Stocks Slightly Lower into Final Hour on Rising Asian Debt Angst, Technical Selling, Profit-Taking, REIT/Telecom Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 13.35 -.30%
• Euro/Yen Carry Return Index 135.72 -.11%
• Emerging Markets Currency Volatility(VXY) 9.97 +2.15%
• S&P 500 Implied Correlation 47.91 -1.40%

• ISE Sentiment Index 113.0 +7.62%

• Total Put/Call .89 +14.10%

• NYSE Arms 1.0 -9.32% 

Credit Investor Angst:

• North American Investment Grade CDS Index 74.77 -1.12%

• European Financial Sector CDS Index 140.99 -1.22%

• Western Europe Sovereign Debt CDS Index 86.50 -.20%

• Emerging Market CDS Index 304.62 -.72%

• 2-Year Swap Spread 16.75 +.75 bp

• TED Spread 23.0 -.5 bp

• 3-Month EUR/USD Cross-Currency Basis Swap -9.25 -.25 bp

Economic Gauges:

• 3-Month T-Bill Yield .03% unch.

• Yield Curve 227.0 -2 bps

• China Import Iron Ore Spot $129.90/Metric Tonne -.76%

• Citi US Economic Surprise Index 4.0 +11.6 points
• Citi Emerging Markets Economic Surprise Index -27.40 +.7 point

• 10-Year TIPS Spread 2.20 +5 bps

Overseas Futures:

• Nikkei Futures: Indicating -58 open in Japan

• DAX Futures: Indicating +3 open in Germany

Portfolio: 

• Higher: On gains in my biotech/medical/retail sector longs and emerging markets shorts
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them
• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• Rail Debt Costs Surge as Li Steps Up Investment: China Credit. Borrowing costs for China's state-owned railway company are rising the fastest in two years just as Premier Li Keqiang vows to accelerate network expansion in an economy set to grow at the slowest pace in 12 years. The yield on 10-year rail debt surged 23 basis points last month to 5.32% in Shanghai, the biggest increase since August 2011, ChinaBond data show. The rate on similar-maturity government bonds climbed 21 basis points to 3.73%.   
• Germany’s Retail Sales Unexpectedly Declined in June. German retail sales (GRFRIAMM) unexpectedly declined in June, suggesting that doubts about Europe’s economic recovery weighed on consumer spending. Sales adjusted for inflation and seasonal swings dropped 1.5 percent from May, when they rose 0.7 percent, the Federal Statistics Office in Wiesbaden said today. Economists predicted an increase of 0.2 percent, according to the median of 25 estimates in a Bloomberg News survey. Sales fell 2.8 percent from a year earlier. 
• German Jobless Holds Near Low as Euro Region at Record: Economy. Germany’s unemployment rate held near a two-decade low, potentially buoying support for the government before September elections, while the rate in the euro area stayed at a record high. The number of people out of work in Germany decreased by a seasonally adjusted 7,000 to 2.93 million in July and the adjusted jobless rate was unchanged at 6.8 percent, according to the Nuremberg-based Federal Labor Agency today. The rate in the 17-nation euro area was 12.1 percent in June, unchanged from a revised figure for May, the European Union’s statistics office said in Luxembourg.
• European Stocks Are Little Changed After U.S. GDP Report. European stocks were little changed, with the Stoxx Europe 600 Index completing its biggest monthly gain since October 2011, as a report showed the U.S. economy expanded at a faster-than-expected pace. Anheuser-Busch InBev NV jumped 6.9 percent after the maker of Stella Artois lager posted earnings that beat estimates. Invensys Plc added 1.1 percent after Schneider Electric SA agreed to buy the company for 3.4 billion pounds ($5.2 billion). The Stoxx Europe 600 Index added 0.1 percent to 299.58 at the close of trading London, after earlier climbing as much as 0.4 percent and dropping as much as 0.5 percent.
• Fed Keeps $85 Billion QE Pace, Sees Risk of Disinflation. The Federal Reserve said it will maintain its $85 billion in monthly bond purchases and persistently low inflation could hamper the economic expansion. “The committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term,” the Federal Open Market Committee said today at the conclusion of a two-day meeting in Washington. Chairman Ben S. Bernanke and his colleagues are debating when employment gains will be sufficient to warrant tapering bond buying that has swelled the Fed’s balance sheet to a record $3.57 trillion. Some policy makers have said the purchases, aimed at fueling growth and reducing 7.6 percent unemployment, risk creating asset-price bubbles. The statement contained no new language on the conditions for maintaining the current pace of asset purchases. The Fed repeated the pledge it has used since September that it will continue the purchases until the U.S. labor market outlook has improved substantially.
• Commodity-Linked Structured Note Sales Slump to Nine-Year Low. Banks are selling the least structured notes tied to commodities in nine years as investors shun the securities amid a slowdown in China’s economy and the prospect of the U.S. Federal Reserve winding down stimulus. Global issuance in the first half of the year fell to about $2 billion, 41 percent lower than the same period of 2012 and the least since 2004 with securities linked to oil and gold among the biggest losers, according to a report from Barclays Plc. In the U.S., banks sold $689.6 million of the securities in the same period, the lowest since at least 2010, and have added $70.9 million this month through July 30, according to data compiled by Bloomberg. 
• Crude Heads for Best Month Since August on U.S. GDP. WTI for September delivery rose $1.51, or 1.5 percent, to $104.59 a barrel at 1:57 p.m. on the New York Mercantile Exchange. Futures traded at $103.57 before the supply report. The volume of all futures traded was 4.7 percent below the 100-day average for the time of day. Prices have climbed about 8.3 percent this month.
• Fed’s Debit-Card Swipe-Fee Rules Rejected by U.S. Judge. The Federal Reserve disregarded the Congress’s intent in deciding how much banks can charge merchants for debit-card transactions, a judge ruled, handing a victory to retailers who challenged the fees as being too high. U.S. District Judge Richard Leon in Washington ruled today that the Fed considered data it wasn’t allowed to use in setting a 21-cent cap on debit-card transaction fees under the Dodd-Frank law. Leon said the rule, in effect since October 2011, would remain in place until the Fed drafts new regulations or interim standards.
• Kids’ IPhone Hopes Dashed as Americans Pare School Spending. U.S. households are planning to shell out an average of 7.8 percent less for this year’s back-to-school shopping season because of the bumpy economic recovery, the National Retail Federation says. The potentially lackluster spending is one more signal that consumers are conflicted about the strength of the recovery and the stability of their buying power. That means retailers will have to keep prices low and offer exclusive products to fare well during the important back-to-school season, second only in importance to the year-end holiday season. Total back-to-school spending may total $26.7 billion this year, the Washington-based NRF said July 18. That translates to an average of about $634.78 on apparel, shoes, supplies and electronics for parents with school-age children, down from $688.62 last year, the group said. “There is no question that the economy still has a tight grip on Americans’ spending decisions,” NRF Chief Executive Officer Matthew Shay said on a conference call. “People are finding ways to get by.” 
• Obama Calls Summers Criticism Unfair. President Barack Obama told House Democrats that former Treasury Secretary Larry Summers -- a potential candidate for Federal Reserve chairman -- is being unfairly criticized, lawmakers said after a private meeting with the president. “He took a minute to stand up for Larry Summers,” said Representative Brad Sherman of California. Obama told Democrats he hadn’t made a decision about whom to appoint as Fed chairman though he said Summers was being unfairly criticized, Sherman said today. Representative John Larson, a Connecticut Democrat, said the president “hasn’t begun the process but he was, I thought, very adamant in his defense of the service Larry Summers has provided.” Representative John Lewis of Georgia said the president “was very defensive, I would say, of Summers and saying that Summers had played a very critical role early in the administration.” 
• SodaStream(SODA) Rallies Most Since May After Raising Outlook. SodaStream International Ltd. (SODA), the Israeli maker of home soda machines, surged the most in 11 weeks after boosting its revenue outlook for 2013 and reporting second-quarter earnings that beat analysts’ estimates. Shares of the Airport City, Israel-based company jumped 15 percent to $67.10 at 10:08 a.m. in New York. The advance pared the stock’s retreat in July to 8 percent, the biggest slump since October.

Fox News: 

• US not into electric cars, but feds gave company $100M for charging stations, watchdog says. A California company was given more than $100 million in taxpayer funds by the federal government – with few strings attached – to establish a network of electric car charging stations that is fraught with problems, according to a government audit. All this, despite weak demand by the American public for electric cars. While President Obama has pledged to get 1 million electric cars on U.S. roads by 2015, a new report by the Department of Energy’s inspector general found that Americans’ aversion to electric vehicles and loose department supervision led to stalling the charging network – which cost taxpayers more than $135 million.
• Republicans press new FBI director on Benghazi probe.

CNBC:

• Soros takes large Herbalife(HLF) stake, shares spike. The hedge fund battle over Herbalife intensified on Wednesday as George Soros has taken a large long position in the nutritional supplements maker, according to sources. Soros' position in Herbalife is one of his top three holdings, sources said. 
• Company pensions in peril as shortfalls hit record. Young workers may want to start counting on something other than company pensions to fund their retirements. It turns out that the plans of S&P 500 companies are underfunded to the tune of $451.7 billion, a number that has grown some 27 percent in just the last year alone, according to data released Wednesday by S&P Dow Jones Indices. While firms have plenty of cash to cover older workers currently on the payroll or in pension plans, that may not be the same once the younger generation gets ready to stop working.

Zero Hedge: 

• Doubling Down On All-In: Spot The (Somewhat) Odd One Out. (graph)
• ADP Prints +200K, Beats Estimate With Prior Revised Higher Confirming Taper. (graphs)
• Revised Q2 GDP Prints 1.7%, Higher Than Expected, But Prior Revised Significantly Lower. (graphs)
• How The US Just Added $550 Billion In "Growth": Full GDP Chart Pre- And Post-Revision. (graphs)
• Chicago PMI Misses: New Orders, Employment, Production All Drop, Prices Paid Up. (graphs)
• Mortgage Applications Plunging At Fastest Rate In 4 Years; Refis Down 57%. (graphs)
• Fed Releases Broken Record: "Prepared To Increase Or Reduce QE", No Taper Mention - Full Redline Comparison.

Business Insider: 

• Europe's Still Got Extremely Deep-Rooted Problems That Won't Get Fixed Anytime Soon.
• NSA's 'Widest-Reaching' System Could Read Facebook(FB) Chats And Private Messages.
• NSA Analysts Can Start Spying On You Without Any Court Or Senior Approval.

New York Times:

• New Siemens Chief Sees Weakness in China. The newly named chief executive of Siemens has promised to restore stability to the company that symbolizes German engineering and electronics prowess. But he also issued a warning that could bode ill for the euro zone economy: Don’t count on China.

Townhall.com:

• 5 Ways Liberalism Destroyed Detroit.

Reuters:

• Honda first-quarter profit lower than expected, cautious on emerging markets. Honda Motor Co (7267.T) announced a lower than expected 5.1 percent rise in quarterly operating profit after sales in Japan dropped following the end of subsidies and as it lagged behind rivals in selling profitable SUVs and pickups in the U.S. 
• Brazil cenbank intervenes 3 times as real hits 4-yr low. Brazil's central bank intervened three times in the foreign exchange market on Wednesday as it tried to halt a currency slide that took the real to its weakest level in over four years, potentially adding to inflation pressures. The interventions came right after the real slid to as much as 2.3022 per dollar, its weakest since April 1, 2009, suggesting that policymakers are ready to put up a fight to stop the currency from weakening past the psychologically-relevant mark of 2.3 per dollar.
• Big funding gaps and not enough FDI in emerging markets. Big balance of payment deficits and low levels of bricks-and-mortar direct investment make South Africa, Turkey, Ukraine and India the developing countries most vulnerable to a "sudden stop" in foreign capital flows.

Telegraph:

• Brazil expresses Latin America's fury as IMF continues to support Greece. Brazil has angrily attacked last week's £1.6bn International Monetary Fund payment to Greece on the same day as a report from the fund identified a new £9.6bn black hole in Greek finances.
• Eurozone unemployment still 'horrendous' despite first fall in two years.

Bear Radar

Style Underperformer:

• Large-Cap Growth -.09%

Sector Underperformers:

• 1) REITs -2.28% 2) Gold & Silver -2.07% 3) Agriculture -1.15%

Stocks Falling on Unusual Volume:

• ADC, JLL, TCB, HK, GNW, CLMT, CCI, BCS, CTCM, OPTR, IRG, RVBD, POT, IPI, JIVE, RBC, MA, NUVA, USU, V, ADC, NBCB, SQM, MOS, ATRO, BGFV, EVER, LOPE, NAFC, FB, CARB, TCB, IACI, RATE, RLGY, ENR, EVER, TTS, FIVE, GPRE, RPXC, DRIV and RBC

Stocks With Unusual Put Option Activity:

• 1) OPTR 2) SPWR 3) HES 4) V 5) MMM
  

Stocks With Most Negative News Mentions:

• 1) AGU 2) IPI 3) MON 4) VALE 5) AGNC
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +.67%

Sector Outperformers:

• Coal +1.98% 2) Banks +1.26% 3) HMOs +.89%
  

Stocks Rising on Unusual Volume:

• BUD, CMCSA, PTNR, CEL, GDP, SM, TSRX, MAKO, QCOR, SODA, EXAM, CBST, INVN, SNCR, NSR, BWLD, ALR, APD, NQ, GDOT, MX, BUD, GRMN, EGN, FTNT, WNC, SYMC, EGN, REGI and HBI

Stocks With Unusual Call Option Activity:

• 1) RVBD 2) INVN 3) QCOR 4) OIS 5) MAKO
  

Stocks With Most Positive News Mentions:

• 1) BEAT 2) ISIL 3) CMCSA 4) HUM 5) GRMN
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Wednesday Watch

Evening Headlines 
Bloomberg: 

• China Stocks World’s Worst Losing $748 Billion on Slump. Four years after China’s growth helped lead the global economy out of a recession and won the admiration of luminaries from billionaire George Soros to Nobel laureate Joseph Stiglitz, the nation’s stock market has lost more money for investors than any other in the world. The Shanghai Composite Index (SHCOMP), which doubled in 10 months through August 2009 as the government poured $652 billion of stimulus into building roads, railways and housing, has tumbled 43 percent from its high, destroying $748 billion in market value. Only Greece’s ASE Index (ASE) has fallen more in percentage terms.

• Black Holes at China's Shadow Banks. When I speak of cracks in China’s institutional foundation, I’m thinking in large part of China’s banking system -- which as far as I can tell, isn’t really a banking system the way that we think of it. 

• Ringgit Falls Most in 3 Weeks, Bonds Drop on Fitch Outlook Cut. Malaysia’s ringgit declined the most in three weeks and bonds extended losses after Fitch Ratings cut the nation’s credit outlook to negative from stable, citing rising debt levels and a lack of budgetary reform. The currency dropped to a three-year low and 10-year bond yields climbed to the highest since April 2011 after Fitch said in a statement yesterday that Malaysia’s public finances are its “key rating weakness.” The shrinking current-account surplus and $2.9 billion of sovereign debt maturing today raises the risk of capital outflows, putting the ringgit on course for its worst month in more than a year. 

• HTC Slumps After Forecasting Sales Drop. HTC Corp. (2498), Taiwan’s biggest smartphone maker, slumped to its lowest in almost eight years in Taipei trading after forecasting an eighth consecutive decline in quarterly sales amid intensifying competition. The stock dropped 6.7 percent to NT$159.5 as of 9:05 a.m., the lowest level since November 2005. Revenue will be as much as NT$60 billion ($2 billion) in the three months ending September, the Taoyuan, Taiwan-based company said in a statement yesterday. That missed the NT$72.7 billion average of 21 analysts’ estimates compiled by Bloomberg.

• Asian Stocks Pare Losses Ahead of Fed Policy Statement. Asian stocks pared losses as a rally fell in Chinese shares offset a drop in Japan before U.S. economic growth data and the conclusion of a Federal Reserve policy meeting. HTC Corp., Taiwan’s biggest smartphone maker, tumbled 6.7 percent after forecasting an eighth consecutive decline in quarterly sales amid intensifying competition. Kurita Water Industries Ltd. dropped 6.8 percent in Tokyo after the supplier of water-treatment equipment reported lower first-quarter profit. SoftBank Corp. (9984) climbed 3.2 percent after the Japanese carrier that bought Sprint Corp. posted profit that beat estimates. The MSCI Asia Pacific Index dropped 0.1 percent to 133.70 as of 12:04 p.m. in Tokyo, paring a loss of 0.4 percent earlier. 

• Rubber Pares Monthly Gain Ahead of U.S. Growth Data, Fed Meeting. Rubber pared the first monthly gain in six ahead of U.S. economic growth data and a policy statement by the Federal Reserve today. The contract for delivery in January fell as much as 2.1 percent to 238.7 yen a kilogram ($2,435 a metric ton) on the Tokyo Commodity Exchange and was at 242.6 yen at 11:52 a.m. Prices gained 2.7 percent this month, paring losses this year to 20 percent. 

• Gold Climbs as Investors Await Fed Statement; Silver Advances. Gold advanced as investors awaited the conclusion of U.S. Federal Reserve policy makers’ meeting today for signals on whether the Fed may start reducing its unprecedented stimulus program in the coming months. Bullion for immediate delivery rose as much as 1 percent to $1,339.74 an ounce, and was at $1,336.65 at 10:02 a.m. in Singapore. Prices have advanced 8.3 percent in July, snapping a run of three monthly losses and heading for the best gain since January 2012.

• Spain Weighs Home Demolitions as Wrecking Crews on Alert. The volume of properties for sale, combined with an expected drop in the population, will prevent the residential property market from recovering anytime soon. As many as 2.27 million homes may either be on the market already or in the pipeline, including up to 400,000 that are being developed, RR de Acuna estimates. Home prices have dropped about 35 percent since their peak in 2007, according to RR Acuna estimates based on home valuation data, said Rodriguez de Acuna. Prices may keep falling for at least a further five years, taking total declines from the top of the market to the bottom to 50 percent, he said.

• Iran May Reach Nuclear Breakout Ability by Middle of Next Year. Iran may achieve the “critical capability” to process low-enriched uranium into fuel for a nuclear weapon without detection by international inspectors by mid-2014, according to a report by a research group. Iran would reach this capability by acting on plans to install thousands of additional enrichment centrifuges at its Natanz and Fordow sites, according to David Albright, a former nuclear inspector, and Christina Walrond of the Washington-based Institute for Science and International Security. 

• Afghan Army Needs U.S. Help After Next Year, Pentagon Reports. Afghanistan’s security forces can’t go it alone after the planned departure of U.S. combat troops at the end of next year, the Pentagon said in its latest assessment of the war effort. “Substantial training, advising and assistance, including financial support” will be needed to address “ongoing shortages,” including the inability of Afghan security forces to operate and sustain complex battlefield technologies, air operations and logistics, according to the report issued yesterday. It also cited a gap in fielding units to clear roadside bombs, the primary killer of Afghan forces.

• Banks Commodity Business Drawing Sharper U.S. Regulator Scrutiny. U.S. financial regulators will boost scrutiny of banks’ commodities holdings and use their authority to pursue evidence of fraud and manipulation, the heads of two agencies told lawmakers.

• Half of Sleeping TSA Workers Get Little Punishment: GAO. The U.S. Transportation Security Administration isn’t consistent in disciplining workers accused of misconduct, penalizing some with little evidence while not imposing minimum sanctions on others, an audit concluded. Half of workers accused of sleeping on the job received less than the lowest penalty called for by agency policies, the Government Accountability Office said in a report released today. The House Homeland Security Committee is holding a hearing tomorrow on how the agency disciplines employees.

Wall Street Journal: 

• Summers Hedges His Doubts on Fed's Bond Buying. Potential Bernanke Successor Holds Nuanced Views on Monetary Policy. Lawrence Summers, a leading candidate to be the next Federal Reserve chairman, likely wouldn't beat a rapid retreat from the easy-money policies pursued by Ben Bernanke if he gets the job. A close reading of Mr. Summers's columns and speeches, as well as conversations with people familiar with his thinking and a June interview with him, show that Mr. Summers has been skeptical about the benefits of the Fed's huge bond-buying programs, known as "quantitative easing," but that he also has said he sees few harmful side effects stemming from them.

• Accenture(ACN) in Talks to Buy Booz & Co. An Acquisition Would Beef Up Strategy and Operations Consulting.

• Banks Face More Suits Over Swaps. Lenders Accused of Anticompetitive Practices. Two financial institutions filed lawsuits alleging large banks have had an unfair stranglehold on the $25 trillion credit-default-swaps market, adding to a pile of complaints about antitrust violations in derivatives. An affiliate of MF Global Holdings Ltd. filed a proposed class-action lawsuit Monday in an Illinois federal court alleging 11 banks engaged in anticompetitive practices, including blocking the company from becoming a clearing broker for swaps.

• Scott Gottlieb: How ObamaCare Hurts Patients. The 340B program was meant to help about 90 hospitals buy drugs to treat the poor. Now 1,675 hospitals qualify. President Obama promised to mend the failings in the American health-care system, and yet for cancer treatment, ObamaCare is taking a rotten feature of the old system and making it worse.

• Obama's 'Grand Bargain' With Obama. He proposes tax reform with higher taxes and not much reform.

Fox News:

• Obama doubles down on low-ball Keystone jobs claim despite fact-check criticism. President Obama doubled down Tuesday on his claim that the Keystone XL oil pipeline would create just a handful of jobs, despite being hammered by Republicans and fact-checkers alike for the claim.

MarketWatch.com: 

• China national audit to focus on new debt: report. China's national audit of central and local government debt, announced on Sunday, will focus on new borrowing, the 21st Century Business Herald reported. An investigation by China's National Audit Office will cover debt taken out since 2011, the newspaper said Wednesday, citing exclusive sources. The audit will catalogue the amount, structure, source and purpose of the borrowing and is due to be completed by October. The NAO will also try to get a handle on the multiplicity of channels used by local governments to access capital, including high-cost borrowing through trust companies and banks' wealth management products, the paper said. Illegal borrowing by the lowest levels of the Chinese government hierarchy, townships and villages, will also come under scrutiny.

CNBC:

• Zombie economy overshadows fed meeting. GDP data Wednesday is expected to show a slow-moving, zombie-like economy, as the Fed meets for a second day.

• Official data to signal more pain for Chinese factories. China's closely-watched official manufacturing purchasing managers index (PMI), due out on Thursday, is expected to show factory activity contracted for the first time in 10 months as the world's second largest economy suffers a deepening slowdown.

Zero Hedge: 

• The New Bailout Begins: Eminent Domain Is Upon Us. 

• Here We Go Again: Step Aside RMBS, Rent-Backed Securities Are Here, And With Them The Beginning Of The End. (graph)

• Things That Make You Go Hmmm... Like Fed-Induced Sugar Crashes.

• If "Europe Is Fine" Why Is Deutsche Bank(DB) Deleveraging At The Fastest Pace Since The Crisis of 2011?

• Marc Faber On Central Banker Actions: "Insane People Don't Realize They're Insane".

Business Insider: 

• Top Anthony Weiner Aide Goes On Stunning Expletive-Laden Rant About Former Campaign Intern.

• Japan Has Put Together A Bad String Of Data.

• Barack Obama Did Not Propose A Corporate Tax Cut, But The Media Keeps Saying He Did.

New York Times:

• OpenTable(OPEN) Begins Testing Mobile Payments. OpenTable, the world’s largest online reservation service, lets users book a restaurant reservation with its smartphone app or Web site. Now the company is getting ready to take the next step and let diners pay for the meal with its app, too.

Reuters: 

• Spain on the way back … to stagnation. Even if the economy only contracts by 0.1 percent, having shrunk by 0.5 percent in the first quarter, economists have warned that while the slump may be coming to an end, sustainable growth is a long way off. The central bank expects output to be flat over the next 12 months and says the economy remained very sensitive to adverse shocks, particularly on the fiscal side.

• China underwhelms with salvo to slim bloated industry. China's edict to more than 1,900 companies to shut excess production capacity by September is the latest effort to slim down bloated industries, but in the key steel, aluminum and cement sectors the cuts are just a fraction of their surpluses. Broader efforts, including credit curbs, raising environmental standards and energy efficiency will help slow the expansion of these sectors, but Beijing's push towards industry consolidation will be slow to materialize, analysts said. 

• Japan July manufacturing PMI shows growth at 4-month low. Japanese manufacturing activity in July grew at the slowest pace in four months in a sign that firms are curbing production due to slowing growth in exports. The Markit/JMMA Japan Manufacturing Purchasing Managers Index (PMI) fell to a seasonally adjusted 50.7 in July from 52.3 in June. 

• Symantec(SYMC) gains as hacking worries bring in more business. Symantec Corp, the maker of Norton anti-virus software, posted better-than-expected quarterly results as customers used more of its security products in the wake of a series of hacking attacks, sending the company's shares up 4 percent.

Financial Times: 

• Carlyle prepares boom-era securities sale. Carlyle Group is preparing a second European collateralised loan obligation in as many months as it seeks to tap resurgent investor appetite for a financial instrument widely shunned since the financial crisis. The US-based asset manager is speaking to investors about issuing a CLO similar to the €350m one it issued in June, according to a person familiar with the situation.

Yonhap News:

• N. Korea warns joint S. Korea-U.S. military drill will fuel tensions. North Korea warned Wednesday that a joint South Korea-U.S. military drill scheduled for mid-August will once again fuel tensions on the Korean Peninsula. The annual Ulchi Freedom Guardian (UFG) exercise, which aims to improve the defensive posture of the two allies against potential attacks by the North, is slated to take place in South Korea next month.

Asahi:

• Japan to Cut Budget Deficit by 8t Yen Over Next 2 Years. Japan will cut budget deficit by 8t yen by FY 2015, assuming a proposed sales tax increase is implemented as scheduled, without attribution. Cabinet to present mid-term fiscal plan in early August. Govt plans to cut budget deficit to 15t yen in FY 2015 from 23t yen in FY 2013.
  

China Daily: 

• Beijing 1H Tourist Numbers Drop -14.3% on Year. Tourists coming to China's capital city of Beijing dropped -14.3% in 1H from yr ago to 2.14m, citing the Beijing Municipal Bureau of Statistics.

National Business Daily:

• China May Set Carbon Tax Rate Over 10 Yuan/Ton. China may set carbon tax rate at more than 10 yuan per ton, with plan under discussion by the National People's Congress, citing a person familiar with the matter.

The National:

• Amid Arab Spring chaos, Al Qaeda takes its chance. Now more than ever before, Al Qaeda seems to be making a comeback as governments lose control.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -1.0% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 142.0 unch.

• Asia Pacific Sovereign CDS Index 110.50 +1.75 basis points.

• FTSE-100 futures +.18%.

• S&P 500 futures +.11%.

• NASDAQ 100 futures +.05%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AGCO)/1.81

• (EXC)/.54

• (PCG)/.73

• (HUM)/2.47

• (CMCSA)/.63

• (AMT)/.90

• (ENR)/1.31

• (HES)/1.40

• (H)/.30

• (MA)/6.29

• (PSX)/1.81

• (ALL)/.98

• (WMB)/.14

• (CBS)/.72

• (MAR)/.57

• (LRCX)/.71

• (RGR)/1.18

• (MET)/1.33

• (MUR)/1.53

• (IPI)/.20

• (MCHP)/.54

• (WFM)/.37

• (BKW)/.19

• (SPW)/.65

• (JNY)/-.12

• (BMC)/.79

• (PZZA)/.69 

Economic Releases
8:15 am EST

• The ADP Employment Change for July is estimated to fall to 180K versus 188K in June.

8:30 am EST

• The 2Q Employment Cost Index is estimated to rise +.4% versus a +.3% gain in 1Q.

• Advance 2Q GDP is estimated to rise +1.0% versus a +1.8% gain in 1Q.

• Advance 2Q Personal Consumption is estimated to rise +1.6% versus a +2.6% gain in 1Q.

• Advance 2Q GDP Price Index is estimated to rise +1.0% versus a +1.2% gain in 1Q.

• Advance 2Q Core PCE is estimated to rise +1.0% versus a +1.3% gain in 1Q.

9:00 am EST

• The ISM Milwaukee for July is estimated to rise to 52.0 versus 51.55 in June.

9:45 am EST

• The Chicago Purchasing Manager for July is estimated to rise to 54.0 versus 51.6 in June. 

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,450,000 barrels versus a -2,825,000 barrel decline the prior week. Gasoline inventories are estimated to fall by -1,500,000 barrels versus a -1,389,000 barrel decline the prior week. Distillate inventories are estimated to rise by +450,000 barrels versus a -1,227,000 barrel decline the prior week.  

Upcoming Splits

• (CSWC) 4-for-1

Other Potential Market Movers

• The Eurozone Unemployment Rate, China Manufacturing PMI, weekly MBA Mortgage Applications report and the Credit Suisse Gaming/Lodging/Leisure/Restaurants Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

Stocks Slightly Higher into Final Hour on Less Eurozone Debt Angst, Short-Covering, Central Bank Hopes, Tech/Biotech Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: About Even
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 13.70 +2.32%
• Euro/Yen Carry Return Index 135.56 +.08%
• Emerging Markets Currency Volatility(VXY) 9.62 +3.11%
• S&P 500 Implied Correlation 49.89 -.50%

• ISE Sentiment Index 95.0 -1.04%

• Total Put/Call .80 -2.44%

• NYSE Arms .89 -.85% 

Credit Investor Angst:

• North American Investment Grade CDS Index 75.77 -.59%

• European Financial Sector CDS Index 142.72 -3.86%

• Western Europe Sovereign Debt CDS Index 86.67 -1.68%

• Emerging Market CDS Index 305.87 -1.03%

• 2-Year Swap Spread 16.0 -.25 bp

• TED Spread 23.50 -1.5 bp

• 3-Month EUR/USD Cross-Currency Basis Swap -9.0 +.5 bp

Economic Gauges:

• 3-Month T-Bill Yield .03% +1 bp

• Yield Curve 229.0 +2 bps

• China Import Iron Ore Spot $130.90/Metric Tonne -.61%

• Citi US Economic Surprise Index -7.60 -2.1 points
• Citi Emerging Markets Economic Surprise Index -28.10 -1.0 point

• 10-Year TIPS Spread 2.15 +1 bp

Overseas Futures:

• Nikkei Futures: Indicating -109 open in Japan

• DAX Futures: Indicating -10 open in Germany

Portfolio: 

• Higher: On gains in my biotech/tech/retail sector longs
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back
• Market Exposure: 50% Net Long