Morning Market Internals

NYSE Composite Index:

• Volume Running .9% Below 100-Day Average
• 7 Sectors Rising, 3 Sectors Declining
• 49.4% of Issues Advancing, 46.9% Declining
• 22 New 52-Week Highs, 19 New Lows
• 23.6% of Issues Above 200-day Moving Average
• Average 14-Day RSI 38.8
• Vix 24.4
• Total Put/Call .76
• TRIN/Arms .63

Wednesday Watch

Evening Headlines 

Bloomberg: 

• Carmaker China Troubles Poised to Worsen as Dealer Profits Slump. Chinese car dealers suffered a plunge in first-half profits as demand slowed in the world’s largest vehicle market, threatening to further dent sales and hurt automaker margins. The combined net income at the eight Hong Kong-traded Chinese car dealers fell 29 percent in the first six months, according to data compiled by Bloomberg. The slump has eroded the chances that profits will meet analyst expectations for a 21 percent gain for the full year. “If dealers’ profits keep worsening, carmakers will have to bail them out by offering rebates and lowering inventory,” said Robin Zhu, an auto analyst at Sanford C. Bernstein “They can’t let dealers die. This could further erode their margins and affect sales.”
• No End in Sight for Slide in Singapore Home Prices as Rates Rise. Rising borrowing costs and a weaker currency bode ill for Singapore’s home prices amid their longest slide in more than a decade. The three-month Singapore interbank offered rate has more than doubled in a year to the highest since 2008. The main benchmark for housing loans is seen rising further as it narrows the gap with the swap offer rate, a measure of borrowing costs influenced mainly by exchange-rate expectations. The spread reached the widest since 2009 as the Singapore dollar slumped 7 percent this year.
• Asian Stocks Advance on China Optimism as Japan Shares Rebound. Asian stocks rose, extending a global rally, amid optimism that Chinese policy makers will succeed in stabilizing mainland equity markets. Japanese shares rebounded to push the Nikkei 225 Stock Average back into positive territory for the year. The MSCI Asia Pacific Index climbed 1.2 percent to 125.64 as of 9:03 a.m. in Tokyo as the Nikkei 225 surged 3.4 percent.
• Gundlach Says Oil Rally Would Be Short-Lived Due to Imbalance. Any jump in the price for oil is likely to be short-lived, according to Jeffrey Gundlach, co-founder of DoubleLine Capital. “We’re not looking at a big oil rally” any time soon because of an imbalance in supply and demand, Gundlach said on a wide-ranging webcast on Tuesday from Los Angeles. In the near term, crude prices may reach $55 a barrel, he said. That along with a strong stock rally could nudge the Federal Reserve toward raising interest rates this month, the fund manager said, though he called the scenario unlikely. Current levels for nominal economic growth and commodity prices aren’t supportive of an immediate interest rate hike by the central bankers, he said, adding that the Fed has a “‘watch out’ signal” rather than an “all clear.” 
• China's Cotton Imports Seen Slumping to 13-Year Low Amid Glut. Chinese cotton imports will fall to their lowest in 13 years, according to a U.S. government forecast, as the nation reduces its inventories amid declining domestic use and growing competition from foreign producers. Chinese mills will bring in 5.75 million bales from overseas suppliers in the 12 months started Aug. 1, the U.S. Department of Agriculture’s Foreign Agricultural Service said Tuesday in a report posted on its website. That’s 31 percent lower than a year earlier and the least since 2002-2003.
• Anthem(ANTM), Aetna(AET) Deals Threaten Competition Across U.S., AMA Says. The market for health-insurance in the U.S. is already so highly concentrated that pending tie-ups among four of the country’s largest insurers risk hurting both consumers and doctors, the American Medical Association said.
• United(UAL) Ousts Smisek in Probe of Airline-Port Authority Ties. United Continental Holdings Inc. ousted Chief Executive Officer Jeff Smisek as the airline grapples with a federal investigation into its ties to the former chairman of the Port Authority of New York & New Jersey. U.S. prosecutors are looking into the service between United’s Newark hub in New Jersey and Columbia, South Carolina, near where the wife of former Port Authority chief David Samson has a home -- a money-losing route that became known as “the chairman’s flight.” United ended the trip days after Samson left the Port Authority in March 2014.

Wall Street Journal: 

• Hillary Clinton Backed Key U.S. Shift Toward Iran Nuclear Deal. At State Department, the Democratic front-runner and an aide softened their stance against letting Tehran enrich uranium. Hillary Clinton, in her last months as secretary of state, helped open the door to a dramatic shift in U.S. policy toward Iran: an acceptance that Tehran would maintain at least some capacity to produce nuclear fuel, according to current and former U.S. officials.
• An Investigation Is Probing How J.P. Morgan Steers Its Wealthiest Clients to Hedge Funds. The regulator is the latest to look into whether J.P. Morgan made proper disclosures when pitching its own hedge funds to its private-banking clients. 
• As Commodities Slump, Rubber Falls More. Benchmark futures in Tokyo are near their lowest level in six years.

Fox News:

• Russia undeterred after Kerry phone call, continues flights to Syria. Moscow is continuing to send military cargo flights to Syria despite Secretary of State John Kerry calling his Russian counterpart Sergey Lavrov over the weekend to voice "concerns" about the "imminent" buildup of Russian military forces there. Multiple U.S. officials who have reviewed the latest intelligence in Syria told Fox News that the U.S. military is tracking multiple flights of Russia's largest military cargo plane, the Antonov An-124 Ruslan -- better known by its NATO codename, "Condor."
• Hillary Clinton offers first apology for private email server. (video) Hillary Clinton offered her first apology for using a private email server while secretary of state, calling it a “mistake” in an interview that aired Tuesday. “Even though it was allowed, I should have used two accounts. One for personal, one for work-related emails,” she told ABC News. ”That was a mistake. I’m sorry about that. I take responsibility.”

CNBC:

• A stock ploy undermining the US economy. (video) Paper profits on repurchased stock prices has fooled the market. Productivity lags. Corporate investment in fixed assets is at its lowest level in 60 years.

Zero Hedge:

• The Fed Is About To Unleash Deflation: Deutsche Bank Shows How. (graph)
• "Desperate" Chicago Schools Need Half Billion To Avoid Mass Layoffs, Partial Shutdown.
• "Some People Just Don't Fit In The Economy" Buffett Explains "We Send Them Off To Afghanistan".
• "The World Is Running Low On Interventionist Ammo" SocGen Warns "China Is The Dominant Black Swan".
• Social Security Disability Fund Will Be Broke Next Year. (graph)
• Fed Hike Will Unleash "Panic And Turmoil" And A New Emerging Market Crisis, Warns World Bank Chief Economist.
• YHOO(YHOO) Flash-Crashes After IRS Fails To Rule On BABA Spin-Off. (graph)
• "Liar Loans" Are Back! 2008 Here We Come.
• A Sucker's Rally? (graph)
• Stocks & Commodities Pumped, Bonds & Yen Dumped After Massive Chinese Intervention. (graph)

Business Insider: 

• Only 21% of Americans approve of the Iran Deal. 21% of respondents now approve of the deal, down from 33% in July, when it was first announced. 49% disapprove, up from July's 45%, and 30% don't know whether or not they approve of the deal.
• It's going to be a wild September in Congress — and the odds of a shutdown are now astoundingly high.

Reuters:

• Tetraphase's bowel drug fails late-stage study, shares slump. Tetraphase Pharmaceuticals Inc said its experimental bowel drug failed to meet the main goal in a late-stage study, sending its shares down 75 percent in extended trading. The company said on Tuesday that data from the study showed that the drug was not better than Johnson & Johnson's antibiotic, levofloxacin, to treat complicated urinary tract infections.

Financial Times:

• Rise of EMs to sap global corporate profits.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are +.75% to +2.0% on average.

• Asia Ex-Japan Investment Grade CDS Index 136.25 -6.5 basis points.

• Asia Pacific Sovereign CDS Index 84.5 -2.25 basis points.

• S&P 500 futures +.28%.

