Wednesday Watch

Evening Headlines

Bloomberg:

• China's $2 Trillion of Shadow Lending Throws Focus on Rust Belt. Regional banks in China’s rust-belt provinces are driving the rapid expansion of shadow banking in the country, fueling a web of informal lending that poses wider risks to the financial system, according to a study by UBS Group A. Smaller rust-belt banks like Bank of Tangshan Co. and Baoshang Bank have been using products such as trust beneficiary rights and directional asset-management plans to hide the true state of their bad loans and circumvent lending restrictions, the study by analyst Jason Bedford said. Others have been using the shadow loan instruments to diversify away from lending in their struggling home provinces, exposing themselves to a much wider spectrum of Chinese corporate risk in the event of a default, according to the report.

• Asian Stocks Set to Rebound After Korea Fears Ease. Equity index futures pointed to higher opens in Japan, South Korea and Australia after U.S. stocks rebounded from losses initially sparked when Kim Jong Un’s regime fired a missile over Japan. The yen rallied on Tuesday as safe havens advanced, only to more than give up those gains as investors speculated the event won’t escalate. Yields on benchmark 10-year Treasuries fell to the lowest this year and the dollar touched the weakest level since January 2015 before recovering. Gold reached a 2017 high. Gasoline advanced for a sixth day as Tropical Storm Harvey picked up strength again. Futures on the Nikkei 225 Stock Average were up as much as 0.5 percent at 7:02 a.m. Tokyo time, while those on the Kospi index rose about 0.3 percent. Contracts on Australia’s main gauge gained about 0.5 percent.

• One World Trade Center Reveals Yet More Risks for Steel Industry. New York’s One World Trade Center is emblematic of a struggle by steelmakers to boost demand from construction, an industry that buys almost half the output of the alloy. While the Twin Towers it replaced were erected around scores of steel columns, the Western Hemisphere’s tallest building is held up by a concrete core to help prevent the kind of devastating collapse that followed the terror attacks of Sept. 11, 2001.

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

Wall Street Journal:

• Texas Hit Hard by Tropical Storm Harvey: Live Coverage.

• Louisiana Braces for Harvey as Waters Keep Rising in Texas. Officials said already strained reservoirs would overflow for the first time ever.

• United Technologies(UTX) Nears Deal to Buy Rockwell Collins for More Than $20 Billion. The tie-up that would create one of the world’s biggest aircraft-equipment makers.

• Uber Faces Investigation of Possible Foreign-Bribery Law Violations. Justice Department opens preliminary probe into whether managers at ride-sharing firm breached Foreign Corrupt Practices Act.

• East Coast May Face Fuel Shortages After Storm Disrupts Major Pipeline. Colonial, the biggest fuel pipeline in the U.S., says its system is starting to have problems in Texas.

• Ivy League Profs vs. ‘The Tyranny of Public Opinion’. A few brave scholars urge students to think for themselves.

Fox News:

• Rain record broken in Texas as Harvey dumps nearly 52 inches.

• Houston police officer, part of Harvey response, confirmed dead.

CNBC:

• Target(TGT) is plotting a big move away from AWS as Amazon(AMZN) takes over retail.

• Micron(MU) to rally nearly 30% on rising demand for its memory chips: JPMorgan.

• After Harvey and North Korea, big economic and market gains are coming, Jim Paulsen says. (video)

• Amazon's(AMZN) price cuts at Whole Foods are 'more bark than bite,' says analyst.

Zero Hedge:

• Houston Warns Bridges And Roads Are "Starting To Fail".

• FBI Denies FOIA Request For Hillary Documents Due To "Lack Of Public Interest".

• North Korea Warns "More Drills" Coming, Says Launch Was "Prelude To Containing Guam".

• Emerging Market Debt: Dumb, Dumber, And Dumbest.

• Male, Female, Or 'Nonbinary': California Set To Be First State To Add "Gender X" Designation To Licenses.

• Hurricane Harvey Likely To Destroy More Cars Than Katrina: "This Is Bad; Real Bad".

• 25 Oil Tankers Stuck In Gulf, Unable To Offload Due To Harvey Port Closures.

• RBOB Stable at 2-Year Highs After Big Crude Draw, Surprise Gasoline Build.

• Giant Chemical Plant In Crosby, Texas Warns It Is In "Real Danger" Of Exploding.

• 'Traders' Panic-Buy Stocks, Shrug Off Nuclear Armaggedon, Debt Ceiling, & Biblical Flood Fears. (graph)

Night Trading 

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

• Asia Ex-Japan Investment Grade CDS Index 79.25 +.25 basis point. 

• Asia Pacific Sovereign CDS Index 19.0 +.75 basis point.

• Bloomberg Emerging Markets Currency Index 74.50 -.01%.

• S&P 500 futures +.07%.

• NASDAQ 100 futures +.14%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (ADI)/1.15

• (BOBE)/.37

• (CHS)/.21

• (VRA)/.10

• (CTRP)/.19

• (SCVL)/.20

• (WDAY)/.15

• (BOX)/-.13

• (BF/B)/.39

Economic Releases 
8:15 am EST

• The ADP Employment Change for August is estimated to rise to +185K versus +178K in July.

8:30 am EST

• 2Q GDP is estimated to rise +2.7% versus a prior estimate of a +2.6% gain.  

• 2Q Personal Consumption is estimated to rise +3.0% versus a prior estimate of a +2.8% gain.

• The 2Q GDP Price Index is estimated to rise +1.0% versus a prior estimate of a +1.0% gain.

• 2Q Core PCE is estimated to rise +.9% versus a prior estimate of a +.9% gain.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,990,500 barrels versus a -3,327,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -1,127,500 barrels versus a -1,223,000 barrel decline the prior week. Distillate inventories are estimated to fall by -185,880 barrels versus a +28,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.7% versus a -.7% decline prior.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Eurozone CPI report, Eurozone Industrial Production report, US weekly MBA Mortgage Applications report, Morgan Stanley China TMT conference, (COST) Monthly Sales Release and the (ZUMZ) Monthly Sales Release could also impact trading today.

BOTTOM LINE:  Asian indices are higher, boosted by industrial and technology shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher.  The Portfolio is 100% net long heading into the day.