Friday Watch

Evening Headlines

Bloomberg:

• Markets' Wildest Assets Are Becoming a Haven While Korea Tension Mounts. Some investors are turning to an unlikely safe haven as the rhetoric between U.S. President Donald Trump and North Korea intensifies. Bitcoin, ethereum and other digital currencies, among the most volatile assets around, are gaining in part as traditional refuges such as gold and U.S. Treasuries lose some of their luster. “We’re seeing investors transferring their funds into cryptocurrencies as they try to diversify their risk in case of a severe downturn in the market,” said Ron Chernesky, chief executive officer of trading platform InvestFeed Inc. which is switching from equity trading to cryptocurrencies. “The space has gone from niche to more widely adopted with one of the main draws being that crypto currencies are seen as less correlated with other assets.”

• Equity Rout Deepens, Bonds Rise on Korea Tension. Stock-index futures in Australia, South Korea and Hong Kong indicated losses for the start of Friday trading after the S&P 500 Index halted an unprecedented stretch of calm on American equity markets and the CBOE Volatility Index soared 44 percent. U.S. President Donald Trump dialed up his warning to North Korea on threats to American allies, lifting gold to a nine-week high and pushing the yen toward 109 per dollar. Treasuries strengthened. Futures on Australia’s S&P/ASX 200 Index fell 1.2 percent and those on Hong Kong’s Hang Seng Index slipped 0.6 percent. Kospi futures lost 1.5 percent. Japanese markets are closed for the Mountain Day public holiday.

• Your Evening Briefing.

• VIX's Highest Close Since Election Sparks Record Rush to Protect. The biggest selloff in U.S. equities since May sparked an unprecedented rush for protection in the options market. About 2.6 million puts and calls tied to the CBOE Volatility Index changed hands on Thursday, the most on record, as the VIX spiked 44 percent to close at the highest level since Nov. 8. About 3.4 call volatility options - a bearish equities trade - have changed hands for every put contract.

Wall Street Journal:

• Dow Falls Nearly 205 Points as North Korea Tensions Persist. Lackluster earnings contribute to blue-chip index suffering its biggest one-day decline since May 17.

• Democrats and the Permanent Crisis. Are even party donors getting tired of the Russia story?

Fox News:

• Trump turns up heat on North Korea, warns of unprecedented response if Guam attacked. (video)

CNBC:

• Nvidia(NVDA) shares fall despite earnings beat. (video)

• Trump pledges to increase missile defense spending by 'many billions of dollars'. (video)

• Farm machinery stocks drop after USDA reports surprisingly high crop yields.

• Nordstrom's(JWN) stock pops as retailer delivers same-store sales growth. (video)

• JPMorgan(JPM) quant who called volatility spike says expect more of the same in September.

Zero Hedge:

• Judge Orders New Search Of State Department Servers For Hillary's Benghazi Emails.

• Another Red Flag For Oil? China’s Crude Imports Slump To 7-Month Low.

• North Korea Responds: Vows To "Mercilessly Wipe Out Provocateurs", Blasts "US Will Suffer Final Doom".

• Trump Thanks Putin For Kicking Out 755 Diplomats: "We'll Save A Lot Of Money". (video)

• In Escalating Standoff, Indian Army Orders People Near Chinese Border To Vacate Village.

• President Trump To Declare Opioid Crisis A "National Emergency" As Deaths Skyrocket.

• Tech Wrecks, Credit Crashes, & VIX Goes Vertical - "Probably Nothing". (graph)

Business Insider:

• Snap(SNAP) misses across the board for Q2 earnings, stock gets whacked.

• Goldman Sachs(GS) seizes a yacht from a US oil mogul.

• Chicago is doomed to become a 'municipal black hole'.

Night Trading 

• Asian equity indices are -1.25% to -.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 85.0 +3.0 basis points. 

• Asia Pacific Sovereign CDS Index 21.0 +.25 basis point.

• Bloomberg Emerging Markets Currency Index 73.48 unch.

• S&P 500 futures -.03%.

• NASDAQ 100 futures -.25%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (JCP)/-.04

• (MGA)/1.47

Economic Releases 
8:30 am EST

• The CPI MoM for July is estimated to rise +.2% versus unch. in June.

• The CPI Ex Food & Energy for July is estimated to rise +.2% versus a +.1% gain in June.

• Real Avg. Weekly/Hourly Earnings YoY for July.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Kaplan speaking, Fed's Kashkari speaking and the German CPI report could also impact trading today.

BOTTOM LINE:  Asian indices are lower, weighed down by industrial and technology 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 Substantially Lower into Final Hour on Geopolitical Concerns, Earnings Outlooks, Yen Strength, Retail/Biotech Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Declining
  

• Volume: Around Average

• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• Volatility(VIX) 14.14 +27.2%

• Euro/Yen Carry Return Index 134.18 -.6%

• Emerging Markets Currency Volatility(VXY) 7.91 +1.15%

• S&P 500 Implied Correlation 37.63 +19.7%

• ISE Sentiment Index n/a
  

• Total Put/Call .93 -11.4%

• NYSE Arms .96 +21.4%

Credit Investor Angst:

• North American Investment Grade CDS Index 61.15 +3.02%
  

• America Energy Sector High-Yield CDS Index 444.0 +1.25%

• European Financial Sector CDS Index 55.70 +3.89%

• Western Europe Sovereign Debt CDS Index 5.43 +6.90%

• Asia Pacific Sovereign Debt CDS Index 20.98 +1.38%

• Emerging Market CDS Index 191.36 +1.74%
  

• iBoxx Offshore RMB China Corporate High Yield Index 140.82 unch.

• 2-Year Swap Spread 25.50 -1.0 basis point

• TED Spread 26.55 -.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -25.25 -.75 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 73.55 -.03%
• 3-Month T-Bill Yield 1.03% -1.0 basis point
  

• Yield Curve 88.0 -3.0 basis points

• China Import Iron Ore Spot $76.68/Metric Tonne +1.62%

• Citi US Economic Surprise Index -30.0 -.3 point

• Citi Eurozone Economic Surprise Index 12.60 -.6 basis point

• Citi Emerging Markets Economic Surprise Index 14.10 -.1 basis point

• 10-Year TIPS Spread 1.82 -1.0 basis point
  
• 19.3% chance of Fed rate hike at Nov. 1 meeting, 45.0% chance at Dec. 13 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -285 open in Japan 
• China A50 Futures: Indicating -90 open in China

• DAX Futures: Indicating -36 open in Germany

Portfolio: 

• Lower: On losses in my retail/biotech/tech/medical sector longs 

• Disclosed Trades: added to my (IWM)/(QQQ) hedges and to my (EEM) short

• Market Exposure: Moved to 50% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Growth -1.5%

Sector Underperformers:

• 1) Construction -2.4% 2) Biotech -2.4% 3) Retail -2.4%

Stocks Falling on Unusual Volume: 

• DOOR, MX, CBI, NTES, KSS, M, DDS, SGRY, DVAX, ELF, GDDY, FGEN, EVH, MOD, SRCL, Z, TWLO, LITE and DKS

Stocks With Unusual Put Option Activity:

• 1) URBN 2) DKS 3) XPO 4) M 5) DDS

Stocks With Most Negative News Mentions:

• 1) SYNC 2) DDS 3) CBI 4) MMYT 5) ACHN

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value -.6%

Sector Outperformers:

• 1) Hospitals +3.8% 2) Gold & Silver +1.8% 3) Restaurants +.3%

Stocks Rising on Unusual Volume:

• GLPG, ASYS, INVH, PRGO, VNTV, LYV, SFR, CHEF, PLNT, DIN, PAAS, VLP, TPIC, VSTO, JACK, TRIP, RICK, EDIT, PAGP, CCE, GTS, IPGP, WRD, SFR and VSTO

Stocks With Unusual Call Option Activity:

• 1) URBN 2) KSS 3) BG 4) M 5) EL

Stocks With Most Positive News Mentions:

• 1) PRGO 2) BIOS 3) TTGT 4) WNC 5) XPLR

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +1.8% Above 100-Day Average
• 1 Sector Rising, 9 Sectors Declining
• 19.2% of Issues Advancing, 78.1% Declining
• 25 New 52-Week Highs, 68 New Lows
• 43.0% of Issues Above 200-day Moving Average
• Average 14-Day RSI 34.1%
• Vix 14.3 +28.9%
• Total Put/Call .89 -15.2%
• TRIN/Arms .64 -18.3%

Thursday Watch

Evening Headlines

Bloomberg:

• Asia Set to Stem Equity Losses; Kiwi Dollar Rises. Asian stocks were poised to halt the slide triggered by an escalation in tensions between the U.S. and North Korea as American officials tried to ease concerns that sparked a flight to safe-haven assets. Treasuries pared gains and U.S. stocks recouped declines in the final hour of trading as U.S. Secretary of State Rex Tillerson signaled military confrontation was not imminent. He was one of several officials in the Trump administration who sought to fine-tune the message on how it will address North Korean threats. The kiwi dollar climbed as New Zealand’s central bank reinforced its expectation to maintain a record-low interest rate. Futures on Japan’s Nikkei 225 Stock Average were 0.2 percent higher than the Tokyo cash-market close. Futures on Australia’s S&P/ASX 200 Index added 0.1 percent, while contracts on South Korea’s Kospi index and Hong Kong’s Hang Seng Index slipped 0.1 percent.

• Five Things You Need to Know to Start Your Day.

• Facebook(FB) Introduces `Watch' Video Product for Short Series.

• Fox(FOX/A) Benefits as Politics Chatter Fuels Growth for Cable News. (video)

Wall Street Journal:

• Trump Boasts U.S. Nuclear Arsenal Is ‘More Powerful Than Ever’. President’s twitter comments follow North Korea’s threat that it was considering firing missiles at Guam.

• Trump Criticizes McConnell for Failure to Advance Health-Law Reform. Remarks were after the Senate leader critiqued the ‘artificial deadlines’ set by the president.

Fox News:

• North Korea responds to US threats with Guam attack plan: 'Only absolute force' can work on Trump. (video)

CNBC:

• The alt-right finds a new enemy in Silicon Valley.

• Hedge funds score big win on obscure trade as North Korea nuclear risk is raised. Hedge funds bought South Korea's five-year credit default swap, sending the cost of protection against the country's inability to pay back loans up 8.63 percent to 62.74, its highest since June 2016. 

• Tesla's(TSLA) electric semi is reportedly autonomous and can move in 'platoons'. (video)

• Activist hedge funds target bigger and bigger US companies in year of the 'super campaign'. (video)

• The markets don't care about Trump's threats of 'fire and fury,' experts say. (video)

• Retired Army colonel: I don't think 'we're going to war over Korea'.

Zero Hedge:

• "Under Any Analysis, It’s Insanity": What War With North Korea Could Look Like.

• Death Spiral: 6.5 Million People Choose To Pay Tax Rather Than Buy Obamacare.

• Is Bitcoin Money?

• Streaming Killed The Cable Bundle: Record 941,000 Pay-TV Customers Ditch Cable In Q2.

• LAPD Prepares To Unleash Drones Amid Public Outcry.

• Mattis Warns Kim: "You Will Lose, Your People Will Be Destroyed".

• Fired Coder Speaks Out On Google's "Potentially Illegal Practices", "Recorded Meetings" And "Science Denial".

• Watchdog Files Complaint Against DNC For Colluding With Ukraine During The Election.

• Gold Spikes To 2-Month Highs As Equity 'Traders' Buy-The-Fire-And-Fury-Dip. (graph)

Business Insider:

• Fox News host Eric Bolling is suing a reporter for $50 million over story about sexual harassment allegations.

• Graham Capital, a $14 billion hedge fund, has lost money in almost all of its strategies this year.

• The enormous debt burden in the US will cause a recession.

Night Trading 

• Asian equity indices are -.25% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 82.0 -1.75 basis points. 

• Asia Pacific Sovereign CDS Index 20.75 +1.5 basis points.

• Bloomberg Emerging Markets Currency Index 73.55 -.02%.

• S&P 500 futures -.04%.

• NASDAQ 100 futures -.04%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (EAT)/1.04

• (GOOS)/-.19

• (DDS)/.20

• (KSS)/1.19

• (M)/.46

• (NWSA)/.10

• (NDLS)/.02

• (JWN)/.65

• (NVDA)/.82

• (PCTY)/.01

• (SNAP)/-.14

Economic Releases 
8:30 am EST

• Initial Jobless Claims for last week are estimated at 240K versus 240K the prior week.

• Continuing Claims are estimated to fall to 1960K versus 1968K prior.

• PPI Final Demand MoM for July is estimated to rise +.1% versus a +.1% gain in June.

• PPI Ex Food and Energy MoM for July is estimated to rise +.2% versus a +.1% gain in June.

2:00 pm EST

• The Monthly Budget Deficit for July is estimated at -$52.0B versus -$90.2B in June.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Dudley speaking, UK industrial production report, weekly EIA natural gas inventory report, $15B 30Y T-Note auction, WASDE Crop report, weekly Bloomberg Consumer Comfort Index, Goldman Power/Utilities/MLPs/Pipeline Conference and the (RL) annual meeting could also impact trading today.

BOTTOM LINE:  Asian indices are mostly higher, boosted by industrial and technology shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed.  The Portfolio is 75% net long heading into the day.