Stocks Higher into Final Hour on Global Central Bank Action/Stimulus Hopes, Short-Covering, Commodity Sector Strength, Euro Bounce

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Almost Every Sector Rising
  
• Volume: Light
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 17.46 -2.08%
  
• ISE Sentiment Index 106.0 +1.92%
  
• Total Put/Call .90 -15.09%
  
• NYSE Arms .56 -67.45%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 101.82 bps -1.08%
  
• European Financial Sector CDS Index 248.28 bps -1.4%
  
• Western Europe Sovereign Debt CDS Index 230.50 -1.33%
  
• Emerging Market CDS Index 246.65 -2.5%
  
• 2-Year Swap Spread 17.0 -.25 basis point
  
• TED Spread 33.25 +.25 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -31.75 +1.25 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .09% unch.
  
• Yield Curve 134.0 -3 basis points
  
• China Import Iron Ore Spot $89.40/Metric Tonne +.79%
  
• Citi US Economic Surprise Index -3.4 +.6 point
  
• 10-Year TIPS Spread 2.26 -4 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating +45 open in Japan
• DAX Futures: Indicating -8 open in Germany
  

Portfolio:

• Slightly Lower: On losses in my index hedges and emerging markets shorts
  
• Disclosed Trades: None
  
• Market Exposure: 25% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Growth +.37%

Sector Underperformers:

• 1) Coal -3.50% 2) Disk Drives -2.82% 3) Alt Energy -2.71%

Stocks Falling on Unusual Volume:

• ELP, CIG, FUN, IPGP, PTR, GMAN, ZUMZ, SBS, BPT, CIG, ELP, PTR, CLVS, FB, SQQQ and NS
  

Stocks With Unusual Put Option Activity:

• 1) MT 2) RCL 3) VALE 4) DIA 5) HOG
  

Stocks With Most Negative News Mentions:

• 1) SE 2) C 3) AKAM 4) PEP 5) LAYN
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value +.79%

Sector Outperformers:

• 1) Gold & Silver +2.69% 2) Steel +1.93% 3) Education +1.66%

Stocks Rising on Unusual Volume:

• OVTI, FSLR, SPLK, SAI, TKC, MCP, SRPT, FWLT, SAI and GLW
  

Stocks With Unusual Call Option Activity:

• 1) XLV 2) OVTI 3) SWKS 4) BRCD 5) SRPT
  

Stocks With Most Positive News Mentions:

• 1) LCC 2) GLW 3) LMT 4) F 5) MGM
  

Charts:

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

Friday Watch

Evening Headlines
Bloomberg:

• Hollande’s Business Policies Slammed by French Corporate Leaders. French corporate leaders criticized Socialist President Francois Hollande’s government for policies they say hurt companies already battered by a slowing economy and decades of business-unfriendly practices. “Each week, steps voted in parliament are slowing public and private actions,” Guillaume Poitrinal, chief executive officer of Unibail-Rodamco SE (UL), Europe’s largest publicly traded property owner, said yesterday at a conference organized by the French employers’ group Medef on the outskirts of Paris. “We have a frenzy of regulations. In an accelerating world, we need more flexibility for companies, more flexibility on labor, and we need quicker public action.”
• Germany Plays Bad Cop as Irish Chase Bank Debt Help: Euro Credit. Economic sovereignty is coming at a price for Ireland as borrowing costs in the bond market exceed the interest on bailout loans and Germany signals resistance to helping reduce the bill for rescuing its banks. Faced with repaying maturing bonds in 18 months, the country's debt agency last week sold 1 billion euros of amortizing bonds with a weighed yield of 5.91%. Last month, it re-entered long-term international credit markets for the first time in almost two years, selling 4.2 billion euros of bonds with an average yield of about 6%. Ireland pays about 3.8% for its bailout funds.
• Italians Squeezed by $9.50-a-Gallon Gas Face Costly Drive Home. Giovanni Cimmino filled up his Fiat Multipla in Croatia before returning to Italy after his summer holiday, avoiding Europe’s highest gasoline prices. “You need a smart strategy to save on gas,” said Cimmino, 37, who manages a metals trading company near Milan. With pump prices at a record in Italy, “I tend to use more public transportation and avoid driving when it’s not necessary.”
• Cap Bankers’ Bonuses at Their Pay Level, Schaeuble Urges in FT. Cash bonuses for European bankers should not exceed their fixed pay, German Finance Minister Wolfgang Schaeuble wrote in the Financial Times. He also urged that shareholders should have the final say on bank executives’ long-term pay awards if they exceed a given level. “A truly effective European banking supervisor” is needed to oversee the sector, enforcing “a robust single rule book,” Schaeuble wrote. The supervisor, who Schaeuble said is expected to be housed at the European Central Bank, should focus on those banks that can pose a systemic risk at a Europe-wide level, he wrote. The new oversight system must not be “just a facade,” he wrote, adding that the new supervisor must be endowed with “real and clearly defined responsibilities, coercive powers and adequate resources.”
• China’s Stocks Head for Longest Monthly Losing Streak Since 2004. China’s benchmark stock index fell, heading for a fourth month of losses, after declining earnings at companies from Citic Securities Co. (600030) to Sany Heavy Industry Co. showed the impact of the nation’s economic slowdown. Citic Securities, the nation’s biggest listed brokerage, dropped 0.4 percent and Sany Heavy sank to its lowest level since October 2010. Industrial & Commercial Bank of China Ltd., the nation’s biggest lender, slipped 0.5 percent after earnings growth slowed. Qingdao Haier Co., the largest refrigerator maker, climbed 3.7 percent after first-half profit rose. Signs that China’s economic slowdown is deepening have dragged the Shanghai Composite down 2.5 percent in August, a fourth straight month of declines. That’s the longest streak since August 2004, according to data compiled by Bloomberg. Macquarie Group Ltd. lowered China equities to neutral from overweight, citing the deteriorating outlook for banks amid a “disturbingly” widespread weakness in the economy, according to a note dated yesterday.
• China’s Growing Economic Crisis.
• Korea Industrial Production Slides as Europe Hits Exports. South Korea’s industrial production fell for a second month in July as a global slowdown undermines growth in Asia’s fourth-largest economy. Output fell 1.6 percent from June when it dropped 0.6 percent, Statistics Korea said today. The median estimate of 12 economists in a Bloomberg News survey was for a 0.9 percent decline.
  