• NASDAQ 100 futures +.35%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (BKS)/.12
• (HDS)/.54
• (HOV)/.01
• (JW/A)/.49
• (NX)/.12
• (TITN)/-.03
• (BOX)/-.29
• (KKD)/.19
• (PANW)/.25
• (ZQK)/-.18

Economic Releases

10:00 am EST

• The JOLTS Job Openings Report for July is estimated to rise to 5300 versus 5249 in June.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The China Inflation report, Australia Unemployment report, UK Manufacturing Production report, $21B 10Y T-Note auction, weekly US retail sales reports, weekly MBA Mortgage Applications report, Cowen Transports Conference, Goldman Retail Conference, FBR Healthcare Conference, Wells Fargo Healthcare Conference, Keefe Bruyette Woods Insurance Conference, Baird Healthcare Conference, BofA Merrill Media/Communications/Entertainment Conference, Citi Biotech Conference, RBC Industrials Conference and the (AAPL) Special Event could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by industrial and technology 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.

Stocks Surging into Afternoon on China Bounce, Central Bank Hopes, Less Emerging Markets Debt Angst, Biotech/Tech Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Every Sector Rising
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 25.21 -9.32%

• Euro/Yen Carry Return Index 139.99 +.59%

• Emerging Markets Currency Volatility(VXY) 12.40 -3.88%

• S&P 500 Implied Correlation 63.61 -.56%

• ISE Sentiment Index 71.0 +3.0%

• Total Put/Call .97 -32.17%

• NYSE Arms .51 -83.69% 

Credit Investor Angst:

• North American Investment Grade CDS Index 80.27 -3.74%

• America Energy Sector High-Yield CDS Index 1,937.0 +6.99%

• European Financial Sector CDS Index 82.44 -1.0%

• Western Europe Sovereign Debt CDS Index 21.87 +.88%

• Asia Pacific Sovereign Debt CDS Index 84.91 -2.23%

• Emerging Market CDS Index 353.13 -2.56%
  

• iBoxx Offshore RMB China Corporates High Yield Index 116.72 +.13%

• 2-Year Swap Spread 12.75 -.5 basis point

• TED Spread 30.25 -1.5 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -24.0 -.25 basis point

Economic Gauges:

• 3-Month T-Bill Yield .03% unch.

• Yield Curve 145.0 +2.0 basis points

• China Import Iron Ore Spot $57.42/Metric Tonne +1.0%

• Citi US Economic Surprise Index -16.6 -1.0 point

• Citi Eurozone Economic Surprise Index 22.8 -2.6 points

• Citi Emerging Markets Economic Surprise Index -25.6 -1.8 points

• 10-Year TIPS Spread 1.53 +2.0 basis points
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 4.32 -.04

Overseas Futures:

• Nikkei 225 Futures: Indicating +593 open in Japan 
• China A50 Futures: Indicating +13 open in China

• DAX Futures: Indicating +27 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg:    

• China Exports Slide as Tepid Demand Adds to Growth Challenge. China’s exports declined in August, signaling weak demand in regions such as Europe and adding to growth pressures facing the world’s second-largest economy. Overseas shipments fell 5.5 percent from a year earlier in dollar terms, the customs administration said. The reading was slightly above the median forecast of a 6.6 percent decline by economists surveyed by Bloomberg, and compared to an 8.3 percent drop in July. Imports fell 13.8 percent, widening from an 8.1 percent decrease and leaving a trade surplus of $60.2 billion.The data highlight tepid demand around the world and sliding prices for inputs to China’s factories and their shipments abroad. 
• China Just Killed the World's Biggest Stock-Index Futures Market. Add the world’s biggest stock-index futures market to the list of casualties from China’s interventionist campaign to stop a $5 trillion equity rout. Volumes in the country’s CSI 300 Index and CSI 500 Index futures sank to record lows on Tuesday after falling 99 percent from their June highs. Ranked by the World Federation of Exchanges as the most active market for index futures as recently as July, liquidity in China has dried up as authorities raised margin requirements, tightened position limits and started a police probe into bearish wagers.While trading in Chinese equities has also slumped amid curbs on short sales and an investigation into computer-driven orders, the tumble in futures volumes may cause even greater damage because of their central role in the investment strategies of domestic hedge funds and other institutional money managers.
• China's Stock-Rescue Tab Surges to $236 Billion, Goldman Says. (video) China’s government has spent 1.5 trillion yuan ($236 billion) trying to shore up its stock market since a rout began three months ago, according to Goldman Sachs Group Inc. The “national team" expended about 600 billion yuan in August alone, with the total now equivalent in value to 9.2 percent of China’s freely-traded shares, strategists including Kinger Lau wrote in a report dated Monday. 
• China's Yuan Shock Threatens Triple Whammy for Asian Exporters. Even before Aug. 11, China was threatening to snatch market share from other Asian competitors in the key U.S. and European export markets. Then the outlook for China’s Asian competitors worsened as the shock yuan devaluation loosened a dollar link that had kept the unit strong even while the currencies of most Asian competitors had weakened. All of a sudden, prospects for easy competitive gains versus China from currency depreciation had ended.
• Shrinking Iron Ore Imports Yet Another Sign of China Slowing. China’s iron ore imports contracted last month, adding to evidence that a deepening slowdown in the world’s second-biggest economy is hurting demand for raw materials. Inbound cargoes fell 14 percent to 74.12 million metric tons from 86.1 million tons in July, which was the highest level this year, according to customs data Tuesday. Imports for the first eight months declined 0.2 percent to 613 million tons. After decades of rapid growth and an unprecedented expansion in steel production, China is now grappling with excess capacity as a property-led slowdown crimps demand. Iron ore prices tumbled in July to their lowest in at least six years as surging low-cost output from Rio Tinto Group in Australia and Brazil’s Vale SA swamped the market. Deadly explosions at Tianjin port last month also disrupted shipments and may have reduced the import figure, according to Shenhua Futures Co.
• The Contagion Threat From China’s Slowdown. (video)
• Fitch Says Risk of Downgrades Spreading Among Developing Nations. Brazil and South Africa top a list of emerging-market borrowers whose credit ratings are threatened by slowing growth and ballooning budget deficits, according to Fitch Ratings. Credit grades across Latin America are also under pressure as the down cycle in commodity prices deepens and stagnation in Brazil’s economy pushes the entire region into contraction, Shelly Shetty, a senior director for sovereigns at Fitch, said in a conference in London Tuesday. In South Africa, the main threats are reduced long-term growth potential and fiscal slippage, said Carmen Altenkirch, a London-based director in Fitch’s sovereign group.
• Japan Economy Flashes Warning as Inventory Gain Holds Up GDP. Japan’s economy contracted last quarter less than initially estimated, thanks to a buildup in inventories that risks damping a rebound. Gross domestic product shrank at an annualized 1.2 percent pace in the three months through June from the first quarter, less than the 1.6 percent drop reported last month, the Cabinet Office said on Tuesday in Tokyo. Economists had estimated a 1.8 percent contraction.
• Europe Stocks Climb Second Day on China Support, Led by Autos. European shares posted a broad-based rally as China led gains in global equities amid speculation that state support will limit its market turmoil. All 19 industry groups on the Stoxx Europe 600 Index rose, with carmakers and miners leading the advance. Daimler AG, BMW AG and Volkswagen AG rose at least 2.5 percent. Commerzbank AG increased 6.8 percent after JPMorgan raised the German lender to overweight, similar to buy, from neutral, and added it to its list of top picks among European banks. Amlin Plc soared 33 percent after MS&AD Insurance Group Holdings Inc. agreed to buy the Lloyd’s of London insurer. Rio Tinto Group contributed the most to gains in a gauge of miners, rising 2.6 percent after giving a bullish assessment of China’s steel and copper demand. The Stoxx Europe 600 Index advanced 1.2 percent to 359 at the close of trading, after earlier rising as much as 2.3 percent.
• Glencore Investors Force Glasenberg to Prepare for Doomsday. Glasenberg, Glencore’s second-largest shareholder, was uncharacteristically downbeat during a conference call with analysts. The new plan envisions cutting $10 billion of debt through the end of next year, shelving dividends and selling both new shares and assets. The fresh approach was triggered by the almost-universal bearishness on commodity prices that investors expressed in talks, surprising Glencore’s management, a person familiar with the matter said, asking not to be identified because the meetings were private.
• Liar Loans Redux: They're Back and Sneaking Into AAA Rated Bonds. (video) The pitch arrived with an iconic image of the American Dream: a neat house with a white picket fence.
  But behind that picture of a $2.95 million home in Manhattan Beach, California, were hints of something darker: liar loans, those toxic mortgages of the subprime era. Years after the great American housing bust, mortgages akin to the so-called liar loans -- which were made without verifying people’s finances -- are creeping back into the market. And, like last time, they’re spreading risks far and wide via Wall Street. Today’s versions bear only passing resemblance to the ones that proliferated in the mid-2000s, and they’re by no means as widespread. Still, they reflect how the business is starting to join in the frenzy that’s been creating booms in everything from subprime car loans to junk-rated company bonds.
• Biden Inches Ahead of Sanders in National Poll as Clinton Slips. Support for the vice president is building as speculation grows about his potential entry into the 2016 presidential race, with 22 percent saying they'd back him. That's ahead of Senator Bernie Sanders of Vermont, who was picked by 20 percent. The difference is within the poll's plus or minus 5.3 percentage point margin of error. Clinton, who continues to confront questions about her use of a private e-mail server while secretary of state in the Obama administration, has the support of 42 percent, down from 52 percent a month ago. Biden's number is 10 percentage points higher than a month ago, while Sanders has seen a 4-point increase during that time.

CNBC: 

• What's coming at Apple's not-so-secretive event. (video)

Zero Hedge:

• Mystery Buyer Of US Treasurys Revealed. (graph)
• Criminal Charges Filed Against Nomura Traders For Skimming Off Bid/Ask Spreads, Making Millions In The Process.
• The Global Credit Supercycle: Full Frontal. (graph)
• Germany's Schaeuble Blasts Central Banks: Money Printing Leads To Financial And Debt Crises.
• The Biggest Red Herring In U.S. Shale. (graph)
• Four Reasons Why JPMorgan Is No Longer Bullish On US Stocks.
• Copper Is Surging Above Key Technical Level - Biggest Jump Since May 2013. (graph)
• China Loses All Control, Spends 600 Billion Yuan On Plunge Protection In August, Tightens Capital Controls.

Business Insider:

• BREMMER: Putin is serious about entering Syria — and not to go after ISIS.
• ROSENBERG: The new cover of Barron's is a 'source of concern'.
• China just gave the game away. (graph)
• Obama has done the unthinkable with his Syria policy. This may be the most surprising of President Obama's foreign-policy legacies: not just that he presided over a humanitarian and cultural disaster of epochal proportions, but that he soothed the American people into feeling no responsibility for the tragedy.
• This chart shows how miserable the major global economies are.

Telegraph:

• France languishes at bottom of growth league as eurozone economy brightens. Eurozone economy grew faster than previously thought in the first six months of the year, though data show France continues to lag behind the rest of the 19-nation bloc.

Bear Radar

Style Underperformer:

• Mid-Cap Value +1.37%

Sector Underperformers:

• 1) Oil Service +.32% 2) Coal +.37% 3) Oil Tankers +.41%

Stocks Falling on Unusual Volume:

• ABY, BABA, INFN, COO, EXAM, NFLX, IEP, EROS, VRA, DRQ, ACAT, RGLD, CWEI, CRTO and AXDX

Stocks With Unusual Put Option Activity:

• 1) ORCL 2) CHK 3) RH 4) KBH 5) JOY
  

Stocks With Most Negative News Mentions:

• 1) DNR 2) INFN 3) MRVL 4) AKS 5) CWEI
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +2.03%

Sector Outperformers:

• 1) Semis +3.44% 2) Steel +3.02% 3) Biotech +2.68%
  

Stocks Rising on Unusual Volume:

• MDP, TE, EFOI, IPXL, COT, JD, MCHP, TPX, W, DOW and OLN

Stocks With Unusual Call Option Activity:

• 1) TAP 2) NBL 3) OLN 4) FNF 5) GNW
  

Stocks With Most Positive News Mentions:

• 1) MU 2) OA 3) FIT 4) JD 5) COKE
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume