Thursday Watch

Evening Headlines
Bloomberg:

• Erdogan Says Turkey Will Impose 3-Month State of Emergency. (video) Turkey will impose a three-month state of emergency as the government pursues those responsible for a failed military coup, President Recep Tayyip Erdogan said. Erdogan spoke in a televised address after a day of meetings with top generals on the National Security Council, and then ministers in cabinet. Since the collapse of the attempted putsch on Saturday, authorities have arrested thousands of army officers, judges and prosecutors, and embarked on a purge of other institutions such as universities. Erdogan has blamed the U.S.-based cleric Fethullah Gulen for instigating the coup, and urged the Obama administration to extradite him. The turmoil pushed the lira to a record low on Tuesday as S&P Global Ratings downgraded the country’s debt.
• Erdogan Says Europe Shouldn’t Interfere With Turkish Crackdown. European criticism won’t stop Turkey taking steps it deems necessary after last week’s failed coup, President Recep Tayyip Erdogan said. He projected a more conciliatory tone toward the U.S. and Russia. “The EU is not the whole world,” Erdogan said in an interview with Al Jazeera on Wednesday before announcing a 3-month state of emergency. “It is just 28 countries. The U.S. has the death penalty, Russia has it, China has it.”
• Brazil Keeps Rate Amid Persistently High Prices, Shrinking GDP. Brazil’s central bank kept the benchmark interest rate unchanged Wednesday, matching analyst expectations as policy makers struggle to tame stubborn inflation without exacerbating a crippling recession. Policy makers, led for the first time by their new chief, Ilan Goldfajn, held the so-called Selic rate at 14.25 percent for their eighth consecutive meeting. All 38 analysts surveyed by Bloomberg forecast the decision. Traders in the swaps market don’t expect the rate to budge until October, when they forecast the first reduction since 2012.
• RBNZ Says Lower Interest Rates May Be Needed to Boost Inflation. New Zealand’s central bank said further monetary easing may be required to lift inflation, reinforcing expectations of an interest-rate cut next month. “At this stage it seems likely that further policy easing will be required to ensure that future average inflation settles near the middle of the target range,” the Reserve Bank of New Zealand said in a statement Thursday in Wellington. The release was an assessment of economic conditions and not a review of the official cash rate, which isn’t scheduled until Aug. 11.
• Asian Stocks Advance as Stimulus Hopes Buoy Japanese Shares. Asian stocks rose, with the regional benchmark index heading toward the highest closing level of the year, as expectations for a stimulus package in Japan weakened the yen and better-than-anticipated corporate earnings in the U.S. eased concerns over global growth. The MSCI Asia Pacific Index gained 0.3 percent to 134.25 as of 9:05 a.m. in Tokyo. Japan’s Topix index advanced 1.1 percent, resuming a rally after snapping a six-day advance on Wednesday.
• The Risk Oil Drillers Couldn’t Hedge Away. Failing drilling companies lose valuable insurance that would protect them against falling oil prices.
• Negative Yields Infecting Credit Markets as Investors Capitulate. It’s getting harder for corporate debt investors to avoid the volume of negative yielding bonds that are now pouring into credit markets. Investors are holding 465 billion euros ($512 billion) of investment-grade company bonds with yields below zero, an eleven-fold increase on the start of the year, according to Bank of America Merrill Lynch data. While this means they’re effectively paying for the luxury of holding the debt, that’s still better than buying into the safest government bonds, where yields are even lower. The dilemma facing investors is down to the European Central Bank’s asset-purchase stimulus program that’s pushed yields so low that buying some government bonds guarantees a loss. With the ECB setting deposit rates even deeper into negative territory, parking money there is a less viable alternative. Even though some short-dated indexes show corporate debt yields have dipped below or are approaching zero, the securities remain relatively attractive.
• Hedge Fund Outflows Slowed in Second Quarter as Quant Funds Won. The amount of money leaving hedge funds slowed in the second quarter as firms that rely on computer algorithms made money in the selloff following the U.K.’s vote to exit the European Union. The industry saw $8.2 billion in net outflows in the second quarter, about 46 percent less than in the prior three months, Hedge Fund Research Inc. said Wednesday in a report. Global hedge fund assets rose by $42.1 billion in the second quarter to nearly $2.9 trillion, the third-highest quarterly total on record. Asset growth was the strongest since the first quarter of 2015, boosted by a 2 percent return for the HFRI Fund Weighted Composite Index.

Wall Street Journal:

• U.S. Links Malaysian Prime Minister to Millions Stolen From Development Fund. In 1MDB lawsuit, Justice Department trying to seize more than $1 billion in assets.

Fox News:

• US intel bulletin warns of persistent threat from 'Western female violent extremists'. The U.S. intelligence community is warning law enforcement agencies around the country of persistent terror threats posed by radicalized Western women. In a Joint Intelligence Bulletin – or JIB – distributed Tuesday and obtained by Fox News, the FBI, Department of Homeland Security, and National Counterterrorism Center note a “continued trend of Western female violent extremists… engaging or attempting to engage in plotting against targets in the West, including their home countries.”
• GOP Convention: Live Blog.

MarketWatch:

• 4 charts show Dow, S&P 500 overheating—and Wall Street is freaking out.

Zero Hedge:

• Erdogan Declares Three Month "State Of Emergency", Warns S&P "Don't Mess With Turkey".
• "My Own People Hate Me!" - Black Brooklyn Cop Slams "False Narrative Of Black Lives Matter".
• Elon Musk Reveals His "Master Plan", Part Deux.
• George Soros Doubles Down: Accept 300k Refugees Costing $30Bn, Or Risk EU Collapse.
• Global Warming Expedition Stopped In Its Tracks By Arctic Sea Ice.
• USDJPY Surges In Delayed Reaction To News That Japan Is Considering An Expanded JPY20 Trillion Stimulus Plan. (graph)
• A Failed Coup, An Unrecognized Republic, And Triggers For A Global Economic Meltdown.
• Becoming Japan: "The Threat Of A Global Recession Is Growing". (graph)
• Why Citi Thinks "The Pokemon GO Threat Is Real".
• Intel(INTC) Reports Worst GAAP Earnings Since 2009; "Beats" Expectations Thanks To $1.4 Billion In Addbacks.
• S&P Sees A "Crisis Of Confidence Around The Globe" As Corporate Debt Hits $75 Trillion In 2020.
• Another Bad Month For Truck Shipping. (graph)
• Stocks Went Up...Again. (graph)

Business Insider:

• The hedge fund at the heart of an insider-trading scandal is winding down a key fund.
• Ted Cruz crowd loudly boos Donald Trump as billionaire's plane flies overhead in Cleveland.
• Venezuela's looming economic catastrophe, in one graphic.

WGRZ.com:

• Melania Trump speech writer is a Democrat. The woman who has taken responsibility for the Melania Trump plagiarism scandal at the Republican National Convention is a registered Democrat, according to an online database. TEGNA investigative reporter Brendan Keefe has learned Meredith McIver is shown as a registered Democrat in Lexis/Nexis, a database of information regularly used by journalists, lawyers and government officials. McIver is an in-house staff writer for the Trump Organization who also has ghostwritten multiple books written by Donald Trump. She has been a registered Democrat since 1996, according to the database.

Reuters:

• Strong demand from China buoys Qualcomm(QCOM) forecast.
• EBay(EBAY) beats revenue estimate, bumps up forecasts.

Telegraph:

• Central banks must realise the last thing we need is nationalisation by the back door.

Night Trading 

• Asian equity indices are unch. to +.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 119.5 -1.75 basis points.
• Asia Pacific Sovereign CDS Index 47.50 -.5 basis point.
• Bloomberg Emerging Markets Currency Index 72.27 +.01%. 
• S&P 500 futures -.01%. 
• NASDAQ 100 futures +.08%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (ABB)/.35
• (ALK)/2.09
• (ADS)/3.59
• (BBT)/.68
• (BIIB)/4.69
• (BX)/.39
• (DISH)/.73
• (DPZ)/.94
• (DHI)/.66
• (FCS)/.18
• (GM)/1.50
• (JCI)/1.03
• (MAN)/1.52
• (NUE)/.69
• (PPG)/1.85
• (PHM)/.32
• (DGX)/1.32
• (SHW)/4.16
• (SNA)/2.23
• (LUV)/1.21
• (TRV)/2.05
• (UNP)/1.16
• (T)/.72
• (COF)/1.88
• (CMG)/.91
• (FWRD)/.58
• (MXIM)/.48
• (OII)/.27
• (PYPL)/.36
• (SLB)/.21
• (SBUX)/.49
• (V)/.67
• (WERN)/.23 
  

Economic Releases  
8:30 am EST

• The Chicago Fed National Activity Index for June is estimated to rise to -.20 versus -.51 in May.
• Initial Jobless Claims for last week are estimated to rise to 265K versus 254K the prior week. 
• Continuing Claims are estimated to fall to 2140K versus 2149K prior.
• The Philly Fed Business Outlook Index for July is estimated to rise to 4.8 versus 4.7 in June.  

9:00 am EST

• The FHFA House Price Index MoM for May is estimated to rise +.4% versus a +.2% gain in April.

10:00 am EST

• Existing Home Sales for June are estimated to fall to 5.48M versus 5.53M in May.
• The Leading Index for June is estimated to rise +.2% versus a -.2% decline in May.   

Upcoming Splits 

• None of note

Other Potential Market Movers

• The ECB rate decision, ECB press conference, UK retail sales report, Bloomberg Economic Expectweekly EIA natural gas inventory report and the (CHS) annual meeting could also impact trading today.

BOTTOM LINE:  Asian indices are mostly higher, boosted by technology and commodity 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 Rising into Final Hour on Less European Debt Angst, Earnings Optimism, Short-Covering, Biotech/Tech Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 11.79 -1.5%

• Euro/Yen Carry Return Index 122.78 +.49%

• Emerging Markets Currency Volatility(VXY) 10.10 +.90%

• S&P 500 Implied Correlation 48.71 +2.12%

• ISE Sentiment Index 97.0 +18.3%
  

• Total Put/Call .83 -11.7%

• NYSE Arms 1.18 +5.61% 

Credit Investor Angst:

• North American Investment Grade CDS Index 70.29 -1.35%
  

• America Energy Sector High-Yield CDS Index 725.0 +.40%

• European Financial Sector CDS Index 93.44 -5.62%

• Western Europe Sovereign Debt CDS Index 26.49 -1.12%

• Asia Pacific Sovereign Debt CDS Index 47.46 -1.09%

• Emerging Market CDS Index 253.56 +.13%
  

• iBoxx Offshore RMB China Corporate High Yield Index 130.91 +.06%

• 2-Year Swap Spread 22.50 +1.5 basis points
  

• TED Spread 38.0 -1.0 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -48.25 unch.
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.33 -.22%
• 3-Month T-Bill Yield .32% +1.0 basis point

• Yield Curve 87.0 unch.
  

• China Import Iron Ore Spot $55.75/Metric Tonne -.48%

• Citi US Economic Surprise Index 28.60 +.7 point

• Citi Eurozone Economic Surprise Index -2.1 +.7 point

• Citi Emerging Markets Economic Surprise Index -10.70 unch.

• 10-Year TIPS Spread 1.49% +1.0 basis point
• 24.6% chance of Fed rate hike at Sept. 21 meeting, 26.2% chance at Nov. 2 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +228 open in Japan 
• China A50 Futures: Indicating +21 open in China

• DAX Futures: Indicating -21 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg: 