• H.K. to Boost Home Sales, Favor Locals as Prices Surge. Hong Kong will boost the supply of homes and give preference to local buyers as it seeks to cool housing prices that have surged to the world’s most expensive, fueled by record-low interest rates and Chinese investment. Chief Executive Leung Chun-ying announced a 10-point package yesterday that included speeding up the approval of permits for private project sales, selling public units that were originally intended for rent, and drafting policies that will give preference to local buyers. The measures are the toughest since the government in June last year increased down-payment requirements, and the strongest move yet to quell concerns about a surge in non-local purchases, particularly by mainland investors that account for a third of new home buying in the city and helped drive prices up 85 percent since the beginning of 2009. The measures don’t go far enough, said Wong Leung-sing, associate research director at Centaline Property Agency Ltd.
• Buffett Railroad Sees Economy Sapping Pre-Holiday Peak: Freight. North American railroads from Warren Buffett's Burlington Northern Santa Fe to CSX Corp. are bracing for limited increases in pre-holiday shipments as weak consumer sentiment exacerbated shrinking corn and coal loads. BNSF, which moves imported Asian consumer goods from West Coast ports, hasn't seen a measurable gain in holiday-realated volumes, Chief Marketing Officer John Lanigan said this week.
  
• Crop Traders Extend Bull Run as Rain Comes Too Late: Commodities. Corn and soybean traders extended their longest bullish outlook in at least 11 months on speculation rain in the U.S. will come too late to revive crops after the worst drought in a half century. Seventeen analysts surveyed by Bloomberg said corn will climb next week. A further six were bearish and four were neutral. Twenty expect gains in soybeans, four saw a drop and four predicted little change. The 19th straight bullish outlook is the longest run for corn since September and for soybeans since June 2011. Hedge funds’ bets on a rally in corn are the most in 16 months and near the largest for soybeans since at least 2006, U.S. Commodity Futures Trading Commission data show.
• Steel Slump Sees Aussie Dropping Toward Parity: Chart of the Day. Australia's dollar may fall to parity with the greenback for the first time since June after China's stock gauge and benchmark steel prices plunged to three-year lows, adding to concern that demand for commodities such as iron ore and coal will slump. "There's a risk the Aussie will fall to $1," said Masashi Murata, a currency strategist in Tokyo at Brown Brothers Harriman & Co. "We expect China's growth to slow toward year-end, and once economic data confirms that, it'll be a selling catalyst for the Australian dollar."
• Melbourne Hasn’t Seen Worst of Housing Drop as Glut Builds. Melbourne, where home prices have fallen more than in any other major Australian city, may see further declines as a record number of new developments approved in the boom years hit the market. Home values in the capital of Victoria state lost 6.6 percent in the year ended in June, the biggest drop among the eight state capitals, according to researcher RP Data. Building work started on a record 47,293 homes in Melbourne in the 12 months ended June 2011, compared with estimated demand of 32,334, according to figures from researcher BIS Shrapnel.

Wall Street Journal:

• Romney Promises to 'Restore' U.S. Mitt Romney took the stage at the Republican National Convention at the Tampa Bay Times Forum and formally accepted the nomination to be the party's presidential candidate in a speech that sought to draw a sharp contrast between Mr. Romney and President Barack Obama.
• J.P. Morgan(JPM) Rankled by Risk. Bank Seeks to Dial Back Some Dealings With Brokerages; the Knight Aftermath. J.P. Morgan Chase & Co. is seeking to reduce its risks in a business that provides crucial plumbing for Wall Street's money flows. The nation's largest bank by assets, a major player in providing clearing and settlement services to other financial firms, is reviewing its dealings with dozens of brokerages that use the bank to settle trades, according to people familiar with the bank.
• Justice Department Closes Probe of CIA Prison Deaths. The Justice Department said Thursday it won't bring charges in the deaths of two prisoners who allegedly were interrogated by the Central Intelligence Agency, closing a chapter in a nearly decade-old debate about the CIA's counterterrorism programs. The department had already dropped most of the cases stemming from accusations that the CIA and other agencies committed abuses against detainees held by the U.S. after the Sept. 11, 2001, terrorist attacks. But Attorney General Eric Holder last year ordered a criminal investigation into two detainee deaths, one in Iraq and one in Afghanistan, saying new evidence was available. On Thursday, Mr. Holder said that remaining investigation also would be dropped. "The admissible evidence would not be sufficient to obtain and sustain a conviction beyond a reasonable doubt," he said.
• The Romney Opportunity. The times fit the man, if the politician can meet the moment.

MarketWatch:

• China manufacturing seen close to contraction. China's manufacturing activity likely registered zero growth in August, and instead teetered on the brink of contractionary territory where it hasn't been since November, signalling there is still some way ahead before for the world's second-largest economy bottoms out. The official manufacturing Purchasing Managers Index was likely 50.0 in August compared with 50.1 in July, according to the median forecast of 11 economists polled by Dow Jones Newswires.
• Cheap Chinese steel threatens Japan mills: report. Japanese steel mills are suffering as Chinese competitors ramp up production, even as prices fall, Japan's Nikkei business daily reported Friday. Steel prices have fallen sharply, with hot-rolled coil at a 19-month low, and the influx of inexpensive Chinese steel has forced some Japanese producers to take asset-impairment charges for their mills, the Nikkei said. The report cited problems for Nippon Steel Corp. JP:5401 -4.38% NISTF -14.80% and Sumitomo Metal Industries Ltd. JP:5405 -3.42% SMMLF -1.04% -- which are due to merge in October -- which plan to book a combined 240 billion yen ($3.1 billion) extraordinary charge for April-September and are expected to post losses wider than their previous outlooks.

Business Insider:

• Here's The Full Text Of Mitt Romney's Convention Speech.
• CONVENTION BOUNCE: Mitt Romney Swings 6 Points And Leads Obama In A New Poll.
• Here's The Chart That Romney Should Bludgeon Obama With.
• The Mayor Of A French Town Wants The Army Deployed To Take Down Kalashnikov-Wielding Gangs. François Hollande on Thursday faced calls from the Socialist mayor of a tough Marseille neighborhood to send in the army to tackle the city's gang warfare.

Zero Hedge:

• The Election: It's The Food-Stamps, Stupid!
• Charting The Unprecedented 'HFT-Driven' Rise In Intraday-Trading Volatility.
• "Don't Count Your Hahnchen": 40% Chance German Court Does Not Ratify ESM.

Sober Look:

• Canada's Consumer Leverage Growth Is Not Going To End Well. (graph)
  

Reuters:

• SPECIAL REPORT-China Inc's debacle in the Outback. In 2006, foreign mining giants were jacking up prices of the iron ore needed by China's voracious steel industry. At the urging of Beijing, Yung and CITIC Pacific negotiated the rights to exploit a vast deposit of low-grade ore in the red-rock landscape of Australia's remote northwest Pilbara region. The multibillion-dollar deal seemed to be a coup for China's resource-hungry economy. But Yung and Beijing are now paying a heavy price. A few kilometres down a dirt track off the North West Coastal Highway, beside a towering pile of red tailings, the company has dug itself into what increasingly looks like a bottomless pit. The original $2.47 billion budget for the massive open-cut mine and processing complex has blown out to $8 billion and it is more than two years behind schedule. Senior company managers won't rule out a $10 billion price tag for one of China's flagship offshore resource investments. "It has the potential to be a company killer, that's for sure," says Clinton Dines, a former president of mining giant BHP Billiton in China.
• Japan July industrial output falls, warning signs grow. Japan's industrial output unexpectedly fell in July as a slowdown in exports to China and Europe led electronics and semiconductor markers to trim output in a troubling sign that Japan's broad economy is weakening. The 1.2 percent decline in output in July compares with a median estimate for a 1.7 percent increase, according to a Reuters poll and follows a 0.4 percent gain in June. In a further sign of trouble ahead, the purchasing managers index for August showed manufacturing activity languished at the lowest level since last year's earthquake as domestic and external demand suffer.Manufacturers said they expect output to rise only modestly in August and then fall again in September, which could increase the chance that the economy will contract in the third quarter. "Exports to China and the European Union have been decreasing, so electronics parts makers are cutting back on production to adjust inventories," said Seiji Adachi, senior economist at Deutsche Securities.
• Japan eyes suspending state spending as money runs out.
• EPA raises fines on non-compliant Navistar(NAV) engines. U.S. environmental regulators on Thursday almost doubled the fines that truck maker Navistar International Corp has to pay for each engine that does not comply with emissions rules, according to a ruling provided by the company. The penalties, of up to $3,775 per non-compliant engine, mark a near-doubling from the $1,919 fines Navistar had been paying for each engine that does not meet current emissions standards.
• Moody's review of Spain's Baa3 rating to continue until end of Sept.

Telegraph:

• Financial crisis: the printing press has reached its limits. Central bankers may have averted outright disaster, but they are powerless to do more.
• China’s fears grow over eurozone crisis. China has expressed deep alarm at the escalating crisis in Europe and warned against austerity overkill as Europe's crumbling demand sends shock waves through Asia.

Sydney Morning Herald:

• Iron-Ore Optimism May Just Be Wishful Thinking. FORTESCUE Metals chief executive Nev Power yesterday insisted that a startling slide in iron ore prices from $US134 a tonne at the end of June to $US117 a tonne at the end of July and $US90.30 a tonne yesterday was an aberration. Quite a lot is hanging on whether he is right or wrong. Australian iron ore exports rose from $58.5 billion to $63 billion in the year to June 30, when the iron ore spot prices averaged $150 a tonne. The spot price is now 40 per cent lower after falling by 10 per cent in just two days, and the descent will translate to a $25 billion-plus export revenue loss if it is not reversed. The hit if sustained will undermine Australia's trade balance, savage federal government tax revenue, and make the argument that Australia's resources boom still has strong long-term foundations harder to sustain.

China Securities Journal:

• China's 2,453 publicly traded companies' combined 1H average EPS fell 28% y/y to .1749 yuan, citing the newspaper's own statistics. 1H combined inventory rose 18.6% y/y to 4.67t yuan, according to the report.

Evening Recommendations
Wells Fargo:

• Rated (GRMN) Outperform.

Night Trading

• Asian equity indices are -1.0% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 158.0 +6.5 basis points.
• Asia Pacific Sovereign CDS Index 127.50 unch.
  
• FTSE-100 futures -.17%.
  
• S&P 500 futures +.09%.
  
• NASDAQ 100 futures +.11%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note
  

Economic Releases
9:45 am EST

• Chicago Purchasing Manager for August is estimated to fall to 53.2 versus 53.7 in July.

9:55 am EST

• Final Univ. of Michigan Consumer Confidence for August is estimated at 73.6 versus a prior estimate of 73.6.
  

10:00 am EST

• Factory Orders for July are estimated to rise +2.0% versus a -.5% decline in June.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Bernanke speaking, Eurozone Unemployment Rate, China PMI and the NAPM- Milwaukee report for August 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 25% net long heading into the day.

Stocks Falling into Final Hour on Surging Eurozone Debt Angst, Rising Global Growth Fears, Tech/Commodity Sector Weakness, Technical Selling

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Almost Every Sector Declining
  
• Volume: Light
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 17.62 +3.28%
  
• ISE Sentiment Index 101.0 -15.83%
  
• Total Put/Call 1.09 +15.83%
  
• NYSE Arms 1.45 +25.42%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 102.30 bps +1.36%
  
• European Financial Sector CDS Index 251.75 bps +3.07%
  
• Western Europe Sovereign Debt CDS Index 233.13 +.39%
  
• Emerging Market CDS Index 251.05 +1.03%
  
• 2-Year Swap Spread 17.25 -.25 basis point
  
• TED Spread 33.0 +.5 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -33.0 -2.5 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .09% -1 basis point
  
• Yield Curve 137.0 -1 basis points
  
• China Import Iron Ore Spot $88.70/Metric Tonne -1.77%
  
• Citi US Economic Surprise Index -4.00 -.1 point
  
• 10-Year TIPS Spread 2.27 -4 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating -40 open in Japan
• DAX Futures: Indicating +9 open in Germany
  

Portfolio:

• Slightly Lower: On losses in my Tech sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short
  
• Market Exposure: Moved to 25% Net Long

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades lower on surging eurozone debt angst, high food/energy prices, US "fiscal cliff" worries and rising global growth fears. On the positive side, Education, Homebuilding and Airline shares are flat on the day. Lumber is rising +.5% and Oil is falling -.2%. On the negative side, Coal, Alt Energy, Ag, Road& Rail, Oil Tanker, Oil Service, Computer, Semi, Disk Drive and Networking shares are especially weak, falling more than -1.25%. Tech shares have traded poorly throughout the day. The 10Y Yld is falling -2 bps to 1.63%. Major Asian indices were lower overnight, led down by a -1.2% decline in Hong Kong(-2.9% in 5 days). The Shanghai Comp was down -.03%, but is down -6.7% ytd, -18.0% over the last 12 months and just off the lowest level since March 2009, which remains a large red flag for the global economy. I continue to believe that China’s large overcapacity, partly as a result of the last stimulus program, will preclude another major stimulus as it would exacerbate an already growing bad loan problem. Major European indices were lower today, led down by a -1.6% decline in Germany. The Bloomberg European Bank/Financial Services Index fell -1.3%. The Germany sovereign cds is surging +7.5% to 63.15 bps, the France sovereign cds is jumping +3.4% to 140.72 bps, the Spain sovereign cds is gaining +3.7% to 510.4 bps(+5.2% in 5 days), the Italy sovereign cds is rising +2.4% to 466.82 bps(+7.5% in 5 days) and the UK sovereign cds is gaining +2.4% to 54.65 bps. Moreover, the European Investment Grade CDS Index is rising +4.0% to 151.88 bps and the Spain 10Y Yld is rising +2.0% to 6.59%. The UBS/Bloomberg Ag Spot Index is up +27.0% since 6/1. The benchmark China Iron/Ore Spot Index is down -51.0% since 9/7/11. The China Hot Rolled Steel Sheet Spot Index is also picking up downside steam. As well, despite their recent bounces off the lows, the euro, copper and lumber all continue to trade poorly given equity investor perceptions that the Eurozone has successfully kicked-the-can and global central bank stimuli will boost economic growth in the near future.

Today's Headlines

Bloomberg:

• Rajoy Delays Spain Bailout as Regions Line Up for Aid. Prime Minister Mariano Rajoy delayed seeking a second rescue for Spain while pledging to continue bailing out its regions as Valencia requested more money to settle bills and cover debt. Rajoy spoke today following a meeting in Madrid with French President Francois Hollande. Catalonia, Valencia and Murcia this week claimed more than half of an 18 billion-euro ($23 billion) fund announced by Rajoy last month to help the regions face bond redemptions and finance their deficits in the second half. A Valencia official who declined to be identified in line with government policy said the region will seek another 1 billion euros from the central government mostly to pay education and health bills. The country’s regions risk overwhelming a plan to tackle the euro area’s third-biggest budget deficit. They were responsible last year for most of Spain’s overspending, which remained nearly unchanged from 2010 at 8.9 percent of gross domestic product. Rajoy reiterated Spain won’t seek a second bailout until European leaders make aid conditions clear.
• German Unemployment Rises for a Fifth Month Amid Crisis. German unemployment increased for a fifth straight month in August as the European debt crisis curbed demand for exports and companies held back investment. The number of people without a job increased a seasonally adjusted 9,000 to 2.90 million, the Federal Labor Agency in Nuremberg said today. Economists forecast a gain of 7,000, the median of 31 estimates in a Bloomberg News survey shows.
  
• Greece Must Complete Cuts Package in the Next Week, ANA Reports. Greece’s government must settle on an 11.5 billion-euro ($14.4 billion) package of austerity measures by Sept. 6, as the troika of inspectors representing its international creditors will arrive in Athens Sept. 7, state-run Athens News Agency reported, without citing anyone. The government’s austerity package for 2013 and 2014 may include cutting Christmas and Easter bonuses for pensioners, abolishing seasonal unemployment benefits for as many as 160,000 employees, cutting wages in state-run companies and reducing subsidies for local governments and state investment projects, the news agency said.
• Emerging Market Puts Decline to Cheapest Level in Year: Options. The cost of options protecting against losses in emerging-market stocks has fallen to the lowest level in a year amid speculation the shares will rally as global central banks support economic growth. Puts that profit should the iShares MSCI Emerging Markets Index decline 10% cost 9.6 points more than calls betting on a 10% gain, according to data on two-month options compiled by Blomberg.
  
• Emerging-Market Stocks Fall for Fifth Day on Slowdown Concern. Emerging-market stocks dropped for a fifth day, the longest declining streak in seven weeks, as losses at Chinese shipping companies and rising unemployment in Germany fueled concern that the economic slowdown is deepening. The MSCI Emerging Markets Index (MXEF) fell 0.9 percent to 944.52 by 11:10 a.m. in New York, heading for the lowest level on a closing basis since July 27. China Shipping Container Lines Co. tumbled 11 percent, the most in the MSCI index. OAO Mosenergo, the Moscow-based power generator controlled by OAO Gazprom, slumped 2.3 percent. Brazil’s Bovespa stock index slid for a second day, led by losses for state electricity utility company Cia. Energetica de Sao Paulo.
• ICBC’s Profit Growth Slows as Overdue Loans Rise for China Banks. Industrial & Commercial Bank of China Ltd. led the nation’s biggest lenders in posting slower profit growth as a sluggish economy curtailed demand for financial services and more borrowers defaulted on debt. Overdue loans rose at the five banks as the economy decelerated for a sixth quarter, and China’s liberalization of interest rates threatens to squeeze margins in the second half. “Credit quality of Chinese banks has obviously deteriorated, which is a reflection of the significant decline in the economy,” said Lewis Wan, the Hong Kong-based chief investment officer at Pride Investment Group Ltd., which manages $300 million of assets. “The profit growth will certainly stall some more as lending margins shrink and fee income slows.”
• Copper Demand in China Seen Growing at Slowest Pace in 15 Years. Copper consumption in China, the world’s biggest user, is expected to expand this year at the slowest rate since 1997 as economic growth cools, according to Beijing Antaike Information Development Co. Usage may increase 5 percent to about 7.7 million metric tons supported by demand from the power industry, Yang Changhua, who’s studied the market for more than a decade, said in a phone interview from Beijing. “It could turn out to be even lower, and we’re not optimistic about next year,” Yang said yesterday. “This time is different from 2008,” said Yang. Growth in copper demand “reached almost 10 percent as Beijing’s stimulus package boosted infrastructure construction then, but now even if there are stimulus policies, the potential for further growth is relatively small.”
• Jobless Claims in U.S. Unchanged Last Week at One-Month High. More Americans than forecast filed applications for unemployment benefits last week, a sign that progress in the labor market is faltering amid a slowing economy. Jobless claims were little changed at 374,000 in the week ended Aug. 25, matching the upwardly revised figure from the prior week, the Labor Department reported today in Washington. The median forecast of 50 economists surveyed by Bloomberg News called for 370,000. The four-week moving average, a less volatile measure, climbed to a six-week high.
• Americans Boost Spending For First Time In Three Months. Americans stepped up spending in July for the first time in three months as an increase in incomes helped make up for a jobless rate stuck above 8 percent. Purchases increased 0.4 percent after being little changed in June, Commerce Department figures showed today in Washington.
• Consumer Comfort in U.S. Hovered Last Week Near Seven-Month Low. Consumer confidence in the U.S. held close to a seven-month low last week as Americans’ view of the buying climate fell to the lowest level of the year. The Bloomberg Consumer Comfort Index was little changed at minus 47.3 in the period ended Aug. 26, from the prior week’s minus 47.4 reading that was the weakest since mid-January. The gain halted a six-week decline that was the longest since 2008, when the U.S. was in a recession. Unemployment stuck above 8 percent may encourage consumers to keep rebuilding savings rather than boost spending, which accounts for about 70 percent of the economy. Gasoline prices, which are projected to be the highest on record for a Labor Day holiday, are another source of discomfort for Americans. “Strained household balance sheets, a soggy economy and a sluggish labor market are the probable causes behind the sharply negative view,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “Based on the deterioration among different demographic groups and the decline in economic expectations, household spending is likely to remain on a sub 2 percent track for the remainder of this year.”
• Ciena(CIEN) Tumbles on Wider Losses, Weak Economy. Ciena Corp. (CIEN), a maker of communications-network equipment, tumbled the most in more than a year after reporting a wider-than-projected loss and forecasting lower revenue than analysts had estimated. The economy is taking a toll, and Ciena has been slow to book revenue on new products, Chief Executive Officer Gary Smith said. “We are experiencing the effects of ongoing macroeconomic challenges and slower-than-expected rollouts of new design wins,” Smith said in a statement. Ciena shares (CIEN) fell 13 percent to $14.53 at 9:48 a.m. in New York. The stock, up 38 percent this year through yesterday, dropped as low as 14 percent earlier in today’s session, marking the biggest intraday decline since June 2011.
• China Armed Forces to Safeguard Disputed Territory, Xinhua Says. China’s armed forces are capable of protecting the country’s maritime rights including islands claimed by both China and Japan, the Xinhua News Agency reported, citing Defense Ministry spokesman Geng Yansheng. Any action by Japan cannot change China’s claim over the islands, Geng said according to Xinhua. The islands are known as the Diaoyu in Chinese and the Senkaku in Japanese.
• SEC Proposal Could Lead To Hedge Fund Advertising. Hedge funds may go from soliciting individual investors behind closed doors to conducting wide advertising campaigns without restriction under a rule proposed yesterday by the U.S. Securities and Exchange Commission. SEC commissioners voted 4-1 to invite public comment on a proposal for how to end decades of limits on the pursuit of investors by private funds and startups. The shift drew criticism from investor-protection groups and the mutual-fund industry, including the Washington-based Investment Company Institute, which have said that lifting the ban without restrictions may expose investors to misleading advertisements by some private funds.
• Obama Second Term Would Defy Confidence Measure. A second term for Barack Obama would make him the first president in more than 40 years to win with an electorate that has such a sour outlook on the economy. The BGOV Barometer shows that the Conference Board’s consumer confidence measure has accurately signaled the result of the re-election bids of the last seven presidents, starting with Richard M. Nixon’s 1972 campaign. The incumbent president has won in years when the monthly confidence number averages above 95, bad news for Obama with the indicator averaging 66 so far in 2012. “People are anxious, and from the standpoint of the public, they have a limited store of options,” Bruce Buchanan, a political scientist at the University of Texas-Austin who studies voter behavior in presidential elections, said in a telephone interview. “All they can do if they’re unhappy with the direction of economic events and growth and prosperity and such is change horses.”
• WPP Cuts Full-Year Sales Forecast on Client Spending. WPP Plc (WPP), the world’s biggest advertising agency, cut its full-year sales growth forecast as clients in North America and continental Europe reduced spending. The stock dropped the most since October 2011.
• Roach Says Bernanke Shouldn’t Be Reappointed as Fed Chief: Keene. Yale University professor Stephen Roach said Federal Reserve Chairman Ben S. Bernanke shouldn’t be given a third term because of his role in managing the U.S. economy before the financial crisis. “I think Bernanke tried his best post-crisis, but he’s part of the problem pre-crisis,” Roach said on Bloomberg Radio’s “Bloomberg Surveillance” with Ken Prewitt and Tom Keene today. “He and Alan Greenspan condoned asset bubbles at a time the economy needed more discipline.”

Wall Street Journal:

• 'The Economy Stole My Retirement'. Retirements in Peril for Entrepreneurs in Their 60s and 70s Who Can't Sell Their Companies.
• Isaac Floodwaters Still a Threat.
• The Ryan Difference. Romney's veep choice has lifted his campaign.

Barron's:

• Sears(SHLD) To Exit S&P 500, Replaced By LyondellBasell(LYB).

CNBC.com:

• French PM: 75% Tax Will Not Define Government. France’s Prime Minister has told CNBC that his government will work hard with businesses to avoid major job losses and dismissed claims that his government is anti-business and driving away investment with a 75 percent tax on high earners.

Business Insider:

• UBS: Everyone Is Ignoring A Sign Of US Economic Decline We Haven't Seen In 60 Years. (graphs)
• The Basic Arithmetic Behind Investors' Biggest Fear In Europe.

Zero Hedge:

• The Kangaroo In The Metals Mine: Fortescue Trying To Raise $1.5 Billion From 20 Banks As Iron Prices Implode.
• The Unintended 'Chronic' Consequence Of ECB Bond Buying.
• More European Dis-Union: Finland Rejects Pooled Funds Required For 'Banking Union'.
• Record EUR 'Longs' Suggest Caution Into Next Week. (graph)
  

Foreign Policy:

• Everything You Think You Know About China Is Wrong. Are we obsessing about its rise when we should be worried about its fall? For the last 40 years, Americans have lagged in recognizing the declining fortunes of their foreign rivals. In the 1970s they thought the Soviet Union was 10 feet tall -- ascendant even though corruption and inefficiency were destroying the vital organs of a decaying communist regime. In the late 1980s, they feared that Japan was going to economically overtake the United States, yet the crony capitalism, speculative madness, and political corruption evident throughout the 1980s led to the collapse of the Japanese economy in 1991. Could the same malady have struck Americans when it comes to China? The latest news from Beijing is indicative of Chinese weakness: a persistent slowdown of economic growth, a glut of unsold goods, rising bad bank loans, a bursting real estate bubble, and a vicious power struggle at the top, coupled with unending political scandals. Many factors that have powered China's rise, such as the demographic dividend, disregard for the environment, supercheap labor, and virtually unlimited access to external markets, are either receding or disappearing.

Reuters:

• Iron ore hits lowest in nearly 3 yrs; miners' shares tumble. Iron ore prices fell to their lowest levels since 2009 on Thursday, dragging down shares in miners including top producers of the steelmaking ingredient, Rio Tinto and BHP Billiton , as a slowdown in top consumer China threatened to further sap demand. Benchmark iron ore with 62 percent iron content slid nearly 2 percent to $88.70 per tonne on Thursday, according to data provider Steel Index, the lowest since October 2009, although recorded spot prices fell as low as $59 in early 2009. The iron ore price has dropped by a third, or almost $50 per tonne, since July, as Chinese steel producers shun cargoes and the appetite of the world's largest consumer cools. Prices could fall up to 30 percent more, with no sign consumption will rebound anytime soon, analysts and traders said. "It's possible for prices to fall to as low as $65 to $70 in the spot market, before a recovery back to the $80 to $90 range," said Fairfax I.S. analyst John Meyer, adding that the price slide could continue for the next one to two months. Iron ore is a leading economic indicator as it highlights demand in key industrial sectors such as construction and carmaking. Many traders are currently trying to liquidate their iron ore cargoes with little success, a further sign that a rebound is not on the cards in the short term. "Not only is a recovery in the near term unlikely, there is also no sign that the fall will stop," a UK-based iron ore trader said. "Looking at the cost curve these prices make no sense but there are no signs at all of an improvement in demand. The further traders wait the more they lose and waiting for a recovery is a big risk to take." A second trader said he was getting "no interest whatsoever" for an iron ore cargo he was offering. A movement of the iron ore swaps forward curve on Thursday also indicated the market has lost faith in a price recovery in the near term. Swaps tied to iron ore deliveries for the firt quarter next year traded above swaps for the last quarter this year, showing players think a rebound is unlikely until 2013. The iron ore market will remain under pressure until the steel sector recovers and this will not be a quick process, analysts said. "With sluggish manufacturing activity in Europe and a construction market that's struggling to pick up in China, demand for steel has dropped sharply with no quick fix in sight," said Metal Bulletin research steel analyst Kashaan Kamal. Chinese steelmakers said the sector, nourished by a decade of breakneck growth, needs to brace itself for weak demand and razor-thin margins over the next 3-5 years that will force inefficient mills to shut."The speed in the fall of the iron ore price is alarming. I don't think many people expected it to be sub $100 and to see it go below $90 is eye-opening to say the least," analyst Asa Bridle at Seymour Pierce said.
• Hedge funds bet France is more peripheral than core. Hedge funds are going against market consensus and betting that ultra-low French government bond yields are unsustainable, believing a sluggish economy and the new government's policies will eventually force up borrowing costs. Many macro funds now think the yields, which have collapsed this year, cannot remain around the lowest levels seen for more than 20 years. France's economy, after all, is teetering on the brink of recession. The funds, which are often at the leading edge when it comes to future market moves, are also sceptical about the policies of French President Francois Hollande, who was elected in May. These include raising taxes on the rich and cutting the pension age to 60 for some workers, risking a reduction in tax revenues, increasing pressure on France's welfare system and hitting its credit rating. "The market seems to be looking at France as a safe haven, yet we very much believe that French yields should be converging towards Italian and Spanish yields rather than to those pertaining to Germany," said Pedro de Noronha, managing partner at London-based Noster Capital.
• Retailers fare well in August, sales beat estimates. n">Nearly all U.S. retailers posted better-than-expected sales gains in August at stores open at least a year as parents and students wrapped up back-to-school purchases, setting the stage for a strong third quarter. August same-store sales rose 3.6 percent at retailers tracked by Thomson Reuters I/B/E/S, trumping forecasts for a 2 percent rise.
• Iran doubles underground nuclear capacity -UN agency. Iran has doubled the number of uranium enrichment centrifuges it has in an underground bunker, a U.N. report said on Thursday, showing Tehran continued to develop its nuclear programme despite Western pressure and the threat of an Israeli attack.
• Brazil banks put the brakes on lending as defaults rise. Brazil's banks abruptly slowed the pace of loan disbursements in July as caution took center stage among private sector lenders seeking to protect earnings from near record delinquencies and a drop in borrowing costs. Outstanding loans in the nation's banking system rose 0.7 percent to 2.183 trillion reais ($1.06 trillion) in July from June, the slowest pace of credit expansion on a monthly basis since February, the central bank said in a report on Thursday. In the 12 months ended in July, credit grew 17.7 percent, the slowest since April 2010.
• World food prices jumped 10 percent in July - World Bank. World food prices jumped 10 percent in July as drought parched crop lands in the United States and Eastern Europe, the World Bank said in a statement urging governments to shore up programs that protect their most vulnerable populations.
• Slovak PM: chance of euro zone collapse 50-50. Euro zone member Slovakia sees a 50-50 chance of the currency bloc breaking up, Prime Minister Robert Fico said on Thursday, ahead of a series of meetings of leading officials next month that may prove decisive for the future of the 17-member club. "I am worried about a euro zone collapse, of course," Fico told a televised news conference. "It will depend on how we handle the situation in some countries like Greece and Spain. It also depends on how individual euro zone countries react to documents that concern strengthening European integration... I see a euro zone breakup as realistic as holding together, 50 to 50."

