Perceived Menstrual Cycle Insinuation Is Nothing New. The former Hewlett-Packard CEO sees an all too familiar pattern in the billionaire's comments about Fox host Megyn Kelly.

Wall Street Journal:

• Industry, States Set to Fight EPA Greenhouse Gas Rules. Lawsuits would challenge rules requiring significant cuts in power-plant carbon emissions. Industry representatives and a group of state attorneys general are preparing to file lawsuits soon to challenge Obama administration rules requiring significant cuts in power-plant carbon emissions. 

• Oil Futures Signal Weak Prices Could Last Years. The oil market indicates that prices could stay lower for longer, delivering a fresh blow to hard-hit energy exploration-and-production companies.

• Move to Allow U.S. Oil Exports Accelerates. Big voices in the oil industry and Congress now support a move that would have been unthinkable not long ago: opening the U.S. oil industry to exports. Big voices in the oil industry and Congress now support a move that would have been unthinkable not long ago: opening the U.S. oil industry to exports.

• Chinese Companies Pay Debt Premium. Companies are paying higher interest rates, compared with Asian peers. China’s stock market, its currency and economy all face pressure, and now those factors have some of the country’s leading corporations paying a premium to borrow.

• To Feed Billions, Farms Are About Data as Much as Dirt. Startups such as Google-funded Granular offer software to run farms with precision, efficiency. Mark Bryant is a farmer in Ohio with 12,000 acres, on which he raises corn, soybeans and soft red winter wheat. He is rarely on a tractor, because that isn’t how farms work anymore.

• Obama’s Sanctions Gift to an Assassin for Iran. The nuclear deal lifts sanctions on men like Anis Naccache, who tried to assassinate my great uncle. Congress is debating whether the nuclear agreement between Iran and the great powers goes far enough to curb Tehran’s illicit activities. But equally deserving of scrutiny are the nefarious characters whose names would be removed under the deal from Western sanctions lists.

Fox News:

• Trump defends his treatment of women, tries turning tables on Bush. (video) Republican presidential candidate Donald Trump on Sunday defended himself against accusations of being disrespectful to women, saying he cherishes them and has merely fought back after being “viciously attacked” by female detractors. “I cherish women,” Trump, the New York real estate tycoon now atop the 2016 GOP field, said on CNN’s “State of the Union.” “I said nothing wrong whatsoever.”

CNBC:

• Hackers steal data on 2.4m Carphone Warehouse customers. Up to 2.4m Carphone Warehouse customers may have had their personal information and bank details compromised, after the mobile phone retailer said its systems had been breached by a sophisticated cyber attack.

Zero Hedge:

• Peak Insanity: Chinese Brokers Now Selling Margin Loan-Backed Securities.

• Is China's 'Black Box' Economy About To Come Apart? (graph)

• China Plunges 13% Since July Despite The Following 24 Market Manipulation Measures.

• Goldman Hires Former Head Of NATO To Deal With DONG Scandal.

• The Story Of America's Debt In 6 Easy Graphics. (graph)

• When Hindenburg Omens Are Ominous.

• The Canaries Continue To Drop Like Flies.

• You Live In A Country Run By Idiots If...

• Tesla(TSLA) Loses More Than $4,000 On Every Car Sold. (graph)

• Is The "Smart Money" Ready To Bet On Gold? (graph)

• Case For Yuan Devaluation Grows As Chinese Factory Prices Fall Most In Six Years. (graph)

• The Rich, The Poor, & The Trouble With Socialism.

• Luxury Goods And Status Symbols In Trouble In China. (graph)

• "We Should Admit This Isn’t Going To Work": One Country's Grim Assessment Of Greece's Future.

• Shots Fired In Ferguson On Brown Death Anniversary, Day After Hillary Says "Police Bias Is Clear".

Business Insider:

• The CEO of Starbucks(SBUX) could become the liberal Donald Trump.

• Marijuana is making the California drought worse.

• What's happening in the oil market right now is 'unprecedented'.

• A golden goose for investment bankers has stopped laying eggs.

• Hillary Clinton's operation is publicly savaging these 3 Republican candidates.

• China's government is now the largest player in the nation's stock market.

• America's slums are exploding. The number of people living in high-poverty areas—defined as census tracts where 40 percent or more of families have income levels below the federal poverty threshold—nearly doubled between 2000 and 2013, to 13.8 million from 7.2 million, according to a new analysis of census data by Paul Jargowsky, a public-policy professor at Rutgers University-Camden and a fellow at The Century Foundation.

Reuters:

• China's much-hyped healthcare reform drive stuck in first gear. Li Tiantian, a Chinese doctor turned tech entrepreneur, is a leading light of the country's much-trumpeted healthcare reform drive. His medical networking platform DXY.com links two million doctors across China and has attracted funding from tech giants like Tencent.

• Indonesia urges U.S. Fed to hurry up and raise rates. Indonesia wants the U.S. Federal Reserve to hurry up and raise interest rates because uncertainty over when it will tighten has created downward pressure on the rupiah, the country's chief economics minister said.

Financial Times:

• Portugal cautioned by IMF over debt sustainability. Even if they had been compiled by his own spin-doctors, Portugal’s latest unemployment figures could hardly have been better for Pedro Passos Coelho, the country’s centre-right prime minister.

Nikkei:

• Geithner Says Fed Rate Increase Wouldn't Derail Economy. The U.S. economy is more stable than it was before the 2008 financial crisis, former Treasury Secretary Timothy Geithner was quoted as telling the Nikkei newspaper in an interview. Global financial system is stronger now, could absorb Fed move, he said.

Xinhua:

• Lock-Up Shares Worth 55B Yuan to Become Tradable. About 2.9 billion shares from 27 companies will become tradable on the Shanghai and Shenzhen bourses. The amount, up from the 43.7 billion yuan in shares unlocked this week, will add pressure on China's struggling stock market.

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 113.75 +.5 basis point.

• Asia Pacific Sovereign CDS Index 65.25 +.5 basis point.

• S&P 500 futures +.21%.

• NASDAQ 100 futures +.18%.

Morning Preview Links

Earnings of Note

Company/Estimate 

• (AES)/.27

• (DF)/.26

• (NAT)/.33

• (SYY)/.51

• (XONE)/-.24

• (MTZ)/.10

• (MDR)-.05

• (SHAK)/.03

• (TTWO)/.36

• (TDW)/.17

Economic Releases

10:00 am EST

• The Labor Market Conditions Index for July.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Lockhart speaking, Japan Consumer Confidence Index, (UAL) July Traffic report and the Jefferies Industrials Conference 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 modestly higher and to weaken into the afternoon, finished mixed. The Portfolio is 25% net long heading into the week.