Today's Headlines

Bloomberg:   

• China Becomes Liability for Korean Stocks Dependent on Tourism. South Korean companies reliant on Chinese demand are turning from the stars of the stock market to the also-rans after the yuan’s devaluation. Shares of AmorePacific Corp., a cosmetics company that counts China as its second-biggest market, had more than doubled in the 12 months before the Chinese currency tumbled on Aug. 11. Hotel Shilla Co., which had been benefiting from an influx of mainland tourists, had rallied 20 percent. Both companies had lost 11 percent since the devaluation through Tuesday, more than five times the 1.6 percent loss of the MSCI Korea Index. “Cosmetics, tourism, and hotels are seen hit hard as Chinese inbound flows will be affected,” said Park Jeong Woo, a Seoul-based strategist at Korea investment Securities Co.
• Death Cross Looms in Hong Kong Stocks as Rout Seen Getting Worse. Traders hurting from a slump in Hong Kong shares since April say a pattern looming in stock charts suggests the rout has room to run. The average level of the Hang Seng Index over the past 50 days is close to dropping below its 200-day mean, a phenomenon known as a death cross. That’s happened six times in the past 10 years, with the measure then falling an average of more than 15 percent through the next market low. “Hong Kong has historically been very sensitive to this,” said Hank Terrebrood, Hong Kong-based managing director and strategist at MCM Partners.  
• Glencore CEO: China Is a Lot Weaker Than Anyone Expected. (video) Glencore Plc Chief Executive Officer Ivan Glasenberg said no one can read the Chinese commodity market.
  It’s getting harder to predict metals consumption in China, the world’s biggest user of raw materials, the billionaire CEO said in a phone interview in London. Glencore reported a 56 percent plunge in first-half profit on Wednesday and cut the earnings forecast for its trading division. “At the moment none of us can read China,” said the 58-year-old South African who’s the second-largest shareholder in the company. “None of us know what is going on there and I’m yet to find the guy who can predict China correctly. China in the first half was a lot weaker than anyone expected.”
• Rousseff Revives Policies That Pushed Brazil to Edge of Junk. Brazil’s President Dilma Rousseff is reviving policies that helped push the country’s debt rating to the brink of junk status as a political crisis and a recession erodes support for fiscal discipline. State-controlled banks Banco do Brasil and Caixa Economica Federal announced this week that they will provide car and auto-parts makers as much as 14 billion reais ($4 billion) in loans, a strategy to fuel growth and save jobs that Finance Minister Joaquim Levy repudiated when he took office earlier this year. He told reporters Wednesday the loans don’t threaten the fiscal adjustment and are mostly based on market rates.
• Brazil Set for Longest Bond Drought on Record Amid Credit Woes. Brazil is close to hitting its longest stretch ever without selling new bonds abroad. The Treasury hasn’t sold new notes in international markets since its $1 billion issue of 2025 bonds in September 2014 as a deepening recession and a widening political crisis drove the nation’s credit rating to the cusp of junk. Brazil joins other developing nations such as Russia, which due to sanctions over its involvement in Ukrainian conflict hasn’t been able to access the international debt market since September 2013. If the government doesn’t tap international markets by Sept. 23, it will break its record bond drought of 384 days ended in April 2003, when concern over the election of then-President Luiz Inacio Lula da Silva reduced foreigners’ appetite for new notes. 
• Brazil's Stock Exchange Is Nearing a Bear Market. A plunge in the Ibovespa from this year’s peak put the equity gauge on the brink of a bear market amid forecasts Latin America’s largest economy is headed toward the longest recession since the 1930s. The stock benchmark led world losses, extending its slump since May 5 to 20 percent, as lender Itau Unibanco Holding SA and oil producer Petroleo Brasileiro SA tumbled. Traders have been pulling money from Brazil on concern President Dilma Rousseff will struggle to revive the economy, curb inflation and narrow the budget deficit amid a political crisis and calls for her impeachment. The real posted the biggest decline among 16 global major currencies tracked by Bloomberg. The Ibovespa fell 2.5 percent to 46,262.77 at 1:54 p.m. in Sao Paulo, the lowest level since March 2014. State-run lender Banco do Brasil SA sank to a three-year low on plans to aid the automaker industry at a time when revenue has trailed analysts’ estimates for three straight quarters. The real dropped 1 percent to 3.5025 per dollar. Brazil’s bond risk, as measured by credit-default swaps, approached the highest in six years. 
• Russia Is Having Trouble Selling Its Debt. Russia fell short of its bond auction target for a third week as contagion from China’s yuan devaluation spread through emerging markets. The ruble fell as Brent slid below $48 a barrel for the first time since January. The government sold 60 percent of the 10 billion rubles ($151 million) of floating-rate and fixed-coupon bonds it offered in auctions Wednesday after investors sought a higher price for the debt than the Finance Ministry was prepared to pay. The ruble dropped for a fifth day, retreating 0.5 percent to 66.1980 against the dollar, the lowest since Feb. 12.
• As Canada’s Oil Debt Soars to Record, an Industry Shakeout Looms. Canadian energy companies’ debt loads are the heaviest in at least a decade, boosting concern that some won’t survive the collapse in crude prices. Trican Well Service Ltd., Canada’s largest fracking service provider, said last week it may be unable to continue because it’s in danger of breaching the terms of its debt. It’s the latest firm to see crude’s descent to a six-year low sap the cash flow needed to meet financial obligations. Oil’s plunge has pushed a measure of the average debt burden among Canadian energy firms to the highest since at least 2002, and another measure of their ability to make interest payments to the third-lowest level in a decade, according to data compiled by Bloomberg. Facing some of the highest production costs in the world and carrying more debt than U.S. peers, the Canadian industry has become ripe for acquisitions.
• Emerging-Market Losses Spread as Vietnam to Kazakhstan Devalue. Emerging markets took another knock as Vietnam and Kazakhstan weakened their currencies in response to China’s surprise devaluation and investors weighed the timing of the first U.S. rate increase since 2006. South Korean equities fell to a six-month low on Wednesday while Taiwanese shares lost 1.9 percent and the Saudi index tumbled 2.5 percent. Vietnam devalued the dong for the third time in 2015 and Kazakhstan, whose biggest trading partners are China and Russia, let its tenge slide 4.4 percent. Turkey’s lira fell to a record for a fifth day, extending declines after an explosion in Istanbul. China’s yuan weakened in offshore trading. The anticipation of higher U.S. interest rates and a slowing Chinese economy pushed the MSCI Emerging Markets Index into a bear market last week, while a gauge tracking 20 currencies is extending its longest slump since 2000. Global funds are poised to be net sellers in developing Asian equities tracked by Bloomberg for a third straight month, the longest stretch since the middle of 2012.
• China-Led Concern Drags European Stocks to Lowest in Six Weeks. (video) European stocks succumbed to fears of a slowing Chinese economy, with exporters leading the losses.
  The Stoxx Europe 600 Index gave up two-days of gains, slipping 1.8 percent to 381.31 -- its lowest level in six weeks -- at the close of trading. Automakers and chemical companies retreated more than 2.4 percent, while a gauge of commodity producers closed at its lowest level since 2009. Glencore Plc tumbled 9.7 percent to a record low after the miner posted a slump in profit. PSA Peugeot Citroen and Daimler AG lost at least 2.6 percent, while BASF SE fell 2.7 percent.
• U.S. Oil Could Return to 2008 Low of $32 in Citigroup View. Oil could fall to lows last seen during the global financial crisis amid a persistent supply surplus, Citigroup Inc. said. “Balances point to further oversupply throughout 2015 begging the question how low can oil go,” Citigroup analysts led by Seth Kleinman said in an e-mailed report Wednesday. The U.S. crude price of $32.40 a barrel reached in 2008 “is a conceivable reality.” Crude has tumbled more than 30 percent since June amid signs that producers are maintaining output even after oil fell back into a bear market. West Texas Intermediate, the U.S. benchmark, fell $1.64 to $40.98 at 12:08 a.m. local time on the New York Mercantile Exchange, the lowest level since March 2009.
• Oil Patch's Biggest Losers Sell Crude for More Than Exxon Mobil(XOM). Some of the worst-performing oil companies in North America are getting more for their crude than Exxon Mobil Corp. and other giants. That may not help them for long. Goodrich Petroleum Corp., the biggest loser in the Bloomberg Intelligence index of North American independent producers, sold its output for $86.49 a barrel in the second quarter, according to data compiled by Bloomberg. Halcon Resources Corp., which is down 49 percent this year, reaped $81.18. Compare that with Chevron Corp., which received an average $54.26, and Exxon Mobil, which got $56.90.The reason: lack of cash.
• Fed Officials in July Saw Rate Rise Conditions Approaching. (video) Federal Reserve officials said last month that while conditions for raising interest rates were approaching, they saw more room for labor market healing and need more confidence that inflation is moving toward their goal, minutes of their meeting show. Most meeting participants “judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point,” according to minutes of the July 28-29 Federal Open Market Committee session, released Wednesday in Washington. The details come four weeks before the Fed’s September meeting, when most economists forecast the central bank will raise its benchmark interest rate for the first time since 2006. Policy makers say a decision to raise rates will hinge on continued improvement in the labor market and confidence that inflation will move higher.
• Pimco Sees Sept. Fed Move Underpriced, in Clash With Options. Investors are underpricing the chances of the Federal Reserve raising interest rates next month, according to Pacific Investment Management Co. Options on rates and currencies indicate investor skepticism may be growing that the first increase since June 2006 will come at the Fed’s Sept. 16-17 meeting. The odds for that had dropped to 46 percent on Wednesday from 54 percent almost two weeks ago. That’s based on fed-funds futures and on the assumption that the effective rate will average 0.375 percent after the increase. “We think the odds are a little higher,” Anthony Crescenzi, an executive vice president at Pacific Investment Management Co., said in an interview in Sydney. Most recent communications from the Fed “have been making it clear that the bar for a hike on Sept. 17 is fairly low,” he said.

Zero Hedge:

• FOMC Minutes Leaked Early After Embargo Broken, Fed Warns Risk To GDP Forecast "Tilted To The Downside".
• FOMC Reaction - Stocks Rip, USD & Bond Yields Dip As Sept Rate-Hike Odds Drop To 40%. (graph)
• Hilsenrath Confirms Fed Confusion In Leaked FOMC Minutes.
• The Next Leg Of The Commodity Carnage: Attention Shifts To Traders - Glencore Crashes, Noble Default Risk Soars. (graph)
• "A 2011-Style Breakdown": Global Advance-Decline Line Breaks To 6 Month Lows.
• WTI Collapses To A $40 Handle & What That Means For Earnings, In One Chart. (graph)
• No SDR For You: IMF Tells China To Wait At Least One Year Until Reserve Basket Inclusion.
• Distressed American Workers Expose The Fallacy Of Improving Unemployment Numbers. (graph)
• Is Your Name In The Ashley Madison Hack? Here Are Some Easy Ways To Find Out.
• After 6 Years Of QE, And A $4.5 Trillion Balance Sheet, St. Louis Fed Admits QE Was A Mistake.
• China Rushes To Inject Hundreds Of Billions In Liquidity To Offset Yuan Intervention.
• Turkey Turmoiling: Lira Plunges To Record Low On Financial, Political, Terrorism Fears. (graph)
• Consumer Prices Rise At Slowest Pace Since 2014 As Airfares Plunge, Car Costs Slide, But 'Rents' Jump. (graph)

AP:

• AP Exclusive: UN to let Iran inspect alleged nuke work site. Iran, in an unusual arrangement, will be allowed to use its own experts to inspect a site it allegedly used to develop nuclear arms under a secret agreement with the U.N. agency that normally carries out such work, according to a document seen by The Associated Press. The revelation is sure to roil American and Israeli critics of the main Iran deal signed by the U.S., Iran and five world powers in July. Those critics have complained that the deal is built on trust of the Iranians, a claim the U.S. has denied.

MNI:

• Bullard Says Fed Must 'Manage' Balance Sheet Post-Liftoff. Fed should meticulously "manage" shrinking of balance sheet after it starts raising rates, and not let maturing securities run off indiscriminately, St. Louis Fed President Bullard said in an interview. "I see no reason why you couldn't have a target level for the balance sheet and just manage to that level, and some of that could be through allowing run-off, and some of it through purchases or sales," Bullard said.

Bear Radar

Style Underperformer:

• Large-Cap Value -1.16%

Sector Underperformers:

• 1) Oil Service -3.55% 2) Energy -3.15% 3) Steel -2.64%

Stocks Falling on Unusual Volume:

• CSTE, SLH, CSIQ, AEO, PHX, OMER, TGT, SUI, CLM, AMFW, RMAX, CRH, PEO, BBL, EMO, AER, ESPR, WWWW, LOCO, BSTC, TGH, IQNT, NVRO, GMLP, RNF, WWAV, BKFS, TJX, SHAK, MRO, ESPR and SGMS

Stocks With Unusual Put Option Activity:

• 1) ITB 2) XLNX 3) ADI 4) XOM 5) BHI
  

Stocks With Most Negative News Mentions:

• 1) CHK 2) ORCL 3) MA 4) ESPR 5) COST
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Growth -.84%

Sector Outperformers:

• 1) Gold & Silver +1.64% 2) Restaurants -.02% 3) Utilities -.09%
  

Stocks Rising on Unusual Volume:

• AEM and CEMP

Stocks With Unusual Call Option Activity:

• 1) CLR 2) MET 3) AEO 4) TGT 5) KR
  

Stocks With Most Positive News Mentions:

• 1) ABX 2) CTRN 3) SJM 4) PRI 5) CYBR
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running 7.5% Below 100-day average
• 0 Sectors Rising, 10 Sectors Declining
• 18.4% of Issues Advancing, 78.8% Declining
• 16 New 52-Week Highs, 171 New Lows
• 39.8% of Issues Above 200-day Moving Average
• Average 14-Day RSI 42.1
• Vix 15.0
• Total Put/Call 1.16
• TRIN/Arms 1.04

Wednesday Watch

Evening Headlines 

Bloomberg: 

• China’s Stocks Extend Rout Amid Concern State to Reduce Support. China’s stocks slumped, extending Tuesday’s plunge, amid growing concern the government will pare back support for the equity market. The Shanghai Composite Index dropped 5 percent to 3,560.17 at 11:05 a.m. local time, poised for its lowest close since July 8 and falling below the 200-day moving average. About 39 stocks declined for each that rose on the gauge, which sank 6.2 percent on Tuesday. The Hang Seng China Enterprises Index slid 1.9 percent to a nine-month low.

• These Are the Biggest Losers Since the Yuan's Shock Devaluation. A week has passed since China roiled global markets with its first major devaluation in more than two decades. The epochal move hit beleaguered emerging markets the hardest, contributing to new record lows in the currencies of Colombia and Turkey. From Lima to Kuala Lumpur, here are the biggest losers since the orchestrated drop in the people's currency.

• Public Distrust Grows After Tianjin Blasts. (video)   

• Alibaba(BABA) Cash-Burning Buybacks Make Internet Bonds China’s Worst. China’s Internet bonds are lagging behind as disappointing earnings and plans for buybacks to shore up slumping shares fuel concern finances will deteriorate.

• Malaysia Riskier Than Mexico Has UBS Warning of Worse to Come. Malaysia is paying the price for weak foreign currency holdings and messy politics as the cost to protect its debt soars to near a four-year high. UBS Group AG predicts even more pain ahead. The spread on the nation’s credit-default swaps widened 74 basis points in 2015 to 180 this week, a level not seen since October 2011. It’s the worst performing in Asia and almost 40 basis points more than similar-rated oil-producer Mexico, which the Swiss bank says best illustrates the malaise for Malaysia. “The moves in CDS are telling us that the market is increasingly nervous about the central bank’s ability to manage the foreign-exchange selloff in light of its relatively light reserves position,” said Manik Narain, a London-based strategist at UBS. “Malaysia’s situation may now be more precarious.”

• Japan Export Growth Slows in July, Putting Pressure on Manufacturers. Japan’s export growth slowed in July, a sign that foreign demand is failing to provide much support to the world’s third-biggest economy. Shipment values increased 7.6 percent from a year earlier, slowing down from a 9.5 percent gain in June, the Ministry of Finance said on Wednesday. The volume of exports slipped 0.7 percent. Japan’s economy is struggling to emerge from a contraction last quarter driven by weak consumption and the biggest tumble in exports in four years. A slowdown in China is taking a toll, with export volumes to Japan’s biggest trading partner falling for a sixth month on weaker demand for cars.

• Bank of Japan pushing on a string as shrinking economy needs tow. Just as the Bank of Japan most needs to revive a contracting economy, the effectiveness of its monetary policy is at a record low. The money multiplier, a gauge of activity generated when the central bank eases, fell to 3.92 last month, the lowest in data dating to 2003. That's even as BOJ debt purchases of as much as 12 trillion yen ($97 billion) a month caused the monetary base to balloon about 150 percent. The phrase "pushing on a string" was adopted during the 1930s Great Depression to describe the difficulty in reviving demand with fund injections.

• ‘Buffett Indicator’ Flashes Warning on Japan’s Stock-Price Gains. One of Warren Buffett’s favorite gauges for valuing share prices is flashing warning signals for Japan after data showing that the world’s third-largest economy shrank in the second quarter while the stock market kept rising. Japan’s gross domestic product report this week makes for sobering reading, with the economy contracting an annualized 1.6 percent in the second quarter as consumers cut back purchases, businesses trimmed spending, and exports declined. Yet, the broader Topix index reached to the highest level since 2007 this month.   

• Yen Traders Sense Currency Bottoming Even as Fed Rate Rise Looms. Traders are betting the yen is about as weak as it’s going to get this year, cutting their expectations for price swings by the most among major currencies this year, even as the Federal Reserve may increase interest rates next month. The yen is the only major currency where traders are paying a premium on options to protect against the exchange rate strengthening versus the dollar in three months. A gauge of demand for hedges against price swings over the next year sank to the lowest since November. U.S. policy makers release minutes from their July meeting later on Wednesday.

• Daewoo Shipbuilding Falls on Concern Liabilities Exceed Assets. Daewoo Shipbuilding & Marine Engineering Co. fell to the lowest price in almost 13 years in Seoul trading on concern that its liabilities outpace assets. Shares of the world’s second-largest shipbuilder dropped 6.2 percent to 6,070 won as of 10:42 a.m., the lowest intraday level since November 2002. The stock earlier declined as much as 7.9 percent and is among the 10 worst performing stock among the 1,002 members of the MSCI Asia Pacific Index today.

• Won Forwards Approach Four-Year Low as China Deters Risk Taking. Offshore forward contracts in the won traded near a four-year low on concern a slump in Chinese equities will spur outflows from South Korean assets. China’s benchmark stock index dropped the most in three weeks on Tuesday on speculation authorities will pare back efforts to support the market. South Korea’s Kospi index fell to a six-month low Wednesday. Global funds have pulled almost $1 billion from local equities this month. One-month non-deliverable forwards fell 0.3 percent to 1,186.86 a dollar as of 10:16 a.m. in Seoul, data compiled by Bloomberg show. They reached 1,196.85 on Aug. 12, the lowest since October 2011. In onshore trading, the spot rate was little changed at 1,184.70. The won has weakened 7.9 percent this year.

• Asian Stocks Fall as Oil Decline Signals Slowing China Economy. Asian stocks fell a fourth day as a deepening commodities selloff raised concern growth may be slowing in China, and as investors await clues from the Federal Reserve on the timing of a U.S. interest-rate increase. The MSCI Asia-Pacific Index dropped 0.1 percent to 136.83 as of 9:01 a.m. in Tokyo, extending a seven-month low. 

• OPEC's ‘Fragile Five’ Face Rising Cost in the Fight for Oil Market Share. The costs of OPEC’s plan to protect members' share of the oil market by out-producing rivals are mounting. As oil prices slump to six-year lows, the risks of worsening political turmoil are rising in the organization’s most vulnerable nations.  This includes Algeria, Iraq, Libya, Nigeria and Venezuela, a group dubbed the `Fragile Five' by RBC Capital Markets Ltd.

• One of the Most Successful Trading Strategies This Year May be Coming to an End. (graph) Investors who've been minting money according to the Wall Street adage that the trend is your friend just got a reminder that nothing works forever. A Citigroup Inc. index that tracks U.S. momentum stocks like Apple Inc. and Netflix Inc. did something last week it hadn't done since June -- it fell. While still trouncing the Standard & Poor's 500 Index in 2015, analysts at the bank have warned that the strategy is approaching a threshold where rotations have occurred in the past.

• Bond Traders Aren’t Buying Into Good News on U.S. Economy. Good economic news just isn’t that bad for Treasuries any more. The reaction in the $12.8 trillion U.S. government bond market to surprisingly strong data has become more muted in recent months, according to Goldman Sachs Group Inc. At the same time, the influence of unexpectedly weak data has grown for longer maturities, while staying about the same for others, the New York-based bank wrote in a report published Tuesday. That’s a sign investors are taking a dim view of the world’s biggest economy, even as the Federal Reserve prepares to raise interest rates for the first time in a decade.

Wall Street Journal:

• Yuan’s Devaluation Brings Losses for Some. Investors assumed China would keep the currency stable. They were wrong. In the rough-and-tumble world of global currencies, where exchange rates can swing by double-digit percentages in days, the yuan’s 3% fall against the U.S. dollar marked a minor change. But it is proving cataclysmic for investors who watched the yuan climb for a decade and anchored bets around the notion it would hold steady.

• Dark Clouds Loom for Airlines Even as Their Profits Take Off. Stocks remain in a slump as airlines face labor woes, competition probes and investor fears.

• CEO Fiorina Fought the Good Fight. No big-tech chief executive created value between 1999 and 2005. And Carly was one of them.

Fox News:

• Billionaire George Soros warms up to coal as stock prices hit bottom. Billionaire investor George Soros, who has demonized fossil fuels for years through his think tanks and political contributions, seems to have warmed up to Big Coal now that stocks are dirt cheap. The left-wing hedge fund legend has raised eyebrows with major purchases of stock in two large coal companies, firms his critics say he helped bring to their knees. While buying low is the hallmark of any shrewd investor, buying coal goes against the political and environmental ideology Soros has long espoused. “I find it very interesting that George Soros would buy shares in those coal companies,” said Daniel Simmons, vice president for Policy at the Washington DC-based free market energy group, Institute for Energy Research. “I am confused given the non profits he funds and how hard they have worked to demonize coal.”

MarketWatch.com: 

• Market timer Tom McClellan sees stocks set up for ‘ugly decline’ as early as Thursday.

CNBC:

• Hackers post stolen Ashley Madison user data: Report. Hackers who breached the networks of cheating website AshleyMadison.com have made the sensitive customer information publicly available, according to a report by Wired. Almost 10 gigabytes worth of data, including member account details, log-ins and payment transaction details, were posted on Tuesday to the dark web.

• One of the final big Fed days before mid-September.

Zero Hedge:

• The 8 Trillion Black Swan: Is China's Shadow Banking System About To Collapse? (chart)

• Margin Debt Drops For 1st Time In 8 Days As Chinese Stocks Continue Plunge Despite Stable Yuan. (graph)

• And The Best Way To Make Money In Chinese Stocks Is... (graph)

• Citizen Patrols Return To Central Park After 26% Jump In Crime, Mayor de Blasio Blamed.

• Vietnam Can't Keep Currency Up - Devalues Dong 3rd Time This Year, Widened Trading Bands. (graph)

• Only The Date Is Unknown. (cartoon)

• Hillary Mocks FBI Claim She Wiped Email Server Clean, "What With A Cloth Or Something?" (video)

• China's Richest Traders Are Rushing To Dump Their Stocks To The Retail Masses, Just Like In The US. (graph)

• Noble Group’s(NBL) Kurtosis Awakening Moment For The Commodity Markets. (video)

• API Reports 4th Consecutive Inventory Draw But Crude Slides On Cushing Build. (graph)

• Dotcom Bubble 2.0? It's Different This Time. (graph)

• The S&P's 13th Trip Thru 2,100 Since Feb 13th: Call It Monetary Rigor Mortis - The Bull Is Dead. (graph)

• Chinado 2.0: Dollar Pump, Stocks Slump, Copper & Silver Dump. (graph)

Business Insider:

• China is in the midst of its biggest crisis in decades.

• This is a problem. (graph)

• Another Democrat is planning to vote against the Iran nuclear deal.

• Canada is 'getting clocked' by something far bigger than oil.

• Junk-rated drillers are fighting for their lives.

• These 6 robots made by Google's(GOOG) parent company will amaze and terrify you. (video)

• Congress could be a 'thumb on the scale' that keeps the Fed from hiking rates in September.

• GUNDLACH: It's a 'bad idea' for Fed to hike rates right now.

• COPPER HITS A 6-YEAR LOW: Here's what you need to know.

• China is a hollow dragon.

