Monday, August 31, 2015

Tuesday Watch

Evening Headlines 
  • China's Stocks Extend Rout as Factory Data Adds to Economy Woes. China’s stocks fell, extending the biggest two-month tumble since 2008, after an official factory gauge slumped to a three-year low and concern grew that government intervention to shore up equities will fail. The Shanghai Composite Index slid 3.2 percent to 3,102.08 at 10:05 a.m. local time. The gauge lost 12 percent last month after declining 14 percent in July. The official Purchasing Managers’ Index was 49.7 for August, down from 50 in July. Numbers below 50 indicate contraction. “The manufacturing index still shows that the economy is in the process of seeking a bottom,” said Wu Kan, a Shanghai-based fund manager at JK Life Insurance. “The market is unlikely to pick up anytime soon.” The CSI 300 Index dropped 3.7 percent. Hong Kong’s Hang Seng China Enterprises Index retreated 1.6 percent. The Hang Seng Index slipped 0.7 percent. The Shanghai gauge plunged 12 percent last month, adding to July’s 14 percent tumble.
  • China Orders Banks to Hold Reserves for Currency Forwards. China’s central bank moved to curb speculation in the currency market and limit capital outflows, imposing a reserve requirement on financial institutions trading in foreign-exchange forwards for clients. The People’s Bank of China, effective Oct. 15, will mandate a deposit of 20 percent of sales to be held at zero interest and frozen for a year, according to six people familiar with the matter. The change, which will take effect on Oct. 15, is aimed at preventing macro financial risks, said the people, who asked not to be identified because they aren’t authorized to speak publicly.
  • China’s Official Factory Gauge Shrinks to Lowest in 3 Years. China’s official factory gauge fell to the lowest reading in three years as monetary easing failed to revive old growth drivers weighed by overcapacity and sliding prices. The official Purchasing Managers’ Index was 49.7 for August, matching the median estimate in a Bloomberg survey and down from 50 in July. Numbers below 50 indicate contraction, with small, medium and large enterprises all below that level last month. "Both domestic and external demand are weak," said Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore. "Market sentiment is bad and it’s too early to say the Chinese economy is bottoming out." Xie said a stock market rout and the yuan devaluation in August have added additional risks for manufacturers.
  • Alibaba(BABA) Investors Backpedal as China Slowdown Saps Sales Growth. The rush that drove Alibaba Group Holding Ltd. to a record U.S. initial public offering has turned into a retreat a year later as the Chinese online retailer is beset by the slowest economic growth in 25 years and a domestic stock selloff that has shaken global investor confidence. The American depositary receipts, which surged as much as 75 percent from the initial listing price, tumbled 16 percent to $66.12 in August in their third straight monthly decline in New York. The drop pushed the ADRs below the debut price of $68 as short sellers boosted bearish bets on the stock to the highest since April.
  • Southeast Asia's Biggest Companies Risk $392 Billion Debt Burden. Southeast Asia’s biggest companies have increased debt sixfold since the regional financial crisis, stoking concern over default risks as investors draw parallels with the 1998 meltdown. The region’s 100 largest listed companies by assets, including Thailand’s CP ALL Pcl, Petron Corp. of the Philippines and Singapore’s Wilmar International Ltd., had accumulated $392 billion by June 30, data compiled by Bloomberg show. That’s up six times from December 1998. Debt loads as a proportion of assets are climbing back near levels from the crisis at 31.7 percent, up from 29.5 percent in 2010.
  • South Korea's Exports Fall Most Since 2009 in August. South Korea’s exports tumbled in August by the most since 2009, as weaker overseas demand hit Asia’s fourth-largest economy. Overseas shipments fell 14.7 percent from a year earlier, an eighth straight monthly decline, the Ministry of Trade, Industry and Energy said on Tuesday. The median estimate of economists surveyed by Bloomberg was for a 5.9 percent drop. South Korea generates about half of its gross domestic product from exports and is the world’s biggest exporter to China. The nation is one of the most exposed to depreciation in the yuan, and is also facing increasing competition from Chinese companies that are moving up the value-added chain, according to the Institute of International Finance last week. 
  • Toshiba Says New Accounting Problems Delay Earnings Again. Toshiba Corp. uncovered 10 new cases of accounting problems, including at a U.S. unit, prompting it to miss a regulator’s deadline for submission of its fiscal 2014 earnings release. The Japanese industrial group obtained permission from the securities regulator to postpone the report due Monday until Sept. 7. President Masashi Muromachi, who took charge after three of his predecessors left following a July third-party report showing accounting irregularities at the company, said he may quit if the new deadline was missed.
  • Asian Stocks Drop as China Manufacturing Slump Boosts Yen, Gold. Asian stocks showed no sign of shaking off last month’s worst selloff since 2012, sinking with U.S. index futures as a gauge of Chinese manufacturing fell to a three-year low. The yen rallied with gold, while oil pulled back after entering a bull market. Fresh from one of the most volatile trading periods since the global financial crisis, investors are scanning data for signs of China’s impact on the world economy. Factory gauges for Japan to India, Europe and the U.S. are scheduled, along with updates on consumer prices in Thailand and Indonesia. Australia will review interest rates. “Investors are concerned about the strength of the global economy, which is why you’re seeing a selloff in various stock markets,” said Ayako Sera, a strategist at Sumitomo Mitsui Trust Bank Ltd. in Tokyo. The MSCI Asia Pacific Index dropped a second day, losing 0.9 percent by 10:36 a.m. in Tokyo, after sinking the most since May 2012 last month. Japan’s Topix index slid 1.7 percent.
  • Barclays: There's a New Oil Glut in Town. And it could make the old glut even bigger. (graph) "The surplus in the petroleum market is increasingly evident in refined products," says the team led by commodities analyst Miswin Mahesh. "Global refinery throughput touched a record high of 80.6 million barrels per day in July, with utilization rates at the highest in eight years."
  • Fischer Doesn’t Sway December Camp as 48% See Sept. Fed Liftoff. U.S. central bankers face their toughest policy call in years next month -- raise interest rates or wait a little longer. Whatever the decision, about half of economists will be wrong. Forty-eight percent of 54 economists surveyed Aug. 27-31 by Bloomberg News see a September increase in the benchmark lending rate, the first move up since 2006. That’s down from 77 percent in an Aug. 7-12 survey, though it is still double the 24 percent who say the first move will occur in December. Seventeen percent said October.
Wall Street Journal:
  • Renaming of Mount McKinley Roils GOP. Republicans question renaming North America’s tallest peak and one of the few monuments dedicated to the 25th president. Late Sunday, on the eve of his visit to Alaska, President Barack Obama announced that Interior Secretary Sally Jewell had used her authority to rename North America’s tallest mountain from Mount McKinley to Denali, which in the Athabaskan language means “the great one,” the name that was used for centuries by Alaska natives.
  • Hillary Clinton vs. Ashley Madison. A website for adulterers faces more accountability than a U.S. secretary of state. What a world we live in when a website promoting adultery is held more accountable than a U.S. secretary of state. Only weeks after a hack exposed the names and other confidential information about Ashley Madison’s mostly male clientele, it’s hard to see how the company can recover. By contrast, Hillary Clinton remains the Democratic Party’s likely 2016 nominee for president, even though we’ve known since at least March 2013 (thanks to a Romanian hacker named Guccifer) that she conducted State Department business over...
Zero Hedge:
  • Einhorn and Loeb's hedge funds both decline 5 pct in Aug. Hedge fund billionaires David Einhorn and Daniel Loeb saw their main funds lose roughly 5 percent in August during a dramatic market sell off, two people familiar with their returns said on Monday. Einhorn's Greenlight Capital fell 5.3 percent, extending the roughly $12 billion firm's loss for the year to 13.8 percent, the sources said. Loeb's Third Point fund dropped 5.2 percent, but is up 1.2 percent for the year. Loeb"s Third Point Ultra fund fell 9.1 percent in August and is essentially flat on the year with a 0.8 percent gain, one of the sources said.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are -2.0% to -.5% on average.
  • Asia Ex-Japan Investment Grade CDS Index 135.25 +3.0 basis points.
  • Asia Pacific Sovereign CDS Index 80.75 +.75 basis point.
  • S&P 500 futures -1.69%.
  • NASDAQ 100 futures -1.74%.

Earnings of Note
  • (DLTR)/.68
  • (DCI)/.42
  • (AVAV)/-.16
  • (BOBE)/.30
  • (HRB)/-.39
  • (SCVL)/.18
Economic Releases
9:45 am EST
  • Final Markit US Manufacturing PMI for August is estimated at 52.9 versus a prior estimate of 52.9.
10:00 am EST
  • Construction Spending for July is estimated to rise +.6% versus a +.1% gain in June.
  • The IBD/TIPP Economic Optimism Index for September is estimated to rise to 47.1 versus 46.9 in August. 
  • ISM Manufacturing for August is estimated to fall too 52.5 versus 52.7 in July.
  • ISM Prices Paid for August is estimated to fall to 39.0 versus 44.0 in July.
  • Total Vehicle Sales for August are estimated to fall to 17.3M versus 17.46M in July.
Upcoming Splits
  • (RAI) 2-for-1
Other Potential Market Movers
  • The Fed's Rosengren speaking, Eurozone Manufacturing PMI, UK Manufacturing PMI, Australia GDP report, RBA Meeting, weekly US retail sales reports, KeyBanc Basic Materials/Packaging conference and the (F) US sales conference call 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 lower and to maintain lossses into the afternoon. The Portfolio is 25% net long heading into the day.

Stocks Falling into Final Hour on China Bubble-Bursting Fears, Fed Rate Hike Worries, Technical Selling, Biotech/Utility Sector Weakness

Broad Equity Market Tone:
  • Advance/Decline Line: Modestly Lower
  • Sector Performance: Most Sectors Declining
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • Volatility(VIX) 28.02 +7.48%
  • Euro/Yen Carry Return Index 142.09 +.05%
  • Emerging Markets Currency Volatility(VXY) 11.63 +.09%
  • S&P 500 Implied Correlation 64.07 +6.78%
  • ISE Sentiment Index 108.0 +25.6%
  • Total Put/Call 1.21 -5.47%
  • NYSE Arms 1.0 -5.32% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 81.41 +1.81%
  • America Energy Sector High-Yield CDS Index 1,869.0 -.8%
  • European Financial Sector CDS Index 81.07 -.28%
  • Western Europe Sovereign Debt CDS Index 22.25 -.40%
  • Asia Pacific Sovereign Debt CDS Index 81.0 +1.12%
  • Emerging Market CDS Index 346.98 +.70%
  • iBoxx Offshore RMB China Corporates High Yield Index 116.96 +.15%
  • 2-Year Swap Spread 15.5 +.5 basis point
  • TED Spread 27.25 unch.
  • 3-Month EUR/USD Cross-Currency Basis Swap -22.25 -1.0 basis point
Economic Gauges:
  • 3-Month T-Bill Yield .00% -6.0 basis points
  • Yield Curve 147.0 +1.0 basis point
  • China Import Iron Ore Spot $56.21/Metric Tonne +.3%
  • Citi US Economic Surprise Index -8.2 -7.0 points
  • Citi Eurozone Economic Surprise Index 15.2 +1.6 points
  • Citi Emerging Markets Economic Surprise Index -13.6 -4.0 points
  • 10-Year TIPS Spread 1.63 +2.0 basis points
  • # of Months to 1st Fed Rate Hike(Morgan Stanley) 4.28 -1.33
Overseas Futures:
  • Nikkei 225 Futures: Indicating -50 open in Japan 
  • China A50 Futures: Indicating -488 open in China
  • DAX Futures: Indicating -21 open in Germany
  • Slightly Lower: On losses in my biotech/medical/tech sector longs
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back
  • Market Exposure: 25% Net Long

Today's Headlines

  • China's Stocks Cap Biggest Selloff Since 2008 on Rescue Doubts. China’s stocks fell, capping the benchmark index’s biggest two-month tumble since 2008, amid concern that government intervention to prop up the market will fail. The Shanghai Composite Index dropped 0.8 percent to 3,205.99 at the close. The gauge lost 12 percent this month after sliding 14 percent in July. The SSE 50 Index of the nation’s biggest stocks rebounded 6.7 percent from its intraday low. Citic Securities Co. slid 5 percent after Xinhua News Agency said executives were detained on suspicion of insider trading and the securities regulator was said to order the brokerage industry to boost its contribution to the nation’s market rescue. Bearish bets in the options market climbed as traders weighed the level of state support before a World War II victory parade this week.
  • SocGen: Half-Hearted Capital Controls Are Coming to China. Between a rock and a hard place.
  • Macau Economy Slumps 26.4% as Anti-Graft Crackdown Deters Gamblers. Macau’s economy dipped to its lowest since 2011 as high-end gamblers avoided the world’s largest casino market amid a widening crackdown on graft in China. The city where gambling accounts for four-fifths of economic output saw GDP tumble 26.4 percent in the last quarter, according to government data released Monday. The drop worsened from 24.5 percent in the first quarter.
  • Are Luxury Brands Feeling the Heat from China? (video)
  • China Brokers Tumble as Citic Staff Detained, Rescue Costs Grow. China’s brokerages tumbled after four Citic Securities Co. executives were detained and people familiar with the matter said the industry was told to contribute another 100 billion yuan ($15.7 billion) to a stock market rescue fund. Citic executives including managing directors Xu Gang and Liu Wei admitted alleged insider trading, the state-run Xinhua News Agency said. The nation’s largest brokerage fell as much as the maximum 10 percent percent in Shanghai and slid to the lowest since May 2014 in Hong Kong. A Citic press officer declined to comment. 
  • Emerging-Market Stocks Head for Biggest Monthly Slide Since 2012. Emerging-Market Stocks Head for Biggest Monthly Slide Since 2012. Emerging-market stocks headed for their steepest monthly loss in more than three years as Federal Reserve officials signaled they’re prepared to raise interest rates and concern grew China’s efforts to prop up equity prices is failing. Russia’s ruble led currencies lower. Investor expectations that the market turmoil will spur the Fed to delay its interest-rate increase was shaken after Vice Chairman Stanley Fischer said over the weekend there is "good reason" to believe inflation will accelerate. That view was echoed by officials of the European Central Bank and the Bank of England, indicating that the days of higher rates are approaching. In China, options traders increased bearish bets as they weighed the level of state support before a World War II victory parade this week. About $1.9 trillion -- more than Russia’s annual gross domestic product -- was erased this month from the value of stocks traded in the 31 largest emerging markets as China’s surprise devaluation of the yuan triggered a global rout. Price swings surged to the highest level since 2011 as the move heightened concern the world’s second-biggest economy will slow, undermining global demand. 
  • Junk-Rating Dread Sends Ibovespa, Real to World's Biggest Losses. Brazilian stocks and the real led global losses on speculation that Latin America’s largest economy is struggling to put its finances in order and avoid a credit-rating downgrade to junk.
    The Ibovespa extended the worst monthly slide since September, led by banks, after President Dilma Rousseff was said to have abandoned the idea of reviving a tax on financial transactions to boost revenue. The Brazilian government will send to Congress a budget proposal for 2016 that projects a primary deficit instead of the previously expected surplus, according to two people familiar with the matter. Stocks also slumped on renewed concern that China, Brazil’s top trading-partner, will fail to revive its economy. “Brazil is getting closer to a rating cut,” Alvaro Bandeira, an economist at Banco Modal, said from Rio de Janeiro. “There’s lack of credibility toward the fiscal adjustment. In addition to that, all the uncertainties regarding China’s growth is dimming the outlook for Brazilian exports.”
  • China's Crazy Month Sends Tremors Into Europe Equity Bull Case. (video) The worst month for European equities in four years is finally making a dent in investors’ confidence. Traders whose spirits were lifted by hefty profit expectations and promises of central-bank stimulus have finally relented, pulling money out of the region’s equity funds for the first time in 15 weeks. They’re also paying the most since February to hedge against more declines. Investors withdrew $3.6 billion from European equity funds in the week ended Aug. 26, according to a Bank of America Corp. note citing EPFR Global data. Those were the largest outflows since October. August’s slump almost completely erased this year’s gains, with Germany’s DAX Index among the most bruised as concern grew that its exporters would get hit by China’s currency devaluation.
  • Samsung Loses $44 Billion of Value in Worst Streak Since 1983. Tepid demand for Samsung Electronics Co.’s newest Galaxy smartphones triggered a fifth straight monthly decline for the electronics maker, wiping out about $44 billion in market value since April.   
  • Jackson Hole Has a Worrying Message for Draghi & Co. Mario Draghi may have skipped the Federal Reserve’s Jackson Hole symposium this year, but he can’t dodge its conclusion: central banks can’t steer inflation as well as they thought. Less than six months into a stimulus program that the European Central Bank president promised would revive consumer-price growth, the euro area is facing renewed disinflationary pressure as China’s economy slows and commodity prices slump. Inflation failed to pick up this month, data showed on Monday, and Draghi may have to downgrade the institution’s forecasts on Thursday.
  • U.S. Currency Probe Expands to Russia, Brazil Trades. U.S. prosecutors have expanded their probe of currency-market manipulation by some of the world’s largest banks to include the Russian ruble and Brazilian real, according to two people familiar with the matter. 
  • Asian Currencies Record Biggest Monthly Decline in Three Years. Asia’s currencies posted their biggest monthly loss in three years, led by Malaysia’s ringgit, after a yuan devaluation heightened the risk of a currency war in the region as the U.S. prepares to raise interest rates. The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, retreated 2.6 percent in August, the biggest monthly decline since May 2012. Global funds sold about $10 billion more equities than they bought in South Korea, India, Taiwan, Thailand, Indonesia and the Philippines, the latest exchange data show.
  • Europe Stocks Post Worst Month Since 2011 on Fed, China Concern. European stocks posted their worst month in four years, as investors weighed Federal Reserve comments for clues on the trajectory of interest rates, while confidence waned in China’s ability to prop up the market. The Stoxx Europe 600 Index slid 0.1 percent to 362.79 at the close of trading, extending its monthly drop to 8.5 percent. The equity gauge earlier pared losses of as much as 0.7 percent after data showed the euro area’s inflation rate rose faster in August than estimated. The volume of shares changing hands was 56 percent lower than the 30-day average as the U.K. market was closed for a holiday.
  • Dow on Pace for Worst Month in Five-Years. (video)
  • S&P Rout Has Room to Go If Bond Spreads Have Anything to Say. (video) Credit markets foretold the selloff in U.S. equities. Should they also prove prescient in calling its extent, stock bulls have more to worry about. In the three times when the extra yield bond investors demand over Treasuries has climbed as much as it has since May, the Standard & Poor’s 500 Index has lost an average of 18 percent, according to data compiled by Bloomberg since 1996 that excludes recession years. At its lowest level last week, the benchmark gauge for American equities was down 12 percent from its May peak. “The credit widening has been a fear signal. The market took it and finally began to sell off,” said Brent Schutte, senior investment strategist at BMO Global Asset Management in Chicago, which manages $250 billion. “There are nervous investors out there who have ridden the market for five years and have been skeptical. Now that they’re seeing this, they may be selling.”
Zero Hedge:

Bear Radar

Style Underperformer:
  • Large-Cap Growth -.41%
Sector Underperformers:
  • 1) Utilities -2.27% 2) Biotech -1.71% 3) Gaming -1.57%
Stocks Falling on Unusual Volume:
Stocks With Unusual Put Option Activity:
  • 1) CNX 2) GT 3) EWY 4) OXY 5) CIEN
Stocks With Most Negative News Mentions:
  • 1) UTX 2) CMG 3) NSC 4) PCU 5) PM

Bull Radar

Style Outperformer:
  • Small-Cap Value +.03%
Sector Outperformers:
  • 1) Homebuilders +1.47% 2) Oil Service +1.45% 3) Computer Hardware +1.02%
Stocks Rising on Unusual Volume:
Stocks With Unusual Call Option Activity:
  • 1) MDCO 2) SWHC 3) RSX 4) XRX 5) VTL
Stocks With Most Positive News Mentions:
  • 1) JCP 2) TWTR 3) CALM 4) MS 5) BBY

Morning Market Internals

NYSE Composite Index:

Sunday, August 30, 2015

Monday Watch

Today's Headlines 
  • Xi's Military Parade Fans Unease in Region Already Wary of China. As Xi Jinping presides over thousands of goose-stepping troops marching down Beijing’s Changan Avenue -- or “Eternal Peace Street” -- on Thursday, the Chinese president will also proclaim his commitment to the world’s peaceful development. It’s a message China’s neighbors may find hard to swallow as it flexes its military muscle from the East China Sea to the Indian Ocean. The parade marking the 70th anniversary of World War II’s end -- or “Victory of the Chinese People’s Resistance Against Japanese Aggression and the World Anti-Fascist War" -- will put on display much of what has frayed nerves throughout the region. The first-of-its-kind victory celebration will show the world the military might Xi has put at the center of his Chinese Dream for national rejuvenation. The pageant will feature 12,000 soldiers, almost 200 of China’s latest aircraft and mobile ballistic missile launchers capable of delivering nuclear warheads to the continental U.S. “There is a fairly crude signal to the international community that China is a modern power not to be trifled with,” said Rory Medcalf, head of the National Security College at the Australian National University in Canberra. “But this doesn’t sit well with the anxiety that already exists in the region.”
  • If the Options Market Is Right, China's Stock Rescue Is Doomed. Options traders have never been so pessimistic on China’s stock market, betting the government’s renewed effort to prop up share prices is doomed to fail. The cost of bearish contracts on the China 50 exchange-traded fund surged to the highest level versus bullish ones since they started trading in Shanghai six months ago. The so-called skew also climbed to a record for a similar ETF in the U.S., even as government buying drove China’s benchmark index to a 10 percent rally in the final two days of last week. While policy makers are trying to bolster the market before President Xi Jinping takes the stage in a World War II victory parade this week, bears argue that valuations are too high for the rally to lastChinese investors have about 5 trillion yuan ($783 billion) of borrowed money riding on stocks, and many of them are looking for a chance to exit, according to Bank of America Corp. “More and more people are not convinced about A shares,” said Tony Chu, a Hong Kong-based money manager at RS Investment Management Co., which oversees about $20 billion. “Ultimately, the government needs to reduce intervention and let more de-leveraging happen.”
  • China Construction Bank Posts Zero Profit Growth on Weak Economy. China Construction Bank Corp., the nation’s second-largest lender, joined the club of big Chinese banks reporting zero profit growth and rising bad loans as the government struggles to prop up the economy. Net income for the three months through June 30 was 64.9 billion yuan ($10 billion), unchanged from a year earlier, based on an exchange filing on Sunday. That compared with the 65.3 billion yuan median of 10 analysts’ estimates compiled by Bloomberg. Construction Bank was the last of the big Chinese lenders to report earnings for the second quarter. Industrial & Commercial Bank of China Ltd. also posted a profit that was little changed, while Agricultural Bank of China Ltd. had an 0.8 percent decline in earnings. Industrial overcapacity, a build-up of corporate debt and a $5 trillion stock-market slump are making it harder for Premier Li Keqiang to prevent a deeper economic slowdown. The combined earnings of China’s five biggest banks are projected to rise 2 percent this year, the least since at least 2004, according to analysts’ estimates compiled by Bloomberg. Construction Bank’s nonperforming loans jumped 28 percent in six months to 144.4 billion yuan as of June 30, Sunday’s release showed.   
  • Merkley Is 31st Senator to Say Favors Iran Nuclear Deal. Democratic Senator Jeff Merkley of Oregon said he will vote to support the Iran nuclear deal, a pledge that puts President Barack Obama within three votes of protecting the pact in Congress. His support brings to 31 the number of senators publicly favoring the deal, three short of the number Obama needs to sustain a likely veto of legislation aimed at killing the pact. The Iran deal would ease economic sanctions in return for "restrictions" on the country’s nuclear program.
  • Islamic State Flips Gold Coins to Break Fed `Enslavement'. Forget the printing press. In readying for the rollout of Islamic State’s new money, goldsmiths and silver smelters have been toiling away. The jihadist group on Saturday touted “the return of the gold dinar” in an hour-long video issued by its media wing, al Hayat. Islamic State’s policy-making Shura Council last year tasked its Beit al Mal, or treasury, with minting the coins, which come in several denominations made of gold, silver and copper.  
  • Three Strikes on Inflation Spur Calls for Overhaul of Abenomics. The third time inflation has fallen to zero in Japan this year persuaded some market watchers that Abenomics needs to be taken back for an overhaul. The government will be forced to delay an increase in the sales tax scheduled for April 2017 and the Bank of Japan won’t be able to taper its unprecedented bond buying as envisaged, according to Sumitomo Mitsui Banking Corp. Only one economist in a survey by Bloomberg from July 27 to Aug. 3 said inflation would reach the BOJ’s goal in its target six-month period through September 2016. A majority of the 37 respondents see the BOJ boosting monetary stimulus.
  • Japan’s Industrial Production Unexpectedly Declines in July. Japan’s industrial production unexpectedly fell in July, sapping a rebound in the economy from a slump last quarter. Output fell 0.6 percent from June, when it increased 1.1 percent, the trade ministry said on Monday, compared with the median forecast for a 0.1 percent gain in Bloomberg survey.
  • China’s Stocks Fall on Concern About State Support, Economy. China’s stocks fell for the first time in three days amid concern about the economy and the level of government support for the equities market. The Shanghai Composite Index slid 1.6 percent to 3,180.37 at 9:36 a.m. local time, halting a two day, 8.2 percent rally. Citic Securities Co. dropped 7.3 percent after the official Xinhua News Agency reported that company executives were detained on suspicion of insider trading. China’s financial markets will be shut on Thursday and Friday for a national holiday celebrating the 70th anniversary of the World War II victory over Japan.
  • Asian Stocks Drop, Extending Biggest Monthly Retreat Since 2012. Asian stocks fell, extending the biggest monthly drop since May 2012, as investors weighed comments from a weekend meeting of monetary policy makers. The MSCI Asia Pacific Index declined 0.6 percent to 130.26 as of 9:06 a.m. in Tokyo, on course to slide 8.3 percent in August. Futures on the Standard & Poor’s 500 Index retreated 1.1 percent.
  • Iron Ore Price Seen Back Below $50 as Australia Expands Supply. Iron ore is holding above $50. Just don’t bet on it lasting. Ever-expanding supplies from the world’s largest producers mean prices will fall through the end of the year, according to Capital Economics Ltd. The London-based research firm joins banks including Goldman Sachs Group Inc. and UBS Group AG in predicting lower prices. The steel-making ingredient will drop to $50 a metric ton at the end of September and $45 by the end of the year, said Caroline Bain, a senior commodities economist at Capital Economics.
Wall Street Journal:
  • Crises Put First Dents in Xi Jinping’s Power. Chinese president is looking more vulnerable than at any time since taking office in 2012, insiders say. Shortly before President Xi Jinping boarded a plane last month to attend a summit in Russia, his office issued an executive order: China’s stock markets must go back up. The massive state-backed share-buying that ensued propped up the markets briefly in mid-July, allowing Mr. Xi to showcase China’s economic might at the summit with emerging-market leaders. In recent weeks, though, share prices have plunged again, taking... 
  • China Slowdown’s Next Victim: Asian Parts Suppliers. Chip and screen makers may take a hit from a slowdown in smartphone sales. The combined effects of China’s economic slowdown, a maturing smartphone industry and market volatility are sending jitters through Asian electronic-parts suppliers, which have relied on Chinese consumer demand and manufacturing muscle to power their growth in recent years.
  • China’s Next Problem: Paying for Its Stock-Market Bailout. Beijing will need to look for ways to deal with this problem, lest it further weighs on an economy that already has been slowing. China’s epic stock-market drops over the past week give the impression that Beijing may have given up on trying to prop up the market or is at least retreating to defend a lower level. The question is, what will the government do with all that stock that it already has bought?
  • Suppliers Feel Pain as Coal Miners Struggle. Thousands of firms scramble for new customers; ‘it’s been catastrophic’. Workers in a rural warehouse here are restoring four machines: a locomotive for coal miner Consol Energy Inc., and three 1947 San Francisco streetcars. By this time next year, the coal-mining equipment could be gone, and the workers at Brookville Equipment Corp. left repairing just streetcars.
  • Big Solar’s Subsidy Bubble. Companies cash in on tax credits and ‘net-metering’ schemes. The Department of Energy’s Inspector General revealed last week that the legendary solar-panel manufacturer Solyndra—a poster baby of the Obama stimulus—lied to the feds to get a $535 million loan guarantee before going bust in 2011. Solyndra is a cautionary tale, but the Obama Administration is still throwing caution to the sun.
Fox News:
  • Obama to rename Mt. McKinley to 'Denali' during Alaska trip that focuses on climate change. (video) President Obama is restoring the name of the tallest North American mountain peak -- Mt. McKinley in Alaska -- to the native Alaskan name of “Denali,” the White House said Sunday. The official renaming is expected to come during Obama’s trip this week to Alaska where he will try to garner support for ways to slow climate change. However, the state economy is heavily dependent on the oil industry. In 1896, a prospector in the mountains of central Alaska named the range after William McKinley upon learning that he had been nominated as a candidate for U.S. president.  McKinley became the country’s 25th president and was assassinated six months into his second term. 
  • Democrats end summer meeting with no resolution to support Obama's Iran deal. (video)
    The Democratic National Committee reportedly failed this weekend to pass a resolution supporting President Obama’s Iran nuclear deal, with Congress set to vote on the issue as early as next week. Florida Rep. Debbie Wasserman Schultz, the committee chairwoman, prevented the resolution from being considered at the group’s summer meeting this weekend in Minneapolis, sources told The Washington Post, which first reported the story.
Zero Hedge:
New York Times:
  • Texas Deputy Killed ‘Because He Wore a Uniform,’ Sheriff Says. “We have not been able to extract any details regarding a motive at this point,” Sheriff Hickman said. “As far as we know, Deputy Goforth had no previous contact with the suspect. It appears at the outset to be completely unprovoked.” Deputy Goforth “was a target because he wore a uniform,” the sheriff said.
  • MoveOn to target Chuck Schumer for opposing Obama's Iran deal. MoveOn wants to get New Yorkers moving against Sen. Chuck Schumer, their senior senator and the highest-ranking Democrat to oppose the controversial nuclear agreement. According to details shared first with POLITICO, the liberal advocacy organization’s political action arm will next week launch a member-backed mobile billboard, dubbed the “SchumerMobile,” that will drive around New York City for five days in an attempt to publicly admonish Schumer and other Democrats who are pondering how they will vote next month on the resolution.
Financial Times:
  • Beijing abandons large-scale share purchases. China’s government has decided to abandon attempts to boost the stock market through large-scale share purchases, and will instead intensify efforts to find and punish those suspected of “destabilising the market”, according to senior officials. For two months, a “national team” of state-owned investment funds and institutions has collectively spent about $200bn trying to prop up a market that is still down 37 per cent since its mid-June peak.
21st Century Business Herald:
  • China 2015 Industrial Output Growth May Slow to 8%. Industrial production faces heavy pressure as uncertainties in China and overseas increased this year compared with last year, citing CASS researcher Huang Qunhui as saying. Property market and local govt debt pose risks to industrial economy, Huang said.
Night Trading
  • Asian indices are -1.25% to -.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 132.25 +4.5 basis points.
  • Asia Pacific Sovereign CDS Index 80.0 +1.5 basis points.
  • S&P 500 futures -1.0%.
  • NASDAQ 100 futures -.72%.

Earnings of Note
  • None of note
Economic Releases
9:00 am EST
  • The ISM Milwaukee for August is estimated to rise to 50.0 versus 47.12 in July.
9:45 am EST
  • Chicago Purchasing Manager for August is estimated to fall to 54.5 versus 54.7 in July.
10:30 am EST
  • Dallas Fed Manufacturing Activity for August is estimated to rise to -3.8 versus -4.6 in July.
Upcoming Splits
  • (RAI) 2-for-1
Other Potential Market Movers
  • The China Manufacturing PMI, (VMW) analyst day could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by commodity and industrial shares in the region. I expect US stocks to open lower and to maintain losses into the afternoon. The Portfolio is 25% net long heading into the week.