Stocks Close Slightly Lower on Trade War Worries, Higher Long-Term Rates, Emerging Markets Debt Angst, Commodity/Gaming Sector Weakness

 Broad Equity Market Tone:

• Advance/Decline Line: Slightly Lower
  

• Sector Performance: Mixed
  

• Volume: Above Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 13.01 +1.4%

• Euro/Yen Carry Return Index 135.39 -.51%

• Emerging Markets Currency Volatility(VXY) 10.04 +.6%

• S&P 500 Implied Correlation 31.19 +14.67%

• ISE Sentiment Index 111.0 unch.
  

• Total Put/Call 1.02 +2.0%

• NYSE Arms .95 -20.94%

Credit Investor Angst:

• North American Investment Grade CDS Index 58.56 +.61%
  

• America Energy Sector High-Yield CDS Index 359.0 +.41%

• European Financial Sector CDS Index 74.74 +1.08%

• Italian/German 10Y Yld Spread 231.25 +3.5 basis points
  

• Asia Pacific Sovereign Debt CDS Index 11.08 +1.37%

• Emerging Market CDS Index 172.55 +2.72%
  

• iBoxx Offshore RMB China Corporate High Yield Index 150.0 +.08%

• 2-Year Swap Spread 21.75 +.5 basis point

• TED Spread 32.0 -.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -5.0 +.75 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 69.77 -.28%
• 3-Month T-Bill Yield 2.02% unch.
  

• Yield Curve 32.25 +2.75 basis points

• China Iron Ore Spot 66.59 USD/Metric Tonne -.13%

• Citi US Economic Surprise Index -2.80 -.6 point

• Citi Eurozone Economic Surprise Index -26.20 -.3 points

• Citi Emerging Markets Economic Surprise Index -3.30 -3.3 points

• 10-Year TIPS Spread 2.14 +1.0 basis point
  
• 81.1% chance of Fed rate hike at Nov. 8th meeting, 95.3% chance at Dec. 19th meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -61 open in Japan 
• China A50 Futures: Indicating -34 open in China

• DAX Futures: Indicating -4 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 75% Net Long

Morning Market Internals

NYSE Composite Index:

• Volume Running +12.3% Above 100-Day Average
• 6 Sectors Rising, 5 Sectors Declining
• 41.0% of Issues Advancing, 55.5% Declining
• 50 New 52-Week Highs, 31 New Lows
• 53.95% of Issues Above 200-day Moving Average
• Average 14-Day RSI 50.25%
• Vix 12.6 -2.1%
• Total Put/Call .87 -13.0%
• TRIN/Arms .87 -27.9%

Wednesday Watch

Evening Headlines

Bloomberg: 

• U.S. Considers Higher Tariffs on $200 Billion in Chinese Imports.  

• China's Steelmakers Are Smashing Production Records.  

• Australia House Prices Fall the Most in 7 Years.

• Asia Stocks Rise, Japanese Bond Yields Head Higher. Asian equities climbed at the open as investors sifted through the latest news on the U.S.-China trade front and positive results from Apple Inc. Japanese bond yields rose after the central bank said it would allow more flexibility in yield movements. Stocks rose in Japan and South Korea, and Hang Seng Index futures in Hong Kong climbed. In a move seen as pressuring China back to the negotiating table, the Trump administration will propose raising to 25 percent its planned 10 percent tariffs on $200 billion in Chinese imports, three people familiar with the internal deliberations said. Earlier, the S&P 500 Index capped a fourth monthly gain after Bloomberg reported that the U.S. and China were trying to restart talks aimed at averting a full-blown trade war. The offshore yuan fell. Topix index rose 0.6 percent as of 9:15 a.m. in Tokyo. Australia’s S&P/ASX 200 Index was flat. South Korea’s Kospi index added 0.5 percent. Futures on Hong Kong’s Hang Seng rose 1.3 percent. Futures on the S&P 500 Index were flat. Futures on the Nasdaq 100 advanced 0.3 percent.  

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

• American Oil Production Isn't Growing as Fast as Expected.

Wall Street Journal:

• Analysis and Recap of the Apple(AAPL) Analyst Call.

• U.S. Workers Get Biggest Pay Increase in Nearly a Decade.

• Why Americans Spend So Much on Health Care—In 12 Charts.

• Chinese Economy Starts to Feel Impact of U.S. Tariffs. 

• Facebook(FB) Pulls Accounts That Mimic Russian Tactics Ahead of Election.

• Chinese Economy Starts to Feel Impact of U.S. Tariffs. 

• Trump’s Shutdown Talk Overshadows Headway in Congress on Funding.

MarketWatch.com:

• The stock market just experienced the most seismic shift from growth to value since Lehman Brothers, says Nomura. 

• Daniel Loeb’s Third Point has built $300 million stake in Campbell Soup.

Fox News:

• Federal judge blocks release of 3D-printed gun plans for the time being.

CNBC:   

• Apple(AAPL) reports $9.55 billion in services revenue, up 31 percent since last year.

• Apple(AAPL) jumps 3% on strong quarter, guidance.

• After-hours buzz: AAPL, P & more.

• Mexico's president-elect: Deal to renegotiate NAFTA could be reached in coming days. 

• Worker pay rate hits highest level since 2008. 

Zero Hedge:

• Iran's Elite Guard Urges "Revolutionary Actions" To Halt Rial's Death Spiral.

• A Record 18% Of China's GDP Goes To Debt Service.

• Facebook – The Anti-Social Network.

• "Scant Progress" In US-China Trade Talks Despite Hopeful Morning Report.

• Apple(AAPL) Hits All Time High On Services, ASPs, Stellar Guidance.

• David Einhorn: "Our Results Have Been Far Worse Than We Could Have Imagined" - Full Q2 Letter.

• WTI Extends Losses After Huge Surprise Inventory Build.

• Stocks Soar In July Despite FANGover, Crude Carnage, Yield Curve Collapse.

Business Insider:

• Apple's(AAPL) earnings impressed, and it hinted at a big September iPhone launch.

Night Trading 

• Asian equity indices are -.25% to +.5% on average.

• Asia Ex-Japan Investment Grade CDS Index 79.25 -.5 basis point. 

• Asia Pacific Sovereign CDS Index 11.0 -.75 basis point.

• Bloomberg Emerging Markets Currency Index 69.96 unch.

• FTSE 100 futures -.26%

• S&P 500 futures +.04%.

• NASDAQ 100 futures +.33%.

Morning Preview Links

Earnings of Note
Company/Estimate
Before the Open:

• (ADP)/.90

• (BG)/1.04

• (CHK)/.15

• (HUM)/3.78

• (PBI)/.26

• (UTHR)/3.42

After the Close:

• (APA)/.39

• (CF)/.45

• (BLUE)/2.46

• (ESRX)/2.20

• (MET)/1.17

• (SGMS)/-.03

• (SQ)/.11

• (RGR)/.83

• (TDOC)/-.36

• (TSLA)/-2.81

• (X)/1.12

• (WMB)/.18

• (WYNN)/1.97

• (XPO)/.98

Economic Releases 
8:15 am EST

• The ADP Employment Change for July is estimated to rise to 186K versus 177K in June.

10:00 am EST

• Construction Spending MoM for June is estimated to rise +.3% versus a +.4% gain in May.

• ISM Manufacturing for July is estimated to fall to 59.3 versus 60.2 in June.

• ISM Prices Paid for July is estimated to fall to 75.3 versus 76.8 in June.
  

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,261,920 barrels versus a -6,147,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -1,947,820 barrels versus a -2,328,000 barrel decline the prior week. Distillate inventories are estimated to rise by +125,550 barrels versus a -101,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.68% versus a -.5% decline prior.
  

2:00 pm EST

• The FOMC is expected to leave the benchmark Fed Funds Rate at 1.75-2.0%.
  

Afternoon

• Wards Total Vehicle Sales for July are estimated to fall to 17.05M versus 17.38M in June.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Eurozone PMI report, weekly MBA Mortgage Applications report and the (F) July sales conference call could also impact trading today.

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

Stocks Rising into Final Hour on Diminished Trade War Worries, Earnings Outlooks, Yen Weakness, Biotech/Defense Sector Strength

 Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Almost Every Sector Rising
  

• Volume: Above Average

• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• Volatility(VIX) 13.28 -6.87%

• Euro/Yen Carry Return Index 136.15 +.64%

• Emerging Markets Currency Volatility(VXY) 10.05 -.4%

• S&P 500 Implied Correlation 30.27 +4.67%

• ISE Sentiment Index 117.0 +46.25%
  

• Total Put/Call .91 -18.0%

• NYSE Arms 1.36 +91.5%

Credit Investor Angst:

• North American Investment Grade CDS Index 58.37 -.83%
  

• America Energy Sector High-Yield CDS Index 358.0 -.80%

• European Financial Sector CDS Index 73.94 -3.82%

• Italian/German 10Y Yld Spread 227.75 -6.25 basis points
  

• Asia Pacific Sovereign Debt CDS Index 10.92 -7.45%

• Emerging Market CDS Index 168.73 +1.67%
  

• iBoxx Offshore RMB China Corporate High Yield Index 149.88 -.03%

• 2-Year Swap Spread 21.25 +.5 basis point

• TED Spread 32.25 -2.75 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -5.75 +.25 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 70.02 -.16%
• 3-Month T-Bill Yield 2.02% +3.0 basis points
  

• Yield Curve 29.5 -.25 basis point

• China Iron Ore Spot 67.40 USD/Metric Tonne -.58%

• Citi US Economic Surprise Index -2.20 +1.1 points

• Citi Eurozone Economic Surprise Index -25.90 +1.8 points

• Citi Emerging Markets Economic Surprise Index 0.0 -.6 point

• 10-Year TIPS Spread 2.13 unch.
  
• 82.6% chance of Fed rate hike at Sept. 26th meeting, 83.5% chance at November 8th meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +87 open in Japan 
• China A50 Futures: Indicating +141 open in China

• DAX Futures: Indicating -3 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 75% Net Long