• Erdogan Gathers His Top Turkey Security Chiefs as Purges Spread. (video) Turkey’s President Recep Tayyip Erdogan met with top security officials for the first time since Friday night’s thwarted coup amid a widening purge of state institutions, and has vowed to make an “important” announcement afterward. Following a National Security Council meeting in Ankara that began at about 1 p.m., Erdogan will also gather with ruling AK Party government ministers as well as the full cabinet in a series of meetings that could last several hours. Deputy Prime Minister Nurettin Canikli told BloombergHT television in an interview Tuesday that measures to be announced will include a “new framework in line with the constitution” for the prosecution of the coup plotters. Erdogan’s chief adviser Cemil Ertem told Anadolu news agency there’s no plan to impose capital controls, and Deputy Prime Minister Mehmet Simsek said on Twitter that policy steps taken will be “market friendly.” The government’s crackdown in reprisal for the coup attempt has been swift and severe. Turkey has detained, suspended, fired or stripped the professional accreditation of around 60,000 people, according to Bloomberg calculations.  
• Turkish Government to Consider State of Emergency After Coup. (video) A leading member of President Recep Tayyip Erdogan’s ruling AK Party said Turkey could consider imposing “extraordinary measures” as top security officials met for the first time since Friday night’s thwarted coup. The lira fell to a record low after S&P Global Ratings downgraded the country’s debt. The National Security Council, which consists of Erdogan and top generals as well as some members of government, “may take some steps” if it decides that a state of emergency is necessary, AK Party Deputy Chairman Cevdet Yilmaz told Haberturk television. The council meeting ended just before 6 p.m. in Ankara, after which Erdogan was to gather the cabinet for talks that could last hours.
• ECB Precision Stimulus Can’t Duck Doubt on How Economy Works. Mario Draghi’s quantitative easing may look like a precise business; the underlying economics are anything but. Two recent observations by the European Central Bank on output and employment highlight how monetary policy is far from an exact science, underlining the challenge that the institution’s president and his colleagues will face in their two-day meeting starting Wednesday. In evaluating their targeted strategies to boost the euro area’s feeble inflation rate, they have to measure the economy -- and that’s the trouble. It starts with a paper published on July 1 by researchers Marek Jarocinski and Michele Lenza on the size of the 19-nation currency bloc’s “output gap” -- or the spare capacity in the economy. The conclusion that the gap could be as much as minus 6 percent of potential gross domestic product, compared with typical estimates closer to 2 percent, suggests that even the 80 billion euros ($88 billion) a month the ECB spends on stimulus isn’t nearly enough.
• European Banks May Need $517 Billion of Loss-Absorbing Funds. European banks need to sell hundreds of billions of euros in loss-absorbing liabilities over the next few years to meet European Union rules designed to protect taxpayers from the cost of bank failures. The European Banking Authority estimates as much as 470 billion euros ($517 billion) of financing is needed under the most conservative assumptions for what qualifies as “loss-absorbing.” Excluding senior unsecured debt could bring the amount to 790 billion euros, the regulator said in its first quantitative impact study on the EU’s minimum requirement for eligible liabilities and own funds, or MREL.
• World’s Silence on Weaker Yuan to Be Tested at G-20 Gathering. China has managed to weaken its currency in recent months without so much as a peep from trading rivals, despite the competitive advantage garnered amid sluggish global growth. That quiescence -- thanks to a shift in policy from sharp moves at the start of 2016 that triggered global market turmoil to more of a steady, modest decline -- will be tested as Group of 20 finance chiefs gather on Chinese soil July 23-24. The yuan, once an anchor for Asia during troubled times, has so far this year marked the biggest drop against the dollar among the region’s currencies.
• European Stocks Climb to Four-Week High as SAP, Volkswagen Jump. Technology and auto companies led European equities to a four-week high amid encouraging earnings announcements. Software maker SAP SE climbed 5.7 percent after reporting second-quarter results that beat analyst projections. ASML Holding NV advanced 3 percent after Europe’s largest semiconductor-equipment maker said sales increased. Volkswagen AG jumped 6 percent after saying first-half earnings exceeded estimates. Anglo American Plc helped drag miners lower, falling 4.8 percent, after cutting its copper production target. The Stoxx Europe 600 Index added 1 percent at the close of trading in London, with the volume of shares changing hands 34 percent lower than the 30-day average.
• Bull Who Saw Treasury Rally Forecasts Yields Will Fall to 0.9%. Komal S. Sri-Kumar, the economist who predicted the 2016 Treasury market rally when the consensus was for a selloff, says benchmark yields may fall to a record 0.9 percent by the end of the year. His forecast goes further than that of Matthew Hornbach, the head of global interest-rate strategy for Morgan Stanley in New York, who this week predicted the benchmark would fall to 1 percent in the first quarter of 2017.
• Wall Street Whacks Pay Hardest in Four Years to Preserve Profits. Three of Wall Street’s largest investment banks slashed their first-half compensation pools for employees by the most in at least four years. Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley collectively reduced the amount of money they set aside for employee pay in the first and second quarters by 17 percent to $19 billion to shore up profits, according to data compiled by Bloomberg from regulatory filings. That’s a steep drop from last year, when the three firms’ investment-banking divisions increased first-half compensation 4 percent to $22.9 billion.
• S&P 500 Sends Mixed Technical Signals as Rally Nears 10%: Chart.

Wall Street Journal:

• Twitter Permanently Bans Blogger Milo Yiannopoulos on Abusive-Content Grounds. The unusual move comes after actress Leslie Jones sparred with the conservative blogger and received racially abusive tweets from many users.

Fox News:

•  GOP Convention: Live Blog.

CNBC:

• Corporate debt seen ballooning to $75 trillion: S&P. (video) Corporate debt is projected to swell over the next several years, thanks to cheap money from global central banks, according to a report Wednesday that warns of a potential crisis from all that new, borrowed cash floating around. By 2020, business debt likely will climb to $75 trillion from its current $51 trillion level, according to S&P Global Ratings. "A worst-case scenario would be a series of major negative surprises sparking a crisis of confidence around the globe," S&P said in the report. "These unforeseen events could quickly destabilize the market, pushing investors and lenders to exit riskier positions ('Crexit' scenario). If mishandled, this could result in credit growth collapsing as it did during the global financial crisis." In fact, S&P considers a correction in the credit markets to be "inevitable." The only question is degree.

Zero Hedge:

• The Oddly "Inconsistent" Event That Has Turkey Wondering If The Entire Coup Was Staged.
• As Erdogan's Historic Purge Claims 50,000, Turkey Set To Unveil "Emergency Measures".
• Papa John's(PZZA) Upgraded On Expectation Civil Unrest, Rioting Will Lead To More Pizza Deliveries.
• Exposing The Fatal Flaws In Self-Serving Obama-Sponsored Study Which Concludes "Student Debt Helps Economy".
• "The Market's In Conflict" - 11 Red Flags In A Sea Of Green.
• Prominent Journalist Killed In Ukraine When Car Bomb Explodes In Broad Daylight.
• Donald Trump Rejects Melania Speech Writer's Resignation. Following calls yesterday for the Trump campaign to "fire somebody," over the Melania-speech-plagiarism debacle, Meredith McIver - the Trump staff-writer responsible for the 'passages' from Michelle Obama's speech - has offered her resignation... but Donald Trump rejected it as an "innocent mistake." "In working with Melania Trump on her recent First Lady speech, we discussed many people who inspired her and messages she wanted to share with the American people. A person she has always liked is Michelle Obama."
• "The World's Central Banks Are Making A Big Mistake".
• The Helicopter Has Already Been Tested - And It Failed Spectacularly.
• HSBC Global Head Of FX Cash Trading Arrested At JFK Airport.
• S&P Downgrades Turkey To BB, Outlook Negative; Lira Tumbles To New All Time Low. (graph)
• Art Sales Tumble: Christie's Reports 38% Plunge In First Half Sales. (graph)
• Stock Markets At Record Highs And Everybody's Miserable. So, It's Different This Time?
• Unexpected Gasoline Inventory Build, Production Rise Spark Crude Chaos. (graph)
• Morgan Stanley(MS) Beats Despite 9% Drop In Revenue, Helped By Cost-Cutting, Strong FICC; Shares Jump.
• IMF Called "Clowns" After Admitting They Fabricated Brexit Doom And Gloom.

Business Insider:

• Betrayal, corruption, and manipulation: 2 traders have been charged with 'front-running'.
• Chinese nationalists are taking their anger out on anything American they can touch.
• Some analysts are floating the idea that Pokemon Go will generate $3 billion for Apple — here's why that's wrong.
• A Chinese company is threatening to fire workers if they buy an iPhone 7.

Washington Free Beacon:

• Obama Admin Kept Lawmakers in Dark About Secret Iran Side Deals. Congressman: Disclosures invalidate entire nuclear deal.

Bear Radar

Style Underperformer:

• Large-Cap Value +.1%

Sector Underperformers:

• 1) Gold & Silver -4.3% 2) Steel -1.0% 3) Utilities -.7%

Stocks Falling on Unusual Volume:

• RYI, EXPO, MANH, BKU, SBNY, K, SPKE, IBKR, BOOM, CALM, EPC, LMT, BABY, BNK, FOXA, NUE, INFO, OZRK, PPBI, EEQ, USLV, RNST, FOX, NTRS and MTB

Stocks With Unusual Put Option Activity:

• 1) HPQ 2) WMB 3) SCHW 4) OIH 5) JWN

Stocks With Most Negative News Mentions:

• 1) WYNN 2) DIS 3) NUE 4) K 5) RAD

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume