Thursday Watch

Evening Headlines
Bloomberg:

• France's War on Terror Reaches Into the Countryside. Beauvais, population 55,000, is typical of provincial France. It has a Gothic cathedral, long-closed textile plants and multicultural housing projects from the 1960s ringing a historic center. Since last month’s terror attacks in Nice and rural Normandy, it’s been convulsed by anxiety and suspicion. “Fear is contagious,” Alain Giblin, a 68-year-old former teacher, said last week after a mass in the town where he’s lived his entire life. “I don’t want to live thinking everyone I see could be an enemy. But that’s the way we seem to be heading.” The unease in towns like Beauvais has grown as the terrorists’ reach has expanded, switching from the French capital in November to the south and then the north coast within less than two weeks in July. That shift in focus has unsettled the whole population, both provincial and metropolitan, as France’s summer of terror dominates the political debate eight months out from presidential elections.
• High Yield Rolls On Even After Wheels Come Off Energy Markets. The well-oiled machine that linked junk-bond indexes to energy prices may be sputtering. After moving in lockstep with oil markets for much of the last two years, high-yield bonds have posted modest gains in the past two months. That’s despite a renewed bear market in crude prices that’s casting doubt on the fate of oil drillers, producers and transporters, which make up the biggest portion of some high-yield indexes. The conundrum is whether the turmoil in energy markets will eventually start dragging down junk-bond valuations as defaults and bankruptcies pile up among issuers in the oil patch.
• Dead Calm: Global Market Turbulence Gives Way to an Uneasy Quiet. It’s quiet out there. Maybe too quiet. Even as U.S. stocks and bonds hit one high after another, and skeptics from Donald Trump on down warn trouble is coming, a preternatural sense of calm seems to have descended over financial markets. The turbulence unleashed less than two months ago when Britain voted to quit the European Union has dissipated. In its place has come -- well, nothing. By some measures, markets haven’t been this serene in years.
• Asian Stocks Rise After Posting Biggest Daily Drop in Five Weeks. Asian stocks rebounded after the worst decline in five weeks as Japanese shares climbed and material companies led gains on the regional benchmark gauge. The MSCI Asia Pacific Index rose 0.3 percent to 134.64 as of 9:02 a.m. in Tokyo after falling the most since June 24 on Wednesday. The measure is shaping up for its worst week since mid-June as Japanese shares slumped after additional stimulus failed to impress investors. Commodity producers and technology companies led gains on the regional gauge as nine of 10 industry groups advanced. The Bank of England is set to cut rates to a record later Thursday, according to almost all economists in a Bloomberg survey.

Wall Street Journal:

• New Jersey Backs Away From Hedge Funds. State’s target hedge-fund commitment will fall to 6% from 12.5%.
• One More Reason for Investors to Worry About ‘Earnings Before Bad Stuff’. Companies that report tailored results are more likely to encounter some kinds of accounting problems.
• Justice Department Officials Raised Objections on U.S. Cash Payment to Iran. Some officials worried about message being sent, but were overruled. Senior Justice Department officials objected to sending a plane loaded with cash to Tehran at the same time that Iran released four imprisoned Americans, but their objections were overruled by the State Department, according to people familiar with the discussions.
• Obama’s Cash for Iran’s Hostages. The payoffs encouraged the ayatollahs to grab more Americans. When is a payment for hostages not a ransom? When the Obama Administration says so. That’s how the State Department has tried to spin a $1.7 billion settlement the U.S. reached with Tehran in January, when the nuclear deal was finalized and Tehran released five American hostages, including Washington Post reporter Jason Rezaian. The Administration insists the payment merely settled a separate dispute related to the aborted sale of...

Fox News:

• Fox News Poll: Clinton leads Trump by 10 points, both seen as flawed. (video) Sixty-one percent of voters think Hillary Clinton is dishonest, yet she’s opened up a big lead over Donald Trump in the latest Fox News Poll. Here’s why: majorities think Clinton is nevertheless qualified to be president, and has the temperament and knowledge to serve effectively. It’s the opposite for Trump: over half feel he is not qualified, and lacks the temperament or knowledge to lead the country. And his 62 percent dishonesty rating tops hers. After the conventions, the Clinton-Kaine ticket leads the Trump-Pence ticket by 10 points (49-39 percent) in the race for the White House. Clinton’s advantage is outside the poll’s margin of error. A month ago, Clinton was up by six points (44-38 percent, June 26-28).
• SCOTUS: School can block transgender teen from boys' room. (video) A Virginia school board can block a transgender male from using the boys restroom when school starts next month, the U.S. Supreme Court ruled Wednesday. In a 5-3 decision, the high court put on hold a lower court ruling ordering the school board to allow Gavin Grimm to use the bathroom that matches his gender identity. The school board is expected to ask the justices to further intervene in the case later this month. Grimm, who was born female but identifies as male, argues that the school board's policy requiring students to use either the restroom that corresponds with their biological gender or a private, single-stall restroom violates Title IX, a federal law that bars sex discrimination in schools.

CNBC:

• Ackman’s Hedge Fund Sells Off Big Stake in Canadian Pacific(CP).
• Biogen(BIIB) is a risky $90 billion buyout target. 

Zero Hedge:

• An Angry White House Snaps Over Secret Iran "Hostage" Payment: "Why Is That Relevant".
• 1 Killed, 5 Injured In Central London Knife Attack; Terrorism Speculated.
• Goldman(GS) Finds The Treasury Market No Longer Reacts To Economic Data.
• Pompeo: Iran "Ransom" Payment Is Obama’s Iran-Contra Scandal.
• The Attack On The Second Amendment Is Not Finished.
• A Half Of Millennials Live Paycheck To Paycheck, Most Don't Think They Will Ever Be Millionaires.
• A Most Remarkable Market: In Week The S&P Hit Record High, Everyone Sold. (graph)
• "The Deals Are Collapsing" - Vancouver's Housing Bubble Has Burst.
• Tesla(TSLA) Misses, Burns Nearly Half A Billion, Warns It Has Hit Bank "Funding Limit": Stock Rises. (graph)
• Crude Oilgasm Rescues Dow From Longest Losing Streak In 5 Years. (graph)

Business Insider:

• This is the sentence all the Tesla shorts have been waiting for. 
• Tech dealmakers haven't earned this much money since the dotcom bust.
• 'A perfect storm' is making gold one of the hottest assets on the planet.
• These states are headed for a death spiral.
• The Iran deal 'is nothing but a series of bribes': GOP reacts to news US sent $400 million to Iran.
• Obama's Medicare expansion is costing much more than expected.

The Guardian: 

• Mass stabbing in central London leaves woman dead and up to six injured. Police explore possibility of ‘terrorism’ after man arrested following the incident in Russell Square in the centre of the city.

Night Trading 

• Asian equity indices are unch. to +.5% on average.
• Asia Ex-Japan Investment Grade CDS Index 121.5 +.25 basis point.
• Asia Pacific Sovereign CDS Index 47.75 -.25 basis point.
• Bloomberg Emerging Markets Currency Index 72.38 +.03%. 
• S&P 500 futures +.02%. 
• NASDAQ 100 futures -.04%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (AGCO)/.92
• (APA)/-.19
• (CHK)/-.10
• (CTB)/1.05
• (DUK)/1.01
• (IT)/.68
• (HAR)/1.52
• (ICPT)/-3.67
• (ITT)/.60
• (K)/.91
• (MGM)/.25
• (PH)/1.76
• (REGN)/2.65
• (SSYS)/.06
• (TK)/-.21
• (VIAB)/1.02
• (ATVI)/.42
• (LOCO)/.18
• (FLR)/.88
• (LNKD)/.78
• (MHK)/3.37
• (MNST)/1.04
• (PCLN)/12.66
• (SYMC)/.25
• (ZG)/-.04

Economic Releases 
7:30 am EST

• Challenger Job Cuts YoY for July. 

8:30 am EST

• Initial Jobless Claims are estimated to fall to 265K versus 266K the prior week.
• Continuing Claims are estimated to fall to 2130K versus 2139K prior.  

10:00 am EST

• Factory Orders for June are estimated to fall -1.9% versus a -1.0% decline in May. 
• Factory Orders Ex Transports for June are estimated to fall -.2% versus a +.1% gain in May.
  

Upcoming Splits 

• (BF/B) 2-for-1

Other Potential Market Movers

• The Fed's Kaplan speaking, BoE Rate decision, RBA rate decision, weekly EIA natural gas inventory report, weekly Bloomberg Consumer Comfort Index and the (LB) July sales call could also impact trading today.

BOTTOM LINE:  Asian indices are mostly higher, boosted by financial 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 25% net long heading into the day.

Stocks Reversing Slightly Higher into Final Hour on Less European/Emerging Markets/US High-Yield Debt Angst, Oil Bounce, Short-Covering, Energy/Financial Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Mixed
  

• Volume: Slightly Below Average

• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• Volatility(VIX) 13.17 -1.5%

• Euro/Yen Carry Return Index 117.79 -.44%

• Emerging Markets Currency Volatility(VXY) 9.71 +1.04%

• S&P 500 Implied Correlation 48.61 -1.28%

• ISE Sentiment Index 139.0 +73.75%
  

• Total Put/Call .89 -22.91%

• NYSE Arms .68 -20.5% 

Credit Investor Angst:

• North American Investment Grade CDS Index 74.97 -2.42%
  

• America Energy Sector High-Yield CDS Index 798.0 -.56%

• European Financial Sector CDS Index 96.48 -1.20%

• Western Europe Sovereign Debt CDS Index 24.06 +.54%

• Asia Pacific Sovereign Debt CDS Index 47.56 -1.15%

• Emerging Market CDS Index 260.79 -1.31%
  

• iBoxx Offshore RMB China Corporate High Yield Index 131.37 unch.

• 2-Year Swap Spread 26.0 +1.5 basis points
  

• TED Spread 48.0 -1.0 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -49.25 -1.75 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.29 -.16%
• 3-Month T-Bill Yield .27% unch.

• Yield Curve 87.25 +.25 basis point

• China Import Iron Ore Spot $61.94/Metric Tonne -.44%

• Citi US Economic Surprise Index 16.10 +.3 point

• Citi Eurozone Economic Surprise Index 31.8 +2.6 points

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

• 10-Year TIPS Spread 1.46% +2.0 basis points
• 23.7% chance of Fed rate hike at Nov. 2 meeting, 38.8% chance at Dec. 14 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -38 open in Japan 
• China A50 Futures: Indicating -6 open in China

• DAX Futures: Indicating +6 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:

• Equity Trading Spares No European Bank as Revenue Drops: Chart.
• Europe’s Banks Should Face 3% Minimum Leverage Ratio, EBA Says. European banks should have at least 3 cents of capital for every euro of assets they hold, the European Banking Authority recommended. The measure would help reduce the risk of lenders taking on too much debt, while its impact on their ability to finance the economy would be “relatively moderate” at that level, the EBA said in a report Wednesday. While the world’s biggest, most systemically important banks may merit a tougher requirement, overall the result will be a more stable financial system, it said.
• VW Warns of Plunge in China Industry Sales If Tax Cut Lapses. Volkswagen AG said industrywide demand in China will plunge if a tax cut due to expire at the end of the year is allowed to lapse. The German automaker is in talks with both the government and the China Association of Automobile Manufacturers to find out whether the tax cut will be extended, said Volkswagen China chief Jochem Heizmann. Volkswagen Group delivered a record 1.86 million vehicles in the first half in China and Hong Kong, after the government cut the tax on purchases of models with smaller engines to 5 percent from 10 percent. “If the government really stays on their present decision that this will sharply end at the end of this year, you can expect a big negative impact on the first quarter next year,” Heizmann, who’s a member of Volkswagen’s board, told reporters Wednesday in Beijing.
• China’s IPO Market Is the Hottest It's Ever Been. China’s market for initial public offerings is the hottest it’s ever been, thanks to the securities regulator. The 62 new stocks that have completed their first month of trading this year soared 420 percent on average in the span, the steepest such rally on record, data compiled by Bloomberg show. For a clue as to why: the average size of this year’s offerings has dwindled to $88 million, the smallest since 2005.
• India Passes Landmark Tax Reform in Modi’s Biggest Win Yet. India’s upper house of parliament on Wednesday unanimously approved the creation of a national sales tax a decade after the move was first proposed, the biggest legislative victory for Prime Minister Narendra Modi since he took office in 2014. The constitutional amendment, one of India’s most significant reforms since the 1990s, now has to be endorsed by the Modi-controlled lower house and then ratified by at least half of all states, a process projected to be concluded before the year ends.
• ‘Nightmare’ Vancouver Housing Tax Threatens Foreign Tech Talent. (video) Vancouver’s technology industry is in danger of becoming collateral damage in British Columbia’s push to rein in spiraling home prices. The surprise decision last week to impose a 15 percent levy on overseas property investors may make it even harder for Vancouver to attract foreign talent and reach its goal of becoming a Canadian version of Silicon Valley. The city already has two major strikes against it: some of the highest housing costs and lowest wages among North America’s emerging technology hubs. “It’s a complete shock, a nightmare,” Eric Kong, a Singaporean computer scientist who’s in the middle of relocating his family to Vancouver, said in a telephone interview. “If I’d known this, we would’ve gone somewhere else.”
• Are Emerging Markets at Risk From Cheaper Oil? (video)
• Europe May Be Over Banked, Here's Why. (video)
• Banks’ Rebound Fails to Boost Europe Stocks Near Three-Week Low. (video) European equities hovered near a three-week low as skepticism about the region’s growth overshadowed a rebound in banks. The Stoxx Europe 600 Index added less than 0.1 percent, after jumping as much as 0.4 percent and falling 0.4 percent, with trading of companies on the gauge about 20 percent lower than the 30-day average. While lenders such as HSBC Holdings Plc and ING Groep NV rallied after giving financial results, most companies in the Stoxx 600 declined.
• Iran Adopts Oil Contract as Glut No Barrier to Boost Output. (video) Iran approved a new oil contract model, taking the OPEC nation a step closer to welcoming foreign investment in its energy industry and boosting production even more into an oversupplied market. The contract model was approved at a cabinet meeting Wednesday, according to the official Islamic Republic News Agency. Priority will be given to boosting output at jointly owned oil and gas fields, state radio reported, citing Oil Minister Bijan Namdar Zanganeh. Iran wants to lure international companies that can make long-term investments worth billions of dollars and bring technology after sanctions were eased in January.
• Evans Says One Fed Rate Hike This Year ‘Perhaps’ Appropriate. Federal Reserve Bank of Chicago President Charles Evans said an interest-rate increase could be warranted this year as the economy picks up steam, even though he’s still worried that inflation is too low. “I do think that perhaps one rate increase could be appropriate this year,” Evans told reporters Wednesday during a media briefing at the Chicago Fed. “At some point, you always make your judgment as to, well, this is close enough in line with what I think the appropriate policy is,” he said of a hypothetical Federal Open Market Committee decision later this year to raise rates. “Given the data improving and my outlook, we could see one rate increase this year, even if I would prefer none until we saw inflation much more strongly.”
• Chicago Seeks Tax Hike to Avert Insolvency for Largest Pension.
• Bitcoin Plunges, Rebounds After Hackers Steal $65 Million. (video)
• Wal-Mart(WMT) Said to Be in Talks to Acquire Amazon Rival Jet.com.

Wall Street Journal:

• Too Many Politicians Try to Hide the Real Problem. When government fails, more government is proposed—like asking the arsonist to put out the fire.

Fox News:

• Lawmakers: 'Ransom' to Iran puts Americans at risk. (video) Republican lawmakers are fuming over a bombshell report overnight that the U.S. government airlifted the equivalent of $400 million to Iran this past January – as four detained Americans were released by Tehran – and say the transaction has put more Americans at risk of being taken hostage. The cash transfer, as reported by The Wall Street Journal, was the first installment paid in a $1.7 billion settlement the Obama administration reached with Iran to resolve a failed 1979 arms deal dating from just before the Iranian Revolution. The cash flown to Iran consisted of euros, Swiss francs, and other currencies because U.S. law forbids transacting American dollars with Iran. While the Obama administration denied the cash transfer was done to secure the release of the four Americans, GOP lawmakers said it was tantamount to “ransom.” "Paying ransom to kidnappers puts Americans even more at risk," Sen. Mark Kirk, R-Ill., said in a statement. "While Americans were relieved by Iran’s overdue release of illegally imprisoned American hostages, the White House’s policy of appeasement has led Iran to illegally seize more American hostages."
• Obama commutes sentences for 214 federal prisoners. President Barack Obama is cutting short the sentences of 214 federal inmates, including 67 serving life sentences. The White House says it's the largest batch of commutations on a single day in more than a century. Almost all the prisoners were serving time for nonviolent drug offenses. The commutations bring to 562 the total number of sentences Obama has shortened. The White House says that's more than the past nine presidents combined. Almost 200 of those who have benefited were serving life sentences. White House counsel Neil Eggleston says Obama will continue granting clemency to more inmates during the final months of his presidency.

CNBC:

• Kate Spade(KATE) misses profit estimates, slashes full-year forecasts. Accessories and apparel maker Kate Spade reported a lower-than-expected quarterly profit as a strong dollar discouraged tourists from shopping at its stores, and the company slashed its full-year profit and sales forecasts. Kate Spade's shares plunged more than 20 percent in premarket trading on Wednesday.

Zero Hedge:

• Republicans Furious After "Disastrous" 48 Hours For Trump, Said To "Plot Intervention".
• Goldman(GS) Fined 0.1% Of Revenue For "Criminal Theft" Of Confidential Fed Information.
• Bill Gross Talks "Sex", Answers "Honestly" What Happens When The Financial System Breaks Down.
• The Car Bubble... And Cash For Clunkers II?
• Prepare For "War At Sea" China Defense Minister Warns.
• Oil Dumps'n'Pumps After Unexpected Crude Inventory Build Offset By Production Cut. (graph)
• European Banking System Bloodbath Continues Post-Stress-Test. (graph)
• ADP Employment Continues To Lag Payrolls As Goods-Producing, Construction Jobs Slide. (graph)
• Another Bear Market Warning Looms In The GDP Data. (graph)
• Services Data Disappoints: Suggests "No Signs Of US Economy Moving Up A Gear" In Q3. (graph)

Business Insider:

• The world’s biggest hedge fund thinks the next radical change in central bank policy is almost upon us.
• Something just happened in the stock market that was a precursor to the 1987 crash.

ABC News:

• Senior GOP Officials Exploring Options if Trump Drops Out. Republican officials are exploring how to handle a scenario that would be unthinkable in a normal election year: What would happen if the party's presidential nominee dropped out? ABC News has learned that senior party officials are so frustrated — and confused — by Donald Trump's erratic behavior that they are exploring how to replace him on the ballot if he drops out.

The Telegraph:

• Bank of England rate cut 'a foregone conclusion' after UK business activity suffers 'biggest ever' fall.

Bear Radar

Style Underperformer:

• Large-Cap Growth unch.

Sector Underperformers:

• 1) Computer Hardware -2.4% 2) Tobacco -1.1% 3) Drugs -.6%

Stocks Falling on Unusual Volume:

• CRAY, CHEF, KATE, CALD, AMED, RGC, MGPI, CSU, ELGX, QRVO, DATA, CRTO, FNHC, BRKR, KAR, SODA, TSRA, FISV, CHUY, KFRC, CGNX, THR, LMT, VRSK, ENR, BIIB, IDTI, RGR, CLDT, LOCK, TPC and PRO

Stocks With Unusual Put Option Activity:

• 1) IEF 2) XLB 3) KBH 4) AIG 5) CBS

Stocks With Most Negative News Mentions:

• 1) JCP 2) AMED 3) CSU 4) ELGX 5) COSI

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value +.7%

Sector Outperformers:

• 1) I-Banks +2.0% 2) Insurance +1.7% 3) Oil Service +1.6%

Stocks Rising on Unusual Volume:

• RDUS, ETSY, PAYC, BGFV, ADXS, CSTE, BOFI, FIT, SHOP, TX, CERN, FNGN, BEAT, DDD, NSM, AVD, INSY, RPXC, SM, WMGI, ETP, FORM, CEMP, CENT, GTN, XON, TWTR, ICE, AIG and CVI

Stocks With Unusual Call Option Activity:

• 1) SGMS 2) GNW 3) SIG 4) FIT 5) KERX

Stocks With Most Positive News Mentions:

• 1) ETSY 2) CERN 3) ZNGA 4) MJN 5) ODP

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +1.9% Above 100-Day Average
• 3 Sectors Rising, 7 Sectors Declining
• 56.6% of Issues Advancing, 41.0% Declining
• 42 New 52-Week Highs, 16 New Lows
• 57.7% of Issues Above 200-day Moving Average
• Average 14-Day RSI 40.8%
• Vix 13.4 +.4%
• Total Put/Call .83 -27.8%
• TRIN/Arms .82 -4.6%