Telegraph:

• Credit card lending falls at sharpest rate since 2006. Credit card lending fell at its sharpest rate in six years in July, according to the Bank of England, dampening hopes that consumers might help lead the country out of recession.

The Guardian:

• Correspondence and collusion between the New York Times and the CIA. Mark Mazzetti's emails with the CIA expose the degradation of journalism that has lost the imperative to be a check to power. Judicial Watch, released Tuesday a new batch of documents showing how eagerly the Obama administration shoveled information to Hollywood film-makers about the Bin Laden raid. Obama officials did so to enable the production of a politically beneficial pre-election film about that "heroic" killing, even as administration lawyers insisted to federal courts and media outlets that no disclosure was permissible because the raid was classified. Thanks to prior disclosures from Judicial Watch of documents it obtained under the Freedom of Information Act, this is old news. That's what the Obama administration chronically does: it manipulates secrecy powers to prevent accountability in a court of law, while leaking at will about the same programs in order to glorify the president. But what is news in this disclosure are the newly released emails between Mark Mazzetti, the New York Times's national security and intelligence reporter, and CIA spokeswoman Marie Harf.

Public Service Europe:

• Eurozone Crisis Drives Concerns About Global Economy. The eurozone crisis continues to act as a drag on growth in emerging economies as well as leaving countries in central and eastern Europe open to the harmful impact of further shocks, according to Moody's rating agency. Meanwhile European Central Bank president Mario Draghi has said that the euro's institutional weaknesses should be solved through gradual progress towards full economic and monetary union – and that there is no need for an all or nothing move towards a United States of Europe. In a new report, Moody's said growth in emerging market economies such as China, India and Brazil would be slower than previously expected because the downside risks to the recovery had increased. It predicted growth in these countries of 5.2 per cent this year, down from an earlier estimate of 5.8 per cent. In a separate report Moody's said that countries in central and eastern Europe could also be hit by the impact of the eurozone crisis. European Union member states in eastern Europe that are not part of the single currency have "high average sensitivity and would be significantly affected by further euro area development", it warned.

China News Service:

• Chinese Premier Wen Jiabao said the international financial crisis and Euro debt problems are having an increasing impact on the world, citing Wen.
• Chinese Premier Wen Jiabao said the first concern is whether Greece will leave the euro zone and the second is whether Italy and Spain will take comprehensive rescue measures, according to a pool report of Wen's meeting with Germany's Angela Merkel. The European debt crisis has continued to worsen, Wen said. Italy, Greece and Spain must increase their determination for reform, he said.