Weekly Outlook

Week Ahead by Bloomberg. 

Wall St. Week Ahead by Reuters.

Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on Fed rate hike worries, China bubble-bursting fears, Asian currency concerns, commodity weakness, technical selling and European/Emerging Markets/US High-Yield debt angst. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 25% net long heading into the week.

Today's Headlines

Bloomberg: 

• On Second Thought, China Slowdown Will Hit Global-Growth Outlook. China’s deepening struggles are starting to make a bigger dent in the global economic outlook. Moody’s Investors Service on Friday cut its 2016 growth forecast in Group of 20 economies to 2.8 percent, down 0.3 percentage point from the company’s call less than two weeks ago. China is projected to grow 6.3 percent in 2016, down from 6.5 percent previously, the credit-rating company said in a report. Citigroup Inc. last week pared its projection for world growth in 2016 to 3.1 percent from 3.3 percent, the third straight time the bank has cut the forecast. Recent Chinese data including numbers on credit expansion and fixed-asset investment suggest a sharper slowdown this quarter than Moody’s previously judged, while Citigroup said the worsening outlook was driven by “significant” downgrades for China, the euro area, Japan and several other major countries. Economists in a Bloomberg survey earlier this month gave a median estimate of 3.5 percent global growth in 2016, compared with 3.6 percent in the July survey. “We’re seeing evidence that the slowdown is broader than expected” in China, said Marie Diron, a London-based senior vice president at Moody’s and one of the report’s authors. “It’s long been clear that there’s a slowdown in the manufacturing and construction sector, but the service sector was more resilient. That’s still the case, but we’re seeing some signs of weakness in the labor market.”

• Uh-oh, Canada. China Pales as a Risk to U.S. Growth. The U.S. neighbor to the North could cool off momentum. Canada probably experienced a technical recession in the first half of 2015, and the fact that the No. 1 U.S. export market is in a slump could spell bad news for growth in the world's biggest economy. Canada's gross domestic product contracted for a second quarter in the three months through June, a Sept. 1 report will show, according to almost all economists in a Bloomberg survey. The economy probably shrank by 1 percent, even worse than the 0.6 percent first-quarter drop. "When Canada hurts, U.S. exporters do, too," Bricklin Dwyer, an economist at BNP Paribas in New York, wrote in an Aug. 27 note to clients titled "Canada (not China) matters more."   

• India's Rajan Says Prices Aren't Right in Global Asset Markets. Reserve Bank of India Governor Raghuram Rajan has a message for investors around the world: Get ready for potential declines in asset prices. That’s because unprecedented easing by global central banks has helped drive up prices, Rajan said in a Bloomberg Television interview Friday at the Kansas City Federal Reserve’s annual symposium in Jackson Hole, Wyoming. “Those might be the sources of fragility -- that we’ve tried doing too much,” Rajan said. “And as a result, in certain asset markets, prices aren’t correct. And they may correct. Now whether that happens smoothly or that happens in more volatile fashion, I think is anybody’s guess.” The comments come a decade after Rajan, who at the time was the International Monetary Fund’s chief economist, presented a paper at Jackson Hole that proved prescient in warning that a global financial crisis could be triggered by little-understood financial products. Two years later, that crisis scorched the world economy. More recently, Rajan’s criticism has shifted to the years of unprecedented monetary stimulus by central banks in the world’s richest countries. He’s spoken of the dangers of competitive monetary easing and called for greater coordination among policy makers. 

• All of That Dollar Borrowing in Emerging Markets Looks Like It's Been One Giant Carry Trade. Since the 2008 financial crisis, companies across emerging markets have been borrowing dollars and converting them into local currencies as part of a massive carry trade. This practice has helped U.S. dollar shadow banking go global as the effects of near-zero U.S. interest rates seep into all corners of the world economy. That's the main finding of a new report released Thursday by the Bank for International Settlements, an institution in Basel, Switzerland, known as the central bank for central banks.

• European Bonds May Extend Losses as Sovereign-Debt Supply Rises. After a volatile week in global markets, traders may be reluctant to increase their holdings of euro-area government bonds as debt supply surges and before the European Central Bank responds to the turmoil kindled in China. Investors last week turned pessimistic on German bonds, sending the 10-year bund yield rising the most in almost three months. Spanish and Italian securities also declined. BNP Paribas SA said it’s too soon to re-enter positions that bet on prices in sovereign-debt markets rising. Austria, Belgium, Germany, Spain and France all will auction securities next week, which tends to suppress prices.

• Fischer Sees Good Reason to Believe U.S. Inflation Will Rise. Federal Reserve Vice Chairman Stanley Fischer said the U.S. central bank should not wait until it reaches its inflation goal before raising interest rates and voiced confidence price pressures would accelerate. “Given the apparent stability of inflation expectations, there is good reason to believe that inflation will move higher as the forces holding down inflation dissipate further,” Fischer said Saturday at the Kansas City Fed’s annual retreat in Jackson Hole, Wyoming. “With inflation low, we can probably remove accommodation at a gradual pace,” he said without specifying when the Fed should start. “Yet, because monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2 percent to begin tightening.” The Fed is monitoring the fallout for the U.S. from stock market turmoil spurred by concerns about a slowdown in China. Investors bet that could persuade the U.S. central bank to delay raising rates. Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said it suggested that Fischer wants to get going on rate hikes. “It sounds like Fed Vice Chairman Fischer is getting an itchy trigger finger when it comes to lifting rates,” he said in a note to clients. ’’Today’s news represents an important change possibly in the leadership of the Fed’s position, which clears the way for action on Sept. 17.’’

• Jackson Hole Paper Backs View of Fed Liftoff 'Sooner,' Not Later. U.S. is "nearing" point at which diminishing slack will lead to upward inflation pressure, according to a paper presented at Fed's Jackson Hold symposium that seems to support rate liftoff "sooner rather than later." "We can be confident based on our slack measures that inflation will soon be rising," economists Jon Faust of John Hopkins University and Eric Leeper from Indiana University wrote in paper. Fed policy "could easily devolve into regular goalpost moving" without clearer framework for applying a new approach into deliberations, they wrote.  

• Fischer Keeps Fed Liftoff Options Open as October Comes in Focus. Federal Reserve Vice Chairman Stanley Fischer left open the option of an interest-rate increase next month while two other Fed officials raised the prospect of an October liftoff. Fischer was the most senior Fed official to speak on Friday as policy makers debated what market turmoil means for the U.S. during a barrage of live television interviews at the Kansas City Fed’s annual retreat in Jackson Hole, Wyoming. European central bankers will address the conference on Saturday, providing an international perspective of market convulsions and slower Chinese growth during a panel on global inflation, in which Fischer will also take part.

• Fed, ECB, BOE Officials All Say They See Inflation Rising. Stronger growth will pull inflation higher in the U.S. and Europe, according to three top central bankers who voiced confidence that their regions will escape from headwinds that are keeping inflation too low. Federal Reserve Vice Chairman Stanley Fischer joined European Central Bank Vice President Vitor Constancio and Bank of England Governor Mark Carney Saturday on a panel at the Kansas City Fed’s annual retreat in Jackson Hole, Wyoming, dedicated to discussing inflation dynamics. Their optimism has not been shared up until now by investors, trading in inflation-protected bonds shows.

 Wall Street Journal: 

• Foes Try New Ways To Attack Obama’s Iran Nuclear Deal. Republicans plan votes on new Tehran sanctions as Obama moves to lock up support to implement accord. Capitol Hill opponents of the landmark Iranian nuclear accord are devising a Plan B to ratchet up pressure on Iran as President Barack Obama moves closer to locking up the support needed to implement the deal.

• Iowa Poll Shows Bernie Sanders Closing In on Hillary Clinton.

• For China, a Plunge and a Reckoning. In today’s interwoven world, the stock-market crisis should spur Beijing to prefer compromise to bullying.

MarketWatch.com:  

• ‘Death cross’ patterns spread like a bearish virus.

Fox News:

• Suspect arrested, charged in killing of Texas county sheriff's deputy. (video) Authorities have charged a 30-year-old man with capital murder, after they say he ambushed a Texas county sheriff’s deputy at a suburban Houston gas station in an attack motivated by "absolute madness."

CNBC:

• A 'perfect storm' for Chinese President Xi Jinping. (video) The yuan, China's market, and global confidence in Beijing are all dropping. It's not an easy time to be the leader of the world's second-biggest economy.

Zero Hedge:

• Here's Why The Markets Have Suddenly Become So Turbulent. (graph)

• Lagarde: "China's Slowdown Was Predictable, Predicted"... Yes, By Everyone Except The IMF. (graph)

• Apple(AAPL) "Channel Checks" Paint A Very Gloomy Picture.

• This Is What Happened The Last Time Malaysia Faced A Currency Crisis. (graph)

• What Bill Dudley's Hedge Fund Advisors Told Him About A September Rate Hike.

• What The Yen Might Reveal.

• "Rough Summer" For Small Caps Set To Continue. (graph)

• US Debt In The Age Of Unrestrained Central Banking. (graph)

• Nassim Taleb's Fund Made $1 Billion On Monday; This Is How The Other "Hedge" Funds Did.

• Why The Recurring Economic Crises?

• Here's How Long Saudi Arabia's US Treasury Stash Will Last Under $30, $40, And $50 Crude. (graph)

• All Of Our Hopes & Dreams Come Down To 0.25%.

• These Four Currency Pegs Are Most Likely To Fall. (graph)

• "No Recovery For You!" Brazil Officially Enters Recession, Goldman Calls Numbers "Disquieting". (graph)

• Weekend Reading: Just A Correction, Or Something Else.

• Biggest Short Squeeze Since 2008 Bank Bailout And Epic VIX Rigging Sends Stocks Green For The Week. (graph)

Business Insider:

• REPORT: The FBI put its 'A-team' on the 'extremely serious' Hillary Clinton email probe.

• 7 takeaways from Vanity Fair's 1990 Profile of Donald Trump.

• There's another Chinese market growing explosively — and Beijing wants to take control before it 'blows up'.

• And you thought wages in America were bad ... (graph)

• Jeb clearly had the worst week in Washington.

• China is taking charge of a key element in Iran's nuclear deal.

NY Times:

• Zombie Factories Stalk the Sputtering Chinese Economy. Changzhi and its environs are littered with half-dead cement factories and silent, mothballed plants, an eerie backdrop to the struggling Chinese economy. Like many industrial cities across China, Changzhi, which expanded aggressively during the country’s long investment boom, has too many factories and too little demand. That excess capacity, many economists indicate, will have to be eliminated for the Chinese economy to return to healthy growth.

Reuters:

• China crisis covers tracks of Japan. As China's stock markets have lurched wildly, seeding dramatic falls across the world, some have drawn parallels with the global financial crisis of 2008 or the Asian version a decade earlier. They are weak comparisons. The abrupt end of Japan's boom in the 1990s, complete with stock crash and property bust, offers the most striking similarities, and the most valuable lessons.

• Half of UK manufacturers worried by China, some review plans - EEF. Just under half of British manufacturers are worried by the possibility of a sharp slowdown in China's economy and one in ten are reviewing their business plans, a survey from an industry group showed on Sunday.

Telegraph:

• If we have a Lehman moment, the West must share blame with China. Black Monday happened because of drastic and ultimately unsustainable measures taken by both Chinese and Western policymakers.

Xinhua:

• China Regional Debt Surges 34% in 18 Months. China's local governments had 24 trillion yuan ($3.8 trillion) of outstanding debt at the end of last year, up 34% from June 2013. The regional authorities had 15.4 trillion yuan of debt that they have to repay and another 8.6 trillion yuan of contingent liabilities, Xinhua said in a report citing a bill the National People's Congress approved. That compares with 17.9 trillion yuan of debt they had at the end of June 2013, according to an official audit. The top legislature approved the 16 trillion yuan regional debt quota for this year. The approval signals China has initiated quota-management for local debt, and has put a "ceiling" for authorities' fund raising, the official news agency said. China's local debt risk "is overall under control, though some regions faces relatively high debt risks," Xinhua said.

Market Week in Review

• S&P 500 1,988.77 +.91%*

The Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices

• S&P 500 1,988.77 +.91%

• DJIA 16,643.01 +1.11%

• NASDAQ 4,828.32 +2.60%

• Russell 2000 1,162.91 +.53%

• S&P 500 High Beta 30.46 +2.95%

• Goldman 50 Most Shorted 125.36 +4.34% 

• Wilshire 5000 20,766.01 +.88%

• Russell 1000 Growth 971.92 +1.53%

• Russell 1000 Value 954.80 +.27%

• S&P 500 Consumer Staples 487.80 -.32%

• Solactive US Cyclical 121.56 +. 70%

• Morgan Stanley Technology 1,022.02 +2.49%

• Transports 7,908.66 +.47%

• Utilities 572.21 -4.26%

• Bloomberg European Bank/Financial Services 108.50 +.74%

• MSCI Emerging Markets 33.72 +5.66%

• HFRX Equity Hedge 1,152.19 -3.46%

• HFRX Equity Market Neutral 1,011.41 -.23%

Sentiment/Internals

• NYSE Cumulative A/D Line 227,557 -.55%

• Bloomberg New Highs-Lows Index -317 +723

• Bloomberg Crude Oil % Bulls 35.42 +45.22%

• CFTC Oil Net Speculative Position 210,564 -6.8%

• CFTC Oil Total Open Interest 1,688,731 +.75%

• Total Put/Call 1.28 -23.81%

• OEX Put/Call .74 -73.94%

• ISE Sentiment 79.0 +12.86%

• NYSE Arms 1.06 -63.32%

• Volatility(VIX) 26.05 -7.06%

• S&P 500 Implied Correlation 60.01 +3.57%

• G7 Currency Volatility (VXY) 10.16 +5.94%

• Emerging Markets Currency Volatility (EM-VXY) 11.62 +1.93%

• Smart Money Flow Index 16.764.56 -1.80%

• ICI Money Mkt Mutual Fund Assets $2.695 Trillion +.34%

• ICI US Equity Weekly Net New Cash Flow -$5.204 Billion

• AAII % Bulls 32.5 +21.2%

• AAII % Bears 38.3 +14.8%

Futures Spot Prices

• CRB Index 1917.10 +3.01%

• Crude Oil 45.36 +12.7%

• Reformulated Gasoline 1551.55 -1.57%

• Natural Gas 2.72 +1.19%

• Heating Oil 157.65 +7.95%

• Gold 1,133.50 -2.24%

• Bloomberg Base Metals Index 145.78 +.42%

• Copper 233.80 +2.09%

• US No. 1 Heavy Melt Scrap Steel 210.67 USD/Ton unch.

• China Iron Ore Spot 56.04 USD/Ton -.11%

• Lumber 237.10 -3.34%

• UBS-Bloomberg Agriculture 1,017.42 -.2%

Economy

• ECRI Weekly Leading Economic Index Growth Rate -.9% -50.0 basis points

• Philly Fed ADS Real-Time Business Conditions Index .1913 -3.57%

• S&P 500 Blended Forward 12 Months Mean EPS Estimate 126.21 -.03%

• Citi US Economic Surprise Index -7.5 +10.7 points

• Citi Eurozone Economic Surprise Index 14.6 -2.3 points

• Citi Emerging Markets Economic Surprise Index -9.6 -1.0 point

• Fed Fund Futures imply 62.0% chance of no change, 38.0% chance of 25 basis point hike on 9/17
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 5.61 +39.55%

• US Dollar Index 96.09 +1.37%

• Euro/Yen Carry Return Index 141.84 -2.32%

• Yield Curve 147.0 +5.0 basis points

• 10-Year US Treasury Yield 2.18% +14.0 basis points

• Federal Reserve's Balance Sheet $4.436 Trillion -.29%

• U.S. Sovereign Debt Credit Default Swap 16.28 +1.72%

• Illinois Municipal Debt Credit Default Swap 253.0 +1.75%

• Western Europe Sovereign Debt Credit Default Swap Index 22.34 -5.58%

• Asia Pacific Sovereign Debt Credit Default Swap Index 80.11 -1.37%
  

• Emerging Markets Sovereign Debt CDS Index 278.84 -15.39%
  

• Israel Sovereign Debt Credit Default Swap 68.69 -2.22%

• Iraq Sovereign Debt Credit Default Swap 736.50 -1.33%

• Russia Sovereign Debt Credit Default Swap 372.80 -11.2%

• iBoxx Offshore RMB China Corporates High Yield Index 116.79 -1.45%

• 10-Year TIPS Spread 1.62% +8.0 basis points

• TED Spread 27.25 -4.0 basis points

• 2-Year Swap Spread 15.25 -7.5 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -21.25 -3.25 basis points

• N. America Investment Grade Credit Default Swap Index 79.21 -3.53%

• America Energy Sector High-Yield Credit Default Swap Index 1,872.0 +.06%

• European Financial Sector Credit Default Swap Index 81.20 -3.0%
  

• Emerging Markets Credit Default Swap Index 344.58 -2.94%
  

• CMBS AAA Super Senior 10-Year Treasury Spread  to Swaps 101.0 unch.

• M1 Money Supply $3.039 Trillion -.31%

• Commercial Paper Outstanding 1,049.70 -.70%

• 4-Week Moving Average of Jobless Claims 272,500 +1,000

• Continuing Claims Unemployment Rate 1.7% unch.

• Average 30-Year Mortgage Rate 3.84% -9 basis points

• Weekly Mortgage Applications 412.70 +.24%

• Bloomberg Consumer Comfort 42.0 +.9 point

• Weekly Retail Sales +1.70% unch.

• Nationwide Gas $2.51/gallon -.12/gallon

• Baltic Dry Index 905.0 -8.95%

• China (Export) Containerized Freight Index 833.25 -1.32%

• Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 20.0 -20.0%

• Rail Freight Carloads 278,972 +.91%

Best Performing Style

• Large-Cap Growth +1.1%

Worst Performing Style

• Small-Ca Value -.5%

Leading Sectors

• Oil Service +9.6%

• Semis +5.5%

• Biotech +3.0%

• Alt Energy +2.9%

• Computer Hardware +2.8%

Lagging Sectors

• Airlines -2.3% 

• REITs -3.3%

• Homebuilders -4.8%

• Utilities -4.9%

• Gold & Silver -6.3%

Weekly High-Volume Stock Gainers (14)

• CAM, GAS, MOV, BBY, DY, BEAT, ANF, BRCD, GB, ACOR, GES, HRTX, NMBL and OSK

Weekly High-Volume Stock Losers (42)

• MS, EWBC, WDR, NTK, MCK, PCL, PX, ADSK, AZZ, SYF, ARG, ABT, PLUS, EXC, HEI, TIF, ULTA, NTRS, VAL, BLOX, NDSN, GSBD, TYPE, SLB, SSS, COG, DG, FMC, PDCO, LEG, DE, JLL, TOL, ROST, CBG, OPK, DSW, WSM, CRMT, POM, INTU and TFM

Weekly Charts

ETFs

• High-Volume Gainers

• High-Volume Losers

Stocks

• High-Volume Gainers

• High-Volume Losers

*5-Day Change

Stocks Modestly Lower into Afternoon on China Bubble-Bursting Fears, Fed Uncertainty, Earnings Worries, Utility/Pharma Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Mixed
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 27.21 +4.25%

• Euro/Yen Carry Return Index 141.90 -.15%

• Emerging Markets Currency Volatility(VXY) 11.56 -.94%

• S&P 500 Implied Correlation 62.06 +9.41%

• ISE Sentiment Index 86.0 unch.

• Total Put/Call 1.23 +3.36%

• NYSE Arms .92 +165.13% 

Credit Investor Angst:

• North American Investment Grade CDS Index 79.71 +.97%

• America Energy Sector High-Yield CDS Index 1,872.0 -2.51%

• European Financial Sector CDS Index 81.26 +2.38%

• Western Europe Sovereign Debt CDS Index 22.34 -2.66%

• Asia Pacific Sovereign Debt CDS Index 79.70 +1.55%

• Emerging Market CDS Index 344.58 +.55%
  

• iBoxx Offshore RMB China Corporates High Yield Index 116.79 -.36%

• 2-Year Swap Spread 15.25 +.75 basis point

• TED Spread 27.25 -.75 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -21.25 -.75 basis point

Economic Gauges:

• 3-Month T-Bill Yield .06% +1.0 basis point

• Yield Curve 146.0 -3.0 basis points

• China Import Iron Ore Spot $56.04/Metric Tonne +3.91%

• Citi US Economic Surprise Index -7.5 -4.8 points

• Citi Eurozone Economic Surprise Index 14.6 -3.5 points

• Citi Emerging Markets Economic Surprise Index -9.6 -1.7 points

• 10-Year TIPS Spread 1.61 +2.0 basis points
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 5.61 -.31

Overseas Futures:

• Nikkei 225 Futures: Indicating -1 open in Japan 
• China A50 Futures: Indicating -302 open in China

• DAX Futures: Indicating -8 open in Germany

Portfolio: 

• Slightly Higher: On gains in my retail sector longs and emerging markets shorts

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

• Market Exposure: Moved to 25% Net Long

Bear Radar

Style Underperformer:

• Large-Cap Growth -.22%

Sector Underperformers:

• 1) Disk Drives -2.42% 2) Utilities -1.54% 3) HMOs -1.42%

Stocks Falling on Unusual Volume:

• GME, RGS, ADSK, SPLK, CEO, CEA, ZOES, ZIV, HCI, CHDN, CIVI, AAXJ, POM, XIV, GHL, SYK, ASND, AMG, USNA, WDAY, WSM, MAN, GAS, RHI and POM

Stocks With Unusual Put Option Activity:

• 1) S 2) BTU 3) HOT 4) BHI 5) LOCO
  

Stocks With Most Negative News Mentions:

• 1) DUK 2) BAC 3) RGS 4) TDC 5) TWC
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume