Today's Headlines

Bloomberg: 

• Four Fresh Worries About China's Shadow Banking System. (video) Draft rules seeking to shore up the $3.9 trillion market for wealth management products underscore a bunch of new worries. The tangled web of Chinese banks and the investment products they sell is growing more muddled as analysts attempt to gauge the impact of new rules unveiled by the country's authorities. The proposed new rules would require some banks to provision for losses against wealth management products (WMPs), which funnel money from retail investors into securities ranging from stocks to corporate bonds and real estate, in an effort to insulate the lenders from future losses. The 26.3 trillion yuan ($3.9 trillion) worth of WMPs outstanding have emerged as key cog in China's so-called shadow banking system as investors often expect to be reimbursed for on any losses on the WMPs banks manage — an expectation that could weigh on the lenders if the products begin to sour. But with analysts scrambling to digest the impact of the draft rules on banks, fresh concerns are emerging including: the degree to which banks have been using WMPs to repackage and invest in other such products, their use as a way for to gain exposure to riskier corporate securities, banks' tendency to borrow money to boost returns on WMPs, and the potential for the new WMP rules to impact other assets. 
• China Reserves at Lowest Since 2011 as PBOC Supports Yuan. China’s foreign-exchange reserves, the world’s largest foreign currency hoard, slipped to the lowest level since 2011 as the central bank continued its defense of the currency. The reserves fell by $15.9 billion to $3.19 trillion in August, the People’s Bank of China said in a statement Wednesday. That level, down slightly but still in line with most of the readings this year, matched the median estimate in a Bloomberg survey of economists.
• German Industrial Output Unexpectedly Falls Most Since 2014. German industrial production fell by the most in almost two years in July as manufacturing suffered from subdued global trade. Production, adjusted for seasonal swings, fell 1.5 percent from the previous month, when it rose a revised 1.1 percent, data from the Economy Ministry in Berlin showed on Wednesday. That’s the lowest since August 2014. The reading, which is typically volatile, compares with a median estimate for a 0.1 percent gain in a Bloomberg survey. Output was down 1.2 percent from a year earlier.
• Automakers Lead Europe Stocks Higher as DAX Erases Annual Drop. (video) A rally among exporters amid a weaker euro pushed European equities near their highest prices since April, while Germany’s DAX Index erased its annual decline. Automakers led the advance in the Stoxx Europe 600 Index, which gained 0.3 percent at the close, rising for a fourth time in five days. The DAX climbed 0.6 percent, with steelmaker ThyssenKrupp AG, chemical company BASF SE and Daimler AG advancing the most. The German index came close to erasing its 2016 loss last month, though it failed to hold its gain through the close.
• OPEC Risks ‘Crying Wolf’ as Oil Trader Gunvor Doubts Accord. (video) One of the world’s biggest commodities traders doubts oil producers will be able to agree on curbing output to pull up prices. While it’s “easier” to have talks on freezing supplies now than it was at a meeting in Doha earlier this year, a deal is unlikely at a gathering in Algiers later this month, said David Fyfe, Gunvor Group Ltd.’s head of market research and analysis. Producers have pledged to discuss measures to help the market, but Saudi Arabia has said it sees no need to limit oil output and Russia expressed doubt that a cap is needed. “There won’t be an agreement but it does no harm to keep talking about this because that itself is price supportive,” Fyfe said at the Asia Pacific Petroleum Conference in Singapore on Wednesday. “Of course, there’s a risk of crying wolf. But at some stage it’s the law of diminishing returns when you keep talking about a production agreement and not actually reach one.”
• Manhattan's Luxury Real Estate Slowdown Is Spreading to Other Price Tiers. There are more signs of a slowdown in New York City real estate. According to new data from listings website StreetEasy.com, the luxury market still has some adjusting to do with price cuts now spreading from just the most expensive apartments to other price tiers. "Most of the increase in price cuts for the luxury tier is in the smaller price cuts bucket (5 percent)," said Krishna Rao, StreetEasy's economist. "While sellers aren’t going for aspirational prices, they haven’t fully adjusted to reality at the top end of the market." 
• Live Now: Apple Product Event in San Francisco.

Fox News:

• Russian jet flies within 10 feet of US Navy spy plane, defense official says. (video)

CNBC:

• Fed's Beige Book: Moderate wage growth seen in coming months.
• Here's a major red flag in the oil market.

Zero Hedge:

• Assange: New Clinton Revelations Coming As Soon As Next Week, Says Clinton Knew Meaning Of "C".
• Election "Rigging" Tensions Rise With Questions On Reliability Of Paperless Voting Machines.
• Millennials Horrified As Facebook(FB) Algo Accident Exposes Millions To New Ideas.
• GDP - Less Than Meets The Eye. (graph)
• JPM's(JPM) Head Quant Is Back With A Stark Warning: Volatility Is About To Surge; Here's Why.
• "It's Worse Than The Great Depression" - One In Six Prime-Aged Men Has No Job.
• "It Won't Be Long Now" David Stockman Warns "The End Game Of Central Banking Is Nigh".
• Job Openings In The US Unexpectedly Jump To Record High, As Pace Of Hiring Fails To Keep Up. (graph)
• "Segregation" Is Now Progressive? Cal State LA Offers Black-Only 'Safe-Space' Housing.
• DOJ Threatens To Rip Up HSBC's "Get Out Of Jail Free" Card.
• BofA: "Bad News Is Good News Has Played Out", Any More Weak Data "Will Be Met With Market Skepticism".
• Goldman(GS) Cuts September Rate Hike Odds To 40%, Just Days After Raising Them To 55%.
• Stocks' Trading Range Now Beyond Compare. (graph)

Business Insider: 

• LIVE: Apple unveils the new iPhone.
• This is the dongle you'll need if you want to connect your old headphones to the iPhone 7.

Reuters:

• Iraq sees steady growth in oil output, exports in 2017: official. Iraq's crude oil production and exports are expected to grow at a steady pace in 2017 from current levels, a senior Iraqi oil official said on Wednesday‎, adding the OPEC member supports a global freeze initiative if it will help stabilize the market. "There will be a steady growth in production and exports next year," Falah Alamri, the head of Iraq's State Oil Marketing Co. (SOMO) told ‎Reuters in Singapore, adding "it was not clear by how much."Iraq's production was at 4.638 million barrels per day in August, the highest since January.

Bear Radar

Style Underperformer:

• Large-Cap Growth -.2%

Sector Underperformers:

• 1) Coal -2.3% 2) Gold & Silve -1.7% 3) Foods -1.6%

Stocks Falling on Unusual Volume: 

• HDS, SMLP, CLCD, HCSG, OLLI, WATT, SFM, CASY, ADPT, CTLT, RMBS, CCU, NX, CTRP, KWEB, PLAY, DVAX, PTI, NAV, WFM, UNFI, COTY, THG, VMW, SINA, OLN, MJN, JW/A, HOME and HDS

Stocks With Unusual Put Option Activity:

• 1) XLI 2) APA 3) HOG 4) WFM 5) SMH

Stocks With Most Negative News Mentions:

• 1) CASY 2) HCSG 3) RCL 4) OLN 5) KR

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value +.30%

Sector Outperformers:

• 1) Hospitals +2.7% 2) Airlines +2.5% 3) Disk Drives +2.1%

Stocks Rising on Unusual Volume:

• RTRX, CVGW, AGIO, FRAN, SGMS, AAOI, APA, WDC, CRY, TGNA, CMG and BZH

Stocks With Unusual Call Option Activity:

• 1) MSTX 2) TRGP 3) COTY 4) TMUS 5) RTRX

Stocks With Most Positive News Mentions:

• 1) AAOI 2) LGND 3) BCRX 4) NEWT 5) RTRX

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -10.2% Below 100-Day Average
• 2 Sectors Rising, 8 Sectors Declining
• 53.6% of Issues Advancing, 43.7% Declining
• 173 New 52-Week Highs, 7 New Lows
• 53.4% of Issues Above 200-day Moving Average
• Average 14-Day RSI 36.3%
• Vix 12.2 +1.7%
• Total Put/Call 1.03 +19.8%
• TRIN/Arms 1.37 +79.5%

Wednesday Watch

Evening Headlines

Bloomberg:

• Tens of Thousands of Jobs Go as China’s Biggest Banks Cut Costs. China’s four biggest banks reported that staff numbers fell by the most in at least six years in the first half, highlighting the possibility that employment has peaked at the firms that are the world’s biggest providers of banking jobs. A decline of 1.5 percent from the end of last year left 1.62 million workers at Agricultural Bank of China Ltd., Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Bank of China Ltd., earnings filings showed. Agricultural Bank, the No. 1 bank employer, saw its number of employees slip below half a million. While a fall in the first half is not unusual, the 25,000-job decline is the biggest since at least 2010 and analysts at firms including BOC International Holdings Ltd. and DBS Vickers Hong Kong Ltd. say changes to how banking is done will limit prospects for increases.
• Foreign Holdings of Aussie Debt Shrinks as Burden Grows: Chart. 
• Dollar Slides Versus Yen as Prospect of September Fed Hike Dims. The dollar slid to the weakest level in almost two weeks versus the yen after a report Tuesday showed that U.S. service industries expanded at the slowest pace in six years, dimming prospects the Federal Reserve will increase interest rates this month. A gauge of the greenback extended its biggest slide in five weeks as the futures-implied odds of a rate increase at the Fed’s Sept. 20-21 policy meeting declined to 24 percent from 32 percent on Sept. 5. A measure of expected price swings in the $5.1-trillion-a-day currency market fell to a one-month low. “Given that the dollar broke below 102.10 yen, it raises the risk of a re-test of 100.70,” said Sim Moh Siong, a currency strategist at Bank of Singapore Ltd. “Because of the lower risk of a Fed-rate hike in September, volatility has come off and is likely to remain subdued.” The greenback fell 0.5 percent to 101.55 yen at 9:27 a.m. in Tokyo, after touching 101.25, the weakest level since Aug. 26. The Bloomberg Dollar Spot Index, which measures the currency against a basket of 10 peers, fell 0.1 percent, after sliding 1 percent Tuesday. The JPMorgan Chase & Co. gauge of currency price swings dropped to 9.7 percent in New York, the lowest level since Aug. 5, completing a five-day decline.
• Asian Stocks Outside Japan Rise on Bets Fed Will Keep Rates Low. Asian stocks excluding Japan climbed after weak data on the U.S. services industries bolstered speculation that the Federal Reserve will keep interest rates lower for longer. Shares in Tokyo fell as the yen strengthened. The MSCI Asia Pacific Excluding Japan Index rose 0.4 percent to 458.02 as of 9:13 a.m. in Tokyo. U.S. shares advanced, with the Nasdaq Composite Index climbing to a record, as odds the Fed will raise rates at its meeting this month fell to 24 percent from 32 last week, after a report showed a key services gauge fell to a six-year low. The prospect of U.S. rates staying lower for longer weighed on the dollar against the yen, and Japan’s Topix index sank 0.8 percent.
• Fed’s Williams Says Economy Is in Good Shape and Hike Warranted. Federal Reserve Bank of San Francisco President John Williams painted an upbeat picture of the U.S. economy in a speech on Tuesday, despite recent disappointing data that have led investors to reduce their bets on an interest-rate increase later this month. The economy is “in good shape and headed in the right direction,” Williams said, according to a text of his remarks in Reno, Nevada. As a result, “it makes sense to get back to a pace of gradual rate increases, preferably sooner rather than later,” Williams said, repeating an argument that he made Aug. 18 in Alaska, though incoming data since then has been mixed. 
• Hedge Funds Ignore Wall Street Wisdom Buying Up S&P 500 Futures. Warnings embedded in strategist price targets and historically low U.S. stock volatility are doing nothing to dissuade hedge funds. They just spent another week adding to long positions in the equity market and building up shorts against the CBOE Volatility Index that were already at a record, according to data from the Commodity Futures Trading Commission. Large speculators extended bullish contracts on the S&P 500 to the most since May 2013, CFTC data show. The measure has been above zero, which delineates bullish from bearish, since mid-April. At the same time, VIX positions showed an expectation for low volatility even though the so-called fear gauge averaged 12.4 in August, the lowest monthly average in more than two years.

Wall Street Journal:

• U.S. Transferred Two More Planeloads of Cash to Iran After Initial Payment. First $400 million coincided with Iran’s release of American prisoners and was used as leverage, officials have acknowledged.
• Immigration Source Shifts to Asia From Mexico. In most states, arrivals from China or India outpace those from the U.S.’s southern neighbor. Chinese and Indian newcomers to the U.S. are now outpacing Mexican arrivals in most regions of the country, a marked reversal from a decade ago, when immigrants from America’s southern neighbor dwarfed arrivals from the large Asian countries.

Fox News:

• Republicans push to re-open Clinton email case after FBI document drop. (video) Donald Trump’s campaign and congressional Republicans are pushing to re-open the Hillary Clinton email case – at the Justice Department, as well as in the court of public opinion – in the wake of newly released FBI documents which are fueling claims her team may have destroyed evidence.
  

CNBC:

• China's online chatter muted ahead of Apple iPhone 7 launch. Judging by the volume of online chatter, there's a lot less buzz in China ahead of this week's expected launch of the new Apple iPhone, and people on the street say they're more likely to "wait and see" what the latest device offers than rush out to buy.

Zero Hedge:

• Clinton Campaign Unloads On NBC For Covering Hillary's "Coughing Attack".
• From An Industrial Economy To A Paper Economy - The Stunning Decline Of Manufacturing In America. (graph)
• As Class 8 Truck Orders Continue Collapse, VW Has A "Fix" For Navistar's Diesel Emission Issues. (graph)
• USDJPY Tumbles On Sankei Article BOJ Is Struggling To Reach Policy Consensus.
• Vancouver Housing Bubble Burst Sends Local Consumer Sentiment Crashing Most In Three Years. (graph)
• "It's Probably Not Nothing". (graph)
• "Last September Yellen Decided To Stay On Hold; Three Years Ago Bernanke Chose Not To Taper QE3".
• Why The Fed Is "A Terrible Parent".
• For The First Time, Two European Non-Financial Companies Will Be Paid To Issue Debt.
• "We Wired It" - New Emails Suggest Clinton Rigged Benghazi Hearing.
• Chipotle(CMG) Soars After Bill Ackman Reveals 9.9% Stake, Goes Activist.
• 40,000 Students In Limbo, 8,000 Employees Fired As ITT Suddenly Shuts Down.
• Chicago Sees Huge Spike In Murders Over Labor Day As Cops Stay Home In "Disrespect Of Police" Protest.
• "False" Economy Wake-Up Call Sparks Safe-Haven Surge In Bonds, Silver... & FANG Stocks. (graph)

Business Insider:

• There haven't been this many 'weakest link' companies since 2009.

Night Trading 

• Asian equity indices are -.50% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 109.0 -4.75 basis points.
• Asia Pacific Sovereign CDS Index 37.25 -1.25 basis points.
• Bloomberg Emerging Markets Currency Index 73.41 +.1%. 
• S&P 500 futures unch. 
• NASDAQ 100 futures +.07%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (HDS)/.87
• (JW/A)/.60
• (HPE)/.45 

Economic Releases
10:00 am EST

• JOLTS Job Openings.

2:00 pm EST

• US Fed releases Beige Book report.
  

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed's Williams speaking, Fed's George speaking, Australia Trade Balance report, Bank of Canada rate decision, UK Manufacturing Production report, weekly MBA Mortgage Applications report, (AAPL) special event, RBC Industrials conference, Goldman Retailing Conference, Keefe Bruyette Woods Insurance conference, Robert Baird Healthcare conference, Wells Fargo Healthcare conference, (FAST) August sales and the (BWA) investor day 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 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 Falling Fed Rate-Hike Odds, Buyout Speculation, Oil Bounce, Utility/Metals & Mining Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Slightly Higher
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 12.21 +1.92%

• Euro/Yen Carry Return Index 119.99 -.39%

• Emerging Markets Currency Volatility(VXY) 9.53 -2.06%

• S&P 500 Implied Correlation 44.01 -.97%

• ISE Sentiment Index 113.0 +39.51%
  

• Total Put/Call .85 -10.53%

• NYSE Arms .70 -5.93% 

Credit Investor Angst:

• North American Investment Grade CDS Index 71.60 -.79%
  

• America Energy Sector High-Yield CDS Index 681.0 -.68%

• European Financial Sector CDS Index 84.44 -1.04%

• Western Europe Sovereign Debt CDS Index 24.48 -.47%

• Asia Pacific Sovereign Debt CDS Index 37.20 -.92%

• Emerging Market CDS Index 236.50 -2.38%
  

• iBoxx Offshore RMB China Corporate High Yield Index 131.63 +.02%

• 2-Year Swap Spread 25.0 +.25 basis point

• TED Spread 51.5 -.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -34.5 +4.75 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 73.34 +1.11%
• 3-Month T-Bill Yield .31% -1.0 basis point

• Yield Curve 81.0 +2.0 basis points
  

• China Import Iron Ore Spot $59.16/Metric Tonne -.14%

• Citi US Economic Surprise Index -7.0 -7.0 points

• Citi Eurozone Economic Surprise Index -8.6 -1.3 points

• Citi Emerging Markets Economic Surprise Index -7.2 -2.3 points

• 10-Year TIPS Spread 1.50% +4.0 basis points
• 27.3% chance of Fed rate hike at Nov. 2 meeting, 51.8% chance at Dec. 14 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -197 open in Japan 
• China A50 Futures: Indicating +32 open in China

• DAX Futures: Indicating +2 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 50% Net Long