Reuters:

• U.S. FDA approves 'female Viagra' with strong warning. The first drug to treat low sexual desire in women won approval from U.S. health regulators on Tuesday, but with a warning about potentially dangerous low blood pressure and fainting side effects, especially when taken with alcohol. The U.S. Food and Drug Administration said the pink pill, to be sold under the brand name Addyi and made by privately held Sprout Pharmaceuticals, will only be available through certified and specially trained health care professionals and pharmacies due to its safety issues. Addyi, whose chemical name is flibanserin, is designed for premenopausal women whose lack of sexual desire causes distress. The condition is formally known as hypoactive sexual desire disorder, or HSDD.

Financial Times:

• Surge in emerging market capital outflows hits growth and currencies. A surge of capital gushing out of emerging markets has risen toward $1tn over the past 13 months, roughly double the amount that fled during the financial crisis amid slumping confidence in the world’s developing economies. The sustained exodus of capital reinforces concerns that emerging market economies, suffering slowing growth and weakening currencies, are relinquishing their longstanding role as locomotives for global growth to become a drag on demand instead.

Telegraph:

• Unworkable and unreformable, the euro surely cannot survive another serious downturn. The euro in its present form will die not of the financial traumas that first threatened its existence, but of popular anger.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -1.5% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 120.5 +4.25 basis points.

• Asia Pacific Sovereign CDS Index 71.0 -.25 basis point.

• S&P 500 futures -.10%.

• NASDAQ 100 futures -.13%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (AEO)/.14

• (CTRN)/-.11

• (EV)/.62

• (HRL)/.54

• (LOW)/1.24

• (STPLS)/.12

• (TGT)/1.11

• (HGR)/.45

• (LB)/.68

• (NTAP)/.23

• (SMTC)/.24

• (SPTN)/.51

• (SNPS)/.59

Economic Releases

8:30 am EST

• The CPI for July is estimated to rise +.2% versus a +.3% gain in June.

• The CPI Ex Food & Energy for July is estimated to rise +.2% versus a +.2% gain in June.

• Real Avg Weekly Earnings YoY for July.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -354,000 barrels versus a -1,682,000 decline the prior week. Gasoline supplies are estimated to fall by -1,090,000 barrels versus a -1,251,000 barrel decline the prior week. Distillate inventories are estimated to rise by +1,490,000 barrels versus a +2,994,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.36% versus unch. prior.

2:00 pm EST

• US Fed releases minutes from July 28-29 FOMC meeting.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Kocherlakota speaking, weekly MBA mortgage applications report and the (CAT) investor conference call could also impact trading today.

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

Stocks Reversing Lower into Afternoon on China Bubble-Bursting Fears, Emerging Markets Currency Concerns, Global Growth Worries, Tech/Metals & Mining Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 13.81 +6.07%

• Euro/Yen Carry Return Index 143.27 -.46%

• Emerging Markets Currency Volatility(VXY) 10.69 -.47%

• S&P 500 Implied Correlation 55.64 +1.57%

• ISE Sentiment Index 101.0 +134.88%

• Total Put/Call .91 +3.41%

• NYSE Arms 1.08 +38.56% 

Credit Investor Angst:

• North American Investment Grade CDS Index 77.97 +1.84%

• America Energy Sector High-Yield CDS Index 1,908.0 +.55%

• European Financial Sector CDS Index 75.75 +.19%

• Western Europe Sovereign Debt CDS Index 22.48 +.56%

• Asia Pacific Sovereign Debt CDS Index 70.86 -.42%

• Emerging Market CDS Index 344.80 +.32%
  

• iBoxx Offshore RMB China Corporates High Yield Index 119.05 -.35%

• 2-Year Swap Spread 23.75 -.25 basis point

• TED Spread 25.75 +2.0 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -20.0 -.25 basis point

Economic Gauges:

• 3-Month T-Bill Yield .07% unch.

• Yield Curve 147.0 +2.0 basis points

• China Import Iron Ore Spot $56.92/Metric Tonne +.46%

• Citi US Economic Surprise Index -8.2 +1.0 point

• Citi Eurozone Economic Surprise Index 10.8 +.6 point

• Citi Emerging Markets Economic Surprise Index -6.2 -1.8 points

• 10-Year TIPS Spread 1.60 unch.
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 3.54 -.03

Overseas Futures:

• Nikkei 225 Futures: Indicating -84 open in Japan 
• China A50 Futures: Indicating -200 open in China

• DAX Futures: Indicating -18 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 25% Net Long