Tuesday Watch

Evening Headlines

Bloomberg:

• China's Fading Animal Spirits.The July wobble in China's economy -- like its multi-year slowdown -- has much to do with the waning "animal spirits" of Chinese businesses caused by an historic shift in housing. That's according to Chi Lo, greater China senior economist at BNP Paribas Investment Partners in Hong Kong. A property-led pick up in the first half lost momentum in July, suggesting the market is struggling to digest an overhang in supply of apartments.
• China Large-Cap ETF Flashing Sell Signal After 16% Rally: Chart.
• Mexico Probes Mass Kidnapping in Resort City of Puerto Vallarta. Mexican state prosecutors said they’re investigating a mass kidnapping at an upscale restaurant in the Pacific beach resort city of Puerto Vallarta early Monday morning. Ten to 12 men were taken just after 1 a.m. from the La Leche restaurant by five armed gunmen who arrived in a pair of trucks, state prosecutor Eduardo Almaguer said at a news conference, citing witnesses. Authorities found several abandoned vehicles at the restaurant which indicate the victims were probably from a criminal group, he said. Puerto Vallarta, an upscale resort town visited by millions of foreign tourists annually, is about 550 miles northwest of the country’s capital, Mexico City. Almaguer said state authorities are working with the army and navy to locate the victims and kidnappers and are assuring the safety of tourists in the city.
• Hedge Funds Bet Dollar Will Lose More Ground Versus Yen: Chart. (video) Asian Stocks Climb to One-Year High as Commodity Producers Gain. Asian stocks climbed, trading at the highest level in a year, after U.S. shares regained records and a rally in crude futures bolstered commodity producers. The MSCI Asia Pacific Index rose 0.1 percent to 139.98 as of 9:05 a.m. in Tokyo. Japan’s Topix index increased 0.1 percent as the yen fluctuated against the dollar. Asian stocks have climbed 24 percent from their February low as lackluster data on the world’s biggest economies fuels speculation central banks will continue to support them with stimulus and loose monetary policy. The odds the Federal Reserve will raise rates this year remains below 50 percent.
• Aetna(AET) Quits Most Obamacare Markets, Joining Other Major Insurers. Health insurer Aetna Inc. will stop selling individual Obamacare plans next year in 11 of the 15 states where it had been participating in the program, joining other major insurers who’ve pulled out of the government-run markets in the face of mounting losses. It will keep selling plans in Iowa, Delaware, Nebraska and Virginia, while exiting markets including Pennsylvania, Florida and Ohio. 
• A $35 Billion Stock, an SEC Halt and Suspicions of Manipulation.
• Praxair(PX) Jumps After WSJ Report of Talks to Combine With Linde.

Wall Street Journal:

• U.S. Transfers 15 Guantanamo Bay Detainees. The United Arab Emirates accepts 15 prisoners under President Obama’s push to nearly empty Gitmo by January. The U.S. transferred 15 Guantanamo Bay detainees to the United Arab Emirates on Monday, the largest such movement yet in President Barack Obama’s push to remove most prisoners from the offshore prison before he leaves office in January.
• Soros Doubles Down on Bet Against the S&P 500.
• U.S. Said to Uncover Evidence of Criminal Acts in VW Probe. Justice Department hasn’t decided on specific charges; settlement talks under way with car maker. U.S. Justice Department investigators found evidence of criminal wrongdoing in Volkswagen AG’s diesel-emissions cheating, and are negotiating a settlement with the German auto maker expected to result in charges and significant financial penalties, said people familiar with the matter.
• Trust in Business vs. Government. The public likes the private economy more than the politicians do.

Fox News:

• Trump changes tone on NATO, vows to work with alliance to defeat ISIS. (video) Republican presidential nominee Donald Trump, in what was billed as a major foreign policy address, on Monday backed off past threats to withdraw from the NATO alliance -- saying that if he's elected, the U.S. will work with the 28-member bloc to defeat the Islamic State. During his speech in Youngstown, Ohio, Trump called for working "very closely with NATO," describing radical Islamic terrorism as the dominant global threat and one that must be confronted at all levels. In doing so, Trump acknowledged having previously described NATO as "obsolete" for not dealing adequately with terrorism. "Since my comments, they have changed their policy," Trump said, calling this apparent development "very, very good." 
• Deadly storm system leaves La. in shambles, threatens new flooding in Illinois. (video) The deadly storm system that wreaked havoc on Louisiana, where more than 20,000 had to be rescued, is working its way into the Midwest, where officials are bracing for major flooding.

CNBC:

• Tesla(TSLA) will have 40 rivals by 2021: Tesla bear. (video)

Zero Hedge:

• Is Ivanka Trump Vacationing In Croatia With Putin's Girlfriend? (pic)
• Mexico's New Auto Plants Unable To Find Enough Labor... As Detroit Still Suffers Massive Unemployment.
• Can Anything Possibly Go Wrong For Hillary: 5 Scenarios. (video)
• Shorts Throw In The Towel: S&P Short Interest Tumbles To Three Year Lows. (graph)
• What Hedge Funds Bought And Sold In Q2: The Full 13-F Summary.
• "Fortress" Balance Sheets? FDIC Slams Biggest US Banks, Says Capital Reserves "Inadequate".
• Obama Accepts "Surge" Of 8,000 Syrian Refugees - More Than All Of Europe (And Hillary Wants More).
• Obama Ships 15 Guantanamo Prisoners To Emirates In Largest Ever Gitmo Inmate Transfer.
• Turkey Threatens To Reopen The Refugee Floodgates To Europe.
• Oregon State To Force "Social Justice" Training On Freshman.
• Fed's Williams Calls For An Overhaul Of Monetary And Fiscal Policy... But There Is A Problem.
• "Trouble In Paradise" - Hopes Of Economic Growth Just Took A Beating.
• Hedgers Active As Stocks Hit Record Highs On Lowest Volume Day Of The Year. (graph) 

Business Insider:

• An expert says we won't have to wait until October for an election-changing surprise.
• Prominent digital journalist pulls out of Milwaukee: 'For those who are perceivably white, it is just not safe to be here'.
• 'This is what hell feels like': CNN war correspondent says she's 'never seen anything like' Aleppo. (pic)
• This year has been a nightmare for retail.
• The big banks want 12 years to dump their most toxic assets from the financial crisis.
• Iraq, Iran and Russia are all in the way of a deal between oil producers.
• Big name billionaires are turning bearish.
• China is about to launch an un-hackable satellite and take the lead in a new space race.

Night Trading 

• Asian equity indices are -.25% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 114.25 -.5 basis point.
• Asia Pacific Sovereign CDS Index 43.75 -.25 basis point.
• Bloomberg Emerging Markets Currency Index 73.72 unch. 
• S&P 500 futures -.06%. 
• NASDAQ 100 futures -.03%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (AAP)/2.11
• (DKS)/.69
• (HD)/1.97
• (TJX)/.81
• (CREE)/.20
• (URBN)/.55

Economic Releases 
8:30 am EST

• Housing Starts for July are estimated to fall to 1180K versus 1189K in June.
• Building Permits for July are estimated to rise to 1160K versus 1153K in June.
• The CPI MoM for July is estimated unch. versus a +.2% gain in June.
• The CPI Ex Food and Energy MoM for July is estimated to rise +.2% versus a +.2% gain in June.      
• Real Avg. Weekly Earnings YoY for July. 

9:15 am EST

• Industrial Production MoM July is estimated to rise +.3% versus a +.6% gain in June.
• Capacity Utilization for July is estimated to rise to 75.6% versus 75.4% in June.
• Manufacturing Production for July is estimated to rise +.3% versus a +.4% gain in June.
  

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed's Lockhart speaking, Germany ZEW Index, UK CPI report, weekly US retail sales report and the Wedbush Healthcare Conference could also impact trading today.

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

Stocks Higher into Final Hour on Central Bank Hopes, Oil Bounce, Short-Covering, Financial/Energy Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Below Average

• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• Volatility(VIX) 11.72 +1.47%

• Euro/Yen Carry Return Index 118.28 +.14%

• Emerging Markets Currency Volatility(VXY) 10.01 -.69%

• S&P 500 Implied Correlation 43.93 -1.17%

• ISE Sentiment Index 102.0 -25.0%
  

• Total Put/Call .76 +1.33%

• NYSE Arms .57 -48.3% 

Credit Investor Angst:

• North American Investment Grade CDS Index 70.53 -1.58%
  

• America Energy Sector High-Yield CDS Index 721.0 +.46%

• European Financial Sector CDS Index 87.0 -1.71%

• Western Europe Sovereign Debt CDS Index 22.81 -1.91%

• Asia Pacific Sovereign Debt CDS Index 43.64 -.56%

• Emerging Market CDS Index 239.82 -2.36%
  

• iBoxx Offshore RMB China Corporate High Yield Index 131.77 +.01%

• 2-Year Swap Spread 23.50 -1.5 basis points
  

• TED Spread 54.5 +.75 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -40.0 +.25 basis point
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 73.73 +.45%
• 3-Month T-Bill Yield .28% +1.0 basis point

• Yield Curve 83.0 +2.0 basis points
  

• China Import Iron Ore Spot $60.22/Metric Tonne -.25%

• Citi US Economic Surprise Index 7.70 -3.2 points

• Citi Eurozone Economic Surprise Index 28.4 -.2 point

• Citi Emerging Markets Economic Surprise Index -.4 -3.4 points

• 10-Year TIPS Spread 1.46% unch.
• 21.5% chance of Fed rate hike at Nov. 2 meeting, 44.8% chance at Dec. 14 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +25 open in Japan 
• China A50 Futures: Indicating +78 open in China

• DAX Futures: Indicating -7 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• Germany Urges Russia, Ukraine to Cool Tensions Over Crimea. German Foreign Minister Frank-Walter Steinmeier urged Russia and Ukraine to reduce tensions over Crimea amid what he said was contradictory evidence from the two countries of an alleged attack on the peninsula.n Germany is concerned about worsening security in Crimea and all sides “must refrain from anything that may lead to a further deterioration of the situation,” Steinmeier told reporters after talks with Russian Foreign Minister Sergei Lavrov in the Urals city of Yekaterinburg on Monday. There’s still “no full clarity” about what happened “and we’re waiting for the results of investigations by the Russian and Ukrainian sides,” he said.
• Vancouver Housing Fever Shows Signs of Easing Even Before Tax. Canada’s hottest housing market may be cooling. Home sales in Vancouver fell a third straight month in July, the Canadian Real Estate Association said Monday, with price gains also showing signs of slowing. The data should be a relief to buyers and policy makers who have been growing increasingly worried about affordability in the city, and suggest Vancouver’s market was slowing even before the provincial government set a foreign buyers’ tax earlier this month. The realtor group cited lack of affordability for falling sales in a market where prices are growing at double-digit rates.
• Europe Stocks Little Changed as DAX Close to Erasing Annual Loss. (video) European shares were little changed, with Germany’s DAX Index close to erasing its annual drop, as investors assessed recent gains in light of the outlook for earnings and economic growth. Rebounding automakers posted the best performance of the Stoxx Europe 600 Index’s 19 industry groups. Volkswagen AG’s 1.4 percent advance buoyed the DAX, which entered a bull market last week, to within 0.1 percent of recouping its 2016 losses. BP Plc led oil stocks higher as crude extended its advance above $45 a barrel amid speculation that producers will revive talks to stabilize prices. Glencore Plc dragged commodity producers lower. The Stoxx 600 slipped less than 0.1 percent to 346.05 at the close of trading, after earlier rising as much as 0.4 percent. The volume of shares trading hands today was about 60 percent lower than the 30-day average, with some markets, including Italy’s, closed for a holiday.
• OPEC Could Still Tip Next Year’s Oil Deficit Into Surplus: Chart. The re-balancing of oversupplied oil markets is on track as demand climbs and U.S. shale production falters, according to the International Energy Agency. The world will face a 560,000 barrel-a-day supply deficit in 2017 if OPEC members pump at the same rate as this year, IEA data show. If Iran and Iraq add just some of the new capacity they’re planning, Libya recoups a fraction of the supplies lost to political conflict andNigeria restarts oil fields halted by militant attacks, there’ll be an 810,000 barrel-a-day excess -- a fourth year of oversupply.
• Iraq Oil Chief Sees End to Kurd Dispute as War Hurts Output. Jabbar al-Luaibi, the former head of Iraq’s biggest crude producer who was appointed oil minister on Monday, said that he sees ways to resolve the energy dispute with the self-governed Kurds in the north of OPEC’s No. 2 producer. Al-Luaibi’s appointment was approved by parliament on Monday as part of a government reshuffle, according to a statement by deputy parliament speaker Humam Hamoudi. Al-Luaibi is former head of the state-owned South Oil Co. which produces most of the country’s crude. He replaces Adel Abdul Mahdi who had suspended his participation in the cabinet in March, citing disarray in government ministries.
• Why Copper Continues to Perform Poorly. (video)
• Signs of Bear Capitulation as S&P 500 Pushes Toward Fresh Record. (video) Asset managers are favoring stocks over U.S. Treasuries, while active equity funds are the most bullish since 2008, according to Bank of America Corp. Asset managers bought $6.7 billion of S&P 500 futures and sold $8.6 billion of Treasuries in the week ending August 9, according to a report by Bank of America analysts led by Jue Xiong. Those investors have been rotating from U.S. bonds and into stocks since the start of the third quarter, Xiong said by phone. At the same time, large-cap U.S. money managers are more leveraged to the performance of the S&P 500 than at any time since 2008, a separate analysis by the bank showed. Active investors that follow a long-short strategy are about 56 percent long, the most since July 2015, according to that report. 
• The U.S. Economy Needs to Kick Its Car Habit. Americans love cars. It would be comforting, though, if the world's largest economy weren't quite so dependent on people buying more of them with borrowed money.
• Barrack Says U.S. Real Estate Market Is Getting ‘Bubblicious’. Real estate investors could be in for a shock if interest rates rise or demand in some markets continues to fall because “amateurs” are plowing money in at high prices, betting on rent increases that may not continue, said Tom Barrack, the billionaire chairman of Colony Capital Inc. Trends in demographics and technology are undermining traditional holdings such as hotels, office buildings and residential properties, Barrack said in an interview at Bloomberg’s Los Angeles office.
• Twelve Charts That Show a Massive Divide in How Americans See the Economy.

Wall Street Journal:

• Elon Musk Sets Ambitious Goals at Tesla—and Often Falls Short. In past five years, Tesla failed to meet more than 20 of his projections, and missed 10 goals by nearly a year on average; Musk says he ‘doesn’t set targets that I know can’t be met’.
• FBI to Hand Over to Congress Notes From Hillary Clinton Email Probe. Agency also plans to turn over copies of classified emails at heart of investigation.
• Central Banks Could Be This Market’s Pets.com. Euphoria in the stock market in 1999 has been replaced by euphoria in fixed income in 2016.

Fox News:

• Trump wants to impose test for immigrants to make sure they support American values.

CNBC:

• Hedge fund manager Tepper is 'on guard' toward the market.
• VIX starting to flash warning: Pro. (video)
• Stock market may be approaching stall speed, Art Cashin says.

Zero Hedge:

• US Nuclear Bombs In Turkey At Risk Of "Seizure By Terrorists Or Other Hostile Forces".
• Is "Special Government Employee" Huma Abedin The Smoking Gun In Hillary's "Pay-To-Play" Scheme?
• Sweden: Report "Conclusions Are Frightening" Amid Summer Inferno Of Sexual Assaults.
• With $128 Billion In Equity Outflows, Barclays Asks "Who's Buying Stocks" And Gives An Answer. (graph)
• "It’s Surreal" - Negative Yielding Debt Rises To Record $13.4 Trillion.
• Convicted Spy Is Using Hillary's "Lack Of Intent" Defense To Seek Leniency.
• Morgan Stanley(MS) Says The Oil Squeeze Will End On August 17: Here's Why.
• Portugal Gaining On Italy In The European Banking "Doom Loop". (graph)
• Empire Fed Tumbles Back Into Contraction As Hope Slumps To 6-Month Lows. (graph)
• One Person Shot, Officer Injured In Second Night Of Milwaukee Violence Despite State Of Emergency.

Business Insider:

• Wall Street Journal to Trump: 'Behave like a president or turn the nomination over to Mike Pence'.
• The world's largest shipping company has 2 dire warnings for the global economy.
• This map shows the alarming Russian military buildup encircling Ukraine.
• China's economy is about to get pretty weird again. (graph)

Bear Radar

Style Underperformer:

• Large-Cap Growth +.3%

Sector Underperformers:

• 1) Utilities -.9% 2) HMOs -.4% 3) Restaurants -.2%

Stocks Falling on Unusual Volume: 

• MAA, BXS, CRM, FNBC, BMI, VSTO, AYA, VRSN, LXFT, HAIN, ANDE, SIX, TLK, MIDD, MHG, BIS, CYBR, DMRC, SHEN, CORR, BLCM, TCX, YELP, AFI and MAA

Stocks With Unusual Put Option Activity:

• 1) EWC 2) SYMC 3) CRM 4) HD 5) ULTA

Stocks With Most Negative News Mentions:

• 1) SIX 2) DG 3) BBY 4) CELP 5) FLO

Charts:

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