Friday Watch

Evening Headlines

Bloomberg:  

• Asian Stocks Swing as Investors Avoid Risk Before Payrolls Data. Asian stocks fluctuated in a narrow range as investors avoided taking on risk before key U.S. payrolls data that may provide hints on the path of interest rates in the world’s largest economy. The MSCI Asia Pacific Index rose less than 0.1 percent to 138.39 as of 9:11 a.m. in Tokyo, after dropping less than 0.1 percent. The gauge of Asian companies has been in a holding pattern this week as investors turned their attention to the Friday payrolls data after Federal Reserve Chair Janet Yellen indicated the case for an interest-rate increase is getting stronger. Commodity shares fell as oil headed for its worst weekly drop in eight months on signs of a glut.
• Your Kitchen Appliances Are Watching You, Security Expert Warns. Your fridge is getting so smart, security-software maker Kaspersky Lab thinks you probably shouldn’t trust it. As makers of household appliances fill their machines with computer chips to make them smarter, consumers and privacy watchdogs should beware the data collected by these objects and how it’s used, Marco Preuss, a director on Kaspersky’s global research and analysis team in Europe, said at the IFA consumer electronics conference in Berlin. "A fridge is no longer only a fridge, it’s now also a sensor collecting private information,"Preuss said. "Vendors need to say what data they collected, where it’s stored and who’s using it, and regulators need to work on standards and requirements to make companies more transparent about this. It’s the only way to bring consumer trust back."

Wall Street Journal:

• Make Democrats Own ObamaCare. In the states that will determine control of the Senate, the health law is falling apart.

Zero Hedge:

• Georgetown To Grant Admission Preference To Slave Descendants. 
• New Hillary Emails Expose Bill Pushing Meetings With Foundation Donors, Requests For "Diplomatic Passports".
• Albert Edwards Sees Shades Of 2007 In The Biggest Risk Facing The US Consumer. (graph)
• "Life-Threatening" Hurricane Hermine To Hit Florida, Head For Tri-State.
• DHS Prepares For Nuke Attack With Massive Order For Radiation Detectors.
• Rutgers Defends 'Victims' Of Microaggressions, Microassaults, And Microinsults.
• Smith & Wesson(SWFC) Forecasts Record Quarterly Revenue As Earnings Soar 93%.
• Q2 Earnings Review – Hockey Stick Hopes Remain. (graph)
• "Death, Taxes, & A Disappointing August Jobs Data" - Why Tomorrow's Payroll Print Will Be A Farce.
• eVIXeration Rescues Stocks From Crude Carnage, Dismal Data, Auto Angst. (graph)

Business Insider:

• The world's biggest hedge fund expects a bust in China.
• 'It doesn't matter how tall of a wall you put up': Trump's border-wall plan is still full of holes.
• Russia is going to deploy a division of troops about 50 miles from the US.
• 11 reasons why people are flocking to Texas.
• We’re rapidly approaching that zero point of debt creation.
• China could be preparing for a paramilitary invasion in the East China Sea.
• Lululemon(LULU) same-store sales miss, stock plunges.
• Ford(F) says US auto sales have peaked.

Night Trading 

• Asian equity indices are -.50% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 113.75 +.75 basis point.
• Asia Pacific Sovereign CDS Index 38.5 +.25 basis point.
• Bloomberg Emerging Markets Currency Index 72.23 +.02%. 
• S&P 500 futures -.07%. 
• NASDAQ 100 futures -.02%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• None of note

Economic Releases
8:30 am EST

• The Trade Deficit for July is estimated at -$41.5B versus -$44.5B in June.
• The Change in Non-Farm Payrolls for August is estimated to fall to 180K versus 255K in July.
• The Unemployment Rate for August is estimated to fall to 4.8% versus 4.9% in July.
• Average Hourly Earnings MoM for August are estimated to rise +.2% versus a +.3% gain in July.  

9:45 am EST

• The ISM New York.

10:00 am EST

• Factory Orders for July are estimated to rise +2.0% versus a -1.5% decline in June.
• Final Durable Goods Orders for July are estimated to rise +4.4% versus a prior estimate of a +4.4% gain.

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed's Lacker speaking could also impact trading today.

BOTTOM LINE:  Asian indices are mostly lower, weighed down by financial 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 Reversing Lower into Final Hour on Global Growth Fears, Oil Decline, Yen Reversal Higher, Energy/Homebuilding Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 14.1 +4.92%

• Euro/Yen Carry Return Index 120.85 +.27%

• Emerging Markets Currency Volatility(VXY) 10.06 -1.08%

• S&P 500 Implied Correlation 48.09 +3.32%

• ISE Sentiment Index 88.0 +72.55%
  

• Total Put/Call .99 -18.18%

• NYSE Arms 1.10 +12.18% 

Credit Investor Angst:

• North American Investment Grade CDS Index 73.88 +1.76%
  

• America Energy Sector High-Yield CDS Index 690.0 +.59%

• European Financial Sector CDS Index 89.5 -.81%

• Western Europe Sovereign Debt CDS Index 24.94 +3.61%

• Asia Pacific Sovereign Debt CDS Index 38.40 +.04%

• Emerging Market CDS Index 246.00 +.17%
  

• iBoxx Offshore RMB China Corporate High Yield Index 131.36 -.09%

• 2-Year Swap Spread 24.75 -.25 basis point

• TED Spread 51.75 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -39.25 +1.0 basis point
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.24 -.05%
• 3-Month T-Bill Yield .32% unch.

• Yield Curve 79.0 +1.0 basis point
  

• China Import Iron Ore Spot $58.86/Metric Tonne -.19%

• Citi US Economic Surprise Index 4.8 -8.7 points

• Citi Eurozone Economic Surprise Index -4.0 -.9 point

• Citi Emerging Markets Economic Surprise Index -5.9 +2.0 points

• 10-Year TIPS Spread 1.46% -1.0 basis point
• 39.7% chance of Fed rate hike at Nov. 2 meeting, 58.6% chance at Dec. 14 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +34 open in Japan 
• China A50 Futures: Indicating -10 open in China

• DAX Futures: Indicating +19 open in Germany

Portfolio: 

• Slightly Lower: On losses in my retail sector longs

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

• Market Exposure: Moved to 25% Net Long

Today's Headlines

Bloomberg:

• Merkel Faces Home-State Defeat Over Immigration. German Finance Minister Wolfgang Schaeuble’s election rally in the Baltic Sea town of Rostock was all going according to script until the discussion turned to refugees. After the elder statesman won praise from the crowd of middle-aged and retired party faithful for his role in the country’s reunification, the goodwill quickly evaporated as he defended Chancellor Angela Merkel’s open-door refugee policy. Then the murmurings from those gathered at the event in the Hanseatic city’s medieval center turned to applause when an audience member stood to challenge Schaeuble. “I want to clearly contradict you: Islam does not belong to Germany,” the man said. “Long after you and the chancellor have your names written in the pages of the history books, Germany will still have to grapple with these massive social problems from this incredible influx of millions of people from a foreign culture, and I’m holding that against you personally.”
• Euro-Area Factories See Orders Weakening as U.K. Demand Falters. New orders at euro-area factories rose at the weakest pace in 18 months in August as both domestic and export demand faltered amid heightened uncertainty after the U.K. voted to quit the European Union. A Purchasing Managers Index for manufacturing fell to a three-month low of 51.7 in August from 52 in July, IHS Markit said Thursday. The decline, which was steeper than initially estimated, was driven by a slowdown in order growth. The measure remained above the 50 level that divides expansion from contraction. “Euro-zone manufacturers reported a wavering performance in August, with signs that growth could slow further in coming months,” said Chris Williamson, chief business economist at IHS Markit. “Anecdotal evidence suggests that the strengthening of the euro and reduced sales to the U.K. were partly to blame for the order-book slowdown.”
• China: Too Much Money, Too Little Growth? (video)
• Japan’s Company Profits Fall, Capital Expenditure Remains Weak. Japan’s capital expenditure data for the second quarter was slightly weaker than expected while company profits slumped as businesses held tight on spending amid a strong yen and sluggish demand at home and abroad.
• Bears Haunt Brazil as Short Bets Jump on World’s Best Stocks. (video) A tiny exchange-traded fund is signaling that Brazil’s world-beating stock rally may be coming to an end. The $51 million ProShares UltraShort MSCI Brazil ETF, which rewards investors when Brazilian stocks decline, attracted $20 million of inflows over the past two months, according to data compiled by Bloomberg. That’s almost twice the amount of bullish wagers that went into BlackRock Inc.’s $3.9 billion ETF that tracks the country’s equities. At the same time, foreign investors have pulled the most out of Brazil’s local shares since May.
• Russia Says Oil Output Freeze Not Needed With Price Near $50. Russia sees no need for talks with other major oil exporters on freezing output with prices at around $50 a barrel, according to the Energy Ministry in Moscow. If prices fall, then Russia will consider resuming discussions, the ministry’s press service cited Energy Minister Alexander Novak as saying. The comments from Russia’s government come before OPEC nations and other oil producers meet for talks in Algiers later this month. Russia, the world’s biggest energy exporter, was a key negotiator in talks on an oil-output freeze with Saudi Arabia and other OPEC producers in April. That proposal failed after Iran declined to attend the meeting in Doha and Saudi Arabia refused to proceed with the deal without the participation of its Persian Gulf rival.
• The Fed Poses a Big Risk to the Emerging Market Inflow Party. Battle-hardened emerging-market investors have seen this movie before: A U.S. Federal Reserve interest-rate hike triggers a jump in nominal local rates in emerging markets, especially those with fixed or semi-fixed exchange rate regimes. Hot money flows out of developing nations, across FX, equity and fixed-income markets. Local currencies weaken against the dollar. And the ensuing jump in the cost of dollar liquidity, and declining portfolio flows, spark fears over the debt-servicing capacity of emerging-market borrowers. In short, the boom-and-bust capital-flow cycles in emerging markets over the past three-decades have roughly followed this script.
• Iraq Can Crush OPEC's Oil Freeze Believers.
• We Just Got A Bunch of Bad News From the Clothing World. Despite a seemingly strong U.S. consumer, clothing retailers can't catch a break. The S&P 1500 Apparel Index is tumbling Thursday after a slew of disappointing data from companies in the industry, led by footwear retailer Genesco Inc., which slashed its forecast for the year ending January 31, 2017, due to issues with one of its main divisions, Journeys. Its stock is leading the declines, with shares down more than 30 percent as of 12:00 p.m. in New York.
• Another Sign Manhattan Real Estate Is Feeling the Pain. Prospective buyers at one Upper East Side condo project are quietly being offered a 5 percent discount. At an almost-completed Midtown building, five-bedroom homes will be divided into smaller units. Brokers whose clients sign deals at a downtown tower before Labor Day are getting $5,000 gift cards. Such tactics have become more common in Manhattan, where developers are coping with a luxury-condo glut and adjusting to a new reality after years of building to meet seemingly insatiable demand. With the market now sputtering, they’re altering sales plans and making behind-the-scenes deals in an attempt to create momentum at their projects before an onslaught of even more competition.

Fox News:

• Thousands along Gulf Coast brace for Hurricane Hermine's landfall. (video)
• Black Lives Matter accuses Dems of 'placating' group, after memo leaked. (video)

CNBC:

• Florida finds Zika in trapped mosquitoes, 1st in US mainland.
• Fed's Mester says case for rate increases is compelling.

Zero Hedge:

• Supply-Chain Contagion Arrives - "Global Trade" Roiled, Cargo-Owners Panic In Wake Of Hanjin Bankruptcy.
• Romanian Hacker Who Exposed Hillary's Private Email Server Sentenced To 52 Months.
• "If You Own A Home In Palo Alto, CA; Sell It Now".
• Video Captures Moment Of Dramatic SpaceX Explosion. (video)
• A ¥9 Trillion Hole Emerges Inside The BOJ's Balance Sheet: "It’s A Pretty Dangerous Situation".
• Nigel Farage Warns "The Establishment Is Losing Control Over The People".
• Stock Market Levitation Hits Historic Heights. (graph)
• Wal-Mart(WMT) To Fire 7,000.
• "All Components Face Price Pressure" - Apple Forces Suppliers To Accept Price Cuts, As JPM Cuts Production Estimates.
• Black American Consumer Confidence Just Crashed Most In 15 Years. (graph)
• The Last 7 Times (Since 1970) This Happened, The US Economy Entered Recession. (graph)
• US Manufacturing Crashes Into Contraction In August, Election Uncertainty Blamed. (graph)
• Obama Granted Iran "Secret" Nuclear Deal Exemptions, Despite Claiming Otherwise.
• Hillary’s Approval Rating Plunges To Record Low, Neck And Neck With Trump.
• Stunning Chart Shows That Central Bank Liquidity Is Now Driving All Asset Prices. (graph)
• American Worker Productivity Worsens (Again) - Biggest Decline Since 1993. (graph)
• Milan Prosecutors Seek To Shelve Probe Against Monte Paschi: "It Could Undermine Investor Sentiment".

The Telegraph:

• Apple(AAPL) travesty is a reminder why Britain must leave the lawless EU.

Nikkei:

• Japan's GDP Shrank .3% in July, JCER Report Says. Housing investment slid 2%, first drop in 6 months, capital spending fell .4%, citing report from Japan Center for Economic Research.

Bear Radar

Style Underperformer:

• Small-Cap Value -.5%

Sector Underperformers:

• 1) Oil Service -2.3% 2) Hospitals -2.0% 3) Banks -1.2%

Stocks Falling on Unusual Volume: 

• GCO, VEC, CYTK, CRM, SCVL, FIVE, CPB, YRD, BOBE, NVS, APLE, BMA, LHO, DO, COST, COTY, MEI, BKE, TSLA, SCTY, BREW, BKU, CHFC, AVAV, CAL  and USCR

Stocks With Unusual Put Option Activity:

• 1) CRM 2) SCTY 3) GE 4) DDD 5) TSLA

Stocks With Most Negative News Mentions:

• 1) DO 2) CATO 3) BKU 4) PNR 5) COST

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Growth unch.

Sector Outperformers:

• 1) Gaming +5.1% 2) Gold & Silver +3.3% 3) Steel +1.2%

Stocks Rising on Unusual Volume:

• CYNA, AQXP, OXM, VRA, OLLI, CIEN, LVS, WYNN, PANW, LE, KPTI and FEYE

Stocks With Unusual Call Option Activity:

• 1) SGMS 2) PG 3) CL 4) P 5) AET

Stocks With Most Positive News Mentions:

• 1) VRA 2) ITRI 3) CIEN 4) ZG 5) ANCB

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running -1.6% Below 100-Day Average
• 0 Sectors Rising, 10 Sectors Declining
• 29.4% of Issues Advancing, 67.5% Declining
• 73 New 52-Week Highs, 16 New Lows
• 62.2% of Issues Above 200-day Moving Average
• Average 14-Day RSI 40.5%
• Vix 14.6 +8.6%
• Total Put/Call 1.15 -5.0%
• TRIN/Arms 1.06 +6